SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 []
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 19 [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 []
Amendment No. 21 [ ]
(Check appropriate box or boxes.)
COMMONWEALTH CASH RESERVE FUND, INC.
(Exact Name of Registrant as Specified in Charter)
P.O. BOX 1192
RICHMOND, VIRGINA 23209-1192
(Address of Principal Executive Offices) (Zip Code)
1-800-338-3383
Registrant's Telephone Number, including Area Code
JEFFREY A. LAINE
38 COHASSET LANE
CHERRY HILL, NEW JERSEY 08003
(Name and Address of Agent for Service)
COPY TO:
BARBARA L. FAVA
PUBLIC FINANCIAL MANAGEMENT, INC.
2101 NORTH FRONT ST., BLDG. 3, SUITE 200
HARRISBURG, PA 17110
Approximate Date of Proposed Public Offering
It is proposed that this filing will become effective
(check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on August 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
COMMONWEALTH CASH RESERVE FUND, INC.
Cross Reference Sheet
(Pursuant to Rule 495)
N-1A Item No. Location
Part A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Expenses and
Financial Highlights
Item 3. Condensed Financial Information Fund Expenses and
Financial Highlights
Item 4. General Description of Registrant The Fund; Investment
Objectives and Policies;
General Information
Item 5. Management of the Fund Management
Item 6. Capital Stock and other Securities General Information;
Dividend and Tax
Information
Item 7. Purchase of Securities Being Offered How to Invest in the
Fund; Net Asset Value
Item 8. Redemption or Repurchase How to Redeem Investments
Item 9. Pending Legal Proceedings Not Applicable
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information
Item 13. Investment Objectives and Policies Investment Policies
Item 14. Management of the Fund Additional Information
as to Management
Arrangements
Item 15. Control Persons and Principal Principal Holders
Holders of Securities of Securities
Item 16. Investment Advisory and Other Services Additional Information
as to Management
Arrangements
Item 17. Brokerage Allocation Investment Policies
Item 18. Capital Stock and Other Securities General Information
Item 19. Purchase, Redemption and Pricing of Amortized Cost
Securities Being Offered Valuation
Item 20. Tax Status Dividends and Tax
Information*
Item 21. Underwriters Distribution Plan
Item 22. Calculation of Yield Quotations of Yield Information
Money Market Funds Market Funds
Item 23. Financial Statements Financial Information
Part C OTHER INFORMATION
Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C to this Registration
Statement.
* Included under referenced caption in the Prospectus
COMMONWEALTH CASH RESERVE FUND, INC.
COMMONWEALTH CASH RESERVE FUND, INC.
Prospectus August 1, 1999
P.O. Box 1192
Richmond, Virginia 23209-1192
1-800-338-3383
The Commonwealth Cash Reserve Fund (the "Fund") is a money market fund. The
Fund is designed and managed to suit the special cash management needs of
institutions, such as municipalities, other governmental entities,
universities, hospitals and not-for-profit organizations.
Public Financial Management, Inc. ("PFM") serves as the Fund's investment
advisor and administrator.
An investment in the fund is not insured or guaranteed by the federal deposit
insurance corporation or any other government agency.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
1
Risk and Return Summary
Investment Objective and Principal Investment Strategies
Commonwealth Cash Reserve Fund (the "Fund") is a money market fund. The Fund
seeks to provide its shareholders with as high current income as is consistent
with stability, safety of principal and liquidity and to maintain a stable net
asset value of $1.00 per share. To do so, the Fund maintains a dollar-
weighted average portfolio maturity of 90 days or less and invests only in
securities that have remaining maturities of thirteen months or less.
The Fund invests exclusively in high-quality, short-term money market
instruments. These instruments include:
* Unconditional Obligations of the United States Government or it's agencies
* High quality debt obligations of U.S. Companies
* Obligations of Financial Institutions
* Municipal Obligations
Except for obligations of the U.S. Government or municipalities, all securities
purchased by the Fund -- or the companies that issue securities purchased by
the Fund -- must be rated of high quality by Standard & Poor's Corporation
("S&P") and by Moody's Investor Services, Inc. ("Moody's). In addition, all
instruments acquired by the Fund are instruments in which municipalities and
other government entities organized under the laws of the Commonwealth of
Virginia are permitted to invest.
Principal Risks
Notwithstanding the high-quality securities in which the Fund exclusively
invests, an investment in a money market fund such as the Fund is subject
to certain basic risks.
One of these is related to interest rates -- the chance that
falling short-term interest rates will cause the Fund's income to decline.
A second is "management risk" -- the possibility that securities selected by
the Fund's investment adviser will cause the Fund to underperform other
money market funds.
Finally, the Fund is subject to "credit risks" -- the risk that the issuer of
a security held by the Fund will fail to pay interest and principal in a
timely manner. An investment in the Fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Fund seeks to preserve the value of your investment at $1 per
share, it is possible to lose money by investing in the Fund.
2
Performance
The following information illustrates how the Fund's performance has varied
over time. The bar chart depicts the change in performance from year to
year. The table below the bar chart illustrates the Fund's average annual
return for the periods indicated. Keep in mind that the information below
is calculated on a calendar year basis. Corresponding information set forth
in the Financial Highlights portion of this Prospectus is calculated based
on the Fund's fiscal year.
<TABLE>
1989 1990 1991 1992 1993 1994<F1>1995 1996 1997 1998
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.06% 7.92% 5.48% 3.22% 2.58% 3.69% 6.06% 5.46% 5.61% 5.57%
<FN>
<F1> For approximately two months during 1994 there were no shareholders in
the fund.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
(as of the calendar year ended Past Past Past
December 31, 1998) One Year Five Years Ten Years
<S> <C> <C> <C>
Commonwealth Cash Reserve Fund 5.57% 5.28% 5.47%
</TABLE>
The Fund's return for the three month period ended June 30, 1999 is 1.20%.
High quarter 2.32%
Low quarter 0.61%
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund. It is based upon gross expenses, without taking
into account any fees that may have been waived by the Fund's investment
advisor or other service providers.
Management Fees (1) %.17
12b-1 Fees (2) %.02
Other Expenses %.06
Total Fund Operating Expenses (3) %.25
3
(1) Management fees include both the advisory and administration fees payable
to PFM. PFM may, in its sole discretion, waive all or a portion of these fees
in any year. During the year ended March 31, 1999, PFM waived fees equal to
approximately .10% of the Fund's average daily net assets. After giving
effect to this fee waiver, the Management Fees paid by the Fund during the
period shown were 0.07%.
(2) Expenses associated with the Distribution of the Fund's shares include
a fixed fee payable to the Fund's Distributor and certain expenses, incurred
by the Distributor and for which the Distributor is reimbursed by the Fund.
Under the Fund's 12b-1 Plan of Distribution, distribution related expenses
paid by the Fund may not exceed .25% of the Fund's average daily net assets.
Figures shown in the table above do not reflect certain voluntary fee waivers.
After giving effect to such waivers, 12b-1 fees would be .02%.
(3) The Total Fund Operating Expenses in the table above do not reflect
voluntary waivers for the fiscal year ended March 31, 1999. Taking such fee
waivers into account, the ratio of expenses to average daily net assets
would be 0.15%.
EXPENSE EXAMPLE.
This example allows you compare the cost of investing in the Fund to the
cost of investing in other mutual funds. It is based on the following
assumptions: $10,000 initial investment; 5% total return on your
investment each year; Fund operating expenses remain as shown in the table
above throughout the period; and redemption at the end of each time period.
1 year $ 26
3 years $ 80
5 years $141
10 years $318
This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
INVESTMENT OBJECTIVES AND POLICIES
The objective of the Fund is to provide its shareholders with as high current
income as is consistent with stability, safety of principal and liquidity.
This objective may not be changed without the approval of the Fund's
outstanding voting securities.
To achieve its investment objective, the Fund is permitted to purchase the
instruments described in this Prospectus. The Fund will invest only when
PFM is satisfied that the credit risk presented by any investment is
minimal. Detailed information about the Fund's investment policies is
included in the Statement of Additional Information.
Obligations of the United States Government. These are U.S. Treasury bills,
notes and bonds, and securities unconditionally guaranteed as to payment of
principal and interest by the United States or any agency of the United
States. Examples of agencies of the United States include the Federal
National Mortgage Association, Federal Home Loan Banks, Federal Farm Credit
System, and Government National Mortgage Association.
Commercial Paper. The Fund will invest only in commercial paper of
corporations organized under the laws of the United States or any state
thereof, including paper issued by banks and bank holding companies, with
a maturity of 270 days or less. All commercial paper purchased by
the Fund will be rated both Prime-1 by Moody's and A-1 by S&P. The Fund
will not invest more than 35% of its total assets in commercial paper and
not more than 5% of its assets will be invested in the commercial
paper of any one corporation.
4
Corporate Notes and Bonds. The Fund is authorized to invest in bonds,
notes and other evidences of indebtedness or obligations issued by
corporations organized under the laws of the United States or any state.
All corporate debt obligations purchased by the Fund will be rated at
least Aa by Moody's and have a rating of at least AA by S&P. The Fund may
purchase variable and floating rate instruments.
Obligations of Banks. The Fund may purchase bankers' acceptances and
certificates of deposit. Bankers acceptances are time drafts or bills of
exchange created to finance trade goods and "accepted" by either a domestic
bank or a foreign bank with an agency domiciled in the United States.
Certificates of deposit are securities evidencing deposits in domestic banks
and domestic offices of foreign banks.
Bank obligations will be considered for purchase by the Fund only if the
securities are rated at least A-1 by S&P and P-1 by Moody's in the case of
securities with maturities of one year or less. A rating of at least AA by
S&P and Aa by Moody's will be required before any bank obligation
with a remaining maturity of over one year will be considered for purchase
by the Fund. The Fund will not invest in any bank obligation with more
than thirteen months remaining until maturity.
Municipal Obligations. The Fund may invest in the stocks, bonds, notes and
other evidences of indebtedness of municipal entities including any state of
the United States or any city, county, town or district situated in any one
of the states of the United States upon which there is no default. See
"Investment Policies" in Statement of Additional Information for a discussion
of additional criteria that municipal obligations must meet to be eligible
for investment by the Fund.
Repurchase Agreements. The Fund may enter into collateralized repurchase
agreements. Repurchase agreements are transactions in which a Fund
purchases securities and simultaneously commits to resell those securities
to the seller at an agreed-upon price on an agreed-upon future date. The
repurchase price reflects a market rate of interest and is collateralized
by cash or securities.
If the seller of the securities underlying a repurchase agreement fails to
pay the agreed resale price on the agreed delivery date, the Fund may incur
costs in disposing of the collateral and may experience losses if there is
any delay in its ability to do so.
SPECIAL INFORMATION ABOUT CASH MANAGEMENT FOR MUNICIPALITIES AND INSTITUTIONS
Although suitable for a range of institutional investors, the Fund's
investment objectives and strategies are consistent with the special cash
management needs of municipalities, other governmental agencies and
political subdivisions (collectively, "governmental units") that,
like the Fund, are located in Virginia. Accordingly, the Fund invests only
in those instruments in which governmental units are permitted to invest
directly under Sections 2.1-327 through 2.1-329 of the Code of Virginia.
Particularly when combined with the specialized cash management features
available through the Fund, an investment in the Fund is also suitable
for institutions, such as universities, hospitals, and not-for-profit
organizations that must manage investments conservatively so as to assure
the ability to meet changing cash flow needs. These features include the
ability, without charge, to establish multiple accounts, the availability of
detailed individual account information on request, assistance in complying
with specialized accounting and recordkeeping required under certain
provisions of the Internal Revenue Code, such as the U.S. Code's arbitrage
rebate provisions. PFM will also assist the Fund's shareholders in making
calculations and reports required to comply with such provisions.
YEAR 2000
As the year 2000 approaches, an issue has emerged regarding how existing
microprocessors, computer hardware and computer software programs and
operating systems can accomodate this date value. Failure of systems could
affect net asset values, portfolio yields, shareholder services and the
processing of transactions. The Fund has taken steps that it believes are
reasonably designed to address the potential failure of systems used by the
5
Fund and its third party providers, including the custodians, due to the Year
2000 issues. The Fund has identified the systems which it has assessed as
mission critical, and is obtaining readiness disclosure statements from
vendors, significant counter-parties, suppliers and other service providers.
Testing of the mission critical systems was completed during the second
quarter of 1999. Additionally, the Fund is in the process of developing a
contingency plan which it expects to complete by the end of the third
quarter of 1999.
The Fund does not expect that the financial condition or results of operations
of the Fund will be significantly affected by the costs of converting systems.
However, because of the ultimately unpredictable consequences of the Year 2000
issue, the Year 2000 could have a material impact on the operations of the
Fund.
VALUATION
The Fund values its portfolio based on the amortized cost method of
valuation in accordance with rules adopted by the Securities and Exchange
Commission ("SEC"). Under this method, the Fund's shares are normally valued
at $1.00 per share. The amortized cost method permits the Fund to establish
the value of each security held in the Fund's portfolio based on its cost
to the Fund and to assume a constant amortization rate to maturity of
any discount or premium. Accordingly, this valuation method does not
reflect the impact of fluctuating interest rates on the market value of
the security. Using this method, the Fund determines the net asset value
of its portfolio as of 12:00 noon, Eastern Time, Monday through Friday
exclusive of federal holidays, except Good Friday (a "Business Day").
The Fund's net asset value per share -- the price at which shares of the
Fund are purchased and redeemed -- is determined by dividing the value of
the net assets of the Fund by the total number of shares outstanding.
MANAGEMENT OF THE FUND
The Fund's Board of Directors has overall responsibility for the business
and affairs of the Fund. The Board of Directors has engaged various
financial organizations to provide, among other things, day-to-day
management services. These organizations are described below. In addition,
the Board of Directors has appointed an Advisory Board. Members of the
Advisory Board will not and may not be Directors or officers of the Fund
but may be employees of shareholders of the Fund. The function of the
Advisory Board is to consult with and advise the Board of Directors as to
investments and any other matters relating to the business of the Fund.
The Advisory Board does not have the authority to bind the Fund. The
Statement of Additional Information sets forth the identity and other
information about the Fund's Board of Directors and members of the Advisory
Board.
Investment Advisory and Administration Arrangements. PFM, the principal
offices of which are located at Governor's Plaza North, 2101 North Front
Street, Suite 200, Harrisburg, PA 17110, serves as the Fund's investment
advisor. Pursuant to the terms of its advisory agreement with the Fund,
("Advisory Agreement"), PFM is registered as an investment advisor
under the Investment Advisors Act of 1940, and has acted as financial
advisor and/or investment advisor to more than 1,000 cities, townships,
boroughs, counties, school districts and authorities in 35 states,
providing its clients with financial, investment advisory, and cash
management services. As of January 1, 1999, PFM had more than
$9.3 billion in funds under management. PFM is also investment manager for
the Pennsylvania Local Government Investment Trust, the New Jersey
Asset & Rebate Management Program, the California Asset Management
Program, and the Massachusetts Health and Educational Facilities Authority
Short-Term Assets Reserve Fund, a state-wide investment pool for health
and educational institutions.
Under the Advisory Agreement, PFM is responsible for providing a continuous
investment program and computing net asset value for the Fund. All expenses
incurred by PFM in connection with the provision of such services to the
Fund will be paid by PFM other than the cost of securities (including
brokerage commissions, if any) purchased by the Fund.
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. During the fiscal year ended March 31, 1999, PFM received
advisory fees equal to .07% of the average net assets of the Fund. This fee
reflects the waiver of a portion of the management fee. PFM is not required
to continue to waive fees and can terminate this voluntary waiver at any time.
6
PFM also serves as the Fund's administrator under an administration agreement
dated November 21, 1999 (the "Administration Agreement").
Under the Administration Agreement, PFM provides all necessary administrative
services, other than those relating to the Fund's investment portfolio and
the maintenance of its accounting books and records. Specifically, the
Administration Agreement requires PFM to provide office space and facilities,
equipment and personnel necessary for the operation of the Fund, (including
the payment of all compensation of those of the Fund's Directors, officers
and employees who are affiliated persons of PFM); PFM oversees the
preparation of tax returns, reports to shareholders and Directors of the
Fund, and filings with the SEC and state "Blue Sky" authorities;
and coordinates the activities of the Fund's various service providers.
As compensation for its services under the Administration Agreement, PFM is
entitled to a fee, accrued daily and payable monthly, at the annual rate of
.05% of average daily net assets. For the fiscal year ended March 31,
1999, PFM waived its fees and received no compensation under the
Administration Agreement. All other expenses not expressly assumed by PFM
under its agreements with the Fund are paid by the Fund, including, among
other things, legal and audit expenses, fees and expenses of the Custodian,
share issuance and redemption costs and expenses of the Fund and its shares
under federal and state securities laws, and interest, taxes and other
non-recurring expenses, including litigation. The Fund bears the cost of the
preparation and setting in type of its prospectuses and reports to
shareholders and the costs of printing and distributing those copies of
such prospectuses and reports sent to shareholders.
Distributor and Other Service Providers
Shares in the Fund are offered on a continuous basis through Commonwealth
Financial Group, Inc. ("Distributor"), the Fund's Distributor, pursuant to
a separate Distribution Agreement with the Fund. Jeffrey A. Laine,
President and a Director of the Fund, is the President and sole shareholder
of the Distributor. The Fund has adopted an Amended and Restated
Distribution Plan (the "Plan") entered into pursuant to Rule 12b-1 of the
Investment Company Act of 1940 (the "Rule"). Under the Plan, the Fund may
pay of up to .25% of its average daily net assets each year to the
Fund's Distributor and/or to broker dealers and shareholder servicing
agents who provide assistance in the distribution and retention of
Fund shares. For the fiscal year ended March 31, 1999, the Fund paid
$26,700, after waivers, in approved distribution expenses. See the
Statement of Additional Information for further information.
Custodian and Transfer Agent
All funds and securities are deposited with Wachovia Bank, N.A., as
Custodian. PFM serves as the Fund's Transfer Agent under a Transfer
Agency Agreement dated March 15, 1994. PFM is entitled to
reimbursement of its out-of-pocket expenses incurred under the Transfer
Agency Agreement but is not entitled to fees for services under that
Agreement except as expressly agreed to by the Fund. During the fiscal
year ended March 31, 1999, PFM received no reimbursement for its expenses.
HOW TO PURCHASE AND REDEEM SHARES OF THE FUND
Purchases
The Fund's shares are offered on a continuous basis at the Net
Asset Value next determined after an order is entered and deemed effective
on the basis described below under "When Shares Are Purchased and Dividends
Declared and Paid." There is no sales charge. Subsequent investments may
be made in any amount. Shares may be purchased through the Transfer Agent
or the Distributor. Shares of the Fund are available to institutions, such
as municipalities, other governmental entities, universities, hospitals and
not-for-profit organizations ("Investors").
7
Opening Account(s)
A properly completed application (the "Application")
must be sent to the Transfer Agent at 2101 N. Front Street, Building 3,
Suite 200, Harrisburg, PA 17110 upon opening a new account. A properly
completed Application must be received by the Fund before a redemption
request will be honored.
Initial investments may be made in either of two convenient ways:
1. By Mail. Payment may be made by check, money order, Federal Reserve
draft, or negotiable bank draft payable to the order of the Fund for your
account and mailed to:
Wachovia Bank, N.A.
Attn: Commonwealth Cash Reserve Fund
1021 East Cary Street
P.O. Box 26587
Richmond, VA 23261
2. By Wire. Payment may be wired in Federal Funds (money credited to a bank
account with a Federal Reserve Bank) to the Fund's Custodian . To insure
prompt and proper crediting to its account, an Investor choosing to place
money in the Fund by wire should telephone the Transfer Agent in advance at
1-800-338-3383. The Investor should instruct its bank to wire funds to:
Wachovia Bank
Richmond, Virginia
ABA# 051000253
for credit to Commonwealth Cash Reserve Fund
Account No. 7911623867
Account Name and Number: The name in which the Investor wishes the Fund to
carry the investment.
Additional Investments
Additional investments may be made in any amount after an account has been
established by simply mailing directly to the Custodian (at the address
indicated above under "By Mail") a check, money order or negotiable bank
draft, made payable to the Fund, or by wiring funds (to the address
indicated above under "By Wire") after calling the Transfer Agent in
advance, as described above. In each case, the Investor should indicate
its name and the account number to insure prompt and proper crediting of
the account.
When Shares Are Purchased and Dividends Declared and Paid
The Fund seeks to be as fully invested as possible at all times to achieve
high income. As the Fund will be investing in instruments which normally
require same day payment in Federal Funds, the Fund has adopted certain
procedures for the convenience of the Investor and to insure that the Fund
has investable funds available to it.
Payments which are "accepted" before 12:00 noon, Eastern Time, on any
Business Day and which are received in or converted to Federal Funds on
that Business Day will be invested in shares (i.e., the purchase order will
be effective) at the Net Asset Value per share calculated on that day.
Payments which are "accepted" after 12:00 noon, Eastern Time on any Business
Day will be invested in shares at the Net Asset Value per share as of the
next Business Day. In order for the purchase order to be accepted, the Fund
must have received an acknowledged notification (written or verbal) and
completed registration forms and payment in Federal Funds. Wire payments not
in Federal Funds will normally be converted into Federal Funds on the
Business Day after receipt of the wire by the Custodian. Payments
transmitted by check will normally be converted to Federal Funds within
8
one day after receipt by the Custodian. All checks are accepted subject to
collection at full face value in United States funds and must be drawn in
United States dollars on a United States bank. Dividends are declared
starting on the day the purchase order is effective and are not declared on
the day on which the shares are redeemed. All dividends will be invested
in additional shares of the Fund unless specific instructions are received
to pay dividends in cash.
Confirmations
All purchases of shares will be confirmed and credited to the Investor in
an account maintained by the Fund in full and fractional shares
of the Fund (rounded to the nearest 1/1000 of a share). Share certificates
will not be issued. The Fund reserves the right to reject any order for
purchase of shares. In addition, the offering of shares may be suspended
at any time (although this is not expected to occur) and resumed at any time
thereafter.
Redemptions
The Fund provides day to day liquidity on any Business Day. Investors may
withdraw their investment, in whole or in part, on any Business Day after
receipt by the Fund in proper form (i.e., use of one of the redemption
methods described below) of a redemption request. Except for shares
recently purchased by check, as discussed below, there is no minimum time
period for any investment in the Fund. There are no redemption fees or
withdrawal penalties. A completed Application must have been received by
the Fund before redemption requests of any kind will be honored.
Convenient Redemption Methods
An Investor has the flexibility of three redemption methods for easy and
convenient access to the Fund. Under the first two methods, for security
reasons, cash proceeds from redemptions are sent by the Fund only to the
predesignated bank account(s) of the Investor. Such payments will be wired
to the Investor's predesignated bank account in accordance with the
Investor's instructions.
1. By Mail. Redemptions may be requested by a letter of instruction signed
by an authorized signatory or signatories of the Investor, from the Investor
indicating the account number, amount to be redeemed, and payment directions
sent to:
Commonwealth Cash Reserve Fund, Inc.
c/o Public Financial Management, Transfer Agent
Governor's Plaza North
2101 North Front Street
Building 3, Suite 200
Harrisburg, PA 17110
The mailed redemption should contain the following information:
* Account Number.
* Dollar amount or number of shares to be redeemed or a statement that all
of the shares are to be redeemed. Payment instructions (redemption proceeds
will be wired to an Investor's bank account designated by the Investor in
the Application and specified in the redemption request).
* Authorized signatures of the Investor.
2. By Telephone. The Fund will accept telephone requests for redemption
for payment to predesignated bank accounts. Such requests must be made by
an authorized person. The account number and amount to be redeemed must be
supplied by the Investor. To redeem by telephone call:
1-800-338-3383
9
If the telephone call is received prior to 12:00 noon, Eastern Time, funds
will be wired to the Investor's designated account on that same Business
Day. Requests received after 12:00 noon will be processed on the next day
that Net Asset Value is determined. Funds will remain invested in the Fund
until the day that they are wired. The commercial bank account information
supplied to the Fund must be in the exclusive name of the Investor. The
Investor may at any time change or add designated bank accounts by completing
and returning a form available from the Fund.
3. By Redemption Check. The Custodian will provide each Investor, upon
request and without charge, with a book of redemption checks. An Investor
wishing to use this redemption check procedure should notify the Fund or so
indicate on the Application and will thereupon be issued redemption checks
for this purpose. Redemption checks may be signed only by those authorized
on the Application.
The Investor will be subject to applicable rules and regulations, but there
is no charge to the Investor for the maintenance of this redemption check
writing privilege or for the clearance of any redemption checks. An
Investor may have a redemption checking privilege for each separate account.
When a redemption check is presented to the Custodian for payment, the
Transfer Agent will cause the Fund to redeem a sufficient number of full and
fractional shares in the Investor's account to cover the amount of the
redemption check. The redemption check procedure enables the Investor to
continue receiving dividends on those shares which are equal to the amount
being redeemed by the redemption check until such time that the redemption
check is presented to the Custodian for payment.
An Investor should be certain that adequate Fund shares (which were not
recently purchased by check) are in the account to cover the redemption
check. See "Redemption Procedures" below for special requirements as to
Fund shares recently purchased by check. If insufficient redeemable shares
are in the account, the redemption check will be returned marked
"insufficient funds." Redemption checks may not be used to close an
account. This privilege may be modified or terminated at any time by the
Fund or the Custodian upon notice to shareholders.
Redemption Procedures
Redemption of shares will occur at the next determined Net Asset Value
following the receipt of a request for redemption in proper form by the
Fund. If received before 12:00 noon, a redemption request will normally be
processed on the day it is received and except as set forth below, no more
than seven days after a proper request for redemption is received.
Redemption requests for shares purchased by a check (irrespective of
whether the check is a regular check, cashier's or official bank check)
within the prior fifteen days will be processed as stated above; however,
payment of redemption proceeds relating to shares purchased by check within
15 days of the date on which the redemption request was received may be
delayed by the Fund until a determination is made that the check given in
purchase has cleared, which may be up to fifteen days. Possible delays in
redemptions can be eliminated by using wire payments in Federal Funds or
Federal Reserve Drafts to pay for purchases.
If the Board of Directors of the Fund determines that it would be detrimental
to the best interest of the remaining Investors to make payment wholly in
cash, the Fund may pay the redemption price from the portfolio of the Fund,
in lieu of cash, in conformity with the rules of the Securities and Exchange
Commission. It should be noted that the management of the Fund considers
the prospect highly remote that the Fund would redeem shares using this
"in kind" provision.
10
DIVIDEND, TAX AND RELATED INFORMATION
Dividends
All of the Fund's net income will be declared daily as dividends.
All dividends declared are accrued throughout the month and are paid
monthly, normally on the first business day of the following month (and
always as of such day) in additional shares at the Net Asset Value
(ordinarily $1.00 per share). All dividends will be invested in additional
shares of the Fund unless specific instructions are received to pay dividends
in cash. Each shareholder will receive, on a monthly basis, a summary of
his account(s), including information on dividends declared during the month
and the shares credited to the account(s) through reinvestment of dividends.
A shareholder who redeems all his shares receives on the next dividend payment
date the amount of all dividends declared for the month to the date of
redemption.
Daily dividends will be calculated as follows: the net income for dividend
purposes will be calculated immediately prior to the calculation of the Net
Asset Value and will include accrued interest and original issue and market
discount earned since the last evaluation, plus or minus any realized gains
or losses (which are not included in the Fund's yield), less the estimated
expenses of the Fund and amortized original issue and market premium for the
period. Under this dividend policy, the daily dividend declared on the
Fund's shares may fluctuate.
Taxes
The Fund has qualified and expects to remain qualified under
Subchapter M of the Internal Revenue Code ("Code"). If the Fund so
qualifies, it will not pay federal income taxes on earnings it distributes.
If the Fund has any net long-term capital gains it intends to pay a capital
gains distribution in accordance with the timing requirements imposed by
the Code.
Dividends of net investment income and distributions of net realized capital
gains (except to the extent reduced by capital losses to the shareholder)
are taxable to shareholders (except tax-exempt shareholders) whether they
are received in cash or reinvested in shares of the Fund. Shareholders
will be notified annually as to the federal tax status of dividends or
distributions paid. Redemptions of Fund shares may result in taxable gain
to the redeeming shareholder if the redemption proceeds exceed the
shareholder's adjusted basis for the redeemed shares.
Federal income tax law requires the Fund to withhold tax at a rate of 20%
from dividends and redemptions (including exchanges) that occur with
respect to shareholder accounts if the shareholder has not properly
furnished a certified correct taxpayer identification number and has
not certified that withholding does not apply.
The foregoing summarizes certain federal tax considerations relating
to taxation of the Fund and its shareholders. The summary does not discuss
all aspects of federal income taxation that may be relevant to a particular
shareholder based upon the shareholder's particular investment circumstances
or to certain types of shareholders subject to special treatment under the
federal income tax laws. It does not discuss any aspect of state, local or
foreign tax laws. Prospective shareholders should consult their tax advisors
with respect to the effects of investment in the Fund on them.
Reports to Shareholders; Independent Auditors
Shareholders will receive annual reports containing financial statements
audited by independent auditors and semi-annual reports containing
unaudited statements. In addition, the Fund provides for each Investor
account (including multiple accounts): confirmations of all investment
or redemption transactions, individual monthly account statements, and
individual account information on request.
Ernst & Young LLP, located at Two Commerce Square, Suite 4000,
2001 Market Street, Philadelphia, Pennsylvania 19103, currently serves
as the Fund's independent auditors.
11
HISTORY OF THE FUND
The Fund was incorporated in the Commonwealth of Virginia on December 8, 1986
and is classified as an open-end, "no load," diversified, registered
investment company. "Open-end" means that the Fund is continuously
available for investment or redemption. "No load" means that there is no
sales charge at any time for either purchases or redemptions of Fund shares
(although the Fund has a distribution plan). "Diversified" means that the
Fund meets certain diversification requirements set forth in the Investment
Company Act of 1940. "Registered" means that it is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940
and must conform with various organizational and operational standards.
12
Financial Highlights <F1>
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represents the rate that an investor would have earned on an investment in
the Fund. The financial highlights for year ended March 31, 1999 and the
financial highlights for the years through March 31, 1998 have been audited
by Ernst & Young LLP and PricewaterhouseCoopers LLP, respectively, whose
reports, along with the Fund's financial statements, are incorporated by
reference in the Statement of Additional Information, which is available
upon request.
<TABLE>
<CAPTION>
Fiscal Year Ending March 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE $1.000 $1.000 $1.000 $1.000 $1.000
BEGINNING OF THE YEAR
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.053 0.055 0.053 0.058 0.049
Total From Investment
Operations 0.053 0.055 0.053 0.058 0.049
See note below
DISTRIBUTIONS
Net Investment Income (0.053) (0.055) (0.053) (0.058) (0.049)
Total Distributions (0.053) (0.055) (0.053) (0.058) (0.049)
NET ASSET VALUE, $1.000 $1.000 $1.000 $1.000 $1.000
END OF YEAR
Total Return 5.40% 5.68% 5.43% 5.90% 5.01%
Ratios/Supplemental Data
Net Assets (in thousands) $113,731 $120,359 $116,183 $102,614 $130,940
Ratio of Expenses to
Average Net Assets <F2> 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment
Income to Average Net
Assets <F2> 5.28% 5.54% 5.31% 5.78% 4.91%
<FN>
<F1>PFM 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.
<F2>Certain fees were voluntarily waived in fiscal years ended March 31, 1999,
1998, 1997, 1996 and 1995. If these fees had not been waived,
the ratio of expenses to average net assets would have been .25%, .25%,
.28%, .29%, and .29%, respectively, and the ratio of net
investment income to average net assets would have been 5.18%, 5.44%,
5.18%, 5.64%, and 4.77%, respectively, for the fiscal years
ended March 31, 1999, 1998, 1997, 1996, and 1995.
<F3>Restated
</FN>
</TABLE>
13
Commonwealth Cash Reserve Fund, Inc.
c/o Public Financial Management, Inc., Transfer Agent
Governor's Plaza North
2101 North Front Street
Building 3, Suite 200
Harrisburg, PA 17110
Dated: ________________, 19 ____
The undersigned investor hereby applies for shares of Commonwealth Cash Reserve
Fund, Inc. (the "Fund").
By execution of this form, which may be in confirmation of verbal information
already given, the Investor represents and warrants that the Investor has the
full power and authority to make investments, that the assets being invested
are not subject to any restrictions under an indenture or other agreement that
prohibits investment in the Fund, and that the funds invested are of a type
authorized for this investment as described in the Prospectus. The persons
signing on behalf of an investor warrant that they are authorized to make
investments on behalf of the Investor. All persons signing represent that they
have received and read the Fund's current prospectus. the investor appoints
Public Financial management, Inc. as Transfer Agent to record the receipt of
dividends and distributions and arrange for automatic reinvestment, and appoints
Wachovia Bank, N.A. as Custodian, to hold all instruments and money owned by the
investor in the Fund and to receive interest and other income thereon.
The establishment of this account is subject to acceptance by the Fund and is
subject to the conditions under "How To Invest in The Fund" and "How To Redeem
The Investment" and other provisions contained in the Prospectus.
________________________
Authorized Signature
________________________
Title
For Account Service and Redemption: Call 1-800-338-3383
14
Shareholder Information
Legal Name
Street Address
City State Zip
Primary Contact Name Title
Phone Number Fax Number
Secondary Contact Name Title
Phone Number Fax Number
Send Account Statements and Confirms to:
Street Address
City State Zip
Send Duplicate Account Statements to:
Street Address
City State Zip
Deposit Information
Method of Investment:
Check Enclosed. Make check payable to: Commonwealth Cash Reserve Fund, Inc.
Wired Funds. Wire funds to: Wachovia Bank
Richmond, Virginia
ABA #051000253
For credit to Commonwealth Cash Reserve Fund
Account Number 7911623867
Initial Deposit Amount
Name of Bank Wiring Funds
Bank Address
15
Taxpayer Identification Number (TIN)
If the information required by this section is not provided, Backup Withholding
of 20% of taxable dividends, capital gains distributions and proceeds of
redemptions and exchanges will be imposed under federal tax regulations.
Enter your TIN (Social Security number of individuals
or employer I.D. number of entities, including
corporations, partnerships, estates and trusts):
Check all applicable boxes: I have not been notified by the IRS that
I am currently subject to Backup
Withholding.
I am an exempt recipient.
I am neither a citizen nor a resident of
the United States.
Signature Authorization
Public Financial Management, Inc. is hereby authorized to act as agent for the
recorded owner of the shares in effecting purchases and redemptions of shares
and is authorized to recognize the signature(s) below in payment of funds
resulting from such redemptions on behalf of the recorded owner of such shares,
including redemptions, if any, made by Redemption Check. Public Financial
Management, Inc. shall be liable only for its own negligence and not for the
default or negligence of its correspondents, or for losses in transit.
Under penalties of perjury, I (we) certify that the information provided in
the TIN section of this application is true, correct and complete.
I (we) certify to my (our) capacity to act in behalf of the entity named above,
to invest, and if applicable, to open a checking account based on shares of
the Fund.
Name (Please print) Title Signature
Name (Please print) Title Signature
Name (Please print) Title Signature
Name (Please print) Title Signature
Number of signatures required for
redemption requests
Name of Investor, Trustee or other Fiduciary
Signature of Applicant Date
16
Withdrawal Instructions
Check Redemption. Please establish a Redemption Checking Account at
Wachovia National Bank and send us a supply of Redemption Checks. We
understand this checking account will be subject to the rules and regulations
of Wachovia Bank pertaining thereto, as amended from time to time, except that
there will be no service fees or other charges imposed on the Investor.
We understand that checks may only be signed by those persons authorized
on this Application.
Wire Transfer to Predesignated Banks. Redemption by wire transfer is
requested. Wachovia Bank is authorized to honor telephonic or written
instructions without signature guarantees from any person for redemption
of any or all Fund shares so long as redemption proceeds are transmitted
to one of the accounts identified below.
Bank Name Bank's ABA
Routing Number
Bank
Address
Title of Account at Bank (Must be the
same as that in which the Fund shares
are recorded
Account Number
Bank Name Bank's ABA
Routing Number
Bank
Address
Title of Account at Bank (Must be the
same as that in which the Fund shares
are recorded
Account Number
Bank Name Bank's ABA
Routing Number
Bank
Address
Title of Account at Bank (Must be the
same as that in which the Fund shares
are recorded
Account Number
17
[BACK COVER]
FOR MORE INFORMATION
Additional information about the Fund's investments is available in the Fund's
semi-annual and annual reports to shareholders. The Fund's annual report
contains a discussion of the market conditions and investment strategies
that affected the Fund's performance over the past year.
You may want to read the Statement of Additional Information ("SAI") for more
information on the Fund and the securities it invests in. The SAI is
incorporated into this prospectus by reference, which means that it is
legally considered to be part of this prospectus.
You can get free copies of the semi-annual and annual reports and the SAI,
request other information and get answers to your questions by calling
the Fund at 800-338-3383 or by writing to Commonwealth Cash Reserve fund,
Inc. P.O. Box 1192, Richmond, VA 23209-1192.
To invest or make additional deposits in the Fund, to redeem shares, or for
yield information or general account inquires, contact the Fund's Transfer
Agent at 800-338-3383.
To request new account applications or to invest in the Fund, please contact
the Fund's Distributor, Commonwealth Financial Group, Inc. at (856) 751-5220.
Text-only versions of all fund documents can be viewed online or downloaded
from the SEC's website at www.sec.gov. You can also obtain copies by
visiting the SEC's Public Reference Room in Washington, DC, calling (800)
SEC-0330, or by sending your request and the appropriate fee to the SEC's
public reference section, Washington DC 20549-6009.
The Fund's Investment Company Act File number is 811-4933.
Commonwealth Cash Reserve Fund, Inc.
Prospectus
18
TABLE OF CONTENTS
Section Page
Risk and Return Summary 2
Principal Investment Strategies 2
Principal Risks 2
Performance and Expenses 3
Investment Objectives and Policies 4
Portfolio Management 4
Permitted Investments 4
Special Information About Municipal
Cash Management 5
Year 2000 5
Valuation 6
Management of the Fund 6
Investment Advisory and Administrative
Arrangements 6
Distributor and Other Service Providers 7
How to Purchase and Redeem Shares of the Fund 7
Dividends, Tax and Related Information 11
Financial Highlights 13
COMMONWEALTH
CASH RESERVE FUND
Investment Advisor
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
Custodian
Wachovia Bank, N.A.
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
Independent Auditors
Ernst & Young LLP
Two Commerce Square, Suite 4000
2001 Market Street
Philadelphia, Pennsylvania 19103
Co-Counsel
McGuire Woods Battle & Boothe LLP
One James Center
901 E. Cary Street
Richmond, Virginia 23219
Laura Anne Corsell, Esq.
7307 Elbow Lane
Philadelphia, Pennsylvania 19119
19
COMMONWEALTH
CASH RESERVE FUND
STATEMENT OF ADDITIONAL INFORMATION
COMMONWEALTH CASH RESERVE FUND, INC.
P.O. Box 1192
Richmond, Virginia 23209-1192
1-800-338-3383
This Statement of Additional Information ("Statement of Additional Information")
is not a prospectus and is only authorized for distribution when preceded or
accompanied by the Commonwealth Cash Reserve Fund, Inc. Prospectus (the
"Prospectus") dated August 1, 1999. This Additional Statement contains
additional and more detailed information than that set forth in the Prospectus
and should be read in conjunction with the Prospectus, additional copies of
which can be obtained from Commonwealth Cash Reserve Fund, Inc. (the "Fund")
at the address and telephone number printed above or from the Fund's
Distributor, Commonwealth Financial Group, Inc., 38 Cohasset Lane, Cherry
Hill, New Jersey 08003, 856-750-5220.
TABLE OF CONTENTS
Page
INVESTMENT POLICIES 2
INVESTMENT RESTRICTIONS 3
ADDITIONAL INFORMATION ABOUT MANAGEMENT ARRANGEMENTS 5
YIELD INFORMATION 13
VALUATION 14
GENERAL INFORMATION 15
The date of this Additional Statement is August 1, 1999.
INVESTMENT POLICIES
The following information supplements the discussion of investment objectives
and policies of the Fund found under "Investment Objective and Policies" in the
Prospectus.
Additional Requirements for Commercial Paper
As stated in the Prospectus, the Fund may only purchase commercial paper which
either satisfies certain statutory requirements or is approved by the Board of
Directors of the Fund in accordance with certain statutory procedures. Absent
such Board of Directors' approval, commercial paper must meet the following
statutory criteria:
(a) The issuing company must have a net worth of at least fifty million
dollars;
(b) The net income of the issuing company must have averaged three million
dollars per year for the five years immediately previous to purchase; and
(c) All existing senior bonded indebtedness of the issuing company must have
been rated A or better by Moody's Investors Service, Inc. and Standard
& Poor's Corporation.
Ratings of Commercial Paper and Corporate Bonds
Commercial paper with the greatest capacity for timely payment is rated A by
Standard & Poor's Corporation ("S&P"). Issues within this category are
further redefined with designations 1, 2 and 3 to indicate the relative degree
of safety: A-1, the highest of the three, indicates the degree of safety is
very strong; A-2 indicates that the capacity for timely repayment is strong;
A-3 indicates that capacity to repay is satisfactory but more vulnerable to
the adverse effects of changes in circumstances than obligations rated A-1 or
A-2. Moody's Investors Service, Inc. ("Moody's") employs the designations of
Prime-1, Prime-2 and Prime-3, to indicate the relative capacity of the issuers
to repay punctually. Prime-1 issues have a superior capacity for repayment.
Prime-2 issues have a strong capacity for repayment, but to a lesser degree
than Prime-1. Prime-3 issues have an acceptable capacity for repayment, but
the effects of industry characteristics and market competition may be more
pronounced.
Bonds rated AAA have the highest rating assigned by S&P to a debt obligation.
Capacity to pay interest and repay principal is extremely strong. Bonds rated
AA have a very strong capacity to pay interest and repay principal and differ
from the highest rated issues only in a small degree. Bonds rated A have a
strong capacity to pay principal and interest, although they are more
susceptible to adverse effects of changes in circumstances and economic
conditions.
Bonds rated Aaa by Moody's are judged by Moody's to be of the best quality.
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. Bonds rated Aa are judged to be of high quality.
They are rated lower than the best bonds because margins of protection may
not be as large or because fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities. Bonds which
are rated A possess many favorable investment attributes and are to be
considered adequate but elements may be present which suggest a susceptibility
to impairment sometime in the future.
The ratings of Moody's and S&P represent their opinions as to the quality of
various securities. It should be emphasized, however, that ratings are not
absolute standards of quality.
Additional Requirements for Municipal Obligations
The Fund may only purchase municipal obligations that are legal investments
for governmental units in Virginia under Section 2.1-328 of the Code of
Virginia, as it may be amended from time to time. The following municipal
obligations are permitted investments for the Fund.
2
Obligations of the Commonwealth - Stocks, bonds, notes and other evidences of
indebtedness of the Commonwealth of Virginia, and those unconditionally
guaranteed as to the payment of principal and interest by the Commonwealth
of Virginia.
Obligations of Other States - Stocks, bonds, notes and other evidences of
indebtedness of any state of the United States upon which there is no default
and upon which there has been no default for more than ninety days; provided,
that within the twenty fiscal years next preceding the making of such
investment, such state has not been in default for more than ninety days in
the payment of any part of principal or interest of any debt authorized by
the legislature of such state to be contracted.
Obligations of Virginia Governmental Units - Stocks, bonds, notes and other
evidences of indebtedness of any county, city, town, district, authority or
other public body in the Commonwealth of Virginia upon which there is no
default; provided, that if the principal and interest be payable from revenue
or tolls and the project has not been completed, or if completed, has not
established an operating record of net earnings available for payment of
principal and interest equal to estimated requirements for that purpose
according to the terms of the issue, the Fund will invest in such
instruments only when PFM is satisfied that the credit risk with respect
to the issuer is minimal.
Obligations of Governmental Units in Other States - Legally authorized stocks,
bonds, notes and other evidences of indebtedness of any city, county, town or
district situated in any one of the states of the United States upon which
there is no default and upon which there has been no default for more than
ninety days; provided, that (i) within the twenty fiscal years next
preceding the making of such investment, such city, county, town or district
has not been in default for more than ninety days in the payment of any part
of principal or interest of any stock, bond, note or other evidence of
indebtedness issued by it; (ii) such city, county, town or district shall
have been in continuous existence for at least twenty years; (iii) such
city, county, town or district has a population, as shown by the federal
census next preceding the making of such investment, of not less than
25,000 inhabitants; (iv) the stocks, bonds, notes or other evidences of
indebtedness in which such investment is made are the direct legal
obligations of the city, county, town or district issuing the same;
(v) the city, county, town or district has power to levy taxes on the
taxable real property therein for the payment of such obligations without
limitation of rate or amount; and (vi) the net indebtedness of
such city, county, town or district (including the issue in which such
investment is made), after deducting the amount of its bonds issued
for self-sustaining public utilities, does not exceed ten percent of the value
of the taxable property in such city, county, town or district, to
be ascertained by the valuation of such property therein for the
assessment of taxes next preceding the making of such investment.
Turnover and Portfolio Transactions
In general, the Fund will purchase instruments with the expectation of holding
them to maturity. However, the Fund may to some degree engage in trading to
attempt to take advantage of short-term market variations. The Fund may also
sell investments in order to meet redemptions or as a result of revised
management evaluations of the issuer. The Fund will have a high annual
portfolio turnover because of the short maturities of the instruments held,
but this should not affect the Net Asset Value or income, as brokerage
commissions are not usually paid on the purchase, sale, or maturity of the
instruments in which the Fund invests.
The Fund will seek to obtain the best net price (yield basis) and the most
favorable execution of orders. Purchases will be made directly from the
issuers or underwriters, or dealers or banks which specialize in the types of
instruments purchased by the Fund. Purchases from underwriters will reflect a
commission or concession paid by the issuer to the underwriter and purchases
from dealers may include the spread between the bid and the ask price. If
the execution and price offered by more than one dealer are comparable, the
order may be allocated by Public Financial Management, Inc. ("PFM"), the
Fund's Investment Advisor, to a dealer which has provided research advice
(including quotations on investments). By allocating transactions to obtain
research services, the Fund enables PFM to supplement its own research and
analyses with the views and information of others. Purchase and sale orders
for securities or instruments held by the Fund may be combined with those of
other investment companies or accounts which PFM manages in the interest of
the most favorable net results for all. When PFM determines that a particular
security or instrument should be bought or sold for the Fund and other accounts
managed by PFM, PFM undertakes to allocate those transactions among the
participants equitably, usually on the basis of the sizes of the participating
accounts.
3
INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions set forth below. Unless
otherwise expressly noted, each investment restriction is a fundamental policy
of the Fund and cannot be changed without the approval of the holders of a
majority of the outstanding voting securities of the Fund. As defined in the
Investment Company Act of 1940, a majority of the Fund's outstanding voting
securities means the lesser of (a) 67 percent of the shares of the Fund at a
meeting where the holders of more than 50 percent of the outstanding shares
are present in person or by proxy; or (b) more than 50 percent of the
outstanding shares of the Fund.
(1) The Fund may not make any investments other than those permitted under
Virginia law for counties, cities, towns, political subdivisions and public
bodies of the Commonwealth of Virginia as those terms are used in Section
2.1-327 through 2.1-329.1 of the Code of Virginia of 1950, as it may be amended
from time to time. The Fund may not buy any voting securities, any instrument
or security from any issuer which, by its nature, would constitute
characteristics of equity ownership and equity risks, any commodities or
commodity contracts, any mineral related programs or leases, any warrants, or
any real estate or any non-liquid interests in real estate trusts. However, it
may purchase marketable securities which are legal investments even though
the issuer invests in real estate or has interests in real estate.
(2) The Fund may not purchase any securities if more than 25% of its total
assets (valued at market) would then be invested in the securities of issuers
in the same industry (exclusive of securities issued or guaranteed by the
United States Government, its agencies or instrumentalities and obligations
of domestic banks).
(3) The Fund may not buy the obligations of any issuer, other than the United
States Government, its agencies and instrumentalities, if more than 5% of its
total assets (valued at market value) would then be invested in obligations of
that issuer, except that such 5% limitation shall not apply to repurchase
agreements collateralized by obligations of the United States Government,
its agencies and instrumentalities.
(4) Although the Fund may not lend money or assets, it can buy those debt
obligations or use those deposit instruments in which it is permitted to invest
(see "Investment Objective and Policies" in the Prospectus). It can also enter
into repurchase agreements. However, as a matter of operating (but not
fundamental) policy, the Fund will not enter into repurchase agreements
maturing in more than seven days if thereafter more than 10% of the value of
its total assets would then consist of such repurchase agreements.
(5) The Fund may not invest for the purpose of exercising control or
management of other issuers.
(6) The Fund may not sell securities short (i.e. sell securities that it does
not own) and may not buy securities on margin.
(7) The Fund may not engage in the business of underwriting securities issued
by other persons, except to the extent the Fund may technically be deemed an
underwriter under the Securities Act of 1933, as amended, in disposing of
investment securities. Also, it may not invest in restricted securities.
Restricted securities are securities which cannot be freely sold for legal
reasons.
(8) The Fund can only borrow from banks for temporary or emergency purposes
on an unsecured basis and only up to 20% of the value of its total assets.
The Fund will not borrow to increase its income but only to meet redemptions.
The Fund will not purchase any security or instrument at any time when
borrowings are 5% or more of its total assets.
(9) The Fund may not purchase securities of any other investment company if
(i)the Fund and any company or companies controlled by it would then own, in
the aggregate, more than 3% of the voting securities of such
4
investment company or (ii) more than 10% of the Fund's total assets would then
be invested in investment companies.
(10) The Fund may not issue senior securities or senior shares as defined in
the Investment Company Act of 1940, provided that the Fund may borrow from
banks to the extent and for the purposes set forth in restriction (8) above.
It is the position of the Securities and Exchange Commission (and an operating,
although not a fundamental policy of the Fund) that money market funds such
as the Fund not make certain illiquid investments if thereafter more
than 10% of the value of its net assets would be so invested. The investments
included in this 10% limit are (i) those which are restricted, i.e., those
which cannot be freely sold for legal reasons; (ii) fixed time deposits subject
to withdrawal penalties having a maturity of more than seven days; (iii)
repurchase agreements having a maturity of more than seven days; and (iv)
investments which are not readily marketable. The Fund does not expect to own
any investment which is not readily marketable but it is possible that market
quotations may not be readily available as to the obligations of banks which
are of relatively small size. Therefore, the obligations of such smaller banks
will be purchased only within the 10% limit unless (i) they are payable at
principal amount plus accrued interest within seven days after purchase or on
demand within seven days after demand; or (ii) the Board of Directors
determines that a readily available market exists for such obligations. It
should be noted that, should the Fund enter into repurchase agreements
maturing in more than seven days up to the full amount permitted by restriction
(4) above, it would not be able to make any of the other investments discussed
in this paragraph.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease beyond the specified limit resulting from a change in
values of net Fund assets will not be considered a violation of the above
percentage investment restrictions but the Fund shall then use prudence in
bringing all percentage restrictions back into conformity.
ADDITIONAL INFORMATION ABOUT MANAGEMENT ARRANGEMENTS
Board of Directors
Each member of the Board of Directors of the Fund was elected by the Fund's
shareholders. Under the Fund's amended and restated bylaws, each of the
Fund's directors will hold office until his successor is elected and
qualified or until his earlier resignation or removal. Vacancies on the
Board of Directors may be filled by the remaining Board members until the
next shareholders' meeting, subject to restrictions described below.
The Directors and officers of the Fund, their affiliations, if any, with PFM
or the Distributor, and their principal occupations during at least the past
five years are set forth below. Directors who are "interested persons" of the
Fund as that term is defined in the Investment Company Act of 1940, are
designated with an asterisk (*). As of the date of this Statement of
Additional Information, none of the Directors or officers owned any of the
outstanding shares of the Fund.
GILES DODD, Director, 921 Lindsley Drive, Virginia Beach, Virginia 23454
Finance Assistant to City Manager, City of Greenville, South Carolina, 1995 -
1996; Finance Director, City of Greenville, South Carolina, 1994 - 1995;
Municipal Consultant, 1991 - 1993; Director of Finance, City of Virginia
Beach, Virginia 1963 - 1991. Member International City Management
Association; Virginia Local Government Management Association, Government
Finance Officers Association; Past President Virginia Government Finance
Officers Association. Mr. Dodd is 72 years old.
ROBERT J. FAGG, JR., Director, 1605 Westcastle Drive, Richmond, Virginia 23233
Retired Director of the Annual Giving Program, Virginia Commonwealth
University, 1981-1998, Development Officer, 1974-1981; Account Executive,
Dupont Glore Forgan, 1973-1974; Registered Representative, Wheat, First
Securities, Inc., 1970-1973; Registered Representative, Abbott,
Proctor and Paine, 1968-1969. Mr. Fagg is 58 years old.
*JEFFREY A. LAINE, Director, President, and Treasurer, 38 Cohasset Lane,
Cherry Hill, New Jersey 08003
President, Commonwealth Financial Group, Inc., (the Fund's Distributor)
1994-present; President, Laine Financial Group, Inc., (an investment advisory
firm) 1992-present; Senior Vice President and Chief Financial Officer of J.
C. Thompson & Associates, Inc., (a mutual fund administrator) 1989-1994;
5
Senior Vice President of Commonwealth Financial Group, Inc., 1993-1994;
Executive Vice President and Chief Financial Officer of Institutional Capital
Management Corporation, (an investment advisory firm) 1987-1990; Treasurer,
Van Lieu Securities, (a mutual fund distributor) 1989-1991; Senior Vice
President, Treasurer and Chief Financial Officer of Mariner Funds Services,
(a mutual fund distributor)1987-1992; Vice-President and Treasurer of Mariner
Funds Trust, ( a mutual fund complex) 1987-1992; CPA with Bowman & Company,
certified public accountants, 1982-1987; Member of Comptroller's Staff, Texaco,
Inc., 1981-1982; Accountant, RCA Corporation, 1981. Mr. Laine is 41 years old.
*MARTIN MARGOLIS, Director and Vice President, 345 Quarry Road, Wellsville,
Pennsylvania 17365
Managing Director, Public Financial Management, Inc., (the Funds Investment
Advisor) 1986-present; Partner, Financial Management Services, Inc., 1978 -
1986. Mr. Margolis is 54 years old.
ROBERT R. SEDIVY, Director, 3804 Wellesley Terrace Circle, Richmond,
Virginia 23233
Vice President-Finance and Treasurer, Collegiate School, Richmond, Virginia,
1988 - present; Deputy Director, Science Museum of Virginia, 1986 - 1988;
Administrator, Science Museum of Virginia, 1985 - 1986; Treasurer, Trinity
College, Washington, D..C., 1983 - 1985; Director of Resource Management,
Loyola College, Baltimore, Maryland, 1978 - 1983. President - Virginia
Association of Independent Schools, Financial Officers Group. Mr. Sedivy
is 53 years old.
ARTHUR E. ANDERSON II, Secretary, One James Center, 901 East Cary Street,
Richmond, VA 23219-4030
For more than the last five years, Mr. Anderson has been a partner of the law
firm of McGuire Woods Battle & Boothe LLP. Mr. Anderson is 40 years old.
The Fund does not pay fees to Directors who are "interested persons" or to any
of the Fund's officers. Directors who are not "interested persons" of the Fund
receive from the Fund an annual retainer of $1,000 plus $250 per meeting
attended. For the fiscal year ended March 31, 1999, such fees totaled $6,000.
The Fund does not provide any additional compensation to the Directors. No
officer of the Fund received any remuneration as an officer or employee of the
Fund during the Fund's fiscal year ended March 31, 1999, nor does the Fund
intend to pay any remuneration to any officer during the current fiscal year.
McGuire Woods Battle & Boothe LLP, the law firm of Arthur E. Anderson,
II, the Fund's Secretary, received an aggregate of $11,400 in payment for legal
services during the Fund's last fiscal year. Commonwealth Financial Group,
Inc., the Fund's Distributor, of which Mr. Laine, the Fund's President, is the
president and sole shareholder, received an aggregate of $26,700 of which
$13,700 were reimbursements of actual expenses and the remainder was
compensation during the Fund's last fiscal year for serving as the Fund's
Distributor.
6
Schedule of Compensation of Directors and Officers
Aggregate
Name and Compensation Total Compensation
Position From Fund From Fund
Giles Dodd $ 2,000 $ 2,000
Director
Robert J. Fagg 2,000 2,000
Director
Jeffrey A. Laine -0- -0-
Director,
President and
Treasurer
Martin Margolis -0- -0-
Director and
Vice President
Robert R. Sedivy 2,000 2,000
Director
Arthur E. Anderson
Secretary -0- -0-
-------- --------
$ 6,000 $ 6,000
-------- --------
Advisory Board
The Board of Directors of the Fund has appointed an Advisory Board to provide
consultation and advice to the Fund from time to time. Members of the Advisory
Board receives no compensation from the Fund. The following individuals were
serving on the Advisory Board as of June 30, 1999.
LARRY W. DAVENPORT, 1944 Ravencroft Lane, Virginia Beach, Virginia 23454
Director of Finance, Southeastern Public Service Authority, Virginia, 1998 -
present; Financial Analyst, City of Virginia Beach, Virginia, 1977-present;
Cash Management Analyst, City of Norfolk, 1973-1977; First Virginia Bank,
1972-1977;United States Army, 1969-1971. Mr. Davenport is 52 years old.
JAMES D. GRISSO, 1103 Overland Road SW, Roanoke, Virginia 24015
Director of Finance, City of Roanoke, Virginia, 1993 - present; Deputy Director
of Finance, City of Roanoke, Virginia, 1977 - 1993; Administrator of Accounting
Services, City of Roanoke, Virginia, 1976 - 1977; Assistant Municipal Auditor,
City of Roanoke, 1974 - 1976; Member of the American Institute of Certified
Public Accountants, the Virginia Society of Certified Public Accountants, the
Government Finance Officers Association; President, Virginia Government Finance
Officers Association, 1991 - 1992; Treasurer, Hotel Roanoke Conference Center
Commission. Mr. Grisso is 53 years old.
DENNIS W. KERNS, 11800 Marquis Terrace, Richmond, Virginia 23233
Director of Finance, Culpeper County, 1997-Present, Director of Finance,
County of Culpeper, Virginia, 1997 to Present; Director of Finance, County
of Henrico, Virginia, 1992 - 1997; Director, Office of Management and Budget,
County of Henrico, Virginia, 1983 - 1992; Deputy Director of Finance, County
of Henrico, Virginia 1982 - 1983; Member of the Government Finance Officers
Association; Past President of the Virginia Government Finance Officers
Association. Mr. Kerns is 62 years old.
J. JEFFREY LUNSFORD, 154 Pinewood Drive, Mineral, Virginia 23117.
County Administrator, Louisa County, Virginia, 1997-present; Assistant County
Administrator, Montgomery County, Virginia, 1994-1997; Director of Fiscal
Management, Montgomery County, Virginia, 1985 - 1994; Senior Budget Analyst,
Virginia Department of Taxation, 1984 - 1985; Manager - Office of Management
and Budget, Henrico County, Virginia, 1982 - 1984; Budget Analyst, Henrico
County, Virginia, 1979 - 1982; Member of Government Finance Officers
Association, past President Virginia Government Finance Officers Association.
Mr. Lunsford is 45 years old.
7
CHRISTOPHER E. MARTINO, 1 County Complex Court, Prince William, Virginia
22192
Director of Finance, Prince William County, Virginia, February 1996 - present;
Controller, City of Rye, New York, 1988 - 1996; Deputy Commissioner of Finance,
City of White Plains, New York, 1984 - 1988; Senior Auditor, Ernst & Whinney,
1981 - 1984; Certified Public Accountant, Member of the Government Finance
Officers Association. Mr. Martino is 42 years old.
ROGER W. MITCHELL, JR., 9461 Jamesons Mill Road, Culpeper, VA 22701
Director of Finance/Treasurer, Town of Culpeper, Virginia, 1991 - present;
Controller/Administrator, Sivaco Fastening Systems, Inc., 1989 - 1992;
Accountant, Ford New Holland, Inc., 1987 - 1989; Head Internal Auditor, Omni
Services, Inc. 1984 - 1987; Accountant, Young, Nicholas & Mills, 1982 - 1984;
Member of the Virginia Treasurers Association; Member of the Virginia
Government Finance Officers Association; Member of Virginia Local Government
Auditors Association. Mr. Mitchell is 38 years old.
CLARENCE A. ROBINSON, 1401 Prince Edward Street, Fredericksburg, VA 22401
Director of Fiscal Affairs, City of Fredericksburg, 1986 - present; Business
Manager, Germanna Community College, Locust Grove, VA, 1985 - 1986; Director
of Accounting, Baltimore City Public Schools, Baltimore, MD, 1980 - 1985;
Assistant to Financial Director, Howard University Hospital, Washington, D.C.,
1979 - 1980. Mr. Robinson is 51 years old.
Principal Holders of Securities
Set forth below is certain information as to all persons known to the Fund to
own of record or beneficially 5% or more of the Fund's shares on June 30, 1999:
Number of Share
Investor Shares Percentage
Arlington County 9,066,977 8.7%
Bonita Springs 5,597,624 5.4%
City of Fredericksburg 21,495,640 20.6%
City of Lynchburg 15,122,024 14.5%
City of Norfolk 12,596,180 12.1%
City of Portsmouth 8,902,261 8.5%
Prince William County 16,886,776 16.2%
City of Roanoke 12,596,034 12.1%
Additional Information About PFM and the Advisory Agreement
In addition to the provisions of the Advisory Agreement between the Fund and
PFM described in the Prospectus, the Advisory Agreement contains the provisions
described below.
The Advisory Agreement, which first became effective on November 30, 1995, was
approved by the Board of Directors, including a majority of the Directors who
are not parties to the Advisory Agreement or "interested persons" as defined
in the Investment Company Act of 1940 ("Independent Directors"), at a
meeting of the Board of Directors held on October 26, 1995, and was approved
by the holders of a majority of the outstanding voting securities of the Fund
at a meeting held on November 21, 1995. Thereafter, it will continue in
8
effect from year to year if approved annually (i) by the Directors or by
a majority of the shares outstanding and entitled to vote and (ii) by a
majority of the Independent Directors. The Board of Directors, including
a majority of the members of the Board who are "Independent Directors",
approved a continuance of the Advisory Agreement for an additional one
year period at a meeting on October 22, 1998. The Advisory Agreement will
terminate automatically in the event of its assignment (as defined in the
Investment Company Act of 1940) and may be terminated at any time without
penalty by PFM upon 60 days' written notice to the Fund. The Advisory
Agreement may be terminated by the Fund at any time without penalty,
provided that such termination by the Fund shall be directed or approved
by the vote of a majority of its Directors or by the holders of a majority
of its shares at the time outstanding and entitled to vote.
The Advisory Agreement, provides that, in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations thereunder,
PFM to act as an investment advisor for any other organization, firm,
corporation or person.
For the fiscal years ended March 31, 1999, 1998 and 1997, fees were payable to
PFM in the amounts of $159,097, $140,376 and $111,792, respectively, of which
$63,709, $56,216 and $66,645, respectively were waived. Fees for fiscal years
ended March 31, 1999, 1998 and 1997 were payable at an annual rate of .12%
the first $200 million of average daily net assets; .10% of such assets over
$200 up to $400 million; .09% of such assets over $400 million up to $600
million, and .08% of such assets over $600 million.
PFM is wholly-owned by the managing directors of PFM. PFM was formerly a
wholly-owned subsidiary of PFM Acquisition Corp., a Pennsylvania corporation
formed in 1995 for the purpose of acquiring PFM from Marine Midland Bank, N.A.
PFM Acquisition Corp. was owned by the managing directors of PFM and was
dissolved on January 1, 1998.
Additional Information About the Administration Agreement
In addition to the provisions of the Administration Agreement (the
"Administration Agreement") between PFM and the Fund described in the
Prospectus, the Administration Agreement contains the provisions described
below.
As part of its duties under the Administration Agreement, PFM (i) maintains the
Fund's books and records (other than financial books and records); oversees its
insurance relationships; prepares all required tax returns, proxy statements,
reports to its shareholders and Directors, and reports to and other filings
with the Securities and Exchange Commission and any other governmental
agency; (ii) prepares, on the Fund's behalf, such applications and reports as
may be necessary to register or maintain the Fund's registration and/or
registration of its shares under the securities or "Blue Sky" laws of the
Commonwealth of Virginia and other states where shares may be sold; (iii)
responds to all inquiries or other communications of shareholders and broker-
dealers, if any; and (iv) oversees all relationships between the Fund and its
Custodian and accountants, including the negotiation of agreements in relation
thereto and the supervision of the performance of such agreements and oversees
all administrative matters which are necessary or desirable in connection with
the issue or redemption of shares in the Fund.
The Administration Agreement was initially approved by the Fund's Board on
October 22, 1998. For its services under the Administration Agreement, PFM is
entitled to receive an annual fee of .05% of average daily net assets of
the Fund. The Administration Agreement will remain in effect, for a two year
period unless earlier terminated. Therefore, it will continue in effect from
year to year if approved annually by the Directors, including a majority of
the Independent Directors. The Administration Agreement may be terminated
at any time without penalty by PFM upon 60 days' written notice to the Fund.
It may be terminated by the Fund at any time without penalty upon 60 days'
written notice to PFM, provided that such termination by the Fund shall be
directed or approved by the vote of a majority of its Directors, including a
majority of the Independent Directors.
For the fiscal years ended March 31, 1999, 1998 and 1997 fees of $66,291,
$58,490 and $46,580, respectively, were payable to PFM; however, PFM
voluntarily waived all administration fees.
9
Fund Expenses
All expenses not borne by PFM under the Advisory Agreement or the
Administration Agreement are paid by the Fund. Examples of such Fund expenses
include the cost of preparing, printing and distributing its prospectuses and
reports to shareholders; legal and audit expenses, costs and expenses of any
custodian, shareholder servicing agent or bookkeeping (accounting) agent; share
issuance and redemption costs; certain printing costs, registration costs and
expenses of the Fund and its shares under federal and state securities laws,
interest, taxes and non-recurring expenses including litigation. Since PFM
keeps the Fund's financial records, PFM computes the Net Asset Value per share
at PFM's expense. The expenses under the Fund's Distribution Plan are paid by
the Fund. See "Distribution Plan."
DISTRIBUTION ARRANGEMENTS
The Fund has adopted an Amended and Restated Distribution Plan (the
"Distribution Plan") under Rule 12b-1 under 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.
Under the Distribution Plan, the Fund is authorized to pay (i) all fees and
expenses relating to the qualification of the Fund and/or its shares under
the securities or state "Blue Sky" laws of The Commonwealth of Virginia and
any other states in which the Fund may sell shares; (ii) all fees under the
Securities Act of 1933 and the Investment Company Act of 1940, including
fees in connection with any application for exemption relating to or
directed toward the sale of the Fund's shares; (iii) all fees and
assessments of the Investment Company Institute or any successor
organization, irrespective of whether some of its activities are designed
to provide sales assistance; and (iv) all fees and costs incurred in
conjunction with any activity reasonably determined by the Fund's Board
of Directors to be primarily intended and reasonably calculated to result
in the sale of shares of the Fund.
The Distribution Plan further 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. The Distribution Plan does not
authorize reimbursement of expenses incurred by the Distributor or others
assisting in the distribution of Fund shares in one fiscal year from amounts
available to the Fund under such plan in subsequent fiscal years. Therefore,
if expenses of distribution incurred by the Distributor and others in any
fiscal year exceed .25% of the average daily net asset value of the Fund for
such fiscal year, the amount of such excess expenses will not be reimbursed
by the Fund. Further, payments or reimbursement made under the Distribution
Plan may be made only as determined from time to time by the Board of
Directors. Expenses for which the Distributor may seek reimbursement include
advertising and direct mail expenses, costs of printing and mailing
prospectuses and sales literature to prospective Investors, payments to third
parties who sell shares of the Fund and compensation of brokers, dealers and
other intermediaries, general administrative overhead of the Fund's distributor
(including payment of compensation to sales personnel involved in the sale of
Fund shares), administrative support allocable to efforts to sell Fund shares,
sales promotion expenses and shareholder servicing expenses (trail commissions)
and any other costs of effectuating the Distribution Plan. The Distribution
Plan also authorizes the Fund to make direct payments to registered broker-
dealers and other persons, including banks, who assist the Fund in distributing
or promoting the sale of Fund shares or who enter into shareholder processing
and service agreements pursuant to which services directly resulting in the
sale of Fund shares are provided.
For the fiscal year ended March 31, 1999, 1998 and 1997, the Fund paid $26,700,
$25,300 and $22,670 respectively, pursuant to the Distribution Plan. All of
these amounts were paid in accordance with the Distribution Agreement,
described below, to Commonwealth Financial Group, Inc., of which Jeffrey A.
Laine, the Fund's President, is the President and sole shareholder.
10
The Distribution Plan has been approved: (i) by a vote of the Board of
Directors of the Fund and of those Directors who are not "interested persons"
of the Fund as defined in the Investment Company Act of 1940 and have no direct
or indirect financial interest in the operation of the Distribution Plan or in
any agreements related to the Distribution Plan (the "Qualified Directors"),
cast in person at a meeting held on August 23, 1990 called for the purpose of
voting on the Distribution Plan; and (ii) by a vote of holders of at least a
majority of the outstanding shares of the Fund at a meeting held on November
29, 1990.
Unless terminated as indicated below, the Distribution Plan shall continue in
effect from year to year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund and
of the Qualified Directors. The Distribution Plan may be terminated at any
time by a vote of a majority of the Qualified Directors or by the vote of the
holders of a majority of the outstanding shares of the Fund. The Distribution
Plan may not be amended to increase materially the amount of payments to be
made without shareholder approval and all amendments must be made by the Board
of Directors including the Qualified Directors. The Distribution Agreement
will terminate automatically in the event of its assignment (as defined in
the Investment Company Act of 1940) and may be terminated by the Fund on 14
days' written notice to the Distributor and by the Distributor on 60 days'
written notice to the Fund.
As stated in the Prospectus, shares of the Fund are offered on a continuous
basis through Commonwealth Financial Group, Inc., the Fund's Distributor,
pursuant to a Distribution Agreement effective June 13, 1994. The Distribution
Agreement was last approved for continuance by the Fund's Directors on April
22, 1999, and was approved by the shareholders of the Fund on July 6, 1994.
The Distribution Agreement provides that the Fund will pay (or will enter into
arrangements providing that persons other than the Fund will pay) for all
expenses of the offering of its shares, including but not limited to, the
following: (i) the registration of the Fund and/or its shares under federal
and state securities laws, (ii) the preparation, printing and distribution of
the Fund's prospectuses, statements of additional information, proxy
statements, notices and reports and actions required by federal and state
securities laws, (iii) the preparation, printing and distribution of
advertising and sales literature for use in the offering of the Fund's shares
and the printing and distribution of reports to shareholders used as sales
literature, and (iv) the issuance of the Fund's shares (including any stock
issue and transfer tax).
As compensation for its activities under the Distribution Agreement, in
addition to any expense reimbursement received by the Distributor pursuant
to the Distribution Plan, the Distributor receives a monthly asset-based fee at
an annual rate calculated in accordance with the following schedule:
Monthly Average of Daily Asset Based Fee
Net Assets (Annual Rate)
under $100mm $12,000
over $100mm - $200mm $18,000
over $200mm - $300mm $24,000
over $300mm - $400mm $30,000
over $400mm - $500mm $36,000
over $500mm - $600mm $42,000
over $600mm - $700mm $48,000
Under the Distribution Agreement, the Distributor pays from its own resources
(or will enter into arrangements providing that persons other than the
Distributor or the Fund shall pay) or promptly reimburse the Fund for all other
expenses in connection with its offering for sale and the sale of the Fund's
shares which are not allocated to the Fund under the Distribution Agreement.
11
YIELD INFORMATION
There are two methods by which the Fund's yield for a specified period of time
is calculated. The first method, which results in an amount referred to as the
"current yield," assumes an account containing exactly one share at the
beginning of the period. The Net Asset Value of this share will be $1.00
except under extraordinary circumstances. The net change in the value of the
account during the period is then determined by subtracting this beginning
value from the value of the account at the end of the period. However, capital
changes, if any, are excluded from the calculation (i.e., realized gains and
losses from the sale or redemption of securities or instruments and unrealized
appreciation and depreciation). So that the change will not reflect the
capital changes to be excluded, the dividends used in the yield computation
may not be the same as the dividends actually declared, as the capital changes
in question may affect the dividends declared. See "Dividend and Tax
Information" in the Prospectus. Instead, the dividends used in the yield
calculation will be those which would have been declared if the capital changes
had not affected the dividends.
This net change in the account value is then divided by the value of the
account at the beginning of the period (i.e., normally $1.00, as discussed
above), and the resulting figure (referred to as the "base period return") is
then annualized by multiplying it by 365 and dividing it by the number of days
in the period. The result is the "current yield". Normally, a seven day
period will be used in determining yields (both the current yield and the
effective yield discussed below) in published or mailed communications.
The second method results in an amount referred to as the compounded "effective
yield". This represents an annualization of the current yield with dividends
reinvested daily. The effective yield for a seven day period would be
computed by compounding the unannualized base period return by adding one to
the base period return, raising the sum to a power equal to 365 divided by 7
and subtracting 1 from the result, the computation to be made to the nearest
1/100 of 1 percent.
Since the calculations of both kinds of yields do not take into consideration
any realized or unrealized gains or losses on the Fund's portfolio securities
or instruments, which may have an effect on dividends, the dividends declared
during a period may not be the same on an annualized basis as either kind of
calculated yield for that period.
The Fund's current yield for the seven days ended March 31, 1999 was 4.80%
and its effective yield for that period was 4.92%
The Fund's performance, or the performance of securities in which it invests,
may be compared to:
* IBC/Donoghue's Money Fund Average, which are average yields of various types
of money market funds that include the effect of compounding distributions and
are reported in IBC/Donoghue's Money Fund Report; the average yield reported by
the Bank Rate Monitor National Index for money market deposits accounts offered
by the 100 leading banks and thrifts institutions in the ten largest standard
metropolitan statistical areas;
* other mutual funds, especially to those with similar investment objectives.
These comparisons may be based on data published by IBC/Donoghue's Money Fund
Report, The Wall Street Journal, Barron's, Lipper Analytical Services, Inc.,
CDA Investment Technology, Inc. or Bloomberg Financial Markets, a financial
information network;
* yields on other money market securities or averages of other money market
securities as reported by the Federal Reserve Bulletin, by Telerate, a
financial information network, by Bloomberg Financial Markets or by broker-
dealers;
* yields on investment pools that operate in a manner consistent with the SEC's
Rule 2a7 of the Investment Company Act;
* and to other fixed-income investments such as Certificates of Deposit (CDs).
12
Yield information may be useful to Investors in reviewing the Fund's
performance. However, a number of factors should be taken into account before
using yield information as a basis for comparison with alternative investments.
The Fund's yield is not guaranteed. It may fluctuate slightly on a daily
basis. The yield for any given past period is not an indication or
representation by the Fund of future yields or rates of return on its shares
and, therefore, it cannot be compared to yields on direct investment
alternatives which often provide a guaranteed fixed yield for a stated period
of time. However, some of such alternative investments may have substantial
penalties on their yield in the case of early withdrawal, may have different
yields for different balance levels, may have minimum balance requirements,
which may earn less than the balance above the minimum, in order to earn the
stated yield, or may require relatively large single investments to get
comparable yields at all, none of which is the case with the Fund. All of the
Fund's shares earn dividends at the same rate.
VALUATION
As noted in the Prospectus, the Fund values its portfolio on the basis of the
amortized cost method of valuation. While the amortized cost method provides
certainty in valuation, there may be periods during which value, as determined
by amortized cost, is higher or lower than the price the Fund would receive if
it sold the instrument. During periods of declining interest rates, the daily
yield on the Fund's shares may tend to be lower than a like computation made
by a fund with identical investments utilizing a method of valuation based
upon market prices and estimates for market prices for all of its portfolio
instruments and changing its dividends based on these changing prices. The
converse would be true in a period of rising interest rates. The Board of
Directors has established procedures (the "Procedures") designed to monitor
the difference, if any between the Fund's Net Asset Value per share determined
in accordance with the amortized cost method of valuation and the value that
would be obtained if the Fund's portfolio were "marked to market" i.e. price
based on available market quotations. "Available market quotations" may include
actual market quotations (valued at the mean between the bid and ask prices),
estimates of market value reflecting current market conditions based on
quotations or estimates of market value for individual portfolio instruments,
or values obtained from yield data relating to a directly comparable class
of securities published by reputable sources.
Under the Procedures, if the extent of any deviation between the "mark to
market" net asset value per share and the net asset value per share based
on amortized cost exceeds one-half of 1%, the Board of Directors must
promptly consider what action, if any, will be initiated. When the Board of
Directors believes that the extent of any deviation may result in material
dilution or other unfair results to investors or shareholders, it is
required to take such action as it deems appropriate to eliminate or reduce
to the extent reasonably practicable such dilution or other unfair results.
Such actions could include the sale of portfolio securities prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or payment of distributions from capital or
capital gains, redemptions of shares in kind, or establishing a net asset
value per share using available market quotations.
GENERAL INFORMATION
Further Information About Purchases and Redemptions
As is stated in the Prospectus, if the Board of Directors determines that it
would be detrimental to the interests of the remaining Investors to redeem
shares wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by the distribution in kind of investments from the
portfolio of the Fund, in lieu of cash and in conformity with the applicable
rules of the Securities and Exchange Commission. The Fund, however, has
elected to be governed by Rule 18f-1 under the Investment Company Act of
1940, pursuant to which the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the Net Asset Value of the Fund
during any 90 day period for any one Investor. Should redemptions by an
Investor exceed such limitation, the Fund will have the option of redeeming
the excess in cash or in kind. If shares are redeemed in kind, the redeeming
Investors might incur brokerage costs in converting the assets into cash.
The method of valuing investments used to make redemptions in kind will be
the same as the method of valuing portfolio investments under "Net Asset
13
Value" in the Prospectus and such valuation will be made as of the
same time the redemption price is determined. It should be noted that the
management of the Fund considers the prospect highly remote for redeeming
shares in the Fund using the "in-kind" provision.
The right of redemption may be suspended or the date of payment may be
postponed: (i) during periods when the New York Stock Exchange is closed for
other than weekends and holidays or when trading on such Exchange is restricted
as determined by the Securities and Exchange Commission by rule or regulation;
(ii) during periods in which an emergency, as determined by the Securities and
Exchange Commission, exists making disposal of portfolio securities or
instruments or determination of the net assets of the Fund not reasonably
practical; or (iii) for such other periods as the Securities and Exchange
Commission may permit. Payment of redemption proceeds relating to shares
purchased by check within 15 days of the date on which the redemption request
was received may be delayed by the Fund until a determination is made that
the check given in purchase has cleared, which may be up to fifteen days.
14
Financial Statements
The Statement of Net Assets as of March 31, 1999; The Statement of Operations
for the year ended March 31, 1999; The Statement of Changes in net Assets for
the year ended March 31, 1999; the Financial Highlights for the year ended
March 31, 1999; The Notes to Financial Statements and the Report of Independent
Auditors, each with respect to Commonwealth Cash Reserve Fund and audited
by Ernst & Young LLP are included in the Annual Report to Shareholders for
the year ended March 31, 1999, and are hereby incorporated by reference in
this Statement of Additional Information.
The Statement of Net Assets as of March 31, 1998; The Statement of Operations
for the year ended March 31, 1998; The Statement of Changes in Net Assets for
the year ended March 31, 1998; The Financial Highlights for the years through
March 31, 1998; The Notes to Financial Statements and the Report of Independent
Auditors, each with respect to Commonwealth Cash Reserve Fund and audited by
PricewaterhouseCoopers LLP, are included in the Annual Report to Shareholders
for the year ended March 31, 1998, and are hereby incorporated by reference in
this Statement of Additional Information.
COMMONWEALTH
CASH RESERVE FUND
Investment Advisor
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
Custodian
Wachovia Bank, N.A.
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 171101
Independent Auditors
Ernst & Young LLP
Two Commerce Square, Suite 4000
2001 Market Street
Philadelphia, Pennsylvania 19103
Co-Counsel
McGuire Woods Battle & Boothe LLP
One James Center
901 E. Cary Street
Richmond, Virginia 23219
Laura Anne Corsell, Esq.
7307 Elbow Lane
Philadelphia, Pennsylvania 19119
PART C
OTHER INFORMATION
Item 23. Exhibits
Subject to General Instruction D regarding incorporation by reference and
rule 483 under the Securities Act [17CFR 230.483], file the exhibits listed
below as part of the registration statement. Letter or number the exhibits
in the sequence indicated and file copies rather than originals, unless
otherwise required by rule 483. Reflect any exhibit incorporated by
reference in the list below and identify the previously filed document
containing the incorporated material.
(a) Articles of Incorporation. The Fund's current articles of incorporation,
charter, declaration of trust or corresponding instruments and any related
amendment.
Copy of Articles of Incorporation is incorporated herein by
reference to Exhibit (1) of Registrant's Registration Statement
filed with Registrant's Post-Effective Amendment No. 13 on July
30, 1996.
Copy of Amendment to Articles of Incorporation effective May
31, 1989 is incorporated by reference to Exhibit (1)(b) of
Registrant's Post-Effective Amendment No. 13 filed on July 30,
1996.
(b) By-laws. The Fund's current by-laws or corresponding instruments and
any related amendment.
Copy of Amended and Restated Bylaws of the Registrant is
incorporated by reference to Exhibit (b)(2) of Registrant's
Post-Effective Amendment No. 13 filed on July 30, 1996.
(c) Instruments Defining Rights of Security Holders. Instruments defining
the rights of holders of the securities being registered, including the
relevant portion of the Fund's articles of incorporation or by-laws.
Not applicable.
(d) Investment Advisory Contracts. Investment advisory contracts relating
to the management of the Fund's assets.
Investment Advisory Agreement between the Registrant
and Public Financial Management, Inc. dated November 30, 1995
is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 filed on July 30, 1996.
Administration Agreement between the Registrant and
Public Financial Management, Inc. dated November 30, 1995 is
incorporated by reference to Registrant's Post-Effective
Amendment No. 13 filed on July 30, 1996.
* (e) Underwriting Contracts. Underwriting or distribution contracts between
the Fund and a principal underwriter, and agreements between principal
underwriters and dealers.
FILED HEREWITH
(f) Bonus or Profit Sharing Contracts. Bonus, profit sharing, pension, or
similar [*302] contracts or arrangements in whole or in part for the benefit
of the Fund's directors or officers in their official capacity. Describe in
detail any plan not included in a formal document.
Not Applicable.
(g) Custodian Agreements. Custodian agreements and depository contracts
under section 17(f) [15 U.S.C. 80a-17 (f)] concerning the Fund's securities
and similar investments, including the schedule of remuneration.
Custody Agreement between the Registrant and Wachovia Bank
N.A. (formerly Central Fidelity National Bank dated March 15, 1994
is incorporated by reference to Exhibit (2) of Registrant's
Post-Effective Amendment No. 16, filed on July 31, 1997.
* (h) Other Material Contracts. Other material contracts not made in the
ordinary course of business to be performed in whole or in part on or after
the filing date of the registration statement.
Transfer Agency Agreement FILED HEREWITH
* (i) Legal Opinion. An opinion and consent of counsel regarding the
legality of the securities being registered, stating whether the securities
will, when sold, be legally issued, fully paid, and nonassessable.
FILED HEREWITH
* (j) Other Opinions. Any other opinions, appraisals, or rulings, and
related consents relied on in preparing the registration statement and
required by section 7 of the Securities Act [15 U.S.C. 77g].
Following Consents FILED HEREWITH
Consent of Independent Auditors from Ernst & Young LLP
Consent of Independent Accountants from PricewaterhouseCoopers LLP
(k) Omitted Financial Statements. Financial statements omitted from
Item 22.
NOT APPLICABLE
(l) Initial Capital Agreements. Any agreements or understandings made
in consideration for providing the initial capital between or among the Fund,
the underwriter, adviser, promoter or initial shareholders and written
assurances from promoters or initial shareholders that purchases were
made for investment purposes and not with the intention of redeeming or
reselling.
NOT APPLICABLE
* (m) Rule 12-b-1 Plan. Any plan entered into by the Fund under rule 12b-1
and any agreements with any person relating to the plan's implementation.
FILED HEREWITH
(n) Financial Data Schedule. A Financial Data Schedule meeting the
requirements of rule 483 under the Securities Act.
Filed with Registrant's Form NSAR filed on June 1, 1999.
(o) Rule 18f-3 Plan. Any plan entered into by the Fund under rule 18f-3,
any agreement with any person relating to the plan's implementation, and
any amendment to the plan or an agreement.
Not Applicable
Item 24. Persons Controlled by or Under Common Control with Registrant.
None.
Item 25. Indemnification.
Reference is made to Article IV Section 4.10 of Registrant's
Amended and Restated By-Laws, a copy of which By-Laws were filed
as an exhibit to Post Effective Amendment Number 13.
Item 26. Business and other Connections of Investment Advisor.
(a) Public Financial Management, Inc. ("PFM") is the investment
advisor of the Registrant. PFM and its affiliates and
predecessor organization have been in the business of managing
the investments of government entities and other accounts
since 1980.
(b) Information regarding the business and other connections of
PFM's directors is incorporated by reference to Part I (Item
8, 10 and 12) and Part II (Item 6 - 9 and 13) of PFM's Form
ADV, File No. 801-29162 which has been filed with the
Securities and Exchange Commission.
Item 27. Principal Underwriters.
(a) Commonwealth Financial Group, Inc. is the Distributor for
the Registrant's securities. Commonwealth Financial Group,
Inc. does not serve as principal underwriter, depositor or
investment advisor for any other investment company.
(b) The table below sets forth certain information as to the
Distributor's directors and officers:
Positions and
Name and Principal Positions and Offices Offices with
Business Address with the Distributor the Registrant
Jeffrey A. Laine President, Director and President, Treasurer
38 Cohasset Lane Sole Shareholder and Director
Cherry Hill, NJ 08003
Item 28. Location of Accounts and Books.
(a) Public Financial Management, Inc. (records relating to its
functions as investment advisor, administrator and transfer
agent).
(b) McGuire Woods Battle & Boothe LLP (Registrant's Articles
of Incorporation, Bylaws and corporate records).
(c) Commonwealth Financial Group, Inc. (records relating to its
functions as distributor).
(d) Wachovia Bank, N.A. (records relating to its
function as custodian).
Item 29. Management Services.
Other than as set forth under the captions "Management" in the Prospectus
and "Additional Information as to Management Arrangements" in the Additional
Statement constituting Part A and Part B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service
contract.
Item 30. Undertakings.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that this Post-Effective
Amendment meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned thereunto duly authorized, in the City of Richmond, and the
State of Virginia the 27th day of July, 1999.
COMMONWEALTH CASH RESERVE FUND, INC.
(Registrant)
By /s/ Jeffrey Laine
Jeffrey Laine, President
(Principal Executive officer)
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated.
Signature Title Date
/s/ Jeffrey Laine Director and President July 27, 1999
Jeffrey Laine (Principal Financial
Officer)
/s/ Martin Margolis Director and July 27, 1999
Martin Margolis Vice President
__________________ Director
Robert J. Fagg, Jr.
__________________ Director
Giles Dodd
/s/ Robert R. Sedivy Director July 27, 1999
Robert R. Sedivy
1933 Act Registration No. 33-10754
1940 Act Registration No. 811-4933
_____________________________________________________________________
_______________________ ____________________________________
Securities and Exchange Commission
Washington, D. C. 20549
______________________________
EXHIBITS
to
Post-Effective Amendment No.19
on
FORM N-1A
Registration Statement
Under
The Investment Company Act of 1940
and
The Securities Act of 1933
______________________________
COMMONWEALTH CASH RESERVE FUND, INC.
_____________________________________________________________________
__________________________________________________________
COMMONWEALTH CASH RESERVE FUND, INC.
Index to Exhibits to Post-Effective Amendment No. 19
to Form N-1A Registration Statement
Ref. Description of Exhibit
1) Distribution Plan Under Rule 12b-1
2) Transfer Agency Agreement
3) Legal Opinion
4) Consent of Independent Auditors
- Ernst & Young LLP
5) Consent of Independent Accountants
- Pricewaterhouse Coopers LLP
6) Distribution Agreement
COMMONWEALTH CASH RESERVE FUND, INC.
AMENDED AND RESTATED
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is the written plan
contemplated by Rule 12b-1 (the "Rule") under the
Investments Company Act of 1940 (the "1940 Act") of
Commonwealth Cash Reserve Fund, Inc. (the "Fund").
2. Certain Payments Authorized. If and to the extent that
any of the payments listed below are considered to be
"primarily intended to result in the sale of units" issued
by the Fund within the meaning of the Rule, such payments
are authorized under the Plan: (i) all fees and expenses
relating to the qualification of the Fund and/or its shares
under the securities or "Blue Sky" laws of the various
states; (ii) all fees under the Securities Act of 1933 (the
"1933 Act") and the 1940 Act, including fees in connection
with any sale of the Funds shares; (iii) all fees and
assessments of the Investment Company Institute or any
successor organization, irrespective of whether some of its
activities are designed to provide sales assistance; (iv)
all fees and costs incurred in conjunction with any activity
reasonably determined by the Board to be primarily intended
and reasonably calculated to result in the sale of shares of
the Fund.
3. Authorization of Fund to Make Certain Payments; Fees
Paid to Administrator. The Fund is authorized by this Plan
to reimburse the Fund's Distributor from the Fund such
expenses incurred by the Distributor in connection with the
sale, promotion and distribution of the Funds shares as may
be agreed upon by the Fund and the Distributor. It is
recognized that in view of the foregoing payments by the Fund
and the bearing by it of certain distribution expenses, the
profits, if any of the Fund are dependent primarily on the fees
paid by the Fund to it and that its profits, if any, would be
less, or losses, if any, would be increased due to such
payments and expenses. If and to the extent that any such
fees paid by the Fund might, in view of the foregoing be
considered as directly financing any activity which is
primarily intended to result in the sale of units issued by
the Fund, the payment of such fees is authorized under the
Plan. In taking any action contemplated by Section 15 of
the 1940 Act as to any contract to which the Fund is a party,
the Fund's Directors, including its Directors who are not
"interested persons' as defined in the 1940 Act, shall, in
acting on the terms of any such contract apply the "fiduciary
duty" standard contained in Section 36 (b) of the 1940 Act.
4. Distribution and Shareholder Assistance Payments by
Fund Authorized. The Fund directly may make payments to any
broker-dealer (a "Broker") who is registered under the
Securities Exchange Act of 1934 and a member in good standing
of the National Association of Securities Dealers, Inc. for
providing assistance in the distribution or retention of Fund
shares and otherwise promoting the sale of Fund shares or to
other persons or organizations, including banks ("Servicing
Agents") that have entered into shareholder processing and
service agreements with the Fund with respect to Fund shares
owned by shareholder who are customers of such brokers or
for which such Servicing Agent has a servicing, investment
advisory or other relationship, but only to the extent that
such activity by Servicing Agents is deemed by the Board of
Director's of the fund to have a direct result in the increase
of the sales of shares of the Fund.
5. Limitation of Amounts Payable Under the Plan. The fees
payable to the Distributor, any broker and any servicing agent
of the Fund and the basis upon which such payments shall be
made, shall be determined from time to time by the Board of
Directors of the Fund; provided , that the aggregate amount of
all payments by the Fund in any fiscal year to the Distributor,
all brokers and all servicing agents pursuant to Section 3 and 4
hereof shall not exceed .25% of the average daily net asset value
of the Fund on an annual basis for such fiscal year.
6. Purposes of payments. All payments under this Plan shall be
used for (i) payments to brokers-dealers and other financial
intermediaries and organizations for their assistance in the
distribution of a Fund's shares and (ii) otherwise promoting
the sale of such Fund's shares. The services rendered by the
payees hereunder are in addition to the distribution and
administrative services reasonably necessary for the operation
of the Fund, other than those services which are to be provided
by the Adviser pursuant to the Advisory Contract between the Fund
and the Advisor and the Administrator pursuant to the
Administration Agreement.
7. Disinterested Directors. While this Plan is in effect, the
selection and nomination of those Directors of the Fund who are
not "interested persons" of the Fund shall be committed to the
discretion of such disinterested Directors. Nothing herein shall
prevent the involvement of other Directors in such selection and
nomination if the final decision on any such selection and
nomination is approved by a majority of such disinterested
Directors.
8. Reports. While this Plan is in effect, the Fund's
Administrator shall provide at least quarterly reports to the
Fund's Directors in writing for its review on the following
matters: (i) all costs of each time specified in Section 2 of
this Plan (making estimates of such costs where necessary or
desirable) during the preceding calendar or fiscal quarter;
and (ii) all fees of the Fund to the Administrator paid or
accrued during such quarter.
9. Effectiveness, Continuation, Termination, and Amendment.
This Plan shall go into effect when it has been approved (i)
by a vote of the Directors of the Fund and of those Directors
(the 'Independent Directors') who are not "interested persons"
as defined in the 1940 Act of the Fund and have no direct or
indirect financial interest in the operation of this Plan or
in any agreements related to this Plan, cast in person at a
meeting called for the purpose of voting on this Plan; and
(ii) by a vote of holders of at least a "majority" (as so
defined) of the outstanding voting shares of the Fund. This
Plan shall, unless terminated as hereinafter provided,
continue in effect from year to year after such shareholder
approval only so long as such continuance is specifically
approved at last annually by the Fund's Directors and its
Independent Directors cast in person at a meeting called for
the purpose of voting on such continuance. This Plan may be
terminated at any time by vote of a majority of the Independent
Directors or by the vote of the holders of a "majority" (as
defined above) of the outstanding voting shares of the Fund.
This Plan may not be amended to increase materially the amount
of payments to be made without shareholder approval as set
forth in (ii) above and all amendments must be approved in the
manner set forth in (i) above.
TRANSFER AGENCY AGREEMENT
THIS AGREEMENT made this 21st day of November,
1995 by and between COMMONWEALTH CASH RESERVE FUND, INC.,
a Virginia corporation (the "Fund"), and PUBLIC FINANCIAL
MANAGEMENT, INC., a Pennsylvania corporation ("PFM").
W - I - T - N - E - S - S - E - T - H:
WHEREAS, the Fund is a registered open-end,
diversified, management investment company under the
Investment Company Act of 1940, as amended (the "1940
Act") currently offering one class of shares; and
WHEREAS the Fund desires to retain PFM to serve
as the Fund's transfer agent, registrar and dividend
dispersing agent, and PFM is willing to furnish such
services;
NOW THEREFORE, in consideration of the premises
and the mutual convenants herein contained, it is agreed
between the parties hereto as follows:
1. Appointment. The Fund hereby appoints PFM to serve as
transfer agent, registrar and dividend dispersing agent for
the Fund, for the periods and times set forth in this
Agreement. PFM accepts such appointment and agrees to
furnish the services herein set forth in return for the
compensation as provided for in section 16 of this agreement.
2. Delivery of Documents. The Fund has furnished PFM with
copies properly certified or authenticated of each of the
following:
(a) Resolutions of the Board of Directors of the Fund
authorizing the execution of this Agreement;
(b) Appendix A identifying and containing the signatures of
the Fund's officers and other persons authorized to sign
Written Instruction and give Oral Instruction, each as
hereinafter defined, on behalf of the Fund;
(c) A copy of the Fund's Articles of Incorporation filed
with the Secretary of the State Corporation Commission of
the Commonwealth of Virginia on December 8, 1986, as amended
and presently in effect (the "Articles");
(d) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from
time to time be amended are herein called the "By-Laws");
(e) Resolutions of the Fund's Board of Directors approving
the Advisory Agreement between the Fund and Public Financials
Management, Inc. (the "Advisor");
(f) Resolutions of the Fund's Board of Directors approving
the Plan of Distribution and also the Distribution between
the Fund and Commonwealth Financial Group, Inc. (the
"Distributor");
(g) Resolutions of the Fund's Board of Directors approving the
Administration Agreement between the Fund and Pub Fin Mgmt,
Inc. (the "Administrator");
(h) The Fund's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on form N-8A as filed with the
Securities and Exchange Commission ("SEC") on December 11, 1986;
(i) The Fund's Registration Statement on Form N-1 under the
Securities Act of 1933, as amended (the "1933 Act") (File NO.
33-10754) and under the 1940 Act as filed with the SEC on
December 11, 1986 relating to the share of the Fund, and all
amendments thereto; and
(j) The Fund's most recent Prospectus and Statement of
Additional Information (such prospectus and statement of
additional information, as presently in effect and all
amendments and supplements thereto are herein called the
"Prospectus").
The Fund will furnish PFM from time to time with copies,
properly certified or authenticated, of all amendments of or
supplements to the foregoing, if any.
3. Definitions.
(a) "Authorized Person". As used in this Agreement, the
term "Authorized Person" means an officer of the Fund or
other person duly authorized by the Board of Directors of the
Fund to give Oral or Written Instruction on behalf of the Fund
and listed on the Certificate annexed hereto as Appendix A or
any amendment thereto as may be received by PFM from time to
time.
(b) "Oral Instructions". As used in this Agreement, the term
"Oral Instructions" means verbal instruction actually received
by PFM from an Authorized Person or from a person reasonably
believed by PFM to be an Authorized Person.
(c) "Shares". As used in this agreement, the term "Shares"
means shares of common stock, no par value, of the Commonwealth
Cash Reserve Fund, Inc.
(d) "Shareholder". As used in this Agreement, the term
"Shareholder" means a holder of Shares.
(e) "Written Instructions". As used in this Agreement the term
"Written Instructions" means written instructions delivered by
hand, mail, tested telegram, cable, telex or facsimile sending
device, and received by PFM and signed by an Authorized Person
unless the Board of Directors of the Fund specifies otherwise
pursuant to a resolution furnished to PFM pursuant to Section
2(a) hereof.
4. Instructions Consistent with Articles, etc.
(a) Unless otherwise provided in this Agreement, PFM shall act
only upon Oral or Written Instructions. Although PFM may take
cognizance of the provisions of the Articles and By-Laws of the
Fund, PFM may assume that Oral or Written Instruction received
hereunder are not inconsistent with any provisions of such
Articles or By-Laws or any vote, resolution or proceeding of
the Shareholders, of the Board of Directors, or ant committee
thereof.
(b) PFM shall be entitled to rely upon Oral or Written
Instructions actually received by PFM pursuant to this Agreement.
The Fund agrees to forward to PFM Written Instructions confirming
Oral Instruction are received by PFM, whether by hand delivery,
telex, facsimile sending device or otherwise, as promptly as
practicable after Oral Instructions are given to PFM. The Fund
agrees that the fact that such confirming Written Instructions
are not received by PFM shall in no way affect the validity of
the transactions authorized by the Fund by giving Oral
Instructions. The Fund agrees that PFM shall incur no liability
to the Fund in acting upon Oral Instructions given to PFM
hereunder concerning such transactions provided such instructions
reasonably appear to have been received from an Authorized Person.
5. Transactions Not Requiring Instructions.
(a) In the absence of contrary Written Instructions, PFM is
authorized to take the following actions:
(i) Issuance, transfer and redemption of Shares in the manner
described in the Prospectus and in conformity with the rules and
regulations of the SEC and the laws of the Commonwealth of
Virginia;
(ii) Opening, maintenance, servicing and closing of accounts of
Shareholders or prospective Shareholders;
(iii) Acting as agent of the Fund in connection with accounts,
upon the terms and subject to the conditions contained in the
application relating to the account;
(iv) Causing the reinvestment in Shareholders' accounts of
dividends and distributions declared upon Shares;
(v) Processing redemptions;
(vi) Examining and approving legal transfers;
(vii) Furnishing to Shareholders confirmations of transactions
relating to their Shares;
(viii) Preparing and mailing to the Internal Revenue Service and
all payees all information returns and payee statements required
under the Internal Revenue Code in respect to the Fund's dividends
and distributions and taking all other necessary action in
connection with the dividend withholding requirements of that Code;
(ix) Mailing to Shareholders annual, semiannual and quarterly
reports prepared on behalf of the Fund, and, if so requested by the
Fund, mailing new Prospectuses upon their issue to Shareholders;
(x) Preparation and sending such other information from the Fund's
records held by PFM as may be reasonably requested by the Fund;
(xi) Maintaining such books and records relating to transactions
effected by PFM as are required by the 1940 Act, or by any other
applicable provision of law, to be maintained by the Fund or its
transfer agent with respect to such transactions, and preserving,
or causing to be preserved, any books and records for such periods
as may be required by any law, rule or regulation.
(b) PFM agrees to act as proxy agent in connection with the holding
of annual or special meetings or Shareholders, mailing to such
Shareholders notices, proxies, and proxy statements in connection
with the holding of such meetings (all of such writings to be
prepared by the Fund at the Fund's cost), receiving and tabulating
votes cast by proxy and communicating to the Fund the results of
such tabulation accompanied by appropriate certificates, and
preparing and furnishing to the Fund certified lists of Shareholders
as of such date, and in such form and containing such information as
may be required by the Fund to comply with any applicable provisions
of the law or the Articles and By-Laws relating to such meetings.
(c) PFM Agrees to furnish to the Fund such information and at such
intervals as is necessary for the Fund to comply with the
registration requirements and/or reporting requirements of the SEC,
Blue Sky Authorities or other regulatory agencies. PFM will, in
addition to the services herein itemized, perform and do all other
acts and services that are customarily performed and done by other
transfer agents, dividend disbursing agents, and shareholder
servicing agents of open-end mutual funds of the "money market fund"
type.
(d) PFM agrees to provide to the Fund upon request such information
as many reasonably be required to enable the Fund to reconcile the
number of outstanding Shares of the Fund between its records and the
account books of the Fund.
6. Authorized Shares. The Articles authorizer the Board of Directors
of the Fund to issue 500,000,000 Shares.
7. Dividends and Distributions. The Fund shall furnish PFM with
appropriate evidence of action by the Fund's Board of Directors
authorizing the daily declaration of dividends and distributions in
respect of Shares as described in the Prospectus. After deducting any
amount required to be withheld by any applicable tax laws, rules and
regulations, PFM shall, as agent of each Shareholder and in accordance
with the instructions in proper form from a Shareholder and the
provisions of the Fund's Articles and the Prospectus, invest such
dividends and distributions in Shares in the manner described in the
Prospectus or if the Shareholder is elects and if the Fund and PFM
should agree to permit such option, pay them in cash. PFM shall prepare,
file with the Internal Revenue Services, and address and mail to
Shareholders such returns and information relating to dividends and
distributions paid by the Fund as are required to be so prepared, filed
and mailed by applicable laws, rules and regulations, or such substitute
form of notice as may from time to time be permitted or required by the
Internal Revenue Service. On behalf of the Fund, PFM shall withhold and
pay on a timely basis to the appropriate federal authorities any taxes
required by applicable Federal tax laws to be withheld on dividends and
distributions paid by the Fund.
8. Communications with Shareholders.
(a) Communications to Shareholders. Upon request of the Fund PFM will
address and mail all communications by the Fund to its Shareholders,
including reports to Shareholders, dividend and distribution notices
and proxy material for the Fund's meetings of Shareholders. PFM will
receive and tabulate the proxy cards for the meetings of the Fund's
shareholders.
(b) Correspondence. PFM will answer such correspondence received by
it from Shareholders and others relating to its duties hereunder and
such other correspondence as may from time to time be mutually agreed
upon between PFM and the Fund.
9. Records. PFM shall keep the following records:
(a) Accounts for each Shareholder showing the following information:
(i) name, address and United States Tax Identification or Social
Security Number;
(ii) number of Shares held for which certificates, if any, have been
issued, including certificate numbers and denominations;
(iii) historical information regarding the account of each Shareholder,
including dividends and distributions paid and the date and price of
all transactions on each Shareholder's account;
(iv) any stop of restraining order placed against a Shareholder's account;
(v) any correspondence relating to the current maintenance of a
Shareholder's account;
(vi) any information required in order for PFM to perform any calculations
contemplated or required by this Agreement.
(b) Sub-Accounts for each Shareholder requesting such services in
connection with Shares held by such Shareholder for separate accounts
containing the same information for each sub-account as required by
sub-section (a) above.
(c) The books and records pertaining to the Fund which are in the
possession of PFM shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act
and other applicable securities laws, rules and regulations. The Fund,
or the Fund's authorized representatives, shall have access to such
books and records at all times during PFM's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and
records shall be provided by PFM to the Fund or the Fund's authorized
representatives at the Fund's expense.
10. Reports. PFM shall furnish the Fund such periodic and special
reports and such other information, including Shareholder lists and
statistical information concerning accounts as may be agreed upon from
time to time between the Fund and PFM.
11. Cooperation with Accountants. PFM shall cooperate with the Fund's
independent public accountants and shall take all reasonable action in
the performance of its obligations under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their unqualified opinion, including but not limited to
the opinion included in the Fund's annual report on form N-1R.
12. Confidentiality. PFM agrees on behalf of itself and its employees
to treat confidentially all records and other information acquired in
carrying out its duties under this Agreement, relative to the Fund and
its present or potential Shareholders and with regard to the Distributor
and its prior, present or potential customers, except, after prior
notification to and approval in writing by the Fund, which approval
shall not be unreasonably withheld and may not be withheld, and shall
be deemed granted, where PFM may be exposed to civil or criminal
liability or contempt proceedings for failure to comply, when requested
to divulge such information by duly constituted authorities, or when so
requested by the Fund.
13. Equipment Failures. In the event of equipment failures beyond PFM's
control, PFM shall, at no additional expense to the Fund, take reasonable
steps to minimize service interruptions but shall have no liability with
respect thereto. The foregoing obligation shall not extend to computer
terminals located outside of the premises maintained by PFM. PFM shall
enter into and shall maintain in effect one or more agreements with
appropriate parties making reasonable provision for emergency use of
electronic data processing equipment to the extent that appropriate
equipment is available.
14. Rights to Receive Advice.
(a) Advice of Fund. If PFM shall be in doubt as to any action to be taken
or omitted by it, it may request, and shall receive from the Fund,
directions or advice, including Oral or Written Instructions where
appropriate.
(b) Advice of Counsel. If PFM shall be in doubt as to any question of
law involved in any action to be taken or omitted by PFM, it may request
advice at its own cost from counsel of its own choosing (who may be counsel
for the Advisor, the Fund, the Administrator, any custodian of the Fund, or
the Distributor, at the option of PFM).
(c) Conflicting Advice. In case of conflict between directions, advice or
Oral or Written Instructions received by PFM pursuant to sub-section (a) of
this section and advice received by PFM pursuant to sub-section (b) of this
section, PFM shall be entitled to rely on and follow the advice received
pursuant to sub-section (b) of this section.
(d) Protection of PFM. PFM shall be protected in any action or inaction
which it takes in reliance on any directions, advice or Oral or Written
Instruction received pursuant to sub-sections (a) or (b) of this section
and which PFM, after receipt of any such directions, advice or Oral or
Written Instructions, believes in good faith to be consistent with such
directions, advice or Oral or Written Instructions, as the case may be.
However, nothing in this sub-section shall be construed as imposing upon
PFM and obligations (I) to seek such directions, advice or Oral of Written
Instructions, or (ii) to act in accordance with such directions, advice or
Oral or Written Instructions when received, unless, under the terms of
another provision of this Agreement, the same is a condition to PFM's
properly taking or omitting to take such action. Nothing in this
sub-section shall excuse PFM when an action or omission on the part of
PFM constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PFM of any duties, obligations or responsibilities
not expressly provided for in this Agreement or results from PFM's
negligent failure to perform its duties expressly provided for in this
Agreement or otherwise agreed to in writing by PFM.
15. Compliance with Governmental Rules and Regulations. The Fund assumes
full responsibility for insuring that the contents of each Prospectus
complies with all applicable requirements of the 1933 Act, the 1940 Act,
and any laws, rules and regulations of governmental authorities having
jurisdiction.
16. Compensation. As compensation for the services rendered by PFM during
the term of this Agreement, PFM shall be entitled to receive reimbursement
for out-of-pocket expenses attributable to the performance of its duties
under this Agreement and such compensation as the parties may from time to
time agree in writing.
17. Indemnification. The Fund agrees to indemnify and hold harmless PFM
and its nominees from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities under the 1933 Act,
the Securities and Exchange Act of 1934, the 1940 Act, and any state and
foreign blue sky laws, all as to be amended from time to time) and expenses,
including, without limitation, attorney's fees and disbursements, arising
directly or indirectly from any action or thing which PFM takes or does or
omits to take or do (I) at the request or on the direction of or in reliance
on the advice of the Fund, or (ii) upon Oral or Written Instructions,
provided that neither PFM nor any of its nominees shall be indemnified
against any liability to the Fund or to its Shareholders (or any expenses
incident to such liability) arising our of (x) PFM's or such nominee's
willful misfeasance, bad faith or gross negligence or reckless disregard of
its duties in connection with the performance of any duties, obligations or
responsibilities not expressly provided for in this Agreement, or (y) PFM's
or such nominee's own negligent failure to perform its duties expressly
provided for in this Agreement or otherwise agreed to by PFM in writing.
18. Responsibility of PFM. PFM shall be under no duty to take any action
on behalf of the Fund except as specifically set forth herein or as may be
specifically agreed by PFM in writing. In the performance of its duties
hereunder, PFM shall be obligated to exercise care and diligence and to act
in good faith and to use it's best efforts within reasonable limits to insure
the accuracy and completeness of all services performed under this Agreement.
PFM shall be responsible for its own negligent failure to perform its duties
under this Agreement, but to the extent that duties, obligations and
responsibilities are not expressly set forth in this Agreement, PFM shall not
be liable to any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of PFM or reckless
disregard of such duties, obligations and responsibilities. Without limiting
the generality of the foregoing or of any other provision of this Agreement,
PFM, in connection with its duties under this Agreement shall not be under
any duty or obligation to inquire into and shall not be liable for or in
respect of (a) the validity or invalidity or authority or lack or authority
of any Oral or Written Instructions, notice or other instrument which
conforms to the applicable requirements of this Agreement, if any, and which
PFM reasonably believes to be genuine, or (b) delays or errors or loss of
data occurring by reason or circumstances beyond PFM's control, including
acts of civil or military authority, national emergencies, labor
difficulties, fire, mechanical breakdown (except as provided in section 13),
flood or catastrophe, acts of God, insurrection, war, riots or failure of
the mails, transportation, communication or power supply.
19. Release. PFM understands that the obligations of this Agreement are
not binding upon any Shareholder of the Fund personally, but bind only the
Fund's property.
20. Termination. This Agreement shall continue until termination by the
Fund on 60 days' written notice or by PFM on 90 days' written notice.
21. Notices. All notices and other communications, including Written
Instructions (collectively referred to as "Notice" or Notices" in this
section), Hereunder shall be in writing or by telegram, cable, telex or
facsimile sending device, or reliable courier. Notices shall be addressed
(a) if to PFM at PFM's address, (b) if to the Fund, at the address of the
Fund; or (c) if to neither of the foregoing, at such other address as shall
have been notified to the sender of any such Notice or other communication.
If the location of the send of a Notice and the address of the addressee
thereof are, at the time of the sending, more than 100 miles apart, the
Notice may be sent by first class mail, in which case it shall be deemed
to have been given 5 days after it is sent, or if sent by confirming
telegram, cable, telex or facsimile sending device, it shall be deemed
to have been given immediately, and if the location of the sender of a
Notice and the addressee are, at the time of sending, not more than 100
miles apart, the Notice may be sent by first class mail, in which case it
shall be deemed to have been given three days after it is sent, or if sent
by messenger, it shall be deemed to have been given on the day it is
delivered, or if sent by confirming telegram, telex and facsimile sending
charges arising from the sending of a Notice hereunder shall be paid by
the sender.
22. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
23. Amendments. This Agreement of any part hereof may be changed or waived
only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
24. Assignment. This Agreement and the performance hereunder may not be
assigned by PFM without the Fund's prior consent.
25. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supercedes all prior
agreements and understandings relating to the subject matter hereof,
provided that the parties hereto may embody in one or more separate
documents their agreement, if any, with respect to Oral Instructions.
The captions in the Agreement ate included for any of the provisions
hereof or otherwise affect their Construction or effect. This Agreement
shall be deemed to be a contract made in Virginia and governed by Virginia
law. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this
Agreement shall be binding and shall inure to the benefit of the parties
and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their officers designated below on the day and year
first above written.
/s/ COMMONWEALTH CASH RESERVE FUND, INC.
BY: ________________________________
/s/ PUBLIC FINANCIAL MANAGEMENT, INC.
BY: _________________________________
McGuire Woods Battle & Boothe LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219-4030
July 29, 1999
Board of Directors
Commonwealth Cash Reserve Fund
P.O. Box 1192
Richmond, Virginia 23209-1192
Gentlemen:
You have requested the following opinions with respect to the shares (the
"Shares") of the Commonwealth Cash Reserve Fund, Inc., a Virginia corporation
(the "Fund"), to be offered pursuant to Post-Effective Amendment No. 19 (the
"Post-Effective Amendment") to the Fund's registration statement to be filed
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended (the "Securities Act"), and the Investment Company Act of 1940,
as amended.
We have reviewed originals or copies of (i) the Articles of Incorporation,
Bylaws and other corporate documents of the Fund and (ii) certain resolutions
of the Board of Directors of the Fund. In addition, we have reviewed such
other documents and have made such legal and factual inquiries as we have
deemed necessary or advisable for purposes of rendering the opinions set
forth below. The opinions set forth below are based exclusively on Virginia
law and federal laws of the United States of America.
Based upon and subject to the foregoing, we are of the opinion that:
1) The Fund is duly organized and validly existing under the laws of the
Commonwealth of Virginia; and
2) The Shares to be registered under the Post-Effective Amendment have
been duly authorized and, when issued and paid for as described in the
Post-Effective Amendment, will be validly issued, fully paid and
nonassessable.
We hereby consent to the reference to our firm in the Post-Effective
Amendment and the prospectus of the Fund included therein, and to the filing
of this opinion as an exhibit to the Post-Effective Amendment and any notice
filing required pursuant to the securities laws of the various states which
the Shares will be offered. In giving this consent, we do not admit that we
are in the category of persons whose consent is required by the Section 7 of
the Securities Act, or the rules and regulations promulgated thereunder by the
Securities and Exchange Commission.
Very truly yours,
/s/ McGuire, Woods, Battle & Boothe LLP
McGuire, Woods, Battle 7 Boothe LLP
Ernst & Young LLP
Two Commerce Square
Suite 4000
2001 Market Street
Philadelphia, Pennsylvania 19103-7096
Phone 215-448-5000
Fax 215-448-4069
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "General Information
in the Statement of Additional Information and to the incorporation by
reference in Post-Effective Amendment Number 19 to the Registration Statement
Number 811-04933 (Form N1A) of our report dated April 20, 1999 on the financial
statements and financial highlights of the Commonwealth Cash Reserve Fund, Inc.
for the year ended March 31, 1999, included in the Annual Report to
Shareholders.
/s/ Ernst & Young LLP
Ernst & Young LLP
Philadelphia, Pennsylvania
July 28, 1999
Ernst & Young is a member of Ernst & Young International, Ltd.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania 19103-7096
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-
Effective Amendment Number 19 to the registration statement on Form N1A
(the "RegistrationStatement") of our report dated April 24, 1998, relating
to the financial statements and financial highlights appearing in the March
31, 1998 Annual Report to Shareholders of Commonwealth Cash Reserve Fund,
which is also incorporated by reference into the Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, PA
July 28, 1999
COMMONWEALTH CASH RESERVE FUND, INC.
DISTRIBUTION AGREEMENT
AGREEMENT, made as of this 13th day of June, 1994, by and between
Commonwealth Cash Reserve Fund, Inc. (hereinafter called the "Fund"),
and Commonwealth Financial Group, Inc. (hereinafter called the "Distributor").
WITNESSETH:
In consideration of the mutual covenants herein contained and other good
and valuable consideration, the receipt of which is hereby acknowledged,
it is agreed by and between the parties hereto as follows:
1. Distribution of Services. The Distributor agrees to act as distributor
of the shares of the Fund. The price at which shares of the Fund are
issued to eligible classes of investors by the Distributor shall be the
net asset value per share computed and effective as set forth in the
Prospectus and Statement of Additional Information of the Fund current
as of the time of such sale (collectively, the "Current Prospectus"),
determined in accordance with the Fund's Articles of Incorporation and
By-Laws, as now in effect or as they may be amended, and any resolutions
of the Fund's Board of Directors.
2. Compensation. The Fund agrees to reimburse the Distributor for expenses
incurred by the Distributor in connection with the sale, promotion and
distribution of shares of the Fund pursuant to this agreement. These
expenses may include advertising and direct mail expenses; costs of
printing and mailing prospectuses and sales literature to prospective
investors; payments to third parties who sell shares of the Fund;
compensation of brokers, dealers and other intermediaries; general
administrative overhead (including the payment of compensation to sales
personnel involved in the sale of Fund shares); administrative support
allocable to efforts to sell the Fund's shares; sales promotion expenses
and shareholder servicing expenses. Expenses incurred hereunder shall be
subject to approval of the Board of Directors of the Fund. In addition to
the expenses incurred by the Distributor that meet the approval of the
Board of Directors, the Distributor will receive a monthly asset based fee
at an annual rate calculated in accordance with the following schedule.
Monthly Average of Daily Net Assets
Asset Based Bee(Annual Rate)*
under $100 mm $12,000
over $100 mm - $200 mm $18,000
over $200 mm - $300 mm $24,000
over $300 mm - $400 mm $30,000
over $400 mm - $500 mm $36,000
over $500 mm - $600 mm $42,000
over $600 mm - $700 mm $48,000
3. Issuance of Shares. The Fund agrees to issue its shares subject to the
provisions of its Articles of Incorporation and By-Laws, to the eligible
groups of investors (as approved from time to time by the Board of
Directors) as directed by the Distributor, but only to the extent that
the Distributor shall have received purchase orders therefor at the times
and subject to the conditions set forth in the Current Prospectus.
Certificates for shares need not be created or delivered by the Fund.
All shares when so paid for and issued shall be fully paid and nonassessable.
4. Roles as Principal. The Distributor shall act as principal in all matters
relating to promotion of the growth of the Fund and shall enter into all of
its Distributor engagements, agreements and contracts as principal on its
account. The title to shares of the Fund issued by it through the
Distributor shall pass directly from the Fund to the account holder.
5. Other Agreements. The Fund hereby consents to any arrangements whereby
the Distributor may act as principal underwriter for other investment
companies or as principal underwriter, sponsor or depositor for unit
investment trusts and periodic payment plan certificates issued thereby,
or as investment adviser or sub-adviser to other investment companies or
persons. The Fund also consents to the Distributor carrying on a business
as a broker, dealer and underwriter in securities and to carrying on any
other lawful business.
6. Exclusivity of Distribution. The Fund covenants and agrees that it will
not during the term of this Agreement, without the consent of the
Distributor, offer any of its shares for distribution directly or through
any person or corporation other than the Distributor excepting only (a)
the reinvestment of dividends and/or distributions, or their declaration
in shares of the Fund, in optional form or otherwise; and (b) the issuance
of additional shares through splits or unit dividends.
7. Registration. The Fund agrees to use its best efforts to register from
time to time under the Securities Act of 1933 adequate amounts of its
shares for distribution by the Distributor to investors and to qualify
or to permit the Distributor to qualify such shares for offering in the
Commonwealth of Virginia and in other states in which the shares of the
Fund are authorized to be sold. The Fund agrees to advise the Distributor
of the net asset value of its shares' as often as computed. The Fund will
also furnish to the Distributor, as soon as practicable, copies of any
amendments to the Fund's Registration Statement and annual and semiannual
reports filed with the Securities and Exchange Commission and such
information as may reasonably by requested by the Distributor in order
that it may know all of the facts necessary to distribute shares of the Fund.
8. Articles of Incorporation and By-Laws. The Distributor is familiar with
the Articles of Incorporation and By-Laws of the Fund, each as presently in
effect. Insofar as they are applicable to the Distributor as distributor
of the Fund, it will comply with the provisions of the Articles of
Incorporation and By-Laws of the Fund and with the provisions of all acts
administered by the Securities and Exchange Commission (the "Commission")
and rules thereunder. The Fund will provide the Distributor with notice
of and certified copies of any changes to the Articles of Incorporation
and By-Laws.
9. Expenses. (a) Except as set forth in paragraph 9 (b) hereof, the Fund
will pay (or will enter into arrangements providing that persons other than
the Fund will pay) for all expenses of the offering of its shares, including,
but not exclusively limited to those incurred in connection with:
(i) The registration of the Fund or the registration or qualification of
the Fund's shares for offer or sale under the federal securities laws and
the securities laws of the Commonwealth of Virginia and any other states
in which the shares of the Fund are authorized to be sold;
(ii) The preparation, printing and distribution of the Fund's prospectuses,
statements of additional information, any proxy statements, notices and
reports (including but not necessarily limited to annual and semiannual
reports), and the performance of any acts required to be performed by the
Fund by and under the federal securities laws and the applicable securities
laws of any state or other jurisdiction;
(iii) The preparation, printing and distribution of advertising and sales
literature and all other sales materials approved by the Fund for use in
the offering of the Fund's shares and printing and distribution of reports
to shareholders used as sales literature; and
(iv) The issuance of the Fund's shares, including any stock issue and
transfer taxes.
(b) The Distributor will pay from its own resources (or will enter into
arrangements providing that persons other than the Distributor or the
Fund shall pay), or promptly reimburse the Fund, for all expenses in
connection with the offering for sale and the sale of the Fund's shares
which have not been herein allocated to the Fund.
10. NASD Requirements. The Distributor certifies that it is a member
in good standing of the National Association of Securities Dealers, Inc.
(the "NASD" ) and Distributor agrees to abide by all of the rules and
regulations of the NASD which are binding upon underwriters and brokers
in the distribution of the shares of open-end investment companies,
including, without limitation, Section 6 of Articles III of the Rules of
Fair Practice, all of which are incorporated herein as if fully set forth.
The Distributor further agrees to comply with all applicable state and
Federal Laws and the rules and regulations of authorized regulatory
agencies. The Distributor agrees that it will not sell or offer for
sale, shares of the Fund in any state or jurisdiction where they are not
exempt from registration or have not been qualified for sale.
11. Term. This Agreement shall go into effect on the effective date of
its ratification by the Board of Directors of the Fund and shall, unless
terminated as hereinafter provided, continue in effect until one year from
such effective date and shall continue in effect from year to year
thereafter, but only so long as such continuance is specifically approved
at least annually as provided in the Investment Company Act of 1940 (the
"Act"). This Agreement shall automatically terminate in the event of its
assignment (as defined in the Act) and may be terminated, without penalty,
by either party on sixty (60) days written notice to the other party
without further recourse.
12. Indemnification of Distributor. The Fund agrees with the Distributor,
for the benefit of the Distributor and each person, if any, who controls
the Distributor within the meaning of Section 15 of the Securities Act of
1933 (the "Securities Act") and the Distributor's agents and employees to
indemnify and hold harmless the Distributor and any such controlling person
from and against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the
Securities Act, under any other statute, at common law or otherwise, and
to reimburse the Distributor and such controlling persons, if any, for
any legal or other expenses (including the costs of any investigation and
preparation) reasonably incurred by them or any of them in connection with
any claims or litigation whether or not resulting in any liability,
insofar as such losses, claims, damages, liabilities or litigation arise
out of, or are based upon, any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement or any
Prospectus, or any amendment thereof or supplement thereto, or arise out
of, or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement therein not misleading and to breaches of any representations
and warranties contained in, and breach or failure in performance by the
Fund of this provisions of this agreement or other agreement between the
parties involving the Fund's shares; provided , however, that this
agreement shall not apply to amounts paid in settlement of any such
claim or litigation if settlement is effected without the consent of
the Fund or to any such losses, claims, damages, liabilities or litigation
arising out of, or based upon, any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus, or any amendment thereof or supplement thereto, or arising
out of, or based upon, the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statement therein not misleading, which statement or omission was made
in reliance upon information furnished in writing to the Fund by the
Distributor for inclusion in any Registration Statement or any
Prospectus or any amendment thereof or supplement thereto. The
Distributor and each such controlling person shall, promptly after the
complaint shall have been served upon the Distributor or such controlling
person in any litigation against the Distributor or such controlling
person in respect of which indemnity may be sought from the Fund on
account of its agreement contained in the paragraph, notify the Fund in
writing of the commencement thereof, The omission of the Distributor or
such controlling person so to notify the Fund of any such litigation shall
relieve the Fund from any liability which it may have to the Distributor
or such controlling person on account of the indemnity agreement contained
in this paragraph but shall not relieve the Fund from any liability which
it may have to the Distributor or controlling person otherwise than on
account of the indemnity agreement contained in this paragraph. In case
any such litigation shall be brought against the Distributor or any such
controlling person and notice of the commencement thereof shall have been
so given to the Fund, the Fund shall be entitled to participate in (and,
to the extent that it shall wish, to direct) the defense thereof at its
own expense but such defense shall be conducted by counsel of good
standing and satisfactory to the Distributor or such controlling person
or persons, defendant or defendants in the litigation. The indemnity
agreement of the Fund contained in this paragraph shall remain operative
and in full force and effect regardless of any investigation made by or
on behalf of the Distributor or any such controlling person, and shall
survive any delivery of units of the Fund. The Fund agrees to notify
the Distributor promptly of the commencement of any litigation or
proceeding against it or any of its officers or directors of which it
my be advised in connection with the issue and sale of its shares.
13. Limitation of Indemnification. Anything herein to the contrary
notwithstanding, the agreement in paragraph 12, insofar as it
constitutes a basis for reimbursement by the Fund for liabilities
(other than payment by the Fund of expenses incurred or paid in the
successful defense of any action, suit or proceeding) arising under the
Securities Act, shall not extend to the extent of any interest therein
of any person who is an underwriter or a partner or controlling person
of an underwriter within the meaning of Section 15 of the Securities Act
or who, at the date of this Agreement, is a Director of the Fund, except
to the extent that an interest of such character shall have been
determined by a court of appropriate jurisdiction as not against public
policy as expressed in the Securities Act. Unless, in the opinion of
counsel for the Fund, the matter ahs been adjudicated by controlling
precedent , the Fund will, if a claim for such reimbursement is asserted,
submit to a court of appropriate jurisdiction the question of whether
or not such interest is against the public policy as expressed in the
Securities Act.
14. Indemnification of Fund. The Distributor agrees to indemnify an hold
harmless the Fund and its Directors and such officers as shall have
signed any Registration Statement from and against any and all losses,
claims, damages or liabilities, joint or several, to which the Fund or
such Directors or officers may become subject under the Securities Act,
under any other statute, at common law or otherwise, and will reimburse
the Fund or such Director or officers for any legal or other expenses
(including the cost of any investigation and preparation) reasonably
incurred by it or them or any of them in connection with any claim or
litigation, whether or not resulting in any liability, insofar as such
losses, claims damages, liabilities or litigation arise out of, or are
based upon, any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or arising out of, or based
upon, the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein
not misleading, which statement or omission was made in reliance upon
information furnished to the Fund by the Distributor for inclusion in
any Registration Statement or any Prospectus, or any amendment thereof
or supplement thereto. The Distributor shall not be liable for amounts
paid in settlement of any such litigation if such settlement was effected
without its consent. The Fund and its Directors and such officers,
defendant or defendants, in any such litigation shall, promptly after
the complaint shall have been served upon the Fund or any such Director
of officer in respect of which indemnity may be sought from the
Distributor on account of its agreement contained in this paragraph,
notify the Distributor in writing of the commencement thereof. The
omission of the Fund or such Director or officer so to notify the
Distributor of any such litigation shall relieve the Distributor from
any liability which it may have to the Fund or such Director or officer
on account of the indemnity agreement contained in this paragraph, but
shall not relieve the Distributor from any liability which it may have
to the Fund or such Director or officer otherwise than on account of
the indemnity agreement contained in this paragraph. In case any such
litigation shall be brought against the Fund or any such Director or
officer and notice of the commencement thereof shall have been so given
to the Distributor, the Distributor shall be entitled to participate in
(and, to the extent that it wish, to direct) the defense thereof at its
own expense but such defense shall be conducted by counsel of good
standing and satisfactory to the Fund. The indemnity agreement of the
Distributor contained in this paragraph shall remain operative and in
full force and effect regardless of any investigation made by or on
behalf of the Fund and shall survive any delivery of shares of the Fund.
The Distributor agrees to notify the Fund promptly of the commencement
of any litigation or proceeding against it or any of its officers or
directors or against any such controlling person of which it may advised,
in connection with the issue and sale of the Fund's shares.
15. Certain Liabilities Not Protected. Notwithstanding any provision
contained in this Agreement, no party hereto and no person or persons in
control of any party hereto shall be protected against any liability to
the Fund or its unit holders or the Distributor or its controlling persons
to which they would otherwise be subject by reason of willful misfeasance,
ad faith, or gross negligence, in the performance of their duties, or by
reason of their reckless disregard of their obligations and duties under
this Agreement.
16. Further Information Provided By the Fund. The Fund shall immediately
advise the Distributor (a) when any post-effective amendment to its
Registration Statement or any further amendment or supplement thereto or
any further Registration Statement or amendment or supplement thereto
becomes effective, (b) of any request by the Commission for amendments
to the Registration Statement or the then effective Prospectus or for
additional information, (c) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement,
or the initiation of any proceedings for that purpose, and (d) of the
happening of any event which make untrue any material statement made in
the Registration Statement or the then current Prospectus or which in
the opinion of counsel for the Fund requires the making of a change in
the Registration Statement or the then current Prospectus in order to
make the statements therein not misleading. In case of the happening
at any time of any event which materially affects the Fund or its
securities and which should be set forth in a supplement to or an
amendment of the then current Prospectus in order to make the
statements therein not misleading the Fund shall prepare and furnish
to the Distributor such amendments or amendments to the then effect
Prospectus as will correct the Prospectus so as corrected it will not
contain, or such supplement or supplements to the then current
Prospectus which when read in conjunction with the then current
Prospectus will make the combined information not contain any untrue
statement of a material fact or any omission to state any material
fact necessary in order to make the statement in the then current
Prospectus not misleading. The Fund shall, if any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement make every reasonable effort to obtain the
prompt lifting of such order.
17. Further Information Provided by Distributor. The Distributor agrees
to provide the Fund, not less frequently than quarterly at the written
request of the Fund, the information required by Rules 12b-1 (b) (3)
(ii) 12b-1 (d) enacted under the Investment Company Act of 1940.
18. Contribution. In the event that indemnification of one party is
prohibited for reasons of public policy, then, to the extent permitted
by the Investment Company Act of 1940 and the Securities Act of 1933,
and to the extent of payment, the other party will make contribution.
19. No Third Party Beneficiaries. Except as expressly provided in
paragraphs 12 and 14 hereof, the agreements herein set forth have been
made and are made solely for the benefit of the Fund, the Distributor,
and the person expressly provided for in paragraphs 12 and 14, their
respective heirs, successors, personal representatives and assigns,
and except as so provided, nothing expressed or mentioned herein is
intended or shall be construed to give any person, firm or corporation,
other than the Fund, the Distributor, and the person expressly provided
for in paragraphs 12 and 14, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any representation,
warranty or agreement herein contained. Except as so provided, the
term "heirs, successors, personal representatives and assigns" shall
not include any purchaser or shares merely because of such purchase.
20. Distributor Not an Agent. In no transaction shall the Distributor
have any authority whatever to act as agent for the Fund and nothing
in this Agreement shall constitute either party hereto the agent of the
other.
21. Governing Law. This agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia.
22. Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by
first-class mail, postage prepaid, or otherwise delivered by hand
or by messenger, addressed (a) if to the Fund, at Governor's Plaza
North, 2101 North Front Street, Building 3, Suite 200, Harrisburg, PA
17110 or (b) if to the Distributor, to Commonwealth Financial Group,
at 38 Cohasset Lane, Cherry Hill, NJ 08003.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers and their seals
to be affixed as of the day and year first above written.
/s/ COMMONWEALTH CASH RESERVE FUND, INC.
By:
/s/ COMMONWEALTH FINANCIAL GROUP, INC.
By:
