the RODNEY SQUARE
STRATEGIC
FIXED-INCOME
FUND
LOGO
[GRAPHIC OMITTED]
SEMI-ANNUAL REPORT
APRIL 30, 1998
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE
================================================================================
DEAR SHAREHOLDER:
The management of the Rodney Square Strategic Fixed-Income Fund (the
"Fund") is pleased to report to you on the Fund's activity for the six-month
period ended April 30, 1998.
PERFORMANCE REVIEW*
DIVERSIFIED INCOME PORTFOLIO
The Rodney Square Diversified Income Portfolio had a total return of 3.04%
for the six months ended April 30, 1998. This return consisted of a modest
increase in net asset value per share from $13.07 on October 31, 1997 to $13.08
at the end of April plus dividends per share of $0.38. The Portfolio's
performance trailed very slightly behind the reported return of 3.10% for the
Lehman Intermediate Government Corporate Index over this six-month period.
Wilmington Trust Company, the Portfolio's adviser, has continued to assist the
Portfolio's return by limiting total expenses of the Portfolio to 0.65% of
average daily net assets.
MUNICIPAL INCOME PORTFOLIO
The Rodney Square Municipal Income Portfolio had a total return of 1.94%
for the six months ended April 30, 1998. This return consisted of a decrease in
net asset value per share from $12.74 on October 31, 1997 to $12.71 at the end
of April plus dividends per share of $0.27. The Portfolio's performance trailed
the reported return of 2.40% for the Merrill Lynch Intermediate Municipal Index.
The Portfolio's expenses continue to be limited to 0.75% of the average daily
net assets.
ECONOMIC ENVIRONMENT
The fixed income markets split the last six months almost evenly between
three months of a bull market followed by three months of a bear market. During
the end of 1997 and early in 1998, the markets intensely focused on the problems
in the Asian markets. The prevailing theory held that weakness in the Asian
economies would dampen our own economic growth back to sustainable levels,
allowing the Federal Reserve to stay on the sidelines. The U.S. fixed income
markets rallied and by the end of January, Treasury rates had dropped by 30 to
35 basis points. This brought yields on 5 and 10 year Treasury securities down
to 5.35% and 5.50%, respectively.
Market sentiment shifted downward in February and remained negative at the
end of the reporting period. Economic releases for the new year continued to
indicate a robust U.S. economy and market participants started to doubt the
severity of the Asian impact. Anticipation of tougher monetary policy by the
Federal Reserve meant expectations of higher short-term interest rates and fixed
income markets declined. The 5-year Treasury gave back most of its earlier gain,
reflecting the fear of higher short rates, while the 10-year gave back about
half of its increase to end the period yielding 5.65%.
The changes in the attitudes toward the Asian crisis impacted corporate
spreads. In the first part of the reporting period, corporate bond spreads
increased reflecting the higher perceived risk of credit deterioration in a
declining economic environment. As it became evident the domestic economy was
holding its own, the trends reversed and corporate spreads tightened.
- -----------------
* PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. AN
INVESTMENT IN THE 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. RETURNS ARE HIGHER DUE TO THE ADVISER'S MAINTENANCE OF
THE PORTFOLIOS' EXPENSES. SEE FINANCIAL HIGHLIGHTS ON PAGES 12 AND 13.
1
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
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PRESIDENT'S MESSAGE -- CONTINUED
================================================================================
MANAGEMENT'S DISCUSSION OF PORTFOLIO PERFORMANCE
DIVERSIFIED INCOME PORTFOLIO
The Portfolio is designed to give shareholders broad exposure to the
dynamics of the short/intermediate term bond market with a stable flow of income
and minimization of risk. This goal is accomplished by applying a disciplined
and systematic investment process to actively manage a core portfolio of
investment grade notes and bonds from a wide range of taxable market sectors.
The Portfolio performed well over the past six months by focusing more
energy on yield enhancement rather than interest rate sensitivity positioning.
Yield levels remained in a relatively range bound environment which offered
limited opportunities to really benefit from shifting the interest rate
sensitivity of the Portfolio. The dynamic shifts in corporate spreads caused by
the Asian crisis and a large onslaught of supply early in the year, gave us some
good opportunities to enhance the yield on the Portfolio. As corporate spreads
narrowed late in the period, we were able to combine the income returns with
good relative price performance to help the Portfolio.
In addition to the corporate market, the yield enhancement theme also was
evident in the Portfolio's roughly 20% positioning in Asset-Backed and
Mortgage-Backed securities. These securities combine wide fixed spreads with
relatively low risks to provide an attractive alternative to corporate bonds for
enhancing the Portfolio's performance.
MUNICIPAL INCOME PORTFOLIO
The Rodney Square Municipal Income Portfolio is an intermediate-term, high
quality fund designed to produce a high level of income which is exempt from
federal income taxes while seeking preservation of capital. The basic strategy
of the Portfolio is to identify and purchase the undervalued sectors of the
municipal market. The Portfolio will normally be fully invested with an average
maturity in the 5 to 10 year range.
The municipal market held up well at the end of 1997 but performed poorly
on a relative basis for the first 4 months of 1998 due to the heavy supply of
new issues that came to market. New issues were up over 50% higher than the pace
of one year ago. By the end of the reporting period, the relative value of
tax-exempt bonds, as compared to Treasury issues, was at its most attractive
level in over 12 months.
We lengthened the average maturity of the Portfolio to take advantage of
these attractive relative values. Since we began the period in a defensive
posture, this lengthening moved us closer to the Merrill Lynch Intermediate
Municipal Index. The Portfolio had an average maturity of 6.3 years on April 30,
1998, as compared to the 6.4 years average maturity for the Index. The Portfolio
continues to have a higher average coupon than the Index, 5.76% versus 5.35%.
We invite your comments and questions and we thank you for your investment
in The Rodney Square Strategic Fixed-Income Fund. We look forward to reviewing
our investment outlook and strategy with you in our next report to shareholders.
Sincerely,
/s/ ROBERT J. CHRISTIAN
Robert J. Christian
President
June 22, 1998
2
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / DIVERSIFIED INCOME PORTFOLIO
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INVESTMENTS / APRIL 30, 1998 (UNAUDITED)
(Showing Percentage of Total Value of Net Assets)
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2)
----------- --------- ------------
<S> <C> <C> <C>
CORPORATE BONDS -- 45.9%
BANKS -- 8.8%
Amsouth Bank Alabama, 6.45%, 2/01/08 ........................... A1/A- $ 600,000 $ 597,000
BankAmerica Corp., 6.75%, 09/15/05 ............................. A1/A 250,000 255,312
BankBoston, NA, 6.38%, 04/15/08 ................................ A2/A- 650,000 645,125
First Union Corp., 6.82%, 08/01/06 ............................. A2/A- 100,000 105,250
Norwest Financial, Inc., 6.38%, 11/15/01 ....................... Aa3/AA- 500,000 505,000
St. George's Bank, Ltd., 7.15%, 06/18/07 ....................... Baa1/A- 300,000 310,125
Union Bank Switzerland - New York, 7.25%, 07/15/06 ............. Aa1/AA 350,000 369,687
------------
2,787,499
------------
ELECTRIC UTILITIES -- 7.5%
Alabama Power Co., 7.00%, 01/01/03 ............................. A1/A+ 1,000,000 1,016,690
Central Illinois Public Services, 6.73%, 06/01/01 .............. Aa2/AA- 300,000 306,375
Duke Energy Corp., 8.00%, 11/01/99 ............................. Aa3/AA- 1,000,000 1,026,250
------------
2,349,315
------------
FINANCIAL -- 20.9%
Abbey National PLC, 6.69%, 10/17/05 ............................ Aa3/AA- 300,000 306,750
Associates Corp. of North America, 8.55%, 07/15/99 ............. Aa3/AA- 300,000 347,988
Associates Corp. of North America, 6.75%, 08/01/01 ............. Aa3/AA- 500,000 509,375
Bear Stearns Company, Inc., 6.63%, 10/01/04 .................... A2/A 400,000 402,000
Commercial Credit, 8.70%, 06/15/99 ............................. A1/A+ 200,000 235,250
Crestar Financial Corp. 226091-AF3, 6.50%, 01/15/18 ............ Baa1/BBB+ 300,000 295,875
Dean Witter Discover, 6.75%, 08/15/00 .......................... A1/A+ 400,000 406,500
General Motors Acceptance Corp., 7.00%, 08/15/01 ............... A2/A 750,000 767,812
Heller Financial, Inc., 7.88%, 11/01/99 ........................ A3/BBB+ 800,000 819,224
Lehman Brothers Holdings, Inc., 6.50%, 10/01/02 ................ Baa1/A 600,000 603,000
Lehman Brothers Holdings, Inc., 7.38%, 05/15/04 ................ Baa1/A 300,000 312,000
Merrill Lynch, 7.05%, 04/15/03 ................................. Aa3/AA- 100,000 100,059
Morgan Stanley Group, 6.38%, 01/18/00 .......................... A1/A+ 600,000 603,000
Salomon Smith Barney Holdings, 7.00%, 03/15/04 ................. A2/A 550,000 567,875
USL Capital Corp., 5.79%, 01/23/01 ............................. A1/A+ 300,000 297,750
------------
6,574,458
------------
INDUSTRIAL -- 1.7%
Allied Signal , 8.00%, 05/15/06 ................................ A2/A 500,000 546,345
------------
OIL, GAS & PETROLEUM -- 1.0%
Elf Aquitane, 8.00%, 10/15/01 .................................. Aa3/AA- 300,000 318,750
------------
RETAIL MERCHANDISING -- 1.0%
Gap, Inc., 6.90%, 09/15/07 ..................................... A2/A 300,000 310,875
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / DIVERSIFIED INCOME PORTFOLIO
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INVESTMENTS (UNAUDITED) -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2)
----------- --------- ------------
<S> <C> <C> <C>
TELECOMMUNICATIONS -- 5.0%
GTE Southwest, Ser. B, 6.54%, 12/01/05 ......................... A2/AA- $ 600,000 $ 607,500
MCI Communications Corp., 6.13%, 04/15/02 ...................... Baa2/A 400,000 398,000
United Telecommunications, Inc., 9.50%, 04/01/03 ............... A3/A- 500,000 566,875
------------
1,572,375
------------
TOTAL CORPORATE BONDS (COST $14,269,206) .............................................. 14,459,617
------------
ASSET-BACKED SECURITIES -- 17.5%
Advanta Mortgage Loan Trust, Ser. 1996-1, 6.73%, 08/25/23 ...... Aaa/AAA 300,000 304,644
AFC Home Equity Loan Trust, Ser. 1996-2, 7.74%, 05/07/98 ....... Aaa/AAA 799,830 822,110
Contimortgage Home Equity Loan Trust, Ser. 1996-1,
6.69%, 01/15/16 ............................................. Aaa/AAA 299,997 300,959
Federal National Mortgage Association Notes, Ser. 1995-W1,
8.10%, 04/25/25 ............................................. Aaa/AAA 500,000 527,517
General Electric Capital Mortgage Services, Inc., Ser. 1996-HE2,
7.94%, 06/25/14 ............................................. Aaa/AAA 600,000 632,012
Green Tree Financial Corp., 7.15%, 07/15/27 .................... Aaa/AAA 750,000 780,507
Green Tree Financial Corp., Ser. 1995-2, 8.30%, 05/15/26 ....... Aaa/AAA 325,000 348,543
Green Tree Lease Finance Ser. 1997-1, 6.17%, 09/20/05 .......... Aaa/AAA 200,000 200,196
MBNA Master Credit Card Trust, Ser. 1995-F, 6.60%, 01/15/03 .... Aaa/AAA 300,000 305,352
Residential Asset Securities Corp., Ser. 1995-KS3,
8.00%, 10/25/24 ........................................... Aaa/AAA 110,932 111,024
Resolution Trust Corp., Ser. 1994-C2, 8.00%, 04/25/25 .......... Aa/Aa 250,000 260,085
The Money Store Home Equity Trust, Ser. 1992-D2,
7.55%, 01/15/18 ............................................. Aaa/AAA 281,496 289,624
The Money Store Home Equity Trust, Ser. 1996-B,
7.91%, 05/15/24 ............................................. Aaa/AAA 200,000 209,222
The Money Store Home Equity Trust, Ser. 1996-D,
6.67%, 03/15/18 ............................................. Aaa/AAA 400,000 404,987
------------
TOTAL ASSET-BACKED SECURITIES (COST $5,371,618) ....................................... 5,496,782
------------
MORTGAGE-BACKED SECURITIES -- 2.9%
Federal Home Loan Mortgage Corporation, Gold 15 Yr.,
6.00%, 01/01/13 ............................................. NR/NR 395,334 390,146
Federal National Mortgage Association Notes, Ser. 1996-4,
6.50%, 07/25/02 ............................................. NR/NR 211,864 211,754
Federal National Mortgage Association Notes, Ser. G-37 Class G,
7.50%, 12/25/19 ............................................. NR/NR 300,000 303,521
------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $905,157) ...................................... 905,421
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 9.4%
FEDERAL HOME LOAN BANKS NOTES -- 1.3%
Federal Home Loan Banks Notes, 6.10%, 10/23/00 ................. Aaa/NR 400,000 400,180
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION NOTES -- 1.5%
Federal Home Loan Mortgage Corp. 5 Year Balloon,
7.00%, 05/01/00 ........................................... NR/NR 482,199 488,980
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / DIVERSIFIED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENTS (UNAUDITED) -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2)
----------- --------- ------------
<S> <C> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION NOTES -- 6.6%
Federal National Mortgage Association Notes, 6.41%, 02/06/02 ... Aaa/NR $ 250,000 $ 254,385
Federal National Mortgage Association Notes, 5.78%, 02/12/03 ... Aaa/NR 250,000 247,105
Federal National Mortgage Association Notes, 7.58%, 06/02/06 ... Aaa/NR 400,000 406,308
Federal National Mortgage Association Notes, 7.94%, 09/13/06 ... Aaa/NR 500,000 512,820
Federal National Mortgage Association Notes, 7.00%, 06/25/07 ... Aaa/NR 300,000 308,520
Federal National Mortgage Association Notes, 6.56%, 12/10/07 ... Aaa/NR 350,000 353,699
------------
2,082,837
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $2,941,181) ............................ 2,971,997
------------
U.S. TREASURY OBLIGATIONS** -- 20.4%
U.S. Treasury Notes, 6.38%, 07/15/99 ........................ NR/NR 400,000 403,848
U.S. Treasury Notes, 6.38%, 01/15/00 ........................... NR/NR 1,000,000 1,013,140
U.S. Treasury Notes, 6.75%, 04/30/00 ........................... NR/NR 400,000 408,652
U.S. Treasury Notes, 6.25%, 05/31/00 ........................... NR/NR 300,000 303,882
U.S. Treasury Notes, 8.75%, 08/15/00 ........................... NR/NR 150,000 160,064
U.S. Treasury Notes, 6.50%, 08/31/01 ........................... NR/NR 250,000 256,425
U.S. Treasury Notes, 6.13%, 12/31/01 ........................... NR/NR 400,000 406,172
U.S. Treasury Notes, 6.25%, 01/31/02 ........................... NR/NR 700,000 713,692
U.S. Treasury Notes, 6.00%, 07/31/02 ........................... NR/NR 500,000 506,100
U.S. Treasury Notes, 5.50%, 02/28/03 ........................... NR/NR 500,000 496,615
U.S. Treasury Notes, 7.25%, 05/15/04 ........................... NR/NR 550,000 593,021
U.S. Treasury Notes, 6.50%, 08/15/05 ........................... NR/NR 300,000 313,209
U.S. Treasury Bonds, 11.75%, 02/15/10 .......................... NR/NR 650,000 863,076
------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $6,336,401) ..................................... 6,437,896
------------
COMMERCIAL PAPER -- 6.2%
Associates First Cap. Corp., 5.51%, 05/01/98 (COST $1,947,143) . P-1/A-1 1,947,143 1,947,143
------------
TOTAL INVESTMENTS (COST $31,770,706)(DAGGER) -- 102.3% ......................................... 32,218,856
LIABILITIES IN EXCESS OF ASSETS -- (2.3)% ................................................... (721,532)
------------
NET ASSETS -- 100.0% ........................................................................... $ 31,497,324
============
<FN>
* Although certain securities are not rated (NR) by either Moody's or S & P,
they have been determined to be of comparable quality to investment grade
securities by the Portfolio Adviser.
** While not rated by Moody's or S & P, U.S. Treasury Obligations are
considered to be of the highest quality, comparable to AAA.
(DAGGER) The cost of federal income tax purposes. At April 30, 1998, net
unrealized appreciation was $448,150. This consisted of aggregate gross
unrealized appreciation for all securities in which there was an excess of
market value over tax cost of $495,657 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $47,507.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENTS / APRIL 30, 1998 (UNAUDITED)
(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 -- 100.6%
ALASKA -- 5.6%
Alaska Municipal Bond Bank Auth. Ref. Bonds, Ser. 1994C,
4.90%, 10/01/03 ............................................. A2/A $400,000 $ 405,500
Seward, AK Rev. Bond (Alaska Sealife Center Proj.) Ser. 1996,
6.50%, 10/01/01 ............................................. NR/NR 560,000 571,900
------------
977,400
------------
CALIFORNIA -- 1.8%
Los Angeles, CA Dept. of Water & Power Electric Plant Rev. Bonds,
5.75%, 11/15/02 ............................................. Aa3/A+ 300,000 317,250
------------
COLORADO -- 3.0%
Aurora, CO Cert. of Participation Lease Ref. Rev. Bonds,
5.85%, 12/01/02 ............................................. A/A 500,000 525,000
------------
DELAWARE -- 15.9%
Bethany Beach, DE Gen. Oblig. Rev. Bonds, 9.75%, 11/01/07 ...... Aaa/AAA 160,000 221,000
Bethany Beach, DE Gen. Oblig. Rev. Bonds, 9.75%, 11/01/08 ...... Aaa/AAA 180,000 253,350
Delaware State Economic Dev. Auth. Rev. Bonds
(Delmarva Power & Light), 7.30%, 09/01/15 ................... Aaa/AAA 100,000 106,500
Delaware State Economic Dev. Auth. Rev. Bonds
(Osteopathic Hosp. Assoc.), 6.00%, 01/01/03 ................. Aaa/NR 500,000 520,625
Delaware State Gen. Oblig. Rev. Bonds, Ser. A, 5.00%, 01/01/04 . Aa1/AA+ 255,000 261,694
Delaware State Housing Auth. Multi-family Mtge. Ref. Rev. Bonds,
Ser. 1992D, 6.35%, 07/01/03 ................................. A1/NR 100,000 105,125
Delaware State Housing Auth. Multi-family Mtge. Ref. Rev. Bonds,
Ser. C, 7.25%, 01/01/07 ..................................... A1/A 205,000 220,119
Delaware State Housing Auth. Single Family Mtge. Rev. Bonds,
Ser. 1993, 5.05%, 07/01/05 .................................. Aaa/AAA 300,000 304,875
Delaware State Housing Auth. Single Family Mtge. Rev. Bonds,
Ser. 1993, 5.15%, 01/01/06 .................................. Aaa/AAA 175,000 179,156
Delaware State Housing Auth. Sr. Home Mtge. Rev. Bonds,
7.00%, 06/01/00 ............................................. Aa3/NR 25,000 25,437
Delaware State Housing Auth. RB Single Rate Home Mtge-B,
Sub-Ser. B-1, 6.40%, 12/01/02 ............................... Aa3/NR 35,000 36,619
Delaware State Housing Auth. Sr. Home Mtge. Rev. Bonds,
6.10%, 06/01/99 ............................................. Aa3/NR 35,000 35,417
Delaware State Solid Waste Auth. Sys. Rev. Bonds,
5.80%, 07/01/01 ............................................. A2/A 500,000 520,625
------------
2,790,542
------------
HAWAII -- 4.4%
Hawaii State Gen. Oblig. Rev. Bonds, Ser. 92BW,
6.20%, 03/01/05 ............................................. A1/A+ 700,000 762,125
------------
MARYLAND -- 2.9%
Howard County MD, Gen. Oblig. Rev. Bonds, 5.00%, 02/15/09 ...... Aaa/AAA 500,000 513,125
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENTS (UNAUDITED) -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2)
----------- --------- ------------
<S> <C> <C> <C>
MASSACHUSETTS -- 2.9%
Massachusetts State Gen. Oblig. Rev. Bonds, Ser. 93B MBIA,
4.88%, 10/01/13 ............................................. Aaa/AAA $520,000 $ 505,700
------------
MISSISSIPPI -- 2.3%
Medical Center Educ. Bldg. Corp. (Univ. of Mississippi Medical
Center Proj.), Ser. 1993, 5.40%, 12/01/05 ................... NR/A- 400,000 410,500
------------
NEW JERSEY -- 3.0%
New Jersey Econ. Dev. Auth. School Rev. Bonds
(Blair Academy - 1995 Proj.), Ser. 95B, 6.00%, 09/01/07 ..... A3/NR 500,000 516,875
------------
NEW YORK -- 3.0%
Municipal Assistance Corp. of New York City/NY Sales Tax Rev.,
5.75%, 07/01/03 ............................................. Aa2/AA 500,000 528,750
------------
NORTH CAROLINA -- 4.2%
Durham County, NC Certificates Participation, 4.35%, 05/01/03 .. Aa1/AA 255,000 255,000
North Carolina Med. Care Commn. Hlth. Care Facs.
(Novant Health Proj.) MBIA, 4.70%, 10/01/12 ................. Aaa/AAA 500,000 480,000
------------
735,000
------------
PENNSYLVANIA -- 29.0%
Allentown, PA Gtd. Impt. , 5.65%, 07/15/10 ..................... Aaa/AAA 525,000 564,375
Chester County, PA Indl. Dev. Auth. Wastewater Treatment Rev.,
7.00%, 11/01/06 ............................................. NR/NR 705,000 702,356
Dauphin County, PA Gen. Auth. School Dist. Pooled Fin. Rev.
AMBAC, 4.45%, 05/01/98 ...................................... Aaa/NR 500,000 502,500
Lancaster County, PA Solid Waste Auth. Rev. Bonds,
7.75%, 12/15/04 ............................................. Baa2/BBB 225,000 230,447
Pennsylvania St. Higher Educ. Fac. Auth. Rev.,
6.63%, 08/15/09 ............................................. Aaa/AAA 120,000 131,700
Pennsylvania St. Higher Educ. Fac. Auth. Rev.,
6.63%, 08/15/09 ............................................. A2/A 280,000 308,000
Pennsylvania St. Higher Educ. Fac. Auth. College &
Univ. Rev. Bonds
(Philadelphia College of Osteopathic Medicine),
5.25%, 12/01/07 ............................................. NR/AAA 150,000 155,250
Philadelphia, PA Parking Auth. Rev. Bonds, Ser. 1997,
5.50%, 09/01/03 ............................................. Aaa/AAA 500,000 524,375
Philadelphia, PA Hospitals & Higher Educ. Fac. Auth.
(Jefferson Health Systems), Ser. A, 5.50%, 05/15/05 ......... NR/AA- 500,000 528,750
Philadelphia, PA Redev. Auth. Home Imp. Loan Rev. Bonds,
7.38%, 06/01/03 ............................................. A1/A+ 25,000 25,313
Philadelphia, PA Ind. Dev. Auth. Rev. (Natl. Board of Med.
Examiners), 6.10%, 05/01/00 ................................. NR/A+ 500,000 515,000
Westmoreland County, PA Indl. Dev. Auth. (Landfill Gas Recycling),
6.80%, 01/01/05 ............................................. NR/NR 500,000 498,125
York County, PA Ind. Auth. Personal Care Fac., 9.50%, 10/01/19 . NR/NR 335,000 401,163
------------
5,087,354
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENTS (UNAUDITED) -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2)
----------- --------- ------------
<S> <C> <C> <C>
TEXAS -- 5.7%
Austin, TX Gen. Oblig. Rev. Bonds, 4.75%, 09/01/09 ............. Aa2/AA $315,000 $ 315,000
Kingsbridge, TX Municipal Utilities Dist. AMBAC,
4.88%, 03/01/02 ............................................. Aaa/NR 680,000 691,900
------------
1,006,900
------------
UTAH -- 3.0%
Salt Lake County, UT Municipal Bldg. Auth. Lease Rev. Bonds,
Ser. 1994A, 5.65%, 10/01/03 ................................. Aaa/AAA 500,000 528,125
------------
VIRGINIA -- 5.9%
Virginia State Housing Dev. Auth. Commonwealth Mtge. Rev. Bonds,
Ser. 1992C, 5.80%, 07/01/04 ................................. Aa1/AA+ 500,000 526,875
Virginia State Public Bldg. Auth. Rev Bonds, Ser. 96A,
5.00%, 08/01/12 ............................................. Aa/AA 500,000 503,125
------------
1,030,000
------------
WASHINGTON -- 5.1%
Clark County, WA Public Utility Dist. No. 1 Generating Sys. Rev.
Bonds, 6.00%, 01/01/06 ...................................... Aaa/AAA 350,000 378,875
Washington State Public Power Supply Sys. Ref. Rev. Bonds
(Nuclear Project No. 3), Ser. 1993C, 5.10%, 07/01/07 ........ Aa1/AA- 500,000 510,000
------------
888,875
------------
WISCONSIN -- 2.9%
Appleton, WI Area School Dist., 5.00%, 04/01/11 ............. Aa2/NR 505,000 508,156
------------
TOTAL MUNICIPAL BONDS (COST $17,270,708) .............................................. 17,631,677
------------
TAX-EXEMPT MUTUAL FUNDS -- 1.0%
Provident Municipal Tax-Exempt Cash Money Market Fund
(COST $182,423) ............................................. NR/NR 182,423 182,423
------------
TOTAL INVESTMENTS (COST $17,453,131)(DAGGER) -- 101.6% ......................................... 17,814,100
LIABILITIES IN EXCESS OF ASSETS -- (1.6)% ...................................................... (282,256)
------------
NET ASSETS -- 100.0% ........................................................................... $ 17,531,844
============
<FN>
* Although certain securities are not rated (NR) by either Moody's or S&P,
they have been determined to be of comparable quality to investment grade
securities by the Portfolio Adviser.
(DAGGER) Cost for federal income tax purposes. At April 30, 1998, net unrealized
appreciation was $360,969. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $386,145 and aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over market
value of $25,176.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF ASSETS AND LIABILITIES
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
DIVERSIFIED MUNICIPAL
INCOME INCOME
PORTFOLIO PORTFOLIO
------------ -----------
<S> <C> <C>
ASSETS:
Investments in securities, at market (identified cost $31,770,706 and
$17,453,131, respectively) (Note 2) ......................................... $32,218,856 $17,814,100
Receivable for investment securities sold ...................................... 681,037 --
Interest receivable ............................................................ 480,654 271,485
Deferred organization costs (Note 2) ........................................... -- 7,043
----------- -----------
Total assets ................................................................ 33,380,547 18,092,628
----------- -----------
LIABILITIES:
Dividends payable .............................................................. 151,608 63,303
Payable for investment securities purchased .................................... 1,682,920 485,495
Payable for Fund shares redeemed ............................................... 31,490 --
Due to Adviser (Note 4) ........................................................ 3,479 555
Other accrued expenses (Note 4) ................................................ 13,726 11,431
----------- -----------
Total liabilities ........................................................... 1,883,223 560,784
----------- -----------
NET ASSETS, at market value .................................................... $31,497,324 $17,531,844
=========== ===========
NET ASSETS CONSIST OF:
Shares of beneficial interest .................................................. $ 24,087 $ 13,791
Additional paid-in capital ..................................................... 30,964,285 17,132,545
Net unrealized appreciation of investments ..................................... 448,150 360,969
Accumulated net realized gain .................................................. 60,802 24,539
----------- -----------
NET ASSETS, for 2,408,665, and 1,379,103 shares outstanding, respectively ...... $31,497,324 $17,531,844
=========== ===========
NET ASSET VALUE, offering and redemption price per share
($31,497,324 (DIVIDE) 2,408,665 and $17,531,844 (DIVIDE) 1,379,103 outstanding
shares of beneficial interest, $0.01 par value, respectively) ............... $13.08 $12.71
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS -- CONTINUED
================================================================================
STATEMENTS OF OPERATIONS
For the Six-Month Period Ended April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
DIVERSIFIED MUNICIPAL
INCOME INCOME
PORTFOLIO PORTFOLIO
------------ -----------
<S> <C> <C>
INTEREST INCOME ................................................................ $1,026,480 $440,768
---------- --------
EXPENSES:
Advisory fee (Note 4) ....................................................... 78,339 43,215
Administration fee (Note 4) ................................................. 14,077 7,763
Accounting fee (Note 4) ..................................................... 12,603 12,603
Distribution expenses (Note 4) .............................................. 5,812 4,443
Trustees' fees and expenses (Note 4) ........................................ 2,820 2,820
Amortization of organizational expenses (Note 2) ............................ -- 8,954
Registration fees ........................................................... 7,553 8,214
Reports to shareholders ..................................................... 8,192 4,880
Legal ....................................................................... 9,010 7,673
Audit ....................................................................... 13,076 6,166
Other ....................................................................... 9,603 8,435
---------- --------
Total expenses before fee waivers ........................................ 161,085 115,166
Advisory fee waived (Note 4) ............................................. (59,244) (39,332)
Administration fee waived (Note 4) ....................................... -- (3,518)
Accounting fee waived (Note 4) ........................................... -- (7,494)
---------- --------
Total expenses, net ................................................... 101,841 64,822
---------- --------
Net investment income ....................................................... 924,639 375,946
---------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions ................................ 176,768 56,235
Net unrealized depreciation of investments during the period ................ (170,984) (95,983)
---------- --------
Net gain (loss) on investments .............................................. 5,784 (39,748)
---------- --------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................... $ 930,423 $336,198
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS -- CONTINUED
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DIVERSIFIED MUNICIPAL
INCOME INCOME
PORTFOLIO PORTFOLIO
------------- -----------
<S> <C> <C>
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1998 (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ....................................................... $ 924,639 $ 375,946
Net realized gain on investment transactions ................................ 176,768 56,235
Net unrealized depreciation of investments during the period ................ (170,984) (95,983)
----------- -----------
Net increase in net assets resulting from operations ........................ 930,423 336,198
----------- -----------
Distributions to shareholders from:
Net investment income ....................................................... (924,639) (375,946)
----------- -----------
Increase in net assets from Fund share transactions (Note 5) ................... 35,780 125,336
----------- -----------
Total increase in net assets ................................................ 41,564 85,588
NET ASSETS:
Beginning of period ......................................................... 31,455,760 17,446,256
----------- -----------
End of period ............................................................... $31,497,324 $17,531,844
=========== ===========
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ....................................................... $ 1,885,318 $ 749,888
Net realized gain (loss) on investment transactions ......................... (16,511) 40,118
Net unrealized appreciation of investments during the year .................. 307,032 340,102
----------- -----------
Net increase in net assets resulting from operations ........................ 2,175,839 1,130,108
----------- -----------
Distributions to shareholders from:
Net investment income ....................................................... (1,885,318) (749,888)
----------- -----------
Increase (decrease) in net assets from Fund share transactions (Note 5) ........ (611,832) 447,444
----------- -----------
Total increase (decrease) in net assets ..................................... (321,311) 827,664
NET ASSETS:
Beginning of year ........................................................... 31,777,071 16,618,592
----------- -----------
End of year ................................................................. $31,455,760 $17,446,256
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME 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
SIX-MONTH
PERIOD ENDED FOR THE FISCAL YEARS ENDED OCTOBER 31,
APRIL 30, 1998 -----------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DIVERSIFIED INCOME PORTFOLIO
NET ASSET VALUE-- BEGINNING OF PERIOD ......... $13.07 $12.95 $13.08 $12.42 $13.48 $13.20
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Net investment income ...................... 0.38 0.77 0.78 0.83 0.71 0.76
Net realized and unrealized gain (loss) on
investments ............................. 0.01 0.12 (0.13) 0.66 (1.02) 0.39
------ ------ ------ ------ ------ ------
Total from investment operations ........ 0.39 0.89 0.65 1.49 (0.31) 1.15
------ ------ ------ ------ ------ ------
DISTRIBUTIONS:
From net investment income ................. (0.38) (0.77) (0.78) (0.83) (0.71) (0.76)
From net realized gain on investments ...... -- -- -- -- (0.04) (0.11)
------ ------ ------ ------ ------ ------
Total distributions ..................... (0.38) (0.77) (0.78) (0.83) (0.75) (0.87)
------ ------ ------ ------ ------ ------
NET ASSET VALUE-- END OF PERIOD ............... $13.08 $13.07 $12.95 $13.08 $12.42 $13.48
====== ====== ====== ====== ====== ======
TOTAL RETURN .................................. 3.04% 7.13% 5.18% 12.41% (2.33)% 9.00%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses(DAGGER) ........................... 0.65%* 0.65% 0.65% 0.65% 0.65% 0.65%
Net investment income ...................... 5.90%* 5.98% 6.07% 6.56% 5.53% 5.65%
Portfolio turnover rate ....................... 31.28% 83.54% 85.77% 116.40% 43.77% 24.22%
Net assets at end of period (000 omitted) ..... $31,497 $31,456 $31,777 $32,214 $31,721 $40,971
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
FOR THE
SIX-MONTH
PERIOD ENDED FOR THE FISCAL YEARS ENDED OCTOBER 31,
APRIL 30, 1998 -----------------------------------------
(UNAUDITED) 1997 1996 1995 1994
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MUNICIPAL INCOME PORTFOLIO
NET ASSET VALUE-- BEGINNING OF PERIOD ......... $12.74 $12.46 $12.49 $11.64 $12.50
------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Net investment income ...................... 0.27 0.55 0.55 0.54 0.49
Net realized and unrealized gain (loss) on
investments ............................. (0.03) 0.28 (0.03) 0.85 (0.86)
------ ------ ------ ------ ------
Total from investment operations ........ 0.24 0.83 0.52 1.39 (0.37)
------ ------ ------ ------ ------
DISTRIBUTIONS:
From net investment income ................. (0.27) (0.55) (0.55) (0.54) (0.49)
------ ------ ------ ------ ------
NET ASSET VALUE-- END OF PERIOD ............... $12.71 $12.74 $12.46 $12.49 $11.64
====== ====== ====== ====== ======
TOTAL RETURN .................................. 1.94% 6.85% 4.24% 12.23% (3.05)%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses(DAGGER)(DAGGER) ................... 0.75%* 0.75% 0.75% 0.75% 0.75%
Net investment income ...................... 4.34%* 4.42% 4.41% 4.50% 4.13%
Portfolio turnover rate ....................... 22.71% 28.56% 15.91% 42.08% 21.95%
Net assets at end of period (000 omitted) ..... $17,532 $17,446 $16,619 $16,570 $14,283
<FN>
* Annualized.
(DAGGER) Wilmington Trust Company ("WTC") waived a portion of its advisory fee
for the six-month period ended April 30, 1998, and for the fiscal years
ended October 31, 1997, 1996, 1995, 1994, and 1993. If these expenses had
been incurred by the Portfolio, the annualized ratio of expenses to average
daily net assets for the six-month period ended April 30, 1998, and for the
fiscal years ended October 31, 1997, 1996, 1995, 1994, and 1993, would have
been 1.03%, 1.12%, 1.09%, 1.14%, 1.05%, and 1.06%, respectively.
(DAGGER)(DAGGER) WTC waived a portion of its advisory fee for the six-month
period ended April 30, 1998 and its entire advisory fee for fiscal years
ended October 31, 1997, 1996, 1995 and 1994. RSMC waived a portion of its
administration and accounting services fees for the six-month period ended
April 30, 1998, and for the fiscal years ended October 31, 1997, 1996,
1995, and 1994. If these expenses had been incurred by the Portfolio, the
annualized ratio of expenses to average daily net assets for the six-month
period ended April 30, 1998, and for the fiscal years ended October 31,
1997, 1996, 1995 and 1994, would have been 1.33%, 1.52%, 1.37%, 1.45%, and
1.62%, respectively.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (UNAUDITED)
================================================================================
1. DESCRIPTION OF THE FUND. The Rodney Square Strategic Fixed-Income Fund (the
"Fund") is a diversified, open-end management investment company established
as a Massachusetts business trust by Declaration of Trust on May 7, 1986, as
last amended and restated on February 15, 1993, and registered with the U.S.
Securities and Exchange Commission (the "SEC") under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Declaration of Trust permits
the Trustees to create additional series or portfolios, each of which may
issue additional classes of shares. Currently, the Fund consists of two
series or portfolios, the Diversified Income Portfolio and the Municipal
Income Portfolio (each, a "Portfolio" and collectively, the "Portfolios").
Each Portfolio consists of a single class of shares. The investment
objective of the Diversified Income Portfolio is to seek high total return,
consistent with high current income, by investing principally in various
types of investment grade fixed-income securities. The investment objective
of the Municipal Income Portfolio is to seek a high level of income exempt
from federal income tax consistent with the preservation of capital.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of the
significant accounting policies of the Fund:
SECURITY VALUATION. The Portfolios value their assets based on their current
market prices when market quotations are readily available. Current market
prices are generally not readily available for municipal securities; current
market prices may also be unavailable for other types of fixed-income
securities held by the Portfolios. To determine the value of those
securities, PFPC may use a pricing service that takes into account not only
developments related to the specific securities, but also transactions in
comparable securities. The value of fixed-income securities maturing within
60 days of the valuation date may be determined by valuing those securities
at amortized cost. Securities that do not have a readily available current
market value are valued in good faith under the direction of the Board of
Trustees of the Fund.
FEDERAL INCOME TAXES. Each Portfolio is treated as a separate entity and
intends to continue to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, and to
distribute all of its taxable and tax-exempt income to its shareholders.
Therefore, no provision for federal income tax is required. At October 31,
1997, the Diversified Income Portfolio and the Municipal Income Portfolio
had net tax basis capital loss carryforwards to offset future capital gains
of approximately $112,000 and $32,000, respectively, which will expire as
follows:
CAPITAL LOSS EXPIRATION
CARRYFORWARD DATE
-------------- -------------
Diversified Income Portfolio ........ $ 82,000 10/31/03
30,000 10/31/05
Municipal Income Portfolio .......... 11,000 10/31/03
21,000 10/31/04
INTEREST INCOME AND DIVIDENDS TO SHAREHOLDERS. Interest income is accrued as
earned. Dividends from net investment income consist of accrued interest and
earned discount (including both original issue and market discount) less
amortization of premium and accrued expenses. Dividends to shareholders of
each Portfolio are declared daily from net investment income and paid to
shareholders monthly. Each Portfolio will distribute net realized gains on
investments, if any, annually in December.
14
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
================================================================================
DEFERRED ORGANIZATION COSTS. Costs incurred by the Municipal Income
Portfolio in connection with the initial registration and public offering of
shares have been deferred and are being amortized on a straight-line basis
over a five-year period beginning on the date the Portfolio commenced
operations.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
OTHER. Investment security transactions are accounted for on a trade date
basis. Each Portfolio uses the specific identification method for
determining realized gain and loss on investments for both financial and
federal income tax reporting purposes.
3. INVESTMENT SECURITIES. During the six-month period ended April 30, 1998,
purchases and sales of investment securities (excluding short-term
investments) aggregated as follows:
DIVERSIFIED MUNICIPAL
INCOME INCOME
------------- --------------
Purchases ................. $10,180,624 $4,920,572
Sales ..................... 9,271,809 3,744,831
4. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES. Wilmington Trust
Company ("WTC"), a wholly owned subsidiary of Wilmington Trust Corporation,
a publicly held bank holding company, furnishes investment advisory and
other services to the Fund pursuant to separate advisory agreements with
each Portfolio (the "Advisory Agreements"). WTC serves as investment adviser
to the Portfolios and, subject to the supervision of the Board of Trustees,
directs the investments of the Portfolios in accordance with each
Portfolio's investment objective, policies and limitations. For its services
under each Advisory Agreement, the Fund pays WTC a monthly fee at the annual
rate of 0.50% of the average daily net assets of each Portfolio of the Fund,
excluding those assets invested in any money market mutual fund. WTC has
agreed to waive its advisory fee or reimburse each Portfolio monthly to the
extent that operating expenses of the Portfolio (excluding taxes,
extraordinary expenses, brokerage commissions and interest) exceed an annual
rate of 0.75% of the Portfolio's average daily net assets through February,
1999. With respect to the Diversified Income Portfolio, WTC has voluntarily
agreed to waive its fee or reimburse the Portfolio monthly to the extent
that operating expenses of the Portfolio (excluding taxes, extraordinary
expenses, brokerage commissions, and interest) exceed an annual rate of
0.65% of average daily net assets. These undertakings may be amended or
eliminated at any time in the future.
15
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
================================================================================
The following table summarizes the advisory fees for the six-month period
ended April 30, 1998:
GROSS ADVISORY ADVISORY
FEE FEE WAIVER
-------------- -------------
Diversified Income Portfolio ........ $78,339 $59,244
Municipal Income Portfolio .......... 43,215 39,332
WTC also serves as custodian of the assets of the Portfolios. Effective
February 2, 1998, WTC entered into a Sub-Custodian Services Agreement with
PNC Bank, N.A. ("PNC") whereby PNC serves as Sub-Custodian of the assets of
the Portfolios. The Portfolios do not pay WTC or PNC any fee for custodial
services, as WTC assumes the cost of providing these services to the
Portfolios. The Portfolios reimburse WTC and PNC for their related
out-of-pocket expenses, if any, incurred in connection with the performance
of these services.
Prior to February 2, 1998, Rodney Square Management Corporation ("RSMC"), a
wholly owned subsidiary of WTC, served as administrator, transfer agent and
dividend disbursing agent to the Fund under separate Administration and
Transfer Agent Agreements with the Fund, each dated December 31, 1992. As
administrator, RSMC was responsible for services such as financial
reporting, compliance monitoring and corporate management. For the services
provided, RSMC received a monthly administration fee from the Fund at an
annual rate of 0.08% of each Portfolio's average daily net assets. The
administration fee paid to RSMC by the Diversified Income Portfolio for the
period from November 1, 1997 to February 2, 1998, amounted to $6,361. RSMC
waived its administration fee for the Municipal Income Portfolio for the
period from November 1, 1997 to February 2, 1998, which amounted to $3,518.
The Fund did not pay RSMC any separate fees for its services as transfer
agent and dividend disbursing agent for the Portfolios, as WTC assumed the
cost of providing these services to the Portfolios. Each Portfolio
reimbursed RSMC for its related out-of-pocket expenses, if any, incurred in
connection with the performance of these services.
Effective February 2, 1998, the Fund entered into an Administrative and
Accounting Services Agreement (the "Agreement") with PFPC Inc. ("PFPC")
whereby PFPC performs certain administrative and accounting services for the
Portfolios including preparing shareholder reports, assisting WTC in
compliance monitoring activities and determining the net asset value per
share of each Portfolio. For services provided under the Agreement, the Fund
pays PFPC an annual fee equal to the amount derived from the following
schedule: 0.10% of each Portfolio's first $1 billion of average daily net
assets; 0.075% of each Portfolio's next $500 million of average daily net
assets; 0.050% of each Portfolio's next $500 million of average daily net
assets; and 0.035% of each Portfolio's average daily net assets in excess of
$2 billion. In addition, any related out-of-pocket expenses incurred by PFPC
in the provision of services to a Portfolio are borne by that Portfolio.
PFPC's fees for services provided under the Agreement for the period from
February 2, 1998 to April 30, 1998, were $7,716 and $4,245 for the
Diversified Income Portfolio and Municipal Income Portfolio, respectively.
Pursuant to a Distribution Agreement with the Fund, dated February 23, 1998,
Rodney Square Distributors, Inc. ("RSD"), a wholly-owned subsidiary of WTC,
manages the Fund's distribution efforts and provides assistance and
16
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
================================================================================
expertise in developing marketing plans and materials. Prior to January 26,
1998, the Fund's Board of Trustees had authorized pursuant to Rule 12b-1
plans of distribution, a payment of up to 0.25% of each Portfolio's average
daily net assets annually to reimburse RSD for expenses incurred in
connection with distribution activities. Effective January 26, 1998, the
Rule 12b-1 plans were terminated. For the period November 1, 1997
throughJanuary 26, 1998, RSD was reimbursed in the amount of $5,812 for the
Diversified Income Portfolio and $4,443 for the Municipal Income Portfolio.
Prior to February 2, 1998, RSMC determined the net asset value per share of
each Portfolio and provided accounting services to the Fund pursuant to an
Accounting Services Agreement with the Fund on behalf of each Portfolio. For
its services, RSMC received an annual fee of $50,000 per Portfolio, plus an
amount equal to 0.02% of that portion of each Portfolio's average daily net
assets in excess of $100 million. For the period November 1, 1997 to
February 2, 1998, RSMC's fees for accounting services amounted to $12,603
per Portfolio. RSMC waived $7,494 of the accounting services fee with
respect to the Municipal Income Portfolio.
The salaries and fees of all officers of the Fund, the Trustees who are
"interested persons" of the Fund, WTC, RSMC, RSD, or their affiliates, and
all personnel of the Fund, 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
for the six-month period ended April 30, 1998 amounted to $2,820 per
Portfolio.
5. FUND SHARES. At April 30, 1998, there were an unlimited number of shares of
beneficial interest of $0.01 par value authorized. The following table
summarizes the activity in shares of each Portfolio:
DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE SIX-MONTH PERIOD FOR THE FISCAL YEAR
ENDED APRIL 30, 1998 ENDED OCTOBER 31, 1997
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold .................... 70,632 $ 925,915 141,848 $ 1,841,272
Shares issued to shareholders in
reinvestment of distributions 27,283 357,036 58,648 755,881
Shares redeemed ................ (95,194) (1,247,171) (248,332) (3,208,985)
--------- ----------- --------- -----------
Net increase (decrease) ........ 2,721 $ 35,780 (47,836) $ (611,832)
=========== ===========
Shares outstanding:
Beginning of period ......... 2,405,944 2,453,780
--------- ---------
End of period ............... 2,408,665 2,405,944
========= =========
</TABLE>
17
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
================================================================================
MUNICIPAL INCOME PORTFOLIO
<TABLE>
<CAPTION>
FOR THE SIX-MONTH PERIOD FOR THE FISCAL YEAR
ENDED APRIL 30, 1998 ENDED OCTOBER 31, 1997
-------------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Shares sold .................... 55,568 $712,546 98,185 $ 1,235,603
Shares issued to shareholders in
reinvestment of distributions 22,491 287,951 45,831 575,223
Shares redeemed ................ (68,208) (875,161) (108,773) (1,363,382)
--------- -------- --------- -----------
Net increase ................... 9,851 $125,336 35,243 $ 447,444
======== ===========
Shares outstanding:
Beginning of period ......... 1,369,252 1,334,009
--------- ---------
End of period ............... 1,379,103 1,369,252
========= =========
</TABLE>
6. SUBSEQUENT EVENT. A meeting of shareholders is scheduled for June 25, 1998,
to approve a new Advisory Agreement to become effective on June 29, 1998,
under which, each Portfolio will pay a monthly advisory fee to WTC at the
annual rate of 0.35% of the average daily net assets of the Portfolio. WTC
has agreed to waive its fee or reimburse each Portfolio monthly to the
extent that expenses of the Portfolio (excluding taxes, extraordinary
expenses, brokerage commissions and interest) exceed an annual rate of 0.55%
and 0.75% of the average daily net assets for the Diversified Income
Portfolio and the Municipal Income Portfolio, respectively, through
February, 1999. In addition, subject to shareholder approval of the Advisory
Agreement, the Fund will bear the costs of custody and transfer agency
services provided to the Portfolios, effective June 29, 1998. Finally,
effective June 29, 1998, the Diversified Income Portfolio will change its
name to the Short/Intermediate Bond Portfolio, and the Municipal
IncomePortfolio will change its name to the Municipal Bond Portfolio.
18
<PAGE>
TRUSTEES
Eric Brucker
Fred L. Buckner
Robert J. Christian
John J. Quindlen
---------------------
OFFICERS
Robert J. Christian, PRESIDENT
Nina M. Webb, VICE PRESIDENT
John J. Kelley, VICE PRESIDENT & TREASURER
Carl M. Rizzo, Esq., SECRETARY
Diane J. Drake, Esq., ASSISTANT SECRETARY
Mary Jane Maloney, ASSISTANT SECRETARY
John C. McDonnell, ASSISTANT TREASURER
---------------------------------------------
INVESTMENT ADVISER
AND 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
----------------------------------
ADMINISTRATOR,
TRANSFER AGENT AND
ACCOUNTING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
---------------------------
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
----------------------------
INDEPENDENT AUDITORS
Ernst & Young LLP
---------------------
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE
FUND. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN
THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
RS03 4/98
