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, 1997.
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 5.07%, 5.17% and 3.09%, respectively.
ECONOMIC OVERVIEW
U.S. economic activity remained buoyant throughout the
Funds' fiscal year. The economy barreled along during the first
half at a 4.6% annualized rate, prompting the Federal Reserve
(the "Fed") to raise its federal funds rate target 25 basis
points to 5.50% on March 25, 1997. The Fed's decision to slightly
tighten monetary policy was a preemptive effort to slow growth
before price pressures began to mount. Economic growth over the
remaining half of the fiscal year appears to have cooled to a
more moderate 3.0-3.5% annualized rate. Demand growth remained
strong, however, and capacity constraints tightened with the
unemployment rate dipping below 5%. The four-quarter growth rate
in excess of 4%, is well above most academic estimates of the
economy's non-inflationary growth potential. In the past, this
combination of strong growth, low unemployment and strong
consumer demand have provided a breeding ground for inflation.
The behavior of inflation this year, however, has been at
odds with past experience. Consumer prices have risen at a scant
2.2% year over year rate despite solid growth in the economy's
output. Many analysts have begun to reexamine their views of the
economy and a new paradigm economic thesis seems to be emerging.
Fed Chairman Greenspan appeared to have warmed to this
possibility as his Humprey-Hawkins testimony before Congress in
July was decidedly less hawkish than his report in February. This
"brave new world" thinking has the economy undergoing structural
changes that have increased the economy's non-inflationary growth
potential. Under this scenario, productivity gains allow supply
side factors to limit upward price pressures that would normally
be associated with strong demand growth and lend support for a
lower natural rate of unemployment.
The question confronting policy makers going forward is
whether these changes are indeed structural, or will prove to
be cyclical and transitory. While there are clearly some doubts
at the central bank regarding the dawning of a "new era" for the
U.S. economy, the risk of a preemptive tightening at this point
could prove costly in terms of lost output. Monetary policy
makers appear willing to take a "wait and see" approach toward
inflation as reflected in their decision to leave rates unchanged
at the September Federal Open Market Committee meeting.
Recent data seem to indicate that the economy is operating
at a less robust pace than earlier in the year lending support
for the Fed's "wait and see" approach. Since early September, the
markets have rallied sharply as reports on manufacturing, prices
and employment suggested the economy was losing steam. At year
end, yields across the coupon curve were off nearly 100 basis
points from the highs seen in April, while one year money market
levels were about 50 basis points lower.
* PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. AN
INVESTMENT IN EITHER FUND IS NEITHER INSURED NOR GUARANTEED BY
WILMINGTON TRUST COMPANY OR ANY OTHER BANKING
INSTITUTION, THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION (FDIC), THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY. THERE CAN BE NO ASSURANCE THAT EITHER FUND WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00.
<PAGE>
THE RODNEY SQUARE FUND - & THE RODNEY SQUARE TAX-EXEMPT FUND
- ------------------------------------------------------------
PRESIDENT'S MESSAGE - CONTINUED
- -----------------------------------------------------------------------------
Given the high resource utilization rate in the economy, we
expect the Fed to remain vigilant with respect to upward price
pressure. Fed Chairman Greenspan's comments before the House
Budget Committee on October 8 indicate that he has not fully
embraced the new economic paradigm. Greenspan's comments imply
that he remains concerned about potential inflation pressures
should unusually strong economic growth persist. Current economic
conditions suggest to us that the risks are still skewed for the
Fed to tighten. However, barring a significant near term re-
acceleration in demand growth or an inflation shock, monetary
policy will likely be on hold through year end.
INVESTMENT STRATEGY
During the course of the past fiscal year, Rodney Square
Management Corporation attempted to anticipate the directional
changes in interest rates and swings in market psychology to
structure the portfolios to maximize returns for shareholders. We
attempt to identify relative value in the money markets and
adjust the weighted average maturity of the portfolios
accordingly. Judging by the favorable return 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 return of 5.17% versus 4.97% for IBC's
First Tier average; the U.S. Government Portfolio had a 12-month
return of 5.07% versus 4.88% for IBC's Government and Agency
average; and the Tax-Exempt Fund had a 12-month return of 3.09%
versus 3.04% for IBC's Stockbroker & General category average. *
We invite your comment and questions and we thank you for
your investment in the Funds.
Sincerely,
/s/ Martin L. Klopping
Martin L. Klopping
President
October 23, 1997
* PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. AN
INVESTMENT IN EITHER FUND IS NEITHER INSURED NOR GUARANTEED BY
WILMINGTON TRUST COMPANY OR ANY OTHER BANKING
INSTITUTION, THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION (FDIC), THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY. THERE CAN BE NO ASSURANCE THAT EITHER FUND WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00.
<PAGE>
THE RODNEY SQUARE FUND/ U.S. GOVERNMENT PORTFOLIO
- -------------------------------------------------
INVESTMENTS / SEPTEMBER 30, 1997
(Showing Percentage of Total Value of Net Assets)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 56.2% FEDERAL FARM CREDIT BANKS DISCOUNT
NOTES - 13.8%
<S> <C> <C>
Federal Farm Credit Banks Notes, 5.40%, 10/10/97.. $ 10,000,000 $ 9,986,500
Federal Farm Credit Banks Notes, 5.48%, 11/03/97.. 15,000,000 14,924,696
Federal Farm Credit Banks Notes, 5.35%, 01/09/98.. 10,000,000 9,851,389
Federal Farm Credit Banks Notes, 5.42%, 01/27/98.. 6,000,000 5,893,407
Federal Farm Credit Banks Notes, 5.37%, 05/18/98.. 12,000,000 11,590,090
------------
52,246,082
------------
FEDERAL FARM CREDIT BANKS NOTES - 6.6%
Federal Farm Credit Banks Notes, 5.85%, 10/01/97.. 5,000,000 5,000,000
Federal Farm Credit Banks Notes, 5.46%, 10/01/97*. 8,000,000 8,000,000
Federal Farm Credit Banks Notes, 7.51%, 02/13/98.. 5,000,000 5,030,938
Federal Farm Credit Banks Notes, 5.40%, 03/06/98.. 7,000,000 6,993,168
------------
25,024,106
------------
FEDERAL HOME LOAN BANKS DISCOUNT NOTES - 22.7%
Federal Home Loan Banks Notes, 5.41%, 10/10/97... 6,500,000 6,491,209
Federal Home Loan Banks Notes, 5.30%, 10/10/97... 7,000,000 6,990,725
Federal Home Loan Banks Notes, 5.41%, 10/14/97... 7,445,000 7,430,442
Federal Home Loan Banks Notes, 5.61%, 10/15/97... 7,000,000 6,984,728
Federal Home Loan Banks Notes, 5.42%, 10/30/97... 5,385,000 5,361,488
Federal Home Loan Banks Notes, 5.43%, 11/07/97... 20,000,000 19,888,383
Federal Home Loan Banks Notes, 5.47%, 12/03/97... 5,000,000 4,952,138
Federal Home Loan Banks Notes, 5.42%, 12/10/97... 6,050,000 5,986,240
Federal Home Loan Banks Notes, 5.39%, 01/14/98... 5,000,000 4,921,396
Federal Home Loan Banks Notes, 5.39%, 01/16/98... 6,141,000 6,042,619
Federal Home Loan Banks Notes, 5.41%, 02/04/98... 6,000,000 5,886,390
Federal Home Loan Banks Notes, 5.45%, 03/11/98... 5,000,000 4,878,132
-----------
85,813,890
-----------
FEDERAL HOME LOAN BANKS NOTES - 9.2%
Federal Home Loan Banks Notes, 5.70%, 10/16/97... 10,000,000 9,998,848
Federal Home Loan Banks Notes, 5.71%, 01/21/98... 5,000,000 5,001,767
Federal Home Loan Banks Notes, 5.67%, 03/10/98... 5,000,000 5,001,810
Federal Home Loan Banks Notes, 6.12%, 04/17/98... 5,000,000 4,999,575
Federal Home Loan Banks Notes, 5.76%, 09/25/98... 5,000,000 5,000,250
Federal Home Loan Banks Notes, 5.69%, 10/02/98... 5,000,000 4,996,450
-----------
34,998,700
-----------
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE FUND/ U.S. GOVERNMENT PORTFOLIO
- -------------------------------------------------
INVESTMENTS - CONTINUED
- -------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT (NOTE 2)
--------- --------
TENNESSEE VALLEY AUTHORITY DISCOUNT NOTES - 3.9%
Tennessee Valley Authority Notes, 5.40%, 11/17/97 $ 5,000,000 $ 4,964,750
Tennessee Valley Authority Notes, 5.37%, 12/29/97 10,000,000 9,867,242
-----------
14,831,992
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $212,914,770).............................. 212,914,770
-----------
REPURCHASE AGREEMENTS - 45.4%
With Dean Witter Reynolds, Inc.: at 6.30%,
dated 09/30/97, to be repurchased at $80,014,000
on 10/01/97, collaterized by $81,600,040 of various
U.S. Government Agency Obligation Securities with
various coupons and maturities to 09/01/27 ........ 80,000,000 80,000,000
With UBS Securities: at 6.30%, dated 09/30/97, to be
repurchased at $91,689,243 on 10/01/97,
collateralized by $93,508,509 Federal National
Mortgage Association Securities with various coupons
and maturities to 03/01/33......................... 91,673,200 91,673,200
------------
TOTAL REPURCHASE AGREEMENTS (COST $171,673,200)............... 171,673,200
------------
TOTAL INVESTMENTS (COST $384,587,970)+ - 101.6%................... 384,587,970
OTHER ASSETS AND LIABILITIES, NET - (1.6)%........................ (6,113,469)
------------
NET ASSETS - 100.0%............................................... $378,474,501
============
<FOOTNOTE>
* Denotes a Variable or Floating Rate Note. Variable and Floating Rate Notes
are instruments whose rates change periodically. The rates shown are the
interest rates as of September 30 1997.
+ Cost for federal income tax purposes.
</FOOTNOTE>
</TABLE>
<PAGE>
THE RODNEY SQUARE FUND / MONEY MARKET PORTFOLIO
- -----------------------------------------------
INVESTMENTS / SEPTEMBER 30, 1997
(Showing Percentage of Total Value of Net Assets)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- ---------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT - 19.8%
FOREIGN BANKS, FOREIGN CENTERS - 4.3%
Bayerische Vereinsbank, 5.73%, 12/22/97.......................... P-1/A-1+ $ 25,000,000 $ 24,989,681
Bayerische Vereinsbank, 5.75%, 03/16/98.......................... P-1/A-1+ 10,000,000 10,000,448
Societe Generale, London Branch, 5.73%, 02/17/98................. P-1/A-1+ 16,000,000 16,001,800
-------------
50,991,929
-------------
U.S. BANKS, U.S. BRANCHES - 0.4%
Morgan Guaranty, New York Branch, 5.87%, 08/06/98................ P-1/A-1+ 5,000,000 4,998,785
-------------
FOREIGN BANKS, U.S. BRANCHES - 15.1%
ABN-AmRo Bank, 5.60%, 12/16/97................................... P-1/A-1+ 10,000,000 9,998,959
Banque Nationale de Paris, 5.55%, 10/08/97....................... P-1/A-1 20,000,000 20,000,000
Banque Nationale de Paris, 5.58%, 12/22/97....................... P-1/A-1 35,000,000 35,000,000
Canadian Imperial Bank of Commerce, 5.88%, 01/14/98.............. P-1/A-1+ 26,000,000 26,000,000
Credit Agricole, 5.75%, 02/13/98................................. P-1/A-1+ 25,000,000 25,000,000
Deutsche Bank, 5.91%, 09/14/98................................... P-1/A-1+ 15,000,000 14,990,433
Royal Bank of Canada, 5.78%, 12/11/97............................ P-1/A-1+ 5,000,000 5,000,812
Royal Bank of Canada, 5.95%, 03/24/98............................ P-1/A-1+ 10,000,000 9,994,991
Societe Generale, 5.57%, 11/19/97................................ P-1/A-1+ 10,000,000 10,000,000
Societe Generale, 6.20%, 05/12/98................................ P-1/A-1+ 10,000,000 9,998,252
Societe Generale, 5.77%, 09/08/98*............................... P-1/A-1+ 14,000,000 13,992,549
-------------
179,975,996
-------------
TOTAL CERTIFICATES OF DEPOSIT (COST $235,966,710)............................................. 235,966,710
-------------
COMMERCIAL PAPER - 52.5%
AGRICULTURE - 2.9%
Louis Dreyfus Corp., Ser. B, 5.54%, 10/10/97..................... P-1/A-1+ 10,000,000 9,986,150
Louis Dreyfus Corp., Ser. B, 5.53%, 10/15/97..................... P-1/A-1+ 25,000,000 24,946,236
-------------
34,932,386
-------------
AUTOMOBILES - 5.5%
Daimler-Benz North America Corp., 5.51%, 10/06/97................ P-1/A-1 5,000,000 4,996,174
Daimler-Benz North America Corp., 5.55%, 01/12/98................ P-1/A-1 20,000,000 19,682,417
Daimler-Benz North America Corp., 5.53%, 03/20/98................ P-1/A-1 15,000,000 14,608,292
Volkswagen of America, Inc., 5.54%, 10/17/97..................... P-1/A-1 15,000,000 14,963,067
Volkswagen of America, Inc., 5.53%, 10/24/97..................... P-1/A-1 11,200,000 11,160,430
-------------
65,410,380
-------------
BANKS - 2.9%
Abbey National North America, 5.51%, 03/16/98.................... P-1/A-1+ 15,000,000 14,618,892
UBS Finance, 5.52%, 10/16/97..................................... P-1/A-1+ 20,000,000 19,954,000
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE> 34,572,892
-------------
THE RODNEY SQUARE FUND / MONEY MARKET PORTFOLIO
-----------------------------------------------
INVESTMENTS - CONTINUED
------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- ---------
CHEMICALS - 8.8%
Akzo Nobel America, Inc., 5.60%, 10/21/97........................ P-1/A-1 $ 10,000,000 $ 9,968,889
Akzo Nobel America, Inc., 5.54%, 11/06/97........................ P-1/A-1 5,000,000 4,972,300
Akzo Nobel America, Inc., 5.51%, 11/18/97........................ P-1/A-1 15,000,000 14,889,800
Akzo Nobel America, Inc., 5.53%, 12/11/97........................ P-1/A-1 10,000,000 9,890,936
Akzo Nobel America, Inc., 5.54%, 01/22/98........................ P-1/A-1 10,000,000 9,826,106
E.I. DuPont de Nemours & Co., 5.63%, 12/02/97.................... P-1/A-1+ 25,000,000 24,757,597
Formosa Plastics Corp. USA, 5.53%, 10/07/97...................... P-1/A-1+ 30,000,000 29,972,350
-------------
104,277,978
-------------
FINANCIAL SERVICES - 7.7%
General Electric Cap. Corp., 5.57%, 12/05/97..................... P-1/A-1+ 25,000,000 24,748,576
General Electric Cap. Corp., 5.57%, 01/09/98..................... P-1/A-1+ 12,000,000 11,814,333
Morgan Stanley Dean Witter Discover Co., 5.55%, 10/07/97......... P-1/A-1 40,000,000 39,963,267
Morgan Stanley Dean Witter Discover Co., 5.52%, 10/14/97......... P-1/A-1 15,000,000 14,970,100
-------------
91,496,276
-------------
INTERNATIONAL TRADING - 0.4%
Daewoo International America Corp., 5.55%, 02/26/98.............. P-1/A-1+ 5,000,000 4,885,917
-------------
LEASING - 8.1%
International Lease Finance Corp., 5.51%, 11/14/97............... P-1/A-1 36,000,000 35,757,560
International Lease Finance Corp., 5.50%, 12/03/97............... P-1/A-1 10,000,000 9,903,750
Vehicle Services Corp. of America Ltd., 5.54%, 11/04/97.......... P-1/A-1+ 2,500,000 2,486,919
Vehicle Services Corp. of America Ltd., 5.54%, 11/18/97.......... P-1/A-1+ 48,000,000 47,645,440
-------------
95,793,669
-------------
MARKETING - 1.0%
Omnicom Finance, Inc., 5.53%, 10/16/97........................... P-1/A-1+ 12,000,000 11,972,350
-------------
MEDICAL & MEDICAL SERVICES - 0.7%
Medical Building Funding VII, L.L.C., 5.85%, 12/04/97............ NR/A-1 8,300,000 8,213,680
-------------
PHARMACEUTICALS PREPARATIONS - 3.3%
Zeneca Wilmington, Inc., 5.50%, 11/14/97......................... P-1/A-1+ 40,000,000 39,730,927
-------------
SECURITIES DEALERS - 11.2%
Credit Suisse First Boston, Inc., 5.80%, 10/20/97................ P-1/A-1+ 10,838,000 10,804,824
Credit Suisse First Boston, Inc., 5.52%, 12/10/97................ P-1/A-1+ 24,000,000 23,742,400
Goldman Sachs Group LP, 5.51%, 10/09/97.......................... P-1/A-1+ 15,000,000 14,981,633
Goldman Sachs Group LP, 5.53%, 11/12/97.......................... P-1/A-1+ 25,000,000 24,838,708
Goldman Sachs Group LP, 5.51%, 11/18/97.......................... P-1/A-1+ 10,000,000 9,926,533
Merrill Lynch & Co., Inc., 5.52%, 11/13/97....................... P-1/A-1+ 20,000,000 19,868,134
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE FUND / MONEY MARKET PORTFOLIO
- -----------------------------------------------
INVESTMENTS - CONTINUED
- ------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- ---------
Merrill Lynch & Co., Inc., 5.58%, 01/06/98....................... P-1/A-1+ $ 30,000,000 $ 29,549,085
-------------
133,711,317
-------------
TOTAL COMMERCIAL PAPER (COST $624,997,772).................................................... 624,997,772
-------------
CORPORATE NOTES - 9.4%
BANKS - 6.7%
Bank of America, NT & SA, 5.52%, 11/21/97........................ P-1/A-1+ 20,000,000 19,998,368
Bank One Columbus, 5.52%, 06/10/98*.............................. P-1/A-1+ 25,000,000 24,988,943
Morgan Guaranty Trust Co., 6.02%, 03/25/98....................... P-1/A-1+ 10,000,000 9,996,430
Royal Bank of Canada, 5.49%, 06/09/98*........................... P-1/A-1+ 25,000,000 24,987,546
-------------
79,971,287
-------------
FINANCIAL - 0.2%
General Electric Cap. Corp., 5.05%, 02/09/98..................... Aaa/AAA 3,000,000 2,992,152
-------------
CHEMICALS - 1.2%
E.I. DuPont de Nemours & Co. Discount Note, 5.48%, 07/28/98...... P-1/A-1+ 15,000,000 14,315,000
-------------
SECURITY & COMMODITY BROKERS, DEALERS - 1.3%
Credit Suisse First Boston, Inc., 5.93%, 03/17/98................ P-1/A-1+ 5,000,000 5,000,000
Credit Suisse First Boston, Inc., 6.15%, 06/02/98................ P-1/A-1+ 10,000,000 10,018,912
-------------
15,018,912
-------------
TOTAL CORPORATE NOTES (COST $112,297,351)....................................................... 112,297,351
-------------
TAXABLE MUNICIPAL SECURITIES - 5.4%
CALIFORNIA - 3.7%
Oakland-Alameda County Coliseum Auth., 5.64%, 12/02/97........... VMIG1/A-1+ 7,500,000 7,500,000
Oakland-Alameda County Coliseum Auth., Ser. 1996 A-2, 5.65%,
10/09/97...................................................... VMIG1/A-1+ 10,000,000 10,000,000
Oakland-Alameda County Coliseum Auth., Ser. 1996 A-2, 5.66%,
10/14/97....................................................... VMIG1/A-1+ 20,600,000 20,600,000
Oakland-Alameda County Coliseum Auth., Ser. 1996 A-2, 5.63%,
11/17/97....................................................... VMIG1/A-1+ 6,500,000 6,500,000
-------------
44,600,000
-------------
ILLINOIS - 1.7%
Illinois Student Assistance Commission Tax., Ser. B, 5.56%,
09/01/31*...................................................... VMIG1/NR 16,000,000 16,000,000
Waukesha Health Systems, Inc. Tax. Rev. Bonds, Ser. 1996,
5.65%, 08/15/26*............................................... VMIG1/A-1+ 3,750,000 3,750,000
-------------
19,750,000
-------------
TOTAL TAXABLE MUNICIPAL SECURITIES (COST $64,350,000)......................................... 64,350,000
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE FUND / MONEY MARKET PORTFOLIO
- -----------------------------------------------
INVESTMENTS - CONTINUED
- ------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- ---------
TIME DEPOSITS - 8.4%
Credit Commercial de France, Grand Cayman Branch, 6.50%,
10/01/97....................................................... P-1/A-1 $ 50,000,000 $ 50,000,000
Republic National Bank of New York, Grand Cayman Branch,
6.50%, 10/01/97................................................ P-1/A-1+ 50,000,000 50,000,000
-------------
TOTAL TIME DEPOSITS (COST $100,000,000)....................................................... 100,000,000
-------------
REPURCHASE AGREEMENT - 4.5%
With UBS Securities, Inc.: at 6.30%, dated 09/30/97, to be
repurchased at $53,148,299 on 10/01/97, collateralized by
$54,204,692 Federal National Mortgage Association security
due 03/01/33(COST $53,139,000) ................................................. 53,139,000 $ 53,139,000
-------------
TOTAL INVESTMENTS (COST $1,190,750,833)+ - 100.0%.................................................. 1,190,750,833
OTHER ASSETS AND LIABILITIES, NET - 0.0% .......................................................... 519,875
-------------
NET ASSETS - 100.0%................................................................................ $1,191,270,708
==============
<FOOTNOTES>
* Denotes a Variable or Floating Rate Note. Variable and Floating Rate Notes
are instruments whose rates change periodically. The rates shown are the
interest rates as of September 30, 1997.
+ Cost for federal income tax purposes.
</FOOTNOTES>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS / SEPTEMBER 30, 1997
(Showing Percentage of Total Value of Net Assets)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- ---------
<S> <C> <C> <C>
MUNICIPAL BONDS - 99.9%
ALABAMA - 1.2%
Port City Medical Clinic Brd. of Mobile, AL Rev. Bonds TECP
(Mobile Infirmary Assoc.), Ser. 1992-A, 3.75%, 10/15/97........ VMIG1/A-1+ $ 3,300,000 $ 3,300,000
-------------
CALIFORNIA - 1.1%
State of California 1997-1998 Rev. Ant. Notes, 4.50%, 06/30/98... MIG1/SP-1+ 3,000,000 3,014,072
-------------
DISTRICT OF COLUMBIA - 3.9%
Dist. of Columbia (American Univ.), Ser. 1985, 4.10%, 10/01/15*.. VMIG1/NR 10,000,000 10,000,000
Dist. of Columbia (American Univ.), Ser. 1986A, 4.10%, 12/01/15*. VMIG1/NR 1,000,000 1,000,000
-------------
11,000,000
-------------
FLORIDA - 4.7%
City of Jacksonville, FL Electric Auth. TECP, Ser. D-1, 3.70%,
10/24/97....................................................... P-1/A-1+ 9,100,000 9,100,000
St. Lucie County, FL Poll. Cntrl. Rev. Bonds TECP, (Florida Power
& Light Co. Proj.), Ser. 1994-B, 3.70%, 12/09/97............... VMIG1/A-1+ 4,200,000 4,200,000
-------------
13,300,000
-------------
GEORGIA - 10.0%
Atlanta, GA Downtown Dev. Auth. (CARE Proj.), Ser. 1993,
4.00%, 06/01/13*............................................... VMIG1/NR 2,400,000 2,400,000
Burke County, GA Dev. Auth. Poll. Cntrl. Rev. Bonds TECP
(Ogelthorpe Power Corp. Vogtle Proj.), Ser. 1997A, 3.60%,
12/01/97....................................................... Aaa/AAA 2,600,000 2,600,000
Floyd County, GA Dev. Auth. Environ. Imp. Rev. Bonds (Georgia
Kraft Co. Proj.), 3.90%, 12/01/15*............................. P-1/NR 4,875,000 4,875,000
Fulton County, GA Dev. Auth. Rev. Bonds (Alfred & Adele
Davis Academy, Inc.), 4.00%, 12/01/10*......................... Aa3/NR 2,000,000 2,000,000
Fulton County, GA Dev. Auth. Rev. Bonds (The Arthritis Foundation
Inc. Proj.), 4.00%, 12/01/16*.................................. Aa3/NR 1,000,000 1,000,000
Gwinnett County, GA Dev. Auth. (Wesleyan School, Inc. Proj.),
Ser. 1997, 4.00%, 03/01/17*.................................... Aa3/NR 1,000,000 1,000,000
Municipal Gas Auth. of Georgia Gas Rev. Bonds TECP (Southern
Portfolio 1 Proj.), Ser. D, 3.85%, 10/09/97.................... NR/A-1+ 5,800,000 5,800,000
Smyrna, GA Housing Auth. Multi-Family Housing Rev. Bonds
(Garden Post Village Proj.), 4.10%, 06/01/25*.................. NR/A-1+ 8,500,000 8,500,000
-------------
28,175,000
-------------
IDAHO - 1.9%
Idaho Health Fac. Auth. Rev. Bonds (St. Luke's Regional
Medical Center Proj.), Ser. 1995, 3.85%, 05/01/22*............. VMIG1/NR 5,200,000 5,200,000
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS - CONTINUED
- ------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- ---------
ILLINOIS - 19.6%
Illinois Dev. Fin. Auth. Rev. Bonds (Chicago Symphony Orchestra
Proj.), Ser. 1996, 4.05%, 06/01/31*............................ VMIG1/A-1+ $ 1,800,000 $ 1,800,000
Illinois Dev. Fin. Auth. Poll. Cntrl. Rev. Bonds (Commonwealth
Edison Co. Proj.), Ser. C, 4.15%, 03/01/09*.................... P-1/A-1+ 10,000,000 10,000,000
Illinois Educ. Fac. Auth. Rev. Bonds (Field Museum of Natural
History), Ser. 1985, 4.05%, 11/01/25*.......................... VMIG1/A-1+ 2,400,000 2,400,000
Illinois Educ. Fac. Auth. Rev. Bonds (DePaul Univ. Proj.),
Ser. 1992, 4.05%, 04/01/26*.................................... VMIG1/A-1+ 12,100,000 12,100,000
Illinois Health Fac. Auth. Rev. Bonds TECP (Univ. of Chicago),
3.80%, 12/02/97................................................ VMIG1/A-1+ 12,700,000 12,700,000
Illinois Health Fac. Auth. Rev. Bonds (Healthcorp Affiliates
Central DuPage Hosp. Proj.), Ser. 1990, 3.85%, 11/01/20*....... VMIG1/NR 2,600,000 2,600,000
Illinois Health Fac. Auth. Rev. Bonds (Gottlieb Health Resources,
Inc.), Ser. 1990, 4.05%, 11/15/25*............................. VMIG1/NR 9,000,000 9,000,000
Illinois Health Fac. Auth. Rev Bonds (Park Plaza Center),
4.05%, 09/15/20*............................................... NR/A-1+ 3,350,000 3,350,000
Oak Forest, IL Dev. Rev. Bonds (Homewood Pool - South Suburban
Mayors & Managers Assoc. Program), 4.05%, 07/21/24*............ VMIG1/NR 1,000,000 1,000,000
-------------
54,950,000
-------------
INDIANA - 5.0%
City of Mt. Vernon, IN Poll. Cntrl. Solid Waste Disposal
Rev. Bonds TECP (General Electric Co. Proj.), Ser. 1989-A,
3.75%, 12/19/97................................................ P-1/A-1+ 4,300,000 4,300,000
Indiana Educ. Auth. Rev. Bonds (St. Mary of The Woods College),
4.05%, 02/15/26*............................................... NR/A-1+ 2,000,000 2,000,000
Indiana Health Fac. Fin. Auth. Rev. Bonds (Cap. Access Designated
Pool Proj.), Ser. 1992, 4.05%, 12/01/02*....................... VMIG1/NR 1,300,000 1,300,000
Indiana Hosp. Equip. Fin. Auth. Rev. Bonds, Ser. 1985A,
4.05%, 12/01/15*............................................... VMIG1/A-1 3,400,000 3,400,000
The Trustees of Purdue Univ. Student Fee Bonds, Ser. L,
4.05%, 07/01/20*............................................... VMIG1/A-1+ 3,000,000 3,000,000
-------------
14,000,000
-------------
KENTUCKY - 2.8%
Jefferson County, KY Poll. Cntrl. Rev. Bonds TECP (Louisville
Gas & Electric Co.), Ser. 1992 A, 3.80%, 12/16/97.............. VMIG1/A-1+ 8,000,000 8,000,000
-------------
LOUISIANA - 5.8%
Louisiana Public Fac. Auth. Hosp. Rev. Bonds (Willis-Knighton
Medical Center Proj.), Ser. 1993, 4.10%, 09/01/23*............. VMIG1/A-1 5,700,000 5,700,000
Plaquemines Port Harbor and Terminal Marine Terminal Dist.
Fac. Rev. Bonds TECP (Electro-Coal Transfer), Ser. 1985-A,
3.75%, 12/09/97................................................ P-1/A-1+ 10,500,000 10,500,000
-------------
16,200,000
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS - CONTINUED
- ------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- ----------
MARYLAND - 2.4%
Montgomery County, MD TECP, Ser. 1995, 3.80%, 12/08/97........... P-1/A-1+ $ 6,800,000 $ 6,800,000
-------------
MINNESOTA - 4.0%
Becker, MN Poll. Cntrl. Rev. Bonds Northern States Power Co.
TECP, (Sherburne County Generating Station Unit 3),
Ser. 1993-A, 3.75%, 11/13/97................................... VMIG1/A-1+ 5,300,000 5,300,000
City of Rochester, MN Health Care Fac. Rev. Bonds TECP, (Mayo
Foundation/Mayo Medical Center), Ser. 1992-C, 3.80%,
10/17/97....................................................... AA+/A-1+ 5,950,000 5,950,000
-------------
11,250,000
-------------
MISSISSIPPI - 1.8%
Mississippi Business Fin. Corp. Ind. Dev. Rev. Bonds (Mississippi
College Proj.), Ser. 1996, 4.10%, 09/01/06*.................... NR/A-1+ 5,000,000 5,000,000
-------------
NORTH CAROLINA - 2.6%
Carteret County, NC Ind. Fac. & Poll. Cntrl. Fin. Auth.
(Texas Gulf), Ser. 1985, 4.17%, 10/01/05*...................... Aa3/NR 5,000,000 5,000,000
North Carolina State Eastern Municipal Power Agency TECP,
3.75%, 12/01/97................................................ P-1/A-1+ 2,400,000 2,400,000
-------------
7,400,000
-------------
NORTH DAKOTA - 3.0%
Grand Forks, ND Health Care Fac. (United Hosp. Obligated
Group), Ser. 1992B, 3.85%, 12/01/16*........................... VMIG1/NR 8,300,000 8,300,000
-------------
PENNSYLVANIA - 0.7%
City of Philadelphia, PA Tax & Rev. Ant. Notes, Ser. 1997-98,
4.50%, 06/30/98................................................ MIG1/SP-1+ 2,000,000 2,007,163
-------------
SOUTH CAROLINA - 2.1%
South Carolina Public Service Auth. TECP, 3.85%, 11/20/97........ P-1/A-1 6,000,000 6,000,000
-------------
TENNESSEE - 2.2%
Clarksville, TN Public Bldg. Auth. (Tenn. Municipal Bond Fund),
Ser. 1995 4.10%, 10/1/25*...................................... NR/A-1+ 2,000,000 2,000,000
Clarksville, TN Public Bldg. Auth. (Tenn. Municipal Bond Fund),
Ser. 1994, 4.10%, 06/01/24*.................................... NR/A-1+ 4,300,000 4,300,000
-------------
6,300,000
-------------
TEXAS - 15.8%
Angelina & Neches River Auth. of Texas Ind. Dev. Corp. Solid
Waste Rev. Bonds (TEEC, Inc. Temple Inland Proj.), Ser. 1984C,
3.80%, 05/01/14*............................................... P-1/NR 500,000 500,000
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS - CONTINUED
- ------------------------------------------------------------------------------
MOODY'S/S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
----------- --------- ---------
Bexar County, TX Health Fac. Dev. Corp. Rev. Bonds (Air
Force Village II Proj.), Ser. 1985B, 4.05%, 03/01/12*.......... NR/A-1+ $ 9,800,000 $ 9,800,000
Brazos River Harbor Nav. Dist. Rev. Ref. Bonds TECP (Dow
Chemical Co. Proj.), 3.75%, 11/14/97........................... P-1/NR 4,900,000 4,900,000
Brazos River Harbor Nav. Dist. Rev. Ref. Bonds TECP (Dow
Chemical Co. Proj.), Ser. 1987-B, 3.80%, 11/10/97.............. P-1/NR 3,000,000 3,000,000
Brazos River Harbor Nav. Dist. Rev. Ref. Bonds TECP (Dow
Chemical Co. Proj.), 3.75%, 11/20/97........................... P-1/NR 4,000,000 4,000,000
City of Houston, TX TECP, Ser. B, 3.75%, 11/12/97................ P-1/A-1+ 2,000,000 2,000,000
City of San Antonio, TX Electric and Gas System TECP, 3.80%,
12/15/97....................................................... P-1/A-1+ 8,600,000 8,600,000
Lower Neches Valley Auth. (Chevron USA, Inc. Proj.), Ser.
1987, 3.75%, 02/17/98, Put Option.............................. P-1/A-1+ 1,400,000 1,400,000
State of Texas, Tax & Rev. Ant. Notes, Ser. 1997-A, 4.75%,
08/31/98....................................................... MIG1/SP-1+ 10,000,000 10,080,086
-------------
44,280,086
-------------
UTAH - 2.3%
State of Utah Gen. Oblig. TECP, Ser. A, 3.75%, 10/10/97.......... P-1/A-1+ 6,500,000 6,500,000
-------------
VIRGINIA - 0.5%
Ind. Dev. Auth. of the City of Norfolk, VA Hosp. Rev. Bonds TECP
(Sentara Hosp. Norfolk Proj.), Ser. 1990-A, 3.75%, 10/15/97.... VMIG1/A-1+ 1,500,000 1,500,000
-------------
WASHINGTON - 2.9%
Washington Health Care Fac. Auth. Rev. Bonds (Fred Hutchinson
Cancer Research Center), Ser. 1996, 3.85%, 01/01/23*........... VMIG1/NR 6,935,000 6,935,000
Washington Health Care Fac. Auth. Rev. Bonds (Fred Hutchinson
Cancer Research Center), Ser. 1991A, 3.85%, 01/01/18*.......... VMIG1/NR 1,190,000 1,190,000
-------------
8,125,000
-------------
WYOMING - 3.6%
Gillette, WY Poll. Cntrl. Rev. Bonds TECP (Pacificorp Proj.)
Ser 1988, 3.70%, 10/24/97...................................... P-1/A-1+ 6,000,000 6,000,000
Green River, WY Poll. Cntrl. Rev. Bonds (Texas Gulf Inc.),
Ser. 1984, 4.30%, 12/01/04*.................................... Aa2/NR 2,000,000 2,000,000
Lincoln County, WY Poll. Cntrl. Rev. Bonds TECP (Pacificorp
Proj.), Ser. 1991, 3.85%, 12/01/97............................. VMIG1/A-1+ 2,000,000 2,000,000
-------------
10,000,000
-------------
TOTAL MUNICIPAL BONDS (COST $280,601,321)..................................................... 280,601,321
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE TAX-EXEMPT FUND
- ---------------------------------
INVESTMENTS - CONTINUED
- ------------------------------------------------------------------------------
VALUE
(NOTE 2)
---------
TOTAL INVESTMENTS (COST $280,601,321)+ - 99.9%...................................................... $280,601,321
OTHER ASSETS AND LIABILITIES, NET - 0.1%............................................................ 262,643
------------
NET ASSETS - 100.0%................................................................................. $280,863,964
============
<FOOTNOTE>
* Denotes a Variable or Floating Rate Note. Variable and Floating Rate
Notes are instruments whose rates change periodically. The rates shown
are the interest rates as of September 30, 1997.
+ Cost for federal tax purposes.
TECP-Tax-Exempt Commercial Paper and multimodal bonds in commercial paper mode.
</FOOTNOTE>
</TABLE>
The accompanying notes are an integral part of the financial statements.
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1997
<TABLE>
<CAPTION>
RODNEY SQUARE RODNEY SQUARE
FUND - FUND - RODNEY SQUARE
U.S. GOVERNMENT MONEY MARKET TAX-EXEMPT
PORTFOLIO PORTFOLIO FUND
---------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments in securities
(including repurchase agreements
of $171,673,200, $53,139,000 and
$0, respectively), at value
(amortized cost $384,587,970,
$1,190,750,833, and $280,601,321,
respectively) (Note 2)............ $384,587,970 $ 1,190,750,833 $280,601,321
Interest receivable................. 839,884 6,236,327 1,133,517
Other assets........................ 3,838 8,530 32,596
--------------------------------------------------------
Total assets........................ 385,431,692 1,196,995,690 281,767,434
--------------------------------------------------------
LIABILITIES:
Dividends payable................... 1,736,222 5,112,363 720,972
Investment securities purchased
payable............................ 4,996,450 0 0
Accrued management fee (Note 3)..... 161,866 467,745 107,242
Other accrued expenses (Note 3)..... 62,653 144,874 75,256
--------------------------------------------------------
Total liabilities.................. 6,957,191 5,724,982 903,470
--------------------------------------------------------
NET ASSETS.......................... $378,474,501 $ 1,191,270,708 $280,863,964
========================================================
NET ASSETS CONSIST OF:
Capital paid in..................... $378,472,288 $ 1,191,299,545 $280,865,624
Accumulated realized gain (loss)
on investments - net............... 2,213 (28,837) (1,660)
--------------------------------------------------------
NET ASSETS, for 378,472,288,
1,191,299,545, and 280,872,307,
shares outstanding, respectively... $378,474,501 $ 1,191,270,708 $280,863,964
========================================================
NET ASSET VALUE, offering and
redemption price per share:........ $1.00(1) $1.00(2) $1.00(3)
========================================================
<FOOTNOTE>
1 $378,474,501 / 378,472,288 outstanding shares of beneficial interest, no
par value
2 $1,191,270,708 / 1,191,299,545 outstanding shares of beneficial interest,
no par value
3 $280,863,964 / 280,872,307 outstanding shares of beneficial interest, no
par value
</FOOTNOTE>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended September 30, 1997
<TABLE>
<CAPTION>
RODNEY SQUARE RODNEY SQUARE
FUND - FUND - RODNEY SQUARE
U.S. GOVERNMENT MONEY MARKET TAX-EXEMPT
PORTFOLIO PORTFOLIO FUND
-------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME................... $19,471,904 $ 60,367,087 $10,211,265
EXPENSES:
Management fee (Note 3).......... 1,660,206 5,069,252 1,325,491
Accounting fee (Note 3)........... 100,648 245,714 86,405
Distribution expenses (Note 3).... 60,430 196,165 18,757
Trustees' fees and expenses (Note 3) 6,157 9,164 6,165
Registration fees................. 27,054 61,686 55,196
Reports to shareholders........... 9,048 19,327 7,024
Legal............................. 27,253 80,449 56,277
Audit............................. 14,006 39,291 29,101
Other............................. 42,148 124,090 34,515
------------------------------------------------------------
Total expenses................. 1,946,950 5,845,138 1,618,931
------------------------------------------------------------
Net investment income.......... 17,524,954 54,521,949 8,592,334
------------------------------------------------------------
REALIZED GAIN (LOSS)ON INVESTMENTS
- NET (NOTE 2).................. 651 (14,558) 0
------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........ $17,525,605 $54,507,391 $ 8,592,334
============================================================
</TABLE>
The accompanying notes are an integral pat of the financial statements.
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
RODNEY SQUARE RODNEY SQUARE
FUND - FUND - RODNEY SQUARE
U.S. GOVERNMENT MONEY MARKET TAX-EXEMPT
PORTFOLIO PORTFOLIO FUND
-------------------------------------------------------------
<S> <C> <C> <C>
For the Fiscal Year Ended
September 30, 1997
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income............ $ 17,524,954 $ 54,521,949 $ 8,592,334
Net realized gain (loss) on
investments..................... 651 (14,558) 0
-----------------------------------------------------------
Net increase in net assets
resulting from operations....... 17,525,605 54,507,391 8,592,334
-----------------------------------------------------------
Dividends to shareholders from
net investment income............ (17,524,954) (54,521,949) (8,592,334)
-----------------------------------------------------------
Share transactions at net asset
value of $1.00 per share:
Proceeds from sale of shares..... 4,042,452,758 8,656,915,051 2,251,065,320
Shares issued to shareholders
in reinvestment of dividends
from net investment income...... 406,577 4,778,057 257,389
Cost of shares redeemed.......... (4,005,811,594) (8,451,263,968) (2,207,643,449)
-----------------------------------------------------------
Net increase in net assets and
shares resulting from share
transactions................... 37,047,741 210,429,140 43,679,260
---------------------------------------------------------
Total increase in net assets.... 37,048,392 210,414,582 43,679,260
NET ASSETS:
Beginning of year............... 341,426,109 980,856,126 237,184,704
----------------------------------------------------------
End of year..................... $378,474,501 $ 1,191,270,708 $ 280,863,964
==========================================================
For the Fiscal Year Ended September 30, 1996
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income........... $ 18,163,286 $ 43,763,846 $ 8,832,901
Net realized gain (loss) on
investments................... (58) 127 0
---------------------------------------------------------
Net increase in net assets
resulting from operations...... 18,163,228 43,763,973 8,832,901
---------------------------------------------------------
Dividends to shareholders from
net investment income.......... (18,163,286) (43,763,846) (8,832,901)
---------------------------------------------------------
Share transactions at net asset
value of $1.00 per share:
Proceeds from sale of shares.... 4,435,793,585 6,848,793,367 2,137,883,514
Shares issued to shareholders in
reinvestment of dividends from
net investment income.......... 388,936 3,203,419 289,502
Cost of shares redeemed......... (4,400,852,267) (6,622,265,795) (2,219,200,892)
---------------------------------------------------------
Net increase (decrease) in net
assets and shares resulting
from share transactions........ 35,330,254 229,730,991 (81,027,876)
---------------------------------------------------------
Total increase (decrease) in net
assets.......................... 35,330,196 229,731,118 (81,027,876)
NET ASSETS:
Beginning of year............... 306,095,913 751,125,008 318,212,580
---------------------------------------------------------
End of year..................... $ 341,426,109 $ 980,856,126 $ 237,184,704
=========================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements. They should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
-----------------------------------------------
RODNEY SQUARE FUND - U.S. GOVERNMENT PORTFOLIO
For a Share Outstanding Throughout Each Year:
NET ASSET VALUE - BEGINNING OF YEAR......... $1.00 $1.00 $1.00 $1.00 $1.00
Investment Operations:
Net investment income...................... 0.050 0.050 0.052 0.033 0.028
-----------------------------------------------
Distributions:
From net investment income................. (0.050) (0.050) (0.052) (0.033) (0.028)
------------------------------------------------
NET ASSET VALUE - END OF YEAR............... $1.00 $1.00 $1.00 $1.00 $1.00
================================================
Total Return................................ 5.07% 5.08% 5.37% 3.32% 2.83%
Ratios (to average net assets)/Supplemental
Data:
Expenses................................ 0.55% 0.55% 0.55% 0.53% 0.53%
Net investment income................... 4.96% 4.97% 5.25% 3.27% 2.79%
Net assets at end of year (000 omitted)..... $378,475 $341,426 $306,096 $336,766 $386,067
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
-------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------
RODNEY SQUARE FUND - MONEY MARKET PORTFOLIO
For a Share Outstanding Throughout Each Year:
NET ASSET VALUE - BEGINNING OF YEAR......... $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------
Investment Operations:
Net investment income...................... 0.051 0.050 0.054 0.033 0.029
-------------------------------------------------
Distributions:
From net investment income................. (0.051) (0.050) (0.054) (0.033) (0.029)
-------------------------------------------------
NET ASSET VALUE - END OF YEAR............... $1.00 $1.00 $1.00 $1.00 $1.00
=================================================
Total Return................................ 5.17% 5.17% 5.50% 3.37% 2.92%
Ratios (to average net assets)/Supplemental Data:
Expenses.................................. 0.54% 0.53% 0.54% 0.53% 0.52%
Net investment income..................... 5.06% 5.03% 5.37% 3.33% 2.88%
Net assets at end of year (000 omitted)..... $1,191,271 $980,856 $751,125 $606,835 $649,424
</TABLE>
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
FINANCIAL HIGHLIGHTS - CONTINUED
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
-----------------------------------------------
RODNEY SQUARE TAX-EXEMPT FUND
For a Share Outstanding Throughout Each Year:
NET ASSET VALUE - BEGINNING OF YEAR.......... $1.00 $1.00 $1.00 $1.00 $1.00
-----------------------------------------------
Investment Operations:
Net investment income....................... 0.030 0.031 0.033 0.021 0.020
-----------------------------------------------
Distributions:
From net investment income.................. (0.030) (0.031) (0.033) (0.021) (0.020)
-----------------------------------------------
NET ASSET VALUE - END OF YEAR................ $1.00 $1.00 $1.00 $1.00 $1.00
===============================================
Total Return................................. 3.09% 3.11% 3.36% 2.17% 2.07%
Ratios (to average net assets)/Supplemental Data:
Expenses................................... 0.57% 0.56% 0.54% 0.54% 0.54%
Net investment income...................... 3.05% 3.08% 3.29% 2.13% 2.05%
Net assets at end of year (000 omitted)...... $280,864 $237,185 $318,213 $388,565 $405,517
</TABLE>
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1.DESCRIPTION AND SHARES OF THE FUNDS. The Rodney Square Fund
and the Rodney Square Tax-Exempt Fund (the "Fund(s)") are
Massachusetts business trusts registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as
diversified, open-end management investment companies. The
Declarations of Trust for the Rodney Square Fund, dated
February 16, 1982, and the Rodney Square Tax-Exempt Fund,
dated July 31, 1985, each as last amended on February 15,
1993, permit the Trustees of each Fund to create additional
series (or portfolios), each of which may issue additional
classes of shares. There are currently two portfolios, the
U.S. Government Portfolio and the Money Market Portfolio (the
"Portfolios"), in the Rodney Square Fund, each of which
currently consists of a single class of shares. The Rodney
Square Tax-Exempt Fund has one portfolio (also a "Portfolio")
with a single class of shares.
2.SIGNIFICANT ACCOUNTING POLICIES. The following is a summary
of the significant accounting policies of each Fund:
Security Valuation. Each Fund values securities utilizing the
amortized cost valuation method which is permitted under Rule
2a-7 under the 1940 Act provided that the Fund complies with
certain conditions. This method involves valuing a portfolio
security initially at its cost and thereafter adjusting for
amortization of premium or accretion of discount to maturity.
FEDERAL INCOME TAXES. Each Portfolio is treated as a separate
entity for federal income tax purposes and each intends to
continue to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 and to
distribute all of its taxable income and tax-exempt income to
its shareholders. Therefore, no federal income tax provision
is required. At September 30, 1997, the U.S. Government
Portfolio, the Money Market Portfolio and the Rodney Square
Tax-Exempt Fund had a net tax basis capital loss carryforward
available to offset future capital gains of approximately
$6,000, $40,000 and $2,000, respectively, which will expire as
follows:
CAPITAL LOSS EXPIRATION
CARRYFORWARD DATE
------------ ----------
U.S. Government Portfolio..... $ 6,000 09/30/03
Money Market Portfolio........ $ 25,000 09/30/02
Money Market Portfolio........ $ 15,000 09/30/05
Rodney Square Tax-Exempt Fund. $ 2,000 09/30/02
INTEREST INCOME AND DIVIDENDS TO SHAREHOLDERS. Interest
income is accrued as earned. Dividends to shareholders of
each Portfolio are declared daily from net investment income,
which consists of accrued interest and discount earned
(including original issue discount), less amortization of
premium and the accrued expenses applicable to the dividend
period. For the Rodney Square Tax-Exempt Fund only, the tax-
exempt interest portion of each dividend is determined
uniformly, based on the ratio of the Fund's tax-exempt and
taxable income, if any, for the entire fiscal year.
REPURCHASE AGREEMENTS. The Rodney Square Fund, through its
custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to
be in an amount at least equal to 101% of the resale price.
Rodney Square Management Corporation ("RSMC"), the Fund
Manager, is responsible for determining that the amount of
these underlying securities is maintained at a level such that
their market value is at all times equal to 101% of the resale
price. In the event of default of the obligation to
repurchase, the Fund has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation.
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
- ------------------------------------------------------------------------------
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
OTHER. Investment security transactions are accounted for on
a trade date basis. The Funds use the specific identification
method for determining realized gain and loss on investments
for both financial and federal income tax reporting purposes.
Obligations of agencies and instrumentalities of the U.S.
Government are not direct obligations of the U.S. Treasury
and, thus, may or may not be backed by the "full faith and
credit" of the United States. Payment of interest and
principal on these obligations, although generally backed
directly or indirectly by the U.S. Government, may be backed
solely by the issuing instrumentality.
The Money Market Portfolio invests in short-term unsecured
debt instruments of corporate issuers. The ability of a
corporate issuer to meet its obligations may be affected by
economic developments in a specific industry or region. The
Money Market Portfolio's investments in corporate notes,
commercial paper, certificates of deposit, and time deposits
of domestic and foreign banks represented in the aggregate
approximately 37.8% of its total investments on September 30,
1997.
Approximately 88.9% of the investments by the Rodney Square
Tax-Exempt Fund on September 30, 1997 were insured by private
issuers that guarantee payments of principal and interest in
the event of default or were backed by letters of credit
issued by domestic and foreign banks or financial
institutions.
3.MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES. The
Funds employ RSMC, a wholly owned subsidiary of Wilmington
Trust Company ("WTC"), to serve as Investment Adviser and
Administrator to each of the Funds pursuant to separate
Management Agreements each dated August 9, 1991. Under the
Management Agreements, RSMC, subject to the supervision of the
Funds' Boards of Trustees, directs the investments of the
Portfolios in accordance with each Portfolio's investment
objective, policies and limitations. Also under the
Management Agreements, RSMC is responsible for administrative
services such as budgeting, financial reporting, compliance
monitoring and corporate management. For its services, the
Funds pay RSMC a monthly fee at the annual rate of 0.47% of
the average daily net assets of each Portfolio of the Funds.
The management fee paid to RSMC for the fiscal year ended
September 30, 1997, amounted to $1,660,206 for the U.S.
Government Portfolio, $5,069,252 for the Money Market
Portfolio and $1,325,491 for the Rodney Square Tax-Exempt
Fund.
RSMC determines the net asset value per share and provides all
Fund accounting services pursuant to a separate Accounting
Services Agreement with each Fund. For its services, RSMC
receives an annual fee of $50,000 per Portfolio, plus an
amount equal to 0.02% of each Portfolio's average daily net
assets in excess of $100,000,000. For the fiscal year ended
September 30, 1997, RSMC's fees for accounting services
amounted to $100,648 for the U.S. Government Portfolio,
$245,714 for the Money Market Portfolio and $86,405 for the
Rodney Square Tax-Exempt Fund.
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
WTC serves as Custodian of the assets of the Funds and is paid
for the provision of this service by RSMC out of its
management fee. The Funds reimburse WTC for its related out-
of-pocket expenses, if any, incurred in connection with the
performance of these services.
RSMC serves as Transfer and Dividend Paying Agent for the
Funds and does not receive any separate fees from the Funds
for the performance of these services other than the
reimbursement of all reasonable out-of-pocket expenses
incurred by RSMC or its agents for the provision of such
services.
Pursuant to a Distribution Agreement with each Fund, dated as
of December 31, 1992, Rodney Square Distributors, Inc.
("RSD"), a wholly owned subsidiary of WTC, manages the Funds'
distribution efforts and provides assistance and expertise in
developing marketing plans and materials. The Funds' Boards
of Trustees have adopted, and shareholders have approved,
distribution plans (the "12b-1 Plans") pursuant to Rule 12b-1
under the 1940 Act, to allow each Fund to reimburse RSD for
certain expenses incurred in connection with distribution
activities. The Trustees have authorized a payment of up to
0.20% of each Portfolio's average daily net assets annually to
reimburse RSD for such expenses. For the fiscal year ended
September 30, 1997, such expenses amounted to $60,430 for the
U.S. Government Portfolio, $196,165 for the Money Market
Portfolio and $18,757 for the Rodney Square Tax-Exempt Fund.
The salaries of all officers of each Fund, the Trustees of
each Fund who are "interested persons" of the Fund, WTC, RSMC,
RSD, or their affiliates and all personnel of the Funds, WTC,
RSMC or RSD performing services related to research,
statistical and investment activities, are paid by WTC, RSMC,
RSD, or their affiliates. The fees and expenses of the "non-
interested" Trustees amounted to $6,157 for the U.S.
Government Portfolio, $9,164 for the Money Market Portfolio
and $6,165 for the Rodney Square Tax-Exempt Fund for the
fiscal year ended September 30, 1997.
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Trustees of The Rodney Square Fund and
The Rodney Square Tax-Exempt Fund:
We have audited the accompanying statements of assets and
liabilities, including the schedules of investments, of The
Rodney Square Fund (comprising, respectively, the U.S. Government
and the Money Market Portfolios) and The Rodney Square Tax-Exempt
Fund (the "Funds"), as of September 30, 1997, and the related
statements of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five
years in the period then ended. These financial statements and
financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of September 30, 1997 by correspondence with
the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of each of the respective
portfolios constituting The Rodney Square Fund and The Rodney
Square Tax-Exempt Fund at September 30, 1997, the results of
their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended,
and their financial highlights for each of the five years in the
period then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
October 22, 1997
<PAGE>
THE RODNEY SQUARE FUND & THE RODNEY SQUARE TAX-EXEMPT FUND
- ----------------------------------------------------------
TAX INFORMATION
- -------------------------------------------------------------------------------
Pursuant to Section 852 of the Internal Revenue Code of 1986,
The Rodney Square Tax-Exempt Fund designates $8,592,334
as tax-exempt dividends.
In January, 1998 shareholders of the Funds will receive
Federal income tax information on all distributions paid to
their accounts in calendar year 1997, including any
distributions paid between September 30, 1997 and December 31,
1997.
<PAGE>
[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 11/97
[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, 1997
