Filed with the Securities and Exchange Commission on December
24, 1997.
File No. 2-99436
File No. 811-4372
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 16
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 18
The Rodney Square Tax-Exempt Fund
(Exact Name of Registrant as Specified in Charter)
Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (302) 651-8280
Carl Rizzo, Esquire
Rodney Square Management Corporation
Rodney Square North, 1100 North Market Street
Wilmington, DE 19890-0001
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
X on January 2, 1998 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on _________ pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on pursuant to paragraph (a)(2)
of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new
effective date for a
previously filed post-effective amendment.
<PAGE>
CROSS-REFERENCE SHEET
THE RODNEY SQUARE TAX-EXEMPT FUND
Items Required By Form N-1A
PART A - PROSPECTUS
Item No. Item Caption Prospectus Caption
1. Cover Page Cover Page
2. Synopsis Expense Table
3. Condensed Financial Financial Highlights
Information Performance Information
4. General Description Questions and Answers about the Fund
of Registrant Investment Objective and Policies
Description of the Fund
Appendix
5. Management of the Questions and Answers about the Fund
Fund Management of the Fund
5A. Management's Discussion
of Fund Performance Not Applicable
6. Capital Stock and Questions and Answers about the Fund
Other Securities Dividends and Taxes
Description of the Fund
7. Purchase of Securities Questions and Answers about the Fund
Being Offered Purchase of Shares
Management of the Fund
How Net Asset Value is Determined
8. Redemption or Questions and Answers about the Fund
Repurchase Shareholder Accounts
Redemption of Shares
Exchange of Shares
9. Pending Legal Not Applicable
Proceedings
<PAGE>
CROSS-REFERENCE SHEET
THE RODNEY SQUARE TAX-EXEMPT FUND
Items Required By Form N-1A (continued)
PART B - STATEMENT OF ADDITIONAL INFORMATION
Caption in Statement of
Item No. Item Caption Additional Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Not Applicable
and History
13. Investment Objectives Investment Policies
and Policies Investment Limitations
Portfolio Transactions
14. Management of the Trustees and Officers
Registrant
15. Control Persons and Other Information
Principal Holders
of Securities
16. Investment Advisory Rodney Square Management Corporation
and Other Services Wilmington Trust Company
Investment Management Services
Distribution Agreement and Rule 12b-1 Plan
Other Information
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Net Asset Value and Dividends
Other Securities Description of the Fund
19. Purchase, Redemption Net Asset Value and Dividends
Pricing of Securities Redemptions
Being Offered
20. Tax Status Taxes
21. Underwriters Portfolio Transactions
Distribution Agreement and Rule
12b-1 Plan
22. Calculations of Net Asset Value and Dividends
Performance Data Performance Information
23. Financial Statements Financial Statements
<PAGE>
the Rodney Square the Rodney Square
Fund & Tax-Exempt Fund
The Rodney Square Fund, consisting of two separate
series, the U.S. Government Portfolio and the Money Market
Portfolio (each, a "Series"), and The Rodney Square Tax-
Exempt Fund (the "Tax-Exempt Fund") are diversified open-
end, management investment companies. Each Series of The
Rodney Square Fund seeks a high level of current income
consistent with the preservation of capital and liquidity by
investing in money market instruments pursuant to its
investment practices. The Tax-Exempt Fund seeks as high a
level of interest income, exempt from federal income tax, as
is consistent with a portfolio of high-quality, short-term
municipal obligations selected on the basis of liquidity and
stability of principal. The Series and the Tax-Exempt Fund
(each, a "Portfolio") each seek to maintain a constant net
asset value of $1.00 per share.
AN INVESTMENT IN A PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE
THAT ANY PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00.
PROSPECTUS
JANUARY 2, 1998
This Prospectus sets forth concise information about the
Portfolios that you should know before investing. Please
read and retain this document for future reference.
Statements of Additional Information (dated January 2, 1998)
containing additional information about the Portfolios have
been filed with the Securities and Exchange Commission and,
as amended or supplemented from time to time, are
incorporated by reference herein. A copy of the Statements
of Additional Information may be obtained, without charge,
from certain institutions such as banks or broker-dealers
that have entered into servicing agreements ("Service
Organizations") with Rodney Square Distributors, Inc. or by
calling the number below, or by writing to Rodney Square
Distributors, Inc. at the address noted on the back cover of
this Prospectus. Rodney Square Distributors, Inc. is a
wholly-owned subsidiary of Wilmington Trust Company, a bank
chartered in the State of Delaware.
FOR FURTHER INFORMATION OR ASSISTANCE IN OPENING
AN ACCOUNT, PLEASE CALL:
NATIONWIDE (800) 336-9970
Shares of the Portfolios are not deposits or obligations of,
or guaranteed by, Wilmington Trust Company, nor are the
shares insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
EXPENSE TABLE
<PAGE>
U.S. GOVERNMENT MONEY MARKET TAX-EXEMPT
PORTFOLIO PORTFOLIO FUND
--------------- ------------ ---------
Shareholder Transaction Costs:* None None None
Annual Portfolio Operating Expenses:
(as a percentage of average net
assets)
Management Fee...................... 0.47% 0.47% 0.47%
12b-1 Fee........................... 0.02% 0.02% 0.01%
Other Operating Expenses............ 0.06% 0.05% 0.09%
----- ----- -----
Total Portfolio Operating Expenses.. 0.55% 0.54% 0.57%
===== ===== =====
Example**
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end
of each time period:
One year $6 $6 $6
Three years 18 17 18
Five years 31 30 32
Ten years 69 68 71
________________
* Wilmington Trust Company and Service
Organizations may charge their clients a fee for
providing administrative or other services in connection
with investments in Portfolio shares.
** The assumption in the Example of a 5%
annual return is required by regulations of the
Securities and Exchange Commission applicable to all
mutual funds. The assumed 5% annual return is not a
prediction of, and does not represent, a Portfolio's
projected or actual performance.
The purpose of the preceding table is solely to aid
shareholders and prospective investors in understanding the
various expenses that investors in the Portfolios will bear
directly or indirectly. The expenses and fees set forth in
the table are for the fiscal year ended September 30, 1997.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES
INCURRED AND RETURNS MAY BE GREATER OR LESSER THAN THOSE
SHOWN.
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected per share data and
other performance information for each Portfolio throughout
the following years, derived from the audited financial
statements of The Rodney Square Fund and the Tax-Exempt Fund
(each, a "Fund," and together the "Funds"). They should be
read in conjunction with the Funds' financial statements and
notes thereto appearing in each Fund's Annual Report to
Shareholders for the fiscal year ended September 30, 1997,
which is included together with the auditor's unqualified
report thereon as part of each Fund's Statement of
Additional Information.
<TABLE>
<CAPTION>
U. S. GOVERNMENT PORTFOLIO
--------------------------
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994+ 1993 1992 1991 1990 1989 1988
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE -
BEGINNING OF YEAR .... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Investment Operations:
Net investment
income .............. 0.050 0.050 0.052 0.033 0.028 0.038 0.062 0.078 0.086 0.066
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Distributions:
From net investment
income............... (0.050) (0.050) (0.052) (0.033) (0.028) (0.038) (0.062) (0.078) (0.086) (0.066)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE -
END OF YEAR .......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Return ......... 5.07% 5.08% 5.37% 3.32% 2.83% 3.88% 6.41% 8.05% 8.91% 6.81%
Ratios (to average net assets)/Supplemental Data:
Expenses ............. 0.55% 0.55% 0.55% 0.53% 0.53% 0.54% 0.53% 0.54% 0.52% 0.57%
Net investment
income .............. 4.96% 4.97% 5.25% 3.27% 2.79% 3.84% 6.22% 7.76% 8.55% 6.63%
Net assets at end of year
($000 omitted) ....... 378,475 341,426 306,096 336,766 386,067 409,534 479,586 364,423 230,804 287,862
_______________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
----------------------
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994+ 1993 1992 1991 1990 1989 1988
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE -
BEGINNING OF YEAR ..... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Investment Operations:
Net investment
income ............... 0.051 0.050 0.054 0.033 0.029 0.041 0.065 0.079 0.087 0.069
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Distributions:
From net investment
income ............... (0.051) (0.050) (0.054) (0.033) (0.029) (0.041) (0.065) (0.079) (0.087) (0.069)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE -
END OF YEAR ........... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Return .......... 5.17% 5.17% 5.50% 3.37% 2.92% 4.15% 6.73% 8.23% 9.09% 7.07%
Ratios (to average net assets)/Supplemental Data:
Expenses .............. 0.54% 0.53% 0.54% 0.53% 0.52% 0.52% 0.52% 0.53% 0.52% 0.55%
Net investment
income ............... 5.06% 5.03% 5.37% 3.33% 2.88% 4.06% 6.52% 7.92% 8.74% 6.87%
Net assets at end of year
($000 omitted) ........1,191,271 980,856 751,125 606,835 649,424 717,544 790,837 766,798 643,363 488,313
________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TAX-EXEMPT FUND
---------------
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE -
BEGINNING OF YEAR .... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Investment Operations:
Net investment
income .............. 0.030 0.031 0.033 0.021 0.020 0.030 0.045 0.054 0.059 0.047
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Distributions:
From net investment
income .............. (0.030) (0.031) (0.033) (0.021) (0.020) (0.030) (0.045) (0.054) (0.059) (0.047)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE -
END OF YEAR .......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Return.......... 3.09% 3.11% 3.36% 2.17% 2.07% 3.06% 4.59% 5.58% 6.04% 4.79%
Ratios (to average net assets)/Supplemental Data:
Expenses.............. 0.57% 0.56% 0.54% 0.54% 0.54% 0.54% 0.56% 0.57% 0.57% 0.50%
Net investment
income............... 3.05% 3.08% 3.29% 2.13% 2.05% 3.06% 4.49% 5.45% 5.88% 4.67%
Net assets at end of year
($000 omitted)........ 280,864 237,185 318,213 388,565 405,517 327,098 353,271 243,146 258,713 302,471
________________
</TABLE>
QUESTIONS AND ANSWERS ABOUT THE FUNDS
The information provided in this section is qualified in
its entirety by reference to more detailed information
elsewhere in this Prospectus.
WHAT ARE THE PORTFOLIOS' INVESTMENT OBJECTIVES AND POLICIES?
THE RODNEY SQUARE FUND - Each Portfolio of the
Rodney Square Fund seeks a high level of current income
consistent with the preservation of capital and
liquidity by investing in money market instruments
pursuant to its investment practices. There can be no
assurance, of course, that either Portfolio will achieve
its investment objective. (See "Investment Objectives
and Policies.")
The Portfolios of the Rodney Square Fund are
primarily differentiated in terms of their permitted
investments which are as follows:
U.S. GOVERNMENT PORTFOLIO - Obligations issued or
guaranteed as to principal and interest by the
government of the United States, its agencies or
instrumentalities ("U.S. Government obligations") and
repurchase agreements involving such obligations.
MONEY MARKET PORTFOLIO - U.S. dollar-denominated
obligations of major U.S. and foreign banks (including,
but not limited to, certificates of deposit, time
deposits or bankers' acceptances of U.S. banks and their
branches located outside of the United States, of U.S.
branches of foreign banks, of foreign branches of
foreign banks, of U.S. agencies of foreign banks and of
wholly-owned banking subsidiaries of foreign banks
located in the United States), prime commercial paper
and other corporate obligations, U.S. Government
obligations, high-quality municipal securities and
repurchase agreements involving U.S. Government
obligations.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND - The Rodney Square
Tax-Exempt Fund seeks as high a level of interest
income, exempt from federal income tax, as is consistent
with a portfolio of high-quality, short-term municipal
obligations selected on the basis of liquidity and
stability of principal. There can be no assurance, of
course, that the Tax-Exempt Fund will achieve its
investment objective. (See "Investment Objectives and
Policies.")
The Tax-Exempt Fund invests in high-quality municipal
obligations, including municipal bonds, floating and
variable rate obligations, participation interests, tax-
exempt commercial paper and short-term municipal notes.
The Tax-Exempt Fund has adopted a fundamental policy
which requires that, under normal conditions, at least
80% of its annual income will be exempt from federal
income tax. (See "Investment Objectives and Policies"
and "Dividends and Taxes.") The Tax-Exempt Fund also
follows a policy requiring that, under normal
conditions, at least 80% of its annual income will not
be a tax preference item for purposes of the federal
alternative minimum tax. The Tax-Exempt Fund may also
invest, to a limited extent, in the types of taxable
obligations that are permitted for the Money Market
Portfolio.
ALL PORTFOLIOS - The Portfolios only invest in fixed-
income obligations with effective maturities of 397 days
or less, and the dollar-weighted average maturity of each
Portfolio will not exceed 90 days.
HOW CAN YOU BENEFIT BY INVESTING IN THE PORTFOLIOS RATHER
THAN BY INVESTING DIRECTLY IN MONEY MARKET INSTRUMENTS?
Investing in the Portfolios offers several key
benefits:
First: By pooling the monies of its many investors,
the Portfolios enable each investor to benefit from the
greater liquidity and higher yields offered by large
denomination ($1,000,000 or more) money market
instruments.
Second: The Portfolios offer a way to keep money
invested in professionally managed portfolios of high-
quality money market instruments (tax-exempt money
market instruments for the Tax-Exempt Fund) and at the
same time to maintain full liquidity on a day-to-day
basis. There is no minimum period for investment, and no
fees will be charged upon redemption.
Third: Investors in the Portfolios need not become
involved with the detailed bookkeeping and operating
procedures normally associated with direct investment in
money market instruments.
HOW ARE THE PORTFOLIOS' SECURITIES VALUED?
In valuing their portfolio securities, the Portfolios
use the amortized cost method of valuation. It is a
fundamental policy of each Portfolio to use its best
efforts to maintain a constant net asset value of $1.00
per share, although under certain circumstances this may
not be possible. (See "Investment Objectives and
Policies" and "How Net Asset Value Is Determined.")
WHO IS THE FUND MANAGER?
Rodney Square Management Corporation ("RSMC"), a
wholly-owned subsidiary of Wilmington Trust Company
("WTC"), serves as the Funds' Manager. (See "Management
of the Funds.")
WHO IS THE ADMINISTRATOR, TRANSFER AGENT AND ACCOUNTING
AGENT?
RSMC serves as the Administrator of the Funds and
provides transfer agency and accounting services for the
Funds. (See "Management of the Funds.")
WHO IS THE DISTRIBUTOR?
Rodney Square Distributors, Inc. ("RSD"), another
wholly-owned subsidiary of WTC, serves as the Funds'
Distributor. (See "Management of the Funds.")
HOW DO YOU PURCHASE PORTFOLIO SHARES?
The Portfolios are designed as investment vehicles for
individual investors, corporations and other institutional
investors. Shares may be purchased only as described below.
There is no sales load. The minimum initial investment in
any Portfolio is $1,000, but additional investments may be
made in any amount.
Shares of each Portfolio are offered on a continuous
basis by RSD. Shares may be purchased directly from RSD,
<PAGE>
by clients of WTC through their trust and corporate cash
management accounts, or by clients of certain
institutions such as banks or broker-dealers ("Service
Organizations") that have entered into servicing
agreements with RSD through their accounts with those
Service Organizations. Service Organizations may receive
payments from RSD which are reimbursed by the Portfolios
under a Plan of Distribution adopted with respect to
each Portfolio pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "1940 Act"). Shares
may also be purchased directly by wire or by mail from
the Funds, c/o RSMC, which serves as transfer agent for
the Portfolio shares. (See "Purchase of Shares.")
Receipt of federal funds or monies immediately
convertible to federal funds is necessary before
investments may be credited to your account in the
Portfolios. The Portfolios and RSD reserve the right to
reject new account applications and to close, by
redemption, an account without sufficient taxpayer
identification information.
Please call WTC, your Service Organization or the
number listed below for further information about the
Portfolios or for assistance in opening an account.
NATIONWIDE (800) 336-9970
HOW DO YOU REDEEM PORTFOLIO SHARES?
If you purchased shares of a Portfolio through an
account at WTC or a Service Organization, you may redeem
all or any part of your shares in accordance with the
instructions pertaining to that account. Other
shareholders may redeem their shares by check, by
telephone or by mail. There is no fee charged by
the Funds upon redemption. (See "Redemption of Shares.")
HOW ARE DIVIDENDS PAID?
Substantially all of the net investment income for
each Portfolio is declared as a dividend each day that
the net asset value is determined, and dividends are
paid no later than seven (7) days after the end of the
month in which they are accrued. Shareholders may elect
to receive dividends and other distributions in cash by
checking the appropriate boxes on the Application & New
Account Registration form at the end of this Prospectus
("Application"). (See "Dividends and Taxes.")
ARE EXCHANGE PRIVILEGES AVAILABLE?
You may exchange all or a portion of your Portfolio
shares for shares of either of the other Portfolios or
for shares of any of the other funds in the Rodney
Square complex, subject to certain conditions. (See
"Exchange of Shares.")
INVESTMENT OBJECTIVES AND POLICIES
THE RODNEY SQUARE FUND
The investment objective of each Portfolio of The Rodney
Square Fund is to seek a high level of current income
consistent with the preservation of capital and liquidity by
investing in money market instruments pursuant to its
investment practices.
The Portfolios are primarily differentiated in terms of
their permitted investments, which are as follows:
U.S. GOVERNMENT PORTFOLIO - U.S. Government obligations
and repurchase agreements involving such obligations.
MONEY MARKET PORTFOLIO - (i) U.S. dollar-denominated
obligations of major U.S. and foreign banks and their
branches located outside of the United States, of U.S.
branches of foreign banks, of foreign branches of foreign
banks, of U.S. agencies of foreign banks and of wholly-owned
banking subsidiaries of foreign banks located in the United
States, provided that the bank has capital, surplus and
undivided profits (as of the date of its most recently
published annual audited financial statements) in excess of
$100,000,000 (moreover, it is the policy of RSMC to require
that the bank have assets in excess of $5 billion as of the
date of its most recently published annual audited financial
statements); (ii) commercial paper and corporate obligations
rated at least A-1 or AA by Standard & Poor's, a
division of The McGraw-Hill Companies, Inc. ("S&P") or P-1
or Aa by Moody's Investors Service,
Inc. ("Moody's") at the time of investment, or not rated,
but determined to be
<PAGE>
of comparable quality by RSMC under the
direction of, and subject to the review of, The Rodney
Square Fund's Board of Trustees; (iii) U.S. Government
obligations; (iv) municipal securities rated, as above, by
S&P or Moody's, or AA or F-1 by Fitch Investor Services,
L.P. ("Fitch"), or not rated, but determined to be of
comparable quality by RSMC under the direction of, and
subject to the review of, The Rodney Square Fund's Board of
Trustees; and (v) repurchase agreements involving U.S.
Government obligations. Ratings of instruments represent
S&P and Moody's opinions regarding their quality, are not a
guarantee of quality, and may change after a Portfolio has
purchased an instrument.
U.S. Government obligations include obligations of
agencies and instrumentalities of the U.S. Government that
are not direct obligations of the U.S. Treasury. Such
obligations may be backed by the "full faith and credit" of
the United States or supported primarily or solely by the
creditworthiness of the issuer.
Each Portfolio may enter into repurchase agreements
involving U.S. Government obligations, even though the
underlying security matures in more than 397 days. While it
does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility of a
decline in the market value of the underlying securities, as
well as delay and costs to the applicable Portfolio in the
event of a default of the seller), it is the policy of each
Portfolio to limit repurchase transactions to those banks
and primary dealers in U.S. Government obligations whose
creditworthiness has been reviewed and found to be
satisfactory by RSMC.
The Money Market Portfolio's investments in the
obligations of foreign banks and other foreign issuers and
their branches, agencies or subsidiaries may be obligations
of the parent, of the issuing branch, agency or subsidiary,
or both. Obligations of such issuers are subject to the same
risks that pertain to domestic issues, notably credit risk,
market risk and liquidity risk. Additionally, obligations of
foreign entities may be subject to certain additional risks,
including adverse political and economic developments in a
foreign country, the extent and quality of government
regulation of financial markets and institutions, interest
limitations, currency controls, foreign withholding taxes,
and expropriation or nationalization of foreign issuers and
their assets. There may be less publicly available
information about foreign issuers than about domestic
issuers, and foreign issuers may not be subject to the same
accounting, auditing and financial recordkeeping standards
and requirements as are domestic issuers. RSMC carefully
considers these factors when making investments, and foreign
issuers will be required to meet the same tests of financial
strength as the domestic issuers approved for the Money
Market Portfolio.
The Money Market Portfolio may invest in municipal bonds,
including "general obligation" and "revenue" bonds, an
effective maturity of 397 days or less, floating and
variable rate obligations, participation interests and short-
term municipal notes. Frequently, the municipal obligations
acquired by the Money Market Portfolio are secured by
letters of credit or other credit support arrangements
provided by domestic or foreign banks or other financial
institutions. Changes in the credit quality of these
institutions could cause losses to the Money Market
Portfolio and affect its share price. For a fuller
description of municipal bonds, see "The Rodney Square Tax-
Exempt Fund," below. Although the interest on municipal
securities may be exempt from federal income tax, dividends
paid by the Money Market Portfolio to its shareholders will
not be tax-exempt.
THE RODNEY SQUARE TAX-EXEMPT FUND
The investment objective of the Tax-Exempt Fund is to
provide investors with as high a level of interest income,
exempt from federal income tax, as is consistent with a
portfolio of high-quality, short-term municipal obligations
selected on the basis of liquidity and stability of
principal.
This Portfolio invests in a diversified portfolio of high-
quality municipal obligations whose interest payments are
exempt from federal income tax. The Portfolio has adopted a
fundamental policy which requires that, under normal
circumstances, at least 80% of its annual income will be
exempt from federal income tax. The Portfolio also follows
a policy which requires that, under normal circumstances, at
least 80% of its annual income will not be a tax preference
item for purposes of the federal alternative minimum tax.
The Portfolio invests only in municipal securities that
are rated at the time of investment at least Aa, MIG-1/VMIG-
1 or P-1 by Moody's, at least AA, A-1 or SP-1 by S&P, or at
least AA or F-1 by Fitch, or not rated but determined to be
of comparable quality by RSMC under the direction of, and
subject to the review of, The Rodney Square Tax-Exempt
Fund's Board of Trustees. See the Appendix to this
Prospectus for
<PAGE>
further information regarding Moody's and
S&P's ratings of municipal obligations. Ratings of
municipal obligations represent Moody's and S&P's opinions
regarding their quality, are not a guaranty of quality, and
may change after the Portfolio has acquired a security. In
addition, federal, state or local laws may be passed that
adversely affect the tax-exempt status of interest on the
municipal securities held by the Portfolio or of the exempt-
interest dividends paid by the Portfolio, extend the time
for payment of principal or interest, or both, or impose
other constraints upon enforcement of such obligations.
(See "Dividends and Taxes.")
The Tax-Exempt Fund invests in municipal bonds, including
"general obligation" and "revenue" bonds, with an effective
maturity of 397 days or less, floating and variable rate
obligations, participation interests, tax-exempt commercial
paper and short-term municipal notes. Municipal bonds
include put bonds, which give the Portfolio the
unconditional right to sell the bond back to the issuer at a
specified price and exercise date that typically is well in
advance of the bond's maturity date, industrial development
bonds, and private activity bonds, the interest on which
usually is exempt from federal income tax but which
generally is an item of tax preference for purposes of the
federal alternative minimum tax. The Portfolio may also
hold floating or variable rate obligations. A variable rate
obligation provides for adjustment in the interest rate
(which is set as a percentage of a designated base rate such
as the 90-day U.S. Treasury Bill rate) on specific dates,
while a floating rate obligation has an interest rate which
changes whenever there is a change in a designated base rate
such as the prime rate of a bank. The rate adjustments make
these obligations less subject to fluctuations in value than
other instruments with maturities in excess of 397 days.
The obligations have a "demand feature," which means that
the Portfolio can demand payment from the issuer or another
party on not more than 30 days' notice, either at any time
or at specified intervals not to exceed 397 days, at par
plus accrued interest. Frequently, the municipal
obligations acquired by the Portfolio are secured by letters
of credit or other credit support arrangements provided by
domestic or foreign banks or other financial institutions.
Changes in the credit quality of these institutions could
cause losses to the Portfolio and affect its share price.
The Portfolio may also invest in participation interests
in municipal bonds and in floating and variable rate
obligations that are owned by banks. These instruments
carry a demand feature permitting the Portfolio to tender
them back to the issuing bank at a specified price and
exercise date, which is typically well in advance of the
bond's maturity date. The demand feature usually is backed
by an irrevocable letter of credit or guarantee by a bank.
The short-term municipal notes in which the Portfolio
invests are issued by state and local governments and public
authorities as interim financing in anticipation of tax
collections, revenue receipts or bond sales, such as tax
anticipation notes, revenue anticipation notes, bond
anticipation notes and construction loan notes. All of
these obligations are described in the Appendix to this
Prospectus. The Portfolio may purchase other types of tax-
exempt instruments which may become available in the future
as long as RSMC, under the direction of, and subject to the
review of, the Board of Trustees, has determined that they
are of a quality equivalent to the ratings stated above.
The ability of the Portfolio to achieve its investment
objective is dependent on a number of factors, including the
skill of RSMC in purchasing municipal obligations whose
issuers have the continuing ability to meet their
obligations for the payment of interest and principal when
due. In the case of obligations which are secured by
letters of credit, either the quality of the credit of the
issuer of the underlying security or of the bank issuing the
letter of credit may be looked to for purposes of satisfying
the Portfolio's quality standards. Letters of credit issued
by foreign banks may involve certain risks such as future
unfavorable political and economic developments, currency
controls or other governmental restrictions which might
affect payment by the bank. Additionally, there may be less
public information available about foreign banks.
Yields on municipal obligations are the product of a
variety of factors, including the general conditions of the
money market and of the municipal bond and municipal note
markets, the size of a particular offering, the maturity of
the obligation and the rating of the issue. Municipal
obligations with longer maturities tend to produce higher
yields and are generally subject to potentially greater
price fluctuations than obligations with shorter maturities.
The Portfolio anticipates being as fully invested as
practicable in municipal bonds and notes; however,
consistent with that portion of its investment objective
concerned with stability of principal, from time to time the
Portfolio may invest a portion of its assets on a temporary
basis in fixed-income obligations the
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interest on which is
subject to federal income tax. For example, the Portfolio
may invest in taxable obligations pending the investment or
reinvestment in municipal bonds of proceeds from sales of
Portfolio shares or sales of portfolio securities. In
addition, the Portfolio may invest in highly liquid, taxable
obligations in order to avoid the necessity of liquidating
portfolio investments to meet redemption requests by
Portfolio shareholders. Income from taxable obligations
will be limited to 20% of the Portfolio's annual income
under normal conditions, although the Portfolio may invest
without limit in taxable obligations for temporary defensive
purposes.
If the Portfolio invests in taxable obligations, it will
purchase obligations which, in RSMC's judgment, are of high-
quality. These include U.S. Government obligations,
obligations of domestic banks, commercial paper and other
short-term corporate obligations, private activity bonds not
exempt from federal income tax, and repurchase agreements
involving such obligations. The Portfolio's investments in
commercial paper and other short-term corporate obligations
are limited to those obligations rated P-1 or Aa or better
by Moody's or A-1 or AA or better by S&P, respectively, or,
not rated, but determined to be of comparable quality by
RSMC under the direction of, and subject to the review of,
the Board of Trustees.
ALL PORTFOLIOS - OTHER INVESTMENT POLICIES
Each Portfolio may purchase securities on a when-issued
basis. This means that delivery and payment for the
securities takes place at a later date while the payment
obligations and the interest rate that will be received on
the securities are each fixed at the time the Portfolio
enters into the commitment. Each Portfolio may purchase
without limitation stand-by commitments which give the
Portfolio the right to sell a security that it holds back to
the issuer or another party at an agreed upon price on a
certain date or at any time during a stated period.
Each Portfolio may borrow money from a bank for temporary
or emergency purposes (not for leveraging or investment),
but not in excess of one-third of the current value of its
net assets. No Portfolio will purchase securities for
investment while any bank borrowing equaling 5% of the
respective Portfolio's total assets is outstanding. Each
Portfolio may also invest up to 10% of its net assets in
repurchase agreements not entitling the holder to payment of
principal within seven (7) days and other securities that
are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market.
There is no limit on any Portfolio's investment in
restricted securities which are liquid.
There may be occasions when, as a result of maturities of
portfolio securities or sales of Portfolio shares, or in
order to meet anticipated redemption requests, a Portfolio
may hold cash which is not earning income. In addition,
there may be occasions when, in order to raise cash to meet
redemptions, a Portfolio might be required to sell
securities at a loss.
The investment objectives, policies and limitations set
forth above are supplemented by the information contained in
the Portfolios' Statements of Additional Information.
Except as noted, each Portfolio's policies and limitations
are non-fundamental and may be changed by its Board of
Trustees without shareholder approval.
Each Portfolio has a fundamental policy requiring it to
use its best efforts to maintain a constant net asset value
of $1.00 per share, although under certain circumstances
this may not be possible. There can be no assurance that
each Portfolio will achieve its investment objective.
PURCHASE OF SHARES
HOW TO PURCHASE SHARES. Portfolio shares are offered on a
continuous basis by RSD. Shares may be purchased directly
from RSD, by clients of WTC through their trust and
corporate cash management accounts, or by clients of Service
Organizations through their Service Organization accounts.
WTC and Service Organizations may charge their clients a fee
for providing administrative or other services in connection
with investments in Portfolio shares. A trust account at WTC
includes any account for which the account records are
maintained on the trust system at WTC. Persons wishing to
purchase Portfolio shares through their accounts at WTC or a
Service Organization should contact that entity directly for
appropriate instructions. Other investors may purchase
Portfolio shares by mail or by wire as specified below.
BY MAIL: You may purchase shares by sending a check
drawn on a U.S. bank payable to The Rodney Square Fund or
The Rodney Square Tax-Exempt Fund, indicating the Portfolio
you have selected, along
<PAGE>
with a completed Application
(included at the end of this Prospectus), to The Rodney
Square Fund or The Rodney Square Tax-Exempt Fund, c/o Rodney
Square Management Corporation, P.O. Box 8987, Wilmington, DE
19899-9752. A purchase order sent by overnight mail should
be sent to The Rodney Square Fund or The Rodney Square Tax-
Exempt Fund, c/o Rodney Square Management Corporation,
Rodney Square North, 1105 N. Market Street, Wilmington, DE
19801. If a subsequent investment is being made, the check
should also indicate your Portfolio account number. When you
purchase by check, each Portfolio may withhold payment on
redemptions until it is reasonably satisfied that the funds
are collected (which can take up to 10 days). If you
purchase shares with a check that does not clear, your
purchase will be canceled and you will be responsible for
any losses or fees incurred in that transaction.
BY WIRE: You may purchase shares by wiring federal
funds. To advise a Portfolio of the wire, and if making an
initial purchase, to obtain an account number, you must
telephone RSMC at (800) 336-9970. Once you have an account
number, instruct your bank to wire federal funds to RSMC,
c/o Wilmington Trust Company, Wilmington, DE-ABA #0311-0009-
2, attention: The Rodney Square Fund or The Rodney Square
Tax-Exempt Fund, DDA# 2610-605-2, further credit-your
account number, the desired Portfolio and your name. If you
make an initial purchase by wire, you must promptly forward
a completed Application to RSMC at the address stated above
under "By Mail." If you are making a subsequent purchase,
the wire should also indicate your Portfolio account number.
INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Portfolios
of The Rodney Square Fund may be purchased for a tax-
deferred retirement plan such as an individual retirement
account ("IRA"). For an Application for an IRA and a
brochure describing a Portfolio IRA, call RSMC at (800) 336-
9970. WTC makes available its services as IRA custodian for
each shareholder account that is established as an IRA. For
these services, WTC receives an annual fee of $10.00 per
account, which fee is paid directly to WTC by the IRA
shareholder. If the fee is not paid by the date due,
Portfolio shares owned by the IRA will be redeemed
automatically for purposes of making the payment.
AUTOMATIC INVESTMENT PLAN. Shareholders may purchase
Portfolio shares through an Automatic Investment Plan. Under
the Plan, RSMC, at regular intervals, will automatically
debit a shareholder's bank checking account in an amount of
$50 or more (subsequent to the $1,000 minimum initial
investment), as specified by the shareholder. A shareholder
may elect to invest the specified amount monthly, bimonthly,
quarterly, semiannually or annually. The purchase of
Portfolio shares will be effected at their offering price at
12 noon, Eastern time, on or about the 20th day of the
month. For an Application for the Automatic Investment Plan,
check the appropriate box of the Application at the end of
this Prospectus, or call RSMC at (800) 336-9970. This
service is generally not available for WTC trust account
clients, since similar services are provided through WTC.
This service may also not be available for Service
Organization clients who are provided similar services by
those organizations.
ADDITIONAL PURCHASE INFORMATION. The minimum initial
investment is $1,000, but subsequent investments may be made
in any amount. WTC and Service Organizations may impose
additional minimum customer account and other requirements
in addition to this minimum initial investment requirement.
Each Portfolio and RSD reserve the right to reject any
purchase order and may suspend the offering of shares of any
Portfolio for a period of time.
Portfolio shares of each Fund are offered at their net
asset value next determined after a purchase order is
received by RSMC and accepted by RSD. Purchase orders
received by RSMC and accepted by RSD before 12 noon, Eastern
time, on any Business Day of a Fund will be priced at the
net asset value per share that is determined at 12 noon.
(See "How Net Asset Value Is Determined.") Purchase orders
received by RSMC and accepted by RSD after 12 noon, Eastern
time, will be priced as of 12 noon on the following Business
Day of a Fund. A "Business Day of a Fund" is any day on
which the New York Stock Exchange (the "Exchange"), RSMC and
the Philadelphia branch office of the Federal Reserve are
open for business. The following are not Business Days of a
Fund: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving
Day and Christmas Day.
Investments in a Portfolio are accepted on the Business
Day of a Fund that (i) federal funds are deposited for your
account on or before 12 noon, Eastern time, (ii) monies
immediately convertible to federal funds are deposited for
your account on or before 12 noon, Eastern time, or (iii)
checks deposited for your account have been converted to
federal funds (usually within two Business Days of a Fund
after
<PAGE>
receipt). All investments in a Portfolio are credited
to your account in the form of shares of the Portfolio
immediately upon acceptance and become entitled to dividends
declared as of the day and time of investment.
It is the responsibility of WTC or the Service
Organization involved to transmit orders for the purchase of
shares by its customers to RSMC and to deliver required
funds on a timely basis, in accordance with the procedures
stated above.
SHAREHOLDER ACCOUNTS
RSMC, as Transfer Agent, maintains for each shareholder
an account expressed in terms of full and fractional shares
of each Portfolio rounded to the nearest 1/1000th of a
share.
In the interest of economy and convenience, the
Portfolios do not issue share certificates. Each shareholder
is sent a statement at least quarterly showing all purchases
in or redemptions from the shareholder's account. The
statement also sets forth the balance of shares held in the
account by Portfolio.
Due to the relatively high cost of maintaining small
shareholder accounts, each Portfolio reserves the right to
close any account with a current value of less than $500 by
redeeming all shares in the account and transferring the
proceeds to the shareholder. Shareholders will be notified
if their account value is less than $500 and will be allowed
60 days in which to increase their account balance to $500
or more to prevent the account from being closed.
REDEMPTION OF SHARES
Shareholders may redeem their shares by mail, telephone
or check, as described below. If you purchased your shares
through an account at WTC or a Service Organization, you may
redeem all or part of your shares in accordance with the
instructions pertaining to that account. Corporations, other
organizations, trusts, fiduciaries and other institutional
investors may be required to furnish certain additional
documentation to authorize redemptions. Redemption requests
should be accompanied by the Portfolio's name and your
account number.
BY MAIL: Shareholders redeeming their shares by mail
should submit written instructions with a guarantee of their
signature by an eligible institution acceptable to the
Portfolios' Transfer Agent, such as a bank, broker, dealer,
municipal securities dealer, government securities dealer,
credit union, national securities exchange, registered
securities association, clearing agency, or savings
association ("eligible institution"), to: The Rodney Square
Fund or The Rodney Square Tax-Exempt Fund, c/o Rodney Square
Management Corporation, P.O. Box 8987, Wilmington, DE 19899-
9752. A redemption order sent by overnight mail should be
sent to The Rodney Square Fund or The Rodney Square Tax-
Exempt Fund, c/o Rodney Square Management Corporation,
Rodney Square North, 1105 N. Market Street, Wilmington, DE
19801. The redemption order should indicate the Portfolio
from which shares are to be redeemed, the Portfolio account
number and the name of the person in whose name the account
is registered. A signature and a signature guarantee are
required for each person in whose name the account is
registered.
BY TELEPHONE: Shareholders who prefer to redeem their
shares by telephone may elect to apply in writing for
telephone redemption privileges by completing the
Application for Telephone Redemptions (included at the end
of this Prospectus) which describes the telephone redemption
procedures in more detail and requires certain information
that will be used to identify the shareholder when a
telephone redemption request is made. When redeeming by
telephone, you must indicate your name, the Fund's name, the
Portfolio's name, the account number, the number of shares
you wish to redeem and certain other information necessary
to identify you as the shareholder. The Portfolios will
employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and if such
procedures are followed, will not be liable for any losses
due to unauthorized or fraudulent telephone transactions.
During times of drastic economic or market changes, the
telephone redemption privilege may be difficult to
implement. In the event that you are unable to reach RSMC by
telephone, you may make a redemption request by mail.
BY CHECK: A shareholder may utilize the checkwriting
option to redeem Portfolio shares by drawing a check for
$500 or more against a Portfolio account. When the check is
presented for payment, a sufficient
<PAGE>
number of shares will be
redeemed from the shareholder's Portfolio account to cover
the amount of the check. This procedure enables the
shareholder to continue receiving dividends on those shares
until the check is presented for payment. Canceled checks
are not returned; however, shareholders may obtain
photocopies of their canceled checks upon request. If a
shareholder does not own sufficient shares to cover a check,
the check will be returned to the payee marked
"nonsufficient funds." Checks written in amounts less than
$500 will also be returned. Because the aggregate amount of
Portfolio shares owned by a shareholder is likely to change
each day, a shareholder should not attempt to redeem all
shares held in an account by using the checkwriting
procedure. Charges will be imposed for specially imprinted
checks, business checks, copies of canceled checks, stop
payment orders, checks returned due to "nonsufficient funds"
and returned checks; these charges will be paid by redeeming
automatically an appropriate number of Portfolio shares.
Each Fund and RSMC reserve the right to terminate or alter
the checkwriting service at any time. RSMC also reserves the
right to impose a service charge in connection with the
checkwriting service. Shareholders who are interested in the
checkwriting service should obtain the necessary forms from
RSMC. This service is generally not available for clients of
WTC through their trust or corporate cash management
accounts, since it is already provided for these customers
through WTC. The service may also not be available for
Service Organization clients who are provided a similar
service by those organizations.
ADDITIONAL REDEMPTION INFORMATION. You may redeem all or
any part of the value of your account on any Business Day of
a Fund. Redemptions are effected at the net asset value next
calculated after RSMC has received your redemption request.
(See "How Net Asset Value Is Determined.") The Funds impose
no fee when shares are redeemed. It is the responsibility of
WTC or the Service Organization to transmit redemption
orders and credit their customers' accounts with redemption
proceeds on a timely basis.
Redemption checks are mailed on the next Business Day of
a Fund following acceptance by RSMC of redemption
instructions, but in no event later than 7 days following
such receipt and acceptance. Amounts redeemed by wire are
normally wired on the date of receipt and acceptance of
redemption instructions (if received by RSMC before 12 noon,
Eastern time) or the next Business Day of a Fund (if
received after 12 noon, Eastern time, or on a non-Business
Day of a Fund), but in no event later than 7 days following
such receipt and acceptance. If the shares to be redeemed
represent an investment made by check, each Fund reserves
the right not to make the redemption proceeds available
until it has reasonable grounds to believe that the check
has been collected (which could take up to 10 days).
Redemption proceeds may be wired to your predesignated
bank account in any commercial bank in the United States if
the amount is $1,000 or more. The receiving bank may charge
a fee for this service. Alternatively, proceeds may be
mailed to your bank or, for amounts of $10,000 or less,
mailed to your Portfolio account address of record if the
address has been established for a minimum of 60 days. In
order to authorize RSMC to mail redemption proceeds to your
Portfolio account address of record, complete the
appropriate section of the Application for Telephone
Redemptions or include your Portfolio account address of
record when you submit written instructions. You may change
the account which you have designated to receive amounts
redeemed at any time. Any request to change the account
designated to receive redemption proceeds should be
accompanied by a guarantee of the shareholder's signature by
an eligible institution. A signature and a signature
guarantee are required for each person in whose name the
account is registered. Further documentation will be
required to change the designated account when shares are
held by a corporation, other organization, trust, fiduciary
or other institutional investor.
For more information on redemption services, contact RSMC
or, if your shares are held in an account with WTC or a
Service Organization, contact WTC or the Service
Organization.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own shares
of a Portfolio with a value of $10,000 or more may
participate in the Systematic Withdrawal Plan. For an
application for the Systematic Withdrawal Plan, check the
appropriate box of the Application at the end of this
Prospectus or call RSMC at (800) 336-9970. Under the Plan,
shareholders may automatically redeem a portion of their
Portfolio shares monthly, bimonthly, quarterly, semiannually
or annually. The minimum withdrawal available is $100. The
redemption of Portfolio shares will be effected at their net
asset value at 12 noon, Eastern time, on or about the 25th
day of the month. This service is generally not available
for WTC trust account clients, since a similar service is
provided through WTC. This service may also not be available
for Service Organization clients who are provided a similar
service by those organizations.
<PAGE>
EXCHANGE OF SHARES
EXCHANGES AMONG THE RODNEY SQUARE FUNDS. You may exchange
all or a portion of your shares in a Portfolio for shares of
another Portfolio or any of the other funds in the Rodney
Square complex that currently offer their shares to
investors. In addition to the Funds discussed in this
Prospectus, the other Rodney Square funds are:
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND, consisting
of the following portfolios:
THE RODNEY SQUARE DIVERSIFIED INCOME PORTFOLIO, which
seeks high total return, consistent with high current
income, by investing principally in various types of
investment grade fixed-income securities.
THE RODNEY SQUARE MUNICIPAL INCOME PORTFOLIO, which
seeks a high level of income exempt from federal income
tax consistent with the preservation of capital.
THE RODNEY SQUARE MULTI-MANAGER FUND, which seeks
superior long-term capital appreciation by investing in
securities of companies which are judged to possess strong
growth characteristics.
A redemption of shares through an exchange will be
effected at the net asset value per share next determined
after receipt by RSMC of the request, and a purchase of
shares through an exchange will be effected at the net asset
value per share determined at that time or as next
determined thereafter, plus the applicable sales load, if
any. The net asset values per share of the U. S. Government
Portfolio, the Money Market Portfolio and the Tax-Exempt
Fund are determined at 12 noon, Eastern time, on each
Business Day of a Fund. The net asset values per share of
the Growth Portfolio and the Strategic Fixed-Income Fund
portfolios are determined at the close of regular trading on
the Exchange (currently, 4:00 p.m., Eastern time), on each
Business Day. Until January 26, 1998, a sales load will apply
to exchanges from the U.S. Government Portfolio, the Money
Market Portfolio or the Tax-Exempt Fund into the Growth
Portfolio or the Strategic Fixed-Income Fund portfolios,
except that no sales load will be charged if you are eligible
for a sales load waiver as described in a fund's prospectus
or the exchanged shares were acquired by a previous exchange
and are shares on which you paid a sales load or which
represent reinvested dividends and other distributions of
such sales. A sales load will not apply to exchanges among
the U.S. Government Portfolio, the Money Market Portfolio
and the Tax-Exempt Fund.
Exchange transactions will be subject to the minimum
initial investment and other requirements of the fund or
portfolio into which the exchange is made. An exchange may
not be made if the exchange would leave a balance in a
shareholder's Portfolio account of less than $500.
To obtain prospectuses of the other Rodney Square funds,
contact RSD. To obtain more information about exchanges, or
to place exchange orders, contact RSMC, or, if your shares
are held in a trust account with WTC or in an account with a
Service Organization, contact WTC or the Service
Organization. The Portfolios reserve the right to terminate
or modify the exchange offer described here and will give
shareholders 60 days' notice of such termination or
modification when required by Securities and Exchange
Commission ("SEC") rules. This exchange offer is valid only
in those jurisdictions where the sale of the Rodney Square
fund shares to be acquired through such exchange may be
legally made.
HOW NET ASSET VALUE IS DETERMINED
RSMC determines the net asset value per share of each
Portfolio as of 12 noon, Eastern time, on each Business Day
of a Fund. The net asset value per share of each Portfolio
is calculated by adding the value of all securities and
other assets in its portfolio, deducting its actual and
accrued liabilities and dividing the balance by the number
of that Portfolio's shares outstanding. It is a fundamental
policy of each Portfolio to use its best efforts to maintain
a per share net asset value of $1.00. Each Portfolio values
its portfolio securities by the amortized cost method of
valuation, that is, the market value of an instrument is
approximated by amortizing the difference between the
acquisition cost and value at maturity of the instrument on
a straight-line basis over its remaining life. All cash,
receivables and current payables are carried at their face
value. Other assets, if any, are valued at fair value as
determined in good faith by, or under the direction of, the
Board of Trustees of the Rodney Square Fund or Tax-Exempt
Fund.
<PAGE>
DIVIDENDS AND TAXES
DIVIDENDS. Substantially all of each Portfolio's net
investment income (consisting of (1) accrued interest and
earned discount, less amortization of premium and accrued
expenses in the case of each Series and (2) accrued
interest, earned original issue discount and, if it elects,
market discount on tax-exempt securities) is declared as a
dividend daily. Each Portfolio expects to distribute any
net realized gains once each year, although it may
distribute them more frequently if necessary in order to
maintain its net asset value at $1.00 per share.
Each Portfolio's net investment income is determined by
RSMC on each day that the Portfolio's net asset value is
calculated. Each dividend is payable to shareholders of
record on the day and at the time the dividend is declared
(including, for this purpose, holders of shares purchased,
but excluding holders of shares redeemed, on that day).
Dividends declared by a Portfolio are accrued throughout the
month and are paid to its shareholders no later than seven
(7) days after the end of the month in which the dividends
are accrued. The dividend payment program is administered by
RSMC, as the Funds' dividend disbursing agent.
Dividends paid by a Portfolio are automatically
reinvested in additional shares of that Portfolio unless a
shareholder has elected to receive dividends or other
distributions in cash by selecting the cash distribution
option on the Application. For shareholders who are clients
of WTC through trust or corporate cash management accounts,
dividends may be reinvested by WTC on the next Business Day
of a Fund after the dividend payment, unless the shareholder
has elected to receive dividends in cash, and may result in
the shareholder losing a day's interest on the day the
dividend is paid. This dividend reinvestment policy differs
from the dividend reinvestment programs of some other money
market funds and may result in WTC having the use of the
proceeds of shareholders' dividends until they are
reinvested.
TAXES. Each Portfolio intends to continue to qualify for
treatment as a regulated investment company under the
Internal Revenue Code of 1986, as amended, so that it will
be relieved of federal income tax on that part of its
investment company taxable income (generally, taxable net
investment income plus any realized net short-term capital
gain) that is distributed to its shareholders.
Distributions by the Tax-Exempt Fund of the excess of
interest income on tax-exempt securities over certain
amounts disallowed as deductions, as designated by that
Portfolio ("exempt-interest dividends"), may be treated by
its shareholders as interest excludable from gross income.
Interest on indebtedness incurred or continued by a
shareholder to purchase or carry shares of that Portfolio is
not deductible. Dividends paid by a Portfolio generally are
taxable to its shareholders as ordinary income,
notwithstanding that such dividends are paid in additional
shares. Each Fund notifies its shareholders following the
end of each calendar year of the amount of dividends paid
that year.
Each Portfolio is required to withhold 31% of all taxable
dividends paid to any individuals and certain other
noncorporate shareholders who do not provide the Portfolio
with a correct taxpayer identification number or who
otherwise are subject to backup withholding. In connection
with this withholding requirement, unless an investor has
indicated that he/she is subject to backup withholding, the
investor must certify on the Application at the end of this
Prospectus that the Social Security or other taxpayer
identification number provided thereon is correct and that
the investor is not otherwise subject to backup withholding.
The exemption of certain interest income for federal
income tax purposes does not necessarily mean that such
income is exempt under the laws of any state or local taxing
authority. Shareholders of the Tax-Exempt Fund may be
exempt from state and local taxes on distributions of
interest income derived from obligations of the state and/or
municipalities of the state in which they are resident, but
generally are taxed on income derived from obligations of
other jurisdictions. That Portfolio calculates annually the
portion of its tax-exempt income attributable to each state.
A portion of the dividends paid by the U.S. Government
Portfolio may be exempt from state taxes. Shareholders
should consult their tax advisers about the tax treatment of
distributions from that Portfolio in their own state and
locality.
The foregoing is only a summary of some of the important
income tax considerations generally affecting the Portfolios
and their shareholders; a further discussion appears in the
Statements of Additional Information. In addition to these
considerations, which are applicable to any investment in a
Portfolio,
<PAGE>
there may be other federal, state or local tax
considerations applicable to a particular investor.
Prospective investors are therefore urged to consult their
tax advisers with respect to the effects of an investment on
their own tax situations.
PERFORMANCE INFORMATION
From time to time, quotations of the "yield," "effective
yield," "tax-equivalent yield" (with respect to the Tax-
Exempt Fund), "average annual total return," "cumulative
total return" and "total return" of the Portfolios may be
included in advertisements, sales literature or shareholder
reports. These figures are based on the historical
performance of the Portfolios, show the performance of a
hypothetical investment and are not intended to indicate
future performance. The yield of each Portfolio refers to
the net investment income generated by that Portfolio over a
specified seven-day period. This income is then annualized.
That is, the amount of income generated by the Portfolio
during that week is assumed to be generated during each week
over a 52-week period and is shown as a percentage of the
investment. The effective yield is expressed similarly, but,
when annualized, the income earned by an investment in each
Portfolio is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. The Tax-
Exempt Fund's tax-equivalent yield is calculated by
determining the rate of return that would have to be
achieved on a fully taxable investment to produce the after-
tax equivalent of the Portfolio's yield, assuming certain
tax brackets for a Portfolio shareholder. The average
annual total return is the average annual compound rate of
return for the periods of one year, five years and ten years
of a Portfolio, all ended on the last day of a recent
calendar quarter. Cumulative total return is the cumulative
rate of return on a hypothetical initial investment of
$1,000 for a specified period. Both the average annual total
return and the cumulative total return quotations assume
that all dividends during the period were reinvested in
Portfolio shares. Total return is the rate of return on an
investment for a specified period of time calculated in the
manner of cumulative total return. Performance figures for
each Portfolio will vary based upon, among other things,
changes in market conditions, the level of interest rates
and the level of the Portfolio's expenses. Past performance
is no guarantee of future performance.
MANAGEMENT OF THE FUNDS
The Boards of Trustees supervise the management,
activities and affairs of the Portfolios and have approved
contracts with various financial organizations to provide,
among other services, day-to-day management required by the
Portfolios and their shareholders.
FUND MANAGER, ADMINISTRATOR, TRANSFER AGENT AND DIVIDEND
PAYING AGENT. RSMC, the Funds' Manager, Administrator,
Transfer Agent and Dividend Paying Agent, is a wholly-owned
subsidiary of WTC, which in turn is wholly-owned by
Wilmington Trust Corporation. RSMC currently acts in the
same capacities for the Multi-Manager Fund portfolio and, as
Administrator, Transfer Agent and Dividend Paying Agent to
the Strategic Fixed-Income Fund portfolios. RSMC also
provides asset management services to collective investment
funds maintained by WTC. In the past, RSMC has provided
asset management services to individuals, personal trusts,
municipalities, corporations and other organizations. At
November 30, 1997, the aggregate assets of the investment
companies managed by RSMC totaled approximately $2.07
billion. RSMC also serves as Sub-Investment Adviser to the
Emerald Funds Tax-Exempt Portfolio, which had assets of
approximately $190 million at November 30, 1997.
Under separate Management Agreements with each Fund,
RSMC, subject to the supervision of the Board of Trustees of
each Fund, directs the investments of each Portfolio in
accordance with the Portfolio's investment objective,
policies and limitations. Also under the Management
Agreement, as Administrator, RSMC is responsible for
providing administrative services such as budgeting,
financial reporting, compliance monitoring and corporate
management.
Under the Management Agreements, each Portfolio pays a
monthly fee to RSMC at the annual rate of 0.47% of the
Portfolio's average daily net assets. Out of the fee, RSMC
makes payments to WTC for provision of custodial services as
described below.
CUSTODIAN. WTC serves as Custodian of the Portfolios'
assets. The Portfolios do not pay WTC any separate fees for
its
<PAGE>
services as Custodian as RSMC pays WTC for the provision
of these services out of its management fee. Any related out-
of-pocket expenses reasonably incurred in the provision of
custodial services to a Portfolio are borne by that
Portfolio.
ACCOUNTING SERVICES. RSMC determines the net asset value
per share of each Portfolio and provides accounting services
to the Portfolios pursuant to separate Accounting Services
Agreements with each Fund. For providing these services RSMC
receives an annual fee of $50,000 per Portfolio plus an
amount equal to 0.02% of the average daily net assets of
each Portfolio in excess of $100 million.
DISTRIBUTION AGREEMENT AND RULE 12B-1 PLAN. Pursuant to
separate Distribution Agreements with each Fund, RSD manages
the Portfolios' distribution efforts and provides assistance
and expertise in developing marketing plans and materials,
enters into dealer agreements with broker-dealers to sell
shares of the Portfolios and, directly or through its
affiliates, provides shareholder support services.
Under a Plan of Distribution adopted with respect to each
Portfolio pursuant to Rule 12b-1 under the 1940 Act (the
"12b-1 Plans"), the Portfolios may reimburse RSD for
distribution expenses incurred in connection with the
distribution efforts described above. The 12b-1 Plans
provide that RSD may be reimbursed for amounts paid and
expenses incurred for distribution activities encompassed by
Rule 12b-1, such as public relations services, telephone
services, sales presentations, media charges, preparation,
printing and mailing advertising and sales literature, data
processing necessary to support a distribution effort,
printing and mailing prospectuses, and distribution and
shareholder servicing activities of broker/dealers and other
financial institutions. The Boards of Trustees have
authorized annual payments of up to 0.20% of each
Portfolio's average net assets to reimburse RSD for making
payments to certain Service Organizations who have sold
Portfolio shares and for other distribution expenses.
BANKING LAWS. Applicable banking laws prohibit deposit-
taking institutions and certain of their affiliates from
underwriting or distributing securities. WTC believes, and
counsel to WTC has advised the Funds, that WTC and its
affiliates may perform the services contemplated by their
respective agreements with the Funds without violation of
applicable banking laws or regulations. If WTC or its
affiliates were prohibited from performing these services,
it is expected that the Boards of Trustees would consider
entering into agreements with other entities. If a bank were
prohibited from acting as a Service Organization, its
shareholder clients would be expected to be permitted to
remain Portfolio shareholders and alternative means for
servicing such shareholders would be sought. It is not
expected that shareholders would suffer any adverse
financial consequences as a result of any of these
occurrences.
DESCRIPTION OF THE FUNDS
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
The Rodney Square Fund and The Rodney Square Tax-Exempt
Fund (the "Funds") are diversified, open-end, management
investment companies established under Massachusetts law by
Declarations of Trust on February 16, 1982 and August 1,
1985, respectively. Each Fund's capital consists of an
unlimited number of shares of beneficial interest. The
authorized shares of beneficial interest in The Rodney
Square Fund are currently divided into two series or
portfolios, the U.S. Government Portfolio and the Money
Market Portfolio; and the authorized shares of beneficial
interest in The Rodney Square Tax-Exempt Fund consist of a
single series or portfolio. The Boards of Trustees of the
Funds are empowered by the Funds' respective Declaration of
Trusts and the Bylaws to establish additional classes and
series of shares, although neither Board has a present
intention of doing so. Shares entitle holders to one vote
per share and fractional votes for fractional shares held.
Shares have non-cumulative voting rights, do not have
preemptive or subscription rights and are transferable.
Separate votes are taken by each Portfolio for the Funds
on matters affecting that Portfolio. For example, a change
in the fundamental investment policies for a Portfolio would
be voted upon only by shareholders of that Portfolio.
Additionally, approval of an advisory contract and Rule 12b-
1 Plan is a matter to be determined separately by each
Portfolio. Therefore, if shareholders of one Portfolio
approve an advisory contract or Rule 12b-1 Plan, it is
effective as to that Portfolio, whether or not the
shareholders of any other Portfolio also approve the
contract or Plan.
As of November 30, 1997, WTC beneficially owned, by
virtue of shared or sole voting or investment power on
behalf of its underlying customer accounts, 20% of the
shares of the U.S. Government Portfolio, 30% of the Money
Market Portfolio and 26% of the shares of the Tax-Exempt
Fund and
<PAGE>
may be deemed to be a controlling person of these
Portfolios under the 1940 Act.
The Funds do not hold annual meetings of shareholders.
There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as
less than a majority of the Trustees holding office have
been elected by the shareholders, at which time the Trustees
then in office will call a shareholders' meeting for the
election of Trustees. Under the 1940 Act, shareholders of
record owning no less than two-thirds of the outstanding
shares of a fund may remove a Trustee by vote cast in person
or by proxy at a meeting called for that purpose. The
Trustees are required to call a meeting of shareholders for
the purpose of voting upon the question of removal of any
Trustee when requested in writing to do so by the
shareholders of record owning not less than 10% of the
Rodney Square Fund's or Tax-Exempt Fund's outstanding
shares.
Because the Portfolios use a combined Prospectus, it is
possible that a Portfolio might become liable for a
misstatement about another Portfolio contained in the
Prospectus. The Boards of Trustees have considered this
factor in approving the use of a single, combined
prospectus.
APPENDIX
The following paragraphs provide a brief description of
certain of the securities in which the Portfolios may
invest. The Portfolios are not limited by this discussion,
however, and may purchase other types of securities if they
meet each Portfolio's quality standards.
MONEY MARKET INSTRUMENTS are liquid, short-term, high-
grade debt securities. These instruments include U.S.
Government obligations, commercial paper, certificates of
deposit, bankers' acceptances, time deposits, municipal
securities and corporate obligations.
BANKERS' ACCEPTANCES are credit instruments evidencing
the obligation of a bank to pay a draft which has been drawn
on it by a customer. These instruments reflect the
obligation of both the bank and the drawer to pay the face
amount of the instrument upon maturity.
CERTIFICATES OF DEPOSIT are certificates evidencing the
indebtedness of a commercial bank to repay funds deposited
with it for a definite period of time (usually from 14 days
to one year) at a stated or variable interest rate. Variable
rate certificates of deposit provide that the interest rate
will fluctuate on designated dates based on changes in a
designated base rate (such as the composite rate for
certificates of deposit established by the Federal Reserve
Bank of New York).
CERTIFICATES OF PARTICIPATION give the investor an
undivided interest in the municipal obligation in the
proportion that the investor's interest bears to the total
principal amount of the municipal obligation.
COMMERCIAL PAPER consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by
corporations in order to finance their current operations.
CORPORATE OBLIGATIONS are bonds or notes issued by
corporations and other business organizations in order to
finance their long-term credit needs. The Money Market
Portfolio's investments in these obligations will be limited
to those obligations that may be considered to have
remaining maturities of 397 days or less pursuant to Rule 2a-
7 under the 1940 Act.
MUNICIPAL SECURITIES (including bonds and short-term
notes) are debt obligations of varying maturities issued by
states, municipalities and public authorities to obtain
funds for various public purposes such as constructing
public facilities and making loans to public institutions.
Certain types of municipal bonds are issued to obtain
funding for privately operated facilities. The level of
support for these obligations can range from obligations
supported by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest,
to obligations payable only from the revenues derived from a
particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other
specific source. A brief description of some typical types
of municipal securities follows:
GENERAL OBLIGATION BONDS are backed by the taxing
power of the issuing municipality and are considered the
safest type of municipal bond.
REVENUE BONDS are backed by the revenues of a
specific project or facility - tolls from a toll-bridge,
for example.
BOND ANTICIPATION NOTES normally are issued to
provide interim financing until long-term
<PAGE>
financing can
be arranged. The long-term bonds then provide money for
the repayment of the Notes.
TAX ANTICIPATION NOTES finance working capital needs
of municipalities and are issued in anticipation of
various seasonal tax revenues, to be payable for these
specific future taxes.
REVENUE ANTICIPATION NOTES are issued in expectation
of receipt of other kinds of revenue, such as federal
revenues available under the Federal Revenue Sharing
Program.
INDUSTRIAL DEVELOPMENT BONDS ("IDB'S") AND PRIVATE
ACTIVITY BONDS ("PAB'S") are specific types of revenue
bonds issued by or on behalf of public authorities to
finance various privately operated facilities, such as
solid waste facilities and sewage plants. PAB's
generally are such bonds issued after August 15, 1986.
These obligations are included within the term
"municipal bonds" if the interest paid thereon is exempt
from federal income tax in the opinion of the bond
issuer's counsel. IDB's and PAB's are in most cases
revenue bonds and thus are not payable from the
unrestricted revenues of the issuer. The credit quality
of IDB's and PAB's is usually directly related to the
credit standing of the user of the facilities being
financed, or some form of credit enhancement such as a
letter of credit.
TAX-EXEMPT COMMERCIAL PAPER AND SHORT-TERM MUNICIPAL
NOTES provide for short-term capital needs and usually
have maturities of one year or less. They include tax
anticipation notes, revenue anticipation notes, bond
anticipation notes and construction loan notes.
CONSTRUCTION LOAN NOTES are sold to provide
construction financing. After successful completion and
acceptance, many projects receive permanent financing
through the Federal Housing Administration by way of
"Fannie Mae" (the Federal National Mortgage Association)
or "Ginnie Mae" (the Government National Mortgage
Association).
PUT BONDS are municipal bonds which give the holder
the unconditional right to sell the bond back to the
issuer at a specified price and exercise date, which is
typically well in advance of the bond's maturity date.
REPURCHASE AGREEMENTS are transactions by which a
Portfolio purchases a security and simultaneously commits to
resell that security to the seller at an agreed upon date
and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased security. While
it is not possible to eliminate all risks from these
transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as
delays and costs to the Portfolio if the other party to the
repurchase agreement becomes bankrupt), it is the policy of
the Portfolio to limit repurchase transactions to primary
dealers and banks whose creditworthiness has been reviewed
and found to be satisfactory by RSMC.
TIME DEPOSITS are bank deposits for fixed periods of
time.
U.S. GOVERNMENT OBLIGATIONS are debt securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities. Agencies and instrumentalities include
executive departments of the U.S. Government or independent
federal organizations supervised by Congress. Although all
obligations of agencies and instrumentalities are not direct
obligations of the U.S. Treasury, payment of the interest
and principal on these obligations is generally backed
directly or indirectly by the U.S. Government. This support
can range from securities supported by the full faith and
credit of the United States (for example, securities of the
Government National Mortgage Association), to securities
that are supported solely or primarily by the
creditworthiness of the issuer, such as securities of the
Federal National Mortgage Association, Federal Home Loan
Mortgage Corporation, Tennessee Valley Authority, Federal
Farm Credit Banks and the Federal Home Loan Banks. In the
case of obligations not backed by the full faith and credit
of the United States, a Portfolio must look principally to
the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment and may not be able to
assert a claim against the United States itself in the event
the agency or instrumentality does not meet its commitments.
VARIABLE AND FLOATING RATE SECURITIES are securities the
yield on which is adjusted in relation to changes in
specific market rates, such as the prime rate. Certain of
these obligations also may carry a demand feature that gives
the holder the right to demand prepayment of the principal
amount of the security prior to maturity. The demand feature
usually is backed by an irrevocable letter of credit or
guarantee by a bank. Portfolio investments in these
securities must comply with conditions established by the
SEC under which they may be considered to have remaining
maturities of 397 days or less.
<PAGE>
SUMMARY TABLE OF INVESTMENT INSTRUMENTS DESCRIBED ABOVE:
U.S. GOVERNMENT PORTFOLIO
U.S. Government Obligations
Repurchase Agreements
MONEY MARKET PORTFOLIO TAX-EXEMPT PORTFOLIO
Bankers' Acceptances Bankers' Acceptances
Certificates of Deposit Certificates of Deposit
Commercial Paper Certificates of Participation
Corporate Obligations Commercial Paper
Municipal Securities Municipal Securities
Put Bonds Put Bonds
Repurchase Agreements Repurchase Agreements
Time Deposits Tax-Exempt Commercial Paper
U.S. Government Obligations U.S. Government Obligations
Variable and Floating Rate Variable and Floating Rate Instruments
Instruments
DESCRIPTION OF S&P'S HIGHEST COMMERCIAL PAPER RATING:
A-1 - This designation indicates that the degree of
safety regarding timely payment is strong. Those issues
determined to possess extremely strong safety
characteristics are denoted with a plus sign (+)
designation.
DESCRIPTION OF MOODY'S HIGHEST COMMERCIAL PAPER RATING:
PRIME-1 - This designation indicates a superior ability
for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the
following characteristics:
Leading market position in well established industries.
High rates of return on funds employed.
Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
Well-established access to a range of financial markets
and assured sources of alternate liquidity.
DESCRIPTION OF S&P'S TWO HIGHEST CORPORATE AND MUNICIPAL
BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by
S&P. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the highest
rated issues only in a small degree.
DESCRIPTION OF MOODY'S TWO HIGHEST CORPORATE AND MUNICIPAL
BOND RATINGS:
AAA - Bonds rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edged." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high-
quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They
(the Aa group) are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than
the Aaa securities.
DESCRIPTION OF S&P'S HIGHEST STATE AND MUNICIPAL NOTES
RATING:
S&P's tax-exempt note ratings are generally given to
notes due in three years or less. The highest rating
<PAGE>
category is as follows:
SP-1 - Very strong or strong capacity to pay principal
and interest. Those issues determined to possess
overwhelming safety characteristics will be given a plus
sign (+) designation.
DESCRIPTION OF MOODY'S HIGHEST STATE AND MUNICIPAL NOTES
RATING:
Moody's ratings for state and municipal short-term
obligations are designated Moody's Investment Grade ("MIG").
Short-term ratings on issues with demand features are
differentiated by the use of the "VMIG" symbol to reflect
such characteristics as payment upon periodic demand rather
than fixed maturity dates and payment relying on extreme
liquidity. Such ratings recognize the differences between
short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical
elements are critical in short-term ratings, while other
factors of major importance in bond risk, long-term secular
trends for example, may be less important over the short
run. The symbol used is as follows:
MIG-1/VMIG-1 - Notes bearing this designation are of the
best quality. There is present strong protection by
established cash flows, superior liquidity support or
demonstrated broad-based access to the market for
refinancing.
DESCRIPTION OF FITCH'S HIGHEST STATE AND MUNICIPAL BONDS
RATING:
AAA - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally
strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest
and repay principal is very strong, although not quite as
strong as bonds rated
F-1+ - Issues assigned this rating are regarded as having
the strongest degree of assurance for timely payment.
F-1 - Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than issues
rated F-1+.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
The Rodney Square Tax-Exempt Fund (the "Fund") seeks as high a
level of interest
income, exempt from federal income tax, as is consistent with
a portfolio
of high-quality, short-term municipal obligations selected on
the basis of liquidity and stability of principal.
Statement of Additional Information
January 2, 1998
This Statement of Additional Information is not a
prospectus and should be read in conjunction with the Fund's
current Prospectus, dated January 2, 1998, as amended from
time to time. A copy of the current Prospectus may be
obtained without charge, by writing to Rodney Square
Distributors, Inc. ("RSD"), Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890-0001, and from
certain institutions such as banks or broker-dealers that have
entered into servicing agreements with RSD or by calling (800)
336-9970.
<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES 3
INVESTMENT LIMITATIONS 4
TRUSTEES AND OFFICERS 6
RODNEY SQUARE MANAGEMENT CORPORATION 7
WILMINGTON TRUST COMPANY 8
INVESTMENT MANAGEMENT SERVICES 8
DISTRIBUTION AGREEMENT AND RULE 12B-1 PLAN 10
PORTFOLIO TRANSACTIONS 11
REDEMPTIONS 12
NET ASSET VALUE AND DIVIDENDS 13
PERFORMANCE INFORMATION 13
TAX-EQUIVALENT YIELD TABLE 14
TAXES 17
DESCRIPTION OF THE FUND 18
OTHER INFORMATION 19
FINANCIAL STATEMENTS 19
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
INVESTMENT POLICIES
The following information supplements the information
concerning the investment objective, policies and limitations
of the Fund found in the Prospectus.
The Fund has adopted a fundamental policy requiring it to
use its best efforts to maintain a constant net asset value of
$1.00 per share, although this may not be possible under
certain circumstances. The Fund values its portfolio
securities on the basis of amortized cost (see "Net Asset
Value and Dividends") pursuant to Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act"). As
conditions of that Rule, the Fund's Board of Trustees has
established procedures reasonably designed to stabilize the
Fund's price per share at $1.00 per share. The Fund maintains
a dollar-weighted average portfolio maturity of 90 days or
less; purchases only instruments with effective maturities
of 397 days or less; and invests only in securities which are
of high-quality as determined by a major rating service or, in
the case of instruments which are not rated, of comparable
quality as determined by the Fund's manager, Rodney Square
Management Corporation ("RSMC"), under the direction of and
subject to the review of the Fund's Board of Trustees.
Although not required, typically over 90% of the Fund's assets
are rated A-1+ by Standard & Poor's Ratings Services ("S&P"),
P-1 by Moody's Investors Service, Inc. ("Moody's"), or F-1 by
Fitch Investor Services, L.P. ("Fitch") or a comparable rating
by an equivalent rating agency.
WHEN-ISSUED SECURITIES. The Portfolio may purchase
securities on a when-issued basis. This means that delivery
and payment for the securities normally will take place
approximately 15 to 90 days after the date of the transaction.
The payment obligation and the interest rate that will be
received on securities purchased on a when-issued basis are
each fixed at the time the buyer enters into the commitment.
The Fund will make commitments to purchase such securities
only with the intention of actually acquiring the securities,
but the Fund may dispose of the commitment before the
settlement date if it is deemed advisable as a matter of
investment strategy. A separate account of the Fund will be
established at the Fund's custodian bank, into which liquid,
unencumbered daily mark-to-market assets equal to the amount
of the above commitments will be deposited. If the market
value of the deposited assets declines, additional assets will
be placed in the account on a daily basis so that the market
value of the account will equal the amount of such commitments
by the Fund.
A security purchased on a when-issued basis is recorded
as an asset on the commitment date and is subject to changes
in market value generally based upon changes in the level of
interest rates. Thus, upon delivery, its market value may be
higher or lower than its cost. When payment for a when-issued
security is due, the Fund will meet its obligations from then-
available cash flow, the sale of the securities held in the
separate account or the sale of other securities. The sale of
securities to meet such obligations increases the potential
for the realization of capital gains, which are subject to
federal income tax.
YIELDS AND RATINGS OF SECURITIES. The yields on the
securities in which the Fund invests (such as municipal
securities) are dependent on a variety of factors, including
general money market conditions, conditions in the particular
market for the obligation, the financial condition of the
issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of
Moody's, S&P and Fitch represent their opinions as to quality
of the obligations they undertake to rate. Ratings, however,
are general and are not absolute standards of quality.
Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. Subsequent to
its purchase by the Fund, an issue may cease to be rated or
its rating may be reduced. RSMC, and in certain cases, as
required by Rule 2a-7 under the 1940 Act, the Fund's Board of
Trustees, will consider whether the Fund should continue to
hold the obligation.
ILLIQUID SECURITIES. The Fund may not purchase
securities or invest in repurchase agreements with respect to
any securities, if, as a result, more than 10% of the Fund's
net assets (taken at current value) would be invested in
repurchase agreements which do not entitle the holder to
payment of principal within seven days and in securities that
are illiquid by virtue of legal or contractual restrictions on
resale or the absence of a readily available market.
<PAGE>
In recent years a large institutional market has
developed for certain securities that are not registered under
the Securities Act of 1933 (the "1933 Act"), including private
placements, repurchase agreements, commercial paper, foreign
securities and corporate bonds and notes. These instruments
are often restricted securities because the securities are
sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often
depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an
issuer's ability to honor a demand for repayment. Therefore,
the fact that there are contractual or legal restrictions on
resale to the general public or certain institutions is not
dispositive of the liquidity of such investments.
To facilitate the increased size and liquidity of the
institutional markets for unregistered securities, the
Securities and Exchange Commission (the "SEC") adopted Rule
144A under the 1933 Act. Rule 144A established a "safe
harbor" from the registration requirements of the 1933 Act for
resales of certain securities to qualified institutional
buyers. Institutional markets for restricted securities have
developed as a result of Rule 144A, providing both readily
ascertainable values for restricted securities and the ability
to liquidate an investment in order to satisfy share
redemption orders. Such markets include automated systems for
the trading, clearance and settlement of unregistered
securities, such as the PORTAL system sponsored by the
National Association of Securities Dealers, Inc.
The Fund's Board of Trustees has the ultimate
responsibility for determining whether specific securities are
liquid or illiquid. The Board has delegated the function of
making day-to-day determinations of liquidity to RSMC,
pursuant to guidelines approved by the Board. RSMC will
monitor the liquidity of securities held by the Fund and
report periodically on such decisions to the Board of
Trustees. RSMC takes into account a number of factors in
reaching liquidity decisions, including (1) the frequency of
trades for the security, (2) the number of dealers that make
quotes for the security, (3) the number of dealers that have
undertaken to make a market in the security, (4) the number of
other potential purchasers and (5) the nature of the security
and how trading is effected (e.g., the time needed to sell the
security, how offers are solicited and the mechanics of
transfer).
LOANS OF PORTFOLIO SECURITIES. Although the Fund has no
present intention of doing so in excess of 5% of the Fund's
net assets, the Fund may from time to time lend its portfolio
securities to brokers, dealers and financial institutions.
Such loans will in no event exceed one-third of the Fund's
total assets and will be secured by collateral in the form of
cash or securities, issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S.
Government Securities"), which at all times while the loan is
outstanding will be maintained in an amount at least equal to
the current market value of the loaned securities.
The primary risk involved in lending securities is that
of a financial failure by the borrower. In such a situation,
the borrower might be unable to return the loaned securities
at a time when the value of the collateral has fallen below
the amount necessary to replace the loaned securities. The
borrower would be liable for the shortage, but the Fund would
be an unsecured creditor with respect to such shortage and
might not be able to recover all or any of it. In order to
minimize this risk, the Fund will make loans of securities
only to firms deemed creditworthy by RSMC and only when, in
the judgment of RSMC, the consideration that the Fund will
receive from the borrower justifies the risk.
INVESTMENT LIMITATIONS
The investment limitations described below are
fundamental, and may not be changed without the affirmative
vote of the holders of the lesser of (i) 67% or more of the
shares of the Fund present at a shareholders' meeting if
holders of more than 50% of the outstanding shares of the
Fund are present in person or by proxy or (ii) more than
50% of the outstanding shares of the Fund.
The Fund will not, as a matter of fundamental policy:
1. purchase securities of any one issuer if as a result more
than 5% of the Fund's total assets would be invested in
such issuer or the Fund would own or hold 10% or more of
the outstanding voting securities
<PAGE>
of that issuer, except
that up to 25% of the Fund's total assets may be invested
without regard to these limitations and provided that
these limitations do not apply to securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities;
2. borrow money, except (i) from a bank for temporary or
emergency purposes (not for leveraging or investment) or
(ii) by engaging in reverse repurchase agreements,
provided that borrowings do not exceed an amount equal to
one-third of the current value of the Fund's assets,
taken at market value, less liabilities other than
borrowings;
3. purchase securities, if, as a result, 25% or more of the
value of the Fund's total assets would be invested in the
securities of issuers having their principal business
activities in the same industry, except that this
limitation does not apply to municipal securities;
4. underwrite any issue of securities, except to the extent
that the Fund may be considered to be acting as
underwriter in connection with the disposition of any
portfolio security;
5. purchase or sell real estate, but this limitation shall
not prevent the Fund from investing in obligations
secured by real estate or interests therein or
obligations issued by companies that invest in real
estate or interests therein;
6. make loans, except (i) the purchase of a portion of an
issue of debt securities in accordance with its
investment objective, policies and limitation, (ii)
engaging in repurchase agreements, or (iii) engaging in
securities loan transactions limited to one-third of the
Fund's total assets;
7. purchase or sell physical commodities or contracts
relating to physical commodities, provided that
currencies and currency-related contracts will not be
deemed physical commodities; or
8. issue senior securities, except as appropriate to
evidence indebtedness that the Fund is permitted to
incur, provided that the Fund may issue shares of
additional series or classes that the Trustees may
establish, and provided that the Fund's use of options,
futures contracts and options thereon or currency-related
contracts, will not be deemed to be senior securities for
this purpose.
In addition, the Fund has adopted several non-fundamental
policies, which can be changed by the Board of Trustees
without shareholder approval.
As a matter of non-fundamental policy, the Fund will not:
1. purchase or otherwise acquire any security or invest in a
repurchase agreement with respect to any securities if,
as a result, more than 10% of the Fund's net assets
(taken at current value) would be invested in repurchase
agreements not entitling the holder to payment of
principal within seven days and in securities that are
illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market;
2. purchase securities for investment while any bank
borrowing equaling 5% or more of the Fund's total assets
is outstanding;
3. make short sales of securities or purchase securities on
margin (but the Fund may effect short sales against the
box and obtain such credits as may be necessary for the
clearance of the purchases and sales of securities); or
4. make loans of portfolio securities unless such loans are
fully collateralized by cash, U. S. Government
securities, or any combination of cash and such
securities, marked to market value daily.
<PAGE>
Whenever an investment policy or limitation states a
maximum percentage of the Fund's assets that may be invested
in any security or other asset or sets forth a policy
regarding quality standards, such percentage or standard
limitation shall be determined immediately after the Fund's
acquisition of such security or other asset. Accordingly, any
later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered when
determining whether the investment complies with the Fund's
investment policies and limitations (except where explicitly
noted above and except that, as a condition of Rule 2a-7 under
the 1940 Act, quality standards must be maintained for certain
obligations).
TRUSTEES AND OFFICERS
The Fund has a Board, currently composed of five
Trustees, which supervises Fund activities and reviews
contractual arrangements with companies that provide the Fund
with services. The Fund's Trustees and officers are listed
below. Except as indicated, each individual has held the
office shown or other offices in the same company for the last
five years. All persons named as Trustees also serve in
similar capacities for The Rodney Square Fund, The Rodney
Square Equity Fund and The Rodney Square Strategic Fixed-
Income Fund (together with the Fund, the Rodney Square Family
of Funds"). Those Trustees who are "interested persons" of
the Fund (as defined in the 1940 Act) by virtue of their
positions with either RSMC or Wilmington Trust Company
("WTC"), the parent of RSMC, are indicated by an asterisk (*).
*MARTIN L. KLOPPING, Rodney Square North, 1100 N. Market St.,
Wilmington, DE 19890-0001, President, elected in 1995 and
Trustee, age 44, has been President and Director of RSMC since
1984. He is also a Director of Rodney Square Distributors,
Inc. ("RSD"), elected in 1992. He is also a Chartered
Financial Analyst and member of the SEC Rules and Investment
Advisers Committees of the Investment Company Institute.
ERIC BRUCKER, School of Management, University of Michigan,
Dearborn, MI 48128, Trustee, age 56, has been Dean of the
School of Management of the University of Michigan since June
1992. He was Professor of Economics, Trenton State College
from September 1989 through June 1992. He was Vice President
for Academic Affairs, Trenton State College from September
1989 through June 1991. From 1976 until September 1989, he
was Dean of the College of Business and Economics and Chairman
of various committees at the University of Delaware. He is also
a member of the Detroit Economic Club, Financial Executive Institute
and Leadership Detroit.
FRED L. BUCKNER, 5 Hearth Lane, Greenville, DE 19807, Trustee,
age 65, has retired as President and Chief Operating Officer
of Hercules Incorporated (diversified chemicals), positions he
held from March 1987 through March 1992. He also served as a
member of the Hercules Incorporated Board of Directors from
1986 through March 1992.
JOHN J. QUINDLEN, 313 Southwinds, 1250 West Southwinds Blvd.,
Vero Beach, FL 32963, Trustee, age 65, has retired as Senior
Vice President-Finance of E.I. du Pont de Nemours and Company,
Inc. (diversified chemicals), a position he held from 1984 to
November 30, 1993. He served as Chief Financial Officer of E.
I. du Pont de Nemours and Company, Inc. from 1984 through June
1993. He also serves as a Director of St. Joe Paper Co. and a
Trustee of Kalmar Pooled Investment Trust.
*ROBERT J. CHRISTIAN, Rodney Square North, 1100 N. Market St.,
Wilmington, DE 19890-0001, Trustee, age 48, has been Chief
Investment Officer of WTC since February 1996 and Director of
RSMC since February 1996. He was Chairman and Director of PNC
Equity Advisors Company, and President and Chief Investment
Officer of PNC Asset Management Group, Inc. from 1994 to 1996.
He was Chief Investment Officer of PNC Bank, N.A. from 1992 to
1996, Director of Provident Capital Management from 1993 to
1996, and Director of Investment Strategy PNC Bank, N.A. from
1989 to 1992. He is also a Trustee of LaSalle University and
a member of the Board of Governors for the Pennsylvania
Economy League.
JOSEPH M. FAHEY, JR., Rodney Square North, 1100 N. Market St.,
Wilmington, DE 19890-0001, Vice President, age 40, has been
with RSMC since 1984, as a Secretary of RSMC since 1986 and a
Vice President since 1992. He was an Assistant Vice President
of RSMC from 1988 to 1992.
<PAGE>
ROBERT C. HANCOCK, Rodney Square North, 1100 N. Market St.,
Wilmington, DE 19890-0001, Vice President and Treasurer, age
45, has been a Vice President of RSMC since 1988 and Treasurer
of RSMC since 1990. He is also a member of the
Accounting/Treasurer Committee of the Investment Company
Institute.
CARL M. RIZZO, Rodney Square North, 1100 N. Market St.,
Wilmington, DE 19890-0001, Secretary, age 46, was appointed
Vice President of RSMC in July, 1996. From 1995 to 1996 he was
Assistant General Counsel of Aid Association for Lutherans ( a
fraternal benefit association); from 1994 to 1995 Senior
Associate Counsel of United Services Automobile Association
(an insurance and financial services firm); and from 1987 to
1994 Special Counsel or Attorney-Adviser with a federal
government agency.
DIANE D. MARKY, Rodney Square North, 1100 N. Market St.,
Wilmington, DE 19890-0001, Assistant Secretary, age 33, has
been a Senior Fund Administrator of RSMC since 1994 and a Fund
Administration Officer of RSMC since July 1991.
CONNIE L. MEYERS, Rodney Square North, 1100 N. Market Street,
Wilmington, DE 19890-0001, Assistant Secretary, age 37, has
been a Fund Administrator of RSMC since August, 1994. She was
a Corporate Custody Administrator for Wilmington Trust Company
from 1989 to 1994.
JOHN J. KELLEY, Rodney Square North, 1100 N. Market St.,
Wilmington, DE 19890-0001, Assistant Treasurer, age 38, has
been a Vice President of RSMC since 1995. He was an Assistant
Vice President of RSMC from 1989 to 1995.
The fees and expenses of the Trustees who are not
"interested persons" of the Fund ("Independent Trustees") as
defined in the 1940 Act are paid by the Fund. The following
table shows the fees paid during the fiscal year ended
September 30, 1997 to the Independent Trustees for their
service to the Fund and to the Rodney Square Family of Funds.
On September 30, 1997, the Trustees and officers of the Fund,
as a group, owned beneficially, or may be deemed to have owned
beneficially, less than 1% of the outstanding shares of the
Fund.
1997 TRUSTEES FEES
TOTAL FEES TOTAL FEES FROM THE
INDEPENDENT TRUSTEE FROM RODNEY
THE FUND SQUARE FAMILY OF FUNDS
Eric Brucker $2,050 $12,550
Fred L. Buckner $2,050 $12,550
John J. Quindlen $2,050 $12,550
RODNEY SQUARE MANAGEMENT CORPORATION
RSMC has served as the Fund Manager of the Fund since
December 20, 1985, as the Administrator of the Fund since July
1, 1991, and as the Fund's Transfer Agent and Dividend Paying
Agent since January 1, 1993. RSMC is a Delaware corporation
organized on September 17, 1981, which enjoys a reputation for
managing high-quality portfolios using a conservative
investment approach. In a time when safety of principal and
liquidity are critical, RSMC's experienced management team
will continue to operate with strict internal controls and
high credit quality standards. RSMC's investment management
services and specialized investment techniques are normally
available only to institutional clients. RSMC also acts as
Investment Adviser and Administrator to The Rodney Square
Equity Fund and The Rodney Square Fund, as Administrator to
The Rodney Square Strategic Fixed-Income Fund, and as Transfer
Agent and Dividend Paying Agent to all of the Rodney Square
funds.
RSMC is a wholly-owned subsidiary of WTC, a state-
chartered bank organized as a Delaware Corporation in 1903.
WTC is the wholly-owned subsidiary of Wilmington Trust
Corporation, a publicly held bank holding company. RSMC may
occasionally consult, on an informal basis, with personnel of
WTC's investment departments. WTC takes no part, however, in
determining which securities are to be purchased or sold by
the Fund. Prior to RSMC's formation as a separate company,
most of its investment management staff
<PAGE>
and some of its
officers were employed by WTC in various money market and
other fixed-income investment management and trading
departments.
Several affiliates of RSMC are also engaged in the
investment advisory business. Wilmington Trust FSB, a wholly-
owned subsidiary of WTC exercises investment discretion over
certain institutional accounts.
RSD, a wholly-owned subsidiary of WTC and the Fund's
Distributor is a registered broker-dealer. Wilmington
Brokerage Services Company, another wholly-owned subsidiary of
WTC, is a registered investment adviser and a registered
broker-dealer.
WILMINGTON TRUST COMPANY
WTC, the parent of RSMC serves as Custodian of the assets
of the Fund and is paid for those services by RSMC out of its
management fee from the Fund. The Fund reimburses WTC for its
related out-of-pocket expenses for such items as postage,
forms, mail insurance and similar items reasonably incurred in
the performance of custodial services for the Fund.
The Fund benefits from the experience, conservative
values and special heritage of WTC and its affiliates. WTC is
a financially strong bank and enjoys a reputation for
providing exceptional consistency, stability and discipline in
managing both short-term and long-term investments. WTC is
Delaware's largest full-service bank and, with more than $75
billion in trust, custody and investment management assets,
WTC ranks among the nation's leading money management firms.
As of December 31, 1996, the trust department of WTC was the
seventeenth largest in the United States as measured by
discretionary assets under management. WTC is engaged in a
variety of investment advisory activities, including the
management of collective investment pools, and has nearly a
century of experience managing the personal investments of
high net-worth individuals. Its current roster of
institutional clients includes several Fortune 500 companies
as well. WTC is also the Investment Adviser of The Rodney
Square Strategic Fixed-Income Fund.
INVESTMENT MANAGEMENT SERVICES
MANAGEMENT AND ADMINISTRATION AGREEMENTS. RSMC serves as
Fund Manager and Administrator to the Fund pursuant to a
contract with the Fund dated August 9, 1991 (the "Management
Agreement"). For the services performed by RSMC under the
Management Agreement, the Fund pays a monthly fee to RSMC at
the annual rate of 0.47% of the average daily net assets of
the Fund. For the fiscal years ended September 30, 1997, 1996
and 1995, RSMC was paid advisory fees and administration fees
amounting to $1,325,491, $1,346,805 and $1,696,280,
respectively.
Under the terms of the Management Agreement, RSMC agrees
to: (a) supply office facilities, non-investment related
statistical and research data, executive and administrative
services, stationery and office supplies, and corporate
secretarial services for the Fund; (b) prepare and file, if
necessary, reports to shareholders of the Fund and reports
with the SEC and state securities commissions; (c) monitor the
Fund's compliance with the investment restrictions and
limitations imposed by the 1940 Act, and state Blue Sky laws
and applicable regulations thereunder, the fundamental and non-
fundamental investment policies and limitations set forth in
the Prospectus and this Statement of Additional Information,
and the investment restrictions and limitations necessary for
the Fund to continue to qualify as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as
amended (the "Code"); (d) monitor sales of the Fund's shares
and ensure that such shares are properly registered with the
SEC and applicable state authorities; (e) prepare and monitor
an expense budget for the Fund, including setting and revising
accruals for each category of expenses; (f) determine the
amount of dividends and other distributions payable to
shareholders as necessary to, among other things, maintain the
Fund's qualification as a RIC under the Code; (g) prepare and
distribute to appropriate parties notices announcing the
declaration of dividends and other distributions to
shareholders; (h) prepare financial statements and footnotes
and other financial information with such frequency and in
such format as required to be included in reports to
shareholders
<PAGE>
and the SEC; (i) supervise the preparation of
federal and state tax returns; (j) review sales literature and
file such with regulatory authorities, as necessary; (k)
maintain Fund/Serv membership; and (l) provide personnel to
serve as officers of the Fund if so elected by the Board of
Trustees. Additionally, RSMC agrees to create and maintain
all necessary records in accordance with all applicable laws,
rules and regulations pertaining to the various functions
performed by it and not otherwise created and maintained by
another party pursuant to contract with the Fund. RSMC may at
any time or times, upon approval by the Trustees, enter into
one or more sub-administration agreements with a sub-
administrator pursuant to which RSMC delegates any or all of
its duties listed above.
The Management Agreement provides that RSMC shall not be
liable for any error of judgment or mistake of law or for any
loss suffered by the Fund in connection with the matters to
which the Management Agreement relates, except to the extent
of a loss resulting from willful misfeasance, bad faith or
gross negligence on its part in the performance of its
obligations and duties under the Management Agreement.
The Management Agreement became effective on August 9,
1991, and continues in effect from year to year thereafter so
long as its continuance is approved at least annually by a
majority of the Trustees, including a majority of the
Independent Trustees. The Agreement is terminable by the Fund
(by vote of the Fund's Board of Trustees or by vote of a
majority of the Fund's outstanding voting securities) on sixty
(60) days' written notice given to RSMC or by RSMC on sixty
(60) days' written notice given to the Fund and terminates
automatically upon its assignment.
The salaries of any officers and interested Trustees of
the Fund who are affiliated with RSMC and the salaries of all
personnel of RSMC performing services for the Fund relating to
research, statistical and investment activities are paid by
RSMC.
RSMC also serves as the Fund's Transfer Agent and
Dividend Paying Agent pursuant to an agreement dated as of
December 31, 1992. Compensation for the services and duties
performed is paid by RSMC in accordance with the Fund's
Management Agreement. Certain other fees and expenses
incurred in connection with the provision of these services
are payable by the Fund or the shareholder on whose behalf the
service is performed.
ACCOUNTING SERVICES AGREEMENT. RSMC also provides
portfolio accounting services to the Fund pursuant to an
Accounting Services Agreement with the Fund. For its
services, RSMC receives an annual fee of $50,000 plus an
amount equal to 0.02% of that portion of the Fund's average
daily net assets for the year which are in excess of $100
million. For the fiscal years ended September 30, 1997, 1996
and 1995, RSMC was paid accounting service fees of $86,405,
$87,310 and $102,184, respectively.
Under the terms of the Accounting Services Agreement,
RSMC agrees to: (a) perform the following accounting
functions on a daily basis: (1) journalize the Fund's
investment, capital share and income and expense activities,
(2) verify investment buy/sell trade tickets when received
from RSMC and transmit trades to the Fund's Custodian for
proper settlement, (3) maintain individual ledgers for
investment securities, (4) maintain historical tax lots for
each security, (5) reconcile cash and investment balances of
the Fund with the Custodian, and provide RSMC with the
beginning cash balance available for investment purposes, (6)
update the cash availability throughout the day as required by
RSMC, (7) post to and prepare the Fund's Statement of Assets
and Liabilities and the Statement of Operations, (8) calculate
various contractual expenses (e.g., advisory fees), (9)
control all disbursements from the Fund and authorize such
disbursements upon written instructions, (10) calculate
capital gains and losses, (11) determine the Fund's net
income, (12) obtain security market quotes from services
approved by RSMC, or if such quotes are unavailable, then
obtain such prices from RSMC, and in either case calculate the
market value of the Fund's investments, (13) transmit or mail
a copy of the portfolio valuation to RSMC, (14) compute the
net asset value of the Fund, (15) compute the Fund's yields,
total return, expense ratios and portfolio turnover rate, and
(16) monitor the expense accruals and notify Fund management
of any proposed adjustments; (b) prepare monthly financial
statements which include the Schedule of Investments, the
Statement of Assets and Liabilities, the Statement of
Operations, the Statement of Changes in Net Assets, the Cash
Statement and the Schedule of Capital Gains and Losses; (c)
prepare monthly security transactions listings; (d) prepare
quarterly broker security transactions summaries; (e) supply
various Fund statistical data as requested on
<PAGE>
an ongoing
basis; (f) assist in the preparation of support schedules
necessary for completion of the Fund's Federal and state tax
returns; (g) assist in the preparation and filing of the
Fund's semiannual reports with the SEC on Form N-SAR; (h)
assist in the preparation and filing of the Fund's annual and
semiannual shareholder reports and proxy statements; (i)
assist with the preparation of registration statements on Form
N-1A and other filings relating to the registration of shares
of the Fund; (j) monitor the Fund's status as a RIC under
Subchapter M of the Code; and (k) act as liaison with the
Fund's independent public accountants and provide account
analyses, fiscal year summaries and other audit related
schedules. Additionally, RSMC agrees to keep, in accordance
with all applicable laws, rules and regulations, all books and
records with respect to the Fund's books of account and
records of the Fund's securities transactions.
The Accounting Services Agreement provides that RSMC
shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith or gross negligence
on the part of RSMC in the performance of its obligations and
duties under the Accounting Services Agreement or reckless
disregard by RSMC of such duties and obligation.
The Accounting Services Agreement became effective on
October 1, 1989, and continues in effect from year to year
thereafter so long as its continuance is approved at least
annually by a majority of the Trustees, including a majority
of the Independent Trustees. The Agreement is terminable by
the Fund or RSMC on three (3) months' written notice.
DISTRIBUTION AGREEMENT AND RULE 12b-1 PLAN
RSD serves as Distributor of the Fund's shares pursuant
to a Distribution Agreement with the Fund. Pursuant to the
terms of the Distribution Agreement, RSD is granted the right
to sell the shares of the Fund as the Fund's agent. Shares of
the Fund are offered continuously.
Under the terms of the Distribution Agreement, RSD agrees
to use all reasonable efforts to secure purchasers for shares
of the Fund and to pay expenses of printing and distributing
prospectuses, statements of additional information and reports
prepared for use in connection with the sale of Fund shares
and any other literature and advertising used in connection
with the offering, subject to reimbursement pursuant to the
Fund's Plan of Distribution adopted pursuant to Rule 12b-1
under the 1940 Act (the "12b-1 Plan").
The Distribution Agreement provides that RSD, in the
absence of willful misfeasance, bad faith or gross negligence
in the performance of its duties or by reason of reckless
disregard of its obligations and duties under the Agreement,
will not be liable to the Fund or its shareholders for losses
arising in connection with the sale of Fund shares.
The Distribution Agreement became effective as of
December 31, 1992 and continues in effect from year to year as
long as its continuance is approved at least annually by a
majority of the Trustees, including a majority of the
Independent Trustees. The Distribution Agreement terminates
automatically in the event of its assignment. The Agreement
is also terminable without payment of any penalty (i) by the
Fund (by vote of a majority of the Trustees of the Fund who
are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of any Rule
12b-1 Plan of the Fund or any agreements related to the 12b-1
Plan, or by vote of a majority of the outstanding voting
securities of the Fund) on sixty (60) days' written notice to
RSD; or (ii) by RSD on sixty (60) days' written notice to the
Fund.
RSD may be reimbursed for distribution expenses according
to a 12b-1 Plan which the Board of Trustees adopted and became
effective January 1, 1993. The 12b-1 Plan provides that RSD
may be reimbursed for distribution activities encompassed by
Rule 12b-1, such as public relations services, telephone
services, sales presentations, media charges, preparation,
printing and mailing advertising and sales literature, data
processing necessary to support a distribution effort,
printing and mailing of prospectuses, and distribution and
shareholder servicing activities of certain financial
institutions such as banks or broker-dealers who have entered
<PAGE>
into servicing agreements with RSD ("Service Organizations")
and other financial institutions, including fairly allocable
internal expenses of RSD and payments to third parties.
The 12b-1 Plan further provides that reimbursement shall
be made for any month only to the extent that such payment
does not exceed (i) 0.20% on an annualized basis of the Fund's
average net assets; and (ii) limitations set from time to time
by the Board of Trustees. The Board of Trustees has only
authorized implementation of the 12b-1 Plan for annual
payments of up to 0.20% of the Fund's average net assets to
reimburse RSD for making payments to certain Service
Organizations who have sold Fund shares and for other
distribution expenses. For the fiscal year ended September
30, 1997, payments made pursuant to the 12b-1 Plan amounted to
$18,364, consisting of $17,131, for trail commissions and,
$1233 for the preparation and distribution of marketing
materials.
Under the 12b-1 Plan, if any payments made by RSMC out of
its management fee, not to exceed the amount of that fee, to
any third parties (including banks), including payments for
shareholder servicing and transfer agent functions, were
deemed to be indirect financing by the Fund of the
distribution of its shares, such payments are authorized. The
Fund may execute portfolio transactions with and purchase
securities issued by depository institutions that receive
payments under the 12b-1 Plan. No preference for instruments
issued by such depository institutions is shown in the
selection of investments.
PORTFOLIO TRANSACTIONS
All portfolio transactions are placed on behalf of the
Fund by RSMC pursuant to authority contained in the Management
Agreement. Debt securities purchased and sold by the Fund are
generally traded on the dealer market on a net basis (i.e.,
without commission) through dealers acting for their own
account and not as brokers, or otherwise involve transactions
directly with the issuer of the instrument. This means that a
dealer (the securities firm or bank dealing with the Fund)
makes a market for securities by offering to buy at one price
and sell at a slightly higher price. The difference between
the prices is known as a spread. When securities are
purchased in underwritten offerings, they include a fixed
amount of compensation to the underwriter.
The primary objective of RSMC in placing orders on behalf
of the Fund for the purchase and sale of securities is to
obtain best execution at the most favorable prices through
responsible brokers or dealers and, where the spreads or
commission rates are negotiable, at competitive rates. In
selecting a broker or dealer, RSMC considers among other
things: (i) the price of the securities to be purchased or
sold; (ii) the rate of the spread or commission; (iii) the
size and difficulty of the order; (iv) the nature and
character of the spread or commission for the securities to be
purchased or sold; (v) the reliability, integrity, financial
condition, general execution and operational capability of the
broker or dealer; and (vi) the quality of any services
provided by the broker or dealer to the Fund or to RSMC.
RSMC cannot readily determine the extent to which spreads
or commission rates or net prices charged by brokers or
dealers reflect the value of their research, analysis, advice
and similar services. In such cases, RSMC receives services
it otherwise might have had to perform itself. The research,
analysis, advice and similar services provided by brokers or
dealers can be useful to RSMC in serving its other clients, as
well as in serving the Fund. Conversely, information provided
to RSMC by brokers or dealers who have executed transaction
orders on behalf of other RSMC clients may be useful to RSMC
in providing services to the Fund. During the fiscal years
ended September 30, 1997, 1996 and 1995, the Fund paid no
brokerage commissions.
Some of RSMC's other clients have investment objectives
and programs similar to that of the Fund. Occasionally, RSMC
may make recommendations to other clients which result in
their purchasing or selling securities simultaneously with the
Fund. Consequently, the demand for securities being purchased
or the supply of securities being sold may increase, and this
could have an adverse effect on the price of those securities.
It is RSMC's policy not to favor one client over another in
making recommendations or in placing orders. In the event of
a simultaneous transaction, purchases or sales are averaged as
to price, transaction costs are allocated between the
Portfolio and RSMC's other clients participating in the
transaction on a pro-rata basis and purchases and sales
<PAGE>
are
normally allocated between the Fund and RSMC's other clients
as to amount according to a formula determined prior to the
execution of such transactions.
REDEMPTIONS
To ensure proper authorization before redeeming shares of
the Fund, the Transfer Agent, RSMC, may require additional
documents such as, but not restricted to, stock powers, trust
instruments, death certificates, appointments as fiduciary,
certificates of corporate authority and tax waivers required
in some states when settling estates.
Clients of WTC who have purchased shares through their
trust accounts at WTC and clients of Service Organizations who
have purchased shares through their accounts with those
Service Organizations should contact WTC or the Service
Organization prior to submitting a redemption request to
ensure that all necessary documents accompany the request.
When shares are held in the name of a corporation, other
organization, trust, fiduciary or other institutional
investor, RSMC requires, in addition to the stock power,
certified evidence of authority to sign the necessary
instruments of transfer. These procedures are for the
protection of shareholders and should be followed to ensure
prompt payment. Redemption requests must not be conditional
as to date or price of the redemption. Proceeds of a
redemption will be sent within 7 days of acceptance of shares
tendered for redemption. Delay may result if the purchase
check has not yet cleared, but the delay will be no longer
than required to verify that the purchase check has cleared,
and the Fund will act as quickly as possible to minimize
delay.
A shareholder's right to redeem shares and to receive
payment therefor may be suspended when (a) the New York Stock
Exchange (the "Exchange") is closed, other than customary
weekend and holiday closings, (b) trading on the Exchange is
restricted, (c) an emergency exists as a result of which it is
not reasonably practicable to dispose of the Fund's securities
or to determine the value of the Fund's net assets, or (d)
ordered by a governmental body having jurisdiction over the
Fund for the protection of the Fund's shareholders, provided
that applicable rules and regulations of the SEC (or any
succeeding governmental authority) shall govern as to whether
a condition described in (b), (c) or (d) exists. In case of
such suspension, shareholders may withdraw their requests for
redemption or may receive payment based on the net asset value
next determined after the suspension is lifted.
The Fund reserves the right, if conditions exist which
make cash payments undesirable, to honor any request for
redemption by making payment in whole or in part with readily
marketable securities chosen by the Fund and valued in the
same way as they would be valued for purposes of computing the
Fund's net asset value. If payment is made in securities, a
shareholder may incur transaction expenses in converting these
securities into cash. The Fund has elected, however, to be
governed by Rule 18f-1 under the 1940 Act, as a result of
which the Fund is obligated to redeem shares solely in cash if
the redemption requests are made by one shareholder account up
to the lesser of $250,000 or 1% of the net assets of the Fund
during any 90-day period. This election is irrevocable unless
the SEC permits its withdrawal.
<PAGE>
NET ASSET VALUE AND DIVIDENDS
NET ASSET VALUE. The Fund's portfolio securities are
valued on the basis of the amortized cost valuation technique.
This involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. The valuation of
the Fund's portfolio instruments based upon their amortized
cost and the accompanying maintenance of the Fund's per share
net asset value of $1.00 is permitted in accordance with Rule
2a-7 under the 1940 Act. Certain conditions imposed by that
Rule are set forth under "Investment Policies." In
connection with the use of the amortized cost valuation
technique, the Fund's Board of Trustees has established
procedures delegating to RSMC the responsibility for
maintaining a constant net asset value per share. Such
procedures include a daily review of the Fund's holdings to
determine whether the Fund's net asset value, calculated based
upon available market quotations, deviates from $1.00 per
share. Should any deviation exceed 1/2 of 1% of $1.00, the
Trustees will promptly consider whether any corrective action
should be initiated to eliminate or reduce material dilution
or other unfair results to shareholders. Such corrective
action may include selling of portfolio instruments prior to
maturity to realize capital gains or losses, shortening
average portfolio maturity, withholding dividends, redeeming
shares in kind and establishing a net asset value per share
based upon available market quotations.
Should the Fund incur or anticipate any unusual expense
or loss or depreciation that would adversely affect its net
asset value per share or income for a particular period, the
Trustees would at that time consider whether to adhere to the
current dividend policy as described in the Prospectus or to
revise it in light of the then prevailing circumstances. For
example, if the Fund's net asset value per share were reduced,
or were anticipated to be reduced, below $1.00, the Trustees
could suspend further dividend payments until net asset value
returned to $1.00 per share. Thus, such expenses or losses or
depreciation could result in investors receiving no dividends
for the period during which they held their shares or in their
receiving upon redemption a price per share lower than that
which they paid.
DIVIDENDS. Dividends are declared on each Business Day
of the Fund (as defined in the Prospectus). The dividend for
such a Business Day immediately preceding a weekend or holiday
normally includes an amount equal to the net income for the
subsequent non Business Days of the Fund on which dividends
are not declared. However, no such dividend includes any
amount of net income earned in a subsequent semiannual
accounting period.
PERFORMANCE INFORMATION
The performance of the Fund may be quoted in terms of its
yield and the total return in advertising and other
promotional materials ("performance advertisements").
Performance data quoted represents past performance and is not
intended to indicate future performance. Performance of the
Fund will vary based on changes in market conditions and the
level of the Fund's expenses. These performance figures are
calculated in the following manner:
A. YIELD is the net annualized yield for a
specified 7 calendar days calculated at simple
interest rates. Yield is calculated by determining
the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having
a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing
the difference by the value of the account at the
beginning of the base period to obtain the base
period return. The yield is annualized by
multiplying the base period return by 365/7. The
yield figure is stated to the nearest hundredth of
one percent.
The Fund's yield for the 7-day period ended
September 30, 1997 was 3.31%.
<PAGE>
B. EFFECTIVE YIELD is the net annualized yield for
a specified 7 calendar days assuming reinvestment of
income or compounding. Effective yield is
calculated by the same method as yield except the
yield figure is compounded by adding 1, raising the
sum to a power equal to 365 divided by 7, and
subtracting 1 from the result, according to the
following formula:
Effective Yield = [(Base Period Return +1) 365/7] - 1.
The Fund's effective yield for the 7-day period
ended September 30, 1997 was 3.35%.
C. TAX-EQUIVALENT YIELD is the net annualized
taxable yield needed to produce a specified tax-
exempt yield at a given tax rate based on a
specified 7-day period assuming a reinvestment of
all dividends paid during such period. Tax-
equivalent yield is calculated by dividing that
portion of the Fund's yield (computed as in the
yield description above) which is tax-exempt by 1
minus a stated income tax rate and adding the
quotient to that portion, if any, of the yield of
the Fund that is not tax-exempt.
The Fund's tax-equivalent yield for the 7-day
period ended September 30, 1997 was 4.60% for the
28% tax bracket, 4.80% for the 31% tax bracket,
5.17% for the 36% tax bracket and 5.48% for the
39.6% tax bracket.
The following table, which is based upon federal
income tax rates in effect on the date of this Statement
of Additional Information, illustrates the yields that
would have to be achieved on taxable investments to
produce a range of hypothetical tax-equivalent yields:
TAX-EQUIVALENT YIELD TABLE
Federal Marginal Tax-Equivalent Yields
Income Tax Bracket Based on Tax-Exempt Yields of:
------------------ ------------------------------
2% 3% 4% 5% 6% 7% 8%
--- --- --- --- --- --- ---
28% 2.8 4.2 5.6 6.9 8.3 9.7 11.1
31% 2.9 4.3 5.8 7.2 8.7 10.1 11.6
36% 3.1 4.7 6.3 7.8 9.4 10.9 12.5
39.6% 3.3 5.0 6.6 8.3 9.9 11.6 13.2
D. AVERAGE ANNUAL TOTAL RETURN is the average
annual compound rate of return for the periods of
one year, five years, ten years and the life of a
Fund, where applicable, all ended on the last day of
a recent calendar quarter. Average annual total
return quotations reflect changes in the price of a
Fund's shares, if any, and assume that all dividends
and capital gains distributions, if any, during the
respective periods were reinvested in Fund shares.
Average annual total return is calculated by finding
the average annual compound rates of return of a
hypothetical investment over such periods, according
to the following formula (average annual total
return is then expressed as a percentage):
T = (ERV/P)1/n - 1
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable
value: ERV is the value, at the end
of the applicable period, of a
hypothetical $1,000 investment made
at the beginning of the applicable
period.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED
SEPTEMBER 30, 1997
One Five Ten
Year Years Years
------ ------- ------
3.09% 2.76% 3.78%
E. CUMULATIVE TOTAL RETURN is the cumulative rate
of return on a hypothetical initial investment of
$1,000 for a specified period. Cumulative total
return quotations reflect the change in the price of
a Fund's shares, if any, and assume that all
dividends and capital gains distributions, if any,
during the period were reinvested in Fund shares.
Cumulative total return is calculated by finding the
cumulative rates of return of a hypothetical
investment over such periods, according to the
following formula (cumulative total return is then
expressed as a percentage):
C = (ERV/P)-1
Where: C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable
value: ERV is the value, at the end
of the applicable period, of a
hypothetical $1,000 investment made
at the beginning of the applicable
period.
CUMULATIVE TOTAL RETURN FOR PERIODS ENDED
SEPTEMBER 30, 1997
One Five Ten
Year Years Years
---- ------ -----
3.09% 14.59% 44.90%
F. TOTAL RETURN is the rate of return on an
investment for a specified period of time calculated
in the manner of Cumulative Total Return.
COMPARISON OF FUND PERFORMANCE. A comparison of the
quoted performance offered for various investments is valid
only if performance is calculated in the same manner. Since
there are many methods of calculating performance, investors
should consider the effects of the methods used to calculate
performance when comparing performance on shares of the Fund
with performance quoted with respect to other investment
companies or types of investments. For example, it is useful
to note that yields reported on debt instruments are generally
prospective, contrasted with the historical yields reported by
the Fund.
<PAGE>
In connection with communicating its performance to
current or prospective shareholders, the Fund also may compare
these figures to the performance of other mutual funds tracked
by mutual fund rating services or to other unmanaged indexes
which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management
costs.
From time to time, in marketing and other literature, the
Fund's performance may be compared to the performance of broad
groups of comparable mutual funds or unmanaged indexes of
comparable securities such as the IBC Stockbroker and General
Purpose Funds. The Fund's yield and performance over time may
also be compared to the performance of bank money market
deposit accounts and fixed-rate insured certificates of
deposit (CD's), or unmanaged indices of securities that are
comparable to money market funds in their terms and intent,
such as Treasury bills, bankers' acceptances, negotiable order
of withdrawal accounts, and money market certificates. Most
bank CD's differ from money market funds in several ways: the
interest rate is fixed for the term of the CD, there are
interest penalties for early withdrawal of the deposit from a
CD, and the deposit principal in a CD is insured by the FDIC.
Since the assets in all funds are always changing, the
Fund may be ranked within one asset-size class at one time and
in another asset-size class at some other time. In addition,
the independent organization chosen to rank the Fund in
marketing and promotional literature may change from time to
time depending upon the basis of the independent
organization's categorizations of mutual funds, changes in the
Fund's investment policies and investments, the Fund's asset
size and other factors deemed relevant. Advertisements and
other marketing literature will include the time period and
Lipper Analytical Services, Inc. asset-size class or other
performance ranking company criteria, as applicable, for the
ranking in question.
Evaluations of Fund performance made by independent
sources may also be used in advertisements concerning the
Fund, including reprints of, or selections from, editorials or
articles about the Fund. Sources for performance information
and articles about the Fund may include the following:
BARRON'S, a Dow Jones and Company, Inc. business and financial
weekly that periodically reviews mutual fund performance data.
CDA INVESTMENT TECHNOLOGIES, INC., an organization which
provides performance and ranking information through examining
the dollar results of hypothetical mutual fund investments and
comparing these results against appropriate market indices.
CHANGING TIMES, THE KIPLINGER MAGAZINE, a monthly investment
advisory publication that periodically features the
performance of a variety of securities.
CONSUMER DIGEST, a monthly business/financial magazine that
includes a "Money Watch" section featuring financial news.
FINANCIAL WORLD, a general business/financial magazine that
includes a "Market Watch" department reporting on activities
in the mutual fund industry.
FORBES, a national business publication that from time to time
reports the performance of specific investment companies in
the mutual fund industry.
FORTUNE, a national business publication that periodically
rates the performance of a variety of mutual funds.
IBC'S MONEY FUND REPORT, a weekly publication of IBC/Donoghue,
Inc., of Ashland, Massachusetts, reporting on the performance
of the nation's money market funds, summarizing money market
fund activity, and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and
"IBC's Government Money Fund Average."
<PAGE>
IBC'S MONEY FUND DIRECTORY, an annual directory ranking money
market mutual funds.
INVESTMENT COMPANY DATA, INC., an independent organization
which provides performance ranking information for broad
classes of mutual funds.
INVESTOR'S DAILY, a daily newspaper that features financial,
economic, and business news.
LIPPER ANALYTICAL SERVICES, INC.'S MUTUAL FUND PERFORMANCE
ANALYSIS, a weekly publication of industry-wide mutual fund
averages by type of fund.
MONEY, a monthly magazine that from time to time features both
specific funds and the mutual fund industry as a whole.
MUTUAL FUND VALUES, a biweekly Morningstar, Inc. publication
that provides ratings of mutual funds based on fund
performance, risk and portfolio characteristics.
THE NEW YORK TIMES, a nationally distributed newspaper which
regularly covers financial news.
PERSONAL INVESTING NEWS, a monthly news publication that often
reports on investment opportunities and market conditions.
PERSONAL INVESTOR, a monthly investment advisory publication
that includes a "Mutual Funds Outlook" section reporting on
mutual fund performance measures, yields, indices and
portfolio holdings.
SUCCESS, a monthly magazine targeted to the world of
entrepreneurs and growing business, often featuring mutual
fund performance data.
USA TODAY, the nation's number one daily newspaper.
U.S. NEWS AND WORLD REPORT, a national business weekly that
periodically reports mutual fund performance data.
WALL STREET JOURNAL, a Dow Jones and Company, Inc. newspaper
which regularly covers financial news.
WIESENBERGER INVESTMENT COMPANIES SERVICES, an annual
compendium of information about mutual funds and other
investment companies, including comparative data on funds'
backgrounds, management policies, salient features, management
results, income and dividend records, and price ranges.
TAXES
In order to continue to qualify for treatment as a RIC
under the Code, the Fund must distribute annually to its
shareholders at least 90% of the sum of its net interest
income excludable from gross income under section 103(a) of
the Code plus its investment company taxable income
(generally, taxable net investment income plus net short-term
capital gain, if any) and must meet several additional
requirements. Among these requirements are the following: (a)
at least 90% of the Fund's gross income each taxable year must
be derived from dividends, interest and gains from the sale or
other disposition of securities, or other income derived with
respect to its business of investing in securities; (b)at the
close of each quarter of the Fund's taxable year, at least 50%
of the value of its total assets must be represented by
cash and cash items, U.S. Government Securities and other
securities, with those other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets; and (c) at the close
of each quarter of the Fund's taxable year, not more than 25%
of the value of its total assets may be invested in securities
(other than U.S. Government Securities) of any one issuer.
<PAGE>
Dividends paid by the Fund will qualify as "exempt-
interest dividends" (as defined in the Prospectus), and thus
will be excludable from gross income by its shareholders, if
the Fund satisfies the additional requirement that, at the
close of each quarter of its taxable year, at least 50% of the
value of its total assets consists of securities the interest
on which is excludable from gross income under section 103(a)
of the Code; the Fund intends to continue to satisfy this
requirement. The portion of each dividend excludable from the
shareholders' gross income may not exceed the Fund's net tax-
exempt income. The treatment of dividends from the Fund under
state and local income tax laws may differ from the treatment
thereof under the Code.
Tax-exempt interest attributable to certain "private
activity bonds" ("PAB's") (including, in the case of a RIC
receiving interest on those bonds, a proportionate part of the
exempt-interest dividends paid by the RIC) is a preference
item for purposes of the federal alternative minimum tax.
Furthermore, even interest on tax-exempt securities held by
the Fund that are not PAB's, which interest otherwise would be
a tax preference item, nevertheless may be indirectly subject
to the alternative minimum tax in the hands of corporate
shareholders when distributed to them by the Fund. PAB's are
issued by or on behalf of public authorities to finance
various privately operated facilities and are described in the
Appendix to the Prospectus. Entities or persons who are
"substantial users" (or persons related to "substantial
users") of facilities financed by industrial development bonds
or PAB's should consult their tax advisers before purchasing
Fund shares. For these purposes, the term "substantial user"
is defined generally to include a "non-exempt person" who
regularly uses in trade or business a part of a facility
financed from the proceeds of such bonds.
Up to 85% of social security and railroad retirement
benefits may be included in taxable income for recipients
whose adjusted gross income (including income from tax-exempt
sources such as the Fund) plus 50% of their benefits exceeds
certain base amounts. Exempt-interest dividends from the Fund
still are tax-exempt to the extent described in the
Prospectus; they are only included in the calculation of
whether a recipient's income exceeds the established amounts.
If the Fund invests in any instruments that generate
taxable income, under the circumstances described in the
Prospectus, distributions of the interest earned thereon will
be taxable to the Fund's shareholders as ordinary income to
the extent of the Fund's earnings and profits. Moreover, if
the Fund realizes capital gain as a result of market
transactions, any distributions of such gain will be taxable
to its shareholders.
The Fund will be subject to a nondeductible 4% excise tax
to the extent it fails to distribute by the end of any
calendar year substantially all of its ordinary (taxable)
income for that year and capital gain net income for the one-
year period ending October 31 of that year, plus certain other
amounts.
Shortly after the end of each year, RSMC determines the
federal income tax status of all distributions made during the
year. Shareholders may be subject to state and local taxes on
distributions from the Fund. Shareholders should consult their
tax advisers regarding specific questions relating to federal,
state and local taxes.
DESCRIPTION OF THE FUND
The Fund is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances,
be held personally liable for the obligations of the trust.
The Fund's Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of
the Fund and requires that notice of such disclaimer be given
in each note, bond, contract or other undertaking relating to
the Fund that is issued by or on behalf of the Fund or the
Trustees. The Declaration of Trust provides for
indemnification out of the assets of the Fund of any
shareholder held personally liable solely by virtue of
ownership of shares of the Fund. The Declaration of Trust
also provides that the Fund shall, upon request, assume the
defense of any claim made against any shareholder for any act
or obligation of the Fund and satisfy any judgment thereon.
Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its
obligations. RSMC believes that, in view of the above, the
risk of personal liability to shareholders is remote.
<PAGE>
The Fund's Declaration of Trust further provides that the
Trustees will not be liable for errors of judgment or mistakes
of fact or law, but nothing in the Declaration of Trust
protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
The Declaration of Trust provides that the Fund will
continue indefinitely unless a majority of the shareholders of
the Fund approve: (a) the sale of the Fund's assets to another
diversified open-end management investment company; or (b) the
liquidation of the Fund. In the event of the liquidation of
the Fund, affected shareholders are entitled to receive the
assets of the Fund that are available for distribution.
OTHER INFORMATION
INDEPENDENT AUDITORS. Ernst & Young LLP, Suite 4000,
2001 Market Street, Philadelphia, PA 19103, serves as the
Fund's Independent Auditors, providing services which include
(1) audit of the annual financial statements, (2) assistance
and consultation in connection with SEC filings and (3)
preparation of the annual federal income tax return filed on
behalf of the Fund.
The financial statements and financial highlights of the
Fund, appearing or incorporated by reference in the Fund's
Prospectus, this Statement of Additional Information and
Registration Statement, have been audited by Ernst & Young
LLP, Independent Auditors, to the extent indicated in their
reports thereon also appearing elsewhere herein and in the
Registration Statement or incorporated by reference. Such
financial statements have been included herein or incorporated
herein by reference in reliance upon such reports given upon
the authority of such firm as experts in accounting and
auditing.
SUBSTANTIAL SHAREHOLDERS. As of October 31, 1996, no
shareholder other than WTC owned of record or beneficially
more than 5% of the outstanding shares of the Fund. As of
that date, WTC owned of record, on behalf of its customer
accounts 87% of the shares of the Fund.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800
Massachusetts Avenue, N.W., Washington, D.C. 20036, serves as
counsel to the Fund and has passed upon the legality of the
shares offered by the Prospectus and this Statement of
Additional Information.
CUSTODIAN. Wilmington Trust Company, Rodney Square
North, 1100 N. Market Street, Wilmington, DE 19890-0001,
serves as the Fund's Custodian.
TRANSFER AGENT. Rodney Square Management Corporation,
Rodney Square North, 1100 N. Market Street, Wilmington, DE
19890-0001, serves as the Fund's Transfer Agent and Dividend
Paying Agent.
FINANCIAL STATEMENTS
The Schedule of Investments as of September 30, 1997; the
Statement of Assets and Liabilities as of September 30, 1997;
the Statement of Operations for the fiscal year ended
September 30, 1997; the Statements of Changes in Net Assets
for the fiscal years ended September 30, 1997 and 1996; the
Financial Highlights for the fiscal years ended September 30,
1993 through September 30, 1997; and the Notes to Financial
Statements and the Report of Independent Auditors, each of
which is included in the Annual Report to the shareholders of
the Fund as of and for the fiscal year ended September 30,
1997 are attached hereto.
<PAGE>
THE RODNEY SQUARE FUND/ U.S. GOVERNMENT PORTFOLIO
- -------------------------------------------------
INVESTMENTS / SEPTEMBER 30, 1997
(Showing Percentage of Total Value of Net Assets)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 56.2% FEDERAL FARM CREDIT BANKS DISCOUNT
NOTES - 13.8%
<S> <C> <C>
Federal Farm Credit Banks Notes, 5.40%, 10/10/97.. $ 10,000,000 $ 9,986,500
Federal Farm Credit Banks Notes, 5.48%, 11/03/97.. 15,000,000 14,924,696
Federal Farm Credit Banks Notes, 5.35%, 01/09/98.. 10,000,000 9,851,389
Federal Farm Credit Banks Notes, 5.42%, 01/27/98.. 6,000,000 5,893,407
Federal Farm Credit Banks Notes, 5.37%, 05/18/98.. 12,000,000 11,590,090
------------
52,246,082
------------
FEDERAL FARM CREDIT BANKS NOTES - 6.6%
Federal Farm Credit Banks Notes, 5.85%, 10/01/97.. 5,000,000 5,000,000
Federal Farm Credit Banks Notes, 5.46%, 10/01/97*. 8,000,000 8,000,000
Federal Farm Credit Banks Notes, 7.51%, 02/13/98.. 5,000,000 5,030,938
Federal Farm Credit Banks Notes, 5.40%, 03/06/98.. 7,000,000 6,993,168
------------
25,024,106
------------
FEDERAL HOME LOAN BANKS DISCOUNT NOTES - 22.7%
Federal Home Loan Banks Notes, 5.41%, 10/10/97... 6,500,000 6,491,209
Federal Home Loan Banks Notes, 5.30%, 10/10/97... 7,000,000 6,990,725
Federal Home Loan Banks Notes, 5.41%, 10/14/97... 7,445,000 7,430,442
Federal Home Loan Banks Notes, 5.61%, 10/15/97... 7,000,000 6,984,728
Federal Home Loan Banks Notes, 5.42%, 10/30/97... 5,385,000 5,361,488
Federal Home Loan Banks Notes, 5.43%, 11/07/97... 20,000,000 19,888,383
Federal Home Loan Banks Notes, 5.47%, 12/03/97... 5,000,000 4,952,138
Federal Home Loan Banks Notes, 5.42%, 12/10/97... 6,050,000 5,986,240
Federal Home Loan Banks Notes, 5.39%, 01/14/98... 5,000,000 4,921,396
Federal Home Loan Banks Notes, 5.39%, 01/16/98... 6,141,000 6,042,619
Federal Home Loan Banks Notes, 5.41%, 02/04/98... 6,000,000 5,886,390
Federal Home Loan Banks Notes, 5.45%, 03/11/98... 5,000,000 4,878,132
-----------
85,813,890
-----------
FEDERAL HOME LOAN BANKS NOTES - 9.2%
Federal Home Loan Banks Notes, 5.70%, 10/16/97... 10,000,000 9,998,848
Federal Home Loan Banks Notes, 5.71%, 01/21/98... 5,000,000 5,001,767
Federal Home Loan Banks Notes, 5.67%, 03/10/98... 5,000,000 5,001,810
Federal Home Loan Banks Notes, 6.12%, 04/17/98... 5,000,000 4,999,575
Federal Home Loan Banks Notes, 5.76%, 09/25/98... 5,000,000 5,000,250
Federal Home Loan Banks Notes, 5.69%, 10/02/98... 5,000,000 4,996,450
-----------
34,998,700
-----------
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE FUND/ U.S. GOVERNMENT PORTFOLIO
- -------------------------------------------------
INVESTMENTS - CONTINUED
- -------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
TENNESSEE VALLEY AUTHORITY DISCOUNT NOTES - 3.9%
Tennessee Valley Authority Notes, 5.40%, 11/17/97 $ 5,000,000 $ 4,964,750
Tennessee Valley Authority Notes, 5.37%, 12/29/97 10,000,000 9,867,242
-----------
14,831,992
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $212,914,770).............................. 212,914,770
-----------
REPURCHASE AGREEMENTS - 45.4%
With Dean Witter Reynolds, Inc.: at 6.30%,
dated 09/30/97, to be repurchased at $80,014,000
on 10/01/97, collaterized by $81,600,040 of various
U.S. Government Agency Obligation Securities with
various coupons and maturities to 09/01/27 ........ 80,000,000 80,000,000
With UBS Securities: at 6.30%, dated 09/30/97, to be
repurchased at $91,689,243 on 10/01/97,
collateralized by $93,508,509 Federal National
Mortgage Association Securities with various coupons
and maturities to 03/01/33......................... 91,673,200 91,673,200
------------
TOTAL REPURCHASE AGREEMENTS (COST $171,673,200)............... 171,673,200
------------
TOTAL INVESTMENTS (COST $384,587,970)+ - 101.6%................... 384,587,970
OTHER ASSETS AND LIABILITIES, NET - (1.6)%........................ (6,113,469)
------------
NET ASSETS - 100.0%............................................... $378,474,501
============
<FOOTNOTE>
* Denotes a Variable or Floating Rate Note. Variable and Floating Rate Notes
are instruments whose rates change periodically. The rates shown are the
interest rates as of September 30 1997.
+ Cost for federal income tax purposes.
</FOOTNOTE>
</TABLE>
<PAGE>
THE RODNEY SQUARE FUND / MONEY MARKET PORTFOLIO
- -----------------------------------------------
INVESTMENTS / SEPTEMBER 30, 1997
(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 - 19.8%
FOREIGN BANKS, FOREIGN CENTERS - 4.3%
Bayerische Vereinsbank, 5.73%, 12/22/97.......................... P-1/A-1+ $ 25,000,000 $ 24,989,681
Bayerische Vereinsbank, 5.75%, 03/16/98.......................... P-1/A-1+ 10,000,000 10,000,448
Societe Generale, London Branch, 5.73%, 02/17/98................. P-1/A-1+ 16,000,000 16,001,800
-------------
50,991,929
-------------
U.S. BANKS, U.S. BRANCHES - 0.4%
Morgan Guaranty, New York Branch, 5.87%, 08/06/98................ P-1/A-1+ 5,000,000 4,998,785
-------------
FOREIGN BANKS, U.S. BRANCHES - 15.1%
ABN-AmRo Bank, 5.60%, 12/16/97................................... P-1/A-1+ 10,000,000 9,998,959
Banque Nationale de Paris, 5.55%, 10/08/97....................... P-1/A-1 20,000,000 20,000,000
Banque Nationale de Paris, 5.58%, 12/22/97....................... P-1/A-1 35,000,000 35,000,000
Canadian Imperial Bank of Commerce, 5.88%, 01/14/98.............. P-1/A-1+ 26,000,000 26,000,000
Credit Agricole, 5.75%, 02/13/98................................. P-1/A-1+ 25,000,000 25,000,000
Deutsche Bank, 5.91%, 09/14/98................................... P-1/A-1+ 15,000,000 14,990,433
Royal Bank of Canada, 5.78%, 12/11/97............................ P-1/A-1+ 5,000,000 5,000,812
Royal Bank of Canada, 5.95%, 03/24/98............................ P-1/A-1+ 10,000,000 9,994,991
Societe Generale, 5.57%, 11/19/97................................ P-1/A-1+ 10,000,000 10,000,000
Societe Generale, 6.20%, 05/12/98................................ P-1/A-1+ 10,000,000 9,998,252
Societe Generale, 5.77%, 09/08/98*............................... P-1/A-1+ 14,000,000 13,992,549
-------------
179,975,996
-------------
TOTAL CERTIFICATES OF DEPOSIT (COST $235,966,710)............................................. 235,966,710
-------------
COMMERCIAL PAPER - 52.5%
AGRICULTURE - 2.9%
Louis Dreyfus Corp., Ser. B, 5.54%, 10/10/97..................... P-1/A-1+ 10,000,000 9,986,150
Louis Dreyfus Corp., Ser. B, 5.53%, 10/15/97..................... P-1/A-1+ 25,000,000 24,946,236
-------------
34,932,386
-------------
AUTOMOBILES - 5.5%
Daimler-Benz North America Corp., 5.51%, 10/06/97................ P-1/A-1 5,000,000 4,996,174
Daimler-Benz North America Corp., 5.55%, 01/12/98................ P-1/A-1 20,000,000 19,682,417
Daimler-Benz North America Corp., 5.53%, 03/20/98................ P-1/A-1 15,000,000 14,608,292
Volkswagen of America, Inc., 5.54%, 10/17/97..................... P-1/A-1 15,000,000 14,963,067
Volkswagen of America, Inc., 5.53%, 10/24/97..................... P-1/A-1 11,200,000 11,160,430
-------------
65,410,380
-------------
BANKS - 2.9%
Abbey National North America, 5.51%, 03/16/98.................... P-1/A-1+ 15,000,000 14,618,892
UBS Finance, 5.52%, 10/16/97..................................... P-1/A-1+ 20,000,000 19,954,000
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE> 34,572,892
-------------
THE RODNEY SQUARE FUND / MONEY MARKET PORTFOLIO
-----------------------------------------------
INVESTMENTS - CONTINUED
------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- ---------
CHEMICALS - 8.8%
Akzo Nobel America, Inc., 5.60%, 10/21/97........................ P-1/A-1 $ 10,000,000 $ 9,968,889
Akzo Nobel America, Inc., 5.54%, 11/06/97........................ P-1/A-1 5,000,000 4,972,300
Akzo Nobel America, Inc., 5.51%, 11/18/97........................ P-1/A-1 15,000,000 14,889,800
Akzo Nobel America, Inc., 5.53%, 12/11/97........................ P-1/A-1 10,000,000 9,890,936
Akzo Nobel America, Inc., 5.54%, 01/22/98........................ P-1/A-1 10,000,000 9,826,106
E.I. DuPont de Nemours & Co., 5.63%, 12/02/97.................... P-1/A-1+ 25,000,000 24,757,597
Formosa Plastics Corp. USA, 5.53%, 10/07/97...................... P-1/A-1+ 30,000,000 29,972,350
-------------
104,277,978
-------------
FINANCIAL SERVICES - 7.7%
General Electric Cap. Corp., 5.57%, 12/05/97..................... P-1/A-1+ 25,000,000 24,748,576
General Electric Cap. Corp., 5.57%, 01/09/98..................... P-1/A-1+ 12,000,000 11,814,333
Morgan Stanley Dean Witter Discover Co., 5.55%, 10/07/97......... P-1/A-1 40,000,000 39,963,267
Morgan Stanley Dean Witter Discover Co., 5.52%, 10/14/97......... P-1/A-1 15,000,000 14,970,100
-------------
91,496,276
-------------
INTERNATIONAL TRADING - 0.4%
Daewoo International America Corp., 5.55%, 02/26/98.............. P-1/A-1+ 5,000,000 4,885,917
-------------
LEASING - 8.1%
International Lease Finance Corp., 5.51%, 11/14/97............... P-1/A-1 36,000,000 35,757,560
International Lease Finance Corp., 5.50%, 12/03/97............... P-1/A-1 10,000,000 9,903,750
Vehicle Services Corp. of America Ltd., 5.54%, 11/04/97.......... P-1/A-1+ 2,500,000 2,486,919
Vehicle Services Corp. of America Ltd., 5.54%, 11/18/97.......... P-1/A-1+ 48,000,000 47,645,440
-------------
95,793,669
-------------
MARKETING - 1.0%
Omnicom Finance, Inc., 5.53%, 10/16/97........................... P-1/A-1+ 12,000,000 11,972,350
-------------
MEDICAL & MEDICAL SERVICES - 0.7%
Medical Building Funding VII, L.L.C., 5.85%, 12/04/97............ NR/A-1 8,300,000 8,213,680
-------------
PHARMACEUTICALS PREPARATIONS - 3.3%
Zeneca Wilmington, Inc., 5.50%, 11/14/97......................... P-1/A-1+ 40,000,000 39,730,927
-------------
SECURITIES DEALERS - 11.2%
Credit Suisse First Boston, Inc., 5.80%, 10/20/97................ P-1/A-1+ 10,838,000 10,804,824
Credit Suisse First Boston, Inc., 5.52%, 12/10/97................ P-1/A-1+ 24,000,000 23,742,400
Goldman Sachs Group LP, 5.51%, 10/09/97.......................... P-1/A-1+ 15,000,000 14,981,633
Goldman Sachs Group LP, 5.53%, 11/12/97.......................... P-1/A-1+ 25,000,000 24,838,708
Goldman Sachs Group LP, 5.51%, 11/18/97.......................... P-1/A-1+ 10,000,000 9,926,533
Merrill Lynch & Co., Inc., 5.52%, 11/13/97....................... P-1/A-1+ 20,000,000 19,868,134
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE FUND / MONEY MARKET PORTFOLIO
- -----------------------------------------------
INVESTMENTS - CONTINUED
- ------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- ---------
Merrill Lynch & Co., Inc., 5.58%, 01/06/98....................... P-1/A-1+ $ 30,000,000 $ 29,549,085
-------------
133,711,317
-------------
TOTAL COMMERCIAL PAPER (COST $624,997,772).................................................... 624,997,772
-------------
CORPORATE NOTES - 9.4%
BANKS - 6.7%
Bank of America, NT & SA, 5.52%, 11/21/97........................ P-1/A-1+ 20,000,000 19,998,368
Bank One Columbus, 5.52%, 06/10/98*.............................. P-1/A-1+ 25,000,000 24,988,943
Morgan Guaranty Trust Co., 6.02%, 03/25/98....................... P-1/A-1+ 10,000,000 9,996,430
Royal Bank of Canada, 5.49%, 06/09/98*........................... P-1/A-1+ 25,000,000 24,987,546
-------------
79,971,287
-------------
FINANCIAL - 0.2%
General Electric Cap. Corp., 5.05%, 02/09/98..................... Aaa/AAA 3,000,000 2,992,152
-------------
CHEMICALS - 1.2%
E.I. DuPont de Nemours & Co. Discount Note, 5.48%, 07/28/98...... P-1/A-1+ 15,000,000 14,315,000
-------------
SECURITY & COMMODITY BROKERS, DEALERS - 1.3%
Credit Suisse First Boston, Inc., 5.93%, 03/17/98................ P-1/A-1+ 5,000,000 5,000,000
Credit Suisse First Boston, Inc., 6.15%, 06/02/98................ P-1/A-1+ 10,000,000 10,018,912
-------------
15,018,912
-------------
TOTAL CORPORATE NOTES (COST $112,297,351)....................................................... 112,297,351
-------------
TAXABLE MUNICIPAL SECURITIES - 5.4%
CALIFORNIA - 3.7%
Oakland-Alameda County Coliseum Auth., 5.64%, 12/02/97........... VMIG1/A-1+ 7,500,000 7,500,000
Oakland-Alameda County Coliseum Auth., Ser. 1996 A-2, 5.65%,
10/09/97...................................................... VMIG1/A-1+ 10,000,000 10,000,000
Oakland-Alameda County Coliseum Auth., Ser. 1996 A-2, 5.66%,
10/14/97....................................................... VMIG1/A-1+ 20,600,000 20,600,000
Oakland-Alameda County Coliseum Auth., Ser. 1996 A-2, 5.63%,
11/17/97....................................................... VMIG1/A-1+ 6,500,000 6,500,000
-------------
44,600,000
-------------
ILLINOIS - 1.7%
Illinois Student Assistance Commission Tax., Ser. B, 5.56%,
09/01/31*...................................................... VMIG1/NR 16,000,000 16,000,000
Waukesha Health Systems, Inc. Tax. Rev. Bonds, Ser. 1996,
5.65%, 08/15/26*............................................... VMIG1/A-1+ 3,750,000 3,750,000
-------------
19,750,000
-------------
TOTAL TAXABLE MUNICIPAL SECURITIES (COST $64,350,000)......................................... 64,350,000
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE FUND / MONEY MARKET PORTFOLIO
- -----------------------------------------------
INVESTMENTS - CONTINUED
- ------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- ---------
TIME DEPOSITS - 8.4%
Credit Commercial de France, Grand Cayman Branch, 6.50%,
10/01/97....................................................... P-1/A-1 $ 50,000,000 $ 50,000,000
Republic National Bank of New York, Grand Cayman Branch,
6.50%, 10/01/97................................................ P-1/A-1+ 50,000,000 50,000,000
-------------
TOTAL TIME DEPOSITS (COST $100,000,000)....................................................... 100,000,000
-------------
REPURCHASE AGREEMENT - 4.5%
With UBS Securities, Inc.: at 6.30%, dated 09/30/97, to be
repurchased at $53,148,299 on 10/01/97, collateralized by
$54,204,692 Federal National Mortgage Association security
due 03/01/33(COST $53,139,000) ................................................. 53,139,000 $ 53,139,000
-------------
TOTAL INVESTMENTS (COST $1,190,750,833)+ - 100.0%.................................................. 1,190,750,833
OTHER ASSETS AND LIABILITIES, NET - 0.0% .......................................................... 519,875
-------------
NET ASSETS - 100.0%................................................................................ $1,191,270,708
==============
<FOOTNOTES>
* Denotes a Variable or Floating Rate Note. Variable and Floating Rate Notes
are instruments whose rates change periodically. The rates shown are the
interest rates as of September 30, 1997.
+ Cost for federal income tax purposes.
</FOOTNOTES>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS / SEPTEMBER 30, 1997
(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 - 1.2%
Port City Medical Clinic Brd. of Mobile, AL Rev. Bonds TECP
(Mobile Infirmary Assoc.), Ser. 1992-A, 3.75%, 10/15/97........ VMIG1/A-1+ $ 3,300,000 $ 3,300,000
-------------
CALIFORNIA - 1.1%
State of California 1997-1998 Rev. Ant. Notes, 4.50%, 06/30/98... MIG1/SP-1+ 3,000,000 3,014,072
-------------
DISTRICT OF COLUMBIA - 3.9%
Dist. of Columbia (American Univ.), Ser. 1985, 4.10%, 10/01/15*.. VMIG1/NR 10,000,000 10,000,000
Dist. of Columbia (American Univ.), Ser. 1986A, 4.10%, 12/01/15*. VMIG1/NR 1,000,000 1,000,000
-------------
11,000,000
-------------
FLORIDA - 4.7%
City of Jacksonville, FL Electric Auth. TECP, Ser. D-1, 3.70%,
10/24/97....................................................... P-1/A-1+ 9,100,000 9,100,000
St. Lucie County, FL Poll. Cntrl. Rev. Bonds TECP, (Florida Power
& Light Co. Proj.), Ser. 1994-B, 3.70%, 12/09/97............... VMIG1/A-1+ 4,200,000 4,200,000
-------------
13,300,000
-------------
GEORGIA - 10.0%
Atlanta, GA Downtown Dev. Auth. (CARE Proj.), Ser. 1993,
4.00%, 06/01/13*............................................... VMIG1/NR 2,400,000 2,400,000
Burke County, GA Dev. Auth. Poll. Cntrl. Rev. Bonds TECP
(Ogelthorpe Power Corp. Vogtle Proj.), Ser. 1997A, 3.60%,
12/01/97....................................................... Aaa/AAA 2,600,000 2,600,000
Floyd County, GA Dev. Auth. Environ. Imp. Rev. Bonds (Georgia
Kraft Co. Proj.), 3.90%, 12/01/15*............................. P-1/NR 4,875,000 4,875,000
Fulton County, GA Dev. Auth. Rev. Bonds (Alfred & Adele
Davis Academy, Inc.), 4.00%, 12/01/10*......................... Aa3/NR 2,000,000 2,000,000
Fulton County, GA Dev. Auth. Rev. Bonds (The Arthritis Foundation
Inc. Proj.), 4.00%, 12/01/16*.................................. Aa3/NR 1,000,000 1,000,000
Gwinnett County, GA Dev. Auth. (Wesleyan School, Inc. Proj.),
Ser. 1997, 4.00%, 03/01/17*.................................... Aa3/NR 1,000,000 1,000,000
Municipal Gas Auth. of Georgia Gas Rev. Bonds TECP (Southern
Portfolio 1 Proj.), Ser. D, 3.85%, 10/09/97.................... NR/A-1+ 5,800,000 5,800,000
Smyrna, GA Housing Auth. Multi-Family Housing Rev. Bonds
(Garden Post Village Proj.), 4.10%, 06/01/25*.................. NR/A-1+ 8,500,000 8,500,000
-------------
28,175,000
-------------
IDAHO - 1.9%
Idaho Health Fac. Auth. Rev. Bonds (St. Luke's Regional
Medical Center Proj.), Ser. 1995, 3.85%, 05/01/22*............. VMIG1/NR 5,200,000 5,200,000
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS - CONTINUED
- ------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- ---------
ILLINOIS - 19.6%
Illinois Dev. Fin. Auth. Rev. Bonds (Chicago Symphony Orchestra
Proj.), Ser. 1996, 4.05%, 06/01/31*............................ VMIG1/A-1+ $ 1,800,000 $ 1,800,000
Illinois Dev. Fin. Auth. Poll. Cntrl. Rev. Bonds (Commonwealth
Edison Co. Proj.), Ser. C, 4.15%, 03/01/09*.................... P-1/A-1+ 10,000,000 10,000,000
Illinois Educ. Fac. Auth. Rev. Bonds (Field Museum of Natural
History), Ser. 1985, 4.05%, 11/01/25*.......................... VMIG1/A-1+ 2,400,000 2,400,000
Illinois Educ. Fac. Auth. Rev. Bonds (DePaul Univ. Proj.),
Ser. 1992, 4.05%, 04/01/26*.................................... VMIG1/A-1+ 12,100,000 12,100,000
Illinois Health Fac. Auth. Rev. Bonds TECP (Univ. of Chicago),
3.80%, 12/02/97................................................ VMIG1/A-1+ 12,700,000 12,700,000
Illinois Health Fac. Auth. Rev. Bonds (Healthcorp Affiliates
Central DuPage Hosp. Proj.), Ser. 1990, 3.85%, 11/01/20*....... VMIG1/NR 2,600,000 2,600,000
Illinois Health Fac. Auth. Rev. Bonds (Gottlieb Health Resources,
Inc.), Ser. 1990, 4.05%, 11/15/25*............................. VMIG1/NR 9,000,000 9,000,000
Illinois Health Fac. Auth. Rev Bonds (Park Plaza Center),
4.05%, 09/15/20*............................................... NR/A-1+ 3,350,000 3,350,000
Oak Forest, IL Dev. Rev. Bonds (Homewood Pool - South Suburban
Mayors & Managers Assoc. Program), 4.05%, 07/21/24*............ VMIG1/NR 1,000,000 1,000,000
-------------
54,950,000
-------------
INDIANA - 5.0%
City of Mt. Vernon, IN Poll. Cntrl. Solid Waste Disposal
Rev. Bonds TECP (General Electric Co. Proj.), Ser. 1989-A,
3.75%, 12/19/97................................................ P-1/A-1+ 4,300,000 4,300,000
Indiana Educ. Auth. Rev. Bonds (St. Mary of The Woods College),
4.05%, 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, 4.05%, 12/01/02*....................... VMIG1/NR 1,300,000 1,300,000
Indiana Hosp. Equip. Fin. Auth. Rev. Bonds, Ser. 1985A,
4.05%, 12/01/15*............................................... VMIG1/A-1 3,400,000 3,400,000
The Trustees of Purdue Univ. Student Fee Bonds, Ser. L,
4.05%, 07/01/20*............................................... VMIG1/A-1+ 3,000,000 3,000,000
-------------
14,000,000
-------------
KENTUCKY - 2.8%
Jefferson County, KY Poll. Cntrl. Rev. Bonds TECP (Louisville
Gas & Electric Co.), Ser. 1992 A, 3.80%, 12/16/97.............. VMIG1/A-1+ 8,000,000 8,000,000
-------------
LOUISIANA - 5.8%
Louisiana Public Fac. Auth. Hosp. Rev. Bonds (Willis-Knighton
Medical Center Proj.), Ser. 1993, 4.10%, 09/01/23*............. VMIG1/A-1 5,700,000 5,700,000
Plaquemines Port Harbor and Terminal Marine Terminal Dist.
Fac. Rev. Bonds TECP (Electro-Coal Transfer), Ser. 1985-A,
3.75%, 12/09/97................................................ P-1/A-1+ 10,500,000 10,500,000
-------------
16,200,000
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS - CONTINUED
- ------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- ----------
MARYLAND - 2.4%
Montgomery County, MD TECP, Ser. 1995, 3.80%, 12/08/97........... P-1/A-1+ $ 6,800,000 $ 6,800,000
-------------
MINNESOTA - 4.0%
Becker, MN Poll. Cntrl. Rev. Bonds Northern States Power Co.
TECP, (Sherburne County Generating Station Unit 3),
Ser. 1993-A, 3.75%, 11/13/97................................... VMIG1/A-1+ 5,300,000 5,300,000
City of Rochester, MN Health Care Fac. Rev. Bonds TECP, (Mayo
Foundation/Mayo Medical Center), Ser. 1992-C, 3.80%,
10/17/97....................................................... AA+/A-1+ 5,950,000 5,950,000
-------------
11,250,000
-------------
MISSISSIPPI - 1.8%
Mississippi Business Fin. Corp. Ind. Dev. Rev. Bonds (Mississippi
College Proj.), Ser. 1996, 4.10%, 09/01/06*.................... NR/A-1+ 5,000,000 5,000,000
-------------
NORTH CAROLINA - 2.6%
Carteret County, NC Ind. Fac. & Poll. Cntrl. Fin. Auth.
(Texas Gulf), Ser. 1985, 4.17%, 10/01/05*...................... Aa3/NR 5,000,000 5,000,000
North Carolina State Eastern Municipal Power Agency TECP,
3.75%, 12/01/97................................................ P-1/A-1+ 2,400,000 2,400,000
-------------
7,400,000
-------------
NORTH DAKOTA - 3.0%
Grand Forks, ND Health Care Fac. (United Hosp. Obligated
Group), Ser. 1992B, 3.85%, 12/01/16*........................... VMIG1/NR 8,300,000 8,300,000
-------------
PENNSYLVANIA - 0.7%
City of Philadelphia, PA Tax & Rev. Ant. Notes, Ser. 1997-98,
4.50%, 06/30/98................................................ MIG1/SP-1+ 2,000,000 2,007,163
-------------
SOUTH CAROLINA - 2.1%
South Carolina Public Service Auth. TECP, 3.85%, 11/20/97........ P-1/A-1 6,000,000 6,000,000
-------------
TENNESSEE - 2.2%
Clarksville, TN Public Bldg. Auth. (Tenn. Municipal Bond Fund),
Ser. 1995 4.10%, 10/1/25*...................................... NR/A-1+ 2,000,000 2,000,000
Clarksville, TN Public Bldg. Auth. (Tenn. Municipal Bond Fund),
Ser. 1994, 4.10%, 06/01/24*.................................... NR/A-1+ 4,300,000 4,300,000
-------------
6,300,000
-------------
TEXAS - 15.8%
Angelina & Neches River Auth. of Texas Ind. Dev. Corp. Solid
Waste Rev. Bonds (TEEC, Inc. Temple Inland Proj.), Ser. 1984C,
3.80%, 05/01/14*............................................... P-1/NR 500,000 500,000
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS - CONTINUED
- ------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- ---------
Bexar County, TX Health Fac. Dev. Corp. Rev. Bonds (Air
Force Village II Proj.), Ser. 1985B, 4.05%, 03/01/12*.......... NR/A-1+ $ 9,800,000 $ 9,800,000
Brazos River Harbor Nav. Dist. Rev. Ref. Bonds TECP (Dow
Chemical Co. Proj.), 3.75%, 11/14/97........................... P-1/NR 4,900,000 4,900,000
Brazos River Harbor Nav. Dist. Rev. Ref. Bonds TECP (Dow
Chemical Co. Proj.), Ser. 1987-B, 3.80%, 11/10/97.............. P-1/NR 3,000,000 3,000,000
Brazos River Harbor Nav. Dist. Rev. Ref. Bonds TECP (Dow
Chemical Co. Proj.), 3.75%, 11/20/97........................... P-1/NR 4,000,000 4,000,000
City of Houston, TX TECP, Ser. B, 3.75%, 11/12/97................ P-1/A-1+ 2,000,000 2,000,000
City of San Antonio, TX Electric and Gas System TECP, 3.80%,
12/15/97....................................................... P-1/A-1+ 8,600,000 8,600,000
Lower Neches Valley Auth. (Chevron USA, Inc. Proj.), Ser.
1987, 3.75%, 02/17/98, Put Option.............................. P-1/A-1+ 1,400,000 1,400,000
State of Texas, Tax & Rev. Ant. Notes, Ser. 1997-A, 4.75%,
08/31/98....................................................... MIG1/SP-1+ 10,000,000 10,080,086
-------------
44,280,086
-------------
UTAH - 2.3%
State of Utah Gen. Oblig. TECP, Ser. A, 3.75%, 10/10/97.......... P-1/A-1+ 6,500,000 6,500,000
-------------
VIRGINIA - 0.5%
Ind. Dev. Auth. of the City of Norfolk, VA Hosp. Rev. Bonds TECP
(Sentara Hosp. Norfolk Proj.), Ser. 1990-A, 3.75%, 10/15/97.... VMIG1/A-1+ 1,500,000 1,500,000
-------------
WASHINGTON - 2.9%
Washington Health Care Fac. Auth. Rev. Bonds (Fred Hutchinson
Cancer Research Center), Ser. 1996, 3.85%, 01/01/23*........... VMIG1/NR 6,935,000 6,935,000
Washington Health Care Fac. Auth. Rev. Bonds (Fred Hutchinson
Cancer Research Center), Ser. 1991A, 3.85%, 01/01/18*.......... VMIG1/NR 1,190,000 1,190,000
-------------
8,125,000
-------------
WYOMING - 3.6%
Gillette, WY Poll. Cntrl. Rev. Bonds TECP (Pacificorp Proj.)
Ser 1988, 3.70%, 10/24/97...................................... P-1/A-1+ 6,000,000 6,000,000
Green River, WY Poll. Cntrl. Rev. Bonds (Texas Gulf Inc.),
Ser. 1984, 4.30%, 12/01/04*.................................... Aa2/NR 2,000,000 2,000,000
Lincoln County, WY Poll. Cntrl. Rev. Bonds TECP (Pacificorp
Proj.), Ser. 1991, 3.85%, 12/01/97............................. VMIG1/A-1+ 2,000,000 2,000,000
-------------
10,000,000
-------------
TOTAL MUNICIPAL BONDS (COST $280,601,321)..................................................... 280,601,321
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS - CONTINUED
- ------------------------------------------------------------------------------
VALUE
(NOTE 2)
---------
TOTAL INVESTMENTS (COST $280,601,321)+ - 99.9%...................................................... $280,601,321
OTHER ASSETS AND LIABILITIES, NET - 0.1%............................................................ 262,643
------------
NET ASSETS - 100.0%................................................................................. $280,863,964
============
<FOOTNOTE>
* Denotes a Variable or Floating Rate Note. Variable and Floating Rate
Notes are instruments whose rates change periodically. The rates shown
are the interest rates as of September 30, 1997.
+ Cost for federal tax purposes.
TECP-Tax-Exempt Commercial Paper and multimodal bonds in commercial paper mode.
</FOOTNOTE>
</TABLE>
The accompanying notes are an integral part of the financial statements.
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1997
<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 $171,673,200, $53,139,000 and
$0, respectively), at value
(amortized cost $384,587,970,
$1,190,750,833, and $280,601,321,
respectively) (Note 2)............ $384,587,970 $ 1,190,750,833 $280,601,321
Interest receivable................. 839,884 6,236,327 1,133,517
Other assets........................ 3,838 8,530 32,596
--------------------------------------------------------
Total assets........................ 385,431,692 1,196,995,690 281,767,434
--------------------------------------------------------
LIABILITIES:
Dividends payable................... 1,736,222 5,112,363 720,972
Investment securities purchased
payable............................ 4,996,450 0 0
Accrued management fee (Note 3)..... 161,866 467,745 107,242
Other accrued expenses (Note 3)..... 62,653 144,874 75,256
--------------------------------------------------------
Total liabilities.................. 6,957,191 5,724,982 903,470
--------------------------------------------------------
NET ASSETS.......................... $378,474,501 $ 1,191,270,708 $280,863,964
========================================================
NET ASSETS CONSIST OF:
Capital paid in..................... $378,472,288 $ 1,191,299,545 $280,865,624
Accumulated realized gain (loss)
on investments - net............... 2,213 (28,837) (1,660)
--------------------------------------------------------
NET ASSETS, for 378,472,288,
1,191,299,545, and 280,872,307,
shares outstanding, respectively... $378,474,501 $ 1,191,270,708 $280,863,964
========================================================
NET ASSET VALUE, offering and
redemption price per share:........ $1.001 $1.002 $1.003
========================================================
<FOOTNOTE>
1 $378,474,501 / 378,472,288 outstanding shares of beneficial interest, no
par value
2 $1,191,270,708 / 1,191,299,545 outstanding shares of beneficial interest,
no par value
3 $280,863,964 / 280,872,307 outstanding shares of beneficial interest, no
par value
</FOOTNOTE>
</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 OPERATIONS
For the Fiscal Year Ended September 30, 1997
<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................... $19,471,904 $ 60,367,087 $10,211,265
EXPENSES:
Management fee (Note 3).......... 1,660,206 5,069,252 1,325,491
Accounting fee (Note 3)........... 100,648 245,714 86,405
Distribution expenses (Note 3).... 60,430 196,165 18,757
Trustees' fees and expenses (Note 3) 6,157 9,164 6,165
Registration fees................. 27,054 61,686 55,196
Reports to shareholders........... 9,048 19,327 7,024
Legal............................. 27,253 80,449 56,277
Audit............................. 14,006 39,291 29,101
Other............................. 42,148 124,090 34,515
------------------------------------------------------------
Total expenses................. 1,946,950 5,845,138 1,618,931
------------------------------------------------------------
Net investment income.......... 17,524,954 54,521,949 8,592,334
------------------------------------------------------------
REALIZED GAIN (LOSS)ON INVESTMENTS
- NET (NOTE 2).................. 651 (14,558) 0
------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........ $17,525,605 $54,507,391 $ 8,592,334
============================================================
</TABLE>
The accompanying notes are an integral pat of the financial statements.
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
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, 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
==========================================================
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.......... (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
=========================================================
</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 period 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,
---------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
-----------------------------------------------
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 0.050 0.052 0.033 0.028
-----------------------------------------------
Distributions:
From net investment income................. (0.050) (0.050) (0.052) (0.033) (0.028)
------------------------------------------------
NET ASSET VALUE - END OF YEAR............... $1.00 $1.00 $1.00 $1.00 $1.00
================================================
Total Return................................ 5.07% 5.08% 5.37% 3.32% 2.83%
Ratios (to average net assets)/Supplemental
Data:
Expenses................................ 0.55% 0.55% 0.55% 0.53% 0.53%
Net investment income................... 4.96% 4.97% 5.25% 3.27% 2.79%
Net assets at end of year (000 omitted)..... $378,475 $341,426 $306,096 $336,766 $386,067
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
-------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------
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...................... 0.051 0.050 0.054 0.033 0.029
-------------------------------------------------
Distributions:
From net investment income................. (0.051) (0.050) (0.054) (0.033) (0.029)
-------------------------------------------------
NET ASSET VALUE - END OF YEAR............... $1.00 $1.00 $1.00 $1.00 $1.00
=================================================
Total Return................................ 5.17% 5.17% 5.50% 3.37% 2.92%
Ratios (to average net assets)/Supplemental Data:
Expenses.................................. 0.54% 0.53% 0.54% 0.53% 0.52%
Net investment income..................... 5.06% 5.03% 5.37% 3.33% 2.88%
Net assets at end of year (000 omitted)..... $1,191,271 $980,856 $751,125 $606,835 $649,424
</TABLE>
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL HIGHLIGHTS - CONTINUED
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
-----------------------------------------------
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....................... 0.030 0.031 0.033 0.021 0.020
-----------------------------------------------
Distributions:
From net investment income.................. (0.030) (0.031) (0.033) (0.021) (0.020)
-----------------------------------------------
NET ASSET VALUE - END OF YEAR................ $1.00 $1.00 $1.00 $1.00 $1.00
===============================================
Total Return................................. 3.09% 3.11% 3.36% 2.17% 2.07%
Ratios (to average net assets)/Supplemental Data:
Expenses................................... 0.57% 0.56% 0.54% 0.54% 0.54%
Net investment income...................... 3.05% 3.08% 3.29% 2.13% 2.05%
Net assets at end of year (000 omitted)...... $280,864 $237,185 $318,213 $388,565 $405,517
</TABLE>
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1.DESCRIPTION AND SHARES OF THE FUNDS. 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, 1997, 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, $40,000 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
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.
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------
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 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 corporate notes,
commercial paper, certificates of deposit, and time deposits
of domestic and foreign banks represented in the aggregate
approximately 37.8% of its total investments on September 30,
1997.
Approximately 88.9% of the investments by the Rodney Square
Tax-Exempt Fund on September 30, 1997 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, 1997, amounted to $1,660,206 for the U.S.
Government Portfolio, $5,069,252 for the Money Market
Portfolio and $1,325,491 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, 1997, RSMC's fees for accounting services
amounted to $100,648 for the U.S. Government Portfolio,
$245,714 for the Money Market Portfolio and $86,405 for the
Rodney Square Tax-Exempt Fund.
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
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, 1997, such expenses amounted to $60,430 for the
U.S. Government Portfolio, $196,165 for the Money Market
Portfolio and $18,757 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 $6,157 for the U.S.
Government Portfolio, $9,164 for the Money Market Portfolio
and $6,165 for the Rodney Square Tax-Exempt Fund for the
fiscal year ended September 30, 1997.
<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, 1997, 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, 1997 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, 1997, 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
October 22, 1997
<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 $8,592,334
as tax-exempt dividends.
In January, 1998 shareholders of the Funds will receive
Federal income tax information on all distributions paid to
their accounts in calendar year 1997, including any
distributions paid between September 30, 1997 and December 31,
1997.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
a.Financial Statements:
Included in Part A of this Registration Statement:
Financial Information (i.e., Financial Highlights for
each of the ten years in the period ended September
30, 1997.)
Included in Part B of this Registration Statement:
Investments, September 30, 1997
Statement of Assets and Liabilities, September 30,
1997
Statement of Operations, for the fiscal year ended
September 30, 1997
Statements of Changes in Net Assets, for the fiscal
years ended September 30, 1996 and 1997
Financial Highlights for each of the five years in
the period ended September 30, 1997
Notes to Financial Statements
Report of independent auditors
Statements, schedules and historical information other
than those listed above have been omitted since they
are either not applicable or are not required.
b.Exhibits:
1. (a) Declaration of Trust of the Registrant dated
July 31, 1985. (Incorporated by reference to
Exhibit 1 to original Registration Statement filed
on August 1, 1985.)
(b) Amendment to Declaration of Trust of the
Registrant dated August 9, 1991. (Incorporated by
reference to Exhibit 1(b) to Post-Effective
Amendment No. 9 to this Registration Statement filed
on November 27, 1991.)
(c) Amendment to Declaration of Trust of the
Registrant dated February 15, 1993. (Incorporated
by reference to Exhibit 1(c) to Post Effective
Amendment No. 11 to this Registration Statement
filed on January 28, 1994.)
2. (a) Bylaws of the Registrant. (Incorporated by
reference to Exhibit 2 to original Registration
Statement filed on August 1, 1985.)
(b) Amendment to Bylaws of the Registrant dated
August 9, 1991. (Incorporated by reference to
Exhibit 2(b) to Post-Effective Amendment No. 9 to
this Registration Statement filed on November 27,
1991.)
3.Voting Trust Agreement - None.
4.Instruments Defining the Rights of Shareholders.
(a) Amended and Restated Declaration of Trust dated
July 31, 1985 as Amended August 9, 1991 and February
15, 1993 (relevant portions). (Incorporated by
reference to Exhibit 4(a) to Post Effective
Amendment No. 11 to this Registration Statement
filed on January 28, 1994.)
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
Items Required by Form N-1A (continued)
PART C - OTHER INFORMATION (continued)
Item 24. Financial Statements and Exhibits (continued).
(b) By-Laws of the registrant as Amended August 9, 1991
(relevant portions). (Incorporated by reference to
Exhibit 4(b) to Post Effective Amendment No. 11 to
this Registration Statement filed on January 28,
1994.)
5.Management Agreement between the Registrant and Rodney
Square Management Corporation dated August 9, 1991.
(Incorporated by reference to Exhibit 5 to Post-
Effective Amendment No. 9 to this Registration
Statement filed on November 27, 1991.)
6.(a) Distribution Agreement between the Registrant and
Rodney Square Distributors, Inc. effective December 31,
1992. (Incorporated by reference to Exhibit 6(a) to
Post Effective Amendment No. 14 to this Registration
Statement filed on January 29, 1996.)
(b) Form of Selected Dealer Agreement between
Rodney Square Distributors, Inc. and the broker-
dealer as listed in Schedule B to the Agreement
effective December 31, 1992. (Incorporated by
reference to Exhibit 6(b) to Post Effective
Amendment No. 11 to this registration Statement
filed on January 28, 1994.)
7.Bonus, Profit Sharing or Pension Plans - None.
8. (a) Custodian Contract between the Registrant and
Wilmington Trust Company dated October 1, 1986.
(Incorporated by reference to Exhibit 8(a) to
Post-Effective Amendment No. 4 to this Registration
Statement filed on February 1, 1988.)
(b) Subcustodian Contract between Wilmington Trust
Company and Morgan Guaranty Trust Company of New
York. (Incorporated by reference to Exhibit 8(c) to
Post-Effective Amendment No. 4 to this Registration
Statement filed on February 1, 1988.)
9. (a) Transfer Agency Agreement between the
Registrant and Rodney Square Management Corporation
effective December 31, 1992. (Incorporated by
reference to Exhibit 9(a) to Post Effective
Amendment No. 14 to this Registration Statement
filed on January 29, 1996.)
(b) Accounting Services Agreement between
Registrant and Rodney Square Management Corporation
dated October 1, 1989. (Incorporated by reference
to Exhibit 9(c) to Post-Effective Amendment No. 6 to
this Registration Statement filed on November 28,
1989.)
10. (a) Opinion of Kirkpatrick & Lockhart, LLP
(Incorporated by reference to Exhibit 10 to Pre-
Effective Amendment No. 1 to this Registration
Statement filed on October 23, 1985.)
11. Consent of Ernst & Young LLP, independent auditors
for Registrant.
12. Financial Statements omitted from Part B - None.
13. Letter of Investment Intent. (Incorporated by
reference to Exhibit 13 to Pre-Effective Amendment No.
1 to this Registration Statement filed on October 23,
1985.)
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
Items Required by Form N-1A (continued)
PART C - OTHER INFORMATION (continued)
Item 24. Financial Statements and Exhibits (continued).
14. Prototype Retirement Plan - None.
15. Amended and Restated Plan of Distribution adopted
pursuant to Rule 12b-1 under the Investment Company Act
of 1940 of the Registrant effective May 21, 1990,
amended effective as of January 1, 1993. (Incorporated
by reference to Exhibit 15 to Post Effective Amendment
No. 14 to this Registration Statement filed on January
29, 1996.)
16. Schedule for Computation of Performance
Quotations.
17. Financial Data Schedule.
18. None.
Power of Attorney included as part of the signature page
of this Post-Effective Amendment No. 16.
Item 25. Persons Controlled by or under Common Control with
Registrant.
a.Persons Controlled by Registrant: None.
b.Persons who may be deemed to be under Common Control with
Registrant in the event Wilmington Trust Company ("WTC")
is deemed to be a controlling person of the Registrant:
Mutual Funds
The Rodney Square Fund
The Rodney Square Strategic Fixed-Income Fund
The Rodney Square Multi-Manager Fund
% Held
Corporate Entity State of Org. by WTC
Brandywine Insurance Agency, Inc. Delaware 100%
Brandywine Finance Corp. Delaware 100%
Brandywine Life Insurance Company, Delaware 100%
Inc.
Compton Realty Corporation Delaware 100%
Delaware Corp. Management Delaware 100%
Drew-I Ltd. Delaware 100%
Drew-VIII Ltd. Delaware 100%
Holiday Travel Agency, Inc. Delaware 100%
Rockland Corporation Delaware 100%
Rodney Square Distributors, Inc. Delaware 100%
Rodney Square Management Delaware 100%
Corporation
Siobain-XII Ltd. Delaware 100%
Spar Hill Realty Company Delaware 100%
Wilmington Brokerage Services Delaware 100%
Company
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
Items Required by Form N-1A (continued)
PART C - OTHER INFORMATION (continued)
Item 25. Persons Controlled by or under Common Control with
Registrant (continued).
WTC Corporate Services, Inc. Delaware 100%
100 West 10th St. Corporation Delaware 100%
WT Investments Inc. Delaware 100%
Partnerships
Rodney Square Investors, L.P.
Item 26. Number of Holders of Securities (as of November 30,
1997).
(1) (2)
Title of Class Number of Record Shareholders
Shares of beneficial interest 2,647
Item 27. Indemnification.
Article XI, Section 2 of the Registrant's Declaration of
Trust provides, subject to certain exceptions and limitations,
that the appropriate Series of the Registrant will indemnify a
Trustee or officer ("covered person") of the Registrant
against liability and against all expenses incurred in
connection with any claim, action, suit, proceeding, or
settlement in which he becomes involved as a party or
otherwise by virtue of being or having been a Trustee or
officer, to the fullest extent permitted by law. No covered
person, however, will be indemnified if there is an
adjudication that (a) such person is liable to the Registrant
or its shareholders because of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved
in the conduct of his office, or (b) such person did not act
in good faith, with the reasonable belief that his action was
in the best interests of the Registrant. In addition, a
covered person will not be indemnified in the event of
settlement unless a court, a majority of disinterested
Trustees, or independent legal counsel determines that the
covered person did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. The Registrant may
maintain insurance policies covering such rights of
indemnification.
According to Article XII, Section 1 of the Declaration of
Trust, the Registrant is a trust, not a partnership. Trustees
are not liable personally to any person extending credit to,
contracting with or having any claim against the Registrant.
A Trustee, however, is not protected from liability due to
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Article XII, Section 2 provides that, subject to the
provisions of Article XI and Article XII, Section 1, the
Trustees are not liable for errors of judgment or mistakes of
fact or law, or for any act or omission in accordance with
advice of counsel or other experts or for failing to follow
such advice.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
Items Required by Form N-1A (continued)
PART C - OTHER INFORMATION (continued)
Item 27. Indemnification (continued).
Paragraph 7A of the Management Agreement between Rodney
Square Management Corporation ("RSMC") and the Registrant
provides that, in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations
or duties on the part of RSMC, RSMC shall not be subject to
liability to the Registrant or to any shareholder of the
Registrant or its Series for any act or omission in the course
of performing its duties under the contract or for any losses
that may be sustained in the purchase, holding or sale of any
security or the making of any investment for or on behalf of
the Registrant. Paragraph 15 provides that obligations
assumed by the Registrant pursuant to the Management Agreement
are limited in all cases to the Registrant and its assets or a
particular Series and its assets, if liability relates to a
Series.
Paragraph 10 of the Distribution Agreement between the
Registrant and Rodney Square Distributors, Inc. ("RSD")
provides that the Registrant agrees to indemnify and hold
harmless RSD and each of its directors and officers and each
person, if any, who controls RSD within the meaning of Section
15 of the Securities Act of 1933 (the "1933 Act") against any
loss, liability, claim, damages or expense arising by reason
of any person acquiring any shares, based upon the 1933 Act or
any other statute or common law, alleging any wrongful act of
the Registrant or any of its employees or representatives, or
based upon the grounds that the registration statements, or
other information filed or made public by the Registrant
included an untrue statement of a material fact or omitted to
state a material fact required to be stated or necessary in
order to make the statements not misleading. RSD, however,
will not be indemnified to the extent that the statement or
omission is based on information provided in writing by RSD.
In no case is the indemnity of the Registrant in favor of RSD
or any person indemnified to be deemed to protect RSD or any
person against any liability to the Registrant or its security
holders to which RSD or such person would otherwise be subject
by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of
its reckless disregard of its obligations and duties under
this Agreement. In addition, Paragraph 15 of the Distribution
Agreement is similar to Paragraph 15 of the Management
Agreement.
Paragraph 18 of the Transfer Agency Agreement between the
Registrant and RSMC provides that RSMC and its nominees shall
be held harmless from all taxes, charges, expenses,
assessments, claims and liabilities including, without
limitation, liabilities arising under the 1933 Act, the
Securities Exchange Act of 1934 and any state or foreign
securities and blue sky laws, and amendments thereto, and
expenses including without limitation reasonable attorneys'
fees and disbursements arising directly or indirectly from any
action or omission to act which RSMC takes at the request of
or on the direction of or in reliance on the advice of the
Registrant or upon oral or written instructions in the absence
of RSMC's or its own nominees' willful misfeasance, bad faith,
negligence or reckless disregard of its duties and obligations
under such Agreement. Paragraph 27 of the Transfer Agency
Agreement is similar to Paragraph 15 of the Management
Agreement.
Paragraph 13 of the Accounting Services Agreement between
the Registrant and RSMC is similar to Paragraph 18 of the
Transfer Agency Agreement. Paragraph 20 of the Accounting
Services Agreement is similar to Paragraph 15 of the
Management Agreement.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
Items Required by Form N-1A (continued)
PART C - OTHER INFORMATION (continued)
Item 27. Indemnification (continued).
Insofar as indemnification for liability arising under the
1933 Act may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Trustee,
officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the 1933 Act and will
be governed by the final adjudication of such issue.
Item 28. Business or Other Connections of Investment Adviser.
Rodney Square Management Corporation ("RSMC"), a Delaware
corporation, serves as fund manager, administrator, transfer
agent and accounting agent to the Registrant. RSMC is a
wholly owned subsidiary of Wilmington Trust Company, also a
Delaware corporation, which in turn is wholly owned by
Wilmington Trust Corporation. Information as to the officers
and directors of RSMC is included in its Form ADV filed on
March 11, 1987, and most recently supplemented on February 27,
1997, with the Securities and Exchange Commission File No.
801-22071 and is incorporated by reference herein.
Item 29. Principal Underwriters.
(a) The Rodney Square Fund
The Rodney Square Strategic Fixed-Income Fund
The Rodney Square Multi-Manager Fund
Brazos Mutual Funds
Heitman Real Estate Fund
The HomeState Group
Kalmar Pooled Investment Trust
Kiewit Mutual Fund
1838 Investment Advisors Funds
The Mallard Fund, Inc.
The Olstein Funds
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
Items Required by Form N-1A (continued)
PART C - OTHER INFORMATION (continued)
Item 29. Principal Underwriters (continued).
(b)
(1) (2) (3)
Name and Principal Position and Offices with Position and Offices
Business Address Rodney Square Distributors, Inc. with Registrant
- ------------------ -------------------------------- --------------------
Jeffrey O. Stroble President, Secretary, None
1105 North Market Street Treasurer & Director
Wilmington, DE 19890
Martin L. Klopping Director President &
Rodney Square North Trustee
1100 North Market Street
Wilmington, DE 19890
Neil Curran Vice President None
1105 North Market Street
Wilmington, DE 19890
(c) None.
Item 30. Location of Accounts and Records.
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of
1940 and the rules promulgated thereunder and the records
relating to the duties of the Registrant's transfer agent are
maintained by Rodney Square Management Corporation, Rodney
Square North, 1100 North Market Street, Wilmington, DE 19890-
0001. Records relating to the duties of the Registrant's
custodian are maintained by Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, DE 19890-
0001.
Item 31. Management Services
Inapplicable.
Item 32. Undertakings.
Inapplicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that this Post-Effective Amendment No. 16 to its Registration
Statement meets all of the Requirements for effectiveness pursuant
to Rule 485 (B) under the Securities Act of 1933 and the Registrant
further certifies that it has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Wilmington, and State of
Delaware, on the 24th day of December, 1997.
THE RODNEY SQUARE TAX-EXEMPT FUND
By: /s/ Carl M. Rizzo
-------------------------------
Carl M. Rizzo, Esq., Secretary
Pursuant to the requirements of the Securities Act of 1933,
this amendment to its Registration Statement has been signed
below by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
President (Principal
/s/ Martin L. Klopping Executive Officer) December 24, 1997
- ----------------------
Martin L. Klopping and Trustee
/s/ Eric Brucker
- ----------------------
Eric Brucker* Trustee December 24, 1997
/s/ Fred L. Buckner
- ----------------------
Fred L. Buckner* Trustee December 24, 1997
/s/ Robert J. Christian
- -----------------------
Robert J. Christian* Trustee December 24, 1997
/s/ John J. Quindlen
- -----------------------
John J. Quindlen* Trustee December 24, 1997
Vice President and
/s/ Robert C. Hancock Treasurer (Principal
- ----------------------- Financial and
Robert C. Hancock Accounting Officer) December 24, 1997
*By: /s/ Carl M. Rizzo
-------------------
Carl M. Rizzo**
** Attorney-in-fact pursuant to a power of attorney filed
herewith.
<PAGE>
POWER OF ATTORNEY
Each of the undersigned in his capacity as a Trustee or
officer, or both, as the case may be, of the Registrant, does
hereby appoint Arthur J. Brown, Carl M. Rizzo, and Diane D.
Marky, and each of them, or jointly, his true and lawful attorney
and agent to execute in his name, place and stead (in such
capacity) any and all post-effective amendments to the
Registration Statement and all instruments necessary or desirable
in connection therewith, to attest the seal of the Registrant
thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents have power and
authority to do and perform in the name and on behalf of each of
the undersigned, in any and all capacities, every act whatsoever
necessary or advisable to be done in the premises as fully and to
all intents and purposes as each of the undersigned might or
could do in person, hereby ratifying and approving the act of
said attorneys and agents and each of them.
SIGNATURE TITLE DATE
- --------- ------ -----
President (Principal
/s/ Martin L. Klopping
- ---------------------- Executive Officer) November 17, 1997
Martin L. Klopping and Trustee
/s/ Eric Brucker
- ----------------------
Eric Brucker Trustee November 17, 1997
/s/ Fred L. Buckner
- ----------------------
Fred L. Buckner Trustee November 17, 1997
/s/ Robert J. Christian
- ------------------------
Robert J. Christian Trustee November 17, 1997
/s/ John J. Quindlen
- ------------------------
John J. Quindlen Trustee November 17, 1997
Vice President and
/s/ Robert C. Hancock
- ----------------------- Treasurer (Principal
Robert C. Hancock Financial and November 17, 1997
Accounting Officer)
<PAGE>
File No. 2-99436
File No. 811-4372
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 16
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 18
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
THE RODNEY SQUARE TAX-EXEMPT FUND
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
EXHIBIT INDEX
Exhibit 11 Consent of Ernst & Young LLP,
independent auditors for Registrant
Exhibit 16 Schedule for Computation
of Performance Quotations
Exhibit 17 Financial Data Schedule
Exhibit 11
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights" in the Prospectus and "Independent
Auditors" and "Financial Statements" in the Statement of
Additional Information and to the inclusion
in this Post-Effective Amendment Number 16 to Registration
Statement Number 2-99436 (Form N-1A) of our report dated
October 22, 1997, on the financial statements and financial
highlights of The Rodney Square Tax Exempt Fund for the
year ended September 30, 1996, included in the 1997 Annual
Report to Shareholders.
/s/ Ernst & Young, LLP
Philadelphia, Pennsylania
December 23, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000773826
<NAME> RODNEY SQUARE TAX EXEMPT FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 280601
<INVESTMENTS-AT-VALUE> 280601
<RECEIVABLES> 1134
<ASSETS-OTHER> 32
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 281767
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 903
<TOTAL-LIABILITIES> 903
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 280866
<SHARES-COMMON-STOCK> 280872
<SHARES-COMMON-PRIOR> 237193
<ACCUMULATED-NII-CURRENT> 8592
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 280864
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10211
<OTHER-INCOME> 0
<EXPENSES-NET> 1619
<NET-INVESTMENT-INCOME> 8592
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8592
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8592
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2251065
<NUMBER-OF-SHARES-REDEEMED> 2207643
<SHARES-REINVESTED> 257
<NET-CHANGE-IN-ASSETS> 43679
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1660)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1325
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1619
<AVERAGE-NET-ASSETS> 282014
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .030
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .030
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Exhibit 16
FUND NAME: RODNEY SQUARE TAX-EXEMPT FUND
SEPTEMBER 30, 1997
1 YR 5 YR 10 YR
---- ----- -----
# YEARS IN PERIOD 1 5 10
AVERAGE ANNUAL TOTAL RETURN 3.09% 2.76% 3.78%
CUMULATIVE TOTAL RETURN 3.09% 14.59% 44.90%
ANNUAL
AVERAGE ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
- ---------------------------- -----------------------
(ERV/P)1/N -1 = T (ERV/P) - 1 = T
(1,030.90/1,000)1 -1 = T (1,030.90/1,000) -1 = T
0.0309 = T 0.0309 = T
3.09% = T 3.09% = T
5 YEARS ENDING 9/30/97
AVERAGE ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
- --------------------------- -----------------------
(ERV/P)1/N -1 = T (ERV/P) - 1 = T
(1,145.91/1,000)1/5 -1 = T (1,145.91/1,000) -1 = T
0.0276 = T 0.1459 = T
2.76% = T 14.59% = T
ENDING 9/30/97
AVERAGE ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
- --------------------------- -----------------------
(ERV/P)1/N -1 = T (ERV/P) - 1 = T
(1,449.00/1,000)1/10 -1 = T (1,449.00/1,000) -1 = T
0.0378 = T 0.4490 = T
3.78% = T 44.90% = T
RODNEY SQUARE TAX-EXEMPT FUND
SEPTEMBER 30, 1997
YIELD FOR PERIOD (Base Period Return *365)/7
3.31% (.000634118 *365)/7
EFFECTIVE YIELD
FOR PERIOD (Base Period Return + 1)365/7 -1
3.36% (.000634118 + 1) 365/7 -1
TAX EQUIVALENT YIELD BASE PERIOD RETURN *365)/7
(28% TAX BRACKET)
4.59% (.000634118 *365)/7
-------------------
1 - .28
TAX EQUIVALENT YIELD BASE PERIOD RETURN *365)/7
(31% TAX BRACKET)
4.79% (.000634118 *365)/7
------------------
1 - .31
TAX EQUIVALENT YIELD BASE PERIOD RETURN *365)/7
(36% TAX BRACKET)
5.17% (.000634118 *365)/7
-------------------
1 - .36
TAX EQUIVALENT YIELD BASE PERIOD RETURN *365)/7
(39.6% TAX BRACKET)
5.47% (.000634118 *365)/7
--------------------
1 - .396
_______________________________
RODNEY SQUARE TAX-EXEMPT FUND
SEPTEMBER 30, 1997
SEVEN DAYS
BASE PERIOD RETURN =
September 24, 1997 .000089515
September 25, 1997 .000090607
September 26, 1997 .000090885
September 27, 1997 .000090885
September 28, 1997 .000090885
September 29, 1997 .000090838
September 30, 1997 .000090503
==========
.000634118
