SEMI-ANNUAL REPORT
September 30, 1997
Commonwealth Cash Reserve Fund, Inc.
P. O. Box 1192
Richmond, Virginia 23209-1192
(800) 338-3383
Message to our Shareholders
We are pleased to present the semi-annual report for the Commonwealth Cash
Reserve Fund (the Fund) for the period ended September 30, 1997.
The economy has clearly been on a fast track since it grew by 4.9% in the first
quarter. Growth has averaged 3.4% in the last six months and remains
significantly above the Federal Reserve's desired growth rate of 2-2.5%, and at
a level that many economists would expect to produce inflation. Yet, inflation
data coninued to show very little price pressures. Producer price reports
released during this six month period were virtually unchanged, while consumer
prices rose an annual rate under 2.0%. Conditions this favorable are nearly
unprecedented in an economy that is in the 7th year of expansion and still
growing solidly. Nevertheless, a steady Fed, a strong stock market, high
levels of consumer confidence, and increased attention to the theory that
structural changes in the economy could result in sustained growth at a high
level without inflation fueled investor optimism. By September 30, interest
rates were broadly lower and investors were more focused on the benign
inflation trends than the impressive economic performance and Wall Street
economists' predictions of an eventual re-emergence of inflation.
In this environment of both strong economic growth and surprisingly low
inflation, 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. Goverment obligations. At the end of the quarter, fully 70% 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 has continued
to exclude Japanese bankers' acceptances from the approved list for the Fund
during 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.
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Net Assets
September 30, 1997
Face
Amount Value
(000) (000)
COMMERCIAL PAPER (23.6%)
Merrill Lynch & Co.
3,910 5.51% 10/08/97 3,906
Prudential Funding Corporation
7,000 5.51% 10/8/97 6,993
Morgan Stanley Group, Inc.
2,200 5.52% 10/9/97 2,197
Bear Stearns & Co., Inc.
7,000 5.52% 10/22/97 6,977
Morgan Stanley Group, Inc.
5,000 5.52% 10/22/97 4,984
Corestates Capital Corp. (A)
5,000 5.61% 10/24/97 5,000
Merrill Lynch & Co.
2,800 5.54% 11/19/97 2,779
------
TOTAL COMMERCIAL PAPER $ 32,836
------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (54.8%)
Federal Farm Credit Bank Notes
3,000 5.90% 4/1/98 2,998
2,000 6.05% 5/1/98 2,000
Federal Home Loan Bank Notes
2,000 5.71% 1/21/98 2,000
1,000 5.26% 4/27/98 996
Federal National Mortgage Association Note
3,000 5.84% 6/10/98 2,997
Federal Home Loan Bank Discount Note
1,620 5.45% 10/3/97 1,620
Federal Home Loan Mortgage Corporation
Discount Notes
4,340 6.05% 10/1/97 4,340
25,000 5.50% 10/30/97 24,889
Federal National Mortgage Association
Discount Notes
1,130 5.51% 11/6/97 1,124
22,635 5.45% 11/24/97 22,450
10,000 5.45% 12/4/97 9,903
Bancomext Export Funding Corporation (A)
1,000 6.06% 1,000
------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS $ 76,317
------
BANKER'S ACCEPTANCE (7.0%)
Bank of America
1,155 5.53% 10/27/97 1,151
1,686 5.53% 11/6/97 1,676
Nationsbank
7,000 5.52% 10/8/97 6,992
------
TOTAL BANKER'S ACCEPTANCE $ 9,819
------
REPURCHASE AGREEMENTS (21.6%)
Prudential Securities
20,000 5.54% 10/23/97 20,000
Acquired on 9/9/97, accrued interest $67,711;
Collateralized by FNMA Note, 6.114%, maturing 4/01/35,
market value of $20,607,516
------
TOTAL REPURCHASE AGREEMENTS 20,000
------
TOTAL INVESTMENTS 99.7% (Cost $115,883) $ 138,972
-------
OTHER ASSETS AND LIABILITIES
Accrued Interest 339
Cash 4
Distribution Fees Payable (3)
Audit Fees Payable (5)
Legal Fees Payable (1)
Custodian Fees payable (5)
Other Accrued Expenses (67)
-------
262
-------
NET ASSETS (100%)
Applicable to 139,233,968 outstanding shares of
beneficial interest (unlimited authorization
- no par value) $ 139,234
-------
NET ASSET VALUE PER SHARE $ 1.00
----
AT SEPTEMBER 30, 1997 NET ASSETS CONSISTED OF:
Amount Per
(000) Share
Paid in Capital $ 139,234 $ 1.00
Undistributed Net Investment Income - -
Accumulated Net Realized Gain - -
Unrealized Appreciation (Depreciation)
of Investments - -
------- ----
NET ASSETS $ 139,234 $ 1.00
------- ----
The accompanying notes are an integral part of these financial statements.
(A) Variable Rate Security - the rate reported in the Statement of Net Assets
reflects the rate in effect at 9/30/97.
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Operations
Six Months Ended September 30, 1997
(000)
INVESTMENT INCOME
Income
Interest $ 3,330
-----
Total Income $ 3,330
Expenses
Management Fees 100
Legal 8
Custodian 15
Distribution Fees 16
Audit 5
Directors Fees and Expenses 4
Insurance 1
Registration Fees 6
Miscellaneous 4
-----
Total Expenses 159
-----
Expenses waived by Investment Advisor and Distributor (70)
Net Investment Income 3,241
-----
Net Increase in Net Assets
Resulting From Operations $ 3,241
-----
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Changes in Net Assets
Six Months Ended September 30,
1997 1996
(000) (000)
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS
Net Investment Income $ 3,241 $ 2,479
------- -------
DISTRIBUTIONS
Net Investment Income (3,241) (2,479)
------- -------
CAPITAL SHARE TRANSACTIONS (at $1.00 per share)
Issued 140,161 52,868
Redeemed (120,351) (71,537)
Distributions Reinvested 3,241 2,479
------- -------
Net Increase (Decrease) from Capital Share
Transactions 23,051 (16,190)
------- -------
Total Increase (Decrease) in Net Assets 23,051 (16,190)
------- -------
NET ASSETS
Beginning of Year 116,183 102,614
------- -------
End of Year $ 139,234 $ 86,424
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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 September 30,
Throughout Each Year 1997 1997 1996 1995 1994
<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 0.028 0.053 0.058 0.049 0.025
DISTRIBUTIONS
Net Investment Income (0.028) (0.053) (0.058) (0.049) (0.025)
NET ASSET VALUE, END OF YEAR $1.000 $1.000 $1.000 $1.000 $1.000
Total Return 5.63% 5.43% 5.90% 5.01% 2.48%
Ratios/Supplemental Data
Net Assets, End of Period $139,234 $116,183 $102,614 $130,940 $69,422
Ratio of Expenses to Average
Net Assets <F1> 0.15% 0.15% 0.15% 0.15% 0.70%
Ratio of Net Investment Income
to Average Net Assets 5.50% 5.31% 5.78% 4.91% 2.49%
<FN>
<F1>
Certain fees were voluntarily waived for the six months ended September 30,
1997 and in fiscal years ended March 31, 1997, 1996 and 1995. If these
fees had not been waived, the ratio of expenses to average net assets would
have been .27% for the six months ended September 30, 1997, and .28%, .29%
and .29% respectively for the fiscal years ended March 31, 1997, 1996 and
1995. The ratio of net investment income to average net assets would have
been 5.38% for the six months ended September 30, 1997 and 5.18%, 5.64% and
4.77%, for the fiscal years ended March 31, 1997, 1996 and 1995, 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.
</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 institutions, such as
municipalities, universities and hospitals. 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. As compensation for its services
under the Advisory Agreement, PFM is entitled to receive an annual fee, which
is accrued daily and payable monthly, at the rate of .12 of 1% of the Fund's
average daily net assets. As compensation for its services under the
Administrative Agreement, PFM is entitled to a fee, which is accrued daily and
payable monthly, at the rate of .05 of 1% of the average daily net assets. PFM
waived $67,000 of its fees under the advisory and administrative agreements
so that the aggregate operating expenses of the Fund for the Fund's six months
ended September 30, 1997 would not exceed .15 of 1% of the Fund's average net
assets. Fees paid to PFM, after such waiver, for the fiscal year represented
.06 of 1% of average net assets.
The Fund has adopted an Amended and Restated Distribution Plan (the
"Distribution Plan") pursuant to Rule 12b-1 of the Investment Company Act of
1940 which permits the Fund to bear certain expenses in connection with the
distribution of its shares, provided the requirements of the Rule are met.
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. The Distribution Plan authorizes the Fund to reimburse
the Distributor for expenses incurred by the Distributor in connection with
the sale, promotion and distribution of Fund shares, in an amount not to
exceed .25% of the Fund's average daily net asset value in any year. 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, 1997,
total payments made to the Distributor under the Plan were $15,000, after
waiving fees of $3,000.
During the year ended March 31, 1997, the Fund paid approximately $3,700 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
September 30, 1997 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 broker's or
dealer's trust department or agent but not in the Fund's name.
Investment Adviser
Public Financial Management, Inc.
Governor's Plaza North
2101 North Front Street
Building 3, Suite 200
Harrisburg, Pennsylvania 17110
Custodian
Central Fidelity National Bank
1021 East Cary Street
P. O. Box 27602
Richmond, Virginia 27602
Administrator and Transfer Agent
Public Financial Management, Inc.
Governor's Plaza North
2101 North Front Street
Building 3, Suite 200
Harrisburg, Pennsylvania 17110
Distributor
Commonwealth Financial Group, Inc.
38 Cohasset Lane
Cherry Hill, New Jersey 08003
Independent Accountants
Price Waterhouse LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
Co-Counsel
McGuire, Woods, Battle & Boothe, L.L.P.
One James Center
901 E. Cary Street
Richmond, Virginia 23219
Laura Anne Corsell, Esq.
7307 Elbow Lane
Philadelphia, Pennsylvania 19119
This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current
prospectus. The prospectus can be obtained from the Fund's
Distributor. The prospectus provides more complete
information including charges and expenses. Please read it
carefully before investing.
