the RODNEY SQUARE
FUND
&
the RODNEY SQUARE
TAX-EXEMPT
FUND
LOGO
[GRAPHIC OMITTED]
ANNUAL REPORT
SEPTEMBER 30, 1998
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
PRESIDENT'S MESSAGE
================================================================================
DEAR SHAREHOLDER:
The management of the Rodney Square Fund and the Rodney Square Tax-Exempt
Fund is pleased to report to you on the Funds' activities for the fiscal year
ended September 30, 1998.
INVESTMENT RESULTS*
The U.S. Government Portfolio paid shareholders dividends of $0.051 per
share during the year, the Money Market Portfolio paid dividends of $0.051 per
share and the Rodney Square Tax-Exempt Fund paid dividends of $0.031 per share.
Based on the Portfolios' net asset value of $1.00 per share, these dividends
represented total returns of 5.19%, 5.26% and 3.11%, respectively.
ECONOMIC OVERVIEW
The Funds' fiscal year was marked by persistent turmoil in world economic
and financial markets. Beginning in Malaysia and Indonesia last summer, crisis
situations developed in Japan and the rest of Asia by mid-October. By fiscal
year end, the list of economic and financial shocks grew to include the economic
collapse in Russia. While Russia is not a major global economic power, its
default and currency devaluation in August undermined confidence in emerging
markets in Latin America and Eastern Europe. Recently, we have added worries
about the systemic financial threat posed by huge trading losses in hedge funds
and banks. As capital fled everything other than the highest quality assets,
i.e., U.S. Treasuries, world equity markets weakened and credit spreads spiked
sharply higher. Concerns have arisen that risk aversion and desire for liquidity
will lead to a global credit crunch.
So far, the U.S. economy has withstood the world financial turmoil. To
date, the strong underlying fundamentals have enabled the U.S. economy to resist
the outsized drags from foreign trade and inventories. Historically low
unemployment, low interest rates, a buoyant stock market, and strong wage growth
have underpinned healthy consumer confidence and domestic demand. Domestic
demand growth was strong enough during the first half of the fiscal year that
the Fed maintained a tightening bias regarding monetary policy. However, signs
of moderating growth developed during the latter part of the period as the Asian
drag took a visible toll on manufacturing. The moderation in growth bought the
Fed time to assess the countervailing forces impacting the economy. In his
testimony before Congress in July, Fed Chairman Alan Greenspan acknowledged the
likelihood of intensified troubles in Asia. However, he clearly stated that the
Federal Open Market Committee (FOMC) saw the risks to the U.S. weighted toward
accelerating inflation rather than a period of protracted weakness.
The markets, however, took a less sanguine view of U.S. economic prospects.
Rates tumbled in the U.S. as market participants assessed the likely impact the
turbulence in world markets would have domestically. It became increasingly
apparent that the U.S. would not be immune from deteriorating world economic
conditions. With the Russian devaluation and debt default serving as a trigger,
yields fell nearly 100 basis points across the treasury yield curve as investors
seeking a safe haven poured into the U.S. Treasury bond market. Yields in the
money market also plunged as it became increasingly likely the Fed would need to
ease monetary policy.
- -------------
* PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. AN INVESTMENT IN EITHER
FUND IS NEITHER INSURED NOR GUARANTEED BY WILMINGTON TRUST COMPANY OR ANY
OTHER BANKING INSTITUTION, THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION (FDIC), THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. THERE CAN
BE NO ASSURANCE THAT EITHER FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00.
1
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
PRESIDENT'S MESSAGE -- CONTINUEd
================================================================================
The Fed did trim its federal funds rate target a quarter of a point, to
5.25% on September 29. The cautious reduction in the funds rate did little to
comfort the fragile financial markets that were further rattled by news of a Fed
orchestrated bailout of a large hedge fund. The Treasury market rallied sharply
again with the 30 year bond hitting historic lows around 4.75% in early October.
In a move that surprised financial markets, the Fed unexpectedly reduced the
overnight bank lending rate an additional quarter of a percentage point to 5.00%
only 17 days later on October 15. It was the first time the FOMC changed
interest rates between meetings in more than four years. The Fed cited "growing
caution by lenders and unsettled conditions in financial markets..." as reasons
for thE move.
Going forward, considerable uncertainty exists about the outlook for the
U.S. economy for the remainder of this year and into 1999. Mr. Greenspan in a
recent speech before the National Association of Business Economists left little
doubt that global conditions COULD push the economy into recession; although
current conditions do not point to such an outcome. However, restoring liquidity
and rebuilding investor confidence from unsettled financial market conditions
should keep the Fed in an accommodative mode.
INVESTMENT STRATEGY
As noted in the economic overview, markets experienced a good deal of
interest rate volatility during the past fiscal year. This volatility resulted
from changing market perceptions with regard to the effect world financial
market instability would have on the U.S. economy and the direction of monetary
policy. Rodney Square Management Corporation, the Funds' adviser, attempts to
anticipate these swings in market psychology and directional changes in interest
rates. Within the context of regulatory and liquidity constraints, the Funds'
adviser then adjusts each Portfolio's weighted average maturity in an effort to
maximize the return to shareholders. Judging by the favorable returns of each
Portfolio versus its peer group, the Funds' adviser believes it had success this
past year.
As measured by IBC's Money Fund Report, the Money Market Portfolio had a
12-month return of 5.26% versus 5.07% for IBC's First Tier fund average; the
U.S. Government Portfolio returned 5.19% versus 5.03% for IBC's Government and
Agency average; while the Tax-Exempt Fund had a 12-month return of 3.11% versus
a 3.06% for IBC's Stockbroker and General Purpose Category average.
We are pleased that we were able to continue to provide shareholders with
highly competitive returns this past fiscal year. More importantly, we are
pleased that we have provided shareholders with consistently competitive returns
through the years.
We invite your comments and questions and we thank you for your investment
in the Funds.
Sincerely,
/s/ ROBERT J. CHRISTIAN
Robert J. Christian
President
October 27, 1998
2
<PAGE>
THE RODNEY SQUARE FUND / U.S. GOVERNMENT PORTFOLIO
- --------------------------------------------------
INVESTMENTS / SEPTEMBER 30, 1998
(Showing Percentage of Total Value of Net Assets)
================================================================================
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
----------- ------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 53.0%
FEDERAL FARM CREDIT BANKS NOTES -- 18.7%
Federal Farm Credit Banks Notes, 5.53%, 10/01/98 ................................ $ 5,000,000 $ 5,000,000
Federal Farm Credit Banks Notes, 5.44%, 10/01/98* ............................... 10,000,000 9,994,185
Federal Farm Credit Banks Notes, 5.42%, 10/03/98* ............................... 50,000,000 49,980,195
Federal Farm Credit Banks Notes, 5.38%, 10/17/98* ............................... 20,000,000 19,991,576
Federal Farm Credit Banks Notes, 5.37%, 10/23/98* ............................... 20,000,000 19,987,250
Federal Farm Credit Banks Notes, 5.51%, 11/02/98 ................................ 5,000,000 4,999,118
Federal Farm Credit Banks Notes, 5.70%, 11/03/98 ................................ 20,000,000 20,000,125
Federal Farm Credit Banks Notes, 5.50%, 04/01/99 ................................ 10,000,000 9,993,678
Federal Farm Credit Banks Notes, 5.50%, 08/03/99 ................................ 10,000,000 9,992,949
------------
149,939,076
------------
FEDERAL FARM CREDIT BANKS DISCOUNT NOTES -- 2.5%
Federal Farm Credit Banks Discount Notes, 5.22%, 12/23/98 ....................... 10,000,000 9,879,650
Federal Farm Credit Banks Discount Notes, 5.20%, 02/05/99 ....................... 10,000,000 9,816,556
------------
19,696,206
------------
FEDERAL HOME LOAN BANKS NOTES -- 8.9%
Federal Home Loan Banks Notes, 5.69%, 10/02/98 .................................. 5,000,000 4,999,990
Federal Home Loan Banks Notes, 5.42%, 10/05/98* ................................. 5,000,000 4,997,641
Federal Home Loan Banks Notes, 5.79%, 10/23/98 .................................. 5,000,000 4,999,859
Federal Home Loan Banks Notes, 5.84%, 12/17/98 .................................. 10,230,000 10,234,276
Federal Home Loan Banks Notes, 5.80%, 12/18/98 .................................. 5,000,000 5,000,663
Federal Home Loan Banks Notes, 5.58%, 03/11/99 .................................. 5,000,000 4,998,056
Federal Home Loan Banks Notes, 5.65%, 04/09/99 .................................. 8,005,000 8,005,492
Federal Home Loan Banks Notes, 5.71%, 05/05/99 .................................. 5,000,000 4,999,820
Federal Home Loan Banks Notes, 5.53%, 06/10/99 .................................. 5,000,000 4,994,546
Federal Home Loan Banks Notes, 5.61%, 06/18/99 .................................. 5,000,000 5,000,275
Federal Home Loan Banks Notes, 5.54%, 07/13/99 .................................. 5,000,000 4,999,453
Federal Home Loan Banks Notes, 6.03%, 10/01/99 .................................. 8,000,000 8,080,575
------------
71,310,646
------------
FEDERAL HOME LOAN BANKS DISCOUNT NOTES -- 18.6%
Federal Home Loan Banks Discount Notes, 5.34%, 10/21/98 ......................... 15,000,000 14,955,361
Federal Home Loan Banks Discount Notes, 5.30%, 10/28/98 ......................... 6,200,000 6,175,355
Federal Home Loan Banks Discount Notes, 5.40%, 11/12/98 ......................... 34,457,000 34,239,921
Federal Home Loan Banks Discount Notes, 5.36%, 11/12/98 ......................... 10,000,000 9,937,467
Federal Home Loan Banks Discount Notes, 5.40%, 11/18/98 ......................... 17,092,000 16,968,938
Federal Home Loan Banks Discount Notes, 5.22%, 12/16/98 ......................... 10,000,000 9,889,800
Federal Home Loan Banks Discount Notes, 5.20%, 12/23/98 ......................... 6,609,000 6,529,765
Federal Home Loan Banks Discount Notes, 5.24%, 02/24/99 ......................... 12,080,000 11,823,287
Federal Home Loan Banks Discount Notes, 5.01%, 03/05/99 ......................... 5,000,000 4,892,146
Federal Home Loan Banks Discount Notes, 5.17%, 03/10/99 ......................... 10,000,000 9,770,222
Federal Home Loan Banks Discount Notes, 5.05%, 03/24/99 ......................... 25,000,000 24,388,704
------------
149,570,966
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
THE RODNEY SQUARE FUND / U.S. GOVERNMENT PORTFOLIO
- --------------------------------------------------
INVESTMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
----------- ------------
<S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION DISCOUNT NOTES -- 1.2%
Federal Home Loan Mortgage Corporation Discount Notes, 5.28%, 12/18/98 ............. $10,000,000 $ 9,885,600
------------
STUDENT LOAN MARKETING ASSOCIATION NOTES -- 3.1%
Student Loan Marketing Association Notes, 5.40%, 02/10/99 .......................... 10,000,000 9,998,199
Student Loan Marketing Association Notes, 5.53%, 03/04/99 .......................... 10,000,000 9,991,365
Student Loan Marketing Association Notes, 5.53%, 07/16/99 .......................... 5,000,000 4,998,081
------------
24,987,645
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $425,390,139) ............................................................................ 425,390,139
------------
REPURCHASE AGREEMENTS -- 47.0%
With Canadian Imperial Bank of Commerce: at 5.50%, dated 09/30/98,
to be repurchased at $70,951,838 on 10/01/98, collateralized by
$72,359,820 of various U.S. Government Agency Obligation
Securities with various coupon rates and maturities to 01/01/35 ................... 70,941,000 70,941,000
With Dean Witter Reynolds, Inc.: at 5.67%, dated 09/30/98, to be
repurchased at $106,016,695 on 10/01/98, collateralized by
$108,121,544 of various U.S. Government Agency Obligation
Securities with various coupon rates and maturities to 09/01/28 .................. 106,000,000 106,000,000
With CS First Boston, Inc.: at 5.67%, dated 09/30/98, to be
repurchased at $200,031,500 on 10/01/98, collateralized by
$208,808,385 of Federal Home Loan Mortgage Corporation Discount
Notes with various rates and maturities to 03/19/99 ............................... 200,000,000 200,000,000
------------
TOTAL REPURCHASE AGREEMENTS (COST $376,941,000) ................................................... 376,941,000
------------
TOTAL INVESTMENTS (COST $802,331,139)(DAGGER) -- 100.0% .................................................... 802,331,139
OTHER ASSETS AND LIABILITIES, NET -- 0.0% ................................................................. (178,303)
------------
NET ASSETS -- 100.0% ....................................................................................... $802,152,836
============
<FN>
* Denotes a Variable or Floating Rate Note. Variable or Floating Rate Notes are
instruments whose rates change periodically. The rates shown are the interest
rates as of September 30, 1998. The dates shown are the next dates the
interest rates on the instruments are scheduled to be reset.
(DAGGER) Cost for federal income tax purposes.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE RODNEY SQUARE FUND / MONEY MARKET PORTFOLIO
- -----------------------------------------------
INVESTMENTS / SEPTEMBER 30, 1998
(Showing Percentage of Total Value of Net Assets)
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- ----------- ------------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- 24.4%
U.S. BANKS, U.S. BRANCHES -- 2.1%
Bank of America, 5.55%, 10/22/98 ..................................... P-1, A-1+ $25,000,000 $ 25,000,000
LaSalle National Bank, 5.55%, 02/05/99 ............................... P-1, A-1+ 10,000,000 9,998,665
------------
34,998,665
------------
FOREIGN BANKS, FOREIGN CENTERS -- 4.1%
Abbey National, 5.63%, 10/27/98 ...................................... P-1, A-1+ 10,000,000 9,999,707
Barclay's Bank, PLC, 5.61%, 10/22/98 ................................. P-1, A-1+ 25,000,000 25,000,142
Bayerische Landesbank, 5.88%, 11/30/98 ............................... P-1, A-1+ 10,000,000 10,007,135
Bayerische Vereinsbank, 5.64%, 10/28/98 .............................. P-1, A-1+ 25,000,000 25,000,091
------------
70,007,075
------------
FOREIGN BANKS, U.S. BRANCHES -- 18.2%
ABN-AMRO Bank, 5.45%, 01/13/99 ....................................... P-1, A-1+ 40,000,000 40,004,382
Bank of Montreal, 5.87%, 11/25/98 .................................... P-1, A-1+ 10,000,000 10,000,967
Bank of Nova Scotia, 5.80%, 10/06/98 ................................. P-1, A-1+ 5,000,000 4,999,967
Banque Nationale de Paris, 5.45%, 11/30/98 ........................... P-1, A-1 11,000,000 10,900,083
Bayerische Hypotheken-Und Vereinsbank, 5.62%, 01/12/99 ............... P-1, A-1+ 20,000,000 19,990,746
Bayerische Landesbank, NY, 5.46%, 10/26/98* .......................... P-1, A-1+ 25,000,000 24,993,601
Bayerische Landesbank, NY, 4.97%, 03/29/99 ........................... P-1, A-1+ 25,000,000 24,382,823
Canadian Imperial Bank of Commerce, 5.52%, 10/05/98 .................. P-1, A-1+ 15,000,000 15,000,000
Canadian Imperial Bank of Commerce, 5.42%, 12/17/98 .................. P-1, A-1+ 25,000,000 25,000,000
Credit Agricole Indosuez, 5.62%, 10/21/98 ............................ P-1, A-1+ 25,000,000 25,000,000
Credit Agricole Indosuez, 5.73%, 04/16/99 ............................ P-1, A-1+ 9,250,000 9,247,316
Deutsche Bank, 5.85%, 10/20/98 ....................................... P-1, A-1+ 25,000,000 25,000,336
Deutsche Bank, 5.60%, 08/23/99 ....................................... P-1, A-1+ 10,000,000 9,994,863
Dresdner Bank, 5.95%, 10/20/98 ....................................... P-1, A-1+ 10,000,000 9,999,900
Rabobank Nederland, 5.69%, 06/30/99 .................................. P-1, A-1+ 10,000,000 9,995,716
Societe Generale, 5.53%, 10/01/98* ................................... P-1, A-1+ 6,000,000 5,998,523
Societe Generale, 5.60%, 01/13/99 .................................... P-1, A-1+ 10,000,000 10,004,381
Societe Generale, 5.69%, 07/16/99 .................................... P-1, A-1+ 10,000,000 9,995,464
Swiss Bank Corp., 5.69%, 01/07/99 .................................... P-1, A-1+ 20,000,000 19,993,520
------------
310,502,588
------------
TOTAL CERTIFICATES OF DEPOSIT (COST $415,508,328) ..................................................... 415,508,328
------------
COMMERCIAL PAPER -- 55.3%
AUTOMOBILES -- 3.6%
Daimler-Benz North America Corp., 5.50%, 10/14/98 .................... P-1, A-1 12,000,000 11,976,167
Daimler-Benz North America Corp., 5.43%, 11/19/98 .................... P-1, A-1 25,500,000 25,311,534
Daimler-Benz North America Corp., 5.44%, 02/25/99 .................... P-1, A-1 25,000,000 24,444,667
------------
61,732,368
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE RODNEY SQUARE FUND / MONEY MARKET PORTFOLIO
- -----------------------------------------------
INVESTMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- ----------- ------------
<S> <C> <C> <C>
BANKS -- 9.4%
Abbey National North America, 5.50%, 10/05/98 .......................... P-1, A-1+ $15,000,000 $ 14,990,833
Banque Nationale de Paris, 5.35%, 12/18/98 ............................. P-1, A-1 27,000,000 26,687,025
Commerzbank U.S. Finance, Inc., 5.50%, 10/16/98 ........................ P-1, A-1+ 20,000,000 19,954,167
Commerzbank U.S. Finance, Inc., 5.47%, 01/11/99 ........................ P-1, A-1+ 30,000,000 29,535,050
Commerzbank U.S. Finance, Inc., 5.19%, 03/18/99 ........................ P-1, A-1+ 10,000,000 9,757,800
Lloyds Bank PLC, 5.45%, 12/30/98 ....................................... P-1, A-1+ 40,000,000 39,455,000
Lloyds Bank PLC, 5.46%, 12/30/98 ....................................... P-1, A-1+ 20,000,000 19,727,000
------------
160,106,875
------------
CHEMICALS -- 5.0%
AKZO Nobel America, Inc., 5.52%, 10/20/98 .............................. P-1, A-1 10,000,000 9,970,867
AKZO Nobel America, Inc., 5.50%, 11/23/98 .............................. P-1, A-1 30,000,000 29,757,083
AKZO Nobel America, Inc., 5.47%, 12/01/98 .............................. P-1, A-1 20,000,000 19,814,628
Dupont (E.I.) de Nemours, 5.50%, 10/23/98 .............................. P-1, A-1+ 25,500,000 25,414,292
------------
84,956,870
------------
COMMUNICATION & BROADCASTING -- 2.9%
E.W. Scripps Co., 5.37%, 12/09/98 ...................................... P-1, A-1+ 40,000,000 39,588,300
E.W. Scripps Co., 5.40%, 12/11/98 ...................................... P-1, A-1+ 10,000,000 9,893,500
------------
49,481,800
------------
FINANCIAL SERVICES -- 19.9%
Allianz of America Finance Corp., 5.51%, 10/23/98 ...................... P-1, A-1 23,535,000 23,455,752
Allianz of America Finance Corp., 5.52%, 11/05/98 ...................... P-1, A-1 9,900,000 9,846,870
Allianz of America Finance Corp., 5.51%, 11/10/98 ...................... P-1, A-1 14,435,000 14,346,626
Allianz of America Finance Corp., 5.40%, 12/10/98 ...................... P-1, A-1 6,600,000 6,530,700
Allianz of America Finance Corp., 5.13%, 02/23/99 ...................... P-1, A-1 6,525,000 6,390,177
BMW U.S. Capital Corp., 5.49%, 10/16/98 ................................ P-1, A-1 30,000,000 29,931,375
BMW U.S. Capital Corp., 5.45%, 11/10/98 ................................ P-1, A-1 15,547,000 15,452,854
BMW U.S. Capital Corp., 5.43%, 11/20/98 ................................ P-1, A-1 14,561,000 14,451,186
First Data Corp., 5.50%, 10/06/98 ...................................... P-1, A-1 7,934,000 7,927,939
General Electric Capital Corp., 5.50%, 11/04/98 ........................ P-1, A-1+ 18,900,000 18,801,825
General Electric Capital Corp., 5.47%, 11/19/98 ........................ P-1, A-1+ 10,000,000 9,925,547
General Electric Capital Corp., 5.53%, 11/19/98 ........................ P-1, A-1+ 7,700,000 7,642,043
General Electric Capital Corp., 5.47%, 11/27/98 ........................ P-1, A-1+ 24,750,000 24,535,644
Morgan Stanley Dean Witter Discover Co., 5.48%, 01/13/99 ............... P-1, A-1 20,000,000 19,683,378
Morgan Stanley Dean Witter Discover Co., 5.49%, 01/21/99 ............... P-1, A-1 30,000,000 29,487,600
National Rural Utilities Co-op., 5.50%, 10/19/98 ....................... P-1, A-1+ 15,000,000 14,958,750
National Rural Utilities Co-op., 5.49%, 10/26/98 ....................... P-1, A-1+ 20,000,000 19,923,750
National Rural Utilities Co-op., 5.58%, 11/20/98 ....................... P-1, A-1+ 25,000,000 24,809,028
Transamerica Finance Corp., 5.47%, 01/14/99 ............................ P-1, A-1 10,000,000 9,840,458
UBS Finance (DE) Inc., 5.50%, 10/16/98 ................................. P-1, A-1+ 30,000,000 29,931,250
------------
337,872,752
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE RODNEY SQUARE FUND / MONEY MARKET PORTFOLIO
- -----------------------------------------------
INVESTMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- ----------- ------------
<S> <C> <C> <C>
LEASING -- 3.2%
International Lease Finance Corp., 5.46%, 01/05/99 ................... P-1, A-1+ $10,000,000 $ 9,854,400
International Lease Finance Corp., 5.47%, 01/13/99 ................... P-1, A-1+ 30,000,000 29,525,933
Vehicle Services of America, LOC Nationsbank, NA,
5.53%, 11/16/98 ................................................... NR, A-1+ 15,000,000 14,894,008
------------
54,274,341
------------
MEDICAL SERVICES -- 0.5%
Medical Building Funding VII, LOC Comerica Bank, NA,
5.80%, 12/01/98 ................................................... NR, A-1 7,800,000 7,723,343
------------
PHARMACEUTICALS PREPARATIONS -- 2.9%
Zeneca Wilmington Inc., 5.52%, 10/15/98 .............................. P-1, A-1+ 50,000,000 49,892,667
------------
SECURITIES DEALERS -- 7.9%
CS First Boston International (Guernsey), Ltd., 5.53%, 10/13/98 ...... P-1, A-1+ 20,000,000 19,963,133
CS First Boston International (Guernsey), Ltd., 5.54%, 10/23/98 ...... P-1, A-1+ 12,000,000 11,959,373
CS First Boston International (Guernsey), Ltd., 5.54%, 10/27/98 ...... P-1, A-1+ 10,000,000 9,959,989
CS First Boston International (Guernsey), Ltd., 5.54%, 10/29/98 ...... P-1, A-1+ 12,000,000 11,948,293
CS First Boston International (Guernsey), Ltd., 5.55%, 11/24/98 ...... P-1, A-1+ 1,000,000 991,675
CS First Boston International (Guernsey), Ltd., 5.52%, 11/30/98 ...... P-1, A-1+ 11,000,000 10,898,800
Merrill Lynch & Co., Inc., 5.52%, 10/26/98 ........................... P-1, A-1+ 20,000,000 19,923,333
Merrill Lynch & Co., Inc., 5.53%, 10/30/98 ........................... P-1, A-1+ 10,000,000 9,955,453
Merrill Lynch & Co., Inc., 5.50%, 11/02/98 ........................... P-1, A-1+ 10,000,000 9,951,111
Merrill Lynch & Co., Inc., 5.50%, 11/13/98 ........................... P-1, A-1+ 10,000,000 9,934,306
Merrill Lynch & Co., Inc., 5.13%, 01/15/99 ........................... P-1, A-1+ 10,000,000 9,848,950
Merrill Lynch & Co., Inc., 5.27%, 01/29/99 ........................... P-1, A-1+ 10,000,000 9,824,333
------------
135,158,749
------------
TOTAL COMMERCIAL PAPER (COST $941,199,765) ............................................................ 941,199,765
------------
CORPORATE NOTES -- 2.8%
BANKS -- 1.3%
Abbey National Treasury Services, 5.72%, 06/11/99 .................... P-1, A-1+ 13,000,000 12,993,959
Abbey National Treasury Services, 5.58%, 08/19/99 .................... P-1, A-1+ 10,000,000 9,994,924
------------
22,988,883
------------
LEASING -- 1.5%
International Lease Finance Corp., 5.65%, 10/01/98* .................. NR, A-1+ 25,000,000 25,002,765
------------
TOTAL CORPORATE NOTES (COST $47,991,648) .............................................................. 47,991,648
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE RODNEY SQUARE FUND / MONEY MARKET PORTFOLIO
- -----------------------------------------------
INVESTMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- ----------- -------------
<S> <C> <C> <C>
TAXABLE MUNICIPAL SECURITIES -- 2.3%
CALIFORNIA -- 1.2%
Oakland-Alameda County Coliseum Auth., LOC Canadian Imperial
Bank of Commerce, Ser. 1995-B, 5.63%, 11/20/98 .................... VMIG-1, A-1+ $20,400,000 $ 20,400,000
--------------
TEXAS -- 0.8%
Texas Veterans Housing Assistance, LOC Morgan Guaranty
Trust Co. of New York, 5.31%, 10/07/98* ........................... VMIG-1, A-1+ 14,500,000 14,500,000
--------------
WISCONSIN -- 0.3%
Waukesha Wisconsin Health Systems, LOC Bank of America,
5.70%, 10/01/98* .................................................. VMIG-1, A-1+ 4,350,000 4,350,000
--------------
TOTAL TAXABLE MUNICIPAL SECURITIES (COST $39,250,000) ................................................. 39,250,000
--------------
TIME DEPOSITS -- 5.9%
Credit Commercial de France, Grand Cayman Branch, 5.75%,
10/01/98 .......................................................... P-1, A-1 50,000,000 50,000,000
Westdeutsche Landesbank, Grand Cayman Branch , 5.75%,
10/01/98 .......................................................... P-1, A-1+ 50,000,000 50,000,000
--------------
TOTAL TIME DEPOSITS (COST $100,000,000) ............................................................... 100,000,000
--------------
REPURCHASE AGREEMENT -- 9.1%
With CS First Boston, Inc.: at 5.67%, dated 09/30/98, to be
repurchased at $155,322,659 on 10/01/98, collateralized by
$159,784,969 of Federal Home Loan Mortgage Corporation Discount
Notes with various rates and maturities to 03/26/99
(COST $155,298,200) .................................................................. 155,298,200 155,298,200
--------------
TOTAL INVESTMENTS (COST $1,699,247,941)(DAGGER) -- 99.8% ....................................................... 1,699,247,941
OTHER ASSETS AND LIABILITIES, NET -- 0.2% ...................................................................... 3,486,033
--------------
NET ASSETS -- 100.0% ........................................................................................... $1,702,733,974
==============
<FN>
* Denotes a Variable or Floating Rate Note. Variable or Floating Rate Notes are
instruments whose rates change periodically. The rates shown are the interest
rates as of September 30, 1998. The dates shown are the next dates the
interest rates on the instruments are scheduled to be reset.
(DAGGER) Cost for federal income tax purposes.
LOC -- Letter of Credit.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS / SEPTEMBER 30, 1998
(Showing Percentage of Total Value of Net Assets)
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
------------ ----------- ------------
<S> <C> <C> <C>
MUNICIPAL BONDS -- 99.9%
ALABAMA -- 4.4%
Alabama Housing Fin. Auth. Multi-family Housing (Rime Village
Hoover Project), FNMA Gtd., Ser. 1996-A, 3.50%, 10/07/98* .............. NR, A-1+ $ 4,200,000 $ 4,200,000
Port City Med. Clinic Board of Mobile, AL Rev. Bonds TECP
(Mobile Infirmary Assoc.), LOC Rabobank Nederland,
Ser. 1992-A, 3.55%, 12/01/98 ........................................... VMIG-1, A-1+ 13,000,000 13,000,000
------------
17,200,000
------------
ALASKA -- 1.9%
Anchorage, AK Higher Educ. Rev. Bonds (Alaska Pacific Univ. Proj.),
LOC Bank of America NT & SA, Ser. 1997, 3.65%, 10/07/98* ............... NR, A-1+ 7,500,000 7,500,000
------------
ARIZONA -- 2.8%
Salt River, AZ Agric. Imp. & Power Dist. TECP,
Ser. A, 3.40%, 02/16/99 ................................................ P-1, A-1+ 10,900,000 10,900,000
------------
COLORADO -- 0.9%
Pitkin County, CO Ind. Dev. Bonds (Aspen Skiing Co. Project),
LOC First National Bank Chicago, 4.10%, 10/01/98* ...................... NR, A-1+ 3,500,000 3,500,000
------------
DISTRICT OF COLUMBIA -- 2.8%
Dist. of Columbia (American Univ.), AMBAC Insured & SBPA
Chase Manhattan Bank, Ser. 1985-A, 3.60%, 10/07/98* .................... VMIG-1, NR 10,000,000 10,000,000
Dist. of Columbia (American Univ.), AMBAC Insured & SBPA
Chase Manhattan Bank, Ser. 1986-A, 3.60%, 10/07/98* .................... VMIG-1, NR 1,000,000 1,000,000
------------
11,000,000
------------
FLORIDA -- 2.0%
Jacksonville, FL Poll. Cntrl. Rev. Bonds TECP (Florida Power &
Light Co. Proj.), Ser. 1992, 3.50%, 12/17/98 ........................... P-1, A-1+ 5,800,000 5,800,000
Orange County, FL Housing Fin. Auth. Multi-family Housing
Ref. Rev. Bonds (Post Fountains at Lee Vista Project),
FNMA Gtd., 3.50%, 10/07/98* ............................................ N/R, A-1+ 1,900,000 1,900,000
------------
7,700,000
------------
GEORGIA -- 10.8%
Atlanta, GA Downtown Dev. Auth. Rev. Bonds (CARE Proj.),
LOC Trust Company Bank, Ser. 1993, 4.05%, 10/07/98* .................... VMIG-1, NR 2,300,000 2,300,000
Burke County, GA Dev. Auth. Poll. Cntrl. Rev. Bond (Ogelthorpe
Power Corp. Vogtle Proj.), Ser. 1997-A, 4.10%, 10/01/98* ............... VMIG-1, A-1 4,000,000 4,000,000
Burke County, GA Dev. Auth. Poll. Cntrl. Rev. Bonds
(Georgia Power Co., Plant Vogtle Proj.), 4.10%, 10/01/98* .............. VMIG-1, A+ 7,200,000 7,200,000
Columbus, GA Housing Auth. Rev. Bonds (Columbus State Univ.
Foundation Inc. Proj.), LOC SunTrust Bank, Ser. 1997,
4.05%, 10/07/98* ....................................................... Aa3, NR 1,300,000 1,300,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
------------ ----------- ------------
<S> <C> <C> <C>
Dekalb County, GA Hospital Auth. Rev. Ant. Cert. (Dekalb Medical
Center Project), LOC SunTrust Bank,
Ser. 1993-B, 4.05%, 10/07/98* ............................................ VMIG-1, NR $ 3,700,000 $ 3,700,000
Floyd County, GA Dev. Auth. Envir. Imp. Rev. Bonds (Georgia
Kraft Co. Proj.), LOC Banque Nationale de Paris,
4.20%, 10/01/98* ......................................................... P-1, NR 4,375,000 4,375,000
Floyd County, GA Dev. Auth. Envir. Imp. Rev. Bonds (Georgia
Power Co. Plant Hammond Proj.), Ser.1996, 4.10%, 10/01/98* ............... VMIG-1, A-1 1,130,000 1,130,000
Fulton County, GA Dev. Auth. Rev. Bonds (Arthritis Foundation, Inc.
Proj.), LOC SunTrust Bank, Ser. 1996, 4.05%, 10/07/98* ................... Aa3, NR 1,000,000 1,000,000
Fulton County, GA Dev. Auth. Rev. Bonds (The Alfred and Adele
Davis Academy Income Proj.), LOC SunTrust Bank, Ser. 1996,
4.05%, 10/07/98* ......................................................... Aa3, NR 2,000,000 2,000,000
Georgia Municipal Gas Auth. Gas Rev. Bond TECP
(Southern Portfolio-I), LOC Wachovia Bank of NC, NA.,
Ser. 1994-D, 3.55%, 12/08/98 ............................................. NR, A-1+ 5,000,000 5,000,000
Gwinnett County, GA Housing Auth. Multi-family Housing
(Post Corners Proj.), FNMA Gtd., Ser. 1996, 3.50%, 10/07/98* ............. NR, A-1+ 5,560,000 5,560,000
Heard County, GA Poll Cntrl. Rev. Bonds (Georgia Power Co. Plant
Wansley Project), Ser. 1996, 4.10%, 10/01/98* ............................ VMIG-1, A-1 1,800,000 1,800,000
Rockdale County, GA Health Fac. Auth. Rev. Bonds (Georgia Hosp.
Proj.), LOC SunTrust Bank, Ser. 1994, 4.05%, 10/07/98* ................... VMIG-1, NR 3,025,000 3,025,000
-----------
42,390,000
-----------
ILLINOIS -- 10.4%
Illinois Educ. Fac. Auth. Rev. Bonds (Depaul Univ. Proj.), LOC
Northern Trust Co., Ser. 1992, 3.65%, 10/07/98* .......................... VMIG-1, A-1+ 12,100,000 12,100,000
Illinois Health Fac. Auth. (Gottlieb Health Resources Inc. Proj.),
LOC Harris Trust & Savings Bank, 3.65%, 10/07/98* ........................ VMIG-1, NR 8,900,000 8,900,000
Illinois Health Fac. Auth. Rev. Bonds (Central DuPage Hosp. Assoc.
Proj.), LOC Rabobank Nederland, Ser. 1990, 4.10%, 10/01/98* .............. VMIG-1, NR 2,975,000 2,975,000
Illinois Health Fac. Auth. Rev. Bonds TECP (The Univ. of Chicago
Proj.), 3.75%, 11/04/98 .................................................. VMIG-1, A-1+ 12,000,000 12,000,000
Oak Forest, IL Dev. Rev. Bonds (Homewood Pool-South Suburban
Mayors & Managers Assoc. Proj.), LOC First National Bank
Chicago, 3.65%, 10/07/98* ................................................ VMIG-1, NR 5,000,000 5,000,000
-----------
40,975,000
-----------
INDIANA -- 5.6%
City of Sullivan, IN Poll. Cntrl. Rev. Bonds TECP (Hoosier Energy
Rural Electric Co-op, Inc.), National Rural Utilities Co-op. Fin.
Corp. Gtd., Ser. 1985, Subser. L-2, 3.60%, 10/09/98 ...................... P-1, A-1+ 3,000,000 3,000,000
Indiana Hosp. Equip. Fin. Auth. Rev. Bonds, MBIA Insured & SBPA
NBD Bank, Ser. 1985-A, 3.65%, 10/01/98* .................................. VMIG-1, A-1+ 7,700,000 7,700,000
South Bend, IN Redev. Auth. Rev. Bonds (College Football Hall of
Fame Proj.), LOC Landesbank Hessen-Thuringen Girozent,
Ser. 1994, 3.65%, 10/07/98* .............................................. VMIG-1, A-1+ 11,250,000 11,250,000
-----------
21,950,000
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
------------ ----------- ------------
<S> <C> <C> <C>
KENTUCKY -- 1.7%
Kentucky Econ. Dev. Fin. Auth. Hospital Fac. Rev. Bonds (Baptist
Healthcare System), LOC Canadian Imperial Bank of
Commerce, 3.50%, 10/07/98* ................................................ NR, A-1+ $ 6,650,000 $ 6,650,000
------------
LOUISIANA -- 3.3%
Plaquemines Port Harbor and Terminal Dist. Fac. Rev. Bonds TECP
(Marine Terminal Proj.), LOC Morgan Guaranty Trust Co. of
New York, Ser. 1984-B, 3.60%, 03/15/99 .................................... Aa2, NR 1,000,000 1,000,000
Plaquemines Port Harbor and Terminal Dist. Fac. Rev. Bonds TECP
(Electro-Coal Transfer Proj.), Ser. 1985-A, 3.65%, 11/10/98 ............... P-1, A-1+ 1,500,000 1,500,000
Plaquemines Port Harbor and Terminal Dist. Fac. Rev. Bonds TECP
(Electro-Coal Transfer Proj.), Ser. A, 3.55%, 11/10/98 .................... P-1, A-1+ 10,500,000 10,500,000
------------
13,000,000
------------
MARYLAND -- 5.1%
Baltimore County, MD Metropolitan Dist. TECP, Ser. 1995,
3.60%, 12/14/98 ........................................................... P-1, A-1+ 10,000,000 10,000,000
Montgomery County, MD Consolidated Bond Ant. Notes TECP,
Ser. 1995, 3.40%, 02/12/99 ................................................ P-1, A-1+ 10,000,000 10,000,000
------------
20,000,000
------------
MICHIGAN -- 5.7%
Farmington Hills Hosp. Fin. Auth. Rev. Bonds (Botsford Gen.
Hospital Proj.), LOC Comerica Bank, Ser. B, 4.10%, 10/01/98* .............. VMIG-1, A-1 2,000,000 2,000,000
Michigan State Strategic Fund Rev. Bonds (Consumer Power Co.
Proj.), LOC Canadian Imperial Bank of Commerce, Ser. 1993-A,
4.10%, 10/01/98* .......................................................... Aa3, A-1+ 2,100,000 2,100,000
Michigan Strategic Fund Poll. Cntrl. Rev. Bonds (Detroit Edison
Co. Proj.), LOC Barclay's Bank, Ser. 1995-CC, 4.10%, 10/01/98* ............ P-1, A-1+ 4,900,000 4,900,000
Michigan Strategic Fund Poll. Cntrl. Rev. Bonds TECP (The Dow
Chemical Co. Project), Ser. 1987, 3.55%, 11/18/98 ......................... P-1, A-1+ 8,070,000 8,070,000
Monroe County, MI Econ. Poll. Cntrl. Rev. Bonds (Detroit Edison
Co. Proj.), LOC Barclay's Bank, Ser. 1992-CC, 4.10%, 10/01/98* ............ P-1, NR 5,400,000 5,400,000
------------
22,470,000
------------
MINNESOTA -- 3.8%
Rochester Health Care Fac. Rev. Bonds TECP (Mayo Foundation/
Mayo Medical Center Proj.), Ser. 1988-F, 3.40%, 02/09/99 .................. NR, A-1+ 7,000,000 7,000,000
Rochester Health Care Fac. Rev. Bonds TECP (Mayo Foundation/
Mayo Medical Center Proj.), Ser. A, 3.40%, 02/10/99 ....................... NR, A-1+ 2,600,000 2,600,000
Rochester Health Care Fac. Rev. Bonds TECP (Mayo Foundation/
Mayo Medical Center Proj.), Ser. C, 3.40%, 02/10/99 ....................... NR, A-1+ 5,300,000 5,300,000
------------
14,900,000
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
------------ ----------- ------------
<S> <C> <C> <C>
MISSISSIPPI -- 1.3%
Mississippi Business Fin. Corp. Ind. Dev. Rev. Bonds (Mississippi
College Proj.), LOC Nationsbank, N.A., Ser. 1996,
4.00%, 10/01/98* ......................................................... NR, A-1+ $ 5,000,000 $ 5,000,000
------------
MISSOURI -- 0.5%
Missouri Health & Educ. Fac. Auth. Rev. Bonds (Sister of Mercy
Health Care Systems, St. Louis), 4.10%, 12/01/98 ......................... Aa1, AA+ 2,000,000 2,001,592
------------
NEW YORK -- 1.1%
City of New York, NY, LOC Commerzbank, Ser. 1996,
Subser. J-2, 3.60%, 10/21/98 ............................................. P-1, A-1+ 4,500,000 4,500,000
------------
NORTH CAROLINA -- 4.1%
Carteret County, NC Ind. Fac. & Poll. Cntrl. Fin. Auth. (Texas
Gulf Proj.), LOC Banque Nationale de Paris,
Ser. 1985, 4.125%, 10/01/98* ............................................. Aa3, NR 5,000,000 5,000,000
North Carolina Eastern Muni. Power System Rev. Bonds TECP,
LOC Morgan Guaranty Trust Co. of New York & United Bank
of Switzerland, Ser. 1988-B, 3.40%, 02/11/99 ............................. NR, A-1+ 7,025,000 7,025,000
North Carolina Muni. Power Agency TECP, LOC Morgan
Guaranty Trust Co. of New York & United Bank of Switzerland,
Ser. A, 3.60%, 10/09/98 .................................................. P-1, A-1+ 4,200,000 4,200,000
------------
16,225,000
------------
NORTH DAKOTA -- 1.8%
Grand Forks, ND Health Care Fac. (United Hospital Proj.), LOC
LaSalle National Bank, Ser. 1992-B, 4.10%, 10/01/98* ..................... VMIG-1, NR 4,675,000 4,675,000
Grand Forks, ND Health Care Fac. (United Hospital Proj.), LOC
LaSalle National Bank, Ser. 1996, 4.10%, 10/01/98* ....................... VMIG-1, NR 2,400,000 2,400,000
------------
7,075,000
------------
PENNSYLVANIA -- 6.4%
Allegheny County, PA Port. Auth. Rev. Bonds, AMBAC Insured,
Ser. 1996, 5.00%, 03/01/99 ............................................... Aaa, AAA 1,940,000 1,950,882
Pennsylvania Higher Educ. Fac. Auth. Revenue Bonds (Univ. of
Pennsylvania Proj.), Ser. 1994-B, 3.60%, 10/07/98* ....................... VMIG-1, A-1+ 16,500,000 16,500,000
Pennsylvania State Higher Educ. Fac. Auth., MBIA Insured,
4.40%, 11/15/98 .......................................................... Aaa, AAA 1,785,000 1,786,605
York County, PA Poll. Cntrl. Rev. Bonds (PECO Energy Co. Proj.),
LOC Toronto Dominion, Ser. 1993-A, 4.05%, 10/01/98 ....................... P-1, A-1+ 5,000,000 5,000,000
------------
25,237,487
------------
SOUTH CAROLINA -- 5.1%
South Carolina State Public Service Auth. TECP, 3.60%, 10/13/98 ............. P-1, A-1+ 7,000,000 7,000,000
South Carolina State Public Service Auth. TECP, 3.50%, 11/18/98 ............. P-1, A-1+ 13,000,000 13,000,000
------------
20,000,000
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
------------ ----------- ------------
<S> <C> <C> <C>
TENNESSEE -- 4.5%
Chattanooga-Hamilton County, TN Ref. Rev. Bonds, LOC Morgan
Guaranty Trust Co. of New York, Ser. 1987, 4.20%, 10/01/98* ................ N/R, A-1+ $11,400,000 $ 11,400,000
Clarksville, TN Public Bldg. Auth. Rev. Bonds (Tennessee
Municipal Bond Fund Proj.), LOC Nationsbank of Tennessee,
Ser. 1984, 4.00%, 10/01/98* ................................................ NR, A-1+ 4,100,000 4,100,000
Clarksville, TN Public Bldg. Auth. Rev. Bonds (Tennessee
Municipal Bond Fund Proj.), LOC Nationsbank, NA,
Ser. 1995, 4.00%, 10/01/98* ................................................ NR, A-1+ 2,000,000 2,000,000
------------
17,500,000
------------
TEXAS -- 9.8%
Angelina & Neches River Auth. Ind. Dev. Solid Waste Disposal
(TEEC, Inc., Temple-Inland Proj.), LOC Credit Suisse First
Boston, Ser. 1984-B, 4.10%, 10/01/98* ...................................... P-1, NR 2,900,000 2,900,000
Angelina & Neches River Auth. Ind. Dev. Solid Waste Disposal
(TEEC, Inc., Temple-Inland Proj.), LOC Credit Suisse First
Boston, Ser. 1984-C, 4.10%, 10/01/98* ...................................... P-1, NR 5,000,000 5,000,000
Angelina & Neches River Auth. Ind. Dev. Solid Waste Disposal
(TEEC, Inc., Temple-Inland Proj.), LOC Credit Suisse First
Boston, Ser. E, 4.10%, 10/01/98* ........................................... P-1, NR 4,500,000 4,500,000
Angelina & Neches River Auth. Ind. Dev. Solid Waste Disposal
(TEEC, Inc., Temple-Inland Proj.), LOC Credit Suisse First
Boston, Ser. D, 4.10%, 10/01/98* ........................................... P-1, NR 2,500,000 2,500,000
Austin, TX Combined Utility System TECP (Travis & Williamson
Counties), LOC Morgan Guaranty Trust Co. of New York,
Ser. A, 3.50%, 12/15/98 .................................................... P-1, A-1+ 4,725,000 4,725,000
Bexar County, TX Health Fac. Dev. Corp. Rev. Bonds (Air Force
Village II Proj.), LOC Rabobank Nederland, Ser. 1985-B,
4.00%, 10/01/98* ........................................................... NR, A-1+ 9,500,000 9,500,000
Dallas, TX Area Rapid Transit Sales Tax Rev. TECP, LOC
Bayerische Landesbank Girozentrale, United Bank of Switerland
& Westdeutsche Landesbank Girozentrale, Ser. A, 3.55%, 12/15/98 ............ P-1, A-1+ 9,250,000 9,250,000
------------
38,375,000
------------
VIRGINIA -- 0.7%
Virginia Peninsula Ports Auth. Coal Terminal Rev. Ref. Bonds TECP
(Dominion Terminal Assoc. Proj.), LOC Barclay's Bank,
Ser. 1987-B, 3.50%, 11/17/98 ............................................... P-1, A-1+ 3,000,000 3,000,000
------------
WASHINGTON -- 0.2%
Washington Health Care Fac. Auth. Rev. Bonds (Fred Hutchinson
Cancer Research Center), LOC Morgan Guaranty Trust Co. of
New York, Ser. 1991-B, 4.10%, 10/01/98* .................................... VMIG-1, NR 700,000 700,000
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
------------ ----------- ------------
<S> <C> <C> <C>
WYOMING -- 3.2%
Gillette, WY Poll. Cntrl. Rev. Bonds TECP (Pacificorp Proj.),
LOC Deutsche Bank AG, 3.60%, 10/20/98 ................................... P-1, A-1+ $ 7,000,000 $ 7,000,000
Green River, WY Poll. Cntrl. Rev. Bonds (Texas Gulf, Inc. Proj.),
LOC Societe Generale, Ser. 1984, 4.25%, 10/01/98* ....................... Aa3, NR 2,000,000 2,000,000
Lincoln County, WY Poll. Cntrl. Rev. Bonds TECP (Pacificorp Proj.),
LOC United Bank of Switzerland, Ser. 1997, 3.60%, 10/28/98 .............. VMIG-1, A-1+ 3,450,000 3,450,000
------------
12,450,000
------------
TOTAL MUNICIPAL BONDS (COST $392,199,079) ................................................................ 392,199,079
------------
TOTAL INVESTMENTS (COST $392,199,079)(DAGGER) -- 99.9% ............................................................ 392,199,079
OTHER ASSETS AND LIABILITIES, NET -- 0.1% ......................................................................... 410,559
------------
NET ASSETS -- 100.0% $392,609,638
============
<FN>
* Denotes a variable or floating rate demand note. Variable and floating rate
demand notes are instruments whose rates change periodically. The rates shown
are the interest rates as of september 30, 1998. The dates shown are the next
dates the interest rates on the instruments are scheduled to be reset.
(DAGGER) Cost for federal income tax purposes.
LOC -- Letter of Credit.
SBPA -- Stand-by Bond Purchase Agreement.
TECP -- Tax-Exempt Commercial Paper and multi-modal bonds in commercial paper
mode.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1998
<TABLE>
<CAPTION>
RODNEY SQUARE RODNEY SQUARE
FUND -- FUND -- RODNEY SQUARE
U.S. GOVERNMENT MONEY MARKET TAX-EXEMPT
PORTFOLIO PORTFOLIO FUND
--------------- -------------- -------------
<S> <C> <C> <C>
ASSETS:
Investments in securities (including repurchase agreements of
$376,941,000, $155,298,200 and $0, respectively), at value
(amortized cost $802,331,139, $1,699,247,941 and $392,199,079,
respectively) (Note 2)................................................ $802,331,139 $1,699,247,941 $392,199,079
Interest receivable ..................................................... 3,210,482 10,961,673 1,553,477
Other assets ............................................................ 5,759 8,140 62,331
--------------------------------------------------
Total assets ......................................................... 805,547,380 1,710,217,754 393,814,887
--------------------------------------------------
LIABILITIES:
Dividends payable ....................................................... 3,002,038 6,744,179 996,378
Accrued management fee (Note 3) ......................................... 281,587 600,328 156,016
Other accrued expenses (Note 3) ......................................... 110,919 139,273 52,855
--------------------------------------------------
Total liabilities .................................................... 3,394,544 7,483,780 1,205,249
--------------------------------------------------
NET ASSETS .............................................................. $802,152,836 $1,702,733,974 $392,609,638
==================================================
NET ASSETS CONSIST OF:
Capital paid in ......................................................... $802,150,327 $1,702,763,961 $392,611,298
Accumulated realized gain (loss) on investments - net ................... 2,509 (29,987) (1,660)
--------------------------------------------------
NET ASSETS, for 802,150,327, 1,702,763,961 and 392,617,981,
shares outstanding, respectively ..................................... $802,152,836 $1,702,733,974 $392,609,638
==================================================
NET ASSET VALUE, offering and redemption price per share: ............... $1.00 1 $1.00 2 $1.00 3
==================================================
<FN>
1 $802,152,836 (DIVIDE) 802,150,327 outstanding shares of beneficial interest,
no par value
2 $1,702,733,974 (DIVIDE) 1,702,763,961 outstanding shares of beneficial
interest, no par value
3 $392,609,638 (DIVIDE) 392,617,981 outstanding shares of beneficial interest,
no par value
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL STATEMENTS -- CONTINUED
================================================================================
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended September 30, 1998
<TABLE>
<CAPTION>
RODNEY SQUARE RODNEY SQUARE
FUND -- FUND -- RODNEY SQUARE
U.S. GOVERNMENT MONEY MARKET TAX-EXEMPT
PORTFOLIO PORTFOLIO FUND
--------------- -------------- -------------
<S> <C> <C> <C>
INTEREST INCOME .................................................... $32,081,863 $77,760,447 $12,171,636
-------------------------------------------------
EXPENSES:
Management fee (Note 3) ............................................ 2,692,214 6,392,832 1,588,556
Accounting fee (Note 3) ............................................ 144,347 304,502 97,600
Distribution expenses (Note 3) ..................................... 54,227 253,692 17,711
Trustees' fees and expenses (Note 3) ............................... 10,378 13,162 10,363
Registration fees .................................................. 95,425 159,913 48,111
Reports to shareholders ............................................ 5,609 16,576 6,204
Legal .............................................................. 22,269 54,783 27,740
Audit .............................................................. 11,564 30,526 27,446
Other .............................................................. 40,117 112,586 28,826
-------------------------------------------------
Total expenses .................................................. 3,076,150 7,338,572 1,852,557
-------------------------------------------------
Net investment income ........................................... 29,005,713 70,421,875 10,319,079
-------------------------------------------------
REALIZED GAIN (LOSS) ON INVESTMENTS -- NET (NOTE 2) ................ 296 (1,150) 0
-------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............... $29,006,009 $70,420,725 $10,319,079
=================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL STATEMENTS -- CONTINUED
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
RODNEY SQUARE RODNEY SQUARE
FUND -- FUND -- RODNEY SQUARE
U.S. GOVERNMENT MONEY MARKET TAX-EXEMPT
PORTFOLIO PORTFOLIO FUND
--------------- --------------- ---------------
<S> <C> <C> <C>
For the Fiscal Year Ended September 30, 1998
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income .................................................... $ 29,005,713 $ 70,421,875 $ 10,319,079
Net realized gain (loss) on investments .................................. 296 (1,150) 0
----------------------------------------------------
Net increase in net assets resulting from operations ..................... 29,006,009 70,420,725 10,319,079
----------------------------------------------------
Dividends to shareholders from net investment income ........................ (29,005,713) (70,421,875) (10,319,079)
----------------------------------------------------
Share transactions at net asset value of $1.00 per share:
Proceeds from sale of shares ............................................. 4,463,845,267 7,518,930,203 1,662,576,975
Shares issued to shareholders in reinvestment of dividends
from net investment income ............................................ 526,772 6,501,608 297,532
Cost of shares redeemed .................................................. (4,040,694,000) (7,013,967,395) (1,551,128,833)
----------------------------------------------------
Net increase in net assets and shares resulting from
share transactions .................................................... 423,678,039 511,464,416 111,745,674
----------------------------------------------------
Total increase in net assets ............................................. 423,678,335 511,463,266 111,745,674
NET ASSETS:
Beginning of year ........................................................ 378,474,501 1,191,270,708 280,863,964
----------------------------------------------------
End of year .............................................................. $ 802,152,836 $ 1,702,733,974 $ 392,609,638
====================================================
For the Fiscal Year Ended September 30, 1997
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income .................................................... $ 17,524,954 $ 54,521,949 $ 8,592,334
Net realized gain (loss) on investments .................................. 651 (14,558) 0
----------------------------------------------------
Net increase in net assets resulting from operations ..................... 17,525,605 54,507,391 8,592,334
----------------------------------------------------
Dividends to shareholders from net investment income ........................ (17,524,954) (54,521,949) (8,592,334)
----------------------------------------------------
Share transactions at net asset value of $1.00 per share:
Proceeds from sale of shares ............................................. 4,042,452,758 8,656,915,051 2,251,065,320
Shares issued to shareholders in reinvestment of dividends
from net investment income ............................................ 406,577 4,778,057 257,389
Cost of shares redeemed .................................................. (4,005,811,594) (8,451,263,968) (2,207,643,449)
----------------------------------------------------
Net increase in net assets and shares resulting from
share transactions .................................................... 37,047,741 210,429,140 43,679,260
----------------------------------------------------
Total increase in net assets ............................................. 37,048,392 210,414,582 43,679,260
NET ASSETS:
Beginning of year ........................................................ 341,426,109 980,856,126 237,184,704
----------------------------------------------------
End of year .............................................................. $ 378,474,501 $ 1,191,270,708 $ 280,863,964
====================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL HIGHLIGHTS
================================================================================
The following tables include selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. They should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RODNEY SQUARE FUND -- U.S. GOVERNMENT PORTFOLIO
For a Share Outstanding Through Each Year:
NET ASSET VALUE - BEGINNING OF YEAR ..................... $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------
Investment Operations:
Net investment income ................................ 0.051 0.050 0.050 0.052 0.033
---------------------------------------------------------
Distributions:
From net investment income ........................... (0.051) (0.050) (0.050) (0.052) (0.033)
---------------------------------------------------------
NET ASSET VALUE - END OF YEAR ........................... $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================
TOTAL RETURN ............................................ 5.19% 5.07% 5.08% 5.37% 3.32%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses ............................................. 0.54% 0.55% 0.55% 0.55% 0.53%
Net investment income ................................ 5.06% 4.96% 4.97% 5.25% 3.27%
Net assets at end of year (000 omitted) ................. $802,153 $378,475 $341,426 $306,096 $336,766
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RODNEY SQUARE FUND -- MONEY MARKET PORTFOLIO
For a Share Outstanding Through Each Year:
NET ASSET VALUE - BEGINNING OF YEAR ................... $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------
Investment Operations:
Net investment income .............................. 0.051 0.051 0.050 0.054 0.033
---------------------------------------------------------
Distributions:
From net investment income ......................... (0.051) (0.051) (0.050) (0.054) (0.033)
---------------------------------------------------------
NET ASSET VALUE - END OF YEAR ......................... $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================
TOTAL RETURN .......................................... 5.26% 5.17% 5.17% 5.50% 3.37%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses ........................................... 0.53% 0.54% 0.53% 0.54% 0.53%
Net investment income .............................. 5.13% 5.06% 5.03% 5.37% 3.33%
Net assets at end of year (000 omitted) ............... $1,702,734 $1,191,271 $980,856 $751,125 $606,835
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RODNEY SQUARE TAX-EXEMPT FUND
For a Share Outstanding Through Each Year:
NET ASSET VALUE - BEGINNING OF YEAR .................... $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------
Investment Operations:
Net investment income ............................... 0.031 0.030 0.031 0.033 0.021
---------------------------------------------------------
Distributions:
From net investment income .......................... (0.031) (0.030) (0.031) (0.033) (0.021)
---------------------------------------------------------
NET ASSET VALUE - END OF YEAR .......................... $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================
TOTAL RETURN ........................................... 3.11% 3.09% 3.11% 3.36% 2.17%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses ............................................ 0.55% 0.57% 0.56% 0.54% 0.54%
Net investment income ............................... 3.05% 3.05% 3.08% 3.29% 2.13%
Net assets at end of year (000 omitted) ................ $392,610 $280,864 $237,185 $318,213 $388,565
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. DESCRIPTION AND SHARES OF THE FUNDS. The Rodney Square Fund and the Rodney
Square Tax-Exempt Fund (each a "Fund" and collectively, the "Funds") are
diversified, open-end management investment companies established as
Massachusetts business trusts by Declarations of Trust on February 16, 1982
and August 1, 1985, respectively, and registered with the U.S. Securities and
Exchange Commission (the "SEC") under the Investment Company Act of 1940, as
amended (the "1940 Act"). Each Declaration of Trust permits the Trustees of
each Fund to create additional series or portfolios, each of which may issue
additional classes of shares. Currently, the Rodney Square Fund consists of
two series or portfolios, the U.S. Government Portfolio and the Money Market
Portfolio (each a "Portfolio"). The Rodney Square Tax-Exempt Fund consists of
one series or portfolio (also a "Portfolio" and, together with the U.S.
Government Portfolio and the Money Market Portfolio, the "Portfolios"). Each
Portfolio consists of a single class of shares.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of the
significant accounting policies of each Fund:
SECURITY VALUATION. Each Fund values securities utilizing the amortized cost
valuation method which is permitted by Rule 2a-7 under the 1940 Act provided
that each Fund complies with certain conditions. This method involves valuing
a portfolio security initially at its cost and thereafter adjusting for
amortization of premium or accretion of discount to maturity.
FEDERAL INCOME TAXES. Each Portfolio is treated as a separate entity for
federal income tax purposes and each Portfolio intends to continue to qualify
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended, and to distribute all of its taxable and tax-exempt
income to its shareholders. Therefore, no federal income tax provision has
been made. At September 30, 1998, the U.S. Government Portfolio, the Money
Market Portfolio and the Rodney Square Tax-Exempt Fund had a net tax basis
capital loss carryforward available to offset future capital gains of
approximately $6,000, $41,000 and $2,000, respectively, which will expire as
follows:
CAPITAL LOSS EXPIRATION
CARRYFORWARD DATE
------------ ----------
U.S. Government Portfolio ........ $ 6,000 09/30/03
Money Market Portfolio ........... $25,000 09/30/02
Money Market Portfolio ........... $15,000 09/30/05
Money Market Portfolio ........... $ 1,000 09/30/06
Rodney Square Tax-Exempt Fund .... $ 2,000 09/30/02
INTEREST INCOME AND DIVIDENDS TO SHAREHOLDERS. Interest income is accrued as
earned. Dividends to shareholders of each Portfolio are declared daily from
net investment income, which consist of accrued interest and discount earned
(including original issue discount), less amortization of premium and the
accrued expenses applicable to the dividend period. For the Rodney Square
Tax-Exempt Fund only, the tax-exempt portion of each dividend is determined
uniformly, based on the ratio of the Fund's tax-exempt and taxable income, if
any, for the entire fiscal year.
20
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
================================================================================
REPURCHASE AGREEMENTS. The Rodney Square Fund, through its custodian,
receives delivery of the underlying securities, the market value of which at
the time of purchase is required to be in an amount at least equal to 101% of
the resale price. Rodney Square Management Corporation ("RSMC"), the Fund
Manager, is responsible for determining that the amount of these underlying
securities is maintained at a level such that their market value is at all
times equal to 101% of the resale price. In the event of default of the
obligation to repurchase, the Fund has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
OTHER. Investment security transactions are accounted for on a trade date
basis. The Funds use the specific identification method for determining
realized gain and loss on investments for both financial and federal income
tax reporting purposes. Obligations of agencies and instrumentalities of the
U.S. Government are not direct obligations of the U.S. Treasury and, thus,
may or may not be backed by the "full faith and credit" of the United States.
Payment of interest and principal on these obligations, although generally
backed directly or indirectly by the U.S. Government, may be backed solely by
the issuing instrumentality.
The Money Market Portfolio invests in short-term unsecured debt instruments
of corporate issuers. The ability of a corporate issuer to meet its
obligations may be affected by economic developments in a specific industry
or region. The Money Market Portfolio's investments in certificates of
deposit, commercial paper, corporate notes and time deposits of domestic and
foreign banks represented in the aggregate approximately 41.1% of its total
investments on September 30, 1998.
Approximately 65.2% of the investments by the Rodney Square Tax-Exempt Fund
on September 30, 1998 were insured by private issuers that guarantee payments
of principal and interest in the event of default or were backed by letters
of credit issued by domestic and foreign banks or financial institutions.
3. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES. The Funds employ RSMC,
a wholly owned subsidiary of Wilmington Trust Company ("WTC"), to serve as
Fund Manager to each of the Funds pursuant to separate management agreements
each dated August 9, 1991, as amended (the "Management Agreements"). Under
the Management Agreements, RSMC, subject to the supervision of the Funds'
Boards of Trustees, directs the investments of the Portfolios in accordance
with each Portfolio's investment objective, policies and limitations. Also
under the Management Agreements, RSMC is responsible for administrative
services such as compliance monitoring and corporate management. For its
services, the Funds pay RSMC a monthly fee at the annual rate of 0.47% of
each Portfolio's first $1 billion of average daily net assets; 0.43% of each
Portfolio's next $500 million of average daily net assets; 0.40% of each
Portfolio's next $500 million of average daily net assets; and 0.37% of each
Portfolio's average daily net assets in excess of $2 billion. Prior to June
29, 1998, the Funds paid a monthly fee at the annual rate of 0.47% of each
Portfolio's average daily net assets for these services.
21
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
================================================================================
Effective February 2, 1998, each Fund entered into a Sub-Administration and
Accounting Services Agreement with PFPC Inc. ("PFPC"), whereby PFPC serves as
Sub-Administrator and Accounting Agent of each Fund. The Funds will not pay
PFPC any fees for sub-administration services, as RSMC pays for the provision
of these services out of its management fee. For accounting services, each
Fund pays PFPC an annual amount of $50,000 per Portfolio, plus an annual
amount equal to 0.02% of each Portfolio's average daily net assets in excess
of $100 million. For the period February 2, 1998 through September 30, 1998,
PFPC's fees for accounting services amounted to $102,876 for the U.S.
Government Portfolio, $211,102 for the Money Market Portfolio and $67,753 for
the Rodney Square Tax-Exempt Fund. Prior to February 2, 1998, RSMC determined
the net asset value per share and provided all fund accounting services
pursuant to separate Accounting Services Agreements with each Fund. Fees paid
to RSMC for the period October 1, 1997 through February 1, 1998 amounted to
$41,471 for the U.S. Government Portfolio, $93,400 for the Money Market
Portfolio and $29,847 for the Rodney Square Tax-Exempt Fund.
WTC serves as custodian of the assets of the Funds and is paid for its
provision of this service by RSMC out of its management fee. The Funds
reimburse WTC for its related out-of-pocket expenses, if any, incurred in
connection with the performance of these services. Effective February 2,
1998, WTC entered into a Sub-Custodian Services Agreement with PNC Bank, N.A.
("PNC"), whereby PNC serves as Sub-Custodian of the Funds' assets. The Funds
do not pay PNC any fees for custodial services, as RSMC pays for the
provision of these services out of its management fee. The Funds reimburse
PNC for its related out-of-pocket expenses, if any, incurred in connection
with the performance of these services.
Effective February 2, 1998, each Fund entered into a Transfer Agency Services
Agreement with PFPC, whereby PFPC serves as transfer agent and dividend
disbursing agent for each Fund. RSMC pays PFPC for the provision of these
services out of its management fee. Any related out-of-pocket expenses
reasonably incurred by PFPC or its agents for the provision of such services
are reimbursed by the Fund. Prior to February 2, 1998, RSMC served as
transfer agent and dividend disbursing agent for the Funds.
Pursuant to a Distribution Agreement with each Fund dated December 31, 1992,
Rodney Square Distributors, Inc. ("RSD"), a wholly owned subsidiary of WTC,
manages the Funds' distribution efforts and provides assistance and expertise
in developing marketing plans and materials. The Funds' Board of Trustees
have adopted, and shareholders have approved, distribution plans pursuant to
Rule 12b-1 under the 1940 Act (the "12b-1 Plans"), to allow each Fund to
reimburse RSD for certain expenses incurred in connection with distribution
activities. The Trustees have authorized a payment of up to 0.20% of each
Portfolio's average daily net assets annually to reimburse RSD for such
expenses.
22
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
================================================================================
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Trustees of the Rodney Square Fund and the Rodney Square
Tax-Exempt Fund:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Rodney Square Fund (comprising,
respectively, the U.S. Government and the Money Market Portfolios) and the
Rodney Square Tax-Exempt Fund (the "Funds") as of September 30, 1998, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Rodney Square Fund and the Rodney
Square Tax-Exempt Fund at September 30, 1998, the results of their operations
for the year then ended, the changes in their net assets for each of the two
years in the period then ended, and their financial highlights for each of the
five years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
November 6, 1998
23
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
TAX INFORMATION (UNAUDITED)
================================================================================
Pursuant to Section 852 of the Internal Revenue Code of 1986, as amended, the
Rodney Square Tax-Exempt Fund designates dividends in the amount of $10,319,079
as tax-exempt dividends.
In January, 1999 shareholders of the Funds will receive Federal income tax
information on all distributions paid to their accounts in calendar year 1998,
including any distributions paid between September 30, 1998 and December 31,
1998.
24
<PAGE>
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<PAGE>
[This Page Intentionally Left Blank.]
<PAGE>
TRUSTEES
Eric Brucker
Fred L. Buckner
Robert J. Christian
John J. Quindlen
--------------------
OFFICERS
Robert J. Christian, PRESIDENT
Joseph M. Fahey,Jr., VICE PRESIDENT
John J. Kelley, VICE PRESIDENT & TREASURER
Carl M. Rizzo, Esq., SECRETARY
Mary Jane Maloney, ASSISTANT SECRETARY
John C. McDonnell, ASSISTANT TREASURER
--------------------------------------------
FUND MANAGER
Rodney Square Management Corporation
Rodney Square North
1100 N. Market St.
Wilmington, DE 19890-0001
----------------------------------
SUB-ADMINISTRATOR,
TRANSFER AGENT AND
ACCOUNTING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
-----------------------------
CUSTODIAN
Wilmington Trust Company
Rodney Square North
1100 N. Market St.
Wilmington, DE 19890-0001
---------------------------
DISTRIBUTOR
Rodney Square Distributors, Inc.
Rodney Square North
1100 N. Market St.
Wilmington, DE 19890-0001
--------------------------------
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
--------------------------------
INDEPENDENT AUDITORS
Ernst & Young LLP
----------------------
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE
FUNDS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN
THE FUNDS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
RS02 9/98
