Commonwealth
Cash Reserve Fund
ANNUAL REPORT
March 31, 1998
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, 1998.
During the fiscal year, the market continued to react to strong domestic
growth, low inflation, concern about Asia, and the Federal Reserve on hold
for the time being. The combination of strong growth and no inflation is
most unusual. During 1997 most economists expected price pressures to
emerge, and this expectation moved interest rates up in the first half of
the fiscal year. During the first quarter of 1998, worries about Asia,
signs that the pace of U.S. growth had moderated and that inflation remained
in check resulted in lower long-term rates.
The market has been very focused on the on going economic crisis in Asia.
Many analysts expected the financial turmoil experienced across Asia to curtail
U.S. exports sharply and to slow growth in western economies including the
U.S. While exports did fall, and the U.S. dollar appreciated sharply during
February and March, the aggregate impact on the overall U.S. economy was
muted. However, continued weakening of the Asian equity markets may portend
another round of renewed concern.
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 71% 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, 1998, 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, 1998 by correspondence with the custodian and repurchase agreement
counterparties, 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 24, 1998
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Net Assets
March 31, 1998
Face Amortized
Amount Cost
($000) Rate Date ($000)
COMMERCIAL PAPER (27.0%)
Centric Capital Funding Corp. 5,800 5.55% 4/09/98 5,793
Corestates Bank, N.A. (A) 5,000 5.64% 4/20/98 5,000
Morgan Stanley Group, Inc. 5,000 5.49% 4/22/98 4,984
Morgan Stanley Group, Inc. 520 5.51% 4/22/98 518
General Electric Capital Corp. 5,600 5.52% 4/30/98 5,575
Prudential Funding Corporation 5,000 5.52% 5/04/98 4,975
Salomon Smith Barney Holdings, Inc. 5,700 5.53% 5/06/98 5,669
------
TOTAL COMMERCIAL PAPER 32,514
------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (25.4%)
Federal Farm Credit Bank Notes 3,000 5.90% 4/01/98 3,000
2,000 6.05% 5/01/98 2,000
Federal Home Loan Bank Notes 2,000 5.50% 3/26/99 1,997
1,000 5.26% 4/27/98 1,000
5,000 5.78% 10/30/98 5,000
Federal National Mortgage
Association Note 3,000 5.84% 6/10/98 2,999
Federal Home Loan Bank
Discount Note 6,698 5.45% 6/19/98 6,618
Federal Home Loan Mortgage
Corporation Discount Notes 8,000 5.43% 6/19/98 7,904
------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 30,518
------
BANKER'S ACCEPTANCE (2.5%)
Chase Securities, Inc. 3,000 5.50% 6/24/98 2,962
------
TOTAL BANKER'S ACCEPTANCE 2,962
------
REPURCHASE AGREEMENTS (44.7%)
Prudential Securities 12,180 5.95% 4/01/98 12,180
Acquired on 3/31/98, accrued
interest $2,013, Collateralized
by FHLMC Certificate, 6.93%,
maturing 8/1/26, market value
of $12,552,192
Prudential Securities 10,000 5.50% 4/02/98 10,000
Acquired on 2/19/98, accrued
interest $62,639, Collateralized
by FNMA Certificate, 5.71% to
7.1%, maturing 2/1/20 to 12/1/27,
market value of $10,255,552
Morgan Stanley Group, Inc. 11,750 5.51% 4/02/98 11,750
Acquired on 2/20/98, accrued
interest $71,936, Collateralized
by FNMA Certificate, 6.25%,
maturing 11/1/27, market value of
$11,968,866
Morgan Stanley Group, Inc. 4,930 5.53% 4/08/98 4,930
Acquired on 3/06/98, accrued
interest $19,690, Collateralized
by FHLMC Certificate, 8.04%,
maturing 11/1/24, market value of
$5,030,558
Merrill Lynch Government
Securities, Inc. 15,000 5.54% 4/16/98 15,000
Acquired on 3/18/98, accrued
interest $32,317, Collateralized
by FHLMC Certificate, 7.18%,
maturing 1/1/33, market value of
$15,725,419
------
TOTAL REPURCHASE AGREEMENTS 53,860
------
TOTAL INVESTMENTS 99.6% (Original Cost $119,733) 119,854
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OTHER ASSETS AND LIABILITIES
Interest Receivable 534
Cash 5
Distribution Fees Payable (6)
Audit Fees Payable (9)
Legal Fees Payable (6)
Custodian Fees Payable (2)
Other Accrued Expenses (11)
-------
505
-------
NET ASSETS (100%)
Applicable to 120,359,456 outstanding shares of
beneficial interest (unlimited authorization
- no par value) 120,359
-------
NET ASSET VALUE PER SHARE $ 1.00
-------
AT MARCH 31, 1998 NET ASSETS CONSISTED OF:
Amount Per
(000) Share
Paid in Capital $120,359 $ 1.00
Undistributed Net Investment Income - -
Accumulated Net Realized Gain - -
Unrealized Appreciation (Depreciation)
of Investments - -
------- ----
NET ASSETS $120,359 $ 1.00
------- ----
(A) Variable Rate Security - the rate reported in the Statement of Net Assets
reflects the rate in effect at 3/31/98.
The accompanying notes are an integral part of these financial statements.
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Operations
Year Ended March 31, 1998
(000)
INVESTMENT INCOME
Income
Interest $ 6,653
-----
Total Income $ 6,653
-----
Expenses
Management Fees 199
Legal 17
Custodian 28
Distribution Fees 31
Audit 9
Directors Fees and Expenses 9
Insurance, Registration Fees and Other 4
-----
Total Expenses 297
-----
Expenses waived by Investment Advisor and Distributor (121)
Net Investment Income $ 6,477
-----
Net Increase in Net Assets
Resulting From Operations $ 6,477
-----
COMMONWEALTH CASH RESERVE FUND, INC.
Statement of Changes in Net Assets
Year Ended March 31,
1998 1997
(000) (000)
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS
Net Investment Income $ 6,477 $ 4,942
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DISTRIBUTIONS
Net Investment Income (6,477) (4,942)
------- -------
CAPITAL SHARE TRANSACTIONS (at $1.00 per share)
Issued 216,592 235,732
Redeemed (218,893) (227,105)
Distributions Reinvested 6,477 4,942
------- -------
Net Increase (Decrease) from Capital Share
Transactions 4,176 13,569
------- -------
Total Increase (Decrease) in Net Assets 23,051 (16,190)
------- -------
NET ASSETS
Beginning of Year 116,183 102,614
------- -------
End of Year $120,359 $116,183
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COMMONWEALTH CASH RESERVE FUND, INC.
<TABLE>
Financial Highlights <F2>
<CAPTION>
Year Ended March 31,
For a Share Outstanding
Throughout Each Year 1998 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 0.055 0.053 0.058 0.049 0.025
DISTRIBUTIONS
Net Investment Income (0.055) (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 5.68% 5.43% 5.90% 5.01% 2.48%
Ratios/Supplemental Data
Net Assets, End of Period $120,359 $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 5.54% 5.31% 5.78% 4.91% 2.49%
<FN>
<F1>
Certain fees were voluntarily waived in the fiscal years ended March 31, 1998,
1997, 1996 and 1995. If these fees had not been waived, the ratio of expenses
to average net assets would have been .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 5.44%, 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 March 31, 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 $115,000 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, 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 .07 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, 1998,
total payments made to the Distributor under the Plan were $25,300, after
waiving fees of $6,000.
During the year ended March 31, 1998, the Fund paid approximately $7,100 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
March 31, 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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Commonwealth
Cash Reserve Fund
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
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.
