Commonwealth
Cash Reserve Fund
SEMI-ANNUAL REPORT
September 30, 1998
Commonwealth Cash Reserve Fund, Inc.
P. O. Box 1192
Richmond, Virginia 23209-1192
(800) 338-3383
Message to our Shareholders
During the six months ending September 30, 1998, a powerful bond market rally
propelled interest rates sharply lower. The rally, which led Treasuries out
to five years to break below 4.25% and the 30 - year Treasury bond to reach
5.00%, was a response to spreading turmoil in global economies, volatility
in the world stock markets and new evidence that the U.S. economic growth is
slowing from the torrid pace experienced over the last few years.
Since March 31, 1998 the one-year through 30-year Treasury note yields fell
1.00% or more. The stability of Fed Funds rate at 5.50% through most of the
second and third quarters, however, caused short-term rates to remain
relatively stable enabling money market funds like Commonwealth Cash Reserve
Fund to maintain consistent yields.
In response to the global turmoil, the Federal Reserve Board lowered the Fed
Funds Rate by 25 basis points to 5.25% on September 29th. Chairman Greenspan
stated "Deteriorating foreign economies and their spillover to domestic
markets have increased the possibility that the slowdown in the growth of the
American economy will be more than sufficient to hold inflation in check."
Subsequently, in an unexpected move, the Fed reduced the Fed Funds rate by an
additional 25 basis points on October 15, 1998.
Continued global uncertainty in equity and currency markets, as well as a
forecast for slower economic activity, and continued low inflation hold open
the door for more Fed rate cuts.
The Fund, both over the last year and especially with the market uncertainties
occurring during the last quarter of the Fund's fiscal year, has provided
investors with an opportunity to invest funds in an investment vehicle paying a
market rate of return while maintaining liquidity and flexibility.
To ensure that all investors 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 corporate obligations.
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.
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Net Assets
September 30, 1998
Face Amortized
Amount Cost
($000) Rate Date ($000)
COMMERCIAL PAPER (34.8%)
Prudential Funding Corp. 6,400 5.51% 10/07/98 6,394
Morgan Stanley Dean Witter & Co. 6,400 5.52% 10/15/98 6,387
Centric Captial Corp. 5,000 5.51% 10/23/98 4,983
General Electric Capital Corp. 6,500 5.50% 10/26/98 6,475
Salomon Smith Barney Holdings, Inc. 6,000 5.50% 10/27/98 5,975
Goldman Sachs Group 6,500 5.50% 10/28/98 6,473
Merrill Lynch & Co., Inc. 6,250 5.50% 10/29/98 6,224
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TOTAL COMMERCIAL PAPER 42,911
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CORPORATE NOTE (1.6%)
Bank of America 2,000 5.94% 10/22/98 2,000
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TOTAL CORPORATE NOTE 2,000
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U.S. GOVERNMENT AND AGENCY OBLIGATIONS (51.2%)
Federal Home Loan Bank Notes 5,000 5.78% 10/30/98 5,000
2,000 5.50% 03/26/99 1,999
Federal National Mortgage
Association Note 4,000 6.18% 05/28/99 4,013
Federal Home Loan Bank Note 3,000 5.61% 06/11/99 2,998
Federal Home Loan Mortgage
Corporation Discount Notes 9,910 5.35% 11/24/98 9,830
24,760 5.33% 12/08/98 24,511
Student Loan Marketing Association
irrevocable Letter of Credit
Guaranteeing Notes of USA Group
Secondary Market Services, Inc. 10,000 5.49% 10/07/98 9,991
Federal Home Loan Bank irrevocable
Letter of Credit Guaranteeing
Notes of Western Financial Bank 4,775 5.40% 10/16/98 4,764
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TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 63,106
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REPURCHASE AGREEMENTS (12.2%)
Merrill Lynch Government
Securities, Inc. 15,000 5.50% 10/19/98 15,000
Acquired on 9/16/98, accrued
interest $32,083, Collateralized
by FHLMC Certificate, 6.965%,
maturing 1/1/28, market value of
$15,464,609
------
TOTAL REPURCHASE AGREEMENTS 15,000
------
TOTAL INVESTMENTS 99.7% (Original Cost $122,705) 123,017
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OTHER ASSETS AND LIABILITIES
Interest Receivable 408
Cash 8
Distribution Fees Payable (6)
Audit Fees Payable (5)
Legal Fees Payable (2)
Custodian Fees Payable (7)
Other Accrued Expenses (68)
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328
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NET ASSETS (100%)
Applicable to 123,344,870 outstanding shares of
beneficial interest (unlimited authorization
- no par value) 123,345
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NET ASSET VALUE PER SHARE $ 1.00
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AT SEPTEMBER 30, 1998 NET ASSETS CONSISTED OF:
Amount Per
(000) Share
Paid in Capital $123,345 $ 1.00
Undistributed Net Investment Income - -
Accumulated Net Realized Gain - -
Unrealized Appreciation (Depreciation)
of Investments - -
------- ----
NET ASSETS $123,345 $ 1.00
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The accompanying notes are an integral part of these financial statements.
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Operations
Six Months Ended September 30, 1998
(000)
INVESTMENT INCOME
Income
Interest $ 3,836
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Total Income $ 3,836
-----
Expenses
Management Fees 116
Legal 14
Custodian 15
Distribution Fees 12
Audit 3
Directors Fees and Expenses 4
Insurance 1
Miscellaneous 3
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Total Expenses 168
-----
Expenses waived by Investment Advisor and Distributor (66)
Net Expenses 102
-----
Net Investment Income $ 3,734
-----
Net Increase in Net Assets
Resulting From Operations $ 3,734
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COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Changes in Net Assets
Six Months Ended
September 30,
1998 1997
(000) (000)
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS
Net Investment Income $ 3,734 $ 3,241
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DISTRIBUTIONS
Net Investment Income (3,734) (3,241)
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CAPITAL SHARE TRANSACTIONS (at $1.00 per share)
Issued 122,193 140,161
Redeemed (122,941) (120,351)
Distributions Reinvested 3,734 3,241
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Net Increase (Decrease) from Capital Share
Transactions 2,986 23,051
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Total Increase (Decrease) in Net Assets 2,986 23,051
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NET ASSETS
Beginning of Year 123,359 116,183
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End of Year $123,345 $139,234
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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 9/30/98 1998 1997 1996 1995
<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 0.055 0.053 0.058 0.049
DISTRIBUTIONS
Net Investment Income (0.027) (0.055) (0.053) (0.058) (0.049)
NET ASSET VALUE, END OF YEAR $1.000 $1.000 $1.000 $1.000 $1.000
Total Return 5.61% 5.68% 5.43% 5.90% 5.01%
Ratios/Supplemental Data
Net Assets, End of Period $123,345 $120,359 $116,183 $102,614 $130,940
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 5.47% 5.54% 5.31% 5.78% 4.91%
<FN>
<F1>
Certain fees were voluntarily waived for the six months ended September 30,
1998, and in the fiscal years ended March 31, 1998, 1997, 1996 and 1995.
If these fees had not been waived, the ratio of expensesto average net
assets would have been .24% for the six months ended September 30, 1998, and,
.25%, .28%, .29% and .29% respectively for the fiscal years ended March 31,
1998, 1997, 1996 and 1995. The ratio of net investment income to average
net assets would have been 5.37% for the six months ended September 30, 1998,
and 5.44%, 5.18%, 5.64% and 4.77%, for the fiscal years ended March 31, 1998,
1997, 1996 and 1995, respectively.
<F2>
Public Financial Management, Inc. has served as the investment advisor to
the Fund since March 15, 1994.
</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.
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 daily and 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 including accrued interest
thereon, is sufficient in the event of default; 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 September 30, 1998 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"), an investment advisory firm,
provides investment advisory, administration, and transfer agent services
to the Fund, pursuant to separate agreements with the Fund expiring November
21, 1998. 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 $63,500 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,
1998 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 .04 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 September 30, 1998,
total payments made to the Distributor under the Plan were $9,700, after
waiving fees of $3,000.
During the six months ended September 30, 1998, the Fund paid approximately
$5,100 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, 1998 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.
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Investment Adviser
Public Financial Management, Inc.
Governor's Plaza North
2101 North Front Street
Building 3, Suite 200
Harrisburg, Pennsylvania 17110
Custodian
Wachovia 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
Ernst & Young, LLP
Metro Park
99 Wood Avenue South
Iselin, New Jersey 08830-0471
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.
