COMMONWEALTH CASH RESERVE FUND, INC.
Message to our Shareholders
We are pleased to present the semi-annual report for the Commonwealth Cash
Reserve Fund (the "Fund") for the six months ended September 30, 1996.
The past six months have witnessed wide swings in interest rates, mirroring
investor perceptions of economic growth and inflation. With job growth
exceeding market expectations in the Spring and early Summer, rates rose as
high as 6.43% (on the two-year Treasury). More recently, as measures of growth
showed moderation and consumer and producer price indices failed to show any
significant increase in the rate of inflation, the market rallied, sending rates
lower by as much as 79 basis points from their early Summer highs. The absence
of of Federal Reserve action to raise interest rates during the Summer and
early Fall, supports the view that the economy will indeed enjoy continued
moderate growth with low inflation. Until economic data changes this outlook,
it is likely that rates will remain at current levels or perhaps trend lower.
In order to protect investor funds against interest rate volatility, we have
continued to focus on maintaining a high level of credit quality and liquidity.
Specifically, at the end of the quarter, 67% of the portfolio had been invested
in U.S. Government obligations. The remaining 33% of the portfolio was invested
in high grade commercial paper. In addition to the portfolio's superior credit
quality, average maturity at the end of the quarter equaled 60 days, providing a
high degree of liquidity.
You can be assured that the Commonwealth Cash Reserve Fund will continue its
tradition of care and prudence in the management of local government
investments.
We look forward to the continued opportunity to meet your investmment needs.
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Net Assets
September 30, 1996
Face
Amount Value
(000) (000)
COMMERCIAL PAPER (33.0%)
Bear Stearns & Co., Inc.
4,000 5.37% 10/2/96 3,999
Prudential Funding Corporation
4,300 5.30% 10/3/96 4,299
General Electric Capital Corp.
4,500 5.30% 10/7/96 4,496
Associates Corp. of North America
4,500 5.30% 10/7/96 4,496
Morgan Stanley Group
4,000 5.36% 10/15/96 3,992
Goldman Sachs Group, Inc.
4,000 5.37% 10/16/96 3,991
First Boston
3,250 5.39% 10/30/96 3,236
------
TOTAL COMMERCIAL PAPER(Cost $28,369) $ 28,509
------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (46.4%)
U.S. Treasury Notes
5,000 6.50% 5/15/97 $ 5,024
3,000 5.75% 9/30/97 2,995
Federal Home Loan Bank Note:
5,000 5.24% 1/29/97 4,998
Federal Home Loan Mortgage Corporation
Discount Notes:
9,900 5.240% 10/15/96 9,880
Federal National Mortgage Association
Discount Notes:
4,530 5.10% 11/22/96 4,497
285 5.34% 11/27/96 282
4,660 5.43% 12/6/96 4,614
Federal Home Loan Bank Discount Note
7,985 5.30% 2/26/96 7,811
------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS(Cost $39,890) $ 40,101
------
REPURCHASE AGREEMENTS (20.2%)
Morgan Stanley Group
10,000 5.34% 10/7/96
Acquired on 8/6/96, accrued interest $83,067;
Collateralized by FHLMC Note, 6.124%, 8/1/20
with a market value of $10,398,266 10,000
Nations Bank
7,450 5.38% 10/10/96
Acquired on 9/12/96, accrued interest $21,134;
Collateralized by FNMA Note, 7.50%, 9/1/26
with a market value of $7,704,416 7,450
------
TOTAL REPURCHASE AGREEMENTS(Cost $17,450) $ 17,450
------
TOTAL INVESTMENTS 99.6% (Cost $85,709) $ 102,354
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OTHER ASSETS AND LIABILITIES
Accrued Interest 403
Cash 14
Distribution Fees Payable (4)
Audit Fees Payable (4)
Legal Fees Payable (2)
Custodian Fees Payable (4)
Other Accrued Expenses (39)
-------
364
NET ASSETS (100%)
Applicable to 86,423,599 outstanding shares of
beneficial interest (unlimited authorization
- no par value) $ 86,424
-------
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $ 1.00
----
AT SEPTEMBER 30, 1996, NET ASSETS CONSISTED OF:
Amount Per
(000) Share
Paid in Capital $ 86,424 $ 1.00
Undistributed Net Investment Income - -
Accumulated Net Realized Gain - -
Unrealized Appreciation (Depreciation)
of Investments - -
------- ----
NET ASSETS $ 86,424 $ 1.00
------- ----
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Operations
Six Months Ended September 30, 1996
(000)
INVESTMENT INCOME
Income
Interest $ 2,550
-----
Total Income $ 2,550
Expenses
Management Fees 80
Legal 12
Custodian 13
Distribution Fees 14
Audit 5
Directors Fees and Expenses 4
Insurance 2
Registration Fees 1
Miscellaneous 3
-----
Total Expenses 134
Expenses waived by Investment Advisor and Distributor (63)
-----
Net Investment Income 2,479
-----
Net Increase in Net Assets
Resulting From Operations $ 2,479
-----
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Changes in Net Assets
Six Months Ended September 30,
1996 1995
(000) (000)
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS
Net Investment Income $ 2,479 $ 3,544
DISTRIBUTIONS
Net Investment Income (2,479) (3,544)
CAPITAL SHARE TRANSACTIONS (at $1.00 per share)
Issued 52,868 130,815
Redeemed (71,537) (131,453)
Distributions Reinvested 2,479 3,544
Net Increase (Decrease) from Capital Share
Transactions (16,190) 2,906
------- ------
Total Increase (Decrease) in Net Assets (16,190) 2,906
NET ASSETS
Beginning of Year 102,614 130,940
------- -------
End of Year $ 86,424 $ 133,846
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COMMONWEALTH CASH RESERVE FUND, INC.
<TABLE>
Financial Highlights <F2>
<CAPTION>
Six Months
Ended Year Ended March 31,
For a Share Outstanding
Throughout Each Year 9/30/96 1996 1995 1994 1993<F3>
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.000 $1.000 $1.000 $1.000 $1.000
INVESTMENT OPERATIONS
Net Investment Income 0.027 0.058 0.049 0.025 0.035
DISTRIBUTIONS
Net Investment Income (0.027) (0.058) (0.049) (0.025) (0.035)
NET ASSET VALUE, END OF YEAR $1.000 $1.000 $1.000 $1.000 $1.000
Total Return 2.70% 5.90% 5.01% 2.48% 3.59%
Ratios/Supplemental Data
Net Assets, End of Period $86,424 $102,614 $130,940 $69,422 $74,081
Ratio of Expenses to Average
Net Assets <F1> 0.15% 0.15% 0.15% 0.70% 0.63%
Ratio of Net Investment Income
to Average Net Assets 2.65% 5.78% 4.91% 2.49% 2.91%
<FN>
<F1>
Certain fees were voluntarily waived for the six months ended September
30, 1996 and in fiscal years ended March 31, 1996, 1995 and 1992.
If these fees had not been waived, the ratio of expenses to average net
assets would have been .29% for the six months ended September 30, 1996
and .29%, .29% and 1.10% respectively for the fiscal years ended March
31, 1996, 1995 and 1992.
<F2>
Public Financial Management, Inc. has served as the investment advisor to
the Fund since March 15, 1994. Prior to March 15, 1994, Jefferson National
Bank served as the investment advisor to the Fund from April 1, 1993. Prior
to April 1, 1993 Dominion Trust Company served as the investment advisor to
the Fund.
<F3>
Restated.
</FN>
</TABLE>
The following notes are an integral part of these financial statements.
COMMONWEALTH CASH RESERVE FUND, INC.
Notes to Financial Statements
A. The Commonwealth Cash Reserve Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as a diversified open-end investment
company and was organized as a Virginia corporation on December 8, 1986.
The Fund provides comprehensive investment management to counties, cities,
towns, political subdivisions and public bodies. The Fund invests in
short-term debt instruments issued by the U.S. government or its agencies
and instrumentalities and by companies primarily operating in the banking
industry; the issuers' abilities to meet their obligations may be affected
by economic developments in such industry.
B. The following significant accounting policies of the Fund are in conformity
with generally accepted accounting principles and are consistently followed
in the preparation of financial statements.
1. Securities held are valued at amortized cost, which approximates market
value. Discounts and premiums on securities purchased are accreted or
amortized to interest income over the lives of the respective
securities.
2. Security transactions are accounted for on the date the securities are
purchased or sold. Costs used in determining realized gains and losses
on sales of investment securities are those of specific securities sold.
Interest income is recorded using the accrual method.
3. Dividends from net investment income are declared and recorded daily and
are reinvested in each participant's account by the purchase of
additional shares of the Fund on the last business day of each month.
4. The Fund invests cash in repurchase agreements secured by U.S.
Government and Agency obligations. Securities pledged as collateral for
repurchase agreements are held by the Fund's custodian bank until
maturity of the repurchase agreement. Provisions of each agreement
require that the market value of the collateral is sufficient to cover
principal and accrued interest; however, in the event of default or
bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
5. The Fund intends 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 financial
statements.
C. Public Financial Management, Inc. ("PFM"), provides investment
advisory, administration, and transfer agent services under the
provisions of a contract expiring November 21, 1997. PFM waived
$60,000 of its fees under the advisory and administration agreements
so that the aggregate operating expenses of the Fund for the
Fund's six months ended September 30, 1996 would not exceed .15 of
1% of the Fund's average net assets. Management fees, after such
waiver, for the six months represented .04 of 1% of average net assets
and aggregate operating expenses represented .15 of 1% of average net
assets.
The Fund has a Distribution Plan (the "Plan") pursuant to Rule 12b-1 of the
Investment Company Act of 1940 which was approved by a majority vote of
both the Board and the independent directors on August 23, 1990.
Commonwealth Financial Group, Inc. (the "Distributor") serves as the Fund's
Distributor pursuant to the distribution agreement with the Fund. The
President and a director of the Fund is the President and sole shareholder
of the Distributor. Under the Plan, all payments made to the Distributor,
broker-dealers and other persons assisting in the distribution of Fund
shares will be made directly by the Fund. The Plan authorizes in any
fiscal year payment by the Fund of up to .25% of the average daily net
asset value of the Fund on an annual basis for distribution expenses. Any
payments made under the Plan shall be made only as determined from time to
time by the Board of Directors. For the six months ended September 30, 1996,
total payments made to the Distributor under the Plan were $10,500, after
waiving fees of $3,000.
D. Under Governmental Accounting Standards ("GAS"), state and local
governments, including school districts and other municipal entities, are
required to classify their investments, excluding pools managed by
governments or investment funds similar to the Fund in prescribed
categories of credit risk. Although the Fund is not subject to GAS, its
September 30, 1996 investments have been classified for the information of the
participants as Category 1 investments. Category 1 includes investments
that are insured or registered or are held by the Fund or its agent in the
Fund's name. Category 2 includes uninsured and unregistered investments
held by the broker's or dealer's trust department or agent in the Fund's
name. Category 3 includes uninsured and unregistered investments held by
the broker's or dealer's trust department or agent but not in the Fund's
name.
