the RODNEY SQUARE
STRATEGIC
FIXED-INCOME
FUND
[LOGO]
PROSPECTUS
JANUARY 2, 1998
as revised JANUARY 26, 1998
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TABLE OF CONTENTS
Expense Table...................................................... 2
Financial Highlights............................................... 4
Questions and Answers About the Portfolios......................... 6
Investment Objectives and Policies................................. 8
Purchase of Shares................................................. 12
Shareholder Accounts............................................... 13
Redemption of Shares............................................... 14
Exchange of Shares................................................. 15
How Net Asset Value is Determined.................................. 16
Dividends, Other Distributions and Taxes........................... 17
Performance Information............................................ 19
Management of the Fund............................................. 20
Description of the Fund............................................ 22
Appendix........................................................... 23
Application & New Account Registration............................. 29
<PAGE>
[LOGO]
the RODNEY SQUARE
STRATEGIC FIXED-INCOME
FUND
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The Rodney Square Strategic Fixed-Income Fund (the "Fund") consists of two
separate portfolios ("Portfolios"), The Rodney Square Diversified Income
Portfolio (the "Diversified Income Portfolio") and The Rodney Square Municipal
Income Portfolio (the "Municipal Income Portfolio"). The Diversified Income
Portfolio seeks high total return, consistent with high current income, by
investing principally in various types of investment grade fixed-income
securities. The Municipal Income Portfolio seeks a high level of income exempt
from federal income tax consistent with the preservation of capital.
PROSPECTUS
JANUARY 2, 1998, AS REVISED JANUARY 26, 1998
This Prospectus sets forth information about the Fund that you should know
before investing. Please read and retain this document for future reference. A
Statement of Additional Information (dated January 2, 1998, as revised January
26, 1998) containing additional information about the Fund has been filed with
the Securities and Exchange Commission (the "SEC") and, as amended or
supplemented from time to time, is incorporated by reference herein. A copy of
the Statement of Additional Information including the Fund's most recent Annual
Report to Shareholders may be obtained, without charge, from certain
institutions such as banks or broker-dealers that have entered into servicing
agreements ("Service Organizations") with Rodney Square Distributors, Inc., by
calling the number below, by writing to Rodney Square Distributors, Inc. at the
address noted on the back cover of this Prospectus, or may be obtained by
accessing the Web site maintained by the SEC (www.sec.gov). Rodney Square
Distributors, Inc. is a wholly owned subsidiary of Wilmington Trust Company, a
bank chartered in the State of Delaware.
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FOR FURTHER INFORMATION OR ASSISTANCE IN OPENING AN ACCOUNT, PLEASE CALL:
. NATIONWIDE........................................... (800) 336-9970
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SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, WILMINGTON TRUST COMPANY OR ANY OTHER BANK, NOR ARE THE SHARES INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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EXPENSE TABLE
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DIVERSIFIED MUNICIPAL
INCOME INCOME
PORTFOLIO PORTFOLIO
----------- ----------
SHAREHOLDER TRANSACTION COSTS* None None
- -----------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
- -----------------------------------
(as a percentage of average net assets)
Advisory Fee (after waiver)** ........ 0.21% 0.00%
12b-1 Fee.............................. 0.00% 0.00%
Other Expenses**:
Administration and Accounting Services
Expenses (after waiver) ......... 0.23% 0.20%
Other Operating Expenses ........... 0.31% 0.55%
----- --------
Total Other Expenses............... 0.54% 0.75%
----- --------
Total Operating Expenses (after waiver) 0.75% 0.75%
----- --------
EXAMPLE***
- ----------
You would pay the following expenses on a $1,000 investment in each Portfolio
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
One year........................... $ 8 $ 8
Three years........................ 24 24
Five years......................... 42 42
Ten years.......................... 93 93
*Wilmington Trust Company ("WTC"), the Fund's Investment Adviser, and Service
Organizations may charge their clients a fee for providing administrative or
other services in connection with investments in Fund shares. See "Purchase
of Shares" for additional information.
**Expenses are based on each Portfolio's expenses for its fiscal year ended
October 31, 1997, adjusted to reflect the termination of each Portfolio's
Rule 12b-1 Plan. WTC waived a portion of its advisory fee with respect to
the Diversified Income Portfolio during the fiscal year ended October 31,
1997. Without such waiver and with the termination of the Rule 12b-1 Plan,
the Advisory Fee and Total Operating Expenses would have been 0.50% and
1.04%, respectively, of the Portfolio's average daily net assets. WTC has
undertaken to waive all or a portion of its advisory fee or reimburse the
Diversified Income Portfolio monthly to the extent that the Portfolio's
operating expenses (excluding taxes, extraordinary expenses, brokerage
commissions and interest) exceed an annual rate of 0.75% through February,
1999. See "Management of the Fund " for additional information.
WTC waived all of its advisory fee and Rodney Square Management Corporation
("RSMC") waived a portion of its administration and accounting services fee
with respect to the Municipal Income Portfolio during the fiscal year ended
October 31, 1997. Without such waivers and with the termination of the Rule
12b-1 Plan, the Advisory Fee, Administration and Accounting Services
Expenses, Total Other Expenses, and Total Operating Expenses would have been
0.50%, 0.37%, 0.92%, and 1.42%, respectively, of the Portfolio's average
daily net assets. WTC has undertaken to waive all or a portion of its
advisory fee and RSMC has agreed to waive a portion of its administration
and accounting services fees with respect to the Municipal Income Portfolio,
to the extent the Portfolio's operating expenses (excluding taxes,
extraordinary expenses, brokerage commissions and interest) exceed an annual
rate of 0.75% through February, 1999. See "Management of the Fund" for
additional information.
2
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*** The assumption in the Example of a 5% annual return is required by
regulations of the SEC applicable to all mutual funds. The assumed 5% annual
return is not a prediction of, and does not represent, either Portfolio's
projected or actual performance.
The purpose of the preceding table is solely to aid shareholders and
prospective investors in understanding the various expenses that investors in
the Portfolios will bear directly or indirectly.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES INCURRED AND RETURNS MAY BE
GREATER OR LESSER THAN THOSE SHOWN.
3
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FINANCIAL HIGHLIGHTS
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The following tables include selected per share data and other performance
information for each Portfolio throughout each period derived from the audited
financial statements of the Rodney Square Strategic Fixed-Income Fund. They
should be read in conjunction with the Fund's financial statements and notes
thereto appearing in the Fund's Annual Report to Shareholders for the fiscal
year ended October 31, 1997, which is included, together with the auditor's
unqualified report, as part of the Fund's Statement of Additional Information.
<TABLE>
<CAPTION>
APRIL 2, 1991
(COMMENCEMENT OF
FOR THE FISCAL YEARS ENDED OPERATIONS) TO
OCTOBER 31, OCTOBER 31,
----------------------------------------------- ---------------
1997 1996 1995 1994 1993 1992 1991
---- ------ ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
DIVERSIFIED INCOME PORTFOLIO
Net Asset Value-- Beginning of Period.. $12.95 $13.08 $12.42 $13.48 $13.20 $12.86 $12.50
------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
NET INVESTMENT INCOME .............. 0.77 0.78 0.83 0.71 0.76 0.83 0.48
Net realized and unrealized gain
(loss) on investments .............. 0.12 (0.13) 0.66 (1.02) 0.39 0.37 0.36
---- ----- ---- ----- ---- ---- ----
Total from investment operations . 0.89 0.65 1.49 (0.31) 1.15 1.20 0.84
---- ---- ---- ----- ---- ---- ----
DISTRIBUTIONS:
From net investment income ......... (0.77) (0.78) (0.83) (0.71) (0.76) (0.83) (0.48)
From net realized gain on
investments ....................... -- -- -- (0.04) (0.11) (0.03) --
----- ------- ------ ----- ----- ----- ------
Total distributions .............. (0.77) (0.78) (0.83) (0.71) (0.76) (0.83) (0.48)
------ ----- ---- ----- ----- ----- -----
NET ASSET VALUE-- END OF PERIOD ..... $13.07 $12.95 $13.08 $12.42 $13.48 $13.20 $12.86
======= ====== ====== ====== ======= ======= ======
TOTAL RETURN** ....................... 7.13% 5.18% 12.41% (2.33)% 9.00% 9.58% 6.89%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses + ......................... 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.89%*
Net investment income .............. 5.98% 6.07% 6.56% 5.53% 5.65% 6.33% 6.64%*
Portfolio turnover rate ............... 83.54% 85.77% 116.40% 43.77% 24.22% 27.37% 78.45%*
Net assets at end of period
(000 omitted) $31,456 $31,777 $32,214 $31,721 $40,971 $30,152 $24,171
SENIOR SECURITIES:
Amount of reverse repurchase
agreements out-standing at end
of period (in thousands)........... $0 $0 $0 $0 $0 $0 $0
Average daily amount of reverse
repurchase agreements outstanding
during the period (in
thousands) ....................... $0 $0 $0 $0 $0 $0 $162
Average daily number of shares
outstanding during the period
(in thousands) .. ............... 2,441 2,545 2,492 2,960 2,660 2,109 1,279
Average daily amount of reverse
repurchase agreements per share
during the period ................ $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.13
</TABLE>
4
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<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
OCTOBER 31,
--------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
MUNICIPAL INCOME PORTFOLIO
NET ASSET VALUE-- BEGINNING OF YEAR .. $12.46 $12.49 $11.64 $12.50
INVESTMENT OPERATIONS:
Net investment income .............. 0.55 0.55 0.54 0.49
Net realized and unrealized gain (loss)
on investments..................... 0.28 (0.03) 0.85 (0.86)
Total from investment operations . 0.83 0.52 1.39 (0.37)
DISTRIBUTIONS:
From net investment income ......... (0.55) (0.55) (0.54) (0.49)
NET ASSET VALUE-- END OF YEAR ......... $12.74 $12.46 $12.49 $11.64
====== ====== ====== ======
TOTAL RETURN** ........................ 6.85% 4.24% 12.23% (3.05)%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses++ ......................... 0.75% 0.75% 0.75% 0.75%
Net investment income .............. 4.42% 4.41% 4.50% 4.13%
Portfolio turnover rate ............... 28.56% 15.91% 42.08% 21.95%
Net assets at end of year
(000 omitted..................... $17,446 $16,619 $16,570 $14,283
</TABLE>
* Annualized
**The total return figure for the Diversified Income Portfolio for the fiscal
period ended October 31, 1991 has not been annualized.
+Wilmington Trust Company ("WTC") reimbursed a portion of the Portfolio's
expenses, exclusive of advisory fees, for the fiscal period ended October
31, 1991. WTC waived a portion of its advisory fees for the fiscal years
ended October 31, 1997, 1996, 1995, 1994, 1993 and 1992, and Rodney Square
Management Corporation ("RSMC") waived a portion of its accounting services
fee for the fiscal year ended October 31, 1992 and for the fiscal period
ended October 31, 1991. If these expenses had been incurred by the
Portfolio, the annualized ratio of expenses to average daily net assets for
the fiscal years ended October 31, 1997, 1996, 1995, 1994, 1993, 1992, and
for the fiscal period ended October 31,1991, would have been 1.12%, 1.09%,
1.14%, 1.05%, 1.06%, 1.24% and 1.91%, respectively.
++WTC waived its entire advisory fee and RSMC waived a portion of its
administration and accounting services fee for the fiscal years ended
October 31, 1997, 1996, 1995 and 1994. If these expenses had been incurred
by the Portfolio, the annualized ratio of expenses to average daily net
assets for the fiscal years ended October 31, 1997, 1996, 1995 and 1994,
would have been 1.52%, 1.37%, 1.45% and 1.62%, respectively.
5
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QUESTIONS AND ANSWERS ABOUT THE PORTFOLIOS
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The information provided in this section is qualified in its entirety by
reference to the more detailed information elsewhere in this Prospectus.
WHAT ARE THE PORTFOLIOS' INVESTMENT OBJECTIVES?
The Fund is an open-end, management investment company consisting of
two separate diversified portfolios, the Diversified Income Portfolio and
the Municipal Income Portfolio (each a "Portfolio" and collectively the
"Portfolios"). The investment objectives of the Portfolios are as follows:
DIVERSIFIED INCOME PORTFOLIO. This Portfolio seeks high total return,
consistent with high current income, by investing principally in various
types of investment grade fixed-income securities. (See "Investment
Objectives and Policies -- Diversified Income Portfolio.")
MUNICIPAL INCOME PORTFOLIO. This Portfolio seeks a high level of income
exempt from federal income tax consistent with the preservation of
capital. (See "Investment Objectives and Policies -- Municipal Income
Portfolio.")
ARE THERE SPECIAL CONSIDERATIONS OR RISKS INVOLVED IN INVESTING IN THE
PORTFOLIOS?
The value of each Portfolio's holdings of fixed-income securities
generally varies inversely with the movement of market interest rates.
Generally, if interest rates rise, prices of fixed-income securities fall;
if interest rates fall, prices of fixed-income securities rise. In
addition, the value of each Portfolio's holdings varies depending on the
average duration and the credit quality of the holdings as well as general
market factors. Generally, the longer the average duration of the
holdings, the more fluctuations in value the Portfolio experiences when
interest rates rise or fall.
The Investment Adviser to the Portfolios may use options, futures
contracts and (with respect to the Diversified Income Portfolio only)
forward currency contracts to hedge against various market risks or to
enhance potential gain. The use of options, futures contracts and forward
currency contracts may entail special risks. (See "Appendix.")
Depending on your tax bracket, your return from the Municipal Income
Portfolio may be substantially higher than the after-tax return you would
earn from comparable taxable investments. Shareholders pay no federal
income tax on exempt-interest dividends paid by the Municipal Income
Portfolio. However, those dividends may be subject to state and local
income taxes. In addition, a portion of that Portfolio's dividends may be
a tax preference item for purposes of the federal alternative minimum tax
("AMT"). Capital gain distributions from the Municipal Income Portfolio
are subject to federal income tax, as well as state and local taxes. (See
"Dividends, Other Distributions and Taxes.")
HOW CAN YOU BENEFIT BY INVESTING IN THE PORTFOLIOS RATHER THAN BY INVESTING
DIRECTLY IN THE FIXED-INCOME SECURITIES HELD BY THOSE PORTFOLIOS?
Investing in the Portfolios offers two key benefits.
FIRST: Each Portfolio offers a way to keep money invested in a
professionally managed portfolio of securities and at the same time to
maintain daily liquidity. Of course, the proceeds to you upon redemption
may be more or less than the cost of your shares. There are no minimum
periods for investment and no fees will be charged upon redemption.
6
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SECOND: Investors in each Portfolio need not become involved with the
detailed bookkeeping and operating procedures normally associated with
direct investment in the fixed-income securities held by the Portfolios.
WHO IS THE INVESTMENT ADVISER?
Wilmington Trust Company ("WTC" or "Adviser") is the Investment Adviser
to the Portfolios. (See "Management of the Fund.")
WHO IS THE ADMINISTRATOR, TRANSFER AGENT AND ACCOUNTING AGENT?
PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank
Corp., provides administrative, accounting and transfer agency services
for the Fund. (See "Management of the Fund.") Rodney Square Management
Corporation ("RSMC"), a wholly-owned subsidiary of WTC, provides corporate
secretarial services for the Fund.
WHO IS THE DISTRIBUTOR?
Rodney Square Distributors, Inc. ("RSD"), another wholly owned
subsidiary of WTC, serves as the Fund's Distributor. (See "Management of
the Fund.")
HOW DO YOU PURCHASE SHARES OF THE PORTFOLIOS?
Each Portfolio is designed as an investment vehicle for individual
investors, corporations and other institutional investors. The Municipal
Income Portfolio is not, however, appropriate for purchase by tax-exempt
institutions and individual retirement accounts and pension or
profit-sharing plans (which already provide tax-deferred income to their
participants). Shares of each Portfolio may be purchased at their net
asset value next determined after a purchase order is received by the
Transfer Agent and accepted by RSD as described below. There is no sales
load. The minimum initial investment is $1,000, but additional investments
may be made in any amount.
Shares of each Portfolio are offered on a continuous basis by RSD.
Shares may be purchased directly from RSD, by clients of WTC through their
trust accounts, or by clients of Service Organizations through their
Service Organization accounts. Shares may also be purchased directly by
wire or by mail from the Fund c/o the Transfer Agent, which serves as
transfer agent for the Portfolios' shares. (See "Purchase of Shares.")
The Fund and RSD reserve the right to reject new account applications
and to close, by redemption, an account without a certified Social
Security or other taxpayer identification number.
Please call WTC, or your Service Organization or the number listed
below for further information about the Portfolios or for assistance in
opening an account.
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. NATIONWIDE................................(800) 336-9970
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HOW DO YOU REDEEM SHARES OF THE PORTFOLIOS
If you purchased shares of a Portfolio through an account at WTC or a
Service Organization, you may redeem all or any of your shares in
accordance with the instructions pertaining to that account. Other
7
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shareholders may redeem any or all of their shares by telephone or mail.
There is no fee charged upon redemption. (See "Redemption of Shares.")
HOW ARE DIVIDENDS PAID?
Income dividends for each Portfolio are declared daily and distributed
monthly and net realized capital gains, if any, are distributed annually,
after the close of the Fund's fiscal year (October 31st). Shareholders may
elect to receive dividends and/or other distributions in cash by checking
the distribution option on the Application & New Account Registration form
at the end of this Prospectus ("Application"). (See "Dividends, Other
Distributions and Taxes.")
ARE EXCHANGE PRIVILEGES AVAILABLE?
You may exchange all or a portion of your Portfolio shares for shares
of the other Portfolio or for any of the other funds in the Rodney Square
complex, subject to certain conditions. (See "Exchange of Shares.")
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INVESTMENT OBJECTIVES AND POLICIES
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DIVERSIFIED INCOME PORTFOLIO
The Diversified Income Portfolio seeks high total return, consistent with
high current income, by investing principally in various types of investment
grade fixed-income securities.
WTC expects to maintain a short to intermediate average duration for the
Diversified Income Portfolio. Duration measures the impact of a change in
interest rates on the value of the fixed-income securities held by the
Portfolio, taking into account any possible calls or early redemptions. Under
normal market conditions, the average dollar weighted duration of securities
held by the Portfolio will fall within a range of 2 1/2 to 4 years.
Under normal market conditions, the Diversified Income Portfolio invests at
least 65% of its total assets in fixed-income securities. The composition of the
Portfolio's holdings varies depending upon WTC's analysis of the fixed-income
markets including, but not limited to, analysis of the most attractive segments
of the yield curve, the relative value of different sectors of the fixed-income
markets and expected trends in those markets. By maintaining a short to
intermediate average duration, WTC seeks to protect the Portfolio's principal
value by reducing fluctuations in value relative to those that may be
experienced by income funds with longer average durations, although that
strategy may reduce the level of income attained by the Portfolio. Of course,
there is no guarantee that principal value can be protected during periods of
extreme interest rate volatility. (See "Both Portfolios -- Special
Considerations or Risks.")
Securities purchased by the Diversified Income Portfolio may be purchased on
the basis of their yield or potential capital appreciation or both. Because WTC
seeks to maintain a short to intermediate average duration, yield usually is the
more significant component of the Portfolio's total return.
The Diversified Income Portfolio invests only in investment grade securities
that are rated, at the time of purchase, in the top four categories by a
nationally recognized statistical rating organization such as Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P ") or, if not rated, are determined by WTC to be of
comparable quality. (See "Both Portfolios -- Special Considerations or Risks"
8
<PAGE>
and the Statement of Additional Information for further information regarding
ratings and the characteristics of securities rated in the top four rating
categories.)
The Portfolio may invest in: bank obligations; corporate bonds, notes and
commercial paper; convertible securities; foreign government and private debt
obligations; guaranteed investment contracts; mortgage-backed securities;
municipal securities; participation interests; asset-backed securities;
preferred stock; supranational agency debt obligations; and obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government obligations"). Short-term debt obligations in which the Portfolio may
invest include certificates of deposit, time deposits, bankers' acceptances,
commercial paper rated, at the time of purchase, in the highest category by a
nationally recognized statistical rating organization, such as Moody's or S&P
or, if not rated, determined by WTC to be of comparable quality and U.S.
Government obligations. The Portfolio may also engage in the following
investment strategies: entering into repurchase agreements fully collateralized
by U.S. Government obligations and reverse repurchase agreements; purchasing and
writing or selling options, futures contracts, options on futures contracts or
forward currency contracts; short selling; and lending portfolio securities.
(See "Appendix.")
When in WTC's judgment, economic or market conditions make pursuing the
Diversified Income Portfolio's basic investment strategy inconsistent with the
best interests of its shareholders, WTC may temporarily use alternative
strategies. In implementing these strategies, the Portfolio may invest in longer
term fixed-income securities or short-term debt obligations such that the
Portfolio's overall average duration falls within a range of 0 to 6 years.
MUNICIPAL INCOME PORTFOLIO
The Municipal Income Portfolio seeks a high level of income exempt from
federal income tax consistent with the preservation of capital. As a fundamental
policy, under normal market conditions, the Municipal Income Portfolio seeks to
achieve this objective by investing at least 80% of its net assets in a
diversified portfolio of municipal securities providing interest income that is
exempt, in the opinion of counsel for the issuer, from federal income tax.
WTC expects to maintain an intermediate average duration for the Municipal
Income Portfolio. Duration measures the impact of a change in interest rates on
the value of the fixed-income securities held by the Portfolio, taking into
account any possible calls or early redemptions. Under normal market conditions,
the average dollar weighted duration of securities held by the Portfolio will
fall within a range of 4 to 8 years.
Under normal market conditions, the Municipal Income Portfolio invests at
least 65% of its total assets in fixed-income securities. The composition of the
Portfolio's holdings varies depending upon WTC's analysis of the municipal
securities market including, but not limited to, analysis of the most attractive
segments of the yield curve, the relative value of different market sectors and
supply versus demand pressures. By maintaining an intermediate average duration
and maturity, WTC seeks to protect the Portfolio's principal value by reducing
the fluctuations in value relative to those that may be experienced by municipal
funds with longer average durations and maturities, although that strategy may
limit the level of income attained by the Portfolio as compared to income that
may be attained from securities with longer durations and maturities.
(See "Both Portfolios -- Special Considerations or Risks.")
The Municipal Income Portfolio invests only in investment grade securities
which are rated, at the time of purchase, in the top four categories by a
nationally recognized statistical rating organization such as Moody's or S&P or,
if not rated, are determined by WTC to be of comparable quality. (See "Both
Portfolios -- Special Considerations or Risks" and the Statement of Additional
Information for further information regarding ratings and the characteristics of
securities rated in the top four rating categories.)
9
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Additionally, the Portfolio may invest without limit in municipal securities
issued to finance private activities, the interest on which is a tax preference
item for purposes of the AMT. The Portfolio expects to invest 100% of its net
assets in municipal securities that provide interest income that is exempt from
regular federal income tax; however, up to 20% of its net assets may be invested
in other types of fixed-income securities that provide federally taxable income,
such as U.S. Government obligations, bank obligations or corporate bonds, under
certain market conditions. The Portfolio may also enter into repurchase
agreements and invest in investment companies that seek to maintain a stable net
asset value (money market funds).
When in WTC's judgment, economic or market conditions make pursuing the
Municipal Income Portfolio's basic investment strategy inconsistent with the
best interests of its shareholders, WTC may temporarily use alternative
defensive strategies, primarily designed to reduce fluctuations in the value of
the Portfolio's assets. In implementing these defensive strategies, the
Portfolio may invest in short-term municipal obligations (obligations that have
maturities no longer than one year from the time of purchase), including tax
anticipation notes, bond anticipation notes, revenue anticipation notes and
construction loan notes that are issued to meet the short-term funding
requirements of local, regional and state governments. If short-term municipal
obligations are not available, or appear overpriced relative to other types of
fixed-income securities, the Portfolio may invest in taxable short-term debt
obligations, including certificates of deposit, time deposits, bankers'
acceptances, commercial paper rated in the highest category by a nationally
recognized statistical rating organization such as Moody's or S&P or, if not
rated, determined by WTC to be of comparable quality, U.S. Government
obligations and repurchase agreements fully collateralized by U.S. Government
obligations.
The Municipal Income Portfolio will not invest more than 25% of its total
assets in any one industry. Governmental issuers of municipal securities are not
considered part of any industry. However, the 25% limitation does apply to
municipal securities backed by the assets and revenues of non-governmental
users, such as the private operators of educational, hospital or housing
facilities. WTC may determine that the yields available from concentrating in
obligations in a particular market sector or political subdivision justify the
risk that the performance of the Portfolio may be adversely affected by
economic, business, political and other developments related to that market
sector or political subdivision. Under such market conditions, the Portfolio may
invest more than 25% of its assets in sectors of the municipal securities market
such as health care or housing, or in securities relating to any one political
subdivision, such as a given state or U.S. territory, and will then be subject
to any special risks attendant on that sector or jurisdiction. At any given
point in time, the Portfolio may have more than 25% of its assets invested in
one of the three general categories of municipal obligations -- general
obligation bonds, revenue or special obligation bonds and private activity
bonds. (See "Appendix.")
SPECIAL CONSIDERATIONS. Proposed tax legislation in recent years has
included several provisions that may affect the supply of, and the demand for,
tax-exempt municipal securities, as well as the tax-exempt nature of interest
paid on those securities. If the availability of tax-exempt securities for
investment or the value of the Municipal Income Portfolio's holdings could be
materially affected by such changes in the law, the Trustees would reevaluate
the Portfolio's investment objective and policies or consider the Portfolio's
dissolution.
BOTH PORTFOLIOS
Both Portfolios may invest in securities with fixed, variable or floating
interest rates or in zero coupon securities. These securities may have various
buy-back features that permit the Portfolios to recover principal by tendering
the securities to the issuer or a third party. The Portfolios may also purchase
participation interests in fixed-income securities or in pools of fixed-income
securities. Certain of the securities purchased by the Portfolios may be
considered illiquid; certain securities may be purchased on a when-issued or
delayed delivery basis. For further information about the Portfolios'
10
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investments and investment strategies, see the Appendix to this Prospectus and
the Statement of Additional Information.
SPECIAL CONSIDERATIONS OR RISKS. Each Portfolio's net asset value per share
will fluctuate, and an investor's redemption proceeds may be higher or lower
than the cost of the shares when initially purchased. The value of the
Portfolios' investments may change in response to changes in interest rates and
the relative financial strength and creditworthiness of each issuer. During
periods of falling interest rates, the values of fixed-income securities
generally rise. Conversely, during periods of rising interest rates, the values
of those securities generally decline.
Each Portfolio invests only in securities that are rated, at the time of
purchase, in the four highest rating categories by a nationally recognized
statistical rating organization such as Moody's or S&P or, if not rated, are
determined by WTC to be of comparable quality. Ratings represent the rating
agency's opinion regarding the quality of the security and are not a guarantee
of quality. Not even the highest rating constitutes assurance that the security
will not fluctuate in value or that a Portfolio will receive the anticipated
yield on the security. Moreover, ratings may change after a security is
purchased. Moody's considers securities in the fourth highest rating category
(Baa) to have speculative characteristics. Such securities tend to have higher
yields, but changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity of the issuer to make principal and
interest payments than is the case for more highly rated securities of similar
maturities. The Portfolio may acquire securities insured by private insurance
companies or supported by letters of credit furnished by domestic or foreign
banks. In those instances, WTC monitors the financial condition of the parties
whose creditworthiness is relied upon in determining the credit quality of the
securities. A change in the rating of a security, in the issuer's ability to
make payments of interest and principal, in a credit provider's ability to
provide credit support or in the market's perception of those factors will
affect the value of the security, and WTC will reevaluate the security to
determine whether the Portfolio should continue to hold it under the changed
conditions.
The ability of the Portfolios to buy and sell securities may be limited at
any particular time and with respect to any particular security. The amount of
information about the financial condition of an issuer of municipal securities
may not be as extensive as information about corporations whose securities are
publicly traded. Generally, the secondary market for municipal securities is
less liquid than that for taxable fixed-income securities. WTC closely monitors
the liquidity of securities that the Portfolios hold and, in the case of certain
securities such as restricted securities that may be sold only to institutional
investors or unrated municipal lease obligations, makes liquidity determinations
in accordance with guidelines adopted by the Board of Trustees.
Certain securities held by each Portfolio may permit the issuer at its
option to call or redeem the securities. If an issuer redeems securities held by
a Portfolio during a period of declining interest rates, the Portfolio may not
be able to invest the proceeds in securities providing the same investment
return as the securities redeemed. During a period of declining interest rates,
securities held by the Portfolios may have market values that are higher than
the principal amounts payable at maturity. Although this "premium " value is
amortized over the period remaining until maturity, an investor who purchases
shares of a Portfolio during a period of declining interest rates may face an
increased risk of capital loss if the securities are called or redeemed before
maturity.
WTC may make frequent changes in the Portfolios' investments, particularly
during periods of rapidly fluctuating interest rates. These frequent changes
involve transaction costs to the Portfolio and may result in taxable capital
gains.
DERIVATIVES. Some of the Portfolios' investments may be referred to as
"derivatives," because their value depends on (or "derives" from) the value of
an underlying asset, reference rate or index. These investments include options,
futures contracts and similar instruments that may be used in hedging and
related income strategies. There is only limited consensus as to what
constitutes a "derivative" security. However, in the view of WTC, derivatives
11
<PAGE>
include "stripped" securities, specially structured types of mortgage-backed,
asset-backed and municipal securities, such as interest only, principal only and
inverse floaters, and U.S. dollar-denominated securities whose value is linked
to foreign securities. The market value of derivative instruments and securities
sometimes is more volatile than that of other investments, and each type of
derivative may pose its own special risks. WTC takes these risks into account in
its management of the Portfolios.
OTHER INVESTMENTS. From time to time additional types of fixed-income
securities, financial products and risk management techniques are developed. WTC
may consider use of these securities, products and techniques by either
Portfolio, consistent with its investment objectives and policies, as well as
regulatory and tax considerations.
OTHER INFORMATION. There can be no assurance that the Portfolios will
achieve their respective investment objectives. The investment objective of each
Portfolio is fundamental and may not be changed without the affirmative vote of
the holders of a majority of the Portfolio's outstanding voting securities (as
defined in the 1940 Act). Unless otherwise noted, the investment policies
discussed above are non-fundamental and may be changed by the Board of Trustees
without shareholder approval. Additional fundamental and non-fundamental
investment policies and limitations are described in the Appendix to this
Prospectus and in the Statement of Additional Information.
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PURCHASE OF SHARES
- --------------------------------------------------------------------------------
HOW TO PURCHASE SHARES. Shares of each Portfolio are offered on a continuous
basis by RSD at its net assets value next determined after a purchase order is
received by the Transfer Agent and accepted by RSD. Shares may be purchased
directly from RSD, by clients of WTC through their trust accounts, or by clients
of Service Organizations through their Service Organization accounts. WTC and
Service Organizations may charge their clients a fee for providing
administrative or other services in connection with investments in Portfolio
shares. A trust account at WTC includes any account for which the account
records are maintained on the trust system at WTC. Persons wishing to purchase
Portfolio shares through their accounts at WTC or a Service Organization should
contact that entity directly for appropriate instructions. Other investors may
purchase Portfolio shares by mail or by wire as specified below.
BY MAIL: You may purchase shares by sending a check drawn on a U.S. bank
payable to The Rodney Square Strategic Fixed-Income Fund, indicating the
Portfolio you have selected, along with a completed Application (included at the
end of this Prospectus), to The Rodney Square Strategic Fixed-Income Fund, c/o
the Transfer Agent, P.O. Box 8987, Wilmington, DE 19899-9752. A purchase order
sent by overnight mail should be sent to The Rodney Square Strategic
Fixed-Income Fund, c/o the Transfer Agent, 1105 N. Market Street, Wilmington, DE
19801. If a subsequent investment is being made, the check should also indicate
your Portfolio account number. When you purchase by check, the Fund may withhold
payment on redemptions until it is reasonably satisfied that the funds are
collected (which can take up to 10 days). If you purchase shares with a check
that does not clear, your purchase will be canceled and you will be responsible
for any losses or fees incurred in that transaction.
BY WIRE: You may purchase shares by wiring federal funds. To advise the Fund
of the wire, and if making an initial purchase, to obtain an account number, you
must telephone the Transfer Agent at (800) 336-9970. Once you have an account
number, instruct your bank to wire federal funds to the Transfer Agent, c/o
Wilmington Trust Company, Wilmington, DE - ABA# 0311-0009-2, attention: The
Rodney Square Strategic Fixed-Income Fund, DDA# 2610-605-2, further credit -
your account number, the desired Portfolio and your name. If you make an initial
purchase by wire, you must promptly forward a completed Application to the
Transfer Agent at the address stated above under "By Mail."
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<PAGE>
INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Diversified Income Portfolio
may be purchased for a tax-deferred retirement plan such as an individual
retirement account ("IRA"). For an Application for an IRA and a brochure
describing the Diversified Income Portfolio IRA, call the Transfer Agent at
(800) 336-9970. PNC Bank, N.A. ("PNC") makes available its services as IRA
custodian for each shareholder account that is established as an IRA. For these
services, PNC receives an annual fee of $10.00 per account, which fee is paid
directly to PNC by the IRA shareholder. If the fee is not paid by the date due,
Diversified Income Portfolio shares owned by the IRA will be redeemed
automatically for purposes of making the payment.
AUTOMATIC INVESTMENT PLAN. Shareholders may purchase Portfolio shares
through an Automatic Investment Plan. Under the Plan, the Transfer Agent, at
regular intervals, will automatically debit a shareholder's bank checking
account in an amount of $50 or more (subsequent to the $1,000 minimum initial
investment), as specified by the shareholder. A shareholder may elect to invest
the specified amount monthly, bimonthly, quarterly, semiannually or annually.
The purchase of Portfolio shares will be effected at their offering price at the
close of regular trading on the New York Stock Exchange (the "Exchange")
(currently 4 p.m., Eastern time) on or about the 20th day of the month. For an
application for the Automatic Investment Plan, check the appropriate box of the
Application at the end of this Prospectus, or call the Transfer Agent at (800)
336-9970. This service is generally not available for WTC trust account clients,
since similar services are provided through WTC. This service may also not be
available for Service Organization clients who are provided similar services by
those organizations.
ADDITIONAL PURCHASE INFORMATION. The minimum initial investment is $1,000,
but subsequent investments may be made in any amount. WTC and Service
Organizations may impose additional minimum customer account and other
requirements in addition to this minimum initial investment requirement. The
Fund and RSD each reserves the right to reject any purchase order and may
suspend the offering of shares of either Portfolio for a period of time.
Purchase orders received by the Transfer Agent and accepted by RSD before
the close of regular trading on the Exchange, on any Business Day of the Fund
will be priced at the net asset value per share that is determined as of the
close of regular trading on the Exchange (See "How Net Asset Value is
Determined.") Purchase orders received by the Transfer Agent and accepted by RSD
after the close of regular trading on the Exchange will be priced as of the
close of regular trading on the following Business Day of the Fund. A "Business
Day of the Fund" is any day on which the Exchange, the Transfer Agent and the
Philadelphia branch office of the Federal Reserve are open for business. The
following are not Business Days of the Fund: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day.
It is the responsibility of WTC or the Service Organization involved to
transmit orders for the purchase of shares by its customers to the Transfer
Agent and to deliver required funds on a timely basis, in accordance with the
procedures stated above.
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SHAREHOLDER ACCOUNTS
- --------------------------------------------------------------------------------
PFPC, as Transfer Agent, maintains for each shareholder an account expressed
in terms of full and fractional shares of each Portfolio rounded to the nearest
1/1000th of a share.
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In the interest of economy and convenience, the Fund does not issue share
certificates. Each shareholder is sent a statement at least quarterly showing
all purchases in or redemptions from the shareholder's account. The statement
also sets forth the balance of shares held in the account by Portfolio.
Due to the relatively high cost of maintaining small shareholder accounts,
the Fund reserves the right to close any account with a current value of less
than $500 by redeeming all shares in the account and transferring the proceeds
to the shareholder. Shareholders will be notified if their account value is less
than $500 and will be allowed 60 days in which to increase their account balance
to $500 or more before the account is closed. Reductions in value that result
solely from market activity will not trigger an involuntary redemption.
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REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Shareholders may redeem their shares by mail or by telephone as described
below. If you purchased your shares through an account at WTC or a Service
Organization, you may redeem all or part of your shares in accordance with the
instructions pertaining to that account. Corporations, other organizations,
trusts, fiduciaries and other institutional investors may be required to furnish
certain additional documentation to authorize redemptions. Redemption requests
should be accompanied by the Fund's name, the Portfolio's name and your
Portfolio account number.
BY MAIL: Shareholders redeeming their shares by mail should submit written
instructions with a guarantee of their signature by an institution acceptable to
the Fund's Transfer Agent, such as a domestic bank or trust company, broker,
dealer, clearing agency or savings association, who are participants in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (MSP). Signature guarantees that are not part
of these programs will not be accepted. The written instructions should be
mailed to: The Rodney Square Strategic Fixed-Income Fund, c/o the Transfer
Agent, P.O. Box 8987, Wilmington, DE 19899-9752. A redemption order sent by
overnight mail should be sent to The Rodney Square Strategic Fixed-Income Fund,
c/o the Transfer Agent, 1105 N. Market Street, Wilmington, DE 19801. The
redemption order should indicate the Fund's name, the Portfolio's name, the
Portfolio account number, the number of shares or dollar amount you wish to
redeem and the name of the person in whose name the account is registered. A
signature and a signature guarantee are required for each person in whose name
the account is registered.
BY TELEPHONE: Shareholders who prefer to redeem their shares by telephone
may elect to apply in writing for telephone redemption privileges by completing
an Application for Telephone Redemptions (included at the end of this
Prospectus) which describes the telephone redemption procedures in more detail
and requires certain information that will be used to identify the shareholder.
When redeeming by telephone, you must indicate your name, the Fund's name, the
Portfolio's name, the Portfolio account number, the number of shares or dollar
amount you wish to redeem and certain other information necessary to identify
you as the shareholder. The Fund employs reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if such procedures are
followed, will not be liable for any losses due to unauthorized or fraudulent
telephone transactions. During times of drastic economic or market changes, the
telephone redemption privilege may be difficult to implement. In the event that
you are unable to reach the Transfer Agent by telephone, you may make a
redemption request by mail.
ADDITIONAL REDEMPTION INFORMATION. You may redeem all or any part of the
value of your account on any Business Day of the Fund. Redemptions are effected
at the net asset value next calculated after the Transfer Agent has received
your redemption request. (See "How Net Asset Value Is Determined.") The Fund
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<PAGE>
imposes no fee when shares are redeemed. It is the responsibility of WTC or the
Service Organization to transmit redemption orders and credit their customers'
accounts with redemption proceeds on a timely basis.
Redemption checks are mailed on the next Business Day of the Fund following
acceptance by the Transfer Agent of redemption instructions but in no event
later than 7 days following such receipt and acceptance. Amounts redeemed by
wire are normally wired on the next Business Day of the Fund after receipt and
acceptance of redemption instructions (if received by the Transfer Agent before
the close of regular trading on the Exchange) but in no event later than 7 days
following such receipt and acceptance. If the shares to be redeemed represent an
investment made by check, the Fund reserves the right not to make the redemption
proceeds available until it has reasonable grounds to believe that the check has
been collected (which could take up to 10 days).
Redemption proceeds may be wired to your predesignated bank account in any
commercial bank in the United States if the amount is $1,000 or more. The
receiving bank may charge a fee for this service. Alternatively, proceeds may be
mailed to your bank or, for amounts of $10,000 or less, mailed to your Portfolio
account address of record if the address has been established for a minimum of
60 days. In order to authorize the Fund to mail redemption proceeds to your
Portfolio account address of record, complete the appropriate section of the
Application for Telephone Redemptions or include your Portfolio account address
of record when you submit written instructions. You may change the account which
you have designated to receive amounts redeemed at any time. Any request to
change the account designated to receive redemption proceeds should be
accompanied by a guarantee of the shareholder's signature by an eligible
institution. A signature and a signature guarantee are required for each person
in whose name the account is registered. Further documentation will be required
to change the designated account when shares are held by a corporation, other
organization, trust, fiduciary or other institutional investor.
For more information on redemptions, contact the Transfer Agent or, if your
shares are held in an account with WTC or a Service Organization, contact WTC or
the Service Organization.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders who own shares of a Portfolio with
a value of $10,000 or more may participate in the Systematic Withdrawal Plan.
For an Application for the Systematic Withdrawal Plan, check the appropriate box
of the Application at the end of this Prospectus or call the Transfer Agent at
(800) 336-9970. Under the Plan, shareholders may automatically redeem a portion
of their Portfolio shares monthly, bimonthly, quarterly, semiannually or
annually. The minimum withdrawal available is $100. The redemption of Portfolio
shares will be effected at their net asset value at the close of regular trading
on the Exchange, on or about the 25th day of the month. If you expect to
purchase additional Portfolio shares, it may not be to your advantage to
participate in the Systematic Withdrawal Plan because contemporaneous purchases
and redemptions may result in adverse tax consequences. This service is
generally not available for WTC trust account clients, since similar services
are provided through WTC. This service may also not be available for Service
Organization clients who are provided similar services by those organizations.
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EXCHANGE OF SHARES
- --------------------------------------------------------------------------------
EXCHANGES AMONG THE RODNEY SQUARE FUNDS. You may exchange all or a portion
of your shares in a Portfolio for shares of the other Portfolio or any of the
other funds in the Rodney Square complex that currently offer their shares to
investors. These other Rodney Square funds are:
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THE RODNEY SQUARE FUND, each portfolio of which seeks a high level of
current income consistent with the preservation of capital and liquidity by
investing in money market instruments pursuant to its investment practices. Its
portfolios are:
U.S. GOVERNMENT PORTFOLIO, which invests in U.S. Government obligations
and repurchase agreements involving such obligations.
MONEY MARKET PORTFOLIO, which invests in U.S. dollar-denominated
obligations of major banks, prime commercial paper and corporate
obligations, U.S. Government obligations, high quality municipal
securities and repurchase agreements involving U.S. Government
obligations.
THE RODNEY SQUARE TAX-EXEMPT FUND (THE "TAX EXEMPT FUND"), which seeks as
high a level of interest income, exempt from federal income tax, as is
consistent with a portfolio of high quality, short-term municipal obligations,
selected on the basis of liquidity and stability of principal.
THE GROWTH PORTFOLIO OF THE RODNEY SQUARE MULTI-MANAGER FUND, which seeks
superior long-term capital appreciation by investing in securities of companies
which are judged to possess strong growth characteristics.
A redemption of shares through an exchange will be effected at the net asset
value per share next determined after receipt by the Transfer Agent of the
request, and a purchase of shares through an exchange will be effected at the
net asset value per share determined at that time or as next determined
thereafter. The net asset values per share of the Rodney Square Fund portfolios
and the Tax-Exempt Fund are determined at 12 noon, Eastern time, on each
Business Day of the Fund. The net asset values per share of the Portfolios and
the Growth Portfolio are determined at the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time), on each Business Day.
Exchange transactions will be subject to the minimum initial investment and
other requirements of the fund into which the exchange is made. An exchange may
not be made if the exchange would leave a balance in a shareholder's Portfolio
account of less than $500.
To obtain prospectuses of the other Rodney Square funds contact RSD. To
obtain more information about exchanges, or to place exchange orders, contact
the Transfer Agent, or, if your shares are held in a trust account with WTC or
in an account with a Service Organization, contact WTC or the Service
Organization. The Fund, on behalf of the Portfolios, reserves the right to
terminate or modify the exchange offer described here and will give shareholders
60 days' notice of such termination or modification when required by SEC rules.
This exchange offer is valid only in those jurisdictions where the sale of the
Rodney Square fund shares to be acquired through such exchange may be legally
made.
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HOW NET ASSET VALUE IS DETERMINED
- --------------------------------------------------------------------------------
PFPC determines the net asset value per share of each Portfolio as of the
close of regular trading on the Exchange (currently 4:00 p.m., Eastern time), on
each Business Day of the Fund. The net asset value per share of each Portfolio
is calculated by dividing the total current market value of all of a Portfolio's
assets, less all its liabilities, by the total number of the Portfolio's shares
outstanding.
The Portfolios value their assets based on their current market prices when
market quotations are readily available. Current market prices are generally not
readily available for municipal securities; current market prices may also be
unavailable for other types of fixed-income securities held by the Portfolios.
To determine the value of those securities, PFPC may use a pricing service that
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<PAGE>
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.
The assets held by the Diversified Income Portfolio which are denominated in
foreign currencies are valued daily in U.S. dollars at the foreign currency
exchange rates that are prevailing at the time that PFPC determines the daily
net asset value per share. That Portfolio does not, however, convert its foreign
currency-denominated assets into U.S. dollars on a daily basis.
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DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND OTHER DISTRIBUTIONS. The net investment income earned by each
Portfolio is declared as a dividend daily and paid to its shareholders
ordinarily on the first Business Day of the following month, but in no event
later than seven days after the end of the month in which the dividends are
declared. Net investment income of a Portfolio is determined immediately prior
to the determination of its net asset value per share on each Business Day (see
"How Net Asset Value Is Determined ") and consists of interest accrued and
original issue discount (and, in the case of the Municipal Income Portfolio, if
it so elects, market discount on tax-exempt securities) earned on its
investments less amortization of any premium and accrued expenses. A dividend is
payable to shareholders of a Portfolio who redeem, but not to shareholders who
purchase, shares of the Portfolio on the day the dividend is declared. Dividends
paid by a Portfolio are automatically reinvested in additional shares of the
Portfolio on the payment date at their current net asset value per share, unless
the shareholder elects on the Application to receive dividends, in cash, in the
form of a check.
Each Portfolio makes annual distributions of realized net short-term capital
gain and net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any, and the Diversified Income Portfolio annually
distributes net realized gains from foreign currency transactions, if any, after
the end of the fiscal year in which the gain was realized by the Portfolio.
Distributions by a Portfolio of these gains are automatically reinvested in
additional shares of the Portfolio on the payment date at their current net
asset value per share, unless the shareholder elects on the Application to
receive distributions, in cash, in the form of a check.
FEDERAL INCOME TAX. Each Portfolio intends to continue to qualify for
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended, so that it will be relieved of federal income tax on that part
of its investment company taxable income (generally consisting of taxable net
investment income, net short-term capital gain and, in the case of the
Diversified Income Portfolio, net realized gains from certain foreign currency
transactions, if any) and net capital gain that is distributed to its
shareholders. While both Portfolios may invest in securities the interest on
which is subject to federal income tax and securities the interest on which is
exempt from that tax, under normal conditions the Diversified Income Portfolio
invests primarily in taxable securities and the Municipal Income Portfolio
invests primarily in tax-exempt securities.
Distributions by the Municipal Income Portfolio of the excess of interest
income on tax-exempt securities over certain amounts disallowed as deductions,
as designated by the Portfolio ("exempt-interest dividends"), may be treated by
its shareholders as interest excludable from gross income. However,
exempt-interest dividends are included in a shareholder's "modified adjusted
gross income" for purposes of determining whether any portion of the
shareholder's Social Security or railroad retirement benefits are subject to
federal income tax. A portion of the exempt-interest dividends paid by that
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Portfolio may be a tax preference item for purposes of the federal alternative
minimum tax.
Dividends from each Portfolio's investment company taxable income (whether
paid in cash or reinvested in additional shares) generally are taxable to its
shareholders as ordinary income. Distributions of a Portfolio's net capital gain
(whether paid in cash or reinvested in additional shares), when designated as
such by the Portfolio, are taxable to its shareholders as long-term capital
gains, regardless of the length of time they have held their shares. Under the
Taxpayer Relief Act of 1997, different maximum tax rates apply to a noncorporate
taxpayer's net capital gain depending on the taxpayer's holding period and
marginal rate of federal income tax - generally, 28% for gain and recognized on
securities held for more than one year but not more than 18 months and 20% (10%)
for taxpayers in the 15% marginal tax bracket) for gain recognized on securities
held for more than 18 months. Pursuant to an Internal Revenue Service notice,
each Portfolio may divide each net capital gain distribution into a 28% rate
gain distribution and a 20% rate gain distribution (in accordance with the
Portfolio's holding periods for the securities it sold that generated the
distributed gain) and its shareholders must treat those portions accordingly.
Early in each calendar year, each Portfolio notifies its shareholders of the
amount and federal tax status of dividends and capital gain distributions paid
(or deemed paid) by the Portfolio during the preceding year. The information
regarding capital gain distributions designates the portions thereof subject to
the different maximum rates of tax applicable to noncorporate taxpayers' net
capital gain indicated above.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry Municipal Income Portfolio shares will not be deductible to the extent
that Portfolio's distributions consist of exempt-interest dividends.
Each Portfolio is required to withhold 31% of all taxable dividends, capital
gain distributions and redemption proceeds payable to any individuals and
certain other noncorporate shareholders who do not provide the Portfolio with a
certified taxpayer identification number. Each Portfolio also is required to
withhold 31% of all taxable dividends and capital gain distributions payable to
those shareholders who otherwise are subject to backup withholding. In
connection with this withholding requirement, unless an investor has indicated
that he or she is subject to backup withholding, the investor must certify on
the Application that the Social Security or other taxpayer identification number
provided thereon is correct and that the investor is not otherwise subject to
backup withholding.
A redemption of Portfolio shares may result in taxable gain or loss to the
redeeming shareholder, depending on whether the redemption proceeds are more or
less than the shareholder's adjusted basis for the redeemed shares (which
normally includes any sales load paid). Similar tax consequences generally will
result from an exchange of shares of one Portfolio for shares of the other
Portfolio or for shares of another fund in the Rodney Square complex. (See
"Exchange of Shares."). In addition, if Portfolio shares are purchased within 30
days of redeeming other shares of that Portfolio at a loss, that loss will not
be deductible to the extent of the amount reinvested, and an adjustment in that
amount will be made to the shareholder's basis for the newly purchased shares.
If a shareholder holds shares in a Portfolio for six months or less, and sells
any of those shares at a loss, the deductible loss is reduced by the amount of
exempt-interest dividends received by the shareholder with respect to those
shares, and the remaining loss is treated as a long-term, rather than a
short-term, capital loss to the extent of capital gain distributions received on
those shares.
STATE AND LOCAL INCOME TAXES. The exemption of certain interest income for
federal income tax purposes does not necessarily mean that such income is exempt
under the income or other tax laws of any state or local taxing authorities.
Shareholders may be exempt from state and local taxes on distributions of
interest income derived from obligations of the state and/or municipalities of
the state in which they are resident, but generally are taxed on income derived
from obligations of other jurisdictions. Early each calendar year, the Municipal
Income Portfolio notifies its shareholders of the portion of their tax-exempt
income attributable to each state for the preceding year.
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The foregoing is only a summary of some of the important income tax
considerations generally affecting the Portfolios and their shareholders; a
further discussion appears in the Statement of Additional Information. In
addition to these considerations, which are applicable to any investment in the
Portfolios, there may be other federal, state or local tax considerations
applicable to a particular investor. Prospective investors are therefore urged
to consult their tax advisers with respect to the effects of an investment on
their own tax situations.
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PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
All performance information advertised by each Portfolio is based on
historical performance of the Portfolio, shows the performance of a hypothetical
investment and is not intended to indicate future performance. Unlike some bank
deposits or other investments which pay a fixed yield for a stated period of
time, a Portfolio's yield and net asset value will vary depending upon, among
other things, changes in market conditions and the level of the Portfolio's
operating expenses. The Fund's annual report to shareholders contains
information with respect to the performance of each Portfolio. The annual report
is available upon request and free of charge.
YIELD. From time to time, quotations of each Portfolio's "yield" may be
included in advertisements, sales literature or shareholder reports. Quotations
of the Municipal Income Portfolio's "tax-equivalent yield" may also be included
in advertisements, sales literature or shareholder reports. These quotations, as
calculated in accordance with regulations of the SEC, and may differ from a
Portfolio's net investment income, as calculated for financial reporting
purposes. The yields quoted are historical and not a prediction of future
yields.
The yield of a Portfolio refers to the net investment income generated by
the Portfolio over a specified thirty-day (one month) period. This income is
then annualized. That is, the amount of income generated by the Portfolio during
that thirty-day period is assumed to be generated during each month over a
12-month period and is shown as a percentage. The effective yield is expressed
similarly, but, when annualized, the income earned by an investment in the
Portfolio is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
The Municipal Income Portfolio's tax-equivalent yield is calculated by
determining the yield that would have to be achieved on a fully taxable
investment to produce the after-tax equivalent of that Portfolio's yield,
assuming certain tax brackets for a Portfolio shareholder. That formula is:
The Portfolio's Yield
_____________________________ = The Shareholder's Tax-Equivalent Yield
100% - The Shareholder's Tax Bracket
For example, if the shareholder is in the 39.6% tax bracket and can earn a
tax-exempt yield of 5.0%, the tax-equivalent yield would be 8.28%:
5.0%
__________________________ = 8.28%
100% - 39.6%
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TOTAL RETURN. From time to time, quotations of each Portfolio's average
annual total return ("Standardized Return") may be included in advertisements,
sales literature or shareholder reports. Standardized Return will show
percentage rates reflecting the average annual change in the value of an assumed
initial investment of $1,000, assuming the investment has been held for periods
of one year, five years and ten years, as of a stated ending date. If the
Portfolio has not been in operation for those time periods, the life of the
Portfolio will be used where applicable. Standardized Return assumes that all
dividends and other distributions were reinvested in additional shares of the
Portfolio.
In addition, each Portfolio may advertise other total return performance
data ("Non-Standardized Return"). Non-Standardized Return shows a percentage
rate of return encompassing all elements of return (i.e., income and capital
appreciation or depreciation); it assumes reinvestment of all dividends and
other distributions. Non-Standardized Return may be quoted for the same or
different periods as those for which Standardized Return is quoted.
Non-Standardized Return may consist of a cumulative percentage rate of
return, an average annual percentage rate of return, actual year-by-year rates
or any combination thereof. Cumulative total return represents the cumulative
change in value of an investment in a Portfolio for various periods. To
illustrate the components of overall performance, the cumulative and average
annual returns of a Portfolio may be separated into income results and capital
gain or loss. The total return of a Portfolio is increased to the extent that
either WTC or RSMC has waived all or a portion of its fees or reimbursed all or
a portion of the Portfolio's expenses.
Past performance is no guarantee of future performance.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The Fund's Board of Trustees supervises the management, activities and
affairs of the Fund and has approved contracts with various financial
organizations to provide, among other services, day-to-day management required
by the Portfolios and their shareholders.
INVESTMENT ADVISER. 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, dated April 1, 1991,
WTC, subject to the supervision of the Board of Trustees, directs the
investments of the Diversified Income Portfolio in accordance with its
investment objective, policies and limitations. Under an Advisory Agreement with
the Fund, dated November 1, 1993, WTC, subject to the supervision of the Board
of Trustees, directs the investments of the Municipal Income Portfolio in
accordance with its investment objective, policies and limitations. (These
Agreements are collectively referred to as the "Advisory Agreements.")
Under the Advisory Agreements, each Portfolio pays a monthly advisory fee to
WTC at the annual rate of 0.50% of the average daily net assets of the
Portfolio. WTC has agreed to waive its fee or reimburse each Portfolio monthly
to the extent that expenses of the Portfolio (excluding taxes, extraordinary
expenses, brokerage commissions and interest) exceed an annual rate of 0.75% of
the Portfolio's average daily net assets through February, 1999.
In addition to serving as Investment Adviser for the Portfolios, WTC is
engaged in a variety of investment advisory activities, including the management
of collective investment pools. Eric K. Cheung, Vice President and Manager of
the Fixed Income Management Division and Clayton M. Albright, III, Vice
President of the Fixed Income Management Division of the Investment Management
Department of WTC, are primarily responsible for the day-to-day management of
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<PAGE>
the Diversified Income Portfolio. From 1978 until 1986, Mr. Cheung was the
Portfolio Manager for fixed-income assets of the Meritor Financial Group. In
1986, Mr. Cheung joined WTC. In 1991, he became the Division Manager for all
fixed-income products. Mr. Albright has been with WTC since 1976. In 1987, he
joined the fixed-income division and since that time has specialized in the
management of intermediate term/long term fixed-income portfolios. Robert F.
Collins, CFA, Vice President of Credit Research and Municipal Trading within the
Fixed Income Management Division of the Investment Management Department of WTC,
is primarily responsible for the day-to-day management of the Municipal Income
Portfolio. Mr. Collins has been a municipal bond portfolio manager and credit
analyst for WTC for more than 10 years.
ADMINISTRATIVE AND ACCOUNTING SERVICES. Under an Administrative and
Accounting Services Agreement with the Fund, PFPC, 400 Bellevue Parkway,
Wilmington, Delaware 19809, performs certain administrative services for the
Portfolios including preparing shareholder reports, assisting WTC in compliance
monitoring activities and preparing and filing federal and state tax returns on
behalf of the Portfolios. PFPC also performs accounting services for the
Portfolios including determining the net asset value per share of each
Portfolio.
For the services provided under the Administration and Accounting Services
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 $50 million of average daily net
assets; 0.050% of each Portfolio's net $500 million of average daily net assets;
and 0.035% of each Portfolio's average daily net assets in excess in 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.
Under a Fund Secretarial Services Agreement with the Fund, RSMC performs
certain corporate secretarial services on behalf of the Portfolios including
supplying office facilities, non-investment related statistical and research
data and executive and administrative services; preparing and distributing all
materials necessary for meetings of the Trustees and shareholders of the Fund;
and preparing and arranging for filing, printing and distribution proxy
materials and post-effective amendments to the Fund's registration statement.
WTC pays RSMC for the provision of these services out of its advisory fee.
TRANSFER AGENT AND DIVIDEND PAYING AGENT. PFPC also serves as Transfer Agent
and Dividend Paying Agent to the Portfolios. WTC pays PFPC for the provision of
these services out of its advisory fee. Any related out-of-pocket expenses
incurred by PFPC in the provision of services to a Portfolio are borne by that
Portfolio.
CUSTODIAN AND SUB-CUSTODIAN. WTC serves as Custodian of the Portfolios'
assets and PNC serves as Sub-Custodian of the Portfolios' assets. The Portfolios
do not pay WTC or PNC any fee for custodial services, as WTC assumes the cost of
providing those services to the Portfolios. Any related out-of-pocket expenses
incurred in the provision of custodial services to a Portfolio are borne by that
Portfolio.
DISTRIBUTION AGREEMENT. Pursuant to a Distribution Agreement with the Fund,
RSD manages the Fund's distribution efforts and provides assistance and
expertise in developing marketing plans and materials for the Portfolios, enters
into agreements with broker-dealers to sell shares of the Portfolios and,
directly or through its affiliates, provides investor support services.
BANKING LAWS. Banking laws restrict deposit-taking institutions and certain
of their affiliates from underwriting or distributing securities. WTC believes,
and counsel to WTC has advised the Fund, that WTC and its affiliates may perform
the services contemplated by their respective Agreements with the Fund without
violation of applicable banking laws or regulations. If WTC or its affiliates
were prohibited from performing these services, it is expected that the Board of
Trustees would consider entering into agreements with other entities. If a bank
were prohibited from acting as a Service Organization, its shareholder clients
21
<PAGE>
would be expected to be permitted to remain Portfolio shareholders and
alternative means for servicing such shareholders would be sought. It is not
expected that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE FUND
- --------------------------------------------------------------------------------
The Fund is a diversified open-end investment company established on May 7,
1986 as a Massachusetts business trust under Massachusetts law by a Declaration
of Trust.
The authorized shares of beneficial interest in the Fund are currently
divided into two series or portfolios, the Diversified Income Portfolio and the
Municipal Income Portfolio. The Trustees are empowered by the Declaration of
Trust and the Bylaws to establish additional series and classes of shares.
The Fund's capital consists of an unlimited number of shares of beneficial
interest. Shares of the Portfolios entitle their holders to one vote per share
and fractional votes for fractional shares held. Separate votes are taken by
each Portfolio on matters affecting that Portfolio. Shares have noncumulative
voting rights, do not have preemptive or subscription rights and are
transferable.
As of November 30, 1997, WTC owned by virtue of shared or sole voting or
investment power on behalf of its underlying customer accounts 72% of the shares
of the Diversified Income Portfolio and 18% of the shares of the Municipal
Income Portfolio, and may be deemed to be a controlling person of the Fund under
the 1940 Act.
The Fund does not hold annual meetings of shareholders. There will normally
be no meetings of shareholders for the purpose of electing Trustees unless and
until such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Under the 1940 Act,
shareholders of record owning no less than two-thirds of the outstanding shares
of the Fund may remove a Trustee by vote cast in person or by proxy at a meeting
called for that purpose. The Trustees are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
Trustee when requested in writing to do so by the shareholders of record owning
not less than 10% of the Fund's outstanding shares.
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<PAGE>
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APPENDIX
- --------------------------------------------------------------------------------
The following paragraphs contain a brief description of the securities in which
the Portfolios may invest and the strategies in which they may engage consistent
with their investment objectives and policies.
SECURITIES THAT MAY BE PURCHASED BY THE DIVERSIFIED INCOME PORTFOLIO AND THE
MUNICIPAL INCOME PORTFOLIO
ASSET-BACKED SECURITIES. The Portfolios may purchase interests in pools of
obligations, such as credit card or automobile loan receivables, purchase
contracts and financing leases. Such securities are also known as "asset-backed
securities," and the holders thereof may be entitled to receive a fixed rate of
interest, a variable rate that is periodically reset to reflect the current
market rate or an auction rate that is periodically reset at auction.
Asset-backed securities typically are supported by some form of credit
enhancement, such as cash collateral, subordinated tranches, a letter of credit,
surety bond or limited guaranty. Credit enhancements do not provide protection
against changes in the market value of the security. If the credit enhancement
is exhausted or withdrawn, security holders may experience losses or delays in
payment if required payments of principal and interest are not made with respect
to the underlying obligations. Except in very limited circumstances, there is no
recourse against the vendors or lessors that originated the underlying
obligations.
Asset-backed securities are likely to involve unscheduled prepayments of
principal that may affect yield to maturity, result in losses and may be
reinvested at higher or lower interest rates than the original investment. The
yield to maturity of asset-backed securities that represent residual interests
in payments of principal or interest on fixed-income obligations is particularly
sensitive to prepayments.
The value of asset-backed securities may change because of changes in the
market's perception of the creditworthiness of the servicing agent for the pool
of underlying obligations, the originator of those obligations or the financial
institution providing credit enhancement.
BANK OBLIGATIONS. The Portfolios may invest in U.S. dollar-denominated
obligations of major banks, including certificates of deposit, time deposits and
bankers' acceptances of U.S. banks and their branches located outside of the
United States, of U.S. branches of foreign banks and of wholly-owned banking
subsidiaries of such foreign banks located in the United States, provided that
the bank has assets of at least $5 billion at the date of investment.
Obligations of foreign branches of U.S. banks and U.S. branches or
wholly-owned subsidiaries of foreign banks may be general obligations of the
parent bank, of the issuing branch or subsidiary, or both, or may be limited by
the terms of a specific obligation or by governmental regulation. Because such
obligations are issued by foreign entities, they are subject to the risks of
foreign investing discussed below in connection with the Diversified Income
Portfolio's investments in foreign debt obligations.
CORPORATE BONDS, NOTES AND COMMERCIAL PAPER. Each Portfolio may invest in
corporate bonds, notes and commercial paper. These obligations generally
represent indebtedness of the issuer and may be subordinated to other
outstanding indebtedness of the issuer. Commercial paper consists of short-term
unsecured promissory notes issued by corporations in order to finance their
current operations.
FIXED-INCOME SECURITIES WITH BUY-BACK FEATURES. Fixed-income securities
purchased by the Portfolios may have various buy-back features that permit the
Portfolios to recover principal upon tendering the securities to the issuer or a
third party. For example, a Portfolio may enter into a stand-by commitment
permitting the Portfolio to resell fixed-income securities back to the original
seller at a specified price. The Portfolios may also purchase long-term
fixed-rate bonds that may be tendered at specified intervals to a bank or other
23
<PAGE>
financial institution for their face value. Demand instruments permit the
Portfolios to demand from the issuer payment of principal plus accrued interest
upon a specified number of days' notice. These buy-back features are often
supported by letters of credit or other guarantees obtained by the issuers or
financial intermediaries. However, without credit enhancements, if there is a
default or significant downgrading of a bond or, in the case of a municipal
bond, a loss of its tax-exempt status, the buy-back feature may terminate
automatically and the risk to the Portfolio holding the bond will be that of
holding a long-term security.
ILLIQUID SECURITIES. Certain of the Portfolios' assets may be considered
illiquid, including restricted securities that can only be resold in a
registered public offering, over-the-counter options and repurchase agreements
or time deposits maturing in more than 7 days. No more than 15% of a Portfolio's
net assets may be invested in these and other illiquid securities.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities
representing interests in a pool of mortgages secured by real property. There
are three basic types of mortgage-backed securities: (1) those issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, such as
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC"); (2)
those issued by private issuers and collateralized by securities issued or
guaranteed by the U.S. Government; and (3) those issued by private issuers and
collateralized by mortgage loans or other mortgage-backed securities without a
government guarantee but usually with some form of private credit enhancement.
The value of all mortgage-backed securities will vary with the creditworthiness
of the issuer, the level and type of collateralization and interest rates. In
addition, the mortgage-backed securities market in general may be adversely
affected by changes in governmental regulation or tax policies.
The yield characteristics of mortgage-backed securities differ from those of
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that principal
may be prepaid at any time. The rates of such prepayments can be expected to
accelerate as interest rates decline. To the extent the Portfolios purchase
these securities at a premium or discount, prepayment rates will affect yield to
maturity. Prepayments also can result in losses on securities purchased at a
premium to the extent of the premium. In addition, prepayments usually can be
expected to be reinvested at lower interest rates than the original investment.
Derivative mortgage-backed securities, such as stripped mortgage-backed
securities or residual interests, generally are more sensitive to changes in
interest rates, and the market for such securities is less liquid than the
market for traditional debt securities and mortgage-backed securities. Interest
only and principal only mortgage-backed securities backed by fixed-rate
mortgages and issued by an agency or instrumentality of the U.S. Government may
be determined to be liquid by WTC pursuant to guidelines approved by the Fund's
Board of Trustees.
MUNICIPAL SECURITIES. The municipal securities in which the Portfolios may
invest include general obligation, revenue or special obligation bonds,
industrial development bonds ("IDBs") and private activity bonds ("PABs").
General obligation bonds are secured by an issuer's pledge of its full faith,
credit and unlimited taxing power for the payment of principal and interest.
Revenue or special obligation bonds are payable only from the revenues derived
from a particular facility or class of facility or project or, in some cases,
from the proceeds of a special excise or other tax. Similarly, resource recovery
bonds are issued to build facilities such as solid waste incinerators or
waste-to-energy; the revenue stream from those bonds is secured by fees or rents
paid by municipalities for use of the facilities and depend upon whether the
municipalities appropriate funds for these usage fees. The term "municipal
securities" also includes municipal lease obligations, such as leases,
installment purchase contracts and conditional sales contracts, and certificates
of participation therein. Municipal lease obligations are issued by state and
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<PAGE>
local governments and authorities to purchase land or various types of equipment
or facilities and may be subject to annual budget appropriations.
IDBs and PABs finance various privately operated facilities, such as airport
or pollution control facilities. These obligations are included within the term
"municipal securities" if the interest paid thereon is exempt from federal
income tax in the opinion of the bond issuer's counsel. IDBs and PABs are in
most cases revenue bonds and thus are not payable from the unrestricted revenues
of the issuer. The credit quality of IDBs and PABs is usually directly related
to the credit standing of the user of the facilities being financed. The
interest on these bonds issued after August 15, 1986, generally is an item of
tax preference for purposes of the federal alternative minimum tax.
PARTICIPATION INTERESTS. The Portfolios may purchase participation interests
in fixed-income securities that have been issued by banks or other financial
institutions. Participation interests give the holders differing interests in
the underlying securities, depending upon the type or class of certificate
purchased. For example, coupon strip certificates give the holder the right to
receive a specific portion of interest payments on the underlying securities;
principal strip certificates give the holder the right to receive principal
payments and the portion of interest not payable to coupon strip certificate
holders. Holders of certificates of participation in interest payments may be
entitled to receive a fixed rate of interest, a variable rate that is
periodically reset to reflect the current market rate or an auction rate that is
periodically reset at auction.
More complex participation interests involve special risk considerations.
Since these instruments have only recently been developed, there can be no
assurance that any market will develop or be maintained for the instruments.
Generally, the fixed-income securities that are deposited in trust for the
holders of these interests are the sole source of payments on the interests;
holders cannot look to the sponsor or trustee of the trust or to the issuers of
the securities held in trust or to any of their affiliates for payment.
Nevertheless, participation interests may be backed by credit enhancements such
as letters of credit, insurance policies, surety bonds or liquidity facilities
to provide full or partial coverage for certain defaults and losses relating to
the underlying securities or to provide liquidity support for participation
interests that give holders the right to demand payment of principal upon a
specified number of days' notice.
REPURCHASE AGREEMENTS. The Portfolios may invest in repurchase agreements
fully collateralized by U.S. Government obligations. A repurchase agreement is a
transaction in which a Portfolio purchases a security and simultaneously commits
to resell that security to the seller at an agreed upon market rate of interest
that is unrelated to the coupon rate or maturity of the purchased security.
While it does not currently appear possible to eliminate all risks from these
transactions (particularly the possibility of a decline in the market value of
the underlying securities, as well as delay and costs to the Portfolio in
connection with bankruptcy proceedings), it is the policy of the Portfolios to
limit repurchase transactions to those banks and primary dealers in U.S.
Government obligations whose creditworthiness has been reviewed and found
satisfactory by WTC.
U.S. GOVERNMENT OBLIGATIONS. Each Portfolio may purchase obligations issued
or guaranteed by the U.S. Government or any of its agencies or instrumentalities
("U.S. Government obligations"), including direct obligations of the U.S.
Government (such as Treasury bills, notes and bonds) and obligations issued by
U.S. Government agencies and instrumentalities. Agencies and instrumentalities
include executive departments of the U.S. Government or independent federal
organizations supervised by Congress. Although not all obligations of agencies
and instrumentalities are direct obligations of the U.S. Treasury, payment of
the interest and principal on these obligations is generally backed directly or
indirectly by the U.S. Government. This support can range from obligations
supported by the full faith and credit of the United States (for example, U.S.
Treasury securities or GNMA securities) to obligations that are supported solely
or primarily by the creditworthiness of the issuer (for example, securities
issued by FNMA, FHLMC and the Tennessee Valley Authority). In the case of
25
<PAGE>
obligations not backed by the full faith and credit of the United States, the
Portfolios must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments.
VARIABLE AND FLOATING RATE SECURITIES. The Portfolios' investments may
include fixed, variable or floating rate securities. Variable or floating rate
securities bear interest at rates subject to periodic adjustment or provide for
periodic recovery of principal on demand. Under certain conditions, these
securities may be considered to have remaining maturities equal to the time
remaining until the next interest rate adjustment date or the date on which
principal can be recovered on demand.
The variable rate securities in which the Portfolios invest may pay interest
at rates that vary inversely to changes in market interest rates. These
securities, referred to as "inverse floating obligations" or "residual interest
bonds" provide opportunities for higher yields but are subject to greater
fluctuations in market value.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a
"when-issued" basis for delivery to the Portfolio later than the normal
settlement date for such securities, at a stated price and yield. The Portfolio
generally does not pay for such securities or start earning interest on them
until they are received. However, when a Portfolio purchases securities on a
when-issued basis, it immediately assumes the risks of ownership, including the
risk of price fluctuation. Failure by the issuer to deliver a security purchased
on a when-issued basis may result in a loss or a missed opportunity to make an
alternative investment.
ZERO COUPON SECURITIES. The Portfolios may invest in zero coupon securities
of governmental or private issuers. Such securities generally pay no interest to
their holders prior to maturity. Accordingly, such securities are usually issued
and traded at a deep discount from their face or par value and are subject to
greater fluctuations in market value in response to changing interest rates than
are debt obligations of comparable maturities and credit quality that make
current distributions of interest in cash
SECURITIES THAT MAY BE PURCHASED BY THE DIVERSIFIED INCOME PORTFOLIO
CONVERTIBLE SECURITIES. The Diversified Income Portfolio may invest in
convertible bonds or notes or preferred stock that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. The
issuer may have the right to call the securities before the conversion feature
is exercised.
FOREIGN DEBT OBLIGATIONS. The Diversified Income Portfolio may invest in
obligations of foreign issuers, including foreign governments, payable in U.S.
dollars and issued in the United States (Yankee bonds). The Portfolio may invest
up to 10% of its total assets, at the time of purchase, in obligations of
foreign and U.S. issuers payable in U.S. dollars and issued outside the United
States (Eurobonds) and other non-U.S. dollar-denominated fixed-income securities
of foreign issuers, including those issued by foreign governments. The
Portfolio's investments in foreign fixed-income securities may involve risks in
addition to those normally associated with investments in domestic securities,
including the possible imposition of exchange control regulations or currency
restrictions, which would prevent cash being brought back to the United States;
less publicly available information with respect to issuers of securities; less
extensive regulation of foreign brokers, the securities markets and issuers of
securities; lack of uniform accounting standards; a generally lower degree of
liquidity than that available in the U.S. markets; and the possible imposition
of foreign taxes, including taxes that may be confiscatory. Other risks of
foreign investment include non-negotiable brokerage commissions, lower trading
volume and greater volatility, possible delays in settlement, the difficulty of
enforcing obligations in foreign countries, and possible political or social
26
<PAGE>
instability in foreign countries. Further, to the extent that the Diversified
Income Portfolio invests in securities denominated in foreign currencies, the
Portfolio will be subject to fluctuations in foreign currency exchange rates and
costs incurred in conversions between currencies.
OBLIGATIONS ISSUED BY SUPRANATIONAL AGENCIES. The Diversified Income
Portfolio may invest in the obligations of supranational agencies, such as the
International Bank for Reconstruction and Development (the World Bank). Such
obligations may be denominated in U.S. dollars or other currencies.
Supranational agencies rely on funds from participating countries, often
including the United States, from which they must request funds. Such requests
may not always be honored. Moreover, the securities of supranational agencies,
depending on where and how they are issued, may be subject to some of the risks
discussed above with respect to foreign debt obligations.
PREFERRED STOCKS. The Diversified Income Portfolio may invest in
dividend-paying preferred stocks of U.S. and foreign issuers that, in the
judgment of WTC, have substantial potential for income production. Such equity
securities involve greater risk of loss of income than debt securities because
the issuers are not obligated to pay dividends. In addition, equity securities
are subordinate to debt securities and are more subject to changes in economic
and industry conditions and to changes in the financial condition of the
issuers.
REVERSE REPURCHASE AGREEMENTS. The Diversified Income Portfolio may enter
into reverse repurchase agreements to sell portfolio securities to securities
dealers or banks subject to the Portfolio's agreement to repurchase the
securities at an agreed-upon date and price reflecting a market rate of
interest. The value of the securities subject to a reverse repurchase agreement
may decline below the repurchase price. The Portfolio may also encounter delays
in recovering the securities and even loss of rights in the securities should
the opposite party fail financially. Reverse repurchase agreements, together
with other borrowing by the Portfolio, are limited to one-third of the
Portfolio's assets. The Portfolio will maintain with the Fund's custodian in a
segregated account cash or liquid securities, marked to market daily, in an
amount at least equal to the Portfolio's obligations under reverse repurchase
agreements that are outstanding.
INVESTMENT STRATEGIES THAT MAY BE USED BY THE DIVERSIFIED INCOME PORTFOLIO
LENDING OF PORTFOLIO SECURITIES. The Diversified Income Portfolio may lend
securities to increase investment income through interest on the loan. All loan
agreements will require that the loans be fully collateralized by cash, U.S.
Government obligations or any combination of cash and such securities, marked to
market value daily. The Portfolio continues to receive interest on the
securities lent or an equivalent fee from the borrower, while simultaneously
earning income on the investment of the collateral. The Portfolio retains
authority to terminate a loan at any time and retains voting, subscription,
dividend and other rights when it is in the Portfolio's best interests to do so.
If the borrower of the securities fails financially, there may be a delay in
receiving additional collateral, a delay in recovering the securities or even
loss of the collateral. However, loans are only made to borrowers that are
deemed by WTC to be of good standing and when, in the judgment of WTC, the
income that can be earned justifies the attendant risks. The aggregate value of
outstanding securities loans in the Portfolio's holdings may not exceed
one-third of its total assets.
HEDGING STRATEGIES. The Diversified Income Portfolio may engage in options
and futures strategies to hedge various market risks (such as interest rates and
broad or specific market movements) or to enhance potential gain. The
Diversified Income Portfolio may also purchase or sell forward currency
contracts in an attempt to manage the Portfolio's foreign currency exposure. The
Portfolio may enter into forward currency contracts to set the rate at which
currency exchanges will be made for specific contemplated transactions. The
Portfolio may also enter into forward currency contracts in amounts
approximating the value of one or more portfolio positions to fix the U.S.
dollar value of those positions. Use of options, futures and forward currency
27
<PAGE>
contracts by the Diversified Income Portfolio is limited by market conditions,
regulatory limitations and other tax considerations.
The use of forward currency contracts, options and futures involves certain
investment risks and transaction costs. These risks include: dependence on WTC's
ability to predict movements in the prices of individual securities,
fluctuations in the general securities markets and movements in interest rates
and currency markets; imperfect correlation between movements in the price of
currency, options, futures contracts or related options and movements in the
price of the currency or security hedged or used for cover; the fact that skills
and techniques needed to trade options, futures contracts and related options or
to use forward currency contracts are different from those needed to select the
securities in which the Fund invests; and lack of assurance that a liquid
secondary market will exist for any particular option, futures contract or
related option at any particular time.
SHORT SALES AGAINST THE BOX. The Diversified Income Portfolio may engage in
a short sale against the box as a hedge when WTC believes that the price of a
security held by the Portfolio may decline. In an ordinary or uncovered short
sale, the seller does not own the securities sold, and must subsequently
purchase an equivalent amount of securities in the market to complete or cover
the transaction. In a "short sale against the box," however, the seller already
owns securities equivalent to the securities sold short, and it is these
securities which are held by the broker ("against the box") to cover the
transaction. The broker borrows the securities that are actually sold from a
third party. Because the seller already owns the securities sold and does not
need to purchase equivalent securities in the market, the sale entails no
possibility of market gain or risk of market loss other than the gain or loss
that would be realized by an ordinary sale of the securities.
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[LOGO]
the RODNEY SQUARE
STRATEGIC FIXED-INCOME FUND
APPLICATION & NEW ACCOUNT REGISTRATION
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INSTRUCTIONS: RETURN THIS COMPLETED FORM TO:
FOR WIRING INSTRUCTION OR THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
FOR ASSISTANCE IN COMPLETING C/O THE TRANSFER AGENT
THIS FORM CALL (800) 336-9970 P.O. BOX 8987
WILMINGTON, DE 19899-9752
- -------------------------------- ----------------------------------------------
PORTFOLIO SELECTION ($1,000 MINIMUM)
|_| DIVERSIFIED INCOME PORTFOLIO $_____________________
|_| MUNICIPAL INCOME PORTFOLIO $_____________________
TOTAL AMOUNT TO BE INVESTED $_____________________
____ By check. (Make payable to "The Rodney Square Strategic Fixed-Income Fund")
____ By wire. Call 1-800-336-9970 for Instruction.
Bank from which funds will be wired __________________ wire date ________
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ACCOUNT REGISTRATION-JOINT TENANTS USE LINES 1 AND 2; CUSTODIAN FOR A MINOR, USE
LINES 1 AND 3; CORPORATION, TRUST OR OTHER ORGANIZATION OR ANY FIDUCIARY
CAPACITY, USE LINE 4.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1. Individual ___________________ ______ ______________________ ______________________
First Name MI Last Name Customer Tax ID No.*
2. Joint Tenancy**________________ ______ ______________________ ______________________
First Name MI Last Name Customer Tax ID No.*
3. Gifts to Minors+ _________________________ _____________________ under the ______________
Minor's Name Customer Tax ID No.* State
4. Other Registration ____________________________________________ _______________________
Customer Tax Id. No.*
5. If Trust, Date of Trust Instrument: ______________________________________________________
6. ______________________________________________
Your Occupation
7. _______________________________________ ______________________________________
Employer's Name Employer's Address
</TABLE>
* Customer Tax Identification No.: (a) for an individual, joint tenants, or a
custodial account under the Uniform Gifts/Transfers to Minors Act, supply the
Social Security number of the registered account owner who is to be taxed;
(b) for a trust, a corporation, a partnership, an organization, a fiduciary,
etc., supply the Employer Identification number of the legal entity or
organization that will report income and/or gains.
** "Joint Tenants with Rights of Survivorship" unless otherwise specified.
+ Regulated by the state's Uniform Gift/Transfers to Minors Act.
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ADDRESS OF RECORD
_____________________________________________________________________________
Street
_____________________________________________________________________________
City State Zip Code
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29
<PAGE>
________________________________________________________________________________
DISTRIBUTION OPTIONS--IF THESE BOXES ARE NOT CHECKED ALL DISTRIBUTIONS WILL BE
INVESTED IN ADDITIONAL SHARES.
Pay Cash for:
Income Dividends Other
DIVERSIFIED INCOME PORTFOLIO |_| |_|
MUNICIPAL INCOME PORTFOLIO |_| |_|
________________________________________________________________________________
Check any of the following if you would like additional information about a
particular plan or services sent to you.
<TABLE>
<CAPTION>
<S> <C> <C>
|_|AUTOMATIC INVESTMENT PLAN |_| SYSTEMATIC WITHDRAWAL PLAN |_| CHECK REDEMPTIONS
</TABLE>
(Check redemptions services are generally not available for clients of WTC
through their Trust or corporate cash management accounts; this service may also
not be available for clients of Service Organizations.)
________________________________________________________________________________
RIGHTS OF ACCUMULATION (SEE PROSPECTUS)-INDICATE ANY RELATED ACCOUNT(S) IN FUNDS
OR PORTFOLIOS IN THE RODNEY SQUARE COMPLEX WHICH WOULD QUALIFY FOR A REDUCED
SALES LOAD AS OUTLINED UNDER "PURCHASE OF SHARES-REDUCED SALES LOAD PLANS" IN
THE PROSPECTUS.
_______________________ ___________ _______________ _________________
Fund/Portfolio Name Account No. Registered Owner Relationship
_______________________ ___________ _______________ _________________
Fund/Portfolio Name Account No. Registered Owner Relationship
- -------------------------------------------------------------------------------
LETTER OF INTENT
I agree to the Letter of Intent provisions set forth below. I am not obligated
but intend to invest an aggregate amount of at least:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
|_|$25,000 |_|$50,000 |_|$100,000 |_|$250,000 |_|$500,000 |_|$1,000,000
</TABLE>
Under the terms described under "PURCHASE OF SHARES-Reduced Sales Load Plans" in
the Prospectus, over a thirteen-month period beginning . I hereby irrevocably
constitute and appoint the Transfer Agent as my agent and attorney to surrender
for redemption any or all escrowed shares with full power of substitution in the
premises.
I understand that this letter is not effective until it is accepted by the
Transfer Agent.
____________________________________ _________________________________
Authorized Signature Authorized Signature
_______________________________________________________________________________
SALES LOAD WAIVERS - Please indicate in the space provided the nature of your
eligibility for a waiver of sales loads. (See "PURCHASE OF SHARES-Sales Load
Waivers" in the Prospectus.)
Nature of Affiliation
______________________________________________________________________________
30
<PAGE>
_______________________________________________________________________________
CERTIFICATIONS AND SIGNATURE(S) - PLEASE SIGN EXACTLY AS REGISTERED UNDER
"ACCOUNT REGISTRATION."
I have received and read the Prospectus for The Rodney Square Strategic
Fixed-Income Fund and agree to its terms; I am of legal age. I understand that
the shares offered by this Prospectus are not deposits of, or guaranteed by,
Wilmington Trust Company, nor are the shares insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency. I further
understand that investment in these shares involves investment risks, including
possible loss of principal. If a corporate customer, I certify that appropriate
corporate resolutions authorizing investment in The Rodney Square Strategic
Fixed-Income Fund have been duly adopted.
I certify under penalties of perjury that the Social Security number or
taxpayer identification number shown above is correct. Unless the box below is
checked, I certify under penalties of perjury that I am not subject to backup
withholding because the Internal Revenue Service (a) has not notified me that I
am as a result of failure to report all interest or dividends, or (b) has
notified me that I am no longer subject to backup withholding. The
certifications in this paragraph are required from all nonexempt persons to
prevent backup withholding of 31% of all taxable distributions and gross
redemption proceeds under the federal income tax law.
|_| Check here if you are subject to backup withholding.
Signature _______________________________________ Date _____________________
Signature _______________________________________ Date _____________________
Check one: |_| Owner |_| Trustee |_| Custodian |_| Other_______
_______________________________________________________________________________
IDENTIFICATION OF SERVICE ORGANIZATION
We authorize the Transfer Agent and Rodney Square Distributors, Inc. ("RSD") in
the case of transactions by telephone, to act as our agents in connection with
transactions authorized by this order form.
Service Organization Name and Code ___________________________ |_||_||_||_||_|
Branch Address and Code _____________________________________ |_||_||_|
Representative or Other Employee Code ________________________ |_||_||_||_|
Authorized Signature of Service Organization _________ Telephone ( )__________
_______________________________________________________________________________
31
<PAGE>
[LOGO] the RODNEY SQUARE
STRATEGIC FIXED-INCOME FUND
APPLICATION FOR TELEPHONE REDEMPTION OPTION
_______________________________________________________________________________
Telephone redemption permits redemption of fund shares by telephone, with
proceeds directed only to the fund account address of record or to the bank
account designated below. For investments by check, telephone redemption is
available only after these shares have been on the Fund's books for 10 days.
This form is to be used to add or change the telephone redemption option on your
Rodney Square Strategic Fixed-Income Fund account(s).
_______________________________________________________________________________
ACCOUNT INFORMATION
Portfolio Name(s):__________________________________________________________
Fund Account Number(s):_____________________________________________________
(Please provide if you are a current account holder:)
REGISTERED IN THE NAME(S) OF: ________________________________________________
________________________________________________
________________________________________________
REGISTERED ADDRESS: ________________________________________________
________________________________________________
NOTE: If this form is not submitted together with the application, a coporate
resolution must be included for accounts registered to other than an individual,
a fiduciary or partnership.
_______________________________________________________________________________
REDEMPTION INSTRUCTIONS
|_|Add |_| Change
CHECK ONE OR MORE.
|_| Mail proceeds to my fund account address of record (must be $10,000
or less and address must be established for a minimum of 60 days)
|_| Mail proceeds to my bank
|_| Wire proceeds to my bank (minimum $1,000)
|_| All of the above
Telephone redemption by wire can be used only with financial institutions that
are participants in the Federal Reserve Bank Wire System. If the financial
institution you designate is not a Federal Reserve participant, telephone
redemption proceeds will be mailed to the named financial institution. In either
case, it may take a day or two, upon receipt for your financial institution to
credit your bank account with the proceeds, depending on its internal crediting
procedures
_______________________________________________________________________________
33
<PAGE>
BANK INFORMATION -- PLEASE COMPLETE THE FOLLOWING INFORMATION ONLY IF PROCEEDS
MAILED/WIRED TO YOUR BANK WAS SELECTED. A VOIDED BANK CHECK MUST BE ATTACHED TO
THIS APPLICATION.
Name of Bank ________________________________________________
Bank Routing Transit# ________________________________________________
Bank Address ________________________________________________
City/State/Zip ________________________________________________
Bank Account Number ________________________________________________
Name(s) on Bank Account ________________________________________________
________________________________________________________________________________
AUTHORIZATIONS
By electing the telephone redemption option, I appoint the Transfer Agent my
agent to redeem shares of any designated Rodney Square fund when so
instructed by telephone. This power will continue if I am disabled or
incapacitated. By granting this power, I understand that the Transfer Agent
may be contacted, on my apparent behalf, by imposters. In view of this risk,
I further understand and agree that the Transfer Agent plans to follow
reasonable procedures to confirm that instructions communicated by telephone
are genuine. Such procedures shall include sending proceeds of telephone
redemption requests only to my account address of record, or to the bank
listed above. Proceeds in excess of $10,000 will be sent only to my
predesignated bank. By signing below, I agree on behalf of myself, my
successors and assigns, not to hold the Transfer Agent, any of its
affiliates, or any Rodney Square fund responsible for acting under the powers
I have given the Transfer Agent, provided the aforementioned precautionary
procedures are duly followed. I also agree that all account and registration
information I have given will remain the same unless I instruct the Transfer
Agent otherwise in writing, accompanied by a signature guarantee. If I want
to terminate this agreement, I will give the Transfer Agent at least ten days
notice in writing. If the Transfer Agent or the Rodney Square funds want to
terminate this agreement, they will give me at least ten days notice in
writing.
ALL OWNERS ON THE ACCOUNT MUST SIGN BELOW AND OBTAIN SIGNATURE GUARANTEE(S).
_______________________________________ _______________________________________
Signature of Individual Owner Signature of Joint Owner (if any)
________________________________________________________________________________
Signature of Corporate Officer, Trustee or other -- please include your title
You must have a signature(s) guaranteed by an eligible institution acceptable to
the Fund's transfer agent, such as a bank, broker/dealer, clearing agency or
savings association who are participants in a medallion program recognized by
the Securities Transfer Association. A Notary Public is not an acceptable
guarantor. For more information on signature guarantees, see "Redemption of
Shares" in the Prospectus.
SIGNATURE GUARANTEE(S) (stamp)
<PAGE>
(This Page Intentionally Left Blank)
<PAGE>
TRUSTEES
Eric Brucker
Fred L. Buckner
Robert J. Christian
Martin L. Klopping
John J. Quindlen
OFFICERS
Robert J. Christian, President
Nina M. Webb, Vice President
John J. Kelly, Vice President & Treasurer
Carl M. Rizzo, Esq., Secretary
Diane J. Drake, Esq., Assistant Secretary
Mary Jane Maloney, Assistant Secretary
John C. McDonell, Assistant Treasurer
ADMINISTRATOR,
TRANSFER AGENT AND
ACCOUNTING AGENT
PFPC Inc.
400 Bellevue Parkway
1100 N. Market St.
Wilmington, DE 19809
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
