Filed with the Securities and Exchange Commission on June 26, 1998
File No. 33-5501
File No. 811-4663
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.___ [ ]
Post-Effective Amendment No. 19 [ X ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 21 [ X ]
The Rodney Square Strategic Fixed-Income Fund
(Formerly The Rodney Square Benchmark U.S. Treasury Fund)
---------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001
------------------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (302) 651-8280
Carl M. Rizzo, Esquire
Rodney Square Management Corporation
Rodney Square North, 1100 North Market Street
Wilmington, DE 19890-0001
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
[ ] immediately upon filing pursuant to Rule 485(b)
[ X ] on June 29, 1998 pursuant to Rule 485(b)
---
[ ] 60 days after filing pursuant to Rule 485(a)(1)
---
[ ] on ____________ pursuant to Rule 485(a)(1)
[ ] 75 days after filing pursuant to Rule 485(a)(2)
[ ] on ____________ pursuant to Rule 485(a)(2)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
CROSS-REFERENCE SHEET
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
Items Required By Form N-1A
PART A - PROSPECTUS
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Cover Page Cover Page
2. Synopsis Expense Table
Questions and Answers about the
Portfolios
3. Condensed Financial Financial Highlights
Information Performance Information
4. General Description of Questions and Answers about the
Registrant Portfolios
Investment Objectives and Policies
Risk Factors
Description of the Fund
Appendix
5. Management of the Fund Questions and Answers about the
Portfolios
Management of the Fund
5A. Management's Discussion [Contained in the Fund's Annual
of Fund Performance Report, President's Letter]
6. Capital Stock and Questions and Answers about the
Other Securities Portfolios
Dividends, Other Distributions
and Taxes
Description of the Fund
7. Purchase of Securities Questions and Answers about the
Being Offered Portfolios
How Net Asset Value is Determined
Purchase of Shares
Management of the Fund
8. Redemption or Questions and Answers about the
Repurchase Portfolios
Shareholder Accounts
Redemption of Shares
Exchange of Shares
9. Pending Legal Not Applicable
Proceedings
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
Items Required By Form N-1A (continued)
PART B - STATEMENT OF ADDITIONAL INFORMATION
Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ ----------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Description of Fund
History
13. Investment Objectives and Investment Policies
Policies Special Considerations
Investment Limitations
Portfolio Turnover
Appendix A
14. Management of the Registrant Trustees and Officers
15. Control Persons and Trustees and Officers
Principal Holders Other Information
16. Investment Advisory and Wilmington Trust Company
Other Services Investment Advisory Services
Administration and Accounting
Services
Other Information
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Redemptions
Securities Description of the Fund
19. Purchase, Redemption and Redemptions
Pricing of Securities Net Asset Value and Dividends
Being Offered
20. Tax Status Taxes
21. Underwriters Administration and Accounting
Services
22. Calculation of Performance Performance Information
23. Financial Statements Financial Statements
<PAGE>
THE RODNEY SQUARE
STRATEGIC
FIXED-INCOME
FUND
PROSPECTUS
JUNE 29, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
EXPENSE TABLE..........................................................2
FINANCIAL HIGHLIGHTS...................................................3
QUESTIONS AND ANSWERS ABOUT THE PORTFOLIOS.............................5
INVESTMENT OBJECTIVES AND POLICIES.....................................7
RISK FACTORS..........................................................10
PURCHASE OF SHARES....................................................11
SHAREHOLDER ACCOUNTS..................................................12
REDEMPTION OF SHARES..................................................13
EXCHANGE OF SHARES....................................................14
HOW NET ASSET VALUE IS DETERMINED.....................................15
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES..............................15
PERFORMANCE INFORMATION...............................................17
MANAGEMENT OF THE FUND................................................19
DESCRIPTION OF THE FUND...............................................21
APPENDIX..............................................................21
APPLICATION & NEW ACCOUNT REGISTRATION................................27
<PAGE>
the RODNEY SQUARE
STRATEGIC FIXED-INCOME
FUND
The Rodney Square Strategic Fixed-Income Fund (the "Fund") consists of three
separate portfolios (the "Portfolios"): the Short/Intermediate Bond Portfolio,
the Intermediate Bond Portfolio and the Municipal Bond Portfolio. The
Short/Intermediate Bond Portfolio and the Intermediate Bond Portfolio each seeks
high total return, consistent with high current income, by investing principally
in various types of investment-grade fixed income securities. Under normal
market conditions, the average dollar-weighted duration of securities held by
the Short/Intermediate Bond Portfolio and the Intermediate Bond Portfolio will
fall within a range of 2 1/2 to 4 years and 5 to 7 years, respectively. The
Municipal Bond Portfolio seeks a high level of income exempt from federal income
tax, consistent with the preservation of capital. Under normal market
conditions, the average dollar-weighted duration of securities held by the
Municipal Bond Portfolio will fall within a range of 4 to 8 years. Shares of the
Portfolios are offered at net asset value without the imposition of any
front-end sales charge and are not subject to any Rule 12b-1 fees.
PROSPECTUS
JUNE 29, 1998
This Prospectus sets forth information about the Fund that you should know
before investing. Please read this Prospectus carefully and keep it for future
reference. A Statement of Additional Information, dated June 29, 1998,
containing additional information about the Fund has been filed with the
Securities and Exchange Commission ("SEC") and, as amended or supplemented from
time and to time, is incorporated by reference herein. A copy of the Statement
of Additional Information and 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. ("RSD"), by calling the
number below, by writing to RSD at the address noted on the back cover of this
Prospectus, or by accessing the web site maintained by the SEC
(http://www.sec.gov). RSD is a wholly owned subsidiary of Wilmington Trust
Company ("WTC"), a bank chartered in the State of Delaware.
- --------------------------------------------------------------------------------
FOR FURTHER INFORMATION OR ASSISTANCE IN OPENING AN ACCOUNT, PLEASE CALL:
o NATIONWIDE...................................(800) 336-9970
- --------------------------------------------------------------------------------
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.
<PAGE>
<TABLE>
<CAPTION>
EXPENSE TABLE
Short/Intermediate Intermediate Municipal
Bond Bond Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION COSTS* None None None
ANNUAL PORTFOLIO OPERATING EXPENSES**
(as a percentage of average net assets)
Advisory Fee (after waivers)............. 0.27% 0.25% 0.00%
12b-1 Fee................................ 0.00% 0.00% 0.00%
Other Expenses (after reimbursements).... 0.28% 0.30% 0.75%
---- ---- ----
Total Operating Expenses (after waivers
and reimbursements)................. 0.55% 0.55% 0.75%
==== ==== ====
EXAMPLE***
You would pay the following expenses on a $1,000 investment in each Portfolio
assuming a 5% annual return and redemption at the end of each time period:
One year........................ $ 6 $ 6 $ 8
Three years..................... $18 $18 $24
Five years...................... $31 $31 $42
Ten years....................... $69 $69 $93
</TABLE>
* WTC and/or 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.
** Because the Intermediate Bond Portfolio had no operations prior to the date
of this Prospectus, expenses for that Portfolio are estimated for its first
year of operations, adjusted to reflect WTC's undertaking to waive its
advisory fee or reimburse expenses to the extent that the expenses of the
Portfolio (excluding taxes, extraordinary expenses, brokerage commissions and
interest) exceed an annual rate of 0.55% of its average daily net assets at
least until February 1999. Without waivers, the Advisory Fee for the
Intermediate Bond Portfolio would be 0.35% of the Portfolio's average daily
net assets, and Total Operating Expenses are estimated to be 0.65% of its
average daily net assets. With respect to the Short/Intermediate Bond
Portfolio and the Municipal Bond Portfolio, expenses are based on each
Portfolio's expenses for its fiscal year ended October 31, 1997, adjusted to
reflect its current advisory, administration, accounting services and
transfer agency fees, the termination of its Rule 12b-1 Plan, and WTC's
undertaking to waive its advisory fee or reimburse expenses to the extent
that their expenses (excluding taxes, extraordinary expenses, brokerage
commissions and interest) exceed an annual rate of 0.55%, with respect to the
Short/Intermediate Bond Portfolio, and 0.75%, with respect to the Municipal
Bond Portfolio, of each Portfolio's average daily net assets at least until
February 1999. Without waivers, the Advisory Fee for the Short/Intermediate
Bond Portfolio would be 0.35% of the Portfolio's average daily net assets,
and Total Operating Expenses would be 0.64% of its average daily net assets.
Without waivers and reimbursements, the Advisory Fee for the Municipal Bond
Portfolio would be 0.35% of the Portfolio's average daily net assets, and
Other Expenses and Total Operating Expenses would be 0.95% and 1.30%,
respectively, of its average daily net assets. See "Management of the Fund "
for additional information.
***The assumption in the Example of a 5% annual return is required by
regulations of the SEC and is applicable to all mutual funds. The assumed 5%
annual return is not a prediction of, and does not represent, any 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.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected per share data and other performance
information for the Short/Intermediate Bond Portfolio and the Municipal Bond
Portfolio throughout the following periods derived from the audited financial
statements of the 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.
Information is not provided for the Intermediate Bond Portfolio, as that
Portfolio had no operations prior to the date of this Prospectus.
<TABLE>
<CAPTION>
SHORT/INTERMEDIATE BOND PORTFOLIO APRIL 2, 1991
(COMMENCEMENT OF
OPERATIONS) TO
FOR THE FISCAL YEARS ENDED OCTOBER 31, OCTOBER 31,
-------------- ----------------------- -----------
1997 1996 1995 1994 1993 1992 1991
---- ------ ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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) (0.75) (0.87) (0.86) (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>
3
<PAGE>
* Annualized
** The total return figure for the Portfolio for the fiscal period ended October
31, 1991 has not been annualized.
+ 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"), the
prior administrator and accounting servicing agent of the Portfolios, 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.
<TABLE>
<CAPTION>
MUNICIPAL BOND PORTFOLIO
FOR THE FISCAL YEARS ENDED OCTOBER 31,
--------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
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>
++ 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.
4
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PORTFOLIOS
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 AND PRIMARY INVESTMENT POLICIES?
The Fund is an open-end, management investment company consisting of three
separate diversified portfolios: the Short/Intermediate Bond Portfolio, the
Intermediate Bond Portfolio and the Municipal Bond Portfolio. The investment
objectives and primary investment policies of the Portfolios are as follows:
SHORT/INTERMEDIATE BOND PORTFOLIO (PREVIOUSLY THE RODNEY SQUARE 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 with an average dollar-weighted duration, under normal
market conditions, of 2 1/2 to 4 yearS. (See "Investment Objectives and Policies
- -- Short/Intermediate Bond and Intermediate Bond Portfolios.")
INTERMEDIATE BOND PORTFOLIO. This Portfolio seeks high total return,
consistent with high current income, by investing principally in various types
of investment-grade fixed income securities with an average dollar-weighted
duration, under normal market conditions, of 5 to 7 years. (See "Investment
Objectives and Policies -- Short/Intermediate Bond and Intermediate Bond
Portfolios.")
MUNICIPAL BOND PORTFOLIO (PREVIOUSLY THE RODNEY SQUARE MUNICIPAL INCOME
PORTFOLIO). This Portfolio seeks a high level of income exempt from federal
income tax, consistent with the preservation of capital by investing principally
in municipal securities providing interest income that is exempt from federal
income tax with an average dollar-weighted duration, under normal market
conditions, of 4 to 8 years. (See "Investment Objectives and Policies --
Municipal Bond Portfolio.")
WHAT ARE THE RISKS TO CONSIDER BEFORE INVESTING?
Investment in the Portfolios represents an investment in securities with
fluctuating market prices. As market prices fluctuate, the net asset value of an
investor's holdings will also fluctuate and, at the time of redemption, may be
more or less than the purchase price. 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. When interest rates rise or fall, investors should expect more
fluctuations in value in the Intermediate Bond Portfolio than in the
Short/Intermediate Bond Portfolio, due to the latter Portfolio's shorter
duration.
The Portfolios may engage in certain options, futures and (in the case of the
Short/Intermediate Bond Portfolio and the Intermediate Bond Portfolio only)
forward currency transactions. Such transactions may involve certain risks,
increase costs and diminish investment performance. (See "Investment Objectives
and Policies," "Risk Factors" and "Appendix.")
Depending on your tax bracket, your after-tax return from the Municipal Bond
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 Bond 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 ("Tax Preference Item"). Capital gain
distributions, if any, from the Municipal Bond Portfolio are subject to federal
income income tax, as well as state and local taxes. (See "Dividends, Other
Distributions and Taxes.")
Prior to the date of this Prospectus, the Intermediate Bond Portfolio had no
operations.
5
<PAGE>
HOW CAN YOU BENEFIT BY INVESTING IN THE PORTFOLIOS RATHER THAN BY INVESTING
DIRECTLY IN THE 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. The Portfolios also offer a way for investors to diversify their
investment portfolios by participating in pooled funds of taxable or tax-exempt
fixed income securities. There are no minimum periods for investment in the
Portfolios and no fees will be charged at time of purchase or redemption.
SECOND: Investors in a Portfolio need not become involved with the detailed
bookkeeping and operating procedures normally associated with direct investment
in the securities held by the Portfolios.
WHO IS THE INVESTMENT ADVISER?
Wilmington Trust Company ("WTC") is the investment adviser to the Portfolios.
(See "Management of the Fund.")
WHO IS THE ADMINISTRATOR, TRANSFER AGENT AND ACCOUNTING AGENT FOR THE FUND?
PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank Corp.,
provides administrative, accounting and transfer agency services for the Fund.
RSMC, a wholly owned subsidiary of WTC, provides corporate secretarial services
for the Fund. (See "Management of the Fund.")
WHO IS THE FUND'S 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 Bond 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 PFPC and accepted by RSD as described below. There is no sales load.
The minimum initial investment is $1,000 per Portfolio, but additional
investments may be made in any amount.
Shares of the Portfolios 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. (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 contact RSD or your Service Organization or call the number listed
below, for further information about the Portfolios or for assistance in opening
an account.
- --------------------------------------------------------------------------------
o NATIONWIDE.......................(800) 336-9970
- --------------------------------------------------------------------------------
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 shareholders may redeem any or
all of their shares by telephone or mail. There is no fee charged upon
redemption. (See "Redemption of Shares.")
6
<PAGE>
HOW ARE DIVIDENDS AND OTHER DISTRIBUTIONS PAID?
Income dividends for the Portfolios are declared daily and distributed
monthly. 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 other distributions in cash by checking the appropriate
boxes 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
another Portfolio or for shares of any of the other funds in the Rodney Square
complex, subject to certain conditions. (See "Exchange of Shares.")
INVESTMENT OBJECTIVES AND POLICIES
SHORT/INTERMEDIATE BOND AND INTERMEDIATE BOND PORTFOLIOS
The Short/Intermediate Bond and the Intermediate Bond Portfolios each seeks
high total return, consistent with high current income, by investing principally
in various types of investment-grade fixed income securities.
Under normal market conditions, the Short/Intermediate Bond Portfolio and the
Intermediate Bond Portfolio each will invest at least 85% of its total assets in
investment-grade fixed income securities. Each Portfolio may also invest up to
10% of its total assets in investment-grade fixed income securities of foreign
issuers.
In investing in fixed income securities, the Short/Intermediate Bond
Portfolio will, as a fundamental policy, maintain a short-to-intermediate
average duration. The Intermediate Bond Portfolio will, as a fundamental policy,
maintain an intermediate average duration. Under normal market conditions, the
average dollar-weighted duration of securities held by the Short/Intermediate
Bond Portfolio will fall within a range of 2 1/2 to 4 years; thosE held by the
Intermediate Bond Portfolio will fall within a range of 5 to 7 years. In the
event of unusual market conditions, the average dollar-weighted duration of the
Portfolios may fall within a broader range. Under those circumstances, the
Short/Intermediate Bond Portfolio may invest in fixed income securities with an
average dollar-weighted duration of 1 to 6 years and the Intermediate Bond
Portfolio may invest in fixed income securities with an average dollar-weighted
duration of 2 to 10 years.
Duration measures the sensitivity of the fixed income securities held by a
Portfolio to a change in interest rates. A longer duration implies a greater
sensitivity and means that the Portfolio's securities will experience a greater
degree of fluctuation should interest rates change. For example, if interest
rates were to move 1%, a bond with a 3 year duration would experience a 3%
change in its principal value. An identical bond with a duration of 5 years
would experience a 5% change in its principal value. Investors may be more
familiar with the term "average effective maturity" (when, on average, the fixed
income securities held by the Portfolios will mature), which is sometimes used
to express the anticipated term of the Portfolios' investments. Generally, the
stated maturity of a fixed income security is longer than its projected
duration. Under normal market conditions, the average effective maturity, in the
case of the Short/Intermediate Bond Portfolio, is expected to fall within a
range of approximately 3 to 5 years and, in the case of the Intermediate Bond
Portfolio, within a range of approximately 7 to 12 years.
The composition of each Portfolio's holdings varies depending upon WTC's
analysis of the fixed income markets including 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. Securities purchased
by the Portfolios may be purchased on the basis of their yield or potential
capital appreciation or both. By maintaining a short-to-intermediate average
duration or intermediate average duration for the Short/Intermediate and
Intermediate Bond Portfolios, respectively, WTC seeks to protect the Portfolios'
principal value by reducing fluctuations in value relative to those that may be
experienced by fixed income funds with longer average durations, although that
strategy may reduce the level of income attained by the Portfolios. Of course,
7
<PAGE>
there is no guarantee that principal value can be protected during periods of
extreme interest rate volatility.
(See "Risk Factors.")
The Portfolios invest only in securities that are rated, at the time of
purchase, in the top four categories by a nationally recognized statistical
rating organization ("NRSRO") 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 "Risk Factors" and the Statement of Additional Information for further
information regarding ratings and the characteristics of securities rated in the
top four rating categories.)
The Portfolios 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 Portfolios
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 Portfolios may also engage in the following
investment strategies: entering into both repurchase agreements and reverse
repurchase agreements; purchasing and writing (selling) options, futures
contracts, options on futures contracts or forward currency contracts; short
selling; and lending portfolio securities. (See "Appendix.") In addition, the
Portfolios may invest in investment companies that seek to maintain a stable net
asset value (money market funds).
MUNICIPAL BOND PORTFOLIO
The Municipal Bond 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 Bond 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.
As a fundamental policy, the Portfolio will maintain an intermediate average
duration. 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. In
the event of unusual market conditions, the average duration for the Portfolio
may fall within a broader range. Under those circumstances, the Portfolio may
invest in securities with an overall average dollar-weighted duration of 2 to 10
years.
Duration measures the sensitivity of the fixed income securities held by the
Portfolio to a change in interest rates. A longer duration implies a greater
sensitivity and means that the Portfolio's securities experience a greater
degree of fluctuation should interest rates change. Investors may be more
familiar with the term "average effective maturity" (when, on average, the fixed
income securities held by the Portfolio will mature), which is sometimes used to
express the anticipated term of the Portfolio's investments. Generally, the
stated maturity of a fixed income security is longer than its projected
duration. Under normal market conditions, the average effective maturity of the
Municipal Bond Portfolio will fall within a range of approximately 5 to 10
years..
The composition of the Portfolio's holdings varies depending upon WTC's
analysis of the municipal securities market including analysis of the most
attractive segments of the yield curve, the relative value of different market
sectors, expected trends in those markets and supply versus demand pressures. By
maintaining an 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 municipal funds with longer average durations,
although that strategy may reduce the level of income attained by the Portfolio.
Of course, there in on guarantee that principal value can be protected during
periods of extreme interest rate volatility. (See "Risk Factors.")
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The Portfolio invests only in securities that are rated, at the time of
purchase, in the top four categories by an NRSRO such as Moody's or S&P or, if
not rated, are determined by WTC to be of comparable quality. (See "Risk
Factors" 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 without limit in municipal securities issued to
finance private activities, the interest on which is a Tax Preference Item. In
addition, although the Portfolio expects to invest substantially all of its net
assets in municipal securities that provide interest income that is exempt from
federal income tax, it may invest up to 20% of its net assets in other types of
fixed income securities that provide federally taxable income. Such securities
include bank obligations; corporate bond, notes and commercial pages; guaranteed
investment contracts; mortgage-backed securities; participation interest;
asset-backed securities; and U.S. Government obligations. The Portfolio may also
engage in the following investment strategies: entering into repurchase
agreements; purchasing and writing (selling) options, futures, and options on
futures contracts; short selling; and lending Portfolio securities (see
"Appendix.") In addition, the Portfolio may invest in investment companies that
seek to maintain a stable net asset value (money market funds).
The 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.) The 25% limitation applies to municipal securities backed by
the assets and revenues of non-governmental users, such as the private operators
of educational, hospital or housing facilities. However, 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 such concentration. 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. Under these conditions, the Portfolio's vulnerability to any special
risks that affect that sector or jurisdiction, such as a shift in government
policy that would reduce future tax revenue streams pledged to support those
securities, could have a significant adverse impact on the value of an
investment in the Portfolio. There are no limitations on the Portfolio's
investment in any one of the three general categories of municipal obligations
- -- general obligation bonds, revenue (or special) obligation bonds and private
activity bonds. (See "Appendix.")
Proposed tax legislation in recent years has included several provisions that
may affect the supply and 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, or the value of the Municipal Bond Portfolio's
holdings, could be materially affected by such changes in the law, the Fund's
Board of Trustees would reevaluate the Portfolio's investment objective and
policies or consider the Portfolio's dissolution.
ALL PORTFOLIOS
OTHER INVESTMENTS AND INVESTMENT STRATEGIES. Each Portfolio 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. certain securities may be purchased on a when-issued or delayed
delivery basis. As a matter of fundamental policy, each Portfolio may also
borrow money for temporary or emergency purposes in an aggregate amount not
exceeding one-third of its total assets. As a matter of non-fundamental policy,
however, no Portfolio will purchase securities while borrowings in excess of 5%
of the Portfolio's total assets are outstanding. In addition, certain of the
securities purchased by the Portfolios may be considered illiquid. For further
information about the Portfolios' investments and investment strategies, see the
Appendix to this Prospectus and the Statement of Additional Information.
PORTFOLIO TURNOVER. The frequency of portfolio transactions and a Portfolio's
turnover rate will vary from year to year depending on market conditions. The
portfolio turnover rate for the Intermediate Bond Portfolio is expected to be
less than 100%.
OTHER INFORMATION. Each Portfolio is subject to fundamental policies that,
like the Portfolio's investment objective, may not be changed without the
affirmative vote of the holders of a majority of the Portfolio's outstanding
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voting securities (as defined in the 1940 Act). All investment policies stated
within this Prospectus are, unless otherwise indicated, non-fundamental and may
be changed by the Fund's Board of Trustees without shareholder approval.
Additional fundamental and non-fundamental investment policies are described in
the Appendix to this Prospectus and in the Statement of Additional Information.
RISK FACTORS
GENERAL. There can be no guarantee that any Portfolio will achieve its
investment objective. 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. WTC may make frequent changes in the Portfolios' investments,
particularly during periods of rapidly fluctuating interest rates. These
frequent changes would involve transaction costs to the Portfolios and could
result in taxable capital gains.
Each Portfolio invests only in securities that are rated, at the time of
purchase, in the four highest rating categories of an NRSRO 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 within investment-grade securities (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
Portfolios 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 Fund's 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.
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
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related income strategies. There is only limited consensus as to what
constitutes a "derivative" security. However, in the view of WTC, derivatives
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. As a fundamental policy, no more than 15% of a
Portfolio's total assets may at any time be committed or exposed to derivative
strategies.
OPTIONS AND FUTURES. 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.
YEAR 2000 ISSUE. Like other mutual funds, financial and business
organizations and individuals around the world, the Portfolios could be
adversely affected if the computer systems used by WTC and the Portfolios' other
service providers do not properly process and calculate date-related information
and data after January 1, 2000. This is commonly known as the "Year 2000
Problem." WTC is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to the computer systems that it uses,
and to obtain assurances that comparable steps are being taken by the
Portfolios' other major service providers. At this time, however, there can be
no assurance that these steps will be sufficient to avoid any adverse impact on
the Portfolios.
PURCHASE OF SHARES
HOW TO PURCHASE SHARES. Portfolio shares are offered on a continuous basis by
RSD at their net asset value next determined after a purchase order is received
by PFPC 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 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 PFPC, P.O. Box 8951, Wilmington, DE 19899-9752. A
purchase order sent by overnight mail should be sent to The Rodney Square
Strategic Fixed-Income Fund, c/o PFPC, 400 Bellevue Parkway, Suite 108,
Wilmington, DE 19809. 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 PFPC at (800) 336-9970. Once you have an account number, instruct
your bank to wire federal funds to PFPC, c/o PNC Bank, Philadelphia PA - ABA#
031-0000-53, attention: The Rodney Square Strategic Fixed-Income Fund, DDA#
86-0172-6591, further credit - your account number, the name of the selected
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Portfolio and your name. If you make an initial purchase by wire, you must
promptly forward a completed Application to PFPC at the address stated above
under "By Mail."
INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Short/Intermediate Bond and
Intermediate Bond Portfolios only 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 IRA, call PFPC 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, 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, PFPC, 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 PFPC 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 the 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 the Portfolios for a period of time.
Purchase orders received by PFPC 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 PFPC 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, PFPC 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 PFPC and to
deliver required funds on a timely basis, in accordance with the procedures
stated above.
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.
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
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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.
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 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
PFPC, such as a domestic bank or trust company, broker, dealer, clearing agency
or savings association, that is a participant 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 PFPC, P.O. Box 8951, Wilmington, DE 19899-9752.
A redemption order sent by overnight mail should be sent to The Rodney Square
Strategic Fixed-Income Fund, c/o PFPC, 400 Bellevue Parkway, Suite 108,
Wilmington, DE 19809. 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 PFPC 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 PFPC has received your redemption
request. (See "How Net Asset Value Is Determined.") The Fund imposes no fee when
shares are redeemed. WTC or the Service Organization is responsible for
transmitting redemption orders and crediting their customer accounts with
redemption proceeds on a timely basis.
Redemption checks are normally mailed or wired on the next Business Day of
the Fund after receipt and acceptance by PFPC of redemption instructions (if
received by PFPC 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
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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 that
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 PFPC 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 PFPC 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.
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 another Portfolio or for shares of the
other funds in the Rodney Square complex that currently offer their shares to
investors. These other Rodney Square Funds are:
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 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, 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 RODNEY SQUARE STRATEGIC EQUITY FUND, each portfolio of which seeks
superior long-term capital appreciation by investing in equity securities. Its
portfolios are:
LARGE CAP GROWTH EQUITY PORTFOLIO, which invests in equity securities of
large cap U.S. companies that are judged to possess strong growth
characteristics.
LARGE CAP VALUE EQUITY PORTFOLIO, which invests in equity securities of
large cap U.S. companies that are judged to be undervalued in the
marketplace relative to underlying profitability.
SMALL CAP EQUITY PORTFOLIO, which invests in equity securities of small
cap U.S. companies that are judged to possess strong growth
characteristics or to be undervalued in the marketplace relative to
underlying profitability.
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INTERNATIONAL EQUITY PORTFOLIO, which invests in equity securities of
foreign issuers.
A redemption of shares through an exchange will be effected at the net asset
value per share next determined after receipt by PFPC 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 Tax-Exempt Fund and the two
portfolios of The Rodney Square Fund are determined at 12:00 noon, Eastern time,
on each Business Day of the Fund. The net asset values per share of the
Portfolios and the Rodney Square Strategic Equity Fund portfolios 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
PFPC 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
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.
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. These prices may be supplied by a
pricing service. Current market prices are generally not readily available for
municipal securities; current market prices may also be unavailable for other
types of fixed income securities held by the Portfolios. To determine the value
of those securities, PFPC may use a pricing service that takes into account not
only developments related to the specific securities, but also transactions in
comparable securities. The value of fixed income securities maturing within 60
days of the valuation date may be determined by valuing those securities at
amortized cost. Securities that do not have a readily available current market
value are valued in good faith under the direction of the Fund's Board of
Trustees.
The assets held by the Short/Intermediate Bond Portfolio and the Intermediate
Bond Portfolio that 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.
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 Fund 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
of the Fund (see "How Net Asset Value Is Determined ") and consists of interest
accrued and original issue discount (and, in the case of the Municipal Bond
Portfolio, if it so elects, market discount on tax-exempt securities) earned on
its investments less amortization of any premium and accrued expenses. 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
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capital loss), if any, and the Short/Intermediate Bond and the Intermediate Bond
Portfolios annually distribute net realized gains from foreign currency
transactions, if any, after the end of the fiscal year in which the gain was
realized by the Portfolios.
Dividends and other distributions payable by a Portfolio are automatically
reinvested in additional shares of the Portfolio on the payment date at their
current net asset value, unless the shareholder elects to receive distributions,
in cash, in the form of a check, by checking the appropriate boxes on the
Application accompanying this Prospectus. Each dividend and other distribution
is payable to shareholders of a Portfolio who redeem, but not to shareholders
who purchase, shares of the Portfolio on the ex-distribution date.
FEDERAL INCOME TAX. The Intermediate Bond Portfolio intends to qualify, and
each other 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 the portion of its
investment company taxable income (generally consisting of taxable net
investment income, net short-term capital gain and, in the case of the
Short/Intermediate Bond and Intermediate Bond Portfolios, net realized gains
from certain foreign currency transactions, if any) and net capital gain that it
distributes to its shareholders. While each Portfolio 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
Short/Intermediate Bond and Intermediate Bond Portfolios invest primarily in
taxable securities and the Municipal Bond Portfolio invests primarily in
tax-exempt securities.
Distributions by the Municipal Bond 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 the
Portfolio may be a Tax Preference Item.
Dividends from each Portfolio's investment company taxable income (whether
paid in cash or reinvested in additional shares) are taxable to its shareholders
as ordinary income to the extent of the Portfolio's earnings and profits.
Distributions of a Portfolio's net capital gain (whether paid in cash or
reinvested in additional shares), when designated as such, are taxable to its
shareholders as long-term capital gain, 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 recognized on capital assets 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 capital assets held for more than 18 months. 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 its
holding periods for the securities it sold that generated the distributed gain),
in which event its shareholders must treat those portions accordingly. Investors
should be aware that if Portfolio shares are purchased shortly before the record
date for any dividend or capital gain distribution, they will pay the full price
for the shares and will receive some portion of the price back as a taxable
distribution.
Shortly after the end of each calendar year, each Portfolio notifies its
shareholders of the amounts and federal tax status of dividends and capital gain
distributions paid (or deemed paid) by the Portfolio during that 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 Bond 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
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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. Similar tax
consequences generally will result from an exchange of shares of one Portfolio
for shares of another Portfolio or 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 redeems shares of the Municipal Bond Portfolio that
were held for six months or less, the deductible loss will be reduced by the
amount of exempt-interest dividends received by the shareholder with respect to
those shares, and the remaining loss (and the entire loss in the case of a
redemption of shares of another Portfolio as a loss after being held for that
period) will be 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 jurisdiction.
Shareholders may be exempt from state and local income taxes on distributions of
interest income derived from obligations of the state and/or municipalities of
the state in which they reside, but generally are taxed on income derived from
obligations of other jurisdictions. Shortly after the end of each calendar year,
the Municipal Bond Portfolio notifies its shareholders of the portion of their
tax-exempt income attributable to each state for that year.
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. Any shareholders who are non-resident alien
individuals, or foreign corporations, partnerships, trusts, or estates may be
subject to different federal income tax treatment. Prospective investors are
therefore urged to consult their tax advisers with respect to the effects of an
investment on their own tax situations.
PERFORMANCE INFORMATION
All performance information advertised by each Portfolio is based on
historical information, shows the performance of a hypothetical investment and
is not intended to indicate and is no guarantee of 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 additional performance information. The annual report is available upon
request and free of charge.
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
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other distributions. Non-Standardized Return may be quoted for the same or
different periods as those for which Standardized Return is quoted.
A Portfolio's Return (Standardized and Non-Standardized) is increased to the
extent that WTC or RSMC has waived all or a portion of its fees or reimbursed
all or a portion of the Portfolio's expenses. Returns (Standardized and
Non-Standardized) are based on historical performance of the Portfolio, show the
performance of a hypothetical investment and are not intended to indicate future
performance.
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 Bond 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, 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 Bond 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%
INTERMEDIATE BOND PORTFOLIO. The Intermediate Bond Portfolio commenced
operations on June 29, 1998 following the tax-free transfer of assets by the
Bond Fund, a collective investment fund, to the Intermediate Bond Portfolio in
exchange for shares of the Intermediate Bond Portfolio. The Intermediate Bond
portfolio of investments on June 29, 1998 was the same as the portfolio of the
Bond Fund immediately prior to the transfer.
The Bond Fund was not a registered investment company as it was exempt from
registration under the 1940 Act. Because, in a practical sense, the Bond Fund
constitutes a "predecessor" of the Intermediate Bond Portfolio, the Intermediate
Bond Portfolio calculates its performance by including the Bond Fund's total
return adjusted to reflect the annual deduction of fee and expenses applicable
to shares of the Intermediate Bond Portfolio as stated in the Expense Table in
this Prospectus (i.e., adjusted to reflect anticipated expenses, absent
investment advisory fee waivers).
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The Intermediate Bond Portfolio from time to time may advertise certain
investment performance figures, as discussed below. These figures are based on
historical information and are not intended to indicate, predict or guarantee
future performance of the Intermediate Bond Portfolio.
PERFORMANCE INFORMATION REGARDING
THE BOND FUND, A COLLECTIVE INVESTMENT FUND
AVERAGE ANNUAL TOTAL RETURN*
Inception
1 year 3 years 5 years (12/90)
------ ------- ------- ---------
11.64% 8.45% 6.21% 7.87%
- ------------------
*Figures were calculated pursuant to a methodology established by the SEC. The
total return figures are as of March 31, 1998. The Bond Fund's inception date
was December 1990.
The above-quoted performance data is the performance of the Bond Fund for the
period before the Intermediate Bond Portfolio commenced operations, adjusted to
reflect the annual deduction of fees and expenses applicable to shares of the
Intermediate Bond Portfolio (i.e., adjusted to reflect anticipated expenses,
absent investment advisory fee waivers). The Bond Fund was not registered under
the 1940 Act and therefore was not subject to certain investment restrictions,
limitations and diversification requirements imposed by the 1940 Act and the
Code. If the Bond Fund had been registered under the 1940 Act, its performance
may have been different. The investment objective, restrictions and strategies
of the Intermediate Bond Portfolio are substantially similar to those followed
by the Bond Fund since the latter's inception. The minimum credit quality for
the Bond Fund was "A" through April 30, 1997; after that date, the minimum
credit quality for the Bond Fund was changed to "BBB," the same as that for the
Intermediate Bond Portfolio. Notwithstanding such differences, WTC believes that
the investment objective, restrictions and strategies of the Intermediate Bond
Portfolio are substantially similar to those of the Bond Fund. WTC, the adviser
of the Intermediate Bond Portfolio, served as the adviser of the Bond Fund from
its inception, and the portfolio manager of the Intermediate Bond Portfolio also
managed the Bond Fund from its inception in December 1990 to the transfer of
assets to the Intermediate Bond Portfolio.
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 Advisory Agreements with the Fund, WTC, subject to the
supervision of the Board of Trustees, directs the investments of each Portfolio
in accordance with its investment objective, policies and limitations. In
addition to serving as Investment Adviser for the Portfolios, WTC is engaged in
a variety of investment advisory activities, including the management of other
mutual funds and collective investment pools.
Under the Advisory Agreements, each Portfolio pays a monthly advisory fee to
WTC at the annual rate of 0.35% of the average daily net assets of the
Portfolio. WTC has agreed to waive its fees or reimburse each Portfolio monthly
to the extent that expenses of the Portfolio (excluding taxes, extraordinary
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expenses, brokerage commissions and interest) exceed an annual rate of 0.55%
(0.75% in the case of the Municipal Bond Portfolio) of the Portfolio's average
daily net assets through February, 1999.
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 Asset Management Department of WTC are primarily
responsible for the day-to-day management of the Short/Intermediate Bond
Portfolio and the Intermediate Bond 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 Management Division and since that time has
specialized in the management of intermediate and 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 Asset Management
Department of WTC is primarily responsible for the day-to-day management of the
Municipal Bond 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 $500 million of average daily net
assets; 0.05% of each Portfolio's next $500 million of average daily net assets;
and 0.035% of each Portfolio's average daily net assets in excess 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. For these services, the Fund pays
PFPC a minimum annual base fee of $18,000 for each portfolio, as well as account
fees, transaction charges, and out of pocket expenses.
CUSTODIAN AND SUB-CUSTODIAN. WTC serves as Custodian, and PNC serves as
Sub-Custodian, of the Portfolios' assets. For its custody services, the Fund
pays WTC an annual fee equal to the amount derived from the following schedule:
0.015% of the first $2 billion of the Fund's average daily net assets; 0.0125%
of the next $1 billion of the Fund's average daily net assets; and 0.010% of the
Fund's average daily net assets in excess of $3 billion, plus $7.50 per
purchase, sale or maturity of each portfolio security. WTC (not the Fund) pays
PNC for sub-custodial services. 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 financial institutions 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
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<PAGE>
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
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, management investment company
established on May 7, 1986 as a Massachusetts business trust under Massachusetts
law by a Declaration of Trust. Prior to June __, 1998, the name of the
Short/Intermediate Bond Portfolio was the Rodney Square Diversified Income
Portfolio and the name of the Municipal Bond Portfolio was the Rodney Square
Municipal Income Portfolio.
The Fund's capital consists of an unlimited number of shares of beneficial
interest. The Trustees are empowered by the Declaration of Trust and the Bylaws
to establish additional series and classes of shares. 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 June 22, 1998, WTC owned of record approximately 79.85% of the shares
of the Short/Intermediate Bond Portfolio, of which it owned beneficially with
power to vote, on behalf of its customer accounts, approximately 60.75% of the
shares of that Portfolio, and approximately 56.37% of the shares of the
Municipal Bond Portfolio, of which it owned beneficially with power to vote, on
behalf of its customer accounts, approximately 51.04% of the shares of that
Portfolio. Accordingly, WTC may be deemed to be a controlling person of those
Portfolios under the 1940 Act. It is anticipated that immediately after the
commencement of operations of the Intermediate Bond Portfolio, WTC will own by
virtue of shared or sole voting or investment power on behalf of its underlying
customer accounts approximately 100% of the shares of the Intermediate Bond
Portfolio, and may be deemed to be a controlling person of that Portfolio 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.
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 PORTFOLIOS
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
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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 Short/Intermediate Bond
Portfolio's and Intermediate Bond 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
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
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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
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 a Tax
Preference Item.
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.
23
<PAGE>
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 from a bank or recognized securities dealer 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 from a bank or recognized
securities dealer and simultaneously commits to resell that security to a bank
or dealer at an agreed upon date and price reflecting a 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 delays and costs to the Portfolio if the
other party to the repurchase agreement becomes bankrupt), it is the policy of
the Portfolios to limit repurchase transactions to those banks and primary
dealers 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
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.
24
<PAGE>
SECURITIES THAT MAY BE PURCHASED BY THE SHORT/INTERMEDIATE BOND AND INTERMEDIATE
BOND PORTFOLIOS
CONVERTIBLE SECURITIES. The Short/Intermediate Bond and Intermediate Bond
Portfolios 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 Short/Intermediate Bond and Intermediate Bond
Portfolios 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 instability
in foreign countries. Further, to the extent that the Short/Intermediate Bond or
the Intermediate Bond Portfolios invest in securities denominated in foreign
currencies, the Portfolios will be subject to fluctuations in foreign currency
exchange rates and costs incurred in conversions between currencies.
OBLIGATIONS ISSUED BY SUPRANATIONAL AGENCIES. The Short/Intermediate Bond and
Intermediate Bond Portfolios 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 Short/Intermediate Bond and Intermediate Bond
Portfolios 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 Short/Intermediate Bond and Intermediate
Bond Portfolios 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 its
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 PORTFOLIOS
HEDGING STRATEGIES. The Portfolios 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 Portfolios may also
25
<PAGE>
purchase or sell forward currency contracts in an attempt to manage the
Portfolio's foreign currency exposure. The Portfolios may enter into forward
currency contracts to set the rate at which currency exchanges will be made for
specific contemplated transactions. The Portfolios 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 contracts by the Portfolios is limited by market
conditions, regulatory limitations and other tax considerations.
LENDING OF PORTFOLIO SECURITIES. The Portfolios 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 Portfolios continue 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 Portfolios retain authority to terminate a
loan at any time and retain voting, subscription, dividend and other rights when
it is in the Portfolios' 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 Portfolios' holdings may not exceed one-third of their total
assets.
SHORT SALES AGAINST THE BOX. The Portfolios may engage in short sales against
the box as a hedge when WTC believes that the price of a security held by the
Portfolios 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 that 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.
26
<PAGE>
[LOGO]
the RODNEY SQUARE
STRATEGIC FIXED-INCOME FUND
APPLICATION & NEW ACCOUNT REGISTRATION
- --------------------------------------------------------------------------------
INSTRUCTIONS: RETURN THIS COMPLETED FORM TO:
FOR WIRING INSTRUCTION THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
OR FOR ASSISTANCE IN C/O PFPC
COMPLETING THIS FORM P.O. BOX 8951
CALL (800) 336-9970 WILMINGTON, DE 19899-9752
- --------------------------------------------------------------------------------
PORTFOLIO SELECTION ($1,000 MINIMUM)
/_/ SHORT/INTERMEDIATE BOND PORTFOLIO $_______________
/_/ INTERMEDIATE BOND PORTFOLIO $_______________
/_/ MUNICIPAL BOND PORTFOLIO $_______________
TOTAL AMOUNT TO BE INVESTED $_______________
_____ By check. (Make payable to the applicable Portfolio.)
_____ By wire. Call 1-800-336-9970 for Instructions.
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> <C>
1. Individual
------------ ------- -------------- ---------------------
First Name MI Last Name Customer Tax ID No.*
2. Joint Tenancy**
------------ ------- -------------- ---------------------
First Name MI Last Name Customer Tax ID No.*
Uniform
3. Gifts to Minors+ Gift/Transfers
------------------ under the -------------------- ----- to Minors Act
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.
- --------------------------------------------------------------------------------
ADDRESS OF RECORD
- --------------------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
City State Zip Code
27
<PAGE>
DISTRIBUTION OPTIONS-IF THESE BOXES ARE NOT CHECKED ALL DISTRIBUTIONS WILL BE
INVESTED IN ADDITIONAL SHARES.
Income Other
Dividends Distributions
SHORT/INTERMEDIATE BOND
PORTFOLIO /_/ /_/
INTERMEDIATE BOND PORTFOLIO /_/ /_/
MUNICIPAL BOND PORTFOLIO /_/ /_/
- --------------------------------------------------------------------------------
Check any of the following if you would like additional information about a
particular plan or services sent to you.
/_/ AUTOMATIC INVESTMENT PLAN /_/ SYSTEMATIC WITHDRAWAL PLAN
- --------------------------------------------------------------------------------
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 or any other bank, 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 PFPC 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 ( )
--------------------------------- ------------
28
<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 corporate
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
- --------------------------------------------------------------------------------
29
<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 PFPC 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 PFPC may be contacted, on my apparent behalf, by
impostors. In view of this risk, I further understand and agree that PFPC
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 PFPC, any of its affiliates, or
any Rodney Square Fund responsible for acting under the powers I have given
PFPC, 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 PFPC otherwise in writing, accompanied by a
signature guarantee. If I want to terminate this agreement, I will give PFPC
at least ten days notice in writing. If PFPC 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
PFPC, such as a bank, broker/dealer, clearing agency or savings association that
is a participant 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)
30
<PAGE>
(This Page Intentionally Left Blank)
31
<PAGE>
TRUSTEES
Eric Brucker
Fred L. Buckner
Robert J. Christian
John J. Quindlen
Nina M. Webb
----------------
OFFICERS
Robert J. Christian, President
Nina M. Webb, Vice President
John J. Kelley, Vice President & Treasurer
Carl M. Rizzo, Esq., Secretary
Mary Jane Maloney, Assistant Secretary
John C. McDonnell, Assistant Treasurer
----------------
INVESTMENT ADVISER
Wilmington Trust Company
Rodney Square North
1100 N. Market St.
Wilmington, DE 19890-0001
----------------
ADMINISTRATOR,
TRANSFER AGENT AND
ACCOUNTING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
----------------
DISTRIBUTOR
Rodney Square Distributors, Inc.
Rodney Square North
1100 N. Market St.
Wilmington, DE 19890-0001
----------------
32
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
The Rodney Square Strategic Fixed-Income Fund (the "Fund") is an
open-end investment company consisting of three portfolios (the
"Portfolios"): the Short/Intermediate Bond Portfolio, the Intermediate
Bond Portfolio and the Municipal Bond Portfolio. The Short/Intermediate
Bond Portfolio and the Intermediate Bond Portfolio each seeks high total
return, consistent with high current income, by investing principally in
various types of investment grade fixed income securities. The Municipal
Bond Portfolio seeks a high level of income exempt from federal income tax
consistent with the preservation of capital.
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
June 29, 1998
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's current Prospectus, dated June 29, 1998, as
amended from time to time. A copy of the current Prospectus may be obtained,
without charge, by writing to Rodney Square Distributors, Inc. ("RSD"), Rodney
Square North, 1100 North Market Street, Wilmington, DE 19890-0001, and from
certain institutions such as banks or broker-dealers that have entered into
servicing agreements with RSD or by calling (800) 336-9970.
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
INVESTMENT POLICIES....................................................1
SPECIAL CONSIDERATIONS................................................10
INVESTMENT LIMITATIONS................................................11
TRUSTEES AND OFFICERS.................................................13
WILMINGTON TRUST COMPANY..............................................15
INVESTMENT ADVISORY SERVICES..........................................15
ADMINISTRATION AND ACCOUNTING SERVICES................................16
DISTRIBUTION AGREEMENT................................................17
REDEMPTIONS...........................................................17
PORTFOLIO TRANSACTIONS................................................18
NET ASSET VALUE AND DIVIDENDS.........................................19
PERFORMANCE INFORMATION...............................................20
TAXES.................................................................27
DESCRIPTION OF THE FUND...............................................31
OTHER INFORMATION.....................................................32
FINANCIAL STATEMENTS..................................................32
APPENDIX A...........................................................A-1
APPENDIX B...........................................................B-1
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
INVESTMENT POLICIES
The following information supplements the information concerning the
Portfolios' investment objectives, policies and limitations found in the
Prospectus.
GENERAL
Wilmington Trust Company ("WTC"), the Portfolios' Investment Adviser,
employs an investment process that is disciplined, systematic and oriented
toward a quantitative assessment and control of volatility. The Portfolios'
exposure to credit risk is moderated by limiting their investments to securities
that, at the time of purchase, are rated investment grade 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 unrated, are determined by WTC to be of comparable quality.
Ratings, however, are not guarantees of quality or of stable credit quality. WTC
continuously monitors the quality of the Portfolios' holdings, and should the
rating of a security be downgraded or its quality be adversely affected, WTC
will determine whether it is in the best interest of the affected Portfolio to
retain or dispose of the security.
The effect of interest rate fluctuations in the market on the principal
value of the Portfolios is moderated by limiting the average dollar-weighted
duration of their investments -- in the case of the Short/Intermediate Bond
Portfolio to a range of 2 1/2 to 4 years, in the case of the Intermediate Bond
Portfolio to a range of 5 to 7 years, and in the case of the Municipal Bond
Portfolio to a range of 4 to 8 years. Investors may be more familiar with the
term "average effective maturity" (when, on average, the fixed income securities
held by the Portfolio will mature), which is sometimes used to express the
anticipated term of the Portfolios' investments. Generally, the stated maturity
of a fixed income security is longer than its projected duration. Under normal
market conditions, the average effective maturity, in the case of the
Short/Intermediate Bond Portfolio, is expected to fall within a range of
approximately 3 to 5 years, in the case of the Intermediate Bond Portfolio,
within a range of approximately 7 to 12 years, and in the case of the Municipal
Bond Portfolio, within a range of approximately 5 to 10 years.
WTC's goal in managing the Short/Intermediate Bond Portfolio and the
Intermediate Bond Portfolio is to gain additional return by analyzing the market
complexities and individual security attributes which affect the returns of
fixed income securities. The Portfolios are intended to appeal to investors who
want a thoughtful exposure to the broad fixed income securities market and the
high current returns that characterize the short-term to intermediate-term
sector of that market.
Given the short-to-intermediate average duration of the holdings of the
Short/Intermediate Bond Portfolio and the Intermediate Bond Portfolio and the
current interest rate environment, the Portfolios should experience smaller
price fluctuations than those experienced by longer-term bond funds and a higher
yield than fixed-price money market funds. Of course, the Portfolios will likely
experience larger price fluctuations than money market funds and a lower yield
than longer term bond funds. Given the quality of the Portfolios' holdings,
which must be investment grade (rated within the top four categories) or
comparable to investment grade securities at the time of purchase, the
Portfolios will accept lower yields in order to avoid the credit concerns
experienced by funds that invest in lower quality fixed income securities.
WTC's goal in managing the Municipal Bond Portfolio is to achieve high
interest income that is exempt from federal income tax and to preserve capital
by analyzing the market complexities and individual security attributes that
affect the returns of municipal securities and other types of fixed income
securities. The Portfolio is intended to appeal to investors who want high
current tax-free income with moderate price fluctuations.
<PAGE>
Given the intermediate average duration of the Municipal Bond Portfolio's
holdings and the current interest rate environment, the Portfolio should
experience smaller price fluctuations than those experienced by longer term
municipal funds and a higher yield than fixed-price tax-exempt money market
funds. Of course, the Portfolio will likely experience larger price fluctuations
than money market funds and a lower yield than longer term municipal funds.
Given the quality of its holdings, which must be investment grade (rated within
the top four categories) or comparable to investment grade securities at the
time of purchase, the Portfolio should also experience lesser price fluctuations
(as well as lower yields) than those experienced by funds that invest in lower
quality tax-exempt securities. In addition, although the Portfolio expects to
invest substantially all of its net assets in municipal securities that provide
interest income that is exempt from federal income tax, it may invest up to 20%
of its net assets in other types of fixed income securities that provide
federally taxable income.
INVESTMENTS AND STRATEGIES -- ALL PORTFOLIOS
FIXED INCOME SECURITIES WITH BUY-BACK FEATURES. Fixed income securities
with buy-back features enable the Portfolios to recover principal upon tendering
the securities to the issuer or a third party. These buy-back features are often
supported by letters of credit issued by domestic or foreign banks. In
evaluating a foreign bank's credit, WTC considers whether adequate public
information about the bank is available and whether the bank may be subject to
unfavorable political or economic developments, currency controls or other
governmental restrictions that could adversely affect the bank's ability to
honor its commitment under the letter of credit. The Municipal Bond Portfolio
will not acquire municipal securities with buy-back features if, in the opinion
of counsel, the existence of a buy-back feature would alter the tax-exempt
nature of interest payments on the underlying securities and cause those
payments to be taxable to that Portfolio and its shareholders.
Buy-back features include standby commitments, put bonds and demand
features.
STANDBY COMMITMENTS. The Portfolios may acquire standby commitments
from broker-dealers, banks or other financial intermediaries to enhance
the liquidity of portfolio securities. A standby commitment entitles a
Portfolio to same day settlement at amortized cost plus accrued interest,
if any, at the time of exercise. The amount payable by the issuer of the
standby commitment during the time that the commitment is exercisable
generally approximates the market value of the securities underlying the
commitment. Standby commitments are subject to the risk that the issuer of
a commitment may not be in a position to pay for the securities at the
time that the commitment is exercised.
Ordinarily, a Portfolio will not transfer a standby commitment to a
third party, although the Portfolio may sell securities subject to a
standby commitment at any time. A Portfolio may purchase standby
commitments separate from or in conjunction with the purchase of the
securities subject to the commitments. In the latter case, the Portfolio
may pay a higher price for the securities acquired in consideration for
the commitment.
PUT BONDS. A put bond (also referred to as a tender option or third
party bond) is a bond created by coupling an intermediate or long-term
fixed rate bond with an agreement giving the holder the option of
tendering the bond to receive its par value. As consideration for
providing this tender option, the sponsor of the bond (usually a bank,
broker-dealer or other financial intermediary) receives periodic fees that
equal the difference between the bond's fixed coupon rate and the rate
(determined by a remarketing or similar agent) that would cause the bond,
coupled with the tender option, to trade at par. By paying the tender
offer fees, a Portfolio in effect holds a demand obligation that bears
interest at the prevailing short-term rate.
In selecting put bonds for the Portfolios, WTC takes into
consideration the creditworthiness of the issuers of the underlying bonds
and the creditworthiness of the providers of the tender option features. A
sponsor may withdraw the tender option feature if the issuer of the
2
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underlying bond defaults on interest or principal payments, the bond's
rating is downgraded or, in the case of a municipal bond, the bond loses
its tax-exempt status.
DEMAND FEATURES. Many variable rate securities carry demand features
that permit the holder to demand repayment of the principal amount of the
underlying securities plus accrued interest, if any, upon a specified
number of days' notice to the issuer or its agent. A demand feature may be
exercisable at any time or at specified intervals. Variable rate
securities with demand features are treated as having a maturity equal to
the time remaining before the holder can next demand payment of principal.
The issuer of a demand feature instrument may have a corresponding right
to prepay the outstanding principal of the instrument plus accrued
interest, if any, upon notice comparable to that required for the holder
to demand payment.
GUARANTEED INVESTMENT CONTRACTS. A guaranteed investment contract ("GIC")
is a general obligation of an insurance company. A GIC is generally structured
as a deferred annuity under which the purchaser agrees to pay a given amount of
money to an insurer (either in a lump sum or in installments) and the insurer
promises to pay interest at a guaranteed rate (either fixed or variable) for the
life of the contract. Some GICs provide that the insurer may periodically pay
discretionary excess interest over and above the guaranteed rate. At the GIC's
maturity, the purchaser generally is given the option of receiving payment or an
annuity. Certain GICs may have features which permit redemption by the issuer at
a discount from par value.
Generally, GICs are not assignable or transferable without the permission
of the issuer. As a result, the acquisition of GICs is subject to the
limitations applicable to each Portfolio's acquisition of illiquid and
restricted securities. The holder of a GIC is dependent on the creditworthiness
of the issuer as to whether the issuer is able to meet its obligations. No
Portfolio intends to invest more than 5% of its net assets in GICs.
ILLIQUID SECURITIES. A Portfolio may not purchase or otherwise acquire any
security or invest in a repurchase agreement if, as a result, more than 15% of
the Portfolio's net assets (taken at current value) would be invested in
illiquid securities. For purposes of this limitation, repurchase agreements not
entitling the holder to payment of principal within seven days and securities
that are illiquid by virtue of legal or contractual restrictions on resale
("restricted securities") or the absence of a readily available market are
considered illiquid. All or a portion of the value of the instrument underlying
an over-the-counter option may be illiquid depending on the assets held to cover
the option and the nature and terms of any agreement a Portfolio may have to
close out the option before expiration.
Restricted securities may be sold only in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933 ("1933 Act") or in a registered public offering. Where registration
is required, a Portfolio may be obligated to pay all or part of the registration
expense and a considerable period may elapse before the Portfolio may sell the
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it initially decided to sell the security.
In recent years, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. These instruments are often
restricted securities because the securities are either themselves exempt from
registration or sold in transactions not requiring registration. Institutional
investors generally will not seek to sell these instruments to the general
public, but instead will often depend either on an efficient institutional
market in which such unregistered securities can be readily resold or on an
issuer's ability to honor a demand for repayment. Therefore, the fact that there
are contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of such investments.
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To facilitate the increased size and liquidity of the institutional
markets for unregistered securities, the SEC adopted Rule 144A under the 1933
Act. Rule 144A establishes a "safe harbor" from the registration requirements of
the 1933 Act for resale of certain securities to qualified institutional buyers.
Institutional markets for restricted securities have developed as a result of
Rule 144A, providing both readily ascertainable values for restricted securities
and the ability to liquidate an investment to satisfy share redemption orders.
Such markets include automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. An
insufficient number of qualified institutional buyers interested in purchasing
Rule 144A-eligible restricted securities held by a Portfolio, however, could
affect adversely the marketability of such portfolio securities, and a Portfolio
might be unable to dispose of such securities promptly or at reasonable prices.
The Board of Trustees has the ultimate responsibility for determining
whether 144A securities are liquid or illiquid. The Board has delegated the
function of making day-to-day determinations of liquidity to WTC pursuant to
guidelines approved by the Board. WTC monitors the liquidity of 144A securities
in each Portfolio's portfolio and reports periodically on such decisions to the
Trustees. WTC takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades for the security, (2) the
number of dealers that made quotes for the security, (3) the number of dealers
that have undertaken to make a market in the security, (4) the number of other
potential purchasers for the security and (5) the nature of the security and how
trading is effected (E.G., the time needed to sell the security, how offers are
solicited and the mechanics of the transfer).
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities
representing interests in a pool of mortgages secured by real property.
Government National Mortgage Association ("GNMA") mortgage-backed
securities are securities representing interests in pools of mortgage loans to
residential home buyers made by lenders such as mortgage bankers, commercial
banks and savings associations and are either guaranteed by the Federal Housing
Administration or insured by the Veterans Administration. Timely payment of
interest and principal on each mortgage loan is backed by the full faith and
credit of the U.S. Government.
The Federal National Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("FHLMC") both issue mortgage-backed securities that are
similar to GNMA securities in that they represent interests in pools of mortgage
loans. FNMA guarantees timely payment of interest and principal on its
certificates and FHLMC guarantees timely payment of interest and ultimate
payment of principal. FHLMC also has a program under which it guarantees timely
payment of scheduled principal as well as interest. FNMA and FHLMC guarantees
are backed only by those agencies and not by the full faith and credit of the
U.S. Government.
In the case of mortgage-backed securities that are not backed by the U.S.
Government or one of its agencies, a loss could be incurred if the collateral
backing these securities is insufficient. This may occur even though the
collateral is U.S. Government-backed.
Most mortgage-backed securities pass monthly payment of principal and
interest through to the holder after deduction of a servicing fee. However,
other payment arrangements are possible. Payments may be made to the holder on a
different schedule than that on which payments are received from the borrower,
including, but not limited to, weekly, bi-weekly and semiannually. The monthly
principal and interest payments also are not always passed through to the holder
on a PRO RATA basis. In the case of collateralized mortgage obligations
("CMOs"), the pool is divided into two or more tranches and special rules for
the disbursement of principal and interest payments are established.
CMO residuals are derivative securities that generally represent interests
in any excess cash flow remaining after making required payments of principal
and interest to the holders of the CMOs described above. Yield to maturity on
CMO residuals is extremely sensitive to prepayments. In addition, if a series of
a CMO includes a class that bears interest at an adjustable rate, the yield to
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maturity on the related CMO residual also will be extremely sensitive to the
level of the index upon which interest rate adjustments are based.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities and may be issued by agencies or instrumentalities of the
U.S. Government or by private mortgage lenders. SMBS usually are structured with
two classes that receive different proportions of the interest and/or principal
distributions on a pool of mortgage assets. A common type of SMBS will have one
class of holders receiving all interest payments -- "interest only" or "IO" --
and another class of holders receiving the principal repayments -- "principal
only" or "PO." The yield to maturity of IO and PO classes are extremely
sensitive to prepayments on the underlying mortgage assets.
MUNICIPAL SECURITIES. Municipal securities are debt obligations issued by
or on behalf of states, territories and possessions of the United States, the
District of Columbia and their sub-divisions, agencies and instrumentalities,
the interest on which is, in the opinion of bond counsel, exempt from federal
income tax. These debt obligations are issued to obtain funds for various public
purposes, such as the construction of public facilities, the payment of general
operating expenses or the refunding of outstanding debts. They may also be
issued to finance various privately owned or operated activities. The three
general categories of municipal securities are general obligation, revenue or
special obligation and private activity municipal securities.
GENERAL OBLIGATION SECURITIES. The proceeds from general obligation
securities are used to fund a wide range of public projects, including the
construction or improvement of schools, highways and roads, and water and
sewer systems. These obligations are secured by the municipality's pledge
of principal and interest and are payable from the municipality's general
unrestricted revenues.
REVENUE OR SPECIAL OBLIGATION SECURITIES. The proceeds from revenue
or special obligation securities are used to fund a wide variety of
capital projects, including electric, gas, water and sewer systems;
highways, bridges and tunnels; port and airport facilities; colleges and
universities; and hospitals. These obligations are secured by revenues
from a specific facility or group of facilities or, in some cases, from a
specific revenue source such as an excise tax. Many municipal issuers also
establish a debt service reserve fund from which principal and interest
payments are made. Further security may be available in the form of the
state's ability, without obligation, to make up deficits in the reserve
fund.
MUNICIPAL LEASE OBLIGATIONS. These revenue or special obligation
securities may take the form of a lease, an installment purchase or a
conditional sale contract issued by state and local governments and
authorities to acquire land, equipment and facilities. Usually, the
Portfolios will purchase a participation interest in a municipal lease
obligation from a bank or other financial intermediary. The
participation interest gives the holder a pro rata, undivided interest
in the total amount of the obligation.
Municipal leases frequently have risks distinct from those
associated with general obligation or revenue bonds. The interest
income from the lease obligation may become taxable if the lease is
assigned. Also, to free the municipal issuer from constitutional or
statutory debt issuance limitations, many leases and contracts include
non-appropriation clauses providing that the municipality has no
obligation to make future payments under the lease or contract unless
money is appropriated for that purpose by the municipality on a yearly
or other periodic basis. Finally, the lease may be illiquid.
RESOURCE RECOVERY BONDS. A number of factors may affect the value
and credit quality of these revenue or special obligations. These
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factors include the viability of the project being financed,
environmental protection regulations and project operator tax
incentives.
PRIVATE ACTIVITY SECURITIES. Private activity securities may be
issued by municipalities to finance privately owned or operated
educational, hospital or housing facilities, local facilities for water
supply, gas, electricity, sewage or solid waste disposal, and industrial
or commercial facilities. The payment of principal and interest on these
obligations generally depends upon the credit of the private owner/user of
the facilities financed and, in certain instances, the pledge of real and
personal property by the private owner/user. The interest income from
certain types of private activity securities may be considered a tax
preference item for purposes of the federal alternative minimum tax ("Tax
Preference Item").
Short-term municipal securities include the following:
TAX ANTICIPATION NOTES ("TANS") AND REVENUE ANTICIPATION NOTES
("RANS"). These notes are issued by states, municipalities and other
tax-exempt issuers to finance short-term cash needs or, occasionally, to
finance construction. Most TANs and RANs are general obligations of the
issuing entity payable from taxes or revenues, respectively, expected to
be received within one year.
BOND ANTICIPATION NOTES ("BANS"). These notes are issued with the
expectation that principal and interest of the maturing notes will be paid
out of proceeds from bonds to be issued concurrently or at a later date.
BANs are issued most frequently by revenue bond issuers to finance such
items as construction and mortgage purchases.
CONSTRUCTION LOAN NOTES ("CLNS"). These notes are issued primarily
by housing agencies to finance construction of projects for an interim
period prior to a bond issue. CLNs are secured by a lien on the property
under construction.
PARTICIPATION INTERESTS AND ASSET-BACKED SECURITIES. Each Portfolio may
invest in participation interests in fixed income securities. A participation
interest provides the certificate holder with a specified interest in an issue
of fixed income securities. The Portfolios may also purchase participation
interests in pools of securities backed by various types of fixed income
obligations, known as "asset-backed securities." For example, the
Short/Intermediate Bond Portfolio may purchase interests in fixed income
obligations generated by motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property and receivables
from revolving credit card agreements. The Municipal Bond Portfolio may purchase
interests in leases of various types of municipal property.
Some 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. Asset-backed residuals represent interests in any
excess cash flow remaining after required payments of principal and interest
have been made.
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.
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Participation interests purchased at a discount may experience price
volatility. Certain types of interests are sensitive to fluctuations in market
interest rates and to prepayments on the underlying securities. A rapid rate of
prepayment can result in the failure to recover the holder's initial investment.
The extent to which the yield to maturity of a participation interest is
sensitive to prepayments depends, in part, upon whether the interest was
purchased at a discount or premium, and if so, the size of that discount or
premium. Generally, if a participation interest is purchased at a premium and
principal distributions occur at a rate faster than that anticipated at the time
of purchase, the holder's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if a participation interest is
purchased at a discount and principal distributions occur at a rate faster than
that assumed at the time of purchase, the investor's actual yield to maturity
will be higher than that assumed at the time of purchase.
Participation interests in pools of fixed income securities backed by
certain types of debt obligations involve special risk considerations. The
issuers of securities backed by automobile and truck receivables typically file
financing statements evidencing security interests in the receivables, and the
servicers of those obligations take and retain custody of the obligations. If
the servicers, in contravention of their duty to the holders of the securities
backed by the receivables, were to sell the obligations, the third party
purchasers could acquire an interest superior to the interest of the security
holders. Also, most states require that a security interest in a vehicle be
noted on the certificate of title and the certificate of title may not be
amended to reflect the assignment of the lender's security interest. Therefore,
the recovery of the collateral in some cases may not be available to support
payments on the securities. Securities backed by credit card receivables are
generally unsecured, and both federal and state consumer protection laws may
allow set-offs against certain amounts owed.
The Municipal Bond Portfolio will only invest in participation interests
in municipal securities, municipal leases or in pools of securities backed by
municipal assets if, in the opinion of counsel, any interest income on the
participation interest will be exempt from federal income tax to the same extent
as the interest on the underlying securities.
VARIABLE AND FLOATING RATE SECURITIES. Each Portfolio may invest in
variable and floating rate securities. The terms of variable and floating rate
instruments provide for the interest rate to be adjusted according to a formula
on certain predetermined dates. Floating rate securities have interest rates
that change whenever there is a change in a designated base rate while variable
rate securities provide for a specified periodic adjustment in the interest
rate. In both cases, these adjustments are intended to result in the securities
having a market value that approximates their par value.
The variable rate nature of these securities decreases changes in their
value due to interest rate fluctuations. As interest rates decrease or increase,
the potential for capital gain and the risk of capital loss is less than would
be the case for fixed rate securities. Variable and floating rate instruments
with minimum or maximum rates set by state law are subject to somewhat greater
fluctuations in value. Because the adjustment of interest rates on floating and
variable rate securities is made in relation to a designated base rate or rate
adjustment index, interest rates on these securities may be higher or lower than
current market rates for fixed rate obligations of comparable quality with
similar stated maturities. Variable and floating rate instruments that are
repayable on demand at a future date are deemed to have a maturity equal to the
time remaining until the principal will be received on the assumption that the
demand feature is exercised on the earliest possible date. For the purposes of
evaluating the credit risks of variable and floating rate instruments, these
instruments are deemed to have a maturity equal to the time remaining until the
earliest date the holder is entitled to demand repayment of principal.
Each Portfolio may also purchase inverse floaters which are floating rate
instruments whose interest rates bear an inverse relationship to the interest
rate on another security or the value of an index. Changes in the interest rate
on the other security or index inversely affect the interest rate paid on the
inverse floater, with the result that the inverse floater's price is
considerably more volatile than that of a fixed rate security. For example, an
issuer may decide to issue two variable rate instruments instead of a single
long-term, fixed rate bond. The interest rate on one instrument reflects
short-term interest rates, while the interest rate on the other instrument (the
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inverse floater) reflects the approximate rate the issuer would have paid on a
fixed rate bond multiplied by two minus the interest rate paid on the short-term
instrument. Depending on market availability, the two variable rate instruments
may be combined to form a fixed rate bond.
The market for inverse floaters is relatively new.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. Each Portfolio
may buy when-issued securities or sell securities on a delayed-delivery basis.
This means that delivery and payment for the securities normally will take place
approximately 15 to 90 days after the date of the transaction. The payment
obligation and the interest rate that will be received are each fixed at the
time the buyer enters into the commitment. During the period between purchase
and settlement, no payment is made by the purchaser and no interest accrues to
the purchaser. However, when a security is sold on a delayed-delivery basis, the
seller does not participate in further gains or losses with respect to the
security. If the other party to a when-issued or delayed-delivery transaction
fails to transfer or pay for the securities, the Portfolio could miss a
favorable price or yield opportunity or could suffer a loss.
A Portfolio will make a commitment to purchase when-issued securities only
with the intention of actually acquiring the securities, but the Portfolio may
dispose of the commitment before the settlement date if it is deemed advisable
as a matter of investment strategy. A Portfolio may also sell the underlying
securities before they are delivered, which may result in gains or losses. A
separate account for each Portfolio is established at the Fund's custodian bank,
into which cash and/or liquid securities equal to the amount of when-issued
purchase commitments is deposited. If the market value of the deposited
securities declines, additional cash or securities will be placed in the account
on a daily basis to cover the Portfolio's outstanding commitments.
When a Portfolio purchases a security on a when-issued basis, the security
is recorded as an asset on the commitment date and is subject to changes in
market value generally, based upon changes in the level of interest rates. Thus,
upon delivery, the market value of the security may be higher or lower than its
cost, and this may increase or decrease the Portfolio's net asset value. When
payment for a when-issued security is due, a Portfolio will meet its obligations
from then-available cash flow, the sale of the securities held in the separate
account, the sale of other securities or from the sale of the when-issued
securities themselves. The sale of securities to meet a when-issued purchase
obligation carries with it the potential for the realization of capital gains or
losses.
The Municipal Bond Portfolio may purchase securities on a when-issued
basis in connection with the refinancing of an issuer's outstanding indebtedness
("refunding contracts"). These contracts require the issuer to sell and the
Portfolio to buy municipal obligations at a stated price and yield on a
settlement date that may be several months or several years in the future. The
offering proceeds are then used to refinance existing municipal obligations.
Although the Municipal Bond Portfolio may sell its rights under a refunding
contract, the secondary market for these contracts may be less liquid than the
secondary market for other types of municipal securities. The Portfolio
generally will not be obligated to pay the full purchase price if it fails to
perform under a refunding contract. Instead, refunding contracts usually provide
for payment of liquidated damages to the issuer (currently 15-20% of the
purchase price). The Portfolio may secure its obligation under a refunding
contract by depositing collateral or a letter of credit equal to the liquidated
damages provision of the refunding contract. When required by Securities and
Exchange Commission ("SEC") guidelines, the Portfolio will place liquid assets
in a segregated custodial account equal in amount to its obligations under
outstanding refunding contracts.
ZERO COUPON BONDS. Each Portfolio may invest in zero coupon bonds of
governmental or private issuers that generally pay no interest to their holders
prior to maturity. Since zero coupon bonds do not make regular interest
payments, they allow an issuer to avoid the need to generate cash to meet
current interest payments and may involve greater credit risks than bonds paying
interest currently. Tax laws requiring the distribution of accrued discount on
the bonds, even though no cash equivalent thereto has been paid, may cause a
Portfolio to liquidate investments in order to make the required distributions.
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LOANS OF PORTFOLIO SECURITIES. Each Portfolio may from time to time lend
its portfolio securities to brokers, dealers and financial institutions. Such
loans will in no event exceed one-third of the Portfolio's total assets and will
be secured by collateral in the form of cash or securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, which at all times
while the loan is outstanding will be maintained in an amount at least equal to
the current market value of the loaned securities. The Portfolio will retain all
or a portion of the interest received on the investment of cash collateral or
will receive a fee from the borrower. Although voting rights, or rights to
consent, with respect to the loaned securities will pass to the borrower, the
Portfolio will retain the right to call a loan at any time on reasonable notice,
and will do so to exercise voting rights, or rights to consent, on any matter
materially affecting the investment. The Portfolio may also call these loans in
order to sell the securities.
The primary risk involved in lending securities is a financial failure by
the borrower. In such a situation, the borrower might be unable to return the
loaned securities at a time when the value of the collateral has fallen below
the amount necessary to replace the loaned securities. The borrower would be
liable for the shortage, but a Portfolio would be an unsecured creditor with
respect to such shortage and might not be able to recover all or any of it. In
order to minimize this risk, the Portfolios will make loans of securities only
to firms deemed creditworthy by WTC only when, in the judgment of WTC, the
consideration that the Portfolios will receive from the borrower justifies the
risk.
The Municipal Bond Portfolio has no current intention of lending its
portfolio securities and would do so only under unusual market conditions, since
the interest income that a Portfolio receives from lending its securities is
considered taxable income.
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES. Although the
Municipal Bond Portfolio has no current intention of so doing, each Portfolio
may use options, futures contracts and (with respect to the Short/Intermediate
Bond Portfolio and the Intermediate Bond Portfolio only) forward currency
contracts. For additional information regarding such investment strategies, see
Appendix A to this Statement of Additional Information.
MONEY MARKET FUNDS. Each Portfolio may invest in the securities of other
open-end investment companies that seek to maintain a stable net asset value
("Money Market Funds"). Each Portfolio may invest in such securities within the
limits prescribed by the Investment Company Act of 1940 ("1940 Act"). These
limitations currently provide, in part, that a Portfolio may purchase shares of
an investment company unless (a) such a purchase would cause the Portfolio to
own in the aggregate more than 3% of the total outstanding voting stock of the
investment company or (b) such a purchase would cause the Portfolio to have more
than 5% of its total assets invested in the investment company or more than 10%
of its total assets invested in the aggregate in all such investment companies.
In addition to a Portfolio's expenses (including the various fees), as a
shareholder a Money Market Fund, the Portfolio would bear its PRO RATA portion
of the Money Market Fund's expenses (including fees).
INVESTMENTS AND STRATEGIES -- THE MUNICIPAL BOND PORTFOLIO
The Municipal Bond Portfolio may not invest more than 25% of its assets in
any one sector of the municipal securities market, such as the health care,
housing or electric utilities sectors.
HEALTH CARE SECTOR. The health care industry is subject to regulatory
action by a number of private and governmental agencies, including federal,
state and local governmental agencies. A major source of revenues for the
industry is payments from the Medicare and Medicaid programs. As a result, the
industry is sensitive to legislative changes and reductions in governmental
spending for those programs. Numerous other factors may affect the industry,
such as general and local economic conditions; demand for services; expenses
(including malpractice insurance premiums); and competition among health care
providers. In the future, the following may adversely affect the industry:
adoption of legislation proposing a national health insurance program; medical
and technological advances which alter the demand for health services or the way
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in which such services are provided; and efforts by employers, insurers and
governmental agencies to reduce the costs of health insurance and health care
services.
Health care facilities include life care facilities, nursing homes and
hospitals. Bonds to finance these facilities are typically secured by the
revenues from the facilities and not by state or local government tax payments.
Moreover, in the case of life care facilities, since a portion of housing,
medical care and other services may be financed by an initial deposit, there may
be a risk of default in the payment of principal or interest on a bond issue if
the facility does not maintain adequate financial reserves for debt service.
HOUSING SECTOR. Housing revenue bonds typically are issued by state,
county and local housing authorities and are secured only by the revenues of
mortgages originated by those authorities using the proceeds of the bond issues.
Factors that may affect the financing of multi-family housing projects include
acceptable completion of construction, proper management, occupancy and rent
levels, economic conditions and changes in regulatory requirements.
Since the demand for mortgages from the proceeds of a bond issue cannot be
precisely predicted, the proceeds may be in excess of demand, which would result
in early retirement of the bonds by the issuer. Since the cash flow from
mortgages cannot be precisely predicted, differences in the actual cash flow
from the assumed cash flow could have an adverse impact upon the issuer's
ability to make scheduled payments of principal and interest or could result in
early retirement of the bonds.
Scheduled principal and interest payments are often made from reserve or
sinking funds. These reserves are funded from the bond proceeds, assuming
certain rates of return on investment of the reserve funds. If the assumed rates
of return are not realized because of changes in interest rate levels or for
other reasons, the actual cash flow for scheduled payments of principal and
interest on the bonds may be inadequate.
ELECTRIC UTILITIES SECTOR. The electric utilities industry has
experienced, and may experience in the future: problems in financing large
construction programs in an inflationary period; cost increases and delays
caused by environmental considerations (particularly with respect to nuclear
facilities); difficulties in obtaining fuel at reasonable prices; the effects of
conservation on the demand for energy; increased competition from alternative
energy sources; and the effects of rapidly changing licensing and safety
requirements.
SPECIAL CONSIDERATIONS
ALL PORTFOLIOS
YIELD FACTORS. The yields on fixed income securities depend on a variety
of factors, including general debt market conditions, effective marginal tax
rates, general conditions in the municipal securities market, the financial
condition of the issuer, the size of a particular offering, the maturity of the
obligation and the rating of the issue. In an attempt to capitalize on the
differences in the yield and price of fixed income securities of differing
maturities, maturities may be varied according to the structure and level of
interest rates and WTC's expectations of changes in those rates. The interest
rate and price relationships between different categories of fixed income
securities of the same or generally similar maturity tend to reflect broad
swings in interest rates and relative supply and demand. Disparities in yield
relationships may afford opportunities to invest in more attractive market
sectors or specific issues. Changing preferences and circumstances of lenders
and borrowers in different market sectors may also present market trading
opportunities. WTC may sell securities held for brief periods of time if it
believes that a transaction, net of costs (including taxes with respect to the
Municipal Bond Portfolio), will improve the overall return of a Portfolio.
RATINGS. Moody's and S&P are private services that provide ratings of the
credit quality of debt obligations. A description of the ratings assigned by
Moody's and S&P to the securities in which the Portfolios may invest is included
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in Appendix B to this Statement of Additional Information. These ratings
represent the opinions of these rating services as to the quality of the
securities which they undertake to rate. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. WTC attempts to
discern variations in credit rankings of the rating services and to anticipate
changes in credit ranking. However, subsequent to purchase by a Portfolio, an
issue of securities may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Portfolio. In that event, WTC will
consider whether it is in the best interest of the Portfolio to continue to hold
the securities.
CREDIT RISK. Although each Portfolio's quality standards are designed to
minimize the credit risk of investments by the Portfolio, that risk cannot be
entirely eliminated. The securities in which a Portfolio may invest are subject
to the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any, which may be enacted by Congress or the state legislatures extending the
time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations. There is also the possibility
that litigation or other conditions may adversely affect the power or ability of
issuers to meet interest and principal payments on their debt obligations.
THE MUNICIPAL BOND PORTFOLIO
PROPOSED LEGISLATION. From time to time, proposals have been introduced
before Congress for the purpose of restricting or eliminating the federal income
tax exemption for interest on debt obligations issued by states and their
political subdivisions. For example, federal tax law now limits the types and
amounts of tax-exempt bonds issuable for industrial development and other types
of private activities. These limitations may affect the future supply and yields
of private activity securities. Further proposals affecting the value of
tax-exempt securities may be introduced in the future. In addition, proposals
have been made, such as that involving the "flat tax," that could reduce or
eliminate the value of that exemption. If the availability of municipal
securities for investment or the value of the Municipal Bond 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.
INVESTMENT LIMITATIONS
The investment limitations described below are fundamental and may not be
changed with respect to any Portfolio without the affirmative vote of the lesser
of (i) 67% of the shares of the affected Portfolio present at a shareholders'
meeting if the holders of more than 50% of the outstanding shares of the
Portfolio are present in person or by proxy or (ii) more than 50% of the
outstanding shares of the Portfolio.
Each Portfolio will not as a matter of fundamental policy:
(1) purchase securities of any one issuer if as a result more than
5% of the Portfolio's total assets would be invested in such issuer or the
Portfolio would own or hold 10% or more of the outstanding voting
securities of that issuer, except that up to 25% of the Portfolio's total
assets may be invested without regard to these limitations and provided
that these limitations do not apply to securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities;
(2) purchase securities of any issuer if, as a result, more than 25%
of its total assets would be invested in securities of a particular
industry, provided that this limitation does not apply to securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (including repurchase agreements fully collateralized by
U.S. Government obligations) or to tax-exempt municipal securities;
(3) borrow money, except (i) from a bank for temporary or emergency
purposes (not for leveraging or investment) or (ii) by engaging in reverse
repurchase agreements, provided that borrowings do not exceed an amount
equal to one-third of the current value of the Portfolio's assets taken at
market value, less liabilities other than borrowings;
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(4) underwrite any issue of securities, except to the extent that
the Portfolio may be considered to be acting as underwriter in connection
with (i) the disposition of any portfolio security, or (ii) the
disposition of restricted securities;
(5) purchase or sell real estate or real estate limited partnership
interests, but this limitation shall not prevent the Portfolio from
investing in obligations secured by real estate or interests therein or
obligations issued by companies that invest in real estate or interests
therein, including real estate investment trusts;
(6) invest in commodities or commodity contracts, except financial
and foreign currency futures contracts and options thereon, options on
foreign currencies and forward currency contracts;
(7) make loans, except by (i) the purchase of a portion of an issue
of debt securities in accordance with the Portfolio's investment
objective, policies and limitations, (ii) engaging in repurchase
agreements, or (iii) engaging in securities loan transactions limited to
one-third of the Portfolio's total assets; or
(8) issue senior securities, except as appropriate to evidence
indebtedness that the Portfolio is permitted to incur, and provided that
the Portfolio may issue shares of additional series or classes that the
Trustees may establish, and provided further that futures, options and
forward currency transactions will not be deemed to be senior securities
for this purpose.
The following non-fundamental policies have been adopted by the
Fund's Board of Trustees with respect to each Portfolio and may be changed
by the Board of Trustees without shareholder approval. As a matter of
non-fundamental policy, each Portfolio will not:
(1) purchase or otherwise acquire any security or invest in a
repurchase agreement with respect to any securities if, as a result, more
than 15% of the Portfolio's net assets (taken at current value) would be
invested in repurchase agreements not entitling the holder to payment of
principal within seven days and in securities that are illiquid by virtue
of legal or contractual restrictions on resale or the absence of a readily
available market. Securities used to cover over-the-counter ("OTC") call
options written by the Portfolio are considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Portfolio may
repurchase any OTC options it writes for a maximum price to be calculated
by a formula set forth in the option agreement. The cover for an OTC call
option written subject to this procedure is considered illiquid only to
the extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option;
(2) purchase securities for investment while any bank borrowing
equaling 5% or more of the Portfolio's total assets is outstanding;
(3) pledge, mortgage or hypothecate the Portfolio's assets except
the Portfolio may pledge securities having a market value at the time of
the pledge not exceeding one-third of the value of the Portfolio's total
assets to secure borrowing, and the Portfolio may deposit initial and
variation margin in connection with transactions in futures contracts and
options on futures contracts;
(4) make short sales of securities except that the Portfolio may
make short sales against the box;
(5) purchase securities on margin, except that (i) the Portfolio may
obtain short-term credit for the clearance of transactions; and (ii) the
Portfolio may make initial margin deposits and variation margin payments
in connection with transactions in futures contracts and options thereon;
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(6) when engaging in options, futures and forward currency contract
strategies, a Portfolio will either: (i) set aside cash or liquid
securities in a segregated account with the Fund's custodian in the
prescribed amount; or (ii) hold securities or other options or futures
contracts whose values are expected to offset ("cover") its obligations
thereunder. Securities, currencies or other options or futures contracts
used for cover cannot be sold or closed out while the strategy is
outstanding, unless they are replaced with similar assets;
(7) purchase or sell non-hedging futures contracts or related
options if aggregate initial margin and premiums required to establish
such positions would exceed 5% of the Portfolio's total assets. For
purposes of this limitation, unrealized profits and unrealized losses on
any open contracts are taken into account and the in-the-money amount of
an option that is in-the-money at the time of purchase is excluded; or
(8) write put or call options having aggregate exercise prices
greater than 25% of the Portfolio's net assets, except with respect to
options attached to or acquired with or traded together with their
underlying securities and securities that incorporate features similar to
options.
Whenever an investment policy or limitation states a maximum percentage of
a Portfolio's assets that may be invested in any security or other asset or sets
forth a policy regarding quality standards, that percentage shall be determined,
or that standard shall be applied, immediately after the Portfolio's acquisition
of the security or other asset. Accordingly, any later increase or decrease
resulting from a change in the market value of a security or in the Portfolio's
net or total assets will not cause the Portfolio to violate a percentage
limitation. Similarly, any later change in quality, such as a rating downgrade
or the delisting of a warrant, will not cause the Portfolio to violate a quality
standard.
"Value" for the purposes of all investment limitations shall mean the
value used in determining the net asset value of each Portfolio.
TRUSTEES AND OFFICERS
The Fund has a Board, presently composed of five Trustees, which
supervises the Portfolios' activities and reviews contractual arrangements with
companies that provide the Portfolios with services. The Fund's Trustees and
officers are listed below. Except as indicated, each individual has held the
office shown or other offices in the same company for the last five years. All
persons named as Trustees also serve in similar capacities for The Rodney Square
Strategic Equity Fund and, with the exception of Nina M. Webb, The Rodney Square
Fund and The Rodney Square Tax-Exempt Fund. Those Trustees who are "interested
persons" of the Fund (as defined in the 1940 Act) by virtue of their positions
with Rodney Square Management Corporation ("RSMC") or WTC are indicated by an
asterisk (*).
ERIC BRUCKER, School of Management, University of Michigan, Dearborn, MI 48128,
Trustee, age 56, has been Dean of the School of Management at the University of
Michigan since June 1992. He was Professor of Economics, Trenton State College
from September 1989 through June 1992. He was Vice President for Academic
Affairs, Trenton State College from September 1989 through June 1991. From 1976
until September 1989, he was Dean of the College of Business and Economics and
Chairman of various committees at the University of Delaware. He is also a
member of the Detroit Economic Club, Financial Executive Institute and
Leadership Detroit.
FRED L. BUCKNER, 5 Hearth Lane, Greenville, DE 19807, Trustee, age 66, has
retired as President and Chief Operating Officer of Hercules Incorporated
(diversified chemicals), positions he held from March 1987 through March 1992.
He also served as a member of the Hercules Incorporated Board of Directors from
1986 through March 1992.
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*ROBERT J. CHRISTIAN, Rodney Square North, 1100 N. Market St., Wilmington, DE
19890-0001, President and Trustee, age 49, has been Chief Investment Officer of
WTC since February 1996 and Director of RSMC since February 1996. He was
Chairman and Director of PNC Equity Advisors Company, and President and Chief
Investment Officer of PNC Asset Management Group, Inc. from 1994 to 1996. He was
Chief Investment Officer of PNC Bank, N.A. from 1992 to 1996, Director of
Provident Capital Management from 1993 to 1996, and Director of Investment
Strategy PNC Bank, N.A. from 1989 to 1992. He is also a Trustee of LaSalle
University and a member of the Board of Governors for the Pennsylvania Economy
League.
JOHN J. QUINDLEN, 313 Southwinds, 1250 West Southwinds Blvd., Vero Beach, FL
32963, Trustee, age 66, has retired as Senior Vice President-Finance of E.I. du
Pont de Nemours and Company, Inc. (diversified chemicals) a position he held
from 1984 to November 30, 1993. He served as Chief Financial Officer of E.I. du
Pont de Nemours and Company, Inc. from 1984 through June 30, 1993. He also
serves as a director of St. Joe Paper Co. and a Trustee of Kalmar Pooled
Investment Trust.
*NINA M. WEBB, CFA, Rodney Square North, 1100 N. Market St., Wilmington, DE
19890-0001, Vice President and Trustee, age 44, has been an Equity Portfolio
Manager at WTC since March 1987. A Chartered Financial Analyst, she previously
was employed by the University of Delaware as Senior Investment Analyst
(1985-86), Investment Analyst (1982-85), and
Accountant (1976-82).
JOSEPH M. FAHEY, JR., Rodney Square North, 1100 N. Market St., Wilmington, DE
19890-0001, Vice President, age 41, has been with RSMC since 1984, a Secretary
of RSMC since 1986, a Director of RSMC since 1989 and a Vice President of RSMC
since 1992. He was an Assistant Vice President of RSMC from 1988 to January
1992.
JOHN J. KELLEY, CFA, 400 Bellevue Parkway, Wilmington, DE 19809, Vice President
and Treasurer, age 38, has been Vice President of PFPC Inc. ("PFPC") since
January 1998. He was a Vice President of RSMC from 1995 to January 1998 and an
Assistant Vice President of RSMC from 1989 to 1995.
CARL M. RIZZO, ESQ., Rodney Square North, 1100 N. Market Street, Wilmington, DE
19890-0001, Secretary, age 46, was appointed Vice President of RSMC in July,
1996. From 1995 to 1996 he was Assistant General Counsel of Aid Association for
Lutherans (a fraternal benefit association); from 1994 to 1995 Senior Associate
Counsel of United Services Automobile Association (an insurance and financial
services firm); and from 1987 to 1994 Special Counsel or Attorney-Adviser with a
federal government agency.
The fees and expenses of the Trustees who are not "interested persons" of
the Fund ("Independent Trustees"), as defined in the 1940 Act, are paid by the
Portfolios. The Portfolios may also reimburse the Independent Trustees for
expenses incurred in attending meetings of the Board. For the fiscal year ended
October 31, 1997, such fees and expenses amounted to $5,400 per Portfolio. The
following table shows the fees paid during calendar 1997 to the Independent
Trustees for their services to the Fund and to the Rodney Square Family of
Funds. On March 31, 1998, the Trustees and officers of the Fund, as a group,
owned beneficially, or may be deemed to have owned beneficially, less than 1% of
the outstanding shares of the Short/Intermediate Bond Portfolio and the
Municipal Bond Portfolio.
1997 Trustees Fees
Total Fees from Total Fees from the Rodney
Independent Trustee the Fund Square Family of Funds
------------------- -------- ----------------------
Eric Brucker $3,600 $12,700
Fred L Buckner $3,600 $12,700
John J. Quindlen $3,600 $12,700
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WILMINGTON TRUST COMPANY
The Investment Adviser to the Fund, WTC, is a state-chartered bank
organized as a Delaware corporation in 1903. WTC is a wholly owned subsidiary of
Wilmington Trust Corporation, a publicly held bank holding company. The Fund
benefits from the experience, conservative values and special heritage of WTC.
WTC is a financially strong bank and enjoys a reputation for providing
exceptional consistency, stability and discipline in managing both short-term
and long-term investments. WTC is Delaware's largest full-service bank and, with
more than $114.4 billion in trust, custody and investment management assets, WTC
ranks among the nation's leading money management firms. As of December 31,
1997, the trust department of WTC had $38.4 billion in discretionary assets
under management. WTC is engaged in a variety of investment advisory activities,
including the management of collective investment pools, and has nearly a
century of experience managing the personal investments of high net-worth
individuals. Its current roster of institutional clients includes several
Fortune 500 companies. In addition to serving as Investment Adviser to the Fund,
WTC also manages over $3.8 billion in fixed income assets and $1.4 billion in
equity assets for various other institutional clients. Certain departments in
WTC engage in investment management activities that utilize a variety of
investment instruments such as futures contracts, options and forward contracts.
Of course, there can be no guarantee that the Portfolios will achieve their
investment objectives or that WTC will perform its services for each in a manner
which would cause it to satisfy its objective. WTC is also the Custodian of the
Fund's assets.
Several affiliates of WTC are also engaged in the investment advisory
business. Wilmington Trust FSB, a wholly owned subsidiary of Wilmington Trust
Corporation, exercises investment discretion over certain institutional
accounts. Wilmington Brokerage Services Company, a wholly owned subsidiary of
WTC, is a registered investment adviser and a registered broker-dealer.
INVESTMENT ADVISORY SERVICES
ADVISORY AGREEMENT. WTC serves as Investment Adviser to each of the
Portfolios pursuant to an Advisory Agreement with the Fund (the "Advisory
Agreement"). Under the Advisory Agreement, WTC directs the investments of each
Portfolio in accordance with that Portfolio's investment objective, policies and
limitations.
For WTC's services under the Advisory Agreement, each Portfolio pays WTC a
monthly fee at an annual rate of 0.35% of the Portfolio's average daily net
assets. For the fiscal years ended October 31, 1997, 1996, and 1995, of the
$157,518, $164,315, and $158,066, respectively, paid in advisory fees by the
Short/Intermediate Bond Portfolio, WTC waived $148,754, $144,473 and $156,223,
respectively, for providing advisory services to that Portfolio. For the fiscal
years ended October 31, 1997, 1996, and 1995, WTC waived all of its advisory fee
for providing advisory services to the Municipal Bond Portfolio amounting to
$82,587, $81,460 and $73,172, respectively.
Under the Advisory Agreement, the Fund, on behalf of the Portfolios,
assumes responsibility for paying all Fund expenses other than those expressly
stated to be payable by WTC. Such expenses include without limitation: (a) fees
payable for administrative services; (b) fees payable for accounting services;
(c) the cost of obtaining quotations for calculating the value of the assets of
the Portfolios; (d) interest and taxes; (e) brokerage commissions, dealer
spreads and other costs in connection with the purchase or sale of securities;
(f) compensation and expenses of its Trustees other than those who are
"interested persons" of the Fund (as defined in the 1940 Act); (g) legal and
audit expenses; (h) fees and expenses related to the registration and
qualification of the Fund and its shares for distribution under state and
federal securities laws; (i) expenses of typesetting, printing and mailing
reports, notices and proxy material to shareholders of the Fund; (j) all other
expenses incidental to holding meetings of the Fund's shareholders, including
proxy solicitations therefor; (k) premiums for fidelity bond and other insurance
coverage; (l) the Fund's association membership dues; (m) expenses of
typesetting for printing Prospectuses; (n) expenses of printing and distributing
Prospectuses to existing shareholders; (o) out-of-pocket expenses incurred in
connection with the provision of custodial and transfer agency services; (p)
service fees payable by each Portfolio to the Distributor for providing personal
services to the shareholders of each Portfolio and for maintaining shareholder
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accounts for those shareholders; (q) distribution fees; and (r) such
non-recurring expenses as may arise, including costs arising from threatened
actions, actions, suits and proceedings to which the Fund is a party and the
legal obligation which the Fund may have to indemnify its Trustees and officers
with respect thereto.
The Advisory Agreement provides that WTC shall not be liable to the Fund
or to any shareholder of the Fund for any act or omission in the course of, or
connected with, rendering services under the Agreement or for any losses that
may be sustained in the purchase, holding or sale of any security or the making
of any investment for or on behalf of the Portfolios, in the absence of WTC's
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties under the Agreement.
The Advisory Agreement continues in effect from year to year as long as
its continuance is approved at least annually by a majority of the Trustees,
including a majority of the Independent Trustees
The Advisory Agreement terminates automatically in the event of its
assignment. The Agreement is also terminable (i) by the Fund (by vote of the
Board of Trustees or by vote of a majority of the outstanding voting securities
of the Portfolio), without payment of any penalty, on 60 days' written notice to
WTC; or (ii) by WTC on 60 days' written notice to the Fund.
ADMINISTRATION AND ACCOUNTING SERVICES
Under an Administration and Accounting Services Agreement with the Fund,
PFPC, 400 Bellevue Parkway, Wilmington, Delaware 19809, performs certain
administrative and accounting services for the Fund. These services include
preparing shareholder reports, providing statistical and research data,
assisting WTC in compliance monitoring activities, and preparing and filing
federal and state tax returns on behalf of the Portfolios. In addition, PFPC
prepares and files various reports with the appropriate regulatory agencies and
prepares materials required by the SEC or any state securities commission having
jurisdiction over the Fund. The accounting services performed by PFPC for the
Portfolios include determining the net asset value per share of each portfolio
and maintaining records relating to the Portfolios' securities transactions.
The Administration and Accounting Services Agreement provides that PFPC
and its affiliates shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund or its Portfolios in connection with
the matters to which the Administration and Accounting Services Agreement
relates, except to the extent of a loss resulting from willful misfeasance, bad
faith or gross negligence on their part in the performance of their obligations
and duties under the Administration and Accounting Services Agreement.
Under a Secretarial Services Agreement with the Fund, RSMC performs
certain corporate secretarial services on behalf of the Portfolios. These
services include 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 of 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.
Prior to February 23, 1998, RSMC provided administrative and accounting
services for the Short/Intermediate Bond Portfolio and the Municipal Bond
Portfolio. For the fiscal years ended October 31, 1997, October 31, 1996 and
October 31, 1995, RSMC was paid administration fees on behalf of the
Short/Intermediate Bond Portfolio amounting to $25,203, $26,291 and $25,290,
respectively. For the fiscal years ended October 31, 1997, October 31, 1996 and
October 31, 1995, RSMC waived its administration fees for the Municipal Bond
Portfolio of $13,578, $13,428 and $12,290, respectively. For each of the fiscal
years ended October 31, 1997, October 31, 1996 and October 31, 1995, RSMC was
paid an accounting services fee of $50,000 with respect to each Portfolio, of
which it waived $34,363, $9,981 and $22,728, respectively, for the Municipal
Bond Portfolio.
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<PAGE>
DISTRIBUTION AGREEMENT
RSD serves as Distributor of Portfolio shares pursuant to a Distribution
Agreement with the Fund, effective February 23, 1998. For the fiscal year ended
October 31, 1997, RSD received underwriting commissions of $582 and $936,
respectively, in connection with the sales of shares of the Short/Intermediate
Bond Portfolio and Municipal Bond Portfolio. For the fiscal year ended October
31, 1996, RSD received underwriting commissions of $1,824 and $3,222,
respectively, in connection with the sale of shares of the Short/Intermediate
Bond Portfolio and Municipal Bond Portfolio. For the fiscal year ended October
31, 1995, RSD received underwriting commissions of $4,942 and $1,800,
respectively, in connection with the sale of shares of the Short/Intermediate
Bond Portfolio and Municipal Bond Portfolio. Under the current Distribution
Agreement, RSD receives no underwriting commissions or Rule 12b-1 fees in
connection with the sales of shares of the Portfolios.
Pursuant to the terms of the Distribution Agreement, RSD is granted the
right to sell shares of the Portfolios as agent for the Fund.
The Distribution Agreement provides that RSD, in the absence of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the Agreement, will not
be liable to the Fund or its shareholders for losses arising in connection with
the sale of Portfolio shares.
The Distribution Agreement continues in effect from year to year as long
as its continuance is approved at least annually by a majority of the Trustees,
including a majority of the Independent Trustees. The Distribution Agreement
terminates automatically in the event of its assignment. The Agreement is also
terminable without payment of any penalty with respect to either Portfolio (i)
by the Fund (by vote of a majority of the Trustees of the Fund who are not
interested persons of the Fund or by vote of a majority of the outstanding
voting securities of the Fund) on 60 days' written notice to RSD; or (ii) by RSD
on 60 days' written notice to the Fund.
REDEMPTIONS
To ensure proper authorization before redeeming shares of the Portfolios,
PFPC may require additional documents such as, but not restricted to, stock
powers, trust instruments, death certificates, appointments as fiduciary,
certificates of corporate authority and tax waivers required in some states when
settling estates.
Clients of WTC who have purchased shares through their trust accounts at
WTC and clients of Service Organizations who have purchased shares through their
accounts with those Service Organizations should contact WTC or the Service
Organization prior to submitting a redemption request to ensure that all
necessary documents accompany the request. When shares are held in the name of a
corporation, other organization, trust, fiduciary or other institutional
investor, PFPC requires, in addition to the stock power, certified evidence of
authority to sign the necessary instruments of transfer. THESE PROCEDURES ARE
FOR THE PROTECTION OF SHAREHOLDERS AND SHOULD BE FOLLOWED TO ENSURE PROMPT
PAYMENT. Redemption requests must not be conditional as to date or price of the
redemption. Redemption proceeds will be sent within 7 days of acceptance of
shares tendered for redemption. Delay may result if the purchase check has not
yet cleared, but the delay will be no longer than required to verify that the
purchase check has cleared, and the Fund will act as quickly as possible to
minimize delay.
The value of shares redeemed may be more or less than the shareholder's
cost, depending on the net asset value at the time of redemption. Redemption of
shares may result in tax consequences (gain or loss) to the shareholder, and the
proceeds of a redemption may be subject to backup withholding. (See "Dividends,
Other Distributions and Taxes" in the Prospectus.)
A shareholder's right to redeem shares and to receive payment therefor may
be suspended when (a) the New York Stock Exchange (the "Exchange") is closed
other than for customary weekend and holiday closings, (b) trading on the
Exchange is restricted, (c) an emergency exists as a result of which it is not
reasonably practicable to dispose of a Portfolio's securities or to determine
the value of the net assets of a Portfolio, or (d) ordered by a governmental
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body having jurisdiction over the Fund for the protection of the Fund's
shareholders, provided that applicable rules and regulations of the SEC (or any
succeeding governmental authority) shall govern as to whether a condition
described in (b), (c) or (d) exists. In case of such suspension, shareholders of
the affected Portfolio may withdraw their requests for redemption or may receive
payment based on the net asset value of the Portfolio next determined after the
suspension is lifted.
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption by making payment in whole or
in part with readily marketable securities chosen by the Fund and valued in the
same way as they would be valued for purposes of computing the net asset value
of the applicable Portfolio. If payment is made in securities, a shareholder may
incur transaction expenses in converting those securities into cash. The Fund
has elected, however, to be governed by Rule 18f-1 under the 1940 Act, as a
result of which the Fund is obligated to redeem shares solely in cash if the
redemption requests are made by one shareholder account up to the lesser of
$250,000 or 1% of the net assets of the Portfolio during any 90-day period. This
election is irrevocable unless the SEC permits its withdrawal.
PORTFOLIO TRANSACTIONS
All portfolio transactions are placed on behalf of the Portfolios by WTC
pursuant to authority contained in the Advisory Agreement. Most purchases and
sales of securities by the Portfolios are with the issuers or underwriters of,
or dealers in, those securities, acting as principal. There is generally no
stated commission in the case of fixed income securities, but the price paid by
a Portfolio usually includes a dealer spread or mark-up. In underwritten
offerings, the price paid includes a fixed underwriting commission or discount
retained by the underwriter or dealer.
Transactions on U.S. stock exchanges, futures markets and other agency
transactions involve the payment by the Portfolios of negotiated brokerage
commissions. Brokers may charge different commissions based on such factors as
the difficulty and size of the transaction. Transactions in foreign securities
by the Short/Intermediate Bond Portfolio may involve the payment of fixed
brokerage commissions, which may be higher than those in the United States.
During the fiscal years ended October 31, 1997, 1996 and 1995, the Portfolios
paid no brokerage commissions.
The primary objective of WTC in placing orders on behalf of the Portfolios
for the purchase and sale of securities is to obtain best execution at the most
favorable prices through responsible broker-dealers and, where commission rates
are negotiable, at competitive rates. In selecting a broker or dealer to execute
a portfolio transaction, WTC considers among other things: (i) the price of the
securities to be purchased or sold; (ii) the rate of the commission or the
amount of the mark-up to be charged; (iii) the size and difficulty of the order;
(iv) the reliability, integrity, financial condition, general execution and
operational capability of the broker or dealer; and (v) the quality of the
execution and research services provided by the broker or dealer to the Fund and
to other discretionary accounts advised by WTC and its affiliates.
The Portfolios may pay higher commissions in return for execution and
research services, but only if WTC has determined that those commissions are
reasonable in relation to the value of the execution and research services that
have been or will be provided to the Portfolios and to any other discretionary
accounts advised by WTC or its affiliates. In reaching this determination, WTC
will not attempt to place a specific dollar value on the execution and research
services provided or to determine what portion of the compensation should be
related to those services. Execution and research services may include: pricing
services; quotation services; purchase and sale recommendations; the
availability of securities or the purchasers or sellers of securities; analyses
and reports concerning issuers, industries, securities and economic factors and
trends; and functions incidental to the portfolio transactions, such as
clearance and settlement.
Some of WTC's other clients have investment objectives and programs
similar to those of the Portfolios. Occasionally, WTC may make recommendations
to other clients that result in their purchasing or selling securities
simultaneously with the Portfolios. Consequently, the demand for securities
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<PAGE>
being purchased or the supply of securities being sold may increase, and this
could have an adverse effect on the price of those securities. When two or more
clients are simultaneously engaged in the purchase or sale of the same security
and if the entire order cannot be made in a single order, the securities are
allocated among clients in a manner believed to be equitable to each. If two or
more of WTC's clients simultaneously purchase or sell the same security, WTC
allocates the prices and amounts according to a formula considered by the
officers of each affected investment company and by the officers of WTC to be
equitable to each account. While in some cases this practice could have a
detrimental effect upon the price or the value of the security as far as the
Portfolios are concerned, or upon its ability to complete its entire order, in
other cases it is believed that coordination and the ability to participate in
volume transactions will be beneficial to the Portfolios.
On occasion, some of the other accounts advised by WTC may have investment
objectives and policies that are dissimilar to those of the Portfolios, causing
WTC to buy a security for one discretionary account while simultaneously selling
the security for another account. In accordance with applicable SEC regulations,
one discretionary account may sell a security to another account. It is the
policy of WTC not to favor one discretionary account over another in placing
purchase and sale orders. However, there may be circumstances when purchases or
sales for one or more discretionary accounts will have an adverse effect on
other accounts.
PORTFOLIO TURNOVER. The portfolio turnover rate is calculated by dividing
the lesser of a Portfolio's annual purchases or sales of portfolio securities
for the particular fiscal year by the monthly average value of the portfolio
securities owned by the Portfolio during the year, excluding securities whose
maturity or the expiration date at the time of acquisition was one year or less.
A Portfolio's turnover rate is not a limiting factor when WTC considers making a
change in the Portfolio's holdings.
The frequency of portfolio transactions and a Portfolio's turnover rate
will vary from year to year depending on market conditions. The portfolio
turnover rate for the Short/Intermediate Bond Portfolio for the years ended
October 31, 1997 and 1996 was 83.54% and 85.77%, respectively. The portfolio
turnover rate for the Municipal Bond Portfolio for the fiscal years ended
October 31, 1997 and 1996 was 28.56% and 15.91%, respectively. The portfolio
turnover rate for the Intermediate Bond Portfolio for a one year period after
commencement of operations is expected to be less than 100%.
NET ASSET VALUE AND DIVIDENDS
NET ASSET VALUE. The net asset value per share of each Portfolio is
determined by dividing the value of the Portfolio's net assets by the total
number of Portfolio shares outstanding. This determination is made by PFPC as of
the close of regular trading on the Exchange (currently 4:00 p.m., Eastern time)
each day the Fund is open for business. The Fund is open for business on days
when the Exchange, PFPC and the Philadelphia branch office of the Federal
Reserve are open for business ("Business Day").
Securities and other assets for which market quotations are readily
available are valued based upon market quotations, provided such quotations
adequately reflect, in the opinion of WTC, the fair value of those securities.
Currently, such prices are determined using the last reported sale price in the
principal market where the securities are traded or, if no sales are reported
(as in the case of some securities traded over-the-counter), the last reported
bid price, except that in the case of preferred stock and any other equity
securities held by the Short/Intermediate Bond Portfolio or the Intermediate
Bond Portfolio, if no sales are reported in the principal market where the
securities are traded, at the mean between the last reported bid and asked
prices in that market. Debt instruments with remaining maturities of 60 days or
less are valued on the basis of their amortized cost. All other securities and
other assets are valued at their fair value as determined in good faith by WTC
under the general supervision of the Board of Trustees.
Reliable market quotations are not considered to be readily available for
certain long-term corporate bonds and notes, preferred stocks, municipal
securities and foreign securities. These investments may be valued on the basis
of prices provided by pricing services when those prices are believed to reflect
the fair market value of the securities. Valuations furnished by a pricing
service are based upon a computerized matrix system or appraisals by the pricing
19
<PAGE>
service, in each case in reliance upon information concerning market
transactions and quotations from recognized securities dealers. The methods used
by the pricing services and the quality of valuations are reviewed by WTC under
the general supervision of the Trustees.
The calculation of each Portfolio's net asset value per share may not take
place contemporaneously with the determination of the prices of many of the
fixed income securities used in the calculation. If events materially affecting
the value of those securities occur between the time when their prices are
determined and the time when net asset value is determined, the securities will
be valued at fair value, as determined in good faith by WTC under the general
supervision of the Trustees.
DIVIDENDS. Dividends from each Portfolio's net investment income are
declared on each Business Day and paid to shareholders ordinarily on the first
Business Day of the following month. The dividend for a Business Day immediately
preceding a weekend or holiday normally includes an amount equal to the net
income expected for the subsequent non-Business Days on which dividends are not
declared. However, no such dividend includes any amount of net income earned in
a subsequent semiannual accounting period.
PERFORMANCE INFORMATION
The performance of a Portfolio may be quoted in terms of its yield and its
total return in advertising and other promotional materials ("performance
advertisements"). Performance data quoted represents past performance and is not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost. The performance of
each Portfolio will vary based on changes in market conditions and the level of
the Portfolio's expenses. As described in the Prospectus, the Intermediate Bond
Portfolio may advertise investment performance figures of the Intermediate Fund,
a collective investment fund.
YIELD CALCULATIONS. From time to time, each Portfolio may advertise its
yield. Yield is calculated by dividing the Portfolio's investment income for a
30-day period, net of expenses, by the average number of shares entitled to
receive dividends during that period according to the following formula:
YIELD = 2[((A-B)/CD + 1)6-1]
where:
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of
the period.
The result is expressed as an annualized percentage (assuming semiannual
compounding) of the maximum offering price per share at the end of the period.
Except as noted below, in determining interest earned during the period
(variable "a" in the above formula), PFPC calculates the interest earned on each
debt instrument held by a Portfolio during the period by: (i) computing the
instrument's yield to maturity, based on the value of the instrument (including
actual accrued interest) as of the last business day of the period or, if the
instrument was purchased during the period, the purchase price plus accrued
interest; (ii) dividing the yield to maturity by 360; and (iii) multiplying the
resulting quotient by the value of the instrument (including actual accrued
interest). Once interest earned is calculated in this fashion for each debt
instrument held by the Portfolio, interest earned during the period is then
20
<PAGE>
determined by totaling the interest earned on all debt instruments held by the
Portfolio.
For purposes of these calculations, the maturity of a debt instrument with
one or more call provisions is assumed to be the next date on which the
instrument reasonably can be expected to be called or, if none, the maturity
date. In general, interest income is reduced with respect to debt instruments
trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and increased with respect to debt
instruments trading at a discount by adding a portion of the discount to daily
income.
In determining dividends earned by any preferred stock or other equity
securities held by the Short/Intermediate Bond Portfolio during the period
(variable "a" in the above formula), PFPC accrues the dividends daily at their
stated dividend rates. Capital gains and losses generally are excluded from
yield calculations. The Short/Intermediate Bond Portfolio's yield for the 30-day
period ended October 31, 1997 was 5.91%. Without fee waivers by WTC during the
period, the yield for that Portfolio would have been 5.48%. The Municipal Bond
Portfolio's yield for the 30-day period ended October 31, 1997 was 3.95%.
Without fee waivers by WTC and RSMC during the period, the yield for that
Portfolio would have been 3.09%.
Because yield accounting methods differ from the accounting methods used
to calculate net investment income for other purposes, a Portfolio's yield may
not equal the dividend income actually paid to investors or the net investment
income reported with respect to the Portfolio in the Fund's financial
statements.
Yield information may be useful in reviewing a Portfolio's performance and
in providing a basis for comparison with other investment alternatives. However,
the Portfolios' yields fluctuate, unlike investments that pay a fixed interest
rate over a stated period of time. Investors should recognize that in periods of
declining interest rates, the Portfolios' yields will tend to be somewhat higher
than prevailing market rates, and in periods of rising interest rates, the
Portfolios' yields will tend to be somewhat lower. Also, when interest rates are
falling, the inflow of net new money to the Portfolios from the continuous sale
of their shares will likely be invested in instruments producing lower yields
than the balance of the Portfolios' holdings, thereby reducing the current
yields of the Portfolios. In periods of rising interest rates, the opposite can
be expected to occur.
TAX-EQUIVALENT YIELD CALCULATIONS. From time to time, the Municipal Bond
Portfolio may advertise its tax-equivalent yield. That Portfolio's
tax-equivalent yield is the rate an investor would have to earn from a fully
taxable investment after taxes to equal the Portfolio's tax-exempt yield.
Tax-equivalent yield is computed by (i) dividing that portion of the Portfolio's
yield that is tax-exempt by one minus a stated income tax rate and (ii) adding
the product to that portion, if any, of the Portfolio's yield that is not
tax-exempt. For purposes of this formula, tax-exempt yield is yield that is
exempt from federal income tax.
The following table, which is based upon individual federal income tax
rates in effect on the date of this Statement of Additional Information,
illustrates the yields that would have to be achieved on taxable investments to
produce a range of hypothetical tax-equivalent yields:
21
<PAGE>
<TABLE>
<CAPTION>
Tax-Equivalent Yield Table
Federal Marginal
Income Tax Bracket Tax-Equivalent Yields Based on Tax-Exempt Yields Of:
------------------ ----------------------------------------------------
4% 5% 6% 7% 8% 9% 10%
-- -- -- -- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
28% 5.6 6.9 8.3 9.7 11.1 12.5 13.9
31% 5.8 7.2 8.7 10.1 11.6 13.0 14.5
36% 6.3 7.8 9.4 10.9 12.5 14.1 15.6
39.6% 6.6 8.3 9.9 11.6 13.2 14.9 16.6
</TABLE>
TOTAL RETURN CALCULATIONS. From time to time, each Portfolio may advertise
its average annual total return. A Portfolio's average annual total return is
calculated according to the following formula:
P (1 + T)N = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at end of the period of a
hypothetical $1,000 payment made at the beginning of
that period.
The time periods used are based on rolling calendar quarters, updated to
the last day of the most recent calendar quarter prior to submission of the
advertisement for publication. Average annual total return, or "T" in the
formula above, is computed by finding the average annual compounded rate of
return over the period that would equate the initial amount invested to the
ending redeemable value ("ERV"). In calculating average annual total return, all
dividends and other distributions by the Portfolio are assumed to have been
reinvested at net asset value on the reinvestment date during the period.
The following table reflects the Short/Intermediate Bond Portfolio's
standardized average annual total returns for the periods stated below:
Average Annual Total Return for Short/intermediate Bond Portfolio
April 2, 1991
(Commencement of
One-Year ended Five-Years ended Operations) through
October 31, 1997 October 31, 1997 October 31, 1997
---------------- ------------------- ----------------
7.13% 6.16% 7.19%
22
<PAGE>
Average Annual Total Return for Municipal Bond Portfolio
November 1, 1993
(Commencement of
One-Year ended Operations) through
October 31, 1997 October 31, 1997
---------------- ----------------
6.85% 4.92%
While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the Portfolios'
performance is not constant over time, but changes from year to year, and that
average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Portfolios.
Each Portfolio may also include in its performance advertisements total
return quotations that are not calculated according to the formula set forth
above ("non-standardized total return"). For example, the Portfolios may quote
unaveraged or cumulative total returns in performance advertisements which
reflect the change in the value of an investment in the Portfolio over a stated
period. PFPC calculates cumulative total return for each Portfolio for a
specific period of time by assuming an initial investment of $1,000 in shares of
the Portfolio and the reinvestment of dividends and other distributions. PFPC
then determines the percentage rate of return on the hypothetical $1,000
investment by: (i) subtracting the value of the investment at the beginning of
the period from the value of the investment at the end of the period; and (ii)
dividing the remainder by the beginning value. The Short/Intermediate Bond
Portfolio's cumulative total return for the one-year period ended October 31,
1997, the five-year period ended October 31, 1997 and for the period from April
2, 1991 (commencement of operations) through October 31, 1997 was 7.13%, 34.84%
and 57.94%, respectively. The Municipal Bond Portfolio's cumulative total return
for the one-year period ended October 31, 1997 and for the period from November
1, 1993 (commencement of operations) through October 31, 1997 was 6.85% and
21.19%, respectively.
Average annual and cumulative total returns for the Portfolios may be
quoted as a dollar amount, as well as a percentage, and may be calculated for a
series of investments or a series of redemptions, as well as for a single
investment or a single redemption, over any time period. Total returns may be
broken down into their components of income and capital gain (including capital
gain distributions and changes in share price) to illustrate the relationship of
those factors and their contributions to total return.
The following table shows the income and capital elements of the
Short/Intermediate Bond Portfolio's total return and compares them to the cost
of living (as measured by the Consumer Price Index) over the same periods.
During the periods quoted, interest rates and bond prices fluctuated widely; the
table should not be considered representative of the dividend income or capital
gain or loss that could be realized from an investment in the Short/Intermediate
Bond Portfolio today.
During the period from April 2, 1991 (Commencement of Operations) through
October 31, 1997, a hypothetical $10,000 investment in the Short/Intermediate
Bond Portfolio would have been worth $15,794 assuming all distributions were
reinvested. During the period November 1, 1993 (Commencement of Operations)
through October 31, 1997, a hypothetical $10,000 investment in Municipal Bond
Portfolio would have been worth $12,119, assuming all distributions were
reinvested.
23
<PAGE>
<TABLE>
<CAPTION>
Change In $10,000 Hypothetical Investment
Short/Intermediate Bond Portfolio
Value of Value of Value of Increase in
Initial Reinvested Reinvested Cost of Living
Period Ended $10,000 Income Capital Gain (Consumer
October 31 Investment Dividends Distributions Total Value Price Index)
---------- ---------- --------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1997 $10,456 $5,178 $159 $15,793 19.9%
1996 $10,360 $4,225 $157 $14,742 17.3%
1995 $10,464 $3,393 $159 $14,016 13.7%
1994 $ 9,936 $2,382 $151 $12,469 10.6%
1993 $10,784 $1,856 $126 $12,766 7.9%
1992 $10,560 $1,129 $ 23 $11,712 5.0%
1991 $10,288 $ 401 $ 0 $10,689 1.8%
</TABLE>
Explanatory Note: A hypothetical initial investment of $10,000 on April 2,
1991, together with the aggregate cost of reinvested dividends and capital gain
distributions for the entire period covered (their cash value at the time they
were reinvested), would have amounted to $15,281. If dividends and capital gain
distributions had not been reinvested, the total value of the investment in the
Portfolio over time would have been smaller, and cash payments for the period
would have amounted to $4,136 for income dividends and $142 for capital gain
distributions. Without fee waivers from the Portfolio's service providers and
expense reimbursements by WTC, the Portfolio's returns would have been lower.
Municipal Bond Portfolio
<TABLE>
<CAPTION>
Value of Value of Value of Increase in
Initial Reinvested Reinvested Cost of Living
Period Ended $10,000 Income Capital Gain (Consumer
October 31 Investment Dividends Distributions Total Value Price Index)
---------- ---------- --------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
1997 $10,192 $1,927 $0 $12,119 11.2%
1996 $9,968 $1,374 $0 $11,342 8.9%
1995 $9,992 $ 889 $0 $10,881 5.4%
1994 $9,312 $ 383 $0 $ 9,695 2.5%
</TABLE>
Explanatory Note: A hypothetical initial investment of $10,000 on November
1, 1993, together with the aggregate cost of reinvested dividends and capital
gain distributions for the entire period covered (their cash value at the time
they were reinvested), would have amounted to $11,862. If dividends and capital
gain distributions had not been reinvested, the total value of the investment in
the Portfolio over time would have been smaller, and cash payments for the
period would have amounted to $1,707. Without fee waivers from the Portfolio's
service providers, the Portfolio's returns would have been lower.
The Portfolios may also, from time to time along with performance
advertisements, illustrate asset allocation by sector weightings. These
illustrations, an example for Short/Intermediate Bond Portfolio of which
follows, are not intended to reflect current or future portfolio holdings of the
Portfolios.
24
<PAGE>
Short/intermediate Bond Portfolio
Asset Breakdown By Sector
As of October 31, 1997
Percent of
Sector Investments
------ -----------
US Government Bonds 27.0%
Corporate Bonds 47.5%
Asset Backed Securities 8.0%
Mortgage Backed 11.6%
Securities
Cash Equivalents 5.9%
-------
Total Investments 100.0%
=======
[PIE CHART OMITTED]
The Portfolios may also from time to time along with performance
advertisements, present their investments in the form of a "Schedule of
Investments" included in the Annual Report to the Shareholders of the Fund. A
copy of the Annual Report for the fiscal year ended October 31, 1997 is attached
hereto and incorporated by reference.
COMPARISON OF PORTFOLIO PERFORMANCE. A comparison of the quoted
performance offered for various investments is valid only if performance is
calculated in the same manner. Since there are many methods of calculating
performance, investors should consider the effects of the methods used to
25
<PAGE>
calculate performance when comparing performance of a Portfolio with performance
quoted with respect to other investment companies or types of investments. For
example, it is useful to note that yields reported on debt instruments are
generally prospective, contrasted with the historical yields reported by the
Portfolios.
In connection with communicating its performance to current or prospective
shareholders, a Portfolio also may compare performance figures to the
performance of other mutual funds tracked by mutual fund rating services, to
unmanaged indexes or unit investment trusts with similar holdings or to
individual securities.
From time to time, in marketing and other literature, a Portfolio's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as
Investment Company Data, Inc. (an organization which provides performance
ranking information for broad classes of mutual funds), Lipper Analytical
Services, Inc. ("Lipper") (a mutual fund research firm which analyzes over 1,800
mutual funds), CDA Investment Technologies, Inc. (an organization which provides
mutual fund performance and ranking information), Morningstar, Inc. (an
organization which analyzes over 2,400 mutual funds) and other independent
organizations. When Lipper's tracking results are used, a Portfolio will be
compared to Lipper's appropriate fund category, that is, by fund objective and
portfolio holdings. Rankings may be listed among one or more of the asset-size
classes as determined by Lipper. When other organizations' tracking results are
used, a Portfolio will be compared to the appropriate fund category, that is, by
fund objective and portfolio holdings, or to the appropriate volatility
grouping, where volatility is a measure of a fund's risk.
Because the assets in all funds are always changing, a Portfolio may be
ranked within one asset-size class at one time and in another asset-size class
at some other time. In addition, the independent organization chosen to rank the
Portfolio in marketing and promotional literature may change from time to time
depending upon the basis of the independent organization's categorizations of
mutual funds, changes in the Portfolio's investment policies and investments,
the Portfolio's asset size and other factors deemed relevant. Advertisements and
other marketing literature will indicate the time period and Lipper asset-size
class or other performance ranking company criteria, as applicable, for the
ranking in question.
Evaluations of Portfolio performance made by independent sources may also
be used in advertisements concerning the Portfolios, including reprints of, or
selections from, editorials or articles about the Portfolios. Sources for
performance information and articles about the Portfolios may include the
following:
BARRON'S, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
BUSINESS WEEK, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA INVESTMENT TECHNOLOGIES, INC., an organization which provides
performance and ranking information through examining the dollar results
of hypothetical mutual fund investments and comparing these results
against appropriate market indexes.
CHANGING TIMES, THE KIPLINGER MAGAZINE, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
CONSUMER DIGEST, a monthly business/financial magazine that includes a
"Money Watch" section featuring financial news.
FINANCIAL WORLD, a general business/financial magazine that includes a
"Market Watch" department reporting on activities in the mutual fund
industry.
FORBES, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
FORTUNE, a national business publication that periodically rates the
performance of a variety of mutual funds.
26
<PAGE>
INVESTMENT COMPANY DATA, INC., an independent organization which provides
performance ranking information for broad classes of mutual funds.
INVESTOR'S DAILY, a daily newspaper that features financial, economic, and
business news.
LIPPER ANALYTICAL SERVICES, INC.'S MUTUAL FUND PERFORMANCE ANALYSIS, a
weekly publication of industry-wide mutual fund averages by type of fund.
MONEY, a monthly magazine that from time to time features both specific
funds and the mutual fund industry as a whole.
MUTUAL FUND VALUES, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
THE NEW YORK TIMES, a nationally distributed newspaper which regularly
covers financial news.
PERSONAL INVESTING NEWS, a monthly news publication that often reports on
investment opportunities and market conditions.
PERSONAL INVESTOR, a monthly investment advisory publication that includes
a "Mutual Funds Outlook" section reporting on mutual fund performance
measures, yields, indexes and portfolio holdings.
SUCCESS, a monthly magazine targeted to the world of entrepreneurs and
growing businesses, often featuring mutual fund performance data.
USA TODAY, a national daily newspaper.
U.S. NEWS AND WORLD REPORT, a national business weekly that periodically
reports mutual fund performance data.
WALL STREET JOURNAL, a Dow Jones and Company, Inc. newspaper which
regularly covers financial news.
WIESENBERGER INVESTMENT COMPANIES SERVICES, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient
features, management results, income and dividend records, and price
ranges.
In advertising the performance of the Portfolios, the performance of a
Portfolio may also be compared to the performance of unmanaged indexes of
securities in which the Portfolio invests or to unit investment trusts ("UITs")
that hold the same type of securities in which the Portfolio invests.
Performance advertisements for the Municipal Bond Portfolio may compare
investing in that Portfolio to investing in an individual municipal bond. Unlike
municipal bond funds such as the Municipal Bond Portfolio, individual municipal
bonds offer a stated rate of interest and, if held to maturity, repayment of
principal. Although some individual municipal bonds might offer a higher return,
they do not offer the reduced risk of a mutual fund that invests in many
different securities. The initial investment requirements and sales charges of
many municipal bond funds are lower than the purchase cost of individual
municipal bonds, which are generally issued in $5,000 denominations and are
subject to direct brokerage costs.
TAXES
GENERAL. Each Portfolio is treated as a separate corporation for federal
income tax purposes. To continue to qualify (or, in the case of the Intermediate
Bond Portfolio, to qualify) for treatment as a regulated investment company
("RIC") under the Internal Revenue Code of 1986, as amended ("Code"), each
Portfolio must distribute to its shareholders for each taxable year at least 90%
27
<PAGE>
of its investment company taxable income (generally consisting of taxable net
investment income and net short-term capital gain and, in the case of the
Short/Intermediate Bond Portfolio and the Intermediate Bond Portfolio, net gains
from certain foreign currency transactions) plus, in the case of the Municipal
Bond Portfolio, its net interest income excludable from gross income under
section 103(a) of the Code ("Distribution Requirement") and must meet several
additional requirements. For each Portfolio, these requirements include the
following: (1) the Portfolio must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures or forward
currency contracts) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); (2) at the close of each
quarter of the Portfolio's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. Government obligations,
securities of other RICs and other securities, with those other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Portfolio's total assets and that does not represent more than
10% of the issuer's outstanding voting securities; and (3) at the close of each
quarter of the Portfolio's taxable year, not more than 25% of the value of its
total assets may be invested in securities (other than U.S. Government
obligations or securities of other RICs) of any one issuer.
If a Portfolio failed to qualify for treatment as a RIC in any taxable
year, it would be subject to tax on its taxable income at corporate rates and
all distributions from earnings and profits, including any distributions from
net tax-exempt income and net capital gain (the excess of net long-term capital
gain over net short-term capital loss), would be taxable to its shareholders as
ordinary income. In addition, the Portfolio could be required to recognize
unrealized gains, pay substantial taxes and interest and make substantial
distributions before requalifying for RIC treatment.
DISTRIBUTIONS. Each Portfolio will be subject to a nondeductible 4% excise
tax ("Excise Tax") to the extent it fails to distribute by the end of any
calendar year substantially all of its ordinary (taxable) income for that year
and capital gain net income for the one-year period ending on October 31 of that
year, plus certain other amounts. For this and other purposes, dividends and
other distributions declared by a Portfolio in October, November or December of
any year and payable to shareholders of record on a date in one of those months
will be deemed to have been paid by the Portfolio and received by the
shareholders on December 31 of that year if they are paid by the Portfolio
during the following January. Accordingly, such distributions will be taxed to
the shareholders for the year in which that December 31 falls.
Investors should be aware that if Portfolio shares are purchased shortly
before the record date for any dividend or capital gain distribution (other than
an exempt-interest dividend, as defined in the Prospectus), the shareholder will
pay full price for the shares and will receive some portion of the price back as
a taxable distribution.
If a Portfolio makes a distribution to shareholders in excess of its
current and accumulated "earnings and profits" in any taxable year, the excess
distribution will be treated by each shareholder as a return of capital to the
extent of the shareholder's tax basis and thereafter as capital gain.
Each Portfolio may acquire zero coupon securities issued with original
issue discount. As a holder of those securities, a Portfolio must take into
account the original issue discount that accrues on the securities during the
taxable year, even if it receives no corresponding payment on them during the
year. Because each Portfolio annually must distribute substantially all of its
investment company taxable income and net tax-exempt income, including any
original issue discount, to satisfy the Distribution Requirement and (except
with respect to tax-exempt income) avoid imposition of the Excise Tax, a
Portfolio may be required in a particular year to distribute as a dividend an
amount that is greater than the total amount of cash it actually receives. Those
distributions will be made from a Portfolio's cash assets or from the proceeds
of sales of portfolio securities, if necessary. A Portfolio may realize capital
gains or losses from those sales, which would increase or decrease its
investment company taxable income and/or net capital gain.
28
<PAGE>
THE MUNICIPAL BOND PORTFOLIO. The Municipal Bond Portfolio will be able to
pay exempt-interest dividends to its shareholders only if, at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of obligations the interest on which is excludable from gross income
under section 103(a) of the Code; the Portfolio intends to continue to satisfy
this requirement. Distributions that the Portfolio properly designates as
exempt-interest dividends are treated by its shareholders as interest excludable
from their gross income for federal income tax purposes but may be Tax
Preference Items. The aggregate dividends excludable from the shareholders'
gross income may not exceed the Portfolio's net tax-exempt income. The
shareholders' treatment of dividends from the Portfolio under state and local
income tax laws may differ from the treatment thereof under the Code. In order
to qualify to pay exempt-interest dividends, the Portfolio may be limited in its
ability to engage in taxable transactions such as repurchase agreements, options
and futures strategies and portfolio securities lending.
Tax-exempt interest attributable to certain "private activity bonds"
("PABs") (including, in the case of a RIC receiving interest on those bonds, a
proportionate part of the exempt-interest dividends paid by the RIC) is a Tax
Preference Item. Furthermore, even interest on tax-exempt securities held by the
Portfolio that are not PABs, which interest otherwise would not be a Tax
Preference Item, nevertheless may be indirectly subject to the federal
alternative minimum tax in the hands of corporate shareholders when distributed
to them by the Portfolio. PABs are issued by or on behalf of public authorities
to finance various privately operated facilities and are described in the
Appendix to the Prospectus. Entities or persons who are "substantial users" (or
persons related to "substantial users") of facilities financed by industrial
development bonds or PABs should consult their tax advisers before purchasing
Portfolio shares. For these purposes, the term "substantial user" is defined
generally to include a "non-exempt person" who regularly uses in trade or
business a part of a facility financed from the proceeds of such bonds.
Up to 85% of Social Security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as the Portfolio) plus 50% of their benefits
exceeds certain base amounts. Exempt-interest dividends from the Portfolio still
are tax-exempt to the extent described in the Prospectus; they are only included
in the calculation of whether a recipient's income exceeds the established
amounts.
If the Portfolio invests in any instruments that generate taxable income,
under the circumstances described in the Prospectus, distributions of the
interest earned thereon will be taxable to its shareholders as ordinary income
to the extent of its earnings and profits. Moreover, if the Portfolio realizes
capital gain as a result of market transactions, any distribution of that gain
will be taxable to its shareholders.
The Portfolio may invest in municipal bonds that are purchased with
"market discount." For these purposes, market discount is the amount by which a
bond's purchase price is exceeded by its stated redemption price at maturity or,
in the case of a bond that was issued with original issue discount ("OID"), the
sum of its issue price plus accrued OID, except that market discount less than
the product of (1) 0.25% of the redemption price at maturity times and (2) the
number of complete years to maturity after the taxpayer acquired the bond is
disregarded. Market discount generally is accrued ratably, on a daily basis,
over the period from the acquisition date to the date of maturity. Gain on the
disposition of such a bond (other than a bond with a fixed maturity date within
one year from its issuance) generally is treated as ordinary (taxable) income,
rather than capital gain, to the extent of the bond's accrued market discount at
the time of disposition. In lieu of treating the disposition gain as above, the
Portfolio may elect to include market discount in its gross income currently,
for each taxable year to which it is attributable.
The Portfolio informs shareholders within 60 days after its fiscal
year-end (October 31) of the percentage of its income distributions designated
as exempt-interest dividends. The percentage is applied uniformly to all
distributions made during the year, so the percentage designated as tax-exempt
for any particular distribution may be substantially different from the
percentage of the Portfolio's income that was tax-exempt during the period
covered by the distribution.
THE SHORT/INTERMEDIATE BOND PORTFOLIO AND THE INTERMEDIATE BOND PORTFOLIO.
Interest and dividends received by the Short/Intermediate Bond Portfolio and the
Intermediate Bond Portfolio, and gains realized thereby, may be subject to
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income, withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield and/or total return on their securities.
Tax conventions between certain countries and the United States may reduce or
eliminate these taxes, however, and many foreign countries do not impose taxes
on capital gains in respect of investments by foreign investors.
HEDGING TRANSACTIONS. The use of hedging strategies, such as writing
(selling) and purchasing options and futures contracts and entering into forward
currency contracts, involves complex rules that will determine for federal
income tax purposes the amount, character and timing of recognition of the gains
and losses a Portfolio realizes in connection therewith. Gains from the
disposition of foreign currencies (except certain gains that may be excluded by
future regulations), and gains from options, futures and forward currency
contracts derived by a Portfolio with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under the
Income Requirement.
Futures and foreign currency contracts that are subject to section 1256 of
the Code (other than such contracts that are part of a "mixed straddle" with
respect to which a Portfolio has made an election not to have the following
rules apply) ("Section 1256 Contracts") and that are held by a Portfolio at the
end of its taxable year generally will be "marked-to-market" (that is, deemed to
have been sold at market value) for federal income tax purposes. Sixty percent
of any net gain or loss recognized on these deemed sales, and 60% of any net
realized gain or loss from any actual sales of Section 1256 Contracts, will be
treated as long-term capital gain or loss, and the balance will be treated as
short-term capital gain or loss. As of the date of this Statement of Additional
Information, it is not entirely clear whether that 60% portion will qualify for
the reduced maximum tax rates on net capital gain enacted by the Taxpayer Relief
Act of 1997 -- 20% (10% for taxpayers in the 15% marginal tax bracket) for gain
recognized on capital assets held for more than 18 months -- instead of the 28%
rate in effect before that legislation, which now applies to gain recognized on
capital assets held for more than one year but not more than 18 months. However,
technical corrections legislation passed by the House of Representatives late in
1997 would clarify that the lower rates apply. Section 1256 Contracts also may
be marked to market for purposes of the Excise Tax.
Section 988 of the Code also may apply to forward currency contracts and
options on foreign currencies. Under section 988, each foreign currency gain or
loss generally is computed separately and treated as ordinary income or loss. In
the case of overlap between sections 1256 and 988, special provisions determine
the character and timing of any income, gain or loss. Each of the
Short/Intermediate Bond Portfolio and the Intermediate Bond Portfolio attempts
to monitor its section 988 transactions to minimize any adverse tax impact.
Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which a Portfolio may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property. Under
section 1092, any loss from the disposition of a position in a straddle
generally may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If a Portfolio makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions would be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences to a
Portfolio of straddle transactions are not entirely clear.
If a Portfolio has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Portfolio will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward contract entered into by a Portfolio or
a related person with respect to the same or substantially similar property. In
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addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
The foregoing tax discussion is a summary included for general
informational purposes only. Each shareholder is advised to consult its own tax
adviser with respect to the specific tax consequences to it of an investment in
a Portfolio, including the effect and applicability of state, local, foreign and
other tax laws and the possible effects of changes in federal or other tax laws.
DESCRIPTION OF THE FUND
The Fund is a diversified open-end series investment company organized as
a Massachusetts business trust on May 7, 1986. The original name of the Fund was
The Rodney Square Benchmark U.S. Treasury Fund. The name was changed to The
Rodney Square Strategic Fixed-Income Fund effective March 14, 1991.
The Fund's capital consists of an unlimited number of shares of
beneficial interest, $0.01 par value. Shares of the Portfolios that are issued
by the Fund are fully paid and nonassessable. The assets of the Fund received
for the issuance or sale of Portfolio shares and all income, earnings, profits
and proceeds therefrom, subject only to the right of creditors, are allocated to
the respective Portfolio and constitute the underlying assets of that Portfolio.
Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable for the obligations of the trust.
However, the Fund's Declaration of Trust, as amended and restated on July 1,
1992, contains an express disclaimer of shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Fund or
the Trustees. The amended and restated Declaration of Trust authorizes the
creation of multiple series and classes of shares and provides for
indemnification out of assets of the applicable Portfolio of any shareholder
held personally liable solely by virtue of ownership of shares of the series.
Thus, the risk of a shareholder incurring financial loss because of shareholder
liability is limited to circumstances in which the Portfolio itself would be
unable to meet its obligations. WTC believes that, in view of the above, the
risk of personal liability to shareholders is remote.
The amended and restated Declaration of Trust further provides that the
Trustees will not be liable for neglect or wrongdoing provided they have
exercised reasonable care and have acted under the reasonable belief that their
actions are in the best interest of the Fund; but nothing in the Declaration of
Trust protects or indemnifies a Trustee against any liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
The amended and restated Declaration of Trust provides that the Fund will
continue indefinitely unless a majority of the shareholders of the Fund or a
majority of the shareholders of the affected Portfolio approve: (a) the sale of
the Fund's assets or the Portfolio's assets to another diversified open-end
management investment company; or (b) the liquidation of the Fund or the
Portfolio. The Declaration of Trust further provides, however, that the Board of
Trustees may take the actions specified in (a) or (b) if a majority of the
Trustees determine that the continuation of a Portfolio or the Trust is not in
the best interests of the Portfolio or the Trust or their respective
shareholders as a result of factors or events adversely affecting the ability of
the Portfolio or the Trust to conduct its business and operations in an
economically viable manner. In the event of the liquidation of the Fund or the
Portfolio, affected shareholders are entitled to receive the assets of the Fund
or Portfolio that are available for distribution.
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OTHER INFORMATION
INDEPENDENT AUDITORS. Ernst & Young LLP, Suite 4000, 2001 Market Street,
Philadelphia, PA 19103, serves as the Fund's independent auditors, providing
services which include (1) audit of the annual financial statements for the
Portfolios, (2) assistance and consultation in connection with SEC filings, and
(3) preparation of the annual federal and state income tax returns filed on
behalf of each Portfolio.
The financial statements and financial highlights of the
Short/Intermediate Bond Portfolio and the Municipal Bond Portfolio appearing or
incorporated by reference in the Fund's Prospectus, this Statement of Additional
Information and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, to the extent indicated in their reports thereon also
appearing elsewhere herein and in the Registration Statement or incorporated by
reference. Such financial statements have been included herein or incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
LEGAL COUNSEL. Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
N.W., 2nd Floor, Washington, D.C. 20036, serves as counsel to the Fund and has
passed upon the legality of the shares offered by the Prospectus and this
Statement of Additional Information.
CUSTODIAN AND SUB-CUSTODIAN. WTC, Rodney Square North, 1100 N. Market St.,
Wilmington, DE 19890-0001, serves as the Fund's Custodian. PNC Bank, National
Association, 1600 Market Street, Philadelphia, Pennsylvania 19103, serves as the
Fund's Sub-Custodian.
TRANSFER AGENT. PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware
19809, serves as the Fund's Transfer Agent and Dividend Paying Agent.
FINANCIAL STATEMENTS
The Schedules of Investments of the Short/Intermediate Bond Portfolio
(formerly the Diversified Income Portfolio) and the Municipal Bond Portfolio
(formerly the Municipal Income Portfolio) as of October 31, 1997, the Statements
of Assets and Liabilities of the Short/Intermediate Bond Portfolio and Municipal
Bond Portfolio as of October 31, 1997, the Statement of Operations of the
Short/Intermediate Bond Portfolio and Municipal Bond Portfolio for the fiscal
year ended October 31, 1997, the Statements of Changes in Net Assets of the
Short/Intermediate Bond Portfolio and Municipal Bond Portfolio for the fiscal
years ended October 31, 1997 and 1996, the Financial Highlights of the
Short/Intermediate Bond Portfolio for the fiscal years ended October 31, 1997,
1996, 1995, 1994 and 1993, the Financial Highlights of the Municipal Bond
Portfolio for the fiscal years ended October 31, 1997, 1996, 1995 and 1994, the
Notes to Financial Statements and the Report of Independent Auditors, each of
which is included in the Annual Report to the shareholders of the Fund as of and
for the fiscal year ended October 31, 1997, are attached hereto and incorporated
herein.
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APPENDIX A
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES
REGULATION OF THE USE OF OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT
STRATEGIES. As discussed in the Prospectus, in managing a Portfolio, WTC may
engage in certain options and futures strategies for certain bona fide hedging,
risk management or other portfolio management purposes. In managing the
Short/Intermediate Bond Portfolio and the Intermediate Bond Portfolio, WTC may
also use forward currency contracts to hedge against the risk of foreign
currency fluctuations that could adversely affect that Portfolio's holdings or
contemplated investments. Certain special characteristics of the risks
associated with using these strategies are discussed below. Use of options,
futures and forward currency contracts is subject to applicable regulations
and/or interpretations of the SEC and the several options and futures exchanges
upon which these instruments may be traded. The Board of Trustees has adopted
investment guidelines (described below) reflecting these regulations.
In addition to the products, strategies and risks described below and in
the Prospectus, WTC expects to discover additional opportunities in connection
with options, futures and forward currency contracts. These new opportunities
may become available as WTC develops new techniques, as regulatory authorities
broaden the range of permitted transactions and as new options, futures and
forward currency contracts are developed. WTC may utilize these opportunities to
the extent they are consistent with each Portfolio's investment objective and
limitations and permitted by applicable regulatory authorities. The registration
statement for the Portfolios will be supplemented to the extent that new
products and strategies involve materially different risks than those described
below and in the Prospectus.
COVER REQUIREMENTS. The Portfolios will not use leverage in their options,
futures and forward currency contract strategies. Accordingly, the Portfolios
will comply with guidelines established by the SEC with respect to coverage of
these strategies by either (1) setting aside cash, or liquid unencumbered, daily
marked-to-market securities in a segregated account with the Fund's custodian in
the prescribed amount, or (2) holding securities or other options or futures
contracts whose values are expected to offset ("cover") their obligations
thereunder. Securities, currencies or other options or futures contracts used
for cover cannot be sold or closed out while these strategies are outstanding,
unless they are replaced with similar assets. As a result, there is a
possibility that the use of cover involving a large percentage of the
Portfolio's assets could impede portfolio management, or the Portfolio's ability
to meet redemption requests or other current obligations.
OPTIONS STRATEGIES. Each Portfolio may purchase and write (sell) options
on securities and securities indexes that are traded on U.S. and foreign
securities exchanges and in the over-the-counter ("OTC") market. Currently,
options on debt securities are primarily traded on the OTC market.
Exchange-traded options in the U.S. are issued by a clearing organization
affiliated with the exchange on which the option is listed, which, in effect,
guarantees completion of every exchange-traded option transaction. In contrast,
OTC options are contracts between a Portfolio and its contra-party with no
clearing organization guarantee unless the parties provide for it. Thus, when a
Portfolio purchases an OTC option, it relies on the dealer from which it has
purchased the OTC option to make or take delivery of the securities underlying
the option. Failure by the dealer to do so would result in the loss of any
premium paid by the Portfolio as well as the loss of the expected benefit of the
transaction. Accordingly, before a Portfolio purchases or sells an OTC option,
WTC assesses the creditworthiness of each counterparty and any guarantor or
credit enhancement of the counterparty's credit to determine whether the terms
of the option are likely to be satisfied.
Special risks are presented by internationally traded options. Because of
time differences between the United States and various foreign countries, and
because different holidays are observed in different countries, foreign options
markets may be open for trading during hours or on days when U.S. markets are
closed. As a result, option premiums may not reflect the current prices of the
underlying securities in the United States.
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Each Portfolio may purchase call options on securities in which it is
authorized to invest in order to fix the cost of a future purchase. Call options
also may be used as a means of enhancing returns by, for example, participating
in an anticipated price increase of a security. In the event of a decline in the
price of the underlying security, use of this strategy would serve to limit the
potential loss to the Portfolio to the option premium paid; conversely, if the
market price of the underlying security increases above the exercise price and a
Portfolio either sells or exercises the option, any profit eventually realized
would be reduced by the premium paid.
Each Portfolio may purchase put options on securities that it holds in
order to hedge against a decline in the market value of the securities held or
to enhance return. The put option enables a Portfolio to sell the underlying
security at the predetermined exercise price; thus, the potential for loss to
the Portfolio below the exercise price is limited to the option premium paid. If
the market price of the underlying security is higher than the exercise price of
the put option, any profit the Portfolio realizes on the sale of the security is
reduced by the premium paid for the put option less any amount for which the put
option may be sold.
Each Portfolio may on certain occasions wish to hedge against a decline in
the market value of securities that it holds at a time when put options on those
particular securities are not available for purchase. At those times, a
Portfolio may purchase a put option on other carefully selected securities in
which it is authorized to invest, the values of which historically have a high
degree of positive correlation to the value of the securities actually held. If
WTC's judgment is correct, changes in the value of the put options should
generally offset changes in the value of the securities being hedged. However,
the correlation between the two values may not be as close in these transactions
as in transactions in which a Portfolio purchases a put option on a security
that it holds. If the value of the securities underlying the put option falls
below the value of the portfolio securities, the put option may not provide
complete protection against a decline in the value of the portfolio securities.
Each Portfolio may write covered call options on securities in which it is
authorized to invest for hedging purposes or to increase return in the form of
premiums received from the purchasers of the options. A call option gives the
purchaser of the option the right to buy, and the writer (seller) the obligation
to sell, the underlying security at the exercise price during the option period.
The strategy may be used to provide limited protection against a decrease in the
market price of the security, in an amount equal to the premium received for
writing the call option less any transaction costs. Thus, if the market price of
the underlying security held by a Portfolio declines, the amount of the decline
will be offset wholly or in part by the amount of the premium received by the
Portfolio. If, however, there is an increase in the market price of the
underlying security and the option is exercised, the Portfolio will be obligated
to sell the security at less than its market value.
Securities used to cover OTC call options written by a Portfolio are
considered illiquid and therefore subject to the Portfolio's limitations on
investing in illiquid securities, unless the OTC options are sold to qualified
dealers who agree that the Portfolio may repurchase any OTC options it writes
for a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC call option written subject to this procedure is
considered illiquid only to the extent that the maximum repurchase price under
the formula exceeds the intrinsic value of the option. A Portfolio could lose
the ability to participate in an increase in the value of the underlying
securities above the exercise price because the increase would likely be offset
by an increase in the cost of closing out the call option (or could be negated
if the buyer chose to exercise the call option at an exercise price below the
current market value).
Each Portfolio may also write covered put options on securities in which
it is authorized to invest. A put option gives the purchaser of the option the
right to sell, and the writer (seller) the obligation to buy, the underlying
security at the exercise price during the option period. So long as the
obligation of the writer continues, the writer may be assigned an exercise
notice by the broker-dealer through whom such option was sold, requiring it to
make payment of the exercise price against delivery of the underlying security.
The operation of put options in other respects, including their related risks
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and rewards, is substantially identical to that of call options. If the put
option is not exercised, the Portfolio will realize income in the amount of the
premium received. This technique could be used to enhance current return during
periods of market uncertainty. The risk in such a transaction would be that the
market price of the underlying securities would decline below the exercise price
less the premiums received, in which case the Portfolio would expect to suffer a
loss.
Each Portfolio may purchase put and call options and write covered put and
call options on indexes in much the same manner as the more traditional options
discussed above, except that index options may serve as a hedge against overall
fluctuations in the securities markets (or a market sector) rather than
anticipated increases or decreases in the value of a particular security. An
index assigns values to the securities included in the index and fluctuates with
changes in such values. Settlements of index options are effected with cash
payments and do not involve delivery of securities. Thus, upon settlement of a
index option, the purchaser will realize, and the writer will pay, an amount
based on the difference between the exercise price and the closing price of the
index. The effectiveness of hedging techniques using index options will depend
on the extent to which price movements in the index selected correlate with
price movements of the securities in which a Portfolio invests. Perfect
correlation is not possible because the securities held or to be acquired by a
Portfolio will not exactly match the composition of indexes on which options are
purchased or written.
Each Portfolio may purchase and write covered straddles on securities or
indexes. A long straddle is a combination of a call and a put purchased on the
same security where the exercise price of the put is less than or equal to the
exercise price on the call. A Portfolio would enter into a long straddle when
WTC believes that it is likely that prices will be more volatile during the term
of the options than is implied by the option pricing. A short straddle is a
combination of a call and a put written on the same security where the exercise
price on the put is less than or equal to the exercise price of the call where
the same issue of the security is considered "cover" for both the put and the
call. A Portfolio would enter into a short straddle when WTC believes that it is
unlikely that prices will be as volatile during the term of the options as is
implied by the option pricing. In such case, the Portfolio will set aside cash
and/or liquid securities in a segregated account with its custodian equivalent
in value to the amount, if any, by which the put is "in-the-money," that is,
that amount by which the exercise price of the put exceeds the current market
value of the underlying security. Because straddles involve multiple trades,
they result in higher transaction costs and may be more difficult to open and
close out.
Each Portfolio may purchase put and call warrants with values that vary
depending on the change in the value of one or more specified indexes ("index
warrants"). An index warrant is usually issued by a bank or other financial
institution and gives a Portfolio the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment from the issuer
of the warrant based on the value of the underlying index at the time of
exercise. In general, if a Portfolio holds a call warrant and the value of the
underlying index rises above the exercise price of the warrant, the Portfolio
will be entitled to receive a cash payment from the issuer upon exercise based
on the difference between the value of the index and the exercise price of the
warrant; if a Portfolio holds a put warrant and the value of the underlying
index falls, the Portfolio will be entitled to receive a cash payment from the
issuer upon exercise based on the difference between the exercise price of the
warrant and the value of the index. A Portfolio holding a call warrant would not
be entitled to any payments from the issuer at any time when the exercise price
is greater than the value of the underlying index; a Portfolio holding a put
warrant would not be entitled to any payments when the exercise price is less
than the value of the underlying index. If a Portfolio does not exercise an
index warrant prior to its expiration, then the Portfolio loses the amount of
the purchase price that it paid for the warrant.
The Portfolios will normally use index warrants as they use index options.
The risks of the Portfolios' use of index warrants are generally similar to
those relating to their use of index options. Unlike most index options,
however, index warrants are issued in limited amounts and are not obligations of
a regulated clearing agency, but are backed only by the credit of the bank or
other institution which issues the warrant. Also, index warrants generally have
longer terms than index options. Index warrants are not likely to be as liquid
as index options backed by a recognized clearing agency. In addition, the terms
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of index warrants may limit the Portfolios' ability to exercise the warrants at
any time or in any quantity.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS. The Short/Intermediate Bond
Portfolio and the Intermediate Bond Portfolio may take positions in options on
foreign currencies to hedge against the risk of foreign exchange rate
fluctuations on foreign securities that a Portfolio holds or that it intends to
purchase. For example, if a Portfolio enters into a contract to purchase
securities denominated in a foreign currency, it could effectively fix the
maximum U.S. dollar cost of the securities by purchasing call options on that
foreign currency. Similarly, if a Portfolio held securities denominated in a
foreign currency and anticipated a decline in the value of that currency against
the U.S. dollar, the Portfolio could hedge against such a decline by purchasing
a put option on the currency involved. The Portfolio's ability to establish and
close out positions in such options is subject to the maintenance of a liquid
secondary market. Although many options on foreign currencies are
exchange-traded, the majority are traded on the OTC market. The Portfolios will
not purchase or write such options unless, in WTC's opinion, the market for them
is sufficiently liquid to ensure that the risks in connection with such options
are not greater than the risks in connection with the underlying currency. In
addition, options on foreign currencies are affected by all of those factors
that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
Available quotation information is generally representative of very large
transactions in the interbank market which is a global, around-the-clock market.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers and
other market resources be firm or revised on a timely basis.
Since foreign currency transactions occurring in the interbank market
involve substantially larger amounts than those underlying foreign currency
options, interbank quotation information may not reflect rates for foreign
currencies underlying options that would be traded in an odd lot market
(generally consisting of transactions of less than $1 million) at prices that
are less favorable. In addition, to the extent that the U.S. options markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements may take place in the underlying markets that cannot be
reflected in the options markets until they reopen.
OPTIONS GUIDELINES. In view of the risks involved in using the options
strategies described above, each Portfolio has adopted the following investment
guidelines to govern its use of such strategies; these guidelines may be
modified by the Board of Trustees without shareholder approval:
(1) each Portfolio will write only covered options, and each such
option will remain covered so long as the Portfolio is obligated under the
option; and
(2) no Portfolio will write put or call options having aggregate
exercise prices greater than 25% of its net assets.
These guidelines do not apply to options attached to or acquired with or
traded together with their underlying securities and do not apply to securities
that incorporate features similar to options.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. A Portfolio may
effectively terminate its right or obligation under an option by entering into a
closing transaction. If a Portfolio wishes to terminate its obligation to
purchase or sell securities or currencies under a put or a call option it has
written, the Portfolio may purchase a put or a call option of the same series
(that is, an option identical in its terms to the option previously written);
this is known as a closing purchase transaction. Conversely, in order to
terminate its right to purchase or sell specified securities or currencies under
a call or put option it has purchased, a Portfolio may sell an option of the
same series as the option held; this is known as a closing sale transaction.
Closing transactions essentially permit a Portfolio to realize profits or limit
losses on its options positions prior to the exercise or expiration of the
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option. If a Portfolio is unable to effect a closing purchase transaction with
respect to options it has acquired, the Portfolio will have to allow the options
to expire without recovering all or a portion of the option premiums paid. If a
Portfolio is unable to effect a closing purchase transaction with respect to
covered options it has written, the Portfolio will not be able to sell the
underlying securities or currencies or dispose of assets used as cover until the
options expire or are exercised, and the Portfolio may experience material
losses due to losses on the option transaction itself and in the covering
securities or currencies.
In considering the use of options to enhance returns or for hedging
purposes, particular note should be taken of the following:
(1) The value of an option position will reflect, among other
things, the current market price of the underlying security, index or
currency, the time remaining until expiration, the relationship of the
exercise price to the market price, the historical price volatility of the
underlying security, index or currency and general market conditions. For
this reason, the successful use of options depends upon WTC's ability to
forecast the direction of price fluctuations in the underlying securities
or currency markets or, in the case of index options, fluctuations in the
market sector represented by the selected index.
(2) Options normally have expiration dates of up to three years. An
American style put or call option may be exercised at any time during the
option period while a European style put or call option may be exercised
only upon expiration or during a fixed period prior to expiration. The
exercise price of the options may be below, equal to or above the current
market value of the underlying security, index or currency. Purchased
options that expire unexercised have no value. Unless an option purchased
by a Portfolio is exercised or unless a closing transaction is effected
with respect to that position, the Portfolio will realize a loss in the
amount of the premium paid and any transaction costs.
(3) A position in an exchange-listed option may be closed out only
on an exchange that provides a secondary market for identical options.
Although each Portfolio intends to purchase or write only those
exchange-traded options for which there appears to be a liquid secondary
market, there is no assurance that a liquid secondary market will exist
for any particular option at any particular time. A liquid market may be
absent if: (i) there is insufficient trading interest in the option; (ii)
the exchange has imposed restrictions on trading, such as trading halts,
trading suspensions or daily price limits; (iii) normal exchange
operations have been disrupted; or (iv) the exchange has inadequate
facilities to handle current trading volume.
Closing transactions may be effected with respect to options traded
in the OTC markets only by negotiating directly with the other party to
the option contract or in a secondary market for the option if such market
exists. Although each Portfolio will enter into OTC options with dealers
that agree to enter into, and that are expected to be capable of entering
into, closing transactions with the Portfolio, there can be no assurance
that the Portfolio will be able to liquidate an OTC option at a favorable
price at any time prior to expiration. In the event of insolvency of the
contra-party, a Portfolio may be unable to liquidate an OTC option.
Accordingly, it may not be possible to effect closing transactions with
respect to certain options, which would result in the Portfolio having to
exercise those options that it has purchased in order to realize any
profit. With respect to options written by a Portfolio, the inability to
enter into a closing transaction may result in material losses to the
Portfolio.
(4) With certain exceptions, exchange listed options generally
settle by physical delivery of the underlying security or currency. Index
options are settled exclusively in cash for the net amount, if any, by
which the option is "in-the-money" (where the value of the underlying
instrument exceeds, in the case of a call option, or is less than, in the
case of a put option, the exercise price of the option) at the time the
option is exercised. If a Portfolio writes a call option on an index, the
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Portfolio will not know in advance the difference, if any, between the
closing value of the index on the exercise date and the exercise price of
the call option itself and thus will not know the amount of cash payable
upon settlement. If a Portfolio holds an index option and exercises it
before the closing index value for that day is available, the Portfolio
runs the risk that the level of the underlying index may subsequently
change.
(5) A Portfolio's activities in the options markets may result in a
higher portfolio turnover rate and additional brokerage costs; however, a
Portfolio also may save on commissions by using options as a hedge rather
than buying or selling individual securities or currencies in anticipation
of, or as a result of, market movements.
FUTURES AND RELATED OPTIONS STRATEGIES. Each Portfolio may engage in
futures strategies for hedging purposes to attempt to reduce the overall
investment risk that would normally be expected to be associated with ownership
of the securities in which it invests. The Portfolios may also engage in futures
strategies to enhance potential gain subject to percentage limitations. (See
discussion of investment guidelines below.)
Each Portfolio may use interest rate futures contracts and options thereon
to hedge its securities holdings against changes in the general level of
interest rates. A Portfolio may purchase an interest rate futures contract when
it intends to purchase debt securities but has not yet done so. This strategy
may minimize the effect of all or part of an increase in the market price of the
debt security that the Portfolio intends to purchase in the future. A rise in
the price of the debt security prior to its purchase may either be offset by an
increase in the value of the futures contract purchased by the Portfolio or
avoided by taking delivery of the debt securities under the futures contract.
Conversely, a fall in the market price of the underlying debt security may
result in a corresponding decrease in the value of the futures position. A
Portfolio may sell an interest rate futures contract in order to continue to
receive the income from a debt security, while endeavoring to avoid part or all
of the decline in market value of that security that would accompany an increase
in interest rates.
A Portfolio may purchase a call option on an interest rate futures
contract to hedge against a market advance in debt securities that the Portfolio
plans to acquire at a future date. The purchase of a call option on an interest
rate futures contract is analogous to the purchase of a call option on an
individual debt security, which can be used as a temporary substitute for a
position in the security itself. A Portfolio also may write covered put options
on interest rate futures contracts as a partial anticipatory hedge and may write
covered call options on interest rate futures contracts as a partial hedge
against a decline in the price of debt securities held in the Portfolio's
portfolio. A Portfolio may also purchase put options on interest rate futures
contracts in order to hedge against a decline in the value of debt securities
held by the Portfolio.
A Portfolio may sell index futures contracts in anticipation of a general
market or market sector decline that could adversely affect the market value of
the Portfolio's securities holdings. To the extent that a portion of the
Portfolio's holdings correlate with a given index, the sale of futures contracts
on that index could reduce the risks associated with a market decline and thus
provide an alternative to the liquidation of securities positions. For example,
if a Portfolio correctly anticipates a general market decline and sells index
futures to hedge against this risk, the gain in the futures position should
offset some or all of the decline in the value of the Portfolio's holdings. A
Portfolio may purchase index futures contracts if a significant market or market
sector advance is anticipated. Such a purchase of a futures contract would serve
as a temporary substitute for the purchase of the underlying securities which
may then be purchased in an orderly fashion. This strategy may minimize the
effect of all or part of an increase in the market price of securities that the
Portfolio intends to purchase. A rise in the price of the securities should be
in part or wholly offset by gains in the futures position.
As in the case of a purchase of an index futures contract, a Portfolio may
purchase a call option on an index futures contract to hedge against a market
advance in securities that the Portfolio plans to acquire at a future date. A
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Portfolio may write covered put options on index futures as a partial
anticipatory hedge and may write covered call options on index futures as a
partial hedge against a decline in the prices of bonds held by the Portfolio.
This is analogous to writing covered call options on securities. A Portfolio
also may purchase put options on index futures contracts. The purchase of put
options on index futures contracts is analogous to the purchase of protective
put options on individual securities where a level of protection is sought below
which no additional economic loss would be incurred by the Portfolio.
The Short/Intermediate Bond Portfolio and the Intermediate Bond Portfolio
may sell foreign currency futures contracts to hedge against possible variations
in the exchange rates of foreign currencies in relation to the U.S. dollar. In
addition, those Portfolios may sell foreign currency futures contracts when WTC
anticipates a general weakening of foreign currency exchange rates that could
adversely affect the market value of the Portfolios' foreign securities holdings
or interest payments to be received in those foreign currencies. In this case,
the sale of a futures contract on the underlying currency may reduce the risk to
the Portfolios of a reduction in market value caused by a decline in the
exchange rate and, by so doing, provide an alternative to the liquidation of the
securities position and resulting transaction costs. The Portfolios may also
write a covered put option on a foreign currency futures contract as a partial
anticipatory hedge and may write a covered call option on a foreign currency
futures contract as a partial hedge against the effects of a declining foreign
currency exchange rate on the value of securities denominated in that currency.
When WTC anticipates a significant foreign exchange rate increase while
intending to invest in a security denominated in that currency, the
Short/Intermediate Bond Portfolio and the Intermediate Bond Portfolio may
purchase a foreign currency futures contract to hedge against the increased rate
pending completion of the anticipated transaction. Such a purchase would serve
as a temporary measure to protect the Portfolios against any rise in the foreign
currency exchange rate that may add additional costs to acquiring the foreign
security position. The Portfolios may also purchase a put or call option on a
foreign currency futures contract to obtain a fixed foreign currency exchange
rate at limited risk. The Portfolios may purchase a call option on a foreign
currency futures contract to hedge against a rise in the foreign currency
exchange rate while intending to invest in a security denominated in that
currency. The Portfolios may purchase a put option on a foreign currency futures
contract as a hedge against the effects of a decline in the foreign currency
exchange rate on the value of securities denominated in that currency.
Each Portfolio may invest in Eurodollar instruments which are U.S.
dollar-denominated futures contracts or options thereon which are linked to the
London Interbank Offered Rate ("LIBOR"). The Portfolios may use Eurodollar
futures contracts and options on those futures contracts to hedge against
changes in LIBOR to which a number of variable and floating rate instruments are
linked.
The Portfolios may also write put options on interest rate, index or, in
the case of the Short/Intermediate Bond Portfolio and the Intermediate Bond
Portfolio, foreign currency futures contracts while, at the same time,
purchasing call options on the same interest rate, index or foreign currency
futures contract in order to synthetically create an interest rate, index or
foreign currency futures contract. The options will have the same strike prices
and expiration dates. A Portfolio will only engage in this strategy when it is
more advantageous to the Portfolio to do so as compared to purchasing the
futures contract.
The Portfolios may also purchase and write covered straddles on interest
rate or index futures contracts. A long straddle is a combination of a call and
a put purchased on the same security where the exercise price of the put is less
than or equal to the exercise price on the call. A Portfolio would enter into a
long straddle when it believes that it is likely that prices will be more
volatile during the term of the options than is implied by the option pricing. A
short straddle is a combination of a call and a put written on the same security
where the exercise price on the put is less than or equal to the exercise price
of the call where the same issue of the security is considered "cover" for both
the put and the call. A Portfolio would enter into a short straddle when it
believes that it is unlikely that prices will be as volatile during the term of
the options as is implied by the option pricing. In such case, the Portfolio
will set aside cash and/or liquid securities in a segregated account with its
custodian in the amount, if any, by which the put is "in-the-money," that is the
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amount by which the exercise price of the put exceeds the current market value
of the underlying security.
FUTURES AND RELATED OPTIONS GUIDELINES. In view of the risks involved in
using the futures strategies that are described above, each Portfolio has
adopted the following investment guidelines to govern its use of such
strategies; these guidelines may be modified by the Board of Trustees without
shareholder vote. For purposes of these guidelines, foreign currency options
traded on a commodities exchange are considered "related options."
(1) A Portfolio will not purchase or sell non-hedging futures
contracts or related options if aggregate initial margin and premiums
required to establish such positions would exceed 5% of the Portfolio's
total assets; and
(2) For purposes of this limitation, unrealized profits and
unrealized losses on any open contracts are taken into account and
in-the-money amount of an option that is in-the-money at the time of
purchase is excluded.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING.
No price is paid upon entering into a futures contract. Instead, upon entering
into a futures contract, a Portfolio is required to deposit with the Fund's
custodian in a segregated account in the name of the futures broker through whom
the transaction is effected an amount of cash, U.S. Government securities or
other liquid instruments generally equal to 10% or less of the contract value.
This amount is known as "initial margin." When writing a call or a put option on
a futures contract, margin also must be deposited in accordance with applicable
exchange rules. Unlike margin in securities transactions, initial margin on
futures contracts does not involve borrowing to finance the futures
transactions. Rather, initial margin on a futures contract is in the nature of a
performance bond or good-faith deposit on the contract that is returned to the
Portfolio upon termination of the transaction, assuming all obligations have
been satisfied. Under certain circumstances, such as periods of high volatility,
a Portfolio may be required by a futures exchange to increase the level of its
initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. Subsequent payments,
called "variation margin," to and from the broker, are made on a daily basis as
the value of the futures or options position varies, a process known as "marking
to the market." For example, when a Portfolio purchases a contract and the value
of the contract rises, the Portfolio receives from the broker a variation margin
payment equal to that increase in value. Conversely, if the value of the futures
position declines, the Portfolio is required to make a variation margin payment
to the broker equal to the decline in value. Variation margin does not involve
borrowing to finance the futures transaction but rather represents a daily
settlement of the Portfolio's obligations to or from a clearing organization.
Buyers and sellers of futures positions and options thereon can enter into
offsetting closing transactions, similar to closing transactions on options on
securities, by selling or purchasing an offsetting contract or option. Futures
contracts or options thereon may be closed only on an exchange or board of trade
providing a secondary market for such futures contracts or options.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or related option may vary
either up or down from the previous day's settlement price. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses, because
prices could move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of unfavorable
positions. In such event, it may not be possible for a Portfolio to close a
position and, in the event of adverse price movements, the Portfolio would have
to make daily cash payments of variation margin (except in the case of purchased
options). However, if futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the contracts can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
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However, there is no guarantee that the price of the securities will, in fact,
correlate with the price movements in the contracts and thus provide an offset
to losses on the contracts.
In considering the Portfolios' use of futures contracts and related
options, particular note should be taken of the following:
(1) Successful use by the Portfolios of futures contracts and
related options will depend upon WTC's ability to predict movements in the
direction of the overall securities, currencies and interest rate markets,
which requires different skills and techniques than predicting changes in
the prices of individual securities. Moreover, futures contracts relate
not only to the current price level of the underlying instrument or
currency but also to the anticipated price levels at some point in the
future. There is, in addition, the risk that the movements in the price of
the futures contract will not correlate with the movements in the prices
of the securities or currencies being hedged. For example, if the price of
an index futures contract moves less than the price of the securities that
are the subject of the hedge, the hedge will not be fully effective, but
if the price of the securities being hedged has moved in an unfavorable
direction, the Portfolio would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, the advantage may be partially offset by losses in
the futures position. In addition, if the Portfolio has insufficient cash,
it may have to sell assets to meet daily variation margin requirements.
Any such sale of assets may or may not be made at prices that reflect a
rising market. Consequently, the Portfolio may need to sell assets at a
time when such sales are disadvantageous to the Portfolio. If the price of
the futures contract moves more than the price of the underlying
securities, the Portfolio will experience either a loss or a gain on the
futures contract that may or may not be completely offset by movements in
the price of the securities that are the subject of the hedge.
(2) In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the
futures position and the securities or currencies being hedged, movements
in the prices of futures contracts may not correlate perfectly with
movements in the prices of the hedged securities or currencies due to
price distortions in the futures market. There may be several reasons
unrelated to the value of the underlying securities or currencies that
cause this situation to occur. First, as noted above, all participants in
the futures market are subject to initial and variation margin
requirements. If, to avoid meeting additional margin deposit requirements
or for other reasons, investors choose to close a significant number of
futures contracts through offsetting transactions, distortions in the
normal price relationship between the securities or currencies and the
futures markets may occur. Second, because the margin deposit requirements
in the futures market are less onerous than margin requirements in the
securities market, there may be increased participation by speculators in
the futures market; such speculative activity in the futures market also
may cause temporary price distortions. As a result, a correct forecast of
general market trends may not result in successful hedging through the use
of futures contracts over the short term. In addition, activities of large
traders in both the futures and securities markets involving arbitrage and
other investment strategies may result in temporary price distortions.
(3) Positions in futures contracts may be closed out only on an
exchange or board of trade that provides a secondary market for such
futures contracts. Although the Portfolios intend to purchase and sell
futures only on exchanges or boards of trade where there appears to be an
active secondary market, there is no assurance that a liquid secondary
market on an exchange or board of trade will exist for any particular
contract at any particular time. In such event, it may not be possible to
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close a futures position, and in the event of adverse price movements, a
Portfolio would continue to be required to make variation margin payments.
(4) Like options on securities and currencies, options on futures
contracts have limited life. The ability to establish and close out
options on futures will be subject to the development and maintenance of
liquid secondary markets on the relevant exchanges or boards of trade.
There can be no certainty that such markets for all options on futures
contracts will develop.
(5) Purchasers of options on futures contracts pay a premium in cash
at the time of purchase. This amount and the transaction costs are all
that is at risk. Sellers of options on futures contracts, however, must
post initial margin and are subject to additional margin calls that could
be substantial in the event of adverse price movements. In addition,
although the maximum amount at risk when a Portfolio purchases an option
is the premium paid for the option and the transaction costs, there may be
circumstances when the purchase of an option on a futures contract would
result in a loss to the Portfolio when the use of a futures contract would
not, such as when there is no movement in the level of the underlying
index value or the securities or currencies being hedged.
(6) As is the case with options, the Portfolios' activities in the
futures markets may result in a higher portfolio turnover rate and
additional transaction costs in the form of added brokerage commissions;
however, a Portfolio also may save on commissions by using futures
contracts or options thereon as a hedge rather than buying or selling
individual securities or currencies in anticipation of, or as a result of,
market movements.
SPECIAL RISKS RELATED TO FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS. Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on foreign currencies
described above.
Options on foreign currency futures contracts may involve certain
additional risks. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. Compared to
the purchase or sale of foreign currency futures contracts, the purchase of call
or put options thereon involves less potential risk to the Short/Intermediate
Bond Portfolio and the Intermediate Bond Portfolio because the maximum amount at
risk is the premium paid for the option (plus transaction costs). However, there
may be circumstances when the purchase of a call or put option on a foreign
currency futures contract would result in a loss, such as when there is no
movement in the price of the underlying currency or futures contract, when the
purchase of the underlying futures contract would not.
FORWARD CURRENCY CONTRACTS. The Short/Intermediate Bond Portfolio and the
Intermediate Bond Portfolio may use forward currency contracts to protect
against uncertainty in the level of future foreign currency exchange rates.
Those Portfolios may enter into forward currency contracts with respect to
specific transactions. For example, when a Portfolio enters into a contract for
the purchase or sale of a security denominated in a foreign currency, or the
Portfolio anticipates the receipt in a foreign currency of dividend or interest
payments on a security that it holds or anticipates purchasing, the Portfolio
may desire to "lock in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such payment, as the case may be, by entering into a forward
contract for the purchase or sale, for a fixed amount of U.S. dollars or foreign
currency, of the amount of foreign currency involved in the underlying
transaction. The Portfolio will thereby be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
currency exchange rates during the period between the date on which the security
is purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.
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The Short/Intermediate Bond Portfolio and the Intermediate Bond Portfolio
also may hedge by using forward currency contracts in connection with portfolio
positions to lock in the U.S. dollar value of those positions, to increase the
Portfolios' exposure to foreign currencies that WTC believes may rise in value
relative to the U.S. dollar or to shift the Portfolios' exposure to foreign
currency fluctuations from one country to another. For example, when WTC
believes that the currency of a particular foreign country may suffer a
substantial decline relative to the U.S. dollar or another currency, it may
enter into a forward contract to sell the amount of the former foreign currency
approximating the value of some or all of the Portfolios' securities holdings
denominated in such foreign currency. This investment practice generally is
referred to as "cross-hedging" when another foreign currency is used.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Portfolios to purchase additional foreign currency on the spot (that is,
cash) market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Portfolios are
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the security
holding if the market value of the security exceeds the amount of foreign
currency the Portfolios are obligated to deliver. The projection of short-term
currency market movements is extremely difficult and the successful execution of
a short-term hedging strategy is highly uncertain. Forward contracts involve the
risk that anticipated currency movements will not be accurately predicted,
causing the Portfolio to sustain losses on these contracts and transaction
costs. Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the longer term investment decisions made
with regard to overall diversification strategies. However, WTC believes that it
is important to have the flexibility to enter into such forward contracts when
it determines that the best interests of the Portfolios will be served.
At or before the maturity date of a forward contract requiring the
Short/Intermediate Bond Portfolio or the Intermediate Bond Portfolio to sell a
currency, the Portfolio may either sell a security holding and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Portfolio will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, the Portfolio
may close out a forward contract requiring it to purchase a specified currency
by entering into a second contract entitling it to sell the same amount of the
same currency on the maturity date of the first contract. The Portfolio would
realize a gain or loss as a result of entering into such an offsetting forward
currency contract under either circumstance to the extent the exchange rate or
rates between the currencies involved moved between the execution dates of the
first contract and the offsetting contract.
The cost to the Short/Intermediate Bond Portfolio or the Intermediate Bond
Portfolio of engaging in forward currency contracts varies with factors such as
the currencies involved, the length of the contract period and the market
conditions then prevailing. Because forward currency contracts are usually
entered into on a principal basis, no fees or commissions are involved. The use
of forward currency contracts does not eliminate fluctuations in the prices of
the underlying securities the Portfolios own or intends to acquire, but it does
fix a rate of exchange in advance. In addition, although forward currency
contracts limit the risk of loss due to a decline in the value of the hedged
currencies, at the same time they limit any potential gain that might result
should the value of the currencies increase.
Although the Short/Intermediate Bond Portfolio and the Intermediate Bond
Portfolio values their assets daily in terms of U.S. dollars, it does not intend
to convert its holdings of foreign currencies into U.S. dollars on a daily
basis. The Portfolios may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
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Portfolios at one rate, while offering a lesser rate of exchange should the
Portfolios desire to resell that currency to the dealer.
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APPENDIX B
DESCRIPTION OF RATINGS
MOODY'S RATINGS
CORPORATE AND MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
CORPORATE AND MUNICIPAL COMMERCIAL PAPER. The highest rating for corporate
and municipal commercial paper is "P-1" (Prime-1). Issuers rated P-1 (or
supporting institutions) have a superior ability for repayment of senior
short-term debt obligations. P-1 repayment ability will often be evidenced by
many of the following characteristics:
--- Leading market positions in well-established industries.
--- High rates of return on funds employed.
--- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
--- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
--- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
MUNICIPAL NOTES. The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2" and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG 3"
in the case of an issue having a variable-rate demand feature). Notes rated "MIG
1" or "VMIG 1" are judged to be of the best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing. Notes rated "MIG 2" or "VMIG 2"
are of high quality, with margins of protection that are ample although not so
large as in the preceding group. Notes rated "MIG 3" or "VMIG 3" are of
favorable quality, with all security elements accounted for but lacking the
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undeniable strength of the preceding grades. Liquidity and cash flow protection
may be narrow and market access for refinancing is likely to be less well
established.
S&P RATINGS
CORPORATE AND MUNICIPAL BONDS
AAA: Bonds rated AAA are highest grade debt obligations. This rating
indicates an extremely strong capacity to pay interest and repay principal.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
CORPORATE AND MUNICIPAL COMMERCIAL PAPER The "A-1" rating for corporate
and municipal commercial paper indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics will be rated "A-1+."
MUNICIPAL NOTES. The "SP-1" rating reflects a very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics will be rated "SP-1+." The "SP-2" rating
reflects a satisfactory capacity to pay principal and interest.
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The Financial Statements of the Registrant are incorporated herein by reference
to the Annual Report to Shareholders filed with the Securities and Exchange
Commission on December 24, 1997, Edgar Accession Number 0000793276-97-000008.
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
Items Required by Form N-IA
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
a. Financial Statements:
Included in Part A of this Registration Statement:
For The Short/Intermediate Bond Portfolio:
Financial Highlights for each of the seven fiscal years in the
period ended October 31, 1997.
For The Municipal Bond Portfolio:
Financial Highlights for each of the four years in the period ended
October 31, 1997.
Included in Part B of this Registration Statement through
incorporation by reference to the Annual Report to Shareholders filed
with the Securities and Exchange Commission on December 24, 1997,
Edgar Accession No. 0000793276-97-000008:
FOR THE SHORT/INTERMEDIATE BOND PORTFOLIO:
Investments, October 31, 1997
Statement of Assets and Liabilities, October 31, 1997 Statement of
Operations, for the fiscal year ended October 31, 1997
Statement of Changes in Net Assets, for the fiscal years ended
October 31, 1996 and October 31, 1997 Financial Highlights, for
each of the five years in the period ended October 31, 1997
Notes to Financial Statements
FOR THE MUNICIPAL BOND PORTFOLIO:
Investments, October 31, 1997
Statement of Assets and Liabilities, October 31, 1997 Statement of
Operations, for the fiscal year ended October 31, 1997
Statement of Changes in Net Assets, for the fiscal years ended
October 31, 1996 and October 31, 1997 Financial Highlights, for
each of the four years in the period ended October 31, 1997
Notes to Financial Statements
Statements, schedules and historical information other than those
listed above have been omitted since they are either not applicable or are not
required.
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (CONTINUED).
b. Exhibits:
1. (a) Amended and Restated Declaration of Trust dated July 1,
1992. (Incorporated by reference to Exhibit 1 to
Post-Effective Amendment No. 10 to this Registration Statement
filed on December 24, 1992.)
(b) Amendment to Declaration of Trust dated February 15, 1993.
(Incorporated by reference to Exhibit 1(b) to Post-Effective
Amendment No. 11 to thi sRegistration Statement filed on
August 27, 1993.)
(c) Amendment to Declaration of Trust dated June 15, 1998 (filed
herewith).
2. (a) Bylaws of the Registrant. (Incorporated by reference to
Exhibit 2 to original Registration Statement filed on May 7,
1986.)
(b) Bylaws of the Registrant as Amended on September 10, 1986.
(Incorporated by reference to Exhibit 2 to Pre-Effective
Amendment No. 1 to this Registration Statement filed on
October 30, 1986.)
3. Voting Trust Agreement - None.
4. Instruments Defining the Rights of Shareholders:
(a) Amended and Restated Declaration of Trust dated July 1, 1992,
as amended February 15, 1993 (relevant portions) and June 15,
1998. (Incorporated by reference to Exhibit 4(a) to
Post-Effective Amendment No. 11 to this Registration Statement
filed on August 27, 1993 and to Exhibit 1 (c) filed herewith.)
(b) Bylaws of the Registrant as Amended on September 10, 1986
(relevant portions). (Incorporated by reference to Exhibit
4(b) Post-Effective Amendment No. 11 to this Registration
Statement filed on August 27, 1993.)
5. (a) Advisory Agreement between the Registrant on behalf of the
Short/Intermediate Bond Portfolio and Wilmington Trust Company
dated April 1, 1991. (Incorporated by reference to Exhibit 5
to Post-Effective Amendment No. 7 to this Registration
Statement filed on March 29, 1991.)
(b) Advisory Agreement between the Registrant on behalf of the
Municipal Bond Portfolio and Wilmington Trust Company dated
November 1, 1993. (Incorporated by reference to Exhibit 5(b)
to Post-Effective Amendment No. 11 to this Registration
Statement filed on August 27, 1993.)
(c) Form of Amended Advisory Agreement between the Registrant on
behalf of the Short/Intermediate Bond Portfolio, the Municipal
Bond Portfolio and the Intermediate Bond Portfolio and
Wilmington Trust Company (filed herewith).
<PAGE>
6. Distribution Agreement between the Registrant and Rodney Square
Distributors, Inc. dated February 23, 1998. (Incorporated by
reference to Exhibit 6 to Post-Effective Amendment No. 18 to this
Registration Statement filed on April 15, 1998.)
7. Bonus, Profit Sharing or Pension Plans - None.
8. (a) Custodian Contract between the Registrant and Wilmington
Trust Company dated November 12, 1986. (Incorporated by
reference to Exhibit 8 to Post-Effective Amendment No. 1 to
this Registration Statement filed on or about May 28, 1987.)
(b) Custodial Undertaking with Manufacturers Hanover Trust Company
in connection with Master Repurchase Agreement of the
Registrant and the First Boston Corporation dated June 6,
1989. (Incorporated by reference to Exhibit 8(b) to
Post-Effective Amendment No. 11 to this Registration Statement
filed on August 27, 1993.)
(c) Sub-Custodian Services Agreement dated February 2, 1998
between PNC Bank, National Association, Wilmington Trust
Company and the Registrant (filed herewith).
9. (a) Transfer Agency Services Agreement dated February 2, 1998
between the Registrant, PFPC Inc. and Wilmington Trust Company
(filed herewith).
(i) Fee Agreement between the Registrant and Wilmington
Trust Company (filed herewith).
(ii) Amended Transfer Agency Services Agreement between
the Registrant and Wilmington Trust Company (to be
filed).
(b) Administration and Accounting Services Agreement dated
February 2, 1998 between the Registrant and PFPC Inc.
(filed herewith).
(i) Fee Agreement between the Registrant and PFPC Inc.
(filed herewith).
(ii) Amended Exhibit A to Administration and Accounting
Services Agreement dated February 2, 1998 between the
Registrant and PFPC Inc. (to be filed).
(c) Fund Secretarial Services Agreement between the Registrant and
Rodney Square Management Corporation. (Incorporated by
reference to Exhibit 9(c) to Post-Effective Amendment No. 18
to this Registration Statement filed on April 15, 1998.)
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (CONTINUED).
10. (a) Opinion and Consent of Kirkpatrick & Lockhart LLP with
respect to shares of the Short/Intermediate Bond Portfolio.
(Incorporated by reference to Exhibit 10 to Post-Effective
Amendment No. 7 to this Registration Statement filed on March
29, 1991.)
(b) Opinion and Consent of Kirkpatrick & Lockhart LLP with respect
to shares of the Municipal Bond Portfolio. (Incorporated by
reference to Exhibit 10(b) to Post-Effective Amendment No. 11
to this Registration Statement filed on August 27, 1993.)
(c) Opinion and Consent of Kirkpatrick & Lockhart LLP with respect
to shares of the Intermediate Bond Portfolio (filed herewith).
11. Consent of Ernst & Young LLP, independent auditors for Registrant.
(filed herewith)
12. Financial Statements omitted from Part B - None.
13. Letter of Investment Intent (on behalf of the Short/Intermediate
Bond Portfolio). (Incorporated by reference to Exhibit 13 to
Post-Effective Amendment No. 7 to this Registration Statement
filed on March 29, 1991.)
14. Prototype Retirement Plan - None
15. None
16. (a) Schedule for Computation of Performance Quotations for the
Short/Intermediate Bond Portfolio. (Incorporated by reference
to Exhibit 16(a) to Post-Effective Amendment No. 17 to this
Registration Statement filed on December 24, 1997.)
(b) Schedule for Computation of Performance Quotations for the
Municipal Bond Portfolio. (Incorporated by reference to
Exhibit No. 16(b) to Post-Effective Amendment No. 17 to this
Registration Statement filed on December 24, 1997.
17. (a) Financial Data Schedule for the Short/Intermediate Bond
Portfolio (filed herewith).
(b) Financial Data Schedule for the Municipal Bond Portfolio
(filed herewith).
18. Plan adopted pursuant to Rule 18f-3 - None
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
a. Persons Controlled by Registrant: None
b. Persons who may be deemed to be under Common Control with Registrant
in the event Wilmington Trust Corporation ("WT Corp.") and/or
Wilmington Trust Company ("WTC") may be deemed to be a controlling
person(s) of the Registrant:
<PAGE>
Mutual Funds
------------
The Rodney Square Fund
The Rodney Square Tax-Exempt Fund
The Rodney Square Multi-Manager Fund
<TABLE>
<CAPTION>
% Held
by WT Corp.
Corporate Entity State of Org. or Wtc
---------------- ------------- ------
<S> <C> <C>
Wilmington Trust Company Delaware 100%
Wilmington Trust FSB Federally Chartered 100%
Wilmington Trust of Pennsylvania Pennsylvania 100%
Brandywine Insurance Agency, Inc. Delaware 100%
Brandywine Finance Corp. Delaware 100%
Brandywine Life Insurance Company, Inc. Delaware 100%
Compton Realty Corporation Delaware 100%
Delaware Corp. Management Delaware 100%
Drew-I Ltd. Delaware 100%
Drew-VIII Ltd. Delaware 100%
Holiday Travel Agency, Inc. Delaware 100%
Rockland Corporation Delaware 100%
Rodney Square Distributors, Inc. Delaware 100%
Rodney Square Management Corporation Delaware 100%
Siobain VI, Ltd. Delaware 100%
Siobain VIII, Ltd. Delaware 100%
Wilmington Brokerage Services Company Delaware 100%
Wilmington Capital Management, Inc. Delaware 100%
WTC Corporate Services, Inc. Delaware 100%
100 West Tenth St. Corporation Delaware 100%
WT Investments Inc. Delaware 100%
Wilmington Trust Commercial Services Co. Maryland 100%
</TABLE>
Partnerships
------------
Rodney Square Investors, L.P.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (AS OF MAY 31, 1998).
(1) (2)
Title of Class Number of Record Shareholders
-------------- -----------------------------
Shares of beneficial
interest $.01 par value
Short/Intermediate Bond 77
Portfolio
Municipal Bond
Portfolio 74
<PAGE>
ITEM 27. INDEMNIFICATION.
Article X, Section 2 of the Registrant's Declaration of Trust provides,
subject to certain exceptions and limitations, that the appropriate Series of
the Registrant will indemnify the Registrant's Trustees or officers ("covered
person") to the fullest extent permitted by law against liability and all
expenses reasonably incurred or paid by such persons in connection with any
claim, action, suit or proceeding in which a covered person becomes involved as
a party or otherwise by virtue of being or having been a Trustee or officer and
against amounts paid or incurred by him or her in the settlement thereof;
provided no covered persons shall be indemnified where there has been an
adjudication, as described in Article X, Section 2(b), that such person is
liable to the Registrant or its shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office or did not act in good faith in the reasonable
belief that his or her action was in the best interest of the Registrant or
where there has been a settlement, unless there has been a determination, as
described in Article X, Section 2(b) that such person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Article X, Section 2(c) provides
that the Registrant may maintain insurance policies covering such rights of
indemnification.
According to Article XI, Section 1 of the Declaration of Trust, any person
extending credit to, contracting with or having any claim against the Registrant
or the Trustees shall look only to the assets of the appropriate Series for
payment and neither the shareholders nor the Trustees nor any of their agents,
whether past, present or future, shall be personally liable therefor; except
that nothing in the Declaration of Trust shall protect a Trustee against
liability by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
Article XI, Section 2 of the Declaration of Trust provides that subject to
the provisions of Article X and Article XI, Section 1, the Trustees shall not be
liable for errors of judgment or mistakes of fact or law, or for any act or
omission in accordance with advice of counsel or other experts or for failing to
follow such advice.
Paragraph 7A of the Advisory Agreements between Wilmington Trust Company
("WTC") and the Registrant provides that WTC shall not be liable to the
Registrant or to any shareholder of the Registrant or its Portfolios for any act
or omission in the course of performance of its duties under the contract in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties or for any losses that may be sustained in
the purchase, holding or sale of any security or the making of any investment
for or on behalf of the Registrant. Paragraph 7B of each of the Advisory
Agreements provides that no provision of either the Advisory Contract or the
Form of Advisory Agreement shall be construed to protect any Trustee or officer
of the Registrant, or WTC, from liability in violation of Sections 17(h), 17(i),
36(a) or 36(b) of the Investment Company Act of 1940. Paragraph 15 of the
Agreement on behalf of Short/Intermediate Bond Portfolio and Municipal Bond
Portfolio and Paragraph 16 of the Agreement for Intermediate Bond Portfolio
provides that obligations assumed by the Registrant pursuant to the Advisory
Agreements are limited in all cases to the Registrant and its assets or a
particular Series and its assets, if liability relates to a Series.
<PAGE>
Paragraph 11 of the Distribution Agreement between the Registrant and
Rodney Square Distributors, Inc. ("RSD") provides that the Registrant agrees to
indemnify and hold harmless RSD and each of its directors and officers and each
person, if any, who controls RSD within the meaning of Section 15 of the
Securities Act of 1933 (the "1933 Act") against any loss, liability, claim,
damages or expense arising by reason of any person acquiring any shares, based
upon the 1933 Act or any other statute or common law, alleging any wrongful act
of the Registrant or any of its employees or representatives, or based upon the
grounds that the registration statements, or other information filed or made
public by the Registrant included an untrue statement of a material fact or
omitted to state a material fact required to be stated or necessary in order to
make the statements not misleading. RSD, however, will not be indemnified to the
extent that the statement or omission is based on information provided in
writing by RSD. In no case is the indemnity of the Registrant in favor of RSD or
any person indemnified to be deemed to protect RSD or any person against any
liability to the Registrant or its security holders to which RSD or such person
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement. Paragraph 16 of
the Distribution Agreement is similar to Paragraph 15 of the Advisory
Agreements.
Paragraph 12 of the Transfer Agency Services Agreement between the
Registrant and PFPC Inc. ("PFPC") provides that PFPC and its affiliates shall be
held harmless from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities arising under the 1933
Act, the Securities Exchange Act of 1934, as amended, the 1940 Act, the
Commodities Exchange Act, as amended and any state and foreign securities and
blue sky laws, and amendments thereto), and expenses including (without
limitation) attorney's fees and disbursements arising directly or indirectly
from any action or omission to act which PFPC takes at the request or on the
direction of or in reliance on the advice of the Registrant or upon oral or
written instructions or the acceptance, processing and/or negotiation of checks
or other methods utilized for the purchase of shares of the Registrant in the
absence of PFPC's or any of its affiliates, own willful misfeasance, bad faith,
negligence or reckless disregard or its duties and obligations under such
Agreement. Paragraph 12 of the Transfer Agency Agreement is similar to Paragraph
8 of the Advisory Agreement.
Paragraph 12 of the Administration and Accounting Services Agreement
between the Registrant and PFPC is similar to Paragraph 12 of the Transfer
Agency Services Agreement.
Insofar as indemnification for liability arising under the 1933 Act may be
permitted to Trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
ITEM 28. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER.
Wilmington Trust Company ("WTC"), a Delaware corporation, serves as
investment adviser to the Registrant. It currently manages large
institutional accounts and collective investment funds.
The directors and principal executive officer of the Adviser have held the
following positions of a substantial nature in the past two years:
<TABLE>
<CAPTION>
Business or Other Connections of Principal Executive
Name Officers and Directors of Registrants Adviser
---- ---------------------------------------------
<S> <C>
Robert H. Bolling, Jr. Owner, R.H. Bolling, Jr. P.E. (consulting engineering
firm)
Carolyn S. Burger President and Chief Executive Officer of Bell Atlantic-
Delaware, Incorporated
Ted T. Cecala Chairman and Chief Executive Officer, Wilmington Trust
Corporation and Wilmington Trust Company
Richard R. Collins Chairman, Collins, Incorporated (consulting firm for
various insurance industry associations and financial and
nonfinancial companies); Retired President, American Life
Insurance Company
Charles S. Crompton, Esq. Attorney, Partner, Potter Anderson & Corroon (law firm)
H. Stewart Dunn, Jr., Esq. Attorney, Partner, Ivins, Phillips & Barker (law firm)
Edward B. du Pont Private investor; Director, E. I. du Pont de Nemours
and Company, Incorporated; Retired Chairman, Atlantic
Aviation Corporation
Robert C. Forney Retired Executive Vice President and Director,
E. I. du Pont de Nemours and Company, Incorporated
Thomas L. Gossage Chairman and Chief Executive Officer, Hercules
Incorporated
Robert V.A. Harra, Jr. President and Treasurer, Wilmington Trust Corporation
and Wilmington Trust Company
Andrew B. Kirkpatrick, Jr., Esq. Of Counsel to, Morris, Nichols, Arsht & Tunnell (law
firm)
Rex L. Mears President of Ray L. Mears & Sons, Inc. (farming
corporation)
Hugh E. Miller Retired Executive, Formerly Vice Chairman, ICI
Americas, Inc.; was with parent Imperial Chemicals
Industries PLC for 20 years until 1990
including management positions in the United States and Europe
Stacey J. Mobley Senior Vice President of Communications, E. I. du
Pont de Nemours and Company, Incorporated
Leonard W. Quill Formerly Chairman and Chief Executive Officer,
Wilmington Trust Corporation and Wilmington Trust
Company
David P. Roselle President, University of Delaware
<PAGE>
Thomas P. Sweeney, Esq. Attorney, Partner, Richards, Layton & Finger (law firm)
Bernard J. Taylor, II Retired Chairman and Chief Executive Officer,
Wilmington Trust Corporation and Wilmington Trust
Company
Mary Jornlin Theisen Former New Castle County Executive
Robert W. Tunnell, Jr. Managing Partner of Tunnell Companies, L.P., owner and
developer of real estate
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) The Rodney Square Fund
The Rodney Square Tax-Exempt Fund
The Rodney Square Strategic Equity Fund
ITEM 29. PRINCIPAL UNDERWRITERS (CONTINUED).
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
<S> <C> <C>
Positions and
Name and Principal Positions and Offices with Offices with
Business Address Rodney Square Distributors, Inc. Registrant
- ---------------- -------------------------------- ----------
James S. Gandolfo President, Secretary, None
1105 North Market Street Treasurer & Director
Wilmington, DE 19801
Robert J. Christian Director President & Trustee
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Nina M. Webb Director Vice President
1100 North Market Street
Wilmington, DE 19890
</TABLE>
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Certain accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder and the records relating to the duties of the Registrant's transfer
agent are maintained by PFPC, Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
Records relating to the duties of the Registrant's custodian are maintained by
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, DE 19890-0001 and PNC Bank, National Association, 1600 Market
Street, Philadelphia, Pennsylvania 19103.
<PAGE>
ITEM 31. MANAGEMENT SERVICES.
Inapplicable.
ITEM 32. UNDERTAKINGS.
The Registrant hereby undertakes to furnish a copy of the Registrant's
latest Annual Report to Shareholders to each person to whom a copy of the
Registrant's Prospectus is delivered, upon request and without charge.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies this Post Effective
Amendment No. 19 to its Registration Statement meets all of the requirements for
effectiveness pursuant to Rule 485(b) under the Securities Act of 1933 and the
Registrant further certifies that it has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Wilmington, and State of Delaware, on the 16th
day of June, 1998.
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
By: /s/ Carl M. Rizzo
----------------------------------------
Carl M. Rizzo, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Robert J. Christian President & June 16, 1998
- ----------------------------- Trustee
Robert J. Christian*
/s/ Eric Brucker
- ----------------------------- Trustee June 16, 1998
Eric Brucker*
/s/ Fred L. Buckner
- ----------------------------- Trustee June 16, 1998
Fred L. Buckner*
/s/ John J. Quindlen
- ----------------------------- Trustee June 16, 1998
John J. Quindlen*
/s/ John J. Kelley Vice President and June 16, 1998
- ----------------------------- Treasurer (Principal
John J. Kelley Financial and
Accounting Officer)
*By: /s/ Carl M. Rizzo
- ----------------------------
Carl M. Rizzo**
** Attorney-in-fact pursuant to a power of attorney dated November 17, 1997 and
incorporated by reference from Post-Effective Amendment No. 17 to the
Registrant's Registration Statement on Form N-1A, SEC File No.
811-04663, filed December 24, 1997.
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
EXHIBIT INDEX
1. (a) Amended and Restated Declaration of Trust dated July 1, 1992.
(Incorporated by reference to Exhibit 1 to Post-Effective Amendment
No. 10 to this Registration Statement filed on December 24, 1992.)
(b) Amendment to Declaration of Trust dated February 15, 1993.
(Incorporated by reference to Exhibit 1(b) to Post-Effective
Amendment No. 11 to this Registration Statement filed on August 27,
1993.)
(c) Amendment to Declaration of Trust dated June 15, 1998 (filed
herewith).
2. (a) Bylaws of the Registrant. (Incorporated by reference to Exhibit 2
to original Registration Statement filed on May 7, 1986.)
(b) Bylaws of the Registrant as Amended on September 10, 1986.
(Incorporated by reference to Exhibit 2 to Pre-Effective Amendment
No. 1 to this Registration Statement filed on October 30, 1986.)
3. Voting Trust Agreement - None.
4. Instruments Defining the Rights of Shareholders:
(a) Amended and Restated Declaration of Trust dated July 1, 1992, as
amended February 15, 1993 (relevant portions) and June 15, 1998.
(Incorporated by reference to Exhibit 4(a) to Post-Effective
Amendment No. 11 to this Registration Statement filed on August 27,
1993 and to Exhibit 1 (c) filed herewith.)
(b) Bylaws of the Registrant as Amended on September 10, 1986 (relevant
portions). (Incorporated by reference to Exhibit 4(b) Post-Effective
Amendment No. 11 to this Registration Statement filed on August 27,
1993.)
5. (a) Advisory Agreement between the Registrant on behalf of the
Short/Intermediate Bond Portfolio and Wilmington Trust Company dated
April 1, 1991. (Incorporated by reference to Exhibit 5 to
Post-Effective Amendment No. 7 to this Registration Statement filed
on March 29, 1991.)
(b) Advisory Agreement between the Registrant on behalf of the Municipal
Bond Portfolio and Wilmington Trust Company dated November 1, 1993.
(Incorporated by reference to Exhibit 5(b) to Post-Effective
Amendment No. 11 to this Registration Statement filed on August 27,
1993.)
(c) Form of Amended Advisory Agreement between the Registrant on behalf
of the Short/Intermediate Bond Portfolio, the Municipal Bond
Portfolio and the Intermediate Bond Portfolio and Wilmington Trust
Company (filed herewith).
<PAGE>
6. Distribution Agreement between the Registrant and Rodney Square
Distributors, Inc. dated February 23, 1998. (Incorporated by reference to
Exhibit 6 to Post-Effective Amendment No. 18 to this Registration
Statement filed on April 15, 1998.)
7. Bonus, Profit Sharing or Pension Plans - None.
8. (a) Custodian Contract between the Registrant and Wilmington
Trust Company dated November 12, 1986. (Incorporated by reference
to Exhibit 8 to Post-Effective Amendment No. 1 to this
Registration Statement filed on or about May 28, 1987.)
(b) Custodial Undertaking with Manufacturers Hanover Trust Company in
connection with Master Repurchase Agreement of the Registrant and
the First Boston Corporation dated June 6, 1989. (Incorporated by
reference to Exhibit 8(b) to Post-Effective Amendment No. 11 to
this Registration Statement filed on August 27, 1993.)
(c) Sub-Custodian Services Agreement dated February 2, 1998 between
PNC Bank, National Association, Wilmington Trust Company and the
Registrant (filed herewith).
9. (a) Transfer Agency Services Agreement dated February 2, 1998
between the Registrant, PFPC Inc. and Wilmington Trust Company
(filed herewith).
(i) Fee Agreement between the Registrant, PFPC, Inc. and
Wilmington Trust Company (filed herewith).
(ii) Amended Transfer Agency Services Agreement between the
Registrant and Wilmington Trust Company (to be filed).
(b) Administration and Accounting Services Agreement dated February
2, 1998 between the Registrant and PFPC Inc. (filed herewith).
(i) Fee Agreement between the Registrant and PFPC Inc. (filed
herewith).
(ii)Amended Exhibit A to Administration and Accounting Services
Agreement dated February 2, 1998 between the Registrant and
PFPC Inc. (to be filed).
(c) Fund Secretarial Services Agreement between the Registrant and
Rodney Square Management Corporation. (Incorporated by reference
to Exhibit 9(c) to Post-Effective Amendment No. 18 to this
Registration Statement filed on April 15, 1998.)
10. (a) Opinion and Consent of Kirkpatrick & Lockhart LLP with respect to
shares of the Short/Intermediate Bond Portfolio. (Incorporated by
reference to Exhibit 10 to Post-Effective Amendment No. 7 to this
Registration Statement filed on March 29, 1991.)
<PAGE>
(b) Opinion and Consent of Kirkpatrick & Lockhart LLP with respect to
shares of the Municipal Bond Portfolio. (Incorporated by
reference to Exhibit 10(b) to Post-Effective Amendment No. 11 to
this Registration Statement filed on August 27, 1993.)
(c) Opinion and Consent of Kirkpatrick & Lockhart LLP with respect to
shares of the Intermediate Bond Portfolio (filed herewith).
11. Consent of Ernst & Young LLP, independent auditors for Registrant. (filed
herewith)
12. Financial Statements omitted from Part B - None.
13. Letter of Investment Intent (on behalf of the Short/Intermediate Bond
Portfolio). (Incorporated by reference to Exhibit 13 to Post-Effective
Amendment No. 7 to this Registration Statement filed on March 29, 1991.)
14. Prototype Retirement Plan - None
15. None
16. (a) Schedule for Computation of Performance Quotations for the
Short/Intermediate Bond Portfolio. (Incorporated by reference to
Exhibit 16(a) to Post-Effective Amendment No. 17 to this
Registration Statement filed on December 24, 1997.)
(b) Schedule for Computation of Performance Quotations for the
Municipal Bond Portfolio. (Incorporated by reference to Exhibit
No. 16(b) to Post-Effective Amendment No. 17 to this Registration
Statement filed on December 24, 1997.
17. (a) Financial Data Schedule for the Short/Intermediate Bond Portfolio
(filed herewith).
(b) Financial Data Schedule for the Municipal Bond Portfolio (filed
herewith).
18. Plan adopted pursuant to Rule 18f-3 - None
EXHIBIT 1 (c)
SUPPLEMENT TO DECLARATION
OF TRUST OF THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
WHEREAS, Article XI, Section 7 of the Declaration of Trust of The
Rodney Square Strategic Fixed-Income Fund ("Trust") provides that the
Declaration of Trust may be amended at any time by an instrument in writing
signed by a majority of the then Trustees; and
WHEREAS, at a meeting held on May 18, 1998, the Trustees approved the
amendments to the Declaration of Trust set forth below;
NOW THEREFORE, the Trust's Declaration of Trust is amended effective
June 24, 1998, to add the following provisions in place of the existing
corresponding provisions of the Declaration of Trust as follows:
ARTICLE III
BENEFICIAL INTEREST
SHARES OF BENEFICIAL INTEREST
SECTION 1. The beneficial interest in the Trust shall be divided into
such transferable Shares of one or more separate and distinct Series or Classes
thereof as the Trustees shall from time to time create and establish. The number
of Shares is unlimited and each Share shall have a par value of $0.01 per Share
and shall be fully paid and nonassessable. The Trustees shall have full power
and authority, in their sole discretion and without obtaining any prior
authorization or vote of the Shareholders of the Trust, to create and establish
(and to change in any manner) Shares with such preferences, voting powers,
rights and privileges as the Trustees may from time to time determine, to divide
or combine the Shares into a greater or lesser number, to classify or reclassify
any unissued Shares into one or more Series or Classes of Shares, to abolish any
one or more Series or Classes of Shares, and to take such other action with
respect to the Shares as the Trustees may deem desirable.
The Trustees, in their discretion without a vote of the Shareholders,
may divide the Shares of beneficial interest of any Series into Classes. In such
event, each Class of a Series shall represent interests in the assets of a
Series and have identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that expenses allocated to that Class of a
Series may be borne solely by such Class as shall be determined by the Trustees
and a Class of a Series may have exclusive voting rights with respect to matters
affecting only that Class. Without limiting the authority of the Trustees set
forth in this Section 1 to establish and designate any further Series, the
Trustees have established and designated three Series of Shares to be known as
the "Short/Intermediate Bond Portfolio," the "Intermediate Bond Portfolio" and
the "Municipal Bond Portfolio."
<PAGE>
* * * * *
Said Declaration of Trust dated May 7, 1986, as amended on September
17, 1986, and as amended and restated on March 14, 1991 and July 1, 1992, is
hereby ratified and confirmed in all other respects.
IN WITNESS WHEREOF, the undersigned, being at least a majority of the
Trustees of the Trust, have executed this Supplement to the Declaration of Trust
this 15th day of June, 1998.
/s/ Eric Brucker
---------------------------
Eric Brucker
/s/ Fred L. Buckner
---------------------------
Fred L. Buckner
/s/ Robert J. Christian
---------------------------
Robert J. Christian
/s/ John J. Quindlen
---------------------------
John J. Quindlen
2
Exhibit 5(c)
INVESTMENT
ADVISORY AGREEMENT
between
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
and
WILMINGTON TRUST COMPANY
AGREEMENT made this ____ day of June, 1998, by and between The Rodney
Square Strategic Fixed-Income Fund, a Massachusetts business trust (hereinafter
called the "Fund"), and Wilmington Trust Company, a corporation organized under
the laws of the State of Delaware (hereinafter called the
"Adviser").
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended ("1940 Act") as an open-end management investment company, and offers
for sale distinct series of shares of beneficial interest ("Series") each
corresponding to a distinct portfolio; and
WHEREAS, the Fund desires to avail itself of the services, information,
advice, assistance and facilities of an investment adviser on behalf of one or
more Series of the Fund, and to have that investment adviser provide or perform
for the Series various research, statistical and investment services; and
WHEREAS, the Adviser is willing to furnish such services to the Fund with
respect to each of the Series listed on Schedule A to this Agreement (the
"Portfolio" or "Portfolios") on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and the mutual covenants
herein contained, it is agreed between the parties as follows:
1. EMPLOYMENT OF THE ADVISER. The Fund hereby employs the Adviser to
invest and reinvest the assets of the Portfolio in the manner set forth in
Section 2 of this Agreement subject to the direction of the Trustees and the
officers of the Fund, for the period, in the manner, and on the terms set forth
hereinafter. The Adviser hereby accepts such employment and agrees during such
period to render the services and to assume the obligations herein set forth.
The Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY, THE ADVISER. The Adviser
undertakes to provide the services hereinafter set forth and to assume the
following obligations:
A. INVESTMENT ADVISORY SERVICES.
(i) The Adviser shall direct the investments of each
Portfolio, subject to and in accordance with the Portfolio's investment
objective, policies and limitations as provided in its Prospectus and Statement
of Additional Information ("the Prospectus") and other governing instruments, as
<PAGE>
amended from time to time, and any other directions and policies which the
Trustees may issue to the Adviser from time to time.
(ii) The Adviser is authorized, in its discretion and without
prior consultation with the Fund, to purchase and sell securities and other
investments of each Portfolio.
B. CORPORATE MANAGEMENT SERVICES.
(i) The Adviser shall furnish for the use of the Fund office
space and all necessary office facilities, equipment and personnel for servicing
the investments of the Fund.
(ii) The Adviser shall pay the salaries of all personnel of
the Fund or the Adviser performing services relating to research, statistical
and investment activities.
C. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF
REGISTRATION STATEMENT, AMENDMENTS AND OTHER MATERIALS. The Adviser will make
available and provide such information as the Fund or its administrator may
reasonably request for use in the preparation of its registration statement,
reports and other documents required by any applicable federal, foreign or state
statutes or regulations.
D. CODE OF ETHICS. The Adviser will adopt a written code of
ethics complying with the requirements of Rule 17j-1 under the 1940 Act and
Section 204A of the Investment Advisers Act of 1940 and will provide the Fund
and its administrator with a copy of the code of ethics and evidence of its
adoption. Within forty-five (45) days of the end of the last calendar quarter of
each year while this Agreement is in effect, an executive officer of the Adviser
shall certify to the Trustees that the Adviser has complied with the
requirements of Rule 17j-1 and Section 204A during the previous year and that
there has been no violation of the Adviser's code of ethics or, if such a
violation has occurred, that appropriate action was taken in response to such
violation. Upon the written request of the Fund or its administrator, the
Adviser shall permit the Fund or its administrator to examine the reports
required to be made to the Adviser by Rule 17j-l(c)(l).
E. DISQUALIFICATION. The Adviser shall immediately notify the
Trustees of the occurrence of any event which would disqualify the Adviser from
serving as an investment adviser of an investment company pursuant to Section 9
of the 1940 Act or any other applicable statute or regulation.
F. OTHER OBLIGATIONS AND SERVICES. The Adviser shall make its
officers and employees available to the Trustees and officers of the Fund for
consultation and discussion regarding the management of each Portfolio and its
investment activities.
<PAGE>
3. EXECUTION AND ALLOCATION OF PORTFOLIO BROKERAGE.
------------------------------------------------
A. The Adviser, subject to the control and direction of the
Trustees, shall have authority and discretion to select brokers and dealers to
execute portfolio transactions for each Portfolio, and for the selection of the
markets on or in which the transactions will be executed.
B. In acting pursuant to Section 3A, the Adviser will place
orders through such brokers or dealers in conformity with the policies with
respect to portfolio transactions set forth in the Fund's registration
statement.
C. It is understood that neither the Fund nor the Adviser will
adopt a formula for allocation of a Portfolio's brokerage.
D. It is understood that the Adviser may, to the extent permitted
by applicable laws and regulations, aggregate securities to be sold or purchased
for any Portfolio and for other clients in order to obtain the most favorable
price and efficient execution. In that event, allocation of the securities
purchased or sold, as well as expenses incurred in the transaction, will be made
by the Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to its other clients.
E. It is understood that the Adviser may, in its discretion, use
brokers who provide a Portfolio with research, analysis, advice and similar
services to execute portfolio transactions on behalf of the Portfolio, and the
Adviser may pay to those brokers in return for brokerage and research services a
higher commission than may be charged by other brokers, subject to the Adviser
determining in good faith that such commission is reasonable in terms either of
the particular transaction or of the overall responsibility of the Adviser to
the Portfolio and its other clients and that the total commissions paid by such
Portfolio will be reasonable in relation to the benefits to the Portfolio over
the long term.
F. The Adviser shall provide such reports as the Trustees may
reasonably request with respect to each Portfolio's total brokerage and
portfolio transaction activities and the manner in which that business was
allocated.
4. DELEGATION OF ADVISER'S OBLIGATIONS AND SERVICES. With respect to
any or all Portfolios, the Adviser may enter into one or more contracts
("Sub-Advisory Contract") with a sub-adviser in which the Adviser delegates to
such sub-adviser any or all of its obligations or services specified in Section
2 of this Agreement, provided that each Sub-Advisory Agreement imposes on the
sub-adviser bound thereby all the duties and conditions the Adviser is subject
to under this Agreement, and further provided that each Sub-Advisory Agreement
meets all requirements of the 1940 Act and rules thereunder.
5. EXPENSES OF THE FUND. It is understood that the Fund will pay all
its expenses other than those expressly stated to be payable by the Adviser
hereunder, which expenses payable by the Fund shall include, without limitation:
A. fees payable for administrative services;
B. fees payable for accounting services;
C. the cost of obtaining quotations for calculating the value
of the assets of each Portfolio;
<PAGE>
D. interest and taxes;
E. brokerage commissions, dealer spreads and other costs in
connection with the purchase or sale of securities;
F. compensation and expenses of its Trustees other than those who
are "interested persons" of the Fund within the meaning of the
1940 Act;
G. legal and audit expenses;
H. fees and expenses related to the registration and
qualification of the Fund and its shares for distribution
under state and federal securities laws;
I. expenses of typesetting. printing and mailing reports,
notices and proxy material to shareholders of the Fund:
J. all other expenses incidental to holding meetings of the
Fund's shareholders, including proxy solicitations therefor:
K. premiums for fidelity bond and other insurance coverage;
L. the Fund's association membership dues;
M. expenses of typesetting for printing Prospectuses;
N. expenses of printing and distributing Prospectuses to
existing shareholders;
O. out-of-pocket expenses incurred in connection with the
provision of custodial and transfer agency services;
P. service fees payable by each Portfolio to the Distributor for
providing personal services to the shareholders of each
Portfolio and for maintaining shareholder accounts for those
shareholders;
Q. distribution fees; and
R. such non-recurring expenses as may arise, including costs
arising from threatened actions, actions, suits and
proceedings to which the Fund is a party and the legal
obligation which the Fund may have to indemnify its Trustees
and officers with respect thereto.
6. COMPENSATION OF THE ADVISER. For the services and facilities to be
furnished hereunder, the Adviser shall receive an advisory fee equivalent to the
annual rate listed along with each Portfolio's name in Schedule B attached
hereto. This advisory fee shall be payable monthly as soon as practicable after
the last day of each month based on the average of the daily values placed on
the net assets of the Fund as determined at the close of business on each day
throughout the month, with each Portfolio to contribute pro-rata to the payment
to the Adviser on the basis of its net assets. The assets of each Portfolio will
be valued separately as of the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time) on each business day throughout the
month or, if the Fund lawfully determines the value of the net assets of any
<PAGE>
Portfolio as of some other time on each business day, as of such time with
respect to that Portfolio. If the Fund determines the value of the net assets of
any Portfolio more than once on any business day, the last such determination on
that day shall be deemed to be the sole determination on that day. The value of
net assets shall be determined pursuant to the applicable provisions of the
Fund's Declaration of Trust, its By-Laws and the 1940 Act. If, pursuant to such
provisions, the determination of the net asset value of any Portfolio of the
Fund is suspended for any particular business day, then the value of the net
assets of that Portfolio on that day shall be deemed to be the value of its net
assets as determined on the preceding business day. If the determination of the
net asset value of any Portfolio has been suspended for more than one month, the
Adviser's compensation payable at the end of that month shall be computed on the
basis of the value of the net assets of the Portfolio as last determined
(whether during or prior to such month).
7. ACTIVITIES AND AFFILIATES OF THE ADVISER.
-----------------------------------------
A. The services of the Adviser to the Fund are not to be deemed
exclusive, the Adviser being free to render services to others and engage in
other activities, provided, however, that such other services and activities do
not, during the term of this Agreement, interfere, in a material manner, with
the Adviser's ability to meet all of its obligations with respect to rendering
services to the Fund hereunder.
B. The Fund acknowledges that the Adviser or one or more of its
"affiliated persons" may have investment responsibilities or render investment
advise to or perform other investment advisory services for other individuals or
entities and that the Adviser, its "affiliated persons" or any of its or their
directors, officers, agents or employees may buy, sell or trade in securities
for its or their respective accounts ("Affiliated Accounts"). Subject to the
provisions of paragraph 3, the Fund agrees that the Adviser or its "affiliated
persons" may give advice or exercise investment responsibility and take such
other action with respect to Affiliated Accounts which may differ from the
advice given or the timing or nature of action with respect to the Portfolios of
the Fund, provided that the Adviser acts in good faith. The Fund acknowledges
that one or more of the Affiliated Accounts may at any time hold, acquire,
increase, decrease, dispose of or otherwise deal with positions in investments
in which one or more Portfolios may have an interest. The Adviser shall have no
obligation to recommend for any Portfolio a position in any investment which an
Affiliated Account may acquire, and the Fund shall have no first refusal,
co-investment or other rights in respect of any such investment, either for its
Portfolios or otherwise.
C. Subject to and in accordance with the Declaration of Trust and
By-Laws of the Fund as currently in effect and the 1940 Act and the rules
thereunder, it is understood that Trustees, officers and agents of the Fund and
shareholders of the Fund are or may be interested in the Adviser or its
"affiliated persons" as directors, officers, agents or shareholders of the
Adviser or its "affiliated persons"; that directors, officers, agents and
shareholders of the Adviser or its "affiliated persons" are or may be interested
in the Fund as trustees, officers, agents, shareholders or otherwise; that the
Adviser or its "affiliated persons" may be interested in the Fund as
shareholders or otherwise; and that the effect of any such interests shall be
governed by said Declaration of Trust, By-Laws and the 1940 Act and the rules
thereunder.
8. LIABILITIES OF THE ADVISER.
--------------------------
A. Except as provided below, in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Adviser, the Adviser shall not be subject
to liability to the Fund or to any shareholder of the Fund or its Portfolios for
<PAGE>
any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security or the making of any investment for or on behalf of the
Fund.
B. No provision of this Agreement shall be construed to protect
any Trustee or officer of the Fund, or the Adviser, from liability in violation
of Sections 17(h), 17(i), 36(a) or 36(b) of the 1940 Act.
9. EFFECTIVE DATE; TERM. This Agreement shall become effective on the
date first written above and shall remain in force for a period of two years
from such date, and from year to year thereafter, but only so long as such
continuance is specifically approved at least annually by the Board of Trustees,
including the vote of a majority of the Trustees who are not "interested
persons" of the Fund, cast in person at a meeting called for the purpose of
voting on such approval, or by vote of a majority of the outstanding voting
securities. The aforesaid provision shall be construed in a manner consistent
with the 1940 Act and the rules and regulations thereunder.
10. ASSIGNMENT. No "assignment" of this Agreement shall be made by the
Adviser, and this Agreement shall terminate automatically in event of such
assignment. The Adviser shall notify the Fund in writing in advance of any
proposed change of "control" to enable the Fund to take the steps necessary to
enter into a new advisory agreement.
11. AMENDMENT. This Agreement may be amended at any time, but only by
written agreement between the Adviser and the Fund, which amendment is subject
to the approval of the Trustees of the Fund and, where required by the 1940 Act,
the shareholders of any affected Portfolio in the manner required by the 1940
Act and the rules thereunder.
12. TERMINATION. This Agreement:
-----------
A. may at any time be terminated without payment of any penalty
by the Fund with respect to any Portfolio (by vote of the
Board of Trustees of the Fund or by "vote of a majority of the
outstanding voting securities") on sixty (60) days' written
notice to the Adviser;
B. shall immediately terminate in the event of its
"assignment"; and
C. may be terminated with respect to any Portfolio by the Adviser
on sixty (60) days' written notice to the Fund.
13. DEFINITIONS. As used in this Agreement, the terms "affiliated
person," "assignment," 'control," "interested person" and "vote of a majority of
the outstanding voting securities" shall have the meanings set forth in the 1940
Act and the rules and regulations thereunder, subject to any applicable orders
of exemption issued by the Securities and Exchange Commission.
14. NOTICE. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed postage prepaid to the other party to this
Agreement at its principal place of business.
15. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
<PAGE>
16. SHAREHOLDER LIABILITY. The Adviser is hereby expressly put on notice
of the limitation of shareholder liability as set forth in the Declaration of
Trust of the Fund and agrees that obligations assumed by the Fund pursuant to
this Agreement shall be limited in all cases to the Fund and its assets, and if
the liability relates to one or more Portfolios, the obligations hereunder shall
be limited to the respective assets of such Portfolio or Portfolios. The Adviser
further agrees that it shall not seek satisfaction of any such obligation from
the shareholders or any individual shareholder of the Portfolios of the Fund,
nor from the Trustees or any individual Trustee of the Fund.
17. GOVERNING LAW. To the extent that state law has not been preempted
by the provisions of any law of the United States heretofore or hereafter
enacted, as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of
Delaware.
IN WITNESS WHEREOF the parties have caused this instrument to be signed on
their behalf by their respective officers thereunto duly authorized, and their
respective seals to be hereunto affixed, all as of the date first written above.
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
(SEAL) By:
------------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY
(SEAL) By:
------------------------------------------
Name:
Title:
<PAGE>
SCHEDULE A
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
PORTFOLIO LISTING
Short/Intermediate Bond Portfolio
Intermediate Bond Portfolio
Municipal Bond Portfolio
<PAGE>
SCHEDULE B
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
FEE SCHEDULE
% of average
PORTFOLIO DAILY NET ASSETS
Short/Intermediate Bond Portfolio 0.35%
Intermediate Bond Portfolio 0.35%
Municipal Bond Portfolio 0.35%
EXHIBIT 8(c)
SUB-CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of February 2, 1998 among PNC BANK, NATIONAL
ASSOCIATION, a national banking association ("PNC Bank"), WILMINGTON TRUST
COMPANY, a Delaware banking corporation, as custodian ("Custodian") and THE
RODNEY SQUARE STRATEGIC FIXED INCOME FUND, a Massachusetts business trust (the
"Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, Custodian serves as custodian for the Fund pursuant to a
custody agreement with the Fund; and
WHEREAS, Custodian, with the consent of the Fund, wishes to retain PNC
Bank to provide sub-custodian services, and PNC Bank wishes to furnish
sub-custodian services, either directly or through an affiliate or affiliates,
as more fully described herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(c) "AUTHORIZED PERSON" means any officer of the Fund, the Custodian
and any other person duly authorized by the Fund's Board of Trustees to give
Oral Instructions and Written Instructions on behalf of the Fund and listed on
the Authorized Persons Appendix attached hereto and made a part hereof or any
amendment thereto as may be received by PNC Bank. An Authorized Person's scope
<PAGE>
of authority may be limited by the Fund by setting forth such limitation in the
Authorized Persons Appendix.
(d) "BOOK-ENTRY SYSTEM" means Federal Reserve Treasury book-entry system
for United States and federal agency securities, its successor or successors,
and its nominee or nominees and any book-entry system maintained by an exchange
registered with the SEC under the 1934 Act.
(e) "CEA" means the Commodities Exchange Act, as amended.
(f) "ORAL INSTRUCTIONS" mean oral instructions received by PNC Bank
from an Authorized Person or from a person reasonably believed by PNC Bank to be
an Authorized Person.
(g) "PNC BANK" means PNC Bank, National Association or a subsidiary or
affiliate of PNC Bank, National Association.
(h) "SEC" means the Securities and Exchange Commission.
(i) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act and
the CEA.
(j) "SHARES" mean the shares of beneficial interest of any series or
class of the Fund.
(k) "PROPERTY" means:
(i) any and all securities and other investment items which the
Fund may from time to time deposit, or cause to be deposited,
with PNC Bank or which PNC Bank may from time to time hold for
the Fund;
(ii) all income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the Fund,
which are received by PNC Bank from time to time, from or on
behalf of the Fund.
2
<PAGE>
(l) "WRITTEN INSTRUCTIONS" mean written instructions signed by one
Authorized Person and received by PNC Bank. The instructions may be delivered
by hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. Custodian, with the consent of the Fund, hereby appoints
PNC Bank to provide sub-custodian services to the Fund, on behalf of each of
its investment portfolios (each, a "Portfolio"), and PNC Bank accepts such
appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will
provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions of the Fund's
Board of Trustees, approving the appointment of PNC Bank or its
affiliates to provide services;
(b) a copy of the Fund's most recent effective registration statement;
(c) a copy of each Portfolio's advisory agreements;
(d) a copy of the distribution agreement with respect to each class of
Shares;
(e) a copy of each Portfolio's administration agreement if PNC Bank is
not providing the Portfolio with such services;
(f) copies of any shareholder servicing agreements made in respect of
the Fund or a Portfolio; and
(g) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. COMPLIANCE WITH LAWS.
PNC Bank undertakes to comply with all applicable requirements of the
Securities Laws and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PNC Bank
hereunder. Except as specifically set forth herein, PNC Bank assumes no
responsibility for such compliance by the Fund or any Portfolio.
3
<PAGE>
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PNC Bank shall act only
upon Oral Instructions and Written Instructions.
(b) PNC Bank shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person (or from a person
reasonably believed by PNC Bank to be an Authorized Person) pursuant to this
Agreement. PNC Bank may assume that any Oral Instructions or Written
Instructions received hereunder are not in any way inconsistent with the
provisions of organizational documents of the Fund or of any vote, resolution or
proceeding of the Fund's Board of Trustees or of the Fund's shareholders, unless
and until PNC Bank receives Written Instructions to the contrary.
(c) Custodian and the Fund, as applicable, agree to forward to PNC Bank
Written Instructions confirming Oral Instructions (except where such Oral
Instructions are given by PNC Bank or its affiliates) so that PNC Bank receives
the Written Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written Instructions
are not received by PNC Bank shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions. Where
Oral Instructions or Written Instructions reasonably appear to have been
received from an Authorized Person, PNC Bank shall incur no liability to the
Fund in acting upon such Oral Instructions or Written Instructions provided that
PNC Bank's actions comply with the other provisions of this Agreement.
4
<PAGE>
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE FUND. If PNC Bank is in doubt as to any action it should
or should not take, PNC Bank may request directions or advice, including Oral
Instructions or Written Instructions, from Custodian or the Fund, as applicable.
(b) ADVICE OF COUNSEL. If PNC Bank shall be in doubt as to any question of
law pertaining to any action it should or should not take, PNC Bank may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for Custodian, the Fund, the Fund's investment adviser or PNC Bank, at the
option of PNC Bank).
(c) CONFLICTING ADVICE. In the event of a conflict between directions,
advice or Oral Instructions or Written Instructions PNC Bank receives, and the
advice it receives from counsel, PNC Bank shall be entitled to rely upon and,
after notice to Custodian and the Fund, to follow the advice of counsel. In the
event PNC Bank so relies on the advice of counsel, PNC Bank remains liable for
any action or omission on the part of PNC Bank which constitutes willful
misfeasance, bad faith, negligence or reckless disregard by PNC Bank of any
duties, obligations or responsibilities set forth in this Agreement
(d) PROTECTION OF PNC BANK. PNC Bank shall be protected in any action it
takes or does not take in reliance upon Oral Instructions or Written
Instructions it receives from the Fund, or directions or advice from counsel and
which PNC Bank believes, in good faith, to be consistent with those directions,
advice or Oral Instructions or Written Instructions. Nothing in this section
shall be construed so as to impose an obligation upon PNC Bank (i) to seek such
directions, advice or Oral Instructions or Written Instructions, or (ii) to act
in accordance with such directions, advice or Oral Instructions or Written
Instructions unless, under the terms of other provisions of this Agreement, the
same is a condition of PNC Bank's properly taking or not taking such action.
5
<PAGE>
Nothing in this subsection shall excuse PNC Bank when an action or omission on
the part of PNC Bank constitutes willful misfeasance, bad faith, negligence or
reckless disregard by PNC Bank of any duties, obligations or responsibilities
set forth in this Agreement.
7. RECORDS; VISITS. The books and records pertaining to Custodian, the Fund and
any Portfolio, which are in the possession or under the control of PNC Bank,
shall be the property of Custodian and the Fund. Such books and records shall be
prepared and maintained as required by the 1940 Act and other applicable
securities laws, rules and regulations. Custodian, the Fund and Authorized
Persons shall have access to such books and records at all times during PNC
Bank's normal business hours. Upon the reasonable request of Custodian or the
Fund, copies of any such books and records shall be provided by PNC Bank to
Custodian, the Fund, or to an authorized representative of either, at the Fund's
expense.
8. CONFIDENTIALITY. PNC Bank agrees to keep confidential all records of
Custodian, the Fund and information relating to Custodian, the Fund and its
shareholders, unless the release of such records or information is otherwise
consented to, in writing, by Custodian or the Fund, as the case may be.
Custodian and the Fund agree that such consent shall not be unreasonably
withheld and may not be withheld where PNC Bank may be exposed to civil or
criminal contempt proceedings or when required to divulge such information or
records to duly constituted authorities, unless PNC Bank is indemnified by
Custodian or the Fund, as the case may be.
9. COOPERATION WITH ACCOUNTANTS. PNC Bank shall cooperate with Custodian's and
the Fund's independent public accountants and shall take all reasonable action
in the performance of its obligations under this Agreement to ensure that the
6
<PAGE>
necessary information is made available to such accountants for the expression
of their opinion, as required by the Fund.
10. DISASTER RECOVERY. PNC Bank shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available. In the event of equipment failures, PNC Bank shall, at
no additional expense to the Fund, take reasonable steps to minimize service
interruptions. PNC Bank shall have no liability with respect to the loss of data
or service interruptions caused by equipment failure provided such loss or
interruption is not caused by PNC Bank's own willful misfeasance, bad faith,
negligence or reckless disregard of its duties or obligations under this
Agreement.
11. COMPENSATION. As compensation for sub-custody services rendered by PNC Bank
during the term of this Agreement, Custodian, on behalf of the Fund and each of
the Portfolios, will pay to PNC Bank a fee or fees as may be agreed to in
writing from time to time by Custodian, the Fund and PNC Bank.
12. INDEMNIFICATION. The Fund and Custodian, on behalf of each Portfolio, agree
to indemnify and hold harmless PNC Bank and its affiliates from all taxes,
charges, expenses, assessments, claims and liabilities (including, without
limitation, liabilities arising under the Securities Laws and any state and
foreign securities and blue sky laws, and amendments thereto, and expenses,
including (without limitation) attorneys' fees and disbursements, arising
directly or indirectly from any action or omission to act which PNC Bank takes
(i) at the request or on the direction of or in reliance on the advice of the
Fund or Custodian or (ii) upon Oral Instructions or Written Instructions. The
Custodian's indemnification of PNC Bank is subject to the Fund's indemnification
of Custodian. Neither PNC Bank, nor any of its affiliates, shall be indemnified
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against any liability (or any expenses incident to such liability) arising out
of PNC Bank's or its affiliates' own willful misfeasance, bad faith, negligence
or reckless disregard of its duties under this Agreement.
13. RESPONSIBILITY OF PNC BANK.
(a) PNC Bank shall be under no duty to take any action on behalf of
Custodian, or the Fund or any Portfolio except as specifically set forth herein
or as may be specifically agreed to by PNC Bank in writing. PNC Bank shall be
obligated to exercise care and diligence in the performance of its duties
hereunder, to act in good faith and to use its best efforts, within reasonable
limits, in performing services provided for under this Agreement. PNC Bank shall
be liable for any damages arising out of PNC Bank's failure to perform its
duties under this Agreement to the extent such damages arise out of PNC Bank's
willful misfeasance, bad faith, negligence or reckless disregard of its duties
under this Agreement.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PNC Bank shall not be under any duty or
obligation to inquire into and shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral Instruction or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PNC Bank reasonably believes to be
genuine; or (B) subject to section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PNC Bank's control, including acts
of civil or military authority, national emergencies, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary, neither
PNC Bank nor its affiliates shall be liable to Custodian, or the Fund or to any
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Portfolio for any consequential, special or indirect losses or damages which
Custodian or the Fund may incur or suffer by or as a consequence of PNC Bank's
or its affiliates' performance of the services provided hereunder, whether or
not the likelihood of such losses or damages was known by PNC Bank or its
affiliates.
(d) Notwithstanding anything to the contrary contained herein, PNC Bank on
behalf of itself and any and all of its affiliates or assignees hereunder,
agrees to indemnify and hold harmless Custodian and its directors, officers and
employees from and against any and all damages, losses, costs, taxes, charges,
expenses, assessments, claims and liabilities, including, without limitation,
attorneys' fees and disbursements (collectively, "Losses"), arising directly
from any action or omission to act by PNC Bank or any of its affiliates or
assignees, as applicable, relating to this Agreement, including Losses arising
out of any threatened, pending or completed claim, action, suit or proceeding,
whether civil, criminal, administrative or investigative, except to the extent
such Losses were caused directly by the willful misfeasance, bad faith,
negligence or reckless disregard by Custodian of its duties under this
Agreement.
14. DESCRIPTION OF SERVICES.
(a) DELIVERY OF THE PROPERTY. Custodian, for the account of the Fund, will
deliver or arrange for delivery to PNC Bank, all the Property owned by the
Portfolios, including cash received as a result of the distribution of Shares,
during the period that is set forth in this Agreement. PNC Bank will not be
responsible for such property until actual receipt.
(b) RECEIPT AND DISBURSEMENT OF MONEY. PNC Bank, acting upon Written
Instructions, shall open and maintain separate accounts in Custodian's name for
the benefit of the Fund using all cash received from or for the account of the
Fund, subject to the terms of this Agreement. In addition, upon Written
Instructions, PNC Bank shall open separate custodial accounts for each separate
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<PAGE>
series or Portfolio of the Fund (collectively, the "Accounts") and shall hold in
the Accounts all cash received from or for the Accounts of the Fund specifically
designated to each separate series or Portfolio.
PNC Bank shall make cash payments from or for the Accounts of a Portfolio
only for:
(i) purchases of securities in the name of a Portfolio or PNC Bank
or PNC Bank's nominee as provided in sub-section (j) and for
which PNC Bank has received a copy of the broker's or dealer's
confirmation or payee's invoice, as appropriate;
(ii) purchase or redemption of Shares of the Fund delivered to PNC
Bank;
(iii) payment of, subject to Written Instructions, interest, taxes,
administration, accounting, distribution, advisory, management
fees or similar expenses which are to be borne by a Portfolio;
(iv) payment to, subject to receipt of Written Instructions, the
Fund's transfer agent, as agent for the shareholders, an
amount equal to the amount of dividends and distributions
stated in the Written Instructions to be distributed in cash
by the transfer agent to shareholders, or, in lieu of paying
the Fund's transfer agent, PNC Bank may arrange for the direct
payment of cash dividends and distributions to shareholders in
accordance with procedures mutually agreed upon from time to
time by and among the Fund, PNC Bank and the Fund's transfer
agent.
(v) payments, upon receipt of Written Instructions, in connection
with the conversion, exchange or surrender of securities owned
or subscribed to by the Fund and held by or delivered to PNC
Bank;
(vi) payments of the amounts of dividends received with respect to
securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions in
sub-section (c) of this Section; and
(viii)payments, upon Written Instructions, made for other proper
Fund purposes.
PNC Bank is hereby authorized to endorse and collect all checks, drafts or
other orders for the payment of money received as custodian for the Accounts.
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(c) RECEIPT OF SECURITIES; SUB-CUSTODIANS.
(i) PNC Bank shall hold all securities received by it for the
Accounts in a separate account that physically segregates such
securities from those of any other persons, firms or
corporations, except for securities held in a Book-Entry
System. All such securities shall be held or disposed of only
upon Written Instructions of the Fund pursuant to the terms of
this Agreement. PNC Bank shall have no power or authority to
assign, hypothecate, pledge or otherwise dispose of any such
securities or investment, except upon the express terms of
this Agreement and upon Written Instructions, accompanied by a
certified resolution of the Fund's Board of Trustees,
authorizing the transaction. In no case may any member of the
Fund's Board of Trustees, or any officer, employee or agent of
the Fund withdraw any securities.
At PNC Bank's own expense and for its own convenience, PNC
Bank may enter into sub-custodian agreements with other United
States banks or trust companies to perform duties described in
this sub-section (c). Such bank or trust company shall have an
aggregate capital, surplus and undivided profits, according to
its last published report, of at least one million dollars
($1,000,000), if it is a subsidiary or affiliate of PNC Bank,
or at least twenty million dollars ($20,000,000) if such bank
or trust company is not a subsidiary or affiliate of PNC Bank.
In addition, such bank or trust company must be qualified to
act as custodian and agree to comply with the relevant
provisions of the 1940 Act and other applicable rules and
regulations. Any such arrangement will not be entered into
without prior written notice to the Fund.
PNC Bank shall remain responsible for the performance of all
of its duties as described in this Agreement and shall hold
the Fund and each Portfolio harmless from its own acts or
omissions, under the standards of care provided for herein, or
the acts and omissions of any sub-custodian chosen by PNC Bank
under the terms of this sub-section (c).
(d) TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Oral
Instructions or Written Instructions and not otherwise, PNC Bank, directly or
through the use of the Book-Entry System,
shall:
(i) deliver any securities held for a Portfolio against the
receipt of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be designated in
such Oral Instructions or Written Instructions, proxies,
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consents, authorizations, and any other instruments whereby
the authority of a Portfolio as owner of any securities may be
exercised;
(iii) deliver any securities to the issuer thereof, or its agent,
when such securities are called, redeemed, retired or
otherwise become payable; provided that, in any such case, the
cash or other consideration is to be delivered to PNC Bank;
(iv) deliver any securities held for a Portfolio against receipt of
other securities or cash issued or paid in connection with the
liquidation, reorganization, refinancing, tender offer,
merger, consolidation or recapitalization of any corporation,
or the exercise of any conversion privilege;
(v) deliver any securities held for a Portfolio to any protective
committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or
other instruments or documents as may be issued to it to
evidence such delivery;
(vi) make such transfer or exchanges of the assets of the
Portfolios and take such other steps as shall be stated in
said Oral Instructions or Written Instructions to be for the
purpose of effectuating a duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of
the Fund;
(vii) release securities belonging to a Portfolio to any bank or
trust company for the purpose of a pledge or hypothecation to
secure any loan incurred by the Fund on behalf of that
Portfolio; provided, however, that securities shall be
released only upon payment to PNC Bank of the monies borrowed,
except that in cases where additional collateral is required
to secure a borrowing already made subject to proper prior
authorization, further securities may be released for that
purpose; and repay such loan upon redelivery to it of the
securities pledged or hypothecated therefor and upon surrender
of the note or notes evidencing the loan;
(viii)release and deliver securities owned by a Portfolio in
connection with any repurchase agreement entered into on
behalf of the Fund, but only on receipt of payment therefor;
and pay out moneys of the Fund in connection with such
repurchase agreements, but only upon the delivery of the
securities;
(ix) release and deliver or exchange securities owned by the Fund
in connection with any conversion of such securities, pursuant
to their terms, into other securities;
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(x) release and deliver securities owned by the Fund for the
purpose of redeeming in kind shares of the Fund upon delivery
thereof to PNC Bank; and
(xi) release and deliver or exchange securities owned by the Fund
for other corporate purposes.
PNC Bank must also receive a certified resolution describing
the nature of the corporate purpose and the name and address
of the person(s) to whom delivery shall be made when such
action is pursuant to sub-paragraph d(xi).
(e) USE OF BOOK-ENTRY SYSTEM. The Fund shall deliver to PNC Bank certified
resolutions of the Fund's Board of Trustees approving, authorizing and
instructing PNC Bank on a continuous basis, to deposit in the Book-Entry System
all securities belonging to the Portfolios eligible for deposit therein and to
utilize the Book-Entry System to the extent possible in connection with
settlements of purchases and sales of securities by the Portfolios, and
deliveries and returns of securities loaned, subject to repurchase agreements or
used as collateral in connection with borrowings. PNC Bank shall continue to
perform such duties until it receives Written Instructions or Oral Instructions
authorizing contrary actions.
PNC Bank shall administer the Book-Entry System as follows:
(i) With respect to securities of each Portfolio which are
maintained in the Book-Entry System, the records of PNC Bank
shall identify by Book-Entry or otherwise those securities
belonging to each Portfolio. PNC Bank shall furnish to the
Fund a detailed statement of the Property held for each
Portfolio under this Agreement at least monthly and from time
to time and upon written request.
(ii) Securities and any cash of each Portfolio deposited in the
Book-Entry System will at all times be segregated from any
assets and cash controlled by PNC Bank in other than a
fiduciary or custodian capacity but may be commingled with
other assets held in such capacities. PNC Bank and its
sub-custodian, if any, will pay out money only upon receipt of
securities and will deliver securities only upon the receipt
of money.
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(iii) All books and records maintained by PNC Bank which relate to
the Fund's participation in the Book-Entry System will at all
times during PNC Bank's regular business hours be open to the
inspection of Authorized Persons, and PNC Bank will furnish to
Custodian and the Fund all information in respect of the
services rendered as it may require.
PNC Bank will also provide Custodian and the Fund with such reports on its
own system of internal control as the Fund may reasonably request from time to
time.
(f) REGISTRATION OF SECURITIES. All Securities held for a Portfolio which
are issued or issuable only in bearer form, except such securities held in the
Book-Entry System, shall be held by PNC Bank in bearer form; all other
securities held for a Portfolio may be registered in the name of the Fund on
behalf of that Portfolio, PNC Bank, the Book-Entry System, a sub-custodian, or
any duly appointed nominees of the Fund, PNC Bank, Book-Entry System or
sub-custodian. The Fund reserves the right to instruct PNC Bank as to the method
of registration and safekeeping of the securities of the Fund. The Fund agrees
to furnish to PNC Bank appropriate instruments to enable PNC Bank to hold or
deliver in proper form for transfer, or to register in the name of its nominee
or in the name of the Book-Entry System, any securities which it may hold for
the Accounts and which may from time to time be registered in the name of the
Fund on behalf of a Portfolio.
(g) VOTING AND OTHER ACTION. Neither PNC Bank nor its nominee shall vote
any of the securities held pursuant to this Agreement by or for the account of a
Portfolio, except in accordance with Written Instructions. PNC Bank, directly or
through the use of the Book-Entry System, shall execute in blank and promptly
deliver all notices, proxies and proxy soliciting materials to the registered
holder of such securities. If the registered holder is not the Fund on behalf of
a Portfolio, then PNC Bank shall deliver such materials timely to the applicable
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investment adviser for the Portfolio or such other party as may be identified
for such purpose in Written Instructions.
(h) TRANSACTIONS NOT REQUIRING INSTRUCTIONS. In the absence of
contrary Written Instructions, PNC Bank is authorized to take the following
actions:
(i) COLLECTION OF INCOME AND OTHER PAYMENTS.
(A) collect and receive for the account of each Portfolio,
all income, dividends, distributions, coupons, option
premiums, other payments and similar items, included or
to be included in the Property, and, in addition,
promptly advise each Portfolio of such receipt and
credit such income, as collected, to each Portfolio's
custodian account;
(B) endorse and deposit for collection, in the name of the
Fund, checks, drafts, or other orders for the payment of
money;
(C) receive and hold for the account of each Portfolio all
securities received as a distribution on the Portfolio's
securities as a result of a stock dividend, share
split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of
rights or similar securities issued with respect to any
securities belonging to a Portfolio and held by PNC Bank
hereunder;
(D) present for payment and collect the amount payable upon
all securities which may mature or be called, redeemed,
or retired, or otherwise become payable on the date such
securities become payable; and
(E) take any action which may be necessary and proper in
connection with the collection and receipt of such
income and other payments and the endorsement for
collection of checks, drafts, and other negotiable
instruments.
(ii) MISCELLANEOUS TRANSACTIONS.
(A) deliver or cause to be delivered Property against
payment or other consideration or written receipt
therefor in the following cases:
(1) for examination by a broker or dealer selling for
the account of a Portfolio in accordance with
street delivery custom;
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(2) for the exchange of interim receipts or temporary
securities for definitive securities; and
(3) for transfer of securities into the name of the
Fund on behalf of a Portfolio or PNC Bank or
nominee of either, or for exchange of securities
for a different number of bonds, certificates, or
other evidence, representing the same aggregate
face amount or number of units bearing the same
interest rate, maturity date and call provisions,
if any; provided that, in any such case, the new
securities are to be delivered to PNC Bank.
(B) Unless and until PNC Bank receives Oral Instructions or
Written Instructions to the contrary, PNC Bank shall:
(1) pay all income items held by it which call for
payment upon presentation and hold the cash
received by it upon such payment for the account
of each Portfolio;
(2) collect interest and cash dividends received, with
notice to the Fund, to the account of each
Portfolio;
(3) hold for the account of each Portfolio all stock
dividends, rights and similar securities issued
with respect to any securities held by PNC Bank;
and
(4) execute as agent on behalf of the Fund all
necessary ownership certificates required by the
Internal Revenue Code or the Income Tax
Regulations of the United States Treasury
Department or under the laws of any state now or
hereafter in effect, inserting the Fund's name, on
behalf of a Portfolio, on such certificate as the
owner of the securities covered thereby, to the
extent it may lawfully do so.
(i) SEGREGATED ACCOUNTS.
(i) PNC Bank shall upon receipt of Written Instructions or Oral
Instructions establish and maintain segregated accounts on its
records for and on behalf of each Portfolio. Such accounts may
be used to transfer cash and securities, including securities
in the Book-Entry System:
(A) for the purposes of compliance by the Fund with the
procedures required by a securities or option exchange,
providing such procedures comply with the 1940 Act and
any releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies;
and
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(B) upon receipt of Written Instructions, for other proper
corporate purposes.
(ii) PNC Bank shall arrange for the establishment of IRA custodian
accounts for such shareholders holding Shares through IRA
accounts, in accordance with the Fund's prospectuses, the
Internal Revenue Code of 1986, as amended (including
regulations promulgated thereunder), and with such other
procedures as are mutually agreed upon from time to time by
and among Custodian, the Fund, PNC Bank and the Fund's
transfer agent.
(j) PURCHASES OF SECURITIES. PNC Bank shall settle purchased securities
upon receipt of Oral Instructions or Written Instructions on behalf of the Fund
or its investment advisers that specify:
(i) the name of the issuer and the title of the securities,
including CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase;
(vi) the Portfolio involved; and
(vii) the name of the person from whom or the broker through whom
the purchase was made. PNC Bank shall upon receipt of
securities purchased by or for a Portfolio pay out of the
moneys held for the account of the Portfolio the total amount
payable to the person from whom or the broker through whom the
purchase was made, provided that the same conforms to the
total amount payable as set forth in such Oral Instructions or
Written Instructions.
(k) SALES OF SECURITIES. PNC Bank shall settle sold securities upon
receipt of Oral Instructions or Written Instructions on behalf of
the Fund that specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
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(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to whom the
sale was made; and
(vii) the location to which the security must be delivered and
delivery deadline, if any; and
(viii) the Portfolio involved.
PNC Bank shall deliver the securities upon receipt of the total amount
payable to the Portfolio upon such sale, provided that the total amount payable
is the same as was set forth in the Oral Instructions or Written Instructions.
Subject to the foregoing, PNC Bank may accept payment in such form as shall be
reasonably satisfactory to it, and may deliver securities and arrange for
payment in accordance with the customs prevailing among dealers in securities.
(l) REPORTS; PROXY MATERIALS.
(i) PNC Bank shall furnish to Custodian and the Fund the following
reports:
(A) such periodic and special reports as Custodian and/or
the Fund may reasonably request;
(B) a monthly statement summarizing all transactions and
entries for the account of each Portfolio, listing each
Portfolio securities belonging to each Portfolio with
the adjusted average cost of each issue and the market
value at the end of such month and stating the cash
account of each Portfolio including disbursements;
(C) the reports required to be furnished to the Fund
pursuant to Rule 17f-4; and
(D) such other information as may be agreed upon from time
to time between Custodian and/or the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any proxy
statement, proxy material, notice of a call or conversion or
similar communication received by it as sub-custodian of the
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Property and PNC Bank shall use its best efforts, within
reasonable limits, to transmit promptly to the Fund any class
action notices and tender or exchange offers. PNC Bank shall
be under no other obligation to inform the Fund as to such
actions or events.
(m) COLLECTIONS. All collections of monies or other property in respect,
or which are to become part, of the Property (but not the safekeeping thereof
upon receipt by PNC Bank) shall be at the sole risk of the Fund. If payment is
not received by PNC Bank within a reasonable time after proper demands have been
made, PNC Bank shall notify the Fund in writing, including copies of all demand
letters, any written responses, memoranda of all oral responses and shall await
instructions from the Fund. PNC Bank shall not be obliged to take legal action
for collection unless and until reasonably indemnified to its satisfaction. PNC
Bank shall also notify the Fund as soon as reasonably practicable whenever
income due on securities is not collected in due course and shall provide the
Fund with periodic status reports of such income collected after a reasonable
time.
15. DURATION AND TERMINATION. This Agreement shall be effective on the date
first written above and shall continue for a period of five (5) years (the
"Initial Term"). Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of one (1) year ("Renewal Terms") each
provided that it may be terminated by the Fund, Custodian or PFPC without
penalty during a Renewal Term upon written notice given at least sixty (60) days
prior to termination. During either the Initial Term or the Renewal Terms, this
Agreement may also be terminated on an earlier date by the Fund, Custodian or
PFPC for cause.
With respect to the Fund, cause shall mean PFPC's material breach of this
Agreement causing it to fail to substantially perform its duties under this
Agreement. In order for such material breach to constitute "cause" under this
Paragraph, PFPC must receive written notice from the Fund specifying the
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material breach and PFPC shall not have corrected such breach within a 30-day
period. Custodian may terminate this Agreement for cause immediately in the
event of the appointment of a conservator or receiver for PNC Bank or any
assignee or successor hereunder by the applicable regulator or upon the
happening of a like event by the applicable regulator or upon the happening of a
like event at the direction of an appropriate regulator agency or court of
competent jurisdiction. With respect to PFPC, cause includes, but is not limited
to, the failure of Custodian to pay the compensation set forth in writing
pursuant to Paragraph 11 of this Agreement after it has received written notice
from PFPC specifying the amount due and Custodian shall not have paid that
amount within a 30-day period. A constructive termination of this Agreement will
result where a substantial percentage of the Fund's assets are transferred,
merged or are otherwise removed from the Fund to another fund(s) that is not
serviced by PFPC.
Any notice of termination for cause shall be effective sixty (60) days
from the date of any such notice. Upon the termination hereof, Custodian shall
pay to PFPC such compensation as may be due for the period prior to the date of
such termination. Any termination effected shall not affect the rights and
obligations of the parties under Paragraphs 12 and 13 hereof.
16. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to PNC Bank at
Airport Business Center, International Court 2, 200 Stevens Drive, Lester,
Pennsylvania 19113, marked for the attention of the Custodian Services
Department (or its successor) (b) if to Custodian, 1100 North Market St.,
Wilmington, DE., Attn: Corporate Custody (c) if to the Fund, c/o Wilmington
Trust Company, 1100 North Market St., Wilmington, DE., Attn: Asset Management
Department or (d) if to none of the foregoing, at such other address as shall
have been given by like notice to the sender of any such notice or other
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communication by the other party. If notice is sent by confirming telegram,
cable, telex or facsimile sending device, it shall be deemed to have been given
immediately. If notice is sent by first-class mail, it shall be deemed to have
been given five days after it has been mailed. If notice is sent by messenger,
it shall be deemed to have been given on the day it is delivered.
17. AMENDMENTS. This Agreement, or any term hereof, may be changed or waived
only by a written amendment, signed by the party against whom enforcement of
such change or waiver is sought.
18. DELEGATION; ASSIGNMENT. Subject to the provision of Section 14(c) hereof,
PNC Bank may assign its rights and delegate its duties hereunder to any
wholly-owned direct or indirect subsidiary of PNC Bank, National Association or
PNC Bank Corp., provided that (i) PNC Bank gives the Fund thirty (30) days'
prior written notice; (ii) the delegate (or assignee) agrees with PNC Bank and
the Fund to comply with all relevant provisions of the 1940 Act; and (iii) PNC
Bank and such delegate (or assignee) promptly provide such information as the
Fund may request, and respond to such questions as the Fund may ask, relative to
the delegation (or assignment), including (without limitation) the capabilities
of the delegate (or assignee).
19. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
21. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
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understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) CAPTIONS. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract made in
Delaware and governed by Delaware law, without regard to principles of conflicts
of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by such party.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Nicholas M. Marsini
---------------------------------------------
Title: Senior Vice President
WILMINGTON TRUST COMPANY
By: /s/ Robert J. Christian
---------------------------------------------
Title: Senior Vice President
ACKNOWLEDGED AND AGREED TO:
THE RODNEY SQUARE STRATEGIC FIXED INCOME FUND
By: /s/ Robert J. Christian
----------------------------------
President
Title: President
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AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- --------------------------- --------------------------
- --------------------------- --------------------------
- --------------------------- --------------------------
- --------------------------- --------------------------
- --------------------------- --------------------------
- --------------------------- --------------------------
EXHIBIT 9(a)
TRANSFER AGENCY SERVICES AGREEMENT
----------------------------------
THIS AGREEMENT is made as of February 2, 1998 among PFPC INC., a
Delaware corporation ("PFPC"), WILMINGTON TRUST COMPANY, a Delaware banking
corporation ("WTC"), and THE RODNEY SQUARE STRATEGIC FIXED INCOME FUND, a
Massachusetts business trust (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to its
investment portfolios listed on Exhibit A attached hereto and made a part
hereof, as such Exhibit A may be amended from time to time (each, a
"Portfolio"), and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
---------------------------------------
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as
amended.
<PAGE>
(c) "AUTHORIZED PERSON" means any officer of the Fund and any
other person duly authorized by the Fund's Board of Trustees to give Oral
Instructions and Written Instructions on behalf of the Fund and listed on the
Authorized Persons Appendix attached hereto and made a part hereof or any
amendment thereto as may be received by PFPC. An Authorized Person's scope of
authority may be limited by the Fund by setting forth such limitation in the
Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC
from an Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940
Act and the CEA.
(h) "SHARES" mean the shares of beneficial interest of any series
or class of the Fund.
(i) "WRITTEN INSTRUCTIONS" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC to serve as transfer
agent, registrar, dividend disbursing agent and shareholder servicing agent to
2
<PAGE>
the Fund in accordance with the terms set forth in this Agreement. PFPC accepts
such appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable,
will provide PFPC with the following:
(a) Certified or authenticated copies of the resolutions of the
Fund's Board of Trustees, approving the appointment of PFPC or
its affiliates to provide services to the Fund and approving this
Agreement;
(b) A copy of the Fund's most recent effective registration
statement;
(c) A copy of the advisory agreement with respect to each investment
Portfolio of the Fund (each, a Portfolio);
(d) A copy of the distribution agreement with respect to each class
of Shares of the Fund;
(e) A copy of each Portfolio's administration agreements if PFPC is
not providing the Portfolio with such services;
(f) Copies of any shareholder servicing agreements made in respect of
the Fund or a Portfolio; and
(g) Copies (certified or authenticated where applicable) of any and
all amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply
with all applicable requirements of the Securities Laws and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Fund or any of
its investment portfolios.
3
<PAGE>
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only
upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person (or from a person
reasonably believed by PFPC to be an Authorized Person) pursuant to this
Agreement. PFPC may assume that any Oral Instruction or Written Instruction
received hereunder is not in any way inconsistent with the provisions of
organizational documents or this Agreement or of any vote, resolution or
proceeding of the Fund's Board of Trustees or of the Fund's shareholders, unless
and until PFPC receives Written Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Written Instructions confirming
Oral Instructions so that PFPC receives the Written Instructions by the close of
business on the same day that such Oral Instructions are received. The fact that
such confirming Written Instructions are not received by PFPC shall in no way
invalidate the transactions or enforceability of the transactions authorized by
the Oral Instructions. Where Oral Instructions or Written Instructions
reasonably appear to have been received from an Authorized Person, PFPC shall
incur no liability to the Fund in acting upon such Oral Instructions or Written
Instructions provided that PFPC's actions comply with the other provisions of
this Agreement.
4
<PAGE>
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PFPC is in doubt as to any action it should
or should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question of
law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for the Fund, the Fund's investment adviser or PFPC, at the option of PFPC).
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral Instructions or Written Instructions PFPC receives from the Fund,
and the advice it receives from counsel, PFPC may rely upon and follow the
advice of counsel. In the event PFPC so relies on the advice of counsel, PFPC
remains liable for any action or omission on the part of PFPC which constitutes
willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any
duties, obligations or responsibilities set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it takes
or does not take in reliance upon directions, advice or Oral Instructions or
Written Instructions it receives from the Fund or from counsel and which PFPC
believes, in good faith, to be consistent with those directions, advice or Oral
Instructions or Written Instructions. Nothing in this section shall be construed
so as to impose an obligation upon PFPC (i) to seek such directions, advice or
Oral Instructions or Written Instructions, or (ii) to act in accordance with
such directions, advice or Oral Instructions or Written Instructions unless,
under the terms of other provisions of this Agreement, the same is a condition
5
<PAGE>
of PFPC's properly taking or not taking such action. Nothing in this subsection
shall excuse PFPC when an action or omission on the part of PFPC constitutes
willful misfeasance, bad faith, negligence or reckless disregard by PFPC of any
duties, obligations or responsibilities set forth in this Agreement.
7. RECORDS; VISITS. The books and records pertaining to the Fund, which
are in the possession or under the control of PFPC, shall be the property of the
Fund. Such books and records shall be prepared and maintained as required by the
1940 Act and other applicable securities laws, rules and regulations. The Fund
and Authorized Persons shall have access to such books and records at all times
during PFPC's normal business hours. Upon the reasonable request of the Fund or,
copies of any such books and records shall be provided by PFPC to the Fund or to
an Authorized Person, at the Fund's expense.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Fund and information relating to the Fund and its shareholders, unless the
release of such records or information is otherwise consented to, in writing, by
the Fund. The Fund agrees that such consent shall not be unreasonably withheld
and may not be withheld where PFPC may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to duly
constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PFPC shall cooperate with the Fund's
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
6
<PAGE>
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PFPC shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions. PFPC shall have no liability with respect to the
loss of data or service interruptions caused by equipment failure, provided such
loss or interruption is not caused by PFPC's own willful misfeasance, bad faith,
negligence or reckless disregard of its duties or obligations under this
Agreement.
11. COMPENSATION. As compensation for services rendered by PFPC during
the term of this Agreement, WTC will pay to PFPC a fee or fees as may be agreed
to from time to time in writing by the Fund, WTC and PFPC.
12. INDEMNIFICATION. (a) The Fund agrees to indemnify and hold harmless
PFPC and its affiliates from all taxes, charges, expenses, assessments, claims
and liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state and foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) attorneys'
fees and disbursements, arising directly or indirectly from (i) any action or
omission to act which PFPC takes (a) at the request or on the direction of or in
reliance on the advice of the Fund or (b) upon Oral Instructions or Written
Instructions or (ii) the acceptance, processing and/or negotiation of checks or
other methods utilized for the purchase of Shares. Neither PFPC, nor any of its
affiliates, shall be indemnified against any liability (or any expenses incident
to such liability) arising out of PFPC's or its affiliates' own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement, provided that in the absence of a finding to
7
<PAGE>
the contrary the acceptance, processing and/or negotiation of a fraudulent
payment for the purchase of Shares shall be presumed not to have been the result
of PFPC's or its affiliates own willful misfeasance, bad faith, negligence or
reckless disregard of such duties and obligations.
(b) PFPC agrees to indemnify and hold harmless the Fund from all
taxes, charges, expenses, assessments, claims and liabilities arising from
PFPC's obligations pursuant to this Agreement (including, without limitation,
liabilities arising under the Securities Laws, and any state and foreign
securities and blue sky laws, and amendments thereto) and expenses, including
(without limitation) reasonable attorneys' fees and disbursements arising
directly or indirectly out of PFPC's or its nominees' own willful misfeasance,
bad faith, negligence or reckless disregard of its duties and obligations under
this Agreement.
(c) In order that the indemnification provisions contained in
this Section 12 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion, and shall keep the
other party advised with respect to all developments concerning such claim. The
party who may be required to indemnify shall have the option to participate with
the party seeking indemnification in the defense of such claim. The party
seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
8
<PAGE>
13. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the
Fund except as specifically set forth herein or as may be specifically agreed to
by PFPC in writing. PFPC shall be obligated to exercise care and diligence in
the performance of its duties hereunder, to act in good faith and to use its
best efforts, within reasonable limits, in performing services provided for
under this Agreement. PFPC shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent such damages
arise out of PFPC's willful misfeasance, bad faith, negligence or reckless
disregard of such duties.
(b) Without limiting the generality of the foregoing or of any
other provision of this Agreement, (i) PFPC, shall not be liable for losses
beyond its control, provided that PFPC has acted in accordance with the standard
of care set forth above; and (ii) PFPC shall not be under any duty or obligation
to inquire into and shall not be liable for (A) the validity or invalidity or
authority or lack thereof of any Oral Instruction or Written Instruction, notice
or other instrument which conforms to the applicable requirements of this
Agreement, and which PFPC reasonably believes to be genuine; or (B) subject to
Section 10, delays or errors or loss of data occurring by reason of
circumstances beyond PFPC's control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything else in this Agreement to the contrary
and except to the limited extent set forth in paragraph 13(d) below, PFPC shall
9
<PAGE>
not be liable to the Fund for any consequential or special losses or damages
("Special Damages") which the Fund may incur as a consequence of PFPC's
performance of the services provided hereunder.
(d) PFPC shall be liable for Special Damages incurred by the Fund
only to the extent that Special Damages arise out of PFPC's or its affiliates'
willful misfeasance, bad faith or negligence in performing, or reckless
disregard of, their duties under this Agreement, provided, however, the
liability of PFPC with respect to all such Special Damages arising during the
term of this Agreement and thereafter shall be limited to One Hundred Thousand
Dollars ($100,000) per transaction or series of directly related transactions;
related transactions may be related as to parties, timing or subject matter.
14. DESCRIPTION OF SERVICES.
(a) Services Provided on an Ongoing Basis, If Applicable.
(i) Furnish state-by-state registration reports;
(ii) Calculate 12b-1 payments;
(iii) Maintain proper shareholder registrations;
(iv) Review new applications and correspond with
shareholders to complete or correct information;
(v) Direct payment processing of checks or wires;
(vi) Prepare and certify stockholder lists in conjunction
with proxy solicitations;
(vii) Countersign share certificates;
(viii) Prepare and mail to shareholders confirmation of
activity;
10
<PAGE>
(ix) Provide toll-free lines for direct shareholder use,
plus customer liaison staff for on-line inquiry
response;
(x) Mail duplicate confirmations to broker-dealers of their
clients' activity, whether executed through the
broker-dealer or directly, with PFPC;
(xi) Provide periodic shareholder lists and statistics to
the clients;
(xii) Provide detailed data for underwriter/broker
confirmations;
(xiii) Prepare periodic mailing of year-end tax and statement
information;
(xiv) Coordinate and support the Fund's shares being traded
on the Fund/Serv system;
(xv) Notify on a timely basis the investment adviser,
accounting agent, and custodian of fund activity; and
(xvi) Perform other participating broker-dealer shareholder
services as may be agreed upon from time to time.
(b) SERVICES PROVIDED BY PFPC UNDER ORAL INSTRUCTIONS OR WRITTEN
INSTRUCTIONS.
(i) Accept and post daily Fund purchases and redemptions;
(ii) Accept, post and perform shareholder transfers and
exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Issue and cancel certificates (when requested in
writing by the shareholder).
11
<PAGE>
(c) PURCHASE OF SHARES. PFPC shall issue and credit an account of
an investor, in the manner described in the Fund's prospectus, once it receives:
(i) A purchase order;
(ii) Proper information to establish a shareholder account;
and
(iii) Confirmation of receipt or crediting of funds for such
order to the Fund's custodian.
(d) REDEMPTION OF SHARES. PFPC shall redeem Shares only if that
function is properly authorized by the certificate of incorporation or
resolution of the Fund's Board of Trustees. Shares shall be redeemed and payment
therefor shall be made in accordance with the Fund's prospectus, when the record
holder tenders Shares in proper form and directs the method of redemption. If
Shares are received in proper form, Shares shall be redeemed before the funds
are provided to PFPC from the Fund's custodian (the "Custodian"). If the
recordholder has not directed that redemption proceeds be wired, when the
Custodian provides PFPC with funds, the redemption check shall be sent to and
made payable to the recordholder, unless:
(i) the surrendered certificate is drawn to the order of an
assignee or holder and transfer authorization is signed
by the recordholder; or
(ii) Transfer authorizations are signed by the recordholder
when Shares are held in book-entry form.
When a broker-dealer notifies PFPC of a redemption desired by a customer, and
the Custodian provides PFPC with funds, PFPC shall prepare and send the
redemption check to the broker-dealer and made payable to the broker-dealer on
behalf of its customer.
12
<PAGE>
(e) DIVIDENDS AND DISTRIBUTIONS. Upon receipt of a resolution of
the Fund's Board of Trustees authorizing the declaration and payment of
dividends and distributions, PFPC shall issue dividends and distributions
declared by the Fund in Shares, or, upon shareholder election, pay such
dividends and distributions in cash, if provided for in the Fund's prospectus.
Such issuance or payment, as well as payments upon redemption as described
above, shall be made after deduction and payment of the required amount of funds
to be withheld in accordance with any applicable tax laws or other laws, rules
or regulations. PFPC shall mail to the Fund's shareholders such tax forms and
other information, or permissible substitute notice, relating to dividends and
distributions paid by the Fund as are required to be filed and mailed by
applicable law, rule or regulation. PFPC shall prepare, maintain and file with
the IRS and other appropriate taxing authorities reports relating to all
dividends above a stipulated amount paid by the Fund to its shareholders as
required by tax or other law, rule or regulation.
(f) SHAREHOLDER ACCOUNT SERVICES.
(i) PFPC may arrange, in accordance with the prospectus,
for issuance of Shares obtained through:
- Any pre-authorized check plan; and
- Direct purchases through broker wire orders, checks and
applications.
(ii) PFPC may arrange, in accordance with the prospectus,
for a shareholder's:
- Exchange of Shares for shares of another fund with
which the Fund has exchange privileges;
- Automatic redemption from an account where that
shareholder participates in a automatic redemption
plan; and/or
- Redemption of Shares from an account with a
checkwriting privilege.
13
<PAGE>
(g) COMMUNICATIONS TO SHAREHOLDERS. Upon timely Written
Instructions, PFPC shall mail all communications by the Fund to its
shareholders, including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of Fund
shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax form information.
In addition, PFPC will receive and tabulate the proxy cards for the
meetings of the Fund's shareholders.
(h) RECORDS. PFPC shall maintain records of the accounts for
each shareholder showing the following information:
(i) Name, address and United States Tax
Identification or Social Security number;
(ii) Number and class of Shares held and number and
class of Shares for which certificates, if any,
have been issued, including certificate numbers
and denominations;
(iii) Historical information regarding the account of
each shareholder, including dividends and
distributions paid and the date and price for
all transactions on a shareholder's account;
(iv) Any stop or restraining order placed against a
shareholder's account;
(v) Any correspondence relating to the current
maintenance of a shareholder's account;
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<PAGE>
(vi) Information with respect to withholdings; and
(vii) Any information required in order for the
transfer agent to perform any calculations
contemplated or required by this Agreement.
(i) LOST OR STOLEN CERTIFICATES. PFPC shall place a stop notice
against any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss or alleged
misappropriation. A new certificate shall be registered and issued only upon:
(i) The shareholder's pledge of a lost instrument
bond or such other appropriate indemnity bond
issued by a surety company approved by PFPC; and
(ii) Completion of a release and indemnification
agreement signed by the shareholder to protect
PFPC and its affiliates.
(j) Shareholder Inspection of Stock Records. Upon a request
from any Fund shareholder to inspect stock records, PFPC will notify the Fund
and the Fund will issue instructions granting or denying each such request.
Unless PFPC has acted contrary to the Fund's instructions, the Fund agrees and
does hereby, release PFPC from any liability for refusal of permission for a
particular shareholder to inspect the Fund's stock records.
(k) Withdrawal of Shares and Cancellation of Certificates.
Upon receipt of Written Instructions, PFPC shall cancel outstanding certificates
surrendered by the Fund to reduce the total amount of outstanding shares by the
number of shares surrendered by the Fund.
15. DURATION AND TERMINATION. This Agreement shall be effective on the
date first written above and shall continue for a period of five (5) years (the
"Initial Term"). Upon the expiration of the Initial Term, this Agreement shall
15
<PAGE>
automatically renew for successive terms of one (1) year ("Renewal Terms") each
provided that it may be terminated by any party without penalty during a Renewal
Term upon written notice given at least sixty (60) days prior to termination.
During either the Initial Term or the Renewal Terms, this Agreement may also be
terminated on an earlier date by either the Fund or PFPC for cause.
With respect to the Fund, cause shall mean PFPC's material breach of
this Agreement causing it to fail to substantially perform its duties under this
Agreement. In order for such material breach to constitute "cause" under this
Paragraph, PFPC must receive written notice from the Fund specifying the
material breach and PFPC shall not have corrected such breach within a 30-day
period. With respect to PFPC, cause includes, but is not limited to, the failure
of the WTC to pay the compensation set forth in writing pursuant to Paragraph 11
of this Agreement after it has received written notice from PFPC specifying the
amount due and WTC shall not have paid that amount within a 30-day period. A
constructive termination of this Agreement will result where a substantial
percentage of the Fund's assets are transferred, merged or are otherwise removed
from the Fund to another fund(s) that is not serviced by PFPC.
Any notice of termination for cause shall be effective sixty (60) days
from the date of any such notice. Upon the termination hereof, the WTC shall pay
to PFPC such compensation as may be due for the period prior to the date of such
termination. Any termination effected shall not affect the rights and
obligations of the parties under Paragraphs 12 and 13 hereof.
16. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notices shall be addressed (a) if to PFPC, at 400
16
<PAGE>
Bellevue Parkway, Wilmington, Delaware 19809 Attn: President; (b) if to the
Fund, c/o Wilmington Trust Company 1100 North Market St., Wilmington, De., Attn:
Robert Christian; or (c) if to neither of the foregoing, at such other address
as shall have been given by like notice to the sender of any such notice or
other communication by the other party. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it shall be deemed to have
been given immediately. If notice is sent by first-class mail, it shall be
deemed to have been given three days after it has been mailed. If notice is sent
by messenger, it shall be deemed to have been given on the day it is delivered.
17. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
18. USE OF FUND'S NAME. PFPC shall not use the name of the Fund or the
Portfolios in a manner not approved prior thereto, provided, however, that the
Fund shall approve all uses of its name which merely refer in accurate terms to
the appointment of PFPC hereunder or which are required by the SEC or a state
securities commission, and, provided, further, that in no event shall such
approval be unreasonable withheld.
19. SECURITY. PFPC represents and warrants that, to the best of its
knowledge, the various procedures and systems which PFPC has implemented with
regard to safeguarding from loss or damage the Fund's blank checks, records and
other data and PFPC's records, data, equipment, facilities and other property
used in the performance of its obligations hereunder are adequate. The parties
may review such systems and procedures on a periodic basis.
17
<PAGE>
20. REGISTRATION AS A TRANSFER AGENT. PFPC represents that it is
currently registered with the appropriate Federal agency for the registration of
transfer agents, and that it will remain so registered for the duration of this
Agreement. PFPC agrees that it will promptly notify the Fund in the event of any
material change in its status as a registered transfer agent.
21. SHAREHOLDER LIABILITY. PFPC is hereby expressly put on notice of
the limitation of shareholder liability as set forth in the Declaration of Trust
of the Fund and agrees that obligations assumed by the Fund pursuant to this
Agreement shall be limited in all cases to the Fund and its assets, and if the
liability relates to one or more Portfolios, the obligations hereunder shall be
limited to the respective assets of such Portfolios. PFPC agrees that it shall
not seek satisfaction of any such obligation from the shareholders or any
individual shareholder of the Fund nor from the Trustee or any individual
Trustee of the Fund.
22. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund
thirty (30) days' prior written notice; (ii) the delegate (or assignee) is
registered and qualified under the 1934 Act to act as a transfer agent; (iii)
the delegate (or assignee) agrees with PFPC and the Fund to comply with all
relevant provisions of the 1940 Act; and (iv) PFPC and such delegate (or
assignee) promptly provide such information as the Fund may request, and respond
to such questions as the Fund may ask, relative to the delegation (or
assignment), including (without limitation) the capabilities of the delegate (or
assignee). In addition, PFPC, subject to the approval of the Fund, may
sub-contract any of its services to be performed hereunder to one or more
18
<PAGE>
qualified sub-transfer agents, shareholder servicing agents or other financial
institutions to facilitate access to third-party distribution networks.
23. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
24. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
25. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract
made in Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
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<PAGE>
(d) Partial Invalidity. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) Facsimile Signature. The facsimile signature of any party to
this Agreement shall constitute the valid and binding execution hereof by such
party.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By: /s/ J. Richard Carnall
-----------------------------------------
Title: Chairman
--------------------------------------
THE RODNEY SQUARE STRATEGIC FIXED
INCOME FUND
By: /s/ Robert J. Christian
-----------------------------------------
Title: President
--------------------------------------
WILMINGTON TRUST COMPANY
By: /s/ Robert J. Christian
-----------------------------------------
Title: Senior Vice President
--------------------------------------
21
<PAGE>
EXHIBIT A
---------
THIS EXHIBIT A, dated as of February 2, 1998, is Exhibit A to that
certain Transfer Agency Services Agreement dated as of February 2, 1998 among
PFPC Inc., Wilmington Trust Company and The Rodney Square Strategic Fixed Income
Fund.
PORTFOLIOS
----------
The Rodney Square Diversified Income Portfolio
The Rodney Square Municipal Income Portfolio
EXHIBIT 9(a)(i)
February 2, 1998
THE RODNEY SQUARE STRATEGIC FIXED INCOME FUND
RE: TRANSFER AGENCY SERVICES FEES
-----------------------------
Dear Sir/Madam:
This letter constitutes our agreement with respect to compensation to
be paid to PFPC Inc. ("PFPC") for services provided under the terms of a
Transfer Agency Services Agreement dated February 2, 1998 between The Rodney
Square Strategic Fixed Income Fund ("you" or the "Fund"), PFPC and Wilmington
Trust Company ("WTC") (the "Agreement"). Pursuant to paragraph 11 of the
Agreement, and in consideration of the services to be provided to the Fund, WTC
will pay PFPC certain fees and reimburse PFPC for its out-of-pocket expenses
incurred on its behalf, as follows:
1) Account Fee:
Annual, Semi-Annual, Quarterly Dividend: $10.00 per account per annum
Monthly Dividend: $15.00 per account per annum
Daily Accrual Dividend: $18.00 per account per annum
Inactive Account: $ .30 per account per month
Fees shall be calculated and paid monthly based on one-twelfth (1/12th) of
the annual fee. An inactive account is defined as having a zero balance
with no dividend payable. Inactive accounts are purged annually after
year-end tax reporting.
2) Transaction Charges:
Master/Omnibus Account: $ 1.00 per purchase/redemption
Telephone/Wire Orders: $ 4.00 per purchase/redemption
New Account Opening: $ 3.50 per account (paper)
12b-1 Calculation: $ .25 per account, per cycle
IRA/Qualified Plan Processing: $ 10.00 per Social Security Number,
per annum
$ 2.50 per distribution
$ 25.00 per transfer in or transfer
out
$ 1.85 per account with
checkwriting per annum
$ .10 per check transaction (non-
return of checks)
$ .50 per check transaction (return
of checks)
<PAGE>
3) Minimum Base Fee:
Retail - $2,500 for each portfolio/class; excluding transaction charges
and out-of-pocket expenses.
Institutional - .03% of average daily net assets for each portfolio
with Account Fees waived.
Any fee or out-of-pocket expenses not paid within 30 days of the date
of the original invoice will be charged a late payment fee of 1% per month until
payment of the fees are received by PFPC.
The fee for the period from the date hereof until the end of the year
shall be prorated according to the proportion which such period bears to the
full annual period.
If the foregoing accurately sets forth our agreement and you intend to
be legally bound thereby, please execute a copy of this letter and return it to
us.
Very truly yours,
PFPC INC.
By: /s/ J. Richard Carnall
--------------------------------
Title: Chairman
-----------------------------
Agreed and Accepted:
THE RODNEY SQUARE STRATEGIC FIXED INCOME FUND
By: /s/ Robert J. Christian
---------------------------------
Title: President
-----------------------------
Agreed and Accepted:
WILMINGTON TRUST COMPANY
By: /s/ Robert J. Christian
---------------------------------
Title: Senior Vice President
-----------------------------
EXHIBIT 9(b)
ADMINISTRATION AND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made as of February 2, 1998 by and between PFPC INC., a
Delaware corporation ("PFPC"), which is an indirect wholly owned subsidiary of
PNC Bank Corp. and THE RODNEY SQUARE STRATEGIC FIXED INCOME FUND, a
Massachusetts business trust (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC to provide administration and
accounting services to its investment portfolios listed on Exhibit A attached
hereto and made a part hereof, as such Exhibit A may be amended from time to
time (each a "Portfolio") and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and intending to be legally bound hereby the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as
amended.
(c) "AUTHORIZED PERSON" means any officer of the Fund and any other
person duly authorized by the Fund's Board of Trustees to give Oral Instructions
and Written Instructions on behalf of the Fund and listed on the Authorized
<PAGE>
Persons Appendix attached hereto and made a part hereof or any amendment thereto
as may be received by PFPC. An Authorized Person's scope of authority may be
limited by the Fund by setting forth such limitation in the Authorized Persons
Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC from
an Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "SECURITIES LAWS" means the 1933 Act, the 1934 Act, the 1940
Act and the CEA.
(h) "SHARES" mean the shares of beneficial interest of any series
or class of the Fund.
(i) "WRITTEN INSTRUCTIONS" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC to provide administration
and accounting services to the each of the Portfolios, in accordance with the
terms set forth in this Agreement. PFPC accepts such appointment and agrees to
furnish such services.
2
<PAGE>
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where
applicable, will provide PFPC with the following:
(a) certified or authenticated copies of the resolutions of the
Fund's Board of Trustees, approving the appointment of PFPC or
its affiliates to provide services to each Portfolio and
approving this Agreement;
(b) a copy of Fund's most recent effective registration statement;
(c) a copy of each Portfolio's advisory agreement or agreements;
(d) a copy of the distribution agreement with respect to each
class of Shares representing an interest in a Portfolio;
(e) a copy of any additional administration agreement with respect
to a Portfolio;
(f) a copy of any shareholder servicing agreement made in respect
of the Fund or a Portfolio; and
(g) copies (certified or authenticated, where applicable) of
any and all amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply with
all applicable requirements of the Securities Laws, and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Fund or any
Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only
upon Oral Instructions and Written Instructions.
3
<PAGE>
(b) PFPC shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person (or from a person
reasonably believed by PFPC to be an Authorized Person) pursuant to this
Agreement. PFPC may assume that any Oral Instruction or Written Instruction
received hereunder is not in any way inconsistent with the provisions of
organizational documents or this Agreement or of any vote, resolution or
proceeding of the Fund's Board of Trustees or of the Fund's shareholders, unless
and until PFPC receives Written Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Written Instructions
confirming Oral Instructions (except where such Oral Instructions are given by
PFPC or its affiliates) so that PFPC receives the Written Instructions by the
close of business on the same day that such Oral Instructions are received. The
fact that such confirming Written Instructions are not received by PFPC shall in
no way invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. Where Oral Instructions or Written
Instructions reasonably appear to have been received from an Authorized Person,
PFPC shall incur no liability to the Fund in acting upon such Oral Instructions
or Written Instructions provided that PFPC's actions comply with the other
provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE FUND. If PFPC is in doubt as to any action it
should or should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Fund.
4
<PAGE>
(b) ADVICE OF COUNSEL. If PFPC shall be in doubt as to any question
of law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for the Fund, the Fund's investment adviser or PFPC, at the option of PFPC).
(c) CONFLICTING ADVICE. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions PFPC receives
from the Fund and the advice PFPC receives from counsel, PFPC may rely upon and
follow the advice of counsel. In the event PFPC so relies on the advice of
counsel, PFPC remains liable for any action or omission on the part of PFPC
which constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities set forth in
this Agreement.
(d) PROTECTION OF PFPC. PFPC shall be protected in any action it
takes or does not take in reliance upon directions, advice or Oral Instructions
or Written Instructions it receives from the Fund or from counsel and which PFPC
believes, in good faith, to be consistent with those directions, advice and Oral
Instructions or Written Instructions. Nothing in this section shall be construed
so as to impose an obligation upon PFPC (i) to seek such directions, advice or
Oral Instructions or Written Instructions, or (ii) to act in accordance with
such directions, advice or Oral Instructions or Written Instructions unless,
under the terms of other provisions of this Agreement, the same is a condition
of PFPC's properly taking or not taking such action. Nothing in this subsection
shall excuse PFPC when an action or omission on the part of PFPC constitutes
willful misfeasance, bad faith, gross negligence or reckless disregard by PFPC
of any duties, obligations or responsibilities set forth in this Agreement.
5
<PAGE>
7. RECORDS; VISITS.
(a) The books and records pertaining to the Fund and the Portfolios
which are in the possession or under the control of PFPC shall be the property
of the Fund. Such books and records shall be prepared and maintained as required
by the 1940 Act and other applicable securities laws, rules and regulations. The
Fund, Authorized Persons and any regulatory agency having authority over the
Fund shall have access to such books and records at all times during PFPC's
normal business hours for reasonable audit and inspection. Upon the reasonable
request of the Fund, copies of any such books and records shall be provided by
PFPC to the Fund or to an Authorized Person, at the Fund's request and expense.
(b) PFPC shall create, maintain and preserve the following
records:
(i) all books and records with respect to each Portfolio's
books of account;
(ii) records of each Portfolio's securities transactions; and
(iii) all other books and records as PFPC is required to
maintain pursuant to Rule 31a-1 of the 1940 Act in
connection with the services provided hereunder.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Fund and information relating to the Fund and its shareholders, unless the
release of such records or information is otherwise consented to, in writing, by
the Fund. The Fund agrees that such consent shall not be unreasonably withheld
and may not be withheld where PFPC may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to duly
constituted authorities.
6
<PAGE>
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the Fund's
independent public accountants and shall provide account analyses, fiscal year
summaries, and other audit-related schedules with respect to each Portfolio.
PFPC shall take all reasonable action in the performance of its duties under
this Agreement to assure that the necessary information is made available to
such accountants for the expression of their opinion, as required by the Fund.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available. In the event of equipment failures, PFPC shall, at no
additional expense to the Fund, take reasonable steps to minimize service
interruptions. PFPC shall have no liability with respect to the loss of data or
service interruptions caused by equipment failure, provided such loss or
interruption is not caused by PFPC's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties or obligations under this
Agreement.
11. COMPENSATION. As compensation for services rendered by PFPC
during the term of this Agreement, the Fund, on behalf of each Portfolio,
will pay to PFPC a fee or fees as may be agreed to in writing by the Fund and
PFPC.
12. INDEMNIFICATION.
(a) The Fund, on behalf of each Portfolio, agrees to indemnify and
hold harmless PFPC and its affiliates from all taxes, charges, expenses,
assessments, claims and liabilities (including, without limitation, liabilities
7
<PAGE>
arising under the Securities Laws and any state or foreign securities and blue
sky laws, and amendments thereto), and expenses, including (without limitation)
attorneys' fees and disbursements arising directly or indirectly from any action
or omission to act which PFPC takes (i) at the request or on the direction of or
in reliance on the advice of the Fund or (ii) upon Oral Instructions or Written
Instructions. Neither PFPC, nor any of its affiliates, shall be indemnified
against any liability (or any expenses incident to such liability) arising out
of PFPC's or its affiliates' own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties and obligations under this
Agreement. Any amounts payable by the Fund hereunder shall be satisfied only
against the relevant Portfolio's assets and not against the assets of any other
investment portfolio of the Fund.
(b) PFPC agrees to indemnify and hold harmless the Fund from all
taxes, charges, expenses, assessments, claims and liabilities arising from
PFPC's obligations pursuant to this Agreement (including, without limitation,
liabilities arising under the Securities Laws, and any state and foreign
securities and blue sky laws, and amendments thereto) and expenses, including
(without limitation) reasonable attorneys' fees and disbursements arising
directly or indirectly out of PFPC's or its nominees' own willful misfeasance,
bad faith, gross negligence or reckless disregard of its duties and obligations
under this Agreement.
(c) In order that the indemnification provisions contained in this
Section shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
8
<PAGE>
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
13. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the
Fund or any Portfolio except as specifically set forth herein or as may be
specifically agreed to by PFPC in writing. PFPC shall be obligated to exercise
care and diligence in the performance of its duties hereunder, to act in good
faith and to use its best efforts, within reasonable limits, in performing
services provided for under this Agreement. PFPC shall be liable for any damages
arising out of PFPC's failure to perform its duties under this Agreement to the
extent such damages arise out of PFPC's willful misfeasance, bad faith, gross
negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC shall not be liable for losses beyond its
control, provided that PFPC has acted in accordance with the standard of care
set forth above; and (ii) PFPC shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral Instruction or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PFPC reasonably believes to be
genuine, or (B) subject to Section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood, catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
9
<PAGE>
(c) Notwithstanding anything else in this Agreement to the contrary
and except to the limited extent set forth in paragraph 13(d) below, PFPC shall
not be liable to the Fund for any consequential or special losses or damages
("Special Damages") which the Fund may incur as a consequence of PFPC's
performance of the services provided hereunder.
(d) PFPC shall be liable for Special Damages incurred by the Fund
only to the extent that Special Damages arise out of PFPC's or its affiliates'
willful misfeasance, bad faith or gross negligence in performing, or reckless
disregard of, their duties under this Agreement; provided, however, the
liability of PFPC with respect to all such Special Damages arising during the
term of this Agreement and thereafter shall be limited to One Hundred Thousand
Dollars ($100,000) per transaction or series of directly related transactions;
related transactions may be related as to parties, timing or subject matter.
14. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS. PFPC
will perform the following accounting services with respect to each Portfolio:
(i) Journalize investment, capital share and income and
expense activities;
(ii) Verify investment buy/sell trade tickets when received
from the investment adviser for a Portfolio (the
"Adviser") and transmit trades to the Fund's custodian
(the "Custodian") for proper settlement;
(iii) Maintain individual ledgers for investment securities;
(iv) Maintain historical tax lots for each security;
(v) Reconcile cash and investment balances of the Fund with
the Custodian, and provide the Adviser with the
beginning cash balance available for investment
purposes;
10
<PAGE>
(vi) Update the cash availability throughout the day as
required by the Adviser;
(vii) Post to and prepare the Statement of Assets and
Liabilities and the Statement of Operations;
(viii)Calculate various contractual expenses (e.g., advisory
and custody fees);
(ix) Monitor the expense accruals and notify an officer of
the Fund of any proposed adjustments;
(x) Control all disbursements and authorize such
disbursements upon Written Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine the net income of each Portfolio;
(xiii)Obtain security market quotes from independent pricing
services approved by the Adviser, or if such quotes are
unavailable, then obtain such prices from the Adviser,
at the Fund's expense and in either case calculate the
market value of each Portfolio's Investments;
(xiv) Transmit or mail a copy of the daily portfolio valuation
to the Adviser;
(xv) Compute the net asset value of each Portfolio;
(xvi) As appropriate, compute yields, total return, expense
ratios, portfolio turnover rate, and, if required,
portfolio average dollar-weighted maturity; and
(xvii)Prepare a monthly financial statement, which will
include the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
11
<PAGE>
Cash Statement
Schedule of Capital Gains and Losses.
15. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS.
PFPC will perform the following administration services with respect to each
Portfolio:
(i) Prepare quarterly broker security transactions
summaries;
(ii) Prepare monthly security transaction listings;
(iii) Supply various normal and customary Portfolio and Fund
statistical data as requested on an ongoing basis;
(iv) Prepare and file the Fund's Federal and state tax
returns;
(v) Prepare and file the Fund's Semi-Annual Reports with the
SEC on Form N-SAR;
(vi) Prepare and file, if necessary, with the SEC the Fund's
annual, semi-annual, and quarterly shareholder reports;
(vii) Prepare and file, if necessary, reports with Blue Sky
Authorities;
(viii)Assist in the preparation of registration statements
and other filings relating to the registration of
Shares;
(ix) Monitor sales of the Fund's shares and assure that the
Fund has properly registered such shares with the SEC
and applicable state authorities;
(x) Assist the investment adviser to monitor the Fund's
compliance with the investment restrictions and
limitations imposed by the 1940 Act, the state Blue Sky
laws and applicable regulations thereunder, the
fundamental and non-fundamental investment policies and
limitations set forth in the Prospectus and SAI, and the
investment restrictions and limitations necessary for
each Portfolio of the Fund to qualify as a regulated
investment company under Sub-chapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), or any
successor statute;
12
<PAGE>
(xi) Subject to the direction and control of the Fund,
coordinate contractual relationships and communications
between the Fund and its contractual service providers;
(xii) Prepare and monitor an expense budget for each
Portfolio, including setting and revising accruals for
each category of expenses;
(xiii)Determine the amount of dividends and other
distributions payable to shareholders as necessary to
maintain the qualification as a regulated investment
company of each Portfolio of the Fund under the Code;
(xiv) Prepare and distribute to appropriate parties notices
announcing the declaration of dividends and other
distributions to shareholders;
(xv) Provide information regarding material developments in
state securities regulation; and
(xvi) Provide personnel to serve as officers of the Fund if so
elected by the Trustees.
16. DURATION AND TERMINATION. This Agreement shall be effective on the
date first written above and shall continue for a period of five (5) years (the
"Initial Term"). Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of one (1) year ("Renewal Terms") each
provided that it may be terminated by either party without penalty during a
Renewal Term upon written notice given at least sixty (60) days prior to
termination. During either the Initial Term or the Renewal Terms, this Agreement
may also be terminated on an earlier date by either party for cause.
With respect to the Fund, cause shall mean PFPC's material breach of this
Agreement causing it to fail to substantially perform its duties under this
Agreement. In order for such material breach to constitute "cause" under this
Paragraph, PFPC must receive written notice from the Fund specifying the
material breach and PFPC shall not have corrected such breach within a 30-day
13
<PAGE>
period. With respect to PFPC, cause includes, but is not limited to, the failure
of the Fund to pay the compensation set forth in writing pursuant to Paragraph
11 of this Agreement after it has received written notice from PFPC specifying
the amount due and the Fund shall not have paid that amount within a 30-day
period. A constructive termination of this Agreement will result where a
substantial percentage of the Fund's assets are transferred, merged or are
otherwise removed from the Fund to another fund(s) that is not serviced by PFPC.
Any notice of termination for cause shall be effective sixty (60) days
from the date of any such notice. Upon the termination hereof, the Fund shall
pay to PFPC such compensation as may be due for the period prior to the date of
such termination. Any termination effected shall not affect the rights and
obligations of the parties under Paragraphs 12 and 13 hereof.
17. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable, telex
or facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
three days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered. Notices shall be addressed
(a) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809 Attn:
President; or (b) if to the Fund, c/o of Wilmington Trust Company, 1100 N.
Market St., Wilmington, DE 19809 Attn: Robert Christian; or (c) if to neither of
the foregoing, at such other address as shall have been provided by like notice
to the sender of any such notice or other communication by the other party.
14
<PAGE>
18. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
19. SHAREHOLDER LIABILITY. PFPC is hereby expressly put on notice of the
limitation of shareholder liability as set forth in the Declaration of Trust of
the Fund and agrees that obligations assumed by the Fund pursuant to this
Agreement shall be limited in all cases to the Fund and its assets, and if the
liability relates to one or more Portfolios, the obligations hereunder shall be
limited to the respective assets of such Portfolios. PFPC agrees that it shall
not seek satisfaction of any such obligation from the shareholders or any
individual shareholder of the Fund, nor from the Trustees or any individual
Trustee of the Fund.
20. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund
thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees
with PFPC and the Fund to comply with all relevant provisions of the 1940 Act;
and (iii) PFPC and such delegate (or assignee) promptly provide such information
as the Fund may request, and respond to such questions as the Fund may ask,
relative to the delegation (or assignment), including (without limitation) the
capabilities of the delegate (or assignee).
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15
<PAGE>
22. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
23. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract
made in Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to
this Agreement shall constitute the valid and binding execution hereof by such
party.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By: /s/ J. Richard Carnall
----------------------------------------
Title: CHAIRMAN
THE RODNEY SQUARE STRATEGIC FIXED
INCOME FUND
By: /s/ Robert J. Christian
----------------------------------------
Title: PRESIDENT
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of February 2, 1998, is Exhibit A to that certain
Administration and Accounting Services Agreement dated as of February 2, 1998
between PFPC Inc. and The Rodney Square Strategic Fixed Income Fund.
PORTFOLIOS
The Rodney Square Diversified Income Portfolio
The Rodney Square Municipal Income Portfolio
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- ---------------------------------- --------------------------------
- ---------------------------------- --------------------------------
- ---------------------------------- --------------------------------
- ---------------------------------- --------------------------------
- ---------------------------------- --------------------------------
- ---------------------------------- --------------------------------
EXHIBIT 9(b)(i)
February 2, 1998
THE RODNEY SQUARE STRATEGIC FIXED INCOME FUND
RE: ADMINISTRATION AND ACCOUNTING SERVICES FEES
Dear Sir/Madam:
This letter constitutes our agreement with respect to compensation to be
paid to PFPC Inc. ("PFPC") under the terms of an Administration and Accounting
Services Agreement dated February 2, 1998 between PFPC and The Rodney Square
Strategic Fixed Income Fund (the "Fund"), as amended from time to time (the
"Agreement"). Pursuant to paragraph 11 of the Agreement, and in consideration of
the services to be provided, the Fund will pay PFPC an annual administration and
accounting fee, to be calculated daily and paid monthly. The Fund will also
reimburse PFPC for its out-of-pocket expenses reasonably incurred on its behalf,
including, but not limited to postage, telephone, telex, overnight express
charges, outside independent pricing service charges, and travel expenses
incurred for board meeting attendance.
The annual administrative and accounting services fee will be an asset
based fee of .10% of each Portfolio's first $1 billion of average daily net
assets; .075% of each Portfolio's next $500 million of average daily net assets;
.05% of each Portfolio's next $500 million of average daily net assets; and
.035% of each Portfolio's average daily net assets in excess of $2 billion. Such
fees are exclusive of out-of-pocket expenses and shall be calculated daily and
paid monthly.
Any fee or out-of-pocket expenses not paid within 30 days of the date of
the original invoice will be charged a late payment fee of 1% per month until
payment of the fees are received by PFPC.
The fee for the period from the date hereof until the end of the year
shall be prorated according to the proportion which such period bears to the
full annual period.
<PAGE>
If the foregoing accurately sets forth our agreement and you intend to be
legally bound thereby, please execute a copy of this letter and return it to us.
Very truly yours,
PFPC INC.
By: /s/ J. Richard Carnall
----------------------------------------
Title: Chairman
Agreed and Accepted:
THE RODNEY SQUARE STRATEGIC FIXED INCOME FUND
By: /s/ Robert J. Chritian
----------------------------------
Title: President
Exhibit 10(c)
KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
Washington, D. C. 20036-1800
Telephone 202-778-9000
June 24, 1998
The Rodney Square Strategic Fixed-Income Fund
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Ladies and Gentlemen:
You have requested our opinion, as counsel to The Rodney Square
Strategic Fixed-Income Fund ("Trust"), as to certain matters regarding the
issuance of Shares of the Trust. As used in this letter, the term "Shares" means
the shares of beneficial interest of the Intermediate Bond Portfolio
("Portfolio"), which is a series of the Trust, during the time that
Post-Effective Amendment No. 19 to the Trust's Registration Statement on Form
N-1A ("PEA") is effective and has not been superseded by another post-effective
amendment.
As such counsel, we have examined certified or other copies, believed
by us to be genuine, of the Trust's Declaration of Trust and by-laws and such
resolutions and minutes of meetings of the Trust's Board of Trustees as we have
deemed relevant to our opinion, as set forth herein. Our opinion is limited to
the laws and facts in existence on the date hereof, and it is further limited to
the laws (other than the conflict of law rules) in the Commonwealth of
Massachusetts that in our experience are normally applicable to the issuance of
shares by unincorporated voluntary associations and to the Securities Act of
1933 ("1933 Act"), the Investment Company Act of 1940 ("1940 Act") and the
regulations of the Securities and Exchange Commission ("SEC") thereunder.
Based on the foregoing, we are of the opinion that the issuance of the
Shares has been duly authorized by the Trust and that, when sold in accordance
with the terms contemplated by the PEA, including receipt by the Trust of full
payment for the Shares and compliance with the 1933 Act and the 1940 Act, the
Shares will have been validly issued, fully paid and non-assessable.
We note, however, that the Trust is an entity of the type commonly
known as a "Massachusetts business trust." Under Massachusetts law, shareholders
<PAGE>
The Rodney Square Strategic Fixed-Income Fund
June 24, 1998
Page 2
could, under certain circumstances, be held personally liable for the
obligations of the Trust. The Declaration of Trust states that creditors of,
contractors with and claimants against the Trust or any series shall look only
to the assets of the Trust for the appropriate series for payment. It also
requires that notice of such disclaimer be given in each note, bond, contract,
certificate undertaking or instrument made or issued by the officers or the
trustees of the Trust on behalf of the Trust. The Declaration of Trust further
provides: (1) for indemnification from the assets of the Trust or the
appropriate series for all loss and expense of any shareholder held personally
liable for the obligations of the Trust or any series by virtue of ownership of
shares of the Trust or such series; and (2) for the Trust or appropriate series
to assume the defense of any claim against the shareholder for any act or
obligation of the Trust or series. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust or series would be unable to meet its obligations.
We hereby consent to this opinion accompanying the PEA when it is filed
with the SEC and to the reference to our firm in the statement of additional
information that is being filed as part of the PEA.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Arthur J. Brown
-------------------
Arthur J. Brown
Exhibit 11
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" and "Financial
Statements" in the Statement of Additional Information and to the incorporation
by reference in this Post-Effective Amendment Number 19 to Registration
Statement Number 33-5501 (Form N-1A) of Rodney Square Strategic Fixed-Income
Fund of our report dated November 26, 1997, included in the 1997 Annual Report
to Shareholders.
/s/ Ernst & Young
Philadelphia, Pennsylvania
June 23, 1998
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