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, 1996.
INVESTMENT RESULTS*
The U.S. Government Portfolio paid shareholders dividends of
$0.05 per share during the year, the Money Market Portfolio paid
dividends of $0.05 per share and The Rodney Square Tax-Exempt
Fund paid dividends of $0.03 per share. Based on the Portfolios'
net asset values of $1.00 per share, these dividends represented
total returns of 5.08%, 5.17% and 3.11%, respectively.
ECONOMIC OVERVIEW
During the past fiscal year, the economic pendulum has swung
from slow, near-recession type growth, to growth in excess of the
economy's long run noninflationary growth potential (2.0-2.5%),
back to what appears to be trend growth. Soft final demand and a
slowdown in inventory accumulation resulted in a meager 0.3% gain
in fourth quarter GDP. The Federal Reserve (the "Fed") reacted to
this anemic activity by lowering its federal funds rate target
(an interbank lending rate) 25 basis points in December 1995.
When the economy exhibited little signs of improvement early in
the first quarter, the Fed responded with an additional 25 basis
point cut in the federal funds rate to 5.25%-where it stands
today. Concerned that a 5.25% federal funds rate was still too
restrictive for a return to trend growth, the market priced for
additional Fed ease. Market expectations for the federal funds
rate, as determined by the federal funds futures market,
anticipated a 4.5% rate by mid-year.
As it turned out, the market misjudged the underlying trend
of the economy as activity rebounded sharply later in the first
quarter. Market expectations of a recession and additional Fed
ease gave way to perceptions that the Fed would need to act
preemptively to slow growth and curb incipient inflation
pressure. Interest rates rose nearly 100 basis points across the
yield curve in anticipation of a Fed move to a more restrictive
monetary stance. Long-term Treasury yields climbed above 7%
while one-year yields approached 6%.
Since the Fed eased in January, the economy has experienced a
powerful, broad based re-acceleration in growth. After posting a
2% increase for the first quarter, GDP growth surged 4.7% in the
second quarter. Job growth has been strong, averaging over
206,000 per month thus far in 1996. A consequence of this above
trend growth has been a tightening of labor market conditions.
The unemployment rate reached a seven year low of 5.1% in August.
It inched up to 5.2% in September when payroll employment took a
surprising 40,000 dip, but remains well below most estimates of
NAIRU (Non-Accelerating Inflation Rate of Unemployment). The
tightness in the labor market has begun to exert upward pressure
on wages.
The twelve-month change in average hourly earnings is up to
3.5 %. However, the wage pressure has not yet been reflected in
the broader price measures. For the first nine months of 1996,
the CPI was running at a 3.2% annual rate, up from 2.7 % in the
first nine months of 1995, and 2.5% for all of last year.
However, the core rate, which excludes the volatile food and
energy components, was running at a 2.8% pace in the first nine
months, down from 3.2% for the first nine months of 1995 and 3.0%
for all of last year.
Data available for the third quarter has generally provided
evidence of moderating economic activity. Consumer spending,
which represents about two thirds of GDP, is estimated to have
increased at an annual rate of only about 1%. That is down
significantly from the 3.5% annual pace of the first half of the
year. Sluggishness in consumer spending during the quarter has
led to downward revisions of third quarter GDP estimates to
approximately 2%.
Contrary to market expectations, moderating economic
activity, along with still relatively benign core inflation
readings, have allowed the Fed to remain on the sidelines. The
Fed apparently feels comfortable with its forecast that continued
moderating growth will keep price pressures from intensifying.
Market participants evidently agreed as long-term and one-year
Treasury yields fell to approximately 6.75% and 5.50%,
respectively.
Going forward, the major issue facing the Fed and the markets
is whether consumer spending is poised to rebound in the fourth
quarter. Consumer fundamentals are solid. A combination of high
confidence, rising incomes, and low unemployment are positive
factors that could set the stage for a return to above-trend
growth. Additionally, the resiliency of the housing market
reinforces the view that the third-quarter slowdown will not be
sustained. Single-family home sales rose in August to an 832,000
annual rate, the highest level in ten years. A rebound in
spending in the fourth quarter would put additional pressure on
resources and lead to an intensification of price pressure. Such
an occurrence could precipitate a tightening of monetary policy
by year end.
INVESTMENT STRATEGY
As noted in the economic overview, the fixed income markets
experienced a good deal of interest rate volatility during the
past fiscal year. This volatility resulted from changing market
perceptions regarding the underlying strength of the economy and
the direction of monetary policy. Rodney Square Management
Corporation, the Funds' Manager attempts to anticipate
directional changes in interest rates and swings in market
psychology. Within the context of regulatory and liquidity
constraints, the Funds' Manager then adjusts each portfolio's
weighted average maturity in an effort to maximize the return to
shareholders. Judging by the favorable returns of each of the
Portfolios versus its peer group, the Funds' Manager believes it
had success this past fiscal year.*
As measured by IBC's Money Fund Report, The Money Market
Portfolio had a 12-month total return of 5.17% versus 5.00% for
IBC's First Tier fund average; the U.S. Government Portfolio
returned 5.08% versus 4.89% for the IBC's Government and Agency
average; and The Tax-Exempt Fund had a 12-month total return of
3.11% versus 3.04% for IBC's Stockbroker & General Purpose
category average.*
More importantly, however, we are pleased to have provided
the shareholders of each Portfolio 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/ Martin L. Klopping
Martin L. Klopping
President
November 18, 1996
- --------------------------
* 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.
<PAGE>
THE RODNEY SQUARE FUND/U.S. GOVERNMENT PORTFOLIO
- ------------------------------------------------
INVESTMENTS/SEPTEMBER 30, 1996
(Showing Percentage of Total Value of Net Assets)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- ----------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS - 60.7%
FEDERAL FARM CREDIT BANKS DISCOUNT NOTES - 19.0%
Federal Farm Credit Banks Notes, 5.28%, 10/16/96............ $ 8,600,000 $ 8,581,080
Federal Farm Credit Banks Notes, 5.24%, 10/21/96............ 9,140,000 9,113,392
Federal Farm Credit Banks Notes, 5.34%, 10/22/96............ 9,000,000 8,971,965
Federal Farm Credit Banks Notes, 5.18%, 11/05/96............ 5,000,000 4,974,819
Federal Farm Credit Banks Notes, 5.20%, 11/26/96............ 17,500,000 17,358,444
Federal Farm Credit Banks Notes, 5.37%, 12/02/96............ 5,000,000 4,953,758
Federal Farm Credit Banks Notes, 5.43%, 12/26/96............ 6,185,000 6,104,770
Federal Farm Credit Banks Notes, 5.55%, 05/08/97............ 5,000,000 4,831,189
-------------
64,889,417
-------------
FEDERAL FARM CREDIT BANKS NOTES - 4.4%
Federal Farm Credit Banks Notes, 5.53%, 10/01/96............ 5,000,000 5,000,000
Federal Farm Credit Banks Notes, 5.60%, 06/03/97............ 10,000,000 9,990,603
-------------
14,990,603
-------------
FEDERAL HOME LOAN BANKS DISCOUNT NOTES - 26.5%
Federal Home Loan Banks Notes, 5.39%, 10/09/96.............. 10,000,000 9,988,022
Federal Home Loan Banks Notes, 5.29%, 10/15/96.............. 15,000,000 14,969,142
Federal Home Loan Banks Notes, 5.40%, 11/06/96.............. 5,000,000 4,973,000
Federal Home Loan Banks Notes, 5.25%, 11/12/96.............. 10,000,000 9,938,750
Federal Home Loan Banks Notes, 5.23%, 11/13/96.............. 18,000,000 17,887,555
Federal Home Loan Banks Notes, 5.38%, 12/19/96.............. 8,000,000 7,905,551
Federal Home Loan Banks Notes, 5.52%, 01/13/97.............. 5,000,000 4,920,267
Federal Home Loan Banks Notes, 5.45%, 01/24/97.............. 5,390,000 5,296,162
Federal Home Loan Banks Notes, 5.26%, 01/27/97.............. 9,685,000 9,518,020
Federal Home Loan Banks Notes, 5.255%, 02/07/97............. 5,000,000 4,905,847
-------------
90,302,316
-------------
FEDERAL HOME LOAN BANKS NOTES - 7.9%
Federal Home Loan Banks Notes, 5.21%, 11/13/96*............. 10,000,000 9,999,203
Federal Home Loan Banks Notes, 4.86%, 02/07/97.............. 7,000,000 6,981,328
Federal Home Loan Banks Notes, 5.21%, 06/17/97*............. 10,000,000 9,994,536
-------------
26,975,067
-------------
TENNESSEE VALLEY AUTHORITY DISCOUNT NOTES - 2.9%
Tennessee Valley Auth. Notes, 5.20%, 11/07/96............... 10,000,000 9,946,555
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $207,103,958)........... 207,103,958
-------------
U.S. TREASURY OBLIGATIONS - 3.2%
U.S. Treasury Notes, 8.50%, 04/15/97........................ 6,000,000 6,086,133
U.S. Treasury Notes, 6.50%, 05/15/97........................ 5,000,000 5,018,404
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $11,104,537)..................... 11,104,537
-------------
REPURCHASE AGREEMENTS - 36.3%
With Goldman, Sachs & Co.: at
5.85%, dated 09/30/96, to be
repurchased at $70,011,375 on
10/01/96, collateralized by
$71,400,000 Federal National
Mortgage Association Securities
with various coupons and maturities to 08/01/34 $ 70,000,000 $ 70,000,000
With UBS Securities, Inc.: at
5.92%, dated 09/30/96, to be
repurchased at $53,998,178 on
10/01/96, collateralized by
$55,071,286 Government National
Mortgage Association Securities
with various coupons and maturities to 09/15/26 53,989,300 53,989,300
-------------
TOTAL REPURCHASE AGREEMENTS (COST $123,989,300)........................ 123,989,300
-------------
TOTAL INVESTMENTS (COST $342,197,795)+ - 100.2%................................ 342,197,795
-------------
OTHER ASSETS AND LIABILITIES, NET - (0.2)%..................................... (771,686)
-------------
NET ASSETS - 100.0%............................................................ $341,426,109
=============
<FN>
* Denotes a Variable or Floating Rate Note. Variable and Floating Rate Notes
are instruments whose rates change periodically. The rate shown is the
interest rate as of September 30, 1996.
+ Cost for federal income tax purposes.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE FUND/MONEY MARKET PORTFOLIO
- ---------------------------------------------
INVESTMENTS/SEPTEMBER 30, 1996
(Showing Percentage of Total Value of Net Assets)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- --------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.5%
Federal Home Loan Banks Notes, 5.38%, 03/14/97
(COST $5,000,000)............................................. P-1/A-1+ $ 5,000,000 $ 5,000,000
-------------
TAXABLE MUNICIPAL SECURITIES - 6.2%
ILLINOIS - 0.7%
Illinois Dev. Fin. Auth. Rev. Bonds (American College of
Surgeons Proj.), Ser. 1996, 5.60%, 08/01/26*.................. NR/A-1+ 7,000,000 7,000,000
-------------
MICHIGAN - 1.7%
Genesys Health Sys., Ser. 1995A, 5.64%, 04/01/20*................ VMIG1/A-1 16,700,000 16,700,000
-------------
NEW YORK - 3.8%
New York City, NY, Ser. H, Subser. H-7, 5.55%, 11/13/96.......... VMIG1/A-1+ 29,000,000 29,000,000
New York City, NY, Ser. 1996 A-2, 5.57%, 12/19/96................ P-1/A-1+ 8,500,000 8,500,000
-------------
37,500,000
-------------
TOTAL TAXABLE MUNICIPAL SECURITIES (COST $61,200,000).................................... 61,200,000
-------------
CERTIFICATES OF DEPOSIT - 18.9%
FOREIGN BANKS, FOREIGN CENTERS - 1.0%
Abbey National, 5.82%, 01/13/97.................................. P-1/A-1+ 10,000,000 10,002,525
-------------
U.S. BANKS, U.S. BRANCHES - 3.1%
First Alabama Bank, 5.34%, 10/21/96.............................. P-1/A-1+ 30,000,000 30,000,000
-------------
FOREIGN BANKS, U.S. BRANCHES - 14.8%
Bank of Nova Scotia, 5.56%, 01/21/97............................. P-1/A-1+ 45,000,000 45,007,319
Bayerische Hypotheken & Wechselban, 5.40%, 11/25/96.............. P-1/A-1 20,000,000 20,000,000
Canadian Imperial Bank of Commerce, 5.91%, 05/09/97.............. P-1/A-1+ 5,000,000 5,000,000
Credit Agricole, 5.53%, 10/17/96................................. P-1/A-1+ 30,000,000 30,000,000
National Westminster, 5.56%, 01/17/97............................ P-1/A-1+ 20,000,000 20,003,038
Rabobank, 5.56%, 02/18/97........................................ P-1/A-1+ 25,000,000 25,002,772
-------------
145,013,129
-------------
TOTAL CERTIFICATES OF DEPOSIT (COST $185,015,654)........................................ 185,015,654
-------------
COMMERCIAL PAPER - 34.9%
AUTOMOBILES - 3.0%
Daimler-Benz North America Corp., 5.64%, 01/08/97................ P-1/A-1 15,000,000 14,767,350
Daimler-Benz North America Corp., 5.40%, 01/23/97................ P-1/A-1 15,000,000 14,743,500
-------------
29,510,850
-------------
BANKS - 4.0%
Commerzbank U.S. Fin., Inc., 5.55%, 01/17/97..................... P-1/A-1+ $ 40,000,000 $ 39,334,000
-------------
BUILDING & BUILDING SUPPLIES - 4.0%
CSR America, Inc., 5.33%, 10/18/96............................... P-1/A-1 10,000,000 9,974,831
CSR America, Inc., 5.30%, 10/24/96............................... P-1/A-1 10,000,000 9,966,139
CSR America, Inc., 5.35%, 12/03/96............................... P-1/A-1 5,000,000 4,953,187
CSR America, Inc., 5.44%, 02/13/97............................... P-1/A-1 10,000,000 9,796,000
CSR Fin. Ltd., 5.30%, 10/22/96................................... P-1/A-1 5,000,000 4,984,542
-------------
39,674,699
-------------
CHEMICALS - 3.8%
Akzo Nobel Inc., 5.45%, 10/17/96................................. P-1/A-1 10,000,000 9,975,778
Akzo Nobel Inc., 5.32%, 11/18/96................................. P-1/A-1 15,000,000 14,893,600
Akzo Nobel Inc., 5.40%, 01/09/97................................. P-1/A-1 12,750,000 12,558,750
-------------
37,428,128
-------------
ENTERTAINMENT - 2.1%
Walt Disney Co., 5.30%, 10/11/96................................. P-1/A-1 20,000,000 19,970,555
-------------
FINANCE - 2.6%
PGA Tour Investment Fin., Inc., 5.32%, 11/12/96.................. P-1/A-1 25,500,000 25,341,730
-------------
INTERNATIONAL TRADING - 1.6%
Daewoo International (America) Corp., 5.37%, 10/11/96............ P-1/A-1+ 15,000,000 14,977,625
-------------
LEASING - 6.5%
International Lease Fin. Corp., 5.45%, 03/14/97.................. P-1/A-1 25,000,000 24,379,305
Vehicle Services Corp. of America Ltd., 5.34%, 11/15/96.......... P-1/A-1 5,000,000 4,966,625
Vehicle Services Corp. of America Ltd., 5.45%, 11/21/96.......... P-1/A-1 5,000,000 4,961,396
Vehicle Services Corp. of America Ltd., 5.50%, 12/05/96.......... P-1/A-1 29,500,000 29,207,049
-------------
63,514,375
-------------
LEISURE TIME - 4.0%
Bass Fin. (C.I.) Ltd., 5.48%, 12/20/96........................... P-1/A-1 40,000,000 39,512,889
-------------
MEDICAL & MEDICAL SERVICES - 0.8%
Medical Bldg. Funding VII, 5.875%, 12/11/96...................... NR/A-1 8,300,000 8,203,830
-------------
PHARMACEUTICALS - 2.0%
Zeneca Wilmington Inc., 5.35%, 12/17/96.......................... P-1/A-1+ 20,000,000 19,771,138
-------------
SECURITIES DEALERS - 0.5%
Merrill Lynch & Co., Inc., 5.40%, 01/14/97....................... P-1/A-1+ 5,000,000 4,921,250
-------------
TOTAL COMMERCIAL PAPER (COST $342,161,069)............................................... 342,161,069
-------------
CORPORATE NOTES - 14.8%
BANKS - 13.8%
Abbey National Treasury Services, 5.29%, 07/15/97*............... Aa2/AA $ 30,000,000 $ 29,983,959
Bank One Columbus, 5.26%, 07/01/97*.............................. P-1/A-1+ 35,000,000 34,974,869
Bayerische Landesbank, NY, 5.51%, 11/20/96....................... P-1/A-1+ 25,000,000 25,007,623
Morgan Guaranty Trust Co., 5.29%, 04/22/97*...................... P-1/A-1+ 25,000,000 24,994,606
Society National Bank Cleveland, 5.92%, 05/21/97................. P-1/A-1 20,000,000 20,000,000
-------------
134,961,057
-------------
FINANCIAL - 1.0%
General Electric Cap. Corp., 5.42%, 10/25/96*.................... Aaa/AAA 8,570,000 8,570,650
General Electric Cap. Corp., 5.30%, 01/03/97..................... Aaa/AAA 1,000,000 999,075
-------------
9,569,725
-------------
TOTAL CORPORATE NOTES (COST $144,530,782)................................................ 144,530,782
-------------
BANKERS' ACCEPTANCE NOTICES - 4.7%
CoreStates Bank, 5.44%, 10/29/96................................. P-1/A-1 11,615,160 11,566,015
CoreStates Bank, 5.45%, 10/29/96................................. P-1/A-1 13,384,840 13,328,103
CoreStates Bank, 5.45%, 01/23/97................................. P-1/A-1 6,300,000 6,191,272
CoreStates Bank, 5.53%, 03/12/97................................. P-1/A-1 8,000,000 7,800,920
Mellon Bank, 5.48%, 10/03/96..................................... P-1/A-1 7,300,000 7,297,778
-------------
TOTAL BANKERS' ACCEPTANCE NOTICES (COST $46,184,088)..................................... 46,184,088
-------------
REPURCHASE AGREEMENT - 20.0%
With UBS Securities, Inc.: at 5.92%,
dated 09/30/96, to be repurchased
at $196,490,907 on 10/01/96,
collateralized by $200,392,357
Government National Mortgage
Association Securities with
various coupons and maturity dates to 09/15/26 (COST $196,458,600)............. 196,458,600 196,458,600
-------------
TOTAL INVESTMENTS (COST $980,550,193)+ - 100.0%................................................... 980,550,193
-------------
OTHER ASSETS AND LIABILITIES, NET - 0.0%.......................................................... 305,933
-------------
NET ASSETS - 100.0%............................................................................... $980,856,126
=============
<FN>
* Denotes a Variable or Floating Rate Note. Variable and Floating Rate Notes
are instruments whose rates change periodically. The rate shown is the
interest rate as of September 30, 1996.
+ Cost for federal income tax purposes.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------------------
INVESTMENTS/SEPTEMBER 30, 1996
(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 - 3.8%
Birmingham, AL Gen. Oblig. Ref. Bonds, Ser. 1994A, 3.80%,
06/01/18*..................................................... VMIG1/A-1+ $ 5,000,000 $ 5,000,000
Birmingham, AL Gen. Oblig. Ref. Bonds, Ser. 1995, 3.80%,
06/01/23*..................................................... VMIG1/A-1+ 4,000,000 4,000,000
-------------
9,000,000
-------------
ALASKA - 2.5%
Anchorage, AK Higher Educ. (Alaska Pacific Univ.), Ser. 1993,
3.85%, 07/01/17* NR/A-1+ 5,900,000 5,900,000
-------------
CALIFORNIA - 2.0%
State of California 1996-1997 Rev. Anti. Notes, 4.50%, 06/30/97.. MIG1/SP-1+ 4,800,000 4,818,231
-------------
DISTRICT OF COLUMBIA - 7.2%
Dist. of Columbia Gen. Oblig. Bonds, Ser. 1991B-1, 4.05%,
06/01/03*..................................................... VMIG1/A-1+ 5,700,000 5,700,000
Dist. of Columbia Gen. Oblig. Bonds, Ser. B-2, 4.05%, 06/01/03*. VMIG1/A-1+ 400,000 400,000
Dist. of Columbia (American Univ.), Ser. 1985, 3.95%, 10/01/15*. VMIG1/NR 10,000,000 10,000,000
Dist. of Columbia (American Univ.), Ser. 1986A, 3.95%, 12/01/15* VMIG1/NR 1,000,000 1,000,000
-------------
17,100,000
-------------
FLORIDA - 2.3%
City of Jacksonville, FL Poll. Cntrl. Rev. Bonds TECP (Florida
Power & Light Co. Proj.), Ser. 1992, 3.70%, 12/13/96.......... P-1/A-1+ 3,000,000 3,000,000
St. Lucie County, FL Poll. Cntrl. Rev. Ref. Bonds TECP (Florida
Power & Light Co. Proj.), Ser. 1994A, 3.70%, 12/13/96......... P-1/A-1+ 2,500,000 2,500,000
-------------
5,500,000
-------------
GEORGIA - 6.3%
Assoc. County Commission of Georgia TECP (Cherokee County
Georgia Public Purpose Proj.), 4.55%, 12/01/96................ Aaa/AAA 3,000,000 3,005,852
Atlanta, GA Downtown Dev. Auth. (Care Proj.), Ser. 1993,
3.90%, 06/01/13*.............................................. VMIG1/NR 2,600,000 2,600,000
Floyd County, GA Dev. Auth. Environ. Imp. Rev. Bonds (Georgia
Kraft Co. Proj.), 3.90%, 12/01/05*............................ P-1/NR 4,600,000 4,600,000
Fulton County, GA Dev. Auth. Rev. Bonds, 3.90%, 12/01/10*....... Aa3/NR 2,000,000 2,000,000
Municipal Gas Auth. of Georgia Gas Rev. Bonds TECP (Southern
Portfolio), Ser. B, 3.70%, 10/18/96........................... NR/A-1+ 2,800,000 2,800,000
-------------
15,005,852
-------------
IDAHO - 2.5%
Idaho Health Fac. Auth. Rev. Bonds (St. Luke's Regional
Medical Ctr. Proj.), Ser. 1995, 3.95%, 05/01/22*.............. VMIG1/NR 5,950,000 5,950,000
-------------
ILLINOIS - 9.1%
City of Chicago, IL O'Hare International Airport (American
Airlines), Ser. 1983C, 4.00%, 12/01/17*....................... P-1/NR $ 3,000,000 $ 3,000,000
City of Chicago, IL O'Hare International Airport (American
Airlines), Ser. 1983D, 4.00%, 12/01/17*....................... P-1/NR 2,000,000 2,000,000
Illinois Health Fac. Auth. Rev. TECP (University of Chicago),
3.75%, 01/30/97............................................... VMIG1/A-1+ 11,500,000 11,500,000
Illinois Health Fac. Auth. (Healthcorp Affiliates - Central
Du Page Hospital Proj.), Ser. 1990, 3.95%, 11/01/20*.......... VMIG1/NR 3,900,000 3,900,000
Illinois Health Fac. Auth. Rev. (Northwestern Memorial
Hosp.), Ser. 1995, 3.85%, 08/15/25*........................... VMIG1/A-1+ 1,100,000 1,100,000
-------------
21,500,000
-------------
INDIANA - 3.6%
Indiana Educ. Auth. Rev. Bonds (Saint Mary of The Woods
College), 3.85%, 02/15/26*.................................... NR/A-1+ 2,000,000 2,000,000
Indiana Health Fac. Fin. Auth. Rev. Bonds (Cap. Access
Designated Pool Proj.), Ser. 1992, 3.85%, 12/01/02*........... VMIG1/NR 2,700,000 2,700,000
Indiana Health Fac. Fin. Auth. Rev. Bonds (Cap. Access
Designated Pool Proj.), Ser. 1991, 3.85%, 08/01/06*........... VMIG1/NR 3,875,000 3,875,000
-------------
8,575,000
-------------
IOWA - 2.5%
Des Moines, IA Methodist Sys. Inc. Hosp. Fac. (Methodist
Medical Center Proj.), Ser. 1985, 3.85%, 08/01/15*............ VMIG1/NR 2,735,000 2,735,000
Univ. of Iowa Fac. Corp. (Human Biology Research Proj.),
Ser. 1985A, 4.05%, 06/01/05*.................................. NR/A-1 3,125,000 3,125,000
-------------
5,860,000
-------------
LOUISIANA - 8.9%
Louisiana Public Fac. Auth. Hosp. Rev. Bonds (Willis-Knighton
Medical Center Proj.), Ser. 1993, 3.80%, 09/01/23*............ VMIG1/A-1 7,000,000 7,000,000
Louisiana Public Fac. Auth. Hosp. Rev. Bonds (Willis-Knighton
Medical Center Proj.), Ser. 1995, 3.80%, 09/01/25*............ VMIG1/A-1 3,500,000 3,500,000
Plaquemines, LA Port Harbor & Terminal Dist. Marine Terminal
Fac. Rev. Bonds TECP, 3.70%, 12/05/96......................... P-1/A-1+ 10,500,000 10,500,000
-------------
21,000,000
-------------
MICHIGAN - 1.1%
Michigan State Hosp. Fin. Auth. (St. Marys Hosp. of Livonia),
Ser. 1996A, 3.95%, 07/01/17*.................................. VMIG1/A-1 2,500,000 2,500,000
-------------
MISSISSIPPI - 2.4%
Mississippi Business Fin. Corp. Ind. Dev. Rev.
Bonds (Mississippi College Proj.), Ser. 1996, 3.85%, 09/01/06* NR/A-1 5,000,000 5,000,000
Mississippi Hosp. Equip. & Fac. Auth. (Mississippi Baptist
Medical Center), Ser. 1990B, 3.80%, 07/01/12*................. VMIG1/NR 715,000 715,000
-------------
5,715,000
-------------
MISSOURI - 2.7%
Missouri Health & Educ. Fac. Auth. TECP (SSM Healthcare),
Ser. 1988C, 3.60%, 10/15/96................................... VMIG1/NR 5,700,000 5,700,000
Missouri St. Environ. Imp. & Energy Resource Auth. Poll.
Cntrl. Rev. Bonds (Noranda Aluminum Inc. Proj.), 4.05%,
10/01/02*..................................................... VMIG1/NR 800,000 800,000
-------------
6,500,000
-------------
MONTANA - 2.9%
Forsyth, Mt Poll. Cntrl. Rev. Bonds (Portland General
Electric), Ser. 1983B, 3.75%, 06/01/13*....................... P-1/A-1+ 6,900,000 6,900,000
-------------
NEW YORK - 0.2%
New York, NY, Subser. A-4, 3.85%, 08/01/22*...................... VMIG1/A-1+ 500,000 500,000
-------------
NORTH CAROLINA - 2.1%
Carteret County, NC Ind. Fac. & Poll. Cntrl. Fin. Auth.
(Texas Gulf), Ser. 1985, 3.93%, 10/01/05*..................... Aa1/NR 5,000,000 5,000,000
-------------
PENNSYLVANIA - 3.4%
Montgomery County, PA Poll. Cntrl. Rev. Bonds TECP (PECO
Energy Co. Proj.), Ser. 1996A, 3.65%, 03/01/34*............... P-1/A-1+ 8,000,000 8,000,000
-------------
TENNESSEE - 1.9%
Public Auth. of Clarksville, TN Pooled Rev. Bonds, Ser. 1994,
3.85%, 06/01/24*.............................................. NR/A-1 4,600,000 4,600,000
-------------
TEXAS - 21.6%
Angelina & Neches River Auth. of Texas IDC Solid Waste
Disposal, Ser. 1984C, 3.90%, 05/01/14*........................ P-1/NR 700,000 700,000
Angelina & Neches River Auth. of Texas IDC Solid Waste
Disposal, Ser. 1984E, 3.90%, 05/01/14*........................ P-1/NR 800,000 800,000
Bexar County, TX Health Fac. Dev. Corp. Rev. Bonds (Air
Force Village II Proj.), Ser. 1985B, 3.80%, 03/01/12*......... NR/A-1+ 10,100,000 10,100,000
City of Brownsville, TX Utilities Sys. TECP, Ser. A, 3.70%,
11/19/96...................................................... P-1/A-1+ 6,700,000 6,700,000
Dallas TX Area Rapid Transit TECP, 3.70%, 12/13/96.............. P-1/A-1+ 9,300,000 9,300,000
Harris County, TX Health Fac. Auth. Dev. Corp. (St. Luke's
Episcopal Hosp. Proj.), Ser. C, 4.00%, 02/15/16*.............. NR/A-1+ $ 2,000,000 $ 2,000,000
Harris County, TX Health Fac. Dev. Corp. (Methodist Hosp.),
4.00%, 12/01/25*.............................................. NR/A-1+ 9,700,000 9,700,000
North Central, TX Health Fac. Dev. Corp. (Methodist Hosp.
of Dallas), Ser. 1985B, 4.00%, 10/01/15*...................... NR/A-1 6,000,000 6,000,000
State of Texas Tax and Rev. Antic. Notes, Series 1996, 4.75%,
08/29/97...................................................... MIG1/SP-1 5,825,000 5,866,473
-------------
51,166,473
-------------
UTAH - 2.0%
Salt Lake City, UT Rev. Bonds, Ser. 1990, 3.80%, 01/01/20*....... VMIG1/A-1+ 4,700,000 4,700,000
-------------
WASHINGTON - 4.0%
King County, WA Sewer Rev. Bonds TECP, 3.55%, 11/08/96........... P-1/A-1 6,800,000 6,800,000
Washington Health Care Fac. Auth. Rev. Bonds (Fred Hutchinson
Cancer Research Center), Ser. 1996, 3.95%, 01/01/23*.......... VMIG1/NR 2,800,000 2,800,000
-------------
9,600,000
-------------
WYOMING - 4.9%
Green River, WY Poll. Cntrl. Rev. Bonds (Texas Gulf Inc.),
Ser. 1984, 4.05%, 12/01/04*................................... Aa2/NR 2,000,000 2,000,000
Sweetwater County, WY Poll. Cntrl. Rev. Bonds TECP (Pacificorp
Proj.), Ser. 1988A, 3.55%, 10/17/96........................... P-1/A-1+ 7,500,000 7,500,000
Sweetwater County, WY Poll. Cntrl. Rev. Bonds (Pacificorp
Proj.), Ser. 1984, 3.75%, 12/01/14*........................... P-1/A-1+ 2,100,000 2,100,000
-------------
11,600,000
-------------
TOTAL MUNICIPAL BONDS (COST $236,990,556)................................................ 236,990,556
-------------
TOTAL INVESTMENTS (COST $236,990,556)+ - 99.9%.................................................... 236,990,556
-------------
OTHER ASSETS AND LIABILITIES, NET - 0.1%.......................................................... 194,148
-------------
NET ASSETS - 100.0%............................................................................... $237,184,704
=============
<FN>
* Denotes a Variable or Floating Rate Note. Variable and Floating Rate Notes
are instruments whose rates change periodically. The rate shown is the
interest rate as of September 30, 1996.
+ Cost for federal income tax purposes.
TECP -- Tax-Exempt Commercial Paper.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1996
<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 $123,989,300, $196,458,600 and $0, respectively),
at value (amortized cost $342,197,795, $980,550,193,
and $236,990,556, respectively) (Note 2)................. $ 342,197,795 $ 980,550,193 $ 236,990,556
Interest receivable ...................................... 843,208 4,594,542 931,433
Other assets.............................................. 6,699 9,523 5,013
-------------- -------------- -------------
Total assets ............................................ 343,047,702 985,154,258 237,927,002
-------------- -------------- -------------
LIABILITIES:
Dividends payable ........................................ 1,449,096 3,896,862 627,040
Accrued management fee (Note 3) .......................... 139,866 369,176 97,793
Other accrued expenses (Note 3) .......................... 32,631 32,094 17,465
-------------- -------------- -------------
Total liabilities ....................................... 1,621,593 4,298,132 742,298
-------------- -------------- -------------
NET ASSETS ............................................... $ 341,426,109 $ 980,856,126 $ 237,184,704
============== ============== ==============
NET ASSETS CONSIST OF:
Capital paid in .......................................... $ 341,424,547 $ 980,870,405 $ 237,186,364
Accumulated realized gain (loss) on investments - net ... 1,562 (14,279) (1,660)
-------------- -------------- -------------
NET ASSETS, for 341,424,547, 980,870,405, and 237,193,047,
shares outstanding, respectively ........................ $ 341,426,109 $ 980,856,126 $ 237,184,704
============== ============== ==============
NET ASSET VALUE, offering and redemption price per share:.. $1.00(1) $1.00(2) $1.00(3)
============== ============== ==============
<FN>
1 $341,426,109 / 341,424,547 outstanding shares of beneficial interest, no par value
2 $980,856,126 / 980,870,405 outstanding shares of beneficial interest, no par value
3 $237,184,704 / 237,193,047 outstanding shares of beneficial interest, no par value
</TABLE>
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended September 30, 1996
<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 .......................................... $ 20,177,909 $ 48,372,692 $ 10,432,301
-------------- -------------- -------------
EXPENSES:
Management fee (Note 3) ................................. 1,718,316 4,086,710 1,346,805
Accounting fee (Note 3) .................................. 103,119 203,902 87,310
Distribution expenses (Note 3)............................ 71,124 105,102 21,498
Trustees' fees and expenses (Note 3) ..................... 6,375 9,375 6,600
Registration fees ........................................ 36,702 44,624 38,071
Reports to shareholders .................................. 5,261 10,979 8,410
Legal .................................................... 15,493 35,864 20,925
Audit .................................................... 14,360 29,139 29,099
Other .................................................... 43,873 83,151 40,682
-------------- -------------- -------------
Total expenses........................................... 2,014,623 4,608,846 1,599,400
-------------- -------------- -------------
Net investment income.................................... 18,163,286 43,763,846 8,832,901
-------------- -------------- -------------
REALIZED GAIN (LOSS) ON INVESTMENTS - NET (NOTE 2) ....... (58) 127 0
-------------- -------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..... $ 18,163,228 $ 43,763,973 $ 8,832,901
============== ============== ==============
</TABLE>
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, 1996
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ................................... $ 18,163,286 $ 43,763,846 $ 8,832,901
Net realized gain (loss) on investments ................. (58) 127 0
-------------- -------------- -------------
Net increase in net assets resulting from operations .... 18,163,228 43,763,973 8,832,901
-------------- -------------- -------------
Dividends to shareholders from net investment income
($0.050, $0.050, and $0.031 per share, respectively) .... (18,163,286) (43,763,846) (8,832,901)
-------------- -------------- -------------
Share transactions at net asset value of $1.00 per share
Proceeds from sale of shares ............................ 4,435,793,585 6,848,793,367 2,137,883,514
Shares issued to shareholders in reinvestment of dividends
from net investment income .......................... 388,936 3,203,419 289,502
Cost of shares redeemed ................................. (4,400,852,267) (6,622,265,795) (2,219,200,892)
-------------- -------------- -------------
Net increase (decrease) in net assets and shares resulting
from share transactions ............................... 35,330,254 229,730,991 (81,027,876)
-------------- -------------- -------------
Total increase (decrease) in net assets .................. 35,330,196 229,731,118 (81,027,876)
NET ASSETS:
Beginning of year ....................................... 306,095,913 751,125,008 318,212,580
-------------- -------------- -------------
End of year ............................................. $ 341,426,109 $ 980,856,126 $ 237,184,704
============== ============== ==============
For the Fiscal Year Ended September 30, 1995
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ................................... $ 18,666,118 $ 37,030,904 $ 11,879,978
Net realized gain (loss) on investments ................. (6,526) 243 4,106
-------------- -------------- -------------
Net increase in net assets resulting from operations .... 18,659,592 37,031,147 11,884,084
Dividends to shareholders from net investment income
($0.052, $0.054, and $0.033 per share, respectively) .... (18,666,118) (37,030,904) (11,879,978)
-------------- -------------- -------------
Share transactions at net asset value of $1.00 per share
Proceeds from sale of shares ............................ 3,161,916,931 5,233,294,691 2,175,933,192
Shares issued to shareholders in reinvestment of dividends
from net investment income .......................... 305,455 1,620,673 314,985
Cost of shares redeemed ................................. (3,192,886,094) (5,090,626,079) (2,246,604,280)
-------------- -------------- -------------
Net increase (decrease) in net assets and shares resulting
from share transactions ............................... (30,663,708) 144,289,285 (70,356,103)
-------------- -------------- -------------
Total increase (decrease) in net assets .................. (30,670,234) 144,289,528 (70,351,997)
NET ASSETS:
Beginning of year ....................................... 336,766,147 606,835,480 388,564,577
-------------- -------------- -------------
End of year ............................................. $ 306,095,913 $ 751,125,008 $ 318,212,580
-------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<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,
1996 1995 1994+ 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
RODNEY SQUARE FUND - U.S. GOVERNMENT PORTFOLIO
For a Share Outstanding Throughout Each Year:
NET ASSET VALUE - BEGINNING OF YEAR ............... $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- -------
Investment Operations:
Net investment income ............................ 0.050 0.052 0.033 0.028 0.038
------- ------- ------- ------- -------
Distributions:
From net investment income ...................... (0.050) (0.052) (0.033) (0.028) (0.038)
------- ------- ------- ------- -------
NET ASSET VALUE - END OF YEAR ..................... $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= =======
Total Return ....................................... 5.08% 5.37% 3.32% 2.83% 3.88%
Ratios (to average net assets)/Supplemental Data:
Expenses ....................................... 0.55% 0.55% 0.53% 0.53% 0.54%
Net investment income........................... 4.97% 5.25% 3.27% 2.79% 3.84%
Net assets at end of year (000 omitted) $341,426 $306,096 $336,766 $386,067 $409,534
</TABLE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
1996 1995 1994+ 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
RODNEY SQUARE FUND - MONEY MARKET PORTFOLIO
For a Share Outstanding Throughout Each Year:
NET ASSET VALUE - BEGINNING OF YEAR ................ $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- -------
Investment Operations:
Net investment income ............................ 0.050 0.054 0.033 0.029 0.041
------- ------- ------- ------- -------
Distributions:
From net investment income ...................... (0.050) (0.054) (0.033) (0.029) (0.041)
------- ------- ------- ------- -------
NET ASSET VALUE - END OF YEAR ..................... $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= =======
Total Return ....................................... 5.17% 5.50% 3.37% 2.92% 4.15%
Ratios (to average net assets)/Supplemental Data:
Expenses ....................................... 0.53% 0.54% 0.53% 0.52% 0.52%
Net investment income........................... 5.03% 5.37% 3.33% 2.88% 4.06%
Net assets at end of year (000 omitted)............. $980,856 $751,125 $606,835 $649,424 $717,544
<FN>
+ During the fiscal year ended September 30, 1994, the Fund Manager
contributed capital of $0.0045 and $0.0028 per share to the U.S.
Government Portfolio and the Money Market Portfolio, respectively.
</TABLE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
RODNEY SQUARE TAX-EXEMPT FUND
For a Share Outstanding Throughout 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 0.033 0.021 0.020 0.030
------- ------- ------- ------- -------
Distributions:
From net investment income ...................... (0.031) (0.033) (0.021) (0.020) (0.030)
------- ------- ------- ------- -------
NET ASSET VALUE - END OF YEAR ..................... $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= =======
Total Return ....................................... 3.11% 3.36% 2.17% 2.07% 3.06%
Ratios (to average net assets)/Supplemental Data:
Expenses ....................................... 0.56% 0.54% 0.54% 0.54% 0.54%
Net investment income........................... 3.08% 3.29% 2.13% 2.05% 3.06%
Net assets at end of year (000 omitted)............. $237,185 $318,213 $388,565 $405,517 $327,098
</TABLE>
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------
1.DESCRIPTION AND SHARES OF THE FUND. The Rodney Square Fund
and the Rodney Square Tax-Exempt Fund (the "Fund(s)") are
Massachusetts business trusts registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as
diversified, open-end management investment companies. The
Declarations of Trust for the Rodney Square Fund, dated
February 16, 1982, and the Rodney Square Tax-Exempt Fund,
dated July 31, 1985, each as last amended on February 15,
1993, permit the Trustees of each Fund to create additional
series (or portfolios), each of which may issue additional
classes of shares. There are currently two portfolios, the
U.S. Government Portfolio and the Money Market Portfolio (the
"Portfolios"), in the Rodney Square Fund, each of which
currently consists of a single class of shares. The Rodney
Square Tax-Exempt Fund has one portfolio (also a "Portfolio")
with 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 under Rule
2a-7 under the 1940 Act provided that the 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 intends to
continue to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 and to
distribute all of its taxable income and tax-exempt income to
its shareholders. Therefore, no federal income tax provision
is required. At September 30, 1996, 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
$7,000, $14,000 and $2,000, respectively, which will expire as
follows:
CAPITAL LOSS EXPIRATION
CARRYFORWARD DATE
------------ ----------
U.S. Government Portfolio $ 7,000 09/30/03
Money Market Portfolio $ 14,000 09/30/02
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 consists 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 interest 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.
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 effect 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 instrumentality's 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. Although the Fund
maintains a diversified portfolio, the issuers' ability to
meet their obligations may be affected by economic
developments in a specific industry or region. The Money
Market Portfolio had investments in corporate notes,
commercial paper, certificates of deposit, and bankers'
acceptances of domestic and foreign banks which in the
aggregate approximated 41.4% of its total investments on
September 30, 1996.
Approximately 85.8% of the investments in the Rodney Square
Tax-Exempt Fund on September 30, 1996 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 Investment Adviser and
Administrator to each of the Funds pursuant to separate
Management Agreements each dated August 9, 1991. 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 budgeting, financial reporting, compliance
monitoring and corporate management. For its services, the
Funds pay RSMC a monthly fee at the annual rate of 0.47% of
the average daily net assets of each Portfolio of the Funds.
The management fee paid to RSMC for the fiscal year ended
September 30, 1996, amounted to $1,718,316 for the U.S.
Government Portfolio, $4,086,710 for the Money Market
Portfolio and $1,346,805 for the Rodney Square Tax-Exempt
Fund.
RSMC determines the net asset value per share and provides all
Fund accounting services pursuant to a separate Accounting
Services Agreement with each Fund. For its services, RSMC
receives an annual fee of $50,000 per Portfolio, plus an
amount equal to 0.02% of each Portfolio's average daily net
assets in excess of $100,000,000. For the fiscal year ended
September 30, 1996, RSMC's fees for accounting services
amounted to $103,119 for the U.S. Government Portfolio,
$203,902 for the Money Market Portfolio and $87,310 for the
Rodney Square Tax-Exempt Fund.
WTC serves as Custodian of the assets of the Funds and is paid
for the 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.
RSMC serves as Transfer and Dividend Paying Agent for the
Funds and does not receive any separate fees from the Funds
for the performance of these services other than the
reimbursement of all reasonable out-of-pocket expenses
incurred by RSMC or its agents for the provision of such
services.
Pursuant to a Distribution Agreement with each Fund, dated as
of 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' Boards
of Trustees have adopted, and shareholders have approved,
distribution plans (the "12b-1 Plans") pursuant to Rule 12b-1
under the 1940 Act, 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. For the fiscal year ended
September 30, 1996, such expenses amounted to $71,124 for the
U.S. Government Portfolio, $105,102 for the Money Market
Portfolio and $21,498 for the Rodney Square Tax-Exempt Fund.
The salaries of all officers of each Fund, the Trustees of
each Fund who are "interested persons" of the Fund, WTC, RSMC,
RSD, or their affiliates and all personnel of the Funds, WTC,
RSMC or RSD performing services related to research,
statistical and investment activities, are paid by WTC, RSMC,
RSD, or their affiliates. The fees and expenses of the "non-
interested" Trustees amounted to $6,375 for the U.S.
Government Portfolio, $9,375 for the Money Market Portfolio
and $6,600 for the Rodney Square Tax-Exempt Fund for the
fiscal year ended September 30, 1996.
<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, 1996, 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 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, 1996 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, 1996, 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
financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Baltimore, Maryland
October 21, 1996
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
TAX INFORMATION
- -----------------------------------------------------------------
Pursuant to Section 852 of the Internal Revenue Code of 1986, The
Rodney Square Tax-Exempt Fund designates $8,832,901 as tax-exempt
dividends.
In January, 1997 shareholders of the Funds will receive Federal
income tax information on all distributions paid to their
accounts in calendar year 1996, including any distributions paid
between September 30, 1996 and December 31, 1996.
<PAGE>
[Outside cover -- divided into two sections]
[Left section]
TRUSTEES
Eric Brucker
Fred L. Buckner
Robert J. Christian
Martin L. Klopping
John J. Quindlen
------------------------
OFFICERS
Martin L. Klopping, PRESIDENT
Joseph M. Fahey, Jr., VICE PRESIDENT
Robert C. Hancock, VICE PRESIDENT & TREASURER
Carl M. Rizzo, Esq., SECRETARY
Diane D. Marky, ASSISTANT SECRETARY
Connie L. Meyers, ASSISTANT SECRETARY
John J. Kelley, ASSISTANT TREASURER
------------------------------------------------
FUND MANAGER, ADMINISTRATOR AND
TRANSFER AGENT
Rodney Square Management Corporation
----------------------------------------
CUSTODIAN
Wilmington Trust Company
----------------------------
DISTRIBUTOR
Rodney Square Distributors, Inc.
-----------------------------------
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 11/96
[Right section]
the RODNEY SQUARE
FUND
&
the RODNEY SQUARE
TAX-EXEMPT
FUND
[GRAPHIC] Caesar Rodney
upon his galloping horse
facing right, reverse
image on dark background
ANNUAL REPORT
SEPTEMBER 30, 1996
