COMMONWEALTH CASH RESERVE FUND, INC.
Message to our Shareholders
We are pleased to present the annual report for the Commonwealth Cash Reserve
Fund (the Fund) for the fiscal year ended March 31, 1996.
During the past year, market concerns over the strength of the economy, the
possibility of a recession and the continued budget impasse in Washington
caused a general decline in interest rates. Although longer term rates saw a
more dramatic drop in yields, short-term rates also declined by a significant
amount. The magnitude of the decline was expedited by actions taken by the
Federal Open Market Committee to lower short term rates. The FOMC voted to
reduce rates at both its December 1995 and January 1996 meetings. However, by
the end of March 1996, it had become apparent that the economy was not as weak
as some had predicted. Although economic indicators have been giving mixed
signals, it now appears that economy is continuing to grow, albeit at a slow
rate. This has renewed inflationary fears and seems to have precluded further
FOMC easing. Recently, interest rates have moved strongly higher.
In this uncertain economic environment, many local government investors turned
to the Fund to provide stable short term returns and daily liquidity. Because
a money market mutual fund such as the Commonwealth Cash Reserve Fund can
invest in securities with terms to maturity as long as thirteen months, the
return will be relatively stable and will generally outperform alternative
short term investments during periods of declining rates. Thus investors in
the Fund enjoyed above market returns during the fiscal year.
To ensure that investor funds are properly safeguarded during these volatile
times, we have continued to focus attention on maintaining a high level of
credit quality. In particular, a large percentage of the portfolio has been
invested in U.S. Government obligations and repurchase agreements backed by
U.S. Government obligations. At the end of the quarter, fully 85% of the
portfolio was invested in these securities ensuring both superior credit
quality and a high degree of liquidity. The remainder of the portfolio is
invested in top rated commercial paper and bankers acceptances.
Because of concerns about the credit quality of Japanese banks, Public
Financial Management, Inc. ("PFM") the Fund's investment manager excluded
Japanese bankers' acceptances from the approved list for the Fund during much
of the fiscal year. PFM will continue to monitor the credit quality of these
and other possible investments and will purchase only those that meet the
Fund's strict credit criteria.
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
investment needs.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Commonwealth Cash Reserve Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial
position of Commonwealth Cash Reserve Fund, Inc. (the "Fund") at March 31,
1996, the results of its operations of the year then ended, the changes in
its 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. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with generally accepted auditing standards which 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, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at March 31, 1996 by correspondence
with the custodian and brokers, and the application of alternative auditing
procedures, where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information contained in Footnote
D is presented for the purpose of additional analysis and is not a required
part of the basic financial statements. Such information has been subjected
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
Price Waterhouse, LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
May 1, 1996
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Net Assets
March 31, 1996
Face
Amount Value
(000) (000)
BANKERS' ACCEPTANCES (5.3%)
Bank of America
$ 5,500 5.337% 4/26/96 $ 5,480
-----
TOTAL BANKERS' ACCEPTANCES $ 5,480
-----
COMMERCIAL PAPER (9.7%)
Morgan Stanley Group
5,000 5.160% 5/13/96 4,970
Prudential Funding Corporation
5,000 5.340% 4/03/96 4,998
-----
TOTAL COMMERCIAL PAPER $ 9,968
-----
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (60.3%)
Federal Home Loan Bank Discount Notes:
1,250 5.190% 4/25/96 1,246
5,000 5.235% 1/29/97 4,996
Federal Home Loan Mortgage Corporation
Discount Notes:
3,592 5.295% 4/22/96 3,581
15,000 5.260% 4/22/96 14,954
9,100 5.280% 4/22/96 9,072
3,400 5.230% 6/21/96 3,360
Federal National Mortgage Association
Discount Notes:
10,000 5.260% 4/26/96 9,963
5,000 5.160% 6/07/96 4,952
5,000 5.160% 6/12/96 4,948
5,000 5.100% 11/22/96 4,834
------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS $ 61,906
------
REPURCHASE AGREEMENTS (24.4%)
Morgan Stanley Group
15,000 5.39% 4/22/96
Acquired on 1/23/96, accrued interest $154,962;
Collateralized by FHLMC Note, 6.361%, 12/01/34
with a market value of $15,544,300 15,000
Morgan Stanley Group
10,000 5.27% 4/02/96
Acquired on 2/02/96, accrued interest $86,369;
Collateralized by FHLMC Notes, 6.361%, 1/1/21-
12/1/34 and GNMA, 6.00%, 12/15/23 with total
market value of $10,493,502 10,000
------
TOTAL REPURCHASE AGREEMENTS $ 25,000
------
TOTAL INVESTMENTS (99.7%) $ 102,354
-------
OTHER ASSETS AND LIABILITIES
Other Assets 293
Liabilities (33)
-------
260
NET ASSETS (100%)
Applicable to 102,614,006 outstanding shares of
beneficial interest (500 million authorized
shares - no par value) $ 102,614
-------
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $ 1.00
----
AT MARCH 31, 1996, NET ASSETS CONSISTED OF:
Amount Per
(000) Share
Paid in Capital $ 102,614 $ 1.00
Undistributed Net Investment Income - -
Accumulated Net Realized Gain - -
Unrealized Appreciation (Depreciation)
of Investments - -
------- ----
NET ASSETS $ 102,614 $ 1.00
------- ----
The accompanying notes are an integral part of these financial statements.
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Operations
Year Ended March 31, 1996
(000)
INVESTMENT INCOME
Income
Interest $ 7,012
-----
Expenses
Management Fees 201
Legal 33
Custodian 28
Distribution Fees 29
Audit 10
Directors Fees and Expenses 7
Insurance 3
Registration Fees 21
Miscellaneous 6
-----
Total Expenses 338
Expenses waived by Investment Advisor and Distributor (161)
-----
Net Investment Income 6,835
-----
Net Increase in Net Assets
Resulting From Operations $ 6,835
-----
The accompanying notes are an integral part of these financial statements.
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Changes in Net Assets
Year Ended March 31,
1996 1995
(000) (000)
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS
Net Investment Income $ 6,835 $ 6,302
DISTRIBUTIONS
Net Investment Income (6,835) (6,302)
CAPITAL SHARE TRANSACTIONS (at $1.00 per share)
Issued 205,559 217,579
Redeemed (240,720) (162,363)
Distributions Reinvested 6,835 6,302
Net Increase (Decrease) from Capital Share
Transactions (28,326) 61,518
------- -------
Total Increase (Decrease) in Net Assets (28,326) 61,518
NET ASSETS
Beginning of Year 130,940 69,422
End of Year $ 102,614 $ 130,940
------- -------
The accompanying notes are an integral part of these financial statements.
COMMONWEALTH CASH RESERVE FUND, INC.
<TABLE>
Financial Highlights <F2>
<CAPTION>
Year Ended March 31,
For a Share Outstanding
Throughout Each Year 1996 1995 1994 1993<F3> 1992<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 0.058 0.049 0.025 0.035 0.057
DISTRIBUTIONS
Net Investment Income (0.058) (0.049) (0.025) (0.035) (0.057)
NET ASSET VALUE, END OF YEAR $1.000 $1.000 $1.000 $1.000 $1.000
Total Return 5.90% 5.01% 2.48% 3.59% 5.81%
Ratios/Supplemental Data
Net Assets, End of Period $102,614 $130,940 $69,422 $74,081 $7,831
Ratio of Expenses to Average
Net Assets <F1> 0.15% 0.15% 0.70% 0.63% 0.60%
Ratio of Net Investment Income
to Average Net Assets 5.78% 4.91% 2.49% 2.91% 4.57%
<FN>
<F1>
Certain fees were voluntarily waived in fiscal years ended March 31, 1996,
1995, 1992 and 1991. If these fees had not been waived, the ratio of expenses to
average net assets would have been .29%, .29%, 1.10% and .97%, respectively, and
the ratio of net investment income to average net assets would have been
5.65%, 4.77%, 4.07% and 7.14% for the fiscal years ended March 31, 1996, 1995,
1992 and 1991, respectively.
<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 accompanying 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. Interest income is accrued as earned.
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.
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"), a financial investment advisory
firm, provides investment advisory, administration, and transfer agent
services under the provisions of a contract expiring November 21, 1997.
Fees for these services are calculated at .17 of 1% of average net assets.
PFM waived $155,000 of its fees under the advisory and administration
agreements so that the aggregate operating expenses of the Fund for the
Fund's fiscal year ended March 31, 1996 would not exceed .15 of 1% of the
Fund's average net assets. Management fees, after such waiver, for the
year represented .03 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 year ended March 31, 1996, total
payments made to the Distributor under the Plan were $23,000, after waiving
fees of $6,000.
During the year ended March 31, 1996, the Fund paid approximately $20,000
for legal services of a law firm of which the Secretary of the Fund is a
Partner.
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
March 31, 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.
