PRESIDENT'S LETTER
Fellow Shareholders,
Declaration Cash Account occupies an unique position among money market
mutual funds. Those of us who have been long term Shareholders are familiar with
the benefits of the Fund: no minimum deposit amount, no minimum checkwriting
amount, payroll direct deposit, expense coding, and comprehensive year end
summary account statement. If a Shareholder uses DCA's expense coding feature
throughout the year, the information required for income tax reporting is
already complete and summarized in one convenient place.
When considering money market funds and yields, be careful not to
overlook other important fund aspects. For example, at DCA, we now invest
primarily in U.S. Treasury bills and instruments to emphasize security and
liquidity.
On an administrative note, we did not attain a quorum of Shareholders
for our scheduled December 19, 1997 Shareholder Meeting. The meeting was
adjourned, and there will be a new meeting scheduled shortly. Shareholder
Meetings are important, but they are expensive to hold. Please watch your mail
for the new proxy material. Also at a meeting of the Board of Trustees held
immediately preceding the scheduled Shareholder meeting, I was elected President
of the Fund, replacing Stephen B. Tily, III who remains Chairman.
We value our relationship with you and appreciate hearing from you with
any thoughts you have for improving our Fund.
Thank you,
/Terence P. Smith/
Terence P. Smith
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and
Board of Trustees of the
Declaration Cash Account
We have audited the accompanying statement of net assets of Declaration
Cash Account as of December 31, 1997, and the related statements of operations
for the year then ended, changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Declaration Cash Account as of December 31, 1997, the results of its operations
for the year then ended, the changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
Abington, Pennsylvania Sanville & Company
February 13, 1998 Certified Public Accountants
<PAGE>
DECLARATION CASH ACCOUNT
Statement Of Net Assets
December 31, 1997
Annualized
Yield On Amortized
Purchase Maturity Cost And
Principal Amount and Description Date Date Value
-------- -------- -----------
U.S. GOVERNMENT OBLIGATIONS (99.3%)
$ 300,000 U.S. Treasury Bill 4.50% 01/08/98 $ 299,775
1,000,000 U.S. Treasury Bill 4.65% 01/15/98 998,321
1,000,000 U.S. Treasury Bill 4.93% 01/22/98 997,261
400,000 U.S. Treasury Bill 4.81% 01/29/98 398,557
1,750,000 U.S. Treasury Bill 5.07% 02/05/98 1,741,620
-----------
Total U.S. Government Obligations 4,435,534
-----------
Total Amortized Cost and Value For Financial
Reporting and Income Tax Purposes (99.3.%) 4,435,534
-----------
OTHER ASSETS AND LIABILITIES (0.7%)
Other assets 70,979
Other liabilities ( 40,018)
-----------
Total Other Assets and Liabilities 30,961
-----------
NET ASSETS (100%)
Applicable to 4,466,495 oustanding shares of beneficial
interest (unlimited authorization - no par value) $ 4,466,495
-----------
Net asset value (offering and redemption price per share) $ 1.00
-----------
See Notes to Financial Statements.
<PAGE>
DECLARATION CASH ACCOUNT
Statement of Operations
For The Year Ended December 31, 1997
Investment Income:
Interest $ 245,177
-----------
Total Investment Income 245,177
-----------
Expenses:
Advisory and management fees (note 2) 24,405
Audit fees 8,000
Bank servicing fees 27,535
Custodian fees 10,861
Distribution fees (Note 2) 765
Insurance 7,933
Legal 3,675
Postage 2,705
Pricing and blue sky administration fees (note 2) 51,033
Printing 16,160
Registration fees 27,532
Shareholder servicing costs 19,335
Transfer agent fees (Note 2) 72,256
Trustee fees and expenses 8,522
Miscellaneous 9,029
-----------
Total Expenses 289,746
Expenses waived (Note 2) ( 124,849)
-----------
Net Expenses 164,897
-----------
Net Investment Income $ 80,280
===========
See Notes to Financial Statements.
<PAGE>
DECLARATION CASH ACCOUNT
Statement Of Changes In Net Assets
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1997 1996
------------ ------------
Increase (decrease) in net assets:
<S> <C> <C>
Operations: Net investment income $ 80,280 $ 1,185,206
------------ ------------
Net increase in net assets
resulting from operations 80,280 1,185,206
------------ ------------
Distributions to shareholders:
Distributions from net investment income (1) (80,280) (1,185,206)
------------ ------------
Capital share transactions (2):
Proceeds from shares sold 25,146,660 50,273,065
Proceeds from shares issued on reinvestment of
of distributions from net investment income 80,280 1,185,206
Shares redeemed (25,967,530) (84,113,203)
------------ ------------
Net decrease from capital share transactions (740,590) (32,654,932)
------------ ------------
Total decrease in net assets (740,590) (32,654,932)
------------ ------------
Net assets:
Beginning of year 5,207,085 37,862,017
------------ ------------
End of year $ 4,466,495 $ 5,207,085
============ ============
(1) Income dividends per share $ .017 $ .034
============ ============
(2) Also represents transactions in fund shares
</TABLE>
See Notes to Financial Statements.
<PAGE>
DECLARATION CASH ACCOUNT
Financial Highlights
(Selected data for a share of capital stock outstanding throughout each year)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from Investment
Operations:
Net Investment Income .017 .034 .037 .022 .011
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment
income (.017) (.034) (.037) (.022) (.011)
------- ------- ------- ------- -------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Total Return (1) 1.64% 3.23% 3.78% 2.18% 1.12%
Ratios/Supplemental Data:
Net assets, end of year
(000's) $ 4,467 $ 5,207 $37,862 $38,225 $40,951
Ratio of expenses to average net
assets (before expense
reimbursement) 6.32% 3.15% 2.21% 2.18% 1.94%
Ratio of expense reimbursement to
average net assets 2.92% 1.15% 0.21% 0.18% --
Ratio of net investment income to
average net assets 1.65% 3.18% 3.71% 2.15% 1.11%
</TABLE>
(1) Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends on the payable
date, and sale at net asset value on the last day of the period reported.
Total return does not include account maintenance fees and total return
would be lower if such fees were included.
See Notes to Financial Statements.
<PAGE>
DECLARATION CASH ACCOUNT
Notes To Financial Statements
December 31, 1997
1. Organization and Summary of Significant Accounting Policies
Organization: Declaration Cash Account ("DCA") is a series of the
Declaration Fund (the "Trust") and is registered under the Investment
Company Act of 1940, as amended, as an open-end diversified management
investment company. The Trust is organized as a Pennsylvania business
trust.
The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by DCA in the preparation of its
financial statements.
Security valuation: Portfolio securities are valued utilizing the amortized
cost method. Under this method, purchase discounts and premiums are
amortized ratably to maturity and are included in interest income.
Repurchase agreements: DCA's custodian takes possession through the Federal
Reserve Book Entry System of the collateral pledged for investments in
repurchase agreements. The underlying collateral is valued daily on a
mark-to-market basis to ensure that the value, including accrued interest,
is at least equal to the repurchase price. In the event of default of the
obligation to repurchase, liquidation and/or retention of the collateral
may be subject to legal proceeding.
Federal income taxes: DCA's intention is to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for Federal income taxes is required in the
accompanying financial statements.
Other: Security transactions are accounted for on the date the securities
are purchased or sold. Dividends from net investment income are declared
and reinvested on a daily basis. Income and expenses are recorded on the
accrual basis.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Investment Advisor and Transactions with Affiliates
Under terms of the investment advisory agreement approved by the
shareholders of DCA, Declaration Investment Advisors, Inc. (the "Advisor")
agrees to provide to DCA investment advisory services and all of the
executive personnel necessary for the day-to-day operation of DCA,
including the general supervision of its affairs and office facilities.
This agreement provides for an annual advisory and management fee, payable
on a monthly basis, not to exceed 0.50% of the first $500 million of DCA's
average net assets. The advisory fee is reduced if certain expenses
<PAGE>
DECLARATION CASH ACCOUNT
Notes To Financial Statements (Continued)
December 31, 1997
2. Investment Advisor and Transactions with Affiliates (Continued)
of DCA exceed 3% of the first $100 million of average annual net assets and
1.5% of average annual net assets in excess of $100 million. The
reimbursement is limited to the fee the Advisor is due. For the year ended
December 31, 1997, the Advisor billed DCA $24,405 for these services. The
Advisor was required to reimburse DCA up to its fee and accordingly
reimbursed DCA $24,405 for the year ended December 31, 1997. On December
31, 1997, DCA had an advisory and management fee payable to the Advisor of
$61. Certain trustees and officers of DCA are directors and officers of the
Advisor. The investment advisory agreement with the Advisor was terminated
December 19, 1997. Subsequent to this time an officer of DCA has performed
the investment functions.
Under terms of the service agreement, Declaration Service Company (the
"Service Company") will act as DCA's transfer agent, dividend disbursing
agent, and agent in connection with any plans provided to the shareholders
of DCA. The Service Company will also provide the necessary personnel for
the shareholder servicing function of DCA. DCA will pay the Service
Company, on a monthly basis, a maintenance fee for each shareholder account
and will reimburse the Service Company for any out-of-pocket expenses. The
Service Company receives administrative service fees charged to
shareholders whose account value is less than $2,500. Accordingly, the
transfer agent fees were reduced by the amount of administrative service
fees paid to the Service Company. For the year ended December 31, 1997,
transfer agent fees totalled $128,824 and administrative service fees
totalled $56,568 for net transfer agent fees of $72,256. The Service
Company also provides accounting, pricing and blue sky administration
services to DCA. For these services, the Service Company received fees
totalling $51,033 for the year ended December 31, 1997. On December 31,
1997 DCA had a payable of $4,250 for these fees. The Service Company
voluntarily waived $100,444 of its transfer agent and accounting, pricing
and blue sky administration fees. Certain trustees and officers of DCA are
directors and officers of the Service Company. The Service Company is an
affiliate of the Advisor.
DCA has adopted a plan pursuant to Rule 12b-1 under the Investment Company
Act of 1940, whereby it is permitted to pay up to 0.25% of its annual
average net assets for expenses incurred in the distribution of its shares.
During the year ended December 31, 1997, DCA incurred .04% of its annual
average net assets for such distribution expenses.
