<PAGE>
DEAR SHAREHOLDER:
I'm pleased to report to you on the performance of the Schwab Retirement
Money Fund-Registered Trademark- for the fiscal year ended December 31, 1997.
During the reporting period, the Fund provided you with current income
consistent with preservation of capital. By the end of the reporting period,
the Schwab Retirement Money Fund's net assets were $155 million.
PERFORMANCE REVIEW
The table below presents 7-day yields for the Schwab Retirement Money 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)
(12/31/97)
<TABLE>
<CAPTION>
Current Effective
<S> <C> <C>
Schwab Retirement Money Fund 5.14% 5.28%
</TABLE>
Enclosed you will find a complete listing of the Fund's holdings as of
December 31, 1997.
We appreciate your confidence in SchwabFunds-Registered Trademark- 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 current yield would
have been 5.05% and the 7-day effective yield would have been 5.18% as of
December 31, 1997.
<PAGE>
SCHWAB RETIREMENT MONEY FUND-Registered Trademark-
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
ASSET GROWTH
Total Total Percentage
Net Assets Net Assets Growth Over
as of 12/31/97 as of 12/31/96 Reporting
(000s) (000s) Period
- --------------------------------------------------------------------------------
<S> <C> <C>
$154,903 $136,319 14%
- --------------------------------------------------------------------------------
AVERAGE YIELDS FOR THE YEAR ENDED DECEMBER 31, 1997*
Last Last Last
Seven Days Three Months Twelve Months
- --------------------------------------------------------------------------------
5.14% 5.04% 4.95%
- --------------------------------------------------------------------------------
<CAPTION>
MATURITY SCHEDULE
PERCENT OF TOTAL INVESTMENTS
Maturity Range 3/31/97 6/30/97 9/30/97 12/31/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0 - 15 Days 27.8% 41.2% 35.7% 16.2%
16 - 30 Days 14.8 7.2 8.0 15.4
31 - 60 Days 16.3 12.2 31.8 26.9
61 - 90 Days 22.2 15.8 10.8 16.0
91 - 120 Days 13.0 11.5 0.7 9.6
Over 120 Days 5.9 12.1 13.0 15.9
Weighted Average 50 Days 51 Days 58 Days 66 Days
- --------------------------------------------------------------------------------
</TABLE>
PORTFOLIO QUALITY
<TABLE>
<CAPTION>
Percent of
SEC Tier Net Assets
Rating 12/31/97
--------------------------------------------
<S> <C> <C>
Tier 1 100.0%
Tier 2 0.0
--------------------------------------------
</TABLE>
* A portion of the Fund's expenses were reduced during the periods. Had these
reduced, yields would have been lower.
<PAGE>
SCHWAB RETIREMENT MONEY FUND -Registered Trademark-
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Par Value
--- -----
<S> <C> <C>
COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS - 69.9%(a)
AUTOMOBILE RECEIVABLES - 4.2%
New Center Asset Trust
5.82%, 01/14/98 $2,500 $2,495
5.86%, 03/17/98 4,000 3,952
-------
6,447
-------
AUTOMOTIVE - 4.4%
General Motors Acceptance Corp.
5.74%, 05/08/98 7,000 6,862
-------
BANKING-BELGIUM - 5.1%
BBL North America
5.80%, 02/25/98 5,000 4,956
Cregem North America, Inc.
5.68%, 02/23/98 3,000 2,976
-------
7,932
-------
BANKING-GERMANY - 3.2%
Comision Federal de Electricidad / (Westdeutsche Landesbank LOC)
5.86%, 02/12/98 5,000 4,966
-------
BANKING-SPAIN - 5.1%
BEX America Finance, Inc.
5.79%, 02/24/98 5,000 4,958
5.84%, 03/06/98 3,000 2,969
-------
7,927
-------
BANKING-UNITED KINGDOM - 3.2%
Abbey National N.A. Corp.
5.65%, 04/01/98 5,000 4,931
-------
COMPUTERS AND OFFICE EQUIPMENT - 4.5%
CSC Enterprises
5.75%, 02/05/98 7,000 6,961
-------
DIVERSIFIED FINANCIAL ASSETS - 1.3%
CC (USA), Inc.
5.71%, 03/10/98 2,000 1,979
-------
ELECTRICAL AND ELECTRONICS - 2.6%
General Electric Company
5.71%, 02/13/98 4,000 3,973
-------
FINANCE-COMMERCIAL - 10.9%
General Electric Capital Corp.
5.71%, 03/27/98 1,000 987
General Electric Capital Services
5.71%, 02/18/98 8,000 7,939
</TABLE>
1
<PAGE>
SCHWAB RETIREMENT MONEY FUND -Registered Trademark-
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Par Value
--- -----
<S> <C> <C>
Heller Financial, Inc.
5.80%, 01/20/98 $7,000 $6,979
5.79%, 02/10/98 1,000 994
-------
16,899
-------
MORTGAGE BANKING - 5.1%
Countrywide Home Loans, Inc.
5.88%, 01/21/98 8,000 7,974
SECURITIES BROKERAGE-DEALER - 20.3%
BT Alex Brown Inc.
5.73%, 04/10/98 4,000 3,939
Goldman Sachs Group, LP
5.82%, 05/22/98 3,000 2,934
5.83%, 05/26/98 5,000 4,886
Lehman Brothers Holdings, Inc.
6.04%, 01/28/98 2,000 1,991
5.85%, 01/29/98 4,000 3,982
5.80%, 02/13/98 1,000 993
Morgan Stanley-Dean Witter, Discover
5.87%, 03/25/98 7,000 6,908
PaineWebber Group, Inc.
5.87%, 01/22/98 3,000 2,990
Salomon, Inc.
5.88%, 02/13/98 3,000 2,979
-------
31,602
-------
TOTAL COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS
(Cost $108,453) 108,453
-------
CERTIFICATES OF DEPOSIT - 16.1%
BANKING-CANADA - 0.6%
Canadian Imperial Bank of Commerce
6.01%, 10/21/98 1,000 1,000
-------
BANKING-DOMESTIC - 8.4%
Bankers Trust Company
5.75%, 01/09/98 1,000 1,000
Chase Manhattan Corp.
5.65%, 04/07/98 6,000 6,000
Morgan Guaranty Trust Co. New York
5.90%, 08/06/98 3,000 2,999
Wilmington Trust Company
5.70%, 03/20/98 3,000 3,000
-------
12,999
-------
BANKING-FRANCE - 7.1%
Banque Nationale de Paris
5.71%, 03/23/98 5,000 5,001
</TABLE>
2
<PAGE>
SCHWAB RETIREMENT MONEY FUND -Registered Trademark-
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Par Value
--- -----
<S> <C> <C>
Societe Generale
6.05%, 06/16/98 $ 1,000 $ 1,000
5.90%, 08/21/98 5,000 4,998
-------
10,999
-------
TOTAL CERTIFICATES OF DEPOSIT (Cost $24,998) 24,998
-------
VARIABLE RATE OBLIGATIONS - 9.1%(a)(b)
BANKING-DOMESTIC - 8.0%
California Pollution Control Financing Authority, Variable Rate Demand Solid
Waste Revenue Bonds (Charter Evaporation Resource Recovery Systems
Project) Taxable Series 1997B / (Union Bank of California LOC)
5.94%, 01/07/98 2,480 2,480
Eagle County, Colorado Taxable Housing Facilities Revenue Bonds (B & C
Housing, L.L.C. Project) Series 1997B / (Norwest Bank Minnesota N.A. LOC)
6.00%, 01/07/98 1,500 1,500
MoviePlex Realty Leasing, L.L.C. Adjustable Rate Tender Securities (Carmike
Cinemas, Inc.) 1997 Series B-2 (Sun Trust Bank, Atlanta LOC)
5.96%, 01/07/98 2,675 2,675
Trap Rock Industries Series 1997 Taxable Variable Rate Demand Bond
(Corestates Bank, N.A. LOC) Series 97
5.90%, 01/07/98 4,225 4,225
Village of Sturtevant, Wisconsin Taxable Variable Rate Demand Industrial
Development Revenue Bonds (Andis Company Project) Series 1996B / (Marshall &
Ilsley Bank LOC)
5.10%, 01/07/98 1,500 1,500
-------
12,380
-------
BANKING-UNITED KINGDOM - 1.1%
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)
6.10%, 01/07/98 1,680 1,680
-------
TOTAL VARIABLE RATE OBLIGATIONS (Cost $14,060) 14,060
-------
REPURCHASE AGREEMENTS - 4.9%(c) Maturity
--------
Salomon Brothers Inc. 6.80%, Issue Date 12/31/97
Due 01/02/98; Tri-Party Repurchase Agreement;
Collateralized By: U.S. Government Agency Obligations
6.80%, 01/02/98 7,547 7,544
-------
TOTAL REPURCHASE AGREEMENTS (Cost $7,544) 7,544
-------
TOTAL INVESTMENTS - 100%
(Cost $155,055) 155,055
-------
</TABLE>
See accompanying Notes to Schedule of Investments and Notes to Financial
Statements.
3
<PAGE>
SCHWAB RETIREMENT MONEY FUND -Registered Trademark-
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
DECEMBER 31, 1997
NOTES TO SCHEDULE OF INVESTMENTS
Yields shown are effective yields at the time of purchase, except for variable
rate securities which are described below and agency coupon notes which reflect
the coupon rate of the security. 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 December 31, 1997, the
aggregate value of private placement securities held by the Fund was $6,204,000
which represented 4.01% 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 as of the report
date. Dates shown represent the earlier 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. Repurchase Agreements are payable on seven-day demand.
ABBREVIATIONS
LOC Letter of Credit
See accompanying Notes to Financial Statements
4
<PAGE>
SCHWAB RETIREMENT MONEY FUND-Registered Trademark-
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments, at value (Cost: $155,055) $ 155,055
Receivables:
Interest 727
Fund shares sold 1,425
Deferred organization costs 12
Prepaid expenses 19
---------
Total assets 157,238
---------
LIABILITIES
Payables:
Dividends 1,001
Fund shares redeemed 1,282
Investment advisory and administration fees 14
Transfer agency and shareholder service fees 10
Other liabilities 28
---------
Total liabilities 2,335
---------
Net assets applicable to outstanding shares $ 154,903
---------
---------
NET ASSETS CONSIST OF:
Paid-in-capital $ 154,904
Accumulated net realized loss on investments sold (1)
---------
$ 154,903
---------
---------
PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) 154,904
Net asset value, offering and redemption price per share $ 1.00
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
SCHWAB RETIREMENT MONEY FUND-Registered Trademark-
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
Year ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Interest income $8,297
------
Expenses:
Investment advisory and administration fees 671
Transfer agency and shareholder service fees 365
Custodian fees 90
Registration fees 37
Professional fees 14
Shareholder reports 8
Trustees' fees 13
Amortization of deferred organization costs 12
Insurance and other expenses 12
------
1,222
Less: expenses reduced (see Note 4) (157)
------
Total expenses incurred by Fund 1,065
------
Net investment income 7,232
Increase in net assets resulting from operations $7,232
------
------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
SCHWAB RETIREMENT MONEY FUND-Registered
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Year ended
December 31,
1997 1996
--------- ---------
<S> <C> <C>
Operations:
Net investment income $ 7,232 $ 5,419
Net realized (loss) on investments sold - (1)
--------- ---------
Increase in net assets resulting
from operations 7,232 5,418
--------- ---------
Dividends to shareholders from
net investment income (7,232) (5,419)
--------- ---------
Capital share transactions (at $1.00 per
Proceeds from shares sold 279,578 166,968
Net asset value of shares issued in
reinvestment of dividends 6,958 5,286
Less payments for shares redeemed (267,952) (134,926)
--------- ---------
Increase in net assets from
capital share transactions 18,584 37,328
--------- ---------
Total increase in net assets 18,584 37,327
Net Assets:
Beginning of period 136,319 98,992
--------- ---------
End of period $ 154,903 $ 136,319
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
SCHWAB RETIREMENT MONEY FUND-Registered Trademark-
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended Period ended
December 31, December 31,
1997 1996 1995 1994(1)
-------- -------- ------- ------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.05 0.03
Net realized and unrealized gain on investments - - - -
-------- -------- ------- ------------
Total from investment operations 0.05 0.05 0.05 0.03
LESS DISTRIBUTIONS
Dividends from net investment income (0.05) (0.05) (0.05) (0.03)
-------- -------- ------- ------------
Total distributions (0.05) (0.05) (0.05) (0.03)
-------- -------- ------- ------------
Net asset value at end of period $1.00 $1.00 $1.00 $1.00
-------- -------- ------- ------------
-------- -------- ------- ------------
TOTAL RETURN (not annualized) 5.07% 4.93% 5.43% 3.29%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s) $154,903 $136,319 $98,992 $31,415
Ratio of expenses to average net assets 0.73% 0.73% 0.73% 0.73%*
Ratio of net investment income to average net assets 4.96% 4.83% 5.28% 4.04%*
_________
+ 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:
Ratio of expenses to average net assets 0.84% 0.88% 0.92% 1.05%*
Ratio of net investment income to average net assets 4.85% 4.68% 5.09% 3.72%*
</TABLE>
(1) For the period from March 2, 1994 (commencement of operations) to December
31, 1994.
* Annualized
SEE ACCOMPANYING NOTES TO Financial Statements.
8
<PAGE>
SCHWAB RETIREMENT MONEY FUND-REGISTERED TRADEMARK-
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1997
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-Registered Trademark-, Schwab
Institutional Advantage Money Fund-Registered Trademark- and Schwab Government
Cash Reserves (the Schwab Government Cash Reserves was effective on October 20,
1997. However, the Fund has not commenced operations. 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.
9
<PAGE>
SCHWAB RETIREMENT MONEY FUND-Registered Trademark-
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1997
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.
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 year ended December 31, 1997 (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, 1997 (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, 1997, 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 $13,000 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,
1998, the Fund's total operating expenses will not exceed 0.73% of the Fund's
average daily net assets, after reductions and reimbursements. For the purpose
of this guarantee, operating expenses do not include interest expenses,
extraordinary expenses and taxes.
For the year ended December 31, 1997, the total of such fees reduced by the
Investment Manager and Schwab was $114,000 and $43,000, respectively (see
Financial Highlights).
10
<PAGE>
To the Trustees and Shareholders
of the Schwab Retirement Money Fund-Registered Trademark-
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 part of The Charles Schwab Family of Funds,
hereafter referred to as the "Trust") at December 31, 1997, 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 for each of the two years in the period
ended and the financial highlights for end 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, 1997 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
January 30, 1998
11
