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 fiscal year
ended October 31, 1995.
PERFORMANCE REVIEW*
The Rodney Square Diversified Income Portfolio had a total return of 12.41%
for the fiscal year ended October 31, 1995. This return consisted of an increase
in net asset value per share from $12.42 to $13.08 and distributions from net
investment income during the fiscal year of $0.83 per share. The Portfolio's
performance was very close to the reported return of 12.54% for the Lehman
Intermediate Government/Corporate Index. Wilmington Trust Company ("WTC"), 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.
The Rodney Square Municipal Income Portfolio had a 12.23% total return for
the fiscal year. This return consisted of an increase in net asset value per
share from $11.64 to $12.49 and distributions from net investment income during
the fiscal year of $0.54 per share. The Portfolio's performance was
significantly better than the 10.95% return reported for the Merrill Lynch
Intermediate Municipal Index (the "Merrill Index"). WTC, the Portfolio's
adviser, has continued to assist the Portfolio's total return by limiting the
total expense of the Portfolio to 0.75% of average daily net assets. During the
course of the year, WTC determined the Merrill Index to be a better measure of
relative performance than the Lehman State General Obligation Index (the "Lehman
Index") because the average maturity of the Merrill Index at 8.5 years more
closely approximates the Portfolio at 6.8 years. The Lehman Index at 10.95
years is beyond the standard for an intermediate fund which Lipper Analytical
Securities Corp. defines as between 5 and 10 years.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
THE RODNEY SQUARE DIVERSIFIED INCOME PORTFOLIO
The Portfolio is designed to give shareholders broad exposure to the
dynamics of the 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 manage actively a core portfolio of investment
grade notes and bonds from a wide range of taxable market sectors.
- ------------------------------
* 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. CERTAIN VALUES SHOWN ABOVE DO NOT REFLECT THE EFFECT OF THE MAXIMUM
SALES LOAD OF 3.50%. RETURNS ARE HIGHER DUE TO THE ADVISER'S MAINTENANCE OF
THE FUND'S EXPENSES. SEE FINANCIAL HIGHLIGHTS ON PAGES 18 THROUGH 21.
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
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PRESIDENT'S MESSAGE -- CONTINUED
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The Portfolio benefited from the dramatic lowering of interest rates which
took place over the past fiscal year. From a starting point of 7.48%, 5 year U.
S. Treasury Notes dropped in yield by 1.67% to 5.81% as of October 1995.
Interest rates fell as it became apparent that economic growth was moderating
and the inflation outlook remained very favorable. Also aiding the interest
rate decline has been the outlook for a significant change in the federal
government's fiscal policies and the prospects of a balanced budget within seven
years. The Portfolio has taken advantage of these developments by extending
maturities to capture both a higher yield and more price appreciation.
Following is a diagram which compares the performance of The Rodney Square
Diversified Income Portfolio, the Lehman Intermediate Government/Corporate Index
and the Consumer Price Index ("CPI"), since the Portfolio's commencement of
operations on April 2, 1991.
[GRAPHICAL REPRESENTION (POINTS AND LINES) REQUIRED BY ITEM 5A OF FORM N-1A]
[FOLLOWING ARE GRAPH POINTS AND TOTAL RETURNS]
COMPARISION OF CHANGE IN VALUE OF $10,000 INVESTMENT **
Inception
Apr-91 Oct-91 Oct-92 Oct-93 Oct-94 Oct-95
Rodney Square
Diversified Income $9,650 $10,314 $11,302 $12,318 $12,031 $13,524
Lehman Intermediate
Government/Corporate
Index $10,000 $10,791 $11,870 $13,050 $12,798 $14,403
Consumer Price Index $10,000 $10,180 $10,506 $10,800 $11,081 $11,391
AVERAGE ANNUAL TOTAL RETURN
1 YEAR * INCEPTION **
-------------------------------------
Rodney Square
Diversified Income 12.4% 6.8%
Lehman Intermediate
Government/Corporate
Index 12.5 8.3
Consumer Price Index 2.8 2.9
- ------------------------------
* 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. CERTAIN VALUES SHOWN ABOVE DO NOT REFLECT THE EFFECT OF THE MAXIMUM
SALES LOAD OF 3.50%. RETURNS ARE HIGHER DUE TO THE ADVISER'S MAINTENANCE OF
THE FUND'S EXPENSES. SEE FINANCIAL HIGHLIGHTS ON PAGES 18 THROUGH 21.
** THE VALUES SHOWN FOR THE PORTFOLIO REFLECT THE EFFECT OF THE MAXIMUM SALES
LOAD OF 3.50% ON A HYPOTHETICAL INVESTEMNT OF $10,000 AND WITH DIVIDENDS
REINVESTED.
2
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
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PRESIDENT'S MESSAGE -- CONTINUED
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The Portfolio also benefited from several moves to increase yield.
Callable government agency securities have been added along with asset-backed
securities in the home equity and manufactured housing sectors. Corporate bond
exposure has been decreased as spreads against U. S. Treasury securities have
narrowed making them less attractive.
As we close out the current year, we find a bond market that is caught
between many influences ranging from political to financial. The decline in
interest rates seen so far this year has reached a point where further movement
will be unlikely unless it is supported by the active participation of the
Federal Reserve Board (the "Fed") in lowering short-term rates. The role that
the Fed plans to take is unknown at this time since their initial rate cut in
July has not been followed by any further action that would shed light on their
medium to long-term intentions. Indeed the Fed finds itself in a very good
position since the combined outlook of moderate economic growth and well
contained inflation gives them the flexibility to be patient. Our longer term
view remains positive on the bond market. The underlying trends of low
inflation, budget deficit reduction and keen global competition remain in force
with their impact likely being felt through lower long-term rates. However, we
have covered much ground in 1995, and while 1996 may offer some continuation,
the rate declines are likely to be much smaller.
THE RODNEY SQUARE MUNICIPAL INCOME PORTFOLIO
The Portfolio is an intermediate term 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.
For all but the first part of the fiscal year, the fixed income markets
exhibited a bullish trend. While it was relatively clear sailing for the
taxable bond markets, the tax-exempt municipal market experienced great
volatility due to several special events during the year. First, the Orange
County, California crisis hit in December 1994 when the county filed for
bankruptcy protection due to heavy losses in its investment funds. The market
impact was brief (except for non-insured California issues) and municipal bond
prices resumed their upward bias by calendar year-end.
During the first quarter of 1995, municipals outperformed their taxable
counterparts due to a severe shortage of new issues. Combined with a high level
of maturities and called bonds in January, this led to an actual decline in
total municipal bonds outstanding. Municipal bond prices rose relative to
Treasuries, the result of too many investors chasing too few bonds. In April,
this relative outperformance by municipals reversed dramatically. In
Washington, D.C., several political leaders proposed radical changes to the
existing tax code. Most of those "flat tax" proposals, as initially presented,
would be detrimental to municipal bonds. By limiting the tax to either earned
income (excluding interest income) or to expenditures (as it would under a
consumption tax), there would be no tax advantage for municipal bonds. This
frightened many retail investors and they reacted by selling bonds, selling tax-
exempt mutual funds or by not reinvesting in the municipal market.
3
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
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PRESIDENT'S MESSAGE -- CONTINUED
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Tax reform continued to be a cloud hovering over the municipal market but
its most recent effect is in the long end. Investors have shifted their
emphasis away from long maturity bonds, whose volatility is great, and into
short and intermediate bonds. Over the last four months ending October 31,
1995, 20 and 30 year municipals remain inexpensive relative to Treasuries
(trading at about 90% of the Treasury yield) while 10 year and shorter
maturities have moved from a fair value to a relatively expensive value. For
example, a 5 year municipal was trading at 77% of a comparable Treasury on June
30, 1995 and now is trading at only 73%.
During the year, we made several strategic moves which improved the return
potential of the Portfolio. Two of the strategic moves, a sell program of Texas
bonds and a shortening of the Portfolio's maturity, were outlined in the
semiannual report. Since then we have employed two additional strategies to
strengthen the Portfolio. First, we invested over 12% of the total assets in
cushion bonds. Cushion bonds have high coupons, long stated maturities,
relatively short call dates and trade at large premiums to face value. In
addition to trading at a high yield to the effective maturity (the short call
date), these bonds have the potential of being "refunded" which would
immediately boost the price. The bonds purchased by the Portfolio have an
average effective maturity of only 1.3 years but have a yield of over 5%, based
on October 31, 1995 valuations.
The other strategy employed was to sell issues priced near par and to buy
slightly longer, non-callable premium-priced bonds. The bonds sold performed
well during the year, but now, at par, face a performance disadvantage due to
the after tax yield calculations. The longer maturity, premium-priced issues
offer significantly better downside protection while maintaining similar upside
potential. Approximately 16% of the Portfolio was shifted into these premium,
non-callable bonds. As of October 31, 1995, the average maturity of the
Portfolio was 6.8 years, slightly longer than the average on April 30, 1995.
Following is a diagram that illustrates the performance of The Rodney
Square Municipal Income Portfolio, the Merrill Index, Lehman Index, and the CPI,
since the Portfolio's commencement of operations on November 1, 1993.
[GRAPHICAL REPRESENTION (POINTS AND LINES) REQUIRED BY ITEM 5A OF FORM N-1A]
[FOLLOWING ARE GRAPH POINTS AND TOTAL RETURNS]
4
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
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PRESIDENT'S MESSAGE -- CONTINUED
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COMPARISION OF CHANGE IN VALUE OF $10,000 INVESTMENT **
Inception
Oct-93 Oct-94 Oct-95
Rodney Square
Municipal Income $9,650 $9,356 $10,500
Lehman Index $10,000 $9,645 $10,982
Merrill Index $10,000 $10,260 $10,882
Consumer Price Index $10,000 $10,260 $10,547
AVERAGE ANNUAL TOTAL RETURN
1 YEAR * INCEPTION **
-------------------------------------
Rodney Square
Municipal Income 12.2% 2.5%
Lehman Index 13.9 4.8
Merrill Index 11.0 4.3
Consumer Price Index 2.8 2.7
Looking ahead, we are cautiously optimistic. Bond prices are currently
high, with the markets expecting a continuation of slow economic growth and
further easing by the Fed. Evidence of real progress by Congress and the White
House toward balancing the budget should help to push the bond markets to higher
prices. Our caution is focused upon the events unfolding in Washington, D.C.,
including the debate on tax reform measures and the 1996 Presidential election.
Uncertainty, in this case created by political rhetoric, usually leads to
volatile markets.
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/ Martin L. Klopping
Martin L. Klopping
President
December 15, 1995
- ------------------------------
* 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. CERTAIN VALUES SHOWN ABOVE DO NOT REFLECT THE EFFECT OF THE MAXIMUM
SALES LOAD OF 3.50%. RETURNS ARE HIGHER DUE TO THE ADVISER'S MAINTENANCE OF
THE FUND'S EXPENSES. SEE FINANCIAL HIGHLIGHTS ON PAGES 18 THROUGH 21.
** THE VALUES SHOWN FOR THE PORTFOLIO REFLECT THE EFFECT OF THE MAXIMUM SALES
LOAD OF 3.50% ON A HYPOTHETICAL INVESTEMNT OF $10,000 AND WITH DIVIDENDS
REINVESTED.
5
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND/DIVERSIFIED INCOME PORTFOLIO
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INVESTMENTS / OCTOBER 31, 1995
(Showing Percentage of Total Value of Net Assets)
- -------------------------------------------------------------------------------
MOODY'S
/ S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
-------- ---------- ------------
ASSET-BACKED SECURITIES - 19.4%
American Express Master Trust,
Ser. 1994-1 Class A, 7.15%,
08/15/99........................ Aaa/AAA $1,000,000 $ 1,030,700
EQCC Home Equity Loan Trust,
Ser. 1994-4A Class A3, 8.68%,
10/15/08........................ Aaa/AAA 700,000 751,765
Equicon Home Equity Loan Trust,
Ser. 1993-1 Class A, 5.85%,
11/18/12........................ Aaa/AAA 573,889 563,137
Green Tree Financial Corp.,
Ser. 1995-2 Class A3, 7.45%,
06/15/26........................ Aaa/AAA 400,000 412,576
Green Tree Financial Corp.,
Ser. 1995-5 Class A4, 6.60%,
10/15/25........................ Aaa/AAA 250,000 250,413
MBNA Master Credit Card Trust,
Ser. 1995-F Class A, 6.60%,
01/15/03........................ Aaa/AAA 300,000 306,174
Merrill Lynch Mortgage Investors,
Inc., Ser. 1991G Class A, 8.15%,
10/15/11........................ Aaa/NR 500,313 517,286
Residential Asset Securities Corp.,
Ser. 1995-KS3, 8.00%, 10/25/24.... Aaa/AAA 400,000 404,840
Resolution Trust Corp., Ser. 1994-C2
Class B, 8.00%, 04/25/25.......... NR/AA 250,000 262,392
Standard Credit Card Master Trust,
Ser. 1995-8 Class A, 6.70%,
09/09/02....................... Aaa/AAA 700,000 706,153
The Money Store Home Equity,
Ser. 1994-D1 Class A3, 8.35%,
10/15/13....................... Aaa/AAA 1,000,000 1,040,088
-----------
TOTAL ASSET-BACKED SECURITIES (COST $6,066,533)........ 6,245,524
-----------
CORPORATE BONDS - 18.6%
FINANCIAL - 10.2%
BankAmerica Corp., 6.75%, 09/15/05.. A3/A 250,000 249,375
Bankers Trust NY Corp., 9.50%,
06/14/00.......................... A3/A 700,000 782,250
Ford Capital B.V., 9.375%,
01/01/98.......................... A1/A+ 300,000 319,500
International Lease Finance,
6.125%, 11/01/99.................. A2/A+ 400,000 398,228
The accompanying notes are an integral part of the financial statements.
6
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND/DIVERSIFIED INCOME PORTFOLIO
- --------------------------------------------------------------------------
INVESTMENTS -- CONTINUED
- --------------------------------------------------------------------------------
MOODY'S
/ S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
-------- ---------- ------------
KFW International Finance, 7.20%,
03/15/14.......................... Aaa/AAA $ 400,000 $ 14,500
Lehman Brothers, Inc., 7.625%,
08/01/98.......................... Baa1/A 600,000 615,000
Merrill Lynch & Co., Inc., 7.05%,
04/15/03.......................... A1/A+ 200,000 200,750
Santander Financial Issuances Ltd.,
7.875%, 04/15/05.................. A1/A+ 300,000 320,250
-----------
3,299,853
-----------
MANUFACTURING - 2.9%
Caterpillar Financial Services Corp.,
9.95%, 02/28/96................... A3/A- 200,000 202,472
Eaton Corp., 8.00%, 08/15/06........ A2/A 650,000 720,687
-----------
923,159
-----------
MERCHANDISING & RETAIL - 0.9%
Dayton-Hudson Corp., 9.35%,
06/16/20.......................... A3/A 250,000 300,345
-----------
OIL, GAS & PETROLEUM - 1.7%
British Petroleum of North America,
Inc., 8.875%, 12/01/97............ Aa3/AA- 200,000 211,000
Societe Nationale Elf Aquitaine,
8.00%, 10/15/01................... Aa3/AA- 300,000 325,500
-----------
536,500
-----------
TELEPHONE & COMMUNICATIONS - 1.9%
Southern New England
Telecommunications Corp., 6.50%,
08/15/00......................... A1/A+ 600,000 607,500
UTILITIES - 1.0%
National Rural Utilities
Cooperative Finance Corp., 9.50%,
05/15/97......................... Aa3/AA 300,000 315,750
-----------
TOTAL CORPORATE BONDS (COST $5,693,869)................ 5,983,107
-----------
TIME DEPOSITS - 8.6%
Sanwa Bank Ltd. (Grand Cayman), 5.88%,
11/01/95 (COST $2,783,590)........ NR/NR 2,783,590 2,783,590
-----------
The accompanying notes are an integral part of the financial statements.
7
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND/DIVERSIFIED INCOME PORTFOLIO
- --------------------------------------------------------------------------
INVESTMENTS -- CONTINUED
- --------------------------------------------------------------------------------
MOODY'S
/ S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
-------- ---------- ------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 12.8%
FEDERAL HOME LOAN MORTGAGE CORP.
INTEREST BEARING NOTES - 2.9%
Federal Home Loan Mortgage Corp.,
8.60%, 01/26/00................. Aaa/NR $ 400,000 $ 421,196
Federal Home Loan Mortgage Corp.,
7.05%, 05/15/02................. Aaa/NR 500,000 502,985
-----------
924,181
-----------
FEDERAL NATIONAL MORTGAGE ASSOC. INTEREST
BEARING NOTES - 9.9%
Federal National Mortgage Assoc.,
5.39%, 08/05/98................. Aaa/NR 2,950,000 2,904,511
Federal National Mortgage Assoc.,
7.50%, 08/25/05................. Aaa/NR 300,000 305,202
-----------
3,209,713
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $3,955,051)..................................... 4,133,894
-----------
U.S. TREASURY OBLIGATIONS* - 40.1%
U.S. TREASURY BONDS - 2.8%
U.S. Treasury Bonds, 11.75%, 02/15/10.. NR/NR 650,000 908,109
U.S. TREASURY NOTES - 37.3%
U.S. Treasury Notes, 8.00%, 10/15/96... NR/NR 2,900,000 2,964,032
U.S. Treasury Notes, 7.50%, 01/31/97... NR/NR 1,500,000 1,533,750
U.S. Treasury Notes, 5.125%, 04/30/98.. NR/NR 250,000 246,810
U.S. Treasury Notes, 6.125%, 05/15/98.. NR/NR 400,000 404,044
U.S. Treasury Notes, 6.75%, 04/30/00... NR/NR 1,250,000 1,295,125
U.S. Treasury Notes, 6.25%, 05/31/00... NR/NR 300,000 305,160
U.S. Treasury Notes, 8.75%, 08/15/00... NR/NR 925,000 1,036,545
U.S. Treasury Notes, 7.75%, 02/15/01... NR/NR 700,000 760,214
U.S. Treasury Notes, 7.88%, 08/15/01... NR/NR 500,000 548,480
U.S. Treasury Notes, 6.375%, 08/15/02.. NR/NR 1,200,000 1,231,295
U.S. Treasury Notes, 6.25%, 02/15/03... NR/NR 100,000 101,738
U.S. Treasury Notes, 7.25%, 05/15/04... NR/NR 600,000 649,140
U.S. Treasury Notes, 6.50%, 08/15/05... NR/NR 900,000 931,599
-----------
12,007,932
-----------
TOTAL U.S. TREASURY OBLIGATIONS (COST $12,504,789)....... 12,916,041
-----------
The accompanying notes are an integral part of the financial statements.
8
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND/DIVERSIFIED INCOME PORTFOLIO
- --------------------------------------------------------------------------
INVESTMENTS -- CONTINUED
- --------------------------------------------------------------------------------
MOODY'S
/ S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
-------- ---------- ------------
TOTAL INVESTMENTS (COST $31,003,832)** - 99.5%.................. $32,062,156
OTHER ASSETS AND LIABILITIES, NET - 0.5%........................ 151,774
-----------
NET ASSETS - 100.0%............................................. $32,213,930
===========
** Cost for federal income tax purposes. At October 31, 1995, net unrealized
appreciation was $1,058,324. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market value
over tax cost of $1,066,844 and aggregate gross unrealized depreciation for
all securities in which there was an excess of tax cost over market value of
$8,520.
* While not rated by Moody's or the S&P, U.S. Treasury Obligations are
considered to be of the highest quality, comparable to AAA.
The accompanying notes are an integral part of the financial statements.
9
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND/MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------
INVESTMENTS / OCTOBER 31, 1995
(Showing Percentage of Total Value of Net Assets)
- --------------------------------------------------------------------------------
MOODY'S
/ S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
------- ---------- ------------
MUNICIPAL BONDS - 92.4%
ALASKA - 2.4%
Alaska Municipal Bond Bank Auth. Ref.
Rev Ser. 1993C, 4.90%, 10/01/03..... A/A $ 400,000 $ 399,000
-----------
CALIFORNIA - 11.7%
California State Veterans Bonds Ser. AY,
6.90%, 04/01/01....................... A1/A+ 250,000 255,002
California State Veterans Bonds Ser. AY,
7.00%, 04/01/03....................... A1/A+ 500,000 509,150
Los Angeles, CA Dept. of Water and Power
Electric Plant Rev., 5.75%, 11/15/02.. AA/AA- 300,000 319,125
Los Angeles County, CA Public Works Fin.
Auth. Rev. (LA County Park & Open
Space District) Ser. 1994A, 5.63%,
10/01/03.............................. AA/AA 500,000 524,375
San Francisco, CA City & County
Redevelopment Agency Multi-Family
Housing Ref. Rev. (GNMA South Beach
Proj.) Ser.1994, 4.75%, 09/01/02...... A/NR 345,000 337,237
-----------
1,944,889
-----------
COLORADO - 3.2%
Aurora, CO Certificate of Participation
Lease Ref. Rev., 5.85%, 12/01/02...... A/A 500,000 525,625
DELAWARE - 23.2%
Bethany Beach, DE, 9.75%, 11/01/07...... Aaa/AAA 160,000 223,200
Bethany Beach, DE, 9.75%, 11/01/08...... Aaa/AAA 180,000 255,375
Delaware State Economic Dev. Auth. Rev.
(Delmarva Power & Light), 7.30%,
09/01/15............................. Aaa/AAA 100,000 109,500
Delaware State Housing Auth. Multi-
Family Mortgage Rev., 6.30%,
07/01/98....... A1/A+ 100,000 100,875
Delaware State Housing Auth. Multi-
Family Mortgage Rev. Ser. 1992D,
6.35%, 07/01/03...................... A1/NR 100,000 103,125
Delaware State Housing Auth. Multi-
Family Mortgage Rev. Ser. C, 7.25%,
01/01/07............................. A1/A 240,000 252,600
Delaware State Housing Auth. Single
Family Mortgage Rev. Ser. 1993 Sub.
Ser. A-1, 5.05%, 07/01/05............ Aaa/AAA 315,000 305,550
The accompanying notes are an integral part of the financial statements.
10
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND/DIVERSIFIED INCOME PORTFOLIO
- --------------------------------------------------------------------------
INVESTMENTS -- CONTINUED
- --------------------------------------------------------------------------------
MOODY'S
/ S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
------- ---------- ------------
Delaware State Housing Auth. Single
Family Mortgage Rev. Ser. 1993 Sub.
Ser. A-1, 5.15%, 01/01/06............ Aaa/AAA $ 180,000 $ 175,725
Delaware State Housing Auth. Sr. Home
Mortgage Rev. Sub. Ser. 1991-B, 6.40%,
12/01/02.............................. A1/NR 50,000 51,500
Delaware State Solid Waste Auth. Solid
Waste System Rev., 5.80%, 07/01/01.... A/A 500,000 531,875
Delaware Transportation Auth.
Transportation System Jr. Lien Rev.,
5.00%, 07/01/06....................... Aaa/AAA 500,000 501,875
Delaware Transportation Auth.
Transportation System Jr. Lien Rev.,
Prerefunded 07/01/98 @ 101.50, 7.75%,
07/01/08.............................. Aaa/AAA 250,000 275,937
Delaware Transportation Auth.
Transportation System Sr. Lien Rev.,
6.75%, 07/01/98....................... A1/AA 115,000 122,619
Delaware Transportation Auth.
Transportation System Sr. Lien Rev.,
5.88%, 07/01/00....................... A1/AA 350,000 371,438
Wilmington, DE UDAG Corp. Special
Obligation Rev. (Chase Manhattan Bldg.
Proj.), 8.25%, 04/01/01............... NR/NR 455,000 465,096
-----------
3,846,290
-----------
HAWAII - 4.7%
Hawaii State General Obligation Rev.,
Ser. BW, 6.20%, 03/01/05.............. Aa/AA 700,000 770,875
-----------
MISSISSIPPI - 2.4%
Medical Center Educ. Bldg. Corp., (Univ.
of Mississippi Medical Center Proj.)
Ser. 1993, 5.40%, 12/01/05............ NR/A- 400,000 399,000
-----------
NEVADA - 2.3%
Nevada State General Obligation Rev.,
Ser. B, 4.38%, 08/01/03............... Aa/AA 400,000 387,000
-----------
NEW JERSEY - 3.9%
New Jersey State Transportation Auth.,
Ser. A, 6.00%, 06/15/01............... Aaa/AAA 600,000 644,250
-----------
The accompanying notes are an integral part of the financial statements.
11
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND/DIVERSIFIED INCOME PORTFOLIO
- --------------------------------------------------------------------------
INVESTMENTS -- CONTINUED
- --------------------------------------------------------------------------------
MOODY'S
/ S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
------- ---------- ------------
PENNSYLVANIA - 10.9%
Pennsylvania State Ref. Rev. First Ser.,
5.30%, 05/01/06....................... A1/AA- $ 500,000 $ 507,500
Pennsylvania State Higher Educ. Fac. Auth.
College & Univ. Rev. (Philadelphia
College of Osteopathic Medicine)
Ser. 1993, 5.25%, 12/01/07............ NR/AAA 150,000 148,687
Pennsylvania State Higher Educ. Fac.
Auth. College & Univ. Rev. (Trustees
Univ. of Pennsylvania) Ser. A, 6.625%,
01/01/17.............................. Aa/AA 550,000 556,188
Philadelphia, PA Redevelopment Auth.
Home Improvement Loan Rev., 7.38%,
06/01/03.............................. A/A 40,000 40,800
York County, PA Solid Waste Refuse Auth.
Industrial Dev. Rev. (Resource Recovery
Proj.) Ser. 1985, 8.20%, 12/01/14..... A/AA- 500,000 548,125
-----------
1,801,300
-----------
TEXAS - 3.8%
Austin, TX General Obligation Rev.,
4.75%, 09/01/09....................... Aa/AA 315,000 294,525
Tarrant County, TX Water Control
District No. 1 Rev., 4.75%, 03/01/06.. Aaa/AAA 350,000 336,000
-----------
630,525
-----------
UTAH - 3.2%
Salt Lake City, UT Municipal Bldg.
Auth.Lease Rev. Ser. 1994A, 5.65%,
10/01/03.............................. Aaa/AAA 500,000 525,625
-----------
VERMONT - 7.6%
Vermont Municipal Bond Bank Rev. Ser. 1,
5.50%, 12/01/10....................... Aaa/AAA 400,000 403,000
Vermont Municipal Bond Bank Rev. Ser. 2,
6.00%, 12/01/05....................... Aaa/AAA 790,000 858,138
-----------
1,261,138
-----------
VIRGINIA - 6.1%
Virginia Educ. Loan Auth. Rev. (Student
Loan Prog.) Senior Ser. 1994B, 5.15%,
03/01/04.............................. Aaa/NR 500,000 491,250
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND/DIVERSIFIED INCOME PORTFOLIO
- --------------------------------------------------------------------------
INVESTMENTS -- CONTINUED
- --------------------------------------------------------------------------------
MOODY'S
/ S&P PRINCIPAL VALUE
RATING AMOUNT (NOTE 2)
------- ---------- ------------
Virginia State Housing Development Auth.
Commonwealth Mtg. Rev. Ser. 1992C Sub.
Ser. C8, 5.80%, 07/01/04.............. AA1/AA+ $ 500,000 $ 514,375
-----------
1,005,625
-----------
WASHINGTON - 5.2%
Clark County, WA Public Utility Dist.
No. 1 Generating System Rev., 6.00%,
01/01/06.............................. Aaa/AAA 350,000 375,813
Washington State Public Power Supply Sys.
Ref. Rev. (Nuclear Proj. No. 3),
Ser. 1993C, 5.10%, 07/01/07........... Aa/AA 500,000 478,750
-----------
854,563
-----------
WEST VIRGINIA - 1.8%
Oak Hill, WV Industrial Development Ref.
Rev. (Fayette Plaza Proj.) Ser. 1991A,
4.95%, 10/01/09....................... NR/AA- 300,000 304,126
-----------
TOTAL MUNICIPAL BONDS (COST $15,158,756)................... 15,299,831
-----------
TAX-EXEMPT MUTUAL FUNDS - 6.4%
PNC Municipal Cash Tax-Exempt Money
Market Fund.......................... NR/NR 800,000 800,000
PNC Municipal Fund..................... NR/NR 264,181 264,181
-----------
TOTAL TAX-EXEMPT MUTUAL FUNDS (COST $1,064,181)............ 1,064,181
-----------
TOTAL INVESTMENTS (COST $16,222,937)** - 98.8%................. 16,364,012
OTHER ASSETS AND LIABILITIES, NET - 1.2%....................... 206,268
-----------
NET ASSETS - 100.0%............................................ $16,570,280
===========
** Cost for federal income tax purposes. At October 31, 1995, net unrealized
appreciation was $141,075. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market value
over tax cost of $206,365 and aggregate gross unrealized depreciation for
all securities in which there was an excess of tax cost over market value of
$65,290.
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1995
DIVERSIFIED MUNICIPAL
INCOME INCOME
PORTFOLIO PORTFOLIO
------------ ------------
ASSETS:
Investments in securities, at market
(identified cost $31,003,832 and
$16,222,937, respectively) (Note 2)......... $32,062,156 $16,364,012
Receivable for Fund shares sold.............. 4,213 --
Interest receivable.......................... 376,652 242,988
Deferred organization costs (Note 2)......... 7,928 52,160
Other assets................................. 1,133 182
----------- -----------
Total assets................................ 32,452,082 16,659,342
----------- -----------
LIABILITIES:
Dividends payable............................ 172,400 60,647
Payable for Fund shares redeemed............. 25,851 --
Due to Adviser (Note 4)...................... 321 --
Other accrued expenses (Note 4).............. 39,580 28,415
----------- -----------
Total liabilities........................... 238,152 89,062
----------- -----------
NET ASSETS, at market value.................. $32,213,930 $16,570,280
=========== ===========
NET ASSETS CONSIST OF:
Shares of beneficial interest................ $ 24,633 $ 13,268
Additional paid-in capital................... 31,569,202 16,467,339
Net unrealized appreciation of investments... 1,058,324 141,075
Accumulated net realized loss................ (438,229) (51,402)
----------- -----------
NET ASSETS, for 2,463,279 and 1,326,841 shares
outstanding, respectively................... $32,213,930 $16,570,280
=========== ===========
NET ASSET VALUE and redemption price per share
($32,213,930 / 2,463,279 and
$16,570,280 / 1,326,841 outstanding shares
of beneficial interest, $0.01 par value,
respectively)............................... $13.08 $12.49
====== ======
Maximum offering price per share (100/96.5
of $13.08 and 100/96.5 of $12.49,
respectively)............................... $13.55 $12.94
====== ======
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended October 31, 1995
DIVERSIFIED MUNICIPAL
INCOME INCOME
PORTFOLIO PORTFOLIO
------------ ------------
INTEREST INCOME.............................. $ 2,280,549 $ 806,744
----------- -----------
EXPENSES:
Advisory fee (Note 4)....................... 158,066 73,172
Administration fee (Note 4)................. 25,290 12,290
Accounting fee (Note 4)..................... 50,000 50,000
Distribution expenses (Note 4).............. 27,402 15,844
Trustees' fees and expenses (Note 4)........ 5,400 5,400
Amortization of organizational expenses
(Note 2).................................. 19,140 18,006
Registration fees........................... 20,008 21,290
Reports to shareholders..................... 11,524 5,377
Legal....................................... 7,824 5,532
Audit....................................... 29,109 10,891
Other....................................... 7,946 5,602
----------- -----------
Total expenses before fee waiver.......... 361,709 223,404
Advisory fee waived (Note 4).............. (156,223) (73,172)
Administration fee waived (Note 4)........ -- (12,290)
Accounting fee waived (Note 4)............ -- (22,728)
----------- -----------
Total expenses, net.................... 205,486 115,214
----------- -----------
Net investment income....................... 2,075,063 691,530
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investment transactions. (352,512) (45,859)
Net unrealized appreciation of investments
during the year............................. 1,976,228 1,100,202
----------- -----------
Net gain on investments..................... 1,623,716 1,054,343
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................. $ 3,698,779 $ 1,745,873
=========== ===========
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
DIVERSIFIED MUNICIPAL
INCOME INCOME
PORTFOLIO PORTFOLIO
------------ ------------
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income...................... $ 2,075,063 $ 691,530
Net realized loss on investment
transactions............................. (352,512) (45,859)
Net unrealized appreciation of
investments during the year.............. 1,976,228 1,100,202
----------- -----------
Net increase in net assets resulting
from operations.......................... 3,698,779 1,745,873
----------- -----------
Distributions to shareholders from:
Net investment income ($0.83 and $0.54
per share, respectively)................. (2,075,063) (691,530)
----------- -----------
Increase (decrease) in net assets from
Fund share transactions (Note 5)........... (1,131,026) 1,232,525
----------- -----------
Total increase in net assets............... 492,690 2,286,868
NET ASSETS:
Beginning of year.......................... 31,721,240 14,283,412
----------- -----------
End of year................................ $32,213,930 $16,570,280
=========== ===========
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1994
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income...................... $ 2,111,389 $ 526,072
Net realized loss on investment
transactions............................. (85,509) (5,543)
Excess of book value over market
value of securities distributed
upon redemption of shares................ (117,315) --
Net unrealized depreciation of
investments during the year.............. (2,833,319) (959,127)
----------- -----------
Net decrease in net assets resulting
from operations.......................... (924,754) (438,598)
----------- -----------
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS--CONTINUED
DIVERSIFIED MUNICIPAL
INCOME INCOME
PORTFOLIO PORTFOLIO
------------ ------------
Distributions to shareholders from:
Net investment income ($0.71 and $0.49
per share, respectively)................. $(2,111,389) $ (526,072)
Net capital gains ($0.04 and $0.00
per share, respectively)................. (111,135) --
----------- -----------
Total distributions to shareholders......... (2,222,524) (526,072)
----------- -----------
Increase (decrease) in net assets from
Fund share transactions (Note 5)......... (6,102,223) 15,248,069
----------- -----------
Total increase (decrease) in net assets.... (9,249,501) 14,283,399
NET ASSETS:
Beginning of year.......................... 40,970,741 13
----------- -----------
End of year................................ $31,721,240 $14,283,412
=========== ===========
The accompanying notes are an integral part of the financial statements.
17
<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.
FOR THE PERIOD
APRIL 2, 1991
FOR THE FISCAL (COMMENCEMENT
YEARS ENDED OCTOBER 31, OF OPERATIONS)
-------------------------------- TO OCTOBER 31,
1995 1994 1993 1992 1991
------ ------ ------ ------ --------------
DIVERSIFIED INCOME PORTFOLIO
NET ASSET VALUE - BEGINNING
OF PERIOD................. $12.42 $13.48 $13.20 $12.86 $12.50
------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Net investment income..... 0.83 0.71 0.76 0.83 0.48
Net realized and
unrealized gain (loss)
on investments.......... 0.66 (1.02) 0.39 0.37 0.36
------ ------ ------ ------ ------
Total from investment
operations.............. 1.49 (0.31) 1.15 1.20 0.84
------ ------ ------ ------ ------
DISTRIBUTIONS:
From net investment
income.................. (0.83) (0.71) (0.76) (0.83) (0.48)
From net realized gain on
investments............. -- (0.04) (0.11) (0.03) --
------ ------ ------ ------ ------
Total distributions....... (0.83) (0.75) (0.87) (0.86) (0.48)
------ ------ ------ ------ ------
NET ASSET VALUE - END
of Period................ $13.08 $12.42 $13.48 $13.20 $12.86
====== ====== ====== ====== ======
TOTAL RETURN **............ 12.41% (2.33)% 9.00% 9.58% 6.89%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Expenses ***.............. 0.65% 0.65% 0.65% 0.65% 0.89%*
Net investment income..... 6.56% 5.53% 5.65% 6.33% 6.64%*
Portfolio turnover rate.... 116.40% 43.77% 24.22% 27.37% 78.45%*
Net assets at end of
period (000 omitted)...... $32,214 $31,721 $40,971 $30,152 $24,171
18
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
FOR THE PERIOD
APRIL 2, 1991
FOR THE FISCAL (COMMENCEMENT
YEARS ENDED OCTOBER 31, OF OPERATIONS)
-------------------------------- TO OCTOBER 31,
1995 1994 1993 1992 1991
------ ------ ------ ------ --------------
SENIOR SECURITIES:
Amount of reverse repurchase
agreements outstanding at
end of period
(in thousands)........... $ 0 $ 0 $ 0 $ 0 $ 0
Average daily amount of
reverse repurchase
agreements outstanding
during the period (in
thousands)............... $ 0 $ 0 $ 0 $ 0 $ 162
Average daily number of
shares outstanding
during the period (in
thousands)............... 2,492 2,960 2,660 2,109 1,279
Average daily amount of
reverse repurchase
agreements per share
during the period........ $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.13
19
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
FOR THE FISCAL YEARS ENDED OCTOBER 31,
---------------------------------------
1995 1994
------ -------
MUNICIPAL INCOME PORTFOLIO
NET ASSET VALUE - BEGINNING OF YEAR...... $11.64 $12.50
====== =======
INVESTMENT OPERATIONS:
Net investment income................... 0.54 0.49
Net realized and unrealized gain (loss)
on investments........................ 0.85 (0.86)
------ -------
Total from investment operations.... 1.39 (0.37)
------ -------
DISTRIBUTIONS:
From net investment income.............. (0.54) (0.49)
------ -------
NET ASSET VALUE - END OF YEAR............ $12.49 $11.64
====== =======
TOTAL RETURN**........................... 12.23% (3.05)%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL
DATA:
Expenses ****......................... 0.75% 0.75%
Net investment income................. 4.50% 4.13%
Portfolio turnover rate.................. 42.08% 21.95%
Net assets at end of year (000 omitted).. $16,570 $14,283
- ------------------------------
* Annualized
** These results do not include the sales load. If the sales load had been
included, the returns would have been lower. The total return figure for
the Diversified Income Portfolio for the fiscal period ended October 31,
1991 has not been annualized.
*** Wilmington Trust Company ("WTC") reimbursed a portion of the Portfolio's
expenses, exclusive of advisory fees, amounting to $0.032 per share for
the fiscal period ended October 31, 1991. WTC waived a portion of its
fees amounting to $0.063, $0.051 and $0.056 per share for the fiscal
years ended October 31, 1995, 1994 and 1993, respectively. WTC and
Rodney Square Management Corporation ("RSMC") waived a portion of their
fees amounting to $0.078 and $0.036 per share for the fiscal year ended
October 31, 1992 and for the fiscal period ended October 31, 1991,
respectively. If these expenses, including the advisory and accounting
fees waived, had been incurred by the Portfolio, the annualized ratio of
expenses to average daily net assets for the fiscal years ended October
31, 1995, 1994, 1993 and 1992, and for the fiscal period ended October
31, 1991, would have been 1.14%, 1.05%, 1.06%, 1.24% and 1.91%,
respectively.
20
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
**** WTC waived its entire advisory fee for the fiscal years ended October 31,
1995 and 1994, amounting to $0.057 and $0.059 per share, respectively.
In addition, RSMC waived a portion of its fees for administration and
accounting services amounting to $0.010 and $0.018 per share for the
fiscal year ended October 31, 1995 and $0.010 and $0.037 per share for
the fiscal year ended October 31, 1994. If these expenses had been
incurred by the Portfolio, the annualized ratio of expenses to average
daily net assets for the fiscal years ended October 31, 1995 and 1994,
would have been 1.45% and 1.62%, respectively.
21
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1.DESCRIPTION OF THE FUND. The Rodney Square Strategic Fixed-Income Fund (the
"Fund") is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as a diversified, open-end management investment company
established as a Massachusetts business trust. The Declaration of Trust,
dated May 7, 1986, as last amended and restated on February 15, 1993, permits
the Trustees to establish separate series (or "Portfolios"), each of which
may issue separate classes of shares. The authorized shares of beneficial
interest of the Fund are currently divided into two Portfolios, the
Diversified Income Portfolio and the Municipal Income Portfolio (each, a
"Portfolio" and collectively, the "Portfolios"). Each Portfolio currently
consists of a single class of shares.
2.SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of the
significant accounting policies of the Fund:
SECURITY VALUATION. Each Portfolio's securities, except short-term
investments with remaining maturities of 60 days or less, are valued at their
market value as determined by their most recent bid prices in the principal
market in which these securities are normally traded, or when stock exchange
valuations are used, at the last quoted sale price on the date of valuation.
Short-term investments with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value, unless the Fund's
Board of Trustees determines that this does not represent fair value. The
value of all other securities is determined in good faith under the direction
of the Board of Trustees.
FEDERAL INCOME TAXES. Each Portfolio is treated as a separate entity and
intends to qualify as a "regulated investment company" under Subchapter M of
the Internal Revenue Code of 1986 and to distribute all of its taxable and
tax-exempt income to its shareholders. Therefore, no federal income tax
provision is required.
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. Distributions of net capital gains realized by each
Portfolio will be made annually in December.
DEFERRED ORGANIZATION COSTS. Costs incurred by the Portfolios 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 that each Portfolio commenced operations.
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 fiscal year ended October 31, 1995,
purchases and sales of investment securities (excluding short-term
investments) aggregated as follows:
22
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
3.INVESTMENT SECURITIES--CONTINUED
DIVERSIFIED MUNICIPAL
INCOME INCOME
----------- ----------
Purchases...................... $34,806,365 $6,636,853
Sales.......................... 37,176,044 5,981,967
With respect to the Diversified Income Portfolio, for the fiscal year ended
October 31, 1994, portfolio securities with a market value of $5,548,278
(cost basis $5,665,593) were distributed in payment of a shareholder
redemption. The unrealized depreciation of such securities was reclassified
to paid-in capital.
4.ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund, on behalf of
each Portfolio, employs Wilmington Trust Company ("WTC"), a wholly owned
subsidiary of Wilmington Trust Corporation, a publicly held bank holding
company, to furnish investment advisory and other services to the Fund. Under
WTC's Advisory Contract with the Fund, WTC acts as Investment Adviser and,
subject to the supervision of the Board of Trustees, directs the investments
of the Fund's Portfolios in accordance with each Portfolio's investment
objective, policies and limitations. For its services under the Advisory
Contract, 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 1996. For the fiscal year ending
October 31, 1995, with respect to the Diversified Income Portfolio, WTC
further 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 rescinded at any time in the future.
The following table summarizes the advisory fees for the fiscal year ended
October 31, 1995:
Gross Advisory Advisory
Fee Fee Waiver
-------------- -----------
Diversified Income Portfolio $158,066 $156,223
Municipal Income Portfolio 73,172 73,172
WTC also serves as Custodian of the assets of the Fund and does not receive
any separate fees from the Fund for the performance of this service. Each
Portfolio of the Fund reimburses WTC for its related out-of-pocket expenses,
if any, incurred in connection with the performance of this service.
23
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
4.ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES--CONTINUED
Rodney Square Management Corporation ("RSMC"), a wholly owned subsidiary of
WTC, serves as Administrator, Transfer Agent and Dividend Paying Agent to the
Fund under separate Administration and Transfer Agent Agreements with the
Fund, each dated December 31, 1992. As Administrator, RSMC is responsible
for services such as financial reporting, compliance monitoring and corporate
management. For the services provided, RSMC receives 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 fiscal year ended October 31, 1995 amounted to
$25,290. RSMC waived its administration fee for the Municipal Income
Portfolio for the fiscal year ended October 31, 1995 amounting to $12,290.
The Fund does not pay RSMC any separate fees for its services as Transfer
Agent and Dividend Paying Agent for the Portfolios, as WTC assumes the cost
of providing these services to the Portfolios. Each Portfolio reimburses RSMC
for its related out-of-pocket expenses, if any, incurred in connection with
the performance of these services.
Pursuant to a Distribution Agreement with the Fund dated December 31, 1992,
Rodney Square Distributors, Inc. ("RSD"), a wholly owned subsidiary of WTC,
manages the Fund's distribution efforts and provides assistance and expertise
in developing marketing plans and materials. The Fund's Board of Trustees has
adopted distribution plans (the "12b-1 Plan") pursuant to Rule 12b-1 under
the 1940 Act to allow the Fund to reimburse RSD for certain distribution
activities and to allow WTC to incur certain expenses, the payment of which
may be considered to constitute indirect payment by the Fund of distribution
expenses. The Trustees have authorized a payment of up to 0.25% of each
Portfolio's average daily net assets annually to reimburse RSD for such
expenses. For the fiscal year ended October 31, 1995, such expenses
amounted to $27,402 for the Diversified Income Portfolio and $15,844 for the
Municipal Income Portfolio.
RSMC determines the net asset value per share of each Portfolio and provides
accounting services to the Fund pursuant to an Accounting Services Agreement
with the Fund on behalf of each Portfolio. For its services, RSMC receives 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 fiscal year ended October 31, 1995, RSMC's fees for
accounting services amounted to $50,000 per Portfolio. RSMC waived $22,728
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 fiscal year ended October 31, 1995 amounted to $5,400 per Portfolio.
24
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
5.FUND SHARES. At October 31, 1995, 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
FOR THE FISCAL YEAR FOR THE FISCAL YEAR
ENDED OCTOBER 31, 1995 ENDED OCTOBER 31, 1994
---------------------- -----------------------
Shares Amount Shares Amount
--------- ----------- ---------- -----------
Shares sold............... 353,623 $ 4,500,647 478,409 $ 6,218,321
Shares issued to
shareholders in
reinvestment of
distributions............ 64,094 813,935 53,774 696,871
Shares redeemed........... (508,424) (6,445,608)(1,017,549) (13,017,415)
--------- ----------- ---------- -----------
Net decrease.............. (90,707) $(1,131,026) (485,366) $(6,102,223)
=========== ===========
Shares outstanding:
Beginning of year........ 2,553,986 3,039,352
--------- ----------
End of year.............. 2,463,279 2,553,986
========= ==========
MUNICIPAL INCOME PORTFOLIO
FOR THE FISCAL YEAR FOR THE FISCAL YEAR
ENDED OCTOBER 31, 1995 ENDED OCTOBER 31, 1994
---------------------- -----------------------
Shares Amount Shares Amount
--------- ----------- ---------- -----------
Shares sold............... 226,538 $2,755,791 1,411,286 $17,449,149
Shares issued to
shareholders in
reinvestment of
distributions............ 45,994 552,423 31,909 385,335
Shares redeemed........... (172,561) (2,075,689) (216,326) (2,586,415)
--------- ----------- ---------- -----------
Net increase.............. 99,971 $1,232,525 1,226,869 $15,248,069
=========== ===========
Shares outstanding:
Beginning of year........ 1,226,870 1
--------- ---------
End of year.............. 1,326,841 1,226,870
========= =========
25
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Trustees of The Rodney Square Strategic Fixed-Income
Fund:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of The Rodney Square Strategic Fixed-Income Fund
(comprising, respectively, The Diversified Income and The Municipal Income
Portfolios) as of October 31, 1995, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and financial highlights for each of the four
years in the period then ended and for the period from April 2, 1991
(Commencement of Operations) to October 31, 1991 for the Diversified Income
Portfolio and for each of the two years in the period ended October 31, 1995 for
the Municipal Income Portfolio. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting The Rodney Square Strategic Fixed-
Income Fund at October 31, 1995, the results of their operations for the year
then ended, the changes in their net assets for each of the two years in the
period then ended, and financial highlights for each of the four years in the
period then ended and for the period from April 2, 1991 (Commencement of
Operations) to October 31, 1991 for the Diversified Income Portfolio, and for
each of the two years in the period ended October 31, 1995 for the Municipal
Income Portfolio in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Baltimore, Maryland
November 30, 1995
26
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
Pursuant to Section 852 of the Internal Revenue Code of 1986, the Municipal
Income Portfolio designates $678,014 as tax-exempt dividends.
In January 1996, shareholders of the Fund will receive Federal income tax
information on all distributions paid to their accounts in the calendar year
1995, including any distributions paid between October 31, 1995 and December 31,
1995.
27
<PAGE>
TRUSTEES
Eric Brucker THE RODNEY SQUARE
Fred L. Buckner STRATEGIC
Martin L. Klopping FIXED-INCOME FUND
John J. Quindlen
------------------
OFFICERS
Martin L. Klopping, PRESIDENT
Joseph M. Fahey, Jr., VICE PRESIDENT [Graphic] Ceasar
Robert C. Hancock, VICE PRESIDENT & TREASURER Rodney upon his
Marilyn Talman, Esq., SECRETARY gallopping horse
Diane D. Marky, ASSISTANT SECRETARY facing right,
Connie L. Meyers, ASSISTANT SECRETARY reverse image on
Louis C. Schwartz, Esq., ASSISTANT SECRETARY dark background
John J. Kelley, ASSISTANT TREASURER
-------------------------------------
ADMINISTRATOR AND TRANSFER AGENT
Rodney Square Management Corporation
------------------------------------
INVESTMENT ADVISER AND CUSTODIAN
Wilmington Trust Company
--------------------------------
DISTRIBUTOR
Rodney Square Distributors, Inc.
--------------------------------
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
--------------------------
INDEPENDENT AUDITORS ANNUAL REPORT
Ernst & Young LLP OCTOBER 31, 1995
--------------------
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
