<PAGE> 1
SCHWABFUNDS(R)
SCHWAB RETIREMENT
MONEY FUND(R)
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE> 2
SchwabFunds(R)
Dear Shareholder,
I'm pleased to report to you on the performance of the Schwab Retirement Money
Fund(R) for the one-year reporting period ended December 31, 1996. During
the period, the Fund provided you with current income consistent with
preservation of capital. By the end of the 12-month period, the Schwab
Retirement Money Fund's net assets increased to over $136 million.
PERFORMANCE REVIEW
The table below presents seven-day average yields for the Fund at the end of
the reporting period. Bear in mind that, as with all money market funds, past
performance is no guarantee of future results. Also note that, although the
Fund seeks to maintain a stable $1.00 share price, money market funds are
neither insured nor guaranteed by the U.S. Government, and there can be no
assurance that the Fund will be able to maintain a stable net asset value per
share.
- --------------------------------------------------------------------------------
7-DAY AVERAGE YIELDS(1)
(12/31/96)
<TABLE>
<CAPTION>
Simple Compound
- --------------------------------------------------------------------------------
<S> <C> <C>
Schwab Retirement Money Fund 4.87% 4.99%
- --------------------------------------------------------------------------------
</TABLE>
Enclosed you will find a complete listing of the Fund's holdings as of December
31, 1996.
We appreciate your confidence in SchwabFunds(R), and look forward to continuing
to help you achieve your financial goals in the future.
Sincerely,
/s/ Charles R. Schwab
Charles R. Schwab
Chairman
The Charles Schwab Family of Funds
(1) A portion of the Fund's fees were waived or reimbursed during the reporting
period. Without the waivers or reimbursements, the 7-day simple yield would
have been 4.64% and the 7-day compound yield would have been 4.75% at
December 31, 1996. Past performance is no guarantee of future results.
<PAGE> 3
SCHWAB RETIREMENT MONEY FUND(R)
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY
ASSET GROWTH
<TABLE>
<CAPTION>
Total Total Percentage
Net Assets Net Assets Growth Over
as of 12/31/96 as of 12/31/95 Reporting
(000s) (000s) Period
------------------------------------------------------------
<S> <C> <C>
$136,319 $98,992 38%
------------------------------------------------------------
</TABLE>
AVERAGE YIELDS FOR THE PERIODS ENDED
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Last Last Last
Seven Days Three Months Twelve Months
------------------------------------------------------------
<S> <C> <C>
4.87% 4.84% 4.82%
------------------------------------------------------------
</TABLE>
MATURITY SCHEDULE
PERCENT OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
Maturity Range 3/31/96 6/30/96 9/30/96 12/31/96
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0 - 15 Days 27.0% 37.6% 18.8% 23.2%
16 - 30 Days 18.6 19.4 12.3 13.8
31 - 60 Days 20.0 12.6 23.8 20.4
61 - 90 Days 16.2 12.1 30.5 28.2
91 - 120 Days 10.5 3.8 7.3 6.1
Over 120 Days 7.7 14.5 7.3 8.3
Weighted Average 50 Days 50 Days 60 Days 54 Days
- ------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO QUALITY
<TABLE>
<CAPTION>
Percent of
SEC Tier Net Assets
Rating 12/31/96
----------------------------------------
<S> <C>
Tier 1 100.0%
Tier 2 0.0
----------------------------------------
</TABLE>
<PAGE> 4
SCHWAB RETIREMENT MONEY FUND(R)
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Par Value
--- -----
<S> <C> <C>
COMMERCIAL PAPER AND OTHER
CORPORATE OBLIGATIONS--71.1%(a)
ASSET BACKED SECURITIES--5.7%
Barton Capital Corp.
5.41%, 02/27/97 $1,000 $ 992
Preferred Receivables Funding Corp.
5.41%, 01/07/97 1,475 1,474
Windmill Funding
5.86%, 01/31/97 5,000 4,975
------
7,441
------
AUTOMOTIVE--12.2%
Chrysler Financial Corp.
5.48%, 01/08/97 2,000 1,998
5.49%, 01/22/97 3,000 2,990
Ford Credit Europe PLC
5.38%, 02/25/97 2,000 1,984
5.38%, 03/04/97 2,000 1,982
General Motors Acceptance Corp.
5.87%, 03/12/97 1,000 989
5.47%, 03/14/97 1,000 989
5.50%, 06/05/97 2,000 1,954
5.60%, 06/30/97 1,000 973
Renault Credit Internationale SA Banque
5.49%, 01/13/97 1,000 998
5.60%, 03/10/97 1,000 990
------
15,847
------
BANKING-AUSTRALIA--0.8%
SBNSW Delaware, Inc.
5.43%, 01/08/97 1,000 999
------
BANKING-DENMARK--7.0%
Den Danske Corp.
5.38%, 02/28/97 1,000 991
5.42%, 03/17/97 3,000 2,967
Unifunding Inc.
5.39%, 01/09/97 2,185 2,182
5.41%, 01/22/97 2,000 1,994
5.45%, 03/04/97 1,000 991
------
9,125
------
BANKING-DOMESTIC--0.7%
Bankers Trust New York Corp.
5.50%, 06/19/97 1,000 975
------
BANKING-JAPAN--1.5%
SRD Finance, Inc./(Bank of Tokyo-Mitsubishi LOC)
5.73%, 01/09/97 2,000 1,997
------
BANKING-SWEDEN--4.6%
Nordbanken of North America, Inc.
5.46%, 03/05/97 2,000 1,981
5.47%, 03/07/97 4,000 3,961
------
5,942
------
</TABLE>
1
<PAGE> 5
SCHWAB RETIREMENT MONEY FUND(R)
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Par Value
------ ------
<S> <C> <C>
COMPUTERS AND OFFICE EQUIPMENT--2.9%
CSC Enterprises
5.74%, 02/13/97 $1,000 $ 993
5.75%, 02/20/97 2,750 2,728
-------
3,721
-------
FINANCE-COMMERCIAL--9.2%
Finova Capital Corp.
5.45%, 02/11/97 2,000 1,988
General Electric Capital Corp.
5.41%, 01/16/97 2,000 1,996
General Electric Capital Services
5.41%, 01/14/97 3,000 2,995
Heller Financial, Inc.
5.69%, 01/10/97 2,000 1,997
5.60%, 01/16/97 2,000 1,995
5.48%, 03/19/97 1,000 988
-------
11,959
-------
FINANCE-CONSUMER--7.6%
American Express Credit Corp.
5.40%, 01/31/97 2,000 1,991
5.40%, 02/05/97 1,000 995
Household Finance Corp.
5.43%, 01/24/97 4,000 3,987
Sears Roebuck Acceptance Corp.
5.41%, 02/12/97 3,000 2,981
-------
9,954
-------
MORTGAGE BANKING--0.8%
Countrywide Home Loans, Inc.
5.43%, 01/31/97 1,000 996
-------
SECURITIES BROKERAGE-DEALER--18.1%
BT Securities Corp.
5.58%, 02/10/97 1,000 994
5.54%, 06/18/97 1,000 975
Goldman Sachs Group, LP
5.58%, 04/02/97 3,000 2,958
Lehman Brothers Holdings, Inc.
5.67%, 01/23/97 1,000 997
5.84%, 03/07/97 1,000 990
5.50%, 06/05/97 3,000 2,931
Merrill Lynch & Co., Inc.
5.40%, 02/13/97 2,000 1,987
5.39%, 02/24/97 2,000 1,984
5.41%, 03/13/97 1,000 989
Morgan Stanley Group, Inc.
5.42%, 01/21/97 1,000 997
5.75%, 03/24/97 3,000 2,961
5.64%, 04/01/97 1,000 986
PaineWebber Group, Inc.
5.485, 01/23/97 2,000 1,993
</TABLE>
2
<PAGE> 6
SCHWAB RETIREMENT MONEY FUND(R)
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1996
<TABLE>
<CAPTION>
PAR VALUE
--- -----
<S> <C> <C>
Salomon, Inc.
5.55%, 03/06/97 $2,000 $ 1,981
-------
23,723
TOTAL COMMERCIAL PAPER AND OTHER -------
CORPORATE OBLIGATIONS 92,679
(Cost $92,679) -------
CERTIFICATES OF DEPOSIT--19.2%
BANKING-DOMESTIC--3.8%
Chase Manhattan Bank USA
5.60%, 04/03/97 1,000 1,000
MBNA America Bank, N.A.
5.54%, 03/18/97 2,000 2,000
Providian National Bank
5.48%, 03/06/97 2,000 2,000
-------
5,000
-------
BANKING-FRANCE--3.8%
Banque Nationale de Paris
5.43%, 03/18/97 3,000 3,000
Societe General
6.12%, 06/13/97 2,000 2,000
-------
5,000
-------
BANKING-GERMANY--4.6%
Bayerische Landesbank Girozentrale
4.94%, 01/13/97 2,000 2,000
Bayerische Vereinsbank AG
5.50%, 04/25/97 3,000 3,000
Landesbank Hessen-Thuringen Girozentrale
6.20%, 09/05/97 1,000 1,000
-------
6,000
-------
BANKING-JAPAN--7.0%
Industrial Bank of Japan, Ltd.
5.58%, 01/02/97 2,000 2,000
5.56%, 03/18/97 1,000 1,000
5.58%, 03/19/97 2,000 2,000
Sanwa Bank, Ltd.
5.59%, 03/10/97 1,000 1,000
5.53%, 03/10/97 3,000 3,000
-------
9,000
-------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $25,000) 25,000
-------
VARIABLE RATE OBLIGATIONS--3.2%(b)
BANKING-DOMESTIC--1.2%
Village of Sturtevant, Wisconsin Taxable Variable Rate
Demand Industrial Development Revenue Bonds (Andis Co.
Project) Series 1996B/(M&I Marshall & Ilsley Bank LOC)
5.85%, 01/07/97 1,500 1,500
-------
</TABLE>
3
<PAGE> 7
SCHWAB RETIREMENT MONEY FUND(R)
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Par Value
--- -----
<S> <C> <C>
BANKING-UNITED KINGDOM--1.2%
City of Gary Indiana Taxable Adjustable Rate
Economic Development Revenue Refunding Bonds
(Miller Partnership, LP Project) Series 1996A/
(Royal Bank of Scotland LOC)
5.85%, 01/07/97 $1,680 $ 1,680
--------
SECURITIES BROKERAGE-DEALER--0.8%
Bear Stearns Companies, Inc.
5.61%, 01/06/97 1,000 1,000
--------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $4,180) 4,180
--------
<CAPTION>
Maturity
--------
REPURCHASE AGREEMENTS--6.5%(c)
Salomon Brothers, Inc. 7.00%, Issue Date 12/31/96;
Due 01/02/97
Tri-Party Repurchase Agreement; Collateralized By:
U.S. Government Agency Obligations 8,405 8,402
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $8,402) 8,402
--------
TOTAL INVESTMENTS--100%
(Cost $130,261) $130,261
========
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
Yields shown are effective yields at the time of purchase except for agency
obligations which reflect the coupon rate of the security. Yields for each type
of security are stated according to the market conventions for that security
type. For each security, cost (for financial reporting and federal income tax
purposes) and carrying value are the same.
(a) Certain securities purchased by the Fund are private placement securities
except from registration by Section 4(2) of the Securities Act of 1933.
These securities generally are sold to institutional investors, such as the
Schwab Retirement Money Fund(R). Any resale by the Fund must be in an
exempt transaction, normally to a qualified institutional buyer. At
December 31, 1996, the aggregate value of private placement securities held
by the Fund was $5,968,000 which represented 4.38% of net assets. All of
these private placement securities were determined by the Investment
Manager to be liquid in accordance with procedures adopted by the Board of
Trustees.
(b) Variable rate securities. Interest rates vary periodically based on current
market rates. Rates shown are the effective rates on December 31, 1996.
Dates shown represent the latter of the demand date or next interest rate
change date, which is considered the maturity date for financial reporting
purposes. For variable rate securities without demand features, the next
interest reset date is shown.
(c) Due dates shown for repurchase agreements represent either the final
maturity date or put date, which is considered the maturity date for
financial reporting purposes.
Abbreviations
LOC Letter of Credit
See accompanying Notes to Financial Statements.
4
<PAGE> 8
SCHWAB RETIREMENT MONEY FUND(R)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
December 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost: $130,261) $130,261
Interest receivable 328
Receivable for Fund shares sold 7,374
Deferred organization costs 24
Prepaid expenses 13
--------
Total assets 138,000
--------
LIABILITIES
Payable for:
Dividends 748
Fund shares redeemed 884
Investment advisory and administration fee 10
Transfer agency and shareholder service fees 1
Other 38
--------
Total liabilities 1,681
--------
Net assets applicable to outstanding shares $136,319
========
NET ASSETS CONSIST OF:
Paid-in-capital $136,320
Accumulated net realized loss on investments sold (1)
--------
$136,319
========
PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) 136,320
Net asset value, offering and redemption price per share $ 1.00
</TABLE>
See accompanying Notes to Financial Statements.
5
<PAGE> 9
SCHWAB RETIREMENT MONEY FUND(R)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
Year ended December 31, 1996
<TABLE>
<S> <C>
Interest income $6,238
------
Expenses:
Investment advisory and administration fee 516
Transfer agency and shareholder service fees 281
Custodian fees 78
Registration fees 48
Professional fees 24
Shareholder reports 8
Trustees' fees 6
Amortization of deferred organization costs 12
Insurance and other expenses 5
------
978
Less: expenses reduced (see Note 4) (159)
------
Total expenses incurred by Fund 819
------
Net investment income 5,419
Net realized loss on investments sold (1)
------
Increase in net assets resulting from operations $5,418
======
</TABLE>
See accompanying Notes to Financial Statements.
6
<PAGE> 10
SCHWAB RETIREMENT MONEY FUND(R)
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Year ended
December 31,
1996 1995
---------- ----------
<S> <C> <C>
Operations:
Net investment income $ 5,419 $ 4,055
Net realized loss on investments sold (1) ---
--------- ---------
Increase in net assets resulting
from operations 5,418 4,055
--------- ---------
Dividends to shareholders from
net investment income (5,419) (4,055)
--------- ---------
Capital share transactions (at $1.00 per share):
Proceeds from shares sold 166,968 173,890
Net asset value of shares issued in
reinvestment of dividends 5,286 3,564
Less payments for shares redeemed (134,926) (109,877)
--------- ---------
Increase in net assets from
capital share transactions 37,328 67,577
--------- ---------
Total increase in net assets 37,327 67,577
Net Assets:
Beginning of period 98,992 31,415
--------- ---------
End of period $ 136,319 $ 98,992
========= =========
</TABLE>
See accompanying Notes to Financial Statements.
7
<PAGE> 11
SCHWAB RETIREMENT MONEY FUND(R)
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1996
1. DESCRIPTION OF THE FUND
The Schwab Retirement Money Fund (the "Fund") is a series of The Charles Schwab
Family of Funds (the "Trust"), an open-end, investment management company
organized as a Massachusetts business trust on October 20, 1989 and registered
under the Investment Company Act of 1940, as amended.
In addition to the Fund, the Trust also offers -- the Schwab Money Market Fund,
Schwab Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Municipal
Money Fund, Schwab California Municipal Money Fund, Schwab New York Municipal
Money Fund, Schwab Value Advantage Money Fund(R) and Schwab Institutional
Advantage Money Fund(R). The assets of each series are segregated and accounted
for separately.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security valuation -- Investments are stated at amortized cost which
approximates market value.
Security transactions, interest income and realized gains (losses) -- Security
transactions are accounted for on a trade date basis (date the order to buy or
sell is executed). Interest income is accrued daily and includes amortization of
premium and accretion of discount on investments. Realized gains and losses from
security transactions are determined on an identified cost basis.
Repurchase agreements -- Repurchase agreements are fully collateralized by U.S.
Treasury or U.S. government agency obligations. All collateral is held by the
Funds' custodian, except in the case of a tri-party agreement, the collateral is
held by an agent bank. The collateral is monitored daily to ensure that its
market value at least equals the repurchase price under the agreement.
Dividends to shareholders -- The Fund declares a daily dividend, equal to its
net investment income for that day, payable monthly.
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund and its initial registration with the Securities and
Exchange Commission are amortized on a straight-line basis over a five-year
period from the Fund's commencement of operations.
Expenses -- Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are generally allocated to
each series in proportion to their relative net assets.
Federal income taxes -- It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income and realized net capital gains, if
any, to shareholders. Therefore, no federal income tax provision is required.
The Fund is considered a separate entity for tax purposes.
8
<PAGE> 12
SCHWAB RETIREMENT MONEY FUND(R)
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1996
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreements -- The Trust has investment
advisory and administration agreements with Charles Schwab Investment
Management, Inc. (the "Investment Manager"). For advisory services and
facilities furnished, the Fund pays an annual fee, payable monthly, of 0.46% of
the first $2 billion of average daily net assets, 0.45% the next $1 billion, and
0.40% of such assets in excess of $3 billion. The Investment Manager has reduced
a portion of its fee for the year ended December 31, 1996 (see Note 4).
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of 0.25% of average daily net assets. Schwab has
reduced a portion of its fee for the year ended December 31, 1996 (see Note 4).
Officers and trustees -- Certain officers and trustees of the Trust are also
officers and/or directors of the Investment Manager and/or Schwab. During the
year ended December 31, 1996, the Trust made no direct payments to its officers
or trustees who are "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Fund incurred fees of $6,000 related to the
Trust's unaffiliated trustees.
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees in order to
limit the Fund's ratio of operating expenses to average net assets. For the year
ended December 31, 1996, the total of such fees reduced by the Investment
Manager and Schwab was $22,000 and $137,000, respectively (see Note 6).
5. INVESTMENT TRANSACTIONS
Purchases and sales, including maturities of investment securities for the year
ended December 31, 1996, aggregated (in thousands) $2,091,834 and $2,061,517,
respectively.
<PAGE> 13
SCHWAB RETIREMENT MONEY FUND(R)
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1996
6. FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Period ended
Year ended December 31, December 31,
1996 1995 1994++
-------- ------- ------------
<S> <C> <C> <C>
Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.05 0.05 0.03
Net realized and unrealized gain (loss) on investments --- --- ---
-------- ------- -------
Total from investment operations 0.05 0.05 0.03
Less distributions
Dividends from net investment income (0.05) (0.05) (0.03)
Distributions from realized gain on investments --- --- ---
-------- ------ -------
Total distributions (0.05) (0.05) (0.03)
-------- ------ -------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00
======== ======= =======
Total return (not annualized) 4.93 % 5.43 % 3.29 %
Ratios/Supplemental data
Net assets, end of period (000s) $136,319 $98,992 $31,415
Ratio of expenses to average net assets+ 0.73 % 0.73 % 0.73 %*
Ratio of net investment income to average net assets+ 4.83 % 5.28 % 4.04 %*
</TABLE>
- ----------
++ Period from March 2, 1994 (commencement of operations) to December 31, 1994.
+ The information contained in the above table is based on actual expenses for
the periods, after giving effect to the portion of expenses reduced by the
Investment Manager and Schwab. Had these expenses not been reduced, the
Fund's expense and net investment income ratios would have been:
<TABLE>
<S> <C> <C> <C>
Ratio of expenses to average net assets .88% .92% 1.05%*
Ratio of net investment income to average net assets 4.68% 5.09% 3.72%*
</TABLE>
* Annualized
10
<PAGE> 14
- -------------------------------------------------------------------------------
To the Board of Trustees
and Shareholders of the Schwab Retirement Money Fund(R)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Schwab Retirement Money Fund
(one of the series constituting The Charles Schwab Family of Funds, hereafter
referred to as the "Trust") at December 31, 1996, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
January 31, 1997
<PAGE> 15
SchwabFunds(R)
INVESTMENT ADVISOR: Charles Schwab Investment Management, Inc.,
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR: Charles Schwab & Co.,
101 Montgomery Street, San Francisco, CA 94104
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
(C)1997 Charles Schwab & Co., Inc. All rights reserved. Member SIPC/NYSE.
