Filed with the Securities and Exchange Commission on December 29, 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. 20 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 22 |X|
THE RODNEY SQUARE STRATEGIC FIXED-INCOME 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 paragraph (b)
___ on __________ pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
_X_ on February 28, 1999 pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on __________ pursuant to paragraph (a)(2) of Rule 485.
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. Front and Back Cover Page Front and Back Cover Page
2. Risk/Return Summary: Investment Objectives
Investments, Primary Investment Strategies
Risks and Performance Risk Factors Related to the Portfolios
Performance Information
3. Risk/Return Summary: Fees and Expenses
Fee Table
4. Investment Objectives, Investment Objectives
Principal Investment Primary Investment Strategies
Strategies and Related Risks Risk Factors Related to the
Portfolios
5. Management Discussion of Not Applicable
Fund Performance
6. Management, Organization and Management of the Fund
Capital Structure Investment Adviser
Service Providers
7. Shareholder Information Shareholder Information
Pricing of Shares
Purchase of Shares
Redemption of Shares
Exchange of Shares
Dividends and Other Distributions
Taxes
8. Distribution Arrangements Not Applicable
9. Financial Highlights Financial Highlights
Information
ii
<PAGE>
CROSS-REFERENCE SHEET
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 and Table of Cover Page and Table of Contents
Contents
11. Fund History The Fund
12. Description of the Fund and Investment Policies
Its Investments and Risks Investment Limitations
13. Management of the Fund Trustees and Officers
14. Control Persons and Principal Control Persons and
Holders of Securities Principal Holders of Securities
15. Investment Advisory and Investment Management Services
Other Services Distribution Agreement and
Additional Service Providers
16. Brokerage Allocation and Brokerage Allocation and
Other Practices Other Practices
17. Capital Stock and Other The Fund
Securities
18. Purchase, Redemption and Purchase, Redemption and
Pricing of Shares Pricing of Shares
19. Taxation of the Fund Taxation of the Fund
20. Calculation of Performance Calculation of Performance Data
Data
21. Financial Statements Financial Statements
ii
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
SHORT/INTERMEDIATE BOND PORTFOLIO
INTERMEDIATE BOND PORTFOLIO
MUNICIPAL BOND PORTFOLIO
================================================================================
PROSPECTUS DATED FEBRUARY 28, 1999
This prospectus gives vital information about these mutual funds, including
information on investment policies, risks and fees. For your own benefit and
protection, please read this prospectus before you invest, and keep it on hand
for future reference.
Please note that these funds:
(BULLET) are not bank deposits
(BULLET) are not obligations of, or guaranteed or endorsed by Wilmington Trust
Company or any of its affiliates
(BULLET) are not federally insured
(BULLET) are not obligations of, or guaranteed or endorsed or otherwise
supported by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other governmental agency
(BULLET) are not guaranteed to achieve their goal(s)
Like all mutual fund shares, the Securities and Exchange Commission has not
approved or disapproved the Fund's shares or determined whether this prospectus
is accurate or complete. Anyone who tells you otherwise is committing a crime.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
A LOOK AT THE GOALS, STRATEGIES, PORTFOLIO DESCRIPTION
RISKS, EXPENSES AND FINANCIAL Investment Objectives............................................3
HISTORY OF EACH PORTFOLIO. Primary Investment Strategies....................................3
Risk Factors Related to the Portfolios...........................7
Performance Information..........................................8
Fees and Expenses...............................................14
Financial Highlights............................................16
The Bond Fund Performance Information...........................20
DETAILS ABOUT THE SERVICE MANAGEMENT OF THE FUND
PROVIDERS. Investment Adviser..............................................21
Service Providers...............................................22
POLICIES AND INSTRUCTIONS FOR SHAREHOLDER INFORMATION
OPENING, MAINTAINING AND Pricing of Shares...............................................24
CLOSING AN ACCOUNT IN ANY OF Purchase of Shares..............................................25
THE PORTFOLIOS. Redemption of Shares............................................26
Exchange of Shares..............................................28
Dividends and Distributions.....................................29
Taxes...........................................................29
FOR MORE INFORMATION....................................BACK COVER
</TABLE>
For information about key terms and concepts, look for our "PLAIN TALK"
explanations.
2
<PAGE>
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
SHORT/INTERMEDIATE BOND PORTFOLIO
INTERMEDIATE BOND PORTFOLIO
MUNICIPAL BOND PORTFOLIO
PORTFOLIO DESCRIPTION
The Rodney Square Strategic Fixed-Income Fund (the "Fund") consists of three
separate portfolios, the Short/Intermediate Bond Portfolio, the Intermediate
Bond Portfolio and the Municipal Bond Portfolio (each a "Portfolio" and together
"Portfolios").
PLAIN TALK
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WHAT IS A MUTUAL FUND?
A mutual fund pools shareholders' money and, using a professional
investment manager, invests it in securities like stocks and bonds.
Each Portfolio in The Rodney Square Strategic Fixed-Income Fund is a
separate mutual fund.
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INVESTMENT OBJECTIVES
The SHORT/INTERMEDIATE BOND PORTFOLIO and the INTERMEDIATE BOND PORTFOLIO each
seek 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. These investment objectives
may not be changed without shareholder approval. There is no guarantee that a
Portfolio will achieve its investment objective.
PRIMARY INVESTMENT STRATEGIES
PLAIN TALK
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WHAT ARE FIXED INCOME SECURITIES?
Fixed income securities are generally bonds, which is a type of
security that functions like a loan. Bonds are IOUs issued by private
companies, municipalities or government agencies. By comparison, when
you buy a stock, you are buying ownership in a company. With a bond,
your "loan" is for a specific period, usually 5 to 30 years. You
receive regular interest payments at the rate stated when you bought
the bond. Hence, the term "fixed income" security.
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The Short/Intermediate Bond Portfolio and the Intermediate Bond Portfolio:
(BULLET) will invest at least 85% of its total assets in various types of
investment grade fixed income securities; and
(BULLET) may invest up to 10% of its total assets in investment grade fixed
income securities of foreign issuers.
3
<PAGE>
PLAIN TALK
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WHAT IS DURATION?
Duration measures the sensitivity of fixed income securities held by a
Portfolio to a change in interest rates. The value of a security with a
longer duration will normally fluctuate to a greater degree than the
value of a security with a shorter duration should interest rates
change. For example, if interest rates were to move 1%, a bond with a
3-year duration would experience approximately a 3% change in principal
value. An identical bond with a 5-year duration would experience
approximately a 5% change in its principal value.
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As a fundamental policy, the Short/Intermediate Bond Portfolio will maintain a
short-to-intermediate average duration and the Intermediate Bond Portfolio will
maintain an intermediate average duration. The average dollar-weighted duration
of securities held by the Short/ Intermediate Bond Portfolio will normally fall
within a range of 2 1/2 to 4 years; those held by the Intermediate Bond
Portfolio will normally fall within a range of 5 to 7 years.
PLAIN TALK
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WHAT ARE MUNICIPAL SECURITIES?
Municipal securities are bonds issued by state and local governments to
raise money for their activities.
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The Municipal Bond Portfolio:
(BULLET) will, as a fundamental policy, invest substantially all (at least 80%)
of its net assets in a diversified portfolio of municipal securities that
provide interest that is exempt from federal income tax; and
(BULLET) may invest up to 20% of its net assets in other types of fixed income
securities that provide income that is subject to federal tax.
The Municipal Bond Portfolio may not invest more than 25% of its total assets in
any one industry. You should note that 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 private operators of educational, hospital or housing facilities.
However, the Municipal Bond Portfolio's investment adviser may decide that the
yields available from concentrating in obligations of a particular market sector
or political subdivision justify the risk that the performance of the Municipal
Bond Portfolio may be adversely affected by such concentration. Under such
market conditions, the Municipal Bond 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 one political subdivision, such as a given
state or U.S. territory. Under these conditions, the Municipal Bond Portfolio's
vulnerability to any special risks that affects that sector or jurisdiction
could have an adverse impact on the value of an investment in the Portfolio.
There are no limitations on the Municipal Bond 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.
4
<PAGE>
As a fundamental policy, the Municipal Bond Portfolio will maintain an
intermediate average duration. The average dollar-weighted duration of
securities held by the Municipal Bond Portfolio will normally fall within a
range of 4 to 8 years.
PORTFOLIO COMPOSITION. The composition of each Portfolio's holdings varies,
depending upon the investment adviser's analysis of the fixed income markets,
the municipal securities market and the expected trends in those markets. The
securities purchased by the Portfolios may be purchased based upon their yield,
the income earned by the security, or their potential capital appreciation, the
potential increase in the security's value, or both. The investment adviser
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. This strategy may reduce the level of income attained
by the Portfolios. There is no guarantee that principal value can be protected
during periods of extreme interest volatility.
PLAIN TALK
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CORPORATE BONDS VS. GOVERNMENT BONDS:
Bonds issued by corporations generally pay a higher interest rate than
government bonds. That's because corporate bonds are somewhat riskier
than government bonds and the interest payments on government bonds are
exempt from some or all taxes. For example, if you live in Delaware and
buy a bond issued by the state of Delaware or by any other government
or municipal agency in Delaware, your interest on the bond is exempt
from state and federal income taxes. But if your bond is issued by any
state other than the one in which you reside, the interest would only
be exempt from federal income tax and you would have to pay your state
income tax. Interest payments on U.S. Treasury bonds are exempt from
state and local taxes.
-----------------------------------------------------------------------
The Portfolios invest only in securities that are rated, at the time of
purchase, in the top four categories by a rating agency such as Moody's
Investors Service, Inc. or Standard & Poor's. If the securities are not rated,
then the investment adviser must determine that they are of comparable quality.
The table below shows each Portfolio's principal investments. These are the
types of securities that will most likely help a Portfolio achieve its
investment objective.
5
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SHORT/INTERMEDIATE BOND INTERMEDIATE BOND MUNICIPAL BOND
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(BULLET) Asset-Backed Securities X X
- ----------------------------------------------------------------------------------------------------------------------
(BULLET) Bank Obligations X X
- ----------------------------------------------------------------------------------------------------------------------
(BULLET) Corporate Bonds, Notes and Commercial Paper X X
- ----------------------------------------------------------------------------------------------------------------------
(BULLET) Mortgage-Backed Securities X X
- ----------------------------------------------------------------------------------------------------------------------
(BULLET) Municipal Securities X X X
- ----------------------------------------------------------------------------------------------------------------------
(BULLET) Obligations Issued By Supranational Agencies X X
- ----------------------------------------------------------------------------------------------------------------------
(BULLET) U.S. Government Obligations X X
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Each Portfolio also may use other strategies and engage in other investment
practices, which are described in detail in our Statement of Additional
Information. The investments and strategies listed above and described
throughout this prospectus are those that we use under normal market conditions.
6
<PAGE>
RISK FACTORS RELATED TO THE PORTFOLIOS
The following is a general list of the types of risks that may apply to a
Portfolio. Additional information about a Portfolio's investments is available
in our Statement of Additional Information:
(BULLET) An investment in a Portfolio is not a deposit of Wilmington Trust
Company ("WTC"), each Portfolio's investment adviser, any other bank, or
any of their affiliates and is not insured or guaranteed by any financial
institution, the Federal Deposit Insurance Corporation or any other
government agency.
(BULLET) CREDIT RISK: The risk that the issuer of a security, or the
counterparty to a contract, will default or otherwise become unable to
honor a financial obligation.
(BULLET) DERIVATIVES RISK: 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 investments that may be used
in hedging and related income strategies. The market value of derivative
instruments and securities is sometimes more volatile than that of other
investments, and each type of derivative may pose its own special risks. 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.
(BULLET) FOREIGN SECURITY RISK: The risk of losses due to political, regulatory,
economic, social or other uncontrollable forces in a foreign country.
(BULLET) INTEREST RATE RISK: The risk of market losses attributable to changes
in interest rates. With fixed-rate securities, a rise in interest rates
typically causes a fall in values, while a fall in rates typically causes a
rise in values. The yield earned by a Portfolio will vary with changes in
interest rates.
(BULLET) LEVERAGE RISK: The risk associated with securities or practices (such
as when-issued and forward commitment transactions) that multiply small
market movements into larger changes in value.
(BULLET) LIQUIDITY RISK: The risk that certain securities may be difficult or
impossible to sell at the time and the price that the seller would like.
(BULLET) MANAGEMENT RISK: The risk that a strategy used by WTC may fail to
produce the intended result.
(BULLET) MARKET RISK: The risk that the market value of a security may move up
and down, sometimes rapidly and unpredictably.
(BULLET) OPPORTUNITY RISK: The risk of missing out on an investment opportunity
because the assets necessary to take advantage of it are tied up in less
advantageous investments.
(BULLET) PREPAYMENT RISK: The risk that a debt security may be paid off and
proceeds invested earlier than anticipated. Depending on market conditions,
the new investments may or may not carry the same interest rate.
(BULLET) VALUATION RISK: The risk that a Portfolio has valued certain of its
securities at a higher price than it can sell them for.
(BULLET) YEAR 2000 COMPLIANCE RISK: 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
7
<PAGE>
properly process and calculate date-related information and data on or
after January 1, 2000. Many existing application software products in the
marketplace were designed only to accommodate a two-digit date position,
which represents the year (e.g., "95" is stored on the system and
represents the year 1995). As a result, the year 1999 (i.e., "99") could be
the maximum date value these systems will be able to accurately process.
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 assurances that these
steps will be sufficient to avoid any adverse impact on the Portfolios.
PERFORMANCE INFORMATION
SHORT/INTERMEDIATE BOND PORTFOLIO
The chart below shows the changes in annual total returns for the
Short/Intermediate Bond Portfolio for the life of the Portfolio through December
31, 1998. Past performance is not necessarily an indicator of how the Portfolio
will perform in the future.
PLAIN TALK
-----------------------------------------------------------------------
WHAT IS TOTAL RETURN? Total return is a measure of the per-share change
in the total value of a fund's portfolio, including any distributions
paid to you. It is measured from the beginning to the end of a specific
time period.
-----------------------------------------------------------------------
8
<PAGE>
SHORT/INTERMEDIATE BOND PORTFOLIO
CALENDAR YEAR ANNUAL RETURNS SINCE INCEPTION OF THE PORTFOLIO
1991* 10.54%
1992 6.80%
1993 7.88%
1994 -2.01%
1995 14.94%
1996 3.38%
1997 7.56%
PERFORMANCE YEARS
*The Short/Intermdiate Bond Portfolio commenced operations on April 4, 1991.
9
<PAGE>
The total return for the Short/Intermediate Bond Portfolio for the calendar year
ended December 31, 1998 was ___%. Over the life of the Portfolio, the highest
quarter total return was 5.13% (quarter ended June 30, 1995). Over the life of
the Portfolio, the lowest quarter total return was -1.81% (quarter ended March
31, 1994).
The table below shows how the Short/Intermediate Bond Portfolio's average annual
total returns for the past 1 and 5 calendar years and the period April 2, 1991
(commencement of operations) through December 31, 1998 compare with the Merrill
Lynch 1-10 Year U.S. Treasury Index.
1 Year 5 Year Since Inception
------ ------ ---------------
Short/Intermediate Bond Portfolio % % %
The Merrill Lynch 1-10 Year U.S.
Treasury Index % % %
PLAIN TALK
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WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities
in a particular market or securities in a market sector. You cannot
invest directly in an index. An index does not have an investment
adviser and does not pay any commissions or expenses. If an index had
expenses, its performance would be lower.
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You may call (800) 336-9970 to obtain the Portfolio's current yield.
PLAIN TALK
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WHAT IS YIELD?
Yield is a measure of the income (dividends and interest) earned by the
securities in the fund's portfolio and paid to you over a specified
time period. The yield is expressed as a percentage of the offering
price per share on a specified date.
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INTERMEDIATE BOND PORTFOLIO
The chart below shows the changes in annual total returns for the Intermediate
Bond Portfolio since its commencement of operations on June 29, 1998, and for
its predecessor, the Bond Fund, a collective investment fund through December
31, 1998. The Bond Fund's performance has been 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 fees waivers). The Bond Fund was not registered as a mutual fund under
the Investment Company Act of 1940, as amended, (the "1940 Act") and therefore
was not subject to certain investment restrictions, limitations and
diversification requirements imposed by the 1940 Act and the Internal Revenue
Code of 1986, as amended. If the Bond Fund had been registered under the 1940
Act, its performance may have been different. For additional information see
"The Bond Fund Performance Information" section of this prospectus. Past
performance is not necessarily an indicator of how the Portfolio will perform in
the future.
10
<PAGE>
INTERMEDIATE BOND PORTFOLIO
CALENDAR YEAR ANNUAL RETURNS SINCE INCEPTION
1991* 14.36%
1992 6.82%
1993 10.60%
1994 -4.20%
1995 18.90%
1996 1.73%
1997 9.67%
PERFORMANCE YEARS
* The Intermediate Bond Portfolio's predecessor, the Bond Fund, commenced
operations on December 31, 1990.
11
<PAGE>
The total return for the Intermediate Bond Portfolio for the calendar year ended
December 31, 1998 was ___%. Over the past 10 calendar years, the highest quarter
total return was 6.54% (quarter ended June 30, 1995). Over the past 10 calendar
years, the lowest quarter total return was -3.41% (quarter ended March 31,
1994).
The table below shows how the Intermediate Bond Portfolio's average annual total
returns for the past 1 and 5 calendar years and the period December 1990
(commencement of operations) through December 31, 1998 compare with the Merrill
Lynch U.S. Treasury Master Index.
1 Year 5 Year Since Inception
------ ------ ---------------
Intermediate Bond Portfolio % % %
Merrill Lynch U.S. Treasury Master Index % % %
You may call (800) 336-9970 to obtain the Portfolio's current yield.
MUNICIPAL BOND PORTFOLIO
The chart below shows the changes in annual total returns for the Municipal Bond
Portfolio for the life of the Portfolio through December 31, 1998. Past
performance is not necessarily an indicator of how the Portfolio will perform in
the future.
12
<PAGE>
MUNICIPAL BOND PORTFOLIO
CALENDAR YEAR ANNUAL RETURNS SINCE INCEPTION OF THE PORTFOLIO
1993* 1.36%
1994 -4.17%
1995 14.08%
1996 3.51%
1997 7.18%
PERFORMANCE YEARS
* The Municipal Bond Portfolio commenced operations on November 1, 1993.
13
<PAGE>
The total return for the Municipal Bond Portfolio for the calendar year ended
December 31, 1998 was _______%. Over the life of the Portfolio, the highest
quarter total return was 5.86% (quarter ended March 31, 1995). Over the life of
the Portfolio, the lowest quarter total was 4.79% (quarter ended March 31,
1994).
The table below shows how the Municipal Bond Portfolio's average annual total
returns for the past 1 and 5 calendar years and for the period November 1, 1993
(commencement of operations) through December 31, 1998 compare with Merrill
Lynch Intermediate Municipal Index.
1 Year 5 years Since Inception
------ ------- ---------------
Municipal Bond Portfolio % % %
Merrill Lynch Intermediate Municipal Index % % %
You may call (800) 336-9970 to obtain the Portfolio's current yield.
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of a Portfolio.
14
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES Short/Intermediate Intermediate Municipal
(EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) Bond Portfolio Bond Portfolio Bond Portfolio
------------------ -------------- --------------
<S> <C> <C> <C>
Management fees 1 0.35% 0.35% 0.35%
Distribution (12b-1) fees 0.00% 0.00% 0.00%
Other Expenses 0.39% 0.31% 0.61%
TOTAL ANNUAL OPERATING EXPENSES 1 0.74% 0.66% 0.96%
<FN>
- -----------------------
1 Actual total operating expenses are 0.55% for the Short/Intermediate Bond
Portfolio; 0.55% for the Intermediate Bond Portfolio; and 0.75% for the
Municipal Bond Portfolio. This is because WTC is waving a portion of its
advisory fee or reimbursing expenses to the extent total operating expenses
exceed 0.55% for the Short/Intermediate Bond Portfolio; 0.55% for the
Intermediate Bond Portfolio; and 0.75% for the Municipal Bond Portfolio. Actual
advisory expenses are estimated to be 0.16%, 0.24% and 0.14% for the
Short/Intermediate Portfolio, Intermediate Bond Portfolio and Municipal Bond
Portfolio, respectively. This waiver will remain in place until the Board
approves its termination. Actual gross advisory expenses were 0.41% and 0.45%
for the Short/Intermediate Bond Portfolio and the Municipal Bond Portfolio,
respectively, for the fiscal year ended October 31, 1998. The management fees,
other expenses and total annual operating expenses are reflected in the table
above for the Short/Intermediate Bond Portfolio and the Municipal Bond Portfolio
are based on each Portfolio's actual expenses for the fiscal year ended October
31, 1998, adjusted to reflect current fee arrangements. Because the Intermediate
Bond Portfolio has not completed a full year of operation, the numbers are based
on actual expenses of the Intermediate Bond Portfolio for the period June 29,
1998 to October 31, 1998.
</FN>
</TABLE>
PLAIN TALK
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WHAT ARE FUND EXPENSES?
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder distribution, administration and
custody services. Each Portfolio's expenses in the table above are
shown as a percentage of its net assets. These expenses are deducted
from Portfolio assets.
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EXAMPLE
This example is intended to help you compare the cost of investing in a
Portfolio with the cost of investing in other mutual funds. The table below
shows what you would pay if you invested $10,000 over the various time frames
indicated. The example assumes that:
(BULLET) you reinvested all dividends and other distributions
(BULLET) the average annual return was 5%
(BULLET) the Portfolio's maximum (without regard to waivers or expenses) total
operating expenses are charged and remain the same over the time periods
(BULLET) you redeemed all of your investment at the end of the time period.
Although your actual cost may be higher or lower, based on these assumptions,
your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Short/Intermediate Bond Portfolio $76 $237 $411 $918
Intermediate Bond Portfolio $67 $211 $368 $822
Municipal Bond Portfolio $98 $306 $531 $1178
15
<PAGE>
THE ABOVE EXAMPLE IS FOR COMPARISON PURPOSES ONLY AND IS NOT A REPRESENTATION OF
A PORTFOLIO'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
Portfolio's financial performance for the past 5 years. Certain information
reflects financial results for a single share of a Portfolio. The total returns
in the table represent the rate that a shareholder would have earned (or lost)
on an investment in a Portfolio (assuming reinvestment of all dividends and
other distributions). This information has been audited by Ernst & Young LLP,
whose report, along with each Portfolio's financial statements, is included in
the Annual Report, which is available without charge upon request.
16
<PAGE>
SHORT/INTERMEDIATE BOND PORTFOLIO
FOR THE FISCAL YEARS ENDED OCTOBER 31,
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE -- BEGINNING OF YEAR $13.07 $12.95 $13.08 $12.42 $13.48
------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Net investment income 0.76 0.77 0.78 0.83 0.71
Net realized and unrealized gain (loss) on
investments 0.31 0.12 (0.13) 0.66 (1.02)
------ ------ ------ ------ ------
Total from investment operations 1.07 0.89 0.65 1.49 (0.31)
------ ------ ------ ------ ------
DISTRIBUTIONS:
From net investment income (0.76) (0.77) (0.78) (0.83) (0.71)
From net realized gain on investments -- -- -- -- (0.04)
------ ------ ------ ------ ------
Total distributions (0.76) (0.77) (0.78) (0.83) (0.75)
------ ------ ------ ------ ------
NET ASSET VALUE -- END OF YEAR $13.38 $13.07 $12.95 $13.08 $12.42
====== ====== ====== ====== ======
TOTAL RETURN 8.40% 7.13% 5.18% 12.41% (2.33)%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses 1 0.59% 0.65% 0.65% 0.65% 0.65%
Net investment income 5.64% 5.98% 6.07% 6.56% 5.53%
Portfolio turnover rate 40.66% 83.54% 85.77% 116.40% 43.77%
Net assets at end of year (000 omitted) $94,597 $31,456 $31,777 $32,214 $31,721
<FN>
- ----------------------
1 Effective June 29, 1998, Wilmington Trust Company ("WTC") elected to waive
a portion of its advisory fee or reimburse expenses to the extent that the
Portfolio's expenses (excluding taxes, extraordinary expenses, brokerage
commissions and interest) exceed an annual rate of 0.55% of the Portfolio's
average daily net assets. Prior to June 29, 1998, WTC had elected to waive
a portion of its advisory fee or reimburse expenses to the extent that the
Portfolio's expenses (excluding taxes, extraordinary expenses, brokerage
commissions and interest) exceeded an annual rate of 0.65% of the
Portfolio's average daily net assets. Without waivers or reimbursements,
the annualized ratio of expenses to average daily net assets for the fiscal
years ended October 31, 1998, 1997, 1996, 1995 and 1994, would have been
0.83%, 1.12%, 1.09%, 1.14% and 1.05%, respectively.
</FN>
</TABLE>
17
<PAGE>
INTERMEDIATE BOND PORTFOLIO
FOR THE PERIOD ENDED OCTOBER 31,
- --------------------------------------------------------------------------------
1998 1
------
NET ASSET VALUE -
BEGINNING OF YEAR $10.00
INVESTMENT OPERATIONS:
Net investment income 0.20
Net realized and unrealized
gain on investments 0.19
------
Total from investment operations 0.39
------
DISTRIBUTIONS:
From net investment income (0.20)
------
NET ASSET VALUE -
END OF YEAR $10.19
======
TOTAL RETURN 2 3.89%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses 3 0.55%
Net investment income 5.69%*
Portfolio turnover rate 17.66%
Net assets at end of year (000 omitted) $93,002
- --------------------
1 For the period June 29, 1998 (commencement of operations) through October
31, 1998.
2 The total return for the period ended October 31, 1998 has not been
annualized.
3 The expense ratio reflects WTC's election to waive a portion of its
advisory fee or reimburse expenses to the extent that the Portfolio's
expenses (excluding taxes, extraordinary expenses, brokerage commissions
and interest) exceed an annual rate of 0.55% of the Portfolio's average
daily net assets. Without waivers or reimbursements the annualized ratio
of expenses to average daily net assets for the period June 29, 1998
through October 31, 1998, would have been 0.66%.
* Annualized.
18
<PAGE>
MUNICIPAL BOND PORTFOLIO
FOR THE FISCAL YEARS ENDED OCTOBER 31,
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE -
BEGINNING OF YEAR $12.74 $12.46 $12.49 $11.64 $12.50
INVESTMENT OPERATIONS:
Net investment income 0.56 0.55 0.55 0.54 0.49
Net realized and unrealized
gain(loss) on investments 0.20 0.28 (0.03) 0.85 (0.86)
------ ------ ------ ------ ------
Total from investment operations 0.76 0.83 0.52 1.39 (0.37)
------ ------ ------ ------ ------
DISTRIBUTIONS:
From net investment income (0.56) (0.55) (0.55) (0.54) (0.49)
------ ------ ------ ------ ------
NET ASSET VALUE -
END OF YEAR $12.94 $12.74 $12.46 $12.49 $11.64
====== ====== ====== ====== ======
TOTAL RETURN 6.07% 6.85% 4.24% 12.23% (3.05%)
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses 1 0.75% 0.75% 0.75% 0.75% 0.75%
Net investment income 4.35% 4.42% 4.41% 4.50% 4.13%
Portfolio turnover rate 43.72% 28.56% 15.91% 42.08% 21.95%
Net assets at end of year (000 omitted) $17,579 $17,446 $16,619 $16,570 $14,283
<FN>
- ------------------
1 The expense ratios reflect WTC's election to waive a portion of its
advisory fee or reimburse expenses to the extent that the Portfolio's
expenses (excluding taxes, extraordinary expenses, brokerage commissions
and interest) exceed an annual rate of 0.75% of the Portfolio's average
daily net assets. In addition, Rodney Square Management Corporation waived
a portion of it's administration and accounting services fees for the
fiscal years ended October 31, 1998, 1997, 1996, 1995, and 1994. Without
waivers or reimbursements the annualized ratio of expenses to average daily
net assets for the fiscal years ended October 31, 1998, 1997, 1996, 1995
and 1994, would have been 1.23%, 1.52%, 1.37%, 1.45% and 1.62%,
respectively.
</FN>
</TABLE>
19
<PAGE>
THE BOND FUND PERFORMANCE INFORMATION
The Bond Fund was not a registered investment company since 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).
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.
20
<PAGE>
MANAGEMENT OF THE FUND
The Board of Trustees supervises the management, activities and affairs of the
Fund and has approved contracts with various organizations to provide, among
other services, day-to-day management required by the Portfolios and their
shareholders.
INVESTMENT ADVISER
PLAIN TALK
-----------------------------------------------------------------------
WHAT IS AN INVESTMENT ADVISER?
The investment adviser makes investment decisions for a Portfolio and
continuously reviews, supervises and administers the Portfolio's
investment program. The Board of Trustees supervises the investment
adviser and establishes policies that the adviser must follow in its
management activities.
-----------------------------------------------------------------------
WTC, the Fund's investment adviser, is located at 1100 North Market Street,
Wilmington, Delaware 19890. WTC is a wholly owned subsidiary of Wilmington Trust
Corporation, which is a publicly held bank holding company. Under an Advisory
Agreement with the Fund, WTC, subject to the supervision of the Board of
Trustees, directs the investments of each Portfolio in accordance with its
investment objective, policies and limitations. 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 Agreement, each Portfolio pays a monthly fee to WTC at the
annual rate of 0.35% of its average daily net assets, as determined at the close
of business on each day throughout the month. WTC has agreed to waive its fee or
reimburse each Portfolio monthly to the extent that expenses of the Portfolio
(excluding taxes, extraordinary expenses, brokerage commissions and interest)
exceed an annual rate of 0.55% (0.75% in the case of the Municipal Bond
Portfolio) of the Portfolio's average daily net assets until further notice. For
the fiscal year ended October 31, 1998, WTC received the following fees (after
fee waivers) as a percentage of each Portfolio's average daily net assets:
Short/Intermediate Bond Portfolio 0.17%
Intermediate Bond Portfolio 0.24%
Municipal Bond Portfolio 0.03%
PORTFOLIO MANAGERS
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
21
<PAGE>
Fixed Income Management Division and since then 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 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.
SERVICE PROVIDERS
The chart below provides information on the Portfolios' primary service
providers.
22
<PAGE>
---------------------------
THE RODNEY SQUARE
STRATEGIC FIXED-
INCOME FUND
---------------------------
Asset
Management
- --------------------------------------
INVESTMENT ADVISER
WILMINGTON TRUST COMPANY
RODNEY SQUARE NORTH
1100 N. MARKET STREET
WILMINGTON, DE 19890-0001
Manages each Portfolio's business and
investment activities.
- --------------------------------------
Fund
Operations
- ------------------------------------------
ADMINISTRATOR AND
ACCOUNTING AGENT
PFPC INC.
400 BELLEVUE PARTKWAY
WILMINGTON, DE 19809
Provides facilities, equipment and
personnel to carry out administrative
services related to each Portfolio and
calculates each Portfolio's NAV per share
and distributions.
- ------------------------------------------
Shareholder
Services
- --------------------------------------
TRANSFER AGENT
PFPC INC.
400 BELLEVUE PARKWAY
WILMINGTON, DE 19809
Handles shareholder services, including
recordkeeping and statements, payment of
distribution and processing of buy and sell
requests.
- --------------------------------------
Asset
Safe Keeping
-------------------------------------------
CUSTODIANS
WILMINGTON TRUST COMPANY
RODNEY SQUARE NORTH
1100 N. MARKET STREET
WLMINGTON, DE 19890-0001
PFPC TRUST COMPANY
200 STEVENS DRIVE
LESTER, PA 19113
Hold each Portfolio's assets, settle all
portfolio trades and collect most of the
valuation data required for calculating each
Portfolio's NAV per share.
- --------------------------------------------
Distribution
- --------------------------------------
DISTRIBUTOR
PROVIDENT DISTRIBUTORS INC.
FOUR FALL CORPORATE CENTER
WEST CONSHOHOCKEN, PA 19428
Distributes each Portfolio's shares.
- --------------------------------------
23
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF SHARES
The Portfolios value their assets based on 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 and other types of fixed income securities held by the Portfolios. To
determine the value of those securities, PFPC Inc. ("PFPC") may use a pricing
service that takes into account not only developments related to 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.
PLAIN TALK
-----------------------------------------------------------------------
WHAT IS THE NET ASSET VALUE or "NAV"?
NAV = Assets - Liabilities
--------------------
Outstanding Shares
-----------------------------------------------------------------------
PFPC determines the NAV per share of each Portfolio as of the close of regular
trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), on
each Business Day (a day that the New York Stock Exchange (the "Exchange"), the
Transfer Agent and the Philadelphia branch of the Federal Reserve Bank are open
for business). The NAV is calculated by adding the value of all securities and
other assets in a Portfolio, deducting the actual and accrued liabilities and
dividing the balance by the number of outstanding shares in that Portfolio.
Shares will not be priced on those days the Fund is closed. As of the date of
this prospectus, those days are:
New Year's Day Memorial Day Veterans Day
Martin Luther King, Jr. Day Independence Day Thanksgiving Day
President's Day Labor Day Christmas Day
Good Friday Columbus Day
24
<PAGE>
PURCHASE OF SHARES
PLAIN TALK
-----------------------------------------------------------------------
HOW TO PURCHASE SHARES:
(BULLET) Directly by mail or by wire
(BULLET) As a client of WTC through a trust account or a corporate cash
management account
(BULLET) As a client of a Service Organization
-----------------------------------------------------------------------
Portfolio shares are offered on a continuous basis and are sold without any
sales charges. The minimum initial investment in any Portfolio is $1,000, but
additional investments may be made in any amount. You may purchase shares
directly from Provident Distributors Inc. ("PDI"), the Fund's distributor, by
mail or by wire, as specified below.
You may also purchase shares if you are a client of WTC through your trust or
corporate cash management accounts. If you are a client of an institution (such
as a bank or broker-dealer) that has entered into a servicing agreement with PDI
("Service Organization") you may also purchase shares through such Service
Organization. You should also be aware that you may be charged a fee by WTC or
the Service Organization in connection with your investment in the Portfolios.
If you wish to purchase Portfolio shares through your account at WTC or a
Service Organization, you should contact that entity directly for information
and instructions on purchasing shares.
BY MAIL: You may purchase shares by sending a check drawn on a U.S. bank payable
to The Rodney Square Strategic Fixed-Income Fund, indicating the Portfolio that
you have selected, along with a completed application (included at the end of
this prospectus). Send the check and application to The Rodney Square Strategic
Fixed-Income Fund, c/o PFPC Inc., P.O. Box 8951, Wilmington, DE 19899-9752. Any
purchase orders sent by overnight mail should be sent to The Rodney Square
Strategic Fixed-Income Fund, c/o PFPC Inc., 400 Bellevue Parkway, Wilmington, DE
19809. If a subsequent investment is being made, the check should also indicate
your Portfolio account number. When you make purchases by check, each Portfolio
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 readily available. You
must advise PFPC at (800) 336-9970 before making a purchase by wire, and if
making an initial purchase, to also obtain an account number. Once you have an
account number, you should instruct your bank to wire 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. Be sure to also include your account
number, the desired Portfolio and your name. If you make an initial purchase by
wire, you must promptly forward a completed application to the Transfer Agent at
the address above. If you are making a subsequent purchase, the wire should also
indicate your Portfolio account number.
25
<PAGE>
INDIVIDUAL RETIREMENT ACCOUNTS: You may purchase shares of the
Short/Intermediate Bond Portfolio and Intermediate Bond Portfolio, only, for a
tax-deferred retirement plan such as an individual retirement account ("IRA").
To order an application for an IRA and a brochure describing a Portfolio IRA,
call the Transfer Agent at (800) 336-9970. PNC Bank, as custodian for each IRA,
receives an annual fee of $10 per account, paid directly by the IRA. If the fee
is not paid by the due date, the appropriate number of Portfolio shares owned by
the IRA will be redeemed automatically as payment to PNC.
AUTOMATIC INVESTMENT PLAN: You may purchase shares through an Automatic
Investment Plan ("AIP"). Under the AIP, the Transfer Agent, at regular
intervals, will automatically debit your bank checking account in an amount of
$50 or more (after the $1,000 minimum initial investment). You 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 Exchange, currently 4:00 p.m.,
Eastern time, on or about the 20th day of the month. For an application for the
AIP, check the appropriate box of the application or call the Transfer Agent at
(800) 336-9970. This service is generally not available for WTC trust account
clients, since similar services are provided through WTC. This service may also
not be available for Service Organization clients who are provided similar
services through those organizations.
ADDITIONAL PURCHASE INFORMATION: Purchase orders received by the Transfer Agent
and accepted by PDI before the close of regular trading on the Exchange on any
Business Day of the Fund will be priced at the NAV that is determined as of the
close of trading. Purchase orders received 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.
Any purchase order may be rejected if a Portfolio determines that accepting the
order would not be in the best interest of the Portfolio or its shareholders.
It is the responsibility of WTC or the Service Organization to transmit orders
for the purchase of shares by its customers to the Transfer Agent and to deliver
required funds on a timely basis, in accordance with the procedures stated
above.
REDEMPTION OF SHARES
PLAIN TALK
-----------------------------------------------------------------------
HOW TO REDEEM (SELL) SHARES:
(BULLET) By mail
(BULLET) By telephone
(BULLET) By check
(BULLET) Through a Systematic Withdrawal Plan
-----------------------------------------------------------------------
You may sell your shares on any Business Day by mail, telephone or check, as
described below. Redemptions are effected at the NAV next determined after the
Transfer Agent has received your redemption request. There is no fee when
Portfolio shares are redeemed. It is the responsibility
26
<PAGE>
of WTC or the Service Organization to transmit redemption orders and credit
their customers' accounts with redemption proceeds on a timely basis. Redemption
checks are mailed on the next Business Day following acceptance by the Transfer
Agent of redemption instructions, but never later than 7 days following such
receipt and acceptance. Amounts redeemed by wire are normally wired on the date
of receipt and acceptance of redemption instructions (if received by the
Transfer Agent before 4:00 p.m. Eastern time) or the next Business Day (if
received after 4:00 p.m. Eastern time, or on a non-Business Day), but never
later than 7 days following such receipt and acceptance. If you purchased your
shares through an account at WTC or a Service Organization, you should contact
WTC or the Service Organization for information relating to redemptions. The
Portfolio's name and your account number should accompany any redemption
requests.
BY MAIL: If you redeem your shares by mail, you should submit written
instructions with a guarantee of your signature by an eligible institution
acceptable to the Transfer Agent. Eligible institutions include a domestic bank
or trust company, broker-dealer, clearing agency or savings association, who are
participants in a medallion program recognized by the Securities Transfer
Association. The three recognized medallion programs are Securities Transfer
Agents Medallion Program, Stock Exchanges Medallion Program, and New York Stock
Exchange, Inc. Medallion Signature Program. Signature guarantees that are not
part of these programs will not be accepted. The written instructions and
guarantees should be mailed to: The Rodney Square Strategic Fixed-Income Fund,
c/o PFPC Inc., 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 Inc., 400 Bellevue Parkway, Wilmington, DE 19809. You must
indicate the Portfolio name, your account number and your name.
BY TELEPHONE: If you prefer to redeem your shares by telephone, you may elect to
do so. However there are certain risks. The Fund has certain safeguards and
procedures to confirm the identity of callers and to confirm that the
instructions communicated are genuine. If such procedures are followed, you will
bear the risk of any losses.
SYSTEMATIC WITHDRAWAL PLAN: If you own shares of a Portfolio with a value of
$10,000 or more you may participate in the Systematic Withdrawal Plan ("SWP").
Under the SWP, you may automatically redeem a portion of your account monthly,
bimonthly, quarterly, semiannually or annually. The minimum withdrawal available
is $100. The redemption of Portfolio shares will be effected at NAV at 4:00
p.m., Eastern time, on or about the 25th day of the month. This service is
generally not available for WTC trust accounts or certain Service Organizations,
since a similar service is provided through those organizations.
ADDITIONAL REDEMPTION INFORMATION: 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.
Proceeds may also 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 at least 60 days. In order to authorize the Transfer Agent 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
27
<PAGE>
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 your 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 a corporation, other organization, trust, fiduciary or
other institutional investor holds the Portfolio shares.
EXCHANGE OF SHARES
PLAIN TALK
-----------------------------------------------------------------------
WHAT IS AN EXCHANGE OF SHARES?
An exchange of shares allows you to move your money from one portfolio
to another portfolio within the Rodney Square family of funds.
-----------------------------------------------------------------------
You may exchange all or a portion of your shares in a Portfolio for shares of
another portfolio within the Rodney Square family of funds that is currently
being offered. The other Rodney Square funds are:
The Rodney Square Fund
The Money Market Portfolio
The U.S. Government Portfolio
The Rodney Square Tax-Exempt Fund
The Rodney Square Strategic Equity Fund
The Rodney Square Large Cap Growth Equity Portfolio
The Rodney Square Large Cap Value Equity Portfolio
The Rodney Square Small Cap Equity Portfolio
The Rodney Square International Equity Portfolio.
Redemption of shares through an exchange will be effected at the NAV per share
next determined after the Transfer Agent receives your request. A purchase of
shares through an exchange will be effected at the NAV per share determined at
that time or as next determined thereafter. The NAV of The Rodney Square Fund is
determined at 2:00 p.m. Eastern time and The Rodney Square Tax-Exempt Fund is
determined at 12:00 noon Eastern time, on each Business Day. The NAV of The
Rodney Square Strategic Fixed-Income Fund portfolio and The Rodney Square
Strategic Equity Fund portfolio is determined at the close of regular trading on
the New York Stock 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 or portfolio into which the exchange is made. An
exchange may not be made if the exchange would leave a balance in a
shareholder's account of less than $500.
To obtain prospectuses of the other Rodney Square funds, you may call (800)
336-9970. To obtain more information about exchanges, or to place exchange
orders, contact the Transfer Agent, or, if your shares are held in a trust
account with WTC or in an account with a Service
28
<PAGE>
Organization, contact WTC or the Service Organization. The Portfolios may
terminate or modify the exchange offer described here and will give you 60 days'
notice of such termination or modification. 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.
DIVIDENDS AND OTHER DISTRIBUTIONS
PLAIN TALK
-----------------------------------------------------------------------
WHAT IS NET INVESTMENT INCOME?
Net investment income consists of interest accrued and original issue
discount (and, in the case of the Municipal Bond Portfolio, market
discount on tax-exempt securities) earned on its investments less
amortization of any premium and accrued expenses.
-----------------------------------------------------------------------
As a shareholder of a Portfolio, you are entitled to receive dividends and other
distributions arising from the net investment income and net realized gains, if
any, earned on the investments held by the Portfolio. Generally, dividends are
declared daily and paid monthly. Each Portfolio expects to distribute any net
realized gains once a year. The Short/Intermediate Bond Portfolio and the
Intermediate Bond Portfolio will distribute net realized gains from foreign
currency transactions, if any, after the end of the fiscal year in which the
gain was realized by them.
A distribution is payable to the shareholders of record at the time the
distribution is declared (including holders of shares being redeemed, but
excluding holders of shares being purchased).
Distributions are automatically reinvested and are paid in the form of
additional Portfolio shares unless you have elected to receive the distributions
in cash.
TAXES
FEDERAL INCOME TAX: As long as each Portfolio meets the requirements for being a
tax-qualified regulated investment company, which each Portfolio has done in the
past and intends to continue to do in the future, it pays no federal income tax
on the earnings and gains it distributes to its shareholders. While each
Portfolio may invest in securities that earn interest subject to federal income
tax and securities that earn interest 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. Each Portfolio will notify you following the
end of each calendar year of the amount of dividends and other distributions
paid that year.
Dividends from each Portfolio's taxable income (whether paid in cash or
reinvested in additional shares) are taxable to you as ordinary income.
Distributions of a Portfolio's net capital gain (whether paid in cash or
reinvested in additional shares), when designated as such, are taxable to you as
long-term capital gain, regardless of the length of time they have held their
shares. You should be aware that if Portfolio shares are purchased shortly
before the record date for any dividend or capital gain distribution, you will
pay the full price for the shares and will receive some portion of the price
back as a taxable distribution.
29
<PAGE>
You may treat distributions by the Municipal Bond Portfolio of the excess of
interest income on tax-exempt securities over certain amounts disallowed as
deductions ("exempt-interest dividends") as interest excludable from gross
income. However, exempt-interest dividends are included in your "modified
adjusted gross income" for purposes of determining whether any portion of your
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 for purposes of the federal alternative minimum tax.
Each Portfolio is required to withhold 31% of all taxable dividends, capital
gain distributions and redemption proceeds payable to any individuals and
certain other non-corporate shareholders that do not provide the Portfolio with
a certified taxpayer identification number. Each Portfolio is also required to
withhold 31% of all taxable dividends and capital gain distributions payable to
those shareholders that are otherwise subject to backup withholding. You, the
investor, must certify on the application that your social security or other
taxpayer identification number is correct and that you are not subject to backup
withholding.
It is a taxable event for you if you sell or exchange shares of any Portfolio,
including the Municipal Bond Portfolio. Depending on the purchase price and the
sale price of the shares you exchange, you may have a taxable gain or loss on
the transaction. You are responsible for any tax liability generated by your
transactions.
STATE AND LOCAL INCOME TAXES: The exemption of certain interest income for
federal income tax purposes does not necessarily mean that that income is exempt
under the laws of any state or local taxing authority. YOU SHOULD CONSULT YOUR
TAX ADVISERS CONCERNING STATE AND LOCAL TAXES, WHICH MAY HAVE DIFFERENT
CONSEQUENCES FROM THOSE OF THE FEDERAL INCOME TAX LAW.
This section is only a summary of some important income tax considerations that
may affect your investment in a Portfolio. More information regarding those
considerations appears in our Statement of Additional Information. You are urged
to consult your tax adviser regarding the effects of an investment on your tax
situation.
30
<PAGE>
FOR MORE INFORMATION
FOR INVESTORS WHO WANT MORE INFORMATION ON THE PORTFOLIOS, THE FOLLOWING
DOCUMENTS ARE AVAILABLE FREE UPON REQUEST:
ANNUAL/SEMI-ANNUAL REPORTS: Contain performance data and information on
portfolio holdings and operating results for the Fund's most recently completed
fiscal year or half-year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): Provides a complete technical and
legal description of the Portfolios' policies, investment restrictions, risks,
and business structure. This prospectus incorporates the SAI by reference.
Copies of these documents and answers to questions about the Portfolios may be
obtained without charge by contacting:
The Rodney Square Strategic Fixed-Income Fund
c/o PFPC Inc.
400 Bellevue Parkway
Suite 108
Wilmington, Delaware 19809
(800) 336-9970
9:00 a.m. to 5:00 p.m. Eastern time
Information about the Funds (including the SAI) can be reviewed and copied at
the Public Reference Room of the Securities and Exchange Commission in
Washington, D.C. Copies of this information may be obtained, upon payment of a
duplicating fee, by writing the Public Reference Room of the SEC, Washington,
DC, 20549-6009. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1-(800)-SEC-0330. Reports and other information
about the Fund may be viewed on-screen or downloaded from the SEC=s Internet
site at http://www.sec.gov. The investment company registration number for The
Rodney Square Strategic Fixed-Income Fund is 811-4663.
FOR MORE INFORMATION ON OPENING A NEW ACCOUNT, MAKING
CHANGES TO EXISTING ACCOUNTS, PURCHASING, EXCHANGING
OR REDEEMING SHARES, OR OTHER INVESTOR SERVICES,
PLEASE CALL 1-(800)-336-9970.
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
Short/Intermediate Bond Portfolio
Intermediate Bond Portfolio
Municipal Bond Portfolio
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
February 28, 1999
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Fund's current Prospectus, dated February 28,
1999, as amended from time to time. A copy of the current Prospectus may be
obtained, without charge, by writing to Provident Distributors, Inc. ("PDI"),
Four Fall Corporate Center, West Conshohocken, PA 19428, and from certain
institutions such as banks or broker-dealers that have entered into servicing
agreements with PDI or by calling (800) 336-9970.
<PAGE>
TABLE OF CONTENTS
THE FUND.......................................................................1
INVESTMENT POLICIES............................................................1
DESCRIPTION OF RATINGS........................................................12
INVESTMENT LIMITATIONS........................................................14
TRUSTEES AND OFFICERS.........................................................16
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................18
WILMINGTON TRUST COMPANY......................................................19
INVESTMENT ADVISORY SERVICES..................................................19
ADMINISTRATION AND ACCOUNTING SERVICES........................................20
DISTRIBUTION AGREEMENT........................................................21
ADDITIONAL SERVICE PROVIDERS..................................................21
BROKERAGE ALLOCATION AND OTHER PRACTICES......................................22
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................24
DIVIDENDS.....................................................................25
TAXATION OF THE FUND..........................................................25
CACULATION OF PERFORMANCE DATA................................................28
FINANCIAL STATEMENTS..........................................................35
APPENDIX A...................................................................A-1
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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
THE FUND
The Fund is a diversified open-end series investment company organized
as a Massachusetts business trust on May 7, 1986. The Fund currently consists of
three series: the Short/Intermediate Bond Portfolio, the Intermediate Bond
Portfolio and the Municipal Bond Portfolio (collectively the "Portfolios"). 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. Prior to June 29, 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. 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.
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.
INVESTMENT POLICIES
The following information supplements the information concerning the
Portfolios' investment objectives, policies and limitations found in the
Prospectus.
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. 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. 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
<PAGE>
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. 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 and the Intermediate Bond Portfolio may invest
in fixed income securities with an average dollar-weighted duration of 1 to 6
years and 2 to 10 years, respectively.
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.
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.
The composition of each Portfolio's holdings varies depending upon
WTC's analysis of the fixed income markets and the municipal securities markets
(for the Municipal Bond Portfolio), including analysis of the most attractive
segments of the yield curve, the relative value of the different market sectors,
expected trends in those markets and supply versus demand pressures. Securities
purchased by the Portfolios may be purchased on the basis of their yield or
potential capital appreciation or both. By maintaining each Portfolio's
specified average duration, WTC seeks to protect the Portfolio's principal value
by reducing fluctuations in value relative to those that may be experienced by
bond funds with longer average durations. This strategy may reduce the level of
income attained by the Portfolios. Of course, there is no guarantee that
principal value can be protected during periods of extreme interest rate
volatility.
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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.
ALL 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
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 in 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 of
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.
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. The Portfolios will only invest in 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.
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.
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Buy-back features include standby commitments, put bonds and demand
features.
(BULLET) 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.
(BULLET) 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 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.
(BULLET) 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 that permit
redemption by the issuer at a discount from par value.
4
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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. Each Portfolio may not invest more than 15% of the
value of its net assets in securities that at the time of purchase have legal or
contractual restrictions on resale or are otherwise illiquid. Securities are
deemed illiquid if they are not readily marketable and include repurchase
agreements having a maturity of longer than 7 days.
The Board of Trustees has the ultimate responsibility for determining
whether specific securities are liquid or illiquid. The Board has delegated the
function of making day-to-day determinations of liquidity to WTC, pursuant to
guidelines approved by the Board. WTC will monitor the liquidity of securities
held by the Portfolio's and report periodically on such decisions to the Board
of 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 make quotes for the security, (3) the number of dealers
that have undertaken to make a market in the security, (4) the number of other
potential purchasers and (5) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are solicited
and the mechanics of transfer).
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 of a Money Market Fund, the Portfolio would bear
its PRO RATA portion of the Money Market Fund's expenses (including fees).
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
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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 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 is 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.
(BULLET) 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.
(BULLET) 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.
(BULLET) 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
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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.
(BULLET) RESOURCE RECOVERY BONDS. A number of factors may affect the value
and credit quality of these revenue or special obligations. These
factors include the viability of the project being financed,
environmental protection regulations and project operator tax
incentives.
(BULLET) 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:
(BULLET) 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.
(BULLET) 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.
(BULLET) 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.
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 the Short/Intermediate Bond Portfolio
and the Intermediate Bond Portfolio may use forward currency contracts. For
additional information regarding such investment strategies, see Appendix A to
this Statement of Additional Information.
PARTICIPATION INTERESTS. 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.
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
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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.
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.
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.
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
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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
taxable.
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. 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 that 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.
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<PAGE>
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 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. 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.
YIELD AND RATINGS OF SECURITIES. 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
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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.
The ratings of Moody's, S&P and Fitch represent their opinions as to
quality of the obligations that they undertake to rate. Ratings, however, are
general and are not absolute standards of quality. Consequently, obligations
with the same rating, maturity and interest rate may have different market
prices. Subsequent to its purchase by a Portfolio, an issue may cease to be
rated or its rating may be reduced. WTC, and in certain cases, the Fund's Board
of Trustees, will consider whether the Portfolio should continue to hold the
obligation.
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.
THE MUNICIPAL BOND PORTFOLIO
The Municipal Bond 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 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.
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
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
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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.
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.
DESCRIPTION OF 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 discussed below.
These ratings represent the opinions of these rating services as to the quality
of the securities that 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.
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MOODY'S RATINGS:
CORPORATE AND MUNICIPAL BONDS.
Aaa: Bonds that 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 that 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 that
make the long-term risk appear somewhat larger than the Aaa securities.
A: Bonds that 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 that 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:
(BULLET) Leading market positions in well-established industries.
(BULLET) High rates of return on funds employed.
(BULLET) Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
(BULLET) Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
(BULLET) 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
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.
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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.
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 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;
(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;
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(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.
For purposes of paragraph (2) above, the term "municipal
securities" is limited to tax-exempt municipal securities.
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 four 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, 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 (*).
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<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------------------------------------------------------------
NAME, ADDRESS AND AGE POSITION(S) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
HELD WITH
THE FUND
- ------------------------------ -------------- ---------------------------------------------------------------
<S> <C> <C>
ERIC BRUCKER Trustee Mr. Brucker has been the Dean of the College of Business,
College of Business, Public Policy and Health at the University of Maine since
Public Policy and Health September 1998. Previously he was the Dean of the School of
University of Maine Management at the University of Michigan since June 1992. He
Orono, ME 04473 was also a member of the Detroit Economic Club, Financial
Age 57 Executive Institute and Leadership Detroit. 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.
- ------------------------------ -------------- ---------------------------------------------------------------
FRED L. BUCKNER Trustee Mr. Buckner has retired as President and Chief Operating
5 Hearth Lane, Officer of Hercules Incorporated (diversified chemicals),
Greenville, DE 19807 positions he held from March 1987 through March 1992. He also
Age 66 served as a member of the Hercules Incorporated Board of
Directors from 1986 through March 1992.
- ------------------------------ -------------- ---------------------------------------------------------------
JOHN J. QUINDLEN Trustee Mr. Quindlen has retired as Senior Vice President-Finance of
313 Southwinds, 1250 E.I. du Pont de Nemours and Company, Inc. (diversified
West Southwinds Blvd. chemicals), a position he held from 1984 to November 30,
Vero Beach, FL 32963 1993. He served as Chief Financial Officer of E.I. du Pont
Age 66 de Nemours and Company, Inc. from 1984 through June 1993. He
also serves as a Director of St. Joe Paper Co. and a Trustee
of Kalmar Pooled Investment Trust.
- ------------------------------ -------------- ---------------------------------------------------------------
*ROBERT J. CHRISTIAN Trustee Mr. Christian has been Chief Investment Officer of WTC since
Rodney Square North, 1100 N. and February 1996 and Director of RSMC since February 1996. He
1100 N. Market St., President was Chairman and Director of PNC Equity Advisors Company, and
Wilmington, DE 19890 President and Chief Investment Officer of PNC Asset
Age 49 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
Peninsula United Methodist Homes. He is also President and a
Trustee of WT Investment Trust and a Director of Clemente
Capital Inc.
- ------------------------------ -------------- ---------------------------------------------------------------
ERIC K. CHEUNG Vice Mr. Cheung, Vice President and Manager of the Fixed Income
Rodney Square North, President Management Division, joined WTC in 1986. He became the Division
1100 N. Market St., Manager for all fixed income products in 1991. Prior to 1986,
Wilmington, DE 19890 Mr. Cheung was the Portfolio Manager for fixed income assets
Age 43 for the Meritor Financial Group.
- ------------------------------ -------------- ---------------------------------------------------------------
JOHN J. KELLEY Vice Mr. Kelley has been Vice President of PFPC Inc. since January
103 Bellevue Parkway President 1998. He was a Vice President of RSMC from 1995 to January
Wilmington, DE 19809 and 1998 and an Assistant Vice President of RSMC from 1989 to
Age 39 Treasurer 1995.
- ------------------------------ -------------- ---------------------------------------------------------------
CARL M. RIZZO Secretary Mr. Rizzo has been Vice President of RSMC since July, 1996.
Rodney Square North, From 1995 to 1996 he was Assistant General Counsel of Aid
1100 N. Market St., Association for Lutherans (a fraternal benefit association);
- ------------------------------ -------------- ---------------------------------------------------------------
</TABLE>
17
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<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------------------------------------------------------------
<S> <C> <C>
Wilmington, DE 19890 from 1994 to 1995 Senior Associate Counsel of United Services
Age 47 Automobile Association (an insurance and financial services
firm); and from 1987 to 1994 Special Counsel or Attorney-Adviser
with a federal government agency.
- ------------------------------ -------------- ---------------------------------------------------------------
</TABLE>
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, 1998 such fees and expenses amounted to $672 each for the
Short/Intermediate Bond Portfolio and Municipal Bond Portfolio. The following
table shows the fees paid during 1998 to the Independent Trustees for their
services to the Fund and to the Rodney Square Family of Funds. On December 4,
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 each Portfolio.
1998 TRUSTEES FEES
TOTAL FEES FROM TOTAL FEES FROM THE RODNEY
INDEPENDENT TRUSTEE THE FUND SQUARE FAMILY OF FUNDS
------------------------ --------------- --------------------------
Eric Brucker $4,308 $21,638
Fred L Buckner $4,308 $21,638
John J. Quindlen $4,308 $21,638
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following entities have a 5% or larger position as of December 4,
1998 in the Short/Intermediate Bond Portfolio and could be deemed as having a
controlling position:
1) Wilmington Trust Company as Trustee 24.10%
for Wilmington Trust Company Pension Fund
1100 North Market Street
Wilmington, DE 19890
2) Wilmington Trust Company as Investing Agent 6.50%
for DART Contributory Pension
c/o Mutual Funds
1100 North Market Street
Wilmington, DE 19890
3) National Financial Service Corp. 6.00%
One World Financial Center
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
4) Wilmington Trust Company 11.24%
for Account 033773
1100 Rodney Square North
Wilmington, DE 19890
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<PAGE>
The following entities have a 5% or larger position as of December 4,
1998 in the Intermediate Bond Portfolio and could be deemed as having a
controlling position:
1) Wilmington Trust Company as Trustee 21.28%
for Wilmington Trust Company Pension Fund
1100 North Market Street
Wilmington, DE 19890
2) Wilmington Trust Company as Trustee 16.21%
for Paul Mellon Pension
1100 North Market Street
Wilmington, DE 19890
3) Wilmington Trust Company as Trustee 5.26%
for Milford Memorial Hospital Inc. Pension Plan
1100 North Market Street
Wilmington, DE 19890
The following entities have a 5% or larger position as of December 4,
1998 in the Municipal Bond Portfolio and could be deemed as having a controlling
position:
1) National Financial Service Corporation 24.14%
One World Financial Center
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
2) Wilmington Trust Company 35.80%
for account 204250
1100 Rodney Square North
Wilmington, DE 19890
3) Wilmington Brokerage Services Co. 14.32%
P.O. Box 8988
Wilmington, DE 19899
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. 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 that would cause it to
satisfy its objective. WTC is also the Custodian of the Fund's assets.
19
<PAGE>
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 advisory services provided to the Short/Intermediate Bond
Portfolio for the fiscal years ended October 31, 1998, 1997, and 1996, WTC
earned advisory fees of $213,079, $157,518 and $164,315, respectively, of which
WTC waived $126,281, $148,754 and $144,473, respectively. For advisory services
provided to the Municipal Bond Portfolio for the fiscal year ended October 31,
1998, WTC earned an advisory fee of $78,528, of which WTC waived $72,466. For
the fiscal years ended October 31, 1997 and 1996, WTC waived all of its advisory
fees for providing advisory services to the Municipal Bond Portfolio, which
amounted to $82,587 and $81,460, respectively. The Intermediate Portfolio, for
the period ended October 31, 1998, WTC earned $110,511 in advisory fees of which
WTC waived $33,746.
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
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 Inc. ("PFPC"), 400 Bellevue Parkway, Wilmington, Delaware 19809,
performs certain administrative and
20
<PAGE>
accounting services for the Fund. These services include preparing shareholder
reports, providing statistical and research data, assisting WTC in compliance
monitoring activities, and filing of 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 2, 1998, RSMC provided administrative and accounting
services for the Short/Intermediate Bond Portfolio and the Municipal Bond
Portfolio. For the period November 1, 1997 through February 1, 1998, and the
fiscal years ended October 31, 1997 and October 31, 1996, RSMC was paid
administration fees on behalf of the Short/Intermediate Bond Portfolio amounting
to $6,361, $25,203 and $26,291, respectively. For the period November 1, 1997
through February 1, 1998, and the fiscal years ended October 31, 1997 and
October 31, 1996, RSMC waived its administration fees for the Municipal Bond
Portfolio of $3,518, $13,578 and $13,428, respectively. For the fiscal year
ended October 31, 1998, RSMC fee for accounting services was $12,603 for the
Short/Intermediate Bond Portfolio and the Municipal Bond Portfolio of which
$7,494 was waived for the Municipal Bond Portfolio. For each of the fiscal years
ended October 31, 1997 and October 31, 1996, RSMC was paid an accounting
services fee of $50,000 with respect to the Short/Intermediate Bond Portfolio
and the Municipal Bond Portfolio, of which it waived $34,363 and $9,981,
respectively, for the Municipal Bond Portfolio.
PFPC began providing administrative and accounting services for the
Short/Intermediate Bond Portfolio and the Municipal Bond Portfolio on February
2, 1998 and for the Intermediate Bond Portfolio on June 29, 1998. PFPC has
received $44,015, $31,575 and $13,120 in administrative and accounting fees for
the Short/Intermediate Bond Portfolio, the Intermediate Bond Portfolio and the
Municipal Bond Portfolio, for the respective periods ended October 31, 1998.
DISTRIBUTION AGREEMENT
Provident Distributors Inc. ("PDI") serves as distributor of Portfolio
shares pursuant to a Distribution Agreement with the Fund, effective January 1,
1999. Prior to that date, Rodney Square Distributors Inc. ("RSD") served as
distributor. For the fiscal year ended October 31, 1998, RSD received
underwriting commissions of $5,335.24 and $4,176.21, 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, 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.
Pursuant to the terms of the Distribution Agreement, PDI is granted the
right to sell shares of the Portfolios as agent for the Fund.
21
<PAGE>
The Distribution Agreement provides that PDI, 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 PDI; or
(ii) by PDI on 60 days' written notice to the Fund.
ADDITIONAL SERVICE PROVIDERS
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, the 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.
CUSTODIAN AND SUB-CUSTODIAN. WTC, Rodney Square North, 1100 N. Market
St., Wilmington, DE 19890-0001, serves as the Fund's Custodian. PFPC Trust
Company, 200 Stevens Drive, Lester, Pennsylvania 19113, 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.
BROKERAGE ALLOCATION AND OTHER PRACTICES
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, 1998, 1997 and 1996, the Portfolios
paid no brokerage commissions.
22
<PAGE>
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; and (iv) the reliability, integrity, financial
condition, general execution and operational capability of the broker or dealer.
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
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, 1998 and 1997 was 40.66% and 83.54%, respectively. The portfolio
turnover rate for the Municipal Bond Portfolio for the fiscal years ended
October 31, 1998 and 1997 was 43.72% and 28.56%, respectively. The portfolio
turnover rate for the Intermediate Bond Portfolio for a one-year period after
the commencement of its operations on June 29, 1998 is expected to be less than
100%. For the period June 29, 1998 to October 31, 1998, the portfolio turnover
rate for the Intermediate Bond Portfolio was 17.66%.
23
<PAGE>
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASE OF SHARES. Information regarding the pricing of shares is
discussed in the "Purchase of Shares" section of the Prospectus. Please see the
Prospectus for further information.
REDEMPTION OF SHARES. 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.
A shareholder's right to redeem shares and to receive payment therefore
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 a Portfolio's net assets, or (d) ordered by a
governmental body having jurisdiction over the Fund for the protection of the
Fund's shareholders, provided that applicable rules and regulations of the SEC
(or any succeeding governmental authority) shall govern as to whether a
condition described in (b), (c) or (d) exists. In case of such suspension,
shareholders 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.
PRICING OF SHARES. 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").
24
<PAGE>
Except as otherwise provided below, debt securities are 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 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. 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.
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.
TAXATION OF THE FUND
GENERAL. Each Portfolio is treated as a separate corporation for
federal income tax purposes. To continue 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% 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
25
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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 (other than an exempt-interest
dividend) or capital gain distribution, 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.
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.
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<PAGE>
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 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. 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.
27
<PAGE>
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
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 will not apply,
however, to any transaction during any taxable year that otherwise would be
treated as a constructive sale if the transaction is closed within 30 days after
the end of that year and a Portfolio holds the appreciated financial position
unhedged for 60 days after that closing (i.e., at no time during that 60-day
period is the Portfolio's risk of loss regarding that position reduced by reason
of certain specified transactions with respect to substantially similar or
related property, such as having any option to sell, being contractually
obligated to sell, making a short sale, or granting an option to buy
substantially identical stock or securities).
The foregoing 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.
CACULATION OF PERFORMANCE DATA
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 Bond 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:
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<PAGE>
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
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, 1998 was 5.13%. Without fee waivers by WTC during the
period, the yield for that Portfolio would have been 4.87%. The Intermediate
Bond Portfolio's yield for the 30-day period ended October 31, 1998 was 5.33%.
Without fee waivers by WTC during the period, the yield for that Portfolio would
have been 5.18%. The Municipal Bond Portfolio's yield for the 30-day period
ended October 31, 1998 was 4.21%. Without fee waivers by WTC and RSMC during the
period, the yield for that Portfolio would have been 3.98%.
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.
29
<PAGE>
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:
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%
-- -- -- -- -- -- ---
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
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 Portfolios' standardized average
annual total returns for the periods stated below:
30
<PAGE>
AVERAGE ANNUAL TOTAL RETURN FOR SHORT/INTERMEDIATE BOND PORTFOLIO
April 2, 1991
(Commencement of
One-Year ended Five-Years ended Operations) through
October 31, 1998 October 31, 1998 October 31, 1998
---------------- ------------------- -------------------
8.40% 6.04% 7.34%
TOTAL RETURN FOR INTERMEDIATE BOND PORTFOLIO
June 29, 1998
(Commencement of
Operations) through
October 31, 1998
-------------------
3.89%
AVERAGE ANNUAL TOTAL RETURN FOR MUNICIPAL BOND PORTFOLIO
November 1, 1993
(Commencement of
One-Year ended Operations) through
October 31, 1998 October 31, 1998
------------------- -------------------
6.07% 5.15%
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,
1998, the five-year period ended October 31, 1998 and for the period from April
2, 1991 (commencement of operations) through October 31, 1998 was 8.40%, 34.10%
and 71.19%, respectively. The Municipal Bond Portfolio's cumulative total
returns for the one-year period ended October 31, 1998 and for the period from
November 1, 1993 (commencement of operations) through October 31, 1998 was 6.07%
and 28.55%, 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.
31
<PAGE>
The following tables show the income and capital elements of each
Portfolio's total return and compare 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 a Portfolio today.
During the period from April 2, 1991 (Commencement of Operations)
through October 31, 1998, a hypothetical $10,000 investment in the
Short/Intermediate Bond Portfolio would have been worth $17,119 assuming all
distributions were reinvested. During the period June 29, 1998 (Commencement of
Operations) through October 31, 1998 a hypothetical $10,000 investment in the
Intermediate Bond Portfolio would have been worth $10,389, assuming all
distributions were reinvested. During the period November 1, 1993 (Commencement
of Operations) through October 31, 1998, a hypothetical $10,000 investment in
Municipal Bond Portfolio would have been worth $12,855, assuming all
distributions were reinvested.
CHANGE IN $10,000 HYPOTHETICAL INVESTMENT
SHORT/INTERMEDIATE 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>
1998 $10,704 $6,253 $162 $17,119 21.7%
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 $16,218. 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 $4,741 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.
INTERMEDIATE 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>
1998 $10,199 $199 $0 $10,389 0.00%
</TABLE>
Explanatory Note: A hypothetical initial investment of $10,000 on June
29, 1998, 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 $10,199. If dividends and capital
gain distributions had not been reinvested, the total value of the investment in
the Portfolio over time
32
<PAGE>
would have been smaller, and cash payments for the period would have amounted to
$198. Without fee waivers from the Portfolio's service providers, 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>
1998 $10,352 $2,503 $0 $12,855 12.9%
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 $12,404. 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 $2,154. 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.
SHORT/INTERMEDIATE BOND PORTFOLIO
ASSET BREAKDOWN BY SECTOR
As of October 31, 1998
SECTOR
- ------
U.S. Treasury Obligations 25.6%
U.S. Government Obligations 9.7%
Corporate Bonds 40.4%
Asset-Backed Securities 19.1%
Mortgage-Backed Securities 3.8%
Cash Equivalents 1.4%
------
100.0%
PIE CHART
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SECTOR
- ------
U.S. Treasury Obligations 26%
U.S. Government Obligations 10%
Corporate Bonds 40%
Asset-Backed Securities 19%
Mortgage-Backed Securities 4%
Cash Equivalents 1%
33
<PAGE>
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
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 that 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.
35
<PAGE>
FORBES, a national business publication that from time to time reports
the performance of specific investment companies in the mutual fund
industry.
FORTUNE, a national business publication that periodically rates the
performance of a variety of mutual funds.
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 that
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.
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FINANCIAL STATEMENTS
Each Portfolio's financial statements for the fiscal year ended October
31, 1998, including notes thereto and the report of Ernst & Young LLP thereon,
are incorporated herein by reference to the Fund's Annual Report to
Shareholders.
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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. 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 whom 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
and rewards, is
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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
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terms 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 is 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 that 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
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
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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 Portfolio will not know in advance the difference, if
any, between the closing value of the index on the exercise date and
the
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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 that 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 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
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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 that 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 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
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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. 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:
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(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 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
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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.
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
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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
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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THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Articles of Incorporation.
(i) 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.)
(ii) 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.)
(iii) Amendment to Declaration of Trust dated June 15, 1998.
(Incorporated by reference to Exhibit 1(c) to Post-Effective
Amendment No. 19 to this Registration Statement filed on June 26,
1998.)
(b) Bylaws.
(i) Bylaws of the Registrant as amended and restated on August 17,
1998 (filed herewith).
(c) Instruments Defining the Rights of Security Holders.
(i) 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) to Post-Effective Amendment No. 19
to this Registration Statement filed on June 26, 1998.)
(ii) Bylaws of the Registrant as amended and restated on August 17,
1998 (filed herewith as Exhibit 23(b)(i)).
(d) Investment Advisory Agreements.
(i) 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. (Incorporated by reference to Exhibit 5(c) to
Post-Effective Amendment No. 19 to this Registration Statement
filed on June 26, 1998.)
(e) Underwriting Contracts.
(i) Form of Distribution Agreement between the Registrant and
Provident Distributors Inc. (filed herewith).
(f) Bonus, Profit Sharing or Pension Plans. None.
(g) Custodian Agreements.
<PAGE>
(i) 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.)
(ii) 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.)
(iii) Sub-Custodian Services Agreement dated February 2, 1998 between
PNC Bank, National Association, Wilmington Trust Company and the
Registrant. (Incorporated by reference to Exhibit 8(c) to
Post-Effective Amendment No. 19 to this Registration Statement
filed on June 26, 1998.)
(iv) Sub-Custodian Services Agreement dated July 1, 1998 between PNC
Bank, National Association, Wilmington Trust Company and the
Registrant (filed herewith).
(h) Other Material Contracts.
(i) Amended Transfer Agency Services Agreement between the Registrant
and Wilmington Trust Company (filed herewith)
(ii) Administration and Accounting Services Agreement dated February
2, 1998 between the Registrant and PFPC Inc. (Incorporated by
reference to Exhibit 9(b) to Post-Effective Amendment No. 19 to
this Registration Statement filed on June 26, 1998.)
(1) Fee Agreement between the Registrant and PFPC Inc.
(Incorporated by reference to Exhibit 9(b)(i) to
Post-Effective Amendment No. 19 to this Registration
Statement filed on June 26, 1998.)
(iii) 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.)
(i) Legal Opinion.
(i) 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.)
(ii) 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.)
(iii) Opinion and Consent of Kirkpatrick & Lockhart LLP with respect to
shares of the Intermediate Bond Portfolio. (Incorporated by
reference to Exhibit 10(c) to Post-Effective Amendment No. 19 to
this Registration Statement filed on June 26, 1998).
(j) Other Opinions.
(i) Consent of Ernst & Young LLP, independent auditors for Registrant
(filed herewith).
<PAGE>
(k) Omitted Financial Statements. Financial Statements omitted from Item 22.
None.
(l) 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.)
(m) Rule 12b-1 Plan. None.
(n) Financial Data Schedule.
(i) Financial Data Schedule for the Short/Intermediate Bond Portfolio
(filed herewith).
(ii) Financial Data Schedule for the Intermediate Bond Portfolio
(filed herewith).
(iii) Financial Data Schedule for the Municipal Bond Portfolio (filed
herewith).
(o) Rule 18f-3 Plan. None.
ITEM 24. 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:
MUTUAL FUNDS
The Rodney Square Fund
The Rodney Square Tax-Exempt Fund
The Rodney Square Strategic Equity Fund
% HELD
BY WT CORP.
CORPORATE ENTITY STATE OF ORG. OR WTC
- ---------------- ------------- -----------
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%
<PAGE>
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%
PARTNERSHIPS
- ------------
Rodney Square Investors, L.P.
<PAGE>
ITEM 25. 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
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 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 Agreement 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 the Advisory Agreement
provides that no provision of the 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 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.
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
<PAGE>
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.
ITEM 26. 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:
<PAGE>
BUSINESS OR OTHER CONNECTIONS OF
PRINCIPAL EXECUTIVE OFFICERS AND
NAME OFFICERS AND DIRECTORS OF REGISTRANTS ADVISER
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. duPont 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
Thomas P. Sweeney, Esq. Attorney, Partner, Richards, Layton & Finger
(law firm)
<PAGE>
BUSINESS OR OTHER CONNECTIONS OF
PRINCIPAL EXECUTIVE OFFICERS AND
NAME OFFICERS AND DIRECTORS OF REGISTRANTS ADVISER
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
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The Rodney Square Fund
The Rodney Square Tax-Exempt Fund
The Rodney Square Strategic Equity Fund
(b)
(1) (2) (3)
POSITIONS AND OFFICES
NAME AND PRINCIPAL WITH RODNEY SQUARE POSITIONS AND OFFICES
BUSINESS ADDRESS DISTRIBUTORS, INC. WITH REGISTRANT
- ------------------ --------------------- ---------------------
James S. Gandolfo President, Secretary, None
1105 North Market Street Treasurer & Director
Wilmington, DE 19801
(c) None.
ITEM 28. 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 PFPC Trust, 200 Stevens Drive, Lester, PA 19113.
ITEM 29. MANAGEMENT SERVICES.
Inapplicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Wilmington, and State of Delaware, on the 29th day of December, 1998.
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
By: /s/ Robert J. Christian
______________________________
Robert J. Christian, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Robert J. Christian President & December 29, 1998
______________________________ Trustee
Robert J. Christian
/s/ Eric Brucker Trustee December 29, 1998
______________________________
Eric Brucker*
/s/ Fred L. Buckner Trustee December 29, 1998
______________________________
Fred L. Buckner*
/s/ John J. Quindlen Trustee December 29, 1998
______________________________
John J. Quindlen*
/s/ John J. Kelley Treasurer (Principal December 29, 1998
______________________________ Financial and
John J. Kelley 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>
EXHIBIT INDEX
The Rodney Square Strategic Fixed Income Fund
23 (b) (i) Amended and Restated Bylaws
23 (e) (i) Form of Distribution Agreement between Registrant and Provident
Distributors, Inc.
23 (g) (iv) Sub-Custodian Services Agreement
23 (h) (i) Transfer Agency Services Agreement
23 (j) (i) Consent of Ernst & Young, LLP
27 Financial Data Schedules
Exhibit 23 (b)(i)
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
A Massachusetts Business Trust
AMENDED AND RESTATED BYLAWS
AUGUST 17, 1998
<PAGE>
AMENDED AND RESTATED BYLAWS
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
ARTICLE I
Declaration Trust and Location of Offices
SECTION 1. DECLARATION OF TRUST. These Bylaws shall be subject to the
Declaration of Trust, as from time to time in effect (the "Declaration of
Trust"), of The Rodney Square Strategic Fixed-Income Fund, the Massachusetts
business trust established by the Declaration of Trust (the "Trust").
SECTION 2. PRINCIPAL OFFICE OF THE TRUST AND RESIDENT AGENT. The
principal office of the Trust shall be located in Wilmington, Delaware. Its
resident agent in Massachusetts shall be CT Corporation System, 2 Oliver Street,
Boston, Massachusetts, or such other person as the Trustees may from time to
time designate. The Trust may establish and maintain such other offices and
places of business as the Trustees may, from time to time, determine.
ARTICLE II
Powers and Duties of Trustees
SECTION 1. TRUSTEES. The business and affairs of the Trust shall be
managed by the Trustees, and they shall have all powers necessary and desirable
to carry out the responsibility, so far as such powers are not inconsistent with
the laws of the Commonwealth of Massachusetts, the Declaration of Trust, or with
these Bylaws.
SECTION 2. EXECUTIVE AND OTHER COMMITTEES. The Trustees, by vote of a
majority of the Trustees then in office, may elect from their own number an
executive committee or other committees to consist of not less than three nor
more than five members, and may delegate thereto some or all of their powers
except those which by law, by the Declaration of Trust, or by these Bylaws may
not be delegated. Except as the Trustees may otherwise determine, any such
committee may make rules for the conduct of its business, but unless otherwise
provided by the Trustees or in such rules, its business shall be conducted so
far as possible in the same manner as is provided by these Bylaws for the
Trustees themselves. All members of such committees shall hold such offices at
the pleasure of the Trustees. The Trustees may abolish any such committee at any
time. Any committee to which the Trustees delegate any of their powers or duties
shall keep records of its meetings and shall report its actions to the Trustees.
The Trustees shall have power to rescind any action of any committee, but no
such rescission shall have retroactive effect. Any such committee may act by
meeting in person, by unanimous written consent, or by telephonic meeting
provided a quorum of members participates in any such telephonic meeting.
SECTION 3. OTHER COMMITTEES. The Trustees may appoint other committees,
each consisting of one or more persons, who need not be Trustees. Each such
committee shall have such powers perform such duties and abide by such
procedures as may be determined from time to time
<PAGE>
by the Trustees, but shall not exercise any power which may lawfully be
exercised only by the Trustees or a committee of Trustees.
SECTION 4. COMPENSATION. Each Trustee and each committee member may
receive such compensation for his services and reimbursement for his expenses as
may be fixed from time to time by resolution of the Trustees.
ARTICLE III
Trustees' Meetings
SECTION 1. REGULAR MEETINGS. Regular meetings of the Trustees may be
held without call or notice at such places and at such times as the Trustees may
from time to time determine, provided that any Trustee who is absent when such
determination is made shall be given notice of the determination.
SECTION 2. SPECIAL MEETINGS. Special meetings of the Trustees shall be
called by the Secretary at the written request of the President, the Treasurer,
or any two Trustees, and if the Secretary when so requested refuses or fails for
more than twenty-four hours to call such meeting, the President, the Treasurer,
or such two Trustees, may in the name of the Secretary call such meeting by
giving due notice in the manner required when notice is given by the Secretary.
SECTION 3. NOTICES. Except as otherwise provided, notice of any special
meeting of the Trustees shall be given by the Secretary to each Trustee, by
mailing to him, postage prepaid, addressed to him at his address as registered
on the books of the Trust or, if not so registered, at his last known address, a
written or printed notification of such meeting at least three days before the
meeting or by delivering such notice to him at least two days before the
meeting, or by sending to him at least 24 hours before the meeting, by prepaid
telegram, addressed to him at his said registered address, if any, or if he has
no such registered address, at his last known address, notice of such meeting.
SECTION 4. PLACE OF MEETING. All special meetings of the Trustees shall
be held in Wilmington, Delaware, or such other place in the United States as the
person or persons requesting said meeting to be called may designate, but any
meeting may adjourn to any other place.
SECTION 5. SPECIAL ACTION. When all the Trustees shall be present in
person or by telephone at any meeting, however called, or wherever held, or
shall assent to the holding of the meeting without notice, or after the meeting
shall sign a written assent thereto on the record of such meeting, the acts of
such meeting shall be valid as if such meeting had been regularly held.
SECTION 6. ACTION BY CONSENT. Any action by the Trustees may be taken
without a meeting, if a written consent thereto is signed by all the Trustees
and filed with the records of the Trustees meetings, or by telephone consent
provided a quorum of Trustees participates in any such telephone meeting. Such
consent shall be treated as a vote of the Trustees for all purposes.
2
<PAGE>
ARTICLE IV
Officers
SECTION 1. OFFICERS. The officers of the Trust shall be a President, a
Treasurer, a Secretary, and such other officers as the Trustees may from time to
time elect. Two or more offices may be held by a single person. Any officer may
be, but need not be, a Trustee. It shall not be necessary for any Trustee or
other officer to be a holder of shares in the Trust. The Trust may also have
such agents, if any, as the Trustees from time to time may in their discretion
appoint.
SECTION 2. ELECTION OF OFFICERS. The President, the Treasurer and the
Secretary shall be elected annually by the Trustees at their last regular
meeting in each year or at such other meeting in such year as the Trustees shall
determine ("Annual Meeting"). Other officers or agents, if any, may be elected
or appointed by the Trustees at said meeting or at any other time. The
President, Treasurer and Secretary shall hold office until the next Annual
Meeting and until their respective successors are chosen and qualified, or in
each case until he dies, resigns, is removed or become disqualified. Each other
officer shall hold office and each agent shall retain his authority at the
pleasure of the Trustees.
SECTION 3. POWERS. Subject to the other provisions of these Bylaws,
each officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to his office as if the Trust were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees may from time to
time designate.
SECTION 4. CHAIRMAN OF THE BOARD OF TRUSTEES. The Trustees may, but
need not appoint from their number a Chairman. He shall perform any such duties
as the Trustees may from time to time designate.
SECTION 5. PRESIDENT. The President shall be the chief executive
officer of the Trust and, subject to the Trustees, shall have general
supervision over the business, affairs and property of the Trust and general
supervision over its officers, employees and agents. When present, he shall
preside at all meetings of the shareholders and the Trustees, and shall exercise
such other powers and perform such other duties as from time to time may be
assigned to him by the Trustees.
SECTION 6. TREASURER. The Treasurer shall be the principal financial
and accounting officer of the Trust and shall have general charge of the
finances and books of account of the Trust. Except as otherwise provided by the
Trustees, he shall have general supervision of the funds and property of the
Trust and of the performance by the custodian of its duties with respect
thereto. He shall render to the Trustees, whenever directed by the Trustees, an
account of the financial condition of the Trust; and as soon as possible after
the close of each financial year he shall make and submit to the Trustees a like
report for such financial year. The Treasurer shall perform such other duties as
appertain to his office or as may be required by the Trustees.
3
<PAGE>
SECTION 7. SECRETARY. The Secretary shall attend to the giving and
serving of all notices of the Trust and shall record all proceedings of the
meetings of the Shareholders and Trustees in books to be kept for that purpose.
He shall keep in safe custody the seal of the Trust, and shall have charge of
the records of the Trust, all of which shall at all reasonable times be open to
inspection by the Trustees. The Secretary shall perform such other duties as
appertain to his office or as may be required by the Trustees.
SECTION 8. VICE PRESIDENT. Each Vice President of the Trust shall
perform such duties as the Trustees or the President may from time to time
designate. At the request or in the absence or disability of the President, the
Vice President (or, if there are two or more Vice Presidents, then the senior of
the Vice Presidents present and able to act) may perform all the duties of the
President and, when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
SECTION 9. ASSISTANT TREASURER. The Assistant Treasurer of the Trust
shall perform such duties as the Treasurer or the Trustees may from time to time
designate, and, in the absence of the Treasurer, (or, if there are two or more
Assistant Treasurers, then the senior of the Assistant Treasurers present and
able to act) may perform all the duties of the Treasurer, subject to the control
of the Trustees.
SECTION 10. ASSISTANT SECRETARY. Assistant Secretary of the Trust shall
perform such duties as the Secretary or the Trustees may from time to time
designate, and, in the absence of the Secretary, (or, if there are two or more
Assistant Secretaries, then the senior of the Assistant Secretaries present and
able to act) may perform all the duties of the Secretary.
SECTION 11. SUBORDINATE OFFICERS. The Trustees from time to time may
appoint such other officers or agents as they may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and
perform such duties as the Trustees may determine. The Trustees from time to
time may delegate to one or more officers or agents the power to appoint any
such subordinate officers or agents and to prescribe their respective rights,
terms of office, authorities and duties.
SECTION 12. RESIGNATIONS AND REMOVALS. Any officer of the Trust may
resign by filing a written resignation with the President, the Trustees, or the
Secretary, which shall take effect at such time as may be therein specified. The
Trustees may at any meeting remove any officer by a majority vote. In addition,
any officer or agent appointed in accordance with the provision of Section 11
hereof may be removed, either with or without cause, by any officer upon whom
such power of removal shall have been conferred by the Trustees.
SECTION 13. VACANCIES AND NEWLY CREATED OFFICES. If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Trustees at any regular or special meeting
of the Trustees or, in the case of any office created pursuant to Section 11
hereof, by any officer upon whom such power shall have been conferred by the
Trustees.
4
<PAGE>
ARTICLE V
Insurance
The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer or employee of the Trust, or is or was serving
at the request of the Trust as a Trustee, officer or employee of a corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the Trust would have the power to indemnify
him against such liability.
The Trust may not acquire or obtain a contract for insurance that
protects or purports to protect any Trustee or officer of the Trust against any
liability to the Trust or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
ARTICLE VI
Shares of Beneficial Interest
SECTION 1. TRANSFER OF SHARES. The shares of the Trust shall be
transferable, so as to affect the rights of the Trust, only by transfer recorded
on the books of the Trust, in person or by attorney.
SECTION 2. EQUITABLE INTEREST NOT RECOGNIZED. The Trust shall be
entitled to treat the holder of record of any share or shares of beneficial
interest as the holder of fact thereof, and shall not be bound to recognize any
equitable or other claim of interest in such share or shares on the part of any
other person except as may be otherwise expressly provided by law.
ARTICLE VII
Shareholders' Meetings
SECTION 1. CALLING OF MEETINGS. Meetings of the shareholders shall be
called by the Secretary whenever ordered by the Trustees or requested in writing
by the holder or holders of at least one-tenth of the outstanding shares
entitled to vote. If the Secretary, when so ordered or requested, refuses or
neglects for more than thirty days to call such special meeting, the Trustees or
the shareholders so requesting may, in the name of the Secretary, call the
meeting by giving notice thereof in the manner required when notice is given by
the Secretary.
SECTION 2. NOTICES. Except as above provided, notices of any special
meeting of the shareholders shall be given by the Secretary by delivering or
mailing, postage prepaid, to each shareholder entitled to vote at said meeting,
a written or printed notification of such meeting, at least fifteen days before
the meeting, to such address as may be registered with the Trust by the
shareholder, provided, however, that notice of a meeting need not be given to a
shareholder to whom such notice need not be given under the proxy rules of the
Commission under the 1940 Act and the Securities Exchange Act of 1934, each as
amended. Each such notice shall state the place, date, hour and purposes of the
meeting. Notice of any meeting of shareholders need not be
5
<PAGE>
given to any shareholder if a written waiver of notice, executed before or after
such meeting, is filed with the records of such meeting, or to any shareholder
who shall attend such meeting in person or by proxy. Notice of adjournment of a
shareholders' meeting to another time or place need not be given, if such time
and place are announced at the meeting.
SECTION 3. PLACE OF MEETING. All meetings of the shareholders shall be
held in Wilmington, Delaware, or at such other place in the United States as the
Trustees may designate.
SECTION 4. BALLOTS. The vote upon any question shall be by ballot
whenever requested by any person entitled to vote, but, unless such a request is
made, voting may be conducted in any way approved by the meeting.
SECTION 5. VOTING; PROXIES. Shareholders entitled to vote may vote
either in person or by proxy, provided that such proxy to act is authorized to
act by (1) a written instrument, dated not more than eleven months before the
meeting and executed either by the shareholder or by his or her duly authorized
attorney in fact (who may be so authorized by a writing or by any non-written
means permitted by the laws of the Commonwealth of Massachusetts) or (2) such
electronic, telephonic, computerized or other alternative means as may be
approved by a resolution adopted by the Trustees. Proxies shall be delivered to
the secretary of the Trust or other person responsible for recording the
proceedings before being voted. A proxy with respect to shares held in the name
of two or more persons shall be valid if executed by one of them unless at or
prior to exercise of such proxy the Trust receives a specific written notice to
the contrary from any one of them. Unless otherwise specifically limited by
their terms, proxies shall entitle the holder thereof to vote at any adjournment
of a meeting. A proxy purporting to be exercised by or on behalf of a
shareholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger. At all
meetings of the shareholders, unless the voting is conducted by inspectors, all
questions relating to the qualifications of voters, the validity of proxies, and
the acceptance or rejection of votes shall be decided by the chairman of the
meeting.
SECTION 6. ACTION WITHOUT A MEETING. Any action to be taken by
shareholders may be taken without a meeting if all shareholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of meetings of shareholders of the Trust. Such consent
shall be treated for all purposes as a vote at a meeting.
ARTICLE VIII
Inspection of Books
The Trustees shall from time to time determine whether and to what
extent, and at what times and places, and under what conditions and regulations
the accounts and books of the Trust or any of them shall be open to the
inspection of the shareholders; and no shareholder shall have any right to
inspect any account or book or document of the Trust except as conferred by law
or otherwise by the Trustees.
6
<PAGE>
ARTICLE IX
Custodian
SECTION 1. The Trustees shall at all times employ a bank or trust
company having capital, surplus and undivided profits of at least two million
dollars ($2,000,000) as Custodian with authority as its agent, but subject to
such restrictions, limitations and other requirements, if any, as may be
contained in the Bylaws of the Trust:
(1) To hold the securities owned by the Trust and deliver the same upon
written order; or oral order if confirmed in writing, or order delivered by such
electromechanical or electronic devices as are agreed to by the Trust and the
Custodian, if such procedures have been authorized in writing by the Trust;
(2) To receive and receipt for any monies due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may direct;
and
(3) To disburse such monies upon orders or vouchers; and the Trust may
also employ such Custodian as its agent:
(1) To keep the books and accounts of the Trust and furnish clerical
and accounting services; and
(2) To compute, if authorized to do so by the Trustees, the Net Asset
Value of any Series in accordance with the provisions hereof;
all upon such basis of compensation as may be agreed upon between the Trustees
and the Custodian. If so directed by a vote of a majority of the outstanding
voting securities of the Trust, as defined in the 1940 Act, the Custodian shall
deliver and pay over all property of the Trust held by it as specified in such
vote.
The Trustees may also authorize the Custodian to employ one or more
Sub-Custodians from time to time to perform such of the acts and services of the
Custodian, and upon such terms and conditions, as may be agreed upon between the
Custodian and such Sub-Custodian and approved by the Trustees, provided that in
every case such Sub-Custodian shall be a bank or trust company organized under
the laws of the United States or one of the states thereof and having capital,
surplus and undivided profits of at least two million dollars ($2,000,000) or
such other person as may be permitted by the Commission, or otherwise in
accordance with the 1940 Act as amended from time to time.
SECTION 2. Subject to such rules, regulations and orders as the
Commission may adopt, the Trustees may direct the Custodian to deposit all or
any part of the securities owned by the Trust in a system for the central
handling of securities established by a national securities exchange or a
national securities association registered with the Commission under the
Securities Exchange Act of 1934, or such other person as may be permitted by the
Commission, or
7
<PAGE>
otherwise in accordance with the 1940 Act as amended from time to time, pursuant
to which system all securities of any particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such securities,
provided that all such deposits shall be subject to withdrawal only upon the
order of the Trust.
ARTICLE X
Seal
The seal of the Trust shall be circular in form bearing the
inscription: "Rodney Square Strategic Fixed-Income Fund."
The form of the seal shall be subject to alteration by the Trustees and
the seal may be used by causing it or a facsimile to be impressed or affixed or
printed or otherwise reproduced. Any officer or Trustee of the Trust shall have
authority to affix the seal of the Trust to any document, instrument or other
paper executed and delivered by or on behalf of the Trust; however, unless
otherwise required by the Trustees, the seal shall not be necessary to be placed
on and its absence shall not impair the validity of any document, instrument, or
other paper executed by or on behalf of the Trust.
ARTICLE XI
Execution of Papers
Except as the Trustees may generally or in particular cases authorize
the execution thereof in some other manner, all deeds, leases, transfers,
contracts, bonds, notes, checks, drafts, and other obligations made, accepted,
or endorsed by the Trust shall be executed by the president, any vice president,
or the treasurer, or by whomever else shall be designated for that purpose by
the Trustees, and need not bear the seal of the Trust.
ARTICLE XII
Fiscal year
The fiscal year of the Trust shall be the period of twelve months
ending on the 31st day of December in each calendar year.
ARTICLE XIII
Amendments
These Bylaws may be amended at any meeting of the Trustees of the Trust
by a majority vote; provided, however, that any amendment which changes or
affects the provisions of Article XIII or Article XIV shall be approved by vote
of a majority of the outstanding shares of the Trust entitled to vote.
8
<PAGE>
ARTICLE XIV
Reports to Shareholders
The Trustees shall at least semi-annually submit to the shareholders a
written financial report of the transactions of the Trust including financial
statements which shall at least annually be certified by independent public
accountants.
Exhibit 23 (e)(i)
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is made as of the 1st day of January, 1999,
between The Rodney Square Strategic Fixed-Income Fund, a Massachusetts business
trust (the "Fund"), having its principal place of business in Wilmington,
Delaware, and Provident Distributors, Inc., a corporation organized under the
laws of the State of Delaware (the " Distributor"), having its principal place
of business in West Conshohocken, Pennsylvania.
WHEREAS, the Fund wishes to employ the services of the Distributor,
with such assistance from its affiliates as the latter may provide; and
WHEREAS, the Distributor wishes to provide distribution services to the
Fund as set forth below;
NOW, THEREFORE, in consideration of the mutual promises and
undertakings herein contained, the parties agree as follows:
1. SALE OF SHARES. The Fund grants to the Distributor the right to sell
shares of beneficial interest (the "shares") of all series, and of all
classes now or hereafter created, on its behalf during the term of this
Agreement and subject to the registration requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and of the laws
governing the sale of securities in various states (the "Blue Sky
Laws") under the following terms and conditions: the Distributor (a)
shall have the right to sell, as agent on behalf of the Fund, shares
authorized for issue and registered under the 1933 Act; (b) may sell
shares under offers of exchange, if available, between and among the
funds distributed by Distributor and advised by Rodney Square
Management Corporation or Wilmington Trust Company; and (c) shall sell
such shares only in compliance with the terms set forth in the Fund's
currently effective registration statement. The Distributor may enter
into selling agreements with selected dealers and others for the sale
of Fund shares and will act only on its own behalf as principal in
entering into such selling agreements.
2. SALE OF SHARES BY THE FUND. The rights granted to the Distributor shall
be non-exclusive in that the Fund reserves the right to sell its shares
to investors on applications received and accepted by the Fund.
Further, the Fund reserves the right to issue shares in connection with
(a) the merger or consolidation, or acquisition by the Fund through
purchase or otherwise, with any other investment company, trust or
personal holding company; and (b) a PRO RATA distribution directly to
the holders of shares in the nature of a stock dividend or split-up.
3. SHARES COVERED BY THIS AGREEMENT. This Agreement shall apply to issued
shares of all series of the Fund, shares of all series of the Fund held
in its treasury in the event that, in
<PAGE>
the discretion of the Fund, treasury shares shall be sold, and shares
of all series of the Fund repurchased for resale.
4. PUBLIC OFFERING PRICE. All shares sold to investors by the Distributor
or the Fund will be sold at the public offering price. The public
offering price for all accepted subscriptions will be the net asset
value per share, determined in the manner described in the Fund's
current Prospectus or SAI with respect to the applicable series. The
Fund shall in all cases receive the net asset value per share on all
sales.
5. SUSPENSION OF SALES. If and whenever the determination of net asset
value is suspended and until such suspension is terminated, no further
orders for shares shall be processed by the Distributor except such
unconditional orders placed with the Distributor before it had
knowledge of the suspension. In addition, the Fund reserves the right
to suspend sales and the Distributor's authority to process orders for
shares on behalf of the Fund if, in the judgment of the Fund, it is in
the best interests of the Fund to do so. Suspension will continue for
such period as may be determined by the Fund. In addition, the
Distributor reserves the right to reject any purchase order.
6. SOLICITATION OF SALES. In consideration of these rights granted to the
Distributor, the Distributor agrees to use all reasonable efforts,
consistent with its other business, to secure purchasers for shares of
the Fund. This shall not prevent the Distributor from entering into
like arrangements (including arrangements involving the payment of
underwriting commissions) with other issuers. The Distributor agrees to
use all reasonable efforts to ensure that taxpayer identification
numbers provided for shareholders of the Fund are correct.
7. AUTHORIZED REPRESENTATIVE. The Distributor is not authorized by the
Fund to give any information or to make any representations other than
those contained in the appropriate registration statements,
Prospectuses or SAIs filed with the Securities and Exchange Commission
under the 1933 Act (as those registration statements, Prospectuses and
SAIs may be amended from time to time), or contained in shareholder
reports or other material that may be prepared by or on behalf of the
Fund for the Distributor's use. This shall not be construed to prevent
the Distributor from preparing and distributing, in compliance with
applicable laws and regulations, sales literature or other material as
it may deem appropriate. The Distributor shall be responsible for
filing all sales literature relating to the Fund with the National
Association of Securities Dealers, Inc. ("NASD") and any other
applicable regulatory authority. The Distributor will furnish or cause
to be furnished copies of such sales literature or other material to
the President of the Fund or his designee and will provide him with a
reasonable opportunity to comment on it. The Distributor agrees to take
appropriate action to cease using such sales literature or other
material to which the Fund reasonably objects as promptly as
practicable after receipt of the objection.
8. REGISTRATION OF SHARES. The Fund agrees that it will take all action
necessary to register shares under the 1933 Act (subject to the
necessary approval, if any, of its shareholders)
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so that there will be available for sale the number of shares the
Distributor may reasonably be expected to sell. The Fund shall furnish
to the Distributor copies of all information, financial statements and
other papers which the Distributor may reasonably request for use in
connection with the distribution of shares of each series of the Fund.
9. REPORTING. The Distributor shall provide the Fund's Board of Trustees
such information as is reasonably requested. The Distributor shall also
attend any meeting of the Fund's Board of Trustees at which the
Distributor's presence is requested.
10. FEES, EXPENSES AND ADDITIONAL SERVICES
(a) The Fund shall pay all fees and expenses:
(i) in connection with the preparation, setting in type and
filing of any registration statement, Prospectus and SAI
under the 1933 Act, and any amendments thereto, for the
issue of its shares;
(ii) inconnection with the registration and qualification of
shares for sale in the various states in which the Board of
Trustees (the "Trustees") of the Fund shall determine it
advisable to qualify such shares for sale (including
registering the Fund or any series as a broker or dealer, or
any officer of the Fund as an agent or salesperson in any
state);
(iii) of preparing, setting in type, printing and mailing any
report or other communication to shareholders of the Fund in
their capacity as such; and
(iv) of printing and mailing Prospectuses, SAIs, and any
supplements thereto, sent to existing shareholders.
(b) The Distributor may, in its sole discretion, pay such expenses as
it deems reasonable for:
(i) printing and distributing Prospectuses, SAIs and reports
prepared for its use in connection with the offering of the
shares for sale to the public;
(ii) any other literature used in connection with such offering;
and
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(iii) advertising in connection with such offering.
(c) In addition to the services described above, the Distributor will
provide services including assistance in the production of
marketing and advertising materials for the sale of shares of the
Fund and their review for compliance with applicable regulatory
requirements, entering into dealer agreements with broker-dealers
to sell shares of the Fund and monitoring their financial strength
and contractual compliance, providing, directly or through its
affiliates, certain investor support services, personal service,
and the maintenance of shareholder accounts.
11. INDEMNIFICATION.
(a) The Fund agrees to indemnify and hold harmless the Distributor and
each of its directors and officers and each person, if any, who
controls the Distributor within the meaning of Section 15 of the
1933 Act against any loss, liability, claim, damages or expense
(including the reasonable cost of investigating or defending any
alleged loss, liability, claim, damages, or expense and reasonable
counsel fees incurred in connection therewith) 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 Fund
or any of its employees or representatives, or based upon the
grounds that the registration statements, Prospectuses, SAIs,
shareholder reports or other information filed or made public by
the Fund (as from time to time amended) 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. However, the Fund does not agree to indemnify the
Distributor or hold it harmless to the extent that the statement or
omission was made in reliance upon, and in conformity with,
information furnished to the Fund in writing by or on behalf of the
Distributor. In no case (i) is the indemnity of the Fund in favor
of the Distributor or any person indemnified to be deemed to
protect the Distributor or any person against any liability to the
Fund or its security holders to which the Distributor 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, or (ii) is the Fund to be liable under its
indemnity agreement contained in this Section 10(a) with respect to
any claim made against the Distributor or any person indemnified
unless the Distributor or person, as the case may be, shall have
notified the Fund in writing of the claim within a reasonable time
after the summons or other first written notification giving
information of the nature of the claim shall have been served upon
the Distributor or any such person or after the Distributor or such
person shall have received notice of service on any designated
agent. However, failure to notify the Fund of any claim shall not
relieve the Fund from any liability which it may have to the
Distributor or any person against whom such action is brought other
than on account of its indemnity agreement contained in this
Section 10(a). The Fund shall be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense
of any suit
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brought to enforce any claims, but if the Fund elects to assume the
defense, the defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor, or person or persons, defendant or
defendants in the suit. In the event the Fund elects to assume the
defense of any suit and retain counsel, the Distributor, officers
or directors or controlling person(s) or defendant(s) in the suit,
shall bear the fees and expenses of any additional counsel retained
by them. If the Fund does not elect to assume the defense of any
suit, it will reimburse the Distributor, officers or directors or
controlling person(s) or defendant(s) in the suit, for the
reasonable fees and expenses of any counsel retained by them. The
Fund agrees to notify the Distributor promptly of the commencement
of any litigation or proceedings against it or any of its officers
or Trustees in connection with the issuance or sale of any of the
shares.
(b) The Distributor also covenants and agrees that it will indemnify
and hold harmless the Fund and each of the members of its Trustees
and officers and each person, if any, who controls the Fund within
the meaning of Section 15 of the 1933 Act, against any loss,
liability, damages, claim or expense (including the reasonable cost
of investigating or defending any alleged loss, liability, damages,
claim or expense and reasonable counsel fees incurred in connection
therewith) 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 Distributor or any of its
employees or representatives, or alleging that the registration
statements, Prospectuses, SAIs, shareholder reports or other
information filed or made public by the Fund (as from time to time
amended) 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, insofar as the
statement or omission was made in reliance upon, and in conformity
with, information furnished in writing to the Fund by or on behalf
of the Distributor. In no case (i) is the indemnity of the
Distributor in favor of the Fund or any person indemnified to be
deemed to protect the Fund or any person against any liability to
which the Fund 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, or (ii) is the
Distributor to be liable under its indemnity agreement contained in
this Section 10(b) with respect to any claim made against the Fund
or any person indemnified unless the Fund or person, as the case
may be, shall have notified the Distributor in writing of the claim
within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall
have been served upon the Fund or any such person or after the Fund
or such person shall have received notice of service on any
designated agent. However, failure to notify the Distributor of any
claim shall not relieve the Distributor from any liability which it
may have to the Fund or any person against whom the action is
brought other than on account of its indemnity agreement contained
in this Section 10(b). In the case of any notice to the
Distributor, it shall be entitled to participate, at its own
expense, in the defense, or, if it so elects, to assume the
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<PAGE>
defense of any suit brought to enforce any claims, but if the
Distributor elects to assume the defense, the defense shall be
conducted by counsel chosen by it and satisfactory to the Fund, to
its officers and Trustees and to any controlling person(s) or any
defendants(s) in the suit. In the event the Distributor elects to
assume the defense of any suit and retain counsel, the Fund or
controlling person(s) or defendant(s) in the suit, shall bear the
fees and expenses of any additional counsel retained by them. If
the Distributor does not elect to assume the defense of any suit,
it will reimburse the Fund, its officers or Trustees, controlling
person(s) or defendant(s) in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Distributor agrees to
notify the Fund promptly of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any
of the shares.
12. STATUS OF THE DISTRIBUTOR. The Distributor is a member in good standing
of the NASD and a properly registered broker-dealer under the
Securities Exchange Act of 1934, as amended. In carrying out this
Agreement, the Distributor agrees to abide by the rules and regulations
of the NASD and all applicable federal and state laws.
13. EFFECTIVENESS, TERMINATION, ETC. This Agreement shall become effective
on the date first written above, and unless terminated as provided,
shall continue in force for one (1) year from the date of its execution
and thereafter from year to year, provided continuance after the one
(1) year period is approved at least annually by either (a) the vote of
a majority of the Trustees of the Fund, or by the vote of a majority of
the outstanding voting securities of the Fund, and (b) the vote of a
majority of those Trustees of the Fund who are not interested persons
of the Fund, cast in person at a meeting called for the purpose of
voting on the approval. This Agreement shall automatically terminate in
the event of its assignment. As used in this Section 11, the terms
"vote of a majority of the outstanding voting securities," "assignment"
and "interested person" shall have the respective meanings specified in
the 1940 Act and the rules enacted thereunder as now in effect or as
hereafter amended. In addition to termination by failure to approve
continuance or by assignment, this Agreement may at any time be
terminated without the payment of any penalty by vote of the Board of
Trustees of the Fund or by vote of a majority of the outstanding voting
securities of the Fund, on not more than sixty (60) days' written
notice to the Fund. This Agreement may be terminated by the Distributor
upon not less than sixty (60) days' prior written notice to the Fund.
14. NOTICE. Any notice under this Agreement shall be given in writing
addressed and hand delivered or sent by registered or certified mail,
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.
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16. 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.
17. SHAREHOLDER LIABILITY. The Distributor 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. The Distributor 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.
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<PAGE>
18. MISCELLANEOUS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the
purposes hereof. 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.
This Agreement may be executed in two counterparts, each of which,
taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THE RODNEY SQUARE STRATEGIC FIXED-INCOME FUND
By:___________________________________________________
Name:_________________________________________________
Title:________________________________________________
PROVIDENT DISTRIBUTORS, INC.
By:___________________________________________________
Name:_________________________________________________
Title:________________________________________________
Exhibit 23 (g)(iv)
AMENDED SUB-CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of July 1, 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
<PAGE>
and made a part hereof or any amendment thereto as may be received by PNC Bank.
An Authorized Person's scope 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
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received by PNC Bank from time to time, from or on
behalf of the Fund.
(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
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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.
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
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Agreement.
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
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<PAGE>
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.
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
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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 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, the Fund, on behalf of 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 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,
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<PAGE>
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 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
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<PAGE>
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
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.
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<PAGE>
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
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
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<PAGE>
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 paymentof money received as custodian for the Accounts.
(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
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<PAGE>
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, 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
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<PAGE>
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;
(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.
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<PAGE>
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.
(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.
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<PAGE>
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 investment adviser for the Portfolio or such other party as may
be identified for such purpose in
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<PAGE>
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
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<PAGE>
custom;
(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:
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<PAGE>
(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
(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
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<PAGE>
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;
(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:
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(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 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
20
<PAGE>
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 PNC 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
PNC Bank for cause.
With respect to the Fund, cause shall mean PNC Bank'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, PNC Bank must receive written notice from the Fund specifying the
material breach and PNC Bank 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 PNC Bank, 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 PNC
21
<PAGE>
Bank 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
PNC Bank.
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 PNC Bank 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
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
22
<PAGE>
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
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.
23
<PAGE>
(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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<PAGE>
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:____________________________
Title:_________________________
WILMINGTON TRUST COMPANY
By:____________________________
Title:_________________________
THE RODNEY SQUARE STRATEGIC FIXED INCOME FUND
By:____________________________
Title:_________________________
25
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
________________________ ________________________
________________________ ________________________
________________________ ________________________
________________________ ________________________
________________________ ________________________
________________________ ________________________
26
Exhibit 23 (h)(i)
AMENDED TRANSFER AGENCY SERVICES AGREEMENT
THIS AGREEMENT is made as of July 1, 1998 between PFPC INC., a Delaware
corporation ("PFPC") 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.
(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
<PAGE>
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
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;
2
<PAGE>
(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.
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
3
<PAGE>
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.
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
4
<PAGE>
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 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
5
<PAGE>
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.
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, the Fund will pay to PFPC a fee or fees as
may be agreed to from time to time
6
<PAGE>
in writing by the Fund 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
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
7
<PAGE>
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.
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
8
<PAGE>
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 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.
9
<PAGE>
(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
con-junction with proxy solicitations;
(vii) Countersign share certificates;
(viii) Prepare and mail to shareholders confirmation
of activity;
(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.
10
<PAGE>
(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).
(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:
11
<PAGE>
(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.
(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:
12
<PAGE>
- 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.
(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
13
<PAGE>
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;
(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.
14
<PAGE>
(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 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 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
15
<PAGE>
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.
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
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 unreasonably withheld.
16
<PAGE>
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.
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
17
<PAGE>
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 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.
18
<PAGE>
(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.
19
<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:____________________________
Title:_________________________
THE RODNEY SQUARE STRATEGIC FIXED INCOME FUND
By:____________________________
Title:_________________________
20
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of ______, 1998, is Exhibit A to that certain
Amended Transfer Agency Services Agreement dated as of February 2, 1998 between
PFPC Inc. and The Rodney Square Strategic Fixed Income Fund.
PORTFOLIOS
The Rodney Square Short/Intermediate Bond Portfolio
The Rodney Square Municipal Bond Portfolio
The Rodney Square Intermediate Bond Portfolio
21
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
________________________ ________________________
________________________ ________________________
________________________ ________________________
________________________ ________________________
________________________ ________________________
________________________ ________________________
22
Exhibit 23 (j) (i)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Financial Statements" in the Statement of
Additional Information and to the incorporation by reference in this
Post-Effective Amendment Number 20 to the Registration Statement (Form N-1A)
(No. 33-5501) of The Rodney Square Strategic Fixed-Income Fund of our report
dated December 4, 1998, included in the 1998 Annual Report to shareholders.
Philadelphia, Pennsylvania
December 23, 1998
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 432893
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 16669141
<INVESTMENTS-AT-VALUE> 17278530
<RECEIVABLES> 427601
<ASSETS-OTHER> 18
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17706149
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 126762
<TOTAL-LIABILITIES> 126762
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16883281
<SHARES-COMMON-STOCK> 1358654
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<NET-INVESTMENT-INCOME> 761371
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<NET-CHANGE-FROM-OPS> 1032221
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<NUMBER-OF-SHARES-REDEEMED> (126618)
<SHARES-REINVESTED> 45302
<NET-CHANGE-IN-ASSETS> 133131
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 78528
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 214860
<AVERAGE-NET-ASSETS> 17517506
<PER-SHARE-NAV-BEGIN> 12.74
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> .20
<PER-SHARE-DIVIDEND> (.56)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.94
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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<NAME> RODNEY SQUARE STRATEGIC FIXED INCOME FUND
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<NAME> INTERMEDIATE BOND PORTFOLIO
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</TABLE>
