MANAGER AND FOUNDER
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
BANC ONE INVESTMENT
ADVISORS CORPORATION
1111 Polaris Parkway
Columbus, Ohio 43240
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Thomas A. Christopher
Douglas Dean
Diana P. Herrmann
Carroll F. Knicely
Theodore T. Mason
Anne J. Mills
William J. Nightingale
James R. Ramsey
OFFICERS
Lacy B. Herrmann, President
Charles E. Childs, III, Vice President
Diana P. Herrmann, Vice President
John M. Herndon, Vice President
Jerry G. McGrew, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC INC.
400 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus
which must precede or accompany this report.
ANNUAL
REPORT
SEPTEMBER 30, 1998
CHURCHILL
CASH RESERVES
TRUST
A CASH MANAGEMENT INVESTMENT
{Logo of Churchill Cash Reserves Trust: Standing Pegasus}
{Logo of Aquila Group of Funds: Eagle's Head}
ONE OF THE
AQUILAsm GROUP OF FUNDS
<PAGE>
{Logo of Churchill Cash Reserves Trust:Standing Pegasus}
CHURCHILL CASH RESERVES TRUST
ANNUAL REPORT
November 19, 1998
Dear Investor:
We are pleased to provide you with the Annual Report for Churchill
Cash Reserves Trust for the fiscal year ended September 30, 1998.
During this period, investors have witnessed much turbulence in the
world's economies. Discomforting news from around the world has caused
substantial volatility even in our own financial markets. Over the past year,
we have witnessed the lingering aftershocks of the Asian economic crisis, the
political and economic turmoil occurring in Russia and the threat of currency
devaluation in Brazil. Here in the U.S., corporate earnings have been
gradually slowing as businesses realize that consumer demand hasn't kept pace
with supply. As a result, U.S. economic growth has begun to slow down.
Keeping a watchful eye on global events, the Federal Reserve lowered
the target on the Federal Funds rate - the rate member banks charge each
other for overnight loans - by 25 basis points on September 29th. Then, just
over two weeks later in a surprise move, the Fed again eased monetary policy
adding liquidity to the banking system with an additional 25 basis point cut
in the Fed Funds rate. Driven by the concern that the global financial crisis
was making it hard for companies to raise money, threatening the long
expansion in the U.S., the Fed cut interest rates 25 basis points for the
third time in seven weeks on November 17th. The Federal Funds rate now stands
at 4.75%, 75 basis points lower than it was one year ago. The rate cut was
intended to encourage more lending and to bolster the economy by making it
cheaper for businesses and consumers to borrow.
As mentioned in previous report letters, yields on money market funds
like the Trust, move in concert with rate policies pursued by the Federal
Reserve. With short-term interest rates remaining fairly stable during most
of the Trust's fiscal year, the Trust's yield fluctuated only moderately. As
of September 30, 1998, the Trust's seven-day yield was 5.10% compared to
5.21% for the same seven-day period ending September 30, 1997.
Looking forward, we are optimistic that the Trust will continue to
provide investors attractive yields compared to alternative money market
investments. Undoubtedly, economic activity and its influence on Federal
Reserve monetary policy will have a direct effect on the Trust's yield over
the next year. As long as the Federal Reserve maintains a gradual approach to
regulating monetary policy, the Trust's Investment Sub-Adviser, Banc One
Investment Advisors Corporation, will continue to pursue yield advantages
through alertness to market opportunities by producing a highly competitive
return without compromising safety.
You can be assured that all those associated with the management of
Churchill Cash Reserves Trust will consistently work in the interest of your
investment in the Trust. We very much value you as a shareholder and
appreciate the confidence you have shown in Churchill Cash Reserves Trust.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
<PAGE>
KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Churchill Cash Reserves Trust:
We have audited the accompanying statement of assets and
liabilities of Churchill Cash Reserves Trust, including the statement of
investments, as of September 30, 1998, and the related statement of
operations for the year then ended, the statements of changes in net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Trust'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
and financial highlights 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 September 30, 1998, by correspondence with the custodia
n. 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 Churchill Cash Reserves Trust as of September 30, 1998, the
results of its operations for the year then ended, the changes in its net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
November 4, 1998
<PAGE>
CHURCHILL CASH RESERVES TRUST
STATEMENT OF INVESTMENTS
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT COMMERCIAL PAPER - 52.4% VALUE
<C> <S> <C>
Art Auction - 4.8%
$5,000,000 Sotheby's Inc., 5.52%, 11/05/98 $ 4,973,167
Motorcycles - 4.8%
5,000,000 Harley-Davidson Funding Corp., 5.49%, 12/04/98 + 4,951,200
Brokerage - 4.7%
5,000,000 Lehman Brothers Holdings Inc., 5.52%, 02/17/99 4,893,433
Electric and Gas Utility - 9.6%
5,000,000 Cogentrix of Richmond, Inc., 5.54%, 10/08/98 4,994,614
Letter of Credit : Banque Paribas
5,000,000 Duke Capital Corp., 5.55%, 11/13/98 + 4,966,854
9,961,468
Finance - 14.2%
4,750,000 Concord Minutemen Capital Co. LLC., 5.59%, 10/15/98 + 4,739,674
5,000,000 Moat Funding LLC., 5.60%, 10/21/98 + 4,984,444
5,000,000 Old Line Funding Corp., 5.54%, 10/16/98 + 4,988,458
14,712,576
Insurance - 4.8%
5,000,000 Aetna Services Inc., 5.57%, 10/05/98 4,996,906
Oil & Gas Exploration - 5.7%
6,000,000 Pemex Capital Inc., 5.50%, 12/15/98 5,931,250
Letter of Credit: Societe Generale
Real Estate - 3.8%
4,000,000 Countrywide Funding Corp., 5.55%, 10/01/98 4,000,000
Total Commercial Paper 54,420,000
CERTIFICATES OF DEPOSIT - 5.8%
3,000,000 Bayerische Landesbank NY Branch, 5.70%, 10/06/98 2,999,976
1,000,000 Deutsche Bank AG, 5.70%, 06/07/99 999,608
2,000,000 National Westminster Bank PLC, NY Branch, 5.70%,
04/16/99 1,999,535
Total Certificates of Deposit 5,999,119
CORPORATE NOTES - 18.5%
1,625,000 American Express Credit Corp., 7.375%, 02/01/99 1,633,425
2,715,000 Deutsche Bank Finance NV, 6.375%, 12/23/98 2,717,935
1,000,000 Fleet Financial Group, 6.00%, 10/26/98 1,000,279
2,605,000 Morgan Stanley Group, 6.125%, 01/05/99 2,606,218
1,250,000 National Australia Bank, NY Branch, 9.70%, 10/15/98 1,251,802
<PAGE>
5,000,000 Restructured Asset Class with Enhanced Returns,
Variable Rate Note, 5.73%, 01/20/99 + 5,000,000
Guaranteed by Lehman Brothers Holdings Inc.
5,000,000 Restructured Asset Class with Enhanced Returns,
Variable Rate Note, 5.58%, 08/13/99 + 5,000,000
Guaranteed by Caisse Des Depots et. Consignations
Total Corporate Notes 19,209,659
MEDIUM TERM NOTES - 12.0%
2,000,000 Abbey National Treasury Services PLC, 5.72%, 06/11/99 1,998,938
5,000,000 Bear Stearns Company, Variable Rate Note, 5.60%, 05/14/99 5,000,000
1,400,000 Salomon Inc., 6.22%, 11/19/98 1,400,924
2,000,000 Salomon Inc., 6.30%, 02/01/99 2,002,561
2,000,000 Salomon Inc., 8.70%, 03/01/99 2,023,361
Total Medium Term Notes 12,425,784
FUNDING AGREEMENTS - 9.6%
5,000,000 First Allmerica Financial Life, Variable Rate Note,
5.59%,09/21/99 5,000,000
5,000,000 General American Life, Variable Rate Note, 5.84%, 07/23/99 5,000,000
Total Funding Agreements 10,000,000
REPURCHASE AGREEMENTS - 1.6%
1,694,000 Westdeutsche Landesbank GZ, 5.60%, 10/01/98 1,694,000
(Proceeds of $1,694,264 to be received at maturity)
Collateral: $1,720,000 U.S. Treasury Notes, 5.50%, due
02/28/99
(Collateral Market Value $1,725,375)
Total Repurchase Agreements 1,694,000
Total Investments (cost $103,748,562*) 99.9% 103,748,562
Other assets in excess of liabilities 0.1 117,932
Net Assets 100.0% $103,866,494
<FN> * Cost for Federal income tax purposes is identical. </FN>
<FN> + Pursuant to Rule 144A, resale is restricted to qualified
institutional buyers. </FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CHURCHILL CASH RESERVES TRUST
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
ASSETS
Investments at value (cost $103,748,562) $103,748,562
Cash 279
Interest receivable 635,633
Other assets 7,626
Total assets 104,392,100
LIABILITIES
Dividends payable 445,742
Management fee payable 41,985
Accrued expenses 37,879
Total liabilities 525,606
NET ASSETS (equivalent to $1.00 per share on 103,858,435
shares outstanding) $103,866,494
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares,
par value $.01 per share $ 1,038,584
Undistributed net investment income 2,746
Additional paid-in capital 102,825,164
$103,866,494
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CHURCHILL CASH RESERVES TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest Income $7,052,316
Expenses:
Management fee (note 2) $615,322
Trustees' fees and expenses 52,093
Legal fees 36,242
Audit and accounting fees 25,371
Transfer and shareholder servicing agent fees 14,457
Shareholders' reports 9,987
Registration fees and dues 7,916
Custodian fees (note 4) 7,485
Insurance 1,897
Miscellaneous 10,404
781,174
Management fee waived (note 2) (36,786)
Expenses paid indirectly (note 4) (6,002)
Net expenses 738,386
Net investment income 6,313,930
Net realized gain from securities transactions 8,059
Net increase in net assets resulting from operations $6,321,989
</TABLE>
See accompanying notes to financial statements
<PAGE>
CHURCHILL CASH RESERVES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income $6,313,930 $6,300,372
Dividends to shareholders from net investment income
($0.0513 and $0.0499 per share, respectively) (6,313,930) (6,300,372)
Net realized gain from securities transactions 8,059 -
Change in net assets derived from investment activities 8,059 -
FROM CAPITAL SHARE TRANSACTIONS:
<CAPTION>
SHARES
YEAR ENDED SEPTEMBER 30,
1998 1997
<S> <C> <C> <C> <C>
Proceeds from shares sold 329,102,190 334,569,913 329,102,190 334,569,913
Reinvested dividends 611 27 611 27
Cost of shares redeemed (350,636,409) (330,116,590) (350,636,409) (330,116,590)
Change in net assets from
capital share transactions (21,533,608) 4,453,350 (21,533,608) 4,453,350
Change in net assets (21,525,549) 4,453,350
NET ASSETS:
Beginning of period 125,392,043 120,938,693
End of period $103,866,494 $125,392,043
</TABLE>
See accompanying notes to financial statements
<PAGE>
CHURCHILL CASH RESERVES TRUST
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Churchill Cash Reserves Trust (the "Trust"), a diversified, open-end
investment company, was organized on January 4, 1985, as a Massachusetts
business trust and is authorized to issue an unlimited number of shares. The
Trust commenced operations on July 9, 1985.
The following is a summary of significant accounting policies
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a) PORTFOLIO VALUATION: The Trust's portfolio securities are valued by the
amortized cost method permitted in accordance with Rule 2a-7 under
the Investment Company Act of 1940 (the "1940 Act"), which, after
considering accrued interest thereon, approximates market. Under this
method, a portfolio security is valued at cost adjusted for amortization
of premiums and accretion of discounts. Amortization of premiums and
accretion of discounts are included in interest income.
b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and losses
from securities transactions are reported on the identified cost basis.
Interest income is recorded daily on the accrual basis and is adjusted for
amortization of premiums and accretion of discounts as discussed in the
preceding paragraph.
c) FEDERAL INCOME TAXES: It is the policy of the Trust to qualify as a
regulated investment company by complying with the provisions of the
Internal Revenue Code applicable to certain investment companies. The
Trust intends to make distributions of income and securities profits
sufficient to relieve it from all, or substantially all, Federal income
and excise taxes.
d) REPURCHASE AGREEMENTS: It is the Trust's policy to monitor closely the
creditworthiness of all firms with which it enters into repurchase
agreements, and to take possession of, or otherwise perfect its security
interest in, securities purchased under agreements to resell. The
securities purchased under agreements to resell are marked to market every
business day so that the value of the "collateral" is at least equal to
the value of the "loan" (repurchase agreements being defined as "loans" in
the 1940 Act), including the accrued interest earned thereon, plus
sufficient additional market value as is considered necessary to provide a
margin of safety.
e) 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 the reported amounts of
increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Aquila Management Corporation (the "Manager"), the Trust's founder
and sponsor, serves as the Manager for the Trust under an Advisory and
Administration Agreement with the Trust. The portfolio management of the
Trust has been delegated to a Sub-Adviser as described below. Under the
<PAGE>
Advisory and Administration Agreement, the Manager provides all
administrative services to the Trust, other than those relating to the
day-to-day portfolio management. The Manager's services include providing
the office of the Trust and all related services as well as overseeing the
activities of the Sub-Adviser and all the various support organizations to
theTrust such as the shareholder servicing agent, custodian, legal counsel,
auditors and distributor and additionally maintaining the Trust's accounting
books and records. For its services, the Manager is entitled to receive a fee
which is payable monthly and computed as of the close of business each day at
the annual rate of 0.50 of 1% on the Trust's net assets.
Banc One Investment Advisors Corporation (the "Sub-Adviser") serves
as the Investment Sub-Adviser for the Trust under a Sub-Advisory Agreement
between the Manager and the Sub-Adviser. Under this agreement, the
Sub-Adviser continuously provides, subject to oversight of the Manager and
the Board of Trustees of the Trust, the investment program of the Trust and
the composition of its portfolio, arranges for the purchases and sales of
portfolio securities, and provides for daily pricing of the Trust's portfolio.
For its services, the Sub-Adviser is entitled to receive a fee from the
Manager which is payable monthly and computed as of the close of business
each day at the annual rate of 0.33 of 1% on the Trust's net assets.
On June 5, 1998, the Management arrangements described above were
approved by the Trust's shareholders and went into effect. From July 19, 1995
to that date, Aquila Management Corporation and Banc One Investment Advisors
Corporation had served as the Trust's Administrator and Investment Manager,
respectively, pursuant to agreements with the Trust, for total fees at an
annual rate of 0.50 of 1% of the Trust's net assets, the same fee as under
the new arrangements.
For the year ended September 30, 1998, the Trust incurred fees for
advisory and administrative services of $615,322 of which $36,786 was
voluntarily waived. Specific details as to the nature and extent of the
services provided by the Adviser and the Administrator are more fully defined
in the Trust's Prospectus and Statement of Additional Information.
Under a Distribution Agreement, Aquila Distributors, Inc. (the
"Distributor") serves as the exclusive distributor of the Trust's shares. No
compensation or fees are paid by the Trust to the Distributor for such share
distribution.
3. DISTRIBUTIONS
The Trust declares dividends daily from net investment income and
makes payments monthly in additional shares at the net asset value per share
or in cash, at the shareholder's option.
4. CUSTODIAN FEES
The Trust has negotiated an expense offset arrangement with its
custodian, Bank One Trust Company, N.A., an affiliate of the Adviser, wherein
it receives credit toward the reduction of custodian fees whenever there are
uninvested cash balances. During the year ended September 30, 1998, the
Trust's custodian fees amounted to $7,485, of which $6,002 was offset by such
credits. It is the general intention of the Trust to invest, to the extent
practicable, some or all of cash balances in income-producing assets rather
than leave cash on deposit with the custodian.
<PAGE>
CHURCHILL CASH RESERVES TRUST
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
Income from Investment Operations:
Net investment income 0.0513 0.0499 0.0500 0.0526 0.0319
Net gain (loss) on securities
(both realized and unrealized) - - - - -
Total from Investment Operations 0.0513 0.0499 0.0500 0.0526 0.0319
Less Distributions:
Dividends from net investment income (0.0513) (0.0499) (0.0500) (0.0526) (0.0319)
Distributions from capital gains - - - - -
Total Distributions (0.0513) (0.0499) (0.0500) (0.0526) (0.0319)
Net Asset Value, End of Period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
Total Return (%) 5.25 5.11 5.12 5.39 3.24
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) 103,866 125,392 120,939 146,130 187,626
Ratio of Expenses to Average
Net Assets (%) 0.60 0.60 0.56 0.58 0.60
Ratio of Net Investment Income to
Average Net Assets (%) 5.13 4.99 5.02 5.24 3.17
<CAPTION>
For the years ended after October 1, 1994, net investment income per share
and the ratios of income and expenses to average net assets without the
voluntary waiver of a portion of the management fee and the expense offset in
custodian fees for uninvested cash balances, would have been:
<S> <C> <C> <C> <C>
Net investment income ($) 0.0509 0.0493 0.0493 0.0522
Ratio of Expenses to Average
Net Assets (%) 0.63 0.66 0.63 0.62
Ratio of Net Investment Income to
Average Net Assets (%) 5.10 4.93 4.94 5.20
</TABLE>
NOTE: Effective July 19, 1995, Banc One Investment Advisors Corporation
became the Trust's Investment Adviser replacing PNC Bank, Kentucky,
Inc. and effective on June 5,1998, pursuant to new management
arrangements, was appointed as the Trust's Investment Sub-Adviser.
See accompanying notes to financial statements
<PAGE>
SHAREHOLDER MEETING RESULTS (UNAUDITED)
The Annual Meeting of Shareholders of Churchill Cash Reserves
Trust (the "Trust") was held on June 5, 1998. The holders of shares
representing 81% of the total net asset value of the shares entitled to vote
were present in person or by proxy. At the meeting, the following matters
were voted upon and approved by the shareholders (the resulting votes for
each matter are presented below).
1. To elect Trustees.
NUMBER OF VOTES:
TRUSTEE FOR WITHHELD
Lacy B. Herrmann 85,643,591.00 0.00
Thomas A. Christopher 85,643,591.00 0.00
Douglas Dean 85,643,591.00 0.00
Diana P. Herrmann 85,643,591.00 0.00
Theodore T. Mason 85,643,591.00 0.00
Anne J. Mills 85,643,591.00 0.00
William J. Nightingale 85,643,591.00 0.00
James R. Ramsey 85,643,591.00 0.00
2. To ratify the selection of KPMG Peat Marwick LLP as the Trust's
independent auditors.
NUMBER OF VOTES:
FOR AGAINST ABSTAIN
85,643,591.00 0.00 0.00
3. To approve a new Investment Advisory and Administration Agreement between
the Trust and Aquila Management Corporation.
NUMBER OF VOTES:
FOR AGAINST ABSTAIN BROKER NON-VOTES
85,643,591.00 0.00 0.00 0.00
4. To approve a new Sub-Advisory Agreement between Aquila Management
Corporation as Manager and Banc One Investment Advisors Corporation as
Sub-Adviser.
NUMBER OF VOTES:
FOR AGAINST ABSTAIN BROKER NON-VOTES
85,643,591.00 0.00 0.00 0.00
FEDERAL TAX STATUS OF DIVIDENDS (UNAUDITED)
This information is presented in order to comply with a
requirement of the Internal Revenue Code AND NO CURRENT ACTION ON THE PART OF
THE SHAREHOLDERS IS REQUIRED.
For the fiscal year ended September 30, 1998, the total amount of
dividends paid by Churchill Cash Reserves Trust was ordinary dividend income.
Prior to January 31, 1999, shareholders will be mailed IRS Form
1099-DIV which will contain information on the status of dividends paid for
the 1998 CALENDAR YEAR.
PREPARING FOR YEAR 2000 (UNAUDITED)
The Trustees and officers of the Trust have been monitoring
issues involving preparedness for the turn of the century for some time in an
effort to minimize any potential impact upon the Trust and its shareholders.
Our officers have focussed significant time and effort in order that the
various computerized functions that could affect the Trust at the beginning
of the year 2000 are ready.
The Trust is highly reliant on certain mission-critical
suppliers' services. Each supplier of these services has provided the Trust's
officers with assurances that it is actively addressing potential problems
relating to the year 2000. The officers, in turn, are monitoring the progress
of its suppliers, and currently see no significant cause for alarm with
respect to any of the Trust's suppliers.
Unfortunately, as you can well understand, we cannot guarantee
matters beyond our control, including supplier operations. We assure you,
however, that we recognize a responsibility to inform our shareholders if in
the future we become aware of any developments which would lead us to believe
that the Trust will be significantly affected by year 2000 problems.
We will continue to keep you up-to-date through future
communications.
