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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-K

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number  1-2385

|THE   DAYTON POWER AND LIGHT COMPANY                  
|------------------------------------------------------
|(Exact name of registrant as specified in its charter)

|OHIO                                                           |  | 31-0258470                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               |  |                                     
|1065 Woodman Drive, Dayton, Ohio                               |  | 45432                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code:  937-224-6000

Securities registered pursuant to Section 12(b) of the Act:  NONE

Securities registered pursuant to Section 12(g) of the Act:  NONE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES
oNO
x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES
oNO
x

The aggregate market value of the voting and non-voting common equity held by nonaffiliates of the registrant as of June 30, 2003:  None.

Number of shares of registrants common stock outstanding as of October 31, 2004, all of which were held by DPL Inc., was 41,172,173.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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The Dayton Power and Light Company

Index to Annual Report on Form 10-K Fiscal Year Ended December 31, 2003

|        |                                                                                                  | Page No.
|------- | ------------------------------------------------------------------------------------------------ | --------
|        |                                                                                                  |         
|        | Part I                                                                                           |         
|Item 1  | Business                                                                                         | 3       
|Item 2  | Properties                                                                                       | 16      
|Item 3  | Legal Proceedings                                                                                | 16      
|Item 4  | Submission of Matters to a Vote of   Security Holders                                            | 18      
|        |                                                                                                  |         
|        | Part II                                                                                          |         
|Item 5  | Market for Registrants Common   Equity and Related Shareholder Matters                          | 18      
|Item 6  | Selected Financial Data                                                                          | 18      
|Item 7  | Managements Discussion and   Analysis of Financial Condition and Results of Operations          | 19      
|Item 7A | Quantitative and Qualitative   Disclosures about Market Risk                                     | 33      
|Item 8  | Financial Statements and   Supplementary Data                                                    | 34      
|Item 9  | Changes in and Disagreements with   Accountants on Accounting and Financial Disclosure           | 78      
|Item 9A | Controls and Procedures                                                                          | 79      
|        |                                                                                                  |         
|        |                                                                                                  |         
|        | Part III                                                                                         |         
|Item 10 | Directors and Executive Officers   of the Registrant                                             | 81      
|Item 11 | Executive Compensation                                                                           | 86      
|Item 12 | Security Ownership of Certain   Beneficial Owners and Management and Related Shareholder Matters | 107     
|Item 13 | Certain Relationships and Related Transactions                                                   | 109     
|Item 14 | Principal Accountant Fees and   Services                                                         | 110     
|        |                                                                                                  |         
|        | Part IV                                                                                          |         
|Item 15 | Exhibits, Financial Statement Schedules   and Reports on Form 8-K                                | 112     
|        |                                                                                                  |         
|        | Other                                                                                            |         
|        | Signatures                                                                                       | 118     
|        | Schedule II - Valuation and   Qualifying Accounts                                                | 121     
|        | Subsidiaries of The Dayton Power and Light Company                                               |         
|        | Independent Auditors Consent                                                                    |         
|        | Consent of Independent Accountants                                                               |         
|        | Certifications                                                                                   |         

Available InformationThe Dayton Power and Light Company (DP&L or the Company) files current, annual and quarterly reports and other information required by the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission (SEC).  You may read and copy any document the Company files at the SECs public reference room located at 450 Fifth Street, NW, Washington, DC  20549, USA.  Please call the SEC at (800) SEC-0330 for further information on the public reference rooms.  The Companys SEC filings are also available to the public from the SECs web site at http://www.sec.gov.

The Companys public internet site is http://www.dplinc.com.  The Company makes available through its internet site, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.

In addition, the Companys public internet site includes other items related to corporate governance matters, including, among other things, the Companys governance guidelines, charters of various committees of the Board of Directors and the Companys code of business conduct and ethics applicable to all employees, officers and directors.  You may obtain copies of these documents, free of charge, by sending a request, in writing, to DP&L Investor Relations, 1065 Woodman Drive, Dayton, Ohio 45432.

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PART I

|Item 1   - Business
|-------------------
|                   

The Dayton Power and Light Company

The Dayton Power and Light Company (DP&L or the Company) is a wholly-owned subsidiary of DPL Inc. (DPL).  DP&L is a public utility incorporated in 1911 under the laws of Ohio.  DP&L sells electricity to residential, commercial, industrial and governmental customers in a 6,000 square mile area of West Central Ohio.  Electricity for DP&Ls 24-county service area is generated at eight power plants and is distributed to more than 500,000 retail customers.  Principal industries served include automotive, food processing, paper, plastic manufacturing and defense.  The Companys sales reflect the general economic conditions and seasonal weather patterns of the area.

The Company employed 1,441 persons as of December 31, 2003, of which 1,181 were full-time employees and 260 were part-time employees.

All of the outstanding shares of common stock of the Company are held by DPL, which became the Companys corporate parent, effective April 21, 1986.

The Companys principal executive and business office is located at 1065 Woodman Drive, Dayton, Ohio 45432 - telephone (937) 224-6000.

RECENT DEVELOPMENTS

Audit Committee Investigation and Related MattersOn March 10, 2004,
the Companys and DPL Inc.s controller, Daniel Thobe, sent a memorandum (the Thobe Memorandum) to W August
Hillenbrand, the Chairman of DPLs Audit Committee of the Board of Directors (the Audit Committee).  The Thobe
Memorandum expressed Mr. Thobes concerns, perspectives and viewpoints regarding financial
reporting and governance issues within the Company and DPL.  The four general categories of issues identified by
Mr. Thobe were: (i) disclosure issues concerning agreements with Valley Partners, Inc. (a company owned
by Peter H. Forster, formerly DPLs and DP&Ls Chairman, and Caroline E. Muhlenkamp, formerly DPLs
and DP&Ls Group Vice President and interim Chief Financial Officer), the reporting of executive perquisite
compensation in DPLs proxy statement, segment reporting concerning DPLs subsidiary, MVE, Inc. (MVE) a company
responsible for the management of DPLs financial asset portfolio, and disclosure of Ms. Muhlenkamps
compensation; (ii) internal control issues including a lack of information regarding certain journal entries
and a lack of supporting documentation for travel-related expenses of certain senior executives; (iii) process
issues, which include the processes relating to recent amendments to the Companys and DPLs deferred
compensation plans, the classification of Mr. Forster as an independent contractor, and untimely payroll
processing; and (iv) communication issues relating to changes to the 2003 management bonus that were not
communicated to the staff and current practices and processes that have created an unfavorable tone at
the top environment.

On March 15, 2004, the Audit Committee retained the law firm of Taft, Stettinius & Hollister LLP (TS&H) to represent the Committee in an independent review of each of the matters raised by the Thobe Memorandum.  TS&H subsequently retained an accounting firm as a forensic accountant to assist in this review.  On April 27, 2004, TS&H submitted a written report of its findings to the members of the Audit Committee (the Report).

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A copy of the Report is filed as an exhibit to this Form 10-K.  TS&H stated in its Report that no person had indicated to it, nor had it uncovered in the course of its review, any uncorrected material inaccuracies in the Companys and DPLs books and records.  Further, TS&H reported that it had determined that some of Mr. Thobes concerns were based on incomplete information or were matters of judgment.  TS&H did, however, recommend further follow-up by the Audit Committee and  improvements relating to disclosures, communication, access to information, internal controls and the culture of the Company and DPL Inc. in certain areas.

Senior management was given the opportunity to review and comment on the Report.  Mr. Forster, Ms. Muhlenkamp and Stephen F. Koziar, Jr., formerly the Companys and DPLs Chief Executive Officer and President, each submitted written responses disagreeing with a number of the Reports conclusions.  They also provided additional information regarding the internal control and process issues that were raised by the Thobe Memorandum and corroborated in the Report.  In light of the responses by senior management, TS&H prepared a supplement to the Report, dated May 15, 2004 (the Supplement).  In the Supplement, TS&H addressed the information and documentation provided by senior management and incorporated the revised findings.  A copy of the Supplement is also filed as an exhibit to this Form 10-K.

The Audit Committee considered the Report and Supplement at a meeting held on May 16, 2004.  After its review and consideration, the Audit Committee recommended that the full Board of Directors accept the Report and the Supplement.  At a meeting held on May 16, 2004, the Board of Directors accepted the Report and Supplement, including the findings and recommendations set forth therein.

Pursuant to the recommendations set forth
  in the Report, the Company and DPL have disclosed in this Annual Report on Form 10-K
  the terms of certain agreements with Valley Partners, Inc., (the Valley
  Partners Agreements), which were terminated, as well as purported amendments
  to the Companys and DPLs deferred compensation plans that were made
  in December 2003 and the resulting distributions of deferred compensation that
  were made to senior management in 2003.  The Company and DPL
  have reviewed the termination of the Valley Partners Agreements, the purported
  amendments to the Companys and DPLs deferred compensation plans,
  and the December 2003 distributions, and have initiated legal proceedings challenging
  the propriety of those terminations and distributions and the validity of those
  amendments.  Notwithstanding the uncertain validity of the purported amendments to
  the plans, the Company has accounted for the plans as they have been administered.
  (See Item 3 - Legal Proceedings.)

The Audit Committee and the Companys
  senior management continue to evaluate the Report and Supplement, and are considering
  what additional action, if any, to take in response to the findings and recommendations
  therein.

Auditors LetterThe Companys auditors, KPMG LLP (KPMG), have delivered a
management letter to the Company regarding internal control and communication
issues within the Company noted during their 2003 examination.  This letter and managements response are
described in Item 9A of this Form 10-K.

4



Governmental and Regulatory InquiriesOn or about June 24, 2004, the SEC commenced a formal investigation into issues raised by the Thobe Memorandum.  The Company and DPL are cooperating with the investigation.

On April 7, 2004, the Company received notice that the staff of the Public Utilities Commission of Ohio (PUCO) is conducting an investigation into the financial condition of DP&L as a result of the issues raised by the Thobe Memorandum.  On May 27, 2004, the PUCO ordered DP&L to file a plan of utility financial integrity that outlines the actions the Company has taken or will take to insulate DP&L utility operations and customers from its unregulated activities.  DP&L must file this plan within 120 days of the filing of its Form 10-K with the SEC.  The Company intends to comply with this order and to cooperate with the PUCOs continuing investigation.

On May 28, 2004, the U.S. Attorneys Office for the Southern District of Ohio, assisted by the Federal Bureau of Investigation, notified the Company and DPL  that it has initiated an inquiry involving subject matters covered by the Companys and DPLs internal investigation.  The Company and DPL are cooperating with this investigation.

Commencing on or about June 24, 2004 the Internal Revenue Service (IRS) has issued a series of data requests to the Company and DPL regarding issues raised in the Thobe Memorandum.  The staff of the IRS has requested that the Company and DPL provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE financial statements.  The Company and DPL are cooperating with these requests.

Director and Management ChangesEffective May 16, 2004, the Board of Directors unanimously elected current directors Robert D. Biggs as Executive Chairman and W August Hillenbrand as Vice-Chairman.  The Board of Directors also appointed DPLE (a subsidiary of DPL Inc.) President, James V. Mahoney, as President and Chief Executive Officer of the Company and DPL and current Treasurer, Pamela Holdren, as Interim Chief Financial Officer of the Company and DPL.

The elections and appointments follow
  the retirement of Stephen F. Koziar, Jr., director, President and
  Chief Executive Officer of the Company and DPL, and director and Secretary/Treasurer
  of MVE and the resignations of Peter H. Forster, Chairman of the Board,
  director and consultant to the Company and DPL, and Chairman of the Board and
  director of MVE; and Caroline E. Muhlenkamp, director and President
  of MVE and Group Vice President and interim Chief Financial Officer of the Company
  and DPL.  In connection with Mr. Koziars retirement and Mr. Forster
  and Ms. Muhlenkamps resignations, each of the Company, Mr. Koziar,
  Mr. Forster and Ms. Muhlenkamp reserved all rights under applicable
  law and under any existing agreements.  On July 8, 2004, Mr. Forster and
  Ms. Muhlenkamp filed a complaint in the Circuit Court of the Fourth Judicial
  Circuit, Duval County, Florida, alleging claims against the Company, DPL and
  MVE for breach of contract, conversion, promissory estoppel and declaratory
  judgment relating to their consulting contract and employment agreement, respectively. 
  The defendants removed the case to the U.S. District Court for the Middle District
  of Florida, Jacksonville Division, on August 9, 2004.  Defendants have
  moved to dismiss the case for lack of jurisdiction or, in the alternative, to
  transfer the case to the U.S. District Court for the Southern District of Ohio. 
  On September 17, 2004, Mr. Forster and Ms. Muhlenkamp responded to defendants
  motions. (See Item 3 - Legal Proceedings, and Legal Matters under Note 14 of
  the Notes to Consolidated Financial Statements).

On July 21, 2004, the Company and DPL entered into an employment agreement with Robert D. Biggs, who became Executive Chairman of the Board effective May 16, 2004.  Mr. Biggs retired as a Managing Partner of PricewaterhouseCoopers LLP (PwC) in 1999 and

5



received retirement benefits from PwC which, if continued, could have affected whether PwC
qualifies as an independent auditing firm for the Company.  PwC was DPLs and the Companys independent auditor
until March 2003 and was required to give its consent to the filing of this Form 10-K.  In order for PwC to
 be independent, Mr. Biggs has agreed to accept his retirement benefit from PwC in the form of an annuity which
provides an annual retirement benefit that is $71,000 less than the amount he previously received from PwC directly.  To
compensate Mr. Biggs for the resulting reduction in his PwC retirement benefits, the Company and DPL purchased an annuity
that will pay Mr. Biggs $71,000 per year for life in addition to the compensation described in Item 11
 Executive Compensation.  The Company and DPL will also provide Mr. Biggs with gross-up payments for any income
taxes incurred by him in connection with the annuity such that Mr. Biggs is in the same after-tax position as if no income
taxes had been imposed.  On October 5, 2004, the Company, DPL and Mr.Biggs signed a letter agreement modifying his employment
agreement to clarify that the effective date for the grant of stock options to Mr. Biggs pursuant to his employment agreement was
October 5, 2004 and not May 16, 2004. Upon Mr. Biggs' death, Mr. Biggs' spouse will receive an annual amount equal to 30% of the
total annuity payable to Mr. Biggs for life. This arrangement will continue to be binding even if Mr. Biggs no longer serves
as Executive Chairman.

On September 17, 2004, the Company and DPL appointed Gary Stephenson as Vice President, Commercial Operations.

On September 28, 2004, the Company and
  DPL appointed Glenn E. Harder, General Lester L. Lyles, Dr. Ned J. Sifferlen
  and James V. Mahoney to the Board of Directors to fill vacancies created by
  resignations and retirement.

Restatement

On October 28, 2004, DPLs Audit Committee (the Audit Committee) determined that the
Companys previously issued financial statements for the fiscal years ended December 31, 2000, 2002, and 2003 and for the
quarters ended March 31, 2002 through September 30, 2003 should be restated.  The Audit Committee has discussed the issues
surrounding the restatement for the periods ending on or before December 31, 2002 with the Companys independent accountants,
PricewaterhouseCoopers LLP (PwC) and for periods ending after December 31, 2002 with the Companys independent accountants,
KPMG LLP (KPMG).  Both PwC and KPMG have informed the Audit Committee that they concur with the restatement decision.

As a result of the Audit Committees response to the Report and during the 2003 year-end financial closing process, the
Company identified certain adjustments to prior period financial statements.  As a result, the Company has restated its
consolidated financial statements for the fiscal years ended December 31, 2001 and 2002, and for the quarters ended March 31, 2002
through December 31, 2002.  This restatement increased net income by $2.1 million to $245.6 million for 2002 and reduced net
income by $1.7 million to $233.6 million for 2001.  The beginning balance in Earnings Reinvested in the Business for 2001 was
reduced by $13.9 million to $191.5 million.  All applicable financial information contained in this Annual Report on Form 10-K
gives effect to these statements.

For information concerning the restatements made, see Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations and Note 2 of the Notes to Consolidated Financial Statements included in Item 8.

|COMPETITION AND REGULATION                                                                                                                                                                                                                                                                                                       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|DP&L has historically operated in a   rate-regulated environment providing electric generation and energy delivery,   consisting of transmission and distribution services, as a single product to   its retail customers.  Prior to the   legislation discussed below, DP&L did not have competitors in its service   territory.

In October 1999, legislation became effective in Ohio that gave electric utility customers a choice of energy providers beginning on January 1, 2001.  Under this legislation, electric generation, power marketing, and power brokerage services supplied to retail customers in Ohio are deemed to be competitive and are not subject to supervision and regulation by the PUCO.

6



As required by this legislation, DP&L filed its transition plan (Electric Transition Plan) with the PUCO on December 20, 1999.  DP&L received the PUCO approval of its plan on September 21, 2000.

The Electric Transition Plan provided for a three-year transition period, which began on January 1, 2001 and ended on December 31, 2003.  The plan also provided for a 5% residential rate reduction on the generation component of the rates, which reduced annual revenue by approximately $14 million; rate certainty for the three-year period for customers that continued to purchase power from DP&L; guaranteed rates for a six-year period for transmission and delivery services; and recovery by DP&L of transition costs of approximately $600 million.

On October 28, 2002, DP&L filed with
the PUCO a request for an extension of its market development period from
December 31, 2003 to December 31, 2005 that, if granted, would continue
DP&Ls current rate structure and provide its retail customers with
rate stability.  On May 28, 2003, DP&L filed with the PUCO a
Stipulation and Recommendation entered into with five other parties (Ohio
Consumers Counsel (the OCC), Industrial Energy Users-Ohio, PUCO Staff,
Partners for Affordable Energy, and Community Action Partnership of the Greater
Dayton Area).  On September 2, 2003, the PUCO issued an Opinion and Order
adopting the Stipulation with modifications (the Stipulation). The Stipulation
provides the following:  DP&Ls market development period will
continue through December 31, 2005; retail generation rates will remain frozen
at present levels; a credit issued to customers who elect competitive retail
generation service will increase over two years; and a rate stabilization period
from January 1, 2006 through December 31, 2008, during which DP&Ls
retail generation rates in effect on January 1, 2004 will serve as market-based
rates.  The Stipulation also provides that beginning January 1, 2006, rates
may be modified by up to 11% of generation rates to reflect increased costs
associated with fuel, environmental compliance, taxes, regulatory changes, and
security measures.  Further, the PUCO may approve an increase to the
residential generation discount commencing January 1, 2006.  The PUCO
denied applications for rehearing on October 22, 2003.  The PUCOs
decision was appealed to the Ohio Supreme Court on December 19, 2003.  That
appeal was argued before the Ohio Supreme Court on October 12, 2004 and the
decision is pending.

On February 20, 2003, the PUCO issued an Entry requesting comments from interested stakeholders on the proposed rules for the conduct of a competitive bidding process that will take place at the end of the market development period.  DP&L submitted comments and reply comments on March 7 and March 21, 2003, respectively. The PUCO issued final rules on December 23, 2003.  Under DP&Ls Stipulation discussed above, these rules will not affect DP&L until January 1, 2009.

On March 20, 2003, the PUCO issued an Entry initiating a PUCO investigation regarding the desirability, feasibility, and timing of declaring that retail ancillary metering, billing and/or collection services are competitive retail electric services that consumers may obtain from any supplier.  The initiation of this investigation was based on a requirement in the 1999 Ohio deregulation legislation.  The PUCO asked interested stakeholders to file comments by June 6, 2003 and reply comments by July 7, 2003.  DP&L filed comments and will actively participate in this case and evaluate the potential outcome of this proceeding.

As of December 31, 2003, two unaffiliated marketers were registered as competitive retail electric service (CRES) providers in DP&Ls service territory; to date, there has been no significant activity.  DPL Energy Resources, Inc., an affiliated company, is also a registered CRES provider.  In addition, several communities in DP&Ls service area have passed

7



ordinances allowing the communities to
become government aggregators for the purpose of offering alternative electric
generation supplies to their citizens.  To date none of these communities
have aggregated.  There has been a complaint filed at the PUCO concerning
the pricing of DP&Ls billing services.  Additionally, a complaint
has been filed at the PUCO alleging that DP&L has established improper
barriers to competition.  On October 13, 2004 the parties reached a
settlement on pricing of DP&Ls billing services that DP&L will
charge CRES providers. Additionally on October 19, 2004, DP&L entered into a
settlement with Dominion Retail, Green Mountain Energy and the Staff of the
PUCO that resolves all matters in the competition barrier complaint.  This
settlement provides that DP&L will modify the manner in which customer
partial payments are applied to billing charges and DP&L will no longer
offer to purchase the receivables of CRES providers who operate in
DP&Ls certified territory. Both settlements are subject to PUCO
approval.

Like other utilities and energy marketers, DP&L may sell or purchase electric generating capacity on the wholesale market.  DP&L competes with other generators, privately and municipally owned electric utilities and rural electric cooperatives when selling electricity.  The ability of DP&L to sell this electricity will depend on how DP&Ls price, terms and conditions compare to those of other suppliers.  In addition, from time to time, DP&L may purchase power from other suppliers.  These purchases may be affected by privately and municipally owned electric utilities and rural electric cooperatives, and other alternate fuel suppliers on the basis of price and service.

DP&L provides transmission and wholesale electric service to twelve municipal customers in its service territory, which distribute electricity within their incorporated limits.  DP&L also maintains an interconnection agreement with one municipality that has the capability to generate a portion of its energy requirements.  Sales to these municipalities represented 1% of total electricity sales in 2003.

The Federal Energy Regulatory Commission
(FERC) issued a final rule on December 20, 1999, which required all public
utilities that own, operate, or control interstate transmission lines to file a
proposal to join a Regional Transmission Organization (RTO) by October 15, 2000
or file a description of efforts taken to participate in an RTO, reasons for not
participating in an RTO, any obstacles to participation in an RTO and any plans
for further work toward participation.  DP&L filed with the FERC to
join the Alliance RTO.  On December 19, 2001, the FERC issued an order
rejecting the Alliance RTO as a stand-alone RTO.  The FERC has recognized
in various orders that substantial losses were incurred to establish the
Alliance RTO and that it would consider proposals for rate recovery of prudently
incurred costs.  DP&L invested approximately $8 million in its
efforts to join the Alliance RTO.  On May 28, 2002, DP&L filed a notice
with the FERC stating its intention to join the Pennsylvania Jersey Maryland
Interconnection L.L.C. (PJM), an organization responsible for the operation and
control of the bulk electric power system throughout major portions of five
Mid-Atlantic states and the District of Columbia.  On July 31, 2002, the
FERC granted DP&L conditional approval to join PJM.  In June 2003,
DP&L turned over five transmission functions for PJM to operate including
OASIS management, ATC calculations, scheduling, market monitoring and security
coordination.  As of December 31, 2003, DPL had invested a total of
approximately $15.0 million in its efforts to join an RTO.  On July 30,
2004, DP&L made a filing with the FERC to withdraw its transmission tariff
and to become fully integrated into PJMs tariff effective October 1, 2004. The
Company was fully integrated into PJM on October 1, 2004.

Effective October 1, 2004, PJM began to assess a FERC-approved administrative fee on
every megawatt consumed by DP&L customers. On October 26, 2004, DP&L filed an application with the PUCO for authority to modify
its accounting procedures to defer collection of this PJM administrative fee, effective October 1, 2004, plus carrying charges,
until such time as DP&L has obtained the authority to adjust its rates (i.e., after January 1, 2006) pursuant to DP&Ls approved
Stipulation and Recommendation. The application is pending.

The FERCs July 31, 2002 Order also addressed the justness and reasonableness of the PJM and Midwest Independent Transmission System Operator (MISO) rates and related revenue distribution protocols.  On March 31, 2003, an Initial Decision was issued finding that the PJM/MISOs rates had not been shown to be unjust and unreasonable.  On July 23, 2003, the FERC issued an Order rejecting in part the Initial Decision and found that the rates for transmission service through and out of the service territories of seven former Alliance RTO companies, including DP&L, may be unjust, unreasonable, or unduly discriminatory or preferential.  On August 15, 2003, DP&L filed a submission with the FERC stating that there

8



is no basis for the elimination of
DP&Ls through and out rates prior to the date that it joined an
RTO.  The FERC issued an order directing that through and out rates of all
former Alliance, MISO and PJM RTO companies be eliminated.  Subsequently,
the FERC required the parties to enter into settlement discussions.  On
March 19, 2004, the FERC approved a settlement agreement regarding transmission
pricing that allows DP&L to continue to charge its existing transmission
rate until December 1, 2004.  The settlement agreement also outlines
the principles and procedures to arrive at a single, long term transmission
pricing structure to be effective December 1, 2004.  On September 27,
2004, the FERC instituted a proceeding under Federal Power Act Section 206 to
implement a new long-term transmission pricing structure intended to eliminate
seams in the PJM and MISO regions.  The ultimate disposition of this case
may affect the recovery of transmission revenues by DP&L. On October 1,
2004, DP&L, along with approximately sixty (60) other parties filed a
long-term pricing plan at FERC. If approved, the plan will provide for
continuation of DP&Ls existing transmission rate until 2008 and
transitional payments of approximately $3 million.

In a November 1, 2001 Order, as modified on
April 14, 2004, FERC required entities with market-based rate authority to
submit their triennial market-based reviews using new criteria.  In
DP&Ls case, this submission would have been due August 11, 2004. 
On July 30, 2004, DP&L requested a new compliance date sixty days after
integration into PJM to enable DP&L to provide an analysis that reflects the
market as it will exist in PJM.  On October 14, 2004, FERC denied that request and on October 15, 2004, the Company filed its triennial market-based review with FERC.

On March 10, 2003, American Municipal Power of Ohio, Inc., on behalf of DP&Ls municipal customers (Municipals), filed a complaint at the FERC alleging the Municipals will be faced with higher rates under their 1994 Power Services Agreement with DP&L once the Company is fully integrated into an RTO as discussed above.  A settlement was filed with the FERC on October 14, 2003.  The settlement provides that the power services agreements will continue to be effective.  It also describes how transmission services will be provided as DP&L joins PJM and preserves the transmission rates and most ancillary services.  The FERC approved the settlement on December 23, 2003.

On July 31, 2002, the FERC issued a Standard Market Design Notice of Proposed Rulemaking (SMD NOPR).  The SMD NOPR established a proposed set of rules to standardize wholesale electric market design to create wholesale competition and efficient transmission systems.  The effect of this proposed rulemaking on DP&L cannot be determined at this time.

On March 21, 2002, the PUCO staff proposed modifications to the Minimum Electric Service and Safety Standards, which establish performance standards for various service related functions of investor-owned electric utilities.  The proposed modifications affect billing, collections, allocation of customer payments, meter reading, and distribution circuit performance.  The PUCO issued final rules on September 26, 2002 and DP&L filed an application for rehearing on October 26, 2002.  The PUCO issued an Entry on Rehearing on March 18, 2003.  These rules were filed with the Joint Committee on Agency Rule Review on July 30, 2003 and were effective January 1, 2004. The effect of these rules is not material to the Company.

On April 7, 2004, the Company received notice that the staff of the PUCO is conducting an investigation into the financial condition of DP&L as a result of the issues raised by the Thobe Memorandum.  On May 27, 2004, the PUCO ordered DP&L to file a plan of utility financial integrity that outlines the actions DPL Inc. has taken or will take to insulate DP&L utility operations and customers from its unregulated activities.  DP&L must file this plan within 120 days of the filing of its Form 10-K with the SEC.  The Company intends to comply with this order and to cooperate with the PUCOs continuing investigation.

9



DP&L has requested approval from the PUCO to extend the filing of its Annual 2003 Report until after the filing of its 2003 Form 10-K.  DP&L has also requested approval from the FERC to extend the filing of its FERC Form 1 and FERC Form 3-Qs until after the filing of its 2003 Form 10-K.  All of these requests are pending.

|CONSTRUCTION ADDITIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Construction additions were $98 million,   $129 million and $164 million in 2003, 2002 and 2001, respectively,   and are expected to approximate $88 million in 2004.  Planned construction additions for 2004 relate   to DP&Ls environmental compliance program, power plant equipment, and   its transmission and distribution system.    During the last three years, capital expenditures have been utilized   to make significant progress on DP&Ls Nitrogen Oxide (NOx) compliance   program and to make power plant improvements.

Capital projects are subject to continuing
review and are revised in light of changes in financial and economic conditions,
load forecasts, legislative and regulatory developments and changing
environmental standards, among other factors.  Over the next four years,
DP&L is projecting to spend $800 million in capital projects, approximately
half of which is to meet changing environmental standards. DP&Ls
ability to complete its capital projects and the reliability of future service
will be affected by its financial condition, the availability of internal and
external funds at reasonable cost, and adequate and timely return on these
capital investments.  DP&L expects to finance its construction
additions over the next few years with internally-generated funds.

See ENVIRONMENTAL CONSIDERATIONS for a description of environmental control projects and regulatory proceedings that may change the level of future construction additions.  The potential effect of these events on DP&Ls operations cannot be estimated at this time.

|ELECTRIC OPERATIONS AND FUEL SUPPLY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|DP&Ls present winter generating capacity is   approximately 3,400 megawatts (MW).    Of this capacity, approximately 2,800 MW is derived from   coal-fired steam generating stations and the balance consists of combustion   turbine and diesel-powered peaking units.    Approximately 87% of the existing steam generating capacity is   provided by certain units owned as tenants in common with The Cincinnati Gas   & Electric Company (CG&E) and Columbus Southern Power Company   (CSP).  As a tenant in common, each   company owns a specified undivided share of each of these units, is entitled   to its share of capacity and energy output, and has a capital and operating   cost responsibility proportionate to its ownership share. Additionally,   DP&L, CG&E and CSP own as tenants in common, 884 circuit miles   of 345,000-volt transmission lines.    DP&L has several interconnections with other companies for the
purchase, sale and interchange of electricity.

DP&Ls remaining steam generating capacity (approximately 365 MW) is derived from a
generating station owned solely by DP&L.  DP&Ls all-time net peak load was 3,130 MW, occurring in 1999. 
The present summer generating capability is approximately 3,300 MW.

In 2003, DP&L generated 99% of its electric output from coal-fired units and 1% from oil or natural gas-fired units, which were used to meet peak demands.

The following table sets forth DP&Ls generating stations and where indicated, those stations which DP&L owns as a tenant in common.

10



|                              |  |            |  |                     |  |                  |  | MW Rating     
|----------------------------- |  | ---------- |  | ------------------- |  | ---------------- |  | --------------
|                              |  |            |  |                     |  |                  |  |               
|Station                       |  | Ownership* |  | Operating   Company |  | Location         |  | DP&L   Portion
|                              |  |            |  |                     |  |                  |  |               
|Coal Units                    |  |            |  |                     |  |                  |  |               
|Hutchings                     |  | W          |  | DP&L                |  | Miamisburg, OH   |  | 365           
|Killen                        |  | C          |  | DP&L                |  | Wrightsville, OH |  | 402           
|Stuart                        |  | C          |  | DP&L                |  | Aberdeen, OH     |  | 820           
|Conesville-Unit 4             |  | C          |  | CSP                 |  | Conesville, OH   |  | 129           
|Beckjord-Unit 6               |  | C          |  | CG&E                |  | New Richmond, OH |  | 207           
|Miami Fort-Units 7 & 8        |  | C          |  | CG&E                |  | North Bend, OH   |  | 360           
|East Bend-Unit 2              |  | C          |  | CG&E                |  | Rabbit Hash, KY  |  | 186           
|Zimmer                        |  | C          |  | CG&E                |  | Moscow, OH       |  | 365           
|Combustion Turbines or Diesel |  |            |  |                     |  |                  |  |               
|Hutchings                     |  | W          |  | DP&L                |  | Miamisburg, OH   |  | 23            
|Yankee Street                 |  | W          |  | DP&L                |  | Centerville, OH  |  | 107           
|Monument                      |  | W          |  | DP&L                |  | Dayton, OH       |  | 12            
|Tait Diesels                  |  | W          |  | DP&L                |  | Dayton, OH       |  | 10            
|Sidney                        |  | W          |  | DP&L                |  | Sidney, OH       |  | 12            
|Tait Units 1-3                |  | W          |  | DP&L                |  | Moraine, OH      |  | 256           
|Killen                        |  | C          |  | DP&L                |  | Wrightsville, OH |  | 12            
|Stuart                        |  | C          |  | DP&L                |  | Aberdeen, OH     |  | 3             

|                  
|------------------
|*W = Wholly-Owned 
|C = Commonly-Owned

DP&L has contracted all of its
projected coal requirements for 2004 with the balance to be obtained by spot
market purchases.  The prices to be paid by DP&L under its long-term
coal contracts are subject to adjustment in accordance with various
indices.  Each contract has features that will limit price escalations in
any given year.  As a result of the rising coal market, DP&L expects
its 2004 coal cost to exceed its 2003 coal costs by approximately 15%.

The average cost of fuel used per kilowatt-hour (kWh) generated was 1.29¢ in 2003, 1.26¢ in 2002 and 1.31¢ in 2001.  With the onset of competition in January 2001, the Electric Fuel Component was frozen under DP&Ls Electric Transition Plan and is reflected in the Standard Offer Generation rate to its customers.  See RATE REGULATION AND GOVERNMENT LEGISLATION and ENVIRONMENTAL CONSIDERATIONS.

|SEASONALITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The power delivery business is seasonal
and weather patterns can have a material impact on operating performance. 
In the region served by DP&L, demand for electricity is generally greater in
the summer months associated with cooling and in the winter months associated with heating as compared to
other times of the year.  Historically, the power delivery operations of
DP&L have generated less revenues and income when weather conditions are
milder in the winter and cooler in the summer.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|GAS OPERATIONS AND GAS SUPPLY                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|In October 2000, DP&L completed the sale of its   natural gas retail distribution assets and certain liabilities for $468.0   million in cash.  The transaction   resulted in a pre-tax gain of $183.0 million ($121.0 million net of   taxes).  Proceeds from the sale were   used to finance DP&Ls regional generation expansion and reduce   outstanding short-term debt.                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|RATE REGULATION AND GOVERNMENT   LEGISLATION                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|DP&Ls sales to retail customers are subject to   rate regulation by the PUCO.    DP&Ls wholesale electric rates to municipal corporations and   other distributors of electric energy are subject to regulation by the FERC   under the Federal Power Act.                                                                                                                                                                                                                                              

11



Ohio law establishes the process for determining rates charged by public utilities.  Regulation of rates encompasses the timing of applications, the effective date of rate increases, the cost basis upon which the rates are based and other related matters.  Ohio law also established the OCC, which has the authority to represent residential consumers in state and federal judicial and administrative rate proceedings.

Ohio legislation extends the jurisdiction of the PUCO to the records and accounts of certain public utility holding company systems, including DPL.  The legislation extends the PUCOs supervisory powers to a holding company systems general condition and capitalization, among other matters, to the extent that they relate to the costs associated with the provision of public utility service.  Based on existing PUCO authorization, regulatory assets and liabilities are recorded on the Consolidated Balance Sheet (see Note 4 of Notes to Consolidated Financial Statements).

Under legislation passed in 1999, the percentage of income payment plan (PIPP) for eligible low-income households was converted to a Universal Service Fund in 2001.  The universal service program is administered by the Ohio Department of Development and provides for full recovery of arrearages for qualifying low-income customers.

The PUCO is composed of the following commissioners appointed to staggered five-year terms:

|Name                      |  | Beginning   of Term |  | End of   Term
|------------------------- |  | ------------------- |  | -------------
|                          |  |                     |  |              
|Chairman Alan R. Schriber |  | April 2004          |  | April 2009   
|Donald L. Mason           |  | April 2003          |  | April 2008   
|Judith A. Jones           |  | April 2002          |  | April 2007   
|Clarence D. Rogers        |  | February 2001       |  | April 2006   
|Rhonda H. Fergus          |  | April 2000          |  | April 2005   

See COMPETITION AND REGULATION for more detail regarding the effect of legislation.

|ENVIRONMENTAL CONSIDERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The operations of DP&L, including DP&Ls   commonly-owned facilities, are subject to a wide range of federal, state, and   local environmental regulations and law as to air and water quality, disposal   of solid waste and other environmental matters, including the location,   construction and operation of new and existing electric generating facilities   and most electric transmission lines.    As such, existing environmental regulations may be periodically   revised.  In addition to revised   rules, new legislation could be enacted that may affect the Companys   estimated construction expenditures.    See CONSTRUCTION ADDITIONS.  In   the normal course of business, DP&L has ongoing programs and activities   underway at these facilities to comply, or to determine compliance, with such   existing, new and/or proposed regulations and legislation.

DP&L has been identified, either by a
government agency or by a private party seeking contribution to site clean-up
costs, as a potentially responsible party (PRP) at a number of sites pursuant to
state and federal laws.  DP&L records liabilities for probable
estimated loss in accordance with Statement of Financial Accounting Standards
No. 5 (SFAS 5), Accounting for Contingencies.  To the extent a
probable loss can only be estimated by reference to a range of equally probable
outcomes, and no amount within the range appears to be a better estimate than
any other amount, DP&L accrues for the low end of the range.  Because
of uncertainties related to these matters, accruals are based on the best
information available at the time.  DP&L evaluates the potential
liability related to probable losses quarterly and may revise its
estimates.  Such revisions in the estimates of the potential liabilities
could have a material effect on the Companys results of operations and
financial position.

12



Air and Water QualityIn November 1999, the United States Environmental Protection Agency (USEPA) filed civil complaints and Notices of Violations (NOVs) against operators and owners of certain generation facilities for alleged violations of the Clean Air Act (CAA).  Generation units operated by CG&E (Beckjord 6) and CSP (Conesville 4) and co-owned by DP&L were referenced in these actions.  Numerous northeast states have filed complaints or have indicated that they will be joining the USEPAs action against CG&E and CSP.  DP&L was not identified in the NOVs, civil complaints or state actions.  In December 2000, CG&E announced that it had reached an Agreement in Principle with the USEPA and other plaintiffs in an effort to settle the claims. As of December 31, 2003, discussions on the final terms of the settlement continue and the outcome of these claims or the effect, if any, on DP&L has not been
determined.  In June 2000, the USEPA issued a NOV to DP&L-operated J.M. Stuart Station (co-owned by DP&L, CG&E, and CSP) for alleged violations of the CAA.  The NOV contained allegations consistent with NOVs and complaints that the USEPA had recently brought against numerous other coal-fired utilities in the Midwest.  DP&L intends to vigorously challenge the NOV given the final routine maintenance repair and replacement rules discussed below.

On September 21, 2004 the Sierra Club filed a lawsuit against  the Company and the other owners of the Stuart Generating Station in the United States District Court for the Southern District of Ohio for alleged violations of the CAA.  The Company intends to vigorously defend this matter.

On July 27, 2004, various residents of the Village of Moscow, Ohio notified CG&E, as the operator of Zimmer (co-owned by CG&E, DP&L and CSP), of their intent to sue for alleged violations of the CAA and air pollution nuisances.  DP&L believes the allegations are meritless and believes CG&E on behalf of all co-owners will vigorously defend the matter.

On October 27, 2003, the USEPA published its final rules regarding the equipment replacement provision of the routine maintenance, repair and replacement (RMRR) exclusion of the CAA.  Subsequently, on December 24, 2003, the U.S. Court of Appeals for the D.C. Circuit stayed the effective date of the rule pending its decision on the merits of the lawsuits filed by numerous states and environmental organizations challenging the final rules.  As a result of this ruling, it is expected that the Ohio Environmental Protection Agency (Ohio EPA) will delay its previously announced intent to adopt the RMRR rule.  At this time DP&L is unable to determine the timing of this adoption.

In September 1998, the USEPA issued a final rule requiring states to modify their State Implementation Plans (SIPs) under the CAA.  On July 18, 2002, the Ohio EPA adopted rules that constitute Ohios NOx SIP, which is substantially similar to the federal CAA Section 126 rulemaking and federal NOx SIP.  On August 5, 2003, USEPA published its conditional approval of Ohios NOx SIP, with an effective date of September 4, 2003.  Ohios SIP requires NOx reductions at coal-fired generating units effective May 31, 2004.  In order to meet these NOx requirements, DP&Ls capital expenditures for the installation of selective catalytic reduction (SCR) equipment are estimated to total approximately $175 million, of which $163 million has been invested through December 31, 2003.  On May 31, 2004, DP&L began operation of its SCRs.  DP&Ls NOx reduction strategy and associated expenditures to meet
the federal reduction requirements should satisfy the Ohio SIP NOx reduction requirements.

On December 17, 2003, the USEPA proposed the Interstate Air Quality Rule (IAQR) designed to reduce and permanently cap sulfur dioxide and nitrogen oxide emissions from electric utilities.  The proposed IAQR focuses on states, including Ohio, whose power plant emissions are believed to be significantly contributing to fine particle and ozone pollution in other

13



downwind states in the eastern United States.  On June 10, 2004, the USEPA issued a supplemental proposal to the IAQR, now renamed as the Clean Air Interstate Rule (CAIR).  Until final rules are published, DP&L cannot determine the effect of the proposed rules on DP&Ls operations.

On January 30, 2004, the USEPA published its proposal to restrict mercury and other air toxics from coal-fired and oil-fired utility plants.  DP&L is reviewing the various proposed options and the impact of each option.  Until final rules are published, DP&L cannot determine the effect of the proposed rules on DP&Ls operations.

Under the proposed cap and trade options for SO2 and NOx, as well as mercury, DP&L estimates it will spend more than $424 million from 2004 through 2009 to install the necessary pollution controls.  Plant specific mercury controls may result in higher costs.  Due to the uncertainties associated with the proposed requirements, DP&L cannot project the final costs at this time.

On July 15, 2003, the Ohio EPA submitted to the USEPA its recommendations for eight-hour ozone nonattainment boundaries for the metropolitan areas within Ohio.  On April 15, 2004, the USEPA issued its list of ozone nonattainment designations.  DP&L owns and/or operates a number of facilities in counties designated as nonattainment with the ozone national ambient air quality standard.  DP&L does not know at this time what future regulations may be imposed on its facilities and will closely monitor the regulatory process.  Following the final designation of the nonattainment areas, the Ohio EPA will have three years to develop regulations to attain and maintain compliance with the eight-hour ozone national ambient air quality standard.  The IAQR/CAIR addresses harmonization with these issues.  It is expected that the Ohio EPA will revise its SIP consistent with the IAQR/CAIR when these rules are finalized.

On February 13, 2004, Ohio EPA submitted to USEPA its recommended Particulate Matter 2.5 (PM 2.5) designations.  This recommendation included counties in which DP&L operates and/or owns generating facilities.  USEPA notified OHIO EPA on June 29, 2004 that it intended to include additional counties as nonattainment for PM 2.5, primarily those adjacent counties with power plants.  Ohio EPA commented to USEPA on August 31, 2004, opposing the expansion of the nonattainment boundaries.  USEPA intends to finalize the nonattainment designations by early 2005.  Following the final designation of the nonattainment areas, the Ohio EPA will have three years to develop regulations to attain and maintain compliance with the PM 2.5 national ambient air quality standard.  At this time DP&L cannot determine the effect such regulations will have on its operations.

In April 2002, the USEPA issued proposed rules governing existing facilities that have cooling water intake structures.  Final rules were published in the Federal Register on July 9, 2004.  DP&L anticipates that future studies may be needed at certain generating facilities.  DP&L cannot predict the impact such studies may have on future operations.

On March 5, 2004, the USEPA issued final national emissions standards for hazardous air pollutants for stationary combustion turbines.  The effect of the final standards on DP&Ls operations is not expected to be material.  On July 1, 2004, USEPA finalized, but has not yet published, rules that remove four subcategories of new combustion turbines from regulation under the hazardous air pollutant regulations.

On April 14, 2003, the USEPA issued proposed final rules for standards of performance for stationary gas turbines.  On May 23, 2003, the USEPA withdrew the direct final rules.  The final rules were reissued on July 8, 2004.

14



On May 5, 2004, the USEPA issued its
     proposed regional haze rule, which addresses how states should determine
     best available retrofit technology (BART) for sources covered under the
     regional haze rule.  The proposal gives states three options for
     determining which sources should be subject to BART and provides guidelines
     for states on conducting the technical analysis of possible controls as
     BART.  The proposal is being issued to respond to the D.C.
     Circuits remand of the regional haze rule in American Corn Growers
     Association v. USEPA, 291 F.3d 1 (D.C. Cir. 2002), in which the court told
     the USEPA that the BART determination has to include analysis of the degree
     of visibility improvement resulting from the use of control technology at
     each source subject to BART and that the USEPA could not mandate that
     states follow a collective contribution approach to determine whether
     sources in the state could reasonably be anticipated to contribute to
     visibility impairment in a Class I area.  DP&L is reviewing
     the proposed rule to determine the impact on any of its facilities. 
     The USEPA, in its June 10, 2004 supplemental CAIR, has proposed that
     BART-eligible electric generating units (EGUs) may be exempted from BART,
     if the state complies with the CAIR requirements through the adoption of
     the CAIR Cap-and-trade program for SO2 and NOx emissions. 
     If Ohio adopts such a program, BART will not require any additional
     reductions.

On May 4, 2004, the Ohio EPA issued a final National Pollutant Discharge Elimination System (NPDES) permit for J.M. Stuart Station that continues the stations 316(a) variance.  During the three-year term of the draft permit, DP&L will conduct a thermal discharge study to evaluate the technical feasibility and economic reasonableness of water cooling methods other than cooling towers.

Land UseDP&L and numerous other parties have been notified by the USEPA or the Ohio EPA that they are Potentially Responsible Parties (PRPs) for clean-up at three superfund sites in Ohio:  the North Sanitary (a.k.a. Valleycrest) Landfill in Dayton, Ohio; the Tremont City Landfill in Springfield, Ohio; and the South Dayton Dump landfill site in Dayton, Ohio.

DP&L and numerous other parties received notification from the Ohio EPA on July 27, 1994 that it considers them PRPs for clean-up of hazardous substances at the North Sanitary Landfill site.  DP&L did not join the PRP group formed for the site because the available information demonstrated that DP&L did not contribute hazardous substances to the site.  In October 2000, the PRP group brought an action against DP&L and numerous other parties alleging that they are PRPs that should be liable for a portion of clean-up costs at the site.  While DP&L did not believe it disposed of any hazardous substances at this site, on August 6, 2003, DP&L entered into a settlement agreement with the PRPs for its alleged liability for the amount of $45 thousand, which is now final and has been approved by the United States District Court, Western Division of the Ohio Southern District.

DP&L and numerous other parties received notification from the USEPA in January 2002 that it considers them PRPs for the Tremont City landfill site.  The information available to DP&L does not demonstrate that DP&L contributed any hazardous substances to the site.  DP&L plans to vigorously challenge this action.

In September 2002, DP&L and other parties received a special notice that the USEPA considers them to be PRPs for the clean-up of hazardous substances at the South Dayton Dump landfill site.  The information available to DP&L does not demonstrate that DP&L contributed hazardous substances to the site. The USEPA seeks recovery of past costs and funding for a Remedial Investigation and Feasibility Study.  The USEPA has not provided an estimated clean-up cost for this site.  Should the USEPA pursue such action, DP&L will vigorously challenge it.

15



THE DAYTON POWER AND LIGHT COMPANY OPERATING STATISTICS ELECTRIC OPERATIONS

|                                            |  | Years Ended
        December 31, |          
|------------------------------------------- |  | -------------------------------- | ---------
|                                            |  |                                  |          
|                                            |  | 2003                             |          
|                                            |  |                                  |          
|Electric
        Sales (millions of kWh)    |  |                                  |          
|Residential                                 |  |                                  | 5,071    
|Commercial                                  |  |                                  | 3,699    
|Industrial                                  |  |                                  | 4,330    
|Other
        retail                        |  |                                  | 1,409    
|                                            |  |                                  |          
|Total
        retail                        |  |                                  | 14,509   
|Wholesale                                   |  |                                  | 4,836    
|                                            |  |                                  |          
|Total                                       |  |                                  | 19,345   
|                                            |  |                                  |          
|Operating
        Revenues ($ in thousands) |  |                                  |          
|Residential                                 |  | $                                | 442,238  
|Commercial                                  |  |                                  | 243,474  
|Industrial                                  |  |                                  | 160,801  
|Other
        retail                        |  |                                  | 94,697   
|                                            |  |                                  |          
|Total
        retail                        |  |                                  | 941,210  
|Wholesale                                   |  |                                  | 242,232  
|                                            |  |                                  |          
|Total                                       |  | $                                | 1,183,442
|                                            |  |                                  |          
|Electric
        Customers at End of Period |  |                                  |          
|Residential                                 |  |                                  | 450,958  
|Commercial                                  |  |                                  | 47,253   
|Industrial                                  |  |                                  | 1,863    
|Other                                       |  |                                  | 6,322    
|                                            |  |                                  |          
|Total                                       |  |                                  | 506,396  
|                                            |  |                                  |          

|Item 2   - Properties
|---------------------
|                     

Electric

Information relating to DP&Ls electric properties is contained in Item 1  CONSTRUCTION ADDITIONS, and ELECTRIC OPERATIONS AND FUEL SUPPLY.

Substantially all property and plant of DP&L is subject to the lien of the Mortgage securing DP&Ls First Mortgage Bonds.

|Item 3   - Legal Proceedings
|----------------------------
|                            

In the normal course of business, DP&L
and its parent DPL are subject to various lawsuits, actions,
proceedings, claims and other matters asserted under laws and regulations. DP&L believes the
amounts provided in its consolidated financial statements, as prescribed by
generally accepted accounting procedures in the United States (GAAP), are
adequate in light of the probable and estimable contingencies.  However,
there can be no assurances that the actual amounts required to satisfy alleged
liabilities from various legal proceedings, claims, and other matters discussed
below, and to comply with applicable laws and regulations, will not exceed the
amounts reflected in DP&Ls Consolidated Financial Statements.  As
such, costs, if any, that may be incurred in excess of those amounts provided as
of December 31, 2003, cannot be reasonably determined.

16



On July 9, 2004, Mr. Forster and Ms. Muhlenkamp filed a lawsuit against the Company, DPL and MVE in the Circuit Court, Fourth Judicial Circuit, in and for Duval County, Florida.  The complaint asserts that the Company, DPL and MVE (i) wrongfully terminated Mr. Forster and Ms. Muhlenkamp by undermining their authority and responsibility to manage the companies and excluding them from discussions on corporate financial issues and strategic planning after the Thobe Memorandum was distributed and (ii) breached Mr. Forsters consulting contract and Ms. Muhlenkamps employment agreement by denying them compensation and benefits allegedly provided by the terms of such contract and agreement upon their termination from the Company and DPL.  Mr. Forster and Ms. Muhlenkamp seek damages of an undetermined amount.  On August 9, 2004, the defendants removed the case to the U.S. District Court for the Middle District of Florida, Jacksonville
Division.  On August 16, 2004, the defendants moved to dismiss the litigation based on the Florida federal courts lack of jurisdiction over the Company, DPL and MVE, all of whom are companies based in Dayton, Ohio.  In the alternative, the defendants requested that the court transfer the case to the U.S. District Court for the Southern District of Ohio, which has jurisdiction in Dayton, Ohio.  On September 17, 2004, Mr. Forster and Ms. Muhlenkamp opposed these motions.  The court has not yet ruled on the defendants motions.

On August 24, 2004, the Company, DPL
  and MVE filed a Complaint against Mr. Forster, Ms. Muhlenkamp and Mr. Koziar
  in the Court of Common Pleas of Montgomery County, Ohio asserting legal claims
  against them relating to the termination of the Valley Partners Agreements,
  challenging the validity of the purported amendments to the Companys and
  DPLs deferred compensation plans and to the employment and consulting
  agreements with Messrs. Forster and Koziar and Ms. Muhlenkamp, and the propriety
  of the distributions from the plans to Messrs. Forster and Koziar and Ms. Muhlenkamp,
  and alleging that Messrs. Forster and Koziar and Ms. Muhlenkamp breached their
  fiduciary duties and breached their consulting and employment contracts. 
  The Company, DPL and MVE seek, among other things, damages in excess of $25,000,
  disgorgement of all amounts improperly withdrawn by Messrs. Forster and Koziar
  and Ms. Muhlenkamp from the deferred compensation plans and a court order declaring
  that the Company, DPL and MVE have no further obligations under the consulting
  and employment contracts due to those breaches.  At this time, defendants
  Forster, Koziar and Muhlenkamp have not yet responded to the Complaint. 
  The Company continues to evaluate all of these matters and is considering other
  claims against Mr. Forster, Mr. Koziar and/or Ms. Muhlenkamp that include, but
  are not limited to, breach of fiduciary duty or other claims relating to personal
  and Company investments, the calculation of benefits under SERP and financial
  reporting with respect to such benefits, and, with respect to Mr. Koziar, the fulfillment of duties owed
  to the Company as its legal counsel.

On or about June 24, 2004, the SEC commenced a formal investigation into the issues raised by the Thobe Memorandum.  The Company and DPL are cooperating with the investigation.

On April 7, 2004, the Company received
notice that the staff of the PUCO is conducting an investigation into the
financial condition of DP&L as a result of the issues raised by the Thobe
Memorandum.  On May 27, 2004, the PUCO ordered DP&L to file a plan of
utility financial integrity that outlines the actions DPL. has taken or will
take to insulate DP&L utility operations and customers from its unregulated
activities.  DP&L must file this plan within 120 days of the filing of
its Form 10-K with the SEC.  The Company intends to comply with this
order and to cooperate with the PUCOs continuing investigation.

17



On May 28, 2004, the U.S. Attorneys Office for the Southern District of Ohio, assisted by the Federal Bureau of Investigation, notified the Company and DPL that it has initiated an inquiry involving the subject matters covered by the Companys and DPLs internal investigation.  The Company and DPL are cooperating with this investigation.

Commencing on or about June 24, 2004, the Internal Revenue Service (IRS) issued a series of data requests to the Company and DPL regarding issues raised in the Thobe Memorandum.  The staff of the IRS has requested that the Company and DPL provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE financial statements.  The Company and DPL are cooperating with these requests.

On December 12, 2003, the Office of Federal Contract Compliance Programs (OFCCP) notified DP&L by letter alleging it had discriminated in the hiring of meter readers during 2000-2001 by utilizing credit checks to determine if applicants had paid their electric bills.  On February 12, 2004, DP&L and the OFCCP entered into a Conciliation Agreement whereby DP&L agreed to distribute approximately $0.2 million in compensation to certain affected applicants.  DP&L has completed these payments to the affected applicants.

In June 2002, a contractors employee received a
verdict against DP&L for injuries he sustained while working at
a DP&L power station. The Court awarded the contractors employee compensatory
damages of approximately $0.8 million and prejudgement interest of approximately
$0.6 million. On April 28, 2004, the appellate court upheld this verdict except the
award for prejudgement interest. On September 1, 2004, the Ohio Supreme Court
refused to hear the case, so the matter has been remanded to the trial court for
a re-determination of whether prejudgement interest should be awarded. The trial
court heard this matter on October 15, 2004 and the decision is pending.

Additional information relating to legal proceedings involving the Company and DPL are contained in Item 1  COMPETITION AND REGULATION,  ENVIRONMENTAL CONSIDERATIONS, and Item 8  Note 14 of Notes to Consolidated Financial Statements.

|Item 4   - Submission of Matters to a Vote of Security Holders
|--------------------------------------------------------------
|                                                              

There were no submissions to the security holders in the fourth quarter.

PART II

|Item 5   - Market for Registrants Common Equity and Related Stockholder Matters
|--------------------------------------------------------------------------------
|                                                                                

The Companys common stock is held solely by parent DPL and as a result is not listed for trading on any stock exchange.

As long as any Preferred Stock is outstanding, DP&Ls Amended Articles of Incorporation contain provisions restricting the payment of cash dividends on any of its common stock if, after giving effect to such dividend, the aggregate of all such dividends distributed subsequent to December 31, 1946 exceeds the net income of DP&L available for dividends on its Common Stock subsequent to December 31, 1946, plus $1.2 million.  As of year-end, all earnings reinvested in the business of DP&L were available for Common Stock dividends.

Additional information concerning dividends paid on DP&L preferred stock is set forth
in Item 8 - Selected Quarterly Information and the Financial and Statistical Summary.

|Item 6   - Selected Financial Data                                                 
|-----------------------------------------------------------------------------------
|                                                                                   
|Selected financial data is set forth in Item 8 - Financial and Statistical Summary.

18



|Item 7   - Managements Discussion and Analysis of Financial Condition and Results of   Operations
|--------------------------------------------------------------------------------------------------
|                                                                                                  

Certain statements contained in this discussion are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Matters discussed in this report which relate to events or developments that are expected to occur in the future, including managements expectations, strategic objectives, business prospects, anticipated economic performance and financial condition and other similar matters constitute forward-looking statements.  Forward-looking statements are based on managements beliefs, assumptions and expectations of the Companys future economic performance, taking into account the information currently available to management.  These statements are not statements of historical fact.  Such forward-looking statements are subject to risks and uncertainties and investors are cautioned that outcomes and results may vary materially from those projected due to various factors
beyond the control of the Company, including but not limited to: abnormal or severe weather; unusual maintenance or repair requirements; changes in fuel and purchased power costs, coal, environmental emissions, gas and other commodity prices; increased competition; regulatory changes and decisions; changes in accounting rules; financial market conditions; and foreign currency market risk.

Forward-looking statements speak only as of the date of the document in which they are made.  We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances on which the forward-looking statement is based. (See FACTORS THAT MAY AFFECT FUTURE RESULTS.)

Restatement of Financial Statements

On October 28, 2004, DPLs Audit Committee (the Audit Committee) determined that the
Companys previously issued financial statements for the fiscal years ended December 31, 2000, 2002, and 2003 and for the
quarters ended March 31, 2002 through September 30, 2003 should be restated.  The Audit Committee has discussed the issues
surrounding the restatement for the periods ending on or before December 31, 2002 with the Companys independent accountants,
PricewaterhouseCoopers LLP (PwC) and for periods ending after December 31, 2002 with the Companys independent accountants,
KPMG LLP (KPMG).  Both PwC and KPMG have informed the Audit Committee that they concur with the restatement decision.

As a result of the Audit Committees response to the Report and during the 2003 year-end financial closing process, the
Company identified certain adjustments to prior period financial statements.  As a result, the Company has restated its
consolidated financial statements for the fiscal years ended December 31, 2001 and 2002, and for the quarters ended March 31, 2002
through December 31, 2002.  This restatement increased net income by $2.1 million to $245.6 million for 2002 and reduced net
income by $1.7 million to $233.6 million for 2001.  The beginning balance in Earnings Reinvested in the Business for 2001 was
reduced by $13.9 million to $191.5 million. All applicable financial information contained in this Annual Report on Form 10-K
gives effect to these statements.

The following table identifies the adjustments made to previously-released consolidated financial statements:

|                                                   |  | Net Income
        Increase (Decrease) |     
|-------------------------------------------------- |  | -------------------------------------- | ----
|                                                   |  |                                        |     
|                                                   |  | For the years ended December 31,       |     
|                                                   |  |                                        |     
|($
        in millions)                            |  | 2002                                   |     
|                                                   |  |                                        |     
|Description
        of Adjustment                  |  |                                        |     
|Supplemental
        Executive Retirement Plan (1) |  | $                                      | 3.8 
|Stock
        incentive units (2)                  |  |                                        | 0.4 
|Accrued
        expenses (3)                       |  |                                        | (0.1
|                                                   |  |                                        |     
|Sub-total
        pre-tax impact                   |  |                                        | 4.1 
|                                                   |  |                                        |     
|Income
        taxes on non-deductible costs (4)   |  |                                        | (0.4
|Income
        taxes (5)                           |  |                                        | (1.6
|                                                   |  |                                        |     
|Total
        Net Income Impact                    |  | $                                      | 2.1 
|                                                   |  |                                        |     

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)  Reflects   adjustment to record a settlement of the Companys Supplemental Executive   Retirement Plan for certain executives in 1997 and 2000 which had not been   previously recorded, in addition to an adjustment to record the proper   treatment for Company assets previously thought to be segregated and   restricted solely for purposes of funding this plan.  Adjustments made subsequent to 2000   reflect revisions to actuarial computations to consider the impact of those   settlements on future actuarial calculations for the plan.

19



Consolidated Statement of Results of Operations:  Adjustment (increased) decreased Operation and Maintenance expense by approximately $3.5 million in 2002, $(1.1) million in 2001, and $(21.5) million in prior periods.  Adjustment also increased Investment Income by approximately $0.3 million in 2002 and 2001, and $2.4 million in prior periods.

Consolidated Balance Sheet:  At December 31, 2002, adjustment increased Deferred Credits and Other  Other by $19.0 million, Other Current Assets by $0.1 million, Accrued Taxes by $0.6 million, and reduced Accumulated Other Comprehensive Income by $2.3 million, Deferred Taxes by $7.3 million and Other Assets  Other by $0.6 million.

Consolidated Statement of Shareholders Equity:  At January 1, 2001, adjustment decreased Earnings Reinvested in the Business by $12.4 million and Accumulated Other Comprehensive Income by $2.4 million.

(2)  Reflects adjustment to
record outstanding stock incentive units at fair value following a change in the
operation of the Management Stock Incentive Plan made as of January 1, 2002
that allowed certain retirees to diversify stock incentive awards to
investments other than DPL common stock.

Consolidated Statement of Results of Operations:  Adjustment decreased Operation and Maintenance expense by the amounts set forth in this table.

Consolidated Balance Sheet:  At December 31, 2002, adjustment increased Other Paid-in Capital, net of Treasury Stock by $8.4 million, and reduced Deferred Credits and Other  Other by $8.8 million and Other Assets  Other by $0.1 million.

(3)  Reflects adjustment to record accrued expenses in the period in which these items were incurred.

Consolidated Statement of Results of Operations:  Adjustment decreased Other Income by $0.1 million in 2002; and increased Operation and Maintenance expense by $0.9 million and reduced Investment Income by $0.2 million in 2001.

Consolidated Balance Sheet:  At December 31, 2002, adjustment increased Accounts Payable by $1.1 million and reduced Accrued Taxes by $0.4 million and Current Assets  Other by $0.1 million.

(4)  Reflects adjustment to record tax expense for non-deductible costs not previously considered and provisions for estimated tax exposures.

Consolidated Statement of Results of Operations:  Adjustment increased Income Tax expense by the amounts set forth in this table.

Consolidated Balance Sheet:  At December 31, 2002, adjustment increased Accrued Taxes by $2.4 million.

(5)  Reflects income taxes related to the above non-tax adjustments.

Consolidated Statement of Results of Operations:  Adjustment (increased) decreased Income Tax expense by the amounts set forth in the table.

(6)  Total net income cumulative amount for periods prior to 2001 are reflected as a reduction to 2001 beginning Earnings Reinvested in the Business on the Consolidated Balance Sheet.

|TRENDS, OVERVIEW AND FUTURE   EXPECTATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The electric utility industry has historically   operated in a regulated environment.    However, in recent years there have been a number of federal and state   regulatory and legislative decisions aimed at promoting competition and   providing customer choice.  Market   participants have therefore created new business models to exploit opportunities.  The marketplace is now comprised of   independent power producers, energy marketers and traders, energy merchants,   transmission and distribution providers and retail energy suppliers.  There have also been new market entrants   and activity among the traditional participants, such as mergers,   acquisitions, asset sales and spin-offs of lines of business. In addition,   transmission systems are being operated by Regional Transmission   Organizations.

In 2003, DP&Ls net income declined $6.2 million compared to the prior year. 
Overall, total revenue of $1,183.4 million exceeded the prior year by $7.6 million reflecting increased wholesale revenue. 
Operating expenses of $788.6 million in 2003 exceeded the prior year by $53.0 million or 7% relating to higher electric production
costs and corporate expenses.  In addition, DP&Ls results of operations were improved by an increase in investment
income

20



relating to a $21.2 million settlement of interest rate hedges and the favorable effect of a
$17.0 million cumulative effect of accounting change relating to the adoption of Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (SFAS 143). DP&L
reported Earnings on Common Stock of $238.5 million in 2003 compared to $244.7 million in 2002. DP&L reported Earnings on
Common Stock of $232.7 million for 2001.

In September 2003, the PUCO issued an
order extending DP&Ls market development period through December 2004
and continues DP&Ls current rate structure and provides its retail
customers with rate stability through 2008.  DP&L believes its
operations will remain strong and efficient, and expects its existing liquidity
and future cash flow from operations to fully fund capital expenditures and
planned debt reductions.  As a result of the rising coal market, DP&L
expects its 2004 coal cost to exceed its 2003 coal costs by approximately 15%.  DP&L anticipates
marginal revenue growth in 2004.

See the Notes to Financial Statements and the Managements Discussion and Analysis section FACTORS THAT MAY AFFECT FUTURE RESULTS.

RESULTS OF OPERATIONS

Income Statement Highlights

|$ in
        millions            |  | 2003 |         | 2002
        (as restated) |   | 2001
      (as restated) | 
|-------------------------------- |  | ---- | ------- | -------------------------- | - | ------------------------ | 
|                                 |  |      |         |                            |   |                          | 
|Electric
        revenues        |  | $    | 1,183.4 |                            | $ | 1,175.8                  | 
|Less: 
        Fuel              |  |      | 226.2   |                            |   | 208.6                    | 
|Purchased
        power          |  |      | 92.7    |                            |   | 106.9                    | 
|                                 |  |      |         |                            |   |                          | 
|Net
        electric margins (a) |  | $    | 864.5   |                            | $ | 860.3                    | 
|                                 |  |      |         |                            |   |                          | 
|Operating
        Income         |  | $    | 394.8   |                            | $ | 440.3                    | 

*(a) For purposes of discussing operating results DP&L presents
  and discusses net electric margins. This format is useful to investors because
  it allows analysis and comparability of operating trends and includes the same
  information that is used by management to make decisions regarding the companys
  financial performance.*

RevenuesElectric revenues increased to $1,183.4 million in 2003 compared to $1,175.8 in 2002 reflecting higher wholesale revenues, which increased $89.2 million or 58% in 2003 resulting from available generation and 15% higher average market prices over the prior year.  This increase in wholesale revenues was partially offset by decreases in retail revenues of $81.6 million or 8% in 2003 primarily from mild summer weather.  Cooling degree-days were down 46% to 687 for 2003 as compared to 1,272 in 2002.

Electric revenues decreased in 2002 compared to 2001 primarily reflecting lower wholesale revenues, which decreased $47.1 million or 24% as a result of lower wholesale electric commodity prices.  The decrease in wholesale revenues was partially offset by increases in retail residential and commercial revenues of $37.6 million or 5% resulting from warmer than normal weather in 2002.  Cooling degree days were up 41% to 1,272 for 2002 compared to 900 in 2001.

Operating ExpensesNet electric revenues of $864.5 million in 2003 increased by $4.2 million from $860.3 million in 2002.  As a percentage of total electric revenues, net electric revenues slightly decreased by 0.1% to 73.1% in 2003 from 73.2% in 2002.  This decline is primarily the result of a lower volume of sales relating to retail customers and increased fuel and purchased power costs, partially offset by an increase in wholesale sales.  Fuel costs increased by $17.6 million or 8% in 2003 compared to 2002 primarily related to increased generation for wholesale sales, partially offset by lower average fuel costs relating to wholesale sales.  Purchased power costs decreased by $14.2 million or 13% in 2003 compared to 2002, primarily resulting from

21



lower volume of purchased power as the retail and wholesale capacity needs were met by internal generation.  Fuel costs decreased $11.5 million or 5% in 2002 compared to 2001 as a result of the higher utilization of coal plants which uses lower cost fuel.  Purchased power costs decreased $22.9 million or 18% as a result of lower purchased power volumes and the increase of lower cost internal generation.

Operation and maintenance expense increased $50.0 million or 34% in 2003 compared to 2002
primarily as a result of higher corporate costs and increased electric production expenses.  Corporate costs increased
primarily resulting from $22 million increase in executive compensation, $10.5 million increase for Directors & Officers
liability insurance premiums, $5.8 million increase in executive incentives and $6.3 million increase in pension expense. 
Electric production expense increased $5.7 million primarily related to planned maintenance during scheduled outages, ash disposal
and the expensing of cost of removal for retired assets as required by FASB Statement of Financial Accounting Standards No. 143
Accounting for Asset Retirement Obligations, (SFAS 143).  Transmission and distribution expenses increased $3.3
million reflecting increased line clearance and maintenance costs.  These increases were partially offset by $3.1 million
decrease in postretirement benefits.  Operation and maintenance expense decreased $18.7 million or 11% in 2002 compared to
2001 primarily as a result of lower planned outage costs, lower ash disposal costs, and cost containment efforts.

Depreciation and amortization expense was $116.1 million, $114.9 million and $116.0 million for 2003, 2002 and 2001, respectively, reflecting a relatively consistent plant base.

Amortization of regulatory assets increased $1.0 million in 2003 compared to 2002 reflecting the end of the regulatory transition cost recovery period on December 31, 2003.

General taxes declined $2.6 million or 2% in 2003 compared to 2002 resulting from a lower Ohio kWh excise tax related to customer usage and reduced franchise tax.  This decrease was partially offset by higher property tax expense.  General taxes increased $10.7 million or 11% in 2002 compared to 2001 primarily as a result of the effect of the Ohio kWh excise tax that was first implemented in May 2001 and higher property taxes, partially offset by the elimination of the Ohio Public Utility Excise Tax at the end of 2001.

Investment Income (Loss)Investment
income increased $20.6 million in 2003 compared to 2002 primarily from income of
$21.2 million interest from the settlement of interest rate hedges related to
the $470 million DP&L First Mortgage Bond refinancing.  Investment
income increased $0.6 million in 2002 compared to 2001 primarily resulting from
an investment gain, partially offset by a decrease in interest
income.

Other Income (Deductions)Other Income (Deductions) decreased $1.3 million to
$7.1 million in 2003 from $8.4 million in 2002.  Other Income (Deductions) decreased $15 million in 2002 compared to 2001
primarily as a result of lower income of $7.3 million recognized in 2002 for the business interruption insurance policy related to
deregulation as compared to income of $29.1 million recognized for such policy in the prior year.  This decrease in 2002 was
partially offset by decreased strategic consulting fees of $4.5 million and a $3.6 million decrease in benefit costs.

Interest ExpenseInterest expense decreased by $1.7 million in 2003 compared to
2002 as a result of refinancing First Mortgage Bonds at lower interest rates, lower interest on ESOP debt relating to sinking fund
payments and lower short-term debt levels.  Interest expense decreased $7.9 million or 13% in 2002 compared to 2001 primarily
as a result of higher capitalized interest and lower short-term debt levels.

22



Income Tax ExpenseIncome tax expense decreased $1.2 million in 2003 compared to
2002, due to lower pre-tax income. Income tax expense increased $10.4 million in 2002, compared to 2001, due to higher pre-tax
income.

Cumulative Effect of Accounting ChangeThe cumulative effect of an accounting change of $17.0 million in 2003 reflects the adoption of the provisions of FASB Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (SFAS 143).  (See Note 1 of Notes to Consolidated Financial Statements.)

The cumulative effect of an accounting change of $1.0 million in 2001 reflects the adoption of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS 133).  (See Note 1 of Notes to Consolidated Financial Statements.)

|LIQUIDITY, CAPITAL RESOURCES AND   REQUIREMENTS                                                                                          
|-----------------------------------------------------------------------------------------------------------------------------------------
|DP&Ls cash and temporary cash investments   totaled $17.2 million at December 31, 2003 compared to $17.1 million at   December 31, 2002.

The Company generated net cash from operating activities of $363.6 million, $360.8 million
and $333.6 million in 2003, 2002 and 2001, respectively.  The net cash from operating activities in 2003 was primarily the
result of operating profitability offset by cash used for working capital, specifically the timing of tax payments.  Net cash
provided by operating activities in 2002 and 2001 was primarily driven by operating profitability offset by cash used for
working capital.   The tariff-based revenue of DP&L continues to be the principal source of cash from operating
activities.  Management believes that the diversified retail customer mix of residential, commercial, and industrial classes
provides DP&L with a reasonably predictable gross cash flow.

Net cash flows used for investing activities were $65.1 million, $138.8 million and $252.4 million in 2003, 2002 and 2001, respectively.  The net cash used for investing activities in 2003 was primarily the result of $116.5 million for capital expenditures, partially offset by the settlement of the interest rate hedges.  The net cash used in 2002 was the result of $138.8 million for capital expenditures.  The net cash used for investing activities in 2001 was primarily the result of $161.5 million for capital expenditures and $90.9 million of income taxes paid associated with the gain on the sale of DP&Ls natural gas distribution business.  DP&Ls  capital expenditures have declined over the past three years with the completion of major construction initiatives.

Net cash flows used for financing activities were $298.4 million, $205.8 million and $83.7 million in 2003, 2002 and 2001, respectively.  Net cash flows used for financing activities in 2003 primarily related to dividends paid on common stock and the retirement of long-term debt.  These uses were partially offset by the net proceeds related to the issuance of long-term debt.  Net cash used for financing activities in 2002 and 2001 primarily related to dividends paid on common stock.

In February 2004, DP&L entered into a $20 million Master Letter of Credit Agreement with a financial lending institution.  This agreement, which expires in February 2005, supports performance assurance needs in the ordinary course of business.  DP&L has certain contractual agreements for the sale and purchase of power, fuel and related energy services that contain credit rating related clauses allowing counter parties to seek additional surety under certain conditions.  As of December 31, 2003, DP&L had no outstanding letters of credit.

23



DP&L had $150 million available
through a revolving credit agreement with a consortium of banks.  The
agreement, which was scheduled to expire on December 10, 2004, was terminated on
June 1, 2004.  The facility was to be used to support the Companys
business requirements and commercial paper program.  The facility contained
two financial covenants, including maximum debt to total capitalization and
minimum earnings before interest and taxes (EBIT) to interest coverage.  Fees
associated with this credit facility were approximately $0.8 million per year,
but a two-step increase in DP&Ls credit rating would have reduced the
facilitys interest rate by 0.38%.  A lower credit rating would not
have increased the applicable interest rate.  DP&L had no outstanding
borrowings under this credit facility and no outstanding commercial paper
balances at year-end 2003 or 2002.

In June 2004, DP&L obtained a $100
million unsecured revolving credit agreement that extended and replaced
DP&Ls revolving credit agreement of $150 million.  The new
agreement, which expires on May 31, 2005, provides credit support for
DP&Ls business requirements and commercial paper program during this
period and may be increased to up to $150 million.  The facility contains
two financial covenants including maximum debt to total capitalization, and
minimum earnings before interest and taxes (EBIT) to total interest
expense.  These covenants are currently met.  DP&L currently has
no outstanding borrowings under this credit facility and no outstanding
commercial paper balances.  Fees associated with this credit facility are
approximately $0.6 million per year.  Changes in debt ratings, however, may
affect the applicable interest rate for DP&Ls revolving credit
agreement.  A one-step increase in DP&Ls credit rating reduces
the facilitys interest rate by 0.38% and a one-step decrease in credit
rating increases the facilitys interest rate by 0.38%. DP&Ls ability to
use this revolving credit agreement is subject to the PUCOs annual
approval which is set to expire on November 5, 2004. DP&L has filed on
application to secure the PUCOs continued authorization and that
application is pending.

The delay in filing audited financial statements for the year ending December 31, 2003, constituted an event of default with DP&Ls previous revolving credit facility; however, DP&L obtained waivers from its lenders regarding this event.  The Company incurred fees of approximately $0.2 million to obtain these waivers. The delay in filing audited financial statements also resulted in noncompliance under the Companys other debt agreements, although the non-compliance did not result in an immediate event of default.  The Company has not received any default notifications from any of its lenders.  The Companys debt agreements allow a grace period to cure a default after notification.  Management, after consultation with legal counsel, believes all default conditions have been remedied.

Capital RequirementsConstruction additions were $98.0 million, $129.0 million and $164.0 million in 2003, 2002 and 2001, respectively and are expected to approximate $88.0 million in 2004.

Planned construction additions for 2004 relate to DP&Ls environmental compliance program, power plant equipment, and its transmission and distribution system.  During the last three years, capital expenditures have been utilized to make significant progress on DP&Ls NOx compliance program and to make power plant improvements.

Capital projects are subject to continuing review and are revised in light of changes in financial and economic conditions, load forecasts, legislative and regulatory developments and changing environmental standards, among other factors.  Over the next four years DP&L is projecting to spend $500 million in capital projects approximately half of which is to meet changing environmental standards.  DP&Ls ability to complete its capital projects and the reliability of future service will be affected by its financial condition, the availability of internal and external funds at reasonable cost, and adequate and timely return on these capital investments.  DP&L expects to finance its construction additions over the next few years with internally-generated funds.

24



Debt Obligations and MaturitiesAt December 31, 2003, the Companys scheduled maturities of long-term debt, including capital lease obligations, over the next five years were $1.1 million in 2004, $1.1 million in 2005, $1.1 million in 2006, $9.3 million in 2007 and $0.7 million in 2008.  Substantially all property of DP&L is subject to the mortgage lien securing the First Mortgage Bonds.  The Company expects to finance its debt maturities in 2004 with internal funds.

On September 29, 2003, DP&L issued
  $470.0 million principal amount of First Mortgage Bonds, 5.125% Series due 2013. 
  The net proceeds from the sale of the bonds, after expenses, were used on October
  30, 2003 to (i) redeem $226.0 million principal amount of DP&Ls First
  Mortgage Bonds, 8.15% Series due 2026, at a redemption price of 104.075% of
  the principal amount plus accrued interest to the redemption date, and (ii)
  redeem $220.0 million principal amount of DP&Ls First Mortgage Bonds,
  7.875% Series due 2024, at a redemption price of 103.765% of the principal amount
  plus accrued interest to the redemption date.  The 5.125% Series due 2013
  were not registered under the Securities Act of 1933, but were offered and sold
  through a private placement in compliance with Rule 144A under the Securities
  Act of 1933. The bonds include step-up interest provisions requiring the Company
  to pay additional interest if the securities remain unregistered with the SEC
  after 180 days from issuance.The sale of the bonds was not registered and, as
  a result, the Company is required to pay additional interest of 0.5% until an
  exchange offer for these securities is registered with the SEC.

Issuance of additional amounts of First Mortgage Bonds by DP&L is limited by the provisions of its mortgage; however, management believes that DP&L continues to have sufficient capacity to issue First Mortgage Bonds to satisfy its requirements in connection with its current refinancing and construction programs.  The amounts and timing of future financings will depend upon market and other conditions, rate increases, levels of sales and construction plans.

There are no inter-company debt collateralizations or debt guarantees between DP&L and its parent.  None of the debt obligations of DP&L are guaranteed or secured by affiliates and no cross-collateralization exists.

Credit RatingsSubsequent to the December 31, 2003 balance sheet, the Company received multiple rating downgrades.  Currently, DP&Ls senior secured debt credit ratings are as follows:

|                          |  | Rating |  | Outlook  |  | Effective 
|------------------------- |  | ------ |  | -------- |  | ----------
|                          |  |        |  |          |  |           
|Fitch Ratings             |  | BBB    |  | Negative |  | April 2004
|Moodys Investors Service |  | Baa3   |  | Negative |  | April 2004
|Standard & Poors Corp.   |  | BBB-   |  | Negative |  | March 2004

DP&Ls secured debt ratings are investment grade.

Debt CovenantsDP&L had
$150 million available through a revolving credit agreement with a consortium of
banks.  The agreement, which was scheduled to expire on December 10, 2004,
was terminated on June 1, 2004.  The facility was to be used to support the
Companys business requirements and commercial paper program.  The
facility contained two financial covenants, including maximum debt to total
capitalization and minimum earnings before interest and taxes (EBIT) to interest
coverage.  Fees associated with this credit facility were approximately
$0.8 million per year, but a two-step increase in DP&Ls credit rating
would have reduced the

25



facilitys interest rate by 0.38%.  A lower credit rating would not have increased the applicable interest rate.  DP&L had no outstanding borrowings under this credit facility and no outstanding commercial paper balances at year-end 2003 or 2002.

In June 2004, DP&L obtained a $100
million unsecured revolving credit agreement that extended and replaced
DP&Ls revolving credit agreement of $150 million.  The new
agreement, which expires on May 31, 2005, provides credit support for
DP&Ls business requirements and commercial paper program during this
period and may be increased to up to $150 million.  The facility contains
two financial covenants including maximum debt to total capitalization, and
minimum earnings before interest and taxes (EBIT) to total interest
expense.  These covenants are currently met.  DP&L currently has
no outstanding borrowings under this credit facility and no outstanding
commercial paper balances.  Fees associated with this credit facility are
approximately $0.6 million per year.  Changes in debt ratings, however, may
affect the applicable interest rate for DP&Ls revolving credit
agreement.  A one-step increase in DP&Ls credit rating reduces
the facilitys interest rate by 0.38% and a one-step decrease in credit
rating increases the facilitys interest rate by 0.38%. DP&Ls
ability to use this revolving credit agreement is subject to the PUCOs
annual approval which is set to expire on November 5, 2004. DP&L has filed
an application to secure the PUCOs continued authorization and that
application is pending.

The delay in filing audited financial statements for the year ending December 31, 2003, constituted an event of default with DP&Ls previous revolving credit facility; however, DP&L obtained waivers from its lenders regarding this event.  The Company incurred fees of approximately $0.2 million to obtain these waivers. The delay in filing audited financial statements also resulted in noncompliance under the Companys other debt agreements although the non-compliance did not result in an immediate event of default.  The Company has not received any default notifications from any of its lenders.  The Companys debt agreements allow a grace period to cure a default after notification.  Management, after consultation with legal counsel, believes all default conditions have been remedied.

Off-Balance Sheet ArrangementsDP&L does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on DP&Ls financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Long-term Obligations and Commercial CommitmentsDP&L enters into various contractual and other long-term obligations that may affect the liquidity of its operations.  At December 31, 2003, these include:

|                                      |  | Payment   Year |      
|------------------------------------- |  | -------------- | -----
|                                      |  |                |      
|Long-term Obligations
($ in millions) |  | 2004           |      
|                                      |  |                |      
|Long-term debt                        |  | $              | 0.4  
|Capital lease                         |  |                | 0.7  
|Operating leases                      |  |                | 0.8  
|Coal contracts                        |  |                | 237.6
|Other long-term obligations           |  |                | 9.9  
|                                      |  |                |      
|Total long-term obligations           |  | $              | 249.4
|                                      |  |                |      

| | Long-term debt:                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Long-term debt as of December 31, 2003 consists of   First Mortgage Bonds and guaranteed air quality development obligations,   including current debt maturities.
| |                                                                                                                                                                   
| | Capital lease:                                                                                                                                                    
| | As of December 31, 2003, the Company had one capital   lease that expires September 2010.                                                                         

26



| | Operating leases:                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of December 31, 2003, the Company had several   operating leases with various terms and expiration dates.                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                           
| | Coal contracts:                                                                                                                                                                                                                                                                           
| | DP&L has entered into various long-term coal   contracts to supply portions of its coal requirements for its generating   plants.  Contract prices are subject   to adjustment in accordance with various indices, and have features that will   limit price escalation in any given year.
| |                                                                                                                                                                                                                                                                                           
| | Other long-term obligations:                                                                                                                                                                                                                                                              
| | As of December 31, 2003, DP&L had various other   long-term obligations incurred in the normal course of business including   non-cancelable contracts to purchase goods and services with various terms   and expiration dates.                                                          

DP&L enters into various commercial commitments, which may affect the liquidity of its operations.  At December 31, 2003, these include:

|                                         |  | Expiring   Year |      
|---------------------------------------- |  | --------------- | -----
|                                         |  |                 |      
|Commercial Commitments
($   in millions) |  | 2004            |      
|                                         |  |                 |      
|Credit facilities                        |  | $               | 150.0
|Guarantees                               |  |                 |     
|                                         |  |                 |      
|Total commercial commitments             |  | $               | 150.0
|                                         |  |                 |      

| | Credit facilities:                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | DP&L had $150 million available through a   revolving credit agreement with a consortium of banks that was scheduled to   expire on December 10, 2004.  At   December 31, 2003, there were no borrowings outstanding under this credit   agreement.  In June 2004, the Company   replaced this facility with a $100 million, 364 day unsecured credit facility   that expires on May 31, 2005.  The new   facility may be increased to up to $150 million.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Guarantees:                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | DP&L owns a 4.9% equity ownership interest in an   electric generation company.  As of   December 31, 2003, DP&L could be responsible for the repayment of 4.9%,   or $14.9 million, of a $305.0 million debt obligation and also 4.9%, or $2.9   million, of a separate $60.0 million debt obligation.  Both obligations mature in 2006.                                                                                                                 

|MARKET RISK                                                                                                                                                                                                                                                                                                                                       
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|DP&Ls financial results are subject to certain   market risks, including changes in electricity, coal, environmental   emissions, gas and other commodity prices; the effect of weather, increased   competition and economic conditions in the sales area on retail sales volume;   financial market condition; and adverse economic conditions.

Approximately 20 percent of DP&Ls 2003 revenues were from sales of excess energy capacity in the wholesale market.  Energy and capacity in excess of the needs of existing retail customers is sold in the wholesale market when DP&L can identify opportunities with positive margins.  In 2003, sales of excess energy and capacity contributed $37.0 million in net electric margins.  This compares to net electric margins from wholesale energy and capacity sales of $19.0 million in 2002. This increase in net electric margins resulted primarily from higher average market prices.  Wholesale sales in 2003 and 2002 averaged $29.20 and $22.14 per megawatt hour, respectively.

Fuel and purchased power costs represented
41% of total operating costs in 2003.  DP&L  has contracted for
all of its projected coal needs for 2004, at an estimated cost per Btu increase
of approximately 15% over average 2003 levels.  Purchased power
costs depend, in part, upon the timing and extent of planned and unplanned
outages of its generating capacity.  DP&L will purchase power on a
discretionary basis when wholesale market conditions provide opportunities to
obtain power at a cost below its internal production costs.  A 2% change in
overall fuel and purchased power costs would result in approximately a $3.5
million change in net income.

27



The carrying value of DP&Ls debt was $688.4 million at December 31, 2003, consisting of DP&Ls First Mortgage Bonds, DP&Ls guaranteed air quality development obligations and capital leases. The fair value of this debt was $692.6 million, based on current market prices or discounted cash flows using current rates for similar issues with similar terms and remaining maturities.  The principal cash repayments and related weighted average interest rates by maturity date for long-term, fixed rate debt at December 31, 2003 are as follows:

|                               |  | Long-term Debt                 |      
|------------------------------ |  | ------------------------------ | -----
|                               |  |                                |      
|Expected
        Maturity Date |  | Amount
        ($ in millions) |      
|                               |  |                                |      
|2004                           |  | $                              | 1.1  
|2005                           |  |                                | 1.1  
|2006                           |  |                                | 1.1  
|2007                           |  |                                | 9.3  
|2008                           |  |                                | 0.7  
|Thereafter                     |  |                                | 675.1
|                               |  |                                |      
|Total                          |  | $                              | 688.4
|                               |  |                                |      
|                               |  |                                |      
|Fair
        Value             |  | $                              | 692.6

At December 31, 2003, DP&L had no short-term debt outstanding.

In May 2003, DP&L entered into 60 day interest rate swaps designed to capture existing favorable interest rates in anticipation of future financings of $750 million First Mortgage Bonds.  These hedges were settled in July 2003, at a fair value of $51.4 million and as a result DP&L received this amount.  The ultimate effectiveness of the hedges resulted in a gain of $30.2 million and is reflected in Accumulated Other Comprehensive Income on the Consolidated Balance Sheet.  This amount will be amortized to interest expense over the lives of the forecasted interest payments.  The remaining market value of $21.2 million was recognized in Other Income (Deductions) on the Consolidated Statement of Results of Operations.

|FACTORS THAT MAY AFFECT FUTURE   RESULTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|This annual report and other documents
that DP&L files with the SEC and other regulatory agencies, as well as other
oral or written statements the Company may make from time to time, contain
information based on managements beliefs and include forward-looking
statements (within the meaning of the Private Securities Litigation Reform Act
of 1995) that involve a number of known and unknown risks, uncertainties and
assumptions. These forward-looking statements are not guarantees of future
performance, and there are a number of factors including, but not limited to,
those listed below, which could cause actual outcomes and results to differ
materially from the results contemplated by such forward-looking statements.
DP&L does not undertake any obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. These forward-looking statements are identified by terms
and phrases such as anticipate, believe,
intend, estimate, expect,
continue, should, could, may,
plan, project, predict, will,
and similar expressions.

Regulation/CompetitionDP&L operates in a rapidly changing industry with evolving industry
standards and regulations. In recent years a number of federal and state
developments aimed at promoting competition triggered industry
restructuring.  Regulatory factors, such as changes in the policies or
procedures that set rates; changes in tax laws, tax rates, and environmental
laws and regulations; changes in DP&Ls ability to recover expenditures
for environmental

28



compliance, fuel and purchased power
  costs and investments made under traditional regulation through rates; and changes
  to the frequency and timing of rate increases, can affect the Companys
  results of operations and financial condition.  Additionally, financial
  or regulatory accounting principles or policies imposed by governing bodies
  can increase DP&Ls operational and monitoring costs affecting its
  results of operations and financial condition.

Changes in DP&Ls customer base, including municipal customer aggregation, could lead to the entrance of competitors in the Companys marketplace affecting its results of operations and financial condition.

Economic ConditionsEconomic pressures, as well as changing market conditions and other factors related to physical energy and financial trading activities, which include price, credit, liquidity, volatility, capacity, transmission, and interest rates can have a significant effect on DP&Ls operations and the operations of its retail, industrial and commercial customers.

Reliance on Third PartiesDP&L relies on many suppliers for the purchase and delivery of inventory and components to operate its energy production and transmission functions.  Unanticipated changes in DP&Ls purchase processes may affect the Companys business and operating results.  In addition, the Company relies on others to provide professional services.

Operating Results FluctuationsFuture operating results could be affected and are subject to fluctuations
based on a variety of factors, including but not limited to: unusual weather
conditions; catastrophic weather-related damage; unscheduled generation outages;
unusual maintenance or repairs; changes in coal costs, gas
supply costs, or availability constraints; environmental compliance, including
costs of compliance with existing and future environmental requirements; and
electric transmission system constraints.

EmployeesA majority of the Companys employees are under a collective bargaining agreement.  If the Company is unable to negotiate future collective bargaining agreements, the Company could experience work stoppages, which may affect its business and operating results.

Regulatory Uncertainties and
LitigationIn the normal course of business, the Company is subject to various lawsuits,
  actions, proceedings, claims and other matters, asserted under laws and regulations.
  Additionally, the Company is subject to diverse and complex laws and regulations,
  including those relating to corporate governance, public disclosure and reporting
  and taxation, which are rapidly changing and subject to changes in the future.
  As further described in Item 3 - Legal Proceedings, the Company is also currently
  involved in various litigation in which the outcome is uncertain. Compliance
  with these rapid changes may substantially increase costs to DP&Ls
  organizations and could affect its future operating results.

Internal ControlsAs described under Item 1 Business - Recent Developments, a review by independent
  counsel to the Audit Committee of the Board of Directors of the Company has
  identified recommendations for improvement relating to some of the concerns
  raised by the Companys Controller including, among other things, internal
  controls.  In addition, as further described under Item 9A. Controls and
  Procedures, during their year-end review, the Companys independent auditors
  identified and reported to management and the Audit Committee two material weaknesses
  and certain other matters involving internal control deficiencies considered
  to be reportable conditions under standards established by the Public Company
  Accounting Oversight Board (PCAOB). The material weaknesses include conditions
  related to

29



(1) the Companys process for recognizing an adjustment to the Companys income tax provision to reflect a deductibility limitation under Section 162(m) with respect to executive deferred compensation distributions made during 2003 and (2) a complex and manual process for accounting and reporting transactions in DPLs financial asset portfolio that may lead to improper accounting of such transactions in accordance with generally accepted accounting principles.

The reportable conditions that are not believed to be a material weakness include conditions related to payroll processing, the quality and change control process for the preparation of SEC filings, managements assessment of the Companys internal controls, executive travel and entertainment expense reporting, the lack of a comprehensive controller function and segregation of duties for certain accounting transactions and activities.

The Companys failure to timely improve any deficiencies in its internal controls and procedures could result in errors in its consolidated financial statements, adversely affect its ability to operate its business and hamper managements ability to report on the effectiveness of its internal controls.  The Company has taken steps to correct the internal control deficiencies identified and will further develop and enhance the Companys internal control policies, procedures, systems and staff to allow it to mitigate the risk that material accounting errors might go undetected and be included in its consolidated financial statements.  The Company cannot assure that any new policies or procedures that the Company implements to remedy the material weaknesses and/or reportable conditions will be successful in the near term.

The Company is currently undertaking
  a thorough review of its internal controls as part of the Companys preparation
  for compliance with the requirements under Section 404 of the Sarbanes-Oxley
  Act of 2002 and the Company is using this review to further assist in indentifying
  and correcting any control deficiencies. As expected, this review has revealed
  control weaknesses, which the Company has reported to the Audit Committee.
  The Company has since taken steps to strengthen its internal controls in these
  areas including increasing segregation of duties, writing policies where necessary,
  adding checks at key decision points and increasing supervisor review of transactions.
  These actions have been successful in eliminating a large percentage of the
  deficiencies noted, but additional remediation activities continue. Corrected
  control deficiencies are being retested by management to assure that remediation
  efforts were successful, and the Companys auditors will perform independent
  testing of the Companys internal controls as part of their year-end review.
  At this time, the Company has not completed its review of the existing controls
  and their effectiveness. Unless the material weaknesses described above, and
  any identified during this review, are remedied, there can be no assurances
  that the Company will be able to assert that its internal control over financial
  reporting is effective in the management report to be included in the Annual
  Report for the year ended December 31, 2004, pursuant to the rules adopted by
  the SEC under Section 404.

|CRITICAL ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|DP&Ls consolidated financial statements are   prepared in accordance with generally accepted accounting principles in the   United States (GAAP). In connection with the preparation of these financial   statements, DP&Ls management is required to make assumptions, estimates   and judgments that affect the reported amounts of assets, liabilities,   revenues, expenses and the related disclosure of contingent liabilities. These   assumptions, estimates and judgments are based on managements historical   experience and assumptions that are believed to be reasonable at the time.   However, because future events and their effects cannot be determined with   certainty, the determination of estimates requires the exercise of judgment.   DP&Ls critical accounting policies are those which require assumptions   to be made about matters that are highly uncertain.

Different estimates could have a material effect on its financial results. Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions or circumstances.  Significant items subject to such judgments include the carrying value of property, plant and equipment; the valuation of derivative instruments; the valuation of financial assets; the valuation of insurance and claims costs; valuation allowances for receivables and deferred income taxes; and assets and liabilities related to employee benefits.

30



Long-lived Assets: In accordance with Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets to be held and used are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset. DP&L determines the fair value of these assets based upon estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. In analyzing the fair value and recoverability using future cash flows, the Company makes projections based on a number of assumptions and estimates of growth rates, future economic conditions, assignment of discount rates and estimates of terminal values. An impairment loss is recognized if the carrying amount of the long-lived asset is
not recoverable from its undiscounted cash flows. The measurement of impairment loss is the difference between the carrying amount and fair value of the asset. Long-lived assets to be disposed of and/or held for sale are reported at the lower of carrying amount or fair value less cost to sell. DP&L determines the fair value of these assets in the same manner as described for assets held and used.

Regulatory Assets and Liabilities: DP&L capitalizes incurred costs as deferred regulatory assets when there is a probable expectation that the costs incurred will be recovered in future revenues as a result of the regulatory process. Regulatory liabilities represent current recovery of expected future costs. When applicable the Company applies judgment in the use of these principles and these estimates are based on expected usage by a customer class over the designated recovery period. See Note 4 of Notes to Consolidated Financial Statements for further disclosure of regulatory amounts.

Asset Retirement Obligation: In accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No.143, Accounting for Asset Retirement Obligations (SFAS 143) legal obligations associated with the retirement of long-lived assets are required to be recognized at their fair value at the time those obligations are incurred.  Upon initial recognition of a legal liability, costs are capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset.  SFAS 143 also requires that components of previously recorded depreciation related to the cost of removal of assets upon retirement, whether legal asset retirement obligations or not, must be removed from a companys accumulated depreciation reserve.  DP&L makes assumptions, estimates and judgments that affect the reported amounts of assets, liabilities and expenses as they relate to asset
retirement obligations. These assumptions and estimates are based on historical experience and assumptions that are believed to be reasonable at the time.

Unbilled Revenues: DP&L records revenue for retail and other energy sales under the accrual method.  For retail customers, revenues are recognized when the services are provided on the basis of periodic cycle meter readings and include an estimated accrual for the value of electricity provided from the meter reading date to the end of the reporting period. These estimates are based on the volume of energy delivered, historical usage and growth by customer class, and the effect of weather variations on usage patterns.

Financial Instruments: DP&L applies the provisions of FASB Statement
of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS 115), for its investments
in debt and equity financial instruments of publicly traded entities and
classifies the securities into different categories; held-to-maturity and
available-for-sale. Available-for-sale securities are carried at fair value and
unrealized gains and losses on those securities, net of deferred income taxes,
are presented as a separate component of shareholders equity. Other than
temporary declines in value are recognized currently in earnings. Financial
instruments classified as held-to-maturity are carried at amortized cost. The
valuation of public equity security investments is based upon market quotations.
The cost basis for public equity security and fixed maturity investments is
average cost and amortized cost, respectively.

31



Insurance and Claims Costs:  A
wholly-owned captive insurance subsidiary of DPL provides insurance coverage
solely to DPL and its subsidiaries including, among other coverages,
business interruption and specific risk coverage with respect to electric
deregulation.  Insurance and Claims Costs on the Consolidated Balance Sheet
includes insurance reserves, which are based on actuarial methods and loss
experience data.  Such reserves are determined, in the aggregate, based on
a reasonable estimation of probable insured events occurring.  There is
uncertainty associated with the loss estimates, and actual results could differ
from the estimates.  Modification of these loss estimates based on
experience and changed circumstances are reflected in the period in which the
estimate is re-evaluated.

Pension and Postretirement Benefits: DP&L accounts for its pension and postretirement benefit obligations in accordance with the provisions of Statement of Financial Accounting Standards No. 87, Employers Accounting for Pensions and No. 106 Employers Accounting for Postretirement Benefits Other than Pensions.  These standards require the use of assumptions, such as the long-term rate of return on assets, in determining the obligations, annual cost, and funding requirements of the plans.

In 2004, DP&L lowered its long-term rate of return assumptions by 25 basis points to reflect the effect of recent trends on its long-term view.  This reduction will result in an increase in pension costs of approximately $0.6 million.  Effective December 31, 2003, DP&L lowered its assumed discount rate for pension and postretirement benefit obligations by 50 basis points to reflect current interest rate conditions.  Changes in the rate of return assumption, the discount rate, and other components used in the determination of pension or postretirement benefit costs will result in an overall increase of approximately $4.0 million in pension costs in 2004 compared to 2003.

In future periods, differences in the actual return on pension plan assets and assumed return or changes in the discount rate will affect the timing of contributions to the pension plan, if any, and the determination of whether or not a minimum liability should be recorded.  DP&L provides postretirement healthcare benefits to employees who retired prior to 1987.  A one percentage point change in the assumed healthcare trend rate would affect postretirement benefit costs by $0.1 million.

Contingencies: DP&L records
liabilities for probable estimated loss in accordance with Statement of
Financial Accounting Standards No. 5 (SFAS 5), Accounting for
Contingencies.  To the extent a probable loss can only be estimated by
reference to a range of equally probable outcomes, and no amount within the
range appears to be a better estimate than any other amount, DP&L accrues
for the low end of the range.  Because of uncertainties related to these
matters, accruals are based on the best information available at the time. 
DP&L evaluates the potential liability related to probable losses quarterly
and may revise its estimates.  Such revisions in the estimates of the
potential liabilities could have a material effect on the Companys results
of operations and financial position.

|LEGAL AND OTHER MATTERS                                                                                                                                                                                                                                                                                                       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A discussion of LEGAL AND OTHER MATTERS is described   in Note 14 of Notes to Consolidated Financial Statements and in Item 3 -   LEGAL PROCEEDINGS.  Such discussions   are incorporated by reference in this Managements Discussion and Analysis of   Financial Condition and Results of Operations and made a part hereof.

32



Recently Issued Accounting PronouncementsA discussion of recently issued accounting pronouncements is described in Note 1 of Notes to Consolidated Financial Statements and such discussion is incorporated by reference in this Managements Discussion and Analysis of Financial Condition and Results of Operations and made a part hereof.

|Item   7A  Quantitative and Qualitative Disclosures about Market Risk                                                                                                                                
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                      
|The information required   by this item of Form 10-K is set forth in the MARKET RISK section under Item   7 - Managements Discussion and Analysis of Financial Condition and Results   of Operations.

33



|Item 8    Financial Statements and Supplementary Data
|------------------------------------------------------
|                                                      

The Dayton Power and Light Company

C o n s o l i d a t e d   S t a t e m e n t   o f   R e s u l t s   o f   O p e r a t i o n s

|                                                                              |  | For the years
        ended December 31, |        
|----------------------------------------------------------------------------- |  | ---------------------------------------- | -------
|                                                                              |  |                                          |        
|$
        in millions                                                         |  | 2003                                     |        
|                                                                              |  |                                          |        
|Revenues                                                                      |  |                                          |        
|Electric                                                                      |  | $                                        | 1,183.4
|                                                                              |  |                                          |        
|Operating
        Expenses                                                    |  |                                          |        
|Fuel                                                                          |  |                                          | 226.2  
|Purchased
        power                                                       |  |                                          | 92.7   
|Operation
        and maintenance                                             |  |                                          | 197.7  
|Depreciation
        and amortization                                         |  |                                          | 116.1  
|Amortization
        of regulatory assets, net (Note 4)                       |  |                                          | 49.1   
|General
        taxes                                                         |  |                                          | 106.8  
|                                                                              |  |                                          |        
|Total
        operating expenses                                              |  |                                          | 788.6  
|                                                                              |  |                                          |        
|Operating
        Income                                                      |  |                                          | 394.8  
|                                                                              |  |                                          |        
|Investment
        income (Note 1)                                            |  |                                          | 22.7   
|Other
        income (deductions)                                             |  |                                          | 7.1    
|Interest
        expense                                                      |  |                                          | (51.8  
|                                                                              |  |                                          |        
|Income
        Before Income Taxes and Cumulative Effect of Accounting Change |  |                                          | 372.8  
|                                                                              |  |                                          |        
|Income
        tax expense                                                    |  |                                          | 150.4  
|                                                                              |  |                                          |        
|Income
        Before Cumulative Effect of Accounting Change                  |  |                                          | 222.4  
|                                                                              |  |                                          |        
|Cumulative
        effect of accounting change, net of tax (Note 1)           |  |                                          | 17.0   
|                                                                              |  |                                          |        
|Net
        Income                                                            |  |                                          | 239.4  
|                                                                              |  |                                          |        
|Preferred
        dividends                                                   |  |                                          | 0.9    
|                                                                              |  |                                          |        
|Earnings
        on Common Stock                                              |  | $                                        | 238.5  
|                                                                              |  |                                          |        

See Notes to Consolidated Financial Statements.

34



The Dayton Power and Light Company

C o n s o l i d a t e d   S t a t e m e n t   o f   C a s h   F l o w s

|                                                                        |  | For the   years ended December 31, |       
|----------------------------------------------------------------------- |  | ---------------------------------- | ------
|                                                                        |  |                                    |       
|$ in millions                                                           |  | 2003                               |       
|                                                                        |  |                                    |       
|Operating Activities                                                    |  |                                    |       
|Net income                                                              |  | $                                  | 239.4 
|Adjustments:                                                            |  |                                    |       
|Depreciation and   amortization                                         |  |                                    | 116.1 
|Amortization of   regulatory assets, net                                |  |                                    | 49.1  
|Deferred income taxes                                                   |  |                                    | (13.5 
|Income from interest   rate hedge (Note 1)                              |  |                                    | (21.2 
|Cumulative effect of   accounting change, net of tax                    |  |                                    | (17.0 
|Changes in working capital:                                             |  |                                    |       
|Accounts receivable                                                     |  |                                    | (1.0  
|Accounts payable                                                        |  |                                    | 7.3   
|Net intercompany   receivables from parent                              |  |                                    | 0.4   
|Accrued taxes payable                                                   |  |                                    | (30.6 
|Accrued interest   payable                                              |  |                                    | (8.8  
|Prepayments                                                             |  |                                    | (8.2  
|Inventories                                                             |  |                                    | 4.5   
|Deferred compensation   assets                                          |  |                                    | 50.4  
|Deferred compensation   obligations                                     |  |                                    | (46.8 
|Other                                                                   |  |                                    | 43.5  
|                                                                        |  |                                    |       
|Net cash provided by   operating activities                             |  |                                    | 363.6 
|                                                                        |  |                                    |       
|Investing Activities                                                    |  |                                    |       
|Capital expenditures                                                    |  |                                    | (116.5
|Settlement of interest rate hedges (Note 1)                             |  |                                    | 51.4  
|Proceeds from sale of natural gas retail   distribution operations, net |  |                                    |      
|                                                                        |  |                                    |       
|Net cash used for investing activities                                  |  |                                    | (65.1 
|                                                                        |  |                                    |       
|Financing Activities                                                    |  |                                    |       
|Dividends paid on common stock                                          |  |                                    | (298.7
|Issuance of long-term debt, net of issue costs (Note   9)               |  |                                    | 465.1 
|Retirement of long-term debt (Note 9)                                   |  |                                    | (463.9
|Dividends paid on preferred stock                                       |  |                                    | (0.9  
|                                                                        |  |                                    |       
|Net cash used for financing activities                                  |  |                                    | (298.4
|                                                                        |  |                                    |       
|Cash and Temporary Cash   Investments--                                 |  |                                    |       
|Net change                                                              |  |                                    | 0.1   
|Balance at beginning of period                                          |  |                                    | 17.1  
|                                                                        |  |                                    |       
|Balance at end of period                                                |  | $                                  | 17.2  
|                                                                        |  |                                    |       
|Cash paid during the period for:                                        |  |                                    |       
|Interest                                                                |  | $                                  | 56.2  
|Income taxes                                                            |  | $                                  | 200.1 

See Notes to Consolidated Financial Statements.

35



The Dayton Power and Light Company

C o n s o l i d a t e d   B a l a n c e   S h e e t

|                                                                                                               |  | At December
        31, |         
|-------------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------
|                                                                                                               |  |                         |         
|$
        in millions                                                                                          |  | 2003                    |         
|                                                                                                               |  |                         |         
|Assets                                                                                                         |  |                         |         
|                                                                                                               |  |                         |         
|Property                                                                                                       |  |                         |         
|Property,
        plant and equipment                                                                          |  | $                       | 3,875.4 
|Less: 
        Accumulated depreciation and amortization                                                       |  |                         | (1,769.1
|                                                                                                               |  |                         |         
|Net
        property                                                                                           |  |                         | 2,106.3 
|                                                                                                               |  |                         |         
|Current
        Assets                                                                                         |  |                         |         
|Cash
        and temporary cash investments (Note 3)                                                           |  |                         | 17.2    
|Accounts
        receivable, less provision for uncollectible accounts of $3.6 and $10.9,
        respectively |  |                         | 160.4   
|Net
        intercompany receivable from parent                                                                |  |                         |        
|Inventories,
        at average cost (Note 3)                                                                  |  |                         | 49.6    
|Prepaid
        taxes                                                                                          |  |                         | 46.4    
|Other
        (Note 3)                                                                                         |  |                         | 24.4    
|                                                                                                               |  |                         |         
|Total
        current assets                                                                                   |  |                         | 298.0   
|                                                                                                               |  |                         |         
|Other
        Assets                                                                                           |  |                         |         
|Income
        taxes recoverable through future revenues                                                       |  |                         | 43.3    
|Other
        regulatory assets                                                                                |  |                         | 36.1    
|Other
        (Note 3)                                                                                         |  |                         | 176.4   
|                                                                                                               |  |                         |         
|Total
        other assets                                                                                     |  |                         | 255.8   
|                                                                                                               |  |                         |         
|Total
        Assets                                                                                           |  | $                       | 2,660.1 
|                                                                                                               |  |                         |         

See Notes to Consolidated Financial Statements.

36



The Dayton Power and Light Company

C o n s o l i d a t e d   B a l a n c e   S h e e t(continued)

|                                               |  | At December
        31, |        
|---------------------------------------------- |  | ----------------------- | -------
|                                               |  |                         |        
|$
        in millions                          |  | 2003                    |        
|                                               |  |                         |        
|Capitalization
        and Liabilities         |  |                         |        
|                                               |  |                         |        
|Capitalization                                 |  |                         |        
|Common
        shareholders equity            |  |                         |        
|Common
        stock                           |  | $                       | 0.4    
|Other
        paid-in capital                  |  |                         | 780.5  
|Accumulated
        other comprehensive income |  |                         | 38.2   
|Earnings
        reinvested in the business    |  |                         | 321.7  
|                                               |  |                         |        
|Total
        common shareholders equity      |  |                         | 1,140.8
|                                               |  |                         |        
|Preferred
        stock                        |  |                         | 22.9   
|Long-term
        debt (Note 9)                |  |                         | 687.3  
|                                               |  |                         |        
|Total
        capitalization                   |  |                         | 1,851.0
|                                               |  |                         |        
|Current
        Liabilities                    |  |                         |        
|Accounts
        payable                       |  |                         | 88.9   
|Accrued
        taxes                          |  |                         | 66.4   
|Accrued
        interest                       |  |                         | 10.2   
|Other
        (Note 3)                         |  |                         | 24.6   
|                                               |  |                         |        
|Total
        current liabilities              |  |                         | 190.1  
|                                               |  |                         |        
|Deferred
        Credits and Other             |  |                         |        
|Deferred
        taxes                         |  |                         | 381.7  
|Unamortized
        investment tax credit      |  |                         | 52.2   
|Other
        (Note 3)                         |  |                         | 185.1  
|                                               |  |                         |        
|Total
        deferred credits and other       |  |                         | 619.0  
|                                               |  |                         |        
|Contingencies
        (Note 14)                |  |                         |        
|                                               |  |                         |        
|Total
        Capitalization and Liabilities   |  | $                       | 2,660.1
|                                               |  |                         |        

See Notes to Consolidated Financial Statements.

37



The Dayton Power and Light Company

C o n s o l i d a t e d   S t a t e m e n t   o f   S h a r e h o l d e r s   E q u i t y

|                                                                                                                      |  | Common Stock
        (a) |                            | Other Paid-In
        Capital |   | Accumulated
        Other
        Comprehensive
        Income |  | Earnings
        Reinvested
        In the
        Business |       |   |       |      
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------------------------- | ----------------------------- | - | -------------------------------------------------------------- |  | ----------------------------------------------------------- | ----- | - | ----- | -----
|                                                                                                                      |  |                          |                            |                               |   |                                                                |  |                                                             |      
|$
        in millions                                                                                                 |  |                          | Outstanding
        Shares |                               |   | Amount                                                         |  |                                                             |       |   | Total |      
|                                                                                                                      |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Beginning
        balance (as restated)                                                                               |  |                          | 41,172,173                 |                               | $ | 0.4                                                            |  | $                                                           | 815.9 |   | $     | 35.1 
|                                                                                                                      |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|2001
        (as restated):                                                                                           |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Net
        income                                                                                                    |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Net
        change in unrealized gains (losses) on financial instruments, net of reclassification
        adjustments |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       | (29.6
|Minimum
        pension liability                                                                                     |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       | 0.1  
|Deferred
        income taxes related to  unrealized gains (losses)                                                   |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       | 8.0  
|Total
        comprehensive income                                                                                    |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Common
        stock dividend                                                                                         |  |                          |                            |                               |   |                                                                |  |                                                             | 1.7   |   |       |      
|Preferred
        stock dividend                                                                                      |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Parent
        company capital contribution                                                                           |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Employee
        / Director stock plans                                                                               |  |                          |                            |                               |   |                                                                |  |                                                             | 2.6   |   |       |      
|Other                                                                                                                 |  |                          |                            |                               |   |                                                                |  |                                                             | 0.2   |   |       | (0.2 
|                                                                                                                      |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Ending
        balance (as restated)                                                                                  |  |                          | 41,172,173                 |                               | $ | 0.4                                                            |  | $                                                           | 820.4 |   | $     | 13.4 
|                                                                                                                      |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|2002
        (as restated):                                                                                           |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Net
        income                                                                                                    |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Net
        change in unrealized gains (losses) on financial instruments, net of reclassification
        adjustments |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       | (25.1
|Minimum
        pension liability                                                                                     |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       | (0.2 
|Deferred
        income taxes related to  unrealized gains (losses)                                                   |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       | 11.0 
|Total
        comprehensive income                                                                                    |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Common
        stock dividend                                                                                         |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Preferred
        stock dividend                                                                                      |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Parent
        company capital contribution                                                                           |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Employee
        / Director stock plans                                                                               |  |                          |                            |                               |   |                                                                |  |                                                             | (40.3 | ) |       |      
|Other                                                                                                                 |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       | 0.1  
|                                                                                                                      |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Ending
        balance (as restated)                                                                                  |  |                          | 41,172,173                 |                               | $ | 0.4                                                            |  | $                                                           | 780.1 |   | $     | (0.8 
|                                                                                                                      |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|2003:                                                                                                                 |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Net
        income                                                                                                    |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Net
        change in unrealized gains (losses) on financial instruments, net of reclassification
        adjustments |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       | 17.0 
|Net
        change in deferred gains on cash flow hedges                                                              |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       | 29.5 
|Minimum
        pension liability                                                                                     |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       | (0.2 
|Deferred
        income taxes related to  unrealized gains (losses)                                                   |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       | (7.3 
|Total
        comprehensive income                                                                                    |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Common
        stock dividend                                                                                         |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Preferred
        stock dividend                                                                                      |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Parent
        company capital contribution                                                                           |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Employee
        / Director stock plans                                                                               |  |                          |                            |                               |   |                                                                |  |                                                             | 0.3   |   |       |      
|Other                                                                                                                 |  |                          |                            |                               |   |                                                                |  |                                                             | 0.1   |   |       |     
|                                                                                                                      |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      
|Ending
        balance                                                                                                |  |                          | 41,172,173                 |                               | $ | 0.4                                                            |  | $                                                           | 780.5 |   | $     | 38.2 
|                                                                                                                      |  |                          |                            |                               |   |                                                                |  |                                                             |       |   |       |      

|                                  
|----------------------------------
|(a)  50,000,000 shares authorized.

See Notes to Consolidated Financial Statements.

38



The Dayton Power and Light Company

N o t e s   t o   C o n s o l i d a t e d   F i n a n c i a l   S t a t e m e n t s

|  
|--
|1.

Description of BusinessThe Dayton Power and Light Company (DP&L or the Company) is a wholly-owned subsidiary of DPL Inc. (DPL).  DP&L is a public utility incorporated in 1911 under the laws of Ohio.  DP&L sells electricity to residential, commercial, industrial and governmental customers in a 6,000 square mile area of West Central Ohio.  Electricity for DP&Ls 24-county service area is generated at eight power plants and is distributed to more than 500,000 retail customers.  Principal industries served include automotive, food processing, paper, technology and defense.

Basis of ConsolidationDP&L prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP).  The consolidated financial statements include the accounts of DP&L and its majority-owned subsidiaries.  Investments that are not majority owned are accounted for using the equity method when DP&Ls investment allows it the ability to exert significant influence, as defined by GAAP.  Undivided interests in jointly-owned generation facilities are consolidated on a pro rata basis.  All material intercompany accounts and transactions are eliminated in consolidation.

Estimates, Judgments and ReclassificationsThe preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the revenue and expenses of the period reported.  Significant items subject to such estimates and judgments include the carrying value of property, plant and equipment; the valuation of derivative instruments; the valuation of financial assets; the valuation of insurance and claims costs; valuation allowance for receivables and deferred income taxes; and assets and liabilities related to employee benefits.  Actual results may differ from those estimates.  Certain amounts from prior periods have been reclassified to conform to the current reporting presentation.

Revenues and FuelDP&L records revenue for services provided but not yet billed to more closely match revenues with expenses.  Accounts receivable on the Consolidated Balance Sheet include unbilled revenue of $60.0 million and $59.3 million in 2003 and 2002, respectively.  Also included in revenues are amounts charged to customers through a surcharge for recovery of uncollected amounts from certain eligible low income households.  These charges were $6.3 million for 2003, $11.7 million for 2002 and $8.4 million in 2001.

Allowance for Uncollectible AccountsDP&L establishes provisions for uncollectible accounts using both historical average credit loss percentages of accounts receivable balances to project future losses and specific provisions for known credit issues.

Property, Plant and EquipmentDP&L records its ownership share of its undivided interest in jointly-held plants as an asset in property, plant and equipment.  Property, plant and equipment is stated at cost. For regulated

39



plant, cost includes direct labor and material, allocable overhead costs and an allowance for funds used during construction (AFUDC).  AFUDC represents the cost of borrowed funds and equity used to finance regulated construction projects.  Capitalization of AFUDC ceases at either project completion or the date specified by regulators.  AFUDC capitalized for borrowed funds was $0.1 million in 2003, $0.1 million in 2002 and $3.8 million in 2001.  AFUDC capitalized for equity funds was $0.6 million in 2003, $0.4 million in 2002 and $0.9 million in 2001.

For unregulated plant, cost includes direct labor and material, allocable overhead costs and interest capitalized during construction.  Capitalized interest was $8.3 million in 2003, $12.7 million in 2002 and $11.4 million in 2001.

For substantially all depreciable property, when a unit of property is retired, the original cost of that property less any salvage value is charged to Accumulated Depreciation and Amortization.

Property is evaluated for impairment when events or changes in circumstances indicate that its carrying amount may not be recoverable.

DepreciationDepreciation expense is calculated using the straight-line method, which depreciates the cost of property over its estimated useful life.  For generation, transmission and distribution assets, straight-line depreciation is applied on an average annual composite basis using group rates that approximated 3.3% for 2003 and 3.2% for 2002 and 2001.  Depreciation expense was $116.1 million in 2003, $114.9 million in 2002 and $116.0 million in 2001.

The following is a summary of property, plant and equipment with corresponding composite depreciation rates at December 31, 2003 and 2002:

|$
        in millions                       |  | 2003 |         | Composite
        Rate |  | 2002 |  | Composite
        Rate |        
|------------------------------------------- |  | ---- | ------- | ---------------------- |  | ---- |  | ---------------------- | -------
|                                            |  |      |         |                        |  |      |  |                        |        
|Regulated:                                  |  |      |         |                        |  |      |  |                        |        
|Transmission                                |  | $    | 335.2   |                        |  | 2.5% |  | $                      | 335.6  
|Distribution                                |  |      | 889.1   |                        |  | 3.7% |  |                        | 879.2  
|General                                     |  |      | 53.7    |                        |  | 8.0% |  |                        | 53.6   
|Non-depreciable                             |  |      | 54.4    |                        |  | 0.0% |  |                        | 54.3   
|                                            |  |      |         |                        |  |      |  |                        |        
|Total
        regulated                     |  | $    | 1,332.4 |                        |  |      |  | $                      | 1,322.7
|                                            |  |      |         |                        |  |      |  |                        |        
|Unregulated:                                |  |      |         |                        |  |      |  |                        |        
|Production                                  |  | $    | 2,330.6 |                        |  | 3.1% |  | $                      | 2,278.9
|Non-depreciable                             |  |      | 15.5    |                        |  | 0.0% |  |                        | 15.2   
|                                            |  |      |         |                        |  |      |  |                        |        
|Total
        unregulated                   |  | $    | 2,346.1 |                        |  |      |  | $                      | 2,294.1
|                                            |  |      |         |                        |  |      |  |                        |        
|                                            |  |      |         |                        |  |      |  |                        |        
|Total
        property in service           |  | $    | 3,678.5 |                        |  | 3.3% |  | $                      | 3,616.8
|Construction
        work in progress       |  |      | 196.9   |                        |  | 0.0% |  |                        | 164.9  
|                                            |  |      |         |                        |  |      |  |                        |        
|Total
        property, plant and equipment |  | $    | 3,875.4 |                        |  |      |  | $                      | 3,781.7
|                                            |  |      |         |                        |  |      |  |                        |        

Asset Retirement ObligationsDP&L adopted the provisions of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (SFAS 143) during 2003.  SFAS 143 requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time those obligations are incurred.  Upon initial recognition of a legal liability, costs are capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset.  SFAS 143 also requires that components of previously recorded depreciation related to the cost of removal of

40



assets upon retirement, whether legal asset retirement obligations or not, must be removed from a companys accumulated depreciation reserve.  DP&Ls legal obligations associated with the retirement of its long-lived assets consist primarily of river intake and discharge structures, coal unloading facilities, loading docks, ice breakers and ash disposal facilities.  Application of SFAS 143 in 2003 resulted in an increase in net property, plant and equipment of $0.8 million, the recognition of an asset retirement obligation of $4.6 million and reduced DP&Ls accumulated depreciation reserve by $32.1 million due to cost of removal related to the non-regulated generation assets to other deferred credits.  If the new accounting rule had been adopted on January 1, 2002, the asset retirement obligation would have approximated $4.3 million.  Beginning in January 2003, depreciation rates were reduced to reflect the
discontinuation of the cost of removal accrual for applicable non-regulated generation assets.  This change reduced annual depreciation and amortization expense by $1.9 million.  In addition, costs for the removal of retired assets are charged to operation and maintenance when incurred.  Since the generation assets are not subject to Ohio regulation, DP&L recorded the net effect of adopting this standard in its Consolidated Statement of Results of Operations.  The total cumulative effect of the adoption of SFAS 143 increased net income and shareholders equity by $28.3 million before tax.

DP&L continues to record cost of removal for its regulated transmission and distribution assets through its depreciation rates and recovers those amounts in rates charged to its customers.  There are no known legal asset retirement obligations associated with these assets.  The Company has reclassified $72 million and $66.1 million in estimated costs of removal at December 31, 2003 and 2002, respectively, from Accumulated Depreciation and Amortization to regulatory liabilities for its transmission and distribution property. (See Note 4 of Notes to Consolidated Financial Statements.)

Regulatory AccountingDP&L applies the provisions of FASB Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation(SFAS 71).  In accordance with SFAS 71, regulatory assets and liabilities are recorded in the Consolidated Balance Sheet.  Regulatory assets are the deferral of costs expected to be recovered in future customer rates and regulatory liabilities represent current recovery of expected future costs.

If DP&L was required to terminate application of SFAS 71 for all of its regulated operations, the Company would have to record the amounts of all regulatory assets and liabilities in the Consolidated Statement of Results of Operations at that time.  (See Note 4 of Notes to Consolidated Financial Statements.)

InventoryInventories, carried at average cost, include coal, oil and gas used for electric generation and material and supplies for utility operations.

Repairs and MaintenanceCosts associated with all planned work and maintenance activities, primarily power plant outages, are recognized at the time the work is performed.  These costs, which include labor, materials and supplies and outside services required to maintain equipment and facilities, are either capitalized or expensed based on defined units of property as required by the Federal Energy Regulatory Commission (FERC).

Stock-Based CompensationDP&L accounts for DPL stock options granted to the Companys employees on or after January 1, 2003 under the fair-value method set forth in FASB Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123).  This standard requires the recognition of compensation expense for stock-based awards

41



to reflect the fair value of the award on the date of grant.  DP&L follows Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related Accounting Principles Board and FASB interpretations in accounting for DPL Inc. stock options granted to the Companys employees before January 1, 2003.  If DP&L had used the fair-value method of accounting for stock-based compensation granted prior to 2003, earnings on common stock would have been reported as follows:

|                                                                                                      |  | Year Ended   December 31, |      
|----------------------------------------------------------------------------------------------------- |  | ------------------------- | -----
|                                                                                                      |  |                           |      
|$ in millions                                                                                         |  | 2003                      |      
|                                                                                                      |  |                           |      
|Earnings on common stock, as reported                                                                 |  | $                         | 238.5
|Add: Total stock-based compensation expense   determined under APB 25, net of related tax effects     |  |                           |     
|Deduct: Total stock-based compensation expense   determined under FAS 123, net of related tax effects |  |                           | (2.7 
|                                                                                                      |  |                           |      
|Pro-forma earnings on common stock                                                                    |  | $                         | 235.8
|                                                                                                      |  |                           |      

Income TaxesDP&L applies the provisions of FASB Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109 requires an asset and liability approach for financial accounting and reporting of income taxes with tax effects of differences, based on currently enacted income tax rates between the financial reporting and tax basis of accounting reported as Deferred Taxes in the Consolidated Balance Sheet. Deferred taxes are recognized for deductible temporary differences. Valuation reserves are provided unless it is more likely than not that the asset will be realized.

Investment tax credits, which have been used to reduce federal income taxes payable, have been deferred for financial reporting purposes. These deferred investment tax credits are amortized over the useful lives of the property to which they are related. For rate-regulated operations, additional deferred income taxes and offsetting regulatory assets or liabilities are recorded to recognize that the income taxes will be recoverable/refundable through future revenues.

DPL files a consolidated U. S. federal tax return in conjunction with its subsidiaries, including the Company.  The consolidated tax liability is allocated to DPL and its subsidiaries as specified in the DPL tax allocation agreement which provides a consistent, systematic and rational approach. (See Note 5 of Notes to Consolidated Financial Statements.)

Cash, Cash Equivalents and Short-Term InvestmentsCash, cash equivalents and short-term investments are stated at cost, which approximates fair value.  Investments with maturities of three months or less are considered cash equivalents.  Investments with maturities of less than one year are considered short-term. Cash, cash equivalents and short-term investments were $17.2 million at December 31, 2003 and $17.1 million at December 31, 2002.

Insurance and Claims CostsA wholly-owned captive insurance subsidiary of DPL
provides insurance coverage solely to DPL, DP&L and other subsidiaries.  Premiums for coverage are determined by a
third-party actuary and charged to expense by the insured over the term of the policy.  The Company has, among other
coverages, business interruption and specific risk coverage with respect to electric deregulation.  In 2001 and 2002, the
Company recognized income of $29 million and $7 million, respectively, relating to its claims under the business interruption
policy.  By agreement dated December 31, 2001, the insurance subsidiary agreed to pay the Company $29 million with respect to
claims under the business interruption policy, and in June 2003 agreed to pay the Company an additional $7 million, as a result of
which the Company released the insurance subsidiary from future obligations under the business interruption policy.  In
September 2003, the Company received payment for the claims under the policy.

42



During the three-year regulatory transition period ending December 31, 2003, business interruption policy payments from the captive subsidiary to DP&L or the release of the appropriate reserves occurred and were reflected in income.  As of December 31, 2002, a $36.3 million receivable was recognized by DP&L for insurance claims under its business interruption insurance policy which was included in Other Current Assets on the Consolidated Balance Sheet.  Of this amount, $7.3 million and $29 million were reported as Other Income in 2002 and 2001, respectively.  The captive subsidiary released $10.9 million in 2002 and $6.9 million in 2001 from the business interruption policy reserve reported as Other Income.  In June 2003, the ultimate value of the business interruption risk coverage was settled between the captive insurance subsidiary and DP&L.  The total settlement resulted in a $76 million reduction to insurance reserves
of the captive subsidiary and a release from the business interruption policy reserve of $39.7 million which is reported as Other Income.  Additionally, during the third quarter of 2003 the captive subsidiary settled the $36.3 million receivable recognized by DP&L for insurance claims under this policy.

Financial DerivativesDP&L adopted FASB Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activity, (SFAS 133) as amended as of January 1, 2001.  SFAS 133 requires that all derivatives be recognized as either assets or liabilities in the Consolidated Balance Sheet and be measured at fair value, and changes in the fair value be recorded in earnings, unless they are designated as a cash flow hedge of a forecasted transaction.  As a result of adopting this accounting standard, DP&L recorded a cumulative effect of accounting change of $1.0 million in income, net of tax, in 2001.

The FASB issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS 149).  SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including those embedded in other contracts, and for hedging activities and is effective for contracts entered into or modified after June 30, 2003.  This standard did not have a material effect on the Company.

DP&L uses forward contracts and options to reduce the Companys exposure to changes in energy and commodity prices and as a hedge against the risk of changes in cash flows associated with expected electricity purchases.  These purchases are required to meet full load requirements during times of peak demand or during planned and unplanned generation facility outages.  DP&L also holds forward sales contracts that hedge against the risk of changes in cash flows associated with power sales during periods of projected generation facility availability.  Prior to July 1, 2001, DP&L recorded the fair value of all these contracts as Other Assets or Other Liabilities on the Consolidated Balance Sheet with an offset to Accumulated Other Comprehensive Income, and earnings were recognized in the month of physical receipt or delivery of power.  In June 2001, the FASB concluded that electric utilities could apply the normal purchases and
sales exception for option-type contracts and forward contracts in electricity subject to specific criteria for the power buyers and sellers under capacity contracts.  Accordingly, DP&L began to apply the normal purchase and sales exception as defined in SFAS 133 as of July 1, 2001 and currently accounts for these contracts upon settlement.  This change did not have a material effect on DP&Ls financial position or results of operations.

In May 2003, DP&L entered into 60 day interest rate swaps designed to capture
existing favorable interest rates in anticipation of future financings of $750.0 million first mortgage bonds.  These hedges
were settled in July 2003, at a fair value of $51.4 million, reflecting

43



increasing U.S. Treasury interest rates, and as a result DP&L received this amount.  During 2003, the ultimate effectiveness of the hedges resulted in a gain of $30.2 million and was recorded in Accumulated Other Comprehensive Income on the Consolidated Balance Sheet.  This amount will be amortized into income as a reduction to interest expense over the ten- and fifteen-year lives of the hedges.  The ineffective portion of the hedge of $21.2 million was recognized as Other Income (Deductions) on the Consolidated Statement of Results of Operations.

DP&L also holds emission allowance options that are classified as derivatives not subject to hedge accounting.  The fair value of these contracts, which are in effect through 2004, is reflected as Other Assets or Other Liabilities on the Consolidated Balance Sheet and changes in fair value are recorded as Other Income (Deductions) on the Consolidated Statement of Results of Operations.  The effect on net income was immaterial during 2001 through 2003.

Financial InstrumentsDP&L applies the provision of FASB Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115),
for its investments in debt and equity financial instruments of publicly traded entities and classifies the securities into
different categories; held-to-maturity and available-for-sale.  Available-for-sale securities are carried at fair value and
unrealized gains and losses on those securities, net of deferred income taxes, are presented as a separate component of
shareholders equity.  Other than temporary declines in value are recognized currently in earnings.  Financial
instruments classified as held-to-maturity are carried at amortized cost.  The valuation of public equity security
investments is based upon market quotations.  The cost basis for public equity security and fixed maturity investments is
average cost and amortized cost, respectively.

Legal, Environmental and Regulatory
ContingenciesDP&L, in the normal course of business, is subject to
various lawsuits, actions, proceedings, claims and
other matters asserted under laws and regulations. DP&L believes the amounts provided in its consolidated
financial statements, as prescribed by GAAP, adequately reflect probable and
estimable contingencies.  However, there can be no assurances that the
actual amounts required to satisfy alleged liabilities from various legal
proceedings, claims, and other matters, and to comply with applicable laws and
regulations, will not exceed the amounts reflected in DP&Ls
consolidated financial statements or will not have a material adverse effect on
its consolidated results of operations, financial condition or cash flows. 
As such, costs, if any, that may be incurred in excess of those amounts provided
as of December 31, 2003 cannot currently be reasonably determined.

Recently Issued Accounting StandardsStatement of Financial Accounting Standards No. 149In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (SFAS 149), Amendment of Statement 133 on Derivatives and Hedging Activities. SFAS 149 primarily reflects decisions previously made by the FASBs Derivatives Implementation Group and other FASB projects relating to financial instruments. SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including those embedded in other contracts, and for hedging activities and was effective for contracts entered into or modified after June 30, 2003.  The adoption of this statement did not have a material effect on the Companys consolidated financial condition, results of operations or cash flows.

Statement of Financial Accounting Standards No. 150In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS 150), Accounting for Certain Financial Instruments with the Characteristics of Both Liabilities and Equity.  SFAS 150 establishes standards for classifying and measuring certain financial

44



instruments as liabilities that embody obligations of the issuer and have characteristics of both liabilities and equity.  SFAS 150 must be applied to instruments entered into or modified after May 31, 2003 and to all other instruments that existed as of the beginning of the first interim period after June 15, 2003.  This standard, which was effective at the beginning of the third quarter of 2003, did not affect DP&L.

Financial Interpretation No. 46 (Revised December 2003)In December 2003, the FASB issued Financial Interpretation No. 46R (FIN 46R), which clarifies Financial Interpretation No. 46 (FIN 46) which requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  This standard did not affect DP&L.

Staff Position No. 106-1In December 2003, the FASB issued Staff Position
No. 106-1 (FSP 106-1), Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act).  The Act provides for drug benefits for retirees over the age of 65 under a new
Medicare Part D program.  For employers like DP&L, who currently provide retiree medical programs for certain former
employees over the age of 65, there are subsidies available which are inherent in the Act.  The Act entitles these employers
to a direct tax-exempt federal subsidy.  However, since the effective date of the Act was December 2003 and because most
employers have not had time to consider the accounting considerations and there is no appropriate accounting guidance for the
federal subsidy, the FASB issued this FSP 106-1 to allow employers a one-time election to defer recognition of the impact of
the Act in the employers accounting until formal guidance is issued.  DP&L elected to defer recognition of the
provisions of this Act until further accounting guidance is issued.  The issuance of formal accounting guidance may require a
change to previously reported information.  DP&L is continuing to monitor the effect of the Act.

Staff Position No. 106-2
In May 2004, the FASB issued FASB Staff Position No. 106-2 (FSP 106-2),
Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003, which supersedes FSP 106-1.
FSP 106-2 provides guidance on the accounting for the effects of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the Act) for
employers that sponsor postretirement health care plans that provide
prescription drug benefits. It also requires certain disclosures regarding the
effect of the federal subsidy provided by the Act. FSP 106-2 is effective for
the first interim or annual period beginning after June 15, 2004. The effect is
not expected to be material to the Company's results of operations, cash flow or
financial position.

|  
|--
|2.

As a result of the Audit Committees response to a report prepared by Taft, Stettinius
& Hollister LLP (see Note 16) and during the 2003 year-end financial closing process, the Company identified certain
adjustments to prior period financial statements.  As a result, the Company has restated its consolidated financial
statements for the fiscal years ended December 31, 2001 and 2002, and for the quarters ended March 31, 2002 through December 31,
2002.  This restatement increased net income by $2.1 million to $245.6 million for 2002 and reduced net income by $1.7
million to $233.6 million for 2001.  The beginning balance in Earnings Reinvested in the Business for 2001 was reduced by
$13.9 million to $191.5 million.

The consolidated opening balance sheet for the earliest period presented has been restated.
  Earnings
  Reinvested in the Business was reduced by $13.9 million to reflect certain accounting
  adjustments primarily related to the Companys Supplemental Executive Retirement
  Plan (SERP) and taxes related to non-deductible expenses.  Other Paid-in Capital,
  Net of Treasury Stock, was increased by $46.2 million to correctly reflect certain
  executive and director stock plans as equity, with a corresponding reduction
  in Deferred Credits and Other  Other.  Accumulated Other Comprehensive
  Income was reduced by $2.3 million to reflect certain accounting adjustments
  related to the Companys Supplemental Executive Retirement Plan.

As a result of the foregoing factors,
the Companys unaudited condensed consolidated financial statements for
fical years 2002 and 2001 have been restated from amounts previously reported.
The accompanying consolidated financial data set forth below presents the
Companys Consolidated Statements of Results of Operations for the years ended December 31, 2002 and 2001 and Consolidated Balance Sheet as of December 31, 2002 on a comparative basis showing the amounts as originally reported and as restated.

45



The following table identifies the adjustments made to previously-released consolidated financial statements:

|                                                   |  | Net Income
        Increase (Decrease) |     
|-------------------------------------------------- |  | -------------------------------------- | ----
|                                                   |  |                                        |     
|                                                   |  | For the years ended December 31,       |     
|                                                   |  |                                        |     
|Description of Adjustment($ in millions)           |  | 2002                                   |     
|                                                   |  |                                        |     
|Supplemental
        Executive Retirement Plan (1) |  | $                                      | 3.8 
|Stock
        incentive units (2)                  |  |                                        | 0.4 
|Accrued
        expenses (3)                       |  |                                        | (0.1
|                                                   |  |                                        |     
|Sub-total
        pre-tax impact                   |  |                                        | 4.1 
|                                                  
|                                                   |  |                                        |     
|Income
        taxes on non-deductible costs (4)   |  |                                        | (0.4
|Income
        taxes (5)                           |  |                                        | (1.6
|                                                   |  |                                        |     
|Total
        Net Income Impact                    |  | $                                      | 2.1 
|                                                   |  |                                        |     

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)  Reflects   adjustment to record a settlement of the Companys Supplemental Executive Retirement Plan for certain executives in 1997 and 2000 which had not been   previously recorded, in addition to an adjustment to record the proper   treatment for Company assets previously thought to be segregated and   restricted solely for purposes of funding this plan.  Adjustments made subsequent to 2000   reflect revisions to actuarial computations to consider impact of those   settlements on future actuarial calculations for the plan.

Consolidated Statement of Results of Operations:  Adjustment (increased) decreased Operation and Maintenance expense by approximately $3.5 million in 2002, $(1.1) million in 2001, and $(21.5) million in prior periods.  Adjustment also increased Investment Income by approximately $0.3 million in 2002 and 2001, and $2.4 million in prior periods.

Consolidated Balance Sheet:  At December 31, 2002, adjustment increased Deferred Credits and Other  Other by $19.0 million, Other Current Assets by $0.1 million, Accrued Taxes by $0.6 million, and reduced Accumulated Other Comprehensive Income by $2.3 million, Deferred Taxes by $7.3 million and Other Assets  Other by $0.6 million.

Consolidated Statement of Shareholders Equity:  At January 1, 2001, adjustment decreased Earnings Reinvested in the Business by $12.4 million and Accumulated Other Comprehensive Income by $2.4 million.

(2)  Reflects adjustment to
record outstanding stock incentive units at fair value following a change in the
operation of the Management Stock Incentive Plan made as of January 1, 2002,
that allowed certain retirees to diversify stock incentive awards to
investments other than DPL common stock.

Consolidated Statement of Results of Operations:  Adjustment decreased Operation and Maintenance expense by the amounts set forth in this table.

Consolidated Balance Sheet:  At December 31, 2002, adjustment increased Other Paid-in Capital, Net of Treasury Stock by $8.4 million, and reduced Deferred Credits and Other  Other by $8.8 million and Other Assets  Other by $0.1 million.

(3)  Reflects adjustment to record accrued expenses in the period in which these items were incurred.

Consolidated Statement of Results of Operations:  Adjustment decreased Other Income by $0.1 million in 2002; and increased Operation and Maintenance expense by $0.9 million and reduced Investment Income by $0.2 million in 2001.

Consolidated Balance Sheet:  At December 31, 2002, adjustment increased Accounts Payable by $1.1 million and reduced Accrued Taxes by $0.4 million and Current Assets  Other by $0.1 million.

(4)  Reflects adjustment to record tax expense for non-deductible costs not previously considered and provisions for estimated tax exposures.

Consolidated Statement of Results of Operations:  Adjustment increased Income Tax expense by the amounts set forth in this table.

Consolidated Balance Sheet:  At December 31, 2002, adjustment increased Accrued Taxes by $2.4 million.

(5)  Reflects income taxes related to the above non-tax adjustments.

Consolidated Statement of Results of Operations:  Adjustment (increased) decreased Income Tax expense by the amounts set forth in the table.

(6)  Total net income cumulative
  amount for periods prior to 2001 are reflected as a reduction to 2001 beginning
  Earnings Reinvested in the Business on the Consolidated Balance Sheet.

The following provides comparative financial
  statements as restated compared to those previously reported.

46



THE DAYTON POWER AND LIGHT COMPANY C o n s o l i d a t e d   S t a t e m e n t   o f   R e s u l t s   o f   O p e r a t i o n s

|                                                                              |  | For the years
        ended December 31, |        
|----------------------------------------------------------------------------- |  | ---------------------------------------- | -------
|                                                                              |  |                                          |        
|$
        in millions except per share amounts                                |  | 2002 (as previously
        reported)    |        
|                                                                              |  |                                          |        
|Revenues                                                                      |  |                                          |        
|Electric                                                                      |  | $                                        | 1,175.8
|                                                                              |  |                                          |        
|Operating
        Expenses                                                    |  |                                          |        
|Fuel                                                                          |  |                                          | 208.6  
|Purchased
        power                                                       |  |                                          | 106.9  
|Operation
        and maintenance                                             |  |                                          | 151.6  
|Depreciation
        and amortization                                         |  |                                          | 114.9  
|Amortization
        of regulatory assets, net                                |  |                                          | 48.1   
|General
        taxes                                                         |  |                                          | 109.4  
|                                                                              |  |                                          |        
|Total
        operating expenses                                              |  |                                          | 739.5  
|                                                                              |  |                                          |        
|Operating
        Income                                                      |  |                                          | 436.3  
|                                                                              |  |                                          |        
|Investment
        income                                                     |  |                                          | 1.8    
|Other
        income (deductions)                                             |  |                                          | 8.5    
|Interest
        expense                                                      |  |                                          | (53.5  
|                                                                              |  |                                          |        
|Income
        Before Income Taxes and Cumulative Effect of Accounting Change |  |                                          | 393.1  
|                                                                              |  |                                          |        
|Income
        tax expense                                                    |  |                                          | 149.6  
|                                                                              |  |                                          |        
|Income
        Before Cumulative Effect of Accounting Change                  |  |                                          | 243.5  
|                                                                              |  |                                          |        
|Cumulative
        effect of accounting change, net of tax                    |  |                                          |       
|                                                                              |  |                                          |        
|Net
        Income                                                            |  |                                          | 243.5  
|                                                                              |  |                                          |        
|Preferred
        dividends                                                   |  |                                          | 0.9    
|                                                                              |  |                                          |        
|Earnings
        on Common Stock                                              |  | $                                        | 242.6  
|                                                                              |  |                                          |        

See Notes to Consolidated Financial Statements.

47



THE DAYTON POWER AND LIGHT COMPANY C o n s o l i d a t e d   S t a t e m e n t   o f   C a s h   F l o w s

|                                                                        |  | For the years
        ended December 31, |       
|----------------------------------------------------------------------- |  | ---------------------------------------- | ------
|                                                                        |  |                                          |       
|$ in millions                                                           |  | 2002 (as previously
        reported)    |       
|                                                                        |  |                                          |       
|Operating   Activities                                                  |  |                                          |       
|Net income                                                              |  | $                                        | 243.5 
|Adjustments:                                                            |  |                                          |       
|Depreciation and   amortization                                         |  |                                          | 114.9 
|Amortization of   regulatory assets, net                                |  |                                          | 48.1  
|Deferred income taxes                                                   |  |                                          | (14.8 
|Cumulative effect of   accounting change, net of tax                    |  |                                          |      
|Changes in working capital:                                             |  |                                          |       
|Accounts receivable                                                     |  |                                          | (3.1  
|Accounts payable                                                        |  |                                          | (10.9 
|Net intercompany   receivables from parent                              |  |                                          |      
|Accrued taxes payable                                                   |  |                                          | (6.1  
|Prepayments                                                             |  |                                          | (5.1  
|Inventories                                                             |  |                                          | 7.2   
|Deferred compensation assets                                            |  |                                          | 0.3   
|Deferred compensation obligations                                       |  |                                          | (1.5  
|Other                                                                   |  |                                          | (11.7 
|                                                                        |  |                                          |       
|Net cash provided by   operating activities                             |  |                                          | 360.8 
|                                                                        |  |                                          |       
|Investing Activities                                                    |  |                                          |       
|Capital expenditures                                                    |  |                                          | (138.8
|Proceeds from sale of natural gas retail   distribution operations, net |  |                                          |      
|                                                                        |  |                                          |       
|Net cash used for   investing activities                                |  |                                          | (138.8
|                                                                        |  |                                          |       
|Financing Activities                                                    |  |                                          |       
|Dividends paid on common stock                                          |  |                                          | (204.5
|Retirement of long-term debt (Note 9)                                   |  |                                          | (0.4  
|Dividends paid on preferred stock                                       |  |                                          | (0.9  
|                                                                        |  |                                          |       
|Net cash used for   financing activities                                |  |                                          | (205.8
|                                                                        |  |                                          |       
|Cash and Temporary Cash Investments   -                                 |  |                                          |       
|Net change                                                              |  |                                          | 16.2  
|Balance at beginning of period                                          |  |                                          | 0.9   
|                                                                        |  |                                          |       
|Balance at end of period                                                |  | $                                        | 17.1  
|                                                                        |  |                                          |       
|Cash paid during the period for:                                        |  |                                          |       
|Interest                                                                |  | $                                        | 49.4  
|Income taxes                                                            |  | $                                        | 180.2 

See Notes to Consolidated Financial Statements.

48



THE DAYTON POWER AND LIGHT COMPANY  C o n s o l i d a t e d   B a l a n c e   S h e e t

|                                                                                                                 |  | At December
        31, 2002 |         
|---------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | --------
|                                                                                                                 |  |                              |         
|$
        in millions                                                                                            |  | (as previously reported)     |         
|                                                                                                                 |  |                              |         
|Assets                                                                                                           |  |                              |         
|                                                                                                                 |  |                              |         
|Property                                                                                                         |  |                              |         
|Property,
        plant and equipment                                                                            |  | $                            | 3,781.7 
|Less:
        Accumulated depreciation and amortization                                                          |  |                              | (1,666.9
|                                                                                                                 |  |                              |         
|Net
        property                                                                                             |  |                              | 2,114.8 
|                                                                                                                 |  |                              |         
|Current
        Assets                                                                                           |  |                              |         
|Cash
        and temporary cash investments (Note 3)                                                             |  |                              | 17.1    
|Accounts
        receivable, less provision for uncollectible accounts of $10.9 as reported
        and restated |  |                              | 159.4   
|Net
        intercompany receivable from parent                                                                  |  |                              | 36.3    
|Inventories,
        at average cost (Note 3)                                                                    |  |                              | 54.1    
|Prepaid
        taxes                                                                                            |  |                              | 46.9    
|Other
        (Note 3)                                                                                           |  |                              | 19.9    
|                                                                                                                 |  |                              |         
|Total
        current assets                                                                                     |  |                              | 333.7   
|                                                                                                                 |  |                              |         
|Other
        Assets                                                                                             |  |                              |         
|Income
        taxes recoverable through future revenues                                                         |  |                              | 34.6    
|Other
        regulatory assets                                                                                  |  |                              | 80.1    
|Other
        (Note 3)                                                                                           |  |                              | 194.6   
|                                                                                                                 |  |                              |         
|Total
        other assets                                                                                       |  |                              | 309.3   
|                                                                                                                 |  |                              |         
|Total
        Assets                                                                                             |  | $                            | 2,757.8 
|                                                                                                                 |  |                              |         

See Notes to Consolidated Financial Statements.

49



THE DAYTON POWER AND LIGHT COMPANY  C o n s o l i d a t e d   B a l a n c e   S h e e t(Continued)

|                                               |  | At December
        31, 2002 |        
|---------------------------------------------- |  | ---------------------------- | -------
|                                               |  |                              |        
|$
        in millions                          |  | (as previously reported)     |        
|                                               |  |                              |        
|Capitalization
        and Liabilities         |  |                              |        
|                                               |  |                              |        
|Capitalization                                 |  |                              |        
|Common
        shareholders equity            |  |                              |        
|Common
        stock                           |  | $                            | 0.4    
|Other
        paid-in capital                  |  |                              | 771.7  
|Accumulated
        other comprehensive income |  |                              | 1.5    
|Earnings
        reinvested in the business    |  |                              | 395.3  
|                                               |  |                              |        
|Total
        common shareholders equity      |  |                              | 1,168.9
|                                               |  |                              |        
|Preferred
        stock                        |  |                              | 22.9   
|Long-term
        debt (Note 9)                |  |                              | 665.5  
|                                               |  |                              |        
|Total
        capitalization                   |  |                              | 1,857.3
|                                               |  |                              |        
|Current
        Liabilities                    |  |                              |        
|Accounts
        payable                       |  |                              | 96.5   
|Accrued
        taxes                          |  |                              | 100.5  
|Accrued
        interest                       |  |                              | 19.0   
|Other
        (Note 3)                         |  |                              | 18.9   
|                                               |  |                              |        
|Total
        current liabilities              |  |                              | 234.9  
|                                               |  |                              |        
|Deferred
        Credits and Other             |  |                              |        
|Deferred
        taxes                         |  |                              | 370.9  
|Unamortized
        investment tax credit      |  |                              | 55.1   
|Other
        (Note 3)                         |  |                              | 239.6  
|                                               |  |                              |        
|Total
        deferred credits and other       |  |                              | 665.6  
|                                               |  |                              |        
|Contingencies
        (Note 14)                |  |                              |        
|                                               |  |                              |        
|Total
        Capitalization and Liabilities   |  | $                            | 2,757.8
|                                               |  |                              |        

See Notes to Consolidated Financial Statements.

50



THE DAYTON POWER AND LIGHT COMPANY C o n s o l i d a t e d   S t a t e m e n t   o f   S h a r e h o l d e r s   E q u i t y (as previously reported)

|                                                                                                                      |  | Common Stock               |            | Other Paid-In
        Capital |   | Accumulated
        Other
        Comprehensive
        Income |  | Earnings
        Reinvested in the
        Business |       | Total |  
|--------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ---------- | ----------------------------- | - | -------------------------------------------------------------- |  | --------------------------------------------------- | ----- | ----- | -
|                                                                                                                      |  |                            |            |                               |   |                                                                | 
|$
        in millions                                                                                                 |  | Outstanding
        Shares |            | Amount                        |   |                                                                |  |                                                     |      
|                                                                                                                      |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Beginning
        balance (as reported)                                                                               |  |                            | 41,172,173 |                               | $ | 0.4                                                            |  | $                                                   | 769.8 |       | $
|                                                                                                                      |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|2001
        (as reported):                                                                                           |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Net
        income                                                                                                    |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Net
        change in unrealized gains (losses) on financial instruments, net of reclassification
        adjustments |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Deferred
        income taxes related to unrealized gains (losses)                                                    |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Total
        comprehensive income                                                                                    |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Common
        stock dividend                                                                                         |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Preferred
        stock dividend                                                                                      |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Parent
        company capital contribution                                                                           |  |                            |            |                               |   |                                                                |  |                                                     | 1.7   |       |  
|Other                                                                                                                 |  |                            |            |                               |   |                                                                |  |                                                     | 0.1   |       |  
|                                                                                                                      |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Ending
        balance (as reported)                                                                                  |  |                            | 41,172,173 |                               | $ | 0.4                                                            |  | $                                                   | 771.6 |       | $
|                                                                                                                      |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|2002
        (as reported):                                                                                           |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Net
        income                                                                                                    |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Net
        change in unrealized gains (losses) on financial instruments, net of reclassification
        adjustments |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Deferred
        income taxes related to unrealized gains (losses)                                                    |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Total
        comprehensive income                                                                                    |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Common
        stock dividend                                                                                         |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Preferred
        stock dividend                                                                                      |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Parent
        company capital contribution                                                                           |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Other                                                                                                                 |  |                            |            |                               |   |                                                                |  |                                                     | 0.1   |       |  
|                                                                                                                      |  |                            |            |                               |   |                                                                |  |                                                     |       |       |  
|Ending
        balance (as reported)                                                                                  |  |                            | 41,172,173 |                               | $ | 0.4                                                            |  | $                                                   | 771.7 |       | $

51



THE DAYTON POWER AND LIGHT COMPANY C o n s o l i d a t e d   S t a t e m e n t   o f   S h a r e h o l d e r s   E q u i t y (as restated)

|                                                                                                                      |  | Common Stock                        |            | Other Paid-In
        Capital |   | Accumulated
        Other
        Comprehensive
        Income |  | Earnings
        Reinvested
        in the
        Business |       | Total |  
|--------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ---------- | ----------------------------- | - | -------------------------------------------------------------- |  | ----------------------------------------------------------- | ----- | ----- | -
|                                                                                                                      |  |                                     |            |                               |   |                                                                | 
|$
        in millions                                                                                                 |  | Outstanding
        
        Shares |            | Amount                        |   |                                                                |  |                                                             |      
|                                                                                                                      |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Beginning
        balance (as restated)                                                                               |  |                                     | 41,172,173 |                               | $ | 0.4                                                            |  | $                                                           | 815.9 |       | $
|                                                                                                                      |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|2001
        (as restated):                                                                                           |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Net
        income                                                                                                    |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Net
        change in unrealized gains (losses) on financial instruments, net of reclassification
        adjustments |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Minimum
        pension liability                                                                                     |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Deferred
        income taxes related to unrealized gains (losses)                                                    |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Total
        comprehensive income                                                                                    |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Common
        stock dividend                                                                                         |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Preferred
        stock dividend                                                                                      |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Parent
        company capital contribution                                                                           |  |                                     |            |                               |   |                                                                |  |                                                             | 1.7   |       |  
|Employee
        / Director stock plans                                                                               |  |                                     |            |                               |   |                                                                |  |                                                             | 2.6   |       |  
|Other                                                                                                                 |  |                                     |            |                               |   |                                                                |  |                                                             | 0.2   |       |  
|                                                                                                                      |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Ending
        balance (as restated)                                                                                  |  |                                     | 41,172,173 |                               | $ | 0.4                                                            |  | $                                                           | 820.4 |       | $
|                                                                                                                      |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|2002
        (as restated):                                                                                           |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Net
        income                                                                                                    |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Net
        change in unrealized gains (losses) on financial instruments, net of reclassification
        adjustments |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Minimum
        pension liability                                                                                     |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Deferred
        income taxes related to unrealized gains (losses)                                                    |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Total
        comprehensive income                                                                                    |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Common
        stock dividend                                                                                         |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Preferred
        stock dividend                                                                                      |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Parent
        company capital contribution                                                                           |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Employee
        / Director stock plans                                                                               |  |                                     |            |                               |   |                                                                |  |                                                             | (40.3 | )     |  
|Other                                                                                                                 |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|                                                                                                                      |  |                                     |            |                               |   |                                                                |  |                                                             |       |       |  
|Ending
        balance (as restated)                                                                                  |  |                                     | 41,172,173 |                               | $ | 0.4                                                            |  | $                                                           | 780.1 |       | $

52



|  
|--
|3.

|$
        in millions                                 |  | 2003 |       | 2002 |  
|----------------------------------------------------- |  | ---- | ----- | ---- | -
|                                                      |  |      |       |      |  
|Cash
        and temporary cash investments           |  |      |       |      |  
|Cash
        and cash equivalents                     |  | $    | 17.2  |      | $
|Short-term
        investments                        |  |      |      |      |  
|                                                      |  |      |       |      |  
|                                                      |  |      |       |      |  
|Total
        cash and temporary cash investments     |  | $    | 17.2  |      | $
|                                                     
|Inventories,
        at average cost                  |  |      |       |      |  
|Plant
        materials and supplies                  |  | $    | 29.3  |      | $
|Fuel                                                  |  |      | 19.5  |      |  
|Other                                                 |  |      | 0.8   |      |  
|                                                      |  |      |       |      |  
|Total
        inventories, at average cost            |  | $    | 49.6  |      | $
|                                                      |  |      |       |      |  
|Other
        current assets                          |  |      |       |      |  
|Prepayments                                           |  | $    | 10.8  |      | $
|Deposits
        and other advances                   |  |      | 5.2   |      |  
|Current
        deferred income taxes                 |  |      | 4.3   |      |  
|Miscellaneous
        work in progress                |  |      | 3.1   |      |  
|Other                                                 |  |      | 1.0   |      |  
|                                                      |  |      |       |      |  
|Total
        other current assets                    |  | $    | 24.4  |      | $
|                                                      |  |      |       |      |  
|Other
        deferred assets                         |  |      |       |      |  
|Trust
        assets                                  |  | $    | 102.9 |      | $
|Prepaid
        pension                               |  |      | 39.7  |      |  
|Unamortized
        loss on reacquired debt           |  |      | 26.6  |      |  
|Unamortized
        debt expense                      |  |      | 5.9   |      |  
|Other                                                 |  |      | 1.3   |      |  
|                                                      |  |      |       |      |  
|Total
        other deferred assets                   |  | $    | 176.4 |      | $
|                                                      |  |      |       |      |  
|Other
        current liabilities                     |  |      |       |      |  
|Customer
        security deposits and other advances |  | $    | 10.6  |      | $
|Payroll
        taxes payable                         |  |      | 10.1  |      |  
|Unearned
        revenues                             |  |      | 1.2   |      |  
|Current
        portionlong-term debt                |  |      | 1.1   |      |  
|Other                                                 |  |      | 1.6   |      |  
|                                                      |  |      |       |      |  
|Total
        other current liabilities               |  | $    | 24.6  |      | $
|                                                      |  |      |       |      |  
|Other
        deferred credits                        |  |      |       |      |  
|Asset retirement obligations - regulated property     |  | $    | 72.0  |      | $
|Trust
        obligations                             |  |      | 65.3  |      |  
|Retirees health and life benefits                    |  |      | 33.7  |      |  
|Environmental
        reserves                        |  |      | 0.2   |      |  
|Legal
        claims reserves                         |  |      | 2.1   |      |  
|Asset
        retirement obligations-generation       |  |      | 4.9   |      |  
|Other                                                 |  |      | 6.9   |      |  
|                                                      |  |      |       |      |  
|Total
        other deferred credits                  |  | $    | 185.1 |      | $
|                                                      |  |      |       |      |  

|  
|--
|4.

DP&L applies the provisions of SFAS 71 to its regulated operations.  This accounting standard defines regulatory assets which are the deferral of costs expected to be recovered in future customer rates and regulatory liabilities which represent current recovery for expected future costs.

A detailed listing of regulatory assets is itemized on the Consolidated Balance Sheet as Income taxes recoverable through future revenues and Other regulatory assets.  Regulatory liabilities are included in the Consolidated Balance Sheet caption entitled Deferred Credits and Other  Other.

53



Regulatory assets and liabilities on the Consolidated Balance Sheet include:

|                                                         |  | At December
        31, |     
|-------------------------------------------------------- |  | ----------------------- | ----
|                                                         |  |                         |     
|$
        in millions                                    |  | 2003                    |     
|                                                         |  |                         |     
|Regulatory
        Assets:                               |  |                         |     
|Regulatory
        transition costs                      |  | $                       |    
|Income
        taxes recoverable through future revenues |  |                         | 43.3
|Electric
        Choice system costs                     |  |                         | 18.8
|Regional
        transmission organization costs         |  |                         | 12.2
|Other
        costs                                      |  |                         | 5.1 
|                                                         |  |                         |     
|Total
        regulatory assets                          |  | $                       | 79.4
|                                                         |  |                         |     
|Regulatory
        Liabilities:                          |  |                         |     
|Asset
        retirement obligations-regulated property  |  | $                       | 72.0
|                                                         |  |                         |     
|Total
        regulatory liabilities                     |  | $                       | 72.0
|                                                         |  |                         |     

Regulatory AssetsRegulatory transition costs - During 1999, legislation was enacted in Ohio which restructured the states electric utility industry (the Legislation).  Beginning in 2001, electric generation, aggregation, power marketing and power brokerage services supplied to Ohio retail customers are not subject to regulation by the Public Utilities Commission of Ohio (PUCO).  As required by the Legislation, DP&L filed its transition plan (the Plan) with the PUCO in 1999, which included an application for DP&L to receive transition revenues to recover regulatory assets and other potentially stranded costs.  Final PUCO approval of the Plan was received in September 2000.

The Plan, which began in January 2001, provided for a three-year transition period (the Transition Period) that ended December 31, 2003.  As a result of the PUCO final approval of the Plan and tariff schedules, the application of SFAS 71 was discontinued for generation-related assets. Transmission and distribution services, which continue to be regulated based on PUCO-approved cost based rates, continue to apply SFAS 71.  The Plan, as approved, provided for the recovery of a portion of DP&Ls transition costs, including generation-related regulatory assets, during the transition period.  DP&L did not earn a return on the majority of this regulatory asset.  These costs were fully recovered as of December 31, 2003.

Income taxes recoverable through future revenues represent amounts due from customers for accelerated tax benefits that have been previously flowed through to customers and are expected to be recovered in the future as the accelerated tax benefits reverse.  This item will be recovered over the life of the utility plant.

Electric Choice system costs represent costs incurred to modify the customer billing system
for unbundled rates, supplier energy settlements and Electric Choice bills relative to other generation suppliers.

Regional transmission organization costs represent costs incurred to join a Regional Transmission Organization which will control the receipts and delivery of bulk power within the service area.

Other costs include power plant emission fees recovered under a PUCO rate rider, consumer education advertising regarding deregulation and systems upgrade costs incurred to comply with regulatory requirements in the transition period in order to provide for open access.  DP&L is not earning a return on these costs.

Management evaluates its regulatory assets each period and believes its regulatory assets are probable of recovery.

54



Regulatory LiabilitiesAsset retirement obligations reflect an estimate of amounts recovered in rates which are expected to be expended to remove existing regulated transmission and distribution property from service upon retirement.

|  
|--
|5.

|                                                  |  | For the years
        ended
        December 31, |      
|------------------------------------------------- |  | ------------------------------------------------ | -----
|                                                  |  |                                                  |      
|$
        in millions                             |  | 2003                                             |      
|                                                  |  |                                                  |      
|Computation
        of Tax Expense                |  |                                                  |      
|Federal
        income tax (a)                    |  | $                                                | 124.0
|State
        income tax                          |  |                                                  | 16.7 
|Increases
        (decreases) in tax from-        |  |                                                  |      
|Depreciation                                      |  |                                                  | (2.3 
|Investment
        tax credit amortized           |  |                                                  | (2.9 
|Non-deductible
        compensation               |  |                                                  | 13.3 
|Provision
        in excess of statutory rate (b) |  |                                                  | 4.6  
|Other,
        net                                |  |                                                  | (3.0 
|                                                  |  |                                                  |      
|Total
        tax expense (c)                     |  | $                                                | 150.4
|                                                  |  |                                                  |      
|Components
        of Tax Expense                 |  |                                                  |      
|Taxes
        currently payable                   |  | $                                                | 163.9
|Deferred
        taxes--                          |  |                                                  |      
|Regulatory
        assets                         |  |                                                  | (17.3
|Liberalized
        depreciation and amortization |  |                                                  | (10.2
|Fuel
        and gas costs                        |  |                                                  |     
|Other                                             |  |                                                  | 16.9 
|Deferred
        investment tax credit, net       |  |                                                  | (2.9 
|                                                  |  |                                                  |      
|Total
        tax expense (c)                     |  | $                                                | 150.4
|                                                  |  |                                                  |      

Components of Deferred Tax Assets and Liabilities

|                               |  | At   December 31, |       
|------------------------------ |  | ----------------- | ------
|                               |  |                   |       
|$ in millions                  |  | 2003              |       
|                               |  |                   |       
|Net Non-Current Liabilities    |  |                   |       
|Depreciation/property basis    |  | $                 | (400.8
|Income taxes recoverable       |  |                   | (15.2 
|Regulatory assets              |  |                   | (6.2  
|Investment tax credit          |  |                   | 18.3  
|Investment loss                |  |                   |      
|Compensation/employee benefits |  |                   | 30.9  
|Other (d)                      |  |                   | (8.7  
|                               |  |                   |       
|Net non-current   liability    |  | $                 | (381.7
|                               |  |                   |       
|Net Current Asset              |  | $                 | 4.3   
|                               |  |                   |       

|   
|---
|(a)
|(b)
|(c)
|(d)

55



|  
|--
|6.

DP&L sponsors a defined benefit plan for substantially all its employees.  For collective bargaining employees, the defined benefits are based on a specific dollar amount per year of service.  For all other employees, the defined benefit plan is based primarily on compensation and years of service. The Company funds pension plan benefits as accrued in accordance with the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA).

Qualified employees who retired prior to 1987 and their dependents are eligible for health care and life insurance benefits.  DP&L has funded the union-eligible health benefit using a Voluntary Employee Beneficiary Association Trust.

DP&L uses a December 31 measurement date for the majority of its plans.

The following tables set forth the Companys pension and postretirement benefit plans obligations, assets and amounts recorded on the Consolidated Balance Sheet as of December 31.  The amounts presented in the following tables for pension include both the defined benefit pension plan and the Supplemental Executive Retirement Plan in the aggregate.

|                                                                                                   |  | Pension |       | Postretirement             |  
|-------------------------------------------------------------------------------------------------- |  | ------- | ----- | -------------------------- | -
|                                                                                                   |  |         |       |                            |  
|                                                                                                   |  | 2003    |       | 2002
        (as restated) |  
|                                                                                                   |  |         |       |                            |  
|Change in
        Projected Benefit Obligation ($ in
        millions)                             |  |         |       |                            |  
|Projected
        benefit obligation at January 1                                                  |  | $       | 248.5 |                            | $
|Service
        cost                                                                               |  |         | 3.3   |                            |  
|Interest
        cost                                                                              |  |         | 16.3  |                            |  
|Actuarial
        (gain) loss                                                                      |  |         | 14.7  |                            |  
|Benefits
        paid                                                                              |  |         | (18.3 | )                          |  
|                                                                                                   |  |         |       |                            |  
|Projected
        benefit obligation at December 31                                                |  | $       | 264.5 |                            | $
|                                                                                                   |  |         |       |                            |  
|Change in Plan
        Assets ($ in
        millions)                                              |  |         |       |                            |  
|Fair
        value of plan assets at January 1                                                     |  | $       | 247.1 |                            | $
|Actual
        return on plan assets                                                               |  |         | 29.7  |                            |  
|Contributions
        to plan assets                                                               |  |         |      |                            |  
|Benefits
        paid                                                                              |  |         | (17.9 | )                          |  
|                                                                                                   |  |         |       |                            |  
|Fair
        value of plan assets at December 31                                                   |  | $       | 258.9 |                            | $
|                                                                                                   |  |         |       |                            |  
|Reconciliation
        to the
        Consolidated Balance Sheet ($
        in millions)           |  |         |       |                            |  
|Funded
        status of the plan                                                                  |  | $       | (5.6  | )                          | $
|Unrecognized
        transition (asset) liability                                                  |  |         |      |                            |  
|Unrecognized
        prior service cost                                                            |  |         | 13.0  |                            |  
|Unrecognized
        net (gain) loss                                                               |  |         | 55.2  |                            |  
|                                                                                                   |  |         |       |                            |  
|Net
        amount recognized                                                                      |  | $       | 62.6  |                            | $
|                                                                                                   |  |         |       |                            |  
|Total Amounts
        Recognized in the
        Consolidated Balance Sheet ($
        in millions) |  |         |       |                            |  
|Other
        assets                                                                               |  | $       | 59.1  |                            | $
|Accumulated
        other comprehensive income                                                     |  |         | 3.5   |                            |  
|Other
        deferred credits                                                                     |  |         |      |                            |  
|                                                                                                   |  |         |       |                            |  
|Net
        amount recognized                                                                      |  | $       | 62.6  |                            | $
|                                                                                                   |  |         |       |                            |  

56



The accumulated benefit obligation for DP&Ls defined benefit plans was $254.7 million and $239.4 million at December 31, 2003, and 2002, respectively.

The net periodic benefit (income) cost of the pension and postretirement benefit plans at December 31 were:

|                                                             |  | Pension |       | Postretirement             |  
|------------------------------------------------------------ |  | ------- | ----- | -------------------------- | -
|                                                             |  |         |       |                            |  
|Net Periodic Benefit
        (Income) Cost ($ in millions)   |  | 2003    |       | 2002
        (as restated) |  
|                                                             |  |         |       |                            |  
|Service
        cost                                         |  | $       | 3.3   |                            | $
|Interest
        cost                                        |  |         | 16.3  |                            |  
|Expected
        return on assets (a)                        |  |         | (25.1 | )                          |  
|Amortization
        of unrecognized:                        |  |         |       |                            |  
|Actuarial
        (gain) loss                                |  |         | 0.1   |                            |  
|Prior
        service cost                                   |  |         | 2.8   |                            |  
|Transition
        obligation                                |  |         |      |                            |  
|                                                             |  |         |       |                            |  
|Net
        pension benefit (income) cost before adjustments |  |         | (2.6  | )                          |  
|                                                             |  |         |       |                            |  
|Special
        termination benefit cost (b)                 |  |         |      |                            |  
|Curtailment
        cost (c)                                 |  |         |      |                            |  
|                                                             |  |         |       |                            |  
|Net
        pension benefit (income) cost after adjustments  |  | $       | (2.6  | )                          | $
|                                                             |  |         |       |                            |  

| |    
| | ---
| | (a)
| | (b)
| | (c)

DP&Ls pension and postretirement plan assets were comprised of the following asset categories at December 31:

|                                           |  | Pension |      | Postretirement | 
|------------------------------------------ |  | ------- | ---- | -------------- | 
|                                           |  |         |      |                | 
|Asset
        Category                     |  | 2003    |      | 2002           | 
|                                           |  |         |      |                | 
|Common
        stocks                      |  |         | 7%   |                | 
|Mutual
        funds                       |  |         | 78%  |                | 
|Cash
        and cash equivalents          |  |         | 6%   |                | 
|Fixed
        income government securities |  |         | 1%   |                | 
|Alternative
        investments            |  |         | 8%   |                | 
|                                           |  |         |      |                | 
|Total                                      |  |         | 100% |                | 
|                                           |  |         |      |                | 

Plan assets are invested using a total return investment approach whereby a mix of equity securities, mutual funds, fixed income investments, alternative investments, and cash and cash equivalents are used to preserve asset values, diversify risk and achieve the Companys target investment return benchmark.  Investment strategies and asset allocations are based on careful consideration of plan liabilities, the plans funded status and financial condition of the Company.  Investment performance and asset allocation are measured and monitored on an ongoing basis.  At December 31, 2003, $18.8 million of DPL Inc. common stock was held as plan assets.

DP&Ls expected return on plan asset assumptions, used to determine benefit obligations, are based on historical long-term rates of returns on investment which uses the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run.  Current market factors, such as inflation and interest rates, as well as asset diversification and portfolio rebalancing, are evaluated when long-term capital market assumptions are determined.  Peer data and historical returns are reviewed to verify reasonability and appropriateness.

57



DP&Ls overall expected long-term rate of return on assets is approximately 8.75%.  The expected long-term rate of return is based on the assets as a whole, and not on the sum of the returns on individual asset categories.  This expected return is based exclusively on historical returns, without adjustments.  There can be no assurance of DP&Ls ability to generate that rate of return in the future.

The weighted average assumptions used to determine benefit obligations for the years ended December 31 were:

|                                       |  | Pension |       | Postretirement | 
|-------------------------------------- |  | ------- | ----- | -------------- | 
|                                       |  |         |       |                | 
|Benefit
        Obligation Assumptions |  | 2003    |       | 2002           | 
|                                       |  |         |       |                | 
|Discount
        rate for obligations  |  |         | 6.25% |                | 
|Increase
        rate of compensation  |  |         | 4.00% |                | 

The weighted-average assumptions used to determine net periodic benefit (income) cost for the years ended December 31 were:

|                                                               |  | Pension |       | Postretirement | 
|-------------------------------------------------------------- |  | ------- | ----- | -------------- | 
|                                                               |  |         |       |                | 
|Net
        Periodic Benefit
        (Income) Cost Assumptions |  | 2003    |       | 2002           | 
|                                                               |  |         |       |                | 
|Discount
        rate                                          |  |         | 6.75% |                | 
|Expected
        rate of return on plan assets                 |  |         | 8.75% |                | 
|Increase
        rate of compensation                          |  |         | 4.00% |                | 

The assumed health care cost trend rates at December 31 are as follows:

|Health
        Care Cost Assumptions                |  | 2003 |       | 2002 | 
|--------------------------------------------------- |  | ---- | ----- | ---- | 
|                                                    |  |      |       |      | 
|Health
        care cost trend rate for coming year |  |      | 8.00% |      | 
|Ultimate
        health care cost trend rate        |  |      | 5.00% |      | 
|Ultimate
        health care cost trend rate  year |  |      | 2007  |      | 

The assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans.  A one-percentage point change in assumed health care cost trend rates would have the following effects on the net periodic postretirement benefit cost and the accumulated postretirement benefit obligation:

|Effect of Change in Health   Care Cost Trend Rate
($ in millions) |  | Increase   1% |     | Decrease   1% |  
|----------------------------------------------------------------- |  | ------------- | --- | ------------- | -
|                                                                  |  |               |     |               |  
|Service cost plus interest cost                                   |  | $             | 0.1 |               | $
|Benefit obligation                                                |  | $             | 1.8 |               | $

DP&L does not expect to make any contributions to its pension plan in 2004.  The postretirement medical benefit for qualified employees who retired prior to 1987 is expected to be funded in 2004 similar to prior years.

58



|  
|--
|7.

The Company maintains a Key Employee
Deferred Compensation Plan (the DCP) and a 1991 Amended Directors Deferred
Compensation Plan (the Directors DCP and collectively with the DCP, the
Deferred Compensation Plans) for certain senior executives, directors and other
key employees.  The Deferred Compensation Plans generally enable
participants to defer all or a portion of their cash compensation earned in a
particular year.  If an individual elects to defer any amount, such
deferred amounts are reported as compensation in the year earned and are
credited to the individuals deferred compensation plan account.  The
Company has funded its obligations to participants through a trust, which is
included in the Consolidated Balance Sheet in Other Assets 
Other.  Deferred compensation plan account balances accrue earnings
based on the investment options selected by the participant.  Interest,
dividends and market value changes are reflected in the individuals
deferred compensation plan account.  Deferred compensation plan account
balances generally are paid following the termination of the participants
employment with the Company, in a lump sum or over time as determined by the
participants deferral election form, and in-service distributions
generally are not allowed.  In certain circumstances, the plan
provides for a 10% penalty for early withdrawal.

The Company also has maintained a
Management Stock Incentive Plan (the MSIP and together with the Deferred
Compensation Plans, the Plans) for key employees selected by the Compensation
Committee.  New awards under the MSIP were discontinued in 2000. 
Under the MSIP, the Committee granted Stock Incentive Units (SIUs) to MSIP
participants, with each SIU representing one DPL common share.  SIUs were
earned based on the achievement of performance criteria set by the Compensation
Committee and vested over time (subject to acceleration of earning and vesting
on the occurrence of certain events or at the discretion of the Companys
Chief Executive Officer or the Compensation Committee).  Earned SIUs were
credited to a participants account under the MSIP and accrue dividends
like DPL common shares.  Under the MSIP, earned and vested SIUs are to be
paid in DPL common shares in a lump sum or over time as determined by the
participants deferral election.

The Compensation Committee has the authority to amend, modify or terminate each Plan.

The Company maintains a Supplemental
Executive Retirement Plan (SERP). In 2000, in anticipation of the possible
acquisition of the Company, the participation by certain employees (including
Mr. Koziar and Ms. Muhlenkamp) in the Companys SERP terminated.  The
present value of each employees accrued benefit under the SERP as
determined by the Companys actuary ($3.5 million for Mr. Koziar and $1.4
million for Ms. Muhlenkamp) was then credited to each employees deferred
compensation plan account.  Subsequently, in April 2003, as Mr. Koziar and Ms. Muhlenkamp had
continued their employment with the Company and no acquisition of the Company
had occurred, the Compensation Committee approved discretionary payments to
these individuals.  The discretionary payments were calculated as if Mr.
Koziar and Ms. Muhlenkamp continued to participate in the SERP through April 30,
2003.  The discretionary payments made in 2003 were $1.9 million for
Mr. Koziar and $3.4 million for Ms. Muhlenkamp.

In April 2003, the Compensation Committee also approved a discretionary payment to Mr. Forster.  Mr. Forster elected to have this amount credited to his deferred compensation plan account.  The discretionary payment, in the amount of $4.9 million, was calculated as if Mr. Forster continued to participate in the SERP through April 30, 2003.  Mr. Forsters participation in the SERP was terminated in 1997 upon his retirement from the Company.

Pre-tax distributions of $7.1 million, $9.7 million and $16.3 million were made from their deferred compensation plan accounts to Mr. Forster, Mr. Koziar and Ms. Muhlenkamp, respectively, in December 2003.

59



The Company has initiated legal proceedings challenging the propriety of those distributions.  (See Note 14 of Notes to Consolidated Financial Statements.)

|  
|--
|8.

$25 par value, 4,000,000 shares authorized, no shares outstanding; and $100 par value, 4,000,000 shares authorized, 228,508 shares without mandatory redemption provisions outstanding.

|Preferred
        Stock        |  | Rate |       | Current Redemption
        Price |   | Current Shares
        Outstanding |  | Par Value 
        At December 31,
        2003 and 2002
        ($ in millions) |        
|------------------------------ |  | ---- | ----- | -------------------------------- | - | ---------------------------------- |  | -------------------------------------------------------------------------------- | -------
|                               |  |      |       |                                  |   |                                    |  |                                                                                  |        
|Series
        A               |  |      | 3.75% |                                  | $ | 102.50                             |  |                                                                                  | 93,280 
|Series
        B               |  |      | 3.75% |                                  | $ | 103.00                             |  |                                                                                  | 69,398 
|Series
        C               |  |      | 3.90% |                                  | $ | 101.00                             |  |                                                                                  | 65,830 
|                               |  |      |       |                                  |   |                                    |  |                                                                                  |        
|Total 
        Preferred Stock |  |      |       |                                  |   |                                    |  |                                                                                  | 228,508
|                               |  |      |       |                                  |   |                                    |  |                                                                                  |        

The preferred stock may be redeemed at the option of the Company at the per share prices indicated, plus cumulative accrued dividends.

As long as any Preferred Stock is outstanding, DP&Ls Amended Articles of Incorporation contain provisions restricting the payment of cash dividends on any of its Common Stock if, after giving effect to such dividend, the aggregate of all such dividends distributed subsequent to December 31, 1946 exceeds the net income of DP&L available for dividends on its Common Stock subsequent to December 31,1946, plus $1.2 million.  As of year-end, all earnings reinvested in the business of DP&L were available for Common Stock dividends.

|  
|--
|9.

|                                      |  | At   December 31, |      
|------------------------------------- |  | ----------------- | -----
|                                      |  |                   |      
|$ in millions                         |  | 2003              |      
|                                      |  |                   |      
|First Mortgage Bonds maturing:        |  |                   |      
|2024-2026 - 8.01% (a)                 |  | $                 |     
|2013 - 5.125%                         |  |                   | 470.0
|Pollution control series maturing     |  |                   |      
|Through 2027 - 6.43%   (a)            |  |                   | 104.8
|                                      |  |                   |      
|                                      |  |                   | 574.8
|Guarantee of Air Quality Development  |  |                   |      
|Obligations - 6.10%   Series due 2030 |  |                   | 110.0
|Obligation for capital lease          |  |                   | 4.3  
|Unamortized debt discount and         |  |                   |      
|Premium (net)                         |  |                   | (1.8 
|                                      |  |                   |      
|Total                                 |  | $                 | 687.3
|                                      |  |                   |      

| |    
| | ---
| | (a)

The Companys scheduled maturities of long-term debt, including capital lease
obligations, over the next five years are $1.1 million in 2004, $1.1 million in 2005, $1.1 million in 2006, $9.3 million in 2007
and $0.7 million in 2008.  Substantially all property of DP&L is subject to the mortgage lien securing the first mortgage
bonds.

60



On September 29, 2003, DP&L issued
$470.0 million principal amount of First Mortgage Bonds, 5.125% Series due
2013.  The net proceeds from the sale of the bonds, after expenses, were
used to (i) redeem $226.0 million principal amount of DP&Ls First
Mortgage Bonds, 8.15% Series due 2026, at a redemption price of 104.075% of the
principal amount plus accrued interest to the redemption date, and (ii) redeem
$220.0 million principal amount of DP&Ls First Mortgage Bonds, 7.875%
Series due 2024, at a redemption price of 103.765% of the principal amount plus
accrued interest to the redemption date.  The $446.0 million of First
Mortgage Bonds were called by DP&L on September 30, 2003, for redemption on
October 30, 2003.  The 5.125% Series due 2013 have not been registered
under the Securities Act of 1933, but were offered and sold through a private
placement in compliance with Rule 144A under the Securities Act of 1933. 
The bonds include step-up interest provisions requiring the Company to pay
additional interest if the securities remain unregistered after 180 days from
issuance.  The sale of the bonds was not registered and, as a result, the Company is
required to pay additional interest of 0.5% until an exchange offer for these securities is
registered with the SEC.

Issuance of additional amounts of First Mortgage Bonds by DP&L is limited by provisions of its mortgage; however, DP&L continues to have sufficient capacity to issue First Mortgage Bonds to satisfy its requirements in connection with its refinancing and construction programs through 2008.  The amounts and timing of future financings will depend upon market and other conditions, rate increases, levels of sales and construction plans.

In December 2003, DP&L had $150
million available through an unsecured revolving credit agreement with a
consortium of banks.  The agreement, which was scheduled to expire on
December 10, 2004, was terminated on June 1, 2004.  The facility was to be
used to support the Companys business requirements.  The facility
contained two financial covenants, including maximum debt to total
capitalization and minimum earnings before interest and taxes (EBIT) to interest
coverage.  Fees associated with this credit facility were approximately
$0.8 million per year. The
Company had no outstanding borrowings under its revolving credit facility and no
outstanding commercial paper balances at year-end 2003 or 2002.

In February 2004, DP&L entered into a $20 million Master Letter of Credit Agreement with a financial lending institution.  This agreement, which expires in February 2005, supports performance assurance needs in the ordinary course of business.  DP&L has certain contractual agreements for the sale and purchase of power, fuel and related energy services that contain credit rating related clauses allowing the counter parties to seek additional surety under certain conditions.  As of December 31, 2003, DP&L had no outstanding letters of credit.

In June 2004, DP&L obtained a $100
million unsecured revolving credit agreement that extended and replaced
DP&Ls revolving credit agreement of $150 million.  The new
agreement, which expires on May 31, 2005, provides credit support for the
Companys business requirements and commercial paper program during this
period and may be increased to up to $150 million.  The facility contains
two financial covenants including maximum debt to total capitalization, and
minimum earnings before interest and taxes (EBIT) to total interest
expense.  These covenants are currently met.  DP&L currently has
no outstanding borrowings under this credit facility and no outstanding
commercial paper balances.  Fees associated with this credit facility are
approximately $0.6 million per year.  Changes in debt ratings, however, may
affect the applicable interest rate for DP&Ls revolving credit
agreement.  DP&Ls ability to use this revolving credit agreement
is subject to the PUCOs annual approval which is set to expire on November
5, 2004. DP&L has filed an application to secure the PUCOs continued
authorization and that application is pending.

61



The delay in filing audited financial statements for the year ending December 31, 2003 constituted an event of default under DP&Ls previous revolving credit facility; however, the Company obtained waivers from its lenders regarding this event.  The Company incurred fees of approximately $0.2 million to obtain these waivers. The delay in filing audited financial statements also resulted in non-compliance under the Companys other debt agreements, although the non-compliance did not result in an immediate event of default.  The Company has not received any default notifications from any of its lenders.  The Companys debt agreements allow a grace period to cure a default after notification.  Management, after consultation with legal counsel, believes all default conditions have been remedied.

There are no inter-company debt collateralizations or debt guarantees between DP&L and its parent.  None of the debt obligations of DP&L are guaranteed or secured by affiliates and no cross-collateralization exists.

|   
|---
|10.

In 2000, DPLs Board of Directors
adopted and its shareholders approved The DPL Inc. Stock Option Plan.  The
plan provides that no single Participant shall receive Options with
respect to more than 2,500,000 shares.  On February 1, 2000, options
were granted at an exercise price of $21.00, which was above the market price of
$19.06 per share on that date.  The exercise price of options granted after
that date approximated the market price of the stock on the date of grant. 
Options granted in 2000 and 2001 represent three-year awards, which vest over five
years from the grant date, and expire ten years from the grant date. 
Options granted in 2002 vest over three years and
expire ten years from the grant date.  Options granted in 2003 vest in five
years and expire ten years from the grant date.  At December 31, 2003,
there were 1,039,832 options available for grant.

Summarized stock option activity was as follows:

|                                          |  | 2003 |           | 2002
        (as restated) |   | 2001      |  
|----------------------------------------- |  | ---- | --------- | -------------------------- | - | --------- | -
|                                          |  |      |           |                            |   |           |  
|Options:                                  |  |      |           |                            |   |           |  
|Outstanding at beginning of year          |  |      | 7,143,500 |                            |   | 7,232,500 |  
|Granted (a)                               |  |      | 100,000   |                            |   | 700,000   |  
|Exercised                                 |  |      |          |                            |   |          |  
|Forfeited                                 |  |      | (283,332  | )                          |   | (789,000  | )
|                                          |  |      |           |                            |   |           |  
|Outstanding at year-end                   |  |      | 6,960,168 |                            |   | 7,143,500 |  
|Exercisable at year-end                   |  |      |          |                            |   |          |  
|                                          |  |      |           |                            |   |           |  
|Weighted average option prices per share: |  |      |           |                            |   |           |  
|Outstanding at   beginning of year        |  | $    | 21.05     |                            | $ | 21.99     |  
|Granted                                   |  | $    | 15.88     |                            | $ | 14.95     |  
|Exercised                                 |  |      |          |                            |   |          |  
|Forfeited                                 |  | $    | 25.04     |                            | $ | 21.96     |  
|Outstanding at year-end                   |  | $    | 20.81     |                            | $ | 21.05     |  
|Exercisable at year-end                   |  |      |          |                            |   |          |  

| |    
| | ---
| | (a)

62



The weighted-average fair value of options granted was $2.68, $2.56 and $3.47 per share in 2003, 2002 and 2001, respectively.  The fair values of the options were estimated as of the dates of grant using a Black-Scholes option pricing model utilizing the following assumptions:

|                        |  | 2003 |      | 2002 |  | 2001 |  
|----------------------- |  | ---- | ---- | ---- |  | ---- | -
|                        |  |      |      |      |  |      |  
|Volatility              |  |      | 24.0 | %    |  | 24.0 | %
|Expected life (years)   |  |      | 8.0  |      |  | 8.0  |  
|Dividend yield rate     |  |      | 4.5  | %    |  | 4.3  | %
|Risk-free interest rate |  |      | 3.7  | %    |  | 3.4  | %

The following table reflects information about stock options outstanding at December 31, 2003:

|                             |  |             |           |                                          | Options   Outstanding |                                        | Options   Exercisable |            
|---------------------------- |  | ----------- | --------- | ---------------------------------------- | --------------------- | -------------------------------------- | --------------------- | -----------
|                             |  |             |           |                                          |                       |                                        |                       |            
|Range of   Exercise   Prices |  | Outstanding |           | Weighted-   Average   Contractual   Life |                       | Weighted-   Average   Exercise   Price |                       | Exercisable
|                             |  |             |           |                                          |                       |                                        |                       |            
|$  14.95-$21.00              |  |             | 6,531,668 |                                          |                       | 6.4 years                              |                       | $          
|$  21.01-$29.63              |  |             | 428,500   |                                          |                       | 6.8 years                              |                       | $          

|   
|---
|11.

DP&L and other Ohio utilities have undivided ownership interests in seven electric generating facilities and numerous transmission facilities.  Certain expenses, primarily fuel costs for the generating units, are allocated to the owners based on their energy usage.  The remaining expenses, as well as investments in fuel inventory, plant materials and operating supplies, and capital additions, are allocated to the owners in accordance with their respective ownership interests.  As of December 31, 2003, DP&L had $146.0 million of construction in progress at such facilities.  DP&Ls share of the operating cost of such facilities is included in the Consolidated Statement of Results of Operations, and its share of the investment in the facilities is included in the Consolidated Balance Sheet.

DP&Ls undivided ownership interest in such facilities at December 31, 2003 is as follows:

|                                      |  | DP&L   Share    |      | DP&L   Investment            | 
|------------------------------------- |  | --------------- | ---- | ---------------------------- | 
|                                      |  |                 |      |                              | 
|                                      |  | Ownership   (%) |      | Production   Capacity   (MW) | 
|                                      |  |                 |      |                              | 
|Production Units:                     |  |                 |      |                              | 
|Beckjord Unit 6                       |  |                 | 50.0 |                              | 
|Conesville Unit 4                     |  |                 | 16.5 |                              | 
|East Bend Station                     |  |                 | 31.0 |                              | 
|Killen Station                        |  |                 | 67.0 |                              | 
|Miami Fort Units   7&8                |  |                 | 36.0 |                              | 
|Stuart Station                        |  |                 | 35.0 |                              | 
|Zimmer Station                        |  |                 | 28.1 |                              | 
|Transmission (at varying percentages) |  |                 |      |                              | 

63



|   
|---
|12.

DP&L is a public utility providing
electric services to over 500,000 retail customers in West Central Ohio. 
Assets and related costs associated with DP&Ls transmission and
distribution and base load and peaking generation operations are managed and
evaluated as a single operating segment captioned Electric.  The caption
Other includes street lighting services and other peripheral
businesses that are not directly related to the operations of the Electric
segment.  On June 30, 2001, DPL sold substantially all of its customer
contracts at its natural gas supply management subsidiary.  The sale of
these contracts did not have a material effect on overall results.

|                                                  |  | For the   years ended December 31, |        
|------------------------------------------------- |  | ---------------------------------- | -------
|                                                  |  |                                    |        
|$ in millions                                     |  | 2003                               |        
|                                                  |  |                                    |        
|Net revenues:                                     |  |                                    |        
|Electric                                          |  | $                                  | 1,183.4
|                                                  |  |                                    |        
|Operating income:                                 |  |                                    |        
|Electric                                          |  | $                                  | 445.8  
|Other (a)                                         |  |                                    | (51.0  
|                                                  |  |                                    |        
|Total operating income                            |  |                                    | 394.8  
|Investment income                                 |  |                                    | 22.7   
|Interest expense                                  |  |                                    | (51.8  
|Other income (deductions)                         |  |                                    | 7.1    
|                                                  |  |                                    |        
|Income before income taxes and accounting  change |  | $                                  | 372.8  
|                                                  |  |                                    |        
|Depreciation and amortization:                    |  |                                    |        
|Electric                                          |  | $                                  | 116.1  
|                                                  |  |                                    |        
|Expenditures  construction   additions:          |  |                                    |        
|Electric                                          |  | $                                  | 98.1   
|                                                  |  |                                    |        
|Assets:                                           |  |                                    |        
|Electric                                          |  | $                                  | 2,519.0
|Unallocated corporate assets                      |  |                                    | 141.1  
|                                                  |  |                                    |        
|Total assets                                      |  | $                                  | 2,660.1
|                                                  |  |                                    |        

| |    
| | ---
| | (a)

|                            | 
|--------------------------- | 
|                           
|13. Financial   Instruments

The fair value of DP&Ls financial instruments is based on current public market prices, discounted cash flows using current rates for similar issues with similar terms and remaining maturities or independent party valuations, which are believed to approximate market.  The table below presents the fair value, unrealized gains and losses, and cost of these instruments at December 31, 2003 and 2002.

64



|                                             |  |            |       |  | At December
        31, |      |                                     |   |                                    
|-------------------------------------------- |  | ---------- | ----- |  | ----------------------- | ---- | ----------------------------------- | - | -----------------------------------
|                                             |  |            |       |  |                         |      |                                     |   |                                    
|                                             |  |            |       |  | 2003                    |      |                                     |   |                                    
|                                             |  |            |       |  |                         |      |                                     |   |                                    
|                                             |  |            |       |  | Gross Unrealized        |      |                                     |   |                                    
|                                             |  |            |       |  |                         |      |                                     |   |                                    
|                                             |  |            |       |  | Gains                   |      | Losses                              |   |                                    
|                                             |  |            |       |  |                         |      |                                     |   |                                    
|$
        in millions                        |  | Fair Value |       |  |                         |      | less
        than 12
        months |   | more
        than 12
        months
|                                             |  |            |       |  |                         |      |                                     |   |                                    
|Assets                                       |  |            |       |  |                         |      |                                     |   |                                    
|Available-for-sale
        securities        |  | $          | 72.9  |  | $                       | 21.7 |                                     | $ | (0.1                               
|Other                                        |  |            |      |  |                         |     |                                     |   | (0.1                               
|Held-to-maturity
        debt securities (a) |  |            | 30.6  |  |                         | 0.2  |                                     |   |                                   
|                                             |  |            |       |  |                         |      |                                     |   |                                    
|Total
        assets                         |  | $          | 103.5 |  |                         |      |                                     |   |                                    
|                                             |  |            |       |  |                         |      |                                     |   |                                    
|Liabilities                                  |  |            |       |  |                         |      |                                     |   |                                    
|Long-term
        debt (b)                   |  | $          | 692.6 |  |                         |      |                                     |   |                                    
|Other                                        |  | $          |      |  |                         |      |                                     |   |                                    

|   
|---
|(a)
|(b)

Realized gains and (losses) for available-for-sale securities were $1.1 million and $(0.8) million in 2003, $0.3 million and $(2.8) million in 2002, and $0.9 million and $(6.2) million in 2001, respectively.

In the normal course of business, DP&L enters into various financial instruments, including derivative financial instruments.  These instruments consist of forward contracts and options that are used to reduce the Companys exposure to changes in energy and commodity prices.  These financial instruments are designated at inception as highly effective cash-flow hedges and are measured for effectiveness both at inception and on an ongoing basis, with gains or losses deferred in Accumulated Other Comprehensive Income until the underlying hedged transaction is realized, canceled or otherwise terminated.  The forward contracts and options generally mature within twelve months.

|   
|---
|14.

ContingenciesIn the normal
course of business, DP&L and its parent DPL Inc. are subject to various lawsuits,
actions, proceedings, claims and other
matters asserted under laws and regulations. DP&L believes the amounts provided in its consolidated
financial statements, as prescribed by GAAP, are adequate in light of the
probable and estimable contingencies.  (See Note 3 of Notes to Consolidated
Financial Statements.)  However, there can be no assurances that the actual
amounts required to satisfy alleged liabilities from various legal proceedings,
claims, and other matters discussed below, and to comply with applicable laws
and regulations, will not exceed the amounts reflected in DP&Ls
Consolidated Financial Statements.  As such, costs, if any, that may be
incurred in excess of those amounts provided as of December 31, 2003, cannot be
reasonably determined.

Environmental MattersDP&L
and its subsidiaries facilities and operations are subject to a wide range
of environmental regulations and law.  In the normal course of business,
DP&L has investigatory and remedial activities underway at these facilities
to comply, or to determine compliance, with such regulations.  DP&L has
been identified, either by a government agency or by a private party seeking
contribution to site clean-up costs, as a potentially responsible party (PRP) at
a number of sites pursuant to state and federal laws.  DP&L records
liabilities for probable estimated loss in accordance with Statement of
Financial Accounting Standards No. 5 (SFAS 5), Accounting for
Contingencies.  To the extent a probable loss can only be estimated by
reference to a range of equally probable outcomes, and no amount within the
range appears to be a better estimate than any other amount, DP&L accrues
for the low end of the range.  Because of uncertainties related to these
matters, accruals are based on the best information available at the time. 
DP&L evaluates the potential liability related to probable losses quarterly
and may revise its estimates.  Such revisions in the estimates of the
potential liabilities could have a material effect on the Companys results
of operations and financial position.

65



Legal MattersOn July 9, 2004, Mr. Forster and Ms. Muhlenkamp filed a lawsuit
against the Company, DPL and MVE, Inc. (MVE) in the Circuit Court, Fourth Judicial Circuit, in and for Duval County, Florida.  The
complaint asserts that the Company, DPL and MVE (i) wrongfully terminated Mr. Forster and Ms. Muhlenkamp by undermining their
authority and responsibility to manage the companies and excluding them from discussions on corporate financial issues and
strategic planning after the Thobe Memorandum was distributed and (ii) breached Mr. Forsters consulting contract and Ms.
Muhlenkamps employment agreement by denying them compensation and benefits allegedly provided by the terms of such contract
and agreement upon their termination from the Company and DPL.  Mr. Forster and Ms. Muhlenkamp seek damages of an
undetermined amount.  On August 9, 2004, the defendants removed the case to the U.S. District Court for the Middle District
of Florida, Jacksonville Division.  On August 16, 2004, the defendants moved to dismiss the litigation based on the Florida
federal courts lack of jurisdiction over the Company, DPL and MVE, all of whom are companies based in Dayton, Ohio.  In
the alternative, the defendants requested that the court transfer the case to the U.S. District Court for the Southern District of
Ohio, which has jurisdiction in Dayton, Ohio.  On September 17, 2004, Mr. Forster and Ms. Muhlenkamp opposed these
motions.  The court has not yet ruled on the defendants motions.

On August 24, 2004, the Company, DPL
  and MVE filed a Complaint against Mr. Forster, Ms. Muhlenkamp and Mr. Koziar
  in the Court of Common Pleas of Montgomery County, Ohio asserting legal claims
  against them relating to the termination of the Valley Partners Agreements,
  challenging the validity of the amendments and the propriety of the distributions
  and alleging that Messrs. Forster and Koziar and Ms. Muhlenkamp breached their
  fiduciary duties and breached their consulting and employment contracts. 
  The Company, DPL and MVE seek, among other things, damages in excess of $25,000,
  disgorgement of all amounts improperly withdrawn by Messrs. Forster and Koziar
  and Ms. Muhlenkamp from the deferred compensation plans and a court order declaring
  that the Company, DPL and MVE have no further obligations under the consulting
  and employment contracts due to those breaches.  At this time, defendants
  Forster, Koziar and Muhlenkamp have not yet responded to the Complaint. 
  The Company continues to evaluate all of these matters and is considering other
  claims against Mr. Forster, Mr. Koziar and/or Ms. Muhlenkamp that include, but
  are not limited to, breach of fiduciary duty or other claims relating to personal
  and Company investments, the calculation of benefits under the SERP and financial
  reporting with respect to such benefits, and, with respect to Mr. Koziar, the fulfillment of duties owed
  to the Company as its legal counsel.

On or about June 24, 2004, the SEC commenced a formal investigation into the issues raised by the Thobe Memorandum.  The Company is cooperating with the investigation.

On April 7, 2004, the Company. received notice that the staff of the PUCO is conducting an investigation into the financial condition of DP&L as a result of the issues raised by the Thobe Memorandum.  On May 27, 2004, the PUCO ordered DP&L to file a plan of utility financial integrity that outlines the actions DPL Inc. has taken or will take to insulate DP&L utility operations and customers from its unregulated activities.  DP&L must file this plan within 120 days of the filing of its Form 10-K with the SEC.  The Company intends to comply with this order and to cooperate with the PUCOs continuing investigation.

On May 28, 2004, the U.S. Attorneys Office for the Southern District of Ohio, assisted by the Federal Bureau of Investigation, notified the Company and DPL that it has initiated an inquiry involving the subject matters covered by the Companys and DPLs internal investigation.  The Company and DPL are cooperating with this investigation.

66



Commencing on or about June 24, 2004, the Internal Revenue Service (IRS) has issued a series of data requests to the Company and DPL regarding issues raised in the Thobe Memorandum.  The staff of the IRS has requested that the Company and DPL provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE financial statements.  The Company and DPL are cooperating with these requests.

On December 12, 2003, the Office of Federal Contract Compliance Programs (OFCCP) notified DP&L by letter alleging it had discriminated in the hiring of meter readers during 2000-2001 by utilizing credit checks to determine if applicants had paid their electric bills.  On February 12, 2004, DP&L and the OFCCP entered into a Conciliation Agreement whereby DP&L agreed to distribute approximately $0.2 million in compensation to certain affected applicants.  DP&L has completed these payments to the affected applicants.

In June 2002, a contractors employee received a
verdict against DP&L for injuries he sustained while working at a DP&L power station. The Court awarded
the contractors employee compensatory damages of approximately $0.8 million and prejudgement
interest of approximately $0.6 million. On April 28, 2004, the appellate court
upheld this verdict except the award for prejudgement interest. On September 1,
2004, the Ohio Supreme Court refused to hear the case, so the matter has been
remanded to the trial court for a re-determination of whether prejudgement
interest should be awarded. The trial court heard this matter on October 15,
2004 and the decision is pending.

Long-Term Obligations and Commercial CommitmentsDP&L enters into various contractual and other long-term obligations that may affect the liquidity of its operations. The following table outlines DP&Ls obligations at December 31, 2003:

|                                        |  | Payment   Year |      
|--------------------------------------- |  | -------------- | -----
|                                        |  |                |      
|Long-term Obligations
($   in millions) |  | 2004           |      
|                                        |  |                |      
|Long-term debt                          |  | $              | 0.4  
|Capital lease                           |  |                | 0.7  
|Operating leases                        |  |                | 0.8  
|Coal contracts                          |  |                | 237.6
|Other long-term   obligations           |  |                | 9.9  
|                                        |  |                |      
|Total long-term Obligations             |  | $              | 249.4
|                                        |  |                |      

| | Long-term debt:                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Long-term debt as of December 31, 2003 consists of   first mortgage bonds and guaranteed air quality development obligations,   including current maturities.                                                                                                                             
| |                                                                                                                                                                                                                                                                                           
| | Capital lease:                                                                                                                                                                                                                                                                            
| | As of December 31, 2003, the Company had one capital   lease that expires September 2010.                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                           
| | Operating leases:                                                                                                                                                                                                                                                                         
| | As of December 31, 2003, the Company had several   operating leases with various terms and expiration dates.                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                           
| | Coal contracts:                                                                                                                                                                                                                                                                           
| | DP&L has entered into various long-term coal   contracts to supply portions of its coal requirements for its generating   plants.  Contract prices are subject   to adjustment in accordance with various indices, and have features that will   limit price escalation in any given year.
| |                                                                                                                                                                                                                                                                                           
| | Other long-term obligations:                                                                                                                                                                                                                                                              
| | As of December 31, 2003, DP&L had various other   long-term obligations including non-cancelable contracts to purchase goods   and services with various terms and expiration dates.                                                                                                      

DP&L enters into various commercial commitments which may affect the liquidity of its operations.

67



|                                         |  | Expiring   Year |      
|---------------------------------------- |  | --------------- | -----
|                                         |  |                 |      
|Commercial Commitments
($   in millions) |  | 2004            |      
|                                         |  |                 |      
|Credit facilities                        |  | $               | 150.0
|Guarantees                               |  |                 |     
|                                         |  |                 |      
|Total commercial commitments             |  | $               | 150.0
|                                         |  |                 |      

| | Credit facilities:                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | DP&L had $150 million available through a   revolving credit agreement with a consortium of banks that was scheduled to   expire on December 10, 2004.  At   December 31, 2003, there were no borrowings outstanding under this credit   agreement.  In June 2004, the Company   replaced this facility with a $100 million, 364 day unsecured credit facility   that expires on May 31, 2005.  The new   facility may be increased to up to $150 million.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Guarantees:                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | DP&L owns a 4.9% equity ownership interest in an   electric generation company.  As of   December 31, 2003, DP&L could be responsible for the repayment of 4.9%,   or $14.9 million, of a $305 million debt obligation and also 4.9%, or $2.9   million, of a separate $60.0 million debt obligation.  Both obligations mature in 2006.                                                                                                                   

|   
|---
|15.

In 1996, the Company and DPL entered into a consulting contract pursuant to which Peter H. Forster agreed to (i) serve, in a non-employee capacity, as Chairman of the Board of Directors of the Company, DPL and MVE, a subsidiary of DPL that is primarily responsible for the management of DPLs financial asset portfolio, and as Chairman of the Executive Committee of the Board of Directors of DPL and (ii) provide advisory and strategic planning consulting services.  The consulting contract automatically renewed for a one-year term on each December 31 unless either party gave at least 15 months written notice of nonrenewal.  The consulting contract would have continued for at least 36 months following a change of control.  The Company and DPL were also obligated to require any successor to all or substantially all of its business or assets to assume the consulting contract.  In April 2003, Mr. Forsters Consulting
Agreement was modified to amend Annex A to his agreement (regarding the MVE Incentive Program).

For his service as Chairman, Mr. Forsters contract provided for (i) directors and similar fees as are customarily paid to other non-employee directors, including stock awards under DP&Ls Directors Deferred Stock Compensation Plan; (ii) an additional opportunity for Mr. Forster to receive 35,000 of DPLs common shares on each January 1 during the term of the contract, subject to earning and vesting criteria; (iii) participation in DP&Ls 1991 Amended Directors Deferred Compensation Plan; and (iv) other compensation and benefits as are customarily provided to other non-employee directors of the Company and DPL.

For his service as a consultant, Mr. Forsters contract provided for (i) an annual base consulting fee of $650,000 for the year ended December 31, 2003, and (ii) for calendar years 2000 and after, a bonus calculated in accordance with the MVE Incentive Program.  The MVE Incentive Program provided for incentive compensation (an MVE Payment) based on the cumulative cash distributed to DPL or attributable to each separate investment made by any private equity partnership in which DPL has invested at any time prior to the termination of his contract, less the amount invested, expenses, bonuses previously paid and any losses, in which losses not offset against any years cash return are carried over and applied against cash returned in future years.  Mr. Forsters consulting contract stated that for 2003 and for each calendar year thereafter, Mr. Forsters MVE Payment was equal to 2.75% of such amount.

68



Mr. Forsters contract also provided for other benefits, including, without limitation, life, health, accident and disability insurance, and a death benefit of $1.0 million to Mr. Forsters beneficiary and indemnification.

Ms. Muhlenkamp served as President and director of MVE from November 1998 and Group Vice President and interim Chief Financial Officer of the Company and DP&L from April 2003 to May 16, 2004. During 2003, her employment terms were governed by an employment agreement dated December 14, 2001 and a letter agreement dated December 15, 2000 that was signed in 2002.

The term of Ms. Muhlenkamps employment agreement commenced on December 14, 2001 and continued thereafter until terminated by the Company or Ms. Muhlenkamp at any time, with or without cause, upon 180 days written notice, except that if the Company terminated the agreement for cause (as defined in the agreement), no such notice was required. The agreement would have terminated upon Ms. Muhlenkamps death or disability. The Company was also obligated to require any successor to all or substantially all of its business or assets to assume her employment agreement.

Ms. Muhlenkamps agreement provided for (i) an annual base salary to be determined from time to time; (ii) an MVE Payment calculated in accordance with the MVE Incentive Program; and (iii) other standard fringe benefits, including medical, life and disability insurance, retirement benefits and continued participation in the Companys Key Employees Deferred Compensation Plan. Ms. Muhlenkamps annual base salary was $314,000 in 2001, $364,000 in 2002 and $434,000 in 2003. Ms. Muhlenkamps employment agreement stated that for 2003 and for each calendar year thereafter, Ms. Muhlenkamps MVE Payment was equal to 2.25%.

Ms. Muhlenkamps agreement also provided for other benefits, including, without limitation, medical, life and disability insurance and retirement benefits.

In October 2001, with the approval of the Compensation Committee and the Executive Committee, DPL entered into an Administrative Services Agreement (the ASA) with Valley Partners, Inc. (Valley), a Florida corporation the sole stockholders, directors and officers of which were Mr. Forster and Ms. Muhlenkamp, and the individual trustees of certain master trusts that hold the assets of various executive and director compensation plans. The ASA engaged Valley to provide administrative and recordkeeping functions on behalf of the master trusts upon a change of control of DPL in exchange for a 1.25% administration fee based on the market value of all assets of the master trusts.  The ASA also called for Valley to provide investment advice as requested by the trustees.  The 1.25% fee payable to Valley under the ASA was in addition to the annual management fee payable to Valley.

In October 2001, the Company and DPL also entered into a Trustee Fee Agreement (the TFA) with Richard Chernesky, Richard Broock and Frederick Caspar, attorneys at Chernesky, Heyman & Kress P.L.L., a law firm that represents DPL and the Company.  Upon a change of control of the Company or DPL, Messrs. Chernesky, Broock and Caspar would become the sole trustees of the master trusts and would succeed to all of the duties of DPLs Compensation Committee under the compensation plans funded through the master trusts in exchange for an annual fee of $500,000.  This fee would not be reduced by payments made to Valley under the ASA.

On April 26, 2004, the Company and DPL
entered into a new Trustee Fee Agreement (New TFA) with Messrs. Chernesky,
Broock and Caspar that will become effective upon a change of control of the
Company or DPL.  If the New TFA becomes effective, then it provides that
Messrs. Chernesky, Broock and Caspar will serve as the sole trustees of the
master trusts in exchange for an annual fee of $250,000 during the New
TFAs term. On October 14, 2004, at the request of DP&L, Messrs. Chernesky, Broock and Caspar submitted their resignations to the Company and DP&L.

The ASA and TFA (the Valley Partners Agreements) were terminated by an agreement executed in January 2004, but effective as of December 15, 2003.  The financial assets have not been sold or transferred and therefore the agreements never became effective and no compensation was ever paid under them.

|   
|---
|16.

Audit Committee Investigation and Related MattersOn March 10, 2004, the
Companys and DPL Inc.s controller, Daniel Thobe, sent a memorandum (the Thobe Memorandum) to W August Hillenbrand, the
Chairman of DPLs Audit Committee of the Board of Directors (the Audit Committee).  The Thobe Memorandum expressed Mr.
Thobes concerns, perspectives and viewpoints regarding financial reporting and governance issues within the
Company and DPL.  The four general categories of issues identified by Mr. Thobe were: (i) disclosure issues
concerning agreements with Valley Partners, Inc. (a company owned by Peter H. Forster, formerly DPLs and DP&Ls
Chairman, and Caroline E. Muhlenkamp, formerly DPLs and DP&Ls Group Vice President and interim Chief Financial
Officer), the reporting of executive perquisite compensation in DPLs proxy statement, segment reporting concerning
DPLs subsidiary, MVE, and disclosure of Ms. Muhlenkamps compensation; (ii) internal control issues
including a lack of information regarding certain journal entries and a lack of supporting documentation for travel-related
expenses of certain senior executives; (iii) process issues, which include the processes relating to recent amendments
to the Companys and DPLs deferred compensation plans, the classification of Mr. Forster as an independent contractor,
and untimely payroll processing; and (iv) communication issues relating to changes to the 2003 management bonus that
were not communicated to the staff and current practices and processes that have created an unfavorable tone at
the top environment.

69



On March 15, 2004, the Audit
Committee retained the law firm of Taft, Stettinius & Hollister LLP
(TS&H) to represent the Committee in an independent review of each of the
matters raised by the Thobe Memorandum.  TS&H subsequently retained
an accounting firm as a forensic accountant to assist in this
review.  On April 27, 2004, TS&H submitted a written report of its
findings to the members of the Audit Committee (the Report).  A copy of the
Report is filed as an exhibit to this Form 10-K.  TS&H stated in
its Report that no person had indicated to it, nor had it uncovered in the
course of its review, any uncorrected material inaccuracies in the
Companys and DPLs books and records.  Further, TS&H
reported that it had determined that some of Mr. Thobes concerns were
based on incomplete information or were matters of judgment.  TS&H
did, however, recommed further follow-up by the Audit Committee and improvements relating to disclosures, communication, access to
information, internal controls and the culture of the Company and DPL Inc. in
certain areas.

The findings in the Report include:

(i)        No material deficiency was found concerning the amounts reported as perquisites received by named executive officers in DP&Ls recent proxy filings.

(ii)      No new information was
uncovered that would cause TS&H to conclude that DPL must change its position on the issue of segment reporting for its MVE,
Inc. subsidiary. TS&H stated that DPL should continue to make this accounting judgement. As discussed in Note 13, DPL has
since evaluated the financial reporting requirements under FASB Statement of Accounting Standards No.131 "Disclosures about
Segments of an Enterprise and Related Information" and concluded it was appropriate in 2003 to begin reporting its Financial Asset
Portfolio as a separate business segment because of the increased executive-level attention and emphasis on financial reporting during
the year.

(iii)     There is evidence of a reasonable basis for the Companys position that Ms. Muhlenkamp was not an executive officer prior to her appointment as Group Vice President and interim Chief Financial Officer in April 2003.

(iv)     TS&H did not discover any uncorrected material inaccuracies in the Companys journal entries.

(v)      There is evidence to support the Companys position that Mr. Forster was an independent contractor for tax purposes.  The Company has consistently taken this position since 1996.

(vi)     The Companys employee bonus program appears to have been handled by the Company in accordance with its discretionary authority.

(vii)    TS&Hs recommendation that the Company disclose and file certain agreements with Valley Partners, Inc., which are no longer in effect.  Such disclosure is made in this Form 10-K and the agreements are attached as exhibits.

(viii)   Approximately $355,000 of business expense reimbursements of Mr. Forster and Ms. Muhlenkamp for the years 2001 through 2003 lacked complete documentation that would verify a business purpose.  The Report also stated that approximately $335,000 of expenses related to use of the corporate aircraft by Messrs. Koziar and Forster and Ms. Muhlenkamp for the years 2001 through 2003 also lack complete documentation that would verify a business purpose.  The Report stated Messrs. Koziar and Forster and Ms. Muhlenkamp have stated that they believe all such charges are legitimate business expenses.

70



(ix)     The
Companys deferred compensation plans were purportedly amended in December
2003, with the approval of the Compensation Committee to permit cash
distributions to participants with balances in excess of $500,000 or mandated
share holding amounts from their respective deferred compensation
accounts.  The effect was to permit cash distributions from such accounts
only to Messrs. Forster and Koziar and Ms. Muhlenkamp.  According
to the report, DPLs loss of future deductibility of the distributions to
Mr. Koziar and Ms. Muhlenkamp resulted in a reduction in DPLs after-tax
income for 2003 of approximately $9.5 million.  TS&H viewed the
planning, presentation and adoption of these plan amendments as a process
weakness by DPLs management that should be addressed by the Compensation
and Audit Committees.  Note 7- Deferred Compensation Distributions contains
disclosure of the resulting deferred compensation distributions to management.
Notwithstanding this finding, as discussed in Note 7 and Note 14, the Company
has initiated legal proceedings challenging the effectiveness of these
amendments.

(x)      An isolated instance of untimely payroll processing appears to have been caused by employee miscommunication during the period the Company converted its payroll to the ADP system.

(xi)     The
  Report notes several instances of weakness in internal communication and recommends
  that the Audit Committee review internal communication and employee access to
  information at the Company, as well as coordination with outside legal and accounting
  professionals.

(xii)    The Report also notes that a scrubbing software program was installed and used on Mr. Forsters computer before Mr. Forster delivered his computer to TS&H for forensics analysis.

(xiii)   The Report includes recommendations for strengthening policies or procedures, or otherwise addressing the substance of TS&Hs findings.

Based upon information received after issuing the Report, TS&H revised its analysis and prepared a supplement to the Report, dated May 15, 2004 (the Supplement).

According to the Supplement:

(i)     Except as specifically modified or amplified by the Supplement, the findings, conclusions and recommendations of the Report remain unchanged.

(ii)    While additional information concerning business purpose was provided for many more of the travel and expense reimbursements, no additional documentation or receipts were provided by Mr. Forster or Ms. Muhlenkamp.

(iii)   Additional information and documentation provided by senior management verified a business purpose for more of the personal usage of corporate aircraft by Messrs. Forster and Koziar and Ms. Muhlenkamp, thereby decreasing the potential underreported taxable income for such individuals from the original estimate of $335,000 to approximately $225,180.

(iv)   TS&H reviewed the historical accrual of deferred compensation for Messrs. Forster and Koziar and Ms. Muhlenkamp from 1998 through 2003 and was provided some form of documentation relating to the Compensation Committees action or state of knowledge regarding each of the deferred compensation awards except for an award to Mr. Forster in the amount of $100,000 and an award to Ms. Muhlenkamp in the amount of $1,017,620.

The Audit Committee considered the Report and Supplement at a meeting held on May 16, 2004.  After its review and consideration, the Audit Committee recommended that the full Board of Directors accept the Report and the Supplement.  At a meeting held on May 16, 2004, the Board of Directors accepted the Report and Supplement, including the findings and recommendations set forth therein.

71



Pursuant to the recommendations set forth in the Report, the Company has disclosed in this
Annual Report on Form 10-K the terms of certain agreements with Valley Partners, Inc., (the Valley Partners
Agreements), which were terminated, as well as purported amendments to the Companys and DPLs deferred
compensation plans that were made in December 2003 and the resulting distributions of deferred compensation that were made to
senior management in 2003.  The Company and DPL have reviewed the termination of the Valley Partners Agreements, the purported
amendments to the Companys and DPLs deferred compensation plans, and the December 2003 distributions, and have
initiated legal proceedings challenging the propriety of those terminations and distributions and the validity of those
amendments.  (See Item 3 - Legal Proceedings.)

The Audit Committee and the Companys
  senior management continue to evaluate the Report and Supplement, and are considering
  what additional action, if any, to take in response to the findings and recommendations
  therein.

Governmental and Regulatory InquiriesOn or about June 24, 2004, the SEC commenced a formal investigation into issues raised by the Thobe Memorandum.  The Company and DPL are cooperating with the investigation.

On April 7, 2004, DPL received notice that the staff of the Public Utilities Commission of Ohio (PUCO) is conducting an investigation into the financial condition of the Company as a result of the issues raised by the Thobe Memorandum.  On May 27, 2004, the PUCO ordered DPL to file a plan of utility financial integrity that outlines the actions DPL has taken or will take to insulate DP&L utility operations and customers from its unregulated activities.  DPL must file this plan within 120 days of the filing of its Form 10-K with the SEC.  DPL intends to comply with this order and to cooperate with the PUCOs continuing investigation.

On May 28, 2004, the U.S. Attorneys Office for the Southern District of Ohio, assisted by the Federal Bureau of Investigation, notified the Company and DPL that it has initiated an inquiry involving subject matters covered by the Companys and DPLs internal investigation.  The Company and DPL are cooperating with this investigation.

Commencing on or about June 24, 2004, the Internal Revenue Service (IRS) issued a series of data requests to the Company and DPL regarding issues raised in the Thobe Memorandum.  The staff of the IRS has requested that the Company and DPL provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE financial statements.  The Company and DPL are cooperating with these requests.

72



R e p o r t   o f   I n d e p e n d e n t   R e g i s t e r e d   P u b l i c   A c c o u n t i n g   F i r m

KPMG

The Board of Directors and shareholders of The Dayton Power and Light Company

We have audited the accompanying consolidated balance sheet of The Dayton Power and Light Company and subsidiaries (DP&L) as of December 31, 2003, and the related consolidated statements of results of operations, shareholders equity, and cash flows for the year then ended.  In connection with our audit of the consolidated financial statements, we have also audited the consolidated financial statement schedule, Schedule II  Valuation and Qualifying Accounts for the year ended December 31, 2003.  These consolidated financial statements and the financial statement schedule are the responsibility of the Companys management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit 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 are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DP&L and subsidiaries as of December 31, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, the related financial statement schedule when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, on January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations.

|/s/  KPMG             | 
|--------------------- | 
|                      | 
|Kansas City, Missouri | 

November 1, 2004

73



R e p o r t   o f   I n d e p e n d e n t   R e g i s t e r e d   P u b l i c    A c c o u n t i n g    F i r m

To the Board of Directors and Shareholders of The Dayton Power and Light Company:

In our opinion, the accompanying consolidated
  balance sheet of The Dayton Power and Light Company and its subsidiaries at December 31, 2002
  and the related consolidated statements of results of operations, of cash flows,
  and of shareholders equity present fairly, in all material respects, the results of their operations and their cash
  flows for each of the two years in the period ended December 31, 2002, in conformity
  with accounting principles generally accepted in the United States of America. 
  In addition, in our opinion, the financial statement schedule, Schedule
  II  Valuation and Qualifying Accounts for the two years ended December
  31, 2002, presents fairly, in all material respects, the information set forth
  therein when read in conjunction with the related consolidated financial statements. 
  These financial statements and financial statement schedule are the responsibility
  of the Companys management; our responsibility is to express an opinion on these financial statements and financial statement
  schedule 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 are free of material misstatement. 
  An audit includes examining, on a test basis, evidence supporting the amounts
  and disclosures in the financial statements, assessing the accounting principles
  used and significant estimates made by management, and evaluating the overall
  financial statement presentation.  We believe that our audits provide a
  reasonable basis for our opinion.

As described in Note 2, to the consolidated financial statements for the years ended December 31, 2002 and 2001 have been restated.

|/s/  PRICEWATERHOUSECoopers   LLP                                   | 
|------------------------------------------------------------------- | 
|                                                                    | 
|Philadelphia, Pennsylvania                                          | 
|January 27, 2003, except for Note 2 which is as of October 28, 2004 | 

74



S e l e c t e d   Q u a r t e r l y   I n  f o r m a t i o n   (Unaudited)

|                                                                        |  | For the   three months ended |      
|----------------------------------------------------------------------- |  | ---------------------------- | -----
|                                                                        |  |                              |      
|                                                                        |  | March 31,   2003             |      
|                                                                        |  |                              |      
|$ in millions                                                           |  | (as previously  reported)    |      
|                                                                        |  |                              |      
|Revenues                                                                |  |                              |      
|Electric                                                                |  | $                            | 295.7
|Operating Expenses                                                      |  |                              |      
|Fuel                                                                    |  |                              | 55.6 
|Purchased power                                                         |  |                              | 20.0 
|Operation and maintenance (a)                                           |  |                              | 35.4 
|Depreciation and amortization                                           |  |                              | 29.1 
|Amortization of regulatory assets, net                                  |  |                              | 12.1 
|General taxes                                                           |  |                              | 28.3 
|                                                                        |  |                              |      
|Total operating   expenses                                              |  |                              | 180.5
|                                                                        |  |                              |      
|Operating
        Income                                                |  |                              | 115.2
|Investment
        income (a)                                           |  |                              | 0.3  
|Other income (deductions)                                               |  |                              | 0.7  
|Interest expense                                                        |  |                              | (12.8
|                                                                        |  |                              |      
|Income Before Income Taxes and   Cumulative Effect of Accounting Change |  |                              | 103.4
|Income tax expense (a)                                                  |  |                              | 39.4 
|                                                                        |  |                              |      
|Income Before Cumulative Effect of   Accounting Change                  |  |                              | 64.0 
|Cumulative effect of accounting change, net of tax                      |  |                              | 17.0 
|                                                                        |  |                              |      
|Net Income (a)                                                          |  |                              | 81.0 
|Preferred dividends                                                     |  |                              | 0.2  
|Earnings on Common Stock (a)                                            |  | $                            | 80.8 
|                                                                        |  |                              |      

75



|                                       |  | For the   three months ended |      
|-------------------------------------- |  | ---------------------------- | -----
|                                       |  |                              |      
|                                       |  | March 31, 2002               |      
|                                       |  |                              |      
|$ in millions                          |  | (as previously   reported)   |      
|                                       |  |                              |      
|Revenues                               |  |                              |      
|Electric                               |  | $                            | 272.2
|Operating Expenses                     |  |                              |      
|Fuel                                   |  |                              | 47.5 
|Purchased power                        |  |                              | 33.1 
|Operation and maintenance (a)          |  |                              | 37.3 
|Depreciation and amortization          |  |                              | 29.6 
|Amortization of regulatory assets, Net |  |                              | 11.5 
|General taxes                          |  |                              | 25.9 
|                                       |  |                              |      
|Total operating   expenses             |  |                              | 184.9
|                                       |  |                              |      
|Operating Income                       |  |                              | 87.3 
|Investment income (a)                  |  |                              | 1.8  
|Other income (deductions) (a)          |  |                              | 8.5  
|Interest expense                       |  |                              | (14.0
|                                       |  |                              |      
|Income Before Income Taxes             |  |                              | 83.6 
|Income tax expense (a)                 |  |                              | 31.0 
|                                       |  |                              |      
|Net Income (a)                         |  |                              | 52.6 
|Preferred dividends                    |  |                              | 0.2  
|Earnings on Common Stock (a)           |  | $                            | 52.4 
|                                       |  |                              |      

76



(a) The following tables identify the adjustments made to the unaudited Consolidated Statements of Results of Operations as previously released.

|($
        in millions)                            |  | 2003 Net Income
        Increase (Decrease) |     
|-------------------------------------------------- |  | ------------------------------------------- | ----
|                                                   |  |                                             |     
|                                                   |  | For the Three
        Months Ended          |     
|                                                   |  |                                             |     
|Description
        of Adjustment                  |  | March 31                                    |     
|                                                   |  |                                             |     
|Supplemental
        Executive Retirement Plan (1) |  | $                                           | (0.2
|Stock
        incentive units (2)                  |  |                                             | (0.2
|Accrued
        expenses (3)                       |  |                                             |    
|                                                   |  |                                             |     
|Sub-total
        pre-tax impact                   |  |                                             | (0.4
|                                                   |  |                                             |     
|Income
        taxes on non-deductible costs (4)   |  |                                             |    
|Income
        taxes (5)                           |  |                                             | 0.2 
|                                                   |  |                                             |     
|Total
        Net Income Impact (6)                |  | $                                           | (0.2
|                                                   |  |                                             |     



|($
        in millions)                            |  | 2002 Net Income
        Increase (Decrease) |      
|-------------------------------------------------- |  | ------------------------------------------- | -----
|                                                   |  |                                             |      
|                                                   |  | For the Three
        Months Ended          |      
|                                                   |  |                                             |      
|Description
        of Adjustment                  |  | March 31                                    |      
|                                                   |  |                                             |      
|Supplemental
        Executive Retirement Plan (1) |  |                                             | 1.6  
|Stock
        incentive units (2)                  |  |                                             | (15.4
|Accrued
        expenses (3)                       |  |                                             |     
|                                                   |  |                                             |      
|Sub-total
        pre-tax impact                   |  |                                             | (13.8
|                                                   |  |                                             |      
|Income
        taxes on non-deductible costs (4)   |  |                                             |     
|Income
        taxes (5)                           |  |                                             | 5.6  
|                                                   |  |                                             |      
|Total
        Net Income Impact (6)                |  | $                                           | (8.2 
|                                                   |  |                                             |      

(1) Reflects adjustment to record a settlement of the Companys Supplemental Executive Retirement Plan for certain executives in 1997 and 2000 which had not been previously recorded, to include in the plan an executive who had not been previously considered a plan participant, and to record the proper treatment for Company assets previously thought to be segregated and restricted solely for purposes of funding this plan.  Adjustments made subsequent to 2000 reflect revisions to actuarial computations to consider impact of those settlements on future actuarial calculations for the plan.

2003 Consolidated Statement of Results of Operations:  Adjustment (increased) decreased Operation and Maintenance expense by approximately $(0.2) million, $1.4 million and $(0.3) million in the first quarter through the third quarter, respectively.  Adjustment also increased Investment Income by approximately $0.2 million in the second quarter.

2002 Consolidated Statement of Results of Operations:  Adjustment (increased) decreased Operation and Maintenance expense by approximately $1.6 million, $(0.8) million, $0.1 million and $2.6 million in the first quarter through the fourth quarter, respectively.  Adjustment also increased Investment Income by approximately $0.1 million in each of the first, second and third quarters.

(2) Reflects adjustment to record outstanding stock incentive units at fair value following a change in the operation of the Management Stock Incentive Plan made as of January 1, 2002, that allowed certain retirees to diversify stock incentive awards to investments other than DPL common stock.

2003 and 2002 Consolidated Statement of Results of Operations:  Adjustment (increased) decreased Operation and Maintenance expense by the amounts set forth in this table.

(3) Reflects adjustment to record accrued expenses in the period in which these items were incurred.

2003 Consolidated Statement of Results of Operations:  Adjustment (increased) decreased Operation and Maintenance expense by $0.1 million and $(0.4) million in the second and third quarters, respectively.

2002 Consolidated Statement of Results of Operations:  Adjustment decreased Other Income by $0.1 million in the fourth quarter.

(4) Reflects adjustment to record tax expense for non-deductible costs not previously considered and provisions for estimated tax exposures.

2002 Consolidated Statement of Results of Operations:  Adjustment increased Income Tax expense by the amount set forth in this table.

(5) Reflects income taxes related to the above non-tax adjustments.

Consolidated Statement of Results of Operations:  Adjustment (increased) decreased Income Tax expense by the amounts set forth in the table.

(6) Reflects difference in Net Income as originally reported and as disclosed in this table of Selected Quarterly Information.

77



F i n a n c i a l   a n d   S t a t i s t i c a l   S u m m a r y   (Unaudited)

|For
        the years ended December 31,    |  | 2003 |         | 2002
        (as restated) |  | 2001
        (as restated) |  | 2000
        (b) |         | 1999
        (b) | 
|------------------------------------------- |  | ---- | ------- | -------------------------- |  | -------------------------- |  | ---------------- | ------- | ---------------- | 
|                                            |  |      |         |                            |  |                            |  |                  |         |                  | 
|Electric
        revenues (millions)        |  | $    | 1,183.4 |                            |  | 1,175.8                    |  |                  | 1,188.2 |                  | 
|Gas
        revenues (millions)             |  | $    |        |                            |  |                           |  |                  |        |                  | 
|Earnings
        on common stock (millions) |  | $    | 238.5   |                            |  | 244.7                      |  |                  | 232.7   |                  | 
|Cash
        dividends paid (millions)      |  | $    | 298.7   |                            |  | 204.5                      |  |                  | 82.4    |                  | 
|Electric
        sales (millions of kWh)   |  |      |         |                            |  |                            |  |                  |         |                  | 
|Residential                                 |  |      | 5,071   |                            |  | 5,302                      |  |                  | 4,909   |                  | 
|Commercial                                  |  |      | 3,699   |                            |  | 3,710                      |  |                  | 3,618   |                  | 
|Industrial                                  |  |      | 4,330   |                            |  | 4,472                      |  |                  | 4,568   |                  | 
|Other
        retail                        |  |      | 1,409   |                            |  | 1,405                      |  |                  | 1,369   |                  | 
|                                            |  |      |         |                            |  |                            |  |                  |         |                  | 
|Total
        retail                        |  |      | 14,509  |                            |  | 14,889                     |  |                  | 14,464  |                  | 
|Wholesale                                   |  |      | 4,836   |                            |  | 4,358                      |  |                  | 3,591   |                  | 
|                                            |  |      |         |                            |  |                            |  |                  |         |                  | 
|Total                                       |  |      | 19,345  |                            |  | 19,247                     |  |                  | 18,055  |                  | 
|Gas
        sales (thousands of MCF)-- (a)  |  |      |         |                            |  |                            |  |                  |         |                  | 
|Residential                                 |  |      |        |                            |  |                           |  |                  |        |                  | 
|Commercial                                  |  |      |        |                            |  |                           |  |                  |        |                  | 
|Industrial                                  |  |      |        |                            |  |                           |  |                  |        |                  | 
|Other                                       |  |      |        |                            |  |                           |  |                  |        |                  | 
|Transported
        gas                     |  |      |        |                            |  |                           |  |                  |        |                  | 
|                                            |  |      |         |                            |  |                            |  |                  |         |                  | 
|Total                                       |  |      |        |                            |  |                           |  |                  |        |                  | 
|At
        December 31,                     |  |      |         |                            |  |                            |  |                  |         |                  | 
|Total
        assets (millions)             |  | $    | 2,660.1 |                            |  | 2,757.3                    |  |                  | 2,792.1 |                  | 
|Long-term
        debt (millions)           |  | $    | 687.3   |                            |  | 665.5                      |  |                  | 666.6   |                  | 
|First
        mortgage bond ratings--       |  |      |         |                            |  |                            |  |                  |         |                  | 
|Fitch
        Ratings                       |  |      | A       |                            |  | A                          |  |                  | AA      |                  | 
|Moodys
        Investors Service           |  |      | Baa1    |                            |  | A2                         |  |                  | A2      |                  | 
|Standards
        & Poors Corporation      |  |      | BBB-    |                            |  | BBB                        |  |                  | BBB+    |                  | 
|Number
        of Preferred Shareholders    |  |      | 402     |                            |  | 426                        |  |                  | 476     |                  | 

|                                                                                                                                                                                                                                                                                                 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)   The Company completed the sale of its natural gas retail distribution assets   and certain liabilities on October 31, 2000.                                                                                                                                                                
|(b) Certain changes have been made to results in these years as discussed in Note 2 to
Consolidated Financial Statements. Earnings per share previously reported as $297.9 in 2000 and $191.6 in 1999. Total assets
previously reported as $2,721.5 million in 2000 and $3,153.5 million in 1999.

|Item 9 - Changes in and   Disagreements with Accountants on Accounting and   Financial Disclosure
|-------------------------------------------------------------------------------------------------
|                                                                                                 

On March 7, 2003, the Company was notified by PricewaterhouseCoopers LLP, the Companys independent accountants, at that time, that it declined to stand for reelection by the Finance and Audit Review Committee of the Board of Directors as the Companys independent accountants for the year ended December 31, 2003.

The reports of PricewaterhouseCoopers LLP on the Companys financial statements for the years ended December 31, 2002 and 2001 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle.

78



In connection with the audits of the Companys financial statements for the years ended December 31, 2002 and 2001 and through March 7, 2003, there had been no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to make reference thereto in its report on the Companys financial statements for such years.

No reportable event of the type described in Item 304(a)(1)(v) of Regulation S-K occurred during years ended December 31, 2002 and 2001 and through March 7, 2003.

On April 9, 2003, the Finance and Audit Review Committee of the Board of Directors of the Company engaged KPMG LLP as the Companys independent accountants for the year ended December 31, 2003.  This appointment concluded a competitive bidding process by the Company that began in late February 2003.

|Item 9A -Controls and Procedures
|--------------------------------
|                                

For the period covered by this report,
  the Company carried out an evaluation, under the supervision and with the participation
  of the Companys management, including the Companys Chief Executive
  Officer and interim Chief Financial Officer, of the effectiveness of the design
  and operation of the Companys disclosure controls and procedures. 
  Based on that evaluation, the Chief Executive Officer and the interim Chief
  Financial Officer concluded that the Companys disclosure controls and
  procedures are effective to ensure that information required to be disclosed
  by the Company in the reports that it files or submits under the Securities
  Exchange Act of 1934, as amended, is recorded, processed, summarized and reported.
  There are inherent limitations to the effectiveness of any system of disclosure
  controls and procedures.  Even effective disclosure controls and procedures
  can only provide reasonable assurance of achieving their control objectives.

Attached as Exhibits 31(a) and 31(b) to this annual report are certifications of the Chief Executive Officer and the Interim Chief Financial Officer required in accordance with Rule 13a-14 of the Exchange Act.  This portion of the Companys annual report includes the information concerning the controls evaluation referred to in the certifications and should be read in conjunction with the certifications for a more complete understanding of the topics presented.

There were no changes in the
Companys internal control over financial reporting that occurred during
the last quarter that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial
reporting.  However, during their year-end review, KPMG LLP (KPMG), the
Companys independent accountants, identified and reported to management
and the Audit Committee of DPLs Board of Directors two material weaknesses and certain other matters
involving internal control deficiencies considered to be reportable conditions
under standards established by the Public Company Accounting Oversight Board (PCAOB). Reportable conditions are matters coming to the attention of
the auditors that, in their judgment, relate to significant deficiencies in the
design or operation of internal control and could adversely affect the
organizations ability to record, process, summarize and report financial
data consistent with the assertions of management in the financial
statements.  A material weakness is a reportable condition in which the
design or operation of one or more internal control components does not reduce
to a relatively low level the risk that errors or fraud in amounts that would be
material in relation to the financial statements being audited may occur and not
be detected within a timely period by employees in the normal course of
performing their assigned functions.

79



The two material weaknesses identified are:

| | (1)     An   ineffective process for recognizing an adjustment to the Companys income tax   provision to reflect a deductibility limitation under Section 162(m) for   executive deferred compensation distributions made during 2003, including,   without limitation, insufficient supporting documentation submitted to the   Companys tax department for purposes of calculating the income tax provision   and the lack of effective communication between and among senior management,   counsel and the Companys tax and compensation experts.  Absent review of specific deferred   compensation records by the Companys outside auditors, income tax balances   for 2003 may have been improperly stated at December 31, 2003.  Management concurred with KPMGs observations   relating to income tax reporting of executive compensation.  The Company further
evaluated its internal   processes relating to executive compensation and has implemented internal   control improvements in this area; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (2)     A   complex and manual process for accounting and reporting transactions in DPLs   financial asset portfolio, including, (i) separate reporting structures for   MVE accounting and corporate accounting that do not allow for a review of the   entire process, (ii) the lack of a complete accounting manual for financial   asset portfolio accounting that contemplates all investment transactions that   occur on a regular basis and (iii) ineffective communication between the MVE   and corporate accounting groups that does not ensure that all investment   portfolio transactions are identified, accumulated and reported in accordance   with generally accepted accounting principles.  Specifically, in 2003 private equity fund distributions in the   form of stock of underlying investments were initially accounted for by   management entirely as return of capital
transactions.  A large element of each distribution   should have been accounted for as income rather than a return of capital.  As a result, results for the third quarter   2003 were required to be revised.    Similar transactions in prior years were also accounted for   inappropriately and were revised.    Management concurred with KPMGs observations relating to investment   portfolio accounting and acknowledged the need for improvement.  DPL further evaluated its accounting   processes relating to its investment portfolio and has implemented internal   control improvements in this area.

The reportable conditions that are not believed to be material weaknesses are conditions related to:  (i) payroll processing and the fact that the Company has two separate payroll processes, one for the majority of personnel and one for the Companys senior executives, (ii) the lack of a quality and change control process for the preparation and submission of SEC filings on Form 10-K and Form 10-Q, (iii) the lack of significant progress made by management in assessing the Companys internal controls in preparation for Sarbanes-Oxley Section 404 implementation and KMPGs belief that the Company will identify control weaknesses requiring remediation, (iv) the Companys process for executive travel and entertainment expense reporting and reimbursement and the lack of sufficient supporting documentation for reported business expenses of certain executives to support deductibility for tax purposes, (v) the lack of a comprehensive controller
function to monitor the accounting function in the Company and (vi) inadequate segregation of duties for certain accounting transactions and activities processed at the executive level, including payroll, benefit plans, other compensation plans, time and expense reporting by senior management and preparation and submission of SEC filings.

The material weaknesses and reportable conditions identified above, if unaddressed, could result in errors in the Companys consolidated financial statements.

80



Management concurred with KPMGs observations relating to payroll processing (particularly those relating to executive compensation), external reporting processes, and executive travel and entertainment expense reporting.  The Company further evaluated these areas and implemented appropriate internal control improvements.

Management acknowledged KPMGs observations relating to Sarbanes-Oxley Section 404 implementation and increased resources dedicated to this effort.  Additionally, the Company has improved its communications both within the organization and with KPMG regarding the status of the implementation process, project scope, preliminary results and remediation efforts.  Management also acknowledged the need for a more comprehensive controller function.  The Company reviewed the accounting processes performed outside the corporate controllers area and reassigned responsibility for these processes as deemed appropriate for improved internal controls.  Finally, management concurred with KPMGs observations regarding segregation of duties related to specific activities performed by the prior interim chief financial officer and acknowledged that improvements were needed in this area.  The Company plans to use the Sarbanes-Oxley Section
404 implementation process to further assist in identifying and reassigning responsibility for activities that require additional segregation of duties.

The Company will continue to evaluate
the material weaknesses and reportable conditions and will take all necessary
action to correct the internal control deficiencies identified. The Company will
also further develop and enhance its internal control policies, procedures,
systems and staff to allow it to mitigate the risk that material accounting
errors might go undetected and be included in its consolidated financial
statements.  The Company is currently undertaking a thorough review of its internal controls as part of the Companys preparation for compliance with the requirements under Section 404 of the Sarbanes-Oxley Act of 2002 and the Company is using this review to further assist in identifying and correcting any control deficiencies. As expected, this review has revealed control weaknesses, which the Company has reported to the Audit Committee. The Company has since taken steps to strengthen its internal controls in these areas including increasing segregation of duties, writing policies where necessary, adding checks at key decision points and increasing supervisor review of transactions. These actions have been successful in eliminating a large percentage of the deficiencies noted, but additional remediation activities continue. Corrected control deficiencies are being retested by management to assure that remediation efforts were successful, and the Companys auditors will perform
independent testing of the Companys internal controls as part of their year-end review. At this time, the Company has not completed its review of the existing controls and their effectiveness.  Unless the material weaknesses described above, and any identified during this review, are remedied, there can be no assurances that the Company will be able to assert that its internal control over financial reporting is effective in the management report required to be included in the Annual Report for the year ended December 31, 2004, pursuant to the rules adopted by the SEC under Section 404.

PART III

|Item 10 - Directors and Executive   Officers of the Registrant
|--------------------------------------------------------------
|                                                              

|                   |    | Directors and Executive Officers                                                                                                                                                                                                                                                                                                                                                                                                                             
|------------------ | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Robert D. Biggs    | 61 | Director since 2004; Executive Chairman since   May 16, 2004.  Retired Managing   Partner, PricewaterhouseCoopers, Indianapolis, Indiana since October 1999;   Managing Partner, PricewaterhouseCoopers July 1992 to October 1999.                                                                                                                                                                                                                           
|                   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Paul R. Bishop     | 61 | Director since 2003; Chairman and Chief Executive Officer, H-P Products, Inc.,
Louisville, Ohio (manufacturer of central vacuum, VACUFLO, and fabricated tubing and fittings for industry) since 2001; President,
H-P Products, Inc. from 1996 to 2001.  Mr. Bishop is a Director of Hawk Corporation and is a member of Stark Development
Board, Mt. Union College Board and Aultman Health Foundation.                                                     
|                   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|James F. Dicke, II | 58 | Director since 1990; Chairman and Chief Executive Officer, Crown Equipment   Corporation, New Bremen, Ohio (international manufacturer and distributor of   electric lift trucks and material handling products) since 2002; President,   Crown Equipment Corporation from 1980 to 2002.  Mr. Dicke is a Director of Gulf States Paper Co. and a Trustee   of Trinity University.  Mr. Dicke also   is a Commissioner of the Smithsonian American Art Museum.

81



|Ernie Green                          | 65 | Director since 1991; President and Chief Executive Officer, Ernie Green Industries,   Dayton, Ohio (automotive components manufacturer) since 1981.  Mr. Green is a Director of Pitney Bowes   Inc. and Eaton Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------------------------------------ | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                     |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Jane G. Haley                        | 73 | Director since 1978; Chairman, President and Chief Executive Officer, Gosiger, Inc.,   Dayton, Ohio (national importer and distributor of machine tools) since   1972.  Mrs. Haley is a Director of The   Ultra-Met Company, ONA America and American Machine Tool Distributors   Association and is a Trustee of The University of Dayton and   Chaminade-Julienne High School.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                     |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Glenn E. Harder                      | 53 | Director since 2004; President,
        GEH Advisory Services, LLC since October 2002; Executive Vice President
        and CFO, Coventor, Inc. from May 2000 to October 2002; Executive Vice
        President and CFO, Carolina Power & Light Company from August 1995
        to March 2000. Mr. Harder is the Executive Leader, Business Services of the Baptist State Convention of North Carolina since February 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                     |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|W August Hillenbrand                 | 63 | Director since 1992; Vice-Chairman since   May 16, 2004.  Principal,   Hillenbrand Capital Partners and Retired President and Chief Executive   Officer, Hillenbrand Industries, Batesville, Indiana (a diversified public   holding company that manufactures caskets, hospital furniture, hospital supplies   and provides funeral planning services) since 2001; Chief Executive Officer,   Hillenbrand Industries from 1999 to 2000.    Mr. Hillenbrand is a Director of Hillenbrand Industries and Pella   Corporation and is a Trustee of Batesville Girl Scouts and Trustee Emeritus   of Denison University.                                                                                                                                                                                                                                                                                                                                                                                            
|                                     |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Lester L. Lyles, General,USAF (Ret.) | 58 | Director since 2004; Commander
        of Air Force Materiel Command from April 2000 to August 2003, the 27th Vice Chief of
        Staff of the United States Air Force from 1999 to 2000. General Lyles
        is a Trustee of Wright State University, a Director and member of the Audit Committee of General Dynamics
        Corp. and Director of MTC Technologies. He is also a member of The Presidents
        Commission on U.S. Space Policy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                     |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|James V. Mahoney                     | 59 | Director since 2004; President and
        Chief Executive Officer of DPL Inc. and DP&L since May 16, 2004;
        President, DPL Energy LLC, a wholly-owned subsidiary responsible for wholesale
        and retail energy sales and marketing since 2003; President, Energy Market
        Solutions, an energy consulting firm from August 2002 to January 2003;
        President and Chief Executive Officer, EarthFirst Technologies, Incorporated,
        a company that licenses evolving technologies for environmental and alternate
        energy solutions from August 2001 to August 2002; Senior Vice President,
        PG&E National Energy Group, a wholesale power supplier from May 1999
        to July 2001; Senior Vice President, U.S. Generating Company from March
        1998 to May 1999.  Mr. Mahoney serves on the Rebuilding Together
        Dayton Board and is the Vice Chair of the 2004 Fund Campaign for Culture
        Works.  Mr. Mahoney joined the Company in 2003.
|                                     |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Ned J. Sifferlen, PhD                | 63 | Director since 2004; President
        Emeritus, Sinclair Community College from September, 2003 to present;
        President, Sinclair Community College from September, 1997 to August, 2003. 
        Dr. Sifferlen is Chairman of the Board of Directors of Good Samaritan
        Hospital and is a Director on the Board for both Premier Health Partners
        and Think TV Public Television.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

82



Officers who are not Directors

|Name and   Age     |    |  | Position,   Principal Occupation,   Business Experience and Directorships                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------------------ | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Miggie E. Cramblit | 49 |  | Vice President and General Counsel, DPL Inc. and   DP&L since June 2003; Counsel and Corporate Secretary, Greater Minnesota   Synergy from October 2001 to June 2003; Chief Operating Officer, Family   Financial Strategies from June 1999 to May 2001; Vice President and General   Counsel, Reliant Energy/Minnegasco from December 1990 to May 1999.  Ms. Cramblit joined the Company in 2003.                                                                                                                                                                                               
|                   |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Pamela Holdren     | 42 |  | Interim Chief Financial Officer since
        May 16, 2004; Treasurer, DPL Inc. and DP&L since June 2003; 
        Controller, MVE, Inc. from January 2002 to June 2003; Manager, Financial Planning, DPL Inc. and
        DP&L from August 2001 to January 2002; Group Controller, DPL Inc. and DP&L
        from January 2000 to August 2001; Group Controller, Giddings & Lewis
        from November 1997 to November 1999.  Ms. Holdren joined the Company
        in 2000.                                                                                                                 
|                   |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Arthur G. Meyer    | 54 |  | Vice President and Corporate Secretary, DPL Inc. and   DP&L since August 2002; Vice President, Legal and Corporate Affairs,   DP&L from November 1997 to August 2002.    Mr. Meyer joined the Company in 1992.                                                                                                                                                                                                                                                                                                                                                                                   
|                   |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Gary    Stephenson | 39 |  | Vice President, Commercial Operations of DPL Inc.   and DP&L since September 17, 2004; Vice President, Commercial Operations,   InterGen from April 2002 to September 2004; Vice President, Portfolio   Management, PG&E National Energy Group (successor to PG&E Energy Trading)   from January 2000 to April 2002; Director, Portfolio Management, PG&E   Energy Trading from January 1998 to December 1999.                                                                                                                                                                                   
|                   |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Patricia K. Swanke | 45 |  | Vice President, Operations, DP&L since September   1999 currently responsible for electric transmission and distribution   operations; Managing Director, DP&L from September 1996 to September   1999.  Ms. Swanke serves on various   community boards including the Dayton Arts Center Foundation Board, the Board   of the K12 Gallery for Youth and the Dayton Mayors Commission on Adult   Literacy.  Ms. Swanke joined the   Company in 1990.                                                                                                                                            
|                   |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Daniel L. Thobe    | 53 |  | Corporate Controller of DPL Inc. and
        DP&L since July 21, 2003, Vice President, Financial Services, Moto
        Franchise Corporation from February 2003 to July 2003 (successor to Moto
        Photo, Inc.), Corporate Controller, Moto Photo, Inc. from June 2000 to
        February 2003; Vice President, Controller and Chief Accounting Officer,
        Roberds, Inc. from November 1999 to June 2000; Vice President, Corporate
        Controller, Breuners Home Furnishings Corporation from June 1997 to November
        1999. Mr. Thobe joined the Company in 2003.        
|                   |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|W. Steven Wolff    | 50 |  | President, Power Production, DPL Inc. and DP&L   since 2003;  Vice President, Power   Production, DPL Inc. and DP&L from August 2002 to January 2003; Director,   Power Production, DP&L from January 2002 to August 2002; Manager, O.H.   Hutchings Station, DP&L from August 2001 to January 2002; Captain, US   Navy from January 1998 to August 2001.    Mr. Wolff is a board member of the Ohio Valley Electric Corporation,   Manufacturers Business Utility, University of Dayton Corporate Executive   Council and Victoria Theatre Association. Mr. Wolff joined the Company in   2001.

83



Director and Management ChangesEffective May 16, 2004, the Board of Directors unanimously elected current directors Robert D. Biggs as Executive Chairman and W August Hillenbrand as Vice-Chairman.  The Board of Directors also appointed DPLE President, James V. Mahoney, as President and Chief Executive Officer of the Company and DPL and current Treasurer, Pamela Holdren, as interim Chief Financial Officer of the Company and DPL.

The elections and appointments follow the retirement of Stephen F. Koziar, Jr., director, President and Chief Executive Officer of the Company and DPL, director and Secretary/Treasurer of MVE, and the resignations of Peter H. Forster, Chairman of the Board, director and consultant to the Company, DPL and MVE, and Caroline E. Muhlenkamp, director and President of MVE and Group Vice President and interim Chief Financial Officer of the Company and DPL.  In connection with Mr. Koziars retirement and Mr. Forster and Ms. Muhlenkamps resignations, each of the Company, DPL, Mr. Koziar, Mr. Forster and Ms. Muhlenkamp reserved all rights under applicable law and under any existing agreements.  Mr. Forster and Ms. Muhlenkamp have filed a lawsuit against the Company, DPL and MVE claiming that they were wrongfully terminated and are entitled to certain rights and benefits.  The Company, DPL and
MVE have filed a lawsuit against Mr. Koziar, Mr. Forster and Ms. Muhlenkamp alleging that they breached their fiduciary duties and
breached their consulting and employment contracts.  (See Note 14 of Notes to Consolidated Financial Statements.)

On September 17, 2004 the Company and DPL appointed Gary Stephenson as Vice President , Commercial Operations.

On September 28, 2004 the Company and
  DPL appointed Glenn E. Harder, General Lester L. Lyles, Dr. Ned J. Sifferlen
  and James V. Mahoney to the Board of Directors to fill vacancies created by
  resignations and retirement.

Audit CommitteeDPL has a
separately-designated standing audit committee (the Audit Committee) that
oversees the Companys auditing, accounting, financial reporting and
internal control functions, appoints the Companys independent public
accounting firm and approves the accounting firms services.  The
Audit Committee currently consists of W August Hillenbrand, Chairman, Ernie
Green, Jane G. Haley and Glenn E. Harder, each of whom is an independent director as
defined in Section 303A.02 of the New York Stock Exchange listing standards and
Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended. The Board has determined that Mr. Harder qualifies as an  "audit committee financial expert" within the meaning of SEC regulations.

84



Section 16(a) Beneficial Ownership
Reporting ComplianceSection 16(a) of the Securities Exchange Act of
1934 requires DPLs directors and executive officers to file reports of
ownership and changes of ownership of DPL common shares and common share units
with the SEC.  DPL believes that during
fiscal 2003 all filing requirements applicable to its directors and executive
officers were timely met, except that in February 2004 (i) Form 5s
reporting quarterly deferrals of directors fees into restricted share
units during 2003 were filed for each Messrs. Bishop, Danis, Dicke,
Forster, Grebe, Green, Hillenbrand, Holmes, Roberts and Stuart and
Mrs. Haley and (ii) Form 5s reporting conversion to cash of common share
units in December 2003 were filed for each of Messrs. Forster and Koziar
and Ms. Muhlenkamp.

Corporate GovernanceIn
February 2004, DPLs Board amended its Corporate Governance Guidelines and
amended its Code of Business Conduct and Ethics to comply with the
requirements of the new federal legislation generated by the Sarbanes-Oxley Act
of 2002 and the 2003 standards of the NYSE.

DPLs Code of Business Conduct and
Ethics applies to all Company employees, officers (including the executive chairman, chief executive
officer, chief financial officer and chief accounting officer) and
directors.  Any changes or waivers to the Code of Business Conduct and
Ethics for the Companys chief executive officer, chief financial officer,
chief accounting officer or persons performing similar functions will be
disclosed to shareholders in the Companys filings with the SEC.

DPLs Corporate Governance
Guidelines, Code of Business Conduct and Ethics, and the charters of the Audit
Committee, Compensation Committee and the Nominating and Corporate Governance
Committee are posted on DPLs website at www.dplinc.com.

85



|Item 11 - Executive Compensation
|--------------------------------
|                                

Summary Compensation TableSet forth below is certain information concerning the compensation of the Chief Executive Officer and each of the four most highly compensated executive officers of DP&L and its parent company, DPL and for its consultant for the last three fiscal years, for services rendered in all capacities.

|                                                                                                                                     |  |      |                                |                    | Annual
        Compensation |                                          | Long Term
        Compensation |                                                           |                                       |                                                                       | 
|------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------------------------------ | ------------------ | --------------------------- | ---------------------------------------- | ------------------------------ | --------------------------------------------------------- | ------------------------------------- | --------------------------------------------------------------------- | 
|                                                                                                                                     |  |      |                                |                    |                             |                                          |                                |                                                           |                                       |                                                                       | 
|Name
        and Principal Position                                                                                                  |  | Year |                                | Salary
        ($) |                             | Bonus
        ($)                        |                                | Other Annual
        Compensation
        (1)
        ($) |                                       | Securities
        underlying
        Options
        (2)
        (#) | 
|                                                                                                                                     |  |      |                                |                    |                             |                                          |                                |                                                           |                                       |                                                                       | 
|Stephen
        F. Koziar, Jr. (5)
        Former President and Chief Executive Officer DPL Inc. and DP&L                            |  |      | 2003
        2002
        2001 |                    |                             | 600,000
        375,000
        302,000  |                                |                                                           | 2,320,000 
        210,000
          | (6)
        (7)                                                       | 
|                                                                                                                                    
|Caroline
        E. Muhlenkamp (8)
        Former Group Vice President and Interim Chief Financial Officer DPL Inc.
        and DP&L |  |      | 2003
        2002
        2001 |                    |                             | 434,000 
        364,000
        314,000 |                                |                                                           | 3,761,000  98,000
                   | (9)
        (7)                                                       | 
|                                                                                                                                    
|James
        V. Mahoney (10)
        President and Chief Executive Officer DPL Inc. and DP&L                                        |  |      | 2003
        2002
        2001 |                    |                             | 425,000
          
                    |                                |                                                           | 150,000
          
                 | (7)                                                                   | 
|                                                                                                                                    
|W.
        Steven Wolff (11)
        President, DPL Power Production DPL Inc. and DP&L                                               |  |      | 2003
        2002
        2001 |                    |                             | 250,000
        200,000
        119,000  |                                |                                                           | 113,000
        54,000
        16,250 | (7)
        (7)
        (7)                                           | 
|                                                                                                                                    
|Patricia
        K. Swanke
        Vice President, Operations DP&L                                                                   |  |      | 2003
        2002
        2001 |                    |                             | 230,000
        215,000
        190,000  |                                |                                                           | 80,000
        72,797
        73,625  | (7)
        (7)
        (7)                                           | 
|                                                                                                                                    
|Peter
        H. Forster (12)
        Former Chairman and Consultant DPL Inc. and DP&L                                               |  |      | 2003
        2002
        2001 |                    |                             | 650,000
        650,000
        600,000  |                                |                                                           | 5,300,000
        100,000
           | (13)
        (7)                                                      | 

|   
|---
|(1)
|   
|(2)
|   
|(3)
|   
|(4)
|   
|(5)

86



|(6)  | $1.9 million of the amount
        shown for Mr. Koziar represents a discretionary payment. The amount of this payment was calculated
        by applying the benefit formula that had been in effect under the Companys
        Supplemental Executive Retirement Plan (SERP) to the compensation earned
        by Mr. Koziar from the effective date of Mr. Koziars entry
        date into the SERP (August 1, 1969).  The discretionary payment
        was calculated as if Mr. Koziar continued to participate in the SERP through
        April 30, 2003.  Mr. Koziars participation in the SERP was
        terminated in 2000 in anticipation of an acquisition of the Company that
        was not completed.  $420,000 of
        the amount shown represents compensation based on achievement of specific
        predetermined operating and management goals in the year indicated and
        paid in the year earned or in the following year.                                                                                      
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(7)  | The amount in this column represents
compensation based on achievement of specific predetermined operating and
management goals in the year indicated and paid in the year earned or in the
following year. Amounts do not include distributions of earnings that had been previously deferred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(8)  | Ms. Muhlenkamp resigned as Group Vice President and   interim CFO on May 16, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(9)  | $3.4 million of the amount shown for
Ms. Muhlenkamp represents a discretionary payment.  The amount of this
payment was calculated by applying the benefit formula that had been in effect
under the SERP to the compensation earned by Ms. Muhlenkamp from the
effective date of Ms. Muhlenkamps purported entry date into the SERP
(July 1, 1991).  The discretionary payment was calculated as if Ms.
Muhlenkamp continued to participate in the SERP through April 30, 2003. 
Ms. Muhlenkamps participation in the SERP was terminated in 2000 in
anticipation of an acquisition of the Company that was not completed.  $361,000 of the
amount shown represents compensation based on achievement of specific
predetermined operating and management goals in the year indicated and paid in
the year earned or in the following year. The
discretionary payments made to Ms. Muhlenkamp were not calculated in accordance
with the SERP to the extent the amount credited to her account reflected
increased salary and years-of-service credits.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10) | Mr. Mahoney joined DPL and the Company in January   2003.  Mr. Mahoney was appointed CEO   of DPL and DP&L on May 16, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(11) | Mr. Wolff joined DPL in August 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(12) | Mr. Forster resigned as Chairman and consultant to   DPL and the Company on May 16, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(13) | $4.9 million of the amount shown for Mr.
Forster represents a discretionary payment.  The amount of this payment
was calculated by applying the benefit formula that had been in effect under the
SERP to the compensation earned by Mr. Forster from the effective date of
Mr. Forsters entry date into SERP (June 1, 1974).  The
present value of such annual benefit stream was credited to
Mr. Forsters deferred compensation plan account in 2003. 
$400,000 of the amount shown represents compensation based on achievement of
specific predetermined operating and management goals in the year indicated and
paid in the year earned or in the following year.                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(14) | Represents the amount of fees and value of stock   awards received for services as a director.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(15) | Represents relocation expense reimbursement, grossed-up   to reimburse for the additional tax liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Option Grants in Last Fiscal YearThe following table sets forth information
concerning individual grants of DPL stock options made to each person listed on the Summary Compensation Table and the fiscal year
ended December 31, 2003.

|                 |  | Individual   Grants                                              |        
|---------------- |  | ---------------------------------------------------------------- | -------
|                 |  |                                                                  |        
|Name             |  | Number of   securities   underlying   options   granted   (#)(1) |        
|                 |  |                                                                  |        
|James V. Mahoney |  |                                                                  | 100,000

|   
|---
|(1)

87



|(2) | The grant date present value was determined using   the Black-Scholes pricing model.    Significant assumptions used in the model were:  expected volatility 35.0%, risk-free rate   of return 4.05%, dividend yield of 5.08% and time of exercise 8 years.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

The following table sets forth information concerning exercise of DPL stock options during
fiscal 2003 by each person listed on the Summary Compensation Table and the fiscal year-end value of unexercised
options.

|Name                       |  | Shares   acquired on   exercise   (#) |   | Value   realized |  | Number of   securities underlying   unexercised options at fiscal   year end   (#) |  | Value of   unexercised in-the   money options at fiscal year-end |  
|-------------------------- |  | ------------------------------------- | - | ---------------- |  | ---------------------------------------------------------------------------------- |  | ---------------------------------------------------------------- | -
|                           |  |                                       |   |                  |  |                                                                                    |  |                                                                  |  
|                           |  |                                       |   |                  |  |                                                                                    |  | Exercisable                                                      |  
|                           |  |                                       |   |                  |  |                                                                                    |  |                                                                  |  
|Peter H. Forster (2) (3)   |  |                                       |  |                  |  |                                                                                   |  |                                                                  | 
|Stephen F. Koziar, Jr. (3) |  |                                       |  |                  |  |                                                                                   |  |                                                                  | 
|James V. Mahoney           |  |                                       |  |                  |  |                                                                                   |  |                                                                  | 
|Caroline E. Muhlenkamp (3) |  |                                       |  |                  |  |                                                                                   |  |                                                                  | 
|Patricia K. Swanke         |  |                                       |  |                  |  |                                                                                   |  |                                                                  | 
|W. Steven Wolff            |  |                                       |  |                  |  |                                                                                   |  |                                                                  | 

|   
|---
|(1)
|(2)
|(3)

Pension PlansThe following table sets forth the estimated total annual benefits payable under the DP&L Retirement Income Plan and the Supplemental Executive Retirement Plan, if applicable, to each person listed on the Summary Compensation Table at normal retirement date (age 65) based upon years of credited service and final average annual compensation (including base and incentive compensation) for the three highest years during the last five years:

|                                  |  | Total   Annual Retirement Benefits for   Years of Credited Service at Age 65 |        
|--------------------------------- |  | ---------------------------------------------------------------------------- | -------
|                                  |  |                                                                              |        
|Final   Average   Annual Earnings |  | 10 Years                                                                     |        
|                                  |  |                                                                              |        
|$   200,000                       |  | $                                                                            | 48,288 
|400,000                           |  |                                                                              | 105,288
|600,000                           |  |                                                                              | 162,288
|800,000                           |  |                                                                              | 219,288
|1,000,000                         |  |                                                                              | 276,288
|1,200,000                         |  |                                                                              | 233,288
|1,400,000                         |  |                                                                              | 390,288

The years of credited service are Mr. Forster - 23 years; Mr. Koziar  34 yrs.; Ms. Muhlenkamp  13 yrs.; Mr. Mahoney  0 yrs.; Mr. Wolff  1 yr.; and Ms. Swanke  13 years. Benefits are computed on a straight-life annuity basis, are subject to deduction for Social Security benefits and may be reduced by benefits payable under retirement plans of other employers.

88



Deferred Compensation
DistributionsThe Company and DPL maintain a Key Employee Deferred Compensation Plan (the DCP) and a 1991 Amended
Directors Deferred Compensation Plan (the Directors DCP and collectively with the DCP, the Deferred Compensation
Plans) for certain senior executives, directors and other key employees.  The Deferred Compensation Plans generally enable
participants to defer all or a portion of their cash compensation earned in a particular year.  If an individual elects to
defer any amount, such deferred amounts are reported as compensation in the year earned and are credited to the individuals
deferred compensation plan account.  DPL and the Company have funded its obligations to participants through a trust, which
is included in the Consolidated Balance Sheet in Other Assets  Other. Deferred compensation plan account
balances accrue earnings based on the investment options selected by the participant.  Interest, dividends and market value
changes are reflected in the individuals deferred compensation plan account.  Deferred compensation plan account
balances generally are paid following the termination of the participants employment with DPL and the Company, in a lump sum
or over time as determined by the participants deferral election form, and in-service distributions generally are not
allowed. In certain circumstances the plan provides for a 10% penalty for early withdrawal. Payments under the DCP are in cash or
DPL common shares, provided that distributions attributable to investments in DPL common shares must be paid in common shares. As
discussed above (see Item 3 - Legal Proceedings), certain amendments to the Deferred Compensation Plans purportedly made in
December 2003 had the effect of eliminating some of these restrictions for certain senior executives and facilitating these executive
officers to receive cash distributions from their deferred compensation balances.  The Company and DPL have initiated legal
proceedings challenging the validity of these amendments and the distributions.

The Company and DPL have maintained a
Management Stock Incentive Plan (the MSIP and together with the Deferred
Compensation Plans, the Plans) for key employees selected by the Compensation
Committee.  New awards under the MSIP were discontinued in 2000. 
Under the MSIP, the Committee granted Stock Incentive Units (SIUs) to MSIP
participants, with each SIU representing one DPL common share.  SIUs were
earned based on the achievement of performance criteria set by the Compensation
Committee and vested over time (subject to acceleration of earning and vesting
on the occurrence of certain events or at the discretion of DPLs and the
Companys Chief Executive Officer or the Compensation Committee). 
Earned SIUs were credited to a participants account under the MSIP and
accrue dividends like DPL common shares.  Under the MSIP, earned and vested
SIUs are to be paid in DPL common shares in a lump sum or over time as
determined by the participants deferral election.

DPL and the Company have found that restated versions of the MSIP exist that incorporate amendments purportedly made in May 2002 and December 2003, but DPL and the Company are unable to substantiate that the Board or the Compensation Committee ever authorized those amendments.  The May 2002 purported amendment provided that effective January 1, 2002, upon termination of employment of a participant who also participates in the DCP, the participants earned SIUs would be transferred to the participants deferred compensation account and deemed invested in shares of DPL common stock.  Six months after termination of the participants employment, the participant, DPL or the Company would be entitled to elect to allocate the value of the credited DPL common shares to other investments under the DCP that are designated by the participant.  The December 2003 purported amendment would have deleted a provision, added in 2000 when DPLs
Stock Option Plan was adopted, locking up until January 1, 2005 certain MSIP awards that previously had been granted to participants who were receiving options under the new Stock Option Plan.  The Company has initiated legal proceedings challenging the validity of that purported amendment.  (See Item 3  Legal Proceedings.)

89



The Compensation Committee has the
authority to amend, modify or terminate each Plan. Notwithstanding the uncertain validity of the purported amendments to the plans,
the Company has accounted for the plans as they have been administered.

The Company maintains a Supplemental
Executive Retirement Plan (the SERP).  In February 2000, the Compensation
Committee approved certain modifications to the SERP.  A copy of the SERP
as amended is attached as Exhibit 10(e).  The Company has found that a
restated version of the SERP exists that incorporates amendments purportedly
made in December 2002 concerning payments to be made in the event of a change of
control.  However, the Company is unable to substantiate that the Board or
the Compensation Committee ever authorized those amendments.

In 2000, in anticipation of the possible
acquisition of the Company, the participation by certain officers (including Mr.
Koziar and Ms. Muhlenkamp) in the Companys SERP terminated.  The
present value of each officers accrued benefit under the SERP as
determined by DPLs actuary ($3.5 million for Mr. Koziar and $1.4 million
for Ms. Muhlenkamp) was then credited to each officers deferred
compensation plan account.  The present value calculation for Ms.
Muhlenkamp was not computed in accordance with the SERP to the extent that the
amount credited to her account reflected increased salary and years-of-service
credits.  Subsequently, in April 2003, as Mr. Koziar and Ms. Muhlenkamp had
continued their employment with the Company and no acquisition of the Company
had occurred, the Compensation Committee approved discretionary payments to
these individuals.  The discretionary payments were calculated as if Mr.
Koziar and Ms. Muhlenkamp continued to participate in the SERP through April 30,
2003.  The discretionary payments made in 2003 were $1.9 million for
Mr. Koziar and $3.4 million for Ms. Muhlenkamp. The discretionary
payments made to Ms. Muhlenkamp were not calculated in accordance with the SERP
to the extent that the amount she received reflected increased salary and years-of-service
credits.

In April 2003, the Compensation Committee also approved a discretionary payment to Mr. Forster.  Mr. Forster elected to have this amount credited to his deferred compensation plan account.  The discretionary payment, in the amount of $4.9 million, was calculated as if Mr. Forster continued to participate in the SERP through April 30, 2003.  Mr. Forsters participation in the SERP was terminated in 1997 upon his retirement from the Company.  The discretionary payment made in 2003 represented the difference in the net present value of the SERP benefit Mr. Forster would have received if he had been entitled to continue to accrue benefits under the SERP through April 30, 2003 and the amount he was awarded in 1997 based upon his calculated benefit at that date.

In December 2003, a number of amendments
  purportedly were made to the DCP, the MSIP and the Directors DCP. 
  The Company has not been able to substantiate that the amendments purportedly
  made to the Directors DCP were ever approved by the Compensation Committee. 
  Moreover, the Company has initiated legal proceedings challenging the validity
  of the amendments purportedly made to the DCP, the MSIP and Directors DCP.
  (See Item 3  Legal Proceedings.)  The purported amendments included
  the following:

| |  | The DCP purportedly was amended to provide that if,   as of December 2, 2003 and as to DCP participants who were employed by or   providing ongoing consulting services to the Company or DPL on that date or   thereafter, the amount credited to the participants deferred compensation   plan account (excluding amounts deemed invested in DPL common shares) was in   excess of $500,000, the Company would pay to the participant in cash the   balance over $250,000.  The purported   DCP amendment also provided for distribution of the excess over $450,000 in a   participants deferred compensation plan account on December 31 of each year   beginning in 2004, if the deferred compensation plan account exceeded   $500,000.  As of the date this   purported amendment was to have taken effect, Messrs. Forster and Koziar and   Ms. Muhlenkamp were the only eligible participants.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

90



| |  | The Directors DCP purportedly was amended to   provide for similar distributions beginning December 31, 2004.  The Plan accounts of all of the Directors   are deemed to be invested in DPL common shares, and no distributions will be   made to the Directors as a result of the amendment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | The MSIP purportedly was amended to delete
a provision, added in 2000 when DPLs Stock Option Plan was adopted,
locking up until January 1, 2005 certain MSIP awards that previously had been
granted to participants who were receiving options under the new Stock Option
Plan.  In addition, the MSIP purportedly was modified to allow conversion
of SIUs to other investments at the discretion of the CEO, or in the case of the CEOs own SIUs,
at the discretion of the Compensation Committee.                                                                                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | In connection with the purported December 2003 DCP   amendments, Mr. Forster, Mr. Koziar and Ms. Muhlenkamp exchanged letters with   the Company in which they purportedly consented to the purported   amendments.  The letters also   provided, with respect to their MSIP accounts, that, notwithstanding the MSIP   requirement that SIUs be paid solely in DPL common shares, each could request   that his or her SIUs in excess of the shares required to be held under the   Companys Executive Management Share Ownership Guidelines be converted to   cash and the cash transferred to his or her deferred compensation plan   account.  The Companys records do not   reflect that the MSIP was ever amended to provide for requests to convert   excess shares into cash and distribute that cash to the participants   deferred compensation account.

As a result of the purported DCP and MSIP
amendments and the letters provisions, as well as the discretionary payments
described above, the following transfers were made from the MSIP to the Deferred
Compensation Plan account for Mr. Koziar 11,818 SIUs at $21.15 per share;
Mr. Forster 108,973 SIUs at $21.15 per share; and Ms. Muhlenkamp 336,952 SIUs at
$21.15 per share.  In addition pre-tax distributions of $7.1 million, $9.7
million and $16.3 million were made from their deferred compensation plan
accounts to Mr. Forster, Mr. Koziar and Ms. Muhlenkamp, respectively, in
December 2003.

Following the December 2003, purported amendments to the DCP and MSIP and the resulting distributions made to Mr. Forster, Mr. Koziar and Ms. Muhlenkamp, the Company began an internal investigation of those events.  As a result of that investigation, the Company initiated legal proceedings challenging the validity of those amendments and the propriety of those distributions.  (See Item 1 - Business - Recent Developments, and Item 3 - Legal Proceedings.)

Consulting Contract and Employment Agreements

Peter H. ForsterMr. Forster served as non-employee Chairman of the Board of Directors and consultant to the Company, DPL and MVE from January 1, 1997 to May 16, 2004 pursuant to a consulting contract, dated December 31, 1996, as amended.  The consulting contract automatically renewed for a one-year term on each December 31 unless either party gave at least 15 months written notice of nonrenewal.  The consulting contract would have continued for at least 36 months following a change of control.  DPL and the Company were also obligated to require any successor to all or substantially all of its business or assets to assume the consulting contract.

91



Mr. Forster resigned on May 16,
2004.  In connection with Mr. Forsters resignation, DPL and the
Company reserved all rights and defenses and Mr. Forster reserved all rights and
entitlements under applicable law and under any existing contract between Mr.
Forster, the Company, DPL and all of its subsidiaries.  Mr. Forster, along
with Ms. Muhlenkamp, filed a lawsuit against the Company, DPL and MVE claiming
that he was wrongfully terminated and is entitled to certain rights and
benefits.  The Company, DPL and MVE have filed a lawsuit against Mr.
Forster alleging that he breached his fiduciary duties and breached his
consulting contract and claim that they no longer owe Mr. Forster any further
benefits under his contract.  (See Item 3  Legal Proceedings.) 
In those proceedings, Mr. Forster claims that he is entitled to rights and
benefits under purported agreements with the Company. The Company has confirmed
that only certain of these purported agreements were properly approved. The
following description of Mr. Forsters consulting contract is a summary of the
contract that the company believes was in effect at the time of his
resignation.

Compensation and IndemnificationFor his service as Chairman, Mr. Forsters contract provided for (i) directors and similar fees as are customarily paid to other non-employee directors, including stock awards under DP&Ls Directors Deferred Stock Compensation Plan; (ii) an additional opportunity for Mr. Forster to receive 35,000 of DPLs common shares on each January 1 during the term of the contract, subject to earning and vesting criteria; (iii) participation in DP&Ls 1991 Amended Directors Deferred Compensation Plan; and (iv) other compensation and benefits as are customarily provided to other non-employee directors of the Company and DPL.

For his service as a consultant, Mr. Forsters contract provided for (i) an annual base consulting fee of $650,000 for the year ended December 31, 2003 and (ii) for calendar years 2000 and after, a bonus calculated in accordance with the MVE Incentive Program.  The MVE Incentive Program provided for incentive compensation (an MVE Payment) based on the cumulative cash distributed to DPL or attributable to each separate investment made by any private equity partnership in which DPL has invested at any time prior to the termination of his contract, less the amount invested, expenses, bonuses previously paid and any losses, in which losses not offset against any years cash return are carried over and applied against cash returned in future years.  Mr. Forsters consulting contract stated that for 2003 and for each calendar year thereafter, Mr. Forsters MVE Payment was equal to 2.75% of such amount.

Mr. Forsters contract also stated that the Company and DPL would provide Mr. Forster with life, health, accident and disability insurance benefits and will pay a death benefit of $1 million to Mr. Forsters beneficiary upon Mr. Forsters death during the term of the contract.

Mr. Forsters contract stated that the Company and DPL will indemnify Mr. Forster against any and all losses, liabilities, damages, expenses (including attorneys fees), judgments and amounts paid in settlement incurred by Mr. Forster in connection with any claim, action, suit or proceeding (whether civil, criminal, administrative or investigative), including any action by or in the right of either the Company or DPL, by reason of any act or omission to act in connection with the performance of his duties under the contract to the full extent that the Company and DPL are permitted to indemnify a director, officer, employee or agent against the foregoing under Ohio law, including, without limitation, Section 1701.13(E) of the Ohio Revised Code.

In connection with Mr. Forsters resignation, the Company and DPL agreed to advance reasonable attorneys fees incurred by Mr. Forster in defending any claim, action, suit or proceeding, whether civil, criminal, administrative or investigative, including any action brought derivatively on behalf of the Company and DPL by reason of any act or omission by

92



Mr. Forster to act as director, trustee, officer, employee or agent to the full extent permitted by Ohio law.  Any such advancement of expenses was subject to DPLs and the Companys receipt of an undertaking by Mr. Forster to repay any such amounts, unless it is ultimately determined that he is entitled to be indemnified by DPL and the Company as authorized by Article VII of the Companys Code of Regulations and Ohio law.  However, the lawsuit filed by the Company, DPL and MVE against Mr. Forster seeks a declaration that he is not entitled to such advancements and must repay advances already made because he is unable to demonstrate entitlement to such indemnification.

TerminationMr. Forsters contract may be terminated upon written notice by (i) the Company or DPL on account of Mr. Forsters disability or for cause or (ii) Mr. Forster for good reason.

Cause is defined as (i) commission of a felony, (ii) embezzlement, (iii) the illegal use of drugs or (iv) if no change of control has occurred (other than a change of control resulting from the commencement of a tender offer or the Company or DPL entering into an agreement to merge or consolidate or to sell, lease, exchange or otherwise transfer or dispose of all or substantially all of its assets), the failure by Mr. Forster to substantially perform his duties (other than any failure resulting from his physical or mental illness or other physical or mental incapacity) as determined by the Board of Directors.

Good Reason is defined as (i) the failure to elect Mr. Forster to Chairman of the Board of Directors or Chairman of the Executive Committee for any reason, other than Mr. Forsters termination due to death or disability, by the Company or DPL for cause, or by Mr. Forster for good reason; (ii) the assignment of any duties inconsistent with the duties contemplated by the consulting contract without Mr. Forsters consent; (iii) if within 36 months after the date of a change of control (other than a change of control resulting from the commencement of a tender offer or DPL or the Company entering into an agreement to merge or consolidate or to sell, lease, exchange or otherwise transfer or dispose of all or substantially all of its assets), Mr. Forster determines that he is unable to discharge his duties effectively; (iv) the failure of the Company or DPL to obtain the assumption of the contract by any successor; (v) the termination of the
contract by the Company or DPL without satisfying the applicable requirements; or (vi) any other material breach of the contract by the Company or DPL.

Upon termination of the contract for any reason, including expiration of the term, the contract provided for (i) a lump sum cash payment to Mr. Forster of the directors fees and base consulting fees through the date of termination; (ii) the continuation of Mr. Forsters MVE Payment on an annual basis; (iii) continuation of medical benefits to Mr. Forster and his spouse for life and to any of Mr. Forsters eligible dependents; and (iv) payment of all other accrued benefits to which Mr. Forster was entitled through the date of termination.  The contract also stated that all earned and vested stock awards granted to Mr. Forster pursuant to the Directors Deferred Stock Plan and all compensation deferred under the Directors Deferred Compensation Plan would be payable to Mr. Forster in accordance with the terms of such plan.

If the contract is terminated prior to the expiration of the term by Mr. Forster for good reason or by the Company or DPL, other than for cause or Mr. Forsters disability, and Mr. Forster was not entitled to receive change of control benefits for a change of control (other than a change of control resulting from the commencement of a tender offer or the Company or DPL entering into an agreement to merge or consolidate or to sell, lease, exchange or otherwise transfer or dispose of all or substantially all of its assets), then, in addition to the payments and benefits described above, the consulting contract provided for (i) a lump sum cash payment equal to the amount of the annual base consulting fees that would have been payable for the remainder of the term; (ii) all unearned and/or unvested stock incentive units

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awarded under the MSIP and all unearned and/or unvested stock awards granted under the Directors Deferred Stock Plan would be deemed fully earned and vested; and (iii) continuation of all life, medical, accident and disability insurance for Mr. Forster, his spouse and his eligible dependents for the remainder of the term.

Change of ControlMr. Forsters contract also provided for benefits and payments after the occurrence of a change of control (as such term is defined in the agreement).  Upon a change of control, the contract stated that the Company and DPL would transfer cash or other property in an amount sufficient to fund all benefits and payments to the master trust.  In addition, the consulting contract provided a gross-up payment if any excise tax was imposed upon a change of control such that Mr. Forster was in the same after-tax position as if no excise tax was imposed.

If a change of control occurred (other than a change of control resulting from the commencement of a tender offer or the Company or DPL entering into an agreement to merge or consolidate or to sell, lease, exchange or otherwise transfer or dispose of all or substantially all of its assets), the contract provided for (i) a lump sum cash payment to Mr. Forster equal to the sum of (a) 200% of the annual base consulting fees; (b) 200% of the average annual bonus paid to Mr. Forster for the three years immediately preceding the date of the change of control; and (c) any gross-up payment payable to Mr. Forster for excise taxes; (ii) payment of one-half of the amount calculated in clause (i) in consideration of Mr. Forsters agreement to be subject to a non-compete covenant; (iii) all unearned and/or unvested stock incentive units awarded under the MSIP and all unearned and/or unvested stock awards granted under the Directors Deferred Stock Plan would be
deemed fully earned and vested; and (iv) continuation of all life, medical, accident and disability insurance for Mr. Forster, his spouse and his eligible dependents until the third anniversary of the date of the change of control.

If a tender offer was commenced or the Company or DPL entered into an agreement to merge or consolidate or to sell, lease, exchange or otherwise transfer or dispose of all or substantially all of its assets, then upon any subsequent termination of Mr. Forsters contract at any time within 36 months of the change of control and prior to the occurrence of another change of control or the consummation of such tender offer or agreement, Mr. Forsters consulting contract provided for the benefits and payments described above unless the contract was terminated for cause, on account of Mr. Forsters death or disability or by Mr. Forster without good reason.  However, in the event of such a change of control, if the tender offer or agreement was abandoned or terminated, and a majority of the original directors and/or their successors (as such terms are defined in the contract) determined that the tender offer or agreement would not effectuate or
otherwise result in a change of control and provide written notice of such determination, then a subsequent termination would have not entitled Mr. Forster to these benefits.  Neither the Company nor DPL experienced a change of control while Mr. Forster served as Chairman and consultant to DPL and the Company.

February 2004 LettersMr.
Koziar executed two letters (each dated as of February 2, 2004) to Mr. Forster,
both of which were agreed to and acknowledged by Mr. Forster.  In addition,
Mr. Koziar sent a letter to Mr. Forster dated February 3, 2004.  The
letters described new terms and modifications to Mr. Forsters consulting
contract, an amended version of which was attached to the February 2, 2004
letter.  The modifications included:

| |  | changing Mr. Forsters severance compensation after   a change of control from 200% of the average annual bonus paid to Mr. Forster   for the three years prior to his termination to 200% of the average of his   incentive compensation for the three of the last ten years prior to his   termination, whether or not consecutive, that yielded the highest average   incentive compensation;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | adding a clarification that a transferee of all or   a portion of DPLs interest in the financial asset portfolio will be required   specifically to assume DPLs and the Companys obligation to pay Mr. Forster   the MVE Incentive Payment pursuant to Annex A of his contract;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                     
| |  | increasing the duration of Mr. Forsters non-compete   agreement from two to three years;                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                     
| |  | increasing Mr. Forsters consulting fee to $750,000;   and                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                     
| |  | entitling Mr. Forster to receive gross-up payments   for any excise taxes on the date of termination rather than 15 days after   such date.                                                                                                                                         

An amended contract was never signed by DPL or the Company.  In addition, neither the Board nor the Compensation Committee approved or authorized the modifications and new terms described above.  The Company, DPL and MVE have commenced litigation seeking a declaration that the amendments described above were not effective. However, in the litigation action brought by Mr. Forster and Ms. Muhlenkamp, in which they allege a breach of contract, Mr. Forster claims that the letters governed his relationship with the Company and that he is entitled to the benefits contained therein.  (See Item 3  Legal Proceedings.)

Stephen F. Koziar, Jr. Mr.
Koziar served as the President and Chief Executive Officer of the Company and
DPL from January 1, 2003 to May 16, 2004 pursuant to an employment
agreement dated October 17, 2002 and a letter agreement dated December 15,
2000.  Mr. Koziar also served as a director and Secretary/Treasurer of MVE
from 1998 until his retirement.  The term of Mr. Koziars employment
agreement was through December 31, 2005 unless terminated by the Company and DPL
or Mr. Koziar at any time, with or without cause, upon 180 days written
notice.

Mr. Koziar retired from the Company and
DPL on May 16, 2004.  In connection with his retirement, DPL and the
Company reserved all rights and defenses and Mr. Koziar reserved all rights
and entitlements under applicable law and under any existing agreement. 
The Company, DPL and MVE have filed a lawsuit against Mr. Koziar alleging that
he breached his fiduciary duties and breached his employment agreement and claim they no longer owe Mr. Koziar any further benefits under his contract. 
(See Item 3 - Legal Proceedings.)

DPL and the Company have initiated legal proceedings against Mr.
Koziar relating to, among other things, his employment agreement (See Item 3 - Legal Proceedings).  DPL and
the Company have found that two versions of Mr. Koziars employment
agreement exist, the initial version and an amended version.  However, DPL
and the Company have not been able to confirm that the amended version was ever
approved by the Compensation Committee or the Board of Directors. 
Therefore, the initial version has been attached hereto as Exhibit 10(i), and is
reflected in the following discussion.  DPL and the Company also have found
two versions of the December 15, 2000 letter agreement with Mr. Koziar featuring
different averaging formulas for determining the incentive compensation payment
following a change of control.  DPL and the Company believe that the
version that was a three-most-recent years averaging formula attached as
Exhibit 10(n), rather than taking the highest three years of the past ten, is
the original version and it has not been able to substantiate that the other
version was ever approved by the Compensation Committee or the Board of
Directors.  The following discussion reflects the documents attached as
Exhibits 10(i) and 10(n).

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Compensation and IndemnificationMr. Koziars employment agreement provided for (i) an annual base
salary of not less than $600,000; (ii) participation in the Management
Incentive Compensation Plan (MICP); (iii) eligibility to be granted options under
DPLs Stock Option Plan; (iv) participation in other incentive programs;
and (v) such fringe benefits (including medical, life and disability insurance
benefits and retirement benefits) as are generally made available to other
executive level employees.

Mr. Koziars agreement stated that the Company and DPL will indemnify Mr. Koziar against any and all losses, liabilities, damages, expenses (including attorneys fees), judgments and amounts paid in settlement incurred by Mr. Koziar in connection with any claim, action, suit or proceeding (whether civil, criminal, administrative or investigative), including any action by or in the right of either the Company or DPL, by reason of any act or omission to act in connection with the performance of his duties under the contract to the full extent that the Company and DPL are permitted to indemnify a director, officer, employee or agent against the foregoing under Ohio law, including, without limitation, Section 1701.13(E) of the Ohio Revised Code.

In connection with Mr. Koziars retirement, DPL and the Company agreed to advance reasonable attorneys fees incurred by Mr. Koziar in defending any claim, action, suit or proceeding, whether civil, criminal, administrative or investigative, including any action brought derivatively on behalf of DPL or the Company, by reason of any act or omission by Mr. Koziar to act as director, trustee, officer, employee or agent to the full extent permitted by Ohio law.  Any such advancement of expenses was subject to DPLs and the Companys receipt of an undertaking by Mr. Koziar to repay any such amounts, unless it is ultimately determined that he is entitled to be indemnified by DPL and the Company as authorized by Article VII of the Companys Code of Regulations and Ohio law.  However, the lawsuit filed by the Company, DPL and MVE against Mr. Koziar seeks a declaration that he is not entitled to such advancements and must repay advances
already made because he is unable to demonstrate entitlement to such indemnification.

TerminationMr. Koziars employment agreement was terminable by DPL or the Company without cause on 180 days prior written notice, or with cause without prior notice.  Mr. Koziar could terminate the agreement on 180 days written notice.  Cause is defined as (i) the commission of a felony, (ii) embezzlement, (iii) the illegal use of drugs, or (iv) the failure by Mr. Koziar  to substantially perform his duties under the agreement (other than any such failure resulting from his physical or mental illness or other physical or mental incapacity) as determined by the Board of Directors of the Company and DPL.

If Mr. Koziars employment was terminated for any reason, the December 15, 2000 letter agreement provided for (i) a lump sum cash payment to Mr. Koziar equal to the sum of his full base salary through the date of termination and the amount of the awards earned pursuant to any incentive compensation plan that have not been paid (other than any deferred compensation plan in which he made a contrary installment election); (ii) continuation of medical benefits for him and his spouse for life; and (iii) payment of any other accrued benefits to which he was entitled through the date of termination.

If Mr. Koziars employment was terminated prior to December 31, 2005 by DPL or the Company without cause, other than in connection with a change of control, or by Mr. Koziar, and at the time of termination, any of the following executive positions are filled by more than one person: President or Chief Operating Officer of (1) DPL, (2) DP&L or (3) DPL Energy, LLC; then the employment agreement states that: (i) the Company and DPL will pay

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Mr. Koziars base salary through December 31, 2005; (ii) the Company and DPL would pay Mr. Koziar the annual bonus he would have received pursuant to the MICP for the year during which termination occurs had he still been employed as of the last day of such year; and (iii) any unvested options granted under DPLs Stock Option Plan would be deemed fully vested.  However, the Company and DPL would not have those obligations, if Mr. Koziars employment was terminated for cause.

The other version of Mr. Koziars
agreement, which the Company does not believe became effective, removed all
provisions regarding cause.  Under that version, the agreement
was terminable by any party at any time on 180 days written notice.  Any
termination at a time when (a) any of the following executive positions were
filled by more than one person: President or Chief Operating Officer of (1) DPL,
(2) DP&L or (3) DPL Energy, LLC, or (4) a new CEO of DPL had been elected
would have required that: (i) the Company and DPL would pay Mr. Koziars
base salary through December 31, 2005; (ii) the Company and DPL would pay Mr.
Koziar the annual bonus he would have received pursuant to the MICP for the year
during which termination occurs had he still been employed as of the last day of
such year; and (iii) any unvested options granted under DPLs Stock Option
Plan would have been deemed fully vested.  Additionally, that version of
Mr. Koziars agreement contained a provision under which Mr. Koziar would
refrain for two years from participating in certain forms of competition with
DPL and DP&L.

In addition to the above, if Mr. Koziars employment was terminated due to his death, then Mr. Koziars estate would be entitled to his base compensation through December 31, 2005.

Change of ControlIf a change of control occurred (other than a change of control resulting from the commencement of a tender offer or the Company or DPL entering into an agreement to merge or consolidate or to sell, lease, exchange or otherwise transfer or dispose of all or substantially all of its assets), Mr. Koziars December 15, 2000 letter agreement provided for (i) a lump sum cash payment to Mr. Koziar equal to the sum of 200% of (a) the annual base salary and (b) the average of the last three annual award payments made to Mr. Koziar under the MICP prior to the change of control, including any portion of the payments he elected to have credited to his deferred compensation plan account; (ii) payment of one-half of the amount calculated in clause (i) in consideration of Mr. Koziars agreement to be subject to non-compete and confidentiality covenants; (iii) gross-up payments for excise taxes; and (iv) any and all awarded stock incentive
units pursuant to the MSIP (other than to the extent related to a completed period for which the determination of the number of earned stock incentive units had already been made; and not to exceed the number of stock incentive units comprising the target award under the applicable stock incentive award regardless of the potential to earn more than such target award) being deemed earned stock incentive units which are vested, and all such earned stock incentive units shall be payable.  Mr. Koziars agreement permitted Mr. Koziar to defer the payment described in clause (ii), in which event the amount would be credited to his deferred compensation plan account.  In addition, if Mr. Koziars agreement was terminated within twelve months of such change of control, his agreement stated that Mr. Koziar would receive the benefits described below, unless such termination is for cause or due to Mr. Koziars death or disability.

Under the December 15, 2000 letter agreement, if a tender offer was commenced or the
Company or DPL entered into an agreement to merge or consolidate or to sell,
lease, exchange or otherwise transfer or dispose of all or substantially all of
its assets, then upon any subsequent termination of Mr. Koziars employment
agreement within 36 months of the change of control and prior to the occurrence
of another change of control or the consummation of such tender offer or
agreement, Mr. Koziars employment agreement provided for (i) the payments
described above; (ii) in the event that the change of control preceded the
completion of a period in which Mr. Koziar

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could have earned compensation pursuant to the MICP or any other incentive plan (other than the MSIP), a lump sum cash payment to Mr. Koziar equal to the average of the last three annual award payments to him under the MICP or other incentive plan (other than the MSIP), including any portion of such payments that he elected to have credited to his deferred compensation plan account (a second version of the letter agreement calculated this average based on the three calendar years out of the last ten consecutive years which yielded the highest average of incentive compensation); (iii) payment of any cash or shares of DPLs stock awarded pursuant to the MICP or any action taken by the Board of Directors prior to the change of control which had been deferred; provided, however, that any deferral election that Mr. Koziar selected would remain in effect; and (iv) continuation of all life, health, accident and disability insurance until the third anniversary of the
date of the change of control or until an essentially equivalent benefit was made available to Mr. Koziar by a subsequent employer at no cost to Mr. Koziar; provided, however, that such benefits and payments would not be made, if the agreement was terminated by the Company or DPL for cause, by Mr. Koziar, or on account of Mr. Koziars death or disability.  In the event of such a change of control, if the tender offer or agreement was abandoned or terminated, and a majority of the original directors and/or their successors determine that the tender offer or agreement would not effectuate or otherwise result in a change of control and provide written notice of such determination, then a subsequent termination would not entitle Mr. Koziar to the benefits described above.

Upon any change of control, Mr. Koziars letter agreement stated that the Company and DPL would transfer cash or other property in an amount sufficient to fund all change of control benefits and payments to the master trust.  In addition, the letter agreement provided a gross-up payment, if any excise tax was imposed upon a change of control such that Mr. Koziar was in the same after-tax position as if no excise tax was imposed.  Neither the Company nor DPL experienced a change of control while Mr. Koziar was employed by DPL and the Company.

Caroline E. Muhlenkamp Ms.
Muhlenkamp served as director and President of MVE from November 1998 and Group
Vice President and interim Chief Financial Officer of the Company and DPL from
April 2003 to May 16, 2004.  During 2003, her employment terms were
governed by an employment agreement dated as of December 14, 2001 and a letter
agreement dated December 15, 2000 that was signed in 2002.

Ms. Muhlenkamp and the Company are
presently engaged in legal proceedings that relate, in part, to her employment
agreement (see Item 3  Legal Proceedings). In those proceedings, Ms.
Muhlenkamp claims that she is entitled to rights and benefits under purported
agreements with the Company. The Company believes confirmed that only certain of these
purported agreements were properly approved. The following description of Ms.
Muhlenkamps employment agreement is a summary of the agreement that the
Company believes was in effect at the time of her resignation.

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The term of Ms. Muhlenkamps employment agreement commenced on December 14, 2001 and continued thereafter until terminated by DPL or the Company or Ms. Muhlenkamp at any time, with or without cause, upon 180 days written notice, except that if DPL or the Company terminated the agreement for cause (as defined in the agreement), no such notice was required.  The agreement would have terminated upon Ms. Muhlenkamps death or disability.  The Company and DPL were also obligated to require any successor to all or substantially all of its business or assets to assume her employment agreement.

Ms. Muhlenkamp resigned on May 16,
2004.  In connection with Ms. Muhlenkamps resignation, DPL and the
Company reserved all rights and defenses and Ms. Muhlenkamp reserved all rights
and entitlements under applicable law and under any existing
agreements.   Ms. Muhlenkamp, along with Mr. Forster, filed a lawsuit
against the Company, DPL and MVE claiming that she was wrongly terminated and is
entitled to certain rights and benefits.  The Company, DPL and MVE have
filed a lawsuit against Ms. Muhlenkamp alleging that she breached her fiduciary
duties and breached her employment contract and claim that they no longer owe Ms. Muhlenkamp any further benefits under her contract.  (See Item 3 - Legal
Proceedings.)

Compensation and IndemnificationMs. Muhlenkamps agreement provided for (i) an annual base salary to be
determined from time to time: (ii) an MVE Payment calculated in accordance with
the MVE Incentive Program; and (iii) other standard fringe benefits, including
medical, life and disability insurance, retirement benefits and continued
participation in the Companys Key Employees Deferred Compensation
Plan.  Ms. Muhlenkamps annual base salary was $314,000 in 2001, $364,000 in 2002 and $434,000 in 2003. 
Ms. Muhlenkamps employment agreement stated that for 2003 and for
each calendar year thereafter, Ms. Muhlenkamps MVE Payment was equal
to 2.25%.

Other versions of Ms. Muhlenkamps
agreement, which the Company does not believe were authorized, also provided for her eligibility to receive options under
DPLs Stock Option Plan and to participate in the MICP.  In addition, such versions stated that the
Company and DPL would indemnify her against any and all losses, liabilities,
damages, expenses (including attorneys fees), judgments and amounts paid
in settlement incurred by Ms. Muhlenkamp in connection with any claim, action,
suit or proceeding (whether civil, criminal, administrative or investigative),
including any action by or in the right of either the Company or DPL, by reason
of any act or omission to act in connection with the performance of her duties
under the contract to the full extent that the Company and DPL are permitted to
indemnify a director, officer, employee or agent against the foregoing under
Ohio law, including, without limitation, Section 1701.13(E) of the Ohio Revised
Code.

In connection with Ms. Muhlenkamps resignation, DPL and the Company agreed to advance reasonable attorneys fees incurred by Ms. Muhlenkamp in defending any claim, action, suit or proceeding, whether civil, criminal, administrative or investigative, including any action brought derivatively on behalf of DPL or the Company, by reason of any act or omission by Ms. Muhlenkamp to act as director, trustee, officer, employee or agent to the full extent permitted by Ohio law.  Any such advancement of expenses was subject to DPLs and the Companys receipt of an undertaking by Ms. Muhlenkamp to repay any such amounts, unless it is ultimately determined that she is entitled to be indemnified by DPL or the Company as authorized by Article VII of DPLs and the Companys Code of Regulations and Ohio law.  However, the lawsuit filed by the Company, DPL and MVE against Ms. Muhlenkamp seeks a declaration that she is not entitled to
such advancements and must repay advances already made because she is unable to demonstrate entitlement to such indemnification.

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TerminationMs. Muhlenkamps employment
agreement stated that the Company and DPL would continue to make Ms.
Muhlenkamps MVE Payment on an annual basis unless the Company terminated
her for cause. (In the litigation with the Company, Ms. Muhlenkamp
has argued that based on other versions of the employment agreement, the
for cause termination provisions have been eliminated and the
Company is required to continue to make these MVE Payments annually under all
circumstances. The Company disputes that argument.) The December 15, 2000 letter
agreement included termination provisions that differ from Ms. Muhlenkamps
employment agreement. If terminated for any reason at any time, the December 15,
2000 letter agreement provided for (i) a lump sum cash payment to Ms. Muhlenkamp
equal to the sum of (a) Ms. Muhlenkamps annual base salary through the
date of termination and (b) any awards earned, with respect to any completed
period, pursuant to the MVE Incentive Program or any other incentive
compensation that had not yet been paid, other than any deferred compensation
plan in which Ms. Muhlenkamp made a contrary installment election; (ii) benefits
under the medical plan for Ms. Muhlenkamp for life and for her eligible
dependents; and (iii) all other accrued benefits to which Ms. Muhlenkamp was
entitled through the date of termination; provided, however, that if Ms.
Muhlenkamps employment agreement terminated upon her death or disability,
the Company and DPL would pay her estate or to Ms. Muhlenkamp her annual base
salary through December 31, 2005.

Other versions of Ms. Muhlenkamps
agreement, which the Company does not believe were authorized, also provided that if the agreement was terminated prior to
the expiration of its term by the Company or DPL (other than after a change of
control in which Ms. Muhlenkamp would be entitled to payment of benefits) or by
Ms. Muhlenkamp, and at the time of such termination there were no unfilled
senior positions at MVE, the employment agreement provided for (i) continued
payment of Ms. Muhlenkamps annual base salary through December 31, 2005;
(ii) payment of the annual bonus that Ms. Muhlenkamp would have received under
the MICP for the year in which termination occurs had she been employed as of
the last day of such year; and (iii) the vesting of any unvested options granted
to Ms. Muhlenkamp under DPLs Stock Option Plan.

Change of ControlIf a change of control occurred, then Ms. Muhlenkamps December 15, 2000 letter agreement provided for payments and benefits similar to those available to Mr. Koziar, with the only exception being that for Ms. Muhlenkamp, the incentive compensation included award payments pursuant to the MVE Incentive Program only.  Neither the Company nor DPL experienced a change of control while Ms. Muhlenkamp was employed by DPL and the Company.

February 2004 LetterMr. Koziar executed a letter agreement with Ms. Muhlenkamp, dated as of February 2, 2004, which was agreed to and acknowledged by Ms. Muhlenkamp.  The letter agreement described new terms and modifications to Ms. Muhlenkamps employment agreement, an amended version of which was attached thereto.  A copy of a revised change of control letter agreement was given to Ms. Muhlenkamp.  The modifications included:

| |  | changing Ms. Muhlenkamps severance compensation   after a change of control from 200% of the average annual award payments   under the MVE Incentive Program paid to Ms. Muhlenkamp for the three   years prior to her termination to 200% of the average of her incentive   compensation for the three of the last ten years prior to her termination,   whether or not consecutive, that yielded the highest average incentive   compensation;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | adding a clarification that a transferee of all or   a portion of DPLs interest in the financial asset portfolio would be   required specifically to assume DPLs and the Companys obligation to pay Ms.   Muhlenkamp the MVE Incentive Payment pursuant to Annex A of her employment   agreement; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                           
| |  | increasing the duration of Ms. Muhlenkamps   non-compete agreement from two to three years.                                                                                                                                                                                                              

The amended employment agreement was never signed by DPL or the Company.  In addition, neither the Board nor the Compensation Committee approved or authorized the modifications and new terms described above.  The Company, DPL and MVE have commenced litigation seeking a declaration that the amendments described above were not effective.  However, in the litigation action brought by Mr. Forster and Ms. Muhlenkamp, in which they allege a breach of contract, Ms. Muhlenkamp claims that the amended employment agreement governed her employment with DPL and the Company and that she is therefore entitled to the benefits contained therein.  (See Item 3  Legal Proceedings.)

James V. MahoneyMr. Mahoney has served as the President of DPLE since January 3, 2003, pursuant to an employment agreement and letter agreement dated January 3, 2003.  The term of Mr. Mahoneys employment agreement is indefinite until terminated by DPL or Mr. Mahoney, with or without cause, upon 30 days written notice; provided that DPL may terminate the agreement with cause without prior notice.  The agreement also automatically terminates upon Mr. Mahoneys death or disability.

Mr. Mahoney was appointed President and Chief Executive Officer of DPL by the Board of Directors on May 16, 2004.

CompensationMr. Mahoneys agreement provides for (i) an annual base salary of not less than $425,000; (ii) participation in the MICP, in which during 2003, he had the opportunity to earn $200,000 at 100% of the target performance; (iii) participation in DPLs Long Term Incentive Plan, in which during 2003, he had the opportunity to earn $400,000 at 100% of target performance; (iv) stock options to purchase up to 100,000 shares of common stock; and (v) such fringe benefits (including medical, life and disability insurance benefits and qualified retirement benefits) as are generally made available to other executive level employees.  Awards earned pursuant to the Long Term Incentive Plan will vest in three equal installments on December 31 of each year, commencing with the year in which an award is granted.

TerminationIf Mr. Mahoneys employment is terminated for any reason at any time, Mr. Mahoneys letter agreement provides for (i) a lump sum cash payment to Mr. Mahoney equal to the sum of his full base salary through the date of termination and the amount of any awards, with respect to any completed period which, pursuant to the MICP or any other incentive plan in which he participates (other than any deferred compensation plan in which he elected a contrary installment), have been earned but not yet paid and (ii) payment of any other accrued benefits to which Mr. Mahoney is entitled.

If the Company or DPL terminate Mr. Mahoneys
employment without cause a change of
control has not occurred or is not pending, then Mr. Mahoneys employment
agreement provides for a payment to Mr. Mahoney equal to the sum of his full
base salary then in effect, and the benefits described above, provided that Mr.
Mahoney executes and delivers a release pursuant to which he fully and
unconditionally releases any claims that he may have against DPL and its
affiliates. Certain other benefits would have applied if Mr. Mahoney had not been offered the position of President and CEO of DPL on or before December 31, 2004.

101



Change of ControlIf Mr. Mahoneys employment is terminated within 36 months of a change of control, Mr. Mahoneys letter agreement provides for (i) a lump sum cash payment equal to the sum of (a) the average of the three highest of the last ten annual award payments made pursuant to the MICP or other incentive plan, including any portion deferred to his deferred compensation plan account, if the termination precedes the actual determination of such incentive compensation or the completion of a period in which he could have earned incentive compensation, (b) an amount equal to 200% of the sum of his annual base salary, before deduction of any deferred amounts, and the average of the three highest of the last ten annual award payments made under the MICP, including any portion deferred to his deferred compensation plan account, (c) one half of the amount payable in clause (b) in consideration of Mr. Mahoneys agreement to non-compete and
confidentiality provisions, (d) any cash or shares of DPL common stock previously earned under the MICP or pursuant to action by the Board of Directors but not yet paid, and (e) gross-up payments for excise taxes; and (ii) continuation of all life, medical, accident and disability insurance for Mr. Mahoney and his eligible dependents until the third anniversary of the date of termination or the date an essentially equivalent benefit is made available to Mr. Mahoney by a subsequent employer.

Mr. Mahoneys letter agreement states that the benefits described above would not be available if such termination is by (i) the Company or DPL for cause or on account of Mr. Mahoneys disability; (ii) Mr. Mahoney without good reason and the change of control does not result from the commencement of a tender offer or the Company or DPL entering into an agreement to merge or consolidate or to sell, lease, exchange or otherwise transfer or dispose of all or substantially all of its assets; (iii) Mr. Mahoney for any reason and the change of control results from the commencement of a tender offer or the Company or DPL entering into an agreement to merge or consolidate or to sell, lease, exchange or otherwise transfer or dispose of all or substantially all of its assets; or (iv) Mr. Mahoneys death.  Good Reason for Mr. Mahoney is defined as (i) assignment of duties inconsistent with the written objectives of his position, a
change in his reporting responsibilities, his removal from or any failure to re-elect Mr. Mahoney to his position or office; (ii) failure to have his annual base salary raised when salary adjustments are historically made; (iii) a reduction in his base salary; (iv) failure by the Company or DPL to continue a benefit plan, including incentive plans; (v) the relocation of the Companys principal executive offices outside of Montgomery County, Ohio, if at the time of a change of control, Mr. Mahoney is based at the principal offices; (vi) being required to base more than fifty miles from the location he was based at the time of the change of control or the failure to reimburse for moving expenses, if Mr. Mahoney consents to moving his base and permanent residence; (vii) excessive travel that necessitates overnight absences; (viii) the failure by the Company or DPL to obtain the assumption of his employment agreement by any successor; (ix) termination without cause or without being provided with a
notice of termination; and (x) if, within 36 months of a change of control, Mr. Mahoney determines that he cannot effectively discharge his duties.

Upon a change of control, Mr. Mahoneys letter agreement states that the Company and DPL will transfer cash or other property in an amount sufficient to fund all change of control benefits and payments to the master trust.  In addition, the letter agreement provides a gross-up payment, if any excise tax is imposed upon a change of control such that Mr. Mahoney is in the same after-tax position as if no excise tax was imposed.

If Mr. Mahoneys employment is terminated within 36 months of a change of control due to his disability, his letter agreement provides for benefits under the Companys and DPLs salary continuation plan or disability insurance.  If Mr. Mahoneys employment is terminated for cause subsequent to a change of control, his letter agreement provides for compensation for services previously rendered as if he were terminated without the occurrence of a change of control.

102



Further, if a tender offer or a potential agreement is abandoned or terminated and a majority of the original directors and/or their successors determine that the tender offer or agreement will not effectuate or otherwise result in a change of control and provide written notice of such determination, then a subsequent termination will not entitle Mr. Mahoney to the benefits described above.

Robert D. BiggsMr. Biggs has served as the Chairman of the Board of Directors of DPL and DP&L since May 16, 2004, and he was appointed Executive Chairman of DPL and DP&L pursuant to an employment agreement, dated July 21, 2004 and effective as of May 16, 2004.  The term of Mr. Biggs employment agreement is through May 16, 2006 and automatically renews for one-year periods unless terminated, with or without cause, by the Company, DPL or Mr. Biggs upon 90 days written notice; provided that the Company or DPL may terminate Mr. Biggs for cause without prior notice.  The agreement also automatically terminates upon Mr. Biggs death or disability.  Mr. Biggs agreement includes non-compete and confidentiality provisions.

Compensation and IndemnificationMr. Biggs agreement provides for (i) an annual base salary of
$250,000; (ii) his eligibility to receive an annual bonus under the MICP; (iii)
stock options to purchase 200,000 shares of Company common stock at an exercise
price to be determined pursuant to the DPL Stock Option Plan and that will vest
and become exercisable as to 50% of the shares on each of May 16, 2005 and May
16, 2006; (iv) an annuity that provides Mr. Biggs with a lifetime annual benefit
of $71,000 and that includes a joint and survivor benefit feature that provides
30% of his annual annuity benefit to his surviving spouse for her lifetime in
consideration of the existing pension benefits that Mr. Biggs has foregone to
accept employment with DPL and the Company; (v) a tax gross-up such that if any
annuity taxes or other related taxes are imposed, Mr. Biggs is in the same
after-tax position as if no taxes were imposed; (vi) fringe benefits as are
generally provided to non-employee directors; and (vii) term life insurance
policy with a death benefit of $500,000.  In addition, DPL and the Company
will provide Mr. Biggs with the use of corporate aircraft in connection with his
travel between Dayton and his home in Florida and will pay a tax gross-up in
respect of such use.  On October 5, 2004, Mr. Biggs signed a Letter
Agreement with DPL and the Company to clarify that the effective date for the
grant of stock options entitling Mr. Biggs to purchase 200,000 common shares,
pursuant to his employment agreement was October 5, 2004 and not May 16,
2004.

Mr. Biggs agreement states that the Company and DPL will indemnify him against any and all losses, liabilities, damages, expenses (including attorneys fees), judgments and amounts paid in settlement incurred by Mr. Biggs in connection with any claim, action, suit or proceeding (whether civil, criminal, administrative or investigative), including any action by or in the right of either the Company or DPL, by reason of any act or omission to act in connection with the performance of his duties under the agreement to the full extent that the Company and DPL are permitted to indemnify a director, officer, employee or agent against the foregoing under the respective Codes of Regulations of the Company and DPL and Ohio law, including, without limitation, Section 1701.13(E) of the Ohio Revised Code.

TerminationIf Mr. Biggs employment is terminated for any reason, Mr. Biggs agreement provides for (i) his annual base salary through the date of his termination and (ii) any accrued benefits under the Companys and DPLs compensation or benefit plans or arrangements in accordance with their terms, including any unpaid bonuses payable in respect of a completed fiscal year.

103



If Mr. Biggs employment is terminated without cause prior to a change of control, then in addition to the payments and benefits described above, Mr. Biggs employment agreement provides for (i) a lump sum cash payment equal to the aggregate amount of his annual base salary during the remainder of his term; (ii) continued benefits during the remainder of the term; and (iii) the vesting of all awarded stock options; provided that Mr. Biggs executes and delivers a release pursuant to which he fully and unconditionally releases any claims that he may have against the Company or DPL.

Change of ControlIf within one year of a change of control Mr. Biggs employment either is not extended by DPL and the Company or is terminated without cause, Mr. Biggs agreement provides for (i) a lump sum cash payment equal to the sum of (a) 200% of the annual base salary; (b) 200% of the annual bonus paid or payable to Mr. Biggs for the calendar year immediately preceding the year of his termination (if Mr. Biggs has not had the opportunity to earn an annual bonus prior to his termination, then the annual bonus shall be deemed to be $250,000); and (c) a gross-up payment if any excise tax is imposed upon a change of control, such that Mr. Biggs is in the same after-tax position as if no excise tax was imposed; (ii) the continuation of his benefits for two years following his termination; and (iii) the vesting of all of his awarded stock options; provided that Mr. Biggs executes and delivers a release pursuant to which he fully and
unconditionally releases any claims that he may have against the Company or DPL.  If the change of control that occurred was only the commencement of a tender offer, the tender offer is abandoned or terminated and a majority of the original directors and/or their successors determine that the tender offer will not effectuate or otherwise result in a change of control and provide written notice of such determination, then a subsequent termination will not entitle Mr. Biggs to the benefits described above.

W. Steven Wolff Mr. Wolff
has served as an executive employee of DPL since September 17, 2003
pursuant to an employment agreement dated September 17, 2003 and a letter
agreement dated November 1, 2002 as amended on September 10, 2004.  The
term of Mr. Wolffs employment agreement is indefinite until terminated by
DPL, with or without cause, upon 30 days notice or by Mr. Wolff
upon 180 days written notice; provided that DPL may terminate the
agreement with cause without prior notice.  The agreement also terminates
automatically upon Mr. Wolffs death or disability.

CompensationMr. Wolffs agreement provides for (i) an annual base salary of not less than $250,000; (ii) participation in such short-term and long-term bonus, incentive compensation, deferred compensation and similar plans as DPL or the Compensation Committee may determine; and (iii) such fringe benefits as are generally made available to all other employees, the Executive Medical Plan, the annual physical program and financial planning services in effect from time to time.

TerminationIf Mr. Wolffs employment is terminated without cause and he is not entitled to receive the benefits described below, then the agreement provides for payment of his annual base salary in installments over the one-year period after the date of termination; provided that Mr. Wolff executes and delivers a release pursuant to which he fully and unconditionally releases any claims that he may have against DPL and its affiliates.

Cause for purposes of Mr. Wolffs employment agreement is defined as (i) commission of a felony, (ii) embezzlement, (iii) the illegal use of drugs, or (iv) the failure by Mr. Wolff to substantially perform his duties hereunder (other than any such failure resulting from his physical or mental illness or other physical or mental incapacity) as reasonably determined by DPL.

104



If Mr. Wolff s employment is terminated for any reason at any time, his letter agreement provides for (i) a lump sum cash payment to Mr. Wolff equal to his full base salary through the date of termination; (ii) the amount of the awards, with respect to any completed period, which pursuant to the MICP or any other incentive plan (other than any deferred compensation plan in which he made a contrary installment election) have been earned but not paid; and (iii) payment of any other accrued benefits to which he is entitled through the date of termination.

For a period of one year after termination of Mr. Wolffs employment, Mr. Wolffs employment agreement states that Mr. Wolff is required to provide assistance as may be necessary to facilitate a smooth and orderly transition of duties.

Change of ControlIf Mr. Wolffs employment is terminated in connection with a change
  of control, his letter agreement provides for payments and benefits similar
  to those described for Mr. Mahoney except, that Mr. Wolffs non-compete
  provisions are effective for two years after termination whereas Mr. Mahoneys
  non-compete provisions are effective for three years after termination.

Patricia K. Swanke Ms. Swanke
has served as an executive employee since September 17, 2003, pursuant to an
employment agreement dated September 17, 2003 and a letter agreement dated
November 1, 2002.  The term of Ms. Swankes employment agreement is
indefinite until terminated by DPL, with or without cause, upon 30
days notice or by Ms. Swanke upon 180 days written notice; provided that
DPL may terminate the agreement with cause without prior notice. 
The employment agreement also terminates automatically upon Ms. Swankes
death or disability.  Ms. Swankes letter agreement includes
non-compete and confidentiality provisions.

CompensationMs. Swankes employment agreement provides for (i) an annual base salary of not less than $230,000; (ii) participation in such short-term and long-term bonus, incentive compensation, deferred compensation and similar plans as DPL or the Compensation Committee may determine; and (iii) such fringe benefits as are generally made available to all other employees, the Executive Medical Plan, the annual physical program and financial planning services in effect from time to time.

TerminationIf Ms. Swankes employment is terminated without cause and she is not entitled to receive the benefits described below, then the employment agreement provides for payment of her annual base salary in installments over the one-year period after the date of termination; provided that Ms. Swanke executes and delivers a release pursuant to which she fully and unconditionally releases any claims that she may have against DPL and its affiliates.  The definition of cause is identical to the definition provided in Mr. Wolffs employment agreement.

If Ms. Swanke s employment is terminated for any reason at any time, her letter agreement provides for (i) a lump sum cash payment equal to her full base salary through the date of termination; (ii) the amount of the awards, with respect to any completed period which, pursuant to the MICP or any other incentive plan (other than any deferred compensation plan in which she made a contrary installment election) that have been earned but not paid; and (iii) payment of any other accrued benefits to which she was entitled through the date of termination.

105



For a period of one year after termination of Ms. Swankes employment, Ms. Swankes employment agreements states that Ms. Swanke is required to provide assistance as may be necessary to facilitate a smooth and orderly transition of duties.

Change of ControlIf Ms. Swankes employment is terminated within 36 months of a change of control, Ms. Swankes letter agreement provides for (i) a lump sum cash payment equal to the sum of (a) the average annual award that she earned under the MICP for the previous three years, if the termination precedes the actual determination of such incentive compensation or the completion of a period in which she could have earned incentive compensation, (b) an amount equal to 300% of the sum of her annual base salary, before deduction of any deferred amounts, and the average annual award she earned under the MICP for the previous three years, (c) any cash or shares of DPLs common stock previously earned under the MICP or pursuant to action by the Board of Directors but not yet paid, and (d) gross-up payments; and (ii) continuation of all life, medical, accident and disability insurance for Ms. Swanke and her eligible dependents until the third
anniversary of the date of termination or the date an essentially equivalent benefit is made available to Ms. Swanke by a subsequent employer.

Ms. Swankes letter agreement states that the benefits above would not be available if such termination is by (i) DPL or the Company for cause or on account of Ms. Swankes disability; (ii) Ms. Swanke without good reason, as defined in Mr. Mahoneys employment agreement description, or (iii) Ms. Swankes death.

Upon a change of control, Ms. Swankes letter agreement states that DPL or the Company will transfer cash or other property in an amount sufficient to fund all change of control benefits and payments to the master trust.

If Ms. Swankes employment is terminated within 36 months of a change of control due to her disability, her letter agreement provides for benefits under DPLs and the Companys salary continuation plan or disability insurance.  If Ms. Swankes employment is terminated for cause subsequent to a change of control, her letter agreement provides for compensation for services previously rendered as if she were terminated without the occurrence of a change of control.

Further, if a tender offer or a potential agreement is abandoned or terminated and a majority of the original directors and/or their successors determine that the tender offer or agreement will not effectuate or otherwise result in a change of control and provide written notice of such determination, then a subsequent termination will not entitle Ms. Swanke to the benefits described above.

Director CompensationIn 2003, director compensation for each non-employee director consisted of an annual retainer of $55,000, a committee chair retainer of $10,000, Board meeting fees of $5,000 per meeting, committee meeting fees of $4,000 per meeting and a special meeting fee of $3,000 per meeting.  In 2002 and 2001, non-employee directors received 1,500 common share units annually for services as a director.

DPL maintains a Director Deferred Compensation Plan in which payment of directors fees may be deferred.  The director fees of those directors who have designated their director fees to be deferred are invested in DPL common share units.  Under the Director Deferred Compensation Plan, directors are entitled to receive a lump sum payment or payments in installments over a period up to 20 years upon their retirement or resignation from the Board.

106



On July 21, 2004, the Company and DPL
entered into an employment agreement with Robert D. Biggs, who became Executive Chairman of the Board
effective May 16, 2004.  Mr. Biggs retired as a Managing Partner of PricewaterhouseCoopers LLP (PwC) in
1999 and received retirement benefits from PwC which, if continued, could have affected whether PwC qualifies as an
independent auditing firm for the Company.  PwC was DPLs and the Companys independent auditor until
March 2003 and was required to give its consent to the filing of this Form 10-K.  In order for PwC to
continue to qualify as an independent auditor, Mr. Biggs has agreed to accept his retirement benefit from PwC in
the form of an annuity which provides an annual retirement benefit that is $71,000 less than the amount he previously
received from PwC directly.  To compensate Mr. Biggs for the resulting reduction in his PwC retirement
benefits, the Company and DPL purchased an annuity that will pay Mr. Biggs $71,000 per year for life in addition to the
compensation described in Item 11-Executive Compensation. The Company and DPL will also provide Mr. Biggs with
gross-up payments for any income taxes incurred by him in connection with the annuity, such that Mr. Biggs is in
the same after-tax position as if no income taxes had been imposed.  On October 5, 2004, the Company, DPL and Mr.
Biggs signed a letter agreement modifying his employment agreement to clarify that the effective date for the grant of
stock options to Mr. Biggs pursuant to his employment agreement was October 5, 2005 and not May 16, 2004. Upon
Mr. Biggs death, Mr. Biggs spouse will receive an annual amount equal to 30% of the total annuity
payable to Mr. Biggs for life.  This arrangement will continue to be binding even if Mr. Biggs no longer
serves as Executive Chairman.

Compensation Committee Interlocks and Insider ParticipantsDPLs Compensation
Committee makes all compensation decisions for the Company.  During fiscal 2003, the members of the Compensation Committee were
Jane G. Haley, Chair, James F. Dicke, II, Ernie Green and W August Hillenbrand.  No
interlocking relationship exists between DPLs and the Companys Board of Directors or Compensation Committee and the
boards of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the
past.

|Item 12 - Security Ownership of   Certain Beneficial Owners and Management and Related Shareholder Matters
|----------------------------------------------------------------------------------------------------------
|                                                                                                          

Equity Compensation Plan InformationThe following table sets forth certain information as of December 31, 2003, with respect to DPLs or the Companys respective equity compensation plans under which shares of DPLs equity securities may be issued.

|Plan   category                                               |  | Number of   securities to    be issued upon    exercise of outstanding    options, warrants and    rights |  | Weighted   average    exercise price of    outstanding options,    warrants and rights |  | Number of   securities    remaining available for    future issuance under    equity compensation plans    (excluding securities    reflected in column (a))
|------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                              |  |                                                                                                           |  |                                                                                        |  |                                                                                                                                                             
|Equity compensation plans approved by security   holders:     |  |                                                                                                           |  |                                                                                        |  |                                                                                                                                                             
|DPL
        Inc. Stock Option Plan (1)                        |  | 6,960,168                                                                                                 |  | $  20.81                                                                               |  | 1,039,832                                                                                                                                                   
|Equity compensation plans not approved by security   holders: |  |                                                                                                           |  |                                                                                        |  |                                                                                                                                                             
|Directors
        Deferred Stock Compensation Plan (2)       |  | 279,939                                                                                                   |  | N/A                                                                                    |  | See  Notes
        2 and 4                                                                                                                                  
|                                                              |  |                                                                                                           |  |                                                                                        |  |                                                                                                                                                             
|Management
        Stock Incentive Plan (3)                   |  | 1,103,308                                                                                                 |  | N/A                                                                                    |  | See Notes 3 and
        4                                                                                                                                   
|                                                              |  |                                                                                                           |  |                                                                                        |  |                                                                                                                                                             
|Total                                                         |  | 8,343,415                                                                                                 |  |                                                                                        |  |                                                                                                                                                             

107



|   
|---
|(1)
|   
|(2)
|   
|(3)
|   
|(4)

Security Ownership of Certain
Beneficial OwnersThe following table sets forth certain information
with respect to the beneficial ownership of common shares and Series B voting
preferred shares of DPL as of May 12, 2004 by each person or group known by DPL
and the Company to own more than 5% of the common shares or Series B voting
preferred shares.  Ownership percentages are based on 126,501,404 common
and 6,600,000 Series B voting preferred shares outstanding as of May 12,
2004.

|                                                                                                                          |  | Common   Shares    Beneficially Owned |  | Series B   Voting Preferred Shares    Beneficially Owned
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- |  | --------------------------------------------------------
|                                                                                                                          |  |                                       |  |                                                         
|Name and Address                                                                                                          |  | Number                                |  | Percent of   Class                                      
|                                                                                                                          |  |                                       |  |                                                         
|Dayton Ventures LLC (1)     c/o Kohlberg Kravis       Roberts & Co. LP       9 W. 57th Street       New York, NY    10019 |  | 31,560,000 (2)                        |  | 24.9%                                                   

|   
|---
|(1)
|(2)
|(3)

The determination that there were no other persons, entities or groups known to DPL and the Company to beneficially own more than 5% of DPLs equity securities was based on a review of all statements filed with respect to DPL since the beginning of the past fiscal year with the SEC pursuant to Section 13(d) or 13(g) of the Exchange Act.

Security Ownership of ManagementSet forth below is information concerning the
beneficial ownership of common shares of DPL  by each Director, person named in the Summary Compensation Table and of all
Directors and Officers of the Company as a group as of May 12, 2004.

|Name                                                |  | Amount and
        Nature of 
        Beneficial Ownership |  | Percent of
        
        Class  (1) (2) (3)
|--------------------------------------------------- |  | ---------------------------------------------------------- |  | -----------------------------------------------
|                                                    |  |                                                            |  |                                                
|Robert
        D. Biggs                             |  | 2,419                                                      |  |                                               
|Paul
        R. Bishop                              |  | 9,053                                                      |  |                                               
|James
        F. Dicke II                           |  | 269,884                                                    |  | 0.2                                            
|Peter
        H. Forster                            |  | 968,349                                                    |  | 0.8                                            
|Ernie
        Green                                 |  | 152,963                                                    |  | 0.1                                            
|Jane
        G. Haley                               |  | 189,135                                                    |  | 0.1                                            
|W
        August Hillenbrand                        |  | 159,248                                                    |  | 0.1                                            
|Stephen
        F. Koziar, Jr.                      |  | 197,533                                                    |  | 0.2                                            
|James
        V. Mahoney                            |  | 4,263                                                      |  |                                               
|Caroline
        E. Muhlenkamp                      |  | 69,608                                                     |  | 0.1                                            
|Patricia
        K. Swanke                          |  | 14,388                                                     |  |                                               
|W.
        Steven Wolff                             |  | 15,452                                                     |  |                                               
|Total
        Directors and Officers as a group (4) |  | 2,068,296                                                  |  | 1.6                                            

108



|   
|---
|(1)
|   
|(2)
|   
|(3)
|   
|(4)

|Item 13 - Certain Relationships and   Related Transactions
|----------------------------------------------------------
|                                                          

In 1996, DPL and the Company entered into a consulting contract pursuant to which Peter H. Forster agreed to (i) serve, in a non-employee capacity, as Chairman of the Board of Directors of the Company, DPL and MVE, and as Chairman of the Executive Committee of the Board of Directors of DPL and the Company and (ii) provide advisory and strategic planning consulting services.  The terms and conditions of such consulting contract are described in Item 11 - Consulting Contract and Employment Agreements in this Form 10-K.

Mr. Forster resigned on May 16, 2004. 
  In connection with Mr. Forsters resignation, DPL and the Company reserved
  all rights and defenses and Mr. Forster reserved all rights and entitlements
  under applicable law and under any existing employment agreement between Mr.
  Forster, DPL and all of its subsidiaries.  Mr. Forster has filed a lawsuit
  against the Company, DPL and MVE alleging claims against the Company, DPL and
  MVE for breach of contract, conversion, promissory estoppel and declaratory
  judgment relating to his consulting contract.  The Company, DPL and MVE
  have filed a lawsuit against Mr. Forster alleging that he breached his fiduciary
  duties and breached his consulting contract and claim that they no longer owe
  Mr. Forster any further benefits under his contract.  (See Item 3 - Legal
  Proceedings.) In those proceedings, Mr. Forster claims that he is entitled to
  rights and benefits under purported agreements with the Company. The Company
  has confirmed that only certain of these purported agreements were properly
  approved.

In October 2001, the Company entered into
an Administrative Services Agreement (the ASA) with Valley Partners, Inc. a
Florida corporation, the sole stockholders, directors and officers of which were Mr.
Forster and Ms. Muhlenkamp, and the individual trustees of certain master trusts
which hold the assets of various executive and director compensation plans. The
ASA engaged Valley to provide administrative and recordkeeping functions on
behalf of the master trusts upon a change of control of the Company in exchange
for a 1.25% administration fee based on the market value of all assets of the
master trusts.  The ASA also called for Valley to provide investment advice
as requested by the trustees.  The 1.25% fee payable to Valley under the
ASA was in addition to the annual management fee payable to Valley.

109



In October 2001, the Company and DPL also entered into a Trustee Fee Agreement (the TFA) with Richard Chernesky, Richard Broock and Frederick Caspar, attorneys at Chernesky, Heyman & Kress P.L.L., a law firm that represents DPL and the Company.  Upon a change of control of the Company or DPL, Messrs. Chernesky, Broock and Caspar would become the sole trustees of the master trusts and would succeed to all of the duties of the Companys Compensation Committee under the compensation plans funded through the master trusts in exchange for an annual fee of $500,000.  This fee would not be reduced by payments made to Valley under the ASA.

The ASA and TFA (the Valley Partners
Agreements) were terminated by an agreement executed in January 2004 but effective as of December 15, 2003.  The
MVE financial assets have not been sold or transferred and therefore the
agreements never became effective and no compensation was ever paid under
them.  Mr. Forsters and Ms. Muhlenkamps consulting and
compensation arrangements were governed by the terms of the consulting contract
between the Company, DPL and Mr. Forster and the employment agreement
between the Company, DPL and Ms. Muhlenkamp, respectively, as described
above.

On February 2 and 3, 2004, Mr. Koziar sent letters to Mr. Forster and Ms. Muhlenkamp purporting to amend their respective consulting and employment agreements to provide change of control protections regarding their MVE payments.  In addition, on February 2, 2004, Mr. Koziar sent Mr. Forster a letter purporting to amend his consulting agreement to provide additional terms and to increase his compensation.  However, none of those amendments had been approved by the Compensation Committee.

On April 26, 2004, the Company entered
into a new Trustee Fee Agreement (New TFA) with Messrs. Chernesky, Broock and Caspar that will become effective upon a
change of control of the Company or DPL.  If the New TFA becomes effective, then it provides that Messrs.
Chernesky, Broock and Caspar will serve as the sole trustees of the master trusts in exchange for an annual fee of
$250,000 during the New TFAs term. On October 14, 2004, at the request of DP&L, Messrs. Chernesky, Broock and
Caspar submitted their resignations to the Company and DP&L.

The Company and DPL have reviewed the
termination of the Valley Partners Agreements, and the amendments and agreements sent to Mr. Forster and Ms. Muhlenkamp
on February 2, 2004, and have initiated legal proceedings asserting breach of fiduciary duty by Messrs. Forster and
Koziar and Ms. Muhlenkamp, and challenging the propriety and validity of those terminations, amendments and
agreements.  (See Item 3 - Legal Proceedings.)

|Item 14  Principal Accountant Fees   and Services
|--------------------------------------------------
|                                                  

The following table presents the aggregate fees billed for professional services rendered to DPL and DP&L by KPMG LLP in 2003 and PricewaterhouseCoopers LLP for 2003 and 2002.  Other than as set forth below, no professional services were rendered or fees billed by KPMG LLP during 2003 or PricewaterhouseCoopers LLP during 2003 and 2002.

|KPMG LLP                   |  | Fees Paid   2003 |         | Fees Paid   2002 | 
|-------------------------- |  | ---------------- | ------- | ---------------- | 
|                           |  |                  |         |                  | 
|Audit Services (1)         |  | $                | 343,333 |                  | 
|Audit-Related Services (2) |  |                  | 94,000  |                  | 
|Tax Services (3)           |  |                  |        |                  | 
|All Other Services (4)     |  |                  |        |                  | 
|                           |  |                  |         |                  | 
|Total                      |  | $                | 437,333 |                  | 

110



|PricewaterhouseCoopers LLP |  | Fees Paid   2003 |         | Fees Paid   2002 |  
|-------------------------- |  | ---------------- | ------- | ---------------- | -
|                           |  |                  |         |                  |  
|Audit Services (1)         |  | $                | 303,900 |                  | $
|Audit-Related Services (2) |  |                  | 140,000 |                  |  
|Tax Services (3)           |  |                  | 62,400  |                  |  
|All Other Services (4)     |  |                  |        |                  |  
|                           |  |                  |         |                  |  
|Total                      |  | $                | 506,300 |                  | $



|   
|---
|(1)
|(2)
|(3)
|(4)

Pre-Approval Policies and Procedures of
the Audit Committee Pursuant to its charter, DPLs Audit
Committee pre-approves all audit and permitted non-audit services, including
engagement fees and terms thereof, to be performed for the Company by the
independent auditors, subject to the exceptions for certain non-audit services
that are approved by the Audit Committee prior to the completion of the audit in
accordance with Section 10A of the Securities Exchange Act of 1934, as amended.
The Audit Committee must also pre-approve all internal control-related services
to be provided by the independent auditors. The Audit Committee will generally
pre-approve a list of specific services and categories of services, including
audit, audit-related and other services, for the upcoming or current fiscal
year, subject to a specified cost level. Any material service that is not
included in the approved list of services must be separately pre-approved by the
Audit Committee. In addition, all audit and permissible non-audit services in
excess of the pre-approved cost level, whether or not such services are included
on the pre-approved list of services, must be separately pre-approved by the
Chairman of the Audit Committee.

The Audit Committee may form and delegate to a subcommittee consisting of one or more members (provided that such person(s) are independent directors) its authority to grant pre-approvals of audit, permitted non-audit services and internal control-related services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting.

111



PART IV

|Item 15 - Exhibits, Financial   Statement Schedule and Reports on Form 8-K
|--------------------------------------------------------------------------
|                                                                          

|                                                                                                                                            |                                                                   | Page No.
|------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | --------
|                                                                                                                                            |                                                                   |         
|(a)                                                                                                                                         | The following documents are filed
        as part of this report: |         
|                                                                                                                                            |                                                                   |         
|1.                                                                                                                                          | Financial Statements                                              |         
|                                                                                                                                            |                                                                   |         
|Consolidated Statements of Results
        of Operations for each of the three years in the period ended December
        31, 2003          | 34                                                               
|Consolidated Statements of Cash
        Flows for each of the three years in the period ended December 31, 2003                             | 35                                                               
|Consolidated Balance Sheets at
        December 31, 2003 and 2002                                                                           | 36                                                               
|Consolidated Statement of Changes
        to Shareholders Equity for each of the three years in the period
        ended December 31, 2003 | 38                                                               
|Notes to Consolidated Financial
        Statements                                                                                          | 39                                                               
|Report of Independent Registered Public Accounting Firm  KPMG                                                                              | 73                                                               
|Report of Independent Registered Public Accounting Firm  PwC                                                                               | 74                                                               
|                                                                                                                                            |                                                                   |         
|2.                                                                                                                                          | Financial Statement Schedule                                      |         
|                                                                                                                                            |                                                                   |         
|For each of the three years in
        the period ended December 31, 2003:                                                                  |                                                                  
|                                                                                                                                            |                                                                   |         
|Schedule II  Valuation
        and Qualifying Accounts                                                                                     | 121                                                              

The information required to be submitted in Schedules I, III, IV and V is omitted as not applicable or not required under rules of Regulation S-X.

|3. | Exhibits | 
|-- | -------- | 

The exhibits filed as a part of this
  Annual Report on Form 10-K are:

|     |  |                                                                                                                                                                                             |  | Incorporated
        Herein by
        Reference as Filed With                                     
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------
|     |  |                                                                                                                                                                                             |  |                                                                                                    
|2(a) |  | Copy of the Agreement of Merger
        among DPL Inc., Holding Sub Inc. and DP&L dated January 6, 1986                                                                                     |  | Exhibit A to the 1986 Proxy Statement
        (File No. 1-2385)                                    
|     |  |                                                                                                                                                                                             |  |                                                                                                    
|2(b) |  | Copy of Asset Purchase Agreement,
        dated December 14, 1999, between The Dayton Power and Light Company, Indiana
        Energy, Inc., and Number-3CHK, Inc.                          |  | Exhibit 2 to Report on Form 10-Q
        for the quarter ended September 30, 2000 (File No. 1-9052)
|     |  |                                                                                                                                                                                             |  |                                                                                                    
|3(a) |  | Code of Regulations of The Dayton
        Power and Light Company                                                                                                                           |  | Exhibit 3(a) to Report on 8-K
        filed April 30, 2004 (File No. 1-2385)                       
|     |  |                                                                                                                                                                                             |  |                                                                                                    
|3(b) |  | Copy of Amended Articles of Incorporation
        of The Dayton Power and Light Company dated January 3, 1991                                                                               |  | Exhibit 3(b) to Report on Form
        10-K for the year ended December 31, 1991 (File No. 1-2385) 
|     |  |                                                                                                                                                                                             |  |                                                                                                    
|4(a) |  | Copy of Composite Indenture dated
        as of October 1, 1935, between DP&L and The Bank of New York,
        Trustee with all amendments through the Twenty-Ninth Supplemental Indenture |  | Exhibit 4(a) to Report on Form
        10-K for the year ended December 31, 1985 (File No. 1-2385) 

112



|4(b) |  | Copy of the Thirtieth Supplemental Indenture dated   as of March 1, 1982, between DP&L and The Bank of New York, Trustee                                                             |  | Exhibit 4(h) to Registration Statement No. 33-53906                                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------
|     |  |                                                                                                                                                                                      |  |                                                                                             
|4(c) |  | Copy of the Thirty-First Supplemental Indenture   dated as of November 1, 1982, between DP&L and The Bank of New York,   Trustee                                                     |  | Exhibit 4(h) to Registration Statement No. 33-56162                                         
|     |  |                                                                                                                                                                                      |  |                                                                                             
|4(d) |  | Copy of the Thirty-Second Supplemental Indenture dated   as of November 1, 1982, between DP&L and The Bank of New York,   Trustee                                                    |  | Exhibit 4(i) to Registration Statement No. 33-56162                                         
|     |  |                                                                                                                                                                                      |  |                                                                                             
|4(e) |  | Copy of the Thirty-Third Supplemental Indenture   dated as of December 1, 1985, between DP&L and The Bank of New York,   Trustee                                                     |  | Exhibit 4(e) to Report on Form 10-K for the year   ended December 31, 1985 (File No. 1-2385)
|     |  |                                                                                                                                                                                      |  |                                                                                             
|4(f) |  | Copy of the Thirty-Fourth Supplemental Indenture   dated as of April 1, 1986, between DP&L and The Bank of New York, Trustee                                                         |  | Exhibit 4 to Report on Form 10-Q for the quarter   ended June 30, 1986 (File No. 1-2385)    
|     |  |                                                                                                                                                                                      |  |                                                                                             
|4(g) |  | Copy of the Thirty-Fifth Supplemental Indenture   dated as of December 1, 1986, between DP&L and The Bank of New York,   Trustee                                                     |  | Exhibit 4(h) to Report on Form 10-K for the year   ended December 31, 1986 (File No. 1-9052)
|     |  |                                                                                                                                                                                      |  |                                                                                             
|4(h) |  | Copy of the Thirty-Sixth Supplemental Indenture   dated as of August 15, 1992, between DP&L and The Bank of New York,   Trustee                                                      |  | Exhibit 4(i) to Registration Statement   No. 33-53906                                       
|     |  |                                                                                                                                                                                      |  |                                                                                             
|4(i) |  | Copy of the Thirty-Seventh Supplemental Indenture   dated as of November 15, 1992, between DP&L and The Bank of New   York, Trustee                                                  |  | Exhibit 4(j) to Registration Statement   No. 33-56162                                       
|     |  |                                                                                                                                                                                      |  |                                                                                             
|4(j) |  | Copy of the Thirty-Eighth Supplemental Indenture   dated as of November 15, 1992, between DP&L and The Bank of New   York, Trustee                                                   |  | Exhibit 4(k) to Registration Statement   No. 33-56162                                       
|     |  |                                                                                                                                                                                      |  |                                                                                             
|4(k) |  | Copy of the Thirty-Ninth Supplemental Indenture   dated as of January 15, 1993, between DP&L and The Bank of New York,   Trustee                                                     |  | Exhibit 4(k) to Registration Statement No. 33-57928                                         
|     |  |                                                                                                                                                                                      |  |                                                                                             
|4(l) |  | Copy of the Fortieth Supplemental Indenture dated as   of February 15, 1993, between DP&L and The Bank of New York, Trustee                                                          |  | Exhibit 4(m) to Report on Form 10-K for the   year ended December 31, 1992 (File No. 1-2385)
|     |  |                                                                                                                                                                                      |  |                                                                                             
|4(m) |  | Copy of Forty-First Supplemental Indenture dated as   of February 1, 1999, between DP&L and The Bank of New York, Trustee                                                            |  | Exhibit 4(m) to Report on Form 10-K for the year   ended December 31, 1998 (File No. 1-2385)
|     |  |                                                                                                                                                                                      |  |                                                                                             
|4(n) |  | Copy of the Revolving Credit Agreement dated as of   December 18, 2002 between DP&L, KeyBank National Association (as agent),   Bank One, NA (as agent), and the banks named therein |  | Exhibit 4(n) to Report on Form 10-K for the year   ended December 31, 2002 (File No. 1-2385)

113



|4(o)   |  | Copy of Forty-Second Supplemental Indenture dated as   of September 1, 2003, between DP&L and The Bank of New York, Trustee                                                                                 |  | Exhibit 4(r) to Report on Form 10-K for DPL Inc. for   year ended December 31, 2003 (File No. 1-9052) 
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                                             |  |                                                                                                       
|4(p)   |  | Copy of Revolving Credit Agreement dated as of   December 12, 2003 between DP&L, Harris Nesbitt Corp. (as agent),   KeyBank National Association (as agent and Lead Arranger) and the banks named   therein |  | Exhibit 4(s) to Report on Form 10-K for DPL Inc. for   year ended December 31, 2003 (File No. 1-9052) 
|       |  |                                                                                                                                                                                                             |  |                                                                                                       
|4(q)   |  | Copy of Revolving Credit Agreement dated as of June   1, 2004 between the Dayton Power and Light Company, KeyBank National   Association (as agent and arranger) and LaSalle Bank National Association      |  | Exhibit 4(ee) to Report on Form 10-K for DPL Inc.   for year ended December 31, 2003 (File No. 1-9052)
|       |  |                                                                                                                                                                                                             |  |                                                                                                       
|10(a)* |  | Copy of Directors Deferred Stock Compensation Plan   amended December 31, 2000                                                                                                                             |  | Exhibit 10(a) to Report on Form 10-K for DPL Inc.   for year ended December 31, 2000 (File No. 1-9052)
|       |  |                                                                                                                                                                                                             |  |                                                                                                       
|10(b)* |  | Copy of Directors Deferred Compensation Plan   amended December 31, 2000                                                                                                                                   |  | Exhibit 10(b) to Report on Form 10-K for DPL Inc.   for year ended December 31, 2000 (File No. 1-9052)
|       |  |                                                                                                                                                                                                             |  |                                                                                                       
|10(c)* |  | Copy of Management Stock Incentive Plan amended   December 31, 2000                                                                                                                                         |  | Exhibit 10(c) to Report on Form 10-K for year ended   December 31, 2000 (File No. 1-2385)             
|       |  |                                                                                                                                                                                                             |  |                                                                                                       
|10(d)* |  | Copy of Key Employees Deferred Compensation Plan   amended December 31, 2000                                                                                                                                |  | Exhibit 10(d) to Report on Form 10-K for year ended   December 31, 2000 (File No. 1-2385)             
|       |  |                                                                                                                                                                                                             |  |                                                                                                       
|10(e)* |  | Copy of Supplemental Executive Retirement Plan   amended February 1, 2000                                                                                                                                   |  | Exhibit 10(e) to Report on Form 10-K for DPL Inc.   for year ended December 31, 2003 (File No. 1-9052)
|       |  |                                                                                                                                                                                                             |  |                                                                                                       
|10(f)* |  | Copy of Stock Option Plan                                                                                                                                                                                   |  | Exhibit 10(f) to Report on Form 10-K for the year   ended December 31, 2000 (File No. 1-2385)         
|       |  |                                                                                                                                                                                                             |  |                                                                                                       
|10(g)* |  | Consulting contract dated as of
        December 31, 1996 between DPL Inc., DP&L and Peter H. Forster                                                                                                       |  | Exhibit 10(g) to Report on Form 10-K for the year   ended December 31, 2002 (File No. 1-2385)         
|       |  |                                                                                                                                                                                                             |  |                                                                                                       
|10(h)* |  | Employment agreement dated as of March 21,
2000 between DPL Inc., DP&L and Elizabeth M. McCarthy                                                                                                            |  | Exhibit 10(h) to Report on Form 10-K for the year   ended December 31, 2002 (File No. 1-2385)         
|       |  |                                                                                                                                                                                                             |  |                                                                                                       
|10(i)* |  | Employment agreement dated as
        of October 17, 2002 between DPL Inc., DP&L and Stephen F. Koziar Jr.                                                                                                  |  | Exhibit 10(i) to Report on Form 10-K for the year   ended December 31, 2002 (File No. 1-2385)         

114



|10(j)* |  | Employment agreement dated as
        of December 14, 2001 between DPL Inc., DP&L and Caroline E. Muhlenkamp                                                                                                                                                                                                                                                                                                    |  | Exhibit 10(m) to Report on Form 10-K for DPL Inc.   for year ended December 31, 2003 (File No. 1-9052)       
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                              
|10(k)* |  | Employment agreement dated as of January 3, 2003   between DPL Inc. and James V. Mahoney                                                                                                                                                                                                                                                                                                                        |  | Exhibit 10(j) to Report on Form 10-K for DPL Inc.   for year ended December 31, 2003 (File No. 1-9052)       
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                              
|10(l)* |  | Employment agreement dated as of September 17,   2003 between DPL Inc. and W. Steven Wolff                                                                                                                                                                                                                                                                                                                      |  | Exhibit 10(k) to Report on Form 10-K for DPL Inc.   for year ended December 31, 2003 (File No. 1-9052)       
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                              
|10(m)* |  | Employment agreement dated as of September 17, 2003   between DPL Inc. and Patricia K. Swanke                                                                                                                                                                                                                                                                                                                   |  | Exhibit 10(l) to Report on Form 10-K for DPL Inc.   for year ended December 31, 2003 (File No. 1-9052)       
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                              
|10(n)* |  | Change of Control Agreement dated as of
December 15, 2000 between The Dayton Power and Light Company, DPL and Stephen F.
Koziar and Management Stock Option Agreements dated as of February 1, 2000 and September 24, 2002 between DPL Inc. and Stephen F. Koziar Jr.                                                                                                                                           |  | Exhibit 10(n) to Form 10-K for DPL Inc. for the   period ending December 31, 2003 (File No. 1-9052)          
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                              
|10(o)* |  | Change of Control Agreement dated as of
January 3, 2003 between The Dayton Power and Light Company, DPL and James V.
Mahoney and Management Stock Option Agreement dated as of January 3, 2003 between DPL Inc. and James V. Mahoney                                                                                                                                                                            |  | Exhibit 10(o) to Form 10-K for DPL Inc. for the   period ending December 31, 2003 (File No. 1-9052)          
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                              
|10(p)* |  | Change of Control Agreement dated as of
September 10, 2004 between The Dayton Power and Light Company, DPL and W. Steven
Wolff                                                                                                                                                                                                                                                                                  |  | Exhibit 10(dd) to Report on Form 8-K for DPL Inc.   filed September 23, 2004 (File No. 1-9052)               
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                              
|10(q)* |  | Change of Control Agreement dated as of
September 15, 2000 between The Dayton Power and Light Company, DPL and Patricia K.
Swanke and Management Stock Option Agreement dated as of January 1, 2001 between DPL Inc. and Partricia K. Swanke                                                                                                                                                                    |  | Exhibit 10(q) to Report on Form 10-K for DPL Inc.   for the period ending December 31, 2003 (File No. 1-9052)
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                              
|10(r)* |  | Change of Control Agreement dated as of
December 15, 2000 between The Dayton Power and Light Company, DPL and Caroline E.
Muhlenkamp and Management Stock Option Agreements dated as of February 1, 2000 and September 24, 2002 between DPL Inc. and Caroline E. Muhlenkamp                                                                                                                                     |  | Exhibit 10(r) to Report on Form 10-K for DPL Inc.   for the period ending December 31, 2003 (File No. 1-9052 
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                              
|10(t)* |  | Administrative Services Agreement dated October 4,   2001 among Valley Partners, Inc., DPL Inc., The Dayton Power and Light   Company and the Trustees named therein                                                                                                                                                                                                                                            |  | Exhibit 10(t) to Form 10-K for DPL Inc. for the   period ending December 31, 2003 (File No. 1-9052)          
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                              
|10(u)* |  | Letter agreement dated December 15, 2003 terminating   Management Services Agreement dated June 20, 2001 between Valley Partners,   Inc. and each of MVE, Inc., Miami Valley Development Company [and Miami   Valley Insurance Company and Administrative Services Agreement dated October   4, 2001 among Valley Partners, Inc., DPL Inc., The Dayton Power and Light   Company and the Trustees named therein |  | Exhibit 10(u) to Form 10-K for DPL Inc. for the   period ending December 31, 2003 (File No. 1-9052)          
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                              
|10(v)* |  | Amended and Restated Master Trust Agreement, dated   as of January 1, 2001, by and among The Dayton Power and Light Company,   the grantor, DPL Inc., and Bank of America, N.A., Richard J. Chernesky,   Richard A. Broock, and Frederick J. Caspar.                                                                                                                                                            |  | Exhibit 10(v) to Form 10-K for DPL Inc. for the   period ending December 31, 2003 (File No. 1-9052)          

115



|10(w)*  |  | Second Amended and Restated Master
        Trust Agreement, dated as of January 1, 2001, by and among The Dayton
        Power and Light Company, the grantor, DPL Inc., Bank One Trust Company,
        N.A., Richard J. Chernesky, Richard A. Broock, and Frederick J. Caspar                      |  | Exhibit 10(w) to Form 10-K for
        DPL Inc. for the period ending December 31, 2003 (File No. 1-9052)   
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------
|        |  |                                                                                                                                                                                                                                                                                                      |  |                                                                                                             
|10(x)*  |  | Trustee Fee Agreement dated as
        of April 26, 2004, by and among Richard J. Chernesky, Richard A.
        Broock and Frederick J. Caspar, solely in their capacities as trustees
        of the Master Trusts and not individually and DPL Inc. and The Dayton
        Power and Light Company |  | Exhibit 10(x) to Form 10-K for
        DPL Inc. for the period ending December 31, 2003 (File No. 1-9052)   
|        |  |                                                                                                                                                                                                                                                                                                      |  |                                                                                                             
|10(aa)* |  | Long Term Incentive Plan of DPL
        Inc. dated as of January 20, 2003                                                                                                                                                                                                                            |  | Exhibit 10(aa) to Form 10-K for
        DPL Inc. for the period ending December 31, 2003 (File No. 1-9052)  
|        |  |                                                                                                                                                                                                                                                                                                      |  |                                                                                                             
|10(bb)* |  | Employment Agreement dated as
of July 21, 2004, Stock Option Letter Agreement dated as of October 5, 2004 and
Stock Option Plan Agreement dated as of October 5, 2004 between DPL Inc., The
Dayton Power and Light Company and Robert D. Biggs                                                       |  | Exhibit 10(bb) to Form 10-K for
        DPL Inc. for the period ending December 31, 2003 (File No. 1-9052)  
|        |  |                                                                                                                                                                                                                                                                                                      |  |                                                                                                             
|10(ee)* |  | Employment Agreement and Change
        of Control Agreement as of September 10, 2004 between DPL Inc. and Gary
        Stephenson                                                                                                                                                                   |  | Exhibit 10(ee) to Report on Form
        8-K filed on September 10, 2004 (File No. 1-9052)                  
|        |  |                                                                                                                                                                                                                                                                                                      |  |                                                                                                             
|10(ff)* |  | MVE Incentive Program  Annex
A and Letter to Peter H. Forster as of February 16, 2000 and Management Stock
Option Agreements dated as of February 1, 2000 and September 24, 2002 between
DPL Inc. and Peter H. Forster                                                                              |  | Exhibit 10(ff) to Form 10-K for
        DPL Inc. for the period ending December 31, 2003 (File No. 1-9052)  
|        |  |                                                                                                                                                                                                                                                                                                      |  |                                                                                                             
|10(gg)* |  | Employment agreement dated as of June 9, 2003, as amended by attached letter dated October 18, 2004, between DPL Inc., The Dayton Power and Light Company and Miggie E. Cramblit                                                                                                                     |  | Exhibit 10(gg) to Form 10-K for DPL Inc. for the period ending December 31, 2003 (File No. 1-9052)          
|        |  |                                                                                                                                                                                                                                                                                                      |  |                                                                                                             
|10(hh)* |  | Employment Agreement and Change of Control Agreement as of July 21, 2003, between DPL
Inc., DP&L and Daniel L. Thobe                                                                                                                                                                                 |  | Exhibit 10(hh) to Report on Form 10-K for DPL Inc. for the year ended December 31, 2003 (File No. 1-9052)   
|        |  |                                                                                                                                                                                                                                                                                                      |  |                                                                                                             
|21      |  | List of Subsidiary of DP&L                                                                                                                                                                                                                                                                           |  | Filed herewith as Exhibit 21                                                                                
|        |  |                                                                                                                                                                                                                                                                                                      |  |                                                                                                             
|23(a)   |  | Consent of KPMG LLP                                                                                                                                                                                                                                                                                  |  | Filed herewith as Exhibit 23(a)                                                                             
|23(b)   |  | Consent of PricewaterhouseCoopers
        LLP                                                                                                                                                                                                                                                        |  | Filed herewith as Exhibit 23(b)                                                                             
|        |  |                                                                                                                                                                                                                                                                                                      |  |                                                                                                             
|31(a)   |  | Certification of Chief Executive
        Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                           |  | Filed herewith as Exhibit 31(a)                                                                             
|        |  |                                                                                                                                                                                                                                                                                                      |  |                                                                                                             
|31(b)   |  | Certification of Chief Financial
        Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                           |  | Filed herewith as Exhibit 31(b)                                                                             
|        |  |                                                                                                                                                                                                                                                                                                      |  |                                                                                                             
|32(a)   |  | Certification of Chief Executive
        Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                           |  | Filed herewith as Exhibit 32(a)                                                                             
|        |  |                                                                                                                                                                                                                                                                                                      |  |                                                                                                             
|32(b)   |  | Certification of Chief Financial
        Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                           |  | Filed herewith as Exhibit 32(b)                                                                             
|        |  |                                                                                                                                                                                                                                                                                                      |  |                                                                                                             
|99(a)   |  | Report of Taft, Stettinius &
        Hollister LLP, dated April 26, 2004                                                                                                                                                                                                                             |  | Exhibit 99(a) to Report on Form
        10-K for DPL Inc. for year ended December 31, 2003 (File No. 1-9052)

116



|99(b) |  | Supplement
      to April 26, 2004 Report of Taft, Stettinius & Hollister LLP, dated
      May 15, 2004                                                                                                                                          |  | Exhibit
      99(b) to Report on Form 10-K for DPL Inc. for year ended December 31,
      2003 (File No. 1-9052)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                                  |  |                                                                                                                 
|99(c) |  | Complaint filed in the Circuit
        Court, Fourth Judicial Circuit, in and for Duval County, Florida 
        Peter H. Forster and Caroline E. Muhlenkamp v. DPL Inc., The Dayton Power
        and Light Company and MVE, Inc.              |  | Exhibit 99(c) to Form 10-K for
        DPL Inc. for the period ending December 31, 2003 (File No. 1-9052)       
|      |  |                                                                                                                                                                                                                                                  |  |                                                                                                                 
|99(d) |  | Complaint filed in Montgomery
        County Court of Common Pleas, Montgomery County, Ohio  DPL Inc., 
        The Dayton Power and Light Company and MVE, Inc. v. Peter H. Forster,
        Caroline E. Muhlenkamp and Stephen F. Koziar, Jr. |  | Exhibit 99(d) to Form 10-K for
        DPL Inc. for the period ending December 31, 2003 (File No. 1-9052)       

*Management contract or compensatory plan.

Pursuant to paragraph (b) (4) (iii) (A) of Item 601 of Regulation S-K, DP&L has not filed as an exhibit to this Form 10-K certain instruments with respect to long-term debt if the total amount of securities authorized thereunder does not exceed 10% of the total assets of DPL Inc. and its subsidiaries on a consolidated basis, but hereby agrees to furnish to the SEC on request any such instruments.

(b)  Reports on Form 8-K

No reports on Form 8-K were filed by the Company during the quarter ended December 31, 2003.

117



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|                 |  | THE DAYTON POWER AND LIGHT COMPANY                                                                                                 
|---------------- |  | -----------------------------------------------------------------------------------------------------------------------------------
|                 |  |                                                                                                                                    
|November 5, 2004 |  |                                                                                                                                    
|By:              |  | /s/ JAMES
        V. MAHONEY                                                                                                       
|                 |  |                                                                                                                                    
|                 |  | James V. Mahoney
        President and Chief Executive Officer
        (principal executive officer)                               
|                 |  |                                                                                                                                    
|November 5, 2004 |  | /s/ PAMELA
        HOLDREN                                                                                                         
|                 |  |                                                                                                                                    
|                 |  | Pamela Holdren
        Treasurer and interim Chief Financial Officer
        (principal financial and principal accounting officer)
|                 |  |                                                                                                                                    
|November 5, 2004 |  | /s/ DANIEL
        L. THOBE                                                                                                        
|                 |  |                                                                                                                                    
|                 |  | Daniel L. Thobe
        Corporate Controller                                                                                       

118



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

|/s/
        R. D. BIGGS      |  | Director and Executive Chairman |  | November 5, 2004
|---------------------------- |  | ------------------------------- |  | ----------------
|                             |  |                                 |  |                 
|(R.
        D. Biggs)        |  |                                 |  |                 
|                             |  |                                 |  |                 
|/s/
        P. R. BISHOP     |  | Director                        |  | November 5, 2004
|                             |  |                                 |  |                 
|(P.
        R. Bishop)       |  |                                 |  |                 
|                             |  |                                 |  |                 
|/s/
        J. F. DICKE, II  |  | Director                        |  | November 5, 2004
|                             |  |                                 |  |                 
|(J.
        F. Dicke, II)    |  |                                 |  |                 
|                             |  |                                 |  |                 
|/s/
        E. GREEN         |  | Director                        |  | November 5, 2004
|                             |  |                                 |  |                 
|(E.
        Green)           |  |                                 |  |                 
|                             |  |                                 |  |                 
|/s/
        J. G. Haley      |  | Director                        |  | November 5, 2004
|                             |  |                                 |  |                 
|(J.
        G. Haley)        |  |                                 |  |                 
|                             |  |                                 |  |                 
|                             |  | Director                        |  | November 5, 2004
|                             |  |                                 |  |                 
|(G.E.
        Harder)        |  |                                 |  |                 
|                             |  |                                 |  |                 
|/s/
        W A. HILLENBRAND |  | Director and Vice-Chairman      |  | November 5, 2004
|                             |  |                                 |  |                 
|(W
        A. Hillenbrand)   |  |                                 |  |                 
|                             |  |                                 |  |                 
|                             |  | Director                        |  | November 5, 2004
|                             |  |                                 |  |                 
|(L.
        L. Lyles)        |  |                                 |  |                 

119



|/s/ J. V. MAHONEY   |  | Director, President and Chief Executive Officer   (principal executive officer)                       |  | November 5, 2004
|------------------- |  | ----------------------------------------------------------------------------------------------------- |  | ----------------
|                    |  |                                                                                                       | 
|(J. V.   Mahoney)   |  |                                                                                                       |  |                 
|                    |  |                                                                                                       |  |                 
|                    |  | Director                                                                                              |  | November 5, 2004
|                    |  |                                                                                                       |  |                 
|(N. J.   Sifferlen) |  |                                                                                                       |  |                 
|                    |  |                                                                                                       |  |                 
|/s/ P. HOLDREN      |  | Treasurer and interimChief Financial Officer   (principal financial and principal accounting officer) |  | November 5, 2004
|                    |  |                                                                                                       | 
|(P. Holdren)        |  |                                                                                                       |  |                 
|                    |  |                                                                                                       |  |                 
|/s/ D. L. THOBE     |  | Corporate Controller                                                                                  |  | November 5, 2004
|                    |  |                                                                                                       |  |                 
|(D. L.   Thobe)     |  |                                                                                                       |  |                 

120



Schedule II

The Dayton Power and Light Company VALUATION AND QUALIFYING ACCOUNTS

Ended December 31,

$ in thousands

|Description                                                                |  | Balance at   Beginning of Period |        | Additions |   | Deductions(1) |  | Balance at   End of Period |       
|-------------------------------------------------------------------------- |  | -------------------------------- | ------ | --------- | - | ------------- |  | -------------------------- | ------
|                                                                           |  |                                  |        |           |   |               |  |                            |       
|2003:                                                                      |  |                                  |        |           |   |               |  |                            |       
|Deducted from accounts receivable--   Provision for uncollectible accounts |  | $                                | 10,873 |           | $ | 4,463         |  | $                          | 11,719
|                                                                          
|2002:                                                                      |  |                                  |        |           |   |               |  |                            |       
|Deducted from accounts receivable--   Provision for uncollectible accounts |  | $                                | 12,445 |           | $ | 3,008         |  | $                          | 4,580 
|                                                                          
|2001:                                                                      |  |                                  |        |           |   |               |  |                            |       
|Deducted from accounts receivable--   Provision for uncollectible accounts |  | $                                | 6,847  |           | $ | 11,759        |  | $                          | 6,161 

|                                                                                
|--------------------------------------------------------------------------------
|(1)   amounts written off, net of recoveries of accounts previously written off.

121