ANNUAL REPORT
March 31, 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 annual report for the Commonwealth Cash
Reserve Fund (the Fund) for the fiscal year ended March 31, 1997.
During the past year, market concerns over the strength of the economy and
possible Federal Reserve Board action to raise interest rates caused continued
market volatility. After a sluggish fourth quarter 1996, the economy grew
strongly during the first quarter of 1997, far outpacing most analysts'
expectations. This triggered a significant rise in interest rates, reflecting
investor fears that the rate of inflation would also rise. The quarter began
in an upbeat mode, as the longest recent period of economic expansion continued.
Stock prices rose, commodity prices were stable to lower, consumer sentiment
was high, and final sales figures suggested growth was likely to continue.
As the quarter advanced, however, the mood turned bearish, particularly after
mid-February comments by the Federal Reserve Chairman Alan Greenspan that the
Fed might take a "preemptive" action to raise short-term interest rates.
Interest rates rose sharply following the Greenspan statement. By the time the
Fed acted to raise the federal funds rate by 25 basis points to 5.50% on March
25th, much of the move in rates had already taken place. Since that time,
rates have continued to edge upward with the expectation that the Fed is likely
to orchestrate additional rate increases later this year.
During this period of generally rising rates, many investors have been
reluctant to commit funds to longer term investments for fear that a
continued increase in rates will erode market values. In this uncertain
environment, investors have found the Fund to be a good place to "wait out"
the increase in rates. The Fund is an ideal investment vehicle for these
investors because it provides a market rate of return, liquidity and
flexibility. Further, because the Fund has an average maturity of under 90
days, it's return will tend to move in concert (albeit with a slight lag) with
short-term interest rates. This ensures that investors benefit from any
increase in rates.
To ensure that investor funds are properly safeguarded, the Fund continued to
focus attention on maintaining a high level of credit quality through investment
in U.S. Government obligations and repurchase agreements backed by U.S.
Government obligations. At the end of the quarter, fully 65% 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.
Investors can be assured that the Commonwealth Cash Reserve Fund will continue
its tradition of care and prudence in the safeguarding of shareholder assets.
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, 1997,
the results of its operations for 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, 1997 by
correspondence with the custodian and brokers, 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 Note 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
April 18, 1997
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Net Assets
March 31, 1997
Face
Amount Value
(000) (000)
BANKERS' ACCEPTANCES (3.4%)
Bank America
$4,000 5.300% 4/28/97 $ 3,984
------
TOTAL BANKERS' ACCEPTANCES 3,984
------
COMMERCIAL PAPER (31.2%)
Associates Corp. of NA
2,000 5.320% 5/05/97 1,990
Bear Stearns & Co., Inc.
6,000 5.340% 5/05/97 5,970
CoreStates Financial
4,000 5.370% (A) 7/22/97 4,000
General Electric Capital Corp.
2,000 5.320% 5/05/97 1,990
4,000 5.390% 6/16/97 3,954
Goldman Sachs Group, Inc.
6,000 5.300% 4/09/97 5,993
Merrill Lynch & Co., Inc.
2,000 5.340% 5/05/97 1,990
4,400 5.320% 4/15/97 4.391
Prudential Funding Corporation
6,000 5.320% 4/07/97 5,995
------
TOTAL COMMERCIAL PAPER $ 36,273
------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (43.5%)
U.S. Treasury Notes:
2,000 6.500% 5/15/97 2,002
3,000 5.690% 5/15/97 3,003
2,300 5.750% 9/30/97 2,298
2,000 5.000% 1/31/98 1,989
2,000 6.000% 11/30/97 2,007
Federal Home Loan Bank Note
2,000 5.710% 1/21/98 2,000
Federal Farm Credit Bank Discount Note
2,410 5.250% 4/28/97 2,400
Federal Home Loan Bank Discount Note
13,000 5.490% 5/29/97 12,954
Federal Home Loan Mortgage Corporation
Discount Notes
10,000 5.285% 5/29/97 9,915
Bancomext Export Funding Corporation
2,000 6.0625% 10/15/97 2,000
Student Loan Marketing Association
Irrevocable Letter of Credit Guaranteeing
Notes of Secondary Market Services, Inc.
10,000 5.500% 4/02/97 9,998
------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS $ 50,566
------
REPURCHASE AGREEMENTS (21.6%)
Prudential Funding
3,350 6,400% 4/01/97 3,350
Acquired on 3/31/97, accrued interest $596;
Collateralized by FHLMC Note, 7.821%, maturing 4/01/24,
market value of $3,380,694
Prudential Funding
5,020 5.330% 4/07/97 5,020
Acquired on 2/06/97, accrued interest $40,135;
Collateralized by FHLMC Note, 7.815%, maturing 3/01/24
market value of $5,172,852
Prudential Funding
9,690 5.350% 4/09/97 9,690
Acquired on 3/10/97, accrued interest $31,681;
Collateralized by FNMA Note, 6.089%, maturing 4/01/34
market value of $10,990,000
Morgan Stanley Group
7,000 5.340% 4/08/97 7,000
Acquired on 3/18/97, accrued interest $14,537;
Collateralized by FHLMC Note, 6.085%, maturing 7/01/24
market value of $7,610,000
------
TOTAL REPURCHASE AGREEMENTS 17,450
------
TOTAL INVESTMENTS 99.7% (Cost $115,883) $ 115,883
-------
OTHER ASSETS AND LIABILITIES
Other Assets 351
Liabilities (51)
NET ASSETS (100%)
Applicable to 116,183,371 outstanding shares of
beneficial interest (500 million authorized shares
- no par value) $ 116,183
-------
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $ 1.00
----
AT MARCH 31, 1997 NET ASSETS CONSISTED OF:
Amount Per
(000) Share
Paid in Capital $ 116,183 $ 1.00
Undistributed Net Investment Income - -
Accumulated Net Realized Gain - -
Unrealized Appreciation (Depreciation)
of Investments - -
------- ----
NET ASSETS $ 116,183 $ 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 3/31/97.
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Operations
Year Ended March 31, 1997
(000)
INVESTMENT INCOME
Income
Interest $ 5,082
-----
Total Income $ 5,082
Expenses
Management Fees 158
Legal 19
Custodian 25
Distribution Fees 29
Audit 9
Directors Fees and Expenses 7
Insurance 3
Registration Fees 2
Miscellaneous 8
-----
Total Expenses 260
Expenses waived by Investment Advisor and Distributor (120)
-----
Net Investment Income 4,942
-----
Net Increase in Net Assets
Resulting From Operations $ 4,942
-----
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Changes in Net Assets
Year Ended March 31,
1997 1996
(000) (000)
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS
Net Investment Income $ 4,942 $ 6,835
DISTRIBUTIONS
Net Investment Income (4,942) (6,835)
CAPITAL SHARE TRANSACTIONS (at $1.00 per share)
Issued 235,732 205,559
Redeemed (227,105) (240,720)
Distributions Reinvested 4,942 6,835
Net Increase (Decrease) from Capital Share
Transactions 13,569 (28,326)
------- -------
Total Increase (Decrease) in Net Assets 13,569 (28,326)
NET ASSETS
Beginning of Year 102,614 130,940
------- -------
End of Year $ 116,183 $ 102,614
------- -------
COMMONWEALTH CASH RESERVE FUND, INC.
<TABLE>
Financial Highlights <F2>
<CAPTION>
Year Ended March 31,
For a Share Outstanding
Throughout Each Year 1997 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 0.053 0.058 0.049 0.025 0.035
DISTRIBUTIONS
Net Investment Income (0.053) (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 5.43% 5.90% 5.01% 2.48% 3.59%
Ratios/Supplemental Data
Net Assets, End of Period $116,183 $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 5.31% 5.78% 4.91% 2.49% 2.91%
<FN>
<F1>
Certain fees were voluntarily waived for the 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 .28% for 1997 and .29% for 1996 and 1995.
The ratio of net investment income to average net assets would have been 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.
<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 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. 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. Repurchase
agreements held at March 31, 1997 may be terminated at the option of the
Fund with seven days notice.
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 $114,000 of its fees under the advisory and administrative agreements
so that the aggregate operating expenses of the Fund for the Fund's fiscal
year ended March 31, 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
.05 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 year ended March 31, 1997, total
payments made to the Distributor under the Plan were $23,000, after waiving
fees of $6,000.
During the year ended March 31, 1997, the Fund paid approximately $9,000 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. For the information of the participants, March 31,
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.
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.
