COMMONWEALTH
CASH RESERVE FUND
ANNUAL REPORT
March 31, 2000
Commonwealth Cash Reserve Fund, Inc.
P.O. Box 1192
Richmond, Virginia 23209-1192
(800) 338-3383
Report of Independent Auditors
To the Shareholders and the Board of Directors of the
Commonwealth Cash Reserve Fund, Inc.
We have audited the accompanying statement of net assets of the Commonwealth
Cash Reserve Fund, Inc. ("the "Fund") as of March 31, 2000, and the related
statement of operations for the year then ended, and the statement of changes
in net assets and financial highlights for each of the two years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The financial highlights for the years through March 31, 1998 were
audited by other auditors whose report dated April 24, 1998, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform our audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements and financial highlights. Our
procedures included confirmation of securities owned as of March 31, 2000,
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
the Fund at March 31, 2000, the results of operations for the year then
ended, the changes in net assets and the financial highlights for each of the
two years in the period then ended, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
April 28, 2000
Message to our Shareholders
We are pleased to present the annual report for the Commonwealth Cash
Reserve Fund for the period ended March 31, 2000.
Another year of strong economic growth instilled the fear of inflation in
bond investors and pushed interest rates sharply higher over the last twelve
months. The result was a significant run-up in interest rates across the
entire yield curve although longer-term rates had rallied over the last few
months due to diminished issuance and buy-backs by the U.S. Treasury creating
an inverted yield curve. One-year Treasury Bill rates rose by more than
1.53% from 4.71% in April to 6.24% by March 31, and rates for intermediate
maturities rose similarly.
The rise in interest rates over the last twelve months reflected the fact
that the pace of economic growth actually quickened through the year. Gross
domestic product grew by 5.0% year over year, non-farm employment by 2.9
million jobs and retail salesby more than 10.5%. These results were
remarkable for an economy in its 10th year of expansion and exceeded the
expectations of most economists. Indeed, it was precisely for this reason
that interest rates rose.
While sharply higher rates also present challenges for any portfolio manager,
the temptation to extend investment maturities to capture higher earnings
can subject a portfolio to principal risks in interest rates continue to rise.
We are pleased to report that in the last year, as in every year since
inception, the Commonwealth Cash Reserve Fund portfloi fared well offering
participants an attractive return and stable net asset value.
We begin the new fiscal year with the economy still steaming and the Fed
seemingly poised to raise short-term rates further. As of this writing,
short and intermediate term interest rates are at the highest levels in
five years. We continue to focus both on credit quality and the maintenance
of a short average maturity. As we have done over the last fiscal year,
we will extend the portfolios modestly to gain additional income where
market conditions are appropriate.
As we enter the new fiscal year, we are prepared for possible Federal
Reserve interest rate hikes and will continue to produce safe, high yielding
investments for the Commonwealth Cash Reserve Fund's participants.
Commonwealth Cash Reserve Fund, Inc.
Statement of Net Assets
March 31, 2000
Face
Amount Maturity Value
(000) Rate Date (000)
BANKER'S ACCEPTANCES (10.8%)
Chase Manhattan Bank $1,070 5.92% 4/12/00 $ 1,068
Rabobank (NY) 3,000 5.89% 4/12/00 2,995
Rabobank (NY) 4,000 6.04% 4/19/00 3,988
Fleet National Bank 4,000 6.02% 4/02/00 3,987
Bank of Boston 1,139 5.97% 5/04/00 1,133
Bank of Boston 1,500 6.03% 5/25/00 1,487
TOTAL BANKER'S ACCEPTANCES (Cost $14,658) 14,658
CERTIFICATES OF DEPOSIT (35.9%)
Dresdner Bank, AG (NY) 6,000 5.93% 4/10/00 6,000
Deutsche Bank (NY) 2,000 5.89% 4/14/00 2,000
Barclays Bank (NY) 7,000 6.03% 4/19/00 2,000
Bank of America Corporation 7,000 6.00% 4/24/00 7,000
CIBC (NY) 4,000 5.99% 5/10/00 4,000
Deutsche Bank (NY) 2,800 6.00% 5/16/00 2,800
Rabobank (NY) 2,000 5.71% 6/30/00 2,000
Union Bank of Switzerland 2,000 5.75% 7/10/00 2,000
Societe Generale 4,000 6.72% 1/18/01 3,995
Deutsche Bank (NY) 3,000 6.55% 1/22/01 3,000
Toronto Dominion (NY) 3,000 6.74% 2/07/00 2,999
Dresdner Bank, AG (NY) 1,000 6.70% 3/01/01 999
Bayerische Landesbank 5,000 6.69% 3/07/01 4,996
TOTAL CERTIFICATES OF DEPOSIT (Cost $48,789) 48,789
COMMERCIAL PAPER (35.2%)
Merrill Lynch & Company, Inc. 5,000 5.88% 4/04/00 4,998
General Motors Acceptance Corp. 8,000 5.88% 4/06/00 7,994
General Electric Capital Corp. 2,000 5.89% 4/07/00 1,998
Merrill Lynch & Company, Inc. 3,000 5.90% 4/10/00 2,996
Salomon Smith Barney Holdings, Inc. 5,000 5.88% 4/10/00 4,993
Salomon Smith Barney Holdings, Inc. 1,470 6.03% 4/10/00 1,468
Morgan Stanley Dean Witter & Co. 2,000 5.94% 4/19/00 1,994
General Electric Capital Corp. 2,800 5.97% 5/03/00 2,785
Goldman Sachs Corporation 2,000 6.00% 5/03/00 1,989
Bear Stearns Co., Inc. 6,000 6.01% 5/08/00 5,963
Goldman Sachs Corporation 5,690 5.98% 5/08/00 5,655
General Electric Capital Corp. 2,000 6.11% 5/15/00 1,985
Prudential Funding Corporation 3,000 6.15% 6/01/00 2,969
TOTAL COMMERCIAL PAPER (Cost $47,787) 47,787
CORPORATE NOTE (4.4%)
Citifinancial Corp Notes 2,000 6.56% 4/15/00 1,999
General Electric Capital Corp. 3,000 6.02% 4/28/00 3,000
Associates Corp., NA 1,000 6.63% 1/15/00 994
TOTAL CORPORATE NOTE (Cost $5,993) 5,993
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (13.3%)
Federal National Mortgage
Association Debentures 1,000 5.84% 4/10/00 1,001
Federal Home Loan Mortgage
Corporation Discount Notes 6,060 6.05% 4/03/00 6,058
Federal Home Loan Mortgage
Corporation Discount Notes 5,000 5.98% 4/18/00 4,986
Federal National Mortgage
Association Discount Notes 1,000 5.53% 6/01/00 991
Federal Home Loan Mortgage
Corporation Discount Notes 2,000 5.41% 6/02/00 1,982
Federal Home Loan Mortgage
Corporation Discount Notes 2,000 5.47% 6/02/00 1,982
Federal Home Loan Mortgage
Corporation Discount Notes 1,000 5.50% 7/01/00 985
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS (Cost $17,985) 17,985
TOTAL INVESTMENTS (99.6%) (Cost $135,212) $135,212
OTHER ASSETS AND LIABILITIES (0.4%) 496
NET ASSETS (100%)
Applicable to 135,708,363 outstanding shares of beneficial
interest(500,000,000 shares authorized - no par value) $135,708
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE $1.00
AT MARCH 31, 2000, NET ASSETS CONSISTED OF:
Amount Per
(000) Share
Paid in Capital $135,708 $1.00
Undistributed Net Investment Income - -
Accumulated Net Realized Gain - -
Unrealized Appreciation (Depreciation) of
Investments - -
NET ASSETS $135,708 $1.00
The accompanying notes are an integral part of these financial statements.
Statement of Operations
Year Ended March 31, 2000
(000)
INVESTMENT INCOME
Interest $7,829
EXPENSES
Management Fees 242
Custodian 27
Distribution Fees 31
Legal 21
Audit 13
Directors Fees and Expenses 9
Insurance, Registration Fees and Other 12
Expenses waived by Investment Advisor and Distributor (141)
Total Expenses 214
Net Investment Income 7,615
Net Increase in Net Assets
Resulting From Operations $7,615
Statements of Changes in Net Assets
Year Ended March 31,
2000 1999
(000) (000)
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS
Net Investment Income $ 7,615 $ 6,999
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income (7,615) (6,999)
CAPITAL SHARE TRANSACTIONS
(at $1.00 per share)
Issued 403,237 373,085
Redeemed (388,875) (386,712)
Distributions Reinvested 7,615 6,999
Net Increase (Decrease)from Capital
Share Transactions 21,977 (6,628)
Total Increase (Decrease) in Net Assets 21,977 (6,628)
NET ASSETS
Beginning of Year 113,731 120,359
End of Year $135,708 $113,731
The accompanying notes are an integral part of these financial statements.
Financial Highlights
Year Ended March 31,
For a Share Outstanding
Throughout Each Period 2000 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 0.053 0.053 0.055 0.053 0.058
TOTAL FROM INVESTMENT
OPERATIONS 0.053 0.053 0.055 0.053 0.058
LESS: DISTRIBUTIONS
Net Investment Income (0.053) (0.053) (0.055) (0.053) (0.058)
TOTAL DISTRIBUTIONS (0.053) (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 5.43% 5.40% 5.68% 5.43% 5.90%
Ratios/Supplemental Data
Net Assets,
End of Period (000) $135,708 $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* 5.34% 5.28% 5.54% 5.31% 5.78%
*Certain fees were voluntarily waived for the fiscal years ended March 31,
2000, 1999, 1998, 1997, and 1996. If these fees had not been waived, the
ratio of expenses to average net assets would have been .25%,
.25%, .25%, .28%, and .29% respectively for the fiscal years ended March 31,
2000, 1999, 1998, 1997, and 1996. The ratio of net investment income
to average net assets would have been 5.24%, 5.18%, 5.44%, 5.18%, and 5.64%
for the fiscal years ended March 31, 2000, 1999, 1998, 1997, and 1996,
respectively.
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
ORGANIZATION
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, public bodies and institutions, such as
universities, hospitals and not-for-profit organizations. 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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 March 31, 2000. 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 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 March 31, 2000, 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 March 31, 2000, 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, 2000. 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 were no transfer agent fees charged
for year ended March 31, 2000. PFM waived $135,000 and $130,000 of its
fees under the advisory, administration, and transfer agency agreements so
that the aggregate operating expenses of the Fund would not exceed .15%
of the Fund's average net assets for the Fund's fiscal years ended March
31, 2000 and 1999. Fees paid to PFM, after such waivers represented
.08% and .07% of average net assets for the fiscal years ended March 31,
2000 and 1999.
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 years
ended March 31, 2000 and 1999 total payments made to the Distributor
under the Plan were $25,200 and $26,700, after waiving fees of $6,000 in
each year.
During the years ended March 31, 2000 and 1999, the Fund paid approximately
$12,300 and $11,400 for legal services of a law firm of which the Secretary
of the Fund is a Partner.
D. Under Governmental Accounting Standards ("GAS"), state and local
governments, including school districts and other municipal entities,
are required to classify their investments, excluding pools managed by
governments or investment funds similar to the Fund in prescribed
categories of credit risk. Although the Fund is not subject to GAS,
its March 31,2000 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
State Street Bank & Trust Company
301 North Church Street
Winston-Salem, NC 27101
Administrator and Transfer Agent
Public Financial Management, Inc.
Governor's Plaza North
2101 North Front Street
Building 3, Suite 200
Harrisburg, Pennsylvania 17110
Distributor
Commonwealth Financial Group, Inc.
38 Cohasset Lane
Cherry Hill, New Jersey 08003
Independent 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
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.
