COMMONWEALTH
CASH RESERVE FUND
Message to our Shareholders
We are pleased to present the semi-annual report for the Commonwealth Cash
Reserve Fund (the Fund) for the period ended September 30, 1999.
The New Era economy has produced another six-month period of strong U.S.
economic expansion with no significant inflation pressures. Real Gross
Domestic Product growth during this period averaged 3.5% continuing an
impressive expansion period which commenced in 1991. While this growth
has produced the lowest unemployment in 30 years at 4.2%, labor costs show
no significant acceleration despite tight labor markets, a near record help-
wanted index and the continued concern expressed by the Federal Reserve.
At the same time foreign economies continue to recover from the financial
panic which occurred last year, which brought heavy losses to global equity
markets including the U.S., but especially in Asia and Latin America. While
the U. S. Stock Market is up very broadly in 1999 with double-digit
increases, Asian and Latin American markets are experiencing increases of
20 to 50% (adjusted for currency exchange). The strong U. S. and global
recovery has clearly been a focus of the Federal Reserve which increased the
Federal Funds rate by .25% both on June 30 and August 24 to 5.25%. The
Federal Reserve also continues to view the U.S. stock market gains, which
have produced over $1 trillion of additional wealth since the start of the
year as worrisome both in it's inflation context and the economic effect if
a significant downturn in equity prices occurs.
Interest rates have moved broadly higher during the last six months with all
sectors of the yield curve rising by .40% to .65%. During periods of sharply
rising interest rates, many local government investors turned to the Fund to
provide stable and increasing short-term returns and daily liquidity.
Because a money market mutual fund such as the Commonwealth Cash Reserve Fund
can invest in only short-term investment securities with terms to maturity
as long as thirteen months, the return will be relatively stable. Thus
investors in the Fund enjoyed strong returns during the fiscal year.
To ensure that investor funds are properly safeguarded during these volatile
times, we have continued to focus attention on maintaining a high level of
credit quality. In particular, a prudent percentage of the portfolio has
been invested in U.S. Government obligations and repurchase agreements
backed by U.S. Government obligations. At the end of the quarter, fully 28%
of the portfolio was invested in these securities ensuring both superior
credit quality and a high degree of liquidity. The remainder of the
portfolio is invested in other top rated short-term money market securities.
The Commonwealth Cash Reserve Fund will continue its tradition of care and
prudence in the management of local government investments. We look forward
to the continued opportunity to meet your investment needs.
Commonwealth Cash Reserve Fund, Inc.
Statement of Net Assets
September 30, 1999
Face
Amount Maturity Value
(000) Rate Date (000)
BANKER'S ACCEPTANCES (10.5%)
Bank of Boston $2,000 5.34% 10/14/99 $1,996
Bank of America 7,000 5.30% 10/15/99 6,986
Bank of Boston 3,000 5.34% 10/15/99 2,994
Bank of Boston 1,500 5.41% 11/23/99 1,488
Mellon Bank 1,000 5.88% 3/3/2000 976
Mellon Bank 1,000 5.87% 3/17/2000 973
TOTAL BANKER'S ACCEPTANCES 15,413
CERTIFICATES OF DEPOSIT (24.1%)
Banque National De Paris (SF) 7,000 5.35% 10/4/99 7,000
Barclays (NY) 7,500 5,32% 10/18/99 7,500
Paribas (NY) 1,900 5.25% 10/19/99 1,900
Societe Generale (NY) 7,500 5.25% 10/28/99 7,499
Toronto Dominion Bank (NY) 6,500 5.05% 2/14/2000 6,497
Royal Bank of Canada (NY) 1,000 5.12% 3/21/2000 998
Rabobank (NY) 2,000 5.67% 6/30/2000 1,999
Union Bank of Switzerland (NY) 2,000 5.70% 7/10/2000 1,999
TOTAL CERTIFICATES OF DEPOSIT 35,392
COMMERCIAL PAPER (35.7%)
General Electric Capital Corp. 3,000 5.31% 10/4/99 2,999
Centric Capital Corp. 1,000 5.37% 10/5/99 999
Prudential Funding Corp. 7,500 5.31% 10/5/99 7,496
Centric Capital Corp. 3,000 5.36% 10/6/99 2,998
General Electric Capital Corp. 1,500 5.34% 10/6/99 1,499
General Motors Acceptance Corp. 3,500 5.33% 10/6/99 3,497
Merrill Lynch & Co., Inc. 7,500 5.31% 10/6/99 7,495
Ford Motor Credit Corp. 7,500 5.31% 10/7/99 7,493
Associates Corp. of NA 7,500 5.30% 10/8/99 7,492
Centric Capital Corp. 3,500 5.38% 10/18/99 3,491
General Motors Acceptance Corp. 4,000 5.85% 1/26/2000 3,926
Credit Suisse First Boston 3,000 5.94% 2/10/2000 2,936
TOTAL COMMERCIAL PAPER 52,321
CORPORATE NOTE (2.0%)
General Electric Capital Corp. 3,000 5.84% 4/28/2000 2,997
TOTAL CORPORATE NOTE 2,997
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (27.3%)
Federal Home Loan Bank Notes
(Callable) 4,000 5.00% 1/5/2000 4,000
Federal Home Loan Bank Notes
(Callable) 2,000 5.05% 3/1/2000 2,000
Federal National Mortgage
Association Discount Notes 1,665 5.18% 10/1/99 1,665
Federal Home Loan Mortgage
Corporation Discount Notes 207 5.32% 10/8/99 207
Federal Home Loan Mortgage
Corporation Discount Notes 1,500 5.33% 10/14/99 1,497
Student Loan Marketing
Association irrevocable
Letter of Credit Guaranteeing
Notes of USA Group Secondary
Market Services, Inc. 21,000 5.51% 10/14/99 20,958
Federal National Mortgage
Association Discount Note 3,000 5.21% 12/1/99 2,974
Federal National Mortgage
Association Discount Note 1,000 5.53% 6/1/2000 965
Federal Home Loan Mortgage
Corporation Discount Notes 2,000 5.41% 6/2/2000 1,930
Federal Home Loan Mortgage
Corporation Discount Notes 2,000 5.47% 6/2/2000 1,929
Federal Home Loan Mortgage
Corporation Discount Notes 1,000 5.50% 7/11/2000 959
U.S. Treasury Notes 1,000 6.38% 1/15/2000 1,004
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS 40,088
TOTAL INVESTMENTS (99.7%) (Cost $145,861) $146,211
OTHER ASSETS AND LIABILITIES (0.3%)
Interest Receivable and Other Assets 519
Distribution Fees Payable (2)
Audit Fees Payable (7)
Legal Fees Payable (7)
Custodian Fees Payable (4)
Other Accrued Expenses (24)
TOTAL OTHER ASSETS AND LIABILITIES 475
NET ASSETS (100%)
Applicable to $146,686,224 outstanding shares of beneficial
interest(500,000,000 shares authorized - no par value) $146,686
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE $1.00
AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF:
Amount Per
(000) Share
Paid in Capital $146,686 $1.00
Undistributed Net Investment Income - -
Accumulated Net Realized Gain - -
Unrealized Appreciation (Depreciation) of
Investments - -
NET ASSETS $146,686 $1.00
The accompanying notes are an integral part of these financial statements.
Statement of Operations
Six Months Ended September 30, 1999
(000)
INVESTMENT INCOME
Interest $3,292
EXPENSES
Management Fees 110
Custodian 12
Distribution Fees 15
Legal 11
Audit 6
Directors Fees and Expenses 4
Insurance, Registration Fees and Other 5
Expenses waived by Investment Advisor and Distributor (67)
Total Expenses 96
Net Investment Income 3,196
Net Increase in Net Assets
Resulting From Operations $3,196
Statements of Changes in Net Assets
Six Months Ended September 30,
1999 1998
(000) (000)
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS
Net Investment Income $ 3,196 $ 3,734
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income (3,196) (3,734)
CAPITAL SHARE TRANSACTIONS
(at $1.00 per share)
Issued 173,387 122,193
Redeemed (143,628) (122,941)
Distributions Reinvested 3,196 3,734
Net (Decrease) Increase from Capital
Share Transactions 32,955 2,986
Total (Decrease) Increase in Net Assets 32,955 2,986
NET ASSETS
Beginning of Year 113,731 120,359
End of Year $146,686 $123,345
The accompanying notes are an integral part of these financial statements.
Financial Highlights
Six Months
Ended Year Ended March 31,
For a Share Outstanding
Throughout Each Period 9/30/99 1999 1998 1997 1996
NET ASSET VALUE,
BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.025 0.053 0.055 0.053 0.058
TOTAL FROM INVESTMENT
OPERATIONS 0.025 0.053 0.055 0.053 0.058
LESS: DISTRIBUTIONS
Net Investment Income (0.025) (0.053) (0.055) (0.053) (0.058)
TOTAL DISTRIBUTIONS (0.025) (0.053) (0.055) (0.053) (0.058)
NET ASSET VALUE,
END OF YEAR $1.000 $1.000 $1.000 $1.000 $1.000
Total Return 5.05% 5.68% 5.43% 5.90% 5.01%
Ratios/Supplemental Data
Net Assets,
End of Period (000) $146,686 $113,731 $120,359 $116,183 $102,614
Ratio of Expenses to
Average Net Assets* 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment
Income to Average Net
Assets* 4.96% 5.28% 5.54% 5.31% 5.78%
*Certain fees were voluntarily waived for the six months ended September 30,
1999, and in the fiscal years ended March 31, 1999, 1998, 1997, and 1996.
If these fees had not been waived, the ratio of expenses to average net
assets would have been .25% for the six months ended September 30, 1999,
and .25%, 25%, .28%, and .29% respectively for the fiscal years ended
March 31, 1999, 1998, 1997, and 1996. The ratio of net investment income
to average net assets would have been 4.85% for the six months ended
September 30 1999, and 5.18%, 5.44%, 5.18%, and 5.64% for the fiscal years
ended March 31, 1999, 1998, 1997, and 1996, respectively.
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
ORGANIZATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. The Commonwealth Cash Reserve Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as a diversified open-end investment
company and was organized as a Virginia corporation on December 8, 1986.
The Fund provides comprehensive investment management to counties, cities,
towns, political subdivisions and public bodies. The Fund invests in
short-term debt instruments issued by the U.S. government or its agencies
and instrumentalities and by companies primarily operating in the banking
industry; the issuers' abilities to meet their obligations may be affected
by economic developments in such industry.
B. The following significant accounting policies of the Fund are in
conformity with generally accepted accounting principles. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the amounts and disclosures reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
The significant accounting policies are as follows:
1. Securities held are stated at amortized cost, which approximates fair
value at September 30, 1999. It is the Fund's policy to compare
amortized cost and fair value of securities weekly and as of the last
business day of each month.
2. Security transactions are accounted for on the trade date. Costs
used in determining realized gains and losses on sales of investment
securities are those of specific securities sold. Interest income is
recorded using the accrual method. Discounts and premiums are accreted
and amortized, respectively, to interest income over the lives of the
respective securities.
3. Dividends from net investment income are declared daily and reinvested
in each participant's account by the purchase of additional shares of the
Fund on the last business day of each month.
4. The Fund invests cash in repurchase agreements secured by U.S.
Government and Agency obligations. Securities pledged as collateral for
repurchase agreements are held by the Fund's custodian bank until
maturity of the repurchase agreement. Provisions of each agreement
require that the market value of the collateral including accrued
interest thereon, is sufficient in the event of default; however, in
the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of of the collateral may be subject to legal
proceedings. As of September 30, 1999, there were no repurchase agreements
held by the Fund.
5. The Fund intends to continue to qualify as a "regulated investment
company" under the Internal Revenue Code and distribute all of its
taxable income. Accordingly, no provision for federal income taxes is
required in the financial statements. At September 30, 1999, the cost
of securities for federal income tax purposes is the same as the amounts
reported for financial reporting purposes.
Fees and Charges
C. Public Financial Management, Inc. ("PFM"), an investment advisory firm,
provides investment advisory, administration, and transfer agent services
to the Fund, pursuant to separate agreements with the Fund expiring
November 21, 1999. Fees for investment advisory services are calculated
at an annual rate of .12% of the average daily net assets of the Fund up
to $200 million, .10% on the next $200 million, .09% on the next $200
million and .08% on such assets in excess of $600 million. Fees for the
administration services are calculated at an annual rate of .05% of
average daily net assets. Fees for transfer services are limited to
out-of-pocket expenses attributable to the performance of duties under the
transfer agency agreement. There have been no transfer agent fees charged
for the six months ended September 30, 1999. PFM waived $63,900 of its fees
under the advisory, administration, and transfer agency agreements so that
the aggregate operating expensesof the Fund for the Fund's six months ended
September 30, 1999 would not exceed .15% of the Fund's average net assets.
Fees paid to PFM, after such waiver for the year represented .07% of
average net assets.
The Fund has adopted an Amended and Restated Distribution Plan (the
"Distribution Plan") pursuant to Rule 12b-1 of the Investment Company
Act of 1940, which permits the Fund to bear certain expenses in
connection with the distribution of its shares, provided the requirements
of the Rule are met. Commonwealth Financial Group, Inc. (the "Distributor")
serves as the Fund's Distributor pursuant to a distribution agreement with
the Fund. The President and a director of the Fund is the President and
sole shareholder of the Distributor. The Distribution Plan authorizes the
Fund to reimburse the Distributor for expenses incurred by the Distributor
in connection with the sale, promotion and distribution of Fund shares,
in an amount not to exceed .25% of the Fund's average daily net asset
value in any year. Any payments made under the Plan shall be made only as
determined from time to time by the Board of Directors. For the six months
ended September 30, 1999, total payments made to the Distributor under the
Plan were $11,900 after waiving fees of $3,000.
During the six months ended September 30, 1999, the Fund paid approximately
$6,300 for legal services of a law firm of which the Secretary of the Fund
is a Partner.
D. Under Governmental Accounting Standards ("GAS"), state and local
governments, including school districts and other municipal entities,
are required to classify their investments, excluding pools managed by
governments or investment funds similar to the Fund in prescribed
categories of credit risk. Although the Fund is not subject to GAS,
its September 30, 1999 investments have been classified for the
information of the participants as Category 1 investments. Category
1 includes investments that are insured or registered or are held by the
Fund or its agent in the Fund's name. Category 2 includes uninsured and
unregistered investments held by the broker's or dealer's trust department
or agent in the Fund's name. Category 3 includes uninsured and
unregistered investments held by the broker's or dealer's trust department
or agent, but not in the Fund's name.
Commonwealth
Cash Reserve Fund
Investment Adviser
Public Financial Management, Inc.
Governor's Plaza North
2101 North Front Street
Building 3, Suite 200
Harrisburg, Pennsylvania 17110
Custodian
Wachovia Bank, N.A.
1021 East Cary Street
P.O. Box 27602
Richmond, Virginia 23261
Administrator and Transfer Agent
Public Financial Management, Inc.
Governor's Plaza North
2101 North Front Street
Building 3, Suite 200
Harrisburg, Pennsylvania 17110 SEMI-ANNUAL REPORT
September 30, 1999
Distributor
Commonwealth Financial Group, Inc.
38 Cohasset Lane
Cherry Hill, New Jersey 08003
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. Commonwealth Cash Reserve Fund, Inc.
7307 Elbow Lane P.O. Box 1192
Philadelphia, Pennsylvania 19119 Richmond, Virginia 23209-1192
(800) 338-3383
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus. The prospectus can
be obtained from the Fund's Distributor. The prospectus provides more
complete information including charges and expenses. Please read it
carefully before investing.
