the RODNEY SQUARE
STRATEGIC
FIXED-INCOME
FUND
LOGO
[GRAPHIC OMITTED]
ANNUAL REPORT
OCTOBER 31, 1998
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
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PRESIDENT'S MESSAGE
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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, 1998.
PERFORMANCE REVIEW
The Short/Intermediate Bond Portfolio (formerly the "Diversified Income
Portfolio") had a total return of 8.40% for the twelve months ended October 31,
1998. This return consisted of a modest increase in net asset value per share
from $13.07 on October 31, 1997 to $13.38 at the end of October 1998 plus
distributions per share of $0.76. The Portfolio's performance trailed the
reported return of 9.81% for the Merrill Lynch 1-10 Year U. S. Treasury Index
over the same twelve month period. Wilmington Trust Company, the Portfolio's
advisor, has continued to assist the Portfolio's return by limiting total
expenses of the Portfolio. The limitation was 0.65% of average daily net assets
from October 31, 1997 to June 29, 1998 and 0.55% of average daily net assets
thereafter.
The Intermediate Bond Portfolio had a total return of 3.89% from the
inception of the Portfolio on June 29, 1998 to October 31, 1998. This return
consisted of a modest increase in net asset value per share from $10.00 to
$10.19 at the end of October 1998 plus distributions per share of $0.20. The
Portfolio's performance trailed the reported return of 5.54% for the Merrill
Lynch U. S. Treasury Master Index over the same period. Wilmington Trust
Company, the Portfolio's advisor, has assisted the Portfolio's return by
limiting total expenses of the Portfolio to 0.55% of average daily net assets.
The Municipal Bond Portfolio (formerly the "Municipal Income Portfolio")
provided shareholders with a 6.07% total return for the fiscal year ending
October 31, 1998. This return consisted of an increase in the net asset value
per share to $12.94 from $12.74, plus distributions of $0.56 per share. The
Portfolio's performance was lower than the 7.40% return reported for the Merrill
Lynch Intermediate Municipal Index. The Merrill Lynch Index is a composite
return of nearly 400 municipal bond issues with a maturity range of 0 to 22
years. The index is designed to model the typical holdings and return
characteristics of intermediate-term mutual funds as defined by Lipper
Analytical Services. Wilmington Trust Company, the Portfolio's advisor, has
continued to assist the Portfolio's return by limiting total expenses of the
Portfolio to 0.75% of average daily net assets.
ECONOMIC ENVIRONMENT
The theme for fiscal 1998 was domestic consumer-driven strength versus global
economic meltdown. This balancing act, combined with subdued inflation
pressures, helped the bond markets post solid gains for the year. Most of these
gains came late in the year as the effects of the global decline were beginning
to weigh in. The Federal Reserve sensed the importance of maintaining the growth
of the domestic economy and moved to lower interest rates in September during a
Federal Open Markets Committee meeting and, unexpectedly, in October between
meetings.
During the last three months of the fiscal year (August through October) the
Treasury market posted gains which lowered yields by over 100 basis points in
the intermediate maturity range. For example, the 5-Year Treasury closed the
fiscal year at 4.22%, after being as high as 5.50% at the end of July. The
longer term maturities, such as 30-Year bonds also posted gains, but rates only
dropped about 50 basis points.
The global markets fell apart in the wake of the Russian economic collapse in
August. This created a global "flight to quality" which led to a worldwide
credit crunch. This was partially brought on by hedge fund investors being
caught in leveraged positions going against them. These highly publicized events
led to losses at major banks and
1
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PRESIDENT'S MESSAGE -- CONTINUED
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brokerage firms, and they in turn tightened their credit standards. On such a
massive scale, the Federal Reserve feared that this "turning off the tap" to
credit would grind the domestic economic engine to a halt. By aggressively
lowering rates (and by interceding in the bailout of one of the largest of these
funds), the Federal Reserve demonstrated their resolve and averted, at least for
the time being, our domestic economy moving into a recession.
This credit crunch also led to the U.S. Treasury market being the market of
choice. Spreads between Treasuries and all other fixed income markets, taxable
and tax-exempt, widened to levels not seen since 1989, with these other markets
all lagging the price appreciation of the Treasury market. Most of this spread
widening can be attributed to the liquidity premium associated with Treasury
issues during uncertain times, but some of the widening also reflects investors'
concerns with credit quality. The financial problems at some second-tier asset
backed servicers and at a not-for-profit health system heightened these
concerns.
We foresee more subdued growth in the months ahead as the consumer begins to
retrench and the effects from a number of lifeless foreign economies negatively
impact U.S. exports and corporate profits. The key to avoiding recession, which
we continue to believe is unlikely, rests with the Federal Reserve and the
consumer. We expect the Fed to make additional interest rate cuts and consumers
to continue their willingness to spend as long as they are confident that their
jobs are secure.
MANAGEMENT'S DISCUSSION OF PORTFOLIO PERFORMANCE
THE SHORT/INTERMEDIATE AND INTERMEDIATE BOND PORTFOLIOS
The Short/Intermediate Bond Portfolio is designed to give shareholders broad
exposure to the dynamics of the short-intermediate term bond market with a
stable flow of income and minimization of risk. This goal is accomplished by
applying a disciplined and systematic investment process to actively manage a
core portfolio of investment grade notes and bonds from a wide range of taxable
market sectors.
Through the first nine months of the fiscal year, the Short/Intermediate Bond
Portfolio sought to outperform the market by enhancing its yield through
investments in high quality non-U.S. Treasury issues. Interest rates remained in
a relatively stable band and yield spreads against the Treasury market
fluctuated modestly. This was an ideal environment for our strategy. Global
economic concerns were raised intermittently during this period, but the markets
would shrug them off and return to normal. However, the breakdown of Russia's
economy in August created a global flight to quality that propelled U.S.
Treasury rates to the lowest levels since the 1960's. Non-U.S. Treasury
securities did not fair anywhere near as well, as credit and prepayment concerns
caused corporate bonds and securitized assets to lag behind. The severity of
this situation was a significant motivation behind the Federal Reserve Board's
surprise decision in October to lower interest rates a second time. With this
move, the Portfolio's overweighted exposure to corporate bonds and asset-backed
securities resulted in our underperforming our benchmark dramatically during the
last part of the fiscal year.
The Intermediate Bond Portfolio began operations on June 29, 1998 and was
invested in a similar strategy as the Short/Intermediate Bond Portfolio. The
Portfolio sought to achieve higher yield levels through an emphasis on corporate
bonds and asset-backed securities. As a result, the Portfolio's performance also
suffered relative to its U.S. Treasury index during the height of the global
economic crisis.
Our response to this turmoil has been to maintain our long-term investment
perspective. The market's total aversion to risk has created an extreme
environment that we believe will correct itself as the market sorts through all
the debris from the global economic crisis. While the extent of the damage is
not yet known, our emphasis on quality
2
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PRESIDENT'S MESSAGE -- CONTINUED
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and investment grade ratings should serve us well. The Federal Reserve has moved
relatively quickly from posturing towards rate hikes to actually lowering rates.
The rebuilding of investor confidence will take time and must include numerous
reforms of banking and currency systems by governments outside of the United
States. Looking back at historical times where we have seen trading
relationships such as credit spreads or yield curve structures reach extreme
levels, the markets have usually begun correcting themselves within a relatively
brief period of time. The seeds of recovery are even now being sowed as
evidenced by the shift in direction by the Fed, the unwinding of leveraged
positions by hedge funds and the recognition by many firms of their exposure to
worthless asset positions. Therefore, we would expect this episode to follow
historical norms. As such, we believe that sticking to our discipline and riding
through this storm will put us in the best position to profit over the longer
term.
The following graph compares the Short/Intermediate Bond Portfolio, the
Merrill Lynch 1-10 Year U.S. Treasury Index ("ML 1-10 Yr.") and the Consumer
Price Index ("CPI"), since the Portfolio's commencement of operations on April
2, 1991.
SHORT/INTERMEDIATE BOND PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
- -----------------------------------
Average Annual Total Return
- -----------------------------------
1 Year 5 Year Inception
------ ------ ---------
Fund 8.4% 6.0% 7.3%
Index 9.8% 6.5% 7.8%
CPI 1.5% 2.4% 2.6%
- -----------------------------------
Short/Intermediate Bond Portfolio ML 1-10 Year CPI
4/2/91 $10,000 $10,000 $10,000
10/31/91 $10,689 $10,749 $10,180
10/31/92 $11,712 $11,811 $10,506
10/31/93 $12,766 $12,900 $10,800
10/31/94 $12,469 $12,685 $11,081
10/31/95 $14,015 $14,195 $11,391
10/31/96 $14,741 $14,981 $11,733
10/31/97 $15,792 $16,079 $11,979
10/31/98 $17,119 $17,656 $12,159
- -----------------
* Past performance is not necessarily indicative of future results. An
investment in the Portfolio is neither insured nor guaranteed by Wilmington
Trust Company ("WTC") or any other banking institution, the U.S. Government, the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any
other agency. The values shown reflect a hypothetical initial investment of
$10,000 with dividends reinvested. Returns are higher due to WTC's maintenance
of the Portfolio's expenses. See Financial Highlights on page 21.
3
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PRESIDENT'S MESSAGE -- CONTINUED
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The following graph compares the Intermediate Bond Portfolio, the Merrill
Lynch U.S. Treasury Master Index ("ML U.S. Treasury") and the Consumer Price
Index ("CPI"), since the Portfolio's commencement of operations on June 29,
1998.
INTERMEDIATE BOND PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
- ---------------------------------
Average Annual Total Return
- ---------------------------------
Inception
---------
Fund 3.9%
Index 5.5%
CPI 0.6%
- ---------------------------------
Intermediate Bond Portfolio ML U.S. Treasury CPI
6/29/98 $10,000 $10,000 $10,000
10/31/98 $10,389 $10,554 $10,060
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* Past performance is not necessarily indicative of future results. An
investment in the Portfolio 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. The values shown reflect a hypothetical initial investment of $10,000
with dividends reinvested. Returns are higher due to WTC's maintenance of the
Portfolio's expenses. See Financial Highlights on page 22.
4
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PRESIDENT'S MESSAGE -- CONTINUED
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THE MUNICIPAL BOND PORTFOLIO
The Municipal Bond Portfolio is an intermediate duration, high quality fund
designed to produce a high level of income which is exempt from federal income
taxes while seeking preservation of capital. The basic strategy of the Portfolio
is to identify and purchase the undervalued sectors of the municipal market. The
Portfolio will normally be fully invested with an average maturity in the 5 to
10 year range.
The first few months of the fiscal year were a balancing act for interest
rates, with the strong domestic economy offsetting the Asian crisis. By
mid-December, though, signs of weakness on the domestic front tipped the scales
in favor of the bulls. While this economic scenario remained and municipal
yields continued to decline, the municipal market lagged the Treasury market due
in part to the tremendous supply of tax-exempt bonds in 1998. Through October
31, 1998, new issue volume increased by over 30% from the same period in 1997.
Viewing this in combination with lower investment yields and strong equity
market returns (at least through June 30, 1998) it stands to reason that
investors were cool to municipal bond products.
The imbalance between the supply of and the demand for municipal bonds did
hamper the performance of tax-exempt versus taxable markets. The performance lag
was so great, that the relative value of municipals to the Treasury market
reached levels not seen since the big Tax Reform scare of March 1996. Some of
this could be attributed to the liquidity crunch in the Treasury market. This
relative cheapness may not abate soon, but over time we expect municipals to
move back toward historic relative relationships.
One of our strategies in this market has been to focus on income. Over the
course of the year, we increased our exposure to non-rated issues to 14.9% from
3.5% of Portfolio assets. Based on our internal analyses, these non-rated
securities offered income returns that more than compensate for the additional
risk. These higher income producing assets may not provide the price
appreciation in an up market, but should provide a better return in a stable or
down market.
Considering the relative attractiveness of the municipal market, as well as a
steep yield curve in the 5 to 15 year maturity range, we have engaged a moderate
lengthening strategy to take advantage of these conditions. We sold bonds in the
5 year range, bought bonds out toward the 15 year range and extended the
duration of the portfolio from 4.81 years at the beginning of the year to 5.00
years as of October 31, 1998. This duration position is still defensive compared
to the Merrill Intermediate Index but, continuing this extension strategy should
narrow the gap.
Looking forward, the municipal market's success will be dictated by
developments overseas as well as in the domestic equity markets. In these
uncertain times, our move toward a neutral duration position with an emphasis on
high income is prudent.
5
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PRESIDENT'S MESSAGE -- CONTINUED
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Following is a graph that illustrates the performance of the Municipal Bond
Portfolio, the Merrill Lynch Intermediate Municipal Index ("ML Muni Index") and
the Consumer Price Index ("CPI"), since the Portfolio's commencement of
operations on November 1, 1993.
MUNICIPAL BOND PORTFOLIO
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
- ----------------------------------------------
Average Annual Total Return
1 Year Inception**
------ -----------
Fund 6.1% 5.2%
Index 7.4% 5.8%
CPI 1.5% 2.4%
- ----------------------------------------------
Municipal Bond Income ML Muni Index CPI
10/31/93 $10,000 $10,000 $10,000
10/31/94 $9,695 $9,808 $10,260
10/31/95 $10,881 $10,882 $10,547
10/31/96 $11,342 $11,511 $10,863
10/31/97 $12,119 $12,324 $11,091
10/31/98 $12,855 $13,236 $11,257
- ---------------
* Past performance is not necessarily indicative of future results. An
investment in the Portfolio 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. The values shown reflect a hypothetical initial
investment of $10,000 with dividends reinvested. Returns are higher due to
WTC's maintenance of the Portfolio's expenses. See Financial Highlights on
page 23.
** The Portfolio's 5-year average annual total return is for the same period,
November 1, 1993 through October 31, 1998.
We invite your comments and questions and we thank you for your investment in
The Rodney Square Strategic Fixed-Income Fund. We look forward to reviewing our
investment outlook and strategy with you in our next report to shareholders.
Sincerely,
/s/ ROBERT J. CHRISTIAN
Robert J. Christian
President
December 10, 1998
6
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / SHORT/INTERMEDIATE BOND PORTFOLIO
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INVESTMENTS / OCTOBER 31, 1998
(Showing Percentage of Total Value of Net Assets)
================================================================================
MOODY'S/S&P PRINCIPAL VALUE
RATINGS* AMOUNT (NOTE 2)
----------- ----------- -----------
<S> <C> <C> <C>
CORPORATE BONDS -- 39.7%
BANKS -- 6.4%
Amsouth Bank of Alabama, 6.45%, 02/01/18 .................... A1/A- $ 1,200,000 $ 1,225,500
Bank of New York Co., Inc., 8.50%, 12/15/04 ................. A2/A 400,000 467,500
BankAmerica Corp., 6.75%, 09/15/05 .......................... Aa3/A 250,000 256,875
BankBoston, NA, 6.38%, 04/15/08 ............................. A2/A- 1,250,000 1,234,375
Canadian Imperial Bank of Commerce, New York, 6.20%, 08/01/00 Aa3/AA- 500,000 509,185
St. George Bank, Ltd., 7.15%, 06/18/07 ...................... Baa1/A- 750,000 771,660
Union Bank Switzerland, New York, 7.25%, 07/15/06 ........... Aa1/AA 800,000 853,000
Union Planters Bank, NA, 6.50%, 03/15/18 .................... Baa1/BBB 750,000 750,000
-----------
6,068,095
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FINANCIAL -- 19.5%
Abbey National PLC, 6.69%, 10/17/05 ......................... Aa3/AA- 1,300,000 1,347,125
Associates Corp., NA, 6.75%, 08/01/01 ....................... Aa3/AA- 900,000 927,000
Associates Corp., NA, 8.55%, 07/15/09 ....................... Aa3/AA- 700,000 831,250
Bear Stearns Co., Inc., 6.63%, 10/01/04 ..................... A2/A 850,000 859,563
Commercial Credit Co., 6.50%, 08/01/04 ...................... Aa3/A+ 600,000 619,500
Commercial Credit Co., 8.70%, 06/15/09 ...................... Aa3/A+ 850,000 1,017,875
Crestar Financial Corp., 6.50%, 01/15/08 .................... Baa1/BBB+ 700,000 712,250
DR Investments, 7.45%, 05/15/07 ............................. A2/A- 300,000 330,750
First Chicago, 7.63%, 01/15/03 .............................. A1/A 400,000 435,500
First Union Corp., 6.82%, 08/01/26 .......................... A2/A- 200,000 226,000
Ford Motor Credit Co., 7.00%, 09/25/01 ...................... A1/A 400,000 416,000
Ford Motor Credit Co., 7.75%, 11/15/02 ...................... A1/A 300,000 322,875
General Electric Capital Corp., 8.13%, 05/15/12 ............. Aaa/AAA 250,000 305,313
General Motors Acceptance Corp., 7.00%, 08/15/01 ............ A2/A 1,650,000 1,722,188
Lehman Brothers Holdings, Inc., 6.50%, 10/01/02 ............. Baa1/A 600,000 586,500
Lehman Brothers Holdings, Inc., 7.38%, 05/15/04 ............. Baa1/A 700,000 703,500
Merrill Lynch & Co., 6.38%, 07/18/00 ........................ Aa3/AA- 250,000 253,125
Morgan Stanley, Dean Witter, Discover & Co., 6.38%, 01/18/00 A1/A+ 1,250,000 1,267,188
Morgan Stanley, Dean Witter, Discover & Co., 6.75%, 08/15/00 A1/A+ 900,000 928,125
Morgan Stanley, Dean Witter, Discover & Co., 6.75%, 03/04/03 A1/A+ 950,000 990,375
Norwest Financial, Inc., 6.38%, 11/15/01 .................... Aa3/A+ 750,000 778,125
Pitney Bowes Credit Corp., 6.63%, 06/01/02 .................. Aa3/AA 800,000 843,000
Salomon Smith Barney Holdings, Inc., 7.00%, 03/15/04 ........ Aa3/A 1,150,000 1,216,125
Southwestern Bell Capital Corp., 7.00%, 07/14/99 ............ A1/AA- 500,000 506,690
USL Capital Corp., 5.79%, 01/23/01 .......................... A1/A 300,000 305,250
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18,451,192
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INDUSTRIAL -- 4.2%
Allied Signal, 8.00%, 05/15/06 .............................. A2/A 500,000 577,500
Amoco Co., 6.25%, 10/15/04 .................................. Aa1/AAA 400,000 428,000
Anheuser Busch Cos., 5.38%, 09/15/08 ........................ A1/A+ 400,000 399,000
Bausch & Lomb, Inc., 6.38%, 08/01/03 ........................ Baa2/BBB 500,000 520,625
Coca Cola Put Asset Trust, 6.00%, 03/15/01 .................. A3/A+ 750,000 767,813
Elf Aquitane, 8.00%, 10/15/01 ............................... Aa3/AA- 300,000 325,875
Gap, Inc., 6.90%, 09/15/07 .................................. A2/A 900,000 978,750
-----------
3,997,563
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
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INVESTMENTS -- CONTINUED
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MOODY'S/S&P PRINCIPAL VALUE
RATINGS* AMOUNT (NOTE 2)
----------- ----------- -----------
<S> <C> <C> <C>
TELECOMMUNICATIONS -- 4.0%
Cable & Wireless Communications, 6.63%, 03/06/05 ................ Baa1/A- $ 700,000 $ 709,625
GTE Southwest, Ser. 1993B, 6.54%, 12/01/05 ...................... A2/AA- 1,000,000 1,065,000
MCI Worldcom, Inc., 6.13%, 04/15/02 ............................. Baa2/BBB+ 400,000 406,500
Northwestern Bell Telephone Co., 9.50%, 05/01/00 ................ A2/A+ 500,000 532,500
Sprint Corp., 9.50%, 04/01/03 ................................... Baa1/A- 900,000 1,055,250
-----------
3,768,875
-----------
TRANSPORTATION -- 0.6%
Norfolk Southern Corp., 7.35%, 05/15/07 ......................... Baa1/BBB+ 500,000 548,125
-----------
UTILITIES -- 5.0%
Alabama Power Co., 7.00%, 01/01/03 .............................. A1/A+ 1,000,000 1,017,500
Central Illinois Public Services, 6.73%, 06/01/01 ............... Aa2/AA- 700,000 733,250
Duke Energy Corp., 8.00%, 11/01/99 .............................. Aa3/AA- 1,900,000 1,954,625
Hawaiian Electric Industry, 6.49%, 06/12/02 ..................... Baa2/BBB 550,000 569,938
Ohio Power Co., Ser. 1997A, 6.73%, 11/01/04 ..................... A3/A- 400,000 428,500
-----------
4,703,813
-----------
TOTAL CORPORATE BONDS (COST $36,711,337) .............................................. 37,537,663
-----------
ASSET-BACKED SECURITIES -- 18.8%
Advanta Mortgage Loan Trust, Ser. 1996-1, Cl. A6, 6.73%, 08/25/23 Aaa/AAA 500,000 509,160
Advanta Mortgage Loan Trust, Ser.1993-3, Cl. A5, 5.55%, 01/25/25 Aaa/AAA 132,837 131,545
AFC Home Equity Loan Trust, Ser. 1996-2, Cl. 1A4,
7.74%, 09/25/27 .............................................. Aaa/AAA 1,699,640 1,726,129
Contimortgage Home Equity Loan Trust, Ser. 1996-1, Cl. A6,
6.69%, 01/15/16 .............................................. Aaa/AAA 499,996 538,188
Crown Home Equity Loan Trust, Ser. 1996-1, Cl. A4,
7.15%, 08/25/12 .............................................. Aaa/AAA 1,000,000 1,012,996
Federal National Mortgage Association Notes, Ser. 1995-W1,
Cl. A6, 8.10%, 04/25/25 ...................................... NR/NR 1,500,000 1,543,299
First Plus Home Loan Trust, Ser.1996-2, Cl. A6, 7.85%, 08/20/13 . Aaa/AAA 499,851 537,012
Fund America Investors Corp. II, Ser. 1993-F, Cl. A1,
5.40%, 09/25/09 .............................................. Aaa/AAA 41,519 40,819
General Electric Capital Mortgage Services, Inc., Ser. 1996-HE2,
Cl. A5, 7.94%, 06/25/14 ...................................... Aaa/NR 1,000,000 1,062,985
Green Tree Financial Corp., Ser. 1995-2, Cl. A6, 8.30%, 05/15/26 Aaa/AAA 925,000 997,160
Green Tree Financial Corp., Ser. 1996-5, Cl. A4, 7.15%, 07/15/27 Aaa/AAA 1,100,000 1,124,043
Green Tree Home Improvement Loan Trust, Ser. 1996-F, Cl. HEA3,
6.90%, 01/15/28 .............................................. NR/AAA 425,000 431,875
Green Tree Lease Finance, Ser. 1997-1, Cl. A3, 6.17%, 09/20/05 .. NR/AAA 1,150,000 1,157,475
IMC Home Equity Loan Trust, Ser. 1997-5, Cl. A7,
6.90%, 01/20/22 .............................................. Aaa/AAA 900,000 919,090
MBNA Master Credit Card Trust, Ser. 1995-F, Cl. A,
6.60%, 01/15/03 .............................................. Aaa/AAA 800,000 822,751
Oakwood Mortgage Investors, Inc., Ser.1998-B, Cl. A2,
6.15%, 07/15/11 .............................................. NR/AAA 900,000 908,290
Sears Credit Account Master Trust, Ser. 1995-2, Cl. A,
8.10%, 06/15/04 .............................................. Aaa/AAA 800,000 829,279
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / SHORT/INTERMEDIATE BOND PORTFOLIO
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INVESTMENTS -- CONTINUED
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MOODY'S/S&P PRINCIPAL VALUE
RATINGS* AMOUNT (NOTE 2)
----------- ----------- -----------
<S> <C> <C> <C>
The Money Store Home Equity Trust, Ser. 1992-D2, Cl. A3,
7.55%, 01/15/18 ............................................... Aaa/AAA $ 419,031 $ 447,091
The Money Store Home Equity Trust, Ser. 1996-B, Cl. A8,
7.91%, 05/15/24 ............................................... Aaa/AAA 750,000 797,193
The Money Store Home Equity Trust, Ser. 1996-D, Cl. A5,
6.67%, 03/15/18 ............................................... Aaa/AAA 700,000 731,040
UCFC Home Equity Loan, Ser. 1998-B, Cl. A2, 6.01%, 09/15/14 ...... Aaa/AAA 1,000,000 1,007,480
Vanderbilt Mortgage Finance, Ser. 1996-A, Cl. A3, 6.85%, 04/07/26 Aaa/NR 500,000 510,890
-----------
TOTAL ASSET-BACKED SECURITIES (COST $17,541,825) ..................................... 17,785,790
-----------
MORTGAGE-BACKED SECURITIES -- 3.7%
Federal Home Loan Mortgage Corp., Gold 15 Yr., 6.00%, 01/01/13 ... NR/NR 1,143,309 1,148,311
Federal Home Loan Mortgage Corp., Gold 5 Yr. , 7.00%, 05/01/00 ... NR/NR 623,730 634,646
Federal National Mortgage Association Notes, Ser. 1996-4, Cl. VC,
6.50%, 07/25/02 ............................................... NR/NR 316,176 321,315
Federal National Mortgage Association Notes, Ser. 1991G-37, Cl. G,
7.50%, 12/25/19 ............................................... NR/NR 700,000 700,253
Federal National Mortgage Association Notes, Ser. 1998-W3, Cl. A2,
6.50%, 07/25/28 ............................................... NR/NR 500,000 503,750
Resolution Trust Corp., Ser. 1994-C2, Cl. B, 8.00%, 04/25/25 ..... NR/AAA 177,881 185,373
-----------
TOTAL MORTGAGE-BACKED SECURITIES (COST $3,456,005) ................................... 3,493,648
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS** -- 9.4%
FEDERAL HOME LOAN BANKS NOTES -- 1.4%
Federal Home Loan Bank Notes, 6.41%, 04/10/01 ................................ 300,000 311,926
Federal Home Loan Bank Notes, 5.80%, 08/24/01 ................................ 1,000,000 1,009,053
-----------
1,320,979
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION NOTES -- 1.5%
Federal Home Loan Mortgage Corp. Notes, 7.05%, 06/08/05 ...................... 500,000 517,330
Federal Home Loan Mortgage Corp. Notes, 5.95%, 01/19/06 ...................... 850,000 886,825
-----------
1,404,155
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION NOTES -- 6.5%
Federal National Mortgage Association Notes, 6.41%, 02/06/02 ................. 650,000 682,584
Federal National Mortgage Association Notes, 5.78%, 02/12/03 ................. 750,000 767,894
Federal National Mortgage Association Notes, 7.94%, 09/13/06 ................. 1,000,000 1,026,514
Federal National Mortgage Association Notes, 7.00%, 06/25/07 ................. 600,000 642,393
Federal National Mortgage Association Notes, 6.56%, 12/10/07 ................. 1,100,000 1,165,838
Federal National Mortgage Association Notes, 6.16%, 07/09/08 ................. 1,275,000 1,328,436
Federal National Mortgage Association Notes, 6.00%, 09/24/08 ................. 600,000 606,928
-----------
6,220,587
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $8,730,281) ........................... 8,945,721
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / SHORT/INTERMEDIATE BOND PORTFOLIO
- ---------------------------------------------------------------------------------
INVESTMENTS -- CONTINUED
================================================================================
PRINCIPAL VALUE
AMOUNT (NOTE 2)
----------- ------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS** -- 25.2%
U.S. Treasury Notes, 5.88%, 07/31/99 ................. $ 500,000 $ 505,083
U.S. Treasury Notes, 6.88%, 03/31/00 ................. 700,000 723,870
U.S. Treasury Notes, 6.75%, 04/30/00 ................. 800,000 827,728
U.S. Treasury Notes, 6.25%, 05/31/00 ................. 300,000 308,812
U.S. Treasury Notes, 8.75%, 08/15/00 ................. 150,000 161,417
U.S. Treasury Notes, 6.63%, 07/31/01 ................. 600,000 635,224
U.S. Treasury Notes, 6.50%, 08/31/01 ................. 3,150,000 3,328,012
U.S. Treasury Notes, 7.50%, 11/15/01 ................. 350,000 380,611
U.S. Treasury Notes, 6.13%, 12/31/01 ................. 400,000 420,487
U.S. Treasury Notes, 6.25%, 01/31/02 ................. 3,150,000 3,326,103
U.S. Treasury Notes, 6.25%, 02/28/02 ................. 1,500,000 1,584,885
U.S. Treasury Notes, 6.25%, 06/30/02 ................. 500,000 530,925
U.S. Treasury Notes, 6.00%, 07/31/02 ................. 1,400,000 1,476,442
U.S. Treasury Notes, 5.75%, 10/31/02 ................. 1,600,000 1,677,736
U.S. Treasury Notes, 7.25%, 05/15/04 ................. 550,000 624,464
U.S. Treasury Notes, 6.50%, 05/15/05 ................. 300,000 333,810
U.S. Treasury Notes, 6.50%, 08/15/05 ................. 700,000 781,448
U.S. Treasury Notes, 5.88%, 11/15/05 ................. 400,000 433,095
U.S. Treasury Notes, 6.88%, 05/15/06 ................. 2,000,000 2,289,792
U.S. Treasury Notes, 7.00%, 07/15/06 ................. 500,000 575,668
U.S. Treasury Notes, 6.50%, 10/15/06 ................. 250,000 280,459
U.S. Treasury Notes, 6.25%, 02/15/07 ................. 1,600,000 1,773,220
U.S. Treasury Notes, 11.75%, 02/15/10 ................ 650,000 894,237
-----------
TOTAL U.S. TREASURY OBLIGATIONS (COST $22,989,645) ............. 23,873,528
-----------
COMMERCIAL PAPER -- 1.4%
Household Finance, 5.55%, 11/02/98
(COST $1,304,965) ................................. 1,304,965 1,304,965
-----------
TOTAL INVESTMENTS (COST $90,734,058)(DAGGER)-- 98.2% .................... 92,941,315
OTHER ASSETS AND LIABILITIES, NET -- 1.8% ............................... 1,656,057
-----------
NET ASSETS -- 100.0% .................................................... $94,597,372
===========
<FN>
* Although certain securities are not rated (NR) by either Moody's or S&P,
they have been determined to be of comparable quality to investment grade
securities by the Portfolio Advisor. The ratings shown are unaudited.
** While no ratings are shown for U.S. Government Agency Obligations and U.S.
Treasury Obligations, they are considered to be of the highest quality,
comparable to Moody's AAA rating and S&P's Aaa rating.
(DAGGER) The cost for federal income tax purposes. At October 31, 1998, net
unrealized appreciation was $2,207,257. This consisted of aggregate gross
unrealized appreciation for all securities for which there was an excess of
market value over tax cost of $2,309,040 and aggregate gross unrealized
depreciation for all securities for which there was an excess of tax cost
over market value of $101,783.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / INTERMEDIATE BOND PORTFOLIO
- ---------------------------------------------------------------------------
INVESTMENTS / OCTOBER 31, 1998
(Showing Percentage of Total Value of Net Assets)
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATINGS* AMOUNT (NOTE 2)
----------- ---------- ------------
<S> <C> <C> <C>
CORPORATE BONDS -- 39.2%
BANKS -- 6.5%
Amsouth Bank of Alabama, 6.45%, 02/01/18 ....................... A1/A- $ 750,000 $ 765,937
Citicorp, 7.25%, 10/15/11 ...................................... A1/A 1,000,000 1,056,250
J.P. Morgan & Co., 6.25%, 02/15/11 ............................. A1/AA- 1,000,000 967,500
St. George Bank, Ltd., 7.15%, 06/18/07 ......................... Baa1/A- 400,000 410,500
Swiss Bank Corp., New York, 7.00%, 10/15/15 .................... Aa1/AA 1,000,000 958,750
Union Bank Switzerland, New York, 7.25%, 07/15/06 .............. Aa1/AA 600,000 639,750
Union Planters Bank, NA, 6.50%, 03/15/08 ....................... Baa1/BBB 850,000 850,000
Wachovia Corp., 6.25%, 08/04/08 ................................ A1/AA- 400,000 413,500
-----------
6,062,187
-----------
FINANCIAL -- 18.5%
Abbey National PLC, 6.69%, 10/17/05 ............................ Aa3/AA- 1,700,000 1,761,625
Ameritech Capital Funding, 6.45%, 01/15/18 ..................... Aa3/AA+ 1,700,000 1,721,250
Associates Corp., NA, 5.75%, 11/01/03 .......................... Aa3/AA- 500,000 499,805
Associates Corp., NA, 7.75%, 02/15/05 .......................... Aa3/AA- 1,000,000 1,106,250
Bear Stearns Co., Inc., 6.63%, 10/01/04 ........................ A2/A 400,000 404,500
CIT Group Holdings, Inc., 6.38%, 08/01/02 ...................... Aa3/A+ 500,000 513,750
Commercial Credit Co., 6.50%, 08/01/04 ......................... Aa3/A+ 700,000 722,750
Commercial Credit Co., 8.70%, 06/15/09 ......................... Aa3/A+ 1,200,000 1,437,000
Crestar Financial Corp., 6.50%, 01/15/08 ....................... Baa1/BBB+ 500,000 508,750
First Union Corp., 6.82%, 08/01/26 ............................. A2/A- 651,000 735,630
General Electric Capital Corp., 8.13%, 05/15/12 ................ Aaa/AAA 700,000 854,875
General Motors Acceptance Corp., 7.00%, 08/15/01 ............... A2/A 500,000 521,875
Lehman Brothers Holdings, Inc., 6.50%, 10/01/02 ................ Baa1/A 900,000 879,750
Lehman Brothers Holdings, Inc., 7.38%, 05/15/04 ................ Baa1/A 750,000 753,750
Merrill Lynch & Co., 6.61%, 06/15/00 ........................... Aa3/AA- 1,800,000 1,827,000
Merrill Lynch & Co., 6.38%, 07/18/00 ........................... Aa3/AA- 900,000 911,250
Morgan Stanley, Dean Witter, Discover & Co., 6.75%, 03/04/03 ... A1/A+ 500,000 521,250
Salomon Smith Barney Holdings, Inc., 7.00%, 03/15/04 ........... Aa3/A 1,400,000 1,480,500
-----------
17,161,560
-----------
INDUSTRIAL -- 8.4%
Amoco Co., 6.25%, 10/15/04 ..................................... Aa1/AAA 500,000 535,000
Bausch & Lomb, Inc., 6.38%, 08/01/03 ........................... Baa2/BBB 700,000 728,875
Coca Cola Put Asset Trust, 6.00%, 03/15/01 ..................... A3/A+ 1,500,000 1,535,625
Elf Aquitane, 8.00%, 10/15/01 .................................. Aa3/AA- 600,000 651,750
Eli Lilly, 8.13%, 12/01/01 ..................................... Aa3/AA 600,000 656,250
Gap, Inc., 6.90%, 09/15/07 ..................................... A2/A 1,400,000 1,522,500
Harvard University, 8.13%, 04/15/07 ............................ Aaa/AAA 500,000 580,000
Hertz Corp., 6.00%, 02/01/01 ................................... A3/BBB+ 1,100,000 1,108,250
International Business Machines Corp., 6.50%, 01/15/28 ......... A1/A+ 500,000 513,125
-----------
7,831,375
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / INTERMEDIATE BOND PORTFOLIO
- ---------------------------------------------------------------------------
INVESTMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATINGS* AMOUNT/SHARES (NOTE 2)
----------- ---------- ------------
<S> <C> <C> <C>
TELECOMMUNICATIONS -- 2.6%
Cable & Wireless Communications, 6.75%, 03/06/08 ............... Baa1/A- $ 300,000 $ 307,500
GTE Southwest, Ser. 1993-B, 6.54%, 12/01/05 .................... A2/AA- 500,000 532,500
MCI Worldcom, Inc., 6.50%, 04/15/10 ............................ Baa2/BBB+ 400,000 414,500
Sprint Corp., 9.50%, 04/01/03 .................................. Baa1/A- 1,000,000 1,172,500
----------
2,427,000
----------
TRANSPORTATION -- 1.3%
Norfolk Southern Corp., 7.35%, 05/15/07 ........................ Baa1/BBB+ 1,100,000 1,205,875
----------
UTILITIES -- 1.9%
Hawaiian Electric Industry, 6.49%, 06/12/02 .................... Baa2/BBB 1,000,000 1,036,250
Oklahoma Gas & Electric, 6.50%, 07/15/17 ....................... Aa3/AA- 700,000 761,250
----------
1,797,500
----------
TOTAL CORPORATE BONDS (COST $35,098,098)............................................... 36,485,497
----------
PREFERRED STOCK -- 0.6%
ABN AMRO Cap Funding, Ser. B, 7.50%
(COST $500,000) ............................................. Aa2/A+ 20,000 507,500
----------
ASSET-BACKED SECURITIES -- 19.8%
Advanta Mortgage Loan Trust, Ser. 1993-3, Cl. A5,
5.55%, 01/25/25 ............................................. Aaa/AAA 265,675 263,089
AFC Home Equity Loan Trust, Ser. 1993-1, Cl. A,
5.90%, 05/20/08 ............................................. Aaa/AAA 872,339 882,611
AFC Home Equity Loan Trust, Ser. 1996-2, Cl. 1A4,
7.74%, 09/25/27 ............................................. Aaa/AAA 999,788 1,015,370
Crown Home Equity Loan Trust, Ser. 1996-1, Cl. A4,
7.15%, 08/25/12 ............................................. Aaa/AAA 1,400,000 1,418,194
Federal National Mortgage Association Notes, Ser. 1995-W1, Cl. A6,
8.10%, 04/25/25 ............................................. NR/NR 1,500,000 1,543,299
First Plus Home Loan Trust, Ser. 1996-2, Cl. A6,
7.85%, 08/20/13 ............................................. Aaa/AAA 999,703 1,074,024
General Electric Capital Mortgage Services, Inc.,
Ser. 1997-HE4, Cl. A3, 6.59%, 12/25/12 ...................... Aaa/NR 750,000 757,035
Green Tree Financial Corp., Ser. 1995-2, Cl. A6,
8.30%, 05/15/26 ............................................. Aaa/AAA 400,000 431,204
Green Tree Financial Corp., Ser. 1996-5, Cl. A4,
7.15%, 07/15/27 ............................................. Aaa/AAA 600,000 613,114
Green Tree Home Improvement Loan Trust, Ser. 1996-C, Cl. HEA4,
7.80%, 06/15/26 ............................................. NR/AAA 2,000,000 2,090,559
Green Tree Lease Finance, Ser. 1997-1, Cl. A4, 6.27%, 09/20/05 . NR/AAA 750,000 765,000
IMC Home Equity Loan Trust, Ser. 1997-5, Cl. A7,
6.90%, 01/20/22 ............................................. Aaa/AAA 500,000 510,606
MBNA Master Credit Card Trust, Ser. 1995-F, Cl. A,
6.60%, 01/15/03 ............................................. Aaa/AAA 500,000 514,219
Oakwood Mortgage Investors, Inc., Ser. 1998-B, Cl. A2,
6.15%, 07/15/11 ............................................. NR/AAA 700,000 706,448
The Money Store Home Equity Trust, Ser. 1992-D2, Cl. A3,
7.55%, 01/15/18 ............................................. Aaa/AAA 729,925 778,804
The Money Store Home Equity Trust, Ser. 1995-A, Cl. 5,
8.40%, 02/15/24 ............................................. Aaa/AAA 800,000 844,489
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / INTERMEDIATE BOND PORTFOLIO
- ---------------------------------------------------------------------------
INVESTMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATINGS* AMOUNT (NOTE 2)
----------- ---------- -----------
<S> <C> <C> <C>
The Money Store Home Equity Trust, Ser. 1996-B, Cl. A8,
7.91%, 05/15/24 .............................................. Aaa/AAA $2,000,000 $ 2,125,849
UCFC Home Equity Loan Trust, Ser. 1998-B, Cl. A2,
6.01%, 09/15/14 .............................................. Aaa/AAA 1,000,000 1,007,480
Vanderbilt Mortgage Finance, Ser. 1996-A, Cl. A3,
6.85%, 04/07/26 .............................................. Aaa/NR 1,000,000 1,021,780
-----------
TOTAL ASSET-BACKED SECURITIES (COST $18,044,883) ...................................... 18,363,174
-----------
MORTGAGE-BACKED SECURITIES -- 1.7%
Federal Home Loan Mortgage Corp. Notes, Gold 15 Yr.,
6.00%, 01/01/13 .............................................. NR/NR 762,206 765,541
Federal Home Loan Mortgage Corp. Notes, Gold 5 Yr.,
7.00%, 05/01/00 .............................................. NR/NR 389,831 396,654
Federal National Mortgage Association Notes, Ser. 1991G-37, Cl. G,
7.50%, 12/25/19 .............................................. NR/NR 400,000 400,145
-----------
TOTAL MORTGAGE-BACKED SECURITIES (COST $1,548,538) .................................... 1,562,340
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS** -- 6.8%
Federal Home Loan Banks Notes -- 1.7%
Federal Home Loan Banks Notes, 5.80%, 08/24/01 ............................ 1,000,000 1,009,053
Federal Home Loan Banks Notes, 5.30%, 10/29/02 ............................ 600,000 600,375
-----------
1,609,428
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION NOTES -- 1.5%
Federal Home Loan Mortgage Corp. Notes, 7.05%, 06/08/05 ................... 1,000,000 1,034,659
Federal Home Loan Mortgage Corp. Notes, 5.95%, 01/19/06 ................... 350,000 365,163
-----------
1,399,822
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION NOTES -- 2.9%
Federal National Mortgage Association Notes, 6.41%, 02/06/02 .............. 600,000 630,078
Federal National Mortgage Association Notes, 5.78%, 02/12/03 .............. 300,000 307,157
Federal National Mortgage Association Notes, 7.94%, 09/13/06 .............. 700,000 718,560
Federal National Mortgage Association Notes, 6.56%, 12/10/07 .............. 500,000 529,926
Federal National Mortgage Association Notes, 6.16%, 07/09/08 .............. 500,000 520,955
-----------
2,706,676
-----------
GENERAL SERVICE ADMINISTRATION NOTES -- 0.7%
General Service Administration Notes, 6.27%, 05/15/20 ..................... 600,000 635,700
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $6,184,794) ............................ 6,351,626
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / INTERMEDIATE BOND PORTFOLIO
- ---------------------------------------------------------------------------
INVESTMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
----------- ------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS** -- 29.8%
U.S. TREASURY NOTES -- 12.0%
U.S. Treasury Notes, 6.50%, 08/31/01 ...................................... $ 250,000 $ 264,128
U.S. Treasury Notes, 6.13%, 12/31/01 ...................................... 1,500,000 1,576,826
U.S. Treasury Notes, 6.25%, 01/31/02 ...................................... 450,000 475,158
U.S. Treasury Notes, 6.25%, 02/28/02 ...................................... 550,000 581,125
U.S. Treasury Notes, 6.63%, 03/31/02 ...................................... 250,000 267,340
U.S. Treasury Notes, 5.75%, 10/31/02 ...................................... 800,000 838,868
U.S. Treasury Notes, 7.25%, 08/15/04 ...................................... 500,000 569,537
U.S. Treasury Notes, 6.50%, 05/15/05 ...................................... 3,100,000 3,449,373
U.S. Treasury Notes, 5.88%, 11/15/05 ...................................... 1,400,000 1,515,833
U.S. Treasury Notes, 6.25%, 02/15/07 ...................................... 1,500,000 1,662,394
-----------
11,200,582
-----------
U.S. TREASURY BONDS -- 17.8%
U.S. Treasury Bonds, 9.25%, 02/15/16 ...................................... 1,250,000 1,803,454
U.S. Treasury Bonds, 7.25%, 05/15/16 ...................................... 1,050,000 1,277,168
U.S. Treasury Bonds, 7.50%, 11/15/16 ...................................... 3,450,000 4,299,150
U.S. Treasury Bonds, 8.75%, 05/15/17 ...................................... 500,000 698,738
U.S. Treasury Bonds, 8.88%, 02/15/19 ...................................... 2,000,000 2,855,130
U.S. Treasury Bonds, 8.00%, 11/15/21 ...................................... 1,250,000 1,674,648
U.S. Treasury Bonds, 7.25%, 08/15/22 ...................................... 1,500,000 1,868,070
U.S. Treasury Bonds, 7.13%, 02/15/23 ...................................... 50,000 61,713
U.S. Treasury Bonds, 6.75%, 08/15/26 ...................................... 700,000 840,416
U.S. Treasury Bonds, 6.50%, 11/15/26 ...................................... 500,000 582,686
U.S. Treasury Bonds, 6.38%, 08/15/27 ...................................... 500,000 576,914
-----------
16,538,087
-----------
TOTAL U.S. TREASURY OBLIGATIONS (COST $24,637,584) .................................... 27,738,669
-----------
COMMERCIAL PAPER -- 1.8%
Household Finance, 5.55%, 11/02/98
(COST $1,667,551) ...................................................... 1,667,551 1,667,551
-----------
TOTAL INVESTMENTS (COST $87,681,448)(DAGGER) -- 99.7% .......................................... 92,676,357
OTHER ASSETS AND LIABILITIES, NET -- 0.3% ...................................................... 325,146
-----------
NET ASSETS -- 100.0% ........................................................................... $93,001,503
===========
<FN>
* Although certain securities are not rated (NR) by either Moody's or S&P,
they have been determined to be of comparable quality to investment grade
securities by the Portfolio Advisor. The ratings shown are unaudited.
** While no ratings are shown for U.S. Government Agency Obligations and U.S.
Treasury Obligations, they are considered to be of the highest quality,
comparable to Moody's AAA rating and S&P's Aaa rating.
(DAGGER) The cost for federal income tax purposes. At October 31, 1998, net
unrealized appreciation was $4,994,909. This consisted of aggregate gross
unrealized appreciation for all securities for which there was an excess of
market value over tax cost of $5,148,764 and aggregate gross unrealized
depreciation for all securities for which there was an excess of tax cost
over market value of $153,855.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / MUNICIPAL BOND PORTFOLIO
- ------------------------------------------------------------------------
INVESTMENTS / OCTOBER 31, 1998
(Showing Percentage of Total Value of Net Assets)
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATINGS* AMOUNT (NOTE 2)
----------- ---------- ------------
<S> <C> <C> <C>
MUNICIPAL BONDS -- 97.8%
ALASKA -- 5.0%
Alaska Municipal Bond Bank Auth. Ref. Bonds, Ser. 1994C,
4.90%, 10/01/03 ............................................... A2/A $400,000 $ 416,500
Seward, AK Rev. Bonds (Alaska Sealife Center Proj.),
6.50%, 10/01/01 ............................................... NR/NR 460,000 469,200
----------
885,700
----------
CALIFORNIA -- 2.4%
California Semitropic Improv. Dist. Water. Storage Dist. Ref.
Rev. Bonds, 4.85%, 06/01/11 ................................... Aaa/AAA 410,000 425,887
----------
COLORADO -- 3.0%
Aurora, CO Cert. of Participation Lease Ref. Rev. Bonds.,
5.85%, 12/01/02 ............................................... A/A 500,000 533,125
----------
DELAWARE -- 15.8%
Bethany Beach, DE Gen. Oblig. Rev. Bonds, 9.75%, 11/01/07 ........ Aaa/AAA 160,000 226,000
Bethany Beach, DE Gen. Oblig. Rev. Bonds, 9.75%, 11/01/08 ........ Aaa/AAA 180,000 258,750
Delaware State Economic Dev. Auth. Rev. Bonds
(Osteopathic Hosp. Assoc.) Ser. 1993A, 6.00%, 01/01/03 ........ Aaa/NR 500,000 524,375
Delaware State Economic Dev. Auth. Rev. Bonds
(Delmarva Power & Light), 7.30%, 09/01/15 ..................... Aaa/AAA 100,000 105,683
Delaware State Gen. Oblig. Rev. Bonds, Ser. 1997A,
5.00%, 01/01/04 ............................................... Aa1/AA+ 255,000 267,750
Delaware State Housing Auth. Multi-family Mtge. Ref. Rev. Bonds,
Ser. 1992D, 6.35%, 07/01/03 ................................... A1/NR 100,000 105,500
Delaware State Housing Auth. Multi-family Mtge. Ref. Rev. Bonds,
Ser. 1992C, 7.25%, 01/01/07 ................................... A1/A 205,000 220,631
Delaware State Housing Auth. Single Family Mtge. Rev. Bonds
Ser. 1993A-1, 5.05%, 07/01/05 ................................. Aaa/AAA 295,000 303,112
Delaware State Housing Auth. Single Family Mtge. Rev. Bonds
Ser. 1993A-1, 5.15%, 01/01/06 ................................. Aaa/AAA 170,000 175,525
Delaware State Housing Auth. Sr. Home Mtge. Rev. Bonds,
Ser. 1991A, 7.00%, 06/01/00 ................................... Aa3/NR 25,000 25,437
Delaware State Housing Auth. Sr. Home Mtge. Rev. Bonds,
Ser. 1991B-1, 6.40%, 12/01/02 ................................. Aa3/NR 35,000 36,619
Delaware State Solid Waste Auth. Rev. Bonds, 5.80%, 07/01/01 ..... A2/A 500,000 524,375
----------
2,773,757
----------
HAWAII -- 4.4%
Hawaii State Gen. Oblig. Rev. Bonds, Ser. 1992BW,
6.20%, 03/01/05 ............................................... A1/A+ 700,000 778,750
----------
MARYLAND -- 3.0%
Howard County, MD Gen. Oblig. Rev. Bonds, Ser. 1998A,
5.00%, 02/15/09 ............................................... Aaa/AAA 500,000 532,500
----------
MASSACHUSETTS -- 3.0%
Massachusetts State Gen. Oblig. Rev. Bonds, Ser. 1993B,
4.88%, 10/01/13 ............................................... Aaa/AAA 520,000 523,900
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / MUNICIPAL BOND PORTFOLIO
- ------------------------------------------------------------------------
INVESTMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATINGS* AMOUNT (NOTE 2)
----------- ----------- -----------
<S> <C> <C> <C>
MISSISSIPPI -- 2.4%
Medical Center Educ. Bldg. Corp. Rev. Bonds (Univ. of Mississippi
Medical Center Proj.), Ser. 1993, 5.40%, 12/01/05 ............ NR/A- $400,000 $ 421,000
-----------
NEW JERSEY -- 2.9%
New Jersey Economic Dev. Auth. School Rev. Bonds
(Blair Academy Proj.), Ser. 1995B, 6.00%, 09/01/07 ........... A3/NR 500,000 516,250
-----------
NORTH CAROLINA -- 5.9%
North Carolina Medical Care Comm. Health Care Fac. Ref. Rev. Bonds
(Novant Health Proj.), Ser. 1998, 4.70%, 10/01/12 ............ Aaa/AAA 500,000 500,000
Charlotte, NC Gen. Oblig. Rev. Bond, 5.25%, 02/01/04 ............ Aaa/AAA 500,000 533,125
-----------
1,033,125
-----------
PENNSYLVANIA -- 25.5%
Allentown, PA Gtd. Water Improv. Rev. Bonds, 5.65%, 07/15/10 .... Aaa/AAA 525,000 585,375
Chester County, PA Ind. Dev. Auth. Wastewater Treatment Rev. Bonds
(Orleans Corp. Proj.), 7.00%, 11/01/06 ....................... NR/NR 605,000 605,000
Cumberland Valley, PA School District Gen. Oblig. Rev. Bonds,
Ser. 1993A, 5.35%, 09/01/07 .................................. Aaa/AAA 500,000 525,625
Harrisburg, PA Office & Parking Rev. Auth. Bonds
(Capital Assoc. Proj.), Ser. 1998A, 5.50%, 05/01/05 .......... NR/NR 500,000 500,625
Pennsylvania State Higher Educ. Fac. Auth. Rev. Bonds (Philadelphia
College of Osteopathic Medicine), 5.25%, 12/01/07 ............ NR/AAA 150,000 159,937
Pennsylvania State Higher Educ. Fac. Auth. Rev. Bonds, Ser.1992A,
6.63%, 08/15/09 .............................................. NR/AAA 120,000 132,750
Philadelphia, PA Hospitals & Higher Educ. Fac. Auth. Rev. Bonds
(Jefferson Health Systems) Ser. 1997A, 5.50%, 05/15/05 ....... A1/AA- 500,000 536,250
Philadelphia, PA Ind. Dev. Auth. Rev. Bonds (Natl. Board of
Medical Examiners Proj.), 6.10%, 05/01/00 .................... NR/A+ 500,000 515,625
Philadelphia, PA Redev. Auth. Home Improv. Loan Rev. Bonds,
Ser. 1986A , 7.38%, 06/01/03 ................................. A1/A+ 15,000 15,188
Westmoreland County, PA Ind. Dev. Auth. Rev. Bonds (Landfill Gas
Recycling - Lanchester Energy Partners), Ser. 1998B,
6.80%, 01/01/05 .............................................. NR/NR 500,000 500,000
York County, PA Ind. Dev. Auth. Personal Care Fac. Rev. Bonds,
9.50%, 10/01/19 .............................................. NR/NR 330,000 397,238
-----------
4,473,613
-----------
TEXAS -- 7.3%
Austin, TX Gen. Oblig. Rev. Bonds, 4.75%, 09/01/09 Aa2/AA 315,000 322,088
Georgetown, TX Utility System Ref. Rev. Bonds, Ser. 1998A,
4.80%, 08/15/11 Aaa/AAA 650,000 659,750
University of Texas Ref. Rev. Bonds, Ser. 1992A, 6.25%, 07/01/13 Aaa/AAA 275,000 294,938
-----------
1,276,776
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND / MUNICIPAL BOND PORTFOLIO
- ------------------------------------------------------------------------
INVESTMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL VALUE
RATINGS* AMOUNT/SHARES (NOTE 2)
----------- ------------- --------
<S> <C> <C> <C>
UTAH -- 3.1%
Salt Lake County, UT Municipal Bldg. Auth. Lease Rev. Bonds,
Ser. 1994A, 5.65%, 10/01/03 ................................. Aaa/AAA $500,000 $ 540,625
-----------
VIRGINIA -- 5.9%
Virginia State Housing Dev. Auth. Commonwealth Mtge. Rev. Bonds,
Ser. 1992C-8, 5.80%, 07/01/04 ................................ Aa1/AA+ 500,000 526,875
Virginia State Public Bldg. Auth. Ref. Rev. Bonds, Ser. 1996A,
5.00%, 08/01/12 .............................................. Aa/AA 500,000 506,250
-----------
1,033,125
-----------
WASHINGTON -- 5.2%
Clark County, WA Public Utility Dist. No. 1 Generating System Rev.
Bonds, 6.00%, 01/01/06 ....................................... Aaa/AAA 350,000 388,500
Washington State Public Power Supply System Ref. Rev. Bonds
(Nuclear Proj. No. 3), Ser. 1993C, 5.10%, 07/01/07 ........... Aa1/AA- 500,000 528,750
-----------
917,250
-----------
WISCONSIN -- 3.0%
Appleton, WI Area School Dist. Gen. Oblig. Rev. Bonds,
5.00%, 04/01/11 .............................................. Aa2/NR 505,000 525,200
-----------
TOTAL MUNICIPAL BONDS (COST $16,581,194) .............................................. 17,190,583
-----------
TAX-EXEMPT MUTUAL FUNDS -- 0.5%
Provident Municipal Tax-Exempt Cash Money Market Fund
(COST $87,947) ......................................................... 87,947 87,947
-----------
TOTAL INVESTMENTS (COST $16,669,141)(DAGGER) -- 98.3% .......................................... 17,278,530
OTHER ASSETS AND LIABILITIES, NET -- 1.7% ...................................................... 300,857
-----------
NET ASSETS -- 100.0% ........................................................................... $17,579,387
===========
<FN>
* Although certain securities are not rated (NR) by either Moody's or S&P,
they have been determined to be of comparable quality to investment grade
securities by the Portfolio Advisor. The ratings shown are unaudited.
(DAGGER) The cost for federal income tax purposes. At October 31, 1998, net
unrealized appreciation was $609,389. This consisted of aggregate gross
unrealized appreciation for all securities for which there was an excess of
market value over tax cost of $617,455 and aggregate gross unrealized
depreciation for all securities for which there was an excess of tax cost
over market value of $8,066.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<CAPTION>
SHORT/
INTERMEDIATE INTERMEDIATE MUNICIPAL
BOND BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ---------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at market (identified cost $90,734,058,
$87,681,448 and $16,669,141, respectively) .................... $92,941,315 $92,676,357 $17,278,530
Receivables:
Interest ...................................................... 1,360,962 1,313,216 277,601
Fund shares purchased ......................................... 2,249 4,957 50,000
Investment securities sold .................................... 817,474 2,044,373 100,000
Other assets ..................................................... 36 57,807 18
----------- ----------- -----------
Total assets .................................................. 95,122,036 96,096,710 17,706,149
----------- ----------- -----------
LIABILITIES:
Due to Adviser ................................................... 7,267 12,994 1,868
Payables:
Dividends to shareholders ..................................... 433,821 438,629 63,859
Fund shares redeemed .......................................... 31,832 190,575 40,061
Investment securities purchased ............................... -- 2,400,321 --
Other accrued expenses ........................................... 51,744 52,688 20,974
----------- ----------- -----------
Total liabilities ............................................. 524,664 3,095,207 126,762
----------- ----------- -----------
NET ASSETS, at market value ...................................... $94,597,372 $93,001,503 $17,579,387
=========== =========== ===========
NET ASSETS CONSIST OF:
Additional paid-in capital ....................................... $92,182,149 $87,590,936 $16,869,694
Shares of beneficial interest .................................... 70,722 91,253 13,587
Accumulated net realized gain .................................... 137,244 324,405 86,717
Net unrealized appreciation of investments ....................... 2,207,257 4,994,909 609,389
----------- ----------- -----------
NET ASSETS, for 7,072,184, 9,125,282, and 1,358,654 shares
outstanding, respectively ..................................... $94,597,372 $93,001,503 $17,579,387
=========== =========== ===========
NET ASSET VALUE, offering and redemption price per share
($94,597,372 (DIVIDE) 7,072,184,
$93,001,503 (DIVIDE) 9,125,282, and
$17,579,387 (DIVIDE) 1,358,654
outstanding shares of beneficial interest,
$0.01 par value, respectively) ................................ $13.38 $10.19 $12.94
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
FINANCIAL STATEMENTS -- CONTINUED
================================================================================
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended October 31, 1998
<TABLE>
<CAPTION>
Short/
Intermediate Intermediate Municipal
Bond Bond Bond
Portfolio Portfolio(DAGGER) Portfolio
------------ ----------------- ---------
<S> <C> <C> <C>
INTEREST INCOME ..................................................... $3,238,195 $1,968,957 $ 892,753
---------- ---------- ----------
EXPENSES:
Advisory fee ..................................................... 213,079 110,511 78,528
Administration fee ............................................... 50,376 31,575 16,638
Accounting fee ................................................... 12,603 -- 12,603
Custodian fee .................................................... 5,902 7,001 4,711
Transfer agent fee ............................................... 7,962 7,970 4,270
Distribution expenses ............................................ 5,812 -- 4,443
Trustees fees and expenses ....................................... 6,183 868 6,170
Amortization of organizational expenses .......................... -- 4,251 15,997
Registration fees ................................................ 22,041 9,627 18,457
Reports to shareholders .......................................... 11,217 5,900 5,336
Professional fees ................................................ 78,247 26,172 33,333
Other ............................................................ 19,471 3,623 14,374
---------- ---------- ----------
Total expenses before fee waivers ............................. 432,893 207,498 214,860
Advisory fee waived ........................................... (126,281) (33,746) (72,466)
Administration fee waived ..................................... -- -- (3,518)
Accounting fee waived ......................................... -- -- (7,494)
---------- ---------- ----------
Total expenses, net ........................................ 306,612 173,752 131,382
---------- ---------- ----------
Net investment income ............................................ 2,931,583 1,795,205 761,371
---------- ---------- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions ..................... 253,210 324,405 118,413
Net unrealized appreciation of investments during the year ....... 1,588,123 1,426,841 152,437
---------- ---------- ----------
Net gain on investments .......................................... 1,841,333 1,751,246 270,850
---------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................ $4,772,916 $3,546,451 $1,032,221
========== ========== ==========
<FN>
(DAGGER) For the period June 29, 1998 (commencement of operations) through
October 31, 1998
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
FINANCIAL STATEMENTS -- CONTINUED
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Short/
Intermediate Intermediate Municipal
Bond Bond Bond
Portfolio Portfolio(DAGGER) Portfolio
----------- ----------------- ---------
<S> <C> <C> <C>
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income .............................................. $ 2,931,583 $ 1,795,205 $ 761,371
Net realized gain on investment transactions ....................... 253,210 324,405 118,413
Net unrealized appreciation of investments during the year ......... 1,588,123 1,426,841 152,437
------------ ------------ ------------
Net increase in net assets resulting from operations ............... 4,772,916 3,546,451 1,032,221
------------ ------------ ------------
Distributions to shareholders from:
Net investment income .............................................. (2,931,583) (1,795,205) (761,371)
------------ ------------ ------------
Increase (decrease) in net assets from Fund share transactions (Note 5) 61,300,279 91,250,257 (137,719)
------------ ------------ ------------
Total increase in net assets ....................................... 63,141,612 93,001,503 133,131
NET ASSETS:
Beginning of year .................................................. 31,455,760 -- 17,446,256
------------ ------------ ------------
End of year ........................................................ $ 94,597,372 $ 93,001,503 $ 17,579,387
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income .............................................. $ 1,885,318 $ 749,888
Net realized gain (loss) on investment transactions ................ (16,511) 40,118
Net unrealized appreciation of investments during the year ......... 307,032 340,102
------------ -----------
Net increase in net assets resulting from operations ............... 2,175,839 1,130,108
------------ -----------
Distributions to shareholders from:
Net investment income .............................................. (1,885,318) (749,888)
------------ -----------
Increase (decrease) in net assets from Fund share transactions (Note 5) (611,832) 447,444
------------ -----------
Total increase (decrease) in net assets ............................ (321,311) 827,664
NET ASSETS:
Beginning of year .................................................. 31,777,071 16,618,592
------------ -----------
End of year ........................................................ $ 31,455,760 $17,446,256
============ ===========
<FN>
(DAGGER) For the period June 29, 1998 (commencement of operations) through
October 31, 1998
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
FINANCIAL HIGHLIGHTS
================================================================================
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements. They should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
For the Fiscal Years Ended October 31,
---------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHORT/INTERMEDIATE BOND PORTFOLIO
NET ASSET VALUE -- BEGINNING OF YEAR ............................ $13.07 $12.95 $13.08 $12.42 $13.48
------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Net investment income ........................................ 0.76 0.77 0.78 0.83 0.71
Net realized and unrealized gain (loss) on
investments ............................................... 0.31 0.12 (0.13) 0.66 (1.02)
------ ------ ------ ------ ------
Total from investment operations .......................... 1.07 0.89 0.65 1.49 (0.31)
------ ------ ------ ------ ------
DISTRIBUTIONS:
From net investment income ................................... (0.76) (0.77) (0.78) (0.83) (0.71)
From net realized gain on investments ........................ -- -- -- -- (0.04)
------ ------ ------ ------ ------
Total distributions ....................................... (0.76) (0.77) (0.78) (0.83) (0.75)
------ ------ ------ ------ ------
NET ASSET VALUE-- END OF YEAR ................................... $13.38 $13.07 $12.95 $13.08 $12.42
====== ====== ====== ====== ======
TOTAL RETURN .................................................... 8.40% 7.13% 5.18% 12.41% (2.33)%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses 1 ................................................... 0.59% 0.65% 0.65% 0.65% 0.65%
Net investment income ........................................ 5.64% 5.98% 6.07% 6.56% 5.53%
Portfolio turnover rate ......................................... 40.66% 83.54% 85.77% 116.40% 43.77%
Net assets at end of year (000 omitted) ......................... $94,597 $31,456 $31,777 $32,214 $31,721
<FN>
1 Effective June 29, 1998, Wilmington Trust Company ("WTC") elected to waive
a portion of its advisory fee or reimburse expenses to the extent that the
Portfolio's expenses (excluding taxes, extraordinary expenses, brokerage
commissions and interest) exceed an annual rate of 0.55% of the Portfolio's
average daily net assets through February 1999. Prior to June 29, 1998, WTC
had elected to waive a portion of its advisory fee or reimburse expenses to
the extent that the Portfolio's expenses (excluding taxes, extraordinary
expenses, brokerage commissions and interest) exceeded an annual rate of
0.65% of the Portfolio's average daily net assets. Without waivers or
reimbursements, the annualized ratio of expenses to average daily net
assets for the fiscal years ended October 31, 1998, 1997, 1996, 1995 and
1994, would have been 0.83%, 1.12%, 1.09%, 1.14% and 1.05%, respectively.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
FINANCIAL HIGHLIGHTS -- CONTINUED
================================================================================
FOR THE PERIOD
JUNE 29, 1998(DAGGER)
THROUGH
OCTOBER 31, 1998
---------------------
INTERMEDIATE BOND PORTFOLIO
NET ASSET VALUE -- BEGINNING OF PERIOD ............... $10.00
------
INVESTMENT OPERATIONS:
Net investment income ............................. 0.20
Net realized and unrealized gain on
investments .................................... 0.19
------
Total from investment operations ............... 0.39
------
DISTRIBUTIONS:
From net investment income ........................ (0.20)
------
NET ASSET VALUE-- END OF PERIOD ...................... $10.19
======
TOTAL RETURN ......................................... 3.89%1
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses 2 ........................................ 0.55%*
Net investment income ............................. 5.69%*
Portfolio turnover rate .............................. 17.66%1
Net assets at end of period (000 omitted) ............ $93,002
(DAGGER) Commencement of operations.
1 Unannualized.
2 The expense ratio reflects WTC's election to waive a portion of its
advisory fee or reimburse expenses to the extent that the Portfolio's
expenses (excluding taxes, extraordinary expenses, brokerage commissions
and interest) exceed an annual rate of 0.55% of the Portfolio's average
daily net assets through February 1999. Without waivers or reimbursements,
the annualized ratio of expenses to average daily net assets for the period
June 29, 1998 through October 31, 1998 would have been 0.66%.
* Annualized.
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
FINANCIAL HIGHLIGHTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
For the Fiscal Years Ended October 31,
----------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BOND PORTFOLIO
NET ASSET VALUE-- BEGINNING OF YEAR ......................... $12.74 $12.46 $12.49 $11.64 $12.50
------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Net investment income .................................... 0.56 0.55 0.55 0.54 0.49
Net realized and unrealized gain (loss) on
investments ........................................... 0.20 0.28 (0.03) 0.85 (0.86)
------ ------ ------ ------ ------
Total from investment operations ...................... 0.76 0.83 0.52 1.39 (0.37)
------ ------ ------ ------ ------
DISTRIBUTIONS:
From net investment income ............................... (0.56) (0.55) (0.55) (0.54) (0.49)
------ ------ ------ ------ ------
NET ASSET VALUE-- END OF YEAR ............................... $12.94 $12.74 $12.46 $12.49 $11.64
====== ====== ====== ====== ======
TOTAL RETURN ................................................ 6.07% 6.85% 4.24% 12.23% (3.05)%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses 1 ............................................... 0.75% 0.75% 0.75% 0.75% 0.75%
Net investment income .................................... 4.35% 4.42% 4.41% 4.50% 4.13%
Portfolio turnover rate ..................................... 43.72% 28.56% 15.91% 42.08% 21.95%
Net assets at end of year (000 omitted) ..................... $17,579 $17,446 $16,619 $16,570 $14,283
<FN>
1 The expense ratios reflect WTC's election to waive a portion of its
advisory fee or reimburse expenses to the extent that the Portfolio's
expenses (excluding taxes, extraordinary expenses, brokerage commissions
and interest) exceed an annual rate of 0.75% of the Portfolio's average
daily net assets through February 1999. In addition, Rodney Square
Management Corporation waived a portion of it's administration and
accounting services fees for the fiscal years ended October 31, 1998, 1997,
1996, 1995, and 1994. Without waivers or reimbursements, the annualized
ratio of expenses to average daily net assets for the fiscal years ended
October 31, 1998, 1997, 1996, 1995 and 1994, would have been 1.23%, 1.52%,
1.37%, 1.45% and 1.62%, respectively.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. DESCRIPTION OF THE FUND. The Rodney Square Strategic Fixed-Income Fund (the
"Fund") is a diversified, open-end management investment company established
as a Massachusetts business trust by Declaration of Trust on May 7, 1986, as
last amended and restated on February 15, 1993, and registered with the U.S.
Securities and Exchange Commission (the "SEC") under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Declaration of Trust permits
the Trustees to create additional series or portfolios; each of which may
issue additional classes of shares. Currently, the Fund consists of three
series or portfolios, the Short/Intermediate Bond Portfolio (formerly the
"Diversified Income Portfolio"), the Intermediate Bond Portfolio and the
Municipal Bond Portfolio (formerly the "Municipal Income Portfolio") (each, a
"Portfolio" and collectively, the "Portfolios"). Each Portfolio consists of a
single class of shares. The investment objective of the Short/Intermediate
Bond Portfolio is to seek high total return, consistent with high current
income, by investing principally in various types of investment grade
fixed-income securities with an average dollar-weighted duration, under
normal market conditions, of 2-1/2 to 4 years. The investment objective of
the Intermediate Bond Portfolio is to seek high total return, consistent with
high current income, by investing principally in various types of investment
grade fixed-income securities with an average dollar-weighted duration, under
normal market conditions, of 5 to 7 years. The investment objective of the
Municipal Bond Portfolio is to seek a high level of income exempt from
federal income tax, consistent with the preservation of capital by investing
principally in municipal securities providing interest income that is exempt
from federal income tax with an average dollar-weighted duration, under
normal market conditions, of 4 to 8 years. The Intermediate Bond Portfolio
commenced operations on June 29, 1998.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of the
significant accounting policies of the Fund:
SECURITY VALUATION. The Portfolios value their assets based on their current
market prices when market quotations are readily available. Current market
prices are generally not readily available for municipal securities; current
market prices may also be unavailable for other types of fixed-income
securities held by the Portfolios. To determine the value of those
securities, the Portfolios may use a pricing service that takes into account
not only developments related to the specific securities, but also
transactions in comparable securities. The value of fixed-income securities
maturing within 60 days of the valuation date may be determined by valuing
those securities at amortized cost. Securities that do not have a readily
available current market value are valued in good faith under the direction
of the Board of Trustees of the Fund.
FEDERAL INCOME TAXES. Each Portfolio is treated as a separate entity and
intends to qualify or continue to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended, and to
distribute all of its taxable and tax-exempt income to its shareholders.
Therefore, no federal income tax provision has been made in the financial
statements.
INTEREST INCOME AND DIVIDENDS TO SHAREHOLDERS. Interest income is accrued as
earned. Dividends from net investment income consist of accrued interest and
earned discount (including both original issue and market discount) less
amortization of premium and accrued expenses. Dividends to shareholders of
each Portfolio are declared daily from net investment income and paid to
shareholders monthly. Each Portfolio will distribute net realized gains on
investments, if any, annually in December.
24
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
================================================================================
DEFERRED ORGANIZATION COSTS. Costs incurred by the Intermediate Bond
Portfolio in connection with its initial registration and public offering of
shares have been deferred and are being amortized on a straight-line basis
over a five-year period beginning on the date the Portfolio commenced
operations.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
OTHER. Investment security transactions are accounted for on a trade date
basis. Each Portfolio uses the specific identification method for determining
realized gain and loss on investments for both financial and federal income
tax reporting purposes.
3. INVESTMENT SECURITIES. During the fiscal year ended October 31, 1998,
purchases and sales of investment securities (excluding short-term
investments) aggregated as follows:
SHORT/INTERMEDIATE INTERMEDIATE MUNICIPAL
BOND PORTFOLIO BOND PORTFOLIO* BOND PORTFOLIO
------------------ --------------- --------------
Purchases .......... $31,700,305 $18,981,858 $7,841,010
Sales .............. 21,152,888 15,825,648 7,389,523
* For the period June 29, 1998 (commencement of operations) through
October 31, 1998.
4. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES. Wilmington Trust Company
("WTC"), a wholly owned subsidiary of Wilmington Trust Corporation, a
publicly held bank holding company, is the Investment Adviser of the
Portfolios. Under an Advisory Agreement with the Fund, WTC, subject to the
supervision of the Board of Trustees, directs the investments of each
Portfolio in accordance with its investment objective, policies and
limitations. Under the Advisory Agreement, effective June 29, 1998, each
Portfolio pays a monthly advisory fee to WTC at the annual rate of 0.35% of
the average daily net assets of the Portfolio. WTC has agreed to waive its
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 0.55%, 0.55% and 0.75% of
the Short/Intermediate Bond Portfolio's, the Intermediate Bond Portfolio's
and the Municipal Bond Portfolio's average daily net assets, respectively,
through February 1999.
Prior to June 29, 1998, the Short/Intermediate Bond Portfolio and the
Municipal Bond Portfolio each paid WTC a monthly fee at the annual rate of
0.50% of each Portfolio's average daily net assets, excluding those assets
invested in any money market mutual fund. WTC had agreed to waive its
advisory fee or reimburse the Municipal BondPortfolio monthly to the extent
that operating expenses of the Portfolio (excluding taxes, extraordinary
expenses, brokerage commissions and interest) exceeded an annual rate of
0.75% of the Portfolio's average daily net assets. With respect to the
Short/Intermediate Bond Portfolio, WTC had voluntarily agreed to waive its
fee or
25
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
================================================================================
reimburse the Portfolio monthly to the extent that operating expenses of the
Portfolio (excluding taxes, extraordinary expenses, brokerage commissions,
and interest) exceeded an annual rate of 0.65% of average daily net assets.
WTC also serves as custodian of the assets of the Fund and receives a fee
from the Fund for this service. Prior to June 29, 1998, the Fund did not pay
WTC for custodial services, as WTC assumed the cost of providing these
services to the Fund. Effective February 2, 1998, WTC entered into a
Sub-Custodian Services Agreement with PNC Bank, N.A. ("PNC") whereby PNC
serves as Sub-Custodian of the assets of the Fund. WTC (not the Fund) pays
PNC for sub-custodial services.
Effective February 2, 1998, the Fund entered into an Administrative and
Accounting Services Agreement (the "Agreement") with PFPC Inc. ("PFPC"),
whereby PFPC performs certain administrative and accounting services for the
Portfolios including preparing shareholder reports, assisting WTC in
compliance monitoring activities and determining the net asset value per
share of each Portfolio. For services provided under the Agreement, the Fund
pays PFPC an annual fee equal to the amount derived from the following
schedule: 0.10% of each Portfolio's first $1 billion of average daily net
assets; 0.075% of each Portfolio's next $500 million of average daily net
assets; 0.050% of each Portfolio's next $500 million of average daily net
assets; and 0.035% of each Portfolio's average daily net assets in excess of
$2 billion. In addition, any related out-of-pocket expenses incurred by PFPC
in the provision of services to a Portfolio are borne by that Portfolio.
PFPC's fees for services provided under the Agreement for the period from
February 2, 1998 through October 31, 1998, were $44,015 and $13,120 for the
Short/Intermediate Bond Portfolio and the Municipal Bond Portfolio,
respectively. PFPC's fee for the Intermediate Bond Portfolio for the period
June 29, 1998 through October 31, 1998 amounted to $31,575.
Effective February 2, 1998, the Fund entered into a Transfer Agency Services
Agreement with PFPC, whereby PFPC serves as transfer agent, registrar,
dividend disbursing agent and shareholder servicing agent to the Fund.
Effective June 29, 1998, the Fund pays PFPC an annual fee of 0.03% of each
Portfolio's average net assets plus transaction charges and out-of-pocket
expenses for these services. Prior to June 29, 1998, WTC assumed the cost of
these services provided to the Fund.
Prior to February 2, 1998, Rodney Square Management Corporation ("RSMC"), a
wholly owned subsidiary of WTC, served as accounting agent, administrator,
transfer agent and dividend disbursing agent to the Fund under separate
Accounting Services, Administration and Transfer Agent Agreements with the
Fund. As accounting service provider, RSMC determined the net asset value per
share of each Portfolio and provided accounting services to the Fund. For its
services, RSMC received an annual fee of $50,000 per Portfolio, plus an
amount equal to 0.02% of that portion of each Portfolio's average daily net
assets in excess of $100 million. For the period November 1, 1997 to February
2, 1998, RSMC's fees for accounting services amounted to $12,603 each for the
Short/Intermediate Bond Portfolio and the Municipal Bond Portfolio, of which
$7,494 was waived for the Municipal Bond Portfolio. As administrator, RSMC
was responsible for services such as financial reporting, compliance
monitoring and corporate management. For the services provided, RSMC received
a monthly administration fee from the Fund at an annual rate of 0.08% of each
Portfolio's average daily net assets. The
26
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
================================================================================
administration fee paid to RSMC by the Short/Intermediate Bond Portfolio for
the period from November 1, 1997 to February 2, 1998 amounted to $6,361. RSMC
waived its administration fee for the Municipal Bond Portfolio for the period
from November 1, 1997 to February 2, 1998, which amounted to $3,518. The Fund
did not pay RSMC any separate fees for its services as transfer agent and
dividend disbursing agent for the Portfolios, as WTC assumed the cost of
providing these services to the Portfolios. Each Portfolio reimbursed RSMC
for its related out-of-pocket expenses, if any, incurred in connection with
the performance of these services.
Pursuant to a Distribution Agreement with the Fund, 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. Effective January 26, 1998, the
Fund's Rule 12b-1 plans were terminated. Prior to January 26, 1998, the
Fund's Board of Trustees had authorized, pursuant to Rule 12b-1 plans of
distribution, a payment of up to 0.25% of each Portfolio's average daily net
assets annually to reimburse RSD for expenses incurred in connection with
distribution activities. For the period November 1, 1997 through January 26,
1998, RSD was reimbursed in the amount of $5,812 for the Short/Intermediate
Bond Portfolio and $4,443 for the Municipal Bond Portfolio.
5. FUND SHARES. At October 31, 1998, there were an unlimited number of shares of
beneficial interest of $0.01 par value authorized. The following table
summarizes the activity in shares of each Portfolio:
<TABLE>
<CAPTION>
SHORT/INTERMEDIATE BOND PORTFOLIO
FOR THE FISCAL YEAR FOR THE FISCAL YEAR
ENDED OCTOBER 31, 1998 ENDED OCTOBER 31, 1997
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold ....................................... 900,342 $11,872,722 141,848 $ 1,841,272
Shares issued in exchange for securities
transferred in-kind (Note 6) ................... 4,027,047 52,875,813 -- --
Shares issued to shareholders in
reinvestment of distributions .................. 114,701 1,518,469 58,648 755,881
Shares redeemed ................................... (375,850) (4,966,725) (248,332) (3,208,985)
--------- ----------- --------- -----------
Net increase (decrease) ........................... 4,666,240 $61,300,279 (47,836) $ (611,832)
=========== ===========
Shares outstanding:
Beginning of year .............................. 2,405,944 2,453,780
--------- ---------
End of year .................................... 7,072,184 2,405,944
========= =========
</TABLE>
27
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
================================================================================
<TABLE>
<CAPTION>
INTERMEDIATE BOND PORTFOLIO
FOR THE PERIOD JUNE 29, 1998(DAGGER)
THROUGH OCTOBER 31, 1998
------------------------------------
SHARES AMOUNT
--------- -----------
<S> <C> <C>
Shares sold ................................... 407,960 $ 4,121,185
Shares issued in exchange for securities
transferred in-kind (Note 6) ............... 8,921,710 89,217,926
Shares issued to shareholders in
reinvestment of distributions .............. 131,441 1,338,735
Shares redeemed ............................... (335,829) (3,427,589)
--------- -----------
Net increase .................................. 9,125,282 $91,250,257
===========
Shares outstanding:
Beginning of period ........................ 0
---------
End of period .............................. 9,125,282
=========
<FN>
(DAGGER) Commencement of operations
</FN>
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL BOND PORTFOLIO
FOR THE FISCAL YEAR FOR THE FISCAL YEAR
ENDED OCTOBER 31, 1998 ENDED OCTOBER 31, 1997
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold ...................................... 70,718 $ 907,714 98,185 $ 1,235,603
Shares issued to shareholders in
reinvestment of distributions ................. 45,302 580,748 45,831 575,223
Shares redeemed .................................. (126,618) (1,626,181) (108,773) (1,363,382)
--------- ----------- --------- ------------
Net increase (decrease) .......................... (10,598) $ (137,719) 35,243 $ 447,444
=========== ===========
Shares outstanding:
Beginning of year ............................. 1,369,252 1,334,009
--------- ---------
End of year ................................... 1,358,654 1,369,252
========= =========
</TABLE>
28
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
================================================================================
6. TRANSFERS IN-KIND AND COMMENCEMENT OF NEW PORTFOLIO. Effective June 29, 1998,
the Wilmington TrustIntermediate BondFund ("Intermediate Bond Fund") and the
Wilmington Trust Strategic Bond Fund ("Strategic Bond Fund"), each a
Wilmington Trust Collective Investment Fund ("WTCIF"), transferred all of
their net assets, including their securities, to the Short/Intermediate Bond
Portfolio and the Intermediate Bond Portfolio, respectively. The shareholders
of the WTCIFs received shares of the respective Portfolios based on the net
assets transferred divided by the net asset value of the respective
Portfolio.
The transfer was conducted on a taxable basis with respect to the WTCIF
Intermediate Bond Fund, whereby any unrealized appreciation or depreciation
on the securities on the date of transfer was recognized by the
WTCIFIntermediate Bond Fund and the Short/Intermediate BondPortfolio's basis
in the securities reflected their market value as of the date of transfer.
The transfer of securities was conducted on a tax-free basis with respect to
the WTCIF Strategic Bond Fund, whereby any unrealized appreciation or
depreciation on the securities on the date of transfer was not treated as a
taxable event by the WTCIFStrategic Bond Fund and the Intermediate Bond
Portfolio's basis in the securities reflected their historical cost basis as
of the date of transfer.
The following table summarized the aforementioned transactions:
<TABLE>
<CAPTION>
THE WILMINGTON TRUST COLLECTIVE INVESTMENT FUNDS
NET
NET ASSETS UNREALIZED
SHARES AT AT APPRECIATION
6/29/98 6/29/98 AT 6/29/98
--------- ----------- ------------
<S> <C> <C> <C>
Intermediate Bond Fund ................................... 368,365 $52,875,813 $ 901,407
Strategic Bond Fund ...................................... 4,809,547 89,217,926 3,568,067
</TABLE>
<TABLE>
<CAPTION>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
COMBINED
SHARES NET ASSETS NAV
ISSUED IN AFTER PER
EXCHANGE EXCHANGE SHARE
--------- ----------- --------
<S> <C> <C> <C>
Short/Intermediate Bond Portfolio ........................ 4,027,047 $84,571,146 $13.13
Intermediate Bond Portfolio .............................. 8,921,710 89,217,926 10.00
</TABLE>
29
<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
(comprised of the Short/Intermediate Bond Portfolio, Intermediate Bond Portfolio
and Municipal Bond Portfolio) (the "Fund") as of October 31, 1998, and the
related statements of operations, the statements of changes in net assets and
the financial highlights for each of the periods indicated therein. 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 and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1998, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Rodney Square Strategic
Fixed-Income Fund at October 31, 1998, and the results of their operations, the
changes in their net assets, and their financial highlights for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
December 4, 1998
30
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
- ---------------------------------------------
NOTICE TO SHAREHOLDERS (UNAUDITED)
================================================================================
TAX INFORMATION
Pursuant to Section 852 of the Internal Revenue Code of 1986, as amended, the
Municipal Bond Portfolio designates $752,522 as tax-exempt dividends.
In January 1999, shareholders of the Fund will receive Federal income tax
information on all distributions paid to their accounts in the calendar year
1998, including any distributions paid between October 31, 1998 and December 31,
1998.
SPECIAL MEETING OF SHAREHOLDERS
A special meeting of the shareholders of the Short/Intermediate Bond Portfolio
and the Municipal Bond Portfolio was held on June 25, 1998, to vote on the
following proposals. The description of each proposal and the number of shares
voted are as follows:
1. Election of Trustees; Eric Brucker, Fred L. Buckner, Robert J.
Christian, John J. Quindlen and Nina M. Webb. The results of the shares
voted were as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--------- -------- ----------
<S> <C> <C> <C>
Short/Intermediate Bond Portfolio ............. 2,275,449 2,650 --
Municipal Bond Portfolio ...................... 807,853 -- --
</TABLE>
2. Approval of a new investment advisory agreement for each Portfolio. The
results of the shares voted were as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--------- -------- ----------
<S> <C> <C> <C>
Short/Intermediate Bond Portfolio ............. 2,272,476 909 4,714
Municipal Bond Portfolio ...................... 791,487 -- 16,366
</TABLE>
3. Ratification of the selection of Ernst & Young LLP as the Fund's
independent certified public accountant. The results of the shares voted
were as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--------- -------- ----------
<S> <C> <C> <C>
Short/Intermediate Bond Portfolio ............. 2,272,578 2,871 2,650
Municipal Bond Portfolio ...................... 796,701 -- 11,152
</TABLE>
31
<PAGE>
TRUSTEES
Eric Brucker
Fred L. Buckner
Robert J. Christian
John J. Quindlen
--------------------------------------------
OFFICERS
Robert J. Christian, PRESIDENT
Eric K. Cheung, VICE PRESIDENT
John J. Kelley, VICE PRESIDENT & TREASURER
Carl M. Rizzo, Esq., SECRETARY
Mary Jane Maloney, ASSISTANT SECRETARY
John C. McDonnell, ASSISTANT TREASURER
--------------------------------------------
INVESTMENT ADVISER
AND CUSTODIAN
Wilmington Trust Company
Rodney Square North
1100 N. Market St.
Wilmington, DE 19890-0001
--------------------------------------------
DISTRIBUTOR
Rodney Square Distributors, Inc.
Rodney Square North
1100 N. Market St.
Wilmington, DE 19890-0001
--------------------------------------------
ADMINISTRATOR,
TRANSFER AGENT AND
ACCOUNTING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
--------------------------------------------
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
--------------------------------------------
INDEPENDENT AUDITORS
Ernst & Young LLP
--------------------------------------------
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF
THE FUND. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
RS03 10/98
