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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
               /X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
             / /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
      FOR THE TRANSITION PERIOD FROM                  TO
                         COMMISSION FILE NUMBER 1-13286
                            ------------------------
 
                        DUFF & PHELPS CREDIT RATING CO.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                           <C>
                  ILLINOIS                                     36-3569514
      (State or other jurisdiction of             (I.R.S. Employer Identification No.)
       incorporation or organization)
 
           55 EAST MONROE STREET                                 60603
             CHICAGO, ILLINOIS                                 (Zip Code)
  (Address of principal executive offices)
</TABLE>
 
       Registrant's telephone number, including area code: (312) 368-3100
                            ------------------------
 
          Securities registered pursuant to Section 12(b) of the Act:
 
<TABLE>
<S>                                                 <C>
               TITLE OF EACH CLASS                       NAME OF EACH EXCHANGE ON WHICH
--------------------------------------------------                 REGISTERED
                                                    ----------------------------------------
         COMMON STOCK, WITHOUT PAR VALUE                    NEW YORK STOCK EXCHANGE
</TABLE>
 
          Securities registered pursuant to Section 12(g) of the Act:
 
                                      None
 
    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No __
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
 
    The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 21, 1997, computed by reference to the last reported
price at which the stock was sold on such date, was $127,244,843.
 
    The number of shares outstanding of the registrant's common stock, without
par value, as of March 21, 1997 was 5,084,416.
 
<TABLE>
<S>                                             <C>
     PORTIONS OF THE FOLLOWING DOCUMENTS           PART OF THIS FORM 10-K INTO WHICH THE
 ARE INCORPORATED BY REFERENCE INTO THIS FORM                     DOCUMENT
                    10-K:                              IS INCORPORATED BY REFERENCE:
 
       Duff & Phelps Credit Rating Co.                            Part III
     Proxy Statement dated March 28, 1997
</TABLE>
 
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<PAGE>
                                     PART I
 
ITEM 1. BUSINESS.
 
GENERAL
 
    Duff & Phelps Credit Rating Co. ("Credit Rating" or the "Company") is a
nationally recognized credit rating agency. Credit Rating was incorporated in
Illinois in 1987 as a wholly-owned subsidiary of Duff & Phelps Corporation, at
which time Duff & Phelps Corporation contributed substantially all of the assets
and liabilities of its credit rating business to Credit Rating. On October 31,
1994, Duff & Phelps Corporation distributed to its stockholders all of the
outstanding shares of common stock of Credit Rating. The dividend of one share
of common stock of Credit Rating for each three shares of Duff & Phelps
Corporation common stock was distributed to the stockholders of Duff & Phelps
Corporation of record as of October 26, 1994. As a result of the distribution,
Credit Rating owns and operates the credit rating business as an independent
public company.
 
PRODUCTS AND SERVICES
 
    Credit Rating predominantly issues credit ratings on domestic and
international corporate bonds, preferred stocks, commercial paper, certificates
of deposit, structured financings and insurance company claims paying ability.
Credit Rating does not issue a significant volume of credit ratings on municipal
securities. Credit ratings typically are issued for a fee paid by the issuer,
and are published for access by investors, issuers, investment bankers, traders
and the general public. Credit ratings concern only credit quality and are not
recommendations to either buy or sell rated securities, certificates of deposit
or insurance policies.
 
    Credit ratings are issued in response to requests from issuers or investment
bankers. Requested ratings are for corporate short and long-term fixed
obligations and structured finance programs, including securitizations of
receivables such as auto loans and credit cards, pools of residential real
estate loans and pools of commercial real estate loans, as well as single
project financings. In addition, claims paying ability ratings are issued for
life, property/casualty, financial guaranty and title insurance companies.
 
    Credit Rating's professional staff analyzes the factors which determine an
issuer's credit quality and summarizes the basis for ratings. Credit ratings are
assigned and reviewed by a Credit Rating Committee composed of senior Credit
Rating officers and managers. Ratings are monitored and reviewed at appropriate
intervals depending on the type of rating. A watch list is utilized to alert
clients to ratings that are under review for potential rating changes. New
ratings, the watch list, and changes to existing ratings are primarily
communicated through news releases to financial news services, the print media,
and through Credit Rating's research publications.
 
    Credit Rating's research services include published reports concerning new
issues, detailed and summary reports on issuers, rating guides, comparative
statistical guides, and industry research. In addition, Credit Rating's research
is delivered to users electronically. Credit Rating is committed to a strong
research service as evidenced by a policy of hiring analysts with excellent
educational backgrounds, including many with prior employment experience in the
respective industries they follow. Credit Rating's research service is widely
distributed to domestic and international institutional investors including most
of the largest United States mutual funds, banks, trust companies, public and
private pension advisors and life and property/casualty insurance companies, as
well as investment banks. Credit Rating management believes that its policy of
allowing research subscribers direct access to credit analysts is attractive to
current and prospective subscribers.
 
REVENUES
 
    Revenue is derived from fees for ratings in connection with debt issuance,
annual surveillance of outstanding rated securities, and research subscriptions.
Although revenue is sensitive to the level of debt
 
                                       2
<PAGE>
issuance, fees from annual surveillance and research subscriptions tend to
stabilize the revenue base. Credit Rating's fee schedule depends upon the type
and amount of securities issued, the type of company or issue rated, the
complexity of the transaction, and the types of services subscribed to for
research publications. Over the past five years, revenues increased from $18.3
million in 1991 to $53.1 million in 1996, a compound annual growth rate of
approximately 24 percent. This performance reflects a number of factors:
increased market penetration by Credit Rating in the traditional corporate
rating business, expansion of Credit Rating's structured finance business into
new rating sectors, the expansion of international rating activities and the
January 1994 transfer of the fixed income research business from Credit Rating's
former parent. No single client represented more than 2.5 percent of Credit
Rating's revenues in 1996.
 
    Revenues for the year ended December 31, 1996, were $53.1 million, an
increase of 15 percent or $7.1 million, over the $46.0 million recorded in 1995.
Corporate rating fees rose 13 percent or $3.2 million while structured finance
rating fees increased 29 percent or $4.6 million. Rating revenue increases were
partially offset by a decline in fixed income research revenues of $0.7 million.
 
    Revenues for the year ended December 31, 1995, were $46.0 million, an
increase of 14 percent or $5.6 million, over the $40.4 million recorded in 1994.
Corporate rating fees rose $5.8 million while structured finance rating fees
increased $0.4 million. Rating revenue increases were partially offset by a
decline in fixed income research revenues of $0.6 million.
 
MARKETING
 
    Credit Rating's marketing staff introduces the rating service to prospective
clients, and markets Credit Rating's research services to institutional
investors, investment bankers, and other key users of credit ratings. Management
of Credit Rating believes that the breadth of its research client base has led
issuers to recognize the value of its rating services to purchasers of
securities rated by Credit Rating. Credit Rating provides a comprehensive
service that includes publicity for the ratings and rating rationale for each
issuer. Credit Rating also conducts seminars and publishes timely articles
related to securities analysis.
 
COMPETITION
 
    Credit Rating competes primarily with five other nationally recognized
credit rating agencies. Moody's Investors Service, Inc. and Standard & Poor's
dominate the market and are much larger than Credit Rating. Since multiple
agencies are increasingly used for ratings in the domestic and international
markets, Credit Rating management believes that significant growth opportunities
exist in the credit ratings market. In addition, more international issuers now
have the ability to access the capital markets of the United States for
financing than in the past. Further, Credit Rating penetrates the international
market through strategic joint ventures and its London and Hong Kong offices.
 
    Structured finance ratings are transaction specific, and while growth of
related rating revenue has been substantial, there remains the potential for
further growth reflecting continued development of the structured finance
markets. As part of its marketing efforts, Credit Rating attempts to identify
new product areas or financial services not fully covered by other rating
agencies. This strategy has allowed Credit Rating to gain significant market
penetration in rating domestic and international structured real estate
financings. Moreover, the London and Hong Kong offices primarily reflect
perceived opportunities for Credit Rating to continue to penetrate the
structured finance rating market and to pursue rating opportunities in the
corporate market in Europe and in Asia.
 
    While precise statistics are not available on industry revenues as each of
Credit Rating's competitors are privately owned or are part of larger
corporations, Credit Rating estimates its comparable 1996 revenues to be equal
to approximately 15 percent of the revenues of its largest competitor. Credit
Rating's market penetration in the United States, however, is believed to vary
significantly depending on market sector. For example, Credit Rating has an
inconsequential share of the municipal and mutual fund rating
 
                                       3
<PAGE>
market as historically it has not actively competed in this segment. However,
Credit Rating believes its share of the rating business for insurance company
claims paying ability, structured financing, and certain segments of the
corporate market is much more meaningful. Specifically, in the United States
market, Credit Rating has issued claims paying ability ratings on 82 percent of
the 100 largest life insurance companies. Credit Rating rates approximately 70
percent of the companies comprising the investor-owned electric utility industry
and 75 percent of the largest telephone companies. Of banks and finance
companies, Credit Rating rates 80 percent and 66 percent, respectively, of the
50 largest companies. Credit Rating also rates 47 percent of Fortune 100
industrial companies.
 
    Credit Rating believes that significant growth opportunities continue to
exist for the following reasons: (1) generally low market penetration; (2) the
growing use of multiple agencies for ratings; (3) the increasing number of new
financial instruments which require ratings; and (4) the growth of international
financial markets. Moreover, as part of its strategy to grow, Credit Rating has
established joint ventures with partners in certain North and South American and
Asian countries and South Africa (see "-- International") and has offices in
London and Hong Kong.
 
INTERNATIONAL
 
    Credit Rating has entered into joint venture agreements with credit rating
agencies in Argentina, Brazil, Canada, Chile, Colombia, India, Mexico, Peru,
South Africa and Venezuela as of December 31, 1996 and is pursuing joint venture
relationships in several Asian and European countries. Additionally, Credit
Rating maintains its designation as a rating agency in Japan, which was granted
in October 1992 by the Minister of Finance of Japan.
 
    In July 1994, Credit Rating organized Duff & Phelps Credit Rating Co. of
Europe, a U.S. wholly-owned subsidiary with an office in London, to enter the
market for rating structured financings and to provide other rating services in
the United Kingdom and throughout Europe.
 
    In July 1996, Credit Rating organized Duff & Phelps Credit Rating Co. of
Asia, a U.S. wholly-owned subsidiary with an office in Hong Kong, to enter the
market for rating structured financings and to provide other rating services in
Hong Kong and throughout Asia.
 
EMPLOYEES
 
    As of December 31, 1996, Credit Rating employed approximately 240 persons.
Credit Rating considers its employee relations to be satisfactory.
 
EXECUTIVE OFFICERS OF CREDIT RATING
 
    The executive officers of Credit Rating are as follows:
 
<TABLE>
<CAPTION>
                 NAME                       AGE                                    POSITION
--------------------------------------      ---      --------------------------------------------------------------------
<S>                                     <C>          <C>
Paul J. McCarthy......................          58   Chairman of the Board, Chief Executive Officer, Chief Financial
                                                     Officer and Director
 
Philip T. Maffei......................          53   President, Chief Operating Officer and Director
 
Ernest T. Elsner......................          56   Executive Vice President and General Counsel
 
Peter J. Stahl........................          47   Executive Vice President
 
Larry A. Brossman.....................          63   Executive Vice President
</TABLE>
 
    The executive officers of Credit Rating are elected annually and serve at
the discretion of the Board of Directors of Credit Rating.
 
                                       4
<PAGE>
    Mr. McCarthy has been Chairman of the Board of Credit Rating since December
1995 and Chief Executive Officer and a Director of Credit Rating since February
1991. He has also been Chief Financial Officer of Credit Rating since November
1994. Mr. McCarthy was also President of Credit Rating from February 1991 to
December 1995. Mr. McCarthy was also an Executive Vice President and a Director
of Duff & Phelps Corporation from January 1992 to November 1994 and an Executive
Vice President and a Director of Duff & Phelps Inc. from February 1991 until its
dissolution in November 1992. From May 1975 to February 1991, he served as
President, Chief Executive Officer and a Director of McCarthy, Crisanti &
Maffei, Inc., the investment research operations of which were acquired by Duff
& Phelps Corporation in February 1991.
 
    Mr. Maffei has been President of Credit Rating since December 1995, Chief
Operating Officer of Credit Rating since October 1994 and a Director of Credit
Rating since February 1991. From February 1991 to December 1995, Mr. Maffei was
an Executive Vice President of Credit Rating. From May 1975 to February 1991, he
served as an Executive Vice President, Treasurer and a Director of McCarthy,
Crisanti and Maffei, Inc., the investment research operations of which were
acquired by Duff & Phelps Corporation in February 1991.
 
    Mr. Elsner has been General Counsel of Credit Rating since July 1995 and an
Executive Vice President of Credit Rating since February 1991. Mr. Elsner was a
Senior Vice President of Credit Rating from January 1986 to January 1991.
 
    Mr. Stahl has been an Executive Vice President of Credit Rating since July
1994. From January 1992 to July 1994, Mr. Stahl was a Senior Vice President of
Credit Rating. From February 1991 to January 1992, Mr. Stahl was a Group Vice
President of Credit Rating. From March 1986 to February 1991, Mr. Stahl was Vice
President of Marketing of McCarthy, Crisanti & Maffei, Inc., the investment
research operations of which were acquired by Duff & Phelps Corporation in
February 1991.
 
    Mr. Brossman has been an Executive Vice President of Credit Rating since May
1996. Mr. Brossman was a Senior Vice President of Credit Rating from January
1993 to May 1996, a Group Vice President of Credit Rating from January 1992 to
January 1993 and a Vice President of Credit Rating from March 1988 to January
1992.
 
ITEM 2.  PROPERTIES.
 
    Credit Rating, which is headquartered in Chicago, conducts its operations
through offices located in Chicago, Illinois, New York, New York, London,
England and Hong Kong, in which locations it leases a total of approximately
72,000 square feet of office space.
 
ITEM 3.  LEGAL PROCEEDINGS.
 
    During 1993, several legal actions were filed against Credit Rating in the
U.S. District Court for the Southern District of New York by holders of secured
promissory notes ("Notes") of Towers Financial Corporation ("Towers") and
holders of bonds ("Bonds") issued by subsidiaries of Towers in five structured
financing transactions. Towers collapsed in 1993 amid allegations of massive
fraud and is in bankruptcy. Credit Rating had rated the Bonds but had not rated
the Notes. It is alleged that $245 million of Notes were sold that are worthless
and that $200 million of Bonds were sold that have lost much or all of their
value. Directors and officers of Towers, lawyers, accountants, broker-dealers
and the indenture trustee for the Bonds were also named as defendants in one or
more of the actions. The plaintiffs in the actions contend that Credit Rating
and the other defendants are liable for losses the plaintiffs have suffered and
for punitive damages. The holders of the Bonds also sought recovery from Credit
Rating of treble damages under the Racketeer Influenced and Corrupt
Organizations Act ("RICO"). It is asserted that Credit Rating, in its ratings
and its monitoring of the transactions after ratings were issued, was either
fraudulent or negligent in failing to discover the alleged fraud of Towers and
its officers or in taking other action that allegedly induced purchases of the
Bonds and the Notes. Credit Rating denies these assertions. Credit
 
                                       5
<PAGE>
Rating's ratings were based upon (and assumed the accuracy of) the information
provided to it by Towers and its officers. Credit Rating has taken the position
that it cannot be expected to detect fraud or discover variances from the
structure of a rated security when the information provided to it demonstrates
compliance with that structure. In 1996, the legal actions filed by the holders
of the Notes were dismissed by the federal courts and the RICO claim of the
holders of the Bonds was dismissed. One holder of Notes claiming to represent
holders of approximately $17 million of Notes filed a class action against
Credit Rating in the Circuit Court of Cook County, Illinois alleging the state
law claims previously asserted in federal court. Management intends to
vigorously defend these actions, and at this time, cannot make an assessment
with regard to such litigation's effect on Credit Rating's financial position or
results of operations.
 
    In October 1994, putative class actions were filed in the U.S. District
Court for the Northern District of Georgia and in Georgia and New York State
Courts on behalf of all persons (the "Plaintiffs") who purchased or renewed life
insurance policies, annuities or guaranteed investment contracts (collectively
the "Contracts") from or issued by Confederation Life Insurance Company or its
subsidiaries ("Confederation") during the period from May 27, 1993, through
August 12, 1994. Credit Rating, which had rated the claims paying ability of
Confederation, was named a defendant in the action along with two other rating
agencies, A.M. Best and Standard & Poor's, Confederation's independent auditor,
Ernst & Young, and certain officers and/or directors of Confederation.
Confederation ceased operations and was in liquidation allegedly because of a
decline in the amount of its assets, a large percentage of which were real
estate investments. The complaint in the action alleged that Credit Rating and
the other rating agencies knew or should have known of Confederation's
deteriorating financial condition and that by issuing and maintaining their
ratings they misrepresented Confederation's financial strength and the value of
the Contracts, thereby inducing the Plaintiffs to purchase or renew Contracts.
It was alleged that Credit Rating and the other defendants' conduct constituted
a violation of Section 10(b) of the Securities Exchange Act of 1934, common law
fraud and negligent misrepresentation. The complaint sought compensatory damages
in an unspecified amount, punitive damages, costs, attorneys' fees and interest.
In October and November 1996, the Plaintiffs dismissed without prejudice their
claims against the Company in all three cases. In addition, the three parties
that originally filed the claims have released the Company from the claims
brought in these cases.
 
    Credit Rating is involved in other litigation, which in the opinion of
management, would not have a material adverse effect on Credit Rating's
financial position or results of operations.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
    None.
 
                                       6
<PAGE>
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
PRICE RANGE OF COMMON STOCK
 
    The Company's common stock has traded on the New York Stock Exchange
("NYSE") under the ticker symbol "DCR" since October 24, 1994. The following
table sets forth the high and low sales prices per share for the common stock
traded on the NYSE for the periods indicated:
 
<TABLE>
<CAPTION>
              1996                   HIGH        LOW                   1995                   HIGH        LOW
---------------------------------  ---------  ---------  ---------------------------------  ---------  ---------
<S>                                <C>        <C>        <C>                                <C>        <C>
Fourth Quarter...................  $  24.125  $  21.875  Fourth Quarter ..................  $   16.00  $  14.375
Third Quarter....................     22.375     19.125  Third Quarter ...................      15.75      12.75
Second Quarter...................      21.25     16.125  Second Quarter ..................      13.25     11.875
First Quarter....................      16.00      14.00  First Quarter ...................      12.75      8.625
</TABLE>
 
    As of February 24, 1997, there were approximately 124 holders of record of
the Company's common stock.
 
DIVIDEND POLICY
 
    During 1996 and 1995, the Company paid a regular quarterly dividend of $0.03
per share. The Company intends to continue to pay quarterly cash dividends;
however, future cash dividends will depend on the financial condition, capital
requirements and earnings of the Company. Additionally, the Company's bank
credit agreement contains provisions which may limit the aggregate dividends
that the Company may pay on its common stock.
 
                                       7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
 
    The following selected financial data of the Company should be read in
conjunction with the Company's Consolidated Financial Statements, including the
Notes thereto, and Management's Discussion and Analysis of Financial Condition
and Results of Operations
 
<TABLE>
<CAPTION>
                   FOR THE YEARS ENDED DECEMBER 31,                        1996       1995       1994       1993       1992
-----------------------------------------------------------------------  ---------  ---------  ---------  ---------  ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                                                      <C>        <C>        <C>        <C>        <C>
INCOME STATEMENT DATA:
Revenues...............................................................  $    53.1  $    46.0  $    40.4  $    32.6  $    24.7
Operating expense......................................................       35.4       30.1       26.4       18.9       14.2
Income from operations before fees paid to former parent...............       17.7       15.9       14.0       13.7       10.5
Name use fee paid to former parent.....................................        2.0        2.0        2.0        2.0        2.0
Intercompany charges paid to former parent.............................          0          0          0       10.8        5.6
Operating income.......................................................       15.7       13.9       12.0        0.9        2.9
Interest expense and other.............................................        0.1        0.5        0.6        0.4        2.5
Earnings before income tax.............................................       15.6       13.4       11.4        0.5        0.4
Income tax expense.....................................................        6.6        5.8        4.9        0.5        0.4
Net earnings...........................................................  $     9.0  $     7.6  $     6.5  $       0  $       0
 
PER COMMON SHARE DATA:
Earnings per common share for the years ended December 31, 1996, 1995
  and 1994, and pro forma earnings per share for the years ended
  December 31, 1993 and 1992...........................................  $    1.54  $    1.28  $    1.12  $    1.10  $    0.59
Cash dividends paid per common share...................................  $    0.12  $    0.12  $    0.03  $       0  $       0
 
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital -- exclusive of intercompany receivable/ payable to
  former parent in 1993 and 1992.......................................  $     0.1  $     1.6  $     0.3  $     1.7  $     0.8
Goodwill...............................................................       23.1       23.8       24.6       25.3       26.0
Total assets...........................................................       42.1       42.3       41.0       36.1       35.0
Total long-term debt...................................................        5.5        6.0       10.0       15.0        4.3
Stockholders' equity...................................................  $    25.1  $    26.1  $    20.8  $    16.0  $    16.4
</TABLE>
 
                                       8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
                        CONDENSED FINANCIAL INFORMATION
                      (in millions, except per share data)
 
<TABLE>
<CAPTION>
                                                                                            FOR THE YEARS ENDED DECEMBER
                                                                                                         31,
                                                                                           -------------------------------
                                                                                             1996       1995       1994
                                                                                           ---------  ---------  ---------
<S>                                                                                        <C>        <C>        <C>
Revenues.................................................................................  $    53.1  $    46.0  $    40.4
Operating expenses.......................................................................       35.4       30.1       26.4
Name use fees paid to former parent......................................................        2.0        2.0        2.0
 
Operating income.........................................................................       15.7       13.9       12.0
 
Interest expense.........................................................................        0.4        0.7        0.7
Other income.............................................................................        0.3        0.2        0.1
 
Earnings before taxes....................................................................       15.6       13.4       11.4
Income taxes.............................................................................        6.6        5.8        4.9
 
Net earnings.............................................................................  $     9.0  $     7.6  $     6.5
 
Weighted average shares..................................................................        5.8        5.9        5.8
 
Earnings per share.......................................................................  $    1.54  $    1.28  $    1.12
</TABLE>
 
RESULTS OF OPERATIONS
 
YEAR ENDED DECEMBER 31, 1996, COMPARED WITH YEAR ENDED DECEMBER 31, 1995
 
    Revenues for the year ended December 31, 1996, were $53.1 million, an
increase of 15 percent or $7.1 million, over the $46.0 million recorded in 1995.
Corporate rating revenues rose $3.2 million while structured finance rating
revenues increased $4.6 million. Rating revenue increases were partially offset
by a decline in fixed income research revenues of $0.7 million.
 
    Corporate rating revenues, which increased 13 percent or $3.2 million over
1995, include improved performance by all sectors of the corporate rating
business and were driven by a strong increase in new client fees. Structured
finance rating fees increased 29 percent over the prior year led by the strong
performances of the asset-backed and commercial real estate sectors.
International rating fees which are included in the above comparisons
significantly contributed to the overall growth.
 
    Operating income for the year ended December 31, 1996, was $15.7 million, an
increase of $1.8 million, or 13 percent, over the $13.9 million recorded in
1995. This increase reflects the revenue increases discussed above, offset by an
increase in employment expense of $3.7 million and an increase in operating
expenses of $1.6 million. Expense increases can be attributed to the growth in
both domestic and international business, which necessitated an increase in the
number of employees, additional travel expenses, office expansions and an office
addition in Hong Kong.
 
    Interest expense decreased $0.3 million in 1996 due to the reduction in the
average debt balance and interest rate. Other income increased approximately
$0.1 million as a result of dividends received from the Company's international
partnerships. Income tax expense increased proportionately with income.
 
    Net income totaled $9.0 million in 1996, a $1.4 million or 18 percent
increase over 1995. Weighted average shares outstanding decreased 2 percent due
to the Company's stock repurchases of 573,391 common shares and equivalents.
Earnings per share increased 20 percent to $1.54 in 1996 compared with $1.28 in
1995.
 
                                       9
<PAGE>
YEAR ENDED DECEMBER 31, 1995, COMPARED WITH YEAR ENDED DECEMBER 31, 1994
 
    Revenues for the year ended December 31, 1995, were $46.0 million, an
increase of 14 percent or $5.6 million, over the $40.4 million recorded in 1994.
Corporate rating revenues rose $5.8 million while structured finance rating
revenues increased $0.4 million. Rating revenue increases were partially offset
by a decline in fixed income research revenues of $0.6 million.
 
    Corporate rating revenues, which increased 30 percent or $5.8 million over
1994, were driven by a strong increase in renewal revenue of $3.5 million, while
new issue revenues contributed $2.0 million to the increase, and new client
revenues added $0.3 million. Structured finance rating revenues increased 2
percent over the prior year and were adversely impacted by a more than 70
percent market decline in residential mortgage backed securities new issue
volume.
 
    Operating income for the year ended December 31, 1995, was $13.9 million, an
increase of $1.9 million or 16 percent, over the $12.0 million recorded in 1994.
This increase reflects the revenue increases discussed above, offset by an
increase in employment expense of $2.7 million and an increase in operating
expenses of $0.9 million. The increase in employee compensation was the result
of increased incentive compensation based on the 1995 operating results,
additional staff needed to support the rating business growth, and staff added
to eliminate a substantial portion of the support services provided by the
former parent for which costs are accounted for in operating expenses. Operating
expense increases were largely due to an increase in travel expense to service
the additional business and expenses associated with the Company being an
independent public corporation.
 
    Interest expense decreased 4 percent in 1995 due to the reduction in the
debt balance. Other income increased approximately $0.1 million as a result of
dividends received from the Company's international partnerships. Income tax
expense increased proportionately with income.
 
    Net income totaled $7.6 million in 1995, a $1.2 million or 18 percent
increase over 1994. Despite the Company's common stock repurchases of 155,333
common shares, weighted average shares outstanding increased 3 percent due to
the dilutive effect of common stock equivalents which are weighted based on the
Company's stock price. Earnings per share increased 14 percent to $1.28 in 1995
compared with $1.12 in 1994, despite higher weighted average shares outstanding.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    The Company has typically financed its operations, which do not require
significant amounts of working capital or capital expenditures, through funds
provided by operations. For the years ended December 31, 1996 and 1995, capital
expenditures totaled $1.5 million and $1.4 million, respectively. These capital
expenditures were primarily for leasehold improvements, computer equipment and
office furniture. The Company expects capital expenditures to approximate $1.8
million in 1997.
 
    During 1996, the Company repurchased 573,391 of its common shares and
equivalents for approximately $11.4 million. In 1995, the Company had
repurchased 155,333 of its common shares for approximately $2.2 million. Future
share repurchases are contingent upon the Company's financial condition, capital
requirements and earnings.
 
    The Company has in place a $10.0 million, four-year revolving bank credit
agreement. At December 31, 1996, $5.5 million was outstanding under the facility
at a floating annual rate which was approximately 6.3 percent, compared with
$6.0 million outstanding at December 31, 1995, at approximately 6.9 percent.
Commitment fees are accrued on the unused facility at an annual rate of .375
percent and are paid quarterly. The bank credit agreement contains the following
financial covenants among others: (i) a minimum net worth test; (ii) a maximum
leverage test; (iii) a maximum debt/capitalization ratio test; and (iv) a
limitation on indebtedness and capital expenditures. The Company is currently in
compliance with such covenants. The bank credit agreement also imposes certain
restrictions on sale of assets, mergers or consolidations, creation of liens,
investments, leases and loans and certain other matters.
 
                                       10
<PAGE>
    The Company believes that funds provided by operations and amounts available
under its credit agreement will provide adequate liquidity for the foreseeable
future.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
Consolidated Balance Sheets--December 31, 1996 and 1995
 
Consolidated Statements of Income--For the Years Ended December 31, 1996, 1995
and 1994
 
Consolidated Statements of Changes in Stockholders' Equity--For the Years Ended
December 31, 1996, 1995 and 1994
 
Consolidated Statements of Cash Flows--For the Years Ended December 31, 1996,
1995 and 1994
 
Notes to the Consolidated Financial Statements
 
Report of Independent Public Accountants
 
                                       11
<PAGE>
                          CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
 
<TABLE>
<CAPTION>
                                                                                                  DECEMBER 31,
                                                                                              --------------------
                                                                                                1996       1995
                                                                                              ---------  ---------
<S>                                                                                           <C>        <C>
                                                      ASSETS
 
CURRENT ASSETS:
  Cash and cash equivalents.................................................................  $       0  $     233
  Accounts receivable, net of allowance for doubtful accounts of $219 and $212,
    respectively............................................................................     10,298     10,099
  Other current assets......................................................................        642        529
                                                                                              ---------  ---------
  Total current assets......................................................................     10,940     10,861
 
OFFICE FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
 net of accumulated depreciation of $3,042 and $2,249 respectively (Note 1).................      4,540      4,013
 
OTHER ASSETS:
  Intangible assets, net (Note 1)...........................................................      2,319      2,624
  Goodwill, net (Note 1)....................................................................     23,094     23,840
  Other long-term investments (Note 3)......................................................      1,019        621
  Other long-term assets....................................................................        214        315
                                                                                              ---------  ---------
  Total assets..............................................................................  $  42,126  $  42,274
                                                                                              ---------  ---------
                                                                                              ---------  ---------
 
                                       LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES:
  Accrued compensation and employment taxes.................................................  $   5,756  $   4,518
  Accounts payable..........................................................................      3,193      2,063
  Accrued income tax (Note 6)...............................................................        576      1,362
  Advance service fee billings to clients (Note 1)..........................................      1,314      1,294
  Other current liabilities.................................................................         15         18
                                                                                              ---------  ---------
  Total current liabilities.................................................................     10,854      9,255
 
LONG-TERM DEBT (Note 4 )....................................................................      5,500      6,000
 
OTHER LONG-TERM LIABILITIES (Note 8)........................................................        717        950
 
STOCKHOLDERS' EQUITY:
Preferred stock, no par value: 3,000 shares authorized, zero issued and outstanding.........          0          0
Common stock, no par value: 15,000 shares authorized, 5,152 and 5,541 shares issued and
 outstanding at December 31, 1996 and 1995..................................................      5,030     14,371
  Retained earnings.........................................................................     20,025     11,698
                                                                                              ---------  ---------
  Total stockholders' equity................................................................     25,055     26,069
                                                                                              ---------  ---------
  Total liabilities and stockholders' equity................................................  $  42,126  $  42,274
                                                                                              ---------  ---------
                                                                                              ---------  ---------
</TABLE>
 
      The accompanying notes to the consolidated financial statements are
                   an integral part of these balance sheets.
 
                                       12
<PAGE>
                       CONSOLIDATED STATEMENTS OF INCOME
                     (In thousands, except per share data)
 
<TABLE>
<CAPTION>
                                                                                    FOR THE YEARS ENDED DECEMBER
                                                                                                 31,
                                                                                   -------------------------------
                                                                                     1996       1995       1994
                                                                                   ---------  ---------  ---------
<S>                                                                                <C>        <C>        <C>
REVENUES (Note 1)................................................................  $  53,083  $  45,983  $  40,409
 
EXPENSES
  Employment expense.............................................................     22,512     18,840     16,139
  Other operating expenses (Note 2)..............................................     10,812      9,486      8,730
  Name usage fees paid to former parent (Note 2).................................      2,000      2,000      2,000
  Depreciation and amortization (Note 1).........................................      2,020      1,725      1,544
                                                                                   ---------  ---------  ---------
Total expenses...................................................................     37,344     32,051     28,413
 
OPERATING INCOME.................................................................     15,739     13,932     11,996
 
Other income (Note 3)............................................................        283        237        129
Interest expense (Note 4)........................................................        413        712        739
                                                                                   ---------  ---------  ---------
 
EARNINGS BEFORE INCOME TAXES.....................................................     15,609     13,457     11,386
Income taxes (Note 6)............................................................      6,634      5,825      4,920
                                                                                   ---------  ---------  ---------
NET EARNINGS.....................................................................  $   8,975  $   7,632  $   6,466
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Weighted average shares outstanding (Note 1).....................................      5,846      5,953      5,761
Earnings per share (Note 1)......................................................  $    1.54  $    1.28  $    1.12
</TABLE>
 
      The accompanying notes to the consolidated financial statements are
                     an integral part of these statements.
 
                                       13
<PAGE>
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (In thousands)
 
<TABLE>
<CAPTION>
                                                                                    COMMON    RETAINED
                                                                                     STOCK    EARNINGS     TOTAL
                                                                                   ---------  ---------  ---------
<S>                                                                                <C>        <C>        <C>
BALANCE AT DECEMBER 31, 1993.....................................................  $  15,953  $       1  $  15,954
Net earnings.....................................................................          0      6,466      6,466
Stock option exercises...........................................................         43          0         43
Tax benefit......................................................................         93          0         93
Dividend paid to shareholders....................................................          0       (169)      (169)
Intercompany dividends paid to former parent.....................................          0     (1,557)    (1,557)
                                                                                   ---------  ---------  ---------
BALANCE AT DECEMBER 31, 1994.....................................................  $  16,089  $   4,741  $  20,830
Net earnings.....................................................................          0      7,632      7,632
Stock option exercises...........................................................        337          0        337
Tax benefit of stock options exercised...........................................        107          0        107
Dividend paid to shareholders....................................................          0       (674)      (674)
Stock and stock equivalents repurchased..........................................     (2,163)         0     (2,163)
                                                                                   ---------  ---------  ---------
BALANCE AT DECEMBER 31, 1995.....................................................  $  14,370  $  11,699  $  26,069
Net earnings.....................................................................          0      8,976      8,976
Stock option exercises...........................................................      1,141          0      1,141
Deferred compensation............................................................         47          0         47
Tax benefit......................................................................        833          0        833
Dividend paid to shareholders....................................................          0       (651)      (651)
Stock and stock equivalents repurchased..........................................    (11,360)         0    (11,360)
                                                                                   ---------  ---------  ---------
BALANCE AT DECEMBER 31, 1996.....................................................  $   5,031  $  20,024  $  25,055
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
THE FOLLOWING TABLE PROVIDES A SUMMARY OF COMMON STOCK ISSUED AND OUTSTANDING:
 
<TABLE>
<CAPTION>
                                                                                   FOR THE YEARS ENDED DECEMBER 31
                                                                                   -------------------------------
                                                                                     1996       1995       1994
                                                                                   ---------  ---------  ---------
<S>                                                                                <C>        <C>        <C>
BALANCE AT JANUARY 1.............................................................      5,541      5,650          1
Shares distributed/issued in spin-off............................................          0          0      5,625
Repurchases of common stock......................................................       (525)      (155)         0
Stock option exercises...........................................................        136         46         24
                                                                                   ---------  ---------  ---------
BALANCE AT DECEMBER 31...........................................................      5,152      5,541      5,650
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
      The accompanying notes to the consolidated financial statements are
                     an integral part of these statements.
 
                                       14
<PAGE>
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
 
<TABLE>
<CAPTION>
                                                                                   FOR THE YEARS ENDED DECEMBER 31,
                                                                                   --------------------------------
                                                                                      1996       1995       1994
                                                                                   ----------  ---------  ---------
<S>                                                                                <C>         <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings...................................................................  $    8,975  $   7,632  $   6,466
 
  Adjustments to reconcile net earnings to cash provided by operating activities:
  Increase in accounts receivable................................................        (199)    (2,203)    (2,342)
  Increase (decrease) in advance service fee billings............................          19     (1,213)     2,469
  Depreciation and amortization..................................................       2,020      1,725      1,544
  Increase (decrease) in accrued income taxes payable............................         186        (78)     1,372
  Increase in other assets and liabilities--net..................................       1,982      1,162        787
                                                                                   ----------  ---------  ---------
Cash provided by operating activities............................................      12,983      7,025     10,296
                                                                                   ----------  ---------  ---------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of office furniture, equipment, and leasehold improvements............      (1,496)    (1,380)    (2,011)
  Increase in other long-term investments........................................        (380)      (156)      (260)
                                                                                   ----------  ---------  ---------
Cash used in investing activities................................................      (1,876)    (1,536)    (2,271)
 
CASH FLOWS FROM FINANCING ACTIVITIES:
  Dividends paid to shareholders.................................................        (651)      (674)      (169)
  Deferred financing costs.......................................................          30         30       (118)
  Issuance of common stock.......................................................       1,141        337         43
  Repurchases of common stock and stock equivalents..............................     (11,360)    (2,163)         0
  Net repayments of long-term debt...............................................        (500)    (4,000)    (5,000)
  Long-term lease payments.......................................................           0         (4)        (7)
  Intercompany dividend paid to former parent....................................           0          0     (1,557)
                                                                                   ----------  ---------  ---------
Cash used in financing activities................................................     (11,340)    (6,474)    (6,808)
                                                                                   ----------  ---------  ---------
Net change in cash...............................................................        (233)      (985)     1,217
                                                                                   ----------  ---------  ---------
Cash and cash equivalents, beginning of period...................................         233      1,218          1
Cash and cash equivalents, end of period.........................................  $        0  $     233  $   1,218
                                                                                   ----------  ---------  ---------
</TABLE>
 
      The accompanying notes to the consolidated financial statements are
                     an integral part of these statements.
 
                                       15
<PAGE>
                        DUFF & PHELPS CREDIT RATING CO.
 
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
1  SIGNIFICANT ACCOUNTING POLICIES:
 
GENERAL
 
    Duff & Phelps Credit Rating Co. (the "Company") is an internationally
recognized credit rating agency which provides ratings and research on
corporate, structured and sovereign financings as well as insurance claims
paying ability. The Company has offices in Chicago, New York, London and Hong
Kong and operates with international partners in Latin America, Asia, South
Africa and Canada.
 
    On October 31, 1994, the spin-off of the Company from its former parent
company, Phoenix Duff & Phelps Corporation, formerly Duff & Phelps Corporation
("D&P"), was finalized. The Company's shares, held by D&P, were distributed
October 31, 1994, to D&P shareholders of record October 26, 1994, as a tax-free
distribution for which a favorable tax ruling was obtained from the Internal
Revenue Service. D&P shareholders received one of the Company's shares for every
three shares held of D&P common stock, and cash payments were made in lieu of
fractional shares. The distribution resulted in the Company operating as a free
standing entity whose common stock is publicly traded on the New York Stock
Exchange under the ticker symbol "DCR."
 
BASIS OF PRESENTATION
 
    The preparation of financial statements in conformity with 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.
 
    The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and include those
assets, liabilities, revenues and expenses directly attributable to the
Company's operations in the years presented. Certain reclassifications have been
made to the financial statements to conform with the 1996 presentation.
 
PRINCIPLES OF CONSOLIDATION
 
    During July 1994, the Company organized a new U.S. subsidiary, Duff & Phelps
Credit Rating Co. of Europe, with an office located in London, England. In July
1996, the Company organized a new U.S. subsidiary, Duff & Phelps Credit Rating
Co. of Asia, with an office in Hong Kong. The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries, Duff &
Phelps Credit Rating Co. of Europe and Duff & Phelps Credit Rating Co. of Asia.
All significant intercompany balances have been eliminated.
 
EARNINGS PER SHARE
 
    Earnings per share were computed using the weighted average number of shares
of common stock and common stock equivalents outstanding at December 31 for each
of the years presented. Common stock equivalents are based on outstanding stock
options under a non-qualified stock option plan.
 
REVENUE RECOGNITION
 
    Rating revenues are typically recognized when services rendered for credit
ratings are complete, generally when billed. Revenues are dependent, in large
part, on levels of debt issuance. The Company's
 
                                       16
<PAGE>
                        DUFF & PHELPS CREDIT RATING CO.
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
1  SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
fee schedule depends on the type and amount of securities rated and the
complexity of securities issued. Research revenues are billed in advance and
amortized over the subscription period.
 
GOODWILL AND INTANGIBLE ASSETS
 
    In 1987, an acquisition by D&P resulted in goodwill and intangible assets
allocated to the Company of approximately $5.0 million and $6.0 million,
respectively. In 1989, another D&P acquisition resulted in a "push-down" of
goodwill to the Company of approximately $24.0 million.
 
    Goodwill and intangible assets are shown net of accumulated amortization.
Goodwill is amortized over its estimated remaining life of approximately 31
years, and intangible assets are amortized over remaining lives of 3 through 12
years.
 
    The Company periodically evaluates whether significant events have occurred
which may require a revision of the estimated useful life of goodwill and
intangible assets or an impairment of the recoverability of remaining balances.
The Company uses an estimate of future net income over the remaining useful life
of goodwill and intangible assets to measure recoverability. At December 31,
1996, the Company believes that the full amount of goodwill and intangible
assets is recoverable.
 
DEPRECIATION
 
    Office furniture and equipment are stated at cost less accumulated
depreciation and are depreciated on a straight-line basis over the estimated
remaining lives of the assets, which on a composite basis, is 5 years. Leasehold
improvements are amortized over the remaining lives of the related leases,
which, on a composite basis, is 11 years.
 
2  RELATED PARTIES:
 
SERVICE FEES PAID TO D&P
 
    Support agreements in effect between the Company and D&P include a name use
fee of $2.0 million per year and actual charges for D&P administrative services
which are included in the Company's financial results for the years presented.
Effective September 30, 2000, the name use fee reduces to $10,000 per year.
 
SERVICE FEES PAID TO THE COMPANY
 
    The Company and D&P are party to service and support agreements under which
the Company provides D&P with fixed income research services for an annual fee
of $0.9 million and publication printing services for a fee which represents
actual expenses incurred by the Company on behalf of D&P. For the years
presented, the fixed income research fees are included in revenue and the
publication printing support fees offset other operating expenses. The fixed
income research agreement expires on September 30, 2000.
 
                                       17
<PAGE>
                        DUFF & PHELPS CREDIT RATING CO.
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
3  OTHER LONG-TERM INVESTMENTS:
 
    The Company's long-term investments are composed of investments made in
international rating agency partnerships in Argentina, Brazil, Canada, Chile,
Colombia, India, Mexico, Peru, South Africa and Venezuela.
 
    The Company accounts for its joint venture investments under either the cost
or equity method as dictated by ownership interest.
 
4  LONG-TERM DEBT:
 
    The Company had long-term debt obligations of $5.5 million and $6.0 million
at floating annual interest rates of approximately 6.3 percent and 6.9 percent
on December 31, 1996 and 1995, respectively.
 
    The $5.5 million outstanding at December 31, 1996, under the Company's $10.0
million, four-year revolving credit facility, is due as follows (in millions):
 
<TABLE>
<S>                                              <C>
1997...........................................  $      .5
1998...........................................        5.0
                                                       ---
                                                 $     5.5
</TABLE>
 
    The credit agreement contains financial covenants which require that the
Company maintain certain ratios and satisfy certain financial tests, including
restrictions on the ability to incur indebtedness and limitations on the amount
of capital expenditures, common stock dividends and advances to subsidiaries.
The Company was in compliance with such covenants, for all years presented.
 
5  LITIGATION MATTERS:
 
    During 1993, several legal actions were filed against the Company in federal
court by holders of secured promissory notes ("Notes") of Towers Financial
Corporation ("Towers") and holders of bonds ("Bonds") issued by subsidiaries of
Towers in five structured financing transactions. Towers collapsed in 1993 amid
allegations of massive fraud and is in bankruptcy. The Company had rated the
Bonds but had not rated the Notes. It is alleged that $245 million of Notes were
sold that are worthless and that $200 million of Bonds were sold that have lost
much or all of their value. Directors and officers of Towers, lawyers,
accountants, broker-dealers and the indenture trustee for the Bonds were also
named as defendants in one or more of the actions. The plaintiffs in the actions
contend that the Company and the other defendants are liable for losses the
plaintiffs have suffered and for punitive damages. The holders of the Bonds also
sought recovery from the Company of treble damages under the Racketeer
Influenced and Corrupt Organizations Act ("RICO"). It is asserted that the
Company, in its ratings and its monitoring of the transactions after ratings
were issued, was either fraudulent or negligent in failing to discover the
alleged fraud of Towers and its officers or in taking other action that
allegedly induced purchases of the Bonds and the Notes. The Company denies these
assertions. The Company's ratings were based upon (and assumed the accuracy of)
the information provided to it by Towers and its officers. The Company has taken
the position that it cannot be expected to detect fraud or discover variances
from the structure of a rated security when the information provided to it
demonstrates compliance with that structure. In 1996, the legal actions filed by
the holders of the Notes were dismissed by the federal courts and the RICO claim
of the holders of the Bonds was dismissed. One holder of Notes claiming to
represent holders of approximately $17 million of Notes filed a class action
against the Company in Illinois state court alleging the state law claims
previously asserted in federal court.
 
                                       18
<PAGE>
                        DUFF & PHELPS CREDIT RATING CO.
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
5  LITIGATION MATTERS: (CONTINUED)
    Management intends to vigorously defend these actions, and at this time,
cannot make an assessment with regard to such litigation's effect on the
Company's financial position or results of operations. The Company is involved
in other litigation, which in the opinion of management, would not have a
material adverse effect on the Company's financial position or results of
operations.
 
6  INCOME TAXES:
 
    The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
 
    The Company was included in the consolidated income tax return of D&P until
October 31, 1994. Prior to November 1, 1994, a tax-sharing agreement with D&P
was in effect which resulted in income taxes being allocated to the Company as
if it computed its income tax liability on a stand-alone basis.
 
    Income tax expense was as follows for the years ended December 31 (in
thousands):
 
<TABLE>
<CAPTION>
                                                                                         1996       1995       1994
                                                                                       ---------  ---------  ---------
<S>                                                                                    <C>        <C>        <C>
Current
  Federal............................................................................  $   5,682  $   4,961  $   4,613
  State..............................................................................        812        780        659
                                                                                       ---------  ---------  ---------
                                                                                           6,494      5,741      5,272
                                                                                       ---------  ---------  ---------
Deferred
  Federal............................................................................        122         73       (308)
  State..............................................................................         18         11        (44)
                                                                                       ---------  ---------  ---------
                                                                                             140         84       (352)
                                                                                       ---------  ---------  ---------
Total Income Tax Expense.............................................................  $   6,634  $   5,825  $   4,920
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
</TABLE>
 
    The following table presents a reconciliation from the federal statutory
rate to the effective tax rate for the years ended December 31:
 
<TABLE>
<CAPTION>
                                                                                             1996         1995         1994
                                                                                             -----        -----        -----
<S>                                                                                       <C>          <C>          <C>
Federal Statutory Rate..................................................................         35%          35%          35%
State and Local Average Rates, Net of Federal Benefit...................................          5            5            5
Goodwill Amortization & Other...........................................................          3            3            3
                                                                                                 --           --           --
Effective Rate..........................................................................         43%          43%          43%
                                                                                                 --           --           --
                                                                                                 --           --           --
</TABLE>
 
    Deferred tax assets and liabilities represent the amount of taxes receivable
or payable in future years as a result of differences between the tax bases of
assets and liabilities and amounts reported in the
 
                                       19
<PAGE>
                        DUFF & PHELPS CREDIT RATING CO.
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
6  INCOME TAXES: (CONTINUED)
financial statements as of year end. The effects of these temporary differences
comprised the net deferred tax asset (liability) for the years presented (in
thousands):
 
<TABLE>
<CAPTION>
                                                                                         1996       1995       1994
                                                                                       ---------  ---------  ---------
<S>                                                                                    <C>        <C>        <C>
Deferred Tax Assets:
  Long-Term Reserves.................................................................  $     280  $     385  $     400
  Allowance for Doubtful Accounts....................................................         88         86        111
  Accrued Vacation...................................................................          7          0          0
Deferred Tax Liabilities:
Depreciation and Amortization........................................................       (392)      (348)      (304)
                                                                                       ---------  ---------  ---------
Net Deferred Tax Asset (Liability)...................................................  $     (17) $     123  $     207
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
</TABLE>
 
    The net deferred tax assets (liabilities) are included in other long-term
assets (liabilities). Management has determined that a valuation allowance is
not required.
 
    Tax benefits related to the exercise of options were $830,998 and $107,304
for years ended December 31, 1996 and 1995, respectively, and are included in
the Company's stockholders' equity.
 
7  LEASES:
 
    The Company leases its existing office space in New York, London, Hong Kong
and subleases its existing office space in Chicago. A substantial portion of
these leases expire on December 31, 2008. The agreements include escalation
clauses, the effect of which cannot be determined at this time. Lease payments
for 1996, 1995 and 1994 were $1.3 million, $1.2 million and $1.0 million. Annual
minimum lease payments under operating leases for the five years subsequent to
December 31, 1996, and thereafter, are as follows (in thousands):
 
<TABLE>
<S>                         <C>
1997......................           $   1,671
1998......................               1,704
1999......................               1,591
2000......................               1,293
2001......................               1,365
2002 and thereafter.......               6,167
                                       -------
Total.....................           $  13,791
</TABLE>
 
8  OTHER LONG-TERM LIABILITIES:
 
    Other long-term liabilities include a reserve for the litigation described
in Note 5.
 
9  STOCK OPTION PLAN:
 
    The Company's 1994 Long Term Stock Incentive Plan (the "Plan") allows for
awards of up to a maximum of 1,450,000 shares of common stock to be granted to
key employees, officers and directors. The Plan is administered by a committee
of the Board of Directors. As of December 31, 1996, options to purchase
1,085,103 common shares were granted and outstanding under the Plan; 982,464
were held by the Company's employees and directors, and 102,639 were held by
D&P's employees and directors. The
 
                                       20
<PAGE>
                        DUFF & PHELPS CREDIT RATING CO.
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
9  STOCK OPTION PLAN: (CONTINUED)
options outstanding vest and become exerciseable on average in even annual
installments over three years at a weighted average exercise price of $13.26.
Options held by participants terminate no later than 10 years from the date of
grant.
 
                              OUTSTANDING OPTIONS
 
<TABLE>
<CAPTION>
                                                                            SHARES      OPTION PRICE   EXERCISABLE
                                                                         ------------  --------------  -----------
<S>                                                                      <C>           <C>             <C>
Balance December 31, 1994..............................................       960,112                     291,013
Granted................................................................       207,800  $  12.13-14.38
Exercised..............................................................       (46,505) $   1.85-10.00
Canceled...............................................................       (21,667) $   9.00-16.50
                                                                         ------------
Balance December 31, 1995..............................................     1,099,740                     506,920
Granted................................................................       229,035  $  19.13-22.63
Exercised..............................................................      (135,605) $   1.85-16.50
Canceled...............................................................      (108,067) $   1.85-16.50
                                                                         ------------
Balance, December 31, 1996.............................................     1,085,103                     590,817
</TABLE>
 
    The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
the Plan. Accordingly, no compensation expense has been recognized for its
stock-based compensation plan. Had compensation cost for the Company's stock
option plan been determined based upon the average fair value at the grant date
for awards under the Plan consistent with the methodology prescribed under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would have been
reduced by approximately $83,000 or $.01 per share for 1995, and $224,000 or
$.04 per share in 1996. The average fair value of the options granted in 1996 is
estimated at $10.19 on the date of grant using the Black-Scholes option pricing
model with the following assumptions: dividend yield .45 percent; volatility
18.25 percent; risk-free interest rate of 6.26 percent; assumed forfeiture of 5
percent and an expected life of 10 years. The average fair value of the options
granted during 1995 is estimated at $6.14 on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: dividend
yield of .45 percent; volatility of 20.95 percent; risk-free interest rate of
5.75 percent; assumed forfeiture rate of 5 percent and an expected life of 10
years.
 
                                       21
<PAGE>
                        DUFF & PHELPS CREDIT RATING CO.
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
10  QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
 
    (in thousands, except per share data)
 
    The following is a summary of condensed quarterly financial information for
years ended 1996 and 1995:
 
<TABLE>
<CAPTION>
                                                                          FIRST     SECOND      THIRD     FOURTH
                                                                         QUARTER    QUARTER    QUARTER    QUARTER
                                                                        ---------  ---------  ---------  ---------
<S>                                                                     <C>        <C>        <C>        <C>
Revenue
  1996................................................................  $  12,238  $  12,989  $  12,184  $  15,672
  1995................................................................     10,972     10,995     10,172     13,844
 
Operating Income
  1996................................................................      3,696      3,885      3,549      4,609
  1995................................................................      3,204      3,217      3,151      4,360
 
Net Earnings
  1996................................................................      2,072      2,203      2,062      2,638
  1995................................................................      1,713      1,769      1,718      2,432
Earnings Per Share
  1996................................................................       0.35       0.37       0.35       0.47
  1995................................................................       0.29       0.30       0.29       0.40
</TABLE>
 
11  SUPPLEMENTAL CASH FLOW INFORMATION:
 
    For purposes of the consolidated statements of cash flows, the Company
considers investments with maturities of three months or less to be cash
equivalents.
 
    Cash interest and fees paid were $0.4 million for the year ended December
31, 1996, and $0.7 million for the years ended December 31, 1995 and 1994.
 
    Income taxes paid were $6.4 million, $5.9 million and $3.6 million in 1996,
1995 and 1994, respectively.
 
12  SUBSEQUENT EVENTS:
 
    On February 13, 1997, the Company declared its regular quarterly dividend of
$0.03 per share payable March 6, 1997, to shareholders of record February 24,
1997.
 
                                       22
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Stockholders and Board of Directors of
Duff & Phelps Credit Rating Co.:
 
    We have audited the accompanying consolidated balance sheets of DUFF &
PHELPS CREDIT RATING CO. (an Illinois corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 referred to above present fairly,
in all material respects, the financial position of Duff & Phelps Credit Rating
Co. and subsidiaries as of December 31, 1996 and 1995, and results of their
operations and their cash flows for each of three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
 
                                          ARTHUR ANDERSEN LLP
 
Chicago, Illinois
 
February 4, 1997 (except with respect to the matter
              discussed in Note 12, as to which
              the date is February 13, 1997)
 
                                       23
<PAGE>
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
    None.
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
    Information regarding directors and nominees for directors of Credit Rating
is included under the caption entitled "Election of Directors" in Credit
Rating's Proxy Statement dated March 28, 1997 and is incorporated herein by
reference.
 
    For information regarding the executive officers of Credit Rating, reference
is made to the section entitled "Executive Officers of Credit Rating" in Part I,
Item 1 of this report.
 
ITEM 11.  EXECUTIVE COMPENSATION.
 
    Information regarding executive compensation of Credit Rating's directors
and executive officers is included under the caption entitled "Executive
Compensation" in Credit Rating's Proxy Statement dated March 28, 1997 and is
incorporated herein by reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
    Information regarding beneficial ownership of the Common Stock by certain
beneficial owners and by management of Credit Rating is included under the
caption entitled "Principal Holders of Common Stock" in Credit Rating's Proxy
Statement dated March 28, 1997 and is incorporated herein by reference.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
    None.
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT
       SCHEDULES, AND REPORTS ON FORM 8-K.
 
(a) The following documents are filed as a part of this report:
 
1.  FINANCIAL STATEMENTS
    (a) Duff & Phelps Credit Rating Co. Financial Statements
 
    The Consolidated Financial Statements of Credit Rating, together with the
report thereon of Arthur Andersen LLP, consisting of:
 
    Consolidated Balance Sheets--December 31, 1996 and 1995
 
    Consolidated Statements of Income--For the Years Ended December 31, 1996,
1995 and 1994
 
    Consolidated Statements of Changes in Stockholders' Equity--For the Years
    Ended December 31, 1996, 1995 and 1994
 
    Consolidated Statements of Cash Flows--For the Years Ended December 31,
1996, 1995 and 1994
 
    Notes to Consolidated Financial Statements
 
                                       24
<PAGE>
    Report of Independent Public Accountants
 
    All schedules have been omitted either as inapplicable or because the
required information is included in the financial statements or notes thereto.
 
3.  EXHIBITS
 
<TABLE>
<CAPTION>
  EXHIBIT
    NO.                                                    DESCRIPTION
-----------  --------------------------------------------------------------------------------------------------------
<C>          <S>
 
       3.1   Amended and Restated Articles of Incorporation of Duff & Phelps Credit Rating Co.(1)
 
       3.2   Bylaws of Duff & Phelps Credit Rating Co. (3)
 
       4     Form of Common Stock Certificate.(1)
 
      10.1   Duff & Phelps Credit Rating Co. 1994 Long-Term Stock Incentive Plan.(1)(4)
 
      10.2   Tax Sharing and Indemnification Agreement.(2)
 
      10.3   Distribution and Indemnity Agreement.(2)
 
      10.4   Services Agreement.(2)
 
      10.41  Amendment to Services Agreement. (3)
 
      10.5   Name Use Agreement.(2)
 
      10.6   Sublease Agreement relating to Chicago, Illinois office space.(2)
 
      10.7   Lease Assignment Agreement relating to New York, New York office space.(2)
 
      10.8   Form of Severance Protection Agreement between the Registrant and its executive officers.(1)(4)
 
      10.9   Duff & Phelps Credit Rating Co. 1996 Incentive Compensation Plan and Executive Management Incentive
               Compensation Plan.(4)
 
      10.10  Credit Agreement among Duff & Phelps Credit Rating Co., various financial institutions and Bank of
               America Illinois.(2)
 
      21     Subsidiaries of Duff & Phelps Credit Rating Co.
 
      23     Consent of Arthur Andersen LLP.
 
      27     Financial Data Schedule.
</TABLE>
 
------------------------
 
(1) Incorporated herein by reference to the corresponding exhibit to the
    Registrant's registration statement on Form 10, as amended.
 
(2) Incorporated herein by reference to the corresponding exhibit to the
    Registrant's Annual Report on Form 10-K for 1994.
 
(3) Incorporated herein by reference to the corresponding exhibit to the
    Registrant's Annual Report on Form 10-K for 1995.
 
(4) Denotes management contract or compensatory plan or arrangement required to
    be filed as an exhibit to this report pursuant to Item 601 of Regulation
    S-K.
 
(b) Reports on Form 8-K.
 
    None.
 
(c) Safe Harbor Statement under the Private Securities Litigation Reform Act of
    1995.
 
    This annual report contains forward looking statements that are subject to
    risks and uncertainties, including but not limited to the following: Credit
    Rating's performance is highly dependent on
 
                                       25
<PAGE>
    corporate debt issuances and structured finance transactions, which may
    decrease for a variety of reasons including changes in interest rates and
    adverse economic conditions; Credit Rating's performance is affected by the
    demand for and the market acceptance of Credit Rating's services; and Credit
    Rating's performance may be impacted by changes in the performance of the
    financial markets and general economic conditions. Accordingly, actual
    results may differ materially from those set forth in the forward looking
    statements. Attention is also directed to other risk factors set forth in
    documents filed by Credit Rating with the Securities and Exchange
    Commission.
 
                                       26
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 26th day of
March, 1997.
 
                                DUFF & PHELPS CREDIT RATING CO.
 
                                By              /s/ PAUL J. MCCARTHY
                                     -----------------------------------------
                                                  Paul J. McCarthy
                                     CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
                                                      OFFICER
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 26th day of March, 1997 by the following
persons on behalf of the Registrant in the capacities indicated.
 
          SIGNATURE                       TITLE
------------------------------  --------------------------
 
                                Chairman of the Board,
                                  Chief Executive Officer,
     /s/ PAUL J. MCCARTHY         Chief Financial Officer
------------------------------    and Director (Principal
       Paul J. McCarthy           Executive and Financial
                                  Officer)
 
     /s/ MARIE C. BECKER        Vice President and
------------------------------    Controller (Principal
       Marie C. Becker            Accounting Officer)
 
     /s/ PHILIP T. MAFFEI
------------------------------  President, Chief Operating
       Philip T. Maffei           Officer and Director
 
     /s/ MILTON L. MEIGS
------------------------------  Director
       Milton L. Meigs
 
     /s/ JONATHAN INGHAM
------------------------------  Director
       Jonathan Ingham
 
    /s/ DONALD J. HERDRICH
------------------------------  Director
      Donald J. Herdrich
 
                                       27
<PAGE>
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT NO.                                            DESCRIPTION                                               PAGE
-----------  ------------------------------------------------------------------------------------------------  ---------
<C>          <S>                                                                                               <C>
       3.1   Amended and Restated Articles of Incorporation of Duff & Phelps Credit Rating Co.(1)
 
       3.2   Bylaws of Duff & Phelps Credit Rating Co.(3)
 
       4     Form of Common Stock Certificate.(1)
 
      10.1   Duff & Phelps Credit Rating Co. 1994 Long-Term Stock Incentive Plan.(1)(4)
 
      10.2   Tax Sharing and Indemnification Agreement.(2)
 
      10.3   Distribution and Indemnity Agreement.(2)
 
      10.4   Services Agreement.(2)
 
      10.41  Amendment to Services Agreement.(3)
 
      10.5   Name Use Agreement.(2)
 
      10.6   Sublease Agreement relating to Chicago, Illinois office space.(2)
 
      10.7   Lease Assignment Agreement relating to New York, New York office space.(2)
 
      10.8   Form of Severance Protection Agreement between the Registrant and its executive officers.(1)(4)
 
      10.9   Duff & Phelps Credit Rating Co. 1996 Incentive Compensation Plan and Executive Management
               Incentive Compensation Plan.(4)
 
      10.10  Credit Agreement among Duff & Phelps Credit Rating Co., various financial institutions and Bank
               of America Illinois.(2)
 
      21     Subsidiaries of Duff & Phelps Credit Rating Co.
 
      23     Consent of Arthur Andersen LLP.
 
      27     Financial Data Schedule
</TABLE>
 
------------------------
 
(1) Incorporated herein by reference to the corresponding exhibit to the
    Registrant's registration statement on Form 10, as amended.
 
(2) Incorporated herein by reference to the corresponding exhibit to the
    Registrant's Annual Report on Form 10-K for 1994.
 
(3) Incorporated herein by reference to the corresponding exhibit to the
    Registrant's Annual Report on Form 10-K for 1995.
 
(4) Denotes management contract or compensatory plan or arrangement required to
    be filed as an exhibit to this report pursuant to Item 601 of Regulation
    S-K.