Edgar Filing: DUFF & PHELPS UTILITIES TAX FREE INCOME INC

DTF Tax-Free
Income Inc.
------------------------------------------------------------
Annual Report
October 31, 2002

LETTER TO
SHAREHOLDERS

December 9, 2002

Dear Shareholder:

Fund Performance

The DTF Tax-Free Income Fund (DTF) continued to provide an attractive level
of tax-free income over the past twelve months ending October 31, 2002. On
October 31st, the stock closed at $15.00.

The Board of Directors increased the dividend for the third time this year
at its meeting on November 19, 2002. The monthly dividend was increased from
$0.075 per common share to $0.08 per common share. The increase in the
dividend has been the result of the Fund's higher earnings due primarily to
the low interest rate on its remarketed preferred stock (its leverage). This
rate has declined from almost 5% in May of 2000 to as low as 1.15% in early
March 2002. Based on the November 29, 2002 closing stock price of $15.16,
the $0.08 monthly dividend translates into a tax-free current yield of 6.33%.
This level of income continues to be generated by a high quality, well-
diversified investment portfolio.

The DTF's total return, based on the net asset value, for its one, three and
five year periods is compared to its Lipper Leveraged Municipal Peer Group

ANNUALIZED TOTAL RETURN
(10/31/02)

One Year Three Years Five Years Since Inception(1)
DTF 6.96% 9.81% 6.47% 7.89%
Lipper Leveraged
Municipal Peer Group 4.93 9.10 5.71 7.10

(1) Inception date 11/30/91.

The Fund's strong credit quality combined with good call protection and well
diversified sector holdings, contributed to this strong outperformance over
these periods. The Fund's diversification by market sector is shown below:

Fund Diversification

Market Sectors
Water/Sewer Revenue 34%
Electric Utilities 18
Pollution Control 10
Pre-Refunded Utilities 6
Non-Utilities 32

-1-

General Economic Commentary

Throughout 2002, the bond market has seen short-term U.S. Treasury rates
decline significantly, while longer-term treasury rates are mostly unchanged,
as the U.S. economy has been unable to fully recover from the recession
experienced during late 2001. Over the past two years, the Federal Reserve
(Fed) has lowered interest rates twelve times, totaling 525 basis points, in
response to the deteriorating domestic economy. With the Fed Funds rate
currently at a 41-year low of 1.25% and the economy beginning to show modest
signs of a recovery, it appears that the Fed is done lowering interest rates.
Over the twelve months ended October 31, 2002, two-year U.S. Treasury rates
decreased by 75 basis points while 30-year U.S. Treasury rates actually
increased by 11 basis points. This larger decline in short-term rates has
created a very steep Treasury yield curve. We expect the U.S. Treasury curve
to remain steep until the market is fully convinced that the problems
plaguing the economy have diminished and an economic recovery is firmly
underway.

Over the past twelve months, the U.S. economy has slowly showed signs of
strengthening with small improvements in GDP and housing starts. However,
the overall pace of this economic recovery has been sluggish as concerns
regarding weak business capital spending, corporate malfeasance, rising
borrowing costs for companies, weak corporate profitability, declining stock
prices and geopolitical risks are weighing on the economy. While economic and
geopolitical uncertainty continue to adversely effect the economy and the
markets, minimal inflation and the very low level of interest rates should
allow the economy to continue to recover, albeit at a more moderate pace, as
we move into 2003. Inflation, as measured by the Consumer Price Index (CPI),
has increased slowly over the year as it ended October on a year-over-year
basis at 2.0%, up from June 2002 at 1.1%. However, at 2.0% on a year-over-
year basis, inflation is still considered to be low and not problematic for
an economic recovery. While there remains some uncertainty in ultimate
timing and pace of the economic recovery, the current monetary policy that is
in place should stimulate growth and support a sustainable economic expansion.

The Municipal Market and Your Fund

The same two themes that dominated the municipal market in 2001 have remained
in place over the past twelve months; a continued steepening of the tax-
exempt yield curve and increased supply of municipal bonds. The combination
of the sluggish economy and further interest rate actions by the Fed in
attempt to jumpstart the economy has caused the municipal yield curve to
remain steep. Through October of 2002, long maturity tax-exempt rates are
mostly unchanged, yet there was a pronounced decline in rates ten years and
shorter, causing the yield curve to steepen to levels not seen since 1992.
The second theme has been increased supply. Municipalities have taken
advantage of historically low municipal yields to fund new projects, finance
budget deficits, and refund older, higher cost debt. Through October of
2002, new issuance was up 27% year-over-year, driven by refundings, which

-2-

have increased by 44% this year. Total municipal issuance in 2002 exceeded
1993's record level, as interest rates remain favorable for municipal
issuance. Overall, municipal credit spreads have widened over the past twelve
months as municipalities have struggled with declining revenues caused by the
sluggish economy and the pressure of ratings downgrades. However, credit
spreads still remain narrow when taking the risks of lower rated securities
into consideration, making higher quality bonds still good relative value.

Within the DTF Fund, we continue to emphasize higher quality bonds. The Fund
currently has an average quality rating of AA+ with over 90% of its issues
rated AA or higher. Within the utility segment of the portfolio, the Fund is
well diversified between electric utility, pollution control, and water/sewer
issues. The Fund has continued the theme of increasing exposure to the water
and sewer utility sector while slowly reducing exposure to electric utility
bonds due to the higher quality, liquidity, and essential nature that water
and sewer bonds offer relative to electric utilities. Specifically, the
power crisis that plagued California and the accounting questions surrounding
independent power producers has cast a negative shadow over the electric
utility industry and this has spilled over into municipal electric utility
bonds. As a result, the portfolio remains well diversified in an effort to
minimize exposure to any one sector, with electric utility exposure currently
at 18%, which historically is a low level of exposure for the Fund.

Outlook

As we move forward into 2003, factors that could drive the relative value of
municipal bonds over the next year include: the pace and strength of an
economic recovery, potential tax reform which impacts the demand for
municipal bonds, and future U.S. military actions abroad that could cause a
flight to U.S. Treasury bonds. Finally, should the U.S. stock market
continue to experience the same level of volatility and negative returns that
it has experienced over the past two and a half years, nervous investors may
continue to move money into tax-exempt issues, which could be positive for
the market. In spite of these uncertainties, we believe the municipal market
represents good relative value at current levels.

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

Sincerely,

Francis E. Jeffries, CFA
Chairman of the Board
President and Chief Executive Officer

-3-

----------------------------------------------------------
DTF TAX-FREE INCOME INC.
Portfolio of Investments
October 31, 2002

----------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
----------------------------------------------------------------
LONG-TERM INVESTMENTS--142.6%
Alabama--4.8%
Jefferson Cnty. Swr. Rev.
Capital Impvt.
Aaa $ 3,000 5.125%, 2/1/29, Ser. A,
F.G.I.C................ $ 3,025,260
Aaa 4,000 5.00%, 2/1/33, Ser. A,
F.G.I.C................ 3,975,000
------------
7,000,260
------------
California--21.4%
Foothill/Eastern Corr.
Agency
Toll Road Rev.,
Aaa 5,640(b) 6.00%, 1/1/34, Ser. A,
Prerefunded 1/01/07 @
$100................... 6,435,466
Fresno Swr. Rev.,
Aaa 3,030 6.00%, 9/1/09,
A.M.B.A.C.............. 3,542,827
Aaa 2,000 6.25%, 9/1/14,
A.M.B.A.C.............. 2,420,800
Pomona Sngl. Fam. Mtge.
Rev.,
Aaa 2,705 7.375%, 8/1/10,
Escrowed to maturity... 3,161,604
Riverside Cnty. Sngl.
Fam.
Rev., Mtge. Backed,
Aaa 2,500 7.80%, 5/1/21, Ser. A,
Escrowed to maturity... 3,367,950
San Bernardino Cnty.
Residential Mtge. Rev.,
Aaa 7,840 9.60%, 9/1/15,
Escrowed to maturity... 12,010,331
------------
30,938,978
------------
Colorado--0.4%
Colorado Hsg. Fin. Auth.,
Sngl. Fam. Prog.,
Aa2 465 8.00%, 6/1/25............ 473,705
Aa2 160 8.125%, 6/1/25........... 162,725
------------
636,430
------------
Connecticut--4.8%
Connecticut St. Airport
Rev.,
Aaa 925(b) 7.65%, 10/1/12, F.G.I.C.
Prerefunded 10/1/04 @
$100................... 1,027,666
Aaa 2,075 7.65%, 10/1/12,
F.G.I.C................ 2,294,327

----------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
----------------------------------------------------------------
Mashantucket Western
Pequot Tribe Spl. Rev.,
Baa3 $ 3,500 5.75%, 9/1/18, Ser. B.... $ 3,560,935
------------
6,882,928
------------
Florida--7.2%
Dade Cnty. Wtr. & Swr.
Sys. Rev.,
Aaa 3,000 5.25%, 10/1/26,
F.G.I.C................ 3,076,770
Florida Mun. Ln. Council
Rev. North Miami Beach
Wtr. Proj., Ser. B,
Aaa 2,210 5.375%, 8/1/20,
M.B.I.A................ 2,363,484
St. Petersburg Public
Utilities Rev.,
Aaa 5,000 5.00%, 10/1/28, Ser. A,
F.S.A.................. 5,024,150
------------
10,464,404
------------
Georgia--16.0%
Atlanta Wtr. & Wastewater
Rev., Ser. A
Aaa 2,385 5.00%, 11/1/29,
F.G.I.C................ 2,388,267
Aaa 715 5.00%, 11/1/38,
F.G.I.C................ 712,626
Aaa 2,615(b) 5.00%, 11/1/29, F.G.I.C.
Prerefunded 5/1/09 @
$101................... 2,908,900
Aaa 785(b) 5.00%, 11/1/38, F.G.I.C.
Prerefunded 5/1/09 @
$101................... 873,226
De Kalb Cnty Wtr. & Swr.
Rev.,
Aa2 4,000 5.00%, 10/1/24........... 4,018,000
Fulton Cnty. Sch. Dist.,
Gen. Oblig.,
Aa2 2,000 5.375%, 1/1/16........... 2,237,860
Georgia Mun. Elec. Auth.
Pwr. Rev., Ser. Y,
Aaa 145 6.40%, 1/1/13,
A.M.B.A.C.,
Escrowed to maturity... 176,675
Aaa 2,470 6.40%, 1/1/13,
A.M.B.A.C.............. 2,950,465
Georgia Mun. Elec. Auth.
Rev.,
Aaa 5,500 6.50%, 1/1/20, Ser. X,
A.M.B.A.C.............. 6,782,545
------------
23,048,564
------------

See Notes to Financial Statements.

----------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
----------------------------------------------------------------
Idaho--3.8%
Idaho Hsg. Agcy.,
Sngl. Fam. Mtge. Sr.,
Aa1 $ 3,135 6.65%, 7/1/14, Ser. B.... $ 3,336,392
Aaa 2,123 6.60%, 7/1/27, Ser. B,
F.H.A.................. 2,205,670
------------
5,542,062
------------
Illinois--6.5%
Chicago Gas Supply Rev.,
(People's Gas, Lt. &
Coke Co.),
Aa3 4,600 6.875%, 3/1/15........... 4,709,296
Chicago Gen. Oblig.,
Aaa 4,000 6.25%, 1/1/11,
A.M.B.A.C.............. 4,703,800
------------
9,413,096
------------
Indiana--5.5%
Indiana Mun. Pwr. Agcy.,
Pwr. Supply Sys. Rev.,
Aaa 5,000 6.00%, 1/1/13, Ser. B,
M.B.I.A................ 5,851,100
Indianapolis Local Pub.
Impvt. Bond Bank,
Waterworks Proj.,
Aaa 2,100 5.25%, 7/1/33, Ser. A,
M.B.I.A................ 2,142,945
------------
7,994,045
------------
Kentucky--1.4%
Louisville & Jefferson
Cnty.
Met. Swr. District,
Swr. & Drain Sys. Rev.,
Aaa 2,000 5.00%, 5/15/30,
F.G.I.C................ 1,994,020
------------
Louisiana--0.9%
St. Charles Parish, Solid
Waste Disp. Rev.,
(Louisiana Pwr. & Lt.
Co.),
Aaa 1,250 7.00%, 12/1/22, F.S.A.... 1,279,725
------------
Massachusetts--8.8%
Boston Wtr. & Swr.
Comm. Rev.,
Aaa 2,000 5.00%, 11/1/28, Ser. D,
F.G.I.C................ 2,001,280
Massachusetts St. Tpk.
Auth., Metro. Highway
Sys. Rev.,
Aaa 2,355 5.125%, 1/1/23, Ser. B... 2,378,008
Aaa 2,500 4.75%, 1/1/34, Ser. A,
A.M.B.A.C.............. 2,378,950

----------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
----------------------------------------------------------------
Massachusetts St., Wtr.
Res. Auth.,
Aaa $ 5,330(b) 7.00%, 8/1/13, Ser. A,
M.B.I.A., Prerefunded
8/1/04 @ 101 1/2....... $ 5,888,531
------------
12,646,769
------------
Michigan--1.4%
Detroit Wtr. Supply Sys.
Rev.,
Sr. Lien,
Aaa 2,000 5.00%, 7/1/30, Ser. A,
F.G.I.C................ 1,993,920
------------
Nebraska--4.1%
Omaha Pub. Pwr. Dist.,
Elec. Rev.,
Aa2 2,500 6.15%, 2/1/12, Ser. B
Escrowed to maturity..... 2,925,125
Aa2 2,500 6.20%, 2/1/17, Ser. B
Escrowed to maturity..... 2,970,675
------------
5,895,800
------------
New Jersey--1.5%
New Jersey St. Gen.
Oblig., Ser. H,
Aa2 2,000 5.25%, 7/1/17............ 2,202,680
------------
New York--15.7%
Long Island Pwr. Auth.
Elec. Sys. Rev.,
Aaa 4,000 5.25%, 12/1/26, Ser. A,
M.B.I.A................ 4,090,160
Metro. Trans. Auth. Rev.,
Aaa 1,000 5.25%, 11/15/31, Ser. A,
F.G.I.C................ 1,029,870
New York City Mun. Wtr.
Fin. Auth. Wtr. & Swr.
Sys. Rev.,
Aaa 5,000 5.00%, 6/15/29, Ser. B,
F.S.A.................. 5,009,150
New York St. Dorm. Auth.
Rev., Comsewogue Pub.
Lib. Insd.,
Aaa 2,265 6.00%, 7/1/15,
M.B.I.A................ 2,501,873
New York St. Energy
Research & Dev. Auth.
Facs. Rev.,
(Con Edison Co. of NY),
A1 4,000 7.125%, 12/1/29.......... 4,394,040
New York St. Envir. Fac.
Corp. Poll. Ctrl. Rev.,
Aaa 2,485(b) 6.90%, 11/15/15, Ser. D
Prerefunded 11/15/04 @
$102................... 2,789,785
Aaa 2,515 6.90%, 11/15/15, Ser. D.. 2,811,519
------------
22,626,397
------------

See Notes to Financial Statements.

----------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
----------------------------------------------------------------
Ohio--1.9%
Ohio St. Wtr. Dev. Auth.
Rev.,
Aaa 2,445 5.50%, 6/1/20, Ser. B,
F.S.A.................. 2,720,796
------------
South Carolina--1.1%
Spartanburg Waterworks
Rev., Jr. Lien,
Aaa 1,500 5.25%, 6/1/28............ 1,546,320
------------
Tennessee--2.3%
Tennessee Hsg. Dev.
Agcy., Mtge. Fin.,
Aaa 3,105 6.15%, 7/1/15, Ser. B,
M.B.I.A................ 3,263,076
------------
Texas--14.8%
Bexar Met. Wtr. Dist.
Waterworks Sys. Rev.,
Aaa 2,500 5.00%, 5/1/25,
M.B.I.A................ 2,489,975
Coastal Wtr. Auth.
Contract Rev., City Of
Houston Proj.,
Aaa 4,000 5.00%, 12/15/25,
F.S.A.................. 3,983,480
El Paso Wtr. & Swr. Rev.,
Aaa 1,555 5.50%, 3/1/12, Ser. A,
F.S.A.................. 1,759,700
Harris Cnty. Toll Road
Sub. Lien.,
Aa1 1,650 7.00%, 8/15/10, Ser. A... 2,029,748
Houston Wtr. & Swr. Sys.
Rev.,
Aaa 1,500 5.25%, 12/1/23, Ser. B... 1,532,625
Aaa 3,500 5.00%, 12/1/28, Ser. A... 3,479,665
Lower Colorado River
Auth. Rev., Refunding &
Impvmnt.,
Aaa 2,000 5.00%, 5/15/31, F.S.A.... 1,990,920
San Antonio Elec. & Gas
Rev.,
Aa1 4,000 5.00%, 2/1/18, Ser. A.... 4,107,320
------------
21,373,433
------------
Virginia--2.8%
Henrico Cnty. Wtr & Swr.
Rev.,
Aa2 3,985 5.00%, 5/1/28............ 4,006,121
------------
Washington--12.4%
Conservation & Renewable
Energy Sys., Cons.
Proj. Rev.,
Aa1 2,600 6.875%, 10/1/11.......... 2,879,838
King Cnty. Swr. Rev.,
Aaa 2,500 5.00%, 1/1/31,
F.G.I.C................ 2,473,725

----------------------------------------------------------------
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
----------------------------------------------------------------
Snohomish Cnty., Pub.
Utils. Dist. No. 1
Elec. Rev.,
A1 $ 1,500(b) 6.90%, 1/1/06, Ser. A
Prerefunded 1/1/03 @
$100................... $ 1,512,870
Aaa 8,000 5.80%, 1/1/24, Ser. B,
M.B.I.A................ 8,305,760
Washington St. Pub. Pwr.
Supply,
Nuclear Proj. No. 2
Rev.,
Aa1 2,400 6.00%, 7/1/07, Ser. A.... 2,699,016
------------
17,871,209
------------
Wyoming--3.1%
Wyoming St. Farm Loan
Brd. Cap. Facs. Rev.,
AA-* 4,000 5.75%, 10/1/20........... 4,557,400
------------
Total long-term
investments
(cost $184,136,600).... 205,898,433
------------
SHORT-TERM INVESTMENT--0.3%
Shares
---------
Goldman Sachs Tax Exempt
Money Market Fund,
NR 397,113 (cost $397,113)......... 397,113
------------
Total
Investments--142.9%
(cost $184,533,713;
Note 4)............... 206,295,546
Other assets in excess
of liabilities--2.1%.. 3,055,423
Liquidation Value of
Remarketed Preferred
Stock--(45.0%)........ (65,000,000)
------------
Net Assets Applicable to
Common Stock--100%.... $144,350,969
------------
------------

---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
F.G.I.C.--Financial Guarantee Insurance Company.
F.H.A.--Federal Housing Authority.
F.S.A.--Financial Security Assurance Inc.
M.B.I.A.--Municipal Bond Insurance Association.
(b) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
* Standard & Poor's rating.
NR--Not Rated by Moody's or Standard & Poor's.

See Notes to Financial Statements.

----------------------------------------------------------
DTF TAX-FREE INCOME INC.
Statement of Assets and Liabilities
October 31, 2002
----------------------------------------------------------
Assets
Investments, at value (cost
$184,533,713)........................ $206,295,546
Cash................................... 76,292
Interest receivable.................... 3,364,146
------------
Total assets......................... 209,735,984
------------
Liabilities
Accrued expenses....................... 205,716
Advisory fee payable (Note 2).......... 87,579
Dividends payable to common
shareholders......................... 60,562
Administration fee payable (Note 2).... 26,274
Tax expense payable.................... 4,884
------------
Total liabilities.................... 385,015
------------
Remarketed preferred stock ($.01 par
value; 1,300 preferred shares,
issued and outstanding, liquidation
preference $50,000 per share; Note 6). $ 65,000,000
------------
Net Assets Applicable to Common
Stock................................ $144,350,969
------------
------------
Net assets applicable to common stock
were comprised of:
Common stock at par ($.01 par value;
600,000,000 shares authorized and
8,507,456 issued and outstanding).. $ 85,075
Paid-in capital...................... 120,408,778
Undistributed net investment
income............................. 2,081,329
Accumulated net realized gain on
investments........................ 13,954
Net unrealized appreciation on
investments........................ 21,761,833
------------
Net assets applicable to common stock
(equivalent to $16.97 per share
based on 8,507,456 shares
outstanding)....................... $144,350,969
------------
------------

See Notes to Financial Statements.

----------------------------------------------------------
DTF TAX-FREE INCOME INC.
Statement of Operations
Year Ended October 31, 2002
----------------------------------------------------------
Net Investment Income
Income
Interest.............................. $10,991,296
-----------
Expenses
Investment advisory fee............... 1,025,213
Administration fee.................... 307,564
Remarketing expense................... 164,000
Directors' fees and expenses.......... 130,000
Custodian's fees and expenses......... 69,000
Transfer agent's fees and expenses.... 63,000
Reports to shareholders............... 50,000
Audit fee and expenses................ 50,000
Legal fees and expenses............... 33,000
Registration fees..................... 27,000
Miscellaneous......................... 10,533
-----------
Total expenses...................... 1,929,310
-----------
Net investment income................... 9,061,986
-----------
Realized and Unrealized Gain on
Investments
Net realized gain on investment
transactions.......................... 76,991
Tax expense on undistributed net
realized capital gains................ (4,884)
-----------
72,107
-----------
Net change in unrealized appreciation on
investments........................... 1,216,530
-----------
Net realized and unrealized gain on
investments........................... 1,288,637
-----------
Dividends on remarketed preferred
stock................................. (969,774)
-----------
Net Increase in Net Assets
Resulting from Operations............... $ 9,380,849
-----------
-----------

See Notes to Financial Statements.

----------------------------------------------------------
DTF TAX-FREE INCOME INC.
Statement of Changes
In Net Assets
----------------------------------------------------------
Year Ended October 31,
Increase in ---------------------------
Net Assets 2002 2001(a)
------------ ------------
Operations:
Net investment income...... $ 9,061,986 $ 9,247,226
Net realized gain (loss) on
investment transactions.. 72,107 (41,497)
Net change in unrealized
appreciation on
investments.............. 1,216,530 10,205,803
Dividends on remarketed
preferred stock.......... (969,774) (2,103,589)
------------ ------------
Net increase in net assets
resulting from
operations............... 9,380,849 17,307,943
Dividends:
Dividends to common
shareholders from net
investment income........ (7,105,116) (6,392,060)
------------ ------------
Total increase........... 2,275,733 10,915,883

Net Assets Applicable to
Common Stock
Beginning of year............ 142,075,236 131,159,353
------------ ------------
End of year(b)............... $144,350,969 $142,075,236
------------ ------------
------------ ------------
---------------
(a) Certain amounts have been restated to conform to new
requirements under generally accepted accounting
principles.
(b) Includes undistributed
net investment income of... $ 2,081,329 $ 994,740
------------ ------------
------------ ------------

See Notes to Financial Statements.

--------------------------------------------------------------------------------
DTF TAX-FREE INCOME INC.
Financial Highlights
--------------------------------------------------------------------------------

Year Ended October 31,
PER SHARE OPERATING PERFORMANCE OF COMMON ----------------------------------------------------------------
SHAREHOLDERS: 2002(f) 2001(e) 2000(e) 1999(e) 1998(e)
------------ -------- -------- -------- --------

Net asset value, beginning of year............... $ 16.70 $ 15.42 $ 14.96 $ 16.62 $ 16.28
------------ -------- -------- -------- --------
Net investment income(d)....................... 1.07 1.09 1.13 1.14 1.17
Net realized and unrealized gain (loss) on
investments(d)................................. .15 1.19 .50 (1.59) .41
Dividends from net investment income to
remarketed preferred shareholders.............. (.11) (.25) (.32) (.25) (.28)
------------ -------- -------- -------- --------
Net increase (decrease) from investment
operations..................................... 1.11 2.03 1.31 (.70) 1.30
------------ -------- -------- -------- --------
Dividends from net investment income to
common shareholders............................ (.84) (.75) (.85) (.96) (.96)
------------ -------- -------- -------- --------
Net asset value, end of year(a).................. $ 16.97 $ 16.70 $ 15.42 $ 14.96 $ 16.62
------------ -------- -------- -------- --------
Per share market value, end of year(a)........... $ 15.00 $ 14.45 $ 12.69 $ 14.13 $ 17.31
------------ -------- -------- -------- --------
TOTAL INVESTMENT RETURN OF COMMON
SHAREHOLDERS(b).................................. 9.71% 20.14% (4.08)% (13.34)% 11.41%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS:(c)
Operating expenses............................... 1.37% 1.38% 1.38% 1.39% 1.34%
Net investment income............................ 6.44% 6.73% 7.51% 7.10% 7.18%
SUPPLEMENTAL DATA:
Average net assets of common shareholders
(000).......................................... $140,786 $137,104 $127,639 $136,111 $137,680
Portfolio turnover rate.......................... 15% 8% 26% 6% 0%
Net assets of common shareholders,
end of period (000)............................ $144,351 $142,075 $131,159 $127,239 $140,465
Asset coverage per share of preferred stock,
end of period.................................. $161,039 $159,289 $150,892 $147,876 $158,050
Preferred stock outstanding (000)................ $ 65,000 $ 65,000 $ 65,000 $ 65,000 $ 65,000

---------------
(a) NAV and market value are published in The Wall Street Journal each Monday.
(b) 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 period 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.
(c) Ratios calculated on the basis of income and expenses applicable to both the
common and preferred shares relative to the average net assets of common
shareholders. Ratios do not reflect the effect of dividend payments to
preferred shareholders.
(d) Calculated based upon weighted average shares outstanding during the period.
(e) Certain amounts have been reclassified to conform to new requirements under
generally accepted accounting principles.
(f) Effective November 1, 2001, the Fund has adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discounts on debt securities. The effect of this change for the year
ended October 31, 2002 was to increase net investment income per share by
$0.02 and decrease net realized and unrealized gain (loss) per share by
$0.02 and increase the ratio of net investment income from 6.35% to 6.44%.
Per share amounts and ratios for the years ended prior to October 31, 2002
have not been restated to reflect this change in presentation.

See Notes to Financial Statements.

----------------------------------------------------------
DTF TAX-FREE INCOME INC.
Notes to Financial Statements
----------------------------------------------------------

DTF Tax-Free Income Inc. (formerly known as Duff & Phelps Utilities 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 will seek to
achieve its investment objective by investing primarily (at least 65% of its
total assets) in a diversified portfolio of investment grade tax-exempt utility
obligations. 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.

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 original issue discount
on securities using the effective interest method.

As required, effective November 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
accreting market discounts on debt securities. Upon initial adoption, the Fund
was required to adjust the cost of its fixed-income securities by the cumulative
amounts that would have been recognized had the accretion been in effect from
the purchase date of each holding. Adopting this accounting principle does not
affect the Fund's net asset value, but changes the classification of certain
amounts between interest income and realized and unrealized appreciation
(depreciation) in the Statement of Operations. The cumulative adjustment upon
initial adoption through October 31, 2001 resulted in an increase to
undistributed net investment income of $268,197 and a decrease to unrealized
appreciation on investments of $268,197.

The current adjustments for the year ended October 31, 2002 resulted in an
increase to net investment income of $123,134, a decrease to net realized gains
of $163,820 and an increase to unrealized appreciation on investments of
$40,686.

Federal Income Taxes: It is the Fund's intention to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute sufficient net income to shareholders to qualify as a regulated
investment company.

Dividends and Distributions: The Fund will declare and pay dividends to common
shareholders 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. Federal income taxes have been recorded on
such undistributed capital gains. Dividends and distributions are recorded on
the ex-dividend date. Dividends to preferred shareholders are accrued 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 generally accepted accounting
principles.

Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements

and accompanying notes. Actual results could differ from those estimates.

Change in Accounting Principle: In July 2001, a Securities and Exchange
Commission staff announcement, Emerging Issues Task Force D-98 ('EITF D-98'),
Classification and Measurement of Redeemable Securities, was issued providing
new guidance related to the presentation of preferred stock in financial
statements. EITF D-98 is required to be applied beginning with fiscal quarters
ending after December 15, 2001 on a retroactive basis, by restating the prior
year's financial statements. In accordance with the announcement, the Fund has
presented its remarketed preferred shares outside of net assets and in the
Statement of Assets and Liabilities. In adopting EITF D-98, the Fund's net
assets as of November 1, 2000 in the statement of changes in net assets is
restated by excluding remarketed preferred stock valued at $65,000,000 at that
date. The adoption also resulted in dividends to preferred shareholders being
reclassified from distributions on the statement of changes in net assets to a
separate line item with in the statement of operations. As part of the adoption,
per share distributions of dividends on remarketed preferred shares were
reclassified from distributions to amounts from investment operations for each
period presented in the financial highlights. The application of EITF D-98
related entirely to presentation and had no impact on net asset value or the
allocation of net income or capital gains or losses to common shareholders.

Note 2. Agreements

The Fund has an Advisory Agreement with Duff & Phelps Investment Management
Co. (the 'Adviser'), a subsidiary of Phoenix Investment Partners, Ltd., and an
Administration Agreement with Prudential Investments LLC ('PI'), an indirect,
wholly-owned subsidiary of Prudential Financial, Inc.

The investment fee paid to the Adviser is computed weekly and payable monthly
at an annual rate of .50% of the Fund's average weekly managed assets. The
administration fee paid to PI is also computed weekly and payable monthly at an
annual rate of .15% of the Fund's average weekly managed assets.

Pursuant to the agreements, 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. PI pays occupancy and certain clerical
and accounting costs of the Fund. 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, 2002 aggregated $30,984,702 and
$29,937,391, respectively.

Note 4. Tax Information

Distributions to shareholders, which are determined in accordance with federal
income tax regulations and may differ from generally accepted accounting
principles, are recorded on the ex-dividend date. In order to present
undistributed net investment income and accumulated net realized gains on the
statement of assets and liabilities that more closely represent their tax
character, certain adjustments have been made to undistributed net investment
income and accumulated net realized gain on investments. For the year ended
October 31, 2002, the adjustments were to decrease undistributed net investment
income and increase accumulated realized gain on investments by $168,704, due
to permanent differences between financial reporting and tax accounting. Net
investment income, net realized gains and net assets were not affected by
this change.

For the year ended October 31, 2002, the tax character of total dividends
paid of $8,074,890 was tax-exempt income. This amount includes $969,774 paid to
preferred shareholders.

As of October 31, 2002, the accumulated undistributed earnings on a tax basis
was $1,894,518 (includes a timing difference of $60,562 for dividends payable)
of tax-exempt income.

The United States federal income tax basis of the Fund's investments and the
net unrealized appreciation as of October 31, 2002 was as follows:

Net
Tax Basis of Unrealized
Investments Appreciation Depreciation Appreciation
-------------- ------------ ------------ ------------
$184,306,202 $22,019,796 $ 30,452 $21,989,344

The difference between book basis and tax basis was attributable to
differences in the treatment of market discount accretion for book and tax
purposes.

Note 5. Capital

There are 600 million shares of $.01 par value common stock authorized.

For the year ended October 31, 2002 the Fund did not issue any common shares
in connection with the reinvestment of dividends.

Note 6. Remarketed Preferred Stock

The Fund's Articles of Incorporation authorize 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.

Dividends on shares of RP are cumulative from their date of original issue
and payable on each dividend payment date. Dividend rates ranged from 1.15% to
2.05% during the year ended October 31, 2002.

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 Articles of
Incorporation 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 shares 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 preferred
shares, voting separately as a class would be required to (a) adopt any plan of
reorganization that would adversely affect the preferred shares, and (b) take
any action 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. Subsequent Events

Subsequent to October 31, 2002, dividends declared and paid on preferred shares
totalled $79,823. On November 1, 2002, the Board of Directors of the Fund
declared a dividend of $.075 per common share payable on November 29, to common
shareholders of record on November 15. On November 19, 2002, the Board of
Directors approved a dividend of $.08 per common share to be declared on
December 1, 2002 payable on December 31, to common shareholders of record on
December 15.

--------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------

To the Shareholders and Board of Directors
DTF Tax-Free Income Inc.

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of DTF Tax-Free Income Inc. (the 'Fund')
as of October 31, 2002, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the years
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with auditing standards generally
accepted in the 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the securities
owned as of October 31, 2002 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of DTF
Tax-Free Income Inc. at October 31, 2002, 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 financial highlights for each of the indicated years, in
conformity with accounting principles generally accepted in the United States.

Ernst & Young LLP

New York, New York
November 19, 2002

--------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (Unaudited)
--------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of
the Fund's fiscal year end (October 31, 2002) as to the federal tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that in the fiscal year ended October 31, 2002, all dividends paid from net
investment income were federally tax-exempt interest dividends.

--------------------------------------------------------------------------------
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 Investment Company Act or
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 ('PXP').

Independent Directors

Number of
Term of Portfolios in
Positions Office and Fund Complex Other
Held Length of Principal Occupation(s) Overseen by Directorships Held
Name, Address and Age with Funds Time Served During Past 5 Years Director by the Director
------------------------------------------------------------------------------------------------------------------------------------

E. Virgil Conway Director Term expires Chairman, Rittenhouse 38 Director of Urstadt
Rittenhouse Advisors, LLC 2003; Director Advisors, LLC (consulting Biddle Property Corp.
101 Park Avenue since December firm) since 2001. Chairman and (1989-present).
New York, NY 10178 1995 Board Member of the Trustee/Director,
Age: 72 Metropolitan Transportation Trism, Inc.
Authority (1992-2001). (1994-2001),
Chairman and Trustee of the Consolidated Edison
Harlem Youth Development Company of New York,
Foundation (1987-present). Inc. (1970-2002), Union
Chairman and Director of New Pacific Corp.
York Housing Partnership (1978-2002), Blackrock
Development Corp. Fund for Freddie Mac
(1981-present). Securities (Advisory
Director/Trustee, Pace Director) (1990-2002),
University (1978-present), Accuhealth, Inc.
Realty Foundation of New York (1994-2002).
(1972-present).
Director/Trustee, Centennial
Insurance Company (1974-2002),
Josiah Macy, Jr., Foundation
(1973-2002), Atlantic Mutual
Insurance Company (1986-2002).

William W. Crawford Director Term expires Currently retired. Former 4
3003 Gulf Shore Blvd. Pound401 2004; Director President and Chief Operating
Naples, FL 34103 since November Officer of Hilliard, Lyons,
Age: 74 1995 Inc., a registered
broker-dealer.

Harry Dalzell-Payne Director Term expires Currently retired. Formerly a 38
The Flat 2003; Director Major General of the British
Elmore Court since July Army
Elmore, GLOS GL2 3NT, UK 1996
Age 73

William N. Georgeson Director Term expires Currently retired. Former Vice 4
575 Glenwood Road 2005; Director President of Nuveen Advisory
Lake Forest, IL 60045 since January Corp., an investment adviser.
Age: 75 1993 Director, Concordia University
Foundation (charity)
(1994-present)

Eileen A. Moran Director Term expires President and Chief Executive 4
PSEG Resources, Inc. 2005; Director Officer, PSEG Resources Inc.
80 Park Plaza T-22 since January (1990-present).
Newark, NJ 07102 1996
Age: 48

Everett L. Morris Director Term expires Vice President of W.H. Reaves 38
W.H. Reaves and Company 2003; Director and Company (since 1993).
10 Exchange Place since January Prior to March 1993, Director
Jersey City, NJ 07302 1993 of Public Service Enterprise
Age: 74 Group Incorporated and
President and Chief Operating
Officer of Enterprise
Diversified Holdings
Incorporated. Prior to January
1992, Senior Executive Vice
President Chief Financial
Officer of Public Service
Electric and Gas Company.
Prior to 1991, Director of
First Fidelity Bank, N.A.,
N.J.

Richard A. Pavia Director Term expires Currently retired. Vice 4
7145 North Ionia Avenue 2004; Director Chairman Cook County Illinois
Chicago, IL 60646 since January President's Advisory
Age: 72 1993 Council-Forest Preserve
District (since 1997). Special
Consultant, K&D Facilities
Resource Corp. (since 1995).
Former Chairman and Chief
Executive Officer of Speer
Financial, Inc.

Interested Directors

Francis E. Jeffries(1) Chairman of Term expires Chairman of the Board of 31 Director, The Empire
8477 Bay Colony Drive the Board of 2005; Director Directors and President of the District Electric
Pound902 Directors since January Registrant. Until May 13, Company.
Naples, FL 34108 and 1993 1997, Chairman of the Board of
Age: 72 President Directors of PXP. Prior to
July 1995, Chief Executive
Officer of the predecessor of
PXP and Chairman of the Board
of Duff & Phelps Investment
Management Co.

Philip R. McLoughlin(2) Director Term expires Director and Chief Executive 49 Director, The Phoenix
56 Prospect Street 2004; Director Officer (1995-2002) and Companies, Inc. (since
Hartford, CT 06115 since July Chairman (1997-2002), PXP. 2001). Director, PXRE
Age: 55 1996 Executive Vice President and Group (1985-present),
Chief Investment Officer, The and World Trust Fund
Phoenix Companies, Inc. (1991-present).
(2001-2002). Director,
(1994-2002) and Executive Vice
President, Investments,
(1988-2002) Phoenix Life
Insurance Company. Director,
Phoenix Investment Management
Company (2001-2002). Director,
Aberdeen Asset Management plc
(1986-2002). Director
(1983-2002) and Chairman
(1995-2002) Phoenix Investment
Counsel, Inc. Director
(1984-2002), Chairman
(1990-2002) and President
(1990-2000), Phoenix Equity
Planning Corporation. Chairman
and Chief Executive Officer,
Phoenix/Zweig Advisers
(1999-2002). Director and
Executive Vice President,
Phoenix Life and Annuity
Company (1996-2002), Director
and Executive Vice President,
PHL Variable Insurance Company
(1995-2002), and Director,
Phoenix National Trust Company
(1996-2002). Director, W.S.
Griffith Securities Inc.
(1992-2002). Director and Vice
President, PM Holdings, Inc.
(1985-2002).

(1) Mr. Jeffries is an interested person of the Funds by reason of his
position as President of the Funds.
(2) Mr. McLouglin is an interested person of the Funds by reason of his
position with PXP and its affiliates.

--------------------------------------------------------------------------------
MANAGEMENT OF THE FUND (Unaudited)
--------------------------------------------------------------------------------

The following table sets forth certain information concerning the principal
executive officers of the Funds. Francis E. Jeffries, a Director of DTF, serves
as President of the Fund. Information regarding Mr. Jeffries is set forth above.
The officers serve until their respective successors are chosen and qualified.
The Funds' officers receive no compensation from the Funds, but are also
officers of the Adviser or PXP and receive compensation in such capacities.

Position(s) Held with Fund and Length of
Name, (Age) and Address Time Served Principal Occupation(s) During Past 5 Years
----------------------- ------------------------------------------- ----------------------------------------------------------

James D. Wehr (45) Vice President and Chief Investment Officer Vice President of Duff & Phelps Investment Management Co.
56 Prospect Street since 1998. (2000-present). Senior Vice President, Fixed Income
Hartford, CT 06115-0480 (1998-present), Managing Director, Fixed Income
1996-1998), Phoenix Investment Counsel, Inc.

Timothy M. Heaney (38) Vice President and Portfolio Manager since Managing Director, Fixed Income (1997-present), Director,
56 Prospect Street 1997. Fixed Income Research (1996-1997), Investment Analyst
Hartford, CT 06115-0480 (1995-1996), Phoenix Investment Counsel, Inc.

Alan M. Meder (43) Treasurer & Principal Financial and Senior Vice President of Duff & Phelps Investment
55 E. Monroe Street Accounting Officer since 2000 and Assistant Management Co. (1994-present).
Chicago, IL 60603 Secretary since 2002.

Richard J. Wirth (44) Secretary since 2002. Vice President and Insurance and Investment Products
One American Row Counsel (2002-present), Counsel (1993-2002), Phoenix Life
Hartford, CT 06102 Insurance Company. Secretary, Phoenix Fund Complex
(2002-present).

Nancy J. Engberg (46) Assistant Secretary since 1999. Vice President and Counsel, Phoenix Investment Partners
One American Row Ltd. since 1999. Second Vice President and Counsel,
Hartford, CT 06102 Phoenix Home Life Mutual Insurance Company (1994-1999).

--------------------------------------------------------------------------------
OTHER INFORMATION (Unaudited)
--------------------------------------------------------------------------------

Pursuant to certain rules of the Securities and Exchange Commission the
following additional disclosure is required.

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 EquiServe, Inc. (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 P.O. Box 43011, Providence,
Rhode Island, 02940-3011 or call toll free (800) 451-6788.

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 common shares 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 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.

There have been no material changes in the Fund's investment objectives or
policies, charter or by-laws and principal risk factors associated with
investment in the Fund.

The annual shareholder meeting held on May 24, 2002, shareholders elected
William N. Georgeson, Francis E. Jeffries and Eileen A. Moran as directors of
the Fund. William W. Crawford, E. Virgil Conway, Philip R. McLoughlin, Everett
L. Morris, Richard A. Pavia and Harry Dalzell-Payne were not up for election and
their terms accordingly continued after the date of that meeting. The results of
the matters voted upon were as follows:

Number of Shares
----------------------------------------------------
Withheld
For Authority Against Abstain
----------- ---------- --------- ---------

Election of William N. Georgeson (1) 7,889,194 -- -- 94,564
Election of Francis E. Jeffries (1) 7,867,490 -- -- 116,268
Election of Eileen A. Moran (1) 7,888,689 -- -- 95,069

(1) The number of common shares issued outstanding and eligible to vote were
8,508,856. Quorum was 7,983,758 or 93.89% of eligible voting shares.

------------------------------------------------------
Directors
Francis E. Jeffries, Chairman
E. Virgil Conway
William W. Crawford
William N. Georgeson
Philip R. McLoughlin
Everett L. Morris
Eileen A. Moran
Richard A. Pavia
Harry Dalzell-Payne

Officers
Francis E. Jeffries, President & Chief Executive
Officer
James D. Wehr, Vice President & Chief Investment
Officer
Timothy M. Heaney, Vice President & Portfolio
Manager
Richard J. Wirth, Secretary
Nancy Engberg, Assistant Secretary
Alan M. Meder, Treasurer & Principal Financial and
Accounting Officer and Assistant Secretary

Investment Adviser
Duff & Phelps Investment Management Co.
55 East Monroe Street
Suite 3600
Chicago, IL 60603
(312) 263-2610

Administrator
Prudential Investments LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Call toll free (800) 225-1852

Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171

Transfer Agent
EquiServe, Inc.
P.O. Box 43011
Providence, RI 02940-3011
Call toll free (800) 451-6788

Independent Auditors
Ernst & Young LLP
5 Times Square
New York, NY 10036

Legal Counsel
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, IL 60606

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

23334J107
23334J206