DTF Tax-Free Income Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

 

 

Investment Company Act file number

    811-06416

 

DTF Tax-Free Income Inc.

(Exact name of registrant as specified in charter)

 

 

55 East Monroe Street, Suite 3600, Chicago, Illinois   60603
(Address of principal executive offices)   (Zip code)

 

 

Alan M. Meder   Lawrence R. Hamilton
DTF Tax-Free Income Inc.   Mayer Brown LLP
55 East Monroe Street, Suite 3600   71 South Wacker Drive
Chicago, Illinois 60603   Chicago, Illinois 60606
(Name and address of agents for service)

 

Registrant’s telephone number, including area code: (312) 541-5555

 

Date of fiscal year end: October 31

 

Date of reporting period: October 31, 2007

ITEM 1. REPORTS TO STOCKHOLDERS.

 

LETTER TO

SHAREHOLDERS

 

 

 

December 14, 2007

 

Dear Shareholder:

 

The Current Municipal Market Environment and Your Fund:

During the Fund’s fiscal year ended October 31, 2007, the municipal bond market experienced a reversal of the themes that had dominated over the past several years. Specifically, the lowest rated sectors of the market performed the worst, non-traditional buyers like hedge funds and broker-dealer accounts reduced their demand for municipal bonds, and credit concerns surfaced regarding municipal bond insurers. Prior to this past summer, many fixed income investors ignored credit fundamentals in their pursuit of higher yields in the low interest rate environment. Those investors looked for higher yielding opportunities in many areas of the fixed income markets, ranging from lower-rated corporate bonds to structured fixed income securities backed by sub-prime mortgages. However, beginning in the summer of 2007, a wave of defaults by homeowners who used sub-prime mortgages to purchase their homes began to shock the financial markets. Securities backed by these sub-prime mortgages have experienced significant declines in their valuations. Investors who have taken or observed the massive write-downs related to sub-prime mortgages because of the actual or anticipated defaults have quickly become more risk averse. The municipal bond market has not been an exception to this risk aversion theme. After many years of risk premiums declining to historically narrow levels, tax-exempt bond investors are now demanding higher risk spreads for lower-rated municipal bonds. This has resulted in greater relative performance for higher quality municipal bonds. For example, over the past six months, AAA-rated tax-exempt bonds have outperformed BBB-rated tax-exempt bonds by over 4 percentage points as measured by the Lehman Brothers Municipal Bond Index.

This turbulence in the financial markets has also reduced demand for municipal bonds from non-traditional buyers. Recently, hedge funds and proprietary broker-dealer accounts have dramatically reduced their purchases of municipal bonds. In fact, many non-traditional investors have been net sellers of municipal bonds in order to mitigate the increase in leverage resulting from significant asset price declines in their much less liquid holdings, or to meet cash needs from investor redemptions. This recent decline in demand for municipal bonds from these large buyers has hurt the relative performance of tax-exempt bonds when compared to U.S. Treasury bonds. Further, the reduction in demand has put additional pressure on credit spreads of lower-rated municipal bonds.

Declining credit conditions in the sub-prime mortgage market have increased concerns surrounding the claims paying ability of many municipal bond insurers. Along with insuring the timely payment of interest and principal on hundreds of billions of dollars of municipal bonds, most of these large AAA-rated municipal bond insurers also insured sub-prime linked securities. As valuations on many securities backed by sub-prime mortgages became distressed, investors questioned the financial strength of the insurers backing this debt. Currently, approximately 45% of the bonds in the DTF Fund have financial guaranty insurance that entitles them to receive AAA-ratings. All of these AAA-rated insured bonds have underlying municipal issuers that are judged to be of investment-grade quality with most having ratings between A and AA. Additionally, the Fund is well diversified among these financial guaranty insurers with no insurer covering more than 15% of the Fund’s assets. We will continue to monitor this situation closely to ensure that the credit quality of the Fund remains sound.

 

1

 

Over the past fiscal year, your Fund managers continued to emphasize high quality bonds within a diversified portfolio. Currently, the Fund’s portfolio has an average quality rating of AA and is well diversified across many sectors of the municipal bond market. This higher quality focus has benefited the Fund’s relative performance as lower-rated municipal bonds have experienced the largest increases in risk premiums. The Fund is also well diversified geographically, with exposure spread across 27 states and Puerto Rico. We continue to be fully invested along the entire yield curve in order to insulate the portfolio from changes in interest rates and the shape of the yield curve. The recent widening of risk premiums, combined with the May 2007 change to DTF’s fundamental investment policies that eliminated the required concentration of investments in the utilities sector of the municipal market, has provided the Fund the opportunity to further diversify its holdings and improve its yield. Since the policy change, we have added approximately 6% exposure to non-utility tax-exempt municipal bonds to the Fund’s portfolio. We continue to look for opportunities in all sectors of the investment-grade municipal bond market in an effort to further diversify the Fund’s holdings and maximize earnings. For example, the tobacco bond sector has been the highest yielding segment of the investment-grade municipal market, but until recently the Fund did not invest in it due to its high litigation and perceived credit risks. However, several significant legal challenges have been overcome by the tobacco companies, thereby improving the risk landscape in the sector. Therefore, we have taken a modest position in the sector, and this allocation could increase if the legal environment in the sector continues to improve.

As we move into 2008, we anticipate a slowing in economic expansion and a Federal Reserve that will likely lower interest rates to combat this economic slowdown and address the continued impact of the credit challenges brought on by sub-prime mortgage problems. Other factors that could influence the municipal bond market as we move forward include heightened concerns regarding the health of the U.S. economy and its labor markets, the performance of the capital markets, and potential changes to current tax laws.

 

Fund Performance:

The following table compares the DTF Fund’s total return, on an NAV and share price basis, to the Lehman Brothers Municipal Bond Index for one, three, five and ten year periods:

 

Annualized Total Return  
(10/31/07)1  
     One Year     Three Years     Five Years     Ten Years  

DTF Fund (NAV)2

    1.4 %   2.7 %   4.3 %   5.6 %

DTF Fund (Share Price)3

    (2.7 )   0.4     4.2     4.4  

Lehman Brothers Municipal Bond Index4

    2.9     3.7     4.5     5.3  

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

2 Source: Administrator of the Fund. Total return of the Fund represents the change in net asset value from the beginning of the period through the period end date of 10/31/07 and assumes the reinvestment of dividends and distributions.

3 Source: Administrator of the Fund. Shares of the Fund are traded on the New York Stock Exchange using the symbol DTF. Total return of the Fund represents the change in the DTF share price from the beginning of the period through the period end date of 10/31/07 and assumes the reinvestment of dividends and distributions in the Fund’s dividend reinvestment plan.

4 Source: Lehman Brothers.

 

As of October 31, 2007, the Fund was paying a 60 cent annualized dividend with a share price of $13.97. This dividend resulted in a taxable equivalent yield of 6.61% for an individual in the highest U.S. federal tax bracket (35%), which is more than 2 percentage points higher than the yield available on a 10-year taxable U.S. Treasury bond. The Fund reduced its monthly dividend by 1 1/2 cents per share in March of this year. This reduction in the monthly dividend was intended to better align the Fund’s monthly distribution with its current and projected earnings. This was only the second reduction in the Fund’s monthly dividend since June of 2000, despite 40-year record low levels of municipal bond interest rates over much of the past few years.

 

2

Additionally, for the third consecutive year, the DTF Fund did not distribute any taxable gains to its shareholders. Your Fund managers remain committed to managing the Fund efficiently from an income tax standpoint.

We continue to appreciate your interest in the DTF Tax-Free Income Fund and look forward to being of continued service in the future.

 

LOGO    LOGO
Francis E. Jeffries, CFA    Nathan I. Partain, CFA
Chairman of the Board    Director, President & CEO

 

3

DTF TAX-FREE INCOME INC.

Portfolio of Investments

As of 10/31/2007

 

Principal
Amount
(000)		     Description (a)  

Value

(Note 1)

       

LONG-TERM INVESTMENTS—145.7%

      
        Alabama—6.1%      
       

DCH Health Care Auth. Rev.

      
$ 1,000    

5.125%, 6/1/36

   $ 1,007,900
       

Jefferson Cnty. Swr. Rev. Capital Impvt.

      
  3,000 (b)  

5.125%, 2/1/29, Ser. A, F.G.I.C.
Prerefunded 2/1/09 @ $101

     3,087,300
  2,100 (b)  

5.00%, 2/1/33, Ser. A, F.G.I.C.
Prerefunded 2/1/09 @ $101

     2,157,939
  1,900 (b)  

5.00%, 2/1/33, Ser. A, F.G.I.C.
Prerefunded 2/1/09 @ $101

     1,954,074
           
              8,207,213
           
        California—21.6%      
       

California St. Gen. Oblig.,

      
  1,000    

5.00%, 11/1/32

     1,015,340
       

Fresno Swr. Rev., Ser. A-1,

      
  3,030    

6.00%, 9/1/09, A.M.B.A.C.

     3,169,107
  2,000    

6.25%, 9/1/14, A.M.B.A.C.

     2,243,660
       

Golden State Tobacco Securitization Corp. Rev.,

      
  1,000    

5.75%, 6/1/47, Ser. A-1

     957,930
       

Los Angeles Wastewtr. Sys. Rev.,

      
  2,000    

5.00%, 6/1/26, Ser. A, M.B.I.A.

     2,083,840
       

Los Angeles Wtr. & Pwr. Rev.,

      
  1,000    

5.25%, 7/1/21, Ser. A-A-1, F.S.A.

     1,047,740
  1,000    

5.375%, 7/1/21, Ser. A-A-2, M.B.I.A.

     1,056,890
       

Metro Wtr. Dist. Southern California Waterworks Rev.,

      
  1,500    

5.00%, 10/1/29, Ser. B-3, M.B.I.A.

     1,554,015
       

Pomona Sngl. Fam. Mtge. Rev.,

      
  1,200 (b)  

7.375%, 8/1/10, Ser. B, GNMA Collateral Escrowed to maturity

     1,257,756
       

Riverside Cnty. Sngl. Fam. Rev.,

      
  2,500 (b)  

7.80%, 5/1/21, Ser. A, GNMA Collateral Escrowed to maturity

     3,352,225
       

San Bernardino Cnty. Residential Mtge. Rev.,

      
  7,840 (b)  

9.60%, 9/1/15, Escrowed to maturity

     10,936,565
       

Saratoga Unified Sch. Dist., Gen. Oblig.

      
  1,040    

Zero Coupon, 9/1/20, Ser. A, F.G.I.C.

     594,173
           
              29,269,241
           
        Connecticut—3.4%      
       

Connecticut St. Health & Edl. Facs. Auth. Rev.,

      
  1,000    

5.00%, 7/1/25, Ser. C, Radian

     1,013,920
       

Mashantucket Western Pequot Tribe Spl.

      
  3,500 (c)  

Rev., 144A, 5.75%, 9/1/18, Ser. B

     3,539,655
           
              4,553,575
           
Principal
Amount
(000)		     Description (a)  

Value

(Note 1)

        District of Columbia—1.1%      
       

District of Columbia Wtr. & Swr. Auth. Rev.,

      
$ 1,500    

5.00%, 10/1/33, F.G.I.C.

   $ 1,533,990
           
        Florida—8.7%      
       

Brevard Cnty. Hlth. Fac. Auth. Rev.,

      
  1,005    

5.00%, 4/1/34

     999,121
       

Escambia Cnty. Hlth. Fac. Auth. Rev.,

      
  1,170    

5.125%, 10/1/19

     1,177,968
       

Florida Mun. Ln. Council Rev.,

      
  2,210    

5.375%, 8/1/20, Ser. B, M.B.I.A.

     2,379,308
       

Highlands Cnty. Hlth. Fac. Auth. Rev.,

      
  2,000    

5.125%, 11/15/32, Ser. G

     2,017,960
       

St. Petersburg Public Util. Rev.,

      
  5,000 (b)  

5.00%, 10/1/28, Ser. A, F.S.A.
Prerefunded 10/1/09 @ $101

     5,190,200
           
              11,764,557
           
        Georgia—16.6%      
       

Atlanta Wtr. & Wastewtr. Rev., Ser. A,

      
  2,385    

5.00%, 11/1/29, F.G.I.C.

     2,415,528
  2,615 (b)  

5.00%, 11/1/29, F.G.I.C.
Prerefunded 5/1/09 @ $101

     2,697,425
  715    

5.00%, 11/1/38, F.G.I.C.

     720,698
  785 (b)  

5.00%, 11/1/38, F.G.I.C.
Prerefunded 5/1/09 @ $101

     809,743
       

De Kalb Cnty. Wtr. & Swr. Rev.,

      
  4,000 (b)  

5.00%, 10/1/24
Prerefunded 10/1/09 @ $101

     4,152,160
       

Fulton Cnty. Sch. Dist., Gen. Oblig.

      
  2,000    

5.375%, 1/1/16

     2,219,280
       

Georgia Mun. Elec. Auth. Pwr. Rev.,

      
  145 (b)  

6.40%, 1/1/13, Ser. Y, A.M.B.A.C.
Escrowed to maturity

     160,076
  2,440    

6.40%, 1/1/13, A.M.B.A.C.

     2,690,100
  30 (b)  

6.40%, 1/1/13, A.M.B.A.C.

      
       

Prerefunded 1/1/11 @ $100

     32,575
       

Georgia Mun. Elec. Auth. Pwr. Rev.,

      
  5,500    

6.50%, 1/1/20, Ser. X, A.M.B.A.C.

     6,512,440
           
              22,410,025
           
        Hawaii—1.5%      
       

Hawaii Dept. Budget & Fin. Rev.,

      
  2,000    

4.80%, 1/1/25, Ser. A, F.G.I.C.

     1,993,840
           

 

See Notes to Financial Statements.

 

4

Principal
Amount
(000)		     Description (a)  

Value

(Note 1)

        Idaho—0.5%      
       

Idaho Hsg. Agcy.,

      
$ 415    

Sngl. Fam. Mtge. Sr., Rev.,
6.65%, 7/1/14, Ser. B

   $ 425,379
  288    

6.60%, 7/1/27, Ser. B, F.H.A.

     295,082
           
              720,461
           
        Illinois—5.0%      
       

Chicago Gen. Oblig.,

      
  4,000    

6.25%, 1/1/11, A.M.B.A.C.

     4,219,320
       

Chicago Multi-Family Hsg. Rev.,

      
  500    

4.90%, 3/20/44, F.H.A.

     475,580
       

Chicago Park Dist., Gen. Oblig.,

      
  1,000    

5.00%, 1/1/27, Ser. A, A.M.B.A.C.

     1,032,530
       

Illinois Fin. Auth. Education Rev.,

      
  1,000    

5.375%, 9/1/32, Ser. C., A.C.A.

     1,001,060
           
              6,728,490
           
        Indiana—5.8%      
       

Indiana Mun. Pwr. Agcy., Pwr.

      
       

Supply Sys. Rev.,

      
  5,000    

6.00%, 1/1/13, Ser. B, M.B.I.A.

     5,528,600
       

Indianapolis Local Pub. Impvt.

      
       

Bond Bank Waterworks Proj. Rev.,

      
  2,100 (b)  

5.25%, 7/1/33, Ser. A, M.B.I.A.

      
       

Prerefunded 7/1/12 @ $100

     2,253,111
           
              7,781,711
           
        Iowa—0.7%      
       

Des Moines Wtr. Rev.,

      
  1,000    

4.375%, 12/1/26, M.B.I.A.

     981,310
           
        Kentucky—3.0%      
       

Louisville & Jefferson Cnty. Met.

      
       

Swr. Dist., Swr. & Drain Sys. Rev.,

      
  2,000    

5.00%, 5/15/30, Ser. A, F.G.I.C.

     2,029,560
       

Louisville & Jefferson Cnty. Metro. Govt.

      
       

Health Sys. Rev.,

      
  1,000    

5.00%, 10/1/30

     986,530
  1,000    

5.25%, 10/1/36

     1,004,190
           
              4,020,280
           
        Massachusetts—6.2%      
       

Boston Wtr. & Swr. Comm. Rev.,

      
  2,000    

5.00%, 11/1/28, Ser. D, F.G.I.C.

     2,036,160
       

Massachusetts St. Dev. Finance Agency,

      
       

Solid Waste Disp. Rev.

      
  1,500    

5.00%, 2/1/36

     1,466,580
       

Massachusetts St. Tpk. Auth.,

      
       

Metro. Highway Sys. Rev.,

      
  2,355    

5.125%, 1/1/23, Ser. B, M.B.I.A.

     2,387,452
  2,500    

4.75%, 1/1/34, Ser. A, A.M.B.A.C.

     2,500,875
           
              8,391,067
           
Principal
Amount
(000)		     Description (a)  

Value

(Note 1)

        Michigan—3.8%      
       

Michigan Tobacco Settlement Finance Auth. Rev.,

      
$ 1,000    

6.00%, 6/1/48, Ser. A

   $ 994,060
       

Detroit Wtr. Supply Sys. Rev., Ser. A,

      
  2,000 (b)  

5.50%, 7/1/24, F.G.I.C.

      
       

Prerefunded 7/1/11 @ $100

     2,134,300
  2,000    

5.00%, 7/1/30, F.G.I.C.

     2,033,340
           
              5,161,700
           
        Nebraska—4.1%      
       

Omaha Pub. Pwr. Dist., Elec. Rev., Ser. B,

      
  2,500 (b)  

6.15%, 2/1/12

      
       

Escrowed to maturity

     2,661,325
  2,500 (b)  

6.20%, 2/1/17

      
       

Escrowed to maturity

     2,866,700
           
              5,528,025
           
        Nevada—3.3%      
       

Las Vegas Valley Wtr. Dist., Gen. Oblig.,

      
  1,400    

5.00%, 6/1/25, Ser. B, M.B.I.A.

     1,453,228
  3,000    

5.00%, 6/1/32, Ser. A, F.G.I.C.

     3,072,810
           
              4,526,038
           
        New Jersey—4.0%      
       

New Jersey Econ. Dev. Auth. Rev.,

      
  1,025    

4.95%, 3/1/47

     958,375
       

New Jersey St. Gen. Oblig.,

      
  2,000    

5.25%, 7/1/17, Ser. H

     2,196,160
       

New Jersey Trans. Trust Fund Auth. Rev.,

      
  2,000    

5.25%, 12/15/22, Ser. A

     2,202,520
           
              5,357,055
           
        New York—8.9%      
       

Albany Industrial Dev. Agy. Rev.,

      
  1,000    

5.00%, 4/1/32, Ser. A

     926,890
       

Long Island Pwr. Auth. Elec. Sys. Rev.,

      
  4,000 (b)  

5.25%, 12/1/26, Ser. A, M.B.I.A.
Prerefunded 6/1/08 @ $101

     4,081,480
  800    

5.00%, 12/1/35, Ser. B

     820,736
       

Metro. Trans. Auth. Rev.,

      
  1,000    

5.25%, 11/15/31, Ser. A, F.G.I.C.

     1,054,920
       

New York City Mun. Wtr. Fin. Auth.,
Wtr. & Swr. Sys. Rev.,

      
  5,000    

5.00%, 6/15/29, Ser. B, F.S.A.

     5,114,450
           
              11,998,476
           
        Ohio—5.5%      
       

Buckeye Tobacco Settlement Finance Auth. Rev.,

      
  2,000    

6.00%, 6/1/42, Ser. A-2

     1,979,720
       

Deerfield Twp. Tax Increment Rev.,

      
  750    

5.00%, 12/1/25

     752,805
       

Hamilton Elec. Sys. Rev.

      
  1,000    

4.60%, 10/15/20, Ser. A, F.S.A.

     1,023,090
       

Ohio St. Air Quality Dev. Auth. Rev.,

      
  1,000    

4.80%, 9/1/36, Ser. A, F.G.I.C.

     960,710

 

See Notes to Financial Statements.

 

5

Principal
Amount
(000)		     Description (a)  

Value

(Note 1)

       

Ohio St. Wtr. Dev. Auth. Rev.,

      
$ 2,445    

5.50%, 6/1/20, Ser. B, F.S.A.

   $ 2,765,931
           
              7,482,256
           
        Pennsylvania—3.2%      
       

Delaware Cnty. Auth. Rev.,

      
  2,000    

5.00%, 6/1/21, Ser. A, Radian

     2,023,820
       

East Stroudsburg Area Sch. Dist., Gen. Oblig.

      
  1,000    

7.75%, 9/1/27, Ser. A, F.G.I.C.

     1,295,980
       

Pennsylvania Economic Dev. Fin. Auth. Res. Recov. Rev.,

      
  1,000    

4.625%, 12/1/18, Ser. F, A.M.B.A.C.

     1,000,230
           
              4,320,030
           
        Puerto Rico—0.8%      
       

Puerto Rico Elec. Pwr. Auth. Rev.,

      
  1,000    

5.00%, 7/1/25, Ser. PP, F.G.I.C.

     1,043,680
           
        South Carolina—1.2%      
       

Spartanburg Waterworks Rev.,

      
  1,500 (b)  

5.25%, 6/1/28, F.G.I.C.
Prerefunded 6/1/14 @ $100

     1,641,120
           
        Tennessee—1.1%      
       

Tennessee Energy Acquisition Corp. Rev.,

      
  1,500    

5.25%, 9/1/20, Ser. A

     1,542,270
           
        Texas—18.8%      
       

Alliance Airport Auth. Inc. Rev.,

      
  1,000    

4.85%, 4/1/21

     985,040
       

Bexar Met. Wtr. Dist. Waterworks Sys. Rev.,

      
  2,500    

5.00%, 5/1/25, M.B.I.A.

     2,558,925
       

Coastal Wtr. Auth. Contract Rev.,

      
  4,000    

5.00%, 12/15/25, F.S.A.

     4,049,560
       

Dallas Gen. Oblig.

      
  2,000    

4.50%, 2/15/23

     2,012,280
       

El Paso Wtr. & Swr. Rev.,

      
  1,555    

5.50%, 3/1/12, Ser. A, F.S.A.

     1,672,682
       

Harris Cnty. Gen. Oblig.,

      
  1,650    

7.00%, 8/15/10, Ser. A

     1,801,602
       

Houston Wtr. & Swr. Sys. Rev.,

      
  1,500 (b)  

5.25%, 12/1/23, Ser. B, F.G.I.C.
Prerefunded 12/1/10 @ $100

     1,578,285
  3,500 (b)  

5.00%, 12/1/28, Ser. A, F.S.A.
Prerefunded 12/1/09 @ $100

     3,608,780
       

Lower Colorado River Auth. Rev.,

      
  2,000    

5.00%, 5/15/31, F.S.A.

     2,031,680
       

San Antonio Elec. & Gas Rev.,

      
  2,595    

5.00%, 2/1/18, Ser. A

     2,655,671
  1,405 (b)  

5.00%, 2/1/18, Ser. A
Prerefunded 2/1/09 @ 101

     1,444,986
       

University North Texas Rev.,

      
  1,000    

4.50%, 4/15/25, F.G.I.C.

     994,000
           
              25,393,491
           

 

See Notes to Financial Statements.

 

Principal
Amount
(000)		   Description (a)  

Value

(Note 1)

  
      Virginia—4.1%        
     

Henrico Cnty. Wtr. & Swr. Rev.,

        
$ 3,985  

5.00%, 5/1/28

   $ 4,098,772  
     

Virginia St. Hsg. Dev. Auth. Rev.,

        
  1,500  

4.55%, 1/1/24

     1,432,710  
         
            5,531,482  
         
      Washington—2.3%        
     

Energy Northwest Wind Proj. Rev.,

        
  500  

4.75%, 7/1/21, M.B.I.A.

     513,185  
     

King Cnty. Swr. Rev.,

        
  2,500  

5.00%, 1/1/31, F.G.I.C.

     2,555,175  
         
            3,068,360  
         
      West Virginia—1.1%        
     

Monongalia Cnty. Building Commission Hospital Rev.

        
  1,500  

5.00%, 7/1/30, Ser. A

     1,442,835  
         
      Wyoming—3.3%        
     

Wyoming St. Farm Loan Brd. Cap. Facs. Rev.,

        
  4,000  

5.75%, 10/1/20

     4,405,280  
         
     

Total long-term investments
(cost $182,781,175)

     196,797,858  
         
     

SHORT-TERM INVESTMENT—2.1%

        
  Shares  

Goldman Sachs Tax Exempt Money Market Fund

        
  2,872,312  

(cost $2,872,312)

   $ 2,872,312  
         
     

Total Investments—147.8%
(cost $185,653,487)

     199,670,170  
     

Other assets in excess of
liabilities—0.3%

     427,713  
     

Liquidation value of remarketed preferred stock—(48.1%)

     (65,000,000 )
         
     

Net Assets Applicable to Common Stock—100.0%

   $ 135,097,883  
         
     

Net asset value per share of common stock ($135,097,883/8,507,456)

   $ 15.88  
         
(a) The following abbreviations are used in portfolio descriptions to indicate providers of credit support, in whole or in part:

A.C.A.—ACA Financial Guaranty Corporation.

A.M.B.A.C.—Ambac Assurance Corporation.

F.G.I.C.—Financial Guaranty Insurance Company.

F.H.A.—Federal Housing Authority.

F.S.A.—Financial Security Assurance Inc.

M.B.I.A.—MBIA Insurance Corporation.

Radian—Radian Asset Assurance Inc.

(b) Prerefunded and escrowed to maturity issues are secured by escrowed cash, government obligations, or other securities.

 

6

Footnotes to Portfolio of Investments (continued)

 

(c) Security is not registered under the Securities Act of 1933. These securities may be resold in transactions in accordance with Rule 144A to qualified institutional buyers. At October 31, 2007, these securities amounted to a value of $3,539,655 or 2.6% of net assets applicable to common stock.

 

Summary of State Diversification as a Percentage of Net Assets applicable to Common Shareholders

 

As of October 31, 2007

 

State

    %
  

California

    21.6  

Texas

    18.8  

Georgia

    16.6  

New York

    8.9  

Florida

    8.7  

Massachusetts

    6.2  

Alabama

    6.1  

Indiana

    5.8  

Ohio

    5.5  

Illinois

    5.0  

Nebraska

    4.1  

Virginia

    4.1  

New Jersey

    4.0  

Michigan

    3.8  

Connecticut

    3.4  

Nevada

    3.3  

Wyoming

    3.3  

Pennsylvania

    3.2  

Kentucky

    3.0  

Washington

    2.3  

Hawaii

    1.5  

South Carolina

    1.2  

District of Columbia

    1.1  

Tennessee

    1.1  

West Virginia

    1.1  

Puerto Rico

    0.8  

Iowa

    0.7  

Idaho

    0.5  

Short term investment

    2.1  
    
     147.8  

Other assets in excess of liabilities

    0.3  

Liquidation value of remarketed preferred stock

    (48.1 )
    
     100.0 %
    

 

Summary of Ratings as a Percentage of Long-Term Investments (unaudited)

 

As of October 31, 2007

 

Rating*

    %
  

AAA

    71.5 %

AA

    16.3 %

A

    5.4 %

BBB

    6.8 %
    
     100.0 %
    
* Based on the lowest rating of Standard & Poor’s Ratings Services, Moody’s Investors Service, Inc. or Fitch Ratings Ltd.

 

See Notes to Financial Statements.

 

7

DTF TAX-FREE INCOME INC.

Statement of Assets and Liabilities

October 31, 2007

Assets

         

Investments, at value (cost $185,653,487)

    $ 199,670,170  

Cash

      94,820  

Interest receivable

      2,968,836  

Other assets (Note 7)

      207,539  
    

Total assets

      202,941,365  
    

Liabilities

         

Payable for securities purchased

      2,316,434  

Deferred compensation payable (Note 7)

      201,727  

Investment advisory fee payable (Note 2)

      85,063  

Dividends payable to preferred shareholders

      38,466  

Administrative fee payable (Note 2)

      17,238  

Accrued expenses

      184,554  
    

Total liabilities

      2,843,482  
    

Remarketed preferred stock ($.01 par value; 1,300 shares issued and outstanding, liquidation preference $50,000 per share) (Note 6)

    $ 65,000,000  
    

Net Assets Applicable to Common Stock

    $ 135,097,883  
    

Capital

         

Common stock, $.01 par value; 599,998,700 shares authorized, 8,507,456 issued and outstanding (Note 5)

    $ 85,075  

Additional paid-in capital

      120,440,442  

Undistributed net investment income

      657,852  

Accumulated net realized loss on investment transactions

      (102,169 )

Net unrealized appreciation on investments

      14,016,683  
    

Net Assets Applicable to Common Stock

    $ 135,097,883  
    

Net assets applicable to common stock ($135,097,883/8,507,456 shares of common stock issued and outstanding)

    $ 15.88  
    

 

See Notes to Financial Statements.

 

DTF TAX-FREE INCOME INC.

Statement of Operations

For the Year Ended October 31, 2007

Investment Income

         

Interest income

    $ 10,045,454  
    

Expenses

         

Investment advisory fees (Note 2)

      1,006,939  

Directors’ fees and expenses

      217,312  

Administrative fees (Note 2)

      204,582  

Remarketing fees

      184,557  

Professional fees

      170,344  

Custodian fees and expenses

      52,409  

Reports to shareholders

      39,943  

Transfer agent fees and expenses

      25,571  

Registration fees

      23,750  

Other

      13,607  
    

Total expenses

      1,939,014  
    

Net investment income

      8,106,440  
    
Realized and Unrealized Gain/(Loss) on Investments         

Net realized loss on investment transactions

      (42,120 )

Net change in unrealized appreciation on investments

      (4,220,833 )
    

Net realized and unrealized loss on investments

      (4,262,953 )
    
Dividends and Distributions on Remarketed Preferred Stock From:         

Net investment income

      (2,426,387 )
    
Net Increase in Net Assets Resulting from Operations    $ 1,417,100  
    

 

8

DTF TAX-FREE INCOME INC.

Statements of Changes

In Net Assets

     For the Year
Ended
October 31,
2007
     For the Year
Ended
October 31,
2006
  

Operations

                 

Net investment income

    $ 8,106,440     $ 8,114,617  

Net realized loss on investment transactions

      (42,120 )     (36,979 )

Net change in unrealized appreciation on investments

      (4,220,833 )     1,186,762  

Dividends and distributions on remarketed preferred stock from net investment income

      (2,426,387 )     (2,170,074 )
    
 

Net increase in net assets resulting from operations

      1,417,100       7,094,326  
    
 

Dividends and distributions on common stock from net investment income

      (5,614,921 )     (6,635,816 )
    
 

Total dividends and distributions on common stock

      (5,614,921 )     (6,635,816 )
    
 

Total increase/(decrease) in net assets

      (4,197,821 )     458,510  

Net Assets Applicable to Common Stock

                 

Beginning of year

      139,295,704       138,837,194  
    
 

End of year(a)

    $ 135,097,883     $ 139,295,704  
    
 

(a) includes undistributed net investment income of

    $ 657,852     $ 592,720  
    
 

 

See Notes to Financial Statements.

 

9

DTF TAX-FREE INCOME INC.

Financial Highlights

 

     For the Year Ended October 31,
  
PER SHARE OPERATING PERFORMANCE    2007
     2006
     2005
     2004
     2003
  

Net asset value, beginning of year

    $ 16.37     $ 16.32     $ 17.14     $ 17.02     $ 16.97  
    
 
 
 
 

Net investment income(1)

      0.95       0.95       0.94       1.00       1.04  

Net realized and unrealized gain/(loss) on investment transactions

      (0.49 )     0.14       (0.63 )     0.16       0.05  

Dividends and distributions on remarketed preferred stock from:

                                         

Net investment income

      (0.29 )     (0.26 )     (0.16 )     (0.08 )     (0.08 )

Net realized gains

      —       —       (0.01 )     —       —  
    
 
 
 
 

Net increase from investment operations

      0.17       0.83       0.14       1.08       1.01  
    
 
 
 
 

Dividends and distributions on common stock from:

                                         

Net investment income

      (0.66 )     (0.78 )     (0.85 )     (0.96 )     (0.96 )

Net realized gains

      —       —       (0.11 )     —       —  
    
 
 
 
 

Total dividends and distributions on common stock

      (0.66 )     (0.78 )     (0.96 )     (0.96 )     (0.96 )
    
 
 
 
 

Net asset value, end of year

    $ 15.88     $ 16.37     $ 16.32     $ 17.14     $ 17.02  
    
 
 
 
 

Per share market value, end of year

    $ 13.97     $ 15.01     $ 14.74     $ 16.15     $ 15.52  
    
 
 
 
 
TOTAL INVESTMENT RETURN ON COMMON STOCK(2)      (2.69 )%     7.30 %     (3.25 )%     10.60 %     10.22 %
RATIOS TO AVERAGE NET ASSETS APPLICABLE TO COMMON STOCK:(3)                                         

Operating expenses

      1.42 %     1.43 %     1.40 %     1.42 %     1.39 %

Net investment income

      5.95 %     5.88 %     5.58 %     5.86 %     6.04 %
SUPPLEMENTAL DATA                                         

Portfolio turnover rate

      13 %     7 %     11 %     11 %     6 %

Net assets applicable to common stock, end of year (000)

    $ 135,098     $ 139,296     $ 138,837     $ 145,796     $ 144,819  

Asset coverage per share of preferred stock, end of the year

    $ 153,921     $ 157,151     $ 156,798     $ 162,150     $ 161,399  

Preferred stock outstanding (000)

    $ 65,000     $ 65,000     $ 65,000     $ 65,000     $ 65,000  
(1) Based on average number of shares of common stock outstanding.
(2) Total investment return is calculated assuming a purchase of common stock at the current market value on the first day and a sale at the current market value on the last day of each year reported. Dividends are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Brokerage commissions are not reflected.
(3) Ratios calculated on the basis of income and expenses applicable to both the common and preferred stock relative to the average net assets applicable to common stock. Ratios do not reflect the effect of dividend and distributions on remarketed preferred stock.

 

10

 

See Notes to Financial Statements.

DTF TAX-FREE INCOME INC.

Notes to Financial Statements

 

DTF Tax-Free Income Inc. (the “Fund”) was organized in Maryland on September 24, 1991 as a diversified, closed-end management investment company. The Fund had no operations until November 20, 1991 when it sold 8,000 shares of common stock for $112,400 to Duff & Phelps Corporation. Investment operations commenced on November 29, 1991.

 

The Fund’s investment objective is current income exempt from regular federal income tax consistent with preservation of capital. The Fund seeks to achieve its investment objective by investing primarily (at least 80% of its total assets) in a diversified portfolio of investment-grade tax-exempt obligations. Effective on May 31, 2007, the Fund may not invest more than 25% of its total assets (taken at market value at the time of each investment) in the securities of issuers in a single industry; provided that, for purposes of this restriction, tax- exempt securities of issuers that are states, municipalities or their political subdivisions are not considered to be the securities of issuers in any single industry. The ability of the issuers of the securities held by the Fund to meet their obligations may be affected by economic developments in a specific state, industry or region.

 

Note 1. Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the

preparation of its financial statements.

 

Securities Valuation: The Fund values its fixed income securities by using market quotations, prices provided by market makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics in accordance with procedures established by the Board of Directors of the Fund. The relative liquidity of some securities in the Fund’s portfolio may adversely affect the ability of the Fund to accurately value such securities. Any securities or other assets for which such current market quotations are not readily available are valued at fair value as determined in good faith under procedures established by and under the general supervision and responsibility of the Fund’s Board of Directors.

 

Debt securities having a remaining maturity of 60 days or less when purchased and debt securities originally purchased with maturities in excess of 60 days but which currently have maturities of 60 days or less are valued at cost adjusted for amortization of premiums and accretion of discounts, which approximates market value.

 

Investments in mutual funds are valued at their net asset value as of the close of the New York Stock Exchange on the date of valuation.

 

Securities Transactions and Investment Income: Securities transactions are recorded on the trade date. Realized gains and losses on sales of securities are calculated on the identified cost basis. Interest income is recorded on the accrual basis. The Fund amortizes premiums and accretes discounts on securities using the effective interest method.

 

Federal Income Taxes: It is the Fund’s intention to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute sufficient net income and capital gains to shareholders to qualify as a regulated investment company. Therefore, no provision for federal income tax or excise tax is required.

 

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 on the Fund’s preferred stock are accrued and paid on a weekly basis and are determined as described in Note 6.

 

Income distributions and capital gain distributions are determined in accordance with income tax regulations, which may differ from investment income and capital gains recorded in accordance with U.S. generally accepted accounting principles.

 

Recent Accounting Pronouncements: In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”) entitled “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”. FIN 48 prescribes the minimum recognition threshold a tax position must meet in connection with accounting for uncertainties in income tax positions taken or expected to be taken by an entity including mutual funds before being measured and recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Fund will adopt FIN 48 during the fiscal year ending October 31, 2008. The impact on the Fund’s financial statements, if any, is currently being assessed.

 

In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and

 

11

expands disclosures about fair value measurements. The Fund will adopt SFAS 157 during the fiscal year ending October 31, 2009. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund’s financial statement disclosures.

 

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 2. Agreements

The Fund has an Advisory Agreement with Duff & Phelps

Investment Management Co. (the “Adviser”), a subsidiary of Phoenix Investment Partners, Ltd. (“Phoenix” or “PXP”), and an Administration Agreement with Princeton Administrators, LLC (“Princeton”).

 

The investment advisory fee is computed weekly and payable monthly at an annual rate of 0.50% of the Fund’s average weekly managed assets, which is defined as the average weekly value of the total assets of the Fund minus the sum of all accrued liabilities of the Fund (other than the aggregate amount of any outstanding borrowings or other indebtedness constituting financial leverage).

 

The administration fee paid to Princeton is computed weekly and payable monthly at an annual rate of 0.15% of the Fund’s 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 aggregate amount of any outstanding borrowings or other indebtedness constituting financial leverage).

 

Pursuant to the Advisory Agreement, the Adviser provides continuous supervision of the investment portfolio and pays the compensation of officers of the Fund who are affiliated persons of the Adviser. Pursuant to the Administration Agreement, Princeton provides administration services that include oversight of the Fund’s books and records and preparation of financial statements and other regulatory filings. The Fund bears all other costs and expenses.

 

Note 3. Portfolio Securities

Purchases and sales of investment securities, other than

short-term investments, for the year ended October 31, 2007 aggregated $26,302,647 and $26,077,280, respectively.

 

The United States federal income tax basis of the Fund’s investments and the net unrealized appreciation as of October 31, 2007 were as follows:

 

Tax Basis of

Investments

   Appreciation
   Depreciation
  

Net

Unrealized

Appreciation

$185,053,069   $ 15,240,434   $ 623,333   $ 14,617,101

 

Note 4. Distributions to Shareholders

The tax character of distributions paid during the fiscal years ended October 31,

2007 and 2006 was as follows:

 

     10/31/2007
    10/31/2006

Distributions paid from:

              

Tax-exempt income

    $ 8,041,308    $ 8,805,890

Ordinary income

      —      —

Capital gains

      —      —
    
  

Total distributions

    $ 8,041,308    $ 8,805,890
    
  

 

As of October 31, 2007, the components of accumulated earnings on a tax basis were as follows:

 

Undistributed tax-exempt income—net

    $ 199,035  

Undistributed long-term capital gains—net

      —  
    

Total undistributed earnings

      199,035  

Capital loss carryforward

      (102,169 )*

Unrealized gains/(losses)—net

      14,475,500 **
    

Total accumulated earnings

    $ 14,572,366  
    
* On October 31, 2007 the Fund had a net capital loss carryforward of $102,169, of which $23,070 expires in 2013, $36,979 expires in 2014 and $42,120 expires in 2015.
** The difference between book-basis and tax-basis unrealized gains/(losses) is attributable primarily to the difference between book and tax amortization methods for premiums and discounts on fixed income securities and the tax treatments of deferred expenses.

 

Note 5. Capital

There are 600 million shares of $0.01 par value stock authorized.

 

For the year ended October 31, 2007, the Fund did not issue any shares of common stock in connection with the reinvestment of dividends.

 

Note 6. Remarketed Preferred Stock

The Fund’s Charter authorizes the issuance of Remarketed Preferred Stock (“RP”). Accordingly, the Fund issued 1,300 shares of RP on February 4, 1992. The RP has a liquidation value of $50,000 per share plus any accumulated but unpaid dividends.

 

12

Dividends on shares of RP are cumulative from their date of original issue and payable on each dividend payment date. Dividend rates ranged from 3.50% to 4.10% during the year ended October 31, 2007.

 

Under the Investment Company Act of 1940, 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 RP is redeemable at the option of the Fund, in whole or in part, on any dividend payment date at $50,000 per share plus any accumulated or unpaid dividends, whether or not declared. The RP is also subject to a mandatory redemption at $50,000 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 Fund’s Charter are not satisfied.

 

The holders of RP 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 RP are also entitled to elect two of the Fund’s directors. In addition, the Investment Company Act of 1940 requires that along with 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 Fund’s subclassification as a closed-end investment company or changes in its fundamental investment restrictions.

 

Note 7. Deferred Compensation Program   Effective on January 1, 2000, the Fund established a deferred compensation program for its

independent directors. Any director who was not an “interested person” of the Fund and who elected to participate in the program (a “participating director”) was eligible to defer receipt of all or a portion of his or her compensation from the Fund. Any amounts deferred by a participating director were credited to a deferred compensation ledger account (a “deferral account”) established for such director. From January 1, 2000 through December 31, 2004, the deferred compensation program was administered by the Fund’s transfer agent on behalf of the Fund, and all amounts credited to each participating director’s deferral account were deemed to be invested in common stock of the Fund. Participating directors do not have an ownership interest in those shares. Contributions to the deferral account and increases in value of the measuring shares caused the account balance to increase accordingly, while withdrawals from the deferral account and decreases in value of the measuring shares caused the account balance to decrease accordingly. When a participating director retires, the director may elect to receive payments under the plan in a lump sum or in equal installments over a period of up to ten years. If a participating director dies, any amount payable under the plan will be paid to the director’s beneficiaries. Effective on January 1, 2005, administration of new contributions under the deferred compensation program was transferred to Fidelity Investments, which administers similar programs for other investment companies advised by affiliates of Phoenix. The Fidelity Investments program gave participating directors the ability to allocate amounts in their deferral accounts among various investment options, one of which was common stock of the Fund. The acceptance of new contributions under the Fund’s deferred compensation program was discontinued, effective on December 31, 2006. However, the obligation to make payouts to directors with respect to compensation deferred between January 1, 2000 and December 31, 2006 remains a general obligation of the Fund. For this reason, the Fund’s Statement of Assets and Liabilities at October 31, 2007 includes “Deferred compensation payable” in the amount of $201,727, and the $201,727 in deferred compensation investments that support that obligation are included in “Other assets.”

 

Note 8. Subsequent Events   Subsequent to October 31, 2007, dividends declared and

paid on preferred stock totalled $344,669 through December 14, 2007. On November 1, 2007, the Board of Directors of the Fund declared a dividend of $0.05 per share of common stock payable on November 30, 2007, to common shareholders of record on November 15, 2007. On November 8, 2007, the Board of Directors approved a dividend of $0.05 per share of common stock to be declared on December 3, 2007 payable on December 31, 2007 to common shareholders of record on December 17, 2007.

 

Note 9. Indemnifications   Under the Fund’s 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 Fund’s 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 contracts and believes the risk of loss to be remote.

 

 

13

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Shareholders and Board of Directors of

DTF Tax-Free Income Inc.:

 

We have audited the accompanying statement of assets and liabilities of DTF Tax-Free Income Inc. (the “Fund”), including the portfolio of investments, as of October 31, 2007, and the related statement of operations 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 Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

 

We conducted our audits in accordance with 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 Fund’s 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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 October 31, 2007, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 DTF Tax-Free Income Inc. at October 31, 2007, the results of its operations 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.

 

LOGO

 

Chicago, Illinois

December 14, 2007

 

14

IMPORTANT TAX INFORMATION (Unaudited)

 

During the fiscal year ended October 31, 2007, all of the net investment income distributions paid by the Fund to shareholders qualify as tax-exempt interest dividends for Federal income tax purposes.

 

REPORT ON ANNUAL MEETING OF SHAREHOLDERS (Unaudited)

 

The Annual Meeting of Shareholders of the Fund was held on May 10, 2007 and reconvened on May 31, 2007. The following is a description of each matter voted upon at the meeting and the number of votes cast on each matter:

 

     Shares Voted
For
    Shares
Withheld

1. To elect four directors to serve until the Annual Meeting in the year indicated below or until their successors are duly elected and qualified:

          

Philip R. McLoughlin (2010)

    6,422,378    200,218

Eileen A. Moran (2010)

    6,440,233    182,363

Nathan I. Partain (2010)

    6,461,823    160,773

Carl F. Pollard (2008)*

    705    588
* Elected by the holders of the Fund’s preferred stock voting as a separate class.

 

Directors whose term of office continued beyond this meeting are as follows: Francis E. Jeffries, Nancy Lampton, Geraldine M. McNamara and David J. Vitale.

 

    

Shares Voted

For

   

Shares Voted

Against

    Shares
Abstained

2. To eliminate the fundamental investment policy of concentrating DTF’s investments in the utilities sector of the municipal securities market by investing, in normal market conditions, at least 65% of DTF’s total assets in tax-exempt utility obligations:

    4,422,073    103,246    2,097,277

 

    

Shares Voted

For

   

Shares Voted

Against

    Shares
Abstained

3. To adopt a new fundamental investment policy that DTF may not invest more than 25% of its total assets (taken at market value at the time of each investment) in the securities of issuers in a single industry; provided that, for purposes of this restriction, tax-exempt securities of issuers that are states, municipalities or their political subdivisions are not considered to be the securities of issuers in any single industry:

    4,424,731    89,423    2,108,442

 

15

DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (Unaudited)

 

Pursuant to the Fund’s Dividend Reinvestment Plan (the “Plan”), common shareholders may elect to have all distributions of dividends and capital gains automatically reinvested by American Stock Transfer & Trust Company (the “Plan Agent”) in shares of common stock of the Fund (“Fund Shares”) pursuant to the Plan; provided that such election is subject to the power of the Board of Directors to declare capital gains distributions in the form of stock (if such a declaration is made by the Board of Directors, all shareholders who do not elect to receive cash will receive the distribution in the form of stock whether or not they elect to participate in the Plan). Common shareholders who do not participate in the Plan will receive all distributions in cash (except as described above) paid by check in United States 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 Custodian, as dividend disbursing agent. Common shareholders who wish to participate in the Plan should contact the Fund at 6201 15th Avenue, Brooklyn, New York, 11219 or call toll free (800) 937-5449.

 

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 gain distribution, if (1) the market price is lower than net asset value, the participants in the Plan will receive the equivalent in Fund Shares valued at the market price determined as of the time of purchase (generally, the payment date of the dividend or distribution); or if (2) the market price of Fund Shares on the payment date of the dividend or distribution is equal to or exceeds their net asset value, participants will be issued Fund Shares at the higher of net asset value or 95% of the market price. This discount reflects savings in underwriting and other costs that the Fund otherwise will be required to incur to raise additional capital. If net asset value exceeds the market price of Fund Shares on the payment date or the Fund declares a dividend or other distribution payable only in cash (i.e., if the board of directors precludes reinvestment in Fund Shares for that purpose), the Plan Agent will, as agent for the participants, receive the cash payment and use it to buy Fund Shares in the open market, on the New York Stock Exchange, other national securities exchanges on which the Fund’s common stock is listed or elsewhere, for the participants’ accounts. If, before the Plan Agent has completed its purchases, the market price exceeds the net asset value of a Fund Share, the average per share purchase price paid by the Plan Agent may exceed the net asset value of Fund Shares, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Fund. The Fund will not issue shares under the Plan below net asset value.

 

Participants in the Plan may withdraw from the Plan upon written notice to the Plan Agent and will receive certificates for whole Fund Shares and a cash payment will be made for any fraction of a Fund Share.

 

There is no charge to participants for reinvesting dividends or capital gain distributions, except for certain brokerage commissions, as described below. The Plan Agent’s fees for the handling of the reinvestment of dividends and distributions will be paid by the Fund. There will be no brokerage commissions charged with respect to shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent’s open market purchases in connection with the reinvestment of dividends and distributions. The automatic reinvestment of dividends and distributions will not relieve participants of any federal income tax that may be payable on such dividends or distributions.

 

Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan as applied to any dividend or distribution paid subsequent to written notice of the change sent to all shareholders of the Fund at least 90 days before the record date for the dividend or distribution. The Plan also may be amended or terminated by the Plan Agent upon at least 90 days written notice to all common shareholders of the Fund. All correspondence concerning the Plan should be directed to the Fund at the address on the front of this report.

 

The Plan has been amended to permit Plan participants periodically to purchase additional shares of common stock through the Plan by delivering to the Plan Agent a check for at least $100, but not more than $5,000, in any month. The Plan Agent will use the funds to purchase shares in the open market or in private transactions as described above with respect to reinvestment of dividends and distributions. This amendment to the Plan was approved by the Board on May 27, 1998 and was effective September 1, 1998. Thereafter, 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

 

16

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.

 

ADDITIONAL INFORMATION (Unaudited)

 

Since November 1, 2006: (i) there have been no material changes in the Fund’s investment objectives or policies that have not been approved by the shareholders; (ii) there have been no changes in the Fund’s charter or by-laws that would delay or prevent a change in control of the Fund which have not been approved by the shareholders; (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 Fund’s portfolio.

 

Additional information, if any, relating to the Fund’s 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 Investment Company Act of 1940 that the Fund may from time to time purchase its shares of common stock in the open market.

 

PROXY VOTING POLICY AND PROCEDURES (Unaudited)

 

Although the Fund does not typically hold voting securities, the Fund’s Board of Directors has adopted proxy voting procedures whereby Duff & Phelps Investment Management Co., the Fund’s 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 Adviser’s good faith belief as to the best interests of the Fund and its shareholders. These proxy voting procedures may be changed at any time or from time to time by the Fund’s Board of Directors. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities during the most recent 12-month period ended June 30 are available without charge, upon request, by calling toll free (800) 243-4361 ext. 5992 and on the Securities Exchange Commission’s (SEC) website at http://www.sec.gov.

 

AVAILABILITY OF QUARTERLY SCHEDULE OF INVESTMENTS (Unaudited)

 

The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling (202) 551-8090. The Fund’s Form N-Q is also available, without charge, upon request, by calling toll free (800) 243-4361 ext. 5992.

 

17

ANNUAL CERTIFICATIONS (Unaudited)

 

In June 2007, the Fund submitted a CEO annual certification to the New York Stock Exchange (“NYSE”) in which the Fund’s principal executive officer certified that he was not aware, as of the date of the certification, of any violation by the Fund of the NYSE’s Corporate Governance listing standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Fund’s principal executive and principal financial officers have made quarterly certifications, included in filings with the SEC on Forms N-CSR and N-Q, relating to, among other things, the Fund’s disclosure controls and procedures and internal control over financial reporting.

 

PRIVACY PRINCIPLES OF THE FUND (Unaudited)

 

The Fund is committed to maintaining the privacy of its shareholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information the Fund collects, how the Fund protects that information and why, in certain cases, the Fund may share information with select other parties.

 

Generally, the Fund does not receive any non-public personal information relating to its shareholders, although certain non-public personal information of its shareholders may become available to the Fund. The Fund does not disclose any non-public personal information about its shareholders or former shareholders to anyone, except as permitted by law or as is necessary in order to service shareholder accounts (for example, to a transfer agent or third party administrator).

 

The Fund restricts access to non-public personal information about its shareholders to employees of the Adviser, the Fund’s administrator and their respective affiliates with a legitimate business need for the information. The Fund maintains physical, electronic and procedural safeguards designed to protect the non-public personal information of its shareholders.

 

 

18

DIRECTORS OF THE FUND (Unaudited)

 

Information pertaining to the Directors of the Fund is set forth below. Directors who are not deemed to be “interested persons” of the Funds, as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) are referred to as “Independent Directors.” Directors who are deemed to be “interested persons” of the Fund are referred to as “Interested Directors.” “Fund Complex” consists of the Fund and any other investment companies managed by Phoenix Investment Partners, Ltd. (“PXP”) or its affiliates.

 

Independent Directors

Name, Address 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

Francis E. Jeffries
c/o Duff & Phelps Investment Management Co.
55 East Monroe Street
Suite 3600
Chicago, IL 60603

Age: 77

    Director and Chairman of the Board    Term expires in 2008; Director since 1991    Chairman of the Board of Duff & Phelps Utility and Corporate Bond Trust Inc. (“DUC”) since September 1992 (President of the Fund and DUC, January 2000-February 2004); Chairman of the Board of DNP Select Income Fund Inc. (“DNP”) since May 2005 (Vice Chairman, April 2004-May 2005); Chairman of the Board of PXP, November 1995-May 1997; Chairman and Chief Executive Officer, Duff & Phelps Corporation, June 1993-November 1995 (President and Chief Executive Officer, January 1992-June 1993); Chairman of the Board of Duff & Phelps Investment Management Co. 1988-1993    58     

Nancy Lampton(1)

c/o Duff & Phelps Investment Management Co.
55 East Monroe Street
Suite 3600
Chicago, IL 60603

Age: 65

   

Director and

Vice Chairman of the Board

    Terms expires in 2009; Director since 2005    Chairman and Chief Executive Officer, Hardscuffle Inc. (insurance holding company) since January 2000; Chairman and Chief Executive Officer, American Life and Accident Insurance Company of Kentucky since 1971    3    Director, Constellation Energy Group, Inc. (public utility holding company); Advisory Board Member, Thorium Power, Inc. (designer of non-proliferative fuel for nuclear energy needs)

Geraldine M. McNamara

c/o Duff & Phelps Investment Management Co.
55 East Monroe Street
Suite 3600
Chicago, IL 60603

Age: 56

    Director   

Term expires

in 2008;

Director since 2003

    Private investor since July 2006; Managing Director, U.S. Trust Company of New York 1982–July 2006    57     

Eileen A. Moran

c/o Duff & Phelps Investment Management Co.
55 East Monroe Street
Suite 3600
Chicago, IL 60603

Age: 53

    Director   

Term expires

in 2010;

Director since 1996

    President and Chief Executive Officer, PSEG Resources L.L.C. (investment company) since 1990    2     

Carl F. Pollard(1)

c/o Duff & Phelps Investment Management Co.
55 East Monroe Street
Suite 3600
Chicago, IL 60603

Age: 69

    Director   

Term expires

in 2008;

Director since 2006

    Owner, Hermitage Farm L.L.C. (thoroughbred breeding) since January 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)    3    Chairman of the Board and Director, Churchill Downs Incorporated

 

19

Name, Address 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

David J. Vitale

c/o Duff & Phelps Investment Management Co.
55 East Monroe Street

Suite 3600
Chicago, IL 60603

Age: 61

    Director   

Term expires

in 2009;

Director since 2005

    Chief Administrative Officer, Chicago Public Schools since April 2003; Private investor November 2002-April 2003; President and Chief Executive Officer, Board of Trade of the City of Chicago, Inc. March 2001-November 2002; Retired executive 1999-2001; 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)    3    Director, UAL Corporation (airline holding company), ISO New England Inc. (not for profit independent system operator of New England’s electricity supply), Ariel Capital Management, LLC, Ark Investment Corp. and Wheels, Inc. (automobile fleet management)

Interested Directors

                    

Philip R McLoughlin(2)
c/o Duff & Phelps Investment Management Co.
55 East Monroe Street
Suite 3600
Chicago, IL 60603

Age: 61

    Director   

Term expires

in 2010;

Director since 1996

    Partner, CrossPond Partners, LLC (investment management consultant) since 2006; Private investor 2004-2006; Consultant to PXP, 2002-2004; Chief Executive Officer of PXP, 1995-2002 (Chairman 1997-2002, Director 1995-2002); Executive Vice President and Chief Investment Officer, The Phoenix Companies, Inc. 1989-2002    65    Director, Argo Group International Holdings, Ltd. (insurance holding company) and The World Trust Fund (investment trust)

Nathan I. Partain(3)

Duff & Phelps Investment

Management Co.

55 East Monroe Street,

Suite 3600

Chicago, IL 60603

Age: 51

   

Director,

President and Chief Executive Officer

   

Term expires

in 2010;

Director since

2007

    President and Chief Executive Officer of DUC since February 2004; President and Chief Investment Officer of the Adviser since April 2005 (Executive Vice President 1997-2005); President and Chief Executive Officer of DNP since February 2001 (Chief Investment Officer since January 1998; Executive Vice President, April 1998-February 2001; Senior Vice President January 1997-April 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)    3    Director, Otter Tail Corporation (manages diversified operations in the electric, plastics, manufacturing, health services, food ingredient processing and other business operations sectors)

 

(1) Elected to his or her position on the board by the holders of the preferred stock, voting as a separate class.

(2) Mr. McLoughlin is an Interested Director because his participation in certain pension plans maintained by PXP and its affiliates may be deemed to constitute a material business relationship with PXP within the meaning of section 2(a)(19) of the 1940 Act.

(3) Mr. Partain is an Interested Director because he is an officer and employee of the Adviser.

 

20

MANAGEMENT OF THE FUND (Unaudited)

 

The officers serve until their respective successors are chosen and qualified. The Fund’s officers receive no compensation from the Fund, but are also officers of the Adviser or PXP and receive compensation in such capacities. Information pertaining to Nathan I. Partain, the President and Chief Executive Officer of the Fund, is set forth on page 20 of this report. Information pertaining to the other officers of the Fund is set forth below.

 

Name, Address and Age

   

Position(s) Held with Fund and Length of

Time Served

   

Principal Occupation(s) During Past 5 Years

T. Brooks Beittel

Duff & Phelps Investment

Management Co.

55 East Monroe Street,

Suite 3600

Chicago, IL 60603

Age: 57

    Secretary since 2005    Senior Vice President of the Adviser since 1993 (Vice President 1987-1993); Secretary and Senior Vice President of DNP since 1995 (Treasurer 1995-2002); Secretary of DUC since 2005

Timothy M. Heaney

Phoenix Investment Partners, Ltd

56 Prospect Street

Hartford, CT 06115

Age: 42

   

Chief Investment Officer since 2004 (Vice President and Portfolio Manager

since 1997; Portfolio Manager 2002-2004)

    Senior Managing Director, Fixed Income, Phoenix Investment Counsel, Inc. since 2006 (Managing Director, Phoenix Investment Counsel, Inc. 1997-2006; Director, Fixed Income Research 1996-1997, Investment Analyst 1995-1996)

Lisa H. Leonard

Phoenix Investment Partners, Ltd

56 Prospect Street

Hartford, CT 06115

Age: 44

    Vice President since 2006    Vice President of the Adviser since 2006; Director, Fixed Income Research, Phoenix Investment Counsel, Inc. since 1998 (Director, Investment Operations 1994-1998, Fixed Income Trader 1987-1993)

Alan M. Meder

Duff & Phelps Investment

Management Co.

55 East Monroe Street,

Suite 3600

Chicago, IL 60603

Age: 48

   

Treasurer since 2000; Principal

Financial Officer, Chief Financial Officer

and Assistant Secretary since 2002

    Senior Vice President of the Adviser since 1994; Treasurer of DUC since 2000; Principal Financial Officer, Chief Financial Officer and Assistant Secretary of DUC since 2002

Joyce B. Riegel

Duff & Phelps Investment

Management Co.

55 East Monroe Street,

Suite 3600

Chicago, IL 60603

Age: 53

    Chief Compliance Officer since 2003    Senior Vice President and Chief Compliance Officer of the Adviser since 2004 (Vice President and Compliance Officer 2002-2004); Chief Compliance Officer of DUC since 2003 and Chief Compliance Officer of DNP since 2004; Vice President and Chief Compliance Officer, Stein Roe Investment Counsel LLC 2001-2002; Vice President and Compliance Officer, Stein Roe & Farnham Incorporated 1996-2000

 

 

21

 

Directors

Francis E. Jeffries, CFA, Chairman

Nancy Lampton, Vice Chairman

Philip R. McLoughlin

Geraldine M. McNamara

Eileen A. Moran

Nathan I. Partain

Carl F. Pollard

David J. Vitale

Officers

Nathan I. Partain, CFA, President & Chief Executive Officer

T. Brooks Beittel, CFA, Secretary

Timothy M. Heaney, CFA, Vice President & Chief Investment Officer

Lisa H. Leonard, Vice President

Alan M. Meder, CFA, Treasurer & Assistant Secretary

Joyce B. Riegel, Chief Compliance Officer

Investment Adviser

Duff & Phelps Investment Management Co.

55 East Monroe Street

Suite 3600

Chicago, IL 60603

Call toll-free (800) 243-4361 ext. 5992

(860) 403-5992

www.phoenixinvestments.com

Administrator

Princeton Administrators, LLC

P.O. Box 9095

Princeton, NJ 08543-9095

Custodian

State Street Bank and Trust Company

One Heritage Drive

North Quincy, MA 02171

Transfer Agent

American Stock Transfer & Trust Company

6201 15th Avenue

Brooklyn, NY 11219

Call toll free (800) 937-5449

Independent Registered Public Accounting Firm

Ernst & Young LLP

233 South Wacker Drive

Chicago, IL 60606

Legal Counsel

Mayer Brown LLP

71 South Wacker Drive

Chicago, IL 60606

 

This report is for stockholder information. This is not a prospectus intended for use in the purchase or sale of Fund shares.

23334J107

23334J206 DTFS

 

DTF Tax-Free

Income Inc.

 

Annual Report

October 31, 2007

 

LOGO

ITEM 2. CODE OF ETHICS.

As of the end of the period covered by this report, the registrant has adopted a Code of Ethics that applies to the registrant’s principal executive officer and principal financial officer. The registrant’s principal financial officer also performs the functions of principal accounting officer. A copy of the registrant’s Code of Ethics is available without charge, upon request, by calling the registrant collect at (312) 541-5555.

 

-1-

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

The registrant’s board of directors has determined that Eileen A. Moran, Carl F. Pollard and David J. Vitale are audit committee financial experts and that they are “independent” for purposes of this Item.

 

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The following table sets forth the aggregate audit and non-audit fees billed to the registrant for each of the last two fiscal years for professional services rendered by the registrant’s principal accountant (the “Independent Auditor”).

 

     Fiscal year ended
October 31, 2007		    Fiscal year ended
October 31, 2006

Audit Fees (1)

    $ 44,500    $ 42,000

Audit-Related Fees (2)(6)

      5,200      3,000

Tax Fees (3)(6)

      4,600      4,300

All Other Fees (4)(6)

      0      0

Aggregate Non-Audit Fees (5)(6)

      9,800      7,300
(1) Audit Fees are fees billed for professional services rendered by the Independent Auditor for the audit of the registrant’s annual financial statements and for services that are normally provided by the Independent Auditor in connection with statutory and regulatory filings or engagements.
(2) Audit-Related Fees are fees billed for assurance and related services by the Independent Auditor that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under the caption “Audit Fees.” In both years shown in the table, such services consisted of the performance of periodic agreed-upon procedures relating to the registrant’s preferred stock.
(3) Tax Fees are fees billed for professional services rendered by the Independent Auditor for tax compliance, tax advice and tax planning. In both years shown in the table, such services consisted of preparation of the registrant’s annual federal and state income tax returns and excise tax returns.
(4) All Other Fees are fees billed for products and services provided by the Independent Auditor, other than the services reported under the captions “Audit Fees,” “Audit-Related Fees” and “Tax Fees.”
(5) Aggregate Non-Audit Fees are non-audit fees billed by the Independent Auditor for services rendered to the registrant, the registrant’s investment adviser (the “Adviser”) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the registrant (collectively, the “Covered Entities”). During both years shown in the table, no portion of such fees related to services rendered by the Independent Auditor to the Adviser or any other Covered Entity.
(6) No portion of these fees was approved by the registrant’s audit committee after the beginning of the engagement pursuant to the waiver of the pre-approval requirement for certain de minimis non-audit services described in Section 10A of the Securities Exchange Act of 1934 (the “Exchange Act”) and applicable regulations.

The audit committee of the board of directors of the registrant (the “Audit Committee”), jointly with the audit committee of the board of directors of Duff & Phelps Utility and Corporate Bond Trust Inc. (“DUC”), has adopted a Joint Audit Committee Pre-Approval Policy (set forth below) to govern the provision by the Independent Auditor of the following services (collectively, “Covered Services”): (i) all engagements for audit and non-audit services to be provided by the Independent Auditor to the registrant and (ii) all engagements for non-audit services to be provided by the Independent Auditor to the Adviser or any other Covered Entity, if the engagement relates directly to the operations and financial reporting of the registrant. With

 

-2-

respect to non-audit services rendered by the Independent Auditor to the Adviser or any other Covered Entity that were not required to be pre-approved by the Audit Committee because they do not relate directly to the operations and financial reporting of the registrant, the Audit Committee has nonetheless considered whether the provision of such services is compatible with maintaining the independence of the Independent Auditor.

JOINT AUDIT COMMITTEE PRE-APPROVAL POLICY

OF

DTF TAX-FREE INCOME INC.

DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC.

AUDIT COMMITTEE

AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY

(as adopted on February 19, 2007)

 

I. Statement of Principles

Under the Sarbanes-Oxley Act of 2002 (the “Act”), the Audit Committee of the Board of Directors of each of DTF Tax-Free Income Fund Inc. and Duff & Phelps Utility and Corporate Bond Trust Inc. (each a “Fund” and, collectively, the “Funds”)(1) is responsible for the appointment, compensation and oversight of the work of the independent auditor. As part of this responsibility, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent auditor in order to assure that they do not impair the auditor’s independence from the Fund. To implement these provisions of the Act, the Securities and Exchange Commission (the “SEC”) has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the Audit Committee’s administration of the engagement of the independent auditor. Accordingly, the Audit Committee has adopted this Audit and Non-Audit Services Pre-Approval Policy (this “Policy”), which sets forth the procedures and the conditions pursuant to which services proposed to be performed by the independent auditor may be pre-approved.

The SEC’s rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee (“general pre-approval”); or require the specific pre-approval of the Audit Committee (“specific pre-approval”). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the independent auditor. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee if it is to be provided by the independent auditor. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee.

For both types of pre-approval, the Audit Committee will consider whether such services are consistent with the SEC’s rules on auditor independence. The Audit Committee will also consider whether the independent auditor is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with the Fund’s business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance the Fund’s ability to manage or control risk or improve audit quality. All such factors will be considered as a whole, and no one factor should necessarily be determinative.

(1)

This Joint Audit Committee Pre-Approval Policy has been adopted by the Audit Committee of each Fund. Solely for the sake of clarity and simplicity, this Joint Audit Committee Pre-Approval Policy has been drafted as if there is a single Fund, a single Audit Committee and a single Board. The terms “Audit Committee” and “Board” mean the Audit Committee and Board of each Fund, respectively, unless the context otherwise requires. The Audit Committee and the Board of each Fund, however, shall act separately and in the best interests of its respective Fund.

 

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Under the SEC’s rules, the Audit Committee must pre-approve non-audit services provided not only to the Fund but also to the Fund’s investment adviser and other affiliated entities that provide ongoing services to the Fund if the independent accountant’s services to those affiliated entities have a direct impact on the Fund’s operations or financial reporting.

The Audit Committee is also mindful of the relationship between fees for audit and non-audit services in deciding whether to pre-approve any such services and may determine, for each fiscal year, the appropriate ratio between the total amount of fees for audit, audit-related and tax services (including any audit-related or tax service fees for affiliates that are subject to pre-approval) and the total amount of fees for certain permissible non-audit services classified as “all other” services (including any such services for affiliates that are subject to pre-approval).

The appendices to this Policy describe the audit, audit-related, tax and “all other” services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the independent auditor without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations.

The purpose of this Policy is to set forth the procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee’s responsibilities to pre-approve services performed by the independent auditor to management.

The independent auditor has reviewed this Policy and believes that implementation of this Policy will not adversely affect the auditor’s independence.

 

II. Delegation

As provided in the Act and the SEC’s rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members who are not “interested persons” under the Investment Company Act of 1940. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. In accordance with the foregoing provisions, the Audit Committee has delegated pre-approval to its Chairman, Carl F. Pollard, and to any successor Chairman who is not an “interested person.”

 

III. Audit Services

The annual audit services engagement terms and fees will be subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the independent auditor to be able to form an opinion on the Fund’s financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will monitor the audit services engagement as necessary, but no less than on a semiannual basis, and will also approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items.

In addition to the annual audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other audit services, which are those services that only the independent auditor reasonably can provide. Other audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.

The Audit Committee has pre-approved the audit services in Appendix A. All other audit services not listed in Appendix A must be specifically pre-approved by the Audit Committee.

 

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IV. Audit-Related Services

Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund’s financial statements or that are traditionally performed by the independent auditor. Because the Audit Committee believes that the provision of audit-related services does not impair the independence of the auditor and is consistent with the SEC’s rules on auditor independence, the Audit Committee may grant general pre-approval to audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under form N-SAR.

The Audit Committee has pre-approved the audit-related services in Appendix B. All other audit-related services not listed in Appendix B must be specifically pre-approved by the Audit Committee.

 

V. Tax Services

The Audit Committee believes that the independent auditor can provide tax services to the Fund such as tax compliance, tax planning and tax advice without impairing the auditor’s independence, and the SEC has stated that the independent auditor may provide such services. Hence, the Audit Committee believes it may grant general pre-approval to those tax services that have historically been provided by the auditor, that the Audit Committee has reviewed and believes would not impair the independence of the auditor, and that are consistent with the SEC’s rules on auditor independence. The Audit Committee will not permit the retention of the independent auditor in connection with a transaction initially recommended by the independent auditor, the sole business purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee will consult with the Fund’s Administrator or outside counsel to determine that the tax planning and reporting positions are consistent with this Policy.

Pursuant to the preceding paragraph, the Audit Committee has pre-approved the tax services in Appendix C. All tax services involving large and complex transactions not listed in Appendix C must be specifically pre-approved by the Audit Committee, including: tax services proposed to be provided by the independent auditor to any executive officer or director of the Fund, in his or her individual capacity, where such services are paid for by the Fund.

 

VI. All Other Services

The Audit Committee believes, based on the SEC’s rules prohibiting the independent auditor from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as all other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC’s rules on auditor independence.

The Audit Committee has pre-approved the “all other” services in Appendix D. Permissible “all other” services not listed in Appendix D must be specifically pre-approved by the Audit Committee.

A list of the SEC’s prohibited non-audit services is attached to this Policy as Appendix E. The SEC’s rules and relevant guidance should be consulted to determine the precise definitions of these services and the applicability of exceptions to certain of the prohibitions.

 

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VII. Pre-Approval Fee Levels or Budgeted Amounts

Pre-approval fee levels or budgeted amounts for all services to be provided by the independent auditor will be established annually by the Audit Committee. (Note that separate amounts may be specified for services to the Fund and for services to other affiliated entities that are subject to pre-approval.) Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. For each fiscal year, the Audit Committee may determine the appropriate ratio between the total amount of fees for audit, audit-related and tax services for the Fund (including any audit-related or tax services fees for affiliates that are subject to pre-approval), and the total amount of fees for services classified as “all other” services (including any such services for affiliates that are subject to pre-approval).

 

VIII. Procedures

All requests or applications for services to be provided by the independent auditor that do not require specific approval by the Audit Committee will be submitted to the Fund’s Administrator and must include a detailed description of the services to be rendered. The Administrator will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the independent auditor.

Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the independent auditor and the Fund’s Administrator, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules on auditor independence.

The Audit Committee has designated the Fund’s Administrator to monitor the performance of all services provided by the independent auditor and to determine whether such services are in compliance with this Policy. The Administrator will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Administrator and any member of management will immediately report to the Chairman of the Audit Committee any breach of this Policy that comes to their attention.

 

IX. Additional Requirements

The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the independent auditor and to assure the auditor’s independence from the Fund, such as reviewing a formal written statement from the independent auditor delineating all relationships between the independent auditor and the Fund, consistent with Independence Standards Board Standard No. 1 (“Independence Discussions with Audit Committees,” as adopted by the Public Company Accounting Oversight Board in Rule 3600T), and discussing with the independent auditor its methods and procedures for ensuring independence.

 

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Appendix A

Pre-Approved Audit Services for Fiscal Year Ending in 2007

Dated: February 19, 2007

 

Service

    Range of Fees(1)
     DTF   DUC   Affiliates(2)

1.      

   Services required under generally accepted auditing standards to perform the audit of the annual financial statements of the Fund, including performance of tax qualification tests relating to the Fund’s regulated investment company status and issuance of an internal control letter for the Fund’s Form N-SAR    (3)   (3)   N/A

2.      

   Reading of the Fund’s semi-annual financial statements    (4)   (4)   N/A

3.      

   Services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g., comfort letters, consents), and assistance in responding to SEC comment letters    (4)   (4)   N/A

4.      

   Consultations by the Fund’s management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard setting bodies (Note: Under SEC rules, some consultations may be “audit-related” services rather than “audit” services)    (4)   (4)   N/A
(1) In addition to the fees shown in the table, the Audit Committee has pre-approved the reimbursement of the reasonable out-of-pocket expenses incurred by the independent accountant in providing the pre-approved services.
(2) These affiliates include the Fund’s investment adviser (excluding sub-advisers) and any entity controlling, controlled by or under common control with the adviser that provides ongoing services to the Fund. The Fund’s Audit Committee must pre-approve non-audit services provided not only to the Fund but also to the adviser and such other affiliated entities, where such entities provide ongoing services to the Fund and the independent accountant’s services to such entities have a direct impact on the Fund’s operations or financial reporting.
(3) The fee for this pre-approved service is not shown in the table because the 2007 engagement letter has not yet been finalized. The comparable fee for this service for the fiscal year ended in 2006 was $42,000 for DTF and $44,000 for DUC. When the fee is determined in connection with the finalization and signing of the 2007 engagement letter, such fee will become part of this Pre-Approval Policy.
(4) Fees for services designated with a (4) shall either be included in the fee approved for item 1 of this Appendix A or may be separately charged, provided that the aggregate separate charges for all services designated with a (4) in Appendices A and B may not exceed 10% of the fee approved for item 1 of this Appendix A.

 

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Appendix B

Pre-Approved Audit-Related Services for Fiscal Year Ending in 2007

Dated: February 19, 2007

 

Service

    Range of Fees(1)
     DTF   DUC   Affiliates(2)

1.      

   Issuance of annual agreed-upon procedures letters relating to the preferred stock or commercial paper, if any, issued by the Fund    (3)   (3)   N/A

2.      

   Agreed-upon or expanded audit procedures related to accounting records required to respond to or comply with financial, accounting or regulatory reporting matters    (4)   (4)   N/A

3.      

   Consultations by the Fund’s management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be “audit” services rather than “audit-related” services)    (4)   (4)   N/A

4.      

   General assistance with implementation of the requirements of SEC rules or listing standards promulgated pursuant to the Sarbanes-Oxley Act    (4)   (4)   N/A
(1) In addition to the fees shown in the table, the Audit Committee has pre-approved the reimbursement of the reasonable out-of-pocket expenses incurred by the independent accountant in providing the pre-approved services.
(2) These affiliates include the Fund’s investment adviser (excluding sub-advisers) and any entity controlling, controlled by or under common control with the adviser that provides ongoing services to the Fund. The Fund’s Audit Committee must pre-approve non-audit services provided not only to the Fund but also to the adviser and such other affiliated entities, where such entities provide ongoing services to the Fund and the independent accountant’s services to such entities have a direct impact on the Fund’s operations or financial reporting.
(3) The fee for this pre-approved service is not shown in the table because the 2007 engagement letter has not yet been finalized. The comparable fee for this service for the fiscal year ended in 2006 was $3,000 for each of DTF and DUC. When the fee is determined in connection with the finalization and signing of the 2007 engagement letter, such fee will become part of this Pre-Approval Policy.
(4) Fees for services designated with a (4) shall either be included in the fee approved for item 1 of Appendix A or may be separately charged, provided that the aggregate separate charges for all services designated with a (4) in Appendices A and B may not exceed 10% of the fee approved for item 1 of Appendix A.

 

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Appendix C

Pre-Approved Tax Services for Fiscal Year Ending in 2007

Dated: February 19, 2007

 

Service

    Range of Fees(1)
     DTF   DUC   Affiliates(2)

1.

   Preparation of federal and state tax returns, including excise tax returns, and review of required distributions to avoid excise tax    (3)   (3)   N/A

2.

   Consultations with the Fund’s management as to the tax treatment of transactions or events    (4)   (4)   N/A

3.

   Tax advice and assistance regarding statutory, regulatory or administrative developments    (4)   (4)   N/A
(1) In addition to the fees shown in the table, the Audit Committee has pre-approved the reimbursement of the reasonable out-of-pocket expenses incurred by the independent accountant in providing the pre-approved services.
(2) These affiliates include the Fund’s investment adviser (excluding sub-advisers) and any entity controlling, controlled by or under common control with the adviser that provides ongoing services to the Fund. The Fund’s Audit Committee must pre-approve non-audit services provided not only to the Fund but also to the adviser and such other affiliated entities, where such entities provide ongoing services to the Fund and the independent accountant’s services to such entities have a direct impact on the Fund’s operations or financial reporting.
(3) The fee for this pre-approved service is not shown in the table because the 2007 engagement letter has not yet been finalized. The comparable fee for this service for the fiscal year ended in 2006 was $4,300 for each of DTF and DUC. When the fee is determined in connection with the finalization and signing of the 2007 engagement letter, such fee will become part of this Pre-Approval Policy.
(4) Fees for services designated with a (4) shall either be included in the fee approved for item 1 of this Appendix C or may be separately charged, provided that the aggregate separate charges for all services designated with a (4) in this Appendix C may not exceed 10% of the fee approved for item 1 of this Appendix C.

Appendix D

Pre-Approved “All Other” Services for Fiscal Year Ending in 2007

Dated: February 19, 2007

 

Service

    Range of Fees(1)
     DTF    DUC    Affiliates(2)

None

         

 

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(1) In addition to the fees shown in the table, the Audit Committee has pre-approved the reimbursement of the reasonable out-of-pocket expenses incurred by the independent accountant in providing the pre-approved services.
(2) These affiliates include the Fund’s investment adviser (excluding sub-advisers) and any entity controlling, controlled by or under common control with the adviser that provides ongoing services to the Fund. The Fund’s Audit Committee must pre-approve non-audit services provided not only to the Fund but also to the adviser and such other affiliated entities, where such entities provide ongoing services to the Fund and the independent accountant’s services to such entities have a direct impact on the Fund’s operations or financial reporting.

Appendix E

Prohibited Non-Audit Services

 

  •  

Bookkeeping or other services related to the accounting records or financial statements of the audit client

 

  •  

Financial information systems design and implementation

 

  •  

Appraisal or valuation services, fairness opinions or contribution-in-kind reports

 

  •  

Actuarial services

 

  •  

Internal audit outsourcing services

 

  •  

Management functions

 

  •  

Human resources

 

  •  

Broker-dealer, investment adviser or investment banking services

 

  •  

Legal services

 

  •  

Expert services unrelated to the audit

 

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

The registrant has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee are Nancy Lampton, Geraldine M. McNamara, Eileen A. Moran, Carl F. Pollard and David J. Vitale.

 

ITEM 6. SCHEDULE OF INVESTMENTS

Included as part of the report to shareholders filed under Item 1 of this Form.

 

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ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Although the registrant does not typically hold voting securities, the registrant’s board of directors, jointly with the board of directors of DUC, has adopted the following statement of policy with respect to proxy voting.

DTF TAX-FREE INCOME INC.

PROXY VOTING POLICIES AND PROCEDURES

 

I. Definitions. As used in these Policies and Procedures, the following terms shall have the meanings ascribed below:

 

  A. “Adviser” refers to Duff & Phelps Investment Management Co.

 

  B. “Advisers Act” refers to the Investment Advisers Act of 1940, as amended.

 

  C. “corporate governance matters” refers to changes involving the corporate ownership or structure of an issuer whose voting securities are within a portfolio holding, including changes in the state of incorporation, changes in capital structure, including increases and decreases of capital and preferred stock issuance, mergers and other corporate restructurings, and anti-takeover provisions such as staggered boards, poison pills, and supermajority voting provisions.

 

  D. “Delegate” refers to the Adviser, any proxy committee to which the Adviser delegates its responsibilities hereunder and any qualified, independent organization engaged by the Adviser to vote proxies on behalf of the Fund.

 

  E. “executive compensation matters” refers to stock option plans and other executive compensation issues.

 

  F. “Fund” refers to DTF Tax-Free Income Inc.

 

  G. “Investment Company Act” refers to the Investment Company Act of 1940, as amended.

 

  H. “portfolio holding” refers to any company or entity whose voting securities are held within the investment portfolio of the Fund as of the date a proxy is solicited.

 

  I. “proxy contests” refer to any meeting of shareholders of an issuer for which there are at least two sets of proxy statements and proxy cards, one solicited by management and the others by a dissident or group of dissidents.

 

  J. “social issues” refers to social, political and environmental issues.

 

  K. “takeover” refers to “hostile” or “friendly” efforts to effect radical change in the voting control of the board of directors of a company.

 

II. General policy. It is the intention of the Fund to exercise voting stock ownership rights in portfolio holdings in a manner that is reasonably anticipated to further the best economic interests of shareholders of the Fund. Accordingly, the Fund or its Delegate(s) shall endeavor to analyze and vote all proxies that are considered likely to have financial implications, and, where appropriate, to participate in corporate governance, shareholder proposals, management communications and legal proceedings. The Fund and its Delegate(s) must also identify potential or actual conflicts of interests in voting proxies and address any such conflict of interest in accordance with these Policies and Procedures.

 

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III. Factors to consider when voting.

 

  A. The Delegate may abstain from voting when it concludes that the effect on shareholders’ economic interests or the value of the portfolio holding is indeterminable or insignificant.

 

  B. In analyzing anti-takeover measures, the Delegate shall vote on a case-by-case basis taking into consideration such factors as overall long-term financial performance of the target company relative to its industry competition. Key measures which shall be considered include, without limitation, five-year annual compound growth rates for sales, operating income, net income, and total shareholder returns (share price appreciation plus dividends). Other financial indicators that will be considered include margin analysis, cash flow, and debt levels.

 

  C. In analyzing proxy contests for control, the Delegate shall vote on a case-by-case basis taking into consideration such factors as long-term financial performance of the target company relative to its industry; management’s track record; background to the proxy contest; qualifications of director nominees (both slates); evaluation of what each side is offering shareholders as well as the likelihood that the proposed objectives and goals can be met; and stock ownership positions.

 

  D. In analyzing contested elections for director, the Delegate shall vote on a case-by-case basis taking into consideration such factors as the qualifications of all director nominees. The Delegate shall also consider the independence and attendance record of board and key committee members. A review of the corporate governance profile shall be completed highlighting entrenchment devices that may reduce accountability.

 

  E. In analyzing corporate governance matters, the Delegate shall vote on a case-by-case basis taking into consideration such factors as tax and economic benefits associated with amending an issuer’s state of incorporation, dilution or improved accountability associated with changes in capital structure, management proposals to require a supermajority shareholder vote to amend charters and bylaws and bundled or “conditioned” proxy proposals.

 

  F. In analyzing executive compensation matters, the Delegate shall vote on a case-by-case basis taking into consideration such factors as executive pay and spending on perquisites, particularly in conjunction with sub-par performance and employee layoffs.

 

  G. The Delegate shall generally vote against shareholder proposals on social issues, except where the Delegate determines that a different position would be in the clear economic interests of the Fund and its shareholders.

 

IV. Responsibilities of Delegates.

 

  A. In the absence of a specific direction to the contrary from the Board of Directors of the Fund, the Adviser will be responsible for voting proxies for all portfolio holdings in accordance with these Policies and Procedures, or for delegating such responsibility as described below.

 

  B. The Adviser may delegate its responsibilities hereunder to a proxy committee established from time to time by the Adviser and may engage one or more qualified, independent organizations to vote proxies on behalf of the Fund. The Adviser shall be responsible for the ensuring that any such Delegate is informed of and complies with these Policies and Procedures.

 

  C. In voting proxies on behalf of the Fund, each Delegate shall have a duty of care to safeguard the best interests of the Fund and its shareholders and to act in accordance with these Policies and Procedures.

 

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  D. No Delegate shall accept direction or inappropriate influence from any other client or third party, or from any director, officer or employee of any affiliated company, and shall not cast any vote inconsistent with these Policies and Procedures without obtaining the prior approval of the Board of Directors of the Fund or its duly authorized representative.

 

V. Conflicts of interest

 

  A. The Fund and its Delegate(s) seek to avoid actual or perceived conflicts of interest in the voting of proxies for portfolio holdings between the interests of Fund shareholders, on the one hand, and those of the Adviser or any affiliated person of the Fund or the Adviser, on the other hand. The Board of Directors may take into account a wide array of factors in determining whether such a conflict exists, whether such conflict is material in nature, and how to properly address or resolve the same.

 

  B. While each conflict situation varies based on the particular facts presented and the requirements of governing law, the Board of Directors or its duly authorized representative may take the following actions, among others, or otherwise give weight to the following factors, in addressing material conflicts of interest in voting (or directing Delegates to vote) proxies pertaining to portfolio holdings: (i) vote pursuant to the recommendation of the proposing Delegate; (ii) abstain from voting; or (iii) rely on the recommendations of an established, independent third party with qualifications to vote proxies, such as Institutional Shareholder Services.

 

  C. The Adviser shall notify the Board of Directors of the Fund promptly after becoming aware that any actual or potential conflict of interest exists and shall seek the Board of Directors’ recommendations for protecting the best interests of Fund’s shareholders. The Adviser shall not waive any conflict of interest or vote any conflicted proxies without the prior written approval of the Board of Directors or its duly authorized representative.

 

VI. Miscellaneous.

 

  A. A copy of the current Proxy Voting Policies and Procedures and the voting records for the Fund, reconciling proxies with portfolio holdings and recording proxy voting guideline compliance and justification, shall be kept in an easily accessible place and available for inspection either physically or through electronic posting on an approved website.

 

  B. In the event that a determination, authorization or waiver under these Policies and Procedures is requested at a time other than a regularly scheduled meeting of the Board of Directors, the Chairman of the Audit Committee shall be the duly authorized representative of the Board of Directors with the authority and responsibility to interpret and apply these Policies and Procedures and shall provide a report of his or her determinations at the next following meeting of the Board of Directors.

 

  C. The Adviser shall present a report of any material deviations from these Policies and Procedures at every regularly scheduled meeting of the Board of Directors and shall provide such other reports as the Board of Directors may request from time to time. The Adviser shall provide to the Fund or any shareholder a record of its effectuation of proxy voting pursuant to these Policies and Procedures at such times and in such format or medium as the Fund shall reasonably request. The Adviser shall be solely responsible for complying with its disclosure and reporting requirements under applicable laws and regulations, including, without limitation, Rule 206(4)-6 under the Advisers Act. The Adviser shall gather, collate and present information relating to its proxy voting activities and those of each Delegate in such format and medium as the Fund shall determine from time to time in order for the Fund to discharge its disclosure and reporting obligations pursuant to Rule 30b1-4 under the Investment Company Act.

 

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  D. The Adviser shall pay all costs associated with proxy voting for portfolio holdings pursuant to these Policies and Procedures and assisting the Fund in providing public notice of the manner in which such proxies were voted, except that the Fund shall pay the costs associated with any filings required under the Investment Company Act.

 

  E. In performing its duties hereunder, any Delegate may engage the services of a research and/or voting adviser, the cost of which shall be borne by such Delegate.

 

  F. These Policies and Procedures shall be presented to the Board of Directors annually for their amendment and/or approval.

 

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

In this item, the term “Fund” refers to the registrant, DTF Tax-Free Income Inc.

The Fund’s Portfolio Managers

A team of investment professionals employed by Duff & Phelps Investment Management Co., the Fund’s investment adviser (the “Adviser”), is responsible for the day-to-day management of the Fund’s portfolio. The members of that investment team and their respective roles, as of January 3, 2008, are as follows:

Timothy M. Heaney has been Chief Investment Officer of the Fund since 2004 and Vice President since 1997 (Portfolio Manager 1997-2004). He has been a Senior Vice President of the Adviser since 2004 (Vice President 1997-2004). He has also been a Senior Managing Director in the Fixed Income unit of the Adviser’s affiliate, Phoenix Investment Counsel, Inc. (“PIC”), since 2006 (Managing Director 1997-2006, Director, Fixed Income Research 1996-1997, Investment Analyst 1992-1996). Mr. Heaney is the head of the municipal bond product area for the Adviser and PIC.

Lisa H. Leonard has been Vice President of the Fund and the Adviser since 2006. She has been Director, Fixed Income Research of PIC since 1998 (Director, Investment Operations 1994-1998, Fixed Income Trader 1987-1993). Ms. Leonard assists Mr. Heaney in the management of the Fund’s portfolio in her capacity as a portfolio manager in the municipal bond product area for the Adviser and PIC.

Other Accounts Managed by the Fund’s Portfolio Managers

The following table provides information as of October 31, 2007 regarding the other accounts besides the Fund that are managed by the portfolio managers of the Fund. As noted in the table, portfolio managers of the Fund may also manage or be members of management teams for other mutual funds within the same fund complex or other similar accounts. For purposes of this disclosure, the term “fund complex” includes the Fund and all other investment companies advised by affiliates of Phoenix Investment Partners, Ltd. (“PXP”), the Adviser’s parent company. As of October 31, 2007, the Fund’s portfolio managers did not manage any accounts with respect to which the advisory fee is based on the performance of the account, nor do they manage any hedge funds.

 

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Registered Investment

Companies (1)

   

Other Pooled

Investment

Vehicles (2)

    Other Accounts (3)

Name of Portfolio Manager

   

Number of

Accounts

   

Total Assets

(in millions)

   

Number of

Accounts

   

Total Assets

(in millions)

   

Number of

Accounts

   

Total Assets

(in millions)

Timothy M. Heaney

    1    $ 67.3    N/A    N/A    15    $ 1,100

Lisa H. Leonard

    1    $ 67.3    N/A    N/A    15    $ 1,100
(1) Registered Investment Companies include all open and closed-end mutual funds. For Registered Investment Companies, assets represent net assets of all open-end investment companies and gross assets of all closed- end investment companies.
(2) Other Pooled Investment Vehicles include, but are not limited to, securities of issuers exempt from registration under Section 3(c) of the Investment Company Act of 1940, such as private placements and hedge funds.
(3) Other Accounts include, but are not limited to, individual managed accounts, separate accounts, institutional accounts, pension funds and collateralized bond obligations.

There may be certain inherent conflicts of interest that arise in connection with the portfolio managers’ management of the Fund’s investments and the investments of any other accounts they manage. Such conflicts could include aggregation of orders for all accounts managed by a particular portfolio manager, the allocation of purchases across all such accounts, the allocation of IPOs and any soft dollar arrangements that the Adviser may have in place that could benefit the Fund and/or such other accounts. The Adviser has adopted policies and procedures designed to address any such conflicts of interest to ensure that all management time, resources and investment opportunities are allocated equitably. There have been no material compliance issues with respect to any of these policies and procedures during the Fund’s most recent fiscal year.

Compensation of the Fund’s Portfolio Managers

The following is a description of the compensation structure, as of October 31, 2007, of the Fund’s portfolio managers. The Fund’s portfolio managers receive a competitive base salary, an incentive bonus opportunity and a benefits package.

Each portfolio manager is paid a fixed base salary, which is determined by PXP and is designed to be competitive in light of the individual’s experience and responsibilities. The management of PXP uses compensation survey results of investment industry compensation conducted by an independent third party in evaluating competitive market compensation for its investment management professionals.

The incentive bonus package for portfolio managers is based upon how well the individual manager meets or exceeds assigned goals and a subjective assessment of contribution to the team effort. Their incentive bonus also reflects a performance component. For both portfolio managers, the performance component is further adjusted to reward them for managing within the stated framework and for not taking unnecessary risks. This ensures that investment personnel will remain focused on managing and acquiring securities that correspond to the Fund’s mandate and risk profile. It also avoids the temptation for portfolio managers to take on more risk and unnecessary exposure to chase performance for personal gain.

 

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Incentive bonus compensation of the Fund’s portfolio managers is currently comprised of two components: (i) 70% of the incentive bonus is based on investment performance, which is measured (A) with respect to the funds managed by each portfolio manager, by the achievement of investment area goals and the individual performance of the funds over one-, three- and five-year periods in comparison to the appropriate Lipper peer groups and (B) with respect to the institutional accounts managed by each portfolio manager, by the achievement of investment area goals and the individual performance of the institutional assets over one-, three- and five-year periods in comparison to the appropriate Lehman benchmarks, and (ii) 30% of the incentive bonus is based on the profitability of the investment management division of PXP with which the portfolio manager is associated.

Finally, portfolio managers may also receive options to acquire shares of stock of The Phoenix Companies, Inc. (“PNX”), the ultimate parent company of the Adviser and PXP, and/or be granted PNX restricted stock at the direction of the PNX board of directors. To date no portfolio manager of the Fund has received awards under the PNX restricted stock units long-term incentive plan.

Highly compensated individuals are eligible to participate in a long-term incentive plan to defer their compensation and realize tax benefits. Compensation under the long-term incentive plan is payable in restricted stock units of PNX, which vest over three years.

Portfolio managers are also eligible to participate in broad-based plans offered generally to the firm’s employees, including broad-based retirement, 401(k), health and other employee benefit plans.

 

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Equity Ownership of Portfolio Managers

The following table sets forth the dollar range of equity securities in the Fund beneficially owned, as of October 31, 2007, by each of the portfolio managers identified above.

 

Name of Portfolio Manager

  

Dollar Range of

Equity Securities in the Fund

Timothy M. Heaney

   None

Lisa H. Leonard

   None

 

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

During the period covered by this report, no purchases were made by or on behalf of the registrant or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of shares or other units of any class of the registrant’s equity securities that is registered by the registrant pursuant to Section 12 of the Exchange Act.

 

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No changes to the procedures by which shareholders may recommend nominees to the registrant’s board of directors have been implemented after the registrant last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (i.e., in the registrant’s Proxy Statement dated April 12, 2007) or this Item.

 

ITEM 11. CONTROLS AND PROCEDURES.

(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “1940 Act”)) are effective, based on an evaluation of those controls and procedures made as of a date within 90 days of the filing date of this report as required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) under the Exchange Act.

(b) There has been no change in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the most recent fiscal quarter of the fiscal year covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

ITEM 12. EXHIBITS.

 

(a)    Exhibit 99.CERT    Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(b)    Exhibit 99.906CERT    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

(Registrant)   DTF TAX-FREE INCOME INC.
By (Signature and Title)   /s/ ALAN M. MEDER
  Alan M. Meder
  Treasurer
  (Principal Financial and Accounting Officer)
Date   January 3, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By (Signature and Title)   /s/ NATHAN I. PARTAIN
  Nathan I. Partain
  President and Chief Executive Officer
Date   January 3, 2008
By (Signature and Title)   /s/ ALAN M. MEDER
  Alan M. Meder
  Treasurer
  (Principal Financial and Accounting Officer)
Date   January 3, 2008

 

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