SCHWABFUNDS(REGISTRATION MARK)
SCHWAB
INSTITUTIONAL ADVANTAGE
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
Institutional Advantage 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 Institutional Advantage Money Fund's net assets
were more than $300 million.
FUND PERFORMANCE
YIELD SUMMARY AS OF 6/30/98 1
- ------------------------------------------------------
Seven-Day Current Yield 5.15%
- ------------------------------------------------------
Seven-Day Effective Yield 5.28%
- ------------------------------------------------------
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 4.81%, and the seven-day effective yield would
have been 4.93%.
<PAGE>
PORTFOLIO HIGHLIGHTS
AVERAGE YIELDS FOR THE SIX-MONTH PERIOD ENDED 6/30/98 1
- -----------------------------------------------------
Last seven days: 5.15%
- -----------------------------------------------------
Last three months: 5.20%
- -----------------------------------------------------
Last 12 months: 5.24%
- -----------------------------------------------------
MATURITY SCHEDULE: PERCENTAGE OF TOTAL INVESTMENTS
MATURITY RANGE 3/31/98 6/30/98
- --------------------------------------------------------------------------------
0-15 days 20.5% 24.0%
- --------------------------------------------------------------------------------
16-30 days 15.8% 20.4%
- --------------------------------------------------------------------------------
31-60 days 15.9% 28.7%
- --------------------------------------------------------------------------------
61-90 days 10.5% 13.2%
- --------------------------------------------------------------------------------
91-120 days 12.9% 3.2%
- --------------------------------------------------------------------------------
More than 120 days 24.4% 10.5%
- --------------------------------------------------------------------------------
Weighted average 69 days 49 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 INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
STATEMENT OF NET ASSETS (IN THOUSANDS)
JUNE 30, 1998 (UNAUDITED)
Par Value
------- --------
COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS -- 92.2%
AUTOMOBILE RECEIVABLES -- 2.3%
New Center Asset Trust Plus
5.64%, 08/20/98 $ 7,000 $ 6,946
--------
AUTOMOTIVE -- 10.3%
American Honda Finance Corp.
5.58%, 07/28/98 14,000 13,942
Chrysler Financial Corp.
5.58%, 07/13/98 3,000 2,995
5.61%, 08/14/98 7,000 6,953
FCE Bank, PLC
5.58%, 08/10/98 7,000 6,957
--------
30,847
--------
BANKING-BELGIUM -- 4.3%
Cregem North America, Inc.
5.59%, 08/11/98 13,000 12,919
--------
BANKING-CANADA -- 4.7%
Bank of Nova Scotia
5.45%, 07/09/98 6,000 5,993
5.50%, 07/16/98 8,000 7,982
--------
13,975
--------
BANKING-DENMARK -- 3.9%
Unifunding, Inc.
5.60%, 08/27/98 10,000 9,914
5.65%, 12/03/98 2,000 1,953
--------
11,867
--------
BANKING-DOMESTIC -- 5.4%
International Securitization Corp. /(First
National Bank of Chicago LOC)(a)
5.65%, 12/15/98 4,500 4,385
J. P. Morgan & Co.
5.67%, 12/11/98 2,000 1,950
5.65%, 12/14/98 6,000 5,848
Vehicle Services of America (NationsBank, NA LOC)
5.62%, 09/09/98 4,138 4,093
--------
16,276
--------
1
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE 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 -- 4.1%
Den Norske Bank
5.64%, 10/27/98 $ 6,000 $ 5,892
5.65%, 11/20/98 6,500 6,359
--------
12,251
--------
BANKING-SWEDEN -- 3.0%
Nordbanken of North America, Inc.
5.65%, 12/16/98 3,000 2,923
Svenska Handelsbanken, Inc.
5.61%, 09/04/98 6,000 5,941
--------
8,864
--------
BANKING-UNITED KINGDOM -- 2.3%
Banco Nacional de Mexico S.A. / (Barclays Bank LOC)
5.60%, 09/09/98 3,000 2,968
Bank of Scotland Treasury Services
5.60%, 10/06/98 4,000 3,941
--------
6,909
--------
CONSUMER PRODUCTS -- 4.3%
Philip Morris Capital Corp.
5.57%, 07/20/98 13,000 12,962
--------
FINANCE-COMMERCIAL -- 21.1%
CIT Group Holdings, Inc.
5.60%, 09/18/98 10,000 9,880
Finova Capital Corp.
6.40%, 07/01/98 6,000 6,000
5.69%, 10/30/98 7,000 6,869
General Electric Capital Corp.
5.61%, 07/24/98 13,000 12,954
General Electric Capital Services
5.57%, 08/03/98 6,000 5,970
5.60%, 08/07/98 8,000 7,955
Heller Financial, Inc.
5.83%, 08/19/98 3,000 2,977
5.84%, 08/28/98 5,000 4,954
5.87%, 09/09/98 5,000 4,994
5.79%, 09/16/98 1,000 988
--------
63,491
--------
2
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
STATEMENT OF NET ASSETS (IN THOUSANDS)
JUNE 30, 1998 (UNAUDITED)
Par Value
------- --------
COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS -- (CONTINUED)
MISCELLANEOUS SERVICES -- 2.0%
PHH Corp.
5.67%, 07/01/98 $ 6,000 $ 6,000
--------
SECURITIES BROKERAGE-DEALER -- 23.5%
BT Alex Brown, Inc.
5.71%, 07/14/98 5,000 4,990
5.57%, 08/24/98 6,000 5,951
5.66%, 12/02/98 2,000 1,953
Goldman Sachs Group, LP
5.64%, 07/10/98 5,000 4,993
Lehman Brothers Holdings, Inc.
5.60%, 08/17/98 8,000 7,943
5.58%, 08/19/98 6,000 5,956
Merrill Lynch & Co., Inc.
5.57%, 07/24/98 7,000 6,976
5.58%, 07/30/98 5,000 4,978
5.61%, 09/18/98 2,000 1,976
PaineWebber Group, Inc.
5.69%, 07/02/98 10,000 9,999
5.64%, 07/15/98 5,000 4,989
Salomon Smith Barney Holdings, Inc.
5.60%, 07/07/98 5,000 4,996
5.60%, 08/31/98 5,000 4,953
--------
70,653
--------
TRADE RECEIVABLES -- 1.0%
Apreco, Inc.(a)
5.61%, 07/24/98 3,000 2,989
--------
TOTAL COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS 276,949
(Cost $276,949) --------
VARIABLE RATE OBLIGATIONS -- 4.9%(b)
BANKING-DOMESTIC -- 4.9%
City of Aurora, Kane, Dupage, Will & Kendall
Counties, Illinois Taxable IDRB (North American
Plastics Corp. Project) Series 1996B /(First of
America Bank Illinois NA LOC)
5.70%, 07/07/98 1,495 1,495
Illinois Development Finance Authority Taxable
Adjustable Rate IDRB (Maples & Sprowl
Steel, Ltd. Project) Series 1996B /(LaSalle
National Bank LOC)(a)
5.70%, 07/07/98 828 828
3
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
STATEMENT OF NET ASSETS (IN THOUSANDS)
JUNE 30, 1998 (UNAUDITED)
Par Value
------- --------
VARIABLE RATE OBLIGATIONS -- (CONTINUED)
BANKING-DOMESTIC -- (CONTINUED)
MoviePlex Realty Leasing, L.L.C. Adjustable Rate
Tender Securities (Carmike Cinemas,
Inc.) Series 1997B3 /(Bank of New York LOC)
5.60%, 07/07/98 $ 2,675 $ 2,675
New York City IDA Taxable Industrial Revenue
Refunding Bonds (1997 Allway Tools, Inc.
Project) /(Citibank LOC)
6.00%, 07/07/98 200 200
Strategic Money Market Trust 1998B (Morgan
Guaranty Trust Co.-Guaranty)(a)
5.66%, 07/06/98 5,000 5,000
Starcrest of Cartersville, Inc. Notes Series
1995A /(PNC Kentucky LOC)(a)
5.65%, 07/07/98 2,420 2,420
Upper Illinois River Valley Development Authority
Taxable Solid Waste Disposal RB
(Exolon - ESK Co. Project) Series 1996B /(Chase
Manhattan Bank LOC)
5.70%, 07/07/98 2,000 2,000
--------
14,618
--------
TOTAL VARIABLE RATE OBLIGATIONS (Cost $14,618) 14,618
--------
CERTIFICATES OF DEPOSIT -- 2.7%
BANKING-AUSTRIA -- 1.7%
Creditanstalt
5.60%, 09/25/98 5,000 5,001
--------
BANKING-FRANCE -- 1.0%
Societe Generale
5.90%, 08/21/98 3,000 3,000
--------
TOTAL CERTIFICATES OF DEPOSIT (Cost $8,001) 8,001
--------
BANK NOTES -- 1.6%
BANKING-DOMESTIC -- 1.6%
BankBoston N.A.
5.57%, 07/08/98 5,000 5,000
--------
TOTAL BANK NOTES (Cost $5,000) 5,000
--------
4
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
STATEMENT OF NET ASSETS (IN THOUSANDS)
JUNE 30, 1998 (UNAUDITED)
Par Value
------- --------
REPURCHASE AGREEMENT -- 1.0%(c)
Salomon Brothers Inc. Tri-Party Repurchase Agreement;
Collaterallized by: U.S. Government Securities
6.25% Issue 06/30/98
Due 07/01/98 $ 3,183 $ 3,183
--------
TOTAL REPURCHASE AGREEMENT (Cost $3,183) 3,183
--------
TOTAL INVESTMENTS -- 102.4% (Cost $307,751) 307,751
--------
LIABILITIES IN EXCESS OF OTHER ASSETS -- (2.4%) (7,282)
--------
TOTAL NET ASSETS -- 100.0% $300,469
========
SEE ACCOMPANYING NOTES TO STATEMENT OF NET ASSETS AND NOTES TO
FINANCIAL STATEMENTS
5
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE 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
Institutional Advantage 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 $15,622,000
which represented 5.20% 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
IDA Industrial Development Authority
IDRB Industrial Development Revenue Bond
LOC Letter of Credit
RB Revenue Bond
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
June 30, 1998 (Unaudited)
ASSETS
Investments, at value (Cost: $307,751) $307,751
Receivables:
Fund shares sold 2,672
Interest 488
Prepaid expenses 46
--------
Total assets 310,957
--------
LIABILITIES
Payables:
Dividends 660
Fund shares redeemed 9,589
Investment advisory and administration fees 6
Transfer agency and shareholder service fees 13
Other liabilities 220
--------
Total liabilities 10,488
--------
Net assets applicable to outstanding shares $300,469
========
NET ASSETS CONSIST OF:
Paid-in-capital $300,473
Accumulated net realized loss on investments sold (4)
--------
$300,469
========
PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) 300,529
Net asset value, offering and redemption price per share $1.00
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
For the six months ended June 30, 1998 (Unaudited)
Interest income $8,782
------
Expenses:
Investment advisory and administration fees 710
Transfer agency and shareholder service fees 386
Custodian and portfolio accounting fees 69
Registration fees 83
Professional fees 14
Trustees' fees 9
Shareholder reports 6
Insurance and other expenses 9
------
1,286
Less: expenses reduced (see Note 4) (515)
------
Total expenses incurred by Fund 771
------
Net investment income 8,011
Net realized loss on investments sold (1)
------
Increase in net assets resulting from operations $8,010
======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
Six Months
ended
June 30, Year ended
1998 December 31,
(Unaudited) 1997
----------- ------------
Operations:
Net investment income $ 8,011 $ 13,058
Net realized loss on investments sold (1) --
-------- --------
Increase in net assets resulting
from operations 8,010 13,058
-------- --------
Dividends to shareholders from
net investment income (See Note 2) (8,057) (13,058)
-------- --------
Capital share transactions (at $1.00 per share):
Proceeds from shares sold 338,251 612,896
Net asset value of shares issued in
reinvestment of dividends 8,347 10,165
Less payments for shares redeemed (321,419) (486,745)
-------- --------
Increase in net assets from
capital share transactions 25,179 136,316
-------- --------
Total increase in net assets 25,132 136,316
Net Assets:
Beginning of period 275,337 139,021
-------- --------
End of period $300,469 $275,337
======== ========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE 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 $0.06 $-- $0.06 $(0.06) $(0.06) $1.00
1994 2 $1.00 $0.04 $-- $0.04 $(0.04) $(0.04) $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 by the Investment Manager and Schwab. Had these expenses not been reduced, 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 0.83%** 4.86%**
1997 0.84% 4.86%
1996 0.88% 4.65%
1995 0.90% 5.13%
1994 2 0.92%** 3.67%**
(1) For the six month period ended June 30, 1998 (Unaudited).
(2) For the period from January 4, 1994 (commencement of operations) to December 31, 1994.
* The amounts shown include certin reclassifications related to book to tax differences (See Note 2 of Notes to
Financial 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 2.62 $300,469 0.50** 5.19**
1997 5.31 $275,337 0.50 5.20
1996 5.15 $139,021 0.50 5.03
1995 5.65 $80,746 0.53 5.50
1994 2 3.86 $60,088 0.55** 4.04**
</TABLE>
11
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
For the six months ended June 30, 1998 (Unaudited)
1. DESCRIPTION OF THE FUND
The Schwab Institutional Advantage Money Fund( (the "Fund") is a series of The
Charles Schwab Family of Funds (the "Trust"), a no-load, 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
Retirement 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 Fund's 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 INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
For the 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 Institutional
Expiring in: Advantage Money Fund(REGISTRATION MARK)
- ------------ ---------------------------------------
12/31/03 $ 103
12/31/04 2,715
12/31/05 432
------
Total capital loss carryforwards $3,250
======
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 $46,000 were reclassified from paid-in-capital to undistributed
net investment income. These reclassifications have no effect on net assets or
net asset value 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 of
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 0.50% 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.
The Investment Manager reduced a portion of their fees in order to limit the
Fund's ratio of operating expenses to average net assets. For the six months
months ended June 30, 1998, the total of such fees reduced by the Investment
Manager was $515,000.
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) MKT3605 (8/98)
