Filed with the Securities and Exchange Commission on February 26, 1999
File No. 33-8120
File No. 811-4808
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. 18 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 19 |X|
The Rodney Square Strategic Equity 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 May 1, 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.
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THE RODNEY SQUARE STRATEGIC EQUITY FUND
LARGE CAP GROWTH EQUITY PORTFOLIO
LARGE CAP VALUE EQUITY PORTFOLIO
SMALL CAP EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
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PROSPECTUS DATED MAY 1, 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 it before you invest, and keep it on hand for future
reference.
Please note that these mutual 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.
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TABLE OF CONTENTS
A LOOK AT THE GOALS, PORTFOLIO DESCRIPTION
STRATEGIES, RISKS, Investment Objectives...........................3
EXPENSES AND FINANCIAL Primary Investment Strategies...................4
HISTORY OF EACH Risk Factors Related to the Portfolios..........7
PORTFOLIO. Performance Information.........................9
Fees and Expenses..............................18
Financial Highlights...........................19
DETAILS ABOUT THE SERVICE MANAGEMENT OF THE FUND
PROVIDERS. Investment Adviser.............................24
Portfolio Managers ............................25
Sub-Advisers ..................................25
Service Providers..............................27
POLICIES AND INSTRUCTIONS SHAREHOLDER INFORMATION
FOR OPENING, MAINTAINING Pricing of Shares..............................28
AND CLOSING AN ACCOUNT Purchase of Shares.............................28
IN ANY OF THE PORTFOLIOS. Redemption of Shares...........................30
Exchange of Shares.............................32
Dividends and Distributions....................33
Taxes..........................................33
FOR MORE INFORMATION...................BACK COVER
For information about key terms and concepts, look for our "PLAIN TALK"
explanations.
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THE RODNEY SQUARE STRATEGIC EQUITY FUND
LARGE CAP GROWTH EQUITY PORTFOLIO
LARGE CAP VALUE EQUITY PORTFOLIO
SMALL CAP EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO DESCRIPTION
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 Equity Fund is a separate mutual fund.
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The Rodney Square Strategic Equity Fund (the "Fund") consists of four separate
portfolios, the Large Cap Growth Equity Portfolio, the Large Cap Value Equity
Portfolio, the Small Cap Equity Portfolio and the International Equity Portfolio
(each a "Portfolio" and together "Portfolios").
PLAIN TALK
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WHAT IS CAP?
Cap or the market capitalization of a company means the value of the company's
common stock in the stock market.
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INVESTMENT OBJECTIVES
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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The Large Cap Growth Equity Portfolio, the Large Cap Value Equity Portfolio and
the Small Cap Equity Portfolio each seek superior long-term growth of capital.
The International Equity Portfolio seeks superior long-term capital
appreciation. For purposes of these investment objectives, "superior" long-term
growth of capital means that which would exceed the long-term growth of capital
from an investment in the securities comprising the Russell 1000 Growth Index
(for the Large Cap Growth Equity Portfolio); the Russell 1000 Value Index (for
the Large Cap Value Equity Portfolio); the Russell 2000 Index, (for the Small
Cap Equity Portfolio) and the Morgan Stanley Capital International Europe,
Australasia and Far East Index (for the International Equity Portfolio). For
more information on the specific Indexes, see the Section entitled "Primary
Investment Strategies." These investment objectives may not be changed without
shareholder approval. There is no guarantee that a Portfolio will achieve its
investment objective.
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PRIMARY INVESTMENT STRATEGIES
PLAIN TALK
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WHAT ARE GROWTH FUNDS?
Growth funds invest in the common stock of growth-oriented companies seeking
maximum growth of earnings and share price with little regard for dividend
earnings. Generally, companies with high relative rates of growth tend to
reinvest more of their profits into the company and pay out less to shareholders
in the form of dividends. As a result, investors in growth funds tend to receive
most of their return in the form of capital appreciation.
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The LARGE CAP GROWTH EQUITY PORTFOLIO is a diversified portfolio of large cap
U.S. equity (or related) securities that have above average earnings potential
compared to the securities market as a whole. In the Portfolio's efforts to
achieve its investment objective, it seeks to outperform the Russell 1000 Growth
Index (assuming a similar investment in the securities comprising this index
would reinvest dividends and capital gains distributions). The Russell 1000
Growth Index is formed by assigning a style composite score to all of the
companies found in the Russell 1000 Index, a passive index of the largest 1000
stocks in the U.S. as measured by their market capitalization, to determine
their growth or value characteristics. Approximately 70% of those stocks are
placed in either the Growth or Value Index. The remaining stocks are placed in
both indexes with a weight proportional to their growth or value
characteristics.
At all times, the Large Cap Growth Equity Portfolio will invest at least 85% of
its total assets in the following equity (or related) securities:
(BULLET) common stocks of U.S. corporations that are judged by the adviser to
have strong growth characteristics and have a market capitalization of
$2 billion or higher at the time of purchase;
(BULLET) options on, or securities convertible (such as convertible preferred
stock and convertible bonds) into, the common stock of U.S.
corporations described above;
(BULLET) options on indexes of the common stock of U.S. corporations described
above; and
(BULLET) contracts for either the future delivery, or payment in respect
of the future market value, of certain indexes of the common
stock of U.S. corporations described above, and options upon such
futures contracts.
PLAIN TALK
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WHAT ARE VALUE FUNDS?
Value funds invest in the common stock of companies that are considered by the
adviser to be undervalued relative to their underlying profitability, or rather
their stock price does not reflect the value of the company.
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The LARGE CAP VALUE EQUITY PORTFOLIO is a diversified portfolio of large cap
U.S. equity (or related) securities that are deemed by the adviser to be
undervalued as compared to the company's profitability potential. In the
Portfolio's efforts to achieve its investment objective, it seeks to outperform
the Russell 1000 Value Index (assuming a similar investment in the securities
comprising this index would reinvest dividends and capital gains distributions).
The
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Russell 1000 Value Index is formed by assigning a style composite score to all
of the companies found in the Russell 1000 Index, a passive index of the largest
1000 stocks in the U.S. as measured by their market capitalization, to determine
their growth or value characteristics. Approximately 70% of those stocks are
placed in either the Growth or Value Index. The remaining stocks are placed in
both indexes with a weight proportional to their growth or value
characteristics.
At all times, the Large Cap Value Equity Portfolio will invest at least 85% of
its total assets in the following equity (or related) securities:
(BULLET) common stocks of U.S. corporations that are judged by the adviser to
be undervalued in the marketplace relative to underlying profitability
and have a market capitalization of $2 billion or higher at the time
of purchase;
(BULLET) options on, or securities convertible (such as convertible preferred
stock and convertible bonds) into, the common stock of U.S.
corporations described above;
(BULLET) options on indexes of the common stock of U.S. corporations described
above; and
(BULLET) contracts for either the future delivery, or payment in respect
of the future market value, of certain indexes of the common
stock of U.S. corporations described above, and options upon such
futures contracts.
PLAIN TALK
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WHAT ARE SMALL CAP FUNDS?
Small cap funds invest in the common stock of companies with smaller market
capitalizations. Small cap stocks may provide the potential for higher growth
but they also typically have greater risk and more volitility.
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The SMALL CAP EQUITY PORTFOLIO is diversified portfolio of small cap U.S. equity
(or related) securities with a market capitalization of $2 billion or less at
the time of purchase. To achieve the Portfolio's objective of long-term growth
of capital, the adviser has delegated the Portfolio's investment management
responsibilities to two investment teams. One team is growth-oriented,
concentrating on investing in companies the adviser believes to have growth
potential and the second team is value-oriented, concentrating on investing in
companies the adviser believes to be undervalued. In the Portfolio's efforts to
achieve its investment objective, it seeks to outperform the Russell 2000 Index
(assuming a similar investment in the securities comprising this index would
reinvest dividends and capital gains distributions). The Russell 2000 Index is a
passive index of the smallest 2000 stocks in the Russell 3000 Index of the 3000
largest stocks in the U.S. as measured by market capitalization.
At all times, the Small Cap Equity Portfolio will invest at least 85% of its
total assets in the following equity (or related) securities:
(BULLET) common stocks of U.S. corporations that are judged by the adviser to
have strong growth characteristics or to be undervalued in the
marketplace relative to underlying profitability and have a market
capitalization of less than $2 billion at the time of purchase;
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(BULLET) options on, or securities convertible (such as convertible preferred
stock and convertible bonds) into, the common stock of U.S.
corporations described above;
(BULLET) options on indexes of the common stock of U.S. corporations described
above; and
(BULLET) contracts for either the future delivery, or payment in respect of the
future market value, of certain indexes of the common stock of U.S.
corporations described above, and options upon such futures contracts.
PLAIN TALK
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WHAT ARE INTERNATIONAL FUNDS?
International funds invest in securities traded in markets of at least three
different countries outside of the United States. An investor in an
international fund can avoid the hassles of investing directly in foreign
securities and let that fund's adviser handle the foreign laws, trading
practices, customs and time zones of the foreign countries.
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The INTERNATIONAL EQUITY PORTFOLIO is a diversified portfolio of equity
securities (including convertible securities) of issuers located outside of the
United States. In the Portfolio's efforts to achieve its investment objective,
it seeks to outperform the Morgan Stanley Capital International Europe,
Australasia & Far East ("EAFE") Index (assuming a similar investment in the
securities comprising this index would reinvest dividends and capital gains
distributions). The EAFE Index is an unmanaged index comprised of the stocks of
approximately 1100 companies, screened for liquidity, cross ownership and
industry representation and listed on major stock exchanges in Europe,
Australasia and the Far East.
Under normal conditions, the Portfolio will invest at least 85% of its total
assets in the following equity (or related) securities:
(BULLET) common stocks of foreign issuers;
(BULLET) preferred stocks and/or debt securities that are convertible
securities of such foreign issuers; and
(BULLET) open or closed-end investment companies (mutual funds) that invest
primarily in the equity securities of issuers in countries where it is
impossible or impractical to invest directly.
The International Equity Portfolio may use forward currency contracts, options,
futures contracts and options on futures contracts to attempt to hedge actual or
anticipated investment security positions. It may also invest up to 15% of its
total assets in non-convertible debt securities of foreign issuers that, at the
time of purchase, are rated A or better by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's, ("S&P"), or if not rated, are judged by the
adviser or one or more of the sub-advisers to be of comparable quality.
Three sub-advisers manage the assets of the International Equity Portfolio. The
adviser allocates the Portfolio's assets among each sub-adviser in roughly equal
portions and then allows each sub-adviser to use its own investment approach and
strategy to achieve the Portfolio's objective. The Portfolio utilizes this
multiple sub-adviser structure to reduce portfolio volatility through multiple
investment approaches, a strategy used by many institutional investors. For
example, a
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particular investment approach used by a sub-adviser may be successful in a bear
(falling) market, while another investment approach used by a different
sub-adviser may be more successful in a bull (rising) market. The multiple
investment approach is designed to soften the impact of a single sub-adviser's
performance in a market cycle during which that sub-adviser's investment
approach is less successful. Because each sub-adviser has different investment
approaches, the performance of one or more of the sub-advisers is expected to
offset the impact of any other sub-adviser's poor performance, regardless of the
market cycle. Unfortunately, this also works the opposite way. The successful
performance of a sub-adviser will be diminished by the less successful
performances of the other sub-advisers. There can be no guarantee that the
expected advantages of the multiple adviser technique will be achieved.
ALL PORTFOLIOS. The frequency of portfolio transactions and a Portfolio's
turnover rate will vary from year to year depending on the market. Increased
turnover rates incur the cost of additional brokerage commissions and may cause
you to receive larger capital gain distributions. The Large Cap Growth Equity
Portfolio had a higher than normal portfolio turnover rate for its fiscal year
ending December 31, 1998 due to changes in its investment adviser and
investment policies. Portfolio securities that did not fit in the large
capitalization investment parameters were replaced. Portfolio turnover rate is
normally expected to be less than 100% for each of the Portfolios.
Each Portfolio also may use other strategies and engage in other investment
practices, which are described in detail in our Statement of Additional
Information.
RISK FACTORS RELATED TO THE PORTFOLIOS
The following is a list of the primary risks that apply to all Portfolios unless
otherwise indicated. 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 the
Federal Deposit Insurance Corporation or any other government agency.
It is possible to lose money by investing in a Portfolio
(BULLET) CURRENCY RISK: The risk related to investments denominated in foreign
currencies. Foreign securities are usually denominated in foreign
currency therefore changes in foreign currency exchange rates can
affect the net asset value of the International Equity Portfolio.
(International Equity Portfolio)
(BULLET) EURO RISK: On January 1, 1999, the European Monetary Union introduced a
new single currency, the Euro, which replaces the national currency for
the eleven participating member countries. If a portfolio is holding
investments in countries with currencies replaced by the Euro, the
investment process, including trading, foreign exchange, payments,
settlements, cash accounts custody and accounting, will have been
affected. (International Equity Portfolio)
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(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) EMERGING MARKET RISK: The risk of investing in securities of issuers
located in emerging market countries. The economies of emerging market
countries generally have been and may continue to be adversely affected
by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. The securities markets of
emerging market countries are substantially smaller, less developed,
less liquid and more volatile than the securities markets of the U.S.
and other developed countries. (International Equity Portfolio)
(BULLET) FOREIGN SECURITY RISK: The risk of losses due to political, regulatory,
economic, social or other uncontrollable forces in a foreign country
not normally associated with investing in the U.S. markets.
(International Equity Portfolio)
(BULLET) GROWTH-ORIENTED INVESTING RISK: The risk that an investment in a
growth-oriented portfolio, which invests in growth-oriented companies,
will be more volatile than the rest of the U.S. market as a whole.
(Large Cap Growth Equity and Small Cap Portfolios)
(BULLET) MANAGEMENT RISK: The risk that a strategy used by the adviser or a sub-
adviser 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. The prices of equity
securities change in response to many factors including the historical
and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
(BULLET) NO TEMPORARY DEFENSIVE INVESTMENT POLICY: Unlike many other mutual
funds, the Portfolios do not reserve authority to depart from their
primary investment policies, even during declining markets, to
temporarily pursue defensive investment policies in an effort to
preserve capital. Each Portfolio will adhere to a policy of investing
not less that 85% of its total assets in equity (or related)
securities, during good and bad stock market conditions. Investors
should consider the risk of capital losses that may flow from this
policy should adverse market conditions arise and persist in the future
in the decision of whether to invest, or remain invested, in the
Portfolios.
(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.
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(BULLET) SMALL CAP RISK: Small cap companies may be more vulnerable than larger
companies to adverse business or economic developments. Small cap
companies may also have limited product lines, markets or financial
resources, may be dependent on relatively small or inexperienced
management groups and may operate in industries characterized by rapid
technological obsolescence. Securities of such companies may be less
liquid and more volatile than securities of larger companies and
therefore may involve greater risk than investing in larger companies.
(Small Cap Equity Portfolio)
(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) VALUE INVESTING RISK: The risk that a portfolio's investment in
companies whose securities are believed to be undervalued, relative to
their underlying profitability, do not appreciate in value as
anticipated. (Large Cap Value Equity and Small Cap Equity Portfolios)
(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 the
Fund's service providers do not 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." The Fund 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 Fund's 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.
Additionally, if a company in which a Portfolio is invested is
adversely affected by Year 2000 Problems, it is likely that the price
of that company's securities will also be adversely affected. A
decrease in one or more of a Portfolio's holdings may have a similar
impact on the price of the Portfolio's shares. The adviser will rely on
public filings and other statements made by companies about their Year
2000 readiness. Issuers in countries outside the U.S., particularly in
emerging markets, may not be required to make the same level of
disclosure about Year 2000 readiness as is required in the U.S. The
adviser is not able to audit any company and its major suppliers to
verify their Year 2000 readiness.
PERFORMANCE INFORMATION
LARGE CAP GROWTH EQUITY PORTFOLIO
The chart below shows the changes in annual total returns for the Large Cap
Growth Equity Portfolio for the last 10 calendar years of the Portfolio through
December 31, 1998. The information shows you how the Portfolio's performance has
varied year by year and provides some indication of the risks of investing in
the Portfolio. Prior to
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February 23, 1998, the Large Cap Growth Equity Portfolio was managed by 2 or 3
different portfolio advisers selected by the Portfolio's former manager and
administrator and operated under certain different investment policies. Until
February 23, 1998, the Portfolio invested in both large and small capitalization
securities. The Portfolio's investment policy now calls for investments to be
made exclusively in large capitalization equity securities with strong growth
characteristics. Accordingly, the Portfolio's historical performance may not
reflect its current investment practices. Past performance is not necessarily an
indicator of how the Portfolio will perform in the future.
PLAIN TALK
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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.
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EDGAR REPRESENTATITON OF DATA POINTS USED IN PRINTED GRAPHIC
Rodney Square Strategic Equity Fund
LARGE CAP GROWTH EQUITY PORTFOLIO
ANNUAL RETURNS FOR THE PAST 10 CALENDAR YEARS
Year
Ended Returns
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12/31/88
1989 27.15%
1990 -7.15%
1991 41.54%
1992 5.95%
1993 14.57%
1994 -0.23%
1995 28.43%
1996 24.25%
1997 27.50%
1998 23.58%
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The total return for the Large Cap Growth Portfolio for the quarter ended March
31, 1999 was ____%. Over the past 10 calendar years, the highest quarter total
return was 25.34% (quarter ended December 31, 1998). Over the past 10 calendar
years, the lowest quarter total return was -17.12% (quarter ended September 30,
1990).
The table below shows how the Large Cap Growth Equity Portfolio's average annual
total returns for the past 1, 5 and 10 calendar years compare with the Russell
1000 Growth Index.
1 YEAR 5 YEAR 10 YEAR
------ ------ -------
Large Cap Growth Equity Portfolio 23.58% 20.19% 17.67%
Russell 1000 Growth Index 38.71% 25.70% 20.57%
S&P 500 Index* 28.58% 24.06% 19.19%
* The S&P 500 Index is the Standard and Poor's Composite Index of 500 Stocks,
a widely recognized, unmanaged index of common stock prices.
LARGE CAP VALUE EQUITY PORTFOLIO
The chart below shows the changes in annual total returns of complete calendar
years for the Portfolio, which commenced operations on June 29, 1998, and for
its predecessor the Value Stock Fund, a collective investment fund, through
December 31, 1998. The information shows you how the Portfolio's performance has
varied year by year and provides some indication of the risks of investing in
the Portfolio. The Value Stock Fund's performance has been adjusted to reflect
the annual deduction of fees and expenses applicable to shares of the Large Cap
Value Equity Portfolio (i.e., adjusted to reflect anticipated expenses, absent
investment advisory fees waivers). The Value Stock 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 (the "Code"). If the Value Stock Fund
had been registered under the 1940 Act, its performance may have been different.
Past performance is not necessarily an indicator of how the Portfolio will
perform in the future.
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EDGAR REPRESENTATITON OF DATA POINTS USED IN PRINTED GRAPHIC
LARGE CAP VALUE EQUITY PORTFOLIO
CALENDAR YEAR RETURNS SINCE INCEPTION
Period Returns
------------ -----------
1992 13.49%
1993 13.75%
1994 -1.64%
1995 34.38%
1996 21.86%
1997 24.55%
1998 -2.75%
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The total return for the Large Cap Value Equity Portfolio for the quarter ended
March 31, 1999 was ____%. Over the life of the Portfolio, the highest quarter
total return was 13.48% (quarter ended June 30, 1997). Over the life of the
Portfolio, the lowest quarter total return was -10.62% (quarter ended September
30, 1998).
The table below shows how the Large Cap Value Equity Portfolio's average annual
total returns for the past 1 and 5 calendar years and the period December 1,
1991 (commencement of operations) through December 31, 1998 compare with the
Russell 1000 Value Index.
1 YEAR 5 YEAR SINCE INCEPTION
------ ------ ---------------
Large Cap Value Equity Portfolio -2.75% 14.30% 15.29%
Russell 1000 Value Index 15.63% 20.86% 20.54%
S&P 500 Index* 28.58% 24.06% 21.08%
* The S&P 500 Index is the Standard and Poor's Composite Index of 500 Stocks,
a widely recognized, unmanaged index of common stock pieces.
SMALL CAP EQUITY PORTFOLIO
The chart below shows the changes in annual total returns of complete calendar
years for the Portfolio, which commenced operations on June 29, 1998, and for
its predecessor the Small Cap Stock Fund, a collective investment fund, through
December 31, 1998. The information shows you how the Portfolio's performance has
varied year by year and provides some indication of the risks of investing in
the Portfolio. The Small Cap Stock Fund's performance has been adjusted to
reflect the annual deduction of fees and expenses applicable to shares of the
Small Cap Equity Portfolio (i.e., adjusted to reflect anticipated expenses,
absent investment advisory fees waivers). The Small Cap Stock Fund was not
registered as a mutual fund under the 1940 Act and therefore was not subject to
certain investment restrictions, limitations and diversification requirements
imposed by the 1940 Act and the Code. If the Small Cap Stock Fund had been
registered under the 1940 Act, its performance may have been different. Past
performance is not necessarily an indicator of how the Portfolio will perform in
the future.
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EDGAR REPRESENTATITON OF DATA POINTS USED IN PRINTED GRAPHIC
SMALL CAP EQUITY PORTFOLIO
CALENDAR YEAR RETURNS SINCE INCEPTION
Year
Ended Returns
--------- ---------
1998 -2.32%
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The total return for the Small Cap Equity Portfolio for the quarter ended March
31, 1999 was ____%. Over the life of the Portfolio, the highest quarter total
return was 20.59% (quarter ended September 30, 1997). Over the life of the
Portfolio, the lowest quarter total return was -17.92% (quarter ended June 30,
1998).
The table below shows how the Small Cap Equity Portfolio's average annual total
returns for the past calendar year and for the period April 1, 1997* through
December 31, 1998 compare with Russell 2000 Index.
1 YEAR SINCE APRIL 1, 1997
Small Cap Equity Portfolio -2.32% 17.40%
Russell 2000 Index -2.54% 13.99%
*The Small Cap Stock Fund's inception date was October 1991. Prior to April 1997
the fund was managed by an investment adviser unaffiliated with its current
adviser, which invested primarily in growth-oriented small cap companies with
market capitalization values of $500 million or less at time of purchase. As of
April 1997, Wilmington Trust Company (WTC) assumed management of the Fund and
assigned management responsibilities to two different WTC portfolio management
teams, one value-oriented and the other growth-oriented.
INTERNATIONAL EQUITY PORTFOLIO
The chart below shows the changes in annual total returns of complete calendar
years for the Portfolio, which commenced operations on June 29, 1998, and for
its predecessor the International Stock Fund, a collective investment fund,
through December 31, 1998. The information shows you how the Portfolio's
performance has varied year by year and provides some indication of the risks of
investing in the Portfolio. The International Stock Fund's performance has been
adjusted to reflect the annual deduction of fees and expenses applicable to
shares of the International Equity Portfolio (i.e., adjusted to reflect
anticipated expenses, absent investment advisory fees waivers). The
International Stock Fund was not registered as a mutual fund under the 1940 Act
and therefore was not subject to certain investment restrictions, limitations
and diversification requirements imposed by the 1940 Act and the Code. If the
International Stock Fund had been registered under the 1940 Act, its performance
may have been different. Past performance is not necessarily an indicator of how
the Portfolio will perform in the future.
16
<PAGE>
EDGAR REPRESENTATITON OF DATA POINTS USED IN PRINTED GRAPHIC
INTERNATIONAL EQUITY PORTFOLIO
ANNUAL RETURNS FOR THE PAST 10 CALENDAR YEARS
Year
Ended Returns
--------- -------------
1989 27.82%
1990 -15.39%
1991 14.63%
1992 -0.19%
1993 42.64%
1994 -1.36%
1995 7.30%
1996 8.60%
1997 3.43%
1998 13.48%
17
<PAGE>
The total return for the International Equity Portfolio for the quarter ended
March 31, 1999 was ____%. Over the past 10 calendar years, the highest quarter
total return was 16.21% (quarter ended September 30, 1989). Over the past 10
calendar years, the lowest quarter total return was -22.76% (quarter ended
September 30, 1990).
The table below shows how the International Equity Portfolio's average annual
total returns for the past 1, 5 and 10 calendar years through December 31, 1998
compare with the Morgan Stanley Capital International Europe, Australasia and
Far East Index.
1 YEAR 5 YEAR 10 YEAR
------ ------ -------
International Equity Portfolio 13.48% 6.17% 9.06%
Morgan Stanley Capital International Europe, 20.00% 9.19% 5.54%
Australasia and Far East Index
FEES AND EXPENSES
PLAIN TALK
- --------------------------------------------------------------------------------
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 below are shown as a percentage
of its net assets. These expenses are deducted from Portfolio assets.
- --------------------------------------------------------------------------------
The table below describes the fees and expenses that you may pay if you buy and
hold shares of a Portfolio. No sales charges or other fees are paid directly
from your investment.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING Large Cap Growth Large Cap Value Small Cap Equity International
EXPENSES (EXPENSES THAT ARE Equity Portfolio Equity Portfolio Portfolio Equity Portfolio
DEDUCTED FROM PORTFOLIO ASSETS) ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Management fees 1 0.55% 0.55% 0.60% 0.65%
Distribution (12b-1) fees 0.00% 0.00% 0.00% 0.00%
Other Expenses 0.33% 0.33% 0.35% 0.45%
TOTAL ANNUAL OPERATING EXPENSES 1 0.88% 0.88% 0.95% 1.10%
Fee Waiver 0.13% 0.13% 0.15% 0.10%
Net Expenses 0.75% 0.75% 0.80% 1.00%
<FN>
- -------------------------
1 WTC has agreed to waive a portion of its advisory fee or reimburse
expenses to the extent total operating expenses exceed 0.75% for the Large
Cap Growth Equity Portfolio; 0.75% for the Large Cap Value Equity
Portfolio; 0.80% for the Small Cap Equity Portfolio; and 1.00% for the
International Equity Portfolio. This waiver will remain in place until the
Board approves its termination. The management fees, other expenses and
total annual operating expenses reflected in the table above for the Large
Cap Growth Equity Portfolio are based on the Portfolio's actual expenses
for the fiscal year ended December 31, 1998, adjusted to reflect current
fee arrangements. The Large Cap Value Equity, the Small Cap Equity and the
International Equity Portfolio have not completed a full year of operation.
The numbers are based on actual expenses of the Portfolios for the period
June 29, 1998 to December 31, 1998.
</FN>
</TABLE>
18
<PAGE>
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
------ ------- ------- --------
Large Cap Growth Equity Portfolio $90 $281 $488 $1084
Large Cap Value Equity Portfolio $90 $281 $488 $1084
Small Cap Equity Portfolio $97 $303 $525 $1166
International Equity Portfolio $112 $350 $606 $1340
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 or since the Portfolio's
inception, if shorter. 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.
19
<PAGE>
LARGE CAP GROWTH EQUITY PORTFOLIO
For the Fiscal Years Ended December 31,
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
NET ASSET VALUE -
BEGINNING OF YEAR $21.37 $19.22 $17.41 $15.14 $16.39
INVESTMENT OPERATIONS:
Net investment loss 1 -0.01 -0.19 -0.15 -0.10 -0.03
Net realized and unrealized
gain (loss) on investments 5.02 5.44 4.37 4.38 -0.02
------ ------ ------ ------ ------
Total from investment
operations 5.01 5.25 4.22 4.28 -0.05
------ ------ ------ ------ ------
DISTRIBUTIONS:
From net realized gain on
investments -2.79 -3.10 -2.41 -2.01 -1.20
------ ------ ------ ------ ------
NET ASSET VALUE -
END OF THE YEAR $23.59 $21.37 $19.22 $17.41 $15.14
====== ====== ====== ====== ======
TOTAL RETURN 23.58% 27.50% 24.25% 28.43% -0.23%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses (net of
fee waivers) 0.80% 1.38% 1.43% 1.43% 1.38%
Expenses (excluding
fee waivers) 0.92% N/A N/A N/A N/A
Net investment loss -0.08% -0.86% -0.78% -0.53% -0.17%
Portfolio turnover rate 51.64% 28.05% 34.84% 49.12% 37.05%
Net assets at end of the period
($000 omitted) $223,151 $91,445 $76,174 $66,311 $65,267
1 The net investment loss per share for the years ended December 31, 1996 and
1997 was calculated using average shares outstanding method.
20
<PAGE>
LARGE CAP VALUE EQUITY PORTFOLIO
For the Fiscal Period June 29, 1998 (Commencement of operations) to December 31,
- ----------------------------------------
1998
-------
NET ASSET VALUE -
BEGINNING OF THE PERIOD $10.00
INVESTMENT OPERATIONS:
Net investment income 0.10
Net realized and unrealized
gain (loss) on investments -0.58
------
Total from investment
operations -0.48
------
DISTRIBUTIONS:
From net investment income -0.10
In excess of net realized
gain on investments -0.12
------
Total distributions -0.22
------
NET ASSET VALUE -
END OF THE PERIOD $ 9.30
======
TOTAL RETURN 1 -4.79%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses (net of fee waivers) 0.75%*
Expenses (excluding
fee waivers) 0.88%*
Net investment income 2.07%*
Portfolio turnover rate 36.78%
Net assets at end of the period
($000 omitted) $93,780
1 Not annualized.
* Annualized.
21
<PAGE>
SMALL CAP EQUITY PORTFOLIO
For the Fiscal Period June 29, 1998 (Commencement of operations) to December 31,
1998
-------
NET ASSET VALUE -
BEGINNING OF THE PERIOD $10.00
INVESTMENT OPERATIONS:
Net investment income 0.02
Net realized and unrealized
gain (loss) on investments -0.62
------
Total from investment
operations -0.60
------
DISTRIBUTIONS:
From net investment income -0.02
In excess of net realized
gain on investments -0.02
------
Total distributions -0.04
------
NET ASSET VALUE -
END OF THE PERIOD $ 9.36
======
TOTAL RETURN 1 -6.03%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses (net of fee waivers) 0.80%*
Expenses (excluding
fee waivers) 0.95%*
Net investment income 0.45%*
Portfolio turnover rate 9.81%
Net assets at end of the period
($000 omitted) $82,156
1 Not annualized.
* Annualized.
22
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
For the Fiscal Period June 29, 1998 (Commencement of operations) to December 31,
1998
-------
NET ASSET VALUE -
BEGINNING OF THE PERIOD $10.00
INVESTMENT OPERATIONS:
Net investment income 0.02
Net realized and unrealized
gain (loss) on investments
and foriegn currencies -0.09
------
Total from investment
operations -0.07
------
DISTRIBUTIONS:
From net realized gain on
investments -0.11
------
NET ASSET VALUE -
END OF THE PERIOD $ 9.82
======
TOTAL RETURN 1 -0.70%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses (net of fee waivers) 1.00%*
Expenses (excluding
fee waivers) 1.10%*
Net investment income 0.46%*
Portfolio turnover rate 27.66%
Net assets at end of the period
($000 omitted) $73,784
1 Not annualized.
* Annualized.
23
<PAGE>
MANAGEMENT OF THE FUND
The Board of Trustees supervises the management, activities and affairs of the
Fund and has approved contracts with various financial organizations to provide,
among other services, the 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. For the International Equity
Portfolio, WTC allocates the Portfolio's assets equally among the sub-advisers
and then oversees their investment activities. 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, the Large Cap Growth Equity Portfolio and the
Large Cap Value Equity Portfolio each pays a monthly advisory fee to WTC at the
annual rate of 0.55% of the Portfolios' average daily net assets; the Small Cap
Equity Portfolio pays a monthly advisory fee to WTC at the annual rate of 0.60%
of the Portfolio's average daily net assets; and the International Equity
Portfolio pays a monthly advisory fee to WTC at the annual rate of 0.65% of the
Portfolio's average daily net assets. WTC has agreed to waive its fee or
reimburse each Portfolio monthly to the extent that expenses of the Portfolio
(excluding taxes, extraordinary expenses, brokerage commissions and interest)
exceed an annual rate of 0.75% of the average daily net assets of the Large Cap
Growth Equity Portfolio and the Large Cap Value Equity Portfolio, 0.80% of the
average daily net assets of the Small Cap Equity Portfolio, and 1.00% of the
average daily net assets of the International Equity Portfolio until further
notice. For the fiscal year ended December 31, 1998, WTC received the following
fees (after fee waivers), as a percentage of each Portfolio's average daily net
assets:
Large Cap Growth Equity Portfolio 0.42%
Large Cap Value Equity Portfolio 0.42%
Small Cap Equity Portfolio 0.45%
International Equity Portfolio 0.55%
24
<PAGE>
PORTFOLIO MANAGERS
E. Matthew Brown, Vice President, leads a "growth" team and is responsible for
the day-to-day management of the Large Cap Growth Equity Portfolio and the
growth portion of the Small Cap Equity Portfolio. Mr. Brown joined WTC in
October of 1996. Prior to joining WTC, he served as Chief Investment Officer of
PNC Bank, Delaware, from 1993 through 1996.
Jonathan F. Kolle leads a "value" team and is responsible for the day-to-day
management of the Large Cap Value Equity Portfolio and the value portion of the
Small Cap Equity Portfolio. Mr. Kolle, a chartered financial analyst, joined
WTC's investment group as a senior equity analyst and portfolio manager in 1991.
He currently manages WTC's Value Equity Team, overseeing both mid/large cap
and small cap value strategies.
Robert J. Christian, Chief Investment Officer of WTC, or his delegate, is
primarily responsible for monitoring the day-to-day investment activities of the
sub-advisers to the International Equity Portfolio. Mr. Christian has been a
Director of Rodney Square Management Corporation since February 1996, and was
Chairman and Director of PNC Equity Advisors Company, and President and Chief
Investment Officer of PNC Asset Management Group, Inc. from 1994 to 1996. He was
Chief Investment Officer of PNC Bank, N.A. from 1992 to 1996 and Director of
Provident Capital Management from 1993 to 1996.
SUB-ADVISERS
The International Equity Portfolio has three sub-advisers, Clemente Capital Inc.
("Clemente"), Invista Capital Management, Inc. ("Invista") and Scudder Kemper
Investments, Inc. ("Scudder Kemper"). Clemente, located at Carnegie Hall Tower,
152 West 57th Street, 25th Floor, New York, New York 10019, registered as an
investment adviser in 1979. Clemente manages in excess of $500 million in
assets. Clemente's investment approach begins with a global outlook, identifying
the major forces affecting the global environment and then identifying the
themes that are responding to global factors. The third step is to decide which
country or sector will benefit from these themes and then to seek companies with
favorable growth characteristics in those countries or sectors. Leopoldo M.
Clemente, President and Chief Investment Officer, and Thomas J. Prapas, Director
of Portfolio Management serve as portfolio managers for the portion of the
International Equity Portfolio's assets under Clemente's management. Mr.
Clemente has been responsible for portfolio management and security selection
for the past eight years, and Mr. Prapas has been a portfolio manager with
Clemente for eleven years.
Invista, located at 1800 Hub Tower, 699 Walnut Street, Des Moines, Iowa 50309,
is a registered investment adviser organized in 1984. Invista is an indirect,
wholly owned subsidiary of Principal Mutual Life Insurance Company. Invista
manages in excess of $26 billion in assets, of which approximately $3.8 billion
are in foreign equities in separately managed accounts and mutual funds for
public funds, corporations, endowments and foundations, insurance companies and
individuals. Invista takes a long-term, value-oriented
25
<PAGE>
approach to investing and recognizes the importance of growth to future
investment objectives. A borderless comparison method that evaluates similar
companies within particular industries or sectors rather than within a single
country is used. Invista's use of a bottom-up process is aimed at identifying
the best investment opportunities in the world, regardless of location. Scott D.
Opsal, CFA, Executive Vice President and lead portfolio manager of international
equities for Invista, is the portfolio manager for the portion of the
International Equity Portfolio under Invista's management. Mr. Opsal joined
Invista at its inception in 1985 and assumed his current responsibilities in
1993. Before 1993, his responsibilities included security analysis and portfolio
management activities for various U.S. equity portfolios, managing the firm's
convertible securities and overseeing Invista's index fund and derivatives
positions. Kurtis D. Spieler, CFA, Vice President and manager of the firm's
dedicated emerging market portfolios, is Mr. Opsal's backup. Mr. Spieler has
been Invista's emerging markets portfolio manager since joining Invista in 1995.
Scudder Kemper, located at 345 Park Avenue, New York, New York 10154, was
founded as America's first independent investment counselor and has served as
investment adviser, administrator and distributor of mutual funds since 1928.
Scudder Kemper manages in excess of $200 billion in assets, with approximately
$30 billion of those assets in foreign investments in separately managed
accounts for pension funds, foundations, educational institutions and government
entities and in open-end and closed-end investment companies. Scudder Kemper's
investment approach involves a top-down/bottom-up approach with a focus on
fundamental research. Investment ideas are generated by regional analysts,
global industry analysts and portfolio managers through the integration of three
analytical disciplines; global themes (identification of sectors and industries
likely to gain or lose during specific phases of a theme's cycle); country
analysis (qualitative assessment of each country's fundamental and political
characteristics combined with an objective, quantitative analysis of market and
economic data); and company analysis (identification of company opportunities by
search for unique attributes such as franchise or monopoly, above average growth
potential, innovation or scarcity). Irene T. Cheng serves as the lead portfolio
manager for the portion of the International Equity Portfolio's assets under
Scudder Kemper's management, Ms. Cheng has been in the asset management business
for over nine years and joined Scudder Kemper as a portfolio manager in 1993.
SERVICE PROVIDERS
The chart below provides information on the Portfolios' primary service
providers.
26
<PAGE>
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY
PORTFOLIO
SUB-ADVISERS
CLEMENTE CAPITAL, INC.
CARNEGIE HALL TOWER
152 WEST 57TH STREET, 25TH FL.
NEW YORK, NEW YORK 10019
INVISTA CAPITAL MANAGEMENT
1800 HUB TOWER
699 WALNUT STREET
DES MOINES, IOWA 50309
SCUDDER KEMPER INVESTMENTS, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
Responsible for day-to-day portfolio
management of the International
Equity Portfolio.
- --------------------------------------------------------------------------------
Fund
Operations
- --------------------------------------------------------------------------------
ADMINISTRATOR AND
ACCOUNTING AGENT
PFPC INC.
400 BELLEVUE PARKWAY
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 dividends and distributions.
- --------------------------------------------------------------------------------
Shareholder
Services
- --------------------------------------------------------------------------------
TRANSFER AGENT
PFPC INC.
400 BELLEVUE PARKWAY
WILMINGTON, DE 19809
Handles shareholder services, including
recordkeeping and statements, payment of
distribution of dividends and processing of buy and sell requests.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE RODNEY SQUARE STRATEGIC
EQUITY FUND
- --------------------------------------------------------------------------------
Distribution
- --------------------------------------------------------------------------------
DISTRIBUTOR
PROVIDENT DISTRIBUTORS, INC.
FOUR FALLS CORPORATE CENTER
WEST CONSHOHOCKEN, PA 19428
Distributes each Portfolio's Shares.
- --------------------------------------------------------------------------------
Asset
Safe Keeping
- --------------------------------------------------------------------------------
CUSTODIANS
WILMINGTON TRUST COMPANY
RODNEY SQUARE NORTH
1100 N. MARKET STREET
WILMINGTON, 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
- --------------------------------------------------------------------------------
27
<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. The assets held by a 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 Inc. ("PFPC") determines the
daily net asset value per share. To determine the value of those securities,
PFPC may use a pricing service that takes into account not only developments
related to specific securities, but also transactions in comparable securities.
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.
PLAIN TALK
- --------------------------------------------------------------------------------
WHAT IS THE NET ASSET VALUE or "NAV"?
NAV = Assets - Liabilities
--------------------
Outstanding Shares
- --------------------------------------------------------------------------------
PFPC determines the net asset value (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 its
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
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 as
specified below.
28
<PAGE>
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 the
Fund's distributor ("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 Equity 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
Equity 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 Equity 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 PFPC
Trust Company, Philadelphia, PA, ABA #031-0000-53, attention: The Rodney Square
Strategic Equity 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.
INDIVIDUAL RETIREMENT ACCOUNTS: You may purchase shares of a Portfolio 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. PFPC Trust Company, as custodian for
each IRA account, receives an annual fee of $10 per account, paid directly to
PFPC Trust Company by the IRA shareholder. 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 PFPC Trust Company.
AUTOMATIC INVESTMENT PLAN: You may purchase Portfolio 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
29
<PAGE>
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, or clients of certain Service Organizations who are provided
since a similar service is provided through those organizations.
ADDITIONAL PURCHASE INFORMATION: Purchase orders received by the Transfer Agent
before the close of regular trading on the Exchange on any Business Day 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.
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) Through a Systematic Withdrawal Plan
- --------------------------------------------------------------------------------
You may sell your shares on any Business Day 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 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.
30
<PAGE>
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 Equity 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 Equity 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 clients of 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 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, as the
shareholder, 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.
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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 Fixed-Income Fund
Short/Intermediate Bond Portfolio
Intermediate Bond Portfolio
Municipal Bond 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 p.m. Eastern time on each Business Day. The NAV of The
Rodney Square Strategic Fixed-Income Fund and The Rodney Square Strategic Equity
Fund is determined at the close of regular trading on the Exchange (currently,
4:00 p.m. Eastern time) on each Business Day.
Exchange transactions will be subject to the minimum initial investment and
other requirements of the fund or portfolio into which the exchange is made. An
exchange may not be made if the exchange would leave a balance in your 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 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.
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DIVIDENDS AND OTHER DISTRIBUTIONS
PLAIN TALK
- --------------------------------------------------------------------------------
WHAT IS NET INVESTMENT INCOME?
Net investment income consists of interest and dividends earned on its
investments less accrued expenses.
- --------------------------------------------------------------------------------
As a shareholder of a Portfolio, you are entitled to dividends and other
distributions arising from the net investment income and net realized gains, if
any, earned on the investments held by the Portfolios. Dividends are declared
and paid annually. Each Portfolio expects to distribute any net realized gains
once a year. Net realized gains or losses from foreign currency transactions in
the International Equity Portfolio are included as a component of net investment
income.
Each Portfolio's net investment income is determined by PFPC on each day that
the Portfolios's NAV is calculated.
Distributions are payable to the shareholders of record at the time the
distributions are 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 a Portfolio meets the requirements for being a
"regulated investment company," which each Portfolio has done and intends to
continue to do in the future, it pays no Federal income tax on the earnings and
gains it distributes to 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 Portfolios
invest primarily in taxable securities. Each Portfolio will notify you following
the end of the calendar year of the amount of dividends and other distributions
paid that year.
Dividends you receive from a Portfolio, whether reinvested in Portfolio shares
or taken as cash, are generally taxable to you as ordinary income. Distributions
of a Portfolio's net capital gain whether reinvested in Portfolio shares or
taken as cash, when designated as such, are taxable to you as long-term capital
gain, regardless of the length of time you have held your 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.
It is a taxable event for you if you sell or exchange shares of any 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: YOU SHOULD CONSULT YOUR TAX ADVISERS CONCERNING
STATE AND LOCAL TAXES, WHICH MAY HAVE DIFFERENT CONSEQUENCES FROM THOSE OF THE
FEDERAL INCOME TAX LAW.
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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.
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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 each
portfolio's holdings and operating results for the most recently completed
fiscal year or half-year. The annual reports include a discussion of the market
conditions and investment strategies that sigificantly affected the Portfolios'
performance.
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 Equity 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.
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.
The investment company registration number for The Rodney Square Strategic
Equity Fund is 811-4808.
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THE RODNEY SQUARE STRATEGIC EQUITY FUND
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with this Fund's current Prospectus, dated May 1, 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 Falls
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
Section Page
THE FUND.......................................................................1
INVESTMENT POLICIES............................................................1
DESCRIPTION OF RATINGS.........................................................4
INVESTMENT LIMITATIONS.........................................................6
TRUSTEES AND OFFICERS..........................................................7
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............................9
WILMINGTON TRUST COMPANY......................................................10
INVESTMENT ADVISORY SERVICES..................................................10
THE SUB-ADVISERS..............................................................11
ADMINISTRATION AND ACCOUNTING SERVICES........................................12
DISTRIBUTION AGREEMENT........................................................13
ADDITIONAL SERVICE PROVIDERS..................................................14
BROKERAGE ALLOCATION AND OTHER PRACTICES......................................14
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................15
DIVIDENDS.....................................................................17
TAXATION OF THE FUND..........................................................17
CALCULATION OF PERFORMANCE DATA...............................................20
FINANCIAL STATEMENTS.........................................................233
APPENDIX.....................................................................A-1
<PAGE>
THE RODNEY SQUARE STRATEGIC EQUITY FUND
THE FUND
The Rodney Square Strategic Equity Fund (the "Fund") is a diversified
open-end series investment company organized as a Massachusetts business trust
on August 19, 1986. The Fund currently consists of four series: the Large Cap
Growth Equity Portfolio, the Large Cap Value Equity Portfolio, the Small Cap
Equity Portfolio and the International Equity Portfolio (collectively the
"Portfolios"). The prior name of the Fund was The Rodney Square Multi-Manager
Fund. The name was changed to The Rodney Square Strategic Equity Fund on
February 23, 1998.
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 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 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 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.
ALL PORTFOLIOS
CASH MANAGEMENT. A Portfolio may invest no more than 15% of its total
assets in cash and cash equivalents including high-quality money market
instruments and money market funds in order to manage cash flow in the
Portfolio. Certain of these instruments are described below.
(BULLET) 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, as amended ("the 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 in a Money Market Fund,
the Portfolio would bear its PRO RATA portion of the Money Market
Fund's expenses (including fees).
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(BULLET) U.S. GOVERNMENT OBLIGATIONS. Each Portfolio may invest in 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. Such
securities may include Government National Mortgage Association
("GNMA") mortgage-backed certificates and other U.S. Government
obligations representing ownership interests in mortgage pools, such as
securities issued by the Federal National Mortgage Association ("FNMA")
and by the Federal Home Loan Mortgage Corporation ("FHLMC"). 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.
(BULLET) COMMERCIAL PAPER. Each Portfolio may invest in commercial paper.
Commercial paper consists of short-term (up to 270 days) unsecured
promissory notes issued by corporations in order to finance their
current operations. The Portfolios may invest only in commercial paper
rated A-1 or higher by Standard & Poor's, ("S&P"), and/or Prime-1 by
Moody's Investors Service, Inc. ("Moody's").
(BULLET) BANK OBLIGATIONS. Each Portfolio may invest in obligations of U.S.
banks including certificates of deposit, time deposits and bankers'
acceptances.
CONVERTIBLE SECURITIES. Convertible securities have characteristics
similar to both fixed income and equity securities. Because of the conversion
feature, the market value of convertible securities tends to move together with
the market value of the underlying stock. As a result, a Portfolio's selection
of convertible securities is based, to a great extent, on the potential for
capital appreciation that may exist in the underlying stock. The value of
convertible securities is also affected by prevailing interest rates, the credit
quality of the issuers and any call provisions.
The Portfolios may invest in convertible securities that are rated, at
the time of purchase, in the three highest rating categories by a nationally
recognized statistical rating organization such as Moody's or S&P, or if
unrated, are determined by Wilmington Trust Company (the "adviser" or "WTC") or
a sub-adviser, as applicable, to be of comparable quality. In addition, the
International Equity Portfolio may invest in non-convertible debt securities
issued by foreign governments, international agencies, and private foreign
issuers that, at the time of purchase, are rated A or better by Moody's or S&P,
or, if not rated, are judged by the Adviser or one or more of the sub-advisers
to be of comparable quality. Ratings represent the rating agency's opinion
regarding the quality of the security and are not a guarantee of quality. Should
the rating of a security be downgraded subsequent to a Portfolio's purchase of
the security, the Adviser or a sub-adviser, as applicable, will determine
whether it is in the best interest of the Portfolio to retain the security.
DEBT SECURITIES. Debt securities represent money borrowed that
obligates the issuer (e.g., a corporation, municipality, government, government
agency) to repay the borrowed amount at maturity (when the obligation is due and
payable) and usually to pay the holder interest at specific times.
HEDGING STRATEGIES. Each Portfolio may engage in certain hedging
strategies involving options, futures and, in the case of the International
Equity Portfolio, forward currency exchange contracts. These hedging strategies
are described in detail in the Appendix.
ILLIQUID SECURITIES. Illiquid securities are securities that cannot be
disposed of within seven days at approximately the value at which they are being
carried on a Portfolio's books.
REPURCHASE AGREEMENTS. 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
date and price reflecting a market rate of interest, unrelated to the coupon
rate or the maturity of the purchased security. While it is not 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
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costs to the Portfolio if the other party to the repurchase agreement
becomes bankrupt), it is the policy of the Portfolio to limit repurchase
transactions to primary dealers and banks whose creditworthiness has been
reviewed and found satisfactory by WTC. Repurchase agreements maturing in more
than seven days are considered illiquid for purposes of the Portfolio's
investment limitations.
RESTRICTED SECURITIES. Restricted securities are securities that may
not be sold to the public without registration under the Securities Act of 1933
(the "1933 Act") or an exemption from registration. Permitted investments for
the Portfolios include restricted securities, and each such Portfolio may invest
up to 15% of its net assets in illiquid securities, subject to the Portfolio's
investment limitations on the purchase of illiquid securities. Restricted
securities, including securities eligible for re-sale under 1933 Act Rule 144A,
that are determined to be liquid are not subject to this limitation. This
determination is to be made by WTC or a sub-adviser pursuant to guidelines
adopted by the Board of Trustees. Under these guidelines, the adviser or a
sub-adviser will consider the frequency of trades and quotes for the security,
the number of dealers in, and potential purchasers for, the securities, dealer
undertakings to make a market in the security, and the nature of the security
and of the marketplace trades. In purchasing such restricted securities, the
adviser or a sub-adviser intends to purchase securities that are exempt from
registration under Rule 144A under the 1933 Act.
SECURITIES LENDING. Each Portfolio may lend securities pursuant to
agreements which require that the loans be continuously secured by collateral at
all times equal to 100% of the market value of the loaned securities. Such
collateral consists of: cash, securities of the U.S. Government or its agencies,
or any combination of cash and such securities. Such loans will not be made if,
as a result, the aggregate amount of all outstanding securities loans for a
Portfolio exceed one-third of the value of the Portfolio's total assets taken at
fair market value. A Portfolio will continue to receive interest on the
securities lent while simultaneously earning interest on the investment of the
cash collateral in U.S. Government securities. However, a Portfolio will
normally pay lending fees to such broker-dealers and related expenses from the
interest earned on invested collateral. There may be risks of delay in receiving
additional collateral or risks of delay in recovery of the securities of even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans are made only to borrowers deemed by WTC or a
sub-adviser to be of good standing and when, in the judgment of WTC or a
sub-adviser, the consideration which can be earned currently from such
securities loans justifies the attendant risk. Any loan may be terminated by
either party upon reasonable notice to the other party.
LARGE CAP GROWTH EQUITY PORTFOLIO, LARGE CAP VALUE EQUITY PORTFOLIO AND SMALL
CAP EQUITY PORTFOLIO
OPTIONS ON SECURITIES AND SECURITIES INDEXES. The Portfolios may
purchase call options on securities that WTC intends to include in the
Portfolios in order to fix the cost of a future purchase or attempt to enhance
return by, for example, participating in an anticipated increase in the value of
a security. The Portfolios may purchase put options to hedge against a decline
in the market value of securities held in the Portfolios or in an attempt to
enhance return. The Portfolios may write (sell) put and covered call options on
securities in which they are authorized to invest. The Portfolios may also
purchase put and call options, and write put and covered call options on U.S.
securities indexes. Stock index options serve to hedge against overall
fluctuations in the securities markets rather than anticipated increases or
decreases in the value of a particular security. Of the 85% of the total assets
of a Portfolio that are invested in equity (or related) securities, the
Portfolio may not invest more than 10% of such assets in covered call options on
securities and/or options on securities indices.
INTERNATIONAL EQUITY PORTFOLIO
AMERICAN DEPOSITARY RECEIPTS (ADRS) AND EUROPEAN DEPOSITARY RECEIPTS
(EDRS). ADRs and EDRs are securities, typically issued by a U.S. financial
institution or a non-U.S. financial institution in the case of an EDR (a
"depositary"). The institution has ownership interests in a security, or a pool
of securities, issued by a foreign issuer and deposited with the depositary.
ADRs and EDRs may be available through "sponsored" or "unsponsored" facilities.
A sponsored facility is established jointly by the issuer of the security
underlying the receipt and a depositary. An unsponsored facility may be
established by a depositary without participation by the issuer of the
underlying security. Holders of unsponsored depositary receipts generally bear
all the costs of the unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute
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shareholder communications received from the issuer of the deposited security or
to pass through, to the holders of the receipts, voting rights with respect to
the deposited securities.
HEDGING STRATEGIES. The International Equity Portfolio's sub-advisers
may use forward currency contracts, options and futures contracts and related
options to attempt to hedge securities held by the Portfolio. There can be no
assurance that such efforts will succeed. Hedging strategies, if successful, can
reduce risk of loss by wholly or partially offsetting the negative effect of
unfavorable price movements in the investments being hedged. However, hedging
strategies can also reduce opportunity for gain by offsetting the positive
effect of favorable price movements in the hedged investment.
The International Equity Portfolio may enter into forward currency
contracts either with respect to specific transactions or with respect to the
Portfolio's positions. When WTC or a sub-adviser believes that a particular
currency may decline compared to the U.S. dollar, the Portfolio may enter into a
forward contract to sell the currency that WTC or the sub-adviser expects to
decline in an amount approximating the value of some or all of the Portfolio's
securities denominated in that currency. Such contracts may only involve the
sale of a foreign currency against the U.S. dollar. In addition, when the
Portfolio anticipates purchasing or selling a security, it may enter into a
forward currency contract in order to set the rate (either relative to the U.S.
dollar or another currency) at which a currency exchange transaction related to
the purchase or sale will be made.
The International Equity Portfolio also may sell (write) and purchase
put and call options and futures contracts and related options on foreign
currencies to hedge against movements in exchange rates relative to the U.S.
dollar. In addition, the Portfolio may write and purchase put and call options
on securities and stock indexes to hedge against the risk of fluctuations in the
prices of securities held by the Portfolio or which WTC or a sub-adviser intends
to include in the portfolio. Stock index options serve to hedge against overall
fluctuations in the securities markets rather than anticipated increases or
decreases in the value of a particular security. The Portfolio also may sell and
purchase stock index futures contracts and related options to protect against a
general stock market decline that could adversely affect the Portfolio's
securities or to hedge against a general stock market or market sector advance
to lessen the cost of future securities acquisitions. The Portfolio may use
interest rate futures contracts and related options thereon to hedge the debt
portion of its portfolio against changes in the general level of interest rates.
The International Equity Portfolio will not enter into an options,
futures or forward currency contract transaction that exposes the Portfolio to
an obligation to another party unless the Portfolio either (i) owns an
offsetting ("covered") position in securities, currencies, options, futures or
forward currency contracts or (ii) has cash, receivables and liquid securities
with a value sufficient at all times to cover its potential obligations to the
extent not covered as provided in (i) above.
INVESTMENTS IN INVESTMENT COMPANIES. The International Equity Portfolio
may invest in securities of open-end and closed-end investment companies that
invest primarily in the equity securities of issuers in countries where it is
impossible or impractical to invest directly. Such investments will be subject
to the limits described above that apply to investments in Money Market Funds.
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.
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In that event, WTC will consider whether it is in the best interest of the
Portfolio to continue to hold the securities.
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.
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.
5
<PAGE>
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
FUNDAMENTAL
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% or more of the shares of the affected Portfolio present at a
shareholders' meeting if 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:
1. with respect to 75% of the Portfolio's total assets, invest more
than 5% of the value of its total assets in the securities of any one issuer,
except debt obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government obligations"); for purposes of
this limitation, repurchase agreements fully collateralized by U.S. Government
obligations will be treated as U.S. Government obligations;
2. with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer if such purchase would cause more than 10% of the
voting securities of such issuer to be held by the Portfolio;
3. borrow money, except for temporary or emergency purposes, and then
in an aggregate amount not in excess of 10% of the Portfolio's total assets;
4. purchase securities (other than U.S. Government obligations), if
such purchase would cause more than 25% of the aggregate market value of the
total assets of the Portfolio at the time of such purchase to be invested in the
securities of one or more issuers having their principal business activities in
the same industry;
5. act as underwriter of the securities issued by others, except to the
extent that the purchase of securities in accordance with the Portfolio's
investment objective and policies directly from the issuer thereof and the later
disposition thereof may be deemed to be underwriting;
6. issue senior securities, except to the extent permitted by the 1940
Act;
7. purchase or sell real estate, 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;
8. purchase or sell physical commodities unless acquired as a result of
owning securities or other instruments, but the Portfolio may purchase, sell or
enter into financial options and futures, forward and spot currency contracts,
swap transactions and other derivative financial instruments;
6
<PAGE>
9. make loans to other persons, except loans of portfolio securities
and except to the extent that the purchase of debt obligations in accordance
with the Portfolio's investment objectives and policies and the entry into
repurchase agreements may be deemed to be loans; or
A Portfolio may as a fundamental policy invest all of its investable assets
(cash, securities and receivables relating to securities) in an open-end
management investment company having substantially the same investment
objective, policies and limitations as the Portfolio for purposes of
implementing a master-feeder structure, notwithstanding any other investment
policy of the Portfolio.
NON-FUNDAMENTAL
The following non-fundamental policies have been adopted by the Board
of Trustees with respect to each Portfolio and may be changed by the Board of
Trustees without shareholder approval.
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;
2. purchase securities on margin except to obtain such credits as may
be necessary for the clearance of the purchases and sales of securities, or make
short sales, unless by virtue of its ownership of other securities, it has the
right to obtain securities equivalent in kind and amount to the securities sold
and, if the right is conditional, the sale is made upon the same conditions; or
3. purchase securities while borrowings in excess of 5% of the
Portfolio's total assets are outstanding.
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 a Portfolio's net asset value.
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. All persons named as Trustees also serve in similar
capacities for The Rodney Square Strategic Fixed-Income 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 (*).
7
<PAGE>
<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, Public
College of Business, Policy and Health at the University of Maine since September 1998.
Public Policy and Health Previously he was the Dean of the School of Management at the
University of Maine University of Michigan since June 1992. He was also a member of the
Orono, ME 04473 Detroit Economic Club, Financial Executive Institute and Leadership
Age 57 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 Officer of
5 Hearth Lane, Hercules Incorporated (diversified chemicals), positions he held
Greenville, DE 19807 from March 1987 through March 1992. He also served as a member of
Age 66 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 E.I.
313 Southwinds, 1250 West du Pont de Nemours and Company, Inc. (diversified chemicals), a
Southwinds Blvd. Vero Beach, position he held from 1984 to November 30, 1993. He served as Chief
FL 32963 Financial Officer of E.I. du Pont de Nemours and Company, Inc. from
Age 66 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 President February 1996 and Director of RSMC since February 1996. He was
Market St., Wilmington, DE Chairman and Director of PNC Equity Advisors Company, and President
19890 and Chief Investment Officer of PNC Asset Management Group, Inc.
Age 49 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.
- ------------------------------ -------------- ----------------------------------------------------------------------
E. MATTHEW BROWN Vice-President Mr. Brown, Vice-President of WTC, joined WTC in October 1996. Prior
Rodney Square North, to joining WTC, he served as Chief Investment Officer of PNC Bank,
1100 N. Market St., Delaware, from 1993 through 1996, and as Investment Division Manager
Wilmington, DE 19890 for Delaware Trust Capital Management from 1990 through 1993.
Age 47
- ------------------------------ -------------- ----------------------------------------------------------------------
JAY F. NUSBLATT Vice President Mr. Nusblatt has been Vice President and Director of Fund Accounting
103 Bellevue Parkway and Treasurer and Administration at PFPC Inc. since 1993. He was formerly an
Wilmington, DE 19809 Assistant Vice President at Fund/Plan Services, Inc. from 1989 to
Age 36 1993.
- ------------------------------ -------------- ----------------------------------------------------------------------
CARL M. RIZZO Secretary Mr. Rizzo has been Vice President of RSMC since July, 1996. From
Rodney Square North, 1995 to 1996 he was Assistant General Counsel of Aid Association for
1100 N. Market St., Lutherans (a fraternal benefit association); from 1994 to 1995
Wilmington, DE 19890 Senior Associate Counsel of United Services Automobile Association
Age 47 (an insurance and financial services firm); and from 1987 to 1994
Special Counsel or Attorney-Adviser with a federal government agency.
- ------------------------------ -------------- ----------------------------------------------------------------------
</TABLE>
8
<PAGE>
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
December 31, 1998 such fees and expenses amounted to $270 for the Fund. 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 February
5, 1999, 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 $4,175 $22,558
Fred L Buckner $4,175 $22,558
John J. Quindlen $4,175 $22,558
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following entities have a 5% or larger position as of February 5,
1999 in the Large Cap Growth Equity Portfolio:
1) Wilmington Trust Company 8.67%
Trustee for Wilmington Trust Company Pension Trust
1100 North Market Street, Wilmington, DE 19890
2) Wilmington Trust Company 13.66%
Trustee for Wilmington Trust Company 401K Thrift Savings Plan
1100 North Market Street, Wilmington, DE 19890
The following entities have a 5% or larger position as of February 5,
1999 in the Large Cap Value Equity Portfolio:
1) Wilmington Trust Company 17.31%
Trustee for Wilmington Trust Company Pension Trust
1100 North Market Street, Wilmington, DE 19890
2) Wilmington Trust Company 19.65%
Trustee for Wilmington Trust Company 401K Thrift Savings Plan
1100 North Market Street, Wilmington, DE 19890
9
<PAGE>
The following entities have a 5% or larger position as of February 5,
1999 in the Small Cap Equity Portfolio:
1) Wilmington Trust Company 14.74%
Trustee for Wilmington Trust Company Pension Trust
1100 North Market Street, Wilmington, DE 19890
2) Wilmington Trust Company 16.29%
Trustee for Wilmington Trust Company 401K Thrift Savings Plan
1100 North Market Street, Wilmington, DE 19890
The following entities have a 5% or larger position as of February 5,
1999 in the International Equity Portfolio:
1) Wilmington Trust Company 22.82%
Trustee for Wilmington Trust Company Pension Trust
1100 North Market Street, Wilmington, DE 19890
2) Wilmington Trust Company 9.45%
Trustee for Wilmington Trust Company 401K Thrift Savings Plan
1100 North Market Street, Wilmington, DE 19890
WILMINGTON TRUST COMPANY
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.
INVESTMENT ADVISORY SERVICES
ADVISORY AGREEMENTS. WTC serves as investment adviser to each Portfolio
pursuant to an Advisory Agreement with the Fund. Under the Advisory Agreement,
WTC directs the investments of each Portfolio in accordance with that
Portfolio's investment objectives, policies and limitations. In addition, WTC
recommends sub-advisers for the International Equity Portfolio, allocates assets
among the sub-advisers, and monitors and evaluates the sub-advisers'
performance.
For WTC's services under the Advisory Agreement, the Large Cap Growth
Equity Portfolio and the Large Cap Value Equity Portfolio each pays WTC a
monthly fee at an annual rate of 0.55% of the Portfolio's average daily net
assets. The Small Cap Equity Portfolio and the International Equity Portfolio
each pays WTC a monthly fee at an annual rate of 0.60% and 0.65%, respectively,
of the Portfolio's average daily net assets for WTC's services under the
Advisory Agreement.
10
<PAGE>
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 and 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 until February 23, 2000 and
then 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 each 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.
For the period February 23, 1998 through December 31, 1998, WTC's fee
for the Large Cap Growth Portfolio was $737,326, of which $179,082 was waived.
For the period June 29, 1998 through December 31, 1998 WTC's fee for the Large
Cap Value Equity Portfolio, the Small Cap Equity Portfolio and the International
Equity Portfolio was $256,307, $231,603 and $219,865, of which $59,683, $56,522
and $35,331 was waived, respectively.
Prior to February 23, 1998, the Large Cap Growth Equity Portfolio was
managed by two different portfolio advisers. For the period January 1, 1998 to
February 23, 1998 and for the fiscal years ended December 31, 1997 and December
31, 1996, the Portfolio paid RSMC advisory fees in the amounts of $130,955,
$840,071 and $706,321, respectively. From those fees RSMC paid the portfolio
advisers.
THE SUB-ADVISERS
The International Equity Portfolio utilizes a multi-manager
configuration, with each sub-adviser following a different investment approach
in investing in non-U.S. companies with attractive return potential. Each of the
current sub-advisers employs a fundamentally driven investment process that
includes varying levels of both top-down economic analysis at the country level
and bottom-up stock selection within markets, as well as varying degrees of
quantitative analysis of issuers, industries, countries and regional markets.
The Portfolio typically maintains representation across a broad range of
countries, but will tend to have weightings that significantly differ from
international stock indexes, such as the Morgan Stanley Capital International
Europe,
11
<PAGE>
Australasia & Far East Index (the "EAFE Index"). The Portfolio also may have
significant exposure to emerging markets not represented in the EAFE Index, such
as Mexico, Indonesia and Thailand. Because country allocations may differ from
those of the EAFE Index, the Portfolio's returns may significantly deviate from
those of the EAFE Index.
The sub-advisers to the Portfolio are:
Clemente Capital, Inc. ("Clemente") - A theme-oriented international
manager investing in companies with favorable growth characteristics that will
be positively influenced by global and regional trends.
Scudder Kemper Investments, Inc. ("Scudder Kemper") - Uses a very heavy
emphasis on research to identify companies benefiting from favorable global
themes, a positive economic climate conducive to growth in their area of
operation, or unique situations.
Invista Capital Management, Inc. ("Invista") - Takes a long-term,
value-oriented approach that focuses on the intrinsic value of companies within
particular industries or sectors and seeks to purchase stock in target companies
at a discount to their intrinsic value.
SUB-ADVISORY AGREEMENTS. Scudder Kemper, Clemente and Invista serve as
sub-advisers to the International Equity Portfolio pursuant to sub-advisory
agreements ("Sub-Advisory Agreements"). For services furnished pursuant to each
Sub-Advisory Agreement, WTC pays each sub-adviser a monthly portfolio management
fee at an annual rate of 0.50% of the average daily net assets under the
sub-adviser's management.
Each Sub-Advisory Agreement provides that the sub-adviser has
discretionary investment authority (including the selection of brokers and
dealers for the execution of the Portfolio's portfolio transactions) with
respect to the portion of the Portfolio's assets allocated to it by WTC, subject
to the restrictions of the 1940 Act, the Internal Revenue Code of 1986, as
amended, applicable state securities laws, applicable statutes and regulations
of foreign jurisdictions, the Portfolio's investment objective, policies and
restrictions and the instructions of the Trustees and WTC.
Each Sub-Advisory Agreement provides that the sub-adviser will not be
liable for any action taken, omitted or suffered to be taken except if such acts
or omissions are the result of willful misfeasance, bad faith, gross negligence
or reckless disregard of duty. Each Agreement continues in effect for two years
and then from year to year so long as continuance of each such Agreement is
approved at least annually (i) by the vote of a majority of the Independent
Trustees at a meeting called for the purpose of voting on such approval and (ii)
by the vote of a majority of the Trustees or by the vote of a majority of the
outstanding voting securities of the Portfolio. Each Sub-Advisory Agreement
terminates automatically in the event of its assignment and is terminable on
written notice by the Fund (without penalty, by action of the Board of Trustees
or by vote of a majority of the Portfolio's outstanding voting securities) or by
WTC or the sub-adviser. Each Agreement provides that written notice of
termination must be provided sixty days prior to the termination date, absent
mutual agreement for a shorter notice period.
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 accounting services for the Fund. These
services include preparing shareholder reports, providing statistical and
research data, assisting WTC in compliance monitoring activities, and preparing
and filing federal and state tax returns on behalf of the Portfolios. In
addition, PFPC prepares and files various reports with the appropriate
regulatory agencies and prepares materials required by the SEC or any state
securities commission having jurisdiction over the Fund. The accounting services
performed by PFPC for the Portfolios include determining the net asset value per
share of each Portfolio and maintaining records relating to the Portfolios'
securities transactions.
12
<PAGE>
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 Large Cap Growth Equity Portfolio. For the period January 1,
1998 to February 1, 1998 and for the fiscal years ended December 31, 1997 and
December 31, 1996, RSMC was paid administration fees amounting to $5,446,
$75,606 and $63,569, respectively. For the period January 1, 1998 to February 1,
1998 and for each of the fiscal years ended December 31, 1997, December 31, 1996
and December 31, 1995, RSMC was paid an accounting services fee of $3,822 and
$45,000 respectively.
After February 2, 1998, PFPC provided administrative and accounting
services for the Large Cap Growth Equity Portfolio. For the period February 2,
1998 to December 31, 1998, PFPC was paid administration and accounting services
fees of $140,942.
On June 29, 1998, PFPC began providing administrative and accounting
services for the Large Cap Value Equity Portfolio, the Small Cap Equity
Portfolio and the International Equity Portfolio. For the period June 29, 1998
to December 31, 1998, PFPC was paid administration and accounting fees of
$46,601, $38,600 and $33,825 for each Portfolio, respectively.
DISTRIBUTION AGREEMENT
Provident Distributors Inc. ("PDI") serves as the distributor of the
Portfolios' shares pursuant to a Distribution Agreement with the Fund effective
January 1, 1999. Under the current Distribution Agreement, PDI receives no
underwriting commissions or Rule 12b-1 fees in connection with the sale of
shares of the Portfolios.
Pursuant to the terms of the Distribution Agreement, PDI is granted the
right to sell shares of the Portfolios as agent for the Fund.
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 for two years and then
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 (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 sixty (60) days' written notice to PDI; or (ii) by
PDI on sixty (60) days' written notice to the Fund.
13
<PAGE>
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 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
Purchases and sales of portfolio securities on a securities exchange
are effected by brokers, and the Portfolios pay brokerage commissions for this
service. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. During the fiscal years
ended December 31, 1998, 1997 and 1996, the Rodney Square Strategic Equity Fund
paid total brokerage commissions of $536,724, $57,925 and $59,691, respectively.
The primary objective of WTC and, with respect to the International
Equity Portfolio, each sub-adviser 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 and the sub-advisers consider, among other things,
(i) the price of the securities to be purchased or sold; (ii) the rate of the
commission or the amount of the mark-up to be charged; (iii) the size and
difficulty of the order; (iv) the reliability, integrity, financial condition,
general execution and operational capability of any competing broker or dealer;
and (v) the quality of the execution and research services provided by the
broker or dealer to the Fund and to other discretionary accounts advised by WTC
and its affiliates or the sub-advisers and their affiliates.
WTC and the sub-advisers cannot readily determine the extent to which
commission rates or net prices charged by broker-dealers reflect the value of
their research services. In such cases, WTC and the sub-advisers receive
services they otherwise might have had to perform themselves. The research
services provided by brokers or dealers can be useful to WTC and the
sub-advisers in serving their other clients, as well as in serving the Fund.
Conversely, information provided to WTC and the sub-advisers by brokers or
dealers who have executed transaction orders on behalf of other WTC clients or
other clients of the sub-advisers may be useful to WTC and the sub-advisers in
providing services to the Fund. The Portfolios may purchase and sell portfolio
securities to and from dealers who provide the Portfolios with research
services. Portfolio transactions, however, will not be directed to dealers
solely on the basis of research services provided.
14
<PAGE>
In order to obtain the best net results, WTC and each sub-adviser may
conduct brokerage transactions on behalf of the Portfolios with a broker that is
an affiliate of WTC or a sub-adviser. The Fund's Board of Trustees has adopted
procedures in conformity with Rule 17e-1 under the 1940 Act to ensure that all
brokerage commissions paid to such affiliates are reasonable and fair in the
context of the market in which they are operating. Any such transactions will be
effected and related compensation paid only in accordance with applicable SEC
regulations.
Some of the sub-advisers' and WTC's other clients have investment
objectives and policies similar to those of the Portfolios. Occasionally, WTC
and the sub-advisers may make recommendations to other clients which 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 the clients of WTC or the
sub-advisers simultaneously purchase or sell the same security, WTC and the
sub-advisers allocate the prices and amounts according to a formula considered
by the officers of each affected investment company and by the officers of WTC
and its affiliates 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 and the
sub-advisers may have investment objectives and policies that are dissimilar to
those of the Portfolios, causing WTC and the sub-advisers to buy a security for
one account while simultaneously selling the security for another account. In
accordance with applicable SEC regulations, one account may sell a security to
another account. It is the policy of WTC and the sub-advisers not to favor one
account over another in placing purchase and sale orders. However, there may be
circumstances when purchases or sales for one or more 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
or a sub-adviser 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 of the Large Cap Growth Equity Portfolio for the years ended
December 31, 1998 and 1997 was 51.64% and 28.05%, respectively. The portfolio
turnover rate for the Large Cap Value Equity Portfolio, the Small Cap Equity
Portfolio and the International Equity Portfolio for the period June 29, 1998 to
December 31, 1998 are 36.78%, 9.81% and 27.66%, respectively.
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.
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,
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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").
In valuing a Portfolio's assets, a security listed on the Exchange (and
not subject to restrictions against sale by the Portfolio on the Exchange) will
be valued at its last sale price on the Exchange on the day the security is
valued. Lacking any sales on such day, the security will be valued at the mean
between the closing asked price and the closing bid price. Securities listed on
other exchanges (and not subject to restriction against sale by the Portfolio on
such exchanges) will be similarly valued, using quotations on the exchange on
which the security is traded most extensively. Unlisted securities that are
quoted on the National Association of Securities Dealers' National Market
System, for which there have been sales of such securities on such day, shall be
valued at the last sale price reported on such system on the day the security is
valued. If there are no such sales on such day, the value shall be the mean
between the closing asked price and the closing bid price. The value of such
securities quoted on the Nasdaq Stock Market System, but not listed on the
National Market System, shall be valued at the mean between the closing asked
price and the closing bid price. Unlisted securities that are not quoted on the
Nasdaq Stock Market System and for which over-the-counter market quotations are
readily available will be valued at the mean between the current bid and asked
prices for such security in the over-the-counter market. Other unlisted
securities (and listed securities subject to restriction on sale) will be valued
at fair value as determined in good faith under the direction of the Board of
Trustees although the actual calculation may be done by others. Short-term
investments with remaining maturities of less than 61 days are valued at
amortized cost.
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Trading in securities on European and Far Eastern securities exchanges
and over-the-counter market is normally completed well before the close of
business on each Business Day. In addition, European or Far Eastern securities
trading generally or in a particular country or countries may not take place on
all Business Days. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not Business
Days and on which the International Equity Portfolio's net asset value is not
calculated and investors will be unable to buy or sell shares of the Fund.
Calculation of the Portfolio's net asset value does not take place
contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. If events materially affecting
the value of such securities occur between the time when their price is
determined and the time when the Portfolio's net asset value is calculated, such
securities may be valued at fair value as determined in good faith by or under
the direction of the Board of Trustees.
DIVIDENDS
Dividends from each Portfolio's net investment income and distributions
of (1) net short-term capital gain and net capital gain (the excess of net
long-term capital gain over the short-term capital loss) realized by each
Portfolio, after deducting any available capital loss carryovers, and (2) in the
case of the International Equity Portfolio, net gains realized from foreign
currency transactions are declared and paid to its shareholders annually.
TAXATION OF THE FUND
GENERAL. Each Portfolio is treated as a separate corporation for
federal income tax purposes. To qualify or continue to qualify for treatment as
a regulated investment company ("RIC") under the Internal Revenue Code of 1986,
as amended (the "Code"), each Portfolio must distribute to its shareholders for
each taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain and,
in the case of the International Equity Portfolio, net gains from certain
foreign currency transactions) 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 and forward 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 securities, securities of other RICs and other
securities, with these 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 securities or the 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 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 (the "Excise Tax") to the extent it fails to distribute by the end of
any calendar year substantially all of its ordinary income and capital gain net
income for that year, plus certain other amounts. For this and other purposes,
dividends and other distributions declared in December of any year and payable
to shareholders of record on a date in that month will be deemed to have been
paid by the Portfolio and received by its shareholders on December 31 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.
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It is anticipated that all or a portion of the dividends from the net
investment income of each Portfolio other than the International Equity
Portfolio will qualify for the dividends-received deduction allowed to
corporations. The qualifying portion may not exceed the aggregate dividends
received by the Portfolio from U.S. corporations. However, dividends received by
a corporate shareholder and deducted by it pursuant to the dividends-received
deduction are subject indirectly to the federal alternative minimum tax.
Moreover, the dividends-received deduction will be reduced to the extent the
shares with respect to which the dividends are received are treated as
debt-financed and will be eliminated if those shares are deemed to have been
held for less than 46 days. Distributions of net short-term capital gain and net
capital gain are not eligible for the dividends-received deduction.
Any loss realized by a shareholder on the redemption of shares within
six months from the date of their purchase will be treated as a long-term,
instead of a short-term, capital loss to the extent of any capital gain
distributions to that shareholder with respect to those shares.
Distributions by a Portfolio from net investment income or capital
gains will result in a reduction in the net asset value of its shares. If a
distribution reduces the net asset value below a shareholder's cost basis, the
distribution nevertheless will be taxable to the shareholder even though, from
an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Thus, investors
purchasing shares just prior to a distribution will receive a partial return of
their investment upon the distribution that nevertheless will be taxable to
them.
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.
FOREIGN SECURITIES. Dividends and interest received, and gains
realized, by the International Equity Portfolio may be subject to income,
withholding or other taxes imposed by foreign countries or U.S. possessions
(collectively, "foreign taxes") that would reduce the yield on its securities.
Tax conventions between certain countries and the United States may reduce or
eliminate foreign taxes, however, and many foreign countries do not impose taxes
on capital gains in respect of investments by foreign investors.
If more than 50% of the value of the International Equity Portfolio's
total assets at the close of its taxable year consists of securities of foreign
corporations, the Portfolio will be eligible to, and may, file an election with
the Internal Revenue Service that will enable its shareholders, in effect, to
benefit from any foreign tax credit or deduction that is available with respect
to foreign taxes paid by the Portfolio. If the election is made, the Portfolio
will treat those taxes as dividends paid to its shareholders and each
shareholder (1) will be required to include in gross income, and treat as paid
by the shareholder, a proportionate share of those taxes, (2) will be required
to treat that share of those taxes and of any dividend paid by the Portfolio
that represents income from foreign or U.S. possessions sources as the
shareholder's own income from those sources and (3) may either deduct the taxes
deemed paid by the shareholder in computing taxable income or, alternatively,
use the foregoing information in calculating the foreign tax credit against the
shareholder's federal income tax. The Portfolio will report to its shareholders
shortly after each taxable year their respective shares of its income from
sources within, and taxes paid to, foreign countries and U.S. possessions if it
makes this election. If the Portfolio makes this election, individuals who have
no more than $300 ($600 for married persons filing jointly) of creditable
foreign taxes included on Forms 1099 and all of whose foreign source income is
"qualified passive income" may elect each year to be exempt from the extremely
complicated foreign tax credit limitation and will be able to claim a foreign
tax credit without having to file the detailed Form 1116 that otherwise is
required.
The International Equity Portfolio may invest in the stock of passive
foreign investment companies ("PFICs"). A PFIC is a foreign corporation -- other
than a "controlled foreign corporation" (i.e., a foreign corporation in which,
on any day during its taxable year, more than 50% of the total voting power of
all voting stock therein or the total value of all stock therein is owned,
directly, indirectly, or constructively, by "U.S. shareholders," defined as U.S.
persons that individually own, directly, indirectly, or constructively, at least
10%
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of that voting power) as to which the Portfolio is a U.S. shareholder -- that,
in general, meets either of the following tests: (a) at least 75% of its gross
income is passive or (b) an average of at least 50% of its assets produce, or
are held for the production of, passive income. If the Portfolio acquires stock
in a PFIC and holds the stock beyond the end of the year of acquisition, the
Portfolio will be subject to federal income tax on a portion of any "excess
distribution" received on the stock or of any gain from disposition of the stock
(collectively, "PFIC income"), plus interest thereon, even if the Portfolio
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Portfolio's investment
company taxable income and, accordingly, will not be taxable to it to the extent
that income is distributed to its shareholders.
If the International Equity Portfolio invests in a PFIC and elects to
treat the PFIC as a "qualified electing fund" ("QEF"), then in lieu of the
foregoing tax and interest obligation, the Portfolio will be required to include
in income each year its pro rata share of the QEF's annual ordinary earnings and
net capital gain, even if they are not distributed to the Portfolio by the QEF;
those amounts most likely would have to be distributed by the Fund to satisfy
the Distribution Requirement and avoid imposition of the Excise Tax. It may be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
The International Equity Portfolio may elect to "mark to market" its
stock in any PFIC. "Marking-to-market," in this context, means including in
ordinary income each taxable year the excess, if any, of the fair market value
of the stock over the Portfolio's adjusted basis therein as of the end of that
year. Pursuant to the election, the Portfolio also will be allowed to deduct (as
an ordinary, not capital, loss) the excess, if any, of its adjusted basis in
PFIC stock over the fair market value thereof as of the taxable year-end, but
only to the extent of any net mark-to-market gains with respect to that stock
included in income by the Portfolio for prior taxable years. The Portfolio's
adjusted basis in each PFIC's stock subject to the election will be adjusted to
reflect the amounts of income included and deductions taken thereunder.
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 foreign currency
contracts derived by a Portfolio with respect to its business of investing in
securities 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 for their market value) for federal income tax purposes. Sixty
percent of any net gain or loss recognized on these deemed sales, and 60% of any
net realized gain or loss from any actual sales of Section 1256 Contracts, will
be treated as long-term capital gain or loss, and the balance will be treated as
short-term capital gain or loss. As of the date of this Statement of Additional
Information, it is not entirely clear whether that 60% portion will qualify for
the reduced maximum tax rates on non-corporate taxpayers' net capital gain
enacted by the Taxpayer Relief Act of 1997 -- 20% (10% for taxpayers in the 15%
marginal tax bracket) for gain recognized on capital assets held for more than
18 months -- instead of the 28% rate in effect before that legislation, which
now applies to gain recognized on capital assets held for more than one year but
not more than 18 months. However, technical corrections legislation passed by
the House of Representatives late in 1997 would clarify that the lower rates
apply. Section 1256 Contracts also may be marked-to-market for purposes of the
Excise Tax.
Section 988 of the Code also may apply to forward currency contracts
and options on foreign currencies. Under section 988, each foreign currency gain
or loss generally is computed separately and treated as ordinary income or loss.
In the case of overlap between sections 1256 and 988, special provisions
determine the character and timing of any income, gain or loss. The
International Equity Portfolio attempts to monitor its section 988 transactions
to minimize any adverse tax impact.
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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 tax discussion is a summary included for general
informational purposes only. Each shareholder is advised to consult its own tax
adviser with respect to the specific tax consequences to it of an investment in
a Portfolio, including the effect and applicability of state, local, foreign and
other tax laws and the possible effects of changes in federal or other tax laws.
CALCULATION OF PERFORMANCE DATA
The performance of a Portfolio may be quoted in terms of 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. Effective February 23, 1998, WTC became the Investment
Adviser of the Large Cap Growth Equity Portfolio. Prior to February 23, 1998,
the Large Cap Growth Equity Portfolio was managed by two different portfolio
advisers who followed different investment styles and sought to achieve its
objective by investing at least 65% of its total assets in equity securities
without regard to the market capitalization of the issuers of such securities.
As described in the Prospectus, the Large Cap Value Equity Portfolio may
advertise performance figures of the Value Stock Fund, a collective investment
fund, the International Equity Portfolio may advertise performance figures of
the International Stock Fund, another collective investment fund, and the Small
Cap Equity Portfolio may advertise performance figures of the Small Cap Stock
Fund, another collective investment fund.
TOTAL RETURN CALCULATIONS. From time to time, a 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 = hypothetical initial payment of $1,000
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T = average annual total return
n = number of years
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 a Portfolio are assumed to have been
reinvested at net asset value on the reinvestment date during the period.
While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that a Portfolio's 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 Portfolio.
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 Large Cap Growth Equity
Portfolio's cumulative total return was, for the fiscal year ended December 31,
1998: 23.58%; for the five years ended December 31, 1998: 150.86%; and for the
ten years ended December 31, 1998: 408.26%.
Average annual and cumulative total returns for the Portfolios may be
quoted as a dollar amount, as well as a percentage, and may be calculated for a
series of investments or a series of redemptions, as well as for a single
investment or a single redemption, over any time period. Total returns may be
broken down into their components of income and capital gain (including capital
gain distributions and changes in share price) to illustrate the relationship of
those factors and their contributions to total return.
The Portfolios may also from time to time along with performance
advertisements, present their investments in the form of a "Schedule of
Investments" included in the Annual Report to the shareholders of the Fund. A
copy of the Annual Report to the Fund's Shareholders as of and for the fiscal
year ended December 31, 1998, is attached hereto and incorporated by reference.
COMPARISON OF PORTFOLIO PERFORMANCE. A comparison of the quoted
performance offered for various investments is valid only if performance is
calculated in the same manner. Since there are many methods of calculating
performance, investors should consider the effects of the methods used to
calculate performance when comparing performance of a Portfolio with performance
quoted with respect to other investment companies or types of investments.
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.
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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 a
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:
ASIAN WALL STREET JOURNAL, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
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 investing abroad.
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 TIMES, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
FINANCIAL WORLD, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
FORBES, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
FORTUNE, a national business publication that periodically rates the performance
of a variety of mutual funds.
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THE FRANK RUSSELL COMPANY, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
GLOBAL INVESTOR, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
INVESTMENT COMPANY DATA, INC., an independent organization that 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 that regularly covers
financial news.
PERSONAL INVESTING NEWS, a monthly news publication that often reports on
investment opportunities and market conditions.
PERSONAL INVESTOR, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indexes and portfolio holdings.
SUCCESS, a monthly magazine targeted to the world of entrepreneurs and growing
businesses, often featuring mutual fund performance data.
USA TODAY, a national daily newspaper.
U.S. NEWS AND WORLD REPORT, a national business weekly that periodically reports
mutual fund performance data.
WALL STREET JOURNAL, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
WIESENBERGER INVESTMENT COMPANIES SERVICES, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.
In advertising the performance of the Portfolios, the performance of a
Portfolio may also be compared to the performance of unmanaged indexes of
securities in which the Portfolio invests or to unit investment trusts ("UITs")
that hold the same type of securities in which the Portfolio invests.
FINANCIAL STATEMENTS
Each Portfolio's financial statements and finacial highlights for the fiscal
year ended December 31, 1998, including notes thereto and the report of Ernst &
Young L.L.P. thereon, are incorporated herein by reference to the Fund's Annual
Report to Shareholders.
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APPENDIX
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES
REGULATION OF THE USE OF OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT
STRATEGIES. As discussed in the Prospectus, in managing a Portfolio, WTC or the
sub-advisers may engage in certain options, futures and forward currency
contract strategies for certain bona fide hedging, risk management or other
portfolio management purposes. Certain special characteristics of and 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 in the case of the International Equity Portfolio, their 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 one or more segregated accounts 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. With the exception of the International Equity Portfolio, a
Portfolio may purchase and write (sell) only those options on securities and
securities indices that are traded on U.S. exchanges. 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. The International Equity Portfolio may
purchase and write (sell) options only on securities and securities indices that
are traded on foreign exchanges.
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
the 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 the 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.
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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, the
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
the adviser'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 the 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.
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 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 the
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. The Portfolio would enter into a long straddle
when the adviser 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. The Portfolio would enter into a short straddle when the adviser
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, unencumbered 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,
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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 the 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 the 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. The 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; the 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 the 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.
Each Portfolio will normally use index warrants as it may use index
options. The risks of the Portfolio's use of index warrants are generally
similar to those relating to its use of index options. Unlike most index
options, however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution which issues the warrant. Also, index warrants
generally have longer terms than index options. Index warrants are not likely to
be as liquid as index options backed by a recognized clearing agency. In
addition, the terms of index warrants may limit the Portfolio's ability to
exercise the warrants at any time or in any quantity.
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 thereby; and
(2) no Portfolio will write options (whether on
securities or securities indexes) if aggregate
exercise prices of previous written outstanding
options, together with the value of assets used to
cover all outstanding positions, would exceed 25% of
its total net assets.
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 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 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 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 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.
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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 or
index, the time remaining until expiration, the relationship
of the exercise price to the market price, the historical
price volatility of the underlying security or index, and
general market conditions. For this reason, the successful use
of options depends upon the adviser's ability to forecast the
direction of price fluctuations in the underlying securities
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 or index. Purchased options
that expire unexercised have no value. Unless an option
purchased by the 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 the 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.
(4) With certain exceptions, exchange listed options generally
settle by physical delivery of the underlying security. 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 the 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 exercise price of the call option itself and thus will
not know the amount of cash payable upon settlement. If the
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, the Portfolio also may save on commissions by
using options as a hedge rather than buying or selling
individual securities in anticipation of, or as a result of,
market movements.
FUTURES AND RELATED OPTIONS STRATEGIES. Each Portfolio may engage in futures
strategies for certain non-trading bona fide hedging, risk management and
portfolio management purposes.
Each Portfolio may sell securities 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 a 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
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value of the Portfolio's holdings. A Portfolio may purchase index futures
contracts if a significant market or market sector advance is anticipated. Such
a purchase of a futures contract would serve as a temporary substitute for the
purchase of the underlying securities which may then be purchased in an orderly
fashion. This strategy may minimize the effect of all or part of an increase in
the market price of securities that a 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. The 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 securities held by the
Portfolio. This is analogous to writing covered call options on securities. The
Portfolio also may purchase put options on index futures contracts. The purchase
of put options on index futures contracts is analogous to the purchase of
protective put options on individual securities where a level of protection is
sought below which no additional economic loss would be incurred by the
Portfolio.
The International Equity 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, the Portfolio may sell
foreign currency futures contracts when a sub-adviser anticipates a general
weakening of foreign currency exchange rates that could adversely affect the
market values of the Portfolio's foreign securities holdings. In this case, the
sale of futures contracts on the underlying currency may reduce the risk to the
Portfolio of a reduction in market value caused by foreign currency exchange
rate variations and, by so doing, provide an alternative to the liquidation of
securities positions and resulting transaction costs. When a sub-adviser
anticipates a significant foreign currency exchange rate increase while
intending to invest in a security denominated in that currency, the Portfolio
may purchase a foreign currency futures contract to hedge against that increase
pending completion of the anticipated transaction. Such a purchase would serve
as a temporary measure to protect the Portfolio against any rise in the foreign
exchange rate that may add additional costs to acquiring the foreign security
position. The Portfolio may also purchase call or put options on foreign
currency futures contracts to obtain a fixed foreign exchange rate at limited
risk. The Portfolio may purchase a call option on a foreign currency futures
contract to hedge against a rise in the foreign exchange rate while intending to
invest in a security denominated in that currency. The Portfolio may purchase
put options on foreign currency futures contracts as a partial hedge against a
decline in the foreign exchange rates or the value of its foreign portfolio
securities. The Portfolio may write a call option on a foreign currency futures
contract as a partial hedge against the effects of declining foreign exchange
rates on the value of foreign securities.
FUTURES AND RELATED OPTIONS GUIDELINES. In view of the risks involved in using
the futures strategies that are described above, each Portfolio has adopted the
following investment guidelines to govern its use of such strategies. These
guidelines may be modified by the Board of Trustees without shareholder vote.
(1) The Portfolio will engage only in covered futures
transactions, and each such transaction will remain
covered so long as the Portfolio is obligated
thereby.
(2) The Portfolio will not write options on futures
contracts if aggregate exercise prices of previously
written outstanding options (whether on securities or
securities indexes), together with the value of
assets used to cover all outstanding futures
positions, would exceed 25% of its total net assets.
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 its 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
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deposit on the contract that is returned to a 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 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, a
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 a 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 the 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 a Portfolio's use of futures contracts and related
options, particular note should be taken of the following:
(1) Successful use by a Portfolio of futures contracts and related
options will depend upon the adviser's ability to predict
movements in the direction of the securities 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 securities, but also to 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 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, a 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 a 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, a 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, a 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.
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(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 being hedged,
movements in the prices of futures contracts may not correlate
perfectly with movements in the prices of the hedged
securities due to price distortions in the futures market.
There may be several reasons unrelated to the value of the
underlying securities 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 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 each Portfolio intends 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, options on futures contracts have
limited life. The ability to establish and close out options
on futures will be subject to the development and maintenance
of liquid secondary markets on the relevant exchanges or
boards of trade. There can be no certainty that such markets
for all options on futures contracts will develop.
(5) Purchasers of options on futures contracts pay a premium in
cash at the time of purchase. This amount and the transaction
costs are all that is at risk. Sellers of options on futures
contracts, however, must post initial margin and are subject
to additional margin calls that could be substantial in the
event of adverse price movements. In addition, although the
maximum amount at risk when the 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, a Portfolio's 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 in
anticipation of, or as a result of, market movements.
SPECIAL RISKS RELATED TO FOREIGN CURRENCY OPTIONS AND FUTURES CONTRACTS
Options and futures contracts 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 or futures contract depends
upon the value of the underlying currency relative to the U.S. dollar. As a
result, the price of the International Equity Portfolio's position in a foreign
currency option or currency contract 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. Because foreign currency transactions occurring in the
interbank market involve substantially larger
A-7
<PAGE>
amounts than those that may be involved in the use of foreign currency options
or futures transactions, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million) at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(that is, less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options or futures 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 or
futures markets until they reopen.
As with other options and futures positions, the International Equity
Portfolio's ability to establish and close out such positions in foreign
currencies is subject to the maintenance of a liquid secondary market. Trading
of some such positions is relatively new. Although the Portfolio will not
purchase or write such positions unless and until, in WTC's opinion, the market
for them has developed sufficiently to ensure that the risks in connection with
such positions are not greater than the risks in connection with the underlying
currency, there can be no assurance that a liquid secondary market will exist
for a particular option or futures contract at any specific time. Moreover, the
Portfolio will not enter into OTC options that are illiquid if, as a result,
more than 15% of its net assets would be invested in illiquid securities.
Settlement of a foreign currency futures contract must occur within the
country issuing the underlying currency. Thus, the Portfolio must accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign restrictions or regulations regarding the maintenance of foreign banking
arrangements by U.S. residents, and it may be required to pay any fees, taxes
and charges associated with such delivery that are assessed in the issuing
country.
FORWARD CURRENCY CONTRACTS. The International Equity Portfolio may use forward
currency contracts to protect against uncertainty in the level of future foreign
currency exchange rates.
The Portfolio may enter into forward currency contracts with respect to
specific transactions. For example, when the Portfolio enters into a contract
for the purchase or sale of a security denominated in a foreign currency or
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
sale, for a fixed amount of U.S. dollars, 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 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 or to increase its exposure to foreign currencies that WTC or the
sub-advisers believe may rise in value relative to the U.S. dollar. For example,
when WTC or the sub-advisers believe that the currency of a particular foreign
country may suffer a substantial decline relative to the U.S. dollar, 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 Portfolio's securities holdings
denominated in such foreign currency.
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 Portfolio 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 Portfolio is obligated
to deliver and if a decision is
A-8
<PAGE>
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 Portfolio is 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 and the sub-advisers believe that it is important to
have the flexibility to enter into such forward contracts when it determines
that the best interests of the Portfolio will be served.
At or before the maturity date of a forward contract requiring the
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 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 Portfolio owns 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 Portfolio values its 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 Portfolio 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 Portfolio at one rate, while offering a lesser rate of
exchange should the Portfolio desire to resell that currency to the dealer.
A-9
<PAGE>
THE RODNEY SQUARE STRATEGIC EQUITY FUND
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Declaration of Trust.
(i) Amended and Restated Declaration of Trust dated November 10, 1986.
(Incorporated by reference to Exhibit 1 to Pre-Effective Amendment
No. 1 to this Registration Statement filed on November 12, 1986.)
(ii) Amendment to Declaration of Trust dated December 29, 1986.
(Incorporated by reference to Exhibit 1(b) to Pre-Effective Amendment
No. 2 to this Registration Statement filed on January 28, 1987.)
(iii) Amendment to Declaration of Trust dated February 15, 1993.
(Incorporated by reference to Exhibit 1(c) to Post-Effective
Amendment No. 9 to this Registration Statement filed on February 28,
1994.)
(iv) Supplement to Declaration of Trust dated February 23, 1998.
(Incorporated by reference to Exhibit 1(d) to Post-Effective
Amendment No. 15 to this Registration Statement filed on March 27,
1998.)
(v) Supplement to Declaration of Trust dated June 15, 1998. (Incorporated
by reference to Exhibit 1(e) to Post-Effective Amendment No. 17 to
this Registration Statement filed on June 26, 1998.)
(b) Bylaws.
(i) Amended and Restated By-Laws dated August 17, 1998 (filed herewith).
(c) Instruments Defining the Rights of Security Holders.
(i) Amended and Restated Declaration of Trust dated November 10, 1986, as
amended December 29, 1986; February 15, 1993; February 23, 1998 and
June 15, 1998. (Incorporated by reference to Exhibit 4(a) to
Post-Effective Amendment No. 9 to this Registration Statement filed
on February 28, 1994 and to Exhibit 1(d) to Post-Effective Amendment
No. 15 to this Registration Statement filed on March 27, 1998 and to
Exhibit 1(e) to Post-Effective Amendment No. 17 to this Registration
Statement filed on June 26, 1998.)
(ii) Amended and Restated By-Laws dated August 17, 1998 (filed herewith).
(d) Investment Advisory Agreements.
(i) Advisory Agreement between the Registrant and Wilmington Trust
Company dated February 23, 1998. (Incorporated by reference to
Exhibit 5 to Post-Effective Amendment No. 15 to this Registration
Statement filed on March 27, 1998.)
(1) Amended Schedule A to Advisory Agreement dated February 23, 1998
between the Registrant and Wilmington Trust Company.
(Incorporated by reference to Exhibit 5(a)(i) to Post-Effective
Amendment No. 17 to this Registration Statement filed on June
26, 1998.)
<PAGE>
(2) Amended Schedule B to Advisory Agreement dated February 23, 1998
between the Registrant and Wilmington Trust Company.
(Incorporated by reference to Exhibit 5(a)(ii) to Post-Effective
Amendment No. 17 to this Registration Statement filed on June
26, 1998.)
(ii) Sub-Advisory Agreement between the Registrant on behalf of the
International Equity Portfolio, Wilmington Trust Company and Clemente
Capital, Inc. (Incorporated by reference to Exhibit 5(b) to
Post-Effective Amendment No. 17 to this Registration Statement filed
on June 26, 1998.)
(iii) Sub-Advisory Agreement between the Registrant on behalf of the
International Equity Portfolio, Wilmington Trust Company and Invista
Capital Management, Inc. (Incorporated by reference to Exhibit 5(c)
to Post-Effective Amendment No. 17 to this Registration Statement
filed on June 26, 1998.)
Sub-Advisory Agreement between the Registrant on behalf of the
International Equity Portfolio, Wilmington Trust Company and Scudder
Kemper Investments, Inc. dated September 7, 1998 (filed herewith).
(e) Underwriting Contracts.
(i) Distribution Agreement between the Registrant and Provident
Distributors Inc. (filed herewith).
(f) Bonus, Profit Sharing or Pension Plans. None.
(g) Custodian Agreements.
(i) Custodian Contract between the Registrant and Wilmington Trust
Company dated January 30, 1987. (Incorporated by reference to Exhibit
8 to Post-Effective Amendment No. 1 to this Registration Statement
filed on or about July 31, 1987.)
(ii) 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(b) to
Post-Effective Amendment No. 17 to this Registration Statement filed
on June 26, 1998.)
(1) Fee Agreement dated February 2, 1998 between the Registrant, PNC
Bank, National Association and Wilmington Trust Company.
(Incorporated by reference to Exhibit 8(b)(i) to Post-Effective
Amendment No. 17 to this Registration Statement filed on June
26, 1998.)
(iii) Sub-Custodian Services Agreement dated July 1, 1998 between PNC Bank,
National Association, Wilmington Trust Company and the Registrant.
(Incorporated by reference to Exhibit 8(c) to Post-Effective
Amendment No. 17 to this Registration Statement filed on June 26,
1998.)
(h) Other Material Contracts.
<PAGE>
(i) Transfer Agency Services Agreement between the Registrant and PFPC
Inc. (Incorporated by reference to Exhibit 9(a) to Post-Effective
Amendment No. 17 to this Registration Statement filed on June 26,
1998.)
(1) Fee Agreement dated February 2, 1998 between Registrant and PFPC
Inc. (Incorporated by reference to Exhibit 9(a)(i) to
Post-Effective Amendment No. 17 filed on June 26, 1998.)
(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. 17 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.
17 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. 15 to this Registration
Statement filed on March 27, 1998.)
(i) Legal Opinion.
(i) Opinion of Kirkpatrick & Lockhart LLP. (Opinion at the time of Fund
creation filed with the Securities and Exchange Commission on or
about February 23, 1987 under Rule 24f-2.)
(ii) Opinion of Kirkpatrick & Lockhart LLP with respect to Large Cap Value
Equity Portfolio, Small Cap Equity Portfolio and International Equity
Portfolio. (Incorporated by reference to Exhibit 10(b) of
Post-Effective Amendment No. 17 to this Registration Statement filed
on June 26, 1998.)
(j) Other Opinions.
(i) Consent of Ernst & Young LLP, independent auditors for Registrant
(filed herewith).
(k) Omitted Financial Statements. Financial Statements omitted from Item 22.
None.
(l) Letter of Investment Intent. (Incorporated by reference to Exhibit 13 to
Pre-Effective Amendment No. 2 to this Registration Statement filed on
January 28, 1987.)
(m) Rule 12b-1 Plan. None.
(n) Financial Data Schedule.
(i) Financial Data Schedule for the Large Cap Growth Equity Portfolio
(filed herewith).
(ii) Financial Data Schedule for the Large Cap Value Equity Portfolio
(filed herewith).
(iii) Financial Data Schedule for the Small Cap Equity Portfolio (filed
herewith).
(iv) Financial Data Schedule for the International Equity Portfolio (filed
herewith).
(o) Rule 18f-3 Plan. None.
<PAGE>
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 Fixed-Income 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%
Delaware Corp. Management Delaware 100%
Drew-I Ltd. Delaware 100%
Drew-VIII Ltd. Delaware 100%
Holiday Travel Agency, Inc. Delaware 100%
Rockland Corporation Delaware 100%
Rodney Square Distributors, Inc Delaware 100%
Rodney Square Management Corporation Delaware 100%
Siobain VI, Ltd. Delaware 100%
Siobain VIII, Ltd. Delaware 100%
Wilmington Brokerage Services Company Delaware 100%
Wilmington Capital Management, Inc. Delaware 100%
WTC Corporate Services, Inc. Delaware 100%
100 West Tenth St. Corporation Delaware 100%
WT Investments Inc. Delaware 100%
Wilmington Trust Commercial Services Co. Maryland 100%
PARTNERSHIPS
- ------------
Rodney Square Investors, L.P.
ITEM 25. INDEMNIFICATION.
Article X, Section 2 of the Registrant's Amended and Restated Declaration
of Trust provides that the appropriate series of the Registrant will indemnify
the Registrant's Trustees or officers ("covered persons") 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
<PAGE>
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.
Article X, Section 2(c) provides that the Registrant may maintain insurance
policies covering such rights of indemnification.
Additionally, Article XI, Section 1 of the Declaration of Trust provides
that the Trustees shall not be personally liable to any person extending credit
to, contracting with or having any claim against the Registrant; the appropriate
Series for payment and neither the shareholders nor the Trustees nor any of
their agents; except that nothing in the Declaration of Trust shall protect a
Trustee against liability by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Article XI, Section 2 of the Declaration of Trust also 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 8A 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 for any act or omission in
the course of rendering services 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 8B of the Advisory Agreement provides that no provision of
the Advisory Agreement shall be construed to protect any Trustee or officer of
the Fund or the Adviser, from liability in violation of Sections 17(h), 17(i),
36(a) or 36(b) of the Investment Company Act of 1940. Paragraph 16 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 Portfolio and its assets, if liability relates to a particular
Portfolio.
Paragraph 11 of the Distribution Agreement between the Registrant and
Provident Distributors, Inc. ("PDI") provides that the Registrant agrees to
indemnify and hold harmless PDI and each of its directors and officers and each
person, if any, who controls PDI 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. PDI, however, will not be indemnified to the
extent that the statement or omission is based on information provided in
writing by PDI. In no case is the indemnity of the Registrant in favor of PDI or
any person indemnified to be deemed to protect PDI or any person against any
liability to the Registrant or its security holders to which PDI 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.
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
<PAGE>
indemnification is against public policy as expressed in the 1933 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 WTC have held the
following positions of a substantial nature in the past two years:
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
<PAGE>
BUSINESS OR OTHER CONNECTIONS OF
PRINCIPAL EXECUTIVE OFFICERS AND
NAME OFFICERS AND DIRECTORS OF REGISTRANTS ADVISER
- ---- ---------------------------------------------
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)
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) Investment Companies for which Provident Distributors, Inc. also
acts as principal underwriter:
Pacific Horizon Funds, Inc.
Time Horizon Funds
World Horizon Funds, Inc.
Pacific Innovations Trust
International Dollar Reserve Fund I, Ltd.
Municipal Fund for Temporary Investment
Municipal Fund for New York Investors, Inc.
Municipal Fund for California Investors, Inc.
Temporary Investment Fund, Inc.
Trust for Federal Securities
Columbia Common Stock Fund, Inc.
Columbia Growth Fund, Inc.
Columbia International Stock Fund, Inc.
<PAGE>
Columbia Special Fund, Inc.
Columbia Small Cap Fund, Inc.
Columbia Real Estate Equity Fund, Inc.
Columbia Balanced Fund, Inc.
Columbia Daily Income Company
Columbia U.S. Government Securities Fund, Inc.
Columbia Fixed Income Securities Fund, Inc.
Columbia Municipal Bond Fund, Inc.
Columbia High Yield Fund, Inc.
The RBB Fund, Inc.
Robertson Stephens Investment Trust
Hilliard-Lyons Government Fund, Inc
Hilliard-Lyons Growth Fund, Inc.
The Rodney Square Fund
The Rodney Square Tax-Exempt Fund
The Rodney Square Strategic Fixed-Income Fund
WT Mutual Fund
The BlackRock Funds, Inc. (Distributed by BlackRock
Distributors, Inc. a wholly owned subsidiary of Provident
Distributors, Inc.)
The OffitBank Investment Fund, Inc. (Distributed by Offit
Funds Distributor, Inc. a wholly owned subsidiary of Provident
Distributors, Inc.)
The OffitBank Variable Insurance Fund, Inc. (Distributed by
Offit Funds Distributor, Inc. a wholly owned subsidiary of
Provident Distributors, Inc.)
CVO Greater China Fund, Inc. (Distributed by Offit Funds
Distributor, Inc. a wholly owned subsidiary of Provident
Distributors, Inc.)
(b) Reference is made to the Caption "Distributor" in the Statement
of Additional Information constituting Part B of this
Registration Statement. The information required by this Item 27
with respect to each director of the underwriter is incorporated
by reference to the Form BD filed by the Underwriter with the
Commission pursuant to the Securities Exchange Act of 1934, as
amended under the File Number indicated:
Provident Distributors, Inc. SEC File No. 8-46564
(c) Not Applicable
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,
<PAGE>
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 26th day of February, 1999.
THE RODNEY SQUARE STRATEGIC EQUITY 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
- --------- ----- ----
President & February 26, 1999
Trustee
/s/ Robert J. Christian
_______________________________
Robert J. Christian*
Trustee February 26, 1999
/s/ Eric Brucker
_______________________________
Eric Brucker*
Trustee February 26, 1999
/s/ Fred L. Buckner
_______________________________
Fred L. Buckner*
Trustee February 26, 1999
/s/ John J. Quindlen
_______________________________
John J. Quindlen*
Treasurer (Principal February 26, 1999
/s/ Jay F. Nusblatt
_______________________________ Financial and
Jay F. Nusblatt Accounting Officer)
*By:
/s/ Carl M. Rizzo
_______________________________
Carl M. Rizzo
** Attorney-in-fact pursuant to a power of attorney dated August 19, 1996 and
incorporated by reference from Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on Form N-1A, SEC File No. 811-4808, filed
February 28, 1997.
<PAGE>
EXHIBIT INDEX
The Rodney Square Strategic Equity Fund
23 (b) (i) Amended and Restated Bylaws
23 (d) (v) Sub-Advisory Agreement between the Registrant, on behalf
of the International Equity Portfolio, Wilmington Trust
Company and Scudder Kemper Investments, Inc.
23 (e) (i) Distribution Agreement between Registrant and Provident
Distributors, Inc.
23 (j) (i) Consent of Ernst & Young, LLP
27 Financial Data Schedules
Exhibit 23(b)(i)
THE RODNEY SQUARE STRATEGIC EQUITY FUND
A Massachusetts Business Trust
AMENDED AND RESTATED BYLAWS
AUGUST 17, 1998
<PAGE>
AMENDED AND RESTATED BYLAWS
THE RODNEY SQUARE STRATEGIC EQUITY 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 Equity 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
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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.
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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.
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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.
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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
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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.
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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
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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 Equity 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.
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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.
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Exhibit 23(d)(v)
THE RODNEY SQUARE STRATEGIC EQUITY FUND
SUB-ADVISORY AGREEMENT
THIS SUB-ADVISORY AGREEMENT is made as of the 7th day of September,
1998, among The Rodney Square Strategic Equity Fund, a Massachusetts business
trust (the "Fund"), Wilmington Trust Company (the "Adviser"), a corporation
organized under the laws of the State of Delaware and Scudder Kemper
Investments, Inc., a corporation organized under the laws of the State of
Delaware (the "Sub-Adviser" ) .
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
and offers for public sale distinct series of shares of beneficial interest; and
WHEREAS, The International Equity Portfolio (the "Portfolio") is a
series of the Fund; and
WHEREAS, the Adviser acts as the investment adviser for the Portfolio
pursuant to the terms of an Investment Advisory Agreement between the Fund and
the Adviser under which the Adviser is responsible for the coordination of
investment of the Portfolio's assets in portfolio securities; and
WHEREAS, the Adviser is authorized under the Investment Advisory
Agreement to delegate its investment responsibilities to one or more persons or
companies;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the Fund, the Adviser and the Sub-Adviser agree as follows:
1. APPOINTMENT OF SUB-ADVISER. The Fund hereby appoints and employs the
Sub-Adviser as a discretionary portfolio manager, on the terms and
conditions set forth herein, of those assets of the Portfolio which the
Adviser determines to assign to the Sub-Adviser (those assets being
referred to as the "Portfolio Account"). The Adviser may, from time to
time, make additions to and withdrawals, including cash and cash
equivalents, from the Portfolio Account.
2. ACCEPTANCE OF APPOINTMENT. The Sub-Adviser accepts its appointment as a
discretionary portfolio manager and agrees to use its professional
judgment to make investment decisions for the Portfolio with respect to
the investments of the Portfolio Account and to implement such
decisions on a timely basis in accordance with the provisions of this
Agreement.
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3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with
copies properly certified or authenticated of each of the following and
will promptly provide the Sub-Adviser with copies properly certified or
authenticated of any amendment or supplement thereto:
(a) The Portfolio's Investment Advisory Agreement;
(b) The Fund's most recent effective registration statement and
financial statements as filed with the Securities and Exchange
Commission;
(c) The Fund's Declaration of Trust and By-Laws; and
(d) Any policies, procedures or instructions adopted or approved
by the Fund's Board of Trustees relating to obligations and
services provided by the Sub-Adviser.
4. PORTFOLIO MANAGEMENT SERVICES OF THE SUB-ADVISER. The Sub-Adviser is
hereby employed and authorized to select portfolio securities for
investment by the Portfolio, to purchase and to sell securities for the
Portfolio Account, and upon making any purchase or sale decision, to
place orders for the execution of such portfolio transactions in
accordance with Sections 6 and 7 hereof and Schedule A hereto (as
amended from time to time). In providing portfolio management services
to the Portfolio Account, the Sub-Adviser shall be subject to and shall
conform to such investment restrictions as are set forth in the 1940
Act and the rules thereunder, the Internal Revenue Code, applicable
state securities laws, applicable statutes and regulations of foreign
jurisdictions, the supervision and control of the Board of Trustees of
the Fund, such specific instructions as the Board of Trustees may adopt
and communicate to the Sub-Adviser, the investment objective, policies
and restrictions of the Fund applicable to the Portfolio furnished
pursuant to Section 5 of this Agreement, the provisions of Schedule A
and Schedule B hereto and other instructions communicated to the
Sub-Adviser by the Adviser. The Sub-Adviser is not authorized by the
Fund to take any action, including the purchase or sale of securities
for the Portfolio Account, in contravention of any restriction,
limitation, objective, policy or instruction described in the previous
sentence. The Sub-Adviser shall maintain on behalf of the Fund the
records listed in Schedule B hereto (as amended from time to time). At
the Fund's reasonable request, the Sub-Adviser will consult with the
Fund or with the Adviser with respect to any decision made by it with
respect to the investments of the Portfolio Account.
5. INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS. The Fund will provide
the Sub-Adviser with the statement of investment objective, policies
and restrictions applicable to the Portfolio as contained in the
Portfolio's Prospectus and Statement of Additional Information, all
amendments or supplements to the Prospectus and Statement of Additional
Information, and any instructions adopted by the Board of Trustees
supplemental thereto. The Fund agrees, on an ongoing basis, to notify
the Sub-Adviser in writing of each change in the fundamental and
non-fundamental investment policies of the Portfolio and will provide
the Sub-Adviser with such further information concerning
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the investment objective, policies, restrictions and such other
information applicable thereto as the Sub-Adviser may from time to time
reasonably request for performance of its obligations under this
Agreement. The Fund retains the right, on written notice to the
Sub-Adviser from the Fund or the Adviser, to modify any such objective,
policies or restrictions in any manner at any time.
6. TRANSACTION PROCEDURES. All transactions will be consummated by payment
to or delivery by the custodian designated by the Fund (the
"Custodian"), or such depositories or agents as may be designated by
the Custodian in writing, of all cash and/or securities due to or from
the Portfolio Account, and the Sub-Adviser shall not have possession or
custody thereof. The Sub-Adviser shall advise the Custodian and confirm
in writing to the Fund and to the administrator designated by the Fund
or any other designated agent of the Fund, all investment orders for
the Portfolio Account placed by it with brokers and dealers at the time
and in the manner set forth in Schedule B hereto (as amended from time
to time). The Fund shall issue to the Custodian such instructions as
may be appropriate in connection with the settlement of any transaction
initiated by the Sub-Adviser. The Fund shall be responsible for all
custodial arrangements and the payment of all custodial charges and
fees, and, upon giving proper instructions to the Custodian, the
Sub-Adviser shall have no responsibility or liability with respect to
custodial arrangements or the acts, omissions or other conduct of the
Custodian, except that it shall be the responsibility of the
Sub-Adviser to take appropriate action if the Custodian fails to
confirm in writing proper execution of the instructions.
7. ALLOCATION OF BROKERAGE. The Sub-Adviser shall have authority and
discretion to select brokers and dealers (including brokers that may be
affiliates of the Sub-Adviser to the extent permitted by Section 7(c)
hereof) to execute portfolio transactions initiated by the Sub-Adviser,
and for the selection of the markets on or in which the transactions
will be executed, subject to the following and subject to conformance
with the policies and procedures disclosed in the Fund's Prospectus and
Statement of Additional Information and the policies and procedures
adopted by the Fund's Board of Trustees.
(a) In executing portfolio transactions, the Sub-Adviser will give
primary consideration to securing the best price and
execution. Consistent with this policy, the Sub-Adviser may
consider the financial responsibility, research and investment
information and other services provided by brokers or dealers
who may effect or be a party to any such transaction or other
transactions to which other clients of the Sub-Adviser may be
a party. It is understood that neither the Fund, the Adviser
nor the Sub-Adviser has adopted a formula for allocation of
the Fund's investment transaction business. It is also
understood that it is desirable for the Fund that the
Sub-Adviser have access to supplemental investment and market
research and security and economic analyses provided by
certain brokers who may execute brokerage transactions at a
higher commission to the Fund than may result when allocating
brokerage to other brokers on the basis of seeking the lowest
commission. Therefore, the Sub-Adviser is authorized to place
orders for the purchase and sale of securities for the
Portfolio with such certain brokers,
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subject to review by the Fund's Board of Trustees from time to
time with respect to the extent and continuation of this
practice. It is understood that the services provided by such
brokers may be useful to the Sub-Adviser in connection with
its services to other clients. The Sub-Adviser is also
authorized to place orders with certain brokers for services
deemed by the Adviser to be beneficial for the Fund; and the
Sub-Adviser shall follow the directions of the Adviser or the
Fund in this regard.
(b) On occasions when the Sub-Adviser deems the purchase or sale
of a security to be in the best interest of the Portfolio as
well as other clients, the Sub-Adviser, to the extent
permitted by applicable laws and regulations, may, but shall
be under no obligation to, aggregate the securities to be sold
or purchased in order to obtain the best price and execution.
In such event, allocation of the securities so purchased or
sold, as well as expenses incurred in the transaction, will be
made by the Sub-Adviser in the manner it considers to be the
most equitable and consistent with its fiduciary obligations
to the Fund in respect of the Portfolio and to such other
clients.
(c) The Sub-Adviser agrees that it will not execute without the
prior written approval of the Adviser any portfolio
transactions for the Portfolio Account with a broker or dealer
which is (i) an affiliated person of the Fund, including the
Adviser or any Sub-Adviser for any Portfolio of the Fund; (ii)
a principal underwriter of the Fund's shares; or (iii) an
affiliated person of such an affiliated person or principal
underwriter. The Adviser agrees that it will provide the
Sub-Adviser with a list of such brokers and dealers.
(d) The Adviser shall render regular reports to the Fund of the
total brokerage business placed and the manner in which the
allocation has been accomplished.
8. PROXIES. The Sub-Adviser will vote all proxies solicited by or with
respect to issuers of securities in which assets of the Portfolio
Account may be invested from time to time. At the request of the
Sub-Adviser, the Adviser shall provide the Sub-Adviser with its
recommendations as to the voting of such proxies.
9. REPORTS TO THE SUB-ADVISER. The Fund will provide the Sub-Adviser with
such periodic reports concerning the status of the Portfolio Account as
the Sub-Adviser may reasonably request.
10. FEES FOR SERVICES. The compensation of the Sub-Adviser for its services
under this Agreement shall be calculated and paid by the Adviser in
accordance with the attached Schedule C. Pursuant to the provisions of
the Investment Advisory Agreement between the Fund and the Adviser, the
Adviser is solely responsible for the payment of fees to the
Sub-Adviser, and the Sub-Adviser agrees to seek payment of the
Sub-Adviser's fees solely from the Adviser.
4
<PAGE>
11. OTHER INVESTMENT ACTIVITIES OF THE SUB-ADVISER. The Fund acknowledges
that the Sub-Adviser or one or more of its affiliated persons may have
investment responsibilities or render investment advice to or perform
other investment advisory services for other individuals or entities
and that the Sub-Adviser, its affiliated persons or any of its or their
directors, officers, agents or employees may buy, sell or trade in any
securities for its or their respective accounts ("Affiliated
Accounts"). Subject to the provisions of Section 7(b) hereof, the Fund
agrees that the Sub-Adviser or its affiliated persons may give advice
or exercise investment responsibility and take such other action with
respect to other Affiliated Accounts which may differ from the advice
given or the timing or nature of action taken with respect to the
Portfolio Account, provided that the Sub-Adviser acts in good faith,
and provided further, that it is the Sub-Adviser's policy to allocate,
within its reasonable discretion, investment opportunities to the
Portfolio Account over a period of time on a fair and equitable basis
relative to the Affiliated Accounts, taking into account the investment
objective and policies of the Portfolio and any specific investment
restrictions applicable thereto. The Fund acknowledges that one or more
of the Affiliated Accounts may at any time hold, acquire, increase,
decrease, dispose of or otherwise deal with positions in investments in
which the Portfolio Account may have an interest from time to time,
whether in transactions which involve the Portfolio Account or
otherwise. The Sub-Adviser shall have no obligation to acquire for the
Portfolio Account a position in any investment which any Affiliated
Account may acquire, and the Fund shall have no first refusal,
co-investment or other rights in respect of any such investment, either
for the Portfolio Account or otherwise.
12. CERTIFICATE OF AUTHORITY. The Fund, the Adviser and the Sub-Adviser
shall furnish to each other from time to time certified copies of the
resolutions of their Boards of Trustees/Directors or executive
committees, as the case may be, evidencing the authority of officers
and employees who are authorized to act on behalf of the Fund, a
Portfolio Account, the Adviser and/or the Sub-Adviser.
13. LIMITATION OF LIABILITY. The Sub-Adviser shall not be liable for any
action taken, omitted or suffered to be taken by it in its reasonable
judgment, in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Agreement,
or in accordance with (or in the absence of) specific directions or
instructions from the Fund or the Adviser, provided, however, that such
acts or omissions shall not have resulted from the Sub-Adviser's
willful misfeasance, bad faith, gross negligence or a reckless
disregard of duty. Nothing in this Section 13 shall be construed in a
manner inconsistent with Section 17(i) of the 1940 Act.
14. CONFIDENTIALITY. Subject to the duty of the Sub-Adviser, the Adviser
and the Fund to comply with applicable law, including any demand of any
regulatory or taxing authority having jurisdiction, the parties hereto
shall treat as confidential all material non public information
pertaining to the Portfolio Account and the actions of the Sub-Adviser,
the Adviser and the Fund in respect thereof.
5
<PAGE>
15. ASSIGNMENT. No assignment of this Agreement shall be made by the
Sub-Adviser, and this Agreement shall terminate automatically in the
event of such assignment. The Sub-Adviser shall notify the Fund and the
Adviser in writing sufficiently in advance of any proposed change of
control within the meaning of the 1940 Act to enable the Fund and the
Adviser to take the steps necessary to enter into a new contract with
the Sub-Adviser.
16. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE FUND. The Fund
represents, warrants and agrees that:
(a) The Sub-Adviser has been duly appointed by the Board of
Trustees of the Fund to provide investment services to the
Portfolio Account as contemplated hereby.
(b) The Fund will deliver to the Sub-Adviser a true and complete
copy of its then current Prospectus and Statement of
Additional Information as effective from time to time and such
other documents or instruments governing the investment of the
Portfolio Account and such other information as is necessary
for the Sub-Adviser to carry out its obligations under this
Agreement.
(c) The Fund is currently in compliance and shall at all times
continue to comply with the requirements imposed upon the Fund
by applicable law and regulations.
17. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE ADVISER. The Adviser
represents, warrants and agrees that:
(a) The Adviser has been duly authorized by the Board of Trustees
of the Fund to delegate to the Sub-Adviser the provision of
investment services to the Portfolio Account as contemplated
hereby.
(b) The Adviser is currently in compliance and shall at all times
continue to comply with the requirements imposed upon the
Adviser by applicable law and regulations.
18. REPRESENTATIONS. WARRANTIES AND AGREEMENTS OF THE SUB-ADVISER. The
Sub-Adviser represents, warrants and agrees that:
(a) The Sub-Adviser is registered as an "investment adviser" under
the Investment Advisers Act of 1940 ("Advisers Act") or is a
"bank" as defined in Section 202(a)(2) of the Advisers Act.
(b) The Sub-Adviser will maintain, keep current and preserve on
behalf of the Fund, in the manner required or permitted by the
1940 Act, the records identified in Schedule B. The
Sub-Adviser agrees that such records (unless otherwise
indicated on Schedule B) are the property of the Fund, and
will be surrendered to the Fund promptly upon request. The
Sub-Adviser agrees to keep confidential all records of the
Fund and information relating to the Fund, unless the release
of such
6
<PAGE>
records or information is otherwise consented to in writing by
the Fund or the Adviser. The Fund and the Adviser agree that
such consent shall not be unreasonably withheld and may not be
withheld where the Sub-Adviser may be exposed to civil or
criminal contempt proceedings or when required to divulge such
information or records to duly constituted authorities.
(c) The Sub-Adviser will complete such reports concerning
purchases or sales of securities on behalf of the Portfolio
Account as the Adviser or the Fund may from time to time
require to ensure compliance with the 1940 Act, the Internal
Revenue Code, applicable state securities laws and applicable
statutes and regulations of foreign jurisdictions.
(d) The Sub-Adviser has adopted a written code of ethics complying
with the requirements of Rule 17j-1 under the 1940 Act and
Section 204A of the Advisers Act and has provided the Fund
with a copy of the code of ethics and evidence of its
adoption. Within forty-five (45) days of the end of the last
calendar quarter of each year while this Agreement is in
effect, the president or a vice president or general partner
of the Sub-Adviser shall certify to the Fund that the
Sub-Adviser has complied with the requirements of Rule 17j-1
and Section 204A during the previous year and that there has
been no violation of the Sub-Adviser's code of ethics or, if
such a violation has occurred, that appropriate action was
taken in response to such violation. Upon the written request
of the Fund, the Sub-Adviser shall permit the Fund, its
employees or its agents to examine the reports required to be
made to the Sub-Adviser by Rule 17j-1(c)(1).
(e) The Sub-Adviser will promptly after filing with the Securities
and Exchange Commission an amendment to its Form ADV furnish a
copy of such amendment to the Fund and the Adviser.
(f) The Sub-Adviser will immediately notify the Fund and the
Adviser of the occurrence of any event which would disqualify
the Sub-Adviser from serving as an investment adviser of an
investment company pursuant to Section 9 of the 1940 Act or
otherwise. The Sub-Adviser will also immediately notify the
Fund and the Adviser if it is served or otherwise receives
notice of any action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court,
public board or body, involving the affairs of the Portfolio.
19. AMENDMENT. This Agreement may be amended at any time, but only by
written agreement among the Sub-Adviser, the Adviser and the Fund,
which amendment, other than amendments to Schedules A and B, is subject
to the approval of the Board of Trustees and, to the extent required by
the 1940 Act, the shareholders of the Portfolio in the manner required
by the 1940 Act and the rules thereunder, subject to any applicable
orders of exemption issued by the Securities and Exchange Commission.
7
<PAGE>
20. EFFECTIVE DATE; TERM. This Agreement shall become effective on the date
first written above and shall remain in force for a period of time of
two years from such date, and from year to year thereafter but only so
long as such continuance is specifically approved at least annually by
the vote of a majority of the Directors who are not interested persons
of the Fund, the Adviser or the Sub-Adviser, cast in person at a
meeting called for the purpose of voting on such approval, and by a
vote of the Board of Directors or of a majority of the outstanding
voting securities of the Portfolio. The aforesaid requirement that this
Agreement may be continued "annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations thereunder.
21. TERMINATION.
(a) This Agreement may be terminated by the Fund (by a vote of the
Board of Directors of the Fund or by a vote of a majority of
the outstanding voting securities of the Portfolio), without
the payment of any penalty, immediately upon written notice to
the other parties hereto, in the event of a material breach of
any provision thereof by the party so notified or otherwise by
the Fund, upon sixty (60) days' written notice to the other
parties hereto, but any such termination shall not affect the
status, obligations or liabilities of any party hereto to the
others.
(b) This Agreement may also be terminated by the Adviser or the
Sub-Adviser, without the payment of any penalty immediately
upon written notice to the other parties hereto, in the event
of a material breach of any provision thereof by the party so
notified if such breach shall not have been cured within a
20-day period after notice of such breach or otherwise by the
Adviser or the Sub-Adviser upon sixty (60) days' written
notice to the other parties hereto, but any such termination
shall not affect the status, obligations or liabilities of any
party hereto to the others.
22. SHAREHOLDER LIABILITY. The Adviser and Sub-Adviser are hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust of the Fund and agree that obligations
assumed by the Fund pursuant to this Agreement shall be limited in all
cases to the Fund and its assets, and if the liability relates to one
or more Portfolios, the obligations hereunder shall be limited to the
respective assets of such Portfolio or Portfolios. The Adviser and
Sub-Adviser further agree that they shall not seek satisfaction of any
such obligation from the shareholders or any individual shareholder of
the Portfolios of the Fund, nor from the Trustees or any individual
Trustee of the Fund.
23. DEFINITIONS. As used in this Agreement, the terms "affiliated person,"
"assignment," "control," "interested person," "principal underwriter"
and "vote of a majority of the outstanding voting securities" shall
have the meanings set forth in the 1940 Act and the rules and
regulations thereunder, subject to any applicable orders of exemption
issued by the Securities and Exchange Commission.
8
<PAGE>
24. NOTICE. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed, postage prepaid, to the other
parties to this Agreement at their principal place of business.
25. 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.
26. GOVERNING LAW. To the extent that state law is not 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.
27. ENTIRE AGREEMENT. This Agreement and the Schedules attached hereto
embodies the entire agreement and understanding between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, as of the day and year first written above.
THE RODNEY SQUARE STRATEGIC EQUITY FUND
on behalf of
THE INTERNATIONAL EQUITY PORTFOLIO
By: ______________________________________________
Robert J. Christian, President
SCUDDER KEMPER INVESTMENTS, INC.
By: _______________________________________________
Title: ____________________________________________
WILMINGTON TRUST COMPANY
By: ______________________________________________
Robert J. Christian, Senior Vice President
SCHEDULES: A. Operating Procedures
B. Record Keeping Requirements
C Fee Schedule
9
<PAGE>
SCHEDULE A
OPERATING PROCEDURES
From time to time the Adviser shall issue written Operating Procedures which
shall govern reporting of transactions and other matters so as to facilitate (i)
the monitoring of the Fund's compliance with the restrictions and limitations
applicable to the operations of a registered investment company and (ii) the
preparation of reports to the Board of Trustees, regulatory authorities and
shareholders.
SUBSTANTIVE LIMITATIONS
A. The Sub-Adviser will manage the Portfolio Account as if the Portfolio
Account were a registered investment company subject to the investment
objective, policies and limitations applicable to the Portfolio stated
in the Fund's Prospectus and Statement of Additional Information, as
from time to time in effect, included in the Fund's registration
statement or a supplement thereto under the Securities Act of 1933 and
the Investment Company Act of 1940 (the "1940 Act"), as each may be
amended from time to time; provided, however, that if a more stringent
restriction or limitation than any of the foregoing is stated in
Section B of this Schedule, the more stringent restriction or
limitation shall apply to the Portfolio Account.
B. The Sub-Adviser shall not, without the written approval of the Adviser,
on behalf of the Portfolio Account:
1. purchase securities of any issuer if such purchase would cause
more than 3.33 % of the voting securities of such issuer to be
held in the Portfolio Account (1940 Act ss.5(b)(1); IRC*
ss.851(b)(4)(a)(ii));
2. purchase securities if such purchase would cause:
a. more than 1 % of the outstanding voting stock of any
other investment company to be held in the Portfolio
Account (1940 Act ss.12(d)(1)(A)(i)),
b. securities issued by any other investment company
having an aggregate value in excess of 5 % of the
value of the total assets in the Portfolio Account to
be held in the Portfolio Account (1940 Act
ss.12(d)(1)(A)(i)),
c. securities issued by all other investment companies
having an aggregate value in excess of 10% of the
value of the total assets of the Portfolio Account to
be held in the Portfolio Account (1940 Act
ss.12(d)(1)(A)(iii)),
- -------------
* Internal Revenue Code
A-1
<PAGE>
d. more than 3.33% of the outstanding voting stock of
any registered closed-end investment company to be
held in the Portfolio Account, and by any other
investment company having as its investment adviser
any of the Sub-Advisers, the Adviser, or any other
investment adviser to the Fund (1940 Act
ss.12(d)(1)(C));
3. purchase securities of any insurance company if such purchase
would cause more than 3.33% of the outstanding voting
securities of any insurance company to be held in the
Portfolio Account (1940 Act ss.12(d)(2)); or
4. purchase securities of or any interest in any person who is a
broker, a dealer, is engaged in the business of underwriting,
is an investment adviser to an investment company or is a
registered investment adviser under the Investment Advisers
Act of 1940. unless
a. such purchase is of a security of any issuer that,
in its most recent fiscal year, derived 15% or less
of its gross revenues from securities-related
activities (1940 Act Rule 12d3-l(a)), or
b. despite the fact that such purchase is of any
security of any issuer that derived more than 15% of
its gross revenues from securities-related
activities:
(1) immediately after the purchase of any
equity security, the Portfolio Account
would not own more than 5% of outstanding
securities of that class of the issuer's
equity securities (1940 Act Rule
12d3-1(b)(1));
(2) immediately after the purchase of any debt
security, the Portfolio Account would not
own more than 10% of the outstanding
principal amount of the issuer's debt
securities (1940 Act Rule 12d3-1(b)(2));
and
(3) immediately after the purchase, not more
than 5% of the value of the Portfolio
Account's total assets would be invested
in the issuer's securities (1940 Act Rule
12d3-1(b)(3)).
C. In the event that the number of Sub-Advisers shall vary from three (3),
the percentage limitations of Subsections B1, B2a, B2d, B3, B4b(1) and
B4b(4) of this Schedule shall be adjusted (i) in the case of an
increase in the number of Sub-Advisers, proportionately downward and
(ii) in the case of a decrease of the number of Sub-Advisers,
proportionately upward.
The Adviser shall notify the Sub-Adviser of an increase or decrease in
the number of Sub-Advisers and the proportionate decrease or increase
in the percentages specified in the subsections enumerated in the
preceding sentence, but the Adviser's failure to do so shall not affect
the operation of this Section C of this Schedule.
A-2
<PAGE>
D. The Sub-Adviser will manage the Portfolio Account so that no more than
10% of the gross income of the Portfolio Account is derived from any
source other than dividends, interest, payments with respect to
securities loans (as defined in IRC ss.512(a)(5)), and gains from the
sale or other disposition of stock or securities (as defined in the
1940 Act ss.2(a)(36)) or foreign currencies, or other income
(including, but not limited to, gains from options, futures, or forward
contracts) derived with respect to the Portfolio's business of
investing in such stock, securities, or currencies (IRC ss.851(b)(2)).
A-3
<PAGE>
SCHEDULE B
RECORD KEEPING REQUIREMENTS
RECORDS TO BE MAINTAINED BY THE SUB-ADVISER:
- --------------------------------------------
A. (Rule 31a-l(b)(5) and (6)). A record of each brokerage order, and all
other portfolio purchases and sales, given by the Sub-Adviser on behalf
of the Portfolio Account for, or in connection with, the purchase or
sale of securities, whether executed or unexecuted. Such records shall
include:
1. the name of the broker;
2. the terms and conditions of the order and of any modification
or cancellation thereof;
3. the time of entry or cancellation;
4. the price at which executed;
5. the time of receipt of a report of execution; and
6. the name of the person who placed the order on behalf of the
Portfolio Account.
B. (Rule 31a-l(b)(9)). A record for each fiscal quarter, completed within
ten (10) days after the end of the quarter, showing specifically the
basis or bases (e.g. execution ability, execution and research) upon
which the allocation of orders for the purchase and sale of portfolio
securities to named brokers or dealers was effected, and the division
of brokerage commissions or other compensation on such purchase and
sale orders. Such record:
1. shall include the consideration given to:
a. the sale of shares of the Fund by brokers or dealers;
b. the supplying of services or benefits by brokers or
dealers to:
(1) the Fund,
(2) the Adviser,
(3) the Sub-Adviser, and
(4) any person other than the foregoing; and
B-1
<PAGE>
c. any other consideration other than the technical
qualifications of the brokers and dealers as such;
2. shall show the nature of the services or benefits made
available;
3. shall describe in detail the application of any general or
specific formula or other determinant used in arriving at such
allocation of purchase and sale orders and such division of
brokerage commissions or other compensation; and
4. shall show the name of the person responsible for making the
determination of such allocation and such division of
brokerage commissions or other compensation.
C. (Rule 31a-l(b)(10)). A record in the form of an appropriate memorandum
identifying the person or persons, committees or groups authorizing the
purchase or sale of portfolio securities. Where an authorization is
made by a committee or group, a record shall be kept of the names of
its members who participate in the authorization. There shall be
retained as part of this record: any memorandum, recommendation or
instruction supporting or authorizing the purchase or sale of portfolio
securities and such other information as is appropriate to support the
authorization.*
D. (Rule 31a-1(f)). Such accounts, books and other documents as are
required to be maintained by registered investment advisers by rule
adopted under Section 204 of the Investment Advisers Act of 1940, to
the extent such records are necessary or appropriate to record the
Sub-Adviser's transactions with respect to the Portfolio Account.
- ------------------
* Such information might include: the current Form 10-K, annual and quarterly
reports, press releases, reports by analysts and from brokerage firms (including
their recommendation, i.e., buy, sell, hold) or any internal reports of
portfolio adviser reviews.
B-2
<PAGE>
SCHEDULE C
FEE SCHEDULE
For the services to be provided to the Portfolio pursuant to the
attached Sub-Advisory Agreement, the Adviser shall pay the Sub-Adviser a monthly
fee in accordance with the following formula:
Monthly Fee = (.50% x net asset value of the Sub-Adviser's Portfolio Account on
the last business day of the month) / 12
Such fee shall be payable in arrears within 15 business days following the end
of each month.
- --------
* Internal Revenue Code
* Such information might include: the current Form 10-K, annual and quarterly
reports, press releases, reports by analysts and from brokerage firms (including
their recommendation, i.e., buy, sell, hold) or any internal reports or
portfolio adviser reviews.
Exhibit 23(e)(i)
THE RODNEY SQUARE STRATEGIC EQUITY FUND
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is made as of the 1st day of January, 1999,
between The Rodney Square Strategic Equity 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)
2
<PAGE>
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) in connection 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
3
<PAGE>
(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
4
<PAGE>
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
5
<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.
6
<PAGE>
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.
7
<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 EQUITY FUND
By:____________________________________
Name:__________________________________
Title:_________________________________
PROVIDENT DISTRIBUTORS, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
8
Exhibit 23 (j) (i)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference 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 18 to the registration Statement (Form N-1A)(no.
33-8120) of The Rodney Square Strategic Equity Fund of our report dated February
5, 1999, included in the 1998 Annual Report to shareholders.
Ernst & Young LLP
Philadelphia, Pennsylvania
February 25, 1999
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