THE RODNEY SQUARE TAX-EXEMPT FUND
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
The Rodney Square Tax-Exempt Fund (the "Fund") seeks as high a level of
interest income, exempt from federal income tax, as is consistent with a
portfolio of high-quality, short-term municipal obligations selected on
the basis of liquidity and stability of principal.
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STATEMENT OF ADDITIONAL INFORMATION
January 2, 1998, as revised January 26, 1998
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This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's current Prospectus, dated January 2, 1998,
and revised January 26, 1998, as amended from time to time. A copy of the
current Prospectus may be obtained without charge, by writing to Rodney Square
Distributors, Inc. ("RSD"), Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, and from certain institutions such as banks or
broker-dealers that have entered into servicing agreements with RSD or by
calling (800) 336-9970.
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TABLE OF CONTENTS
INVESTMENT POLICIES........................................................1
INVESTMENT LIMITATIONS.....................................................3
TRUSTEES AND OFFICERS......................................................4
RODNEY SQUARE MANAGEMENT CORPORATION.......................................6
WILMINGTON TRUST COMPANY...................................................6
INVESTMENT MANAGEMENT AND OTHER SERVICES...................................6
DISTRIBUTION AGREEMENT AND RULE 12B-1 PLAN.................................7
PORTFOLIO TRANSACTIONS.....................................................8
REDEMPTIONS................................................................9
NET ASSET VALUE AND DIVIDENDS.............................................10
PERFORMANCE INFORMATION...................................................10
TAX-EQUIVALENT YIELD TABLE................................................11
TAXES.....................................................................15
DESCRIPTION OF THE FUND...................................................16
OTHER INFORMATION.........................................................16
FINANCIAL STATEMENTS......................................................17
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THE RODNEY SQUARE TAX-EXEMPT FUND
INVESTMENT POLICIES
The following information supplements the information concerning the
investment objective, policies and limitations of the Fund found in the
Prospectus.
The Fund has adopted a fundamental policy requiring it to use its best
efforts to maintain a constant net asset value of $1.00 per share, although this
may not be possible under certain circumstances. The Fund values its portfolio
securities on the basis of amortized cost (see "Net Asset Value and Dividends")
pursuant to Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act").
As conditions of that Rule, the Fund's Board of Trustees has established
procedures reasonably designed to stabilize the Fund's price per share at $1.00
per share. The Fund maintains a dollar-weighted average portfolio maturity of 90
days or less; purchases only instruments with effective maturities of 397 days
or less; and invests only in securities which are of high-quality as determined
by a major rating service or, in the case of instruments which are not rated, of
comparable quality as determined by the Fund's manager, Rodney Square Management
Corporation ("RSMC"), under the direction of and subject to the review of the
Fund's Board of Trustees. Although not required, typically over 90% of the
Fund's assets are rated A-1+ by Standard & Poor's , a division of The
McGraw-Hill Companies, Inc. ("S&P"), P-1 by Moody's Investors Service, Inc.
("Moody's"), or F-1 by Fitch Investor Services, L.P. ("Fitch") or a comparable
rating by an equivalent rating agency.
WHEN-ISSUED SECURITIES. The Portfolio may purchase securities on a
when-issued basis. This means that delivery and payment for the securities
normally will take place approximately 15 to 90 days after the date of the
transaction. The payment obligation and the interest rate that will be received
on securities purchased on a when-issued basis are each fixed at the time the
buyer enters into the commitment. The Fund will make commitments to purchase
such securities only with the intention of actually acquiring the securities,
but the Fund may dispose of the commitment before the settlement date if it is
deemed advisable as a matter of investment strategy. A separate account of the
Fund will be established at the Fund's custodian bank, into which liquid,
unencumbered daily mark-to-market assets equal to the amount of the above
commitments will be deposited. If the market value of the deposited assets
declines, additional assets will be placed in the account on a daily basis so
that the market value of the account will equal the amount of such commitments
by the Fund.
A security purchased on a when-issued basis is recorded as an asset on the
commitment date and is subject to changes in market value generally based upon
changes in the level of interest rates. Thus, upon delivery, its market value
may be higher or lower than its cost. When payment for a when-issued security is
due, the Fund will meet its obligations from then-available cash flow, the sale
of the securities held in the separate account or the sale of other securities.
The sale of securities to meet such obligations increases the potential for the
realization of capital gains, which are subject to federal income tax.
YIELDS AND RATINGS OF SECURITIES. The yields on the securities in which the
Fund invests (such as municipal securities) are dependent on a variety of
factors, including general money market conditions, conditions in the particular
market for the obligation, the financial condition of the issuer, the size of
the offering, the maturity of the obligation and the ratings of the issue. The
ratings of Moody's, S&P and Fitch represent their opinions as to quality of the
obligations they undertake to rate. Ratings, however, are general and are not
absolute standards of quality. Consequently, obligations with the same rating,
maturity and interest rate may have different market prices. Subsequent to its
purchase by the Fund, an issue may cease to be rated or its rating may be
reduced. RSMC, and in certain cases, as required by Rule 2a-7 under the 1940
Act, the Fund's Board of Trustees, will consider whether the Fund should
continue to hold the obligation.
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ILLIQUID SECURITIES. The Fund may not purchase securities or invest in
repurchase agreements with respect to any securities, if, as a result, more than
10% of the Fund's net assets (taken at current value) would be invested in
repurchase agreements which do not entitle the holder to payment of principal
within seven days and in securities that are illiquid by virtue of legal or
contractual restrictions on resale or the absence of a readily available market.
In recent years a large institutional market has developed for certain
securities that are not registered under the Securities Act of 1933 (the "1933
Act"), including private placements, repurchase agreements, commercial paper,
foreign securities and corporate bonds and notes. These instruments are often
restricted securities because the securities are sold in transactions not
requiring registration. Institutional investors generally will not seek to sell
these instruments to the general public, but instead will often depend either on
an efficient institutional market in which such unregistered securities can be
readily resold or on an issuer's ability to honor a demand for repayment.
Therefore, the fact that there are contractual or legal restrictions on resale
to the general public or certain institutions is not dispositive of the
liquidity of such investments.
To facilitate the increased size and liquidity of the institutional markets
for unregistered securities, the Securities and Exchange Commission (the "SEC")
adopted Rule 144A under the 1933 Act. Rule 144A established a "safe harbor" from
the registration requirements of the 1933 Act for resales of certain securities
to qualified institutional buyers. Institutional markets for restricted
securities have developed as a result of Rule 144A, providing both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. Such markets include
automated systems for the trading, clearance and settlement of unregistered
securities, such as the PORTAL system sponsored by the National Association of
Securities Dealers, Inc.
The Fund's Board of Trustees has the ultimate responsibility for
determining whether specific securities are liquid or illiquid. The Board has
delegated the function of making day-to-day determinations of liquidity to RSMC,
pursuant to guidelines approved by the Board. RSMC will monitor the liquidity of
securities held by the Fund and report periodically on such decisions to the
Board of Trustees. RSMC takes into account a number of factors in reaching
liquidity decisions, including (1) the frequency of trades for the security, (2)
the number of dealers that make quotes for the security, (3) the number of
dealers that have undertaken to make a market in the security, (4) the number of
other potential purchasers and (5) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are solicited
and the mechanics of transfer).
LOANS OF PORTFOLIO SECURITIES. Although the Fund has no present intention
of doing so in excess of 5% of the Fund's net assets, the Fund may from time to
time lend its portfolio securities to brokers, dealers and financial
institutions. Such loans will in no event exceed one-third of the Fund's total
assets and will be secured by collateral in the form of cash or securities,
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
("U.S. Government Securities"), which at all times while the loan is outstanding
will be maintained in an amount at least equal to the current market value of
the loaned securities.
The primary risk involved in lending securities is that of a financial
failure by the borrower. In such a situation, the borrower might be unable to
return the loaned securities at a time when the value of the collateral has
fallen below the amount necessary to replace the loaned securities. The borrower
would be liable for the shortage, but the Fund would be an unsecured creditor
with respect to such shortage and might not be able to recover all or any of it.
In order to minimize this risk, the Fund will make loans of securities only to
firms deemed creditworthy by RSMC and only when, in the judgment of RSMC, the
consideration that the Fund will receive from the borrower justifies the risk.
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INVESTMENT LIMITATIONS
The investment limitations described below are fundamental, and may not be
changed without the affirmative vote of the holders of the lesser of (i) 67% or
more of the shares of the Fund present at a shareholders' meeting if holders of
more than 50% of the outstanding shares of the Fund are present in person or by
proxy or (ii) more than 50% of the outstanding shares of the Fund.
The Fund will not, as a matter of fundamental policy:
1. purchase securities of any one issuer if as a result more than 5% of the
Fund's total assets would be invested in such issuer or the Fund would own
or hold 10% or more of the outstanding voting securities of that issuer,
except that up to 25% of the Fund's total assets may be invested without
regard to these limitations and provided that these limitations do not
apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
2. borrow money, except (i) from a bank for temporary or emergency purposes
(not for leveraging or investment) or (ii) by engaging in reverse
repurchase agreements, provided that borrowings do not exceed an amount
equal to one-third of the current value of the Fund's assets, taken at
market value, less liabilities other than borrowings;
3. purchase securities, if, as a result, 25% or more of the value of the
Fund's total assets would be invested in the securities of issuers having
their principal business activities in the same industry, except that this
limitation does not apply to municipal securities;
4. underwrite any issue of securities, except to the extent that the Fund may
be considered to be acting as underwriter in connection with the
disposition of any portfolio security;
5. purchase or sell real estate, but this limitation shall not prevent the
Fund from investing in obligations secured by real estate or interests
therein or obligations issued by companies that invest in real estate or
interests therein;
6. make loans, except (i) the purchase of a portion of an issue of debt
securities in accordance with its investment objective, policies and
limitation, (ii) engaging in repurchase agreements, or (iii) engaging in
securities loan transactions limited to one-third of the Fund's total
assets;
7. purchase or sell physical commodities or contracts relating to physical
commodities, provided that currencies and currency-related contracts will
not be deemed physical commodities; or
8. issue senior securities, except as appropriate to evidence indebtedness
that the Fund is permitted to incur, provided that the Fund may issue
shares of additional series or classes that the Trustees may establish,
and provided that the Fund's use of options, futures contracts and options
thereon or currency-related contracts, will not be deemed to be senior
securities for this purpose.
In addition, the Fund has adopted several non-fundamental policies, which
can be changed by the Board of Trustees without shareholder approval.
As a matter of non-fundamental policy, the Fund will not:
1. purchase or otherwise acquire any security or invest in a repurchase
agreement with respect to any securities if, as a result, more than 10% of
the Fund's net assets (taken at current value) would be invested in
repurchase agreements not entitling the holder to payment of principal
within seven days and in securities that are illiquid by virtue of legal
or contractual restrictions on resale or the absence of a readily
available market;
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2. purchase securities for investment while any bank borrowing equaling 5% or
more of the Fund's total assets is outstanding;
3. make short sales of securities or purchase securities on margin (but the
Fund may effect short sales against the box and obtain such credits as may
be necessary for the clearance of the purchases and sales of securities);
or
4. make loans of portfolio securities unless such loans are fully
collateralized by cash, U. S. Government securities, or any combination of
cash and such securities, marked to market value daily.
Whenever an investment policy or limitation states a maximum percentage of
the Fund's assets that may be invested in any security or other asset or sets
forth a policy regarding quality standards, such percentage or standard
limitation shall be determined immediately after the Fund's acquisition of such
security or other asset. Accordingly, any later increase or decrease resulting
from a change in values, net assets or other circumstances will not be
considered when determining whether the investment complies with the Fund's
investment policies and limitations (except where explicitly noted above and
except that, as a condition of Rule 2a-7 under the 1940 Act, quality standards
must be maintained for certain obligations).
TRUSTEES AND OFFICERS
The Fund has a Board, currently composed of five Trustees, which supervises
Fund activities and reviews contractual arrangements with companies that provide
the Fund with services. The Fund's Trustees and officers are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. All persons named as Trustees also
serve in similar capacities for The Rodney Square Fund, The Rodney Square
Multi-Manager Fund and The Rodney Square Strategic Fixed-Income Fund (together
with the Fund, the "Rodney Square Family of Funds"). Those Trustees who are
"interested persons" of the Fund (as defined in the 1940 Act) by virtue of their
positions with either RSMC or Wilmington Trust Company ("WTC"), the parent of
RSMC, are indicated by an asterisk (*).
MARTIN L. KLOPPING, Rodney Square North, 1100 N. Market St., Wilmington, DE
19890-0001, Trustee, age 44, was President and Director of RSMC from 1984 to
January 1998. He was also a Director of Rodney Square Distributors, Inc.
("RSD"), from 1992 to January 1998. He is a Chartered Financial Analyst and
member of the SEC Rules and Investment Advisers Committees of the Investment
Company Institute.
ERIC BRUCKER, School of Management, University of Michigan, Dearborn, MI 48128,
Trustee, age 56, has been Dean of the School of Management of the University of
Michigan since June 1992. He was Professor of Economics, Trenton State College
from September 1989 through June 1992. He was Vice President for Academic
Affairs, Trenton State College from September 1989 through June 1991. From 1976
until September 1989, he was Dean of the College of Business and Economics and
Chairman of various committees at the University of Delaware. He is also a
member of the Detroit Economic Club, Financial Executive Institute and
Leadership Detroit.
FRED L. BUCKNER, 5 Hearth Lane, Greenville, DE 19807, Trustee, age 65, has
retired as President and Chief Operating Officer of Hercules Incorporated
(diversified chemicals), positions he held from March 1987 through March 1992.
He also served as a member of the Hercules Incorporated Board of Directors from
1986 through March 1992.
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JOHN J. QUINDLEN, 313 Southwinds, 1250 West Southwinds Blvd., Vero Beach, FL
32963, Trustee, age 65, has retired as Senior Vice President-Finance of E.I. du
Pont de Nemours and Company, Inc. (diversified chemicals), a position he held
from 1984 to November 30, 1993. He served as Chief Financial Officer of E. I. du
Pont de Nemours and Company, Inc. from 1984 through June 1993. He also serves as
a Director of St. Joe Paper Co. and a Trustee of Kalmar Pooled Investment Trust.
*ROBERT J. CHRISTIAN, Rodney Square North, 1100 N. Market St., Wilmington, DE
19890-0001, President and Trustee, age 48, has been Chief Investment Officer of
WTC since February 1996 and Director of RSMC since February 1996. He was
Chairman and Director of PNC Equity Advisors Company, and President and Chief
Investment Officer of PNC Asset Management Group, Inc. from 1994 to 1996. He was
Chief Investment Officer of PNC Bank, N.A. from 1992 to 1996, Director of
Provident Capital Management from 1993 to 1996, and Director of Investment
Strategy PNC Bank, N.A. from 1989 to 1992. He is also a Trustee of LaSalle
University and a member of the Board of Governors for the Pennsylvania Economy
League.
JOSEPH M. FAHEY, JR., Rodney Square North, 1100 N. Market St., Wilmington, DE
19890-0001, Vice President, age 40, has been with RSMC since 1984, as a
Secretary of RSMC since 1986 and a Vice President since 1992. He was an
Assistant Vice President of RSMC from 1988 to 1992.
NINA M. WEBB, Rodney Square North, 1100 N. Market St., Wilmington, DE
19890-0001, Vice President, age 44, has been an Equity Portfolio Manager at WTC
since March 1987. A Chartered Financial Analyst, she previously was employed by
the University of Delaware as Senior Investment Analyst (1985-86), Investment
Analyst (1982-85), and Accountant (1976-82).
JOHN J. KELLEY, 400 Bellevue Parkway, Wilmington, DE 19809, Vice President and
Treasurer, age 38, has been a Vice President of PFPC Inc.("PFPC") since January
1998. He was a Vice President of RSMC from 1995 to January 1998. He was an
Assistant Vice President of RSMC from 1989 to 1995.
CARL M. RIZZO, Rodney Square North, 1100 N. Market St., Wilmington, DE
19890-0001, Secretary, age 46, was appointed Vice President of RSMC in July,
1996. From 1995 to 1996 he was Assistant General Counsel of Aid Association for
Lutherans ( a fraternal benefit association); from 1994 to 1995 Senior Associate
Counsel of United Services Automobile Association (an insurance and financial
services firm); and from 1987 to 1994 Special Counsel or Attorney-Adviser with a
federal government agency.
The fees and expenses of the Trustees who are not "interested persons" of
the Fund ("Independent Trustees") as defined in the 1940 Act are paid by the
Fund. The following table shows the fees paid during the fiscal year ended
September 30, 1997 to the Independent Trustees for their service to the Fund and
to the Rodney Square Family of Funds. On September 30, 1997, the Trustees and
officers of the Fund, as a group, owned beneficially, or may be deemed to have
owned beneficially, less than 1% of the outstanding shares of the Fund.
1997 TRUSTEES FEES
TOTAL FEES FROM TOTAL FEES FROM THE RODNEY
INDEPENDENT TRUSTEE THE FUND SQUARE FAMILY OF FUNDS
------------------- --------------- --------------------------
Eric Brucker $2,050 $12,550
Fred L. Buckner $2,050 $12,550
John J. Quindlen $2,050 $12,550
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RODNEY SQUARE MANAGEMENT CORPORATION
RSMC has served as the Fund Manager since December 20, 1985. RSMC is a
Delaware corporation organized on September 17, 1981, which enjoys a reputation
for managing high-quality portfolios using a conservative investment approach.
In a time when safety of principal and liquidity are critical, RSMC's
experienced management team will continue to operate with strict internal
controls and high credit quality standards. RSMC's investment management
services and specialized investment techniques are normally available only to
institutional clients. RSMC also acts as Investment Adviser to The Rodney Square
Multi-Manager Fund and The Rodney Square Fund.
RSMC is a wholly-owned subsidiary of WTC, a state-chartered bank organized
as a Delaware Corporation in 1903. WTC is the wholly-owned subsidiary of
Wilmington Trust Corporation, a publicly held bank holding company. RSMC may
occasionally consult, on an informal basis, with personnel of WTC's investment
departments. WTC takes no part, however, in determining which securities are to
be purchased or sold by the Fund. Prior to RSMC's formation as a separate
company, most of its investment management staff and some of its officers were
employed by WTC in various money market and other fixed-income investment
management and trading departments.
Several affiliates of RSMC are also engaged in the investment advisory
business. Wilmington Trust FSB, a wholly-owned subsidiary of WTC exercises
investment discretion over certain institutional accounts.
RSD, a wholly-owned subsidiary of WTC and the Fund's Distributor is a
registered broker-dealer. Wilmington Brokerage Services Company, another
wholly-owned subsidiary of WTC, is a registered investment adviser and a
registered broker-dealer.
WILMINGTON TRUST COMPANY
WTC, the parent of RSMC, serves as Custodian of the assets of the Fund. The
Fund benefits from the experience, conservative values and special heritage of
WTC and its affiliates. WTC is a financially strong bank and enjoys a reputation
for providing exceptional consistency, stability and discipline in managing both
short-term and long-term investments. WTC is Delaware's largest full-service
bank and, with more than $75 billion in trust, custody and investment management
assets, WTC ranks among the nation's leading money management firms. As of
December 31, 1996, the trust department of WTC was the seventeenth largest in
the United States as measured by discretionary assets under management. WTC is
engaged in a variety of investment advisory activities, including the management
of collective investment pools, and has nearly a century of experience managing
the personal investments of high net-worth individuals. Its current roster of
institutional clients includes several Fortune 500 companies as well. WTC is
also the Investment Adviser of The Rodney Square Strategic Fixed-Income Fund.
INVESTMENT MANAGEMENT AND OTHER SERVICES
MANAGEMENT AGREEMENT. RSMC serves as Fund Manager pursuant to a contract
with the Fund dated August 9, 1991 (the "Management Agreement"). Under the
Management Agreement, RSMC, subject to the supervision of the Board of Trustees
of the Fund, directs the investments of the Fund in accordance with the Fund's
investment objective, policies, and limitations. Also, under the terms of the
Management Agreement, RSMC supplies office facilities, non-investment related
statistical and research data, executive and administrative services, and
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corporate secretarial services for the Fund. For the fiscal years ended
September 30, 1997, 1996 and 1995, RSMC was paid advisory fees and
administration fees amounting to $1,325,491, $1,346,805 and $1,696,280,
respectively.
The Management Agreement provides that RSMC shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Management Agreement relates, except to
the extent of a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its obligations and duties under
the Management Agreement.
The Management Agreement became effective on August 9, 1991, and continues
in effect from year to year thereafter so long as its continuance is approved at
least annually by a majority of the Trustees, including a majority of the
Independent Trustees. The Agreement is terminable by the Fund (by vote of the
Fund's Board of Trustees or by vote of a majority of the Fund's outstanding
voting securities) on sixty (60) days' written notice given to RSMC or by RSMC
on sixty (60) days' written notice given to the Fund and terminates
automatically upon its assignment.
The salaries of any officers and interested Trustees of the Fund who are
affiliated with RSMC and the salaries of all personnel of RSMC performing
services for the Fund relating to research, statistical and investment
activities are paid by RSMC.
ADMINISTRATIVE AND ACCOUNTING SERVICES. Under a separate Sub-Administration
and Accounting Services Agreement with the Fund and RSMC, PFPC, 400 Bellevue
Parkway, Wilmington, Delaware 19809, performs certain administrative and
accounting services for the Fund. These services include preparing shareholder
reports, providing statistical and research data, assisting WTC in compliance
monitoring activities, and preparing and filing federal and state tax returns on
behalf of the Fund. In addition, PFPC prepares and files various reports with
the appropriate regulatory agencies and prepares materials required by the SEC
or any state securities commission having jurisdiction over the Fund. The
accounting services performed by PFPC for the Fund include determining the net
asset value per share of the Fund and maintaining records relating to the Fund's
securities transactions.
The Sub-Administration and Accounting Services Agreement provides that PFPC
shall not be liable for any act or omission that does not result from PFPC's
willful misfeasance, bad faith, or gross negligence with respect to its duties
under the Agreement, or its reckless disregard of such duties.
DISTRIBUTION AGREEMENT AND RULE 12B-1 PLAN
RSD serves as Distributor of the Fund's shares pursuant to a Distribution
Agreement with the Fund. Pursuant to the terms of the Distribution Agreement,
RSD is granted the right to sell the shares of the Fund as the Fund's agent.
Shares of the Fund are offered continuously.
Under the terms of the Distribution Agreement, RSD agrees to use all
reasonable efforts to secure purchasers for shares of the Fund and to pay
expenses of printing and distributing prospectuses, statements of additional
information and reports prepared for use in connection with the sale of Fund
shares and any other literature and advertising used in connection with the
offering, subject to reimbursement pursuant to the Fund's Plan of Distribution
adopted pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plan").
The Distribution Agreement provides that RSD, in the absence of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under the
Agreement, will not be liable to the Fund or its shareholders for losses arising
in connection with the sale of Fund shares.
The Distribution Agreement became effective as of December 31, 1992 and
continues in effect from year to year as long as its continuance is approved at
least annually by a majority of the Trustees, including a majority of the
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Independent Trustees. The Distribution Agreement terminates automatically in the
event of its assignment. The Agreement is also terminable without payment of any
penalty: (i) by the Fund (by vote of a majority of the Trustees of the Fund who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of any Rule 12b-1 Plan of the Fund or any
agreements related to the 12b-1 Plan, or by vote of a majority of the
outstanding voting securities of the Fund) on sixty (60) days' written notice to
RSD; or (ii) by RSD on sixty (60) days' written notice to the Fund.
RSD may be reimbursed for distribution expenses according to a 12b-1 Plan
which the Board of Trustees adopted and became effective January 1, 1993. The
12b-1 Plan provides that RSD may be reimbursed for distribution activities
encompassed by Rule 12b-1, such as public relations services, telephone
services, sales presentations, media charges, preparation, printing and mailing
advertising and sales literature, data processing necessary to support a
distribution effort, printing and mailing of prospectuses, and distribution and
shareholder servicing activities of certain financial institutions such as banks
or broker-dealers who have entered into servicing agreements with RSD ("Service
Organizations") and other financial institutions, including fairly allocable
internal expenses of RSD and payments to third parties.
The 12b-1 Plan further provides that reimbursement shall be made for any
month only to the extent that such payment does not exceed (i) 0.20% on an
annualized basis of the Fund's average net assets; and (ii) limitations set from
time to time by the Board of Trustees. The Board of Trustees has only authorized
implementation of the 12b-1 Plan for annual payments of up to 0.20% of the
Fund's average net assets to reimburse RSD for making payments to certain
Service Organizations who have sold Fund shares and for other distribution
expenses. For the fiscal year ended September 30, 1997, payments made pursuant
to the 12b-1 Plan amounted to $18,364, consisting of $17,131, for trail
commissions and, $1233 for the preparation and distribution of marketing
materials.
Under the 12b-1 Plan, if any payments made by RSMC out of its management
fee, not to exceed the amount of that fee, to any third parties (including
banks), including payments for shareholder servicing and transfer agent
functions, were deemed to be indirect financing by the Fund of the distribution
of its shares, such payments are authorized. The Fund may execute portfolio
transactions with and purchase securities issued by depository institutions that
receive payments under the 12b-1 Plan. No preference for instruments issued by
such depository institutions is shown in the selection of investments.
PORTFOLIO TRANSACTIONS
All portfolio transactions are placed on behalf of the Fund by RSMC
pursuant to authority contained in the Management Agreement. Debt securities
purchased and sold by the Fund are generally traded on the dealer market on a
net basis (i.e., without commission) through dealers acting for their own
account and not as brokers, or otherwise involve transactions directly with the
issuer of the instrument. This means that a dealer (the securities firm or bank
dealing with the Fund) makes a market for securities by offering to buy at one
price and sell at a slightly higher price. The difference between the prices is
known as a spread. When securities are purchased in underwritten offerings, they
include a fixed amount of compensation to the underwriter.
The primary objective of RSMC in placing orders on behalf of the Fund for
the purchase and sale of securities is to obtain best execution at the most
favorable prices through responsible brokers or dealers and, where the spreads
or commission rates are negotiable, at competitive rates. In selecting a broker
or dealer, RSMC considers among other things: (i) the price of the securities to
be purchased or sold; (ii) the rate of the spread or commission; (iii) the size
and difficulty of the order; (iv) the nature and character of the spread or
commission for the securities to be purchased or sold; (v) the reliability,
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integrity, financial condition, general execution and operational capability of
the broker or dealer; and (vi) the quality of any services provided by the
broker or dealer to the Fund or to RSMC.
RSMC cannot readily determine the extent to which spreads or commission
rates or net prices charged by brokers or dealers reflect the value of their
research, analysis, advice and similar services. In such cases, RSMC receives
services it otherwise might have had to perform itself. The research, analysis,
advice and similar services provided by brokers or dealers can be useful to RSMC
in serving its other clients, as well as in serving the Fund. Conversely,
information provided to RSMC by brokers or dealers who have executed transaction
orders on behalf of other RSMC clients may be useful to RSMC in providing
services to the Fund. During the fiscal years ended September 30, 1997, 1996 and
1995, the Fund paid no brokerage commissions.
Some of RSMC's other clients have investment objectives and programs
similar to that of the Fund. Occasionally, RSMC may make recommendations to
other clients which result in their purchasing or selling securities
simultaneously with the Fund. Consequently, the demand for securities being
purchased or the supply of securities being sold may increase, and this could
have an adverse effect on the price of those securities. It is RSMC's policy not
to favor one client over another in making recommendations or in placing orders.
In the event of a simultaneous transaction, purchases or sales are averaged as
to price, transaction costs are allocated between the Portfolio and RSMC's other
clients participating in the transaction on a pro-rata basis and purchases and
sales are normally allocated between the Fund and RSMC's other clients as to
amount according to a formula determined prior to the execution of such
transactions.
REDEMPTIONS
To ensure proper authorization before redeeming shares of the Fund, the
Transfer Agent, PFPC, may require additional documents such as, but not
restricted to, stock powers, trust instruments, death certificates, appointments
as fiduciary, certificates of corporate authority and tax waivers required in
some states when settling estates.
Clients of WTC who have purchased shares through their trust accounts at
WTC and clients of Service Organizations who have purchased shares through their
accounts with those Service Organizations should contact WTC or the Service
Organization prior to submitting a redemption request to ensure that all
necessary documents accompany the request. When shares are held in the name of a
corporation, other organization, trust, fiduciary or other institutional
investor, PFPC requires, in addition to the stock power, certified evidence of
authority to sign the necessary instruments of transfer. THESE PROCEDURES ARE
FOR THE PROTECTION OF SHAREHOLDERS AND SHOULD BE FOLLOWED TO ENSURE PROMPT
PAYMENT. Redemption requests must not be conditional as to date or price of the
redemption. Proceeds of a redemption will be sent within 7 days of acceptance of
shares tendered for redemption. Delay may result if the purchase check has not
yet cleared, but the delay will be no longer than required to verify that the
purchase check has cleared, and the Fund will act as quickly as possible to
minimize delay.
A shareholder's right to redeem shares and to receive payment therefor may
be suspended when (a) the New York Stock Exchange (the "Exchange") is closed,
other than customary weekend and holiday closings, (b) trading on the Exchange
is restricted, (c) an emergency exists as a result of which it is not reasonably
practicable to dispose of the Fund's securities or to determine the value of the
Fund's net assets, or (d) ordered by a governmental body having jurisdiction
over the Fund for the protection of the Fund's shareholders, provided that
applicable rules and regulations of the SEC (or any succeeding governmental
authority) shall govern as to whether a condition described in (b), (c) or (d)
exists. In case of such suspension, shareholders may withdraw their requests for
redemption or may receive payment based on the net asset value next determined
after the suspension is lifted.
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The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption by making payment in whole or
in part with readily marketable securities chosen by the Fund and valued in the
same way as they would be valued for purposes of computing the Fund's net asset
value. If payment is made in securities, a shareholder may incur transaction
expenses in converting these securities into cash. The Fund has elected,
however, to be governed by Rule 18f-1 under the 1940 Act, as a result of which
the Fund is obligated to redeem shares solely in cash if the redemption requests
are made by one shareholder account up to the lesser of $250,000 or 1% of the
net assets of the Fund during any 90-day period. This election is irrevocable
unless the SEC permits its withdrawal.
NET ASSET VALUE AND DIVIDENDS
NET ASSET VALUE. The Fund's portfolio securities are valued on the basis of
the amortized cost valuation technique. This involves valuing an instrument at
its cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. The valuation of the Fund's portfolio
instruments based upon their amortized cost and the accompanying maintenance of
the Fund's per share net asset value of $1.00 is permitted in accordance with
Rule 2a-7 under the 1940 Act. Certain conditions imposed by that Rule are set
forth under "Investment Policies." In connection with the use of the amortized
cost valuation technique, the Fund's Board of Trustees has established
procedures reasonably designed to maintain a constant net asset value per share.
Such procedures include a daily review of the Fund's holdings to determine
whether the Fund's net asset value, calculated based upon available market
quotations, deviates from $1.00 per share. Should any deviation exceed 1/2 of 1%
of $1.00, the Trustees will promptly consider whether any corrective action
should be initiated to eliminate or reduce material dilution or other unfair
results to shareholders. Such corrective action may include selling of portfolio
instruments prior to maturity to realize capital gains or losses, shortening
average portfolio maturity, withholding dividends, redeeming shares in kind and
establishing a net asset value per share based upon available market quotations.
Should the Fund incur or anticipate any unusual expense or loss or
depreciation that would adversely affect its net asset value per share or income
for a particular period, the Trustees would at that time consider whether to
adhere to the current dividend policy as described in the Prospectus or to
revise it in light of the then prevailing circumstances. For example, if the
Fund's net asset value per share were reduced, or were anticipated to be
reduced, below $1.00, the Trustees could suspend further dividend payments until
net asset value returned to $1.00 per share. Thus, such expenses or losses or
depreciation could result in investors receiving no dividends for the period
during which they held their shares or in their receiving upon redemption a
price per share lower than that which they paid.
DIVIDENDS. Dividends are declared on each Business Day of the Fund (as
defined in the Prospectus). The dividend for such a Business Day immediately
preceding a weekend or holiday normally includes an amount equal to the net
income for the subsequent non Business Days of the Fund on which dividends are
not declared. However, no such dividend includes any amount of net income earned
in a subsequent semiannual accounting period.
PERFORMANCE INFORMATION
The performance of the Fund may be quoted in terms of its yield and the
total return in advertising and other promotional materials ("performance
advertisements"). Performance data quoted represents past performance and is not
intended to indicate future performance. Performance of the Fund will vary based
on changes in market conditions and the level of the Fund's expenses. These
performance figures are calculated in the following manner:
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A. YIELD is the net annualized yield for a specified 7 calendar days
calculated at simple interest rates. Yield is calculated by
determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one
share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing
the difference by the value of the account at the beginning of the
base period to obtain the base period return. The yield is
annualized by multiplying the base period return by 365/7. The yield
figure is stated to the nearest hundredth of one percent.
The Fund's yield for the 7-day period ended September 30, 1997 was
3.31%.
B. EFFECTIVE YIELD is the net annualized yield for a specified 7
calendar days assuming reinvestment of income or compounding.
Effective yield is calculated by the same method as yield except the
yield figure is compounded by adding 1, raising the sum to a power
equal to 365 divided by 7, and subtracting 1 from the result,
according to the following formula:
Effective Yield = [(Base Period Return + 1) 365/7] - 1.
The Fund's effective yield for the 7-day period ended September 30,
1997 was 3.35%.
C. TAX-EQUIVALENT YIELD is the net annualized taxable yield needed to
produce a specified tax-exempt yield at a given tax rate based on a
specified 7-day period assuming a reinvestment of all dividends paid
during such period. Tax-equivalent yield is calculated by dividing
that portion of the Fund's yield (computed as in the yield
description above) which is tax-exempt by 1 minus a stated income
tax rate and adding the quotient to that portion, if any, of the
yield of the Fund that is not tax-exempt.
The Fund's tax-equivalent yield for the 7-day period ended September
30, 1997 was 4.60% for the 28% tax bracket, 4.80% for the 31% tax
bracket, 5.17% for the 36% tax bracket and 5.48% for the 39.6% tax
bracket.
The following table, which is based upon federal income tax rates in
effect on the date of this Statement of Additional Information,
illustrates the yields that would have to be achieved on taxable
investments to produce a range of hypothetical tax-equivalent yields:
TAX-EQUIVALENT YIELD TABLE
Federal Marginal TAX-EQUIVALENT YIELDS BASED ON
INCOME TAX BRACKET TAX-EXEMPT YIELDS OF:
2% 3% 4% 5% 6% 7% 8%
-- -- -- -- -- -- --
28% 2.8 4.2 5.6 6.9 8.3 9.7 11.1
31% 2.9 4.3 5.8 7.2 8.7 10.1 11.6
36% 3.1 4.7 6.3 7.8 9.4 10.9 12.5
39.6% 3.3 5.0 6.6 8.3 9.9 11.6 13.2
D. AVERAGE ANNUAL TOTAL RETURN is the average annual compound rate of
return for the periods of one year, five years, ten years and the
life of a Fund, where applicable, all ended on the last day of a
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<PAGE>
recent calendar quarter. Average annual total return quotations
reflect changes in the price of a Fund's shares, if any, and assume
that all dividends and capital gains distributions, if any, during
the respective periods were reinvested in Fund shares. Average
annual total return is calculated by finding the average annual
compound rates of return of a hypothetical investment over such
periods, according to the following formula (average annual total
return is then expressed as a percentage):
T = (ERV/P)1/n - 1
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at
the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED SEPTEMBER 30, 1997
One Five Ten
YEAR YEARS YEARS
---- ----- -----
3.09% 2.76% 3.78%
E. CUMULATIVE TOTAL RETURN is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period.
Cumulative total return quotations reflect the change in the price
of a Fund's shares, if any, and assume that all dividends and
capital gains distributions, if any, during the period were
reinvested in Fund shares. Cumulative total return is calculated by
finding the cumulative rates of return of a hypothetical investment
over such periods, according to the following formula (cumulative
total return is then expressed as a percentage):
C = (ERV/P)-1
Where: C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at
the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
CUMULATIVE TOTAL RETURN FOR PERIODS ENDED SEPTEMBER 30, 1997
One Five Ten
YEAR YEARS YEARS
---- ----- -----
3.09% 14.59% 44.90%
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F. TOTAL RETURN is the rate of return on an investment for a specified
period of time calculated in the manner of Cumulative Total Return.
COMPARISON OF FUND PERFORMANCE. A comparison of the quoted performance
offered for various investments is valid only if performance is calculated in
the same manner. Since there are many methods of calculating performance,
investors should consider the effects of the methods used to calculate
performance when comparing performance on shares of the Fund with performance
quoted with respect to other investment companies or types of investments. For
example, it is useful to note that yields reported on debt instruments are
generally prospective, contrasted with the historical yields reported by the
Fund.
In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
other mutual funds tracked by mutual fund rating services or to other unmanaged
indexes which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
From time to time, in marketing and other literature, the Fund's
performance may be compared to the performance of broad groups of comparable
mutual funds or unmanaged indexes of comparable securities such as the IBC
Stockbroker and General Purpose Funds. The Fund's yield and performance over
time may also be compared to the performance of bank money market deposit
accounts and fixed-rate insured certificates of deposit (CD's), or unmanaged
indices of securities that are comparable to money market funds in their terms
and intent, such as Treasury bills, bankers' acceptances, negotiable order of
withdrawal accounts, and money market certificates. Most bank CD's differ from
money market funds in several ways: the interest rate is fixed for the term of
the CD, there are interest penalties for early withdrawal of the deposit from a
CD, and the deposit principal in a CD is insured by the FDIC.
Since the assets in all funds are always changing, the Fund may be ranked
within one asset-size class at one time and in another asset-size class at some
other time. In addition, the independent organization chosen to rank the Fund in
marketing and promotional literature may change from time to time depending upon
the basis of the independent organization's categorizations of mutual funds,
changes in the Fund's investment policies and investments, the Fund's asset size
and other factors deemed relevant. Advertisements and other marketing literature
will include the time period and Lipper Analytical Services, Inc. asset-size
class or other performance ranking company criteria, as applicable, for the
ranking in question.
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Fund, including reprints of, or selections
from, editorials or articles about the Fund. Sources for performance information
and articles about the Fund may include the following:
BARRON'S, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
CDA INVESTMENT TECHNOLOGIES, INC., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
CHANGING TIMES, THE KIPLINGER MAGAZINE, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
CONSUMER DIGEST, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
FINANCIAL WORLD, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
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<PAGE>
FORBES, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
FORTUNE, a national business publication that periodically rates the performance
of a variety of mutual funds.
IBC'S MONEY FUND REPORT, a weekly publication of IBC/Donoghue, Inc., of Ashland,
Massachusetts, reporting on the performance of the nation's money market funds,
summarizing money market fund activity, and including certain averages as
performance benchmarks, specifically "IBC's Money Fund Average," and "IBC's
Government Money Fund Average."
IBC'S MONEY FUND DIRECTORY, an annual directory ranking money market mutual
funds.
INVESTMENT COMPANY DATA, INC., an independent organization which provides
performance ranking information for broad classes of mutual funds.
INVESTOR'S DAILY, a daily newspaper that features financial, economic, and
business news.
LIPPER ANALYTICAL SERVICES, INC.'S MUTUAL FUND PERFORMANCE ANALYSIS, a weekly
publication of industry-wide mutual fund averages by type of fund.
MONEY, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
MUTUAL FUND VALUES, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
THE NEW YORK TIMES, a nationally distributed newspaper which regularly covers
financial news.
PERSONAL INVESTING NEWS, a monthly news publication that often reports on
investment opportunities and market conditions.
PERSONAL INVESTOR, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
SUCCESS, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
USA TODAY, the nation's number one daily newspaper.
U.S. NEWS AND WORLD REPORT, a national business weekly that periodically reports
mutual fund performance data.
WALL STREET JOURNAL, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
WIESENBERGER INVESTMENT COMPANIES SERVICES, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.
14
<PAGE>
TAXES
In order to continue to qualify for treatment as a RIC under the Code, the Fund
must distribute annually to its shareholders at least 90% of the sum of its net
interest income excludable from gross income under section 103(a) of the Code
plus its investment company taxable income (generally, taxable net investment
income plus net short-term capital gain, if any) and must meet several
additional requirements. Among these requirements are the following: (a) at
least 90% of the Fund's gross income each taxable year must be derived from
dividends, interest and gains from the sale or other disposition of securities,
or other income derived with respect to its business of investing in securities;
(b) at the close of each quarter of the Fund's taxable year, at least 50% of the
value of its total assets must be represented by cash and cash items, U.S.
Government Securities and other securities, with those other securities limited,
in respect of any one issuer, to an amount that does not exceed 5% of the value
of the Fund's total assets; and (c) at the close of each quarter of the Fund's
taxable year, not more than 25% of the value of its total assets may be invested
in securities (other than U.S. Government Securities) of any one issuer.
Dividends paid by the Fund will qualify as "exempt-interest dividends" (as
defined in the Prospectus), and thus will be excludable from gross income by its
shareholders, if the Fund satisfies the additional requirement that, at the
close of each quarter of its taxable year, at least 50% of the value of its
total assets consists of securities the interest on which is excludable from
gross income under section 103(a) of the Code; the Fund intends to continue to
satisfy this requirement. The portion of each dividend excludable from the
shareholders' gross income may not exceed the Fund's net tax-exempt income. The
treatment of dividends from the Fund under state and local income tax laws may
differ from the treatment thereof under the Code.
Tax-exempt interest attributable to certain "private activity bonds"
("PABs") (including, in the case of a RIC receiving interest on those bonds, a
proportionate part of the exempt-interest dividends paid by the RIC) is a
preference item for purposes of the federal alternative minimum tax.
Furthermore, even interest on tax-exempt securities held by the Fund that are
not PABs, which interest otherwise would be a tax preference item, nevertheless
may be indirectly subject to the alternative minimum tax in the hands of
corporate shareholders when distributed to them by the Fund. PABs are issued by
or on behalf of public authorities to finance various privately operated
facilities and are described in the Appendix to the Prospectus. Entities or
persons who are "substantial users" (or persons related to "substantial users")
of facilities financed by industrial development bonds or PABs should consult
their tax advisers before purchasing Fund shares. For these purposes, the term
"substantial user" is defined generally to include a "non-exempt person" who
regularly uses in trade or business a part of a facility financed from the
proceeds of such bonds.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as the Fund) plus 50% of their benefits
exceeds certain base amounts. Exempt-interest dividends from the Fund still are
tax-exempt to the extent described in the Prospectus; they are only included in
the calculation of whether a recipient's income exceeds the established amounts.
If the Fund invests in any instruments that generate taxable income, under
the circumstances described in the Prospectus, distributions of the interest
earned thereon will be taxable to the Fund's shareholders as ordinary income to
the extent of the Fund's earnings and profits. Moreover, if the Fund realizes
capital gain as a result of market transactions, any distributions of such gain
will be taxable to its shareholders.
The Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary (taxable) income for that year and capital gain net income for the
one-year period ending October 31 of that year, plus certain other amounts.
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<PAGE>
Shortly after the end of each year, PFPC determines the federal income tax
status of all distributions made during the year. Shareholders may be subject to
state and local taxes on distributions from the Fund. Shareholders should
consult their tax advisers regarding specific questions relating to federal,
state and local taxes.
DESCRIPTION OF THE FUND
The Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable for the obligations of
the trust. The Fund's Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each note, bond, contract or
other undertaking relating to the Fund that is issued by or on behalf of the
Fund or the Trustees. The Declaration of Trust provides for indemnification out
of the assets of the Fund of any shareholder held personally liable solely by
virtue of ownership of shares of the Fund. The Declaration of Trust also
provides that the Fund shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Fund and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Fund
itself would be unable to meet its obligations. RSMC believes that, in view of
the above, the risk of personal liability to shareholders is remote.
The Fund's Declaration of Trust further provides that the Trustees will not
be liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
The Declaration of Trust provides that the Fund will continue indefinitely
unless a majority of the shareholders of the Fund approve: (a) the sale of the
Fund's assets to another diversified open-end management investment company; or
(b) the liquidation of the Fund. In the event of the liquidation of the Fund,
affected shareholders are entitled to receive the assets of the Fund that are
available for distribution.
OTHER INFORMATION
INDEPENDENT AUDITORS. Ernst & Young LLP, Suite 4000, 2001 Market Street,
Philadelphia, PA 19103, serves as the Fund's Independent Auditors, providing
services which include (1) audit of the annual financial statements, (2)
assistance and consultation in connection with SEC filings and (3) preparation
of the annual federal income tax return filed on behalf of the Fund.
The financial statements and financial highlights of the Fund, appearing or
incorporated by reference in the Fund's Prospectus, this Statement of Additional
Information and Registration Statement, have been audited by Ernst & Young LLP,
Independent Auditors, to the extent indicated in their reports thereon also
appearing elsewhere herein and in the Registration Statement or incorporated by
reference. Such financial statements have been included herein or incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
SUBSTANTIAL SHAREHOLDERS. As of November 30, 1997, no shareholder other
than WTC owned of record or beneficially more than 5% of the outstanding shares
of the Fund. As of that date, WTC owned of record, on behalf of its customer
accounts 96% of the shares of the Fund.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Washington, D.C. 20036, serves as counsel to the Fund and has passed upon the
legality of the shares offered by the Prospectus and this Statement of
Additional Information.
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<PAGE>
CUSTODIAN AND SUB-CUSTODIAN. Wilmington Trust Company, Rodney Square North,
1100 N. Market Street, Wilmington, DE 19890-0001, serves as the Fund's
Custodian. PNC Bank, National Association, 1600 Market Street, Philadelphia, PA
19103, serves as the Fund's Sub-Custodian.
TRANSFER AGENT. PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809,
serves as the Fund's Transfer Agent and Dividend Paying Agent.
FINANCIAL STATEMENTS
The Schedule of Investments as of September 30, 1997; the Statement of
Assets and Liabilities as of September 30, 1997; the Statement of Operations for
the fiscal year ended September 30, 1997; the Statements of Changes in Net
Assets for the fiscal years ended September 30, 1997 and 1996; the Financial
Highlights for the fiscal years ended September 30, 1993 through September 30,
1997; and the Notes to Financial Statements and the Report of Independent
Auditors, each of which is included in the Annual Report to the shareholders of
the Fund as of and for the fiscal year ended September 30, 1997 are attached
hereto.
<PAGE>
The Financial Statements and the Report of Independent Auditors are
incorporated herein by reference from the Annual Report to the Shareholders of
the Fund as of and for the fiscal year ended September 30, 1997, filed with the
Securities and Exchange Commission on December 24, 1997, Accession Number
0000700844-97-000013.
