THE RODNEY SQUARE FUND & THE RODNEY SQUARE 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
FEBRUARY 1, 1997
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 February 1,
1997) 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 OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------
EXPENSE TABLE
- ------------------------------------------------------------
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% 0.01% 0.01%
Other Operating Expenses ........ 0.06% 0.05% 0.08%
----- ----- -----
Total Portfolio Operating
Expenses...................... 0.55% 0.53% 0.56%
===== ===== =====
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 $5 $6
Three years 18 17 18
Five years 31 30 31
Ten years 69 66 70
________________
* 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, 1996.
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.
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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, 1996, 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>
1996 1995 1994+ 1993 1992 1991 1990 1989 1988 1987
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
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 0.052 0.033 0.028 0.038 0.062 0.078 0.086 0.066 0.057
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Distributions:
From net investment
income............... (0.050) (0.052) (0.033) (0.028) (0.038) (0.062) (0.078) (0.086) (0.066) (0.057)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
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 ......... 5.08% 5.37% 3.32% 2.83% 3.88% 6.41% 8.05% 8.91% 6.81% 5.86%
Ratios (to average net assets)/Supplemental Data:
Expenses ............. 0.55% 0.55% 0.53% 0.53% 0.54% 0.53% 0.54% 0.52% 0.57% 0.56%
Net investment
income .............. 4.97% 5.25% 3.27% 2.79% 3.84% 6.22% 7.76% 8.55% 6.63% 5.76%
Net assets at end of year
($000 omitted) ....... 341,426 306,096 336,766 386,067 409,534 479,586 364,423 230,804 287,862 288,016
_______________
<FN>
+ During the fiscal year ended September 30, 1994, the
Fund Manager contributed capital of $0.0045 per share to
the U.S. Government Portfolio.
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
----------------------
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994+ 1993 1992 1991 1990 1989 1988 1987
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
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 0.054 0.033 0.029 0.041 0.065 0.079 0.087 0.069 0.059
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Distributions:
From net investment
income ............... (0.050) (0.054) (0.033) (0.029) (0.041) (0.065) (0.079) (0.087) (0.069) (0.059)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
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% 5.50% 3.37% 2.92% 4.15% 6.73% 8.23% 9.09% 7.07% 6.10%
Ratios (to average net assets)/Supplemental Data:
Expenses .............. 0.53% 0.54% 0.53% 0.52% 0.52% 0.52% 0.53% 0.52% 0.55% 0.55%
Net investment
income ............... 5.03% 5.37% 3.33% 2.88% 4.06% 6.52% 7.92% 8.74% 6.87% 5.99%
Net assets at end of year
($000 omitted) ........ 980,856 751,125 606,835 649,424 717,544 790,837 766,798 643,363 488,313 406,217
________________
<FN>
+ During the fiscal year ended September 30, 1994, the
Fund Manager contributed capital of $0.0028 per share to
the Money Market Portfolio.
</TABLE>
<TABLE>
<CAPTION>
TAX-EXEMPT FUND
---------------
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
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 .............. 0.031 0.033 0.021 0.020 0.030 0.045 0.054 0.059 0.047 0.037
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Distributions:
From net investment
income .............. (0.031) (0.033) (0.021) (0.020) (0.030) (0.045) (0.054) (0.059) (0.047) (0.037)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
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.......... 3.11% 3.36% 2.17% 2.07% 3.06% 4.59% 5.58% 6.04% 4.79% 3.79%
Ratios (to average net assets)/Supplemental Data:
Expenses.............. 0.56% 0.54% 0.54% 0.54% 0.54% 0.56% 0.57% 0.57% 0.50% 0.56%
Net investment
income............... 3.08% 3.29% 2.13% 2.05% 3.06% 4.49% 5.45% 5.88% 4.67% 3.79%
Net assets at end of year
($000 omitted)........ 237,185 318,213 388,565 405,517 327,098 353,271 243,146 258,713 302,471 352,987
________________
</TABLE>
<PAGE>
- ------------------------------------------------------------
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.
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 maturing in 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,
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 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 Ratings
Services ("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 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,
with less than 397 days remaining until maturity, 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 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
less than 397 days remaining until maturity, 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 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.
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PURCHASE OF SHARES
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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 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 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.
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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.
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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 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.
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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 uses multiple
portfolio advisers to manage the Growth Portfolio. The
Growth Portfolio 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 International Equity Fund, 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. 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.
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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.
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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, 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.
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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 December 31, 1996, the aggregate assets of
the investment companies managed by RSMC totaled
approximately $1.68 billion. RSMC also serves as Sub-
Investment Adviser to the Emerald Funds Tax-Exempt
Portfolio, which had assets of approximately $192 million
at September 30, 1996.
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 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. 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 October 31, 1996, WTC beneficially owned, by
virtue of shared or sole voting or investment power on
behalf of its underlying customer accounts, 12.84% of the
shares of the U.S. Government Portfolio, 28.35% of the Money
Market Portfolio and 27.46% of the shares of the Tax-Exempt
Fund and 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 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 Bank. 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.
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 VARIABLE AND FLOATING
RATE INSTRUMENTS RATE 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
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 THE RODNEY SQUARE
FUND & TAX-EXEMPT FUND
APPLICATION & NEW ACCOUNT REGISTRATION
______________________________________________________________________________
INSTRUCTIONS: RETURN THIS COMPLETED FORM TO:
FOR WIRING INSTRUCTIONS OR FOR THE RODNEY SQUARE FUND and/or
ASSISTANCE IN COMPLETING THIS THE RODNEY SQUARE TAX-EXEMPT FUND
FORM CALL (800) 336-9970 C/O RODNEY SQUARE MANAGEMENT CORP.
P.O. Box 8987
WILMINGTON, DE 19899-9752
______________________________________________________________________________
PORTFOLIO SELECTION ($1,000 MINIMUM)
__MONEY MARKET PORTFOLIO $___________
__U.S. GOVERNMENT PORTFOLIO $___________
__TAX-EXEMPT FUND $___________
TOTAL AMOUNT TO BE INVESTED $___________
____By check. (Make payable to "The Rodney Square Fund" and/or "The Rodney
Square Tax-Exempt Fund")
____By wire. Call 1-800-336-9970 for Instructions.
____Bank from which funds will be wired wire date
______________________________________________________________________________
ACCOUNT REGISTRATION
1.Individual__________________________________________________________________
First Name MI Last Name Customer Tax ID No.*
2.Joint Tenancy_______________________________________________________________
First Name MI Last Name Customer Tax ID No.*
("Joint Tenants with Rights of Survivorship" unless otherwise Specified)
Uniform
3.Gifts to Minors_______________ __________ under the__________Gifts/Transfers
Minor's Name Customer Tax ID No.* State to Minors Act
4.Other Registration__________________________________________________________
Customer Tax ID No.*
5.If Trust, Date of Trust Instrument:_________________________________________
As joint tenants use Lines 1 and 2; as custodian for a minor, use Lines 1 and
3. In the name of a corporation, trust or other organization or any
fiduciary capacity, use Line 4.
*Customer Tax Identification No.: (a) for an individual, joint tenants, or
a custodial account under the Uniform Gifts/Transfers to Minors Act, supply
the Social Security number of the registered account owner who is to be taxed;
(b) for a trust, a corporation, a partnership, an organization, a fiduciary,
etc., supply the Employer Identification number of the legal entity or or-
ganization that will report income and/or gains.
______________________________________________________________________________
ADDRESS OF RECORD
______________________________________________________________________________
Street
______________________________________________________________________________
City State Zip Code
<PAGE>
______________________________________________________________________________
DISTRIBUTION OPTIONS - If these boxes are not checked, all distributions will
be invested in additional shares.
Pay Cash for:
Income Dividends Other
MONEY MARKET PORTFOLIO ___ ___
U.S. GOVERNMENT PORTFOLIO ___ ___
TAX-EXEMPT FUND ___ ___
Check any of the following if you would like additional information about
a particular plan or service sent to you.
___AUTOMATIC INVESTMENT PLAN ___SYSTEMATIC WITHDRAWAL PLAN ___CHECK REDEMPTIONS
(Check redemptions services are generally not available for clients of
WTC through their trust or corporate cash management accounts; this service
may also not be available for clients of Service Organizations.)
CERTIFICATIONS AND SIGNATURE(S) _ Please sign exactly as registered under
"Account Registration."
I have received and read the Prospectus for The Rodney Square Fund and
The Rodney Square Tax-Exempt Fund and agree to its terms; I am of legal age.
I understand that the shares offered by this Prospectus are not deposits 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. I further understand that investment in these shares
involves investment risks, including possible loss of principal. If a
corporate customer, I certify that appropriate corporate resolutions
authorizing investment in The Rodney Square Fund and/or The Rodney Square
Tax-Exempt Fund have been duly adopted.
I certify under penalties of perjury that the Social Security number
or taxpayer identification number shown above is correct. Unless the box below
is checked, I certify under penalties of perjury that I am not subject to
backup withholding because the Internal Revenue Service (a) has not notified me
that I am as a result of failure to report all interest or dividends, or
(b) has notified me that I am no longer subject to backup withhold-
ing. The certifications in this paragraph are required from all nonexempt
persons to prevent backup withholding of 31% of all taxable distribu-
tions and gross redemption proceeds under the federal income tax law.
____Check here if you are subject to backup withholding.
Signature___________________________________________ Date____________
Signature___________________________________________ Date____________
Joint Owner/Trustee
Check one: ____Owner ____Trustee ____Custodian ____Other
______________________________________________________________________________
IDENTIFICATION OF SERVICE ORGANIZATION
We authorize Rodney Square Management Corporation ("RSMC"), and Rodney
Square Distributors, Inc. ("RSD") in the case of transactions by telephone, to
act as our agents in connection with transactions authorized by this order
form.
Service Organization Name and Code____________________________________________
Branch Address and Code_______________________________________________________
Representative or Other Employee Code_________________________________________
Authorized Signature of Service Organization___________Telephone (___)________
<PAGE>
THE RODNEY SQUARE THE RODNEY SQUARE
FUND & TAX-EXEMPT FUND
APPLICATION for TELEPHONE REDEMPTION OPTION
______________________________________________________________________________
Telephone redemption permits redemption of fund shares by telephone, with
proceeds directed only to the fund account address of record or to the bank
account designated below. For investments by check, telephone redemption is
available only after these shares have been on the Fund's books for 10 days.
This form is to be used to add or change the telephone redemption option on
your Rodney Square Fund and/or Rodney Square Tax-Exempt Fund account(s).
______________________________________________________________________________
ACCOUNT INFORMATION
Portfolio Name(s):_______________________________________________________
Fund Account Number(s):__________________________________________________
(Please provide if you are a current account holder:)
Registered in the Name(s) of:_______________________________________________
Registered Address:_________________________________________________________
Note: If this form is not submitted together with the application, a coporate
resolution must be included for accounts registered to other than an individ-
ual, a fiduciary or partnership.
______________________________________________________________________________
REDEMPTION INSTRUCTIONS
___Add ___Change
Check one or more.
___Mail proceeds to my fund account address of record (must be $10,000 or
less and address must be established for a minimum of 60 days)
___Mail proceeds to my bank
___Wire proceeds to my bank (minimum $1,000)
___All of the above
Telephone redemption by wire can be used only with financial institutions that
are participants in the Federal Reserve Bank Wire System. If the financial
institution you designate is not a Federal Reserve participant, telephone
redemption proceeds will be mailed to the named financial institution. In
either case, it may take a day or two, upon receipt for your financial
institution to credit your bank account with the proceeds, depending on its
internal crediting procedures.
______________________________________________________________________________
<PAGE>
BANK INFORMATION
Please complete the following information only if proceeds mailed/wired to your
bank was selected. A VOIDED BANK CHECK MUST BE ATTACHED TO THIS APPLICATION.
Name of Bank________________________________________________________________
Bank Routing Transit #______________________________________________________
Bank Address________________________________________________________________
City/State/Zip______________________________________________________________
Bank________________________________________________________________________
Account Number______________________________________________________________
Name(s) on Bank Account_____________________________________________________
______________________________________________________________________________
AUTHORIZATIONS
By electing the telephone redemption option, I appoint Rodney Square
Management Corporation ("RSMC"), my agent to redeem shares of any designated
Rodney Square fund when so instructed by telephone. This power will continue
if I am disabled or incapacitated. I understand that a request for telephone
redemption may be made by anyone, but the proceeds will be sent only to the
account address of record or to the bank listed above. Proceeds in excess of
$10,000 will only be sent to your predesignated bank. By signing below, I
agree on behalf of myself, my assigns, and successors, not to hold RSMC and
any of its affiliates, or any Rodney Square fund responsible for acting under
the powers I have given RSMC. I also agree that all account and registration
information I have given will remain the same unless I instruct RSMC otherwise
in a written form, including a signature guarantee. If I want to terminate
this agreement, I will give RSMC at least ten days notice in writing. If RSMC
or the Rodney Square funds want to terminate this agreement, they will give me
at least ten days notice in writing.
All owners on the account must sign below and obtain signature guarantee(s).
_____________________________________ ___________________________________
Signature of Individual Owner Signature of Joint Owner (if any)
______________________________________________________________________________
Signature of Corporate Officer, Trustee or other _ please include your title
You must have a signature(s) guaranteed by an eligible institution acceptable
to the Fund's transfer agent, such as a bank, broker/dealer, government securi-
ties dealer, credit union, national securities exchange, registered securities
association, clearing agency or savings association. A Notary Public is not an
acceptable guarantor.
SIGNATURE GUARANTEE(S) (stamp)
<PAGE>
[Outside cover -- Divided into three sections]
[Leftmost Section]
TRUSTEES
Eric Brucker
Fred L. Buckner
Robert J. Christian
Martin L. Klopping
John J. Quindlen
- ------------------
OFFICERS
Martin L. Klopping, President
Joseph M. Fahey, Jr., Vice President
Robert C. Hancock, Vice President & Treasurer
Carl M. Rizzo, Esq., Secretary
Connie L. Meyers, Assistant Secretary
Diane D. Marky, Assistant Secretary
John J. Kelley, Assistant Treasurer
- -------------------------------------
FUND MANAGER, ADMINISTRATOR AND TRANSFER AGENT
Rodney Square Management Corporation
Rodney Square North
1100 N. Market St.
Wilmington, DE 19890-0001
- ---------------------------
CUSTODIAN
Wilmington Trust Company
Rodney Square North
1100 N. Market St.
Wilmington, DE 19890-0001
- ---------------------------
DISTRIBUTOR
Rodney Square Distributors, Inc.
Rodney Square North
1100 N. Market St.
Wilmington, DE 19890-0001
<PAGE>
[Middle Section]
THE RODNEY SQUARE
FUND
THE RODNEY SQUARE
TAX-EXEMPT
FUND
[Graphic] Caesar
Rodney upon his
galloping horse
facing right,
reverse image on
dark background
PROSPECTUS
February 1, 1997
<PAGE>
[Right Section]
TABLE OF CONTENTS
EXPENSE TABLE .............................. 2
FINANCIAL HIGHLIGHTS........................ 3
QUESTIONS AND ANSWERS ABOUT THE FUNDS....... 6
INVESTMENT OBJECTIVES AND POLICIES.......... 8
PURCHASE OF SHARES.......................... 12
SHAREHOLDER ACCOUNTS........................ 13
REDEMPTION OF SHARES........................ 14
EXCHANGE OF SHARES.......................... 16
HOW NET ASSET VALUE IS DETERMINED........... 17
DIVIDENDS AND TAXES......................... 17
PERFORMANCE INFORMATION .................... 18
MANAGEMENT OF THE FUNDS..................... 19
DESCRIPTION OF THE FUNDS.................... 20
APPENDIX.................................... 22
APPLICATION AND NEW ACCOUNT REGISTRATION.... 27
<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 having remaining 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.
FLOATING RATE AND VARIABLE RATE SECURITIES. As noted in the
Prospectus, the Fund may invest in floating rate and variable rate
securities with demand features. A demand feature gives the Fund right
to sell the securities back to a specified party, usually a remarketing
agent, on a specific date, at a price equal to their amortized cost value
plus accrued interest. A demand feature is often backed by a letter of
credit, guarantee or other liquidity support arrangement from a bank or
other financial institution that may be drawn upon demand, after
specified notice, for all or any part of the exercise price of the demand
feature. Generally, the Fund intends to exercise demand features (1)
upon a default under the terms of the underlying security, (2) to
maintain the Fund's portfolio in accordance with its investment objective
and policies or applicable legal or regulatory requirements or (3) as
needed to provide liquidity to the Fund in order to meet redemption
requests. The ability of a bank or other financial institution to
fulfill its obligations under a letter of credit, guarantee or other
liquidity arrangement might be affected by possible financial
difficulties of its borrowers, adverse interest rate or economic
conditions, regulatory limitations or other factors. The interest rate
on floating rate or variable rate securities ordinarily is readjusted on
the basis of the prime rate of the bank that originated the financing or
some other index or published rate, such as the 90-day U.S. Treasury Bill
rate, or is otherwise reset to reflect market rates of interest.
Generally, these interest rate adjustments cause the market value of
floating rate and variable rate securities to fluctuate less than the
market value of fixed rate obligations.
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.
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
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.
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 Multi-Manager 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 43, 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 55, 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.
FRED L. BUCKNER, 5 Hearth Lane, Greenville, DE 19807, Trustee, age 64,
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 64, 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 Trustee of the Kiewit Funds and
Director of St. Joe Paper Co.
*ROBERT J. CHRISTIAN, Rodney Square North, 1100 N. Market St.,
Wilmington, DE 19890-0001, Trustee, age 47, 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.
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 45, 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 32, 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 36, 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 37, 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, 1996 to the Independent Trustees for
their service to the Fund and to the Rodney Square Family of Funds. On
September 30, 1996, 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.
1996 TRUSTEES FEES
TOTAL FEES FROM TOTAL FEES FROM THE RODNEY
INDEPENDENT TRUSTEE THE FUND SQUARE FAMILY OF FUNDS
------------------- --------------- --------------------------
Eric Brucker $2,200 $17,450
Fred L. Buckner $2,200 $17,450
John J. Quindlen $2,200 $17,450
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 Multi-Manager 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 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, 1995, the trust department of WTC was the twentieth 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, 1996, 1995 and
1994, RSMC was paid advisory fees and administration fees amounting to
$1,346,805, $1,696,280 and $1,839,795, 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 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, 1996, 1995 and 1994,
RSMC was paid accounting service fees of $87,310, $102,184 and $108,290,
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 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 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, 1996, payments made pursuant to the 12b-1 Plan amounted to
$21,498, consisting of $20,136, for trail commissions and, $1,362 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, 1996, 1995 and 1994,
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 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.
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, 1996
was 3.21%.
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, 1996 was 3.26%.
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, 1996 was 4.45% for the 28% tax bracket, 4.65% for
the 31% tax bracket, 5.01% for the 36% tax bracket and 5.31%
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
Income Tax Bracket Tax-Equivalent Yields 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 30,1996
One Five Ten
YEAR YEARS YEARS
----- ----- -----
3.11% 2.75% 3.85%
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, 1996
One Five Ten
YEAR YEARS YEARS
---- ----- -----
3.11% 14.54% 45.89%
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.
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."
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) the
Fund must derive less than 30% of its gross income each taxable year from
the sale or other disposition of securities held for less than three
months; (c) 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 (d) 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.
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.
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 90.57% 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, 1996; the Statement
of Assets and Liabilities as of September 30, 1996; the Statement of
Operations for the fiscal year ended September 30, 1996; the Statements
of Changes in Net Assets for the fiscal years ended September 30, 1996
and 1995; the Financial Highlights for the fiscal years ended September
30, 1992 through September 30, 1996; 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, 1996 are attached hereto.
<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES......................................... 1
INVESTMENT LIMITATIONS...................................... 3
TRUSTEES AND OFFICERS....................................... 4
RODNEY SQUARE MANAGEMENT CORPORATION........................ 6
WILMINGTON TRUST COMPANY.................................... 6
INVESTMENT MANAGEMENT SERVICES.............................. 7
DISTRIBUTION AGREEMENT AND RULE 12B-1 PLAN.................. 8
PORTFOLIO TRANSACTIONS...................................... 9
REDEMPTIONS................................................. 10
NET ASSET VALUE AND DIVIDENDS............................... 11
PREFORMANCE INFORMATION..................................... 11
TAX-EQUIVALENT YIELD TABLE.................................. 12
TAXES....................................................... 15
DESCRIPTION OF THE FUND..................................... 16
OTHER INFORMATION........................................... 17
FINANCIAL STATEMENTS........................................ 17
<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
February 1, 1997
- -------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Fund's current Prospectus, dated
February 1, 1997, 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>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- -----------------------------------------------------------------
PRESIDENT'S MESSAGE
- -----------------------------------------------------------------
DEAR SHAREHOLDER:
The management of The Rodney Square Fund and The Rodney
Square Tax-Exempt Fund is pleased to report to you on the Funds'
activities for the fiscal year ended September 30, 1996.
INVESTMENT RESULTS*
The U.S. Government Portfolio paid shareholders dividends of
$0.05 per share during the year, the Money Market Portfolio paid
dividends of $0.05 per share and The Rodney Square Tax-Exempt
Fund paid dividends of $0.03 per share. Based on the Portfolios'
net asset values of $1.00 per share, these dividends represented
total returns of 5.08%, 5.17% and 3.11%, respectively.
ECONOMIC OVERVIEW
During the past fiscal year, the economic pendulum has swung
from slow, near-recession type growth, to growth in excess of the
economy's long run noninflationary growth potential (2.0-2.5%),
back to what appears to be trend growth. Soft final demand and a
slowdown in inventory accumulation resulted in a meager 0.3% gain
in fourth quarter GDP. The Federal Reserve (the "Fed") reacted to
this anemic activity by lowering its federal funds rate target
(an interbank lending rate) 25 basis points in December 1995.
When the economy exhibited little signs of improvement early in
the first quarter, the Fed responded with an additional 25 basis
point cut in the federal funds rate to 5.25%-where it stands
today. Concerned that a 5.25% federal funds rate was still too
restrictive for a return to trend growth, the market priced for
additional Fed ease. Market expectations for the federal funds
rate, as determined by the federal funds futures market,
anticipated a 4.5% rate by mid-year.
As it turned out, the market misjudged the underlying trend
of the economy as activity rebounded sharply later in the first
quarter. Market expectations of a recession and additional Fed
ease gave way to perceptions that the Fed would need to act
preemptively to slow growth and curb incipient inflation
pressure. Interest rates rose nearly 100 basis points across the
yield curve in anticipation of a Fed move to a more restrictive
monetary stance. Long-term Treasury yields climbed above 7%
while one-year yields approached 6%.
Since the Fed eased in January, the economy has experienced a
powerful, broad based re-acceleration in growth. After posting a
2% increase for the first quarter, GDP growth surged 4.7% in the
second quarter. Job growth has been strong, averaging over
206,000 per month thus far in 1996. A consequence of this above
trend growth has been a tightening of labor market conditions.
The unemployment rate reached a seven year low of 5.1% in August.
It inched up to 5.2% in September when payroll employment took a
surprising 40,000 dip, but remains well below most estimates of
NAIRU (Non-Accelerating Inflation Rate of Unemployment). The
tightness in the labor market has begun to exert upward pressure
on wages.
The twelve-month change in average hourly earnings is up to
3.5 %. However, the wage pressure has not yet been reflected in
the broader price measures. For the first nine months of 1996,
the CPI was running at a 3.2% annual rate, up from 2.7 % in the
first nine months of 1995, and 2.5% for all of last year.
However, the core rate, which excludes the volatile food and
energy components, was running at a 2.8% pace in the first nine
months, down from 3.2% for the first nine months of 1995 and 3.0%
for all of last year.
Data available for the third quarter has generally provided
evidence of moderating economic activity. Consumer spending,
which represents about two thirds of GDP, is estimated to have
increased at an annual rate of only about 1%. That is down
significantly from the 3.5% annual pace of the first half of the
year. Sluggishness in consumer spending during the quarter has
led to downward revisions of third quarter GDP estimates to
approximately 2%.
Contrary to market expectations, moderating economic
activity, along with still relatively benign core inflation
readings, have allowed the Fed to remain on the sidelines. The
Fed apparently feels comfortable with its forecast that continued
moderating growth will keep price pressures from intensifying.
Market participants evidently agreed as long-term and one-year
Treasury yields fell to approximately 6.75% and 5.50%,
respectively.
Going forward, the major issue facing the Fed and the markets
is whether consumer spending is poised to rebound in the fourth
quarter. Consumer fundamentals are solid. A combination of high
confidence, rising incomes, and low unemployment are positive
factors that could set the stage for a return to above-trend
growth. Additionally, the resiliency of the housing market
reinforces the view that the third-quarter slowdown will not be
sustained. Single-family home sales rose in August to an 832,000
annual rate, the highest level in ten years. A rebound in
spending in the fourth quarter would put additional pressure on
resources and lead to an intensification of price pressure. Such
an occurrence could precipitate a tightening of monetary policy
by year end.
INVESTMENT STRATEGY
As noted in the economic overview, the fixed income markets
experienced a good deal of interest rate volatility during the
past fiscal year. This volatility resulted from changing market
perceptions regarding the underlying strength of the economy and
the direction of monetary policy. Rodney Square Management
Corporation, the Funds' Manager attempts to anticipate
directional changes in interest rates and swings in market
psychology. Within the context of regulatory and liquidity
constraints, the Funds' Manager then adjusts each portfolio's
weighted average maturity in an effort to maximize the return to
shareholders. Judging by the favorable returns of each of the
Portfolios versus its peer group, the Funds' Manager believes it
had success this past fiscal year.*
As measured by IBC's Money Fund Report, The Money Market
Portfolio had a 12-month total return of 5.17% versus 5.00% for
IBC's First Tier fund average; the U.S. Government Portfolio
returned 5.08% versus 4.89% for the IBC's Government and Agency
average; and The Tax-Exempt Fund had a 12-month total return of
3.11% versus 3.04% for IBC's Stockbroker & General Purpose
category average.*
More importantly, however, we are pleased to have provided
the shareholders of each Portfolio with consistently competitive
returns through the years.
We invite your comments and questions and we thank you for
your investment in the Funds.
Sincerely,
/s/ Martin L. Klopping
Martin L. Klopping
President
November 18, 1996
- --------------------------
* PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. AN
INVESTMENT IN EITHER FUND IS NEITHER INSURED NOR GUARANTEED
BY WILMINGTON TRUST COMPANY OR ANY OTHER BANKING
INSTITUTION, THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD, OR
ANY OTHER AGENCY. THERE CAN BE NO ASSURANCE THAT EITHER
FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00.
THE RODNEY SQUARE FUND/U.S. GOVERNMENT PORTFOLIO
- ------------------------------------------------
INVESTMENTS/SEPTEMBER 30, 1996
(Showing Percentage of Total Value of Net Assets)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- ----------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS - 60.7%
FEDERAL FARM CREDIT BANKS DISCOUNT NOTES - 19.0%
Federal Farm Credit Banks Notes, 5.28%, 10/16/96............ $ 8,600,000 $ 8,581,080
Federal Farm Credit Banks Notes, 5.24%, 10/21/96............ 9,140,000 9,113,392
Federal Farm Credit Banks Notes, 5.34%, 10/22/96............ 9,000,000 8,971,965
Federal Farm Credit Banks Notes, 5.18%, 11/05/96............ 5,000,000 4,974,819
Federal Farm Credit Banks Notes, 5.20%, 11/26/96............ 17,500,000 17,358,444
Federal Farm Credit Banks Notes, 5.37%, 12/02/96............ 5,000,000 4,953,758
Federal Farm Credit Banks Notes, 5.43%, 12/26/96............ 6,185,000 6,104,770
Federal Farm Credit Banks Notes, 5.55%, 05/08/97............ 5,000,000 4,831,189
-------------
64,889,417
-------------
FEDERAL FARM CREDIT BANKS NOTES - 4.4%
Federal Farm Credit Banks Notes, 5.53%, 10/01/96............ 5,000,000 5,000,000
Federal Farm Credit Banks Notes, 5.60%, 06/03/97............ 10,000,000 9,990,603
-------------
14,990,603
-------------
FEDERAL HOME LOAN BANKS DISCOUNT NOTES - 26.5%
Federal Home Loan Banks Notes, 5.39%, 10/09/96.............. 10,000,000 9,988,022
Federal Home Loan Banks Notes, 5.29%, 10/15/96.............. 15,000,000 14,969,142
Federal Home Loan Banks Notes, 5.40%, 11/06/96.............. 5,000,000 4,973,000
Federal Home Loan Banks Notes, 5.25%, 11/12/96.............. 10,000,000 9,938,750
Federal Home Loan Banks Notes, 5.23%, 11/13/96.............. 18,000,000 17,887,555
Federal Home Loan Banks Notes, 5.38%, 12/19/96.............. 8,000,000 7,905,551
Federal Home Loan Banks Notes, 5.52%, 01/13/97.............. 5,000,000 4,920,267
Federal Home Loan Banks Notes, 5.45%, 01/24/97.............. 5,390,000 5,296,162
Federal Home Loan Banks Notes, 5.26%, 01/27/97.............. 9,685,000 9,518,020
Federal Home Loan Banks Notes, 5.255%, 02/07/97............. 5,000,000 4,905,847
-------------
90,302,316
-------------
FEDERAL HOME LOAN BANKS NOTES - 7.9%
Federal Home Loan Banks Notes, 5.21%, 11/13/96*............. 10,000,000 9,999,203
Federal Home Loan Banks Notes, 4.86%, 02/07/97.............. 7,000,000 6,981,328
Federal Home Loan Banks Notes, 5.21%, 06/17/97*............. 10,000,000 9,994,536
-------------
26,975,067
-------------
TENNESSEE VALLEY AUTHORITY DISCOUNT NOTES - 2.9%
Tennessee Valley Auth. Notes, 5.20%, 11/07/96............... 10,000,000 9,946,555
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $207,103,958)........... 207,103,958
-------------
U.S. TREASURY OBLIGATIONS - 3.2%
U.S. Treasury Notes, 8.50%, 04/15/97........................ 6,000,000 6,086,133
U.S. Treasury Notes, 6.50%, 05/15/97........................ 5,000,000 5,018,404
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $11,104,537)..................... 11,104,537
-------------
REPURCHASE AGREEMENTS - 36.3%
With Goldman, Sachs & Co.: at
5.85%, dated 09/30/96, to be
repurchased at $70,011,375 on
10/01/96, collateralized by
$71,400,000 Federal National
Mortgage Association Securities
with various coupons and maturities to 08/01/34 $ 70,000,000 $ 70,000,000
With UBS Securities, Inc.: at
5.92%, dated 09/30/96, to be
repurchased at $53,998,178 on
10/01/96, collateralized by
$55,071,286 Government National
Mortgage Association Securities
with various coupons and maturities to 09/15/26 53,989,300 53,989,300
-------------
TOTAL REPURCHASE AGREEMENTS (COST $123,989,300)........................ 123,989,300
-------------
TOTAL INVESTMENTS (COST $342,197,795)+ - 100.2%................................ 342,197,795
-------------
OTHER ASSETS AND LIABILITIES, NET - (0.2)%..................................... (771,686)
-------------
NET ASSETS - 100.0%............................................................ $341,426,109
=============
<FN>
* Denotes a Variable or Floating Rate Note. Variable and Floating Rate Notes
are instruments whose rates change periodically. The rate shown is the
interest rate as of September 30, 1996.
+ Cost for federal income tax purposes.
</TABLE>
The accompanying notes are an integral part of the financial statements.
THE RODNEY SQUARE FUND/MONEY MARKET PORTFOLIO
- ---------------------------------------------
INVESTMENTS/SEPTEMBER 30, 1996
(Showing Percentage of Total Value of Net Assets)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- --------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.5%
Federal Home Loan Banks Notes, 5.38%, 03/14/97
(COST $5,000,000)............................................. P-1/A-1+ $ 5,000,000 $ 5,000,000
-------------
TAXABLE MUNICIPAL SECURITIES - 6.2%
ILLINOIS - 0.7%
Illinois Dev. Fin. Auth. Rev. Bonds (American College of
Surgeons Proj.), Ser. 1996, 5.60%, 08/01/26*.................. NR/A-1+ 7,000,000 7,000,000
-------------
MICHIGAN - 1.7%
Genesys Health Sys., Ser. 1995A, 5.64%, 04/01/20*................ VMIG1/A-1 16,700,000 16,700,000
-------------
NEW YORK - 3.8%
New York City, NY, Ser. H, Subser. H-7, 5.55%, 11/13/96.......... VMIG1/A-1+ 29,000,000 29,000,000
New York City, NY, Ser. 1996 A-2, 5.57%, 12/19/96................ P-1/A-1+ 8,500,000 8,500,000
-------------
37,500,000
-------------
TOTAL TAXABLE MUNICIPAL SECURITIES (COST $61,200,000).................................... 61,200,000
-------------
CERTIFICATES OF DEPOSIT - 18.9%
FOREIGN BANKS, FOREIGN CENTERS - 1.0%
Abbey National, 5.82%, 01/13/97.................................. P-1/A-1+ 10,000,000 10,002,525
-------------
U.S. BANKS, U.S. BRANCHES - 3.1%
First Alabama Bank, 5.34%, 10/21/96.............................. P-1/A-1+ 30,000,000 30,000,000
-------------
FOREIGN BANKS, U.S. BRANCHES - 14.8%
Bank of Nova Scotia, 5.56%, 01/21/97............................. P-1/A-1+ 45,000,000 45,007,319
Bayerische Hypotheken & Wechselban, 5.40%, 11/25/96.............. P-1/A-1 20,000,000 20,000,000
Canadian Imperial Bank of Commerce, 5.91%, 05/09/97.............. P-1/A-1+ 5,000,000 5,000,000
Credit Agricole, 5.53%, 10/17/96................................. P-1/A-1+ 30,000,000 30,000,000
National Westminster, 5.56%, 01/17/97............................ P-1/A-1+ 20,000,000 20,003,038
Rabobank, 5.56%, 02/18/97........................................ P-1/A-1+ 25,000,000 25,002,772
-------------
145,013,129
-------------
TOTAL CERTIFICATES OF DEPOSIT (COST $185,015,654)........................................ 185,015,654
-------------
COMMERCIAL PAPER - 34.9%
AUTOMOBILES - 3.0%
Daimler-Benz North America Corp., 5.64%, 01/08/97................ P-1/A-1 15,000,000 14,767,350
Daimler-Benz North America Corp., 5.40%, 01/23/97................ P-1/A-1 15,000,000 14,743,500
-------------
29,510,850
-------------
BANKS - 4.0%
Commerzbank U.S. Fin., Inc., 5.55%, 01/17/97..................... P-1/A-1+ $ 40,000,000 $ 39,334,000
-------------
BUILDING & BUILDING SUPPLIES - 4.0%
CSR America, Inc., 5.33%, 10/18/96............................... P-1/A-1 10,000,000 9,974,831
CSR America, Inc., 5.30%, 10/24/96............................... P-1/A-1 10,000,000 9,966,139
CSR America, Inc., 5.35%, 12/03/96............................... P-1/A-1 5,000,000 4,953,187
CSR America, Inc., 5.44%, 02/13/97............................... P-1/A-1 10,000,000 9,796,000
CSR Fin. Ltd., 5.30%, 10/22/96................................... P-1/A-1 5,000,000 4,984,542
-------------
39,674,699
-------------
CHEMICALS - 3.8%
Akzo Nobel Inc., 5.45%, 10/17/96................................. P-1/A-1 10,000,000 9,975,778
Akzo Nobel Inc., 5.32%, 11/18/96................................. P-1/A-1 15,000,000 14,893,600
Akzo Nobel Inc., 5.40%, 01/09/97................................. P-1/A-1 12,750,000 12,558,750
-------------
37,428,128
-------------
ENTERTAINMENT - 2.1%
Walt Disney Co., 5.30%, 10/11/96................................. P-1/A-1 20,000,000 19,970,555
-------------
FINANCE - 2.6%
PGA Tour Investment Fin., Inc., 5.32%, 11/12/96.................. P-1/A-1 25,500,000 25,341,730
-------------
INTERNATIONAL TRADING - 1.6%
Daewoo International (America) Corp., 5.37%, 10/11/96............ P-1/A-1+ 15,000,000 14,977,625
-------------
LEASING - 6.5%
International Lease Fin. Corp., 5.45%, 03/14/97.................. P-1/A-1 25,000,000 24,379,305
Vehicle Services Corp. of America Ltd., 5.34%, 11/15/96.......... P-1/A-1 5,000,000 4,966,625
Vehicle Services Corp. of America Ltd., 5.45%, 11/21/96.......... P-1/A-1 5,000,000 4,961,396
Vehicle Services Corp. of America Ltd., 5.50%, 12/05/96.......... P-1/A-1 29,500,000 29,207,049
-------------
63,514,375
-------------
LEISURE TIME - 4.0%
Bass Fin. (C.I.) Ltd., 5.48%, 12/20/96........................... P-1/A-1 40,000,000 39,512,889
-------------
MEDICAL & MEDICAL SERVICES - 0.8%
Medical Bldg. Funding VII, 5.875%, 12/11/96...................... NR/A-1 8,300,000 8,203,830
-------------
PHARMACEUTICALS - 2.0%
Zeneca Wilmington Inc., 5.35%, 12/17/96.......................... P-1/A-1+ 20,000,000 19,771,138
-------------
SECURITIES DEALERS - 0.5%
Merrill Lynch & Co., Inc., 5.40%, 01/14/97....................... P-1/A-1+ 5,000,000 4,921,250
-------------
TOTAL COMMERCIAL PAPER (COST $342,161,069)............................................... 342,161,069
-------------
CORPORATE NOTES - 14.8%
BANKS - 13.8%
Abbey National Treasury Services, 5.29%, 07/15/97*............... Aa2/AA $ 30,000,000 $ 29,983,959
Bank One Columbus, 5.26%, 07/01/97*.............................. P-1/A-1+ 35,000,000 34,974,869
Bayerische Landesbank, NY, 5.51%, 11/20/96....................... P-1/A-1+ 25,000,000 25,007,623
Morgan Guaranty Trust Co., 5.29%, 04/22/97*...................... P-1/A-1+ 25,000,000 24,994,606
Society National Bank Cleveland, 5.92%, 05/21/97................. P-1/A-1 20,000,000 20,000,000
-------------
134,961,057
-------------
FINANCIAL - 1.0%
General Electric Cap. Corp., 5.42%, 10/25/96*.................... Aaa/AAA 8,570,000 8,570,650
General Electric Cap. Corp., 5.30%, 01/03/97..................... Aaa/AAA 1,000,000 999,075
-------------
9,569,725
-------------
TOTAL CORPORATE NOTES (COST $144,530,782)................................................ 144,530,782
-------------
BANKERS' ACCEPTANCE NOTICES - 4.7%
CoreStates Bank, 5.44%, 10/29/96................................. P-1/A-1 11,615,160 11,566,015
CoreStates Bank, 5.45%, 10/29/96................................. P-1/A-1 13,384,840 13,328,103
CoreStates Bank, 5.45%, 01/23/97................................. P-1/A-1 6,300,000 6,191,272
CoreStates Bank, 5.53%, 03/12/97................................. P-1/A-1 8,000,000 7,800,920
Mellon Bank, 5.48%, 10/03/96..................................... P-1/A-1 7,300,000 7,297,778
-------------
TOTAL BANKERS' ACCEPTANCE NOTICES (COST $46,184,088)..................................... 46,184,088
-------------
REPURCHASE AGREEMENT - 20.0%
With UBS Securities, Inc.: at 5.92%,
dated 09/30/96, to be repurchased
at $196,490,907 on 10/01/96,
collateralized by $200,392,357
Government National Mortgage
Association Securities with
various coupons and maturity dates to 09/15/26 (COST $196,458,600)............. 196,458,600 196,458,600
-------------
TOTAL INVESTMENTS (COST $980,550,193)+ - 100.0%................................................... 980,550,193
-------------
OTHER ASSETS AND LIABILITIES, NET - 0.0%.......................................................... 305,933
-------------
NET ASSETS - 100.0%............................................................................... $980,856,126
=============
<FN>
* Denotes a Variable or Floating Rate Note. Variable and Floating Rate Notes
are instruments whose rates change periodically. The rate shown is the
interest rate as of September 30, 1996.
+ Cost for federal income tax purposes.
</TABLE>
The accompanying notes are an integral part of the financial statements.
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------------------
INVESTMENTS/SEPTEMBER 30, 1996
(Showing Percentage of Total Value of Net Assets)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- --------
<S> <C> <C> <C>
MUNICIPAL BONDS - 99.9%
ALABAMA - 3.8%
Birmingham, AL Gen. Oblig. Ref. Bonds, Ser. 1994A, 3.80%,
06/01/18*..................................................... VMIG1/A-1+ $ 5,000,000 $ 5,000,000
Birmingham, AL Gen. Oblig. Ref. Bonds, Ser. 1995, 3.80%,
06/01/23*..................................................... VMIG1/A-1+ 4,000,000 4,000,000
-------------
9,000,000
-------------
ALASKA - 2.5%
Anchorage, AK Higher Educ. (Alaska Pacific Univ.), Ser. 1993,
3.85%, 07/01/17* NR/A-1+ 5,900,000 5,900,000
-------------
CALIFORNIA - 2.0%
State of California 1996-1997 Rev. Anti. Notes, 4.50%, 06/30/97.. MIG1/SP-1+ 4,800,000 4,818,231
-------------
DISTRICT OF COLUMBIA - 7.2%
Dist. of Columbia Gen. Oblig. Bonds, Ser. 1991B-1, 4.05%,
06/01/03*..................................................... VMIG1/A-1+ 5,700,000 5,700,000
Dist. of Columbia Gen. Oblig. Bonds, Ser. B-2, 4.05%, 06/01/03*. VMIG1/A-1+ 400,000 400,000
Dist. of Columbia (American Univ.), Ser. 1985, 3.95%, 10/01/15*. VMIG1/NR 10,000,000 10,000,000
Dist. of Columbia (American Univ.), Ser. 1986A, 3.95%, 12/01/15* VMIG1/NR 1,000,000 1,000,000
-------------
17,100,000
-------------
FLORIDA - 2.3%
City of Jacksonville, FL Poll. Cntrl. Rev. Bonds TECP (Florida
Power & Light Co. Proj.), Ser. 1992, 3.70%, 12/13/96.......... P-1/A-1+ 3,000,000 3,000,000
St. Lucie County, FL Poll. Cntrl. Rev. Ref. Bonds TECP (Florida
Power & Light Co. Proj.), Ser. 1994A, 3.70%, 12/13/96......... P-1/A-1+ 2,500,000 2,500,000
-------------
5,500,000
-------------
GEORGIA - 6.3%
Assoc. County Commission of Georgia TECP (Cherokee County
Georgia Public Purpose Proj.), 4.55%, 12/01/96................ Aaa/AAA 3,000,000 3,005,852
Atlanta, GA Downtown Dev. Auth. (Care Proj.), Ser. 1993,
3.90%, 06/01/13*.............................................. VMIG1/NR 2,600,000 2,600,000
Floyd County, GA Dev. Auth. Environ. Imp. Rev. Bonds (Georgia
Kraft Co. Proj.), 3.90%, 12/01/05*............................ P-1/NR 4,600,000 4,600,000
Fulton County, GA Dev. Auth. Rev. Bonds, 3.90%, 12/01/10*....... Aa3/NR 2,000,000 2,000,000
Municipal Gas Auth. of Georgia Gas Rev. Bonds TECP (Southern
Portfolio), Ser. B, 3.70%, 10/18/96........................... NR/A-1+ 2,800,000 2,800,000
-------------
15,005,852
-------------
IDAHO - 2.5%
Idaho Health Fac. Auth. Rev. Bonds (St. Luke's Regional
Medical Ctr. Proj.), Ser. 1995, 3.95%, 05/01/22*.............. VMIG1/NR 5,950,000 5,950,000
-------------
ILLINOIS - 9.1%
City of Chicago, IL O'Hare International Airport (American
Airlines), Ser. 1983C, 4.00%, 12/01/17*....................... P-1/NR $ 3,000,000 $ 3,000,000
City of Chicago, IL O'Hare International Airport (American
Airlines), Ser. 1983D, 4.00%, 12/01/17*....................... P-1/NR 2,000,000 2,000,000
Illinois Health Fac. Auth. Rev. TECP (University of Chicago),
3.75%, 01/30/97............................................... VMIG1/A-1+ 11,500,000 11,500,000
Illinois Health Fac. Auth. (Healthcorp Affiliates - Central
Du Page Hospital Proj.), Ser. 1990, 3.95%, 11/01/20*.......... VMIG1/NR 3,900,000 3,900,000
Illinois Health Fac. Auth. Rev. (Northwestern Memorial
Hosp.), Ser. 1995, 3.85%, 08/15/25*........................... VMIG1/A-1+ 1,100,000 1,100,000
-------------
21,500,000
-------------
INDIANA - 3.6%
Indiana Educ. Auth. Rev. Bonds (Saint Mary of The Woods
College), 3.85%, 02/15/26*.................................... NR/A-1+ 2,000,000 2,000,000
Indiana Health Fac. Fin. Auth. Rev. Bonds (Cap. Access
Designated Pool Proj.), Ser. 1992, 3.85%, 12/01/02*........... VMIG1/NR 2,700,000 2,700,000
Indiana Health Fac. Fin. Auth. Rev. Bonds (Cap. Access
Designated Pool Proj.), Ser. 1991, 3.85%, 08/01/06*........... VMIG1/NR 3,875,000 3,875,000
-------------
8,575,000
-------------
IOWA - 2.5%
Des Moines, IA Methodist Sys. Inc. Hosp. Fac. (Methodist
Medical Center Proj.), Ser. 1985, 3.85%, 08/01/15*............ VMIG1/NR 2,735,000 2,735,000
Univ. of Iowa Fac. Corp. (Human Biology Research Proj.),
Ser. 1985A, 4.05%, 06/01/05*.................................. NR/A-1 3,125,000 3,125,000
-------------
5,860,000
-------------
LOUISIANA - 8.9%
Louisiana Public Fac. Auth. Hosp. Rev. Bonds (Willis-Knighton
Medical Center Proj.), Ser. 1993, 3.80%, 09/01/23*............ VMIG1/A-1 7,000,000 7,000,000
Louisiana Public Fac. Auth. Hosp. Rev. Bonds (Willis-Knighton
Medical Center Proj.), Ser. 1995, 3.80%, 09/01/25*............ VMIG1/A-1 3,500,000 3,500,000
Plaquemines, LA Port Harbor & Terminal Dist. Marine Terminal
Fac. Rev. Bonds TECP, 3.70%, 12/05/96......................... P-1/A-1+ 10,500,000 10,500,000
-------------
21,000,000
-------------
MICHIGAN - 1.1%
Michigan State Hosp. Fin. Auth. (St. Marys Hosp. of Livonia),
Ser. 1996A, 3.95%, 07/01/17*.................................. VMIG1/A-1 2,500,000 2,500,000
-------------
MISSISSIPPI - 2.4%
Mississippi Business Fin. Corp. Ind. Dev. Rev.
Bonds (Mississippi College Proj.), Ser. 1996, 3.85%, 09/01/06* NR/A-1 5,000,000 5,000,000
Mississippi Hosp. Equip. & Fac. Auth. (Mississippi Baptist
Medical Center), Ser. 1990B, 3.80%, 07/01/12*................. VMIG1/NR 715,000 715,000
-------------
5,715,000
-------------
MISSOURI - 2.7%
Missouri Health & Educ. Fac. Auth. TECP (SSM Healthcare),
Ser. 1988C, 3.60%, 10/15/96................................... VMIG1/NR 5,700,000 5,700,000
Missouri St. Environ. Imp. & Energy Resource Auth. Poll.
Cntrl. Rev. Bonds (Noranda Aluminum Inc. Proj.), 4.05%,
10/01/02*..................................................... VMIG1/NR 800,000 800,000
-------------
6,500,000
-------------
MONTANA - 2.9%
Forsyth, Mt Poll. Cntrl. Rev. Bonds (Portland General
Electric), Ser. 1983B, 3.75%, 06/01/13*....................... P-1/A-1+ 6,900,000 6,900,000
-------------
NEW YORK - 0.2%
New York, NY, Subser. A-4, 3.85%, 08/01/22*...................... VMIG1/A-1+ 500,000 500,000
-------------
NORTH CAROLINA - 2.1%
Carteret County, NC Ind. Fac. & Poll. Cntrl. Fin. Auth.
(Texas Gulf), Ser. 1985, 3.93%, 10/01/05*..................... Aa1/NR 5,000,000 5,000,000
-------------
PENNSYLVANIA - 3.4%
Montgomery County, PA Poll. Cntrl. Rev. Bonds TECP (PECO
Energy Co. Proj.), Ser. 1996A, 3.65%, 03/01/34*............... P-1/A-1+ 8,000,000 8,000,000
-------------
TENNESSEE - 1.9%
Public Auth. of Clarksville, TN Pooled Rev. Bonds, Ser. 1994,
3.85%, 06/01/24*.............................................. NR/A-1 4,600,000 4,600,000
-------------
TEXAS - 21.6%
Angelina & Neches River Auth. of Texas IDC Solid Waste
Disposal, Ser. 1984C, 3.90%, 05/01/14*........................ P-1/NR 700,000 700,000
Angelina & Neches River Auth. of Texas IDC Solid Waste
Disposal, Ser. 1984E, 3.90%, 05/01/14*........................ P-1/NR 800,000 800,000
Bexar County, TX Health Fac. Dev. Corp. Rev. Bonds (Air
Force Village II Proj.), Ser. 1985B, 3.80%, 03/01/12*......... NR/A-1+ 10,100,000 10,100,000
City of Brownsville, TX Utilities Sys. TECP, Ser. A, 3.70%,
11/19/96...................................................... P-1/A-1+ 6,700,000 6,700,000
Dallas TX Area Rapid Transit TECP, 3.70%, 12/13/96.............. P-1/A-1+ 9,300,000 9,300,000
Harris County, TX Health Fac. Auth. Dev. Corp. (St. Luke's
Episcopal Hosp. Proj.), Ser. C, 4.00%, 02/15/16*.............. NR/A-1+ $ 2,000,000 $ 2,000,000
Harris County, TX Health Fac. Dev. Corp. (Methodist Hosp.),
4.00%, 12/01/25*.............................................. NR/A-1+ 9,700,000 9,700,000
North Central, TX Health Fac. Dev. Corp. (Methodist Hosp.
of Dallas), Ser. 1985B, 4.00%, 10/01/15*...................... NR/A-1 6,000,000 6,000,000
State of Texas Tax and Rev. Antic. Notes, Series 1996, 4.75%,
08/29/97...................................................... MIG1/SP-1 5,825,000 5,866,473
-------------
51,166,473
-------------
UTAH - 2.0%
Salt Lake City, UT Rev. Bonds, Ser. 1990, 3.80%, 01/01/20*....... VMIG1/A-1+ 4,700,000 4,700,000
-------------
WASHINGTON - 4.0%
King County, WA Sewer Rev. Bonds TECP, 3.55%, 11/08/96........... P-1/A-1 6,800,000 6,800,000
Washington Health Care Fac. Auth. Rev. Bonds (Fred Hutchinson
Cancer Research Center), Ser. 1996, 3.95%, 01/01/23*.......... VMIG1/NR 2,800,000 2,800,000
-------------
9,600,000
-------------
WYOMING - 4.9%
Green River, WY Poll. Cntrl. Rev. Bonds (Texas Gulf Inc.),
Ser. 1984, 4.05%, 12/01/04*................................... Aa2/NR 2,000,000 2,000,000
Sweetwater County, WY Poll. Cntrl. Rev. Bonds TECP (Pacificorp
Proj.), Ser. 1988A, 3.55%, 10/17/96........................... P-1/A-1+ 7,500,000 7,500,000
Sweetwater County, WY Poll. Cntrl. Rev. Bonds (Pacificorp
Proj.), Ser. 1984, 3.75%, 12/01/14*........................... P-1/A-1+ 2,100,000 2,100,000
-------------
11,600,000
-------------
TOTAL MUNICIPAL BONDS (COST $236,990,556)................................................ 236,990,556
-------------
TOTAL INVESTMENTS (COST $236,990,556)+ - 99.9%.................................................... 236,990,556
-------------
OTHER ASSETS AND LIABILITIES, NET - 0.1%.......................................................... 194,148
-------------
NET ASSETS - 100.0%............................................................................... $237,184,704
=============
<FN>
* Denotes a Variable or Floating Rate Note. Variable and Floating Rate Notes
are instruments whose rates change periodically. The rate shown is the
interest rate as of September 30, 1996.
+ Cost for federal income tax purposes.
TECP -- Tax-Exempt Commercial Paper.
</TABLE>
The accompanying notes are an integral part of the financial statements.
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1996
<TABLE>
<CAPTION>
RODNEY SQUARE RODNEY SQUARE
FUND - FUND - RODNEY SQUARE
U.S. GOVERNMENT MONEY MARKET TAX-EXEMPT
PORTFOLIO PORTFOLIO FUND
-------------- -------------- -------------
<S> <C> <C> <C>
ASSETS:
Investments in securities (including repurchase agreements
of $123,989,300, $196,458,600 and $0, respectively),
at value (amortized cost $342,197,795, $980,550,193,
and $236,990,556, respectively) (Note 2)................. $ 342,197,795 $ 980,550,193 $ 236,990,556
Interest receivable ...................................... 843,208 4,594,542 931,433
Other assets.............................................. 6,699 9,523 5,013
-------------- -------------- -------------
Total assets ............................................ 343,047,702 985,154,258 237,927,002
-------------- -------------- -------------
LIABILITIES:
Dividends payable ........................................ 1,449,096 3,896,862 627,040
Accrued management fee (Note 3) .......................... 139,866 369,176 97,793
Other accrued expenses (Note 3) .......................... 32,631 32,094 17,465
-------------- -------------- -------------
Total liabilities ....................................... 1,621,593 4,298,132 742,298
-------------- -------------- -------------
NET ASSETS ............................................... $ 341,426,109 $ 980,856,126 $ 237,184,704
============== ============== ==============
NET ASSETS CONSIST OF:
Capital paid in .......................................... $ 341,424,547 $ 980,870,405 $ 237,186,364
Accumulated realized gain (loss) on investments - net ... 1,562 (14,279) (1,660)
-------------- -------------- -------------
NET ASSETS, for 341,424,547, 980,870,405, and 237,193,047,
shares outstanding, respectively ........................ $ 341,426,109 $ 980,856,126 $ 237,184,704
============== ============== ==============
NET ASSET VALUE, offering and redemption price per share:.. $1.00(1) $1.00(2) $1.00(3)
============== ============== ==============
<FN>
1 $341,426,109 / 341,424,547 outstanding shares of beneficial interest, no par value
2 $980,856,126 / 980,870,405 outstanding shares of beneficial interest, no par value
3 $237,184,704 / 237,193,047 outstanding shares of beneficial interest, no par value
</TABLE>
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended September 30, 1996
<TABLE>
<CAPTION>
RODNEY SQUARE RODNEY SQUARE
FUND - FUND - RODNEY SQUARE
U.S. GOVERNMENT MONEY MARKET TAX-EXEMPT
PORTFOLIO PORTFOLIO FUND
-------------- -------------- -------------
<S> <C> <C> <C>
INTEREST INCOME .......................................... $ 20,177,909 $ 48,372,692 $ 10,432,301
-------------- -------------- -------------
EXPENSES:
Management fee (Note 3) ................................. 1,718,316 4,086,710 1,346,805
Accounting fee (Note 3) .................................. 103,119 203,902 87,310
Distribution expenses (Note 3)............................ 71,124 105,102 21,498
Trustees' fees and expenses (Note 3) ..................... 6,375 9,375 6,600
Registration fees ........................................ 36,702 44,624 38,071
Reports to shareholders .................................. 5,261 10,979 8,410
Legal .................................................... 15,493 35,864 20,925
Audit .................................................... 14,360 29,139 29,099
Other .................................................... 43,873 83,151 40,682
-------------- -------------- -------------
Total expenses........................................... 2,014,623 4,608,846 1,599,400
-------------- -------------- -------------
Net investment income.................................... 18,163,286 43,763,846 8,832,901
-------------- -------------- -------------
REALIZED GAIN (LOSS) ON INVESTMENTS - NET (NOTE 2) ....... (58) 127 0
-------------- -------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..... $ 18,163,228 $ 43,763,973 $ 8,832,901
============== ============== ==============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
RODNEY SQUARE RODNEY SQUARE
FUND - FUND - RODNEY SQUARE
U.S. GOVERNMENT MONEY MARKET TAX-EXEMPT
PORTFOLIO PORTFOLIO FUND
-------------- -------------- -------------
<S> <C> <C> <C>
For the Fiscal Year Ended September 30, 1996
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ................................... $ 18,163,286 $ 43,763,846 $ 8,832,901
Net realized gain (loss) on investments ................. (58) 127 0
-------------- -------------- -------------
Net increase in net assets resulting from operations .... 18,163,228 43,763,973 8,832,901
-------------- -------------- -------------
Dividends to shareholders from net investment income
($0.050, $0.050, and $0.031 per share, respectively) .... (18,163,286) (43,763,846) (8,832,901)
-------------- -------------- -------------
Share transactions at net asset value of $1.00 per share
Proceeds from sale of shares ............................ 4,435,793,585 6,848,793,367 2,137,883,514
Shares issued to shareholders in reinvestment of dividends
from net investment income .......................... 388,936 3,203,419 289,502
Cost of shares redeemed ................................. (4,400,852,267) (6,622,265,795) (2,219,200,892)
-------------- -------------- -------------
Net increase (decrease) in net assets and shares resulting
from share transactions ............................... 35,330,254 229,730,991 (81,027,876)
-------------- -------------- -------------
Total increase (decrease) in net assets .................. 35,330,196 229,731,118 (81,027,876)
NET ASSETS:
Beginning of year ....................................... 306,095,913 751,125,008 318,212,580
-------------- -------------- -------------
End of year ............................................. $ 341,426,109 $ 980,856,126 $ 237,184,704
============== ============== ==============
For the Fiscal Year Ended September 30, 1995
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ................................... $ 18,666,118 $ 37,030,904 $ 11,879,978
Net realized gain (loss) on investments ................. (6,526) 243 4,106
-------------- -------------- -------------
Net increase in net assets resulting from operations .... 18,659,592 37,031,147 11,884,084
Dividends to shareholders from net investment income
($0.052, $0.054, and $0.033 per share, respectively) .... (18,666,118) (37,030,904) (11,879,978)
-------------- -------------- -------------
Share transactions at net asset value of $1.00 per share
Proceeds from sale of shares ............................ 3,161,916,931 5,233,294,691 2,175,933,192
Shares issued to shareholders in reinvestment of dividends
from net investment income .......................... 305,455 1,620,673 314,985
Cost of shares redeemed ................................. (3,192,886,094) (5,090,626,079) (2,246,604,280)
-------------- -------------- -------------
Net increase (decrease) in net assets and shares resulting
from share transactions ............................... (30,663,708) 144,289,285 (70,356,103)
-------------- -------------- -------------
Total increase (decrease) in net assets .................. (30,670,234) 144,289,528 (70,351,997)
NET ASSETS:
Beginning of year ....................................... 336,766,147 606,835,480 388,564,577
-------------- -------------- -------------
End of year ............................................. $ 306,095,913 $ 751,125,008 $ 318,212,580
-------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following tables include selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. They should be read in conjunction with the financial statements
and notes thereto.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
1996 1995 1994+ 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
RODNEY SQUARE FUND - U.S. GOVERNMENT PORTFOLIO
For a Share Outstanding Throughout Each Year:
NET ASSET VALUE - BEGINNING OF YEAR ............... $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- -------
Investment Operations:
Net investment income ............................ 0.050 0.052 0.033 0.028 0.038
------- ------- ------- ------- -------
Distributions:
From net investment income ...................... (0.050) (0.052) (0.033) (0.028) (0.038)
------- ------- ------- ------- -------
NET ASSET VALUE - END OF YEAR ..................... $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= =======
Total Return ....................................... 5.08% 5.37% 3.32% 2.83% 3.88%
Ratios (to average net assets)/Supplemental Data:
Expenses ....................................... 0.55% 0.55% 0.53% 0.53% 0.54%
Net investment income........................... 4.97% 5.25% 3.27% 2.79% 3.84%
Net assets at end of year (000 omitted) $341,426 $306,096 $336,766 $386,067 $409,534
</TABLE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
1996 1995 1994+ 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
RODNEY SQUARE FUND - MONEY MARKET PORTFOLIO
For a Share Outstanding Throughout Each Year:
NET ASSET VALUE - BEGINNING OF YEAR ................ $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- -------
Investment Operations:
Net investment income ............................ 0.050 0.054 0.033 0.029 0.041
------- ------- ------- ------- -------
Distributions:
From net investment income ...................... (0.050) (0.054) (0.033) (0.029) (0.041)
------- ------- ------- ------- -------
NET ASSET VALUE - END OF YEAR ..................... $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= =======
Total Return ....................................... 5.17% 5.50% 3.37% 2.92% 4.15%
Ratios (to average net assets)/Supplemental Data:
Expenses ....................................... 0.53% 0.54% 0.53% 0.52% 0.52%
Net investment income........................... 5.03% 5.37% 3.33% 2.88% 4.06%
Net assets at end of year (000 omitted)............. $980,856 $751,125 $606,835 $649,424 $717,544
<FN>
+ During the fiscal year ended September 30, 1994, the Fund Manager
contributed capital of $0.0045 and $0.0028 per share to the U.S.
Government Portfolio and the Money Market Portfolio, respectively.
</TABLE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
RODNEY SQUARE TAX-EXEMPT FUND
For a Share Outstanding Throughout Each Year:
NET ASSET VALUE - BEGINNING OF YEAR ............... $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- -------
Investment Operations:
Net investment income ............................ 0.031 0.033 0.021 0.020 0.030
------- ------- ------- ------- -------
Distributions:
From net investment income ...................... (0.031) (0.033) (0.021) (0.020) (0.030)
------- ------- ------- ------- -------
NET ASSET VALUE - END OF YEAR ..................... $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= =======
Total Return ....................................... 3.11% 3.36% 2.17% 2.07% 3.06%
Ratios (to average net assets)/Supplemental Data:
Expenses ....................................... 0.56% 0.54% 0.54% 0.54% 0.54%
Net investment income........................... 3.08% 3.29% 2.13% 2.05% 3.06%
Net assets at end of year (000 omitted)............. $237,185 $318,213 $388,565 $405,517 $327,098
</TABLE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------
1.DESCRIPTION AND SHARES OF THE FUND. The Rodney Square Fund
and the Rodney Square Tax-Exempt Fund (the "Fund(s)") are
Massachusetts business trusts registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as
diversified, open-end management investment companies. The
Declarations of Trust for the Rodney Square Fund, dated
February 16, 1982, and the Rodney Square Tax-Exempt Fund,
dated July 31, 1985, each as last amended on February 15,
1993, permit the Trustees of each Fund to create additional
series (or portfolios), each of which may issue additional
classes of shares. There are currently two portfolios, the
U.S. Government Portfolio and the Money Market Portfolio (the
"Portfolios"), in the Rodney Square Fund, each of which
currently consists of a single class of shares. The Rodney
Square Tax-Exempt Fund has one portfolio (also a "Portfolio")
with a single class of shares.
2.SIGNIFICANT ACCOUNTING POLICIES. The following is a summary
of the significant accounting policies of each Fund:
SECURITY VALUATION. Each Fund values securities utilizing the
amortized cost valuation method which is permitted under Rule
2a-7 under the 1940 Act provided that the Fund complies with
certain conditions. This method involves valuing a portfolio
security initially at its cost and thereafter adjusting for
amortization of premium or accretion of discount to maturity.
FEDERAL INCOME TAXES. Each Portfolio is treated as a separate
entity for federal income tax purposes and each intends to
continue to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 and to
distribute all of its taxable income and tax-exempt income to
its shareholders. Therefore, no federal income tax provision
is required. At September 30, 1996, the U.S. Government
Portfolio, the Money Market Portfolio and the Rodney Square
Tax-Exempt Fund had a net tax basis capital loss carryforward
available to offset future capital gains of approximately
$7,000, $14,000 and $2,000, respectively, which will expire as
follows:
CAPITAL LOSS EXPIRATION
CARRYFORWARD DATE
------------ ----------
U.S. Government Portfolio $ 7,000 09/30/03
Money Market Portfolio $ 14,000 09/30/02
Rodney Square Tax-Exempt Fund $ 2,000 09/30/02
INTEREST INCOME AND DIVIDENDS TO SHAREHOLDERS. Interest
income is accrued as earned. Dividends to shareholders of
each Portfolio are declared daily from net investment income,
which consists of accrued interest and discount earned
(including original issue discount), less amortization of
premium and the accrued expenses applicable to the dividend
period. For the Rodney Square Tax-Exempt Fund only, the tax-
exempt interest portion of each dividend is determined
uniformly, based on the ratio of the Fund's tax-exempt and
taxable income, if any, for the entire fiscal year.
REPURCHASE AGREEMENTS. The Rodney Square Fund, through its
custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to
be in an amount at least equal to 101% of the resale price.
Rodney Square Management Corporation ("RSMC"), the Fund
Manager, is responsible for determining that the amount of
these underlying securities is maintained at a level such that
their market value is at all times equal to 101% of the resale
price. In the event of default of the obligation to
repurchase, the Fund has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
OTHER. Investment security transactions are accounted for on
a trade date basis. The Funds use the specific identification
method for determining realized gain and loss on investments
for both financial and federal income tax reporting purposes.
Obligations of agencies and instrumentality's of the U.S.
Government are not direct obligations of the U.S. Treasury
and, thus, may or may not be backed by the "full faith and
credit" of the United States. Payment of interest and
principal on these obligations, although generally backed
directly or indirectly by the U.S. Government, may be backed
solely by the issuing instrumentality.
The Money Market Portfolio invests in short-term unsecured
debt instruments of corporate issuers. Although the Fund
maintains a diversified portfolio, the issuers' ability to
meet their obligations may be affected by economic
developments in a specific industry or region. The Money
Market Portfolio had investments in corporate notes,
commercial paper, certificates of deposit, and bankers'
acceptances of domestic and foreign banks which in the
aggregate approximated 41.4% of its total investments on
September 30, 1996.
Approximately 85.8% of the investments in the Rodney Square
Tax-Exempt Fund on September 30, 1996 were insured by private
issuers that guarantee payments of principal and interest in
the event of default or were backed by letters of credit
issued by domestic and foreign banks or financial
institutions.
3.MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES. The
Funds employ RSMC, a wholly owned subsidiary of Wilmington
Trust Company ("WTC"), to serve as Investment Adviser and
Administrator to each of the Funds pursuant to separate
Management Agreements each dated August 9, 1991. Under the
Management Agreements, RSMC, subject to the supervision of the
Funds' Boards of Trustees, directs the investments of the
Portfolios in accordance with each Portfolio's investment
objective, policies and limitations. Also under the
Management Agreements, RSMC is responsible for administrative
services such as budgeting, financial reporting, compliance
monitoring and corporate management. For its services, the
Funds pay RSMC a monthly fee at the annual rate of 0.47% of
the average daily net assets of each Portfolio of the Funds.
The management fee paid to RSMC for the fiscal year ended
September 30, 1996, amounted to $1,718,316 for the U.S.
Government Portfolio, $4,086,710 for the Money Market
Portfolio and $1,346,805 for the Rodney Square Tax-Exempt
Fund.
RSMC determines the net asset value per share and provides all
Fund accounting services pursuant to a separate Accounting
Services Agreement with each Fund. For its services, RSMC
receives an annual fee of $50,000 per Portfolio, plus an
amount equal to 0.02% of each Portfolio's average daily net
assets in excess of $100,000,000. For the fiscal year ended
September 30, 1996, RSMC's fees for accounting services
amounted to $103,119 for the U.S. Government Portfolio,
$203,902 for the Money Market Portfolio and $87,310 for the
Rodney Square Tax-Exempt Fund.
WTC serves as Custodian of the assets of the Funds and is paid
for the provision of this service by RSMC out of its
management fee. The Funds reimburse WTC for its related out-
of-pocket expenses, if any, incurred in connection with the
performance of these services.
RSMC serves as Transfer and Dividend Paying Agent for the
Funds and does not receive any separate fees from the Funds
for the performance of these services other than the
reimbursement of all reasonable out-of-pocket expenses
incurred by RSMC or its agents for the provision of such
services.
Pursuant to a Distribution Agreement with each Fund, dated as
of December 31, 1992, Rodney Square Distributors, Inc.
("RSD"), a wholly owned subsidiary of WTC, manages the Funds'
distribution efforts and provides assistance and expertise in
developing marketing plans and materials. The Funds' Boards
of Trustees have adopted, and shareholders have approved,
distribution plans (the "12b-1 Plans") pursuant to Rule 12b-1
under the 1940 Act, to allow each Fund to reimburse RSD for
certain expenses incurred in connection with distribution
activities. The Trustees have authorized a payment of up to
0.20% of each Portfolio's average daily net assets annually to
reimburse RSD for such expenses. For the fiscal year ended
September 30, 1996, such expenses amounted to $71,124 for the
U.S. Government Portfolio, $105,102 for the Money Market
Portfolio and $21,498 for the Rodney Square Tax-Exempt Fund.
The salaries of all officers of each Fund, the Trustees of
each Fund who are "interested persons" of the Fund, WTC, RSMC,
RSD, or their affiliates and all personnel of the Funds, WTC,
RSMC or RSD performing services related to research,
statistical and investment activities, are paid by WTC, RSMC,
RSD, or their affiliates. The fees and expenses of the "non-
interested" Trustees amounted to $6,375 for the U.S.
Government Portfolio, $9,375 for the Money Market Portfolio
and $6,600 for the Rodney Square Tax-Exempt Fund for the
fiscal year ended September 30, 1996.
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- -----------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Trustees of The Rodney Square Fund and
The Rodney Square Tax-Exempt Fund:
We have audited the accompanying statements of assets and
liabilities, including the schedules of investments, of The
Rodney Square Fund (comprising, respectively, the U.S. Government
and the Money Market Portfolios) and The Rodney Square Tax-Exempt
Fund (the "Funds"), as of September 30, 1996, and the related
statements of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period
then ended, and financial highlights for each of the five years
in the period then ended. These financial statements and
financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of September 30, 1996 by correspondence with
the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of each of the respective portfolios
constituting The Rodney Square Fund and The Rodney Square Tax-
Exempt Fund at September 30, 1996, the results of their
operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and
financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Baltimore, Maryland
October 21, 1996
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
TAX INFORMATION
- -----------------------------------------------------------------
Pursuant to Section 852 of the Internal Revenue Code of 1986, The
Rodney Square Tax-Exempt Fund designates $8,832,901 as tax-exempt
dividends.
In January, 1997 shareholders of the Funds will receive Federal
income tax information on all distributions paid to their
accounts in calendar year 1996, including any distributions paid
between September 30, 1996 and December 31, 1996.
[Outside cover -- divided into two sections]
[Left section]
TRUSTEES
Eric Brucker
Fred L. Buckner
Robert J. Christian
Martin L. Klopping
John J. Quindlen
------------------------
OFFICERS
Martin L. Klopping, PRESIDENT
Joseph M. Fahey, Jr., VICE PRESIDENT
Robert C. Hancock, VICE PRESIDENT & TREASURER
Carl M. Rizzo, Esq., ASSISTANT SECRETARY
Diane D. Marky, ASSISTANT SECRETARY
Connie L. Meyers, ASSISTANT SECRETARY
John J. Kelley, ASSISTANT TREASURER
------------------------------------------------
FUND MANAGER, ADMINISTRATOR AND
TRANSFER AGENT
Rodney Square Management Corporation
----------------------------------------
CUSTODIAN
Wilmington Trust Company
----------------------------
DISTRIBUTOR
Rodney Square Distributors, Inc.
-----------------------------------
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
------------------------------
INDEPENDENT AUDITORS
Ernst & Young LLP
----------------------
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE
SHAREHOLDERS OF THE FUNDS. THE REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUNDS UNLESS
PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
RS02 11/96
[Right section]
the RODNEY SQUARE
FUND
&
the RODNEY SQUARE
TAX-EXEMPT
FUND
[GRAPHIC] Caesar Rodney
upon his galloping horse
facing right, reverse
image on dark background
ANNUAL REPORT
SEPTEMBER 30, 1996
