SCHWABFUNDS(REGISTRATION MARK)
SCHWAB
RETIREMENT MONEY FUND(REGISTRATION MARK)
Semiannual Report
June 30, 1998
<PAGE>
SCHWABFUNDS(REGISTRATION MARK)
Dear Shareholder:
We're pleased to bring you this semiannual report on performance for the Schwab
Retirement Money Fund for the six-month period ended June 30, 1998. During the
reporting period, the Fund continued to provide investors with current income
consistent with the preservation of capital. By the end of the six-month period,
the Schwab Retirement Money Fund's net assets were nearly $174 million.
FUND PERFORMANCE
YIELD SUMMARY AS OF 6/30/98 1
- -------------------------------------------------
Seven-Day Current Yield 4.99%
- -------------------------------------------------
Seven-Day Effective Yield 5.11%
- -------------------------------------------------
Please remember that, as with all money market funds, yields will fluctuate, and
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 of
$1.00 per share.
This report contains a complete list of the Fund's holdings as of June 30, 1998.
We appreciate your confidence in SchwabFunds(REGISTRATION MARK) and look forward
to continuing to help you achieve your financial goals in the future.
Sincerely,
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, as of 6/30/98, the seven-day
current yield would have been 4.92%, and the seven-day effective yield would
have been 5.04%.
<PAGE>
PORTFOLIO HIGHLIGHTS
AVERAGE YIELDS FOR THE SIX-MONTH PERIOD ENDED 6/30/98 1
- -------------------------------------------------------
Last seven days: 4.99%
- -------------------------------------------------------
Last three months: 4.99%
- -------------------------------------------------------
Last 12 months: 5.02%
- -------------------------------------------------------
MATURITY SCHEDULE: PERCENTAGE OF TOTAL INVESTMENTS
MATURITY RANGE 3/31/98 6/30/98
- --------------------------------------------------------------------------------
0-15 days 20.3% 21.9%
- --------------------------------------------------------------------------------
16-30 days 7.0% 14.3%
- --------------------------------------------------------------------------------
31-60 days 22.1% 31.9%
- --------------------------------------------------------------------------------
61-90 days 14.4% 18.1%
- --------------------------------------------------------------------------------
91-120 days 7.9% 4.9%
- --------------------------------------------------------------------------------
More than 120 days 28.3% 8.9%
- --------------------------------------------------------------------------------
Weighted average 75 days 53 days
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
SEC TIER RATING PERCENTAGE OF NET ASSETS: 6/30/98
- ----------------------------------------------------------------
Tier 1 100.0%
- ----------------------------------------------------------------
Tier 2 0.0%
- ----------------------------------------------------------------
1 A portion of the Fund's expenses were reduced during the periods. Had these
expenses not been reduced, yields would have been lower.
<PAGE>
SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
STATEMENT OF NET ASSETS (IN THOUSANDS)
JUNE 30, 1998 (UNAUDITED)
Par Value
------- -------
COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS -- 81.7%
AUTOMOBILE RECEIVABLES -- 2.9%
New Center Asset Trust Plus
5.64%, 08/20/98 $ 5,000 $ 4,962
-------
AUTOMOTIVE -- 8.0%
American Honda Finance Corp.
5.58%, 07/28/98 7,000 6,971
Chrysler Financial Corp.
5.58%, 07/13/98 3,000 2,994
FCE Bank, PLC
5.58%, 08/10/98 4,000 3,976
-------
13,941
-------
BANKING-BELGIUM -- 4.0%
Cregem North America, Inc.
5.59%, 08/11/98 7,000 6,956
-------
BANKING-CANADA -- 3.5%
Bank of Nova Scotia
5.45%, 07/09/98 4,000 3,995
5.50%, 07/16/98 2,000 1,995
-------
5,990
-------
BANKING-DENMARK -- 4.5%
Unifunding, Inc.
5.68%, 10/19/98 5,000 4,915
5.65%, 12/03/98 3,000 2,929
-------
7,844
-------
BANKING-DOMESTIC -- 5.2%
Bankers Trust Co.
5.66%, 12/10/98 4,000 3,901
International Securitization Corp. /(First National
Bank of Chicago LOC)(a)
5.65%, 12/15/98 1,300 1,267
JP Morgan & Co.
5.65%, 12/14/98 4,000 3,899
-------
9,067
-------
1
<PAGE>
SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
STATEMENT OF NET ASSETS (IN THOUSANDS)
JUNE 30, 1998 (UNAUDITED)
Par Value
------- -------
COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS -- (CONTINUED)
BANKING-NORWAY -- 2.8%
Den Norske Bank
5.64%, 10/27/98 $ 3,000 $ 2,946
5.65%, 11/20/98 2,000 1,957
-------
4,903
-------
BANKING-SWEDEN -- 3.4%
Nordbanken of North America, Inc.
5.65%, 12/16/98 2,000 1,949
Svenska Handelsbanken, Inc.
5.61%, 09/04/98 4,000 3,961
-------
5,910
-------
BANKING-UNITED KINGDOM -- 4.6%
Banco Nacional de Mexico S.A. / (Barclays Bank LOC)
5.54%, 07/13/98 5,000 4,991
5.60%, 09/09/98 3,000 2,968
-------
7,959
-------
COMPUTERS & OFFICE EQUIPMENT -- 2.0%
CSC Enterprises
5.67%, 08/13/98 3,470 3,447
-------
CONSUMER PRODUCTS -- 4.0%
Philip Morris Capital Corp.
5.57%, 07/20/98 7,000 6,980
-------
DIVERSIFIED FINANCIAL ASSETS -- 0.9%
Bavaria GLB Corp.(a)
5.57%, 08/18/98 1,564 1,553
-------
FINANCE-COMMERCIAL -- 14.8%
CIT Group Holdings, Inc.
5.60%, 09/18/98 5,000 4,940
General Electric Capital Corp.
5.61%, 07/24/98 2,000 1,993
5.60%, 08/24/98 6,000 5,951
General Electric Capital Services
5.57%, 08/03/98 5,000 4,975
Heller Financial, Inc.
5.84%, 08/28/98 5,000 4,954
2
<PAGE>
SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
STATEMENT OF NET ASSETS (IN THOUSANDS)
JUNE 30, 1998 (UNAUDITED)
Par Value
------- --------
COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS -- (CONTINUED)
FINANCE-COMMERCIAL -- (CONTINUED)
Heller Financial, Inc.
5.83%, 09/01/98 $ 2,000 $ 1,980
5.79%, 09/16/98 1,000 988
--------
25,781
--------
MISCELLANEOUS SERVICES -- 1.7%
PHH Corp.
5.67%, 07/01/98 3,000 3,000
--------
MORTGAGE BANKING -- 4.6%
Countrywide Home Loans, Inc.
5.68%, 08/14/98 8,000 7,945
--------
SECURITIES BROKERAGE-DEALER -- 13.1%
Lehman Brothers Holdings, Inc.
5.58%, 07/28/98 2,000 1,992
5.60%, 08/17/98 4,000 3,971
5.58%, 08/19/98 1,000 993
5.67%, 09/09/98 1,000 989
Merrill Lynch & Co., Inc.
5.57%, 07/24/98 3,000 2,989
5.61%, 09/18/98 5,000 4,940
Salomon Smith Barney Holdings Inc.
5.60%, 07/07/98 1,000 999
5.60%, 08/31/98 6,000 5,944
--------
22,817
--------
TRADE RECEIVABLES -- 1.7%
Apreco, Inc. (a)
5.61%, 07/24/98 3,000 2,989
--------
TOTAL COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS 142,044
(Cost $142,044) --------
VARIABLE RATE OBLIGATIONS -- 10.4%(b)
BANKING-DOMESTIC -- 9.5%
California Pollution Control Financing Authority
Solid Waste Disposable RB (Burr Properties
Project) Series 1997 / (Union Bank of
California LOC)
5.80%, 07/07/98 2,275 2,275
California Pollution Control Financing Authority
Solid Waste RB (Charter Evaporation Resource
Recovery Systems Project) Series 1997B /
(Union Bank of California LOC)
5.80%, 07/07/98 2,480 2,480
3
<PAGE>
SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
STATEMENT OF NET ASSETS (IN THOUSANDS)
JUNE 30, 1998 (UNAUDITED)
Par Value
------- --------
VARIABLE RATE OBLIGATIONS -- (CONTINUED)
BANKING-DOMESTIC -- (CONTINUED)
Eagle County, Colorado Taxable Housing Facilities RB
(BC Housing, L.L.C. Project) Series
1997B / (Norwest Bank Minnesota NA LOC)
5.66%, 07/07/98 $ 1,500 $ 1,500
MoviePlex Realty Leasing, L.L.C. Adjustable Rate
Tender Securities (Carmike Cinemas, Inc.)
Series 1997B2 /(Sun Trust Bank, Atlanta LOC)
5.60%, 07/07/98 2,675 2,675
Trap Rock Industries, Inc. RB Series of 1997/
(CoreStates Bank NA LOC)(a)
5.75%, 07/07/98 3,435 3,435
Upper Illinois River Valley Development Authority
Solid Waste Disposal RB (Exolon - ESK Co. Project)
Series 1996B /(Chase Manhattan Bank LOC)
5.70%, 07/07/98 2,595 2,595
Village of Sturtevant, Wisconsin IDRB (Andis Co.
Project) Series 1996B / (Marshall &
Ilsley Bank LOC)
5.70%, 07/07/98 1,500 1,500
--------
16,460
--------
BANKING-UNITED KINGDOM -- 0.9%
City of Gary, Indiana Taxable Adjustable Rate
Economic Development Revenue Refunding
Bonds (The Miller Project, L.P. Project)
Series 1996B / (Royal Bank of Scotland LOC)
5.70%, 07/07/98 1,680 1,680
--------
TOTAL VARIABLE RATE OBLIGATIONS (Cost $18,140) 18,140
--------
CERTIFICATES OF DEPOSIT -- 8.6%
BANKING-AUSTRIA -- 3.4%
Creditanstalt
5.60%, 09/25/98 6,000 6,001
--------
BANKING-CANADA -- 0.6%
Canadian Imperial Bank of Commerce
6.01%, 10/21/98 1,000 1,000
--------
BANKING-DOMESTIC -- 1.7%
Morgan Guaranty Trust Co.
5.90%, 08/06/98 3,000 3,000
--------
BANKING-FRANCE -- 2.9%
Societe Generale
5.90%, 08/21/98 5,000 4,999
--------
TOTAL CERTIFICATES OF DEPOSIT (Cost $15,000) 15,000
--------
4
<PAGE>
SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
STATEMENT OF NET ASSETS (IN THOUSANDS)
JUNE 30, 1998 (UNAUDITED)
Par Value
------- --------
BANK NOTES -- 2.9%
BANKING-DOMESTIC -- 2.9%
BankBoston N.A.
5.57%, 07/08/98 $ 5,000 $ 5,000
--------
TOTAL BANK NOTES (Cost $5,000) 5,000
--------
REPURCHASE AGREEMENT -- 0.3%(c)
Salomon Brothers Inc. Tri-Party Repurchase Agreement
Collateralized by: U.S. Government Securities
6.25% Issue 06/30/98
Due 07/01/98 461 461
--------
TOTAL REPURCHASE AGREEMENT (Cost $461) 461
--------
TOTAL INVESTMENTS -- 103.9% (Cost $180,645) 180,645
--------
LIABILITIES IN EXCESS OF OTHER ASSETS -- (3.9%) (6,733)
--------
TOTAL NET ASSETS -- 100.0% $173,912
========
SEE ACCOMPANYING NOTES TO STATEMENT OF NET ASSETS AND NOTES TO
FINANCIAL STATEMENTS.
5
<PAGE>
SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
JUNE 30, 1998 (UNAUDITED)
NOTES TO STATEMENT OF NET ASSETS
Yields shown are effective yields at the time of purchase, except for variable
rate obligations, which are described below. Yields for each type of security
are stated according to the market convention 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
exempt from registration by Section 4(2) of the Securities Act of 1933. These
securities generally are issued to institutional investors, such as the Schwab
Retirement Money Fund. Any resale by the Fund must be in an exempt transaction,
normally to a qualified institutional buyer. At June 30, 1998, the aggregate
value of private placement securities held by the Fund was $9,244,000 which
represented 5.32 % 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 obligations -- Interest rates vary periodically based on
current market rates. Rates shown are the effective rates as of the report date.
Dates shown for securities with scheduled maturities within 397 days or less
represent the earlier of the demand date or next interest rate change date.
Dates shown for securities with scheduled maturities greater than 397 days
represent the later of the demand date or next interest rate change date. All
dates shown are considered the maturity date for financial reporting purposes.
For variable rate securities without demand features, the next interest reset
date is shown.
(c) Repurchase agreement due dates are considered the maturity date. Repurchase
agreements with due dates later than 7 days from issue dates may be subject to
7-day putable demand features for liquidity purposes.
Abbreviations
IDRB Industrial Development Revenue Bond
LOC Letter of Credit
RB Revenue Bond
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
June 30, 1998 (Unaudited)
ASSETS
Investments, at value (Cost: $180,645) $ 180,645
Receivables:
Fund shares sold 1,431
Interest 848
Prepaid expenses 21
---------
Total assets 182,945
---------
LIABILITIES
Payables:
Dividends 382
Investments purchased 2,595
Fund shares redeemed 5,984
Investment advisory and administration fees 12
Transfer agency and shareholder service fees 8
Other liabilities 52
---------
Total liabilities 9,033
---------
Net assets applicable to outstanding shares $ 173,912
=========
NET ASSETS CONSIST OF:
Paid-in-capital $ 173,903
Undistributed net investment income 10
Accumulated net realized loss on investments sold (1)
---------
$ 173,912
=========
PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) 173,960
Net asset value, offering and redemption price per share $1.00
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
For the six months ended June 30, 1998 (Unaudited)
Interest income $4,891
------
Expenses:
Investment advisory and administration fees 395
Transfer agency and shareholder service fees 215
Custodian and portfolio accounting fees 49
Registration fees 5
Professional fees 10
Shareholder reports 5
Trustees' fees 9
Insurance and other expenses 8
------
696
Less: expenses reduced (see Note 4) (69)
------
Total expenses incurred by Fund 627
------
Net investment income 4,264
------
Increase in net assets resulting from operations $4,264
======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
Six months
ended
June 30, Year ended
1998 December 31,
(Unaudited) 1997
----------- ------------
Operations:
Net investment income $ 4,264 $ 7,232
--------- ---------
Increase in net assets resulting
from operations 4,264 7,232
--------- ---------
Dividends to shareholders from
net investment income (See Note 2) (4,299) (7,232)
--------- ---------
Capital share transactions (at $1.00 per share):
Proceeds from shares sold 140,313 279,578
Net asset value of shares issued in
reinvestment of dividends 4,896 6,958
Less payments for shares redeemed (126,165) (267,952)
--------- ---------
Increase in net assets from
capital share transactions 19,044 18,584
--------- ---------
Total increase in net assets 19,009 18,584
Net Assets:
Beginning of period 154,903 136,319
--------- ---------
End of period $ 173,912 $ 154,903
========= =========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Net
Fiscal Net Asset Realized & Total Dividends Net Asset
Period Value Net Unrealized from from Net Value at
Ended Beginning Investment Gains on Investment Investment Total End of
December 31, Of Period Income Investments Operation Income Distributions Period
- ------------ --------- ---------- ----------- ---------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1 $1.00 $0.03 $-- $0.03 $(0.03)* $(0.03) $1.00
1997 $1.00 $0.05 $-- $0.05 $(0.05) $(0.05) $1.00
1996 $1.00 $0.05 $-- $0.05 $(0.05) $(0.05) $1.00
1995 $1.00 $0.05 $-- $0.05 $(0.05) $(0.05) $1.00
1994 2 $1.00 $0.03 $-- $0.03 $(0.03) $(0.03) $1.00
<FN>
(DAGGER) The information contained in the above table is based on actual expenses for the periods, after giving effect to the
portion of expenses reduced and absorbed by the Investment Manager and Schwab. Had these expenses not been reduced and
absorbed, the Fund's expense and net investment income ratios would have been:
Fiscal Ratio of Net
Period Ratio of Investment
Ended Dec. 31, Expenses Income
-------------- -------- ------------
1998 1 0.81%** 4.88%**
1997 0.84% 4.85%
1996 0.88% 4.68%
1995 0.92% 5.09%
1994 2 1.05%** 3.72%**
(1) For the six month period ended June 30, 1998 (Unaudited).
(2) For the period from March 2, 1994 (commencement of operations) to December 31, 1994.
* The amounts shown include certain reclassifications related to book tax differences (See Note 2 of Notes to
Fiancial Statements).
** Annualized
</FN>
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
<TABLE>
<CAPTION>
Ratio of Net
Ratio of Investment
Fiscal Total Expenses Income
Period Return Net Assets to Average to Average
Ended (not annualized) End of Period Net Assets(DAGGER) Net Assets(DAGGER)
December 31, % (000's) (%) (%)
- ------------ ---------------- ------------- ------------------ ------------------
<S> <C> <C> <C> <C>
1998 1 2.51 $173,912 0.73** 4.96**
1997 5.07 $154,903 0.73 4.96
1996 4.93 $136,319 0.73 4.83
1995 5.43 $98,992 0.73 5.28
1994 2 3.29 $31,415 0.73** 4.04**
</TABLE>
11
<PAGE>
SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
For the six months ended June 30, 1998 (Unaudited)
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(REGISTRATION MARK), Schwab
Institutional Advantage Money Fund(REGISTRATION MARK), Schwab New Jersey
Municipal Money Fund, Schwab Pennsylvania Municipal Money Fund, Schwab Florida
Municipal Money Fund and Schwab Government Cash Reserves. 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.
government securities. All collateral is held by the Funds' custodian, except in
the case of a tri-party agreement, under which 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 AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund declares a daily
dividend, equal to its net investment income for that day, payable monthly. Net
realized capital gains, if any, are normally distributed annually.
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.
12
<PAGE>
SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
================================================================================
NOTES TO FINANCIAL STATEMENTS
Six months ended June 30, 1998(Unaudited)
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.
At December 31, 1997, the unused capital loss carryforwards, for federal income
tax purposes with expiration dates, were as follows:
Schwab
Expiring in: Retirement Money Fund(REGISTRATION MARK)
- ---------------- ----------------------------------------
12/31/03 $ 120
12/31/04 1,081
------
Total capital loss carryforwards $1,201
======
RECLASSIFICATION -- Generally accepted accounting principles require that
certain components of net assets be reclassified to reflect permanent
differences between financial and tax reporting. Accordingly, permanent book/tax
differences of $45,000 were reclassified from paid-in-capital to undistributed
net investment income. These reclassifications have no effect on net assets or
net asset values per share.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreement - 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 $1 billion of average daily net assets, 0.45% the next $2 billion,
0.40% of the next $7 billion, 0.37% of the next $10 billion, and 0.34% of such
assets in excess of $20 billion. The Investment Manager has reduced a portion if
its fee for the six months ended June 30, 1998 (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.
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
six months ended June 30, 1998, 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 $9,000
related to the Trust's unaffiliated trustees.
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab guarantee that, through at least April 30,
1999, the Fund's total operating expenses will not exceed 0.73% of the Fund's
average daily net assets, after reductions. For the purpose of this guarantee,
operating expenses do not include interest expenses, extraordinary expenses and
taxes.
For the six months ended June 30, 1998, the total of such fees reduced by the
Investment Manager was $69,000.
13
<PAGE>
SCHWABFUNDS(REGISTRATION MARK)
INVESTMENT ADVISOR: Charles Schwab Investment Management, Inc.,
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR: Charles Schwab & Co., Inc.,
101 Montgomery Street, San Francisco, CA 94014
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
(C)1998 Charles Schwab & Co., Inc. All rights reserved. Member SIPC/NYSE.
(0098-3109) MKT3606 (8/98)
