<PAGE>
SCHWAB MONEY FUNDS-REGISTERED TRADEMARK-
We're pleased to bring you this semiannual report for the following funds (the
Funds) for the six-month period ended June 30, 1998:
- - Schwab Money Market Fund
- - Schwab Government Money Fund
- - Schwab U.S. Treasury Money Fund
During the reporting period, the Funds continued to provide competitive money
market returns, combined with capital stability and liquidity. Please remember
that while each Fund seeks to maintain a stable $1.00 share price to protect
your principal, as with all money funds, there can be no assurance that any of
the Funds will be able to maintain a $1.00 net asset value. It is also important
to understand that investments in any of the Funds are neither insured nor
guaranteed by the U.S. government.
The Funds presented in this report are Sweep Investments-TM- that are designed
for cash balances requiring frequent access. You'll find more about the features
of this kind of investment on page 3 of this report, along with information
about Schwab's tax-advantaged municipal money funds for investors in a high tax
bracket.(1)
For your larger cash balances, and to help fill the cash-equivalent sector of
your asset allocation plan, you may wish to consider the Value Advantage
Investments-Registered Trademark-. These are designed to be longer-term money
market investment vehicles for larger balances that do not require frequent
access. You'll find more about these investments on page 3 of this report.
(1)Income may be subject to the alternative minimum tax (AMT).
CONTENTS
<TABLE>
<S> <C>
- ------------------------------------------------
A Message from the Chairman 1
- ------------------------------------------------
What Money Fund Investors Should Know 2
- ------------------------------------------------
Market Overview 4
- ------------------------------------------------
Portfolio Management 7
- ------------------------------------------------
Schwab Money Market Fund 8
- ------------------------------------------------
Schwab Government Money Fund 9
- ------------------------------------------------
Schwab U.S. Treasury Money Fund 10
- ------------------------------------------------
Fund Discussion 11
- ------------------------------------------------
Glossary of Terms 12
- ------------------------------------------------
Portfolio Highlights 13
- ------------------------------------------------
Financial Statements and Notes 15
- ------------------------------------------------
</TABLE>
<PAGE>
A MESSAGE FROM THE CHAIRMAN
Dear Shareholder,
The U.S. stock market rallied strongly over most of the six-month period ended
June 30, 1998, as did many European markets. And despite investors' concerns
about Asia's financial crisis last autumn, economic conditions continued to
provide a solid underpinning for U.S. business activity. The U.S. economy, as
measured by gross domestic product (GDP), grew at a strong real rate in the
first half of 1998, and it appears poised for continued growth. Inflation has
remained in check despite the lowest unemployment levels in decades, and
short-term interest rates remained in a relatively narrow range due, in part, to
widespread expectations that the Federal Reserve would make no
[PHOTO] changes to interest rates in the near term. This combination
of strong growth and tight labor markets, offset by low
inflation and uncertainty generated by continued turmoil in
Asian markets, resulted in a relatively calm short-term interest rate
environment with no clear trend during the six-month reporting period.
Regardless of short-term market trends, however, our philosophy has always been
that REGULAR INVESTING is the best strategy over the long term.
Your investment in a money fund may play an important role in your asset
allocation. Because of this, we've included some guidelines in the following
pages about what to look for in a money market fund. You might find that more
than one kind of money fund may be appropriate for you, depending on your goals
and financial situation. As always, feel free to contact us if you have any
questions.
The support of investors like you has helped Charles Schwab Investment
Management, Inc. (CSIM) become one of the largest and fastest-growing mutual
fund families in the nation. CSIM now manages more than $66 billion in assets on
behalf of more than 3.5 million SchwabFunds-Registered Trademark- shareholders.
We offer a full spectrum of 35 mutual funds for investors with varying financial
situations and goals.
Once again, thank you for your investment in SchwabFunds. We continue to do
everything we can to warrant the trust you have placed in us.
Sincerely,
/s/ Charles R. Schwab
Charles R. Schwab
June 30, 1998
1
<PAGE>
WHAT MONEY FUND INVESTORS SHOULD KNOW
WHY ASSET ALLOCATION MATTERS
As most investors know, one of the most compelling reasons to invest in a mutual
fund is diversification. By allocating your assets across many different
securities, a fund helps to reduce the risk that you might otherwise encounter
by owning just a few stocks or bonds.
Don't forget, however, that diversification across your portfolio is just as
important as diversification within one of the mutual funds you own. As you
probably know, stocks have historically offered much higher returns over the
long term than other asset classes, such as bonds or cash, but those returns
have come at the price of higher volatility. To help mitigate some of that risk,
many investors often include at least some bonds and cash in their portfolio.
CHOOSING A MONEY MARKET FUND
Many investors may believe that there is no good reason to shop around for a
money market fund. This may be partially due to the fact that 20 years ago
practically the only feature that differentiated one money market fund from
another was whether it allowed investors to write checks against it. Things have
changed since then, and today investors can choose from a wide variety of
options and features offered by the more than 1,000 money market funds currently
available.(1)
You can help assure yourself that you've chosen the right money market fund by
considering how it will be used and what role it will play in your investment
portfolio. Here are some things to consider when making or reviewing your money
market fund choice.
EXPENSES: Because expenses are one of the key factors that determines a money
market mutual fund's performance, investors are wise to seek out funds with low
operating expense ratios. Also, beware of those that have temporary expense
waivers that waive expenses to zero, because expenses can't stay at zero
forever, and fees will undoubtedly eventually rise.
Also beware of 12b-1 fees, which some money market funds include in their
expense ratios to pay for marketing costs. These fees can reduce yield--in some
cases by a full percentage point. A recent survey by a money market trade
publication found that more than 40% of taxable money market funds available to
individual investors charge these fees. When comparing money market fund
choices, you may want to avoid funds that carry these unnecessary fees.
YIELDS: Look for competitive yields--but don't stop there. Many institutions
advertise their money market funds on the basis of yield.(2) Although getting a
competitive yield is important, other features--such as how you access your
investment--are also important considerations. Furthermore, stretching for an
additional 10 or 20 basis points in yield (0.10% to 0.20%) may not be worth the
time, effort or added risk. For example, a $10,000 investment in a money fund
that yields 0.10% more amounts to only an additional $10 over a year-long
period.
SWEEP FEATURES: If you're looking for a convenient way to link your money market
fund with your brokerage account, consider an account that has a "sweep"
feature. Money market funds with this feature "sweep" uninvested cash balances
into your money fund. The upshot: It keeps cash working. This convenience may be
well worth the small additional cost.
LARGER CASH BALANCES: You may earn a higher yield for larger cash balances. If
you don't need frequent access to the money in your money market fund, consider
one designed to pay higher yields for a higher cash balance. Because the account
balances are higher, these money market funds normally incur lower expenses and,
therefore, may be able to post higher yields, all else being equal.
TAXES: Don't forget to consider your tax situation. If you're in a high
tax-bracket, investing in tax-free or municipal money market funds may help take
a bite out of your tax bill.(3) And, if you live in a state with a high personal
state income or other personal tax, you may be best served by choosing a state
tax-free fund that provides income free from federal and state and, in some
cases, local income taxes.(3)
(1)Money market funds are managed to maintain a stable $1 share price.
Investments in these funds are neither insured nor guaranteed by the U.S.
government, and there can be no assurance that a fund will be able to
maintain a stable net asset value of $1 per share.
(2)Yields may vary.
(3)This may not be true for investors subject to the federal alternative minumum
tax (AMT); consult your tax advisor.
2
<PAGE>
MONEY FUNDS AT SCHWAB
Schwab offers two types of money funds--Sweep Investments-TM- and Value
Advantage Investments-Registered Trademark---both of which offer taxable and
tax-advantaged alternatives. Depending on the role that cash and cash-equivalent
investments play in your investment plan, either or both may have a place in
your investment plan.
SWEEP INVESTMENTS-TM- are designed for cash balances requiring frequent
access--such as your short-term and even daily cash needs. These shares can be
linked to your Schwab brokerage account and contain a feature that automatically
"sweeps" uninvested cash balances into the Sweep Shares class of the Fund you
designate, according to the terms and conditions of your Schwab account. Sweep
Shares also may be used to settle trades and automatically cover other
day-to-day transactions, such as margin calls.
VALUE ADVANTAGE INVESTMENTS-REGISTERED TRADEMARK- are designed to serve as
longer-term money market investment vehicles for larger balances that do not
require frequent access. These funds may help fill the cash-equivalent sector in
your asset allocation plan. With higher minimum investment and balance
requirements and other transaction restrictions designed to minimize fund
operating expenses, Value Advantage Investments can offer the potential of
higher yields to investors. It is important to note that, unlike Sweep
Investments, Value Advantage Investments are not designed to automatically cover
negative balances in your Schwab account.
TAXABLE MONEY MARKET FUNDS
Schwab offers the following taxable money market Sweep investments. If you are
selecting from among them, you should consider your attitude toward risk and
return, as well as your income-tax bracket.
SCHWAB MONEY MARKET FUND invests in high-quality money market securities,
including commercial paper and certificates of deposit.
SCHWAB GOVERNMENT MONEY FUND invests exclusively in obligations issued or
guaranteed by the U.S. government, its agencies and instrumentalities, and
repurchase agreements.
SCHWAB U.S. TREASURY MONEY FUND invests exclusively in U.S. Treasury notes,
bills or other direct obligations of the U.S. government and pays income free
from state and local taxes in the vast majority of states.
TAX-ADVANTAGED MONEY FUNDS
The SCHWAB MUNICIPAL MONEY FUNDS may provide you with higher returns after
taxes, especially if you're in a high tax bracket.(4) The SCHWAB MUNICIPAL MONEY
FUND Sweep Shares-TM- invests in municipal obligations that generate income free
from federal income tax. And for investors in California, New York, New Jersey,
Pennsylvania and Florida, Schwab offers Sweep Investments that can also provide
income free from state and, in some instances, local taxes. Consult your tax
advisor for specific guidance on your tax situation before investing.
If you would like more information on any of these funds, please call us
toll-free at 1-800-435-4000 and request a free prospectus that contains more
information, including fees and expenses. Please read the prospectus before
investing.
WE MAKE IT EASY TO INVEST
We try to make it easy and convenient for you to invest in our
SchwabFunds-Registered Trademark-. In addition to our automated methods that
allow you to invest or transfer money to your Schwab account on a regular basis,
you can also invest in person at any of our nationwide branches, through our Web
site at WWW.SCHWAB.COM and through our automated touch-tone telephone service,
TeleBroker-Registered Trademark-, by calling 1-800-272-4922.
KEEPING YOU INFORMED
One of our top priorities at Charles Schwab is to keep you informed about your
investments and potential opportunities in the marketplace. A wealth of
information about our investment philosophy and funds, as well as the market
and economic environment, can be found at our Web site:
WWW.SCHWAB.COM/SCHWABFUNDS
(4)Income from all of the Funds may be subject to the alternative minimum tax
(AMT), and income from the Schwab Municipal Money Fund may be subject to
state and local taxes.
3
<PAGE>
MARKET OVERVIEW
U.S. GROWTH RATE
Although somewhat dampened during the second quarter, THE U.S. ECONOMY, AS
MEASURED BY THE GROSS DOMESTIC PRODUCT (GDP), GREW AT A STRONG REAL RATE OF 3.5%
for the first half of 1998--well in excess of the Federal Reserve's estimated
noninflationary growth rate of 2.0% to 2.75%.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REAL GDP GROWTH RATE
QUARTERLY PERCENTAGE CHANGE (ANNUALIZED
RATE)
<S> <C>
Q1 1990 3.9%
Q2 1990 1.2%
Q3 1990 -1.9%
Q4 1990 -4.0%
Q1 1991 -2.1%
Q2 1991 1.8%
Q3 1991 1.0%
Q4 1991 1.0%
Q1 1992 4.7%
Q2 1992 2.5%
Q3 1992 3.0%
Q4 1992 4.3%
Q1 1993 0.1%
Q2 1993 2.0%
Q3 1993 2.1%
Q4 1993 5.3%
Q1 1994 3.0%
Q2 1994 4.7%
Q3 1994 1.8%
Q4 1994 3.6%
Q1 1995 0.9%
Q2 1995 0.3%
Q3 1995 3.0%
Q4 1995 2.2%
Q1 1996 1.8%
Q2 1996 6.0%
Q3 1996 1.0%
Q4 1996 4.3%
Q1 1997 4.9%
Q2 1997 3.3%
Q3 1997 3.1%
Q4 1997 3.7%
Q1 1998 5.5%
Q2 1998 1.4%
Source: Bloomberg L.P.
</TABLE>
At the time of this writing, THE U.S. ECONOMY APPEARS POISED FOR CONTINUED
GROWTH, further extending the current economic expansion that began in 1991.
This expansion is fueled by high levels of consumer confidence, rising real
wages and strong year-to-date gains in stock prices. Although most economists
believe that the brunt of Asia's economic crisis will hit the United States in
the next six months, they feel that it is unlikely to cause even a temporary
pause in U.S. economic growth; it may help slow the GDP growth rate nearer to
the Federal Reserve's estimated non-inflationary levels, however.
UNEMPLOYMENT
THE U.S. UNEMPLOYMENT RATE STOOD AT 4.5% IN JUNE AFTER FALLING TO 4.3% IN APRIL
AND MAY--THE LOWEST LEVELS IN 28 YEARS. Labor markets have become extremely
tight; growth in the labor force has slowed, and wage increases are beginning to
put more pressure on labor costs (refer to Employment Cost Index at right).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. UNEMPLOYMENT RATE
<S> <C>
Jan-90 5.4%
Feb-90 5.3%
Mar-90 5.2%
Apr-90 5.4%
May-90 5.4%
Jun-90 5.2%
Jul-90 5.5%
Aug-90 5.7%
Sep-90 5.9%
Oct-90 5.9%
Nov-90 6.2%
Dec-90 6.3%
Jan-91 6.4%
Feb-91 6.6%
Mar-91 6.8%
Apr-91 6.7%
May-91 6.9%
Jun-91 6.9%
Jul-91 6.8%
Aug-91 6.9%
Sep-91 6.9%
Oct-91 7.0%
Nov-91 7.0%
Dec-91 7.3%
Jan-92 7.3%
Feb-92 7.4%
Mar-92 7.4%
Apr-92 7.4%
May-92 7.6%
Jun-92 7.8%
Jul-92 7.7%
Aug-92 7.6%
Sep-92 7.6%
Oct-92 7.3%
Nov-92 7.4%
Dec-92 7.4%
Jan-93 7.3%
Feb-93 7.1%
Mar-93 7.0%
Apr-93 7.1%
May-93 7.1%
Jun-93 7.0%
Jul-93 6.9%
Aug-93 6.8%
Sep-93 6.7%
Oct-93 6.8%
Nov-93 6.6%
Dec-93 6.5%
Jan-94 6.6%
Feb-94 6.6%
Mar-94 6.5%
Apr-94 6.4%
May-94 6.0%
Jun-94 6.1%
Jul-94 6.1%
Aug-94 6.1%
Sep-94 5.9%
Oct-94 5.8%
Nov-94 5.6%
Dec-94 5.4%
Jan-95 5.6%
Feb-95 5.4%
Mar-95 5.4%
Apr-95 5.7%
May-95 5.6%
Jun-95 5.6%
Jul-95 5.7%
Aug-95 5.7%
Sep-95 5.7%
Oct-95 5.6%
Nov-95 5.6%
Dec-95 5.6%
Jan-96 5.7%
Feb-96 5.5%
Mar-96 5.5%
Apr-96 5.5%
May-96 5.5%
Jun-96 5.3%
Jul-96 5.5%
Aug-96 5.2%
Sep-96 5.2%
Oct-96 5.3%
Nov-96 5.4%
Dec-96 5.3%
Jan-97 5.3%
Feb-97 5.3%
Mar-97 5.2%
Apr-97 5.0%
May-97 4.8%
Jun-97 5.0%
Jul-97 4.9%
Aug-97 4.9%
Sep-97 4.9%
Oct-97 4.8%
Nov-97 4.6%
Dec-97 4.7%
Jan-98 4.7%
Feb-98 4.6%
Mar-98 4.7%
Apr-98 4.3%
May-98 4.3%
Jun-98 4.5%
Source: Bloomberg L.P.
</TABLE>
4
<PAGE>
INFLATION
BOTH THE EMPLOYMENT COST INDEX (ECI) AND CONSUMER PRICE INDEX (CPI) REMAINED IN
CHECK during the first half of 1998, reflecting continued low inflation.
THE CPI ROSE just 1.7% for the year ended June 1998-- reaching levels during the
reporting period that were the lowest since January 1987. Its core rate (which
excludes the more volatile food and energy components) rose 2.2%--the lowest
rate of increase since 1965. The Employment Cost Index includes two
components--BENEFITS, which has been well contained (up only 2.4% for the year
ended Q2 1998), and WAGES AND SALARIES, which has increased 3.8% for the same
period.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MEASURES OF INFLATION
MONTHLY CONSUMER PRICE INDEX QUARTERLY EMPLOYMENT COST INDEX
<S> <C> <C>
Jan-90 5.2% 5.5%
Feb-90 5.3% 5.5%
Mar-90 5.2% 5.5%
Apr-90 4.7% 5.4%
May-90 4.4% 5.4%
Jun-90 4.7% 5.4%
Jul-90 4.8% 5.2%
Aug-90 5.6% 5.2%
Sep-90 6.2% 5.2%
Oct-90 6.3% 4.9%
Nov-90 6.3% 4.9%
Dec-90 6.1% 4.9%
Jan-91 5.7% 4.6%
Feb-91 5.3% 4.6%
Mar-91 4.9% 4.6%
Apr-91 4.9% 4.6%
May-91 5.0% 4.6%
Jun-91 4.7% 4.6%
Jul-91 4.4% 4.3%
Aug-91 3.8% 4.3%
Sep-91 3.4% 4.3%
Oct-91 2.9% 4.3%
Nov-91 3.0% 4.3%
Dec-91 3.1% 4.3%
Jan-92 2.6% 4.0%
Feb-92 2.8% 4.0%
Mar-92 3.2% 4.0%
Apr-92 3.2% 3.6%
May-92 3.0% 3.6%
Jun-92 3.1% 3.6%
Jul-92 3.2% 3.5%
Aug-92 3.1% 3.5%
Sep-92 3.0% 3.5%
Oct-92 3.2% 3.5%
Nov-92 3.0% 3.5%
Dec-92 2.9% 3.5%
Jan-93 3.3% 3.5%
Feb-93 3.2% 3.5%
Mar-93 3.1% 3.5%
Apr-93 3.2% 3.6%
May-93 3.2% 3.6%
Jun-93 3.0% 3.6%
Jul-93 2.8% 3.6%
Aug-93 2.8% 3.6%
Sep-93 2.7% 3.6%
Oct-93 2.8% 3.5%
Nov-93 2.7% 3.5%
Dec-93 2.7% 3.5%
Jan-94 2.5% 3.2%
Feb-94 2.5% 3.2%
Mar-94 2.5% 3.2%
Apr-94 2.4% 3.2%
May-94 2.3% 3.2%
Jun-94 2.5% 3.2%
Jul-94 2.8% 3.2%
Aug-94 2.9% 3.2%
Sep-94 3.0% 3.2%
Oct-94 2.6% 3.0%
Nov-94 2.7% 3.0%
Dec-94 2.7% 3.0%
Jan-95 2.8% 2.9%
Feb-95 2.9% 2.9%
Mar-95 2.9% 2.9%
Apr-95 3.1% 2.9%
May-95 3.2% 2.9%
Jun-95 3.0% 2.9%
Jul-95 2.8% 2.7%
Aug-95 2.6% 2.7%
Sep-95 2.5% 2.7%
Oct-95 2.8% 2.7%
Nov-95 2.6% 2.7%
Dec-95 2.5% 2.7%
Jan-96 2.7% 2.8%
Feb-96 2.7% 2.8%
Mar-96 2.8% 2.8%
Apr-96 2.9% 2.9%
May-96 2.9% 2.9%
Jun-96 2.8% 2.9%
Jul-96 3.0% 2.8%
Aug-96 2.9% 2.8%
Sep-96 3.0% 2.8%
Oct-96 3.0% 2.9%
Nov-96 3.3% 2.9%
Dec-96 3.3% 2.9%
Jan-97 3.0% 2.9%
Feb-97 3.0% 2.9%
Mar-97 2.8% 2.9%
Apr-97 2.5% 2.8%
May-97 2.2% 2.8%
Jun-97 2.3% 2.8%
Jul-97 2.2% 3.0%
Aug-97 2.2% 3.0%
Sep-97 2.2% 3.0%
Oct-97 2.1% 3.3%
Nov-97 1.8% 3.3%
Dec-97 1.7% 3.3%
Jan-98 1.6% 3.3%
Feb-98 1.4% 3.3%
Mar-98 1.4% 3.3%
Apr-98 1.4% 3.5%
May-98 1.7% 3.5%
Jun-98 1.7% 3.5%
Source: Bloomberg L.P. and Bureau of Labor
Statistics
</TABLE>
Although inflation has been well contained, the combination of a tight labor
market (as evidenced by low unemployment rates) and strong economic growth
typically leads to inflationary pressures on wages and, ultimately, prices. In
this environment, productivity growth becomes particularly important. Strong
productivity gains, such as those achieved in 1997, allow manufacturers and
other businesses to limit price increases in the face of rising wages without
sacrificing profit margins.
SHORT-TERM INTEREST RATE ENVIRONMENT
SHORT-TERM INTEREST RATES REMAINED IN A NARROW RANGE throughout the reporting
period due to widespread expectations that there would be no changes to the
Federal Reserve's interest rate policy.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YIELDS ON 90-DAY COMMERCIAL PAPER
AND THREE-MONTH TREASURY BILLS: 1/1/98 THROUGH
6/30/98
3-MONTH 90-DAY COMMERCIAL
TREASURY BILL PAPER
<S> <C> <C>
1/1/98 5.35% 5.54%
1/2/98 5.29% 5.54%
1/5/98 5.23% 5.56%
1/6/98 5.20% 5.47%
1/7/98 5.20% 5.45%
1/8/98 5.10% 5.44%
1/9/98 5.01% 5.42%
1/12/98 5.02% 5.36%
1/13/98 5.19% 5.38%
1/14/98 5.15% 5.37%
1/15/98 5.11% 5.37%
1/16/98 5.15% 5.41%
1/19/98 5.15% 5.41%
1/20/98 5.15% 5.41%
1/21/98 5.11% 5.39%
1/22/98 5.13% 5.40%
1/23/98 5.17% 5.40%
1/26/98 5.12% 5.40%
1/27/98 5.25% 5.40%
1/28/98 5.21% 5.39%
1/29/98 5.19% 5.40%
1/30/98 5.18% 5.42%
2/2/98 5.22% 5.40%
2/3/98 5.23% 5.40%
2/4/98 5.11% 5.42%
2/5/98 5.15% 5.38%
2/6/98 5.17% 5.43%
2/9/98 5.13% 5.41%
2/10/98 5.21% 5.42%
2/11/98 5.20% 5.42%
2/12/98 5.21% 5.43%
2/13/98 5.15% 5.39%
2/16/98 5.21% 5.39%
2/17/98 5.18% 5.40%
2/18/98 5.17% 5.41%
2/19/98 5.19% 5.43%
2/20/98 5.20% 5.44%
2/23/98 5.24% 5.43%
2/24/98 5.32% 5.44%
2/25/98 5.30% 5.42%
2/26/98 5.34% 5.45%
2/27/98 5.31% 5.48%
3/2/98 5.30% 5.42%
3/3/98 5.17% 5.45%
3/4/98 5.15% 5.47%
3/5/98 5.16% 5.47%
3/6/98 5.15% 5.47%
3/9/98 5.09% 5.49%
3/10/98 5.08% 5.47%
3/11/98 5.08% 5.45%
3/12/98 5.08% 5.46%
3/13/98 5.09% 5.48%
3/16/98 5.10% 5.49%
3/17/98 5.14% 5.45%
3/18/98 5.15% 5.46%
3/19/98 5.17% 5.46%
3/20/98 5.17% 5.46%
3/23/98 5.14% 5.45%
3/24/98 5.14% 5.47%
3/25/98 5.17% 5.45%
3/26/98 5.20% 5.45%
3/27/98 5.21% 5.46%
3/30/98 5.21% 5.44%
3/31/98 5.12% 5.47%
4/1/98 5.11% 5.46%
4/2/98 5.09% 5.48%
4/3/98 5.08% 5.47%
4/6/98 5.08% 5.45%
4/7/98 5.04% 5.46%
4/8/98 5.05% 5.45%
4/9/98 5.05% 5.46%
4/10/98 5.05% 5.46%
4/13/98 5.16% 5.43%
4/14/98 5.11% 5.46%
4/15/98 5.07% 5.46%
4/16/98 5.05% 5.47%
4/17/98 5.04% 5.45%
4/20/98 5.02% 5.47%
4/21/98 5.07% 5.44%
4/22/98 5.08% 5.46%
4/23/98 5.08% 5.44%
4/24/98 5.06% 5.45%
4/27/98 5.05% 5.51%
4/28/98 5.06% 5.49%
4/29/98 5.06% 5.49%
4/30/98 4.97% 5.49%
5/1/98 5.00% 5.46%
5/4/98 5.02% 5.47%
5/5/98 5.11% 5.46%
5/6/98 5.10% 5.49%
5/7/98 5.10% 5.46%
5/8/98 5.12% 5.47%
5/11/98 5.12% 5.48%
5/12/98 5.13% 5.47%
5/13/98 5.12% 5.48%
5/14/98 5.16% 5.49%
5/15/98 5.16% 5.49%
5/18/98 5.17% 5.50%
5/19/98 5.20% 5.50%
5/20/98 5.18% 5.48%
5/21/98 5.23% 5.48%
5/22/98 5.21% 5.48%
5/25/98 5.21% 5.48%
5/26/98 5.10% 5.48%
5/27/98 5.09% 5.49%
5/28/98 5.05% 5.48%
5/29/98 5.01% 5.47%
6/1/98 4.97% 5.49%
6/2/98 5.20% 5.46%
6/3/98 5.11% 5.48%
6/4/98 5.11% 5.48%
6/5/98 5.11% 5.48%
6/8/98 5.12% 5.49%
6/9/98 5.14% 5.48%
6/10/98 5.13% 5.49%
6/11/98 5.09% 5.48%
6/12/98 5.11% 5.49%
6/15/98 5.11% 5.47%
6/16/98 5.16% 5.47%
6/17/98 5.21% 5.48%
6/18/98 5.18% 5.49%
6/19/98 5.15% 5.48%
6/22/98 5.12% 5.49%
6/23/98 5.07% 5.48%
6/24/98 5.04% 5.50%
6/25/98 5.00% 5.48%
6/26/98 4.99% 5.49%
6/29/98 5.00% 5.50%
6/30/98 4.99% 5.47%
</TABLE>
The combination of strong first-quarter growth and tight labor markets, offset
by continued low inflation and uncertainty regarding Asia, resulted in a
relatively calm short-term interest rate environment with no clear direction
over the period.
5
<PAGE>
MARKET OVERVIEW (continued)
As Federal Reserve Chairman Alan Greenspan said in his February congressional
testimony, "The key question going forward is whether the restraint building
from the turmoil in Asia will be sufficient to check inflationary tendencies
that might otherwise result from the strength of domestic spending and
tightening labor markets." Although many economists believe that the Federal
Reserve has a longer-term bias toward more-restrictive monetary policy, they
also anticipate a slowing of the GDP growth rate for the remainder of the year.
Therefore, they do not expect that the Federal Reserve will, over the near term,
implement any restrictive policy changes (increases to the federal funds rate)
unless more-meaningful signs of inflation appear.
Since the last federal funds rate increase to 5.5% in March 1997, the rate of
inflation--as measured by the year-over-year change in the CPI--has dropped from
2.8% to 1.7%. Thus the real (inflation-adjusted) federal funds rate has
increased from 2.7% in March 1997 to 3.8% in June 1998. In his June 1998
testimony to Congress, Chairman Greenspan commented on the following statement
by Senator Paul S. Sarbanes: "By holding the federal funds rate constant at a
time when inflation has been dropping, in effect the Federal Reserve has raised
real interest rates. Monetary policy has tightened even though you have not
raised the rate." Chairman Greenspan's response: "That is correct."
NOTE: THIS MARKET OVERVIEW HAS BEEN PROVIDED BY THE PORTFOLIO MANAGEMENT TEAM.
6
<PAGE>
PORTFOLIO MANAGEMENT
THE PORTFOLIO MANAGEMENT TEAM
STEPHEN B. WARD, Senior Vice President and Chief Investment Officer, has
overall responsibility for the management of the Funds' portfolios. Steve
joined Charles Schwab Investment Management, Inc. (CSIM) as Vice President and
Portfolio Manager in April 1991 and was promoted to his current position in
August 1993. Prior to joining CSIM, Steve was Vice President and Portfolio
Manager at Federated Investors.
LINDA KLINGMAN, Vice President and Senior Portfolio Manager, has managed the
Schwab Money Market Fund since April of 1991. Linda joined CSIM in 1990 and
was promoted to her current position in August 1996. Prior to joining CSIM,
Linda was Senior Money Market Trader with AIM Management.
AMY TREANOR, Portfolio Manager, has managed the Schwab Government Money Fund
and the Schwab U.S. Treasury Fund since May of 1997. Amy joined CSIM in 1992
as Associate Portfolio Trader and was promoted to her current position in May
1997. Prior to joining CSIM, Amy was Portfolio Manager and Assistant Vice
President with Capitalcorp Asset Management.
7
<PAGE>
SCHWAB MONEY MARKET FUND
FUND PERFORMANCE AND PORTFOLIO COMPOSITION
YIELD SUMMARY AS OF 6/30/98(1)
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------
Seven-Day Yield 4.91%
- ---------------------------------------------------------------------------
Seven-Day Effective Yield 5.03%
- ---------------------------------------------------------------------------
</TABLE>
Please remember that money market fund yields fluctuate and that past
performance is no guarantee of future results.
(1)A portion of the Fund's fees was waived or reimbursed during the reporting
period. Without the waivers or reimbursements, as of 6/30/98, the seven-day
and seven-day effective yields for the Fund would have been 4.80% and 4.91%,
respectively.
PORTFOLIO COMPOSITION
The Schwab Money Market Fund invests primarily in highly rated commercial paper
and other corporate obligations, bank certificates of deposit, time deposits,
bankers' acceptances and U.S. government securities, as well as repurchase
agreements for these securities. The chart below illustrates the composition of
the Fund's portfolio as of June 30, 1998, and is not indicative of its holdings
after that date. A complete list of the securities in the Fund's portfolio as of
June 30, 1998, is provided in the Statement of Net Assets later in this report.
PORTFOLIO COMPOSITION AS A PERCENTAGE
OF FUND INVESTMENTS(2)
as of 6/30/98
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Commercial Paper and Other Corporate Obligations 78.7%
Certificates of Deposit 12.4%
Variable-Rate Obligations 6.8%
Repurchase Agreements 1.6%
Bank Notes 0.5%
</TABLE>
(2)These percentages do not take into account other assets and liabilities.
8
<PAGE>
SCHWAB GOVERNMENT MONEY FUND
FUND PERFORMANCE AND PORTFOLIO COMPOSITION
YIELD SUMMARY AS OF 6/30/98(1)
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------
Seven-Day Yield 4.83%
- ---------------------------------------------------------------------------
Seven-Day Effective Yield 4.95%
- ---------------------------------------------------------------------------
</TABLE>
Please remember that money market fund yields fluctuate and that past
performance is no guarantee of future results.
(1)A portion of the Fund's fees was waived or reimbursed during the reporting
period. Without the waivers or reimbursements, as of 6/30/98, the seven-day
current and seven-day effective yields for the Fund would have been 4.67% and
4.78%, respectively.
PORTFOLIO COMPOSITION
The Schwab Government Money Fund invests exclusively in U.S. government
securities, including obligations issued or guaranteed by the U.S. government,
its agencies and instrumentalities and U.S. Treasury bills, notes and bonds, and
repurchase agreements for these securities. The chart below illustrates the
composition of the Fund's portfolio as of June 30, 1998, and is not indicative
of its holdings after that date. A complete list of the securities in the Fund's
portfolio as of June 30, 1998, is provided in the Statement of Net Assets later
in this report.
PORTFOLIO COMPOSITION AS A PERCENTAGE
OF FUND INVESTMENTS(2)
as of 6/30/98
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Government Securities 51.9%
Repurchase Agreements 48.1%
</TABLE>
(2)These percentages do not take into account other assets and liabilities.
9
<PAGE>
SCHWAB U.S. TREASURY MONEY FUND
FUND PERFORMANCE AND PORTFOLIO COMPOSITION
YIELD SUMMARY AS OF 6/30/98(1)
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------
Seven-Day Yield 4.63%
- ---------------------------------------------------------------------------
Seven-Day Effective Yield 4.74%
- ---------------------------------------------------------------------------
</TABLE>
Please remember that money market fund yields fluctuate and that past
performance is no guarantee of future results.
(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
and seven-day effective yields for the Fund would have been 4.36% and 4.45%,
respectively.
PORTFOLIO COMPOSITION
The Schwab U.S. Treasury Money Fund invests exclusively in U.S. Treasury notes,
bills and other direct obligations of the U.S. Treasury that are backed by the
full faith and credit of the U.S. government. The chart below illustrates the
composition of the Fund's portfolio as of June 30, 1998, and is not
indicative of its holdings after that date. A complete list of the securities in
the Fund's portfolio as of June 30, 1998, is provided in the Statement of Net
Assets later in this report.
PORTFOLIO COMPOSITION AS A PERCENTAGE
OF FUND INVESTMENTS(2)
as of 6/30/98
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Treasury
Obligations 100%
</TABLE>
(2)These percentages do not take into account other assets and liabilities.
10
<PAGE>
FUND DISCUSSION
QUESTIONS TO THE
PORTFOLIO MANAGEMENT TEAM
Q. HOW HAS THE PORTFOLIO MANAGEMENT TEAM ADJUSTED THE FUNDS' PORTFOLIOS TO
RESPOND TO THE INTEREST RATE ENVIRONMENT?
A. Our strategy for managing the Funds has remained consistent during the
reporting period. Based on our expectation that the Federal Reserve would not
raise the federal funds rate, thereby not increasing interest rates, we looked
for opportunities to purchase securities with somewhat longer maturities (and
higher yields) when market conditions were advantageous. We attempted to
maintain a dollar-weighted average maturity (DWAM) slightly longer than that of
other funds with similar investment objectives. This strategy had a beneficial
impact on yields throughout most of the period.
Q. WHAT IMPACT HAVE THE ECONOMIC PROBLEMS OF SO MANY PACIFIC RIM COUNTRIES HAD
ON THE MANAGEMENT OF THE FUNDS?
A. Beginning in the fourth quarter of 1997, many Asian economies experienced
economic difficulties and severe currency devaluations--collectively referred to
as the "Asian Flu." These problems are expected by many to continue through
1998. Although it is a serious global problem that will no doubt have a credit
impact on the issuers of securities in those countries and their economies, it
has not had a significant effect on the issuers of what typically are considered
money market-eligible securities. Nevertheless, we continue as always to
carefully monitor the creditworthiness of any issuer of securities considered
for investment.
By virtue of their respective investment objectives, the Schwab U.S. Treasury
Money Fund and the Schwab Government Money Fund are not exposed to Asian
securities. The Schwab Money Market Fund, however, is able to invest in
high-quality, U.S. dollar-denominated money market securities of foreign
issuers. As we discussed in the Fund's December 1997 annual report, the Schwab
Money Market Fund did, as a precaution, reduce its exposure to Japanese issuers
of commercial paper, Japanese providers of credit enhancements, and certificates
of deposit issued by Japanese banks. As of the end of this reporting period, the
Schwab Money Market Fund had no direct or indirect exposure to any Asian issuers
or providers of credit enhancements. We will continue to monitor the risks and
relative merits of any direct or indirect Asian exposure for the Fund.
11
<PAGE>
GLOSSARY OF TERMS
COMMERCIAL PAPER--Short-term, interest-paying obligations issued by banks,
corporations and other borrowers.
CREDIT ENHANCEMENTS--A bank letter of credit, purchase agreement, insurance,
line of credit or other instrument that provides an additional level of
financial strength for debt securities to supplement the creditworthiness of the
issuer.
DOLLAR-WEIGHTED AVERAGE MATURITY (DWAM)--A measure of the average maturity of a
mutual fund's entire portfolio, weighted by the value of its individual
holdings.
FEDERAL FUNDS RATE--A key interest rate charged by banks when lending money to
other banks overnight.
FEDERAL RESERVE--The central bank of the United States, which establishes
policies on bank reserves and regulations, determines the discount rate and the
federal funds rate, and tightens or loosens the availability of credit.
FIRST-TIER SECURITY--A security rated in the highest credit-rating category by a
requisite number of nationally recognized statistical rating organizations, such
as Moody's, Standard & Poor's-Registered Trademark-, Duff or Fitch.
MATURITY--The length of time remaining until the issuer of a debt security must
repay the principal amount.
REAL GDP--The national gross domestic product (GDP)--the total value of all
goods and services produced in the United States over a specific period of
time--adjusted for the rate of inflation to allow meaningful year-to-year
comparisons.
YIELD--The actual annualized income earned on an investment over a stated period
of time (assumed to be generated over a one-year period). An EFFECTIVE YIELD
assumes that the income earned is reinvested.
12
<PAGE>
PORTFOLIO HIGHLIGHTS
SCHWAB MONEY MARKET FUND
AVERAGE YIELDS FOR THE SIX-MONTH PERIOD ENDED 6/30/98(1)
<TABLE>
<S> <C>
- -------------------------------------------------
Last seven days: 4.91%
- -------------------------------------------------
Last three months: 4.91%
- -------------------------------------------------
Last 12 months: 4.98%
- -------------------------------------------------
</TABLE>
MATURITY SCHEDULE: PERCENTAGE OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
MATURITY RANGE 3/31/98 6/30/98
<S> <C> <C>
- -----------------------------------------------------------
0-15 days 18.9% 17.1%
- -----------------------------------------------------------
16-30 days 17.7% 15.0%
- -----------------------------------------------------------
31-60 days 21.9% 28.2%
- -----------------------------------------------------------
61-90 days 16.6% 20.4%
- -----------------------------------------------------------
91-120 days 7.8% 6.1%
- -----------------------------------------------------------
More than 120 days 17.1% 13.2%
- -----------------------------------------------------------
Weighted average 67 days 63 days
- -----------------------------------------------------------
</TABLE>
PORTFOLIO QUALITY
<TABLE>
<CAPTION>
SEC TIER RATING PERCENTAGE OF NET ASSETS: 6/30/98
<S> <C>
- ---------------------------------------------------------------------------
Tier 1 100.0%
- ---------------------------------------------------------------------------
Tier 2 0.0%
- ---------------------------------------------------------------------------
</TABLE>
(1)A portion of the Fund's expenses was reduced during the periods. Had these
expenses not been reduced, yields would have been lower.
SCHWAB GOVERNMENT MONEY FUND
AVERAGE YIELDS FOR THE SIX-MONTH PERIOD ENDED 6/30/98(1)
<TABLE>
<S> <C>
- ------------------------------------------------
Last seven days: 4.83%
- ------------------------------------------------
Last three months: 4.84%
- ------------------------------------------------
Last 12 months: 4.87%
- ------------------------------------------------
</TABLE>
MATURITY SCHEDULE: PERCENTAGE OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
MATURITY RANGE 3/31/98 6/30/98
<S> <C> <C>
- -----------------------------------------------------------
0-15 days 46.5% 46.9%
- -----------------------------------------------------------
16-30 days 4.2% 2.6%
- -----------------------------------------------------------
31-60 days 10.8% 12.1%
- -----------------------------------------------------------
61-90 days 13.5% 18.0%
- -----------------------------------------------------------
91-120 days 4.6% 3.1%
- -----------------------------------------------------------
More than 120 days 20.4% 17.3%
- -----------------------------------------------------------
Weighted average 61 days 73 days
- -----------------------------------------------------------
</TABLE>
13
<PAGE>
PORTFOLIO HIGHLIGHTS
(continued)
SCHWAB U.S. TREASURY MONEY FUND
AVERAGE YIELDS FOR THE SIX-MONTH PERIOD ENDED 6/30/98(1)
<TABLE>
<S> <C>
- ------------------------------------------------
Last seven days: 4.63%
- ------------------------------------------------
Last three months: 4.70%
- ------------------------------------------------
Last 12 months: 4.75%
- ------------------------------------------------
</TABLE>
MATURITY SCHEDULE: PERCENTAGE OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
MATURITY RANGE 3/31/98 6/30/98
<S> <C> <C>
- -----------------------------------------------------------
0-15 days 8.8% 0.4%
- -----------------------------------------------------------
16-30 days 37.1% 0.0%
- -----------------------------------------------------------
31-60 days 14.7% 47.3%
- -----------------------------------------------------------
61-90 days 10.3% 6.8%
- -----------------------------------------------------------
91-120 days 3.4% 18.4%
- -----------------------------------------------------------
More than 120 days 25.7% 27.1%
- -----------------------------------------------------------
Weighted average 69 days 85 days
- -----------------------------------------------------------
</TABLE>
(1)A portion of the Fund's expenses was reduced during the periods. Had these
expenses not been reduced, yields would have been lower.
14
<PAGE>
SCHWAB MONEY MARKET FUND
STATEMENT OF NET ASSETS (in thousands)
June 30, 1998 (Unaudited)
Par Value
-------- ----------
COMMERCIAL PAPER AND OTHER CORPORATE
OBLIGATIONS -- 78.6% (a)
AUTOMOBILE RECEIVABLES -- 0.9%
New Center Asset Trust
5.60%, 08/04/98 $ 10,000 $ 9,948
5.64%, 08/28/98 100,000 99,112
New Center Asset Trust Plus
5.63%, 08/20/98 88,000 87,326
5.60%, 08/27/98 10,000 9,913
--------
206,299
--------
AUTOMOTIVE -- 3.7%
American Honda Finance Corp.
5.87%, 07/16/98 13,000 12,968
5.60%, 07/24/98 11,000 10,961
5.59%, 07/30/98 40,000 39,822
5.58%, 07/31/98 14,000 13,936
5.59%, 07/31/98 40,000 39,816
5.61%, 08/31/98 50,000 49,532
5.60%, 09/10/98 20,000 19,782
Chrysler Financial Corp.
5.58%, 07/13/98 49,000 48,910
5.61%, 08/14/98 150,000 148,990
5.60%, 08/26/98 25,000 24,785
5.61%, 08/26/98 55,000 54,528
5.61%, 09/02/98 74,000 73,285
5.62%, 09/02/98 40,000 39,613
5.62%, 09/03/98 31,000 30,695
FCE Bank PLC
5.57%, 07/06/98 25,000 24,981
5.58%, 08/07/98 37,000 36,792
Ford Motor Credit
5.56%, 07/06/98 80,000 79,939
General Motors Acceptance Corp.
5.70%, 07/14/98 45,000 44,910
5.57%, 08/03/98 25,000 24,875
Hertz Corp.
6.06%, 07/01/98 50,000 50,000
--------
869,120
--------
BANKING - AUSTRALIA -- 0.6%
Commonwealth Bank of Australia
5.60%, 07/14/98 50,000 49,902
Westpac Capital Corp.
5.45%, 07/15/98 40,000 39,917
5.45%, 07/17/98 60,000 59,859
--------
149,678
--------
Par Value
-------- ----------
BANKING - BELGIUM -- 1.9%
BBL North America
5.57%, 07/10/98 $ 50,000 $ 49,931
Cregem North America, Inc.
5.64%, 07/28/98 40,000 39,833
5.60%, 10/07/98 100,000 98,516
5.65%, 12/16/98 50,000 48,720
5.65%, 12/17/98 50,000 48,713
Generale Bank, Inc.
5.62%, 07/20/98 18,000 17,947
5.63%, 07/27/98 50,000 49,800
5.65%, 12/08/98 50,000 48,779
5.65%, 12/09/98 45,000 43,895
--------
446,134
--------
BANKING - CANADA -- 0.7%
Bank of Nova Scotia
5.45%, 07/09/98 40,000 39,953
5.50%, 07/16/98 40,000 39,911
5.59%, 08/19/98 58,000 57,565
Toronto-Dominion Holdings
5.45%, 07/14/98 30,000 29,942
--------
167,371
--------
BANKING - DENMARK -- 0.6%
Den Danske Corp.
5.58%, 07/20/98 24,585 24,514
5.60%, 09/28/98 25,000 24,663
Unifunding, Inc.
5.60%, 08/27/98 40,000 39,655
5.60%, 10/05/98 36,000 35,477
5.65%, 12/03/98 9,000 8,787
--------
133,096
--------
BANKING - DOMESTIC -- 6.8%
Bankers Trust Corp.
5.66%, 12/09/98 88,000 85,836
5.66%, 12/10/98 17,000 16,579
Bankers Trust New York Corp.
5.57%, 08/25/98 21,000 20,826
5.62%, 09/17/98 100,000 98,818
5.65%, 10/16/98 25,000 24,592
5.67%, 10/22/98 30,000 29,481
5.65%, 10/23/98 10,000 9,826
Citibank Capital Markets
Assets, L.L.C
5.60%, 08/13/98 30,000 29,802
Enterprise Funding Corp.
5.57%, 07/09/98 19,276 19,252
15
<PAGE>
SCHWAB MONEY MARKET FUND
STATEMENT OF NET ASSETS (in thousands) (continued)
June 30, 1998 (Unaudited)
Par Value
-------- ----------
International Securitization Corp./
(First National Bank of Chicago LOC)
5.86%, 07/15/98 $ 9,790 $ 9,768
5.60%, 07/16/98 78,425 78,245
5.63%, 07/22/98 27,850 27,760
5.58%, 07/23/98 30,000 29,899
5.60%, 07/23/98 18,025 17,964
5.60%, 08/11/98 13,750 13,664
5.60%, 08/17/98 54,000 53,611
5.70%, 11/18/98 27,055 26,473
J. P. Morgan & Company
5.65%, 12/11/98 205,000 199,914
5.67%, 12/11/98 23,000 22,427
5.65%, 12/14/98 113,500 110,631
5.65%, 12/15/98 100,000 97,458
5.65%, 12/16/98 100,000 97,443
Kitty Hawk Funding Corp.
5.60%, 07/15/98 27,000 26,942
5.60%, 09/01/98 75,486 74,768
5.60%, 09/14/98 51,060 50,473
5.62%, 09/17/98 74,932 74,033
5.65%, 09/21/98 16,000 15,800
5.67%, 12/01/98 50,000 48,827
NationsBank Corp.
5.60%, 08/20/98 50,000 49,617
Salts (III) Cayman Islands Corp.
Secured Short Term Notes
Series 1998-6
(Bankers Trust Co. Guaranty)
5.82%, 12/18/98 16,000 16,000
UnionBancal Commercial
Funding Corp.
5.60%, 08/20/98 50,000 49,617
5.60%, 08/26/98 50,000 49,571
Vehicle Services of America/
(NationsBank NA LOC)
5.61%, 09/09/98 17,000 16,817
----------
1,592,734
----------
BANKING - GERMANY -- 0.6%
Comision Federal de Electricidad/
(Westdeutsche Landesbank LOC)
5.60%, 07/27/98 25,000 24,900
5.60%, 08/20/98 35,000 34,732
Deutsche Bank Financial, Inc.
5.58%, 07/31/98 75,000 74,657
----------
134,289
----------
Par Value
-------- ----------
BANKING - NORWAY -- 1.3%
Den Norske Bank
5.58%, 07/20/98 $ 40,000 $ 39,883
5.58%, 08/07/98 100,000 99,435
5.60%, 08/18/98 26,000 25,809
5.61%, 09/10/98 27,000 26,710
5.61%, 09/15/98 50,000 49,425
5.61%, 09/21/98 27,000 26,665
5.64%, 10/27/98 9,000 8,837
5.65%, 11/20/98 40,000 39,131
----------
315,895
----------
BANKING - SWEDEN -- 1.8%
Nordbanken of North America, Inc.
5.61%, 09/08/98 49,000 48,488
5.61%, 09/15/98 50,000 49,425
5.64%, 10/30/98 61,000 59,870
5.65%, 12/16/98 45,000 43,847
Svenska Handelsbanken, Inc.
5.61%, 07/29/98 26,000 25,888
5.61%, 08/25/98 40,000 39,666
5.61%, 09/04/98 40,000 39,607
5.61%, 09/08/98 52,000 51,457
5.64%, 11/17/98 42,047 41,154
5.65%, 12/08/98 27,400 26,731
----------
426,133
----------
BANKING - UNITED KINGDOM -- 0.6%
Banco Nacional de Comercio Exterior/
(Barclays Bank LOC)
5.54%, 07/13/98 15,000 14,973
5.59%, 08/04/98 19,000 18,901
5.61%, 10/14/98 27,500 27,062
5.61%, 10/15/98 20,000 19,679
Banco Nacional de Mexico S.A./
(Barclays Bank LOC)
5.55%, 08/10/98 10,000 9,940
Bank of Scotland Treasury Services
5.60%, 10/06/98 45,000 44,339
----------
134,894
----------
COMPUTERS AND OFFICE EQUIPMENT -- 0.2%
CSC Enterprises
5.63%, 08/25/98 30,000 29,746
5.63%, 09/10/98 9,000 8,901
----------
38,647
-----------
16
<PAGE>
Par Value
-------- ----------
CONSUMER PRODUCTS -- 0.2%
Philip Morris Capital Corp.
5.59%, 08/12/98 $ 46,000 $ 45,704
----------
CREDIT CARD RECEIVABLES -- 0.1%
Providian Master Trust
Series 1993-3
5.58%, 07/01/98 30,000 30,000
----------
DIVERSIFIED FINANCIAL ASSETS -- 9.0%
Bavaria GLB Corp.
5.60%, 07/28/98 12,235 12,184
Beta Finance, Inc.
5.60%, 08/11/98 21,500 21,365
5.60%, 08/17/98 40,000 39,712
5.60%, 08/25/98 33,000 32,725
5.60%, 08/26/98 29,000 28,754
5.61%, 09/09/98 18,000 17,809
5.64%, 09/30/98 25,000 24,654
CC (USA), Inc.
5.46%, 07/13/98 12,000 11,979
5.60%, 07/21/98 10,000 9,969
5.60%, 08/03/98 14,500 14,427
5.60%, 08/05/98 6,000 5,968
5.60%, 08/06/98 20,000 19,890
5.60%, 08/10/98 17,200 17,094
5.61%, 09/24/98 30,000 29,614
Concord Minutemen Capital Co., L.L.C.
5.64%, 07/07/98 63,000 62,942
5.65%, 10/01/98 38,000 37,467
5.64%, 10/08/98 25,000 24,624
Greenwich Funding Corp.
5.58%, 07/13/98 17,020 16,989
5.58%, 07/15/98 82,000 81,824
5.60%, 07/29/98 25,703 25,592
5.60%, 09/09/98 118,000 116,733
5.62%, 09/21/98 25,000 24,684
5.62%, 09/22/98 53,602 52,917
Lexington Parker Capital Corp.
5.59%, 07/10/98 16,000 15,978
5.53%, 07/27/98 37,000 36,856
5.60%, 07/27/98 14,000 13,944
5.63%, 07/27/98 50,000 49,800
5.61%, 07/28/98 15,000 14,938
5.61%, 08/05/98 45,000 44,758
5.55%, 08/11/98 25,000 24,846
5.60%, 08/19/98 58,000 57,565
5.55%, 08/21/98 41,020 40,707
Par Value
-------- ----------
5.62%, 08/21/98 $ 12,000 $ 11,907
5.61%, 08/24/98 17,000 16,861
5.66%, 09/09/98 86,000 85,080
5.63%, 09/16/98 60,505 59,797
5.60%, 10/08/98 23,000 22,656
5.65%, 11/24/98 60,000 58,662
5.69%, 12/04/98 23,000 22,449
Ranger Funding Corp.
5.57%, 07/07/98 25,000 24,977
5.60%, 07/22/98 30,000 29,903
Repeat Offering Securitization
Entity, Inc.
5.59%, 07/28/98 34,498 34,355
5.60%, 07/28/98 24,000 23,900
5.59%, 07/29/98 27,000 26,884
Sigma Finance, Inc.
5.63%, 07/28/98 27,000 26,888
5.63%, 07/30/98 48,000 47,785
5.63%, 07/31/98 25,000 24,884
5.60%, 08/12/98 23,000 22,852
5.55%, 08/24/98 24,000 23,806
5.62%, 08/24/98 20,000 19,834
5.63%, 09/01/98 46,000 45,559
5.60%, 09/11/98 11,000 10,880
5.61%, 09/21/98 50,000 49,379
5.61%, 09/23/98 25,000 24,682
5.62%, 09/23/98 51,000 50,341
5.64%, 09/30/98 62,000 61,130
5.64%, 10/01/98 29,000 28,594
5.65%, 10/01/98 22,000 21,691
5.65%, 11/02/98 8,000 7,848
5.65%, 12/10/98 100,000 97,525
5.66%, 12/14/98 36,000 35,087
5.65%, 12/15/98 80,000 77,959
----------
2,123,463
----------
ELECTRICAL & ELECTRONICS -- 1.6%
General Electric Co.
5.61%, 07/24/98 138,000 137,514
5.59%, 08/05/98 140,000 139,253
5.57%, 08/06/98 100,000 99,453
----------
376,220
----------
FINANCE - COMMERCIAL -- 9.4%
CIT Group Holdings, Inc.
5.58%, 07/24/98 40,000 39,859
5.58%, 07/30/98 28,000 27,876
5.60%, 08/27/98 108,000 107,058
17
<PAGE>
SCHWAB MONEY MARKET FUND
STATEMENT OF NET ASSETS (in thousands) (continued)
June 30, 1998 (Unaudited)
Par Value
-------- ----------
5.60%, 08/31/98 $ 75,000 $ 74,300
5.60%, 09/18/98 91,000 89,912
Finova Capital Corp.
5.68%, 08/28/98 51,000 50,542
5.62%, 09/09/98 20,000 19,786
5.62%, 09/11/98 18,050 17,852
5.62%, 09/16/98 15,000 14,824
5.68%, 09/29/98 25,000 24,655
5.68%, 10/08/98 25,000 24,621
5.68%, 11/05/98 34,000 33,332
5.68%, 11/06/98 52,000 50,970
General Electric Capital Corp.
5.61%, 07/24/98 37,000 36,870
5.58%, 08/03/98 32,000 31,839
5.59%, 08/04/98 10,000 9,948
5.58%, 08/06/98 100,000 99,451
5.58%, 08/12/98 118,000 117,246
5.58%, 08/13/98 100,000 99,345
5.55%, 08/18/98 70,000 69,497
5.60%, 08/20/98 50,000 49,621
5.60%, 08/24/98 100,000 99,181
5.60%, 08/25/98 90,000 89,249
5.60%, 09/10/98 100,000 98,927
5.60%, 09/14/98 75,000 74,150
5.61%, 09/16/98 40,000 39,529
5.64%, 10/23/98 69,000 67,796
5.65%, 12/07/98 100,000 97,571
5.65%, 12/29/98 14,000 13,614
General Electric Capital Services
5.57%, 08/03/98 39,000 38,804
5.59%, 09/09/98 30,000 29,683
5.60%, 09/10/98 100,000 98,927
5.64%, 10/23/98 50,000 49,128
5.65%, 12/29/98 46,000 44,730
Heller Financial, Inc.
5.99%, 07/09/98 14,000 13,982
5.90%, 08/17/98 75,000 74,432
5.83%, 08/19/98 27,000 26,789
5.83%, 08/20/98 50,000 49,601
5.84%, 08/28/98 20,000 19,815
5.86%, 09/03/98 50,000 49,489
5.87%, 09/09/98 35,000 34,608
5.79%, 09/16/98 12,000 11,853
----------
2,211,262
----------
FINANCE - CONSUMER -- 2.7%
Associates Corp. of North America
5.58%, 07/21/98 65,000 64,801
5.58%, 07/22/98 65,000 64,792
Par Value
-------- ----------
5.59%, 07/23/98 $ 67,000 $ 66,775
5.60%, 08/18/98 90,000 89,338
5.60%, 08/31/98 100,000 99,066
5.60%, 09/10/98 25,000 24,728
5.61%, 09/16/98 77,000 76,093
Associates First Capital Corp.
5.61%, 09/03/98 50,000 49,509
5.61%, 09/17/98 100,000 98,804
----------
633,906
----------
LIFE INSURANCE -- 0.2%
GE Financial Assurance Holdings
5.65%, 12/07/98 50,000 48,788
----------
MISCELLANEOUS SERVICES -- 0.4%
PHH Corp.
5.68%, 07/01/98 50,000 50,000
5.67%, 07/09/98 50,000 49,937
----------
99,937
----------
MORTGAGE BANKING -- 0.2%
Countrywide Home Loans, Inc.
5.63%, 08/24/98 25,000 24,791
5.63%, 08/26/98 23,900 23,693
-----------
48,484
----------
PAPER & FOREST PRODUCTS -- 0.1%
Rexam PLC
5.60%, 08/21/98 19,200 19,050
----------
SECURITIES BROKERAGE - DEALER -- 16.2%
Bear Stearns Companies, Inc.
5.69%, 07/16/98 32,000 31,926
5.57%, 07/23/98 40,000 39,866
5.55%, 07/27/98 50,000 49,804
5.65%, 12/18/98 50,000 48,701
BT Alex Brown, Inc.
5.60%, 10/09/98 9,000 8,864
5.66%, 12/02/98 11,000 10,741
5.65%, 12/04/98 7,000 6,833
Credit Suisse First Boston, Inc.
5.58%, 07/22/98 30,000 29,904
5.58%, 07/23/98 30,000 29,899
5.58%, 07/28/98 20,000 19,917
Goldman Sachs Group, LP
5.72%, 07/01/98 44,000 44,000
5.70%, 07/09/98 50,000 49,938
5.64%, 07/10/98 100,000 99,863
5.67%, 07/17/98 27,000 26,934
18
<PAGE>
Par Value
-------- ----------
5.60%, 08/18/98 $ 34,000 $ 33,750
5.60%, 08/24/98 100,000 99,172
5.61%, 08/31/98 53,000 52,504
5.61%, 09/01/98 150,000 148,574
5.61%, 09/03/98 75,000 74,264
5.61%, 10/05/98 57,000 56,162
Lehman Brothers Holdings, Inc.
5.58%, 07/28/98 36,000 35,853
5.56%, 07/29/98 45,000 44,811
5.58%, 08/07/98 20,000 19,888
5.60%, 08/17/98 13,000 12,908
5.58%, 08/19/98 62,000 61,543
5.59%, 08/21/98 9,000 8,931
5.67%, 10/02/98 135,000 133,078
5.65%, 10/22/98 16,000 15,724
5.70%, 11/10/98 14,000 13,716
5.69%, 12/10/98 9,000 8,776
5.70%, 12/29/98 70,000 68,050
Merrill Lynch & Co., Inc.
5.57%, 07/24/98 40,000 39,860
5.57%, 07/28/98 93,000 92,618
5.58%, 07/30/98 95,000 94,581
5.57%, 07/31/98 35,000 34,840
5.62%, 08/10/98 64,000 63,607
5.60%, 08/27/98 67,000 66,415
5.61%, 09/16/98 28,000 27,670
5.61%, 09/18/98 45,000 44,462
5.60%, 09/30/98 95,000 93,694
5.64%, 10/29/98 50,000 49,082
5.64%, 10/30/98 25,000 24,537
5.65%, 12/03/98 44,000 42,960
5.65%, 12/04/98 64,000 62,475
5.99%, 12/04/98 150,000 149,990
Morgan Stanley-Dean Witter,
Discover
5.58%, 07/20/98 100,000 99,710
5.58%, 07/22/98 45,000 44,856
5.58%, 07/23/98 137,000 136,540
5.58%, 07/30/98 50,000 49,779
5.58%, 08/03/98 50,000 49,748
5.58%, 08/04/98 100,000 99,482
5.58%, 08/05/98 100,000 99,466
5.58%, 08/06/98 75,000 74,589
5.60%, 09/03/98 87,000 86,146
5.63%, 09/29/98 100,000 98,633
PaineWebber Group, Inc.
5.64%, 07/15/98 45,000 44,903
Par Value
-------- ----------
Salomon Smith Barney Holdings Inc.
5.60%, 07/02/98 $ 50,000 $ 49,992
5.60%, 07/07/98 10,000 9,991
5.45%, 07/08/98 110,000 109,887
5.57%, 07/15/98 43,000 42,908
5.57%, 07/16/98 77,000 76,824
5.58%, 07/29/98 56,000 55,761
5.58%, 08/04/98 100,000 99,482
5.62%, 08/11/98 50,000 49,685
5.62%, 08/12/98 100,000 99,355
5.60%, 08/31/98 10,000 9,907
5.63%, 10/13/98 54,000 53,139
----------
3,812,468
----------
TRADE RECEIVABLES -- 18.8%
Apreco, Inc.
5.61%, 07/02/98 20,000 19,997
5.58%, 07/09/98 23,000 22,972
5.58%, 07/17/98 19,000 18,954
5.58%, 07/22/98 11,000 10,965
5.61%, 08/07/98 31,550 31,371
5.61%, 08/14/98 38,000 37,743
5.60%, 09/16/98 45,000 44,469
Asset Securitization Cooperative Corp.
5.60%, 08/14/98 35,000 34,764
5.61%, 08/25/98 100,000 99,157
5.61%, 08/26/98 100,000 99,141
5.61%, 08/27/98 113,000 112,012
5.68%, 09/01/98 25,000 24,758
Barton Capital Corp.
5.57%, 07/07/98 136,680 136,554
5.62%, 07/13/98 14,214 14,188
5.58%, 07/14/98 80,163 80,003
5.59%, 07/29/98 5,000 4,979
5.59%, 07/31/98 34,871 34,710
5.60%, 08/05/98 29,246 29,088
5.60%, 08/07/98 14,271 14,190
5.60%, 08/10/98 7,224 7,179
5.60%, 08/11/98 14,523 14,431
5.60%, 08/13/98 68,566 68,114
5.61%, 09/14/98 75,000 74,137
5.60%, 09/17/98 22,000 21,737
Clipper Receivables Corp.
5.62%, 09/22/98 30,000 29,617
Corporate Receivables Corp.
5.57%, 07/09/98 25,000 24,969
5.57%, 07/10/98 25,000 24,966
19
<PAGE>
SCHWAB MONEY MARKET FUND
STATEMENT OF NET ASSETS (in thousands) (continued)
June 30, 1998 (Unaudited)
Par Value
-------- ----------
5.58%, 07/10/98 $ 50,000 $ 49,931
5.59%, 07/30/98 53,200 52,963
5.60%, 08/17/98 30,000 29,784
5.60%, 09/02/98 40,000 39,614
5.61%, 09/14/98 20,000 19,770
5.62%, 09/14/98 58,000 57,332
5.61%, 09/15/98 127,000 125,520
5.62%, 09/17/98 40,000 39,522
5.62%, 09/22/98 50,000 49,361
5.62%, 09/23/98 25,000 24,677
5.62%, 09/24/98 35,000 34,542
CXC, Inc.
5.57%, 07/01/98 54,000 54,000
5.60%, 07/08/98 75,000 74,920
5.60%, 07/20/98 50,000 49,855
5.59%, 07/29/98 80,000 79,658
5.58%, 07/30/98 59,000 58,739
5.61%, 08/11/98 27,000 26,830
5.60%, 08/13/98 80,000 79,473
5.62%, 09/15/98 75,000 74,135
5.64%, 11/05/98 15,000 14,708
5.64%, 11/12/98 50,000 48,976
Delaware Funding Corp.
5.63%, 07/27/98 50,000 49,800
5.64%, 09/21/98 71,976 71,070
Edison Asset Securitization
Corp., L.L.C.
5.60%, 07/15/98 25,090 25,036
5.60%, 07/17/98 20,000 19,951
Eureka Securitization, Inc.
5.58%, 08/04/98 30,000 29,844
5.58%, 08/05/98 25,000 24,866
5.60%, 08/19/98 10,000 9,925
5.60%, 09/10/98 25,000 24,728
5.62%, 09/16/98 40,000 39,527
5.61%, 09/18/98 25,000 24,697
5.62%, 09/23/98 30,000 29,612
Falcon Asset Securitization Corp.
5.62%, 09/21/98 38,195 37,715
Market Street Funding Corp.
5.65%, 08/14/98 60,989 60,572
Mont Blanc Capital Corp.
5.66%, 07/02/98 15,611 15,609
5.60%, 07/06/98 80,813 80,750
5.61%, 08/03/98 90,000 89,540
5.59%, 08/10/98 50,000 49,692
5.60%, 08/11/98 47,818 47,516
5.62%, 08/12/98 40,000 39,740
Par Value
-------- ----------
5.63%, 08/21/98 $ 20,000 $ 19,842
5.63%, 09/22/98 28,000 27,642
Monte Rosa Capital Corp.
5.61%, 09/02/98 80,000 79,223
5.62%, 09/16/98 55,000 54,348
Park Avenue Receivables Corp.
5.62%, 08/18/98 20,000 19,851
Preferred Receivables Funding Corp.
5.65%, 10/05/98 43,000 42,362
Quincy Capital Corp.
5.61%, 08/06/98 29,348 29,185
Receivables Capital Corp.
5.60%, 09/15/98 24,011 23,731
Sheffield Receivables Corp.
5.58%, 07/06/98 39,335 39,305
5.60%, 08/28/98 82,580 81,846
Special Purpose Accounts
Receivable Cooperative Corp.
5.62%, 07/31/98 20,500 20,406
5.64%, 07/31/98 37,000 36,828
5.62%, 08/14/98 19,000 18,871
5.63%, 08/17/98 30,000 29,783
5.63%, 08/21/98 15,000 14,882
5.71%, 09/01/98 14,000 13,864
WCP Funding, Inc.
5.57%, 07/08/98 24,000 23,974
5.58%, 07/09/98 25,000 24,969
5.57%, 07/15/98 40,000 39,915
5.58%, 07/16/98 25,000 24,942
5.60%, 08/12/98 25,000 24,839
5.61%, 09/04/98 20,000 19,800
5.62%, 09/11/98 25,000 24,723
Windmill Funding
5.58%, 07/08/98 48,000 47,948
5.58%, 07/09/98 25,442 25,411
5.58%, 07/10/98 25,000 24,965
5.57%, 07/15/98 20,000 19,957
5.57%, 07/17/98 37,000 36,910
5.58%, 07/17/98 53,608 53,477
5.59%, 07/17/98 44,937 44,827
5.59%, 07/21/98 29,471 29,381
5.61%, 07/21/98 50,000 49,845
5.58%, 07/22/98 82,000 81,737
5.60%, 08/14/98 18,024 17,902
5.61%, 08/14/98 21,217 21,074
5.60%, 08/18/98 19,000 18,860
5.61%, 08/20/98 74,765 74,191
5.60%, 08/21/98 25,000 24,804
20
<PAGE>
Par Value
-------- -----------
5.60%, 08/25/98 $ 34,014 $ 33,727
5.61%, 08/28/98 22,315 22,116
5.60%, 09/02/98 15,000 14,855
5.61%, 09/18/98 65,036 64,247
-----------
4,431,030
-----------
TOTAL COMMERCIAL PAPER AND OTHER
CORPORATE OBLIGATIONS
(Cost $18,494,602) 18,494,602
-----------
CERTIFICATES OF DEPOSIT -- 12.3%
BANKING - BELGIUM -- 1.1%
Credit Communal de Belgique
5.65%, 11/19/98 $100,000 100,000
5.65%, 11/23/98 50,000 50,001
5.80%, 03/31/99 50,000 49,978
5.90%, 05/04/99 50,000 49,976
-----------
249,955
-----------
BANKING - CANADA -- 1.6%
Bank of Nova Scotia
5.60%, 10/06/98 70,000 70,010
Canadian Imperial Bank of
Commerce
5.50%, 07/13/98 95,000 94,999
5.90%, 08/12/98 19,300 19,300
6.01%, 10/21/98 49,000 48,991
5.80%, 03/30/99 50,000 49,966
5.80%, 04/01/99 50,000 49,982
5.80%, 04/27/99 50,000 49,978
-----------
383,226
-----------
BANKING - DENMARK -- 0.4%
Unibank A/S
5.60%, 09/08/98 100,000 100,000
-----------
BANKING - DOMESTIC -- 1.3%
Crestar Bank
5.57%, 07/06/98 35,000 34,999
5.58%, 08/04/98 50,000 50,002
Mellon Bank N.A.
5.57%, 07/07/98 50,000 50,000
5.57%, 07/08/98 50,000 50,000
5.57%, 07/09/98 28,000 28,000
Wilmington Trust Co.
5.55%, 08/13/98 50,000 50,000
5.61%, 09/09/98 38,000 38,000
-----------
301,001
-----------
Par Value
-------- ----------
BANKING - FRANCE -- 3.0%
Societe Generale
5.82%, 07/13/98 $ 25,000 $ 25,000
5.88%, 07/13/98 65,000 65,000
5.91%, 07/21/98 100,000 99,998
5.93%, 07/21/98 50,000 49,998
5.90%, 08/04/98 50,000 49,994
6.00%, 08/26/98 65,000 64,994
6.00%, 09/04/98 117,000 116,981
5.45%, 10/01/98 75,000 75,061
5.46%, 10/05/98 25,000 25,020
6.01%, 10/20/98 37,000 36,988
5.80%, 03/30/99 100,000 99,961
----------
708,995
----------
BANKING - GERMANY -- 1.4%
Deutsche Bank
5.80%, 06/11/99 50,000 49,968
Westdeutsche Landesbank
5.44%, 07/15/98 40,000 40,000
5.58%, 08/10/98 100,000 100,000
5.58%, 08/11/98 150,000 150,000
----------
339,968
----------
BANKING - NORWAY -- 0.2%
Den Norske Bank
5.66%, 11/30/98 50,000 50,005
----------
BANKING - SWEDEN -- 0.1%
Svenska Handelsbanken
5.60%, 07/29/98 20,000 20,002
----------
BANKING - SWITZERLAND -- 0.2%
Credit Suisse First Boston, Inc.
5.80%, 04/27/99 50,000 50,000
----------
BANKING - UNITED KINGDOM -- 3.0%
Abbey National Treasury
Services PLC
5.93%, 08/07/98 100,000 100,000
5.60%, 08/19/98 100,000 100,000
5.60%, 09/28/98 100,000 100,000
6.00%, 12/08/98 150,000 150,000
Barclays Bank PLC
5.90%, 08/21/98 150,000 149,986
21
<PAGE>
SCHWAB MONEY MARKET FUND
STATEMENT OF NET ASSETS (in thousands) (continued)
June 30, 1998 (Unaudited)
Par Value
---------- ----------
National Westminster Bank PLC
5.46%, 07/14/98 $ 100,000 $ 100,000
----------
699,986
----------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $2,903,138) 2,903,138
----------
VARIABLE RATE OBLIGATIONS -- 6.8% (b)
BANKING - DOMESTIC -- 0.6%
6700 Cherry Avenue Partners Demand
Bond Series 1993/
(Wells Fargo Bank LOC)
5.75%, 07/07/98 10,500 10,500
Lowndes Corporation, Georgia Taxable
Demand Bond Series 1997 (First
Union National Bank LOC)
5.65%, 07/07/98 10,000 10,000
MoviePlex Realty Leasing, L.L.C
Adjustable Rate Tender Securities
(Carmike Cinemas, Inc.)
Series 1997A1/(Wachovia
Bank LOC)
5.60%, 07/07/98 35,125 35,125
MoviePlex Realty Leasing, L.L.C
Adjustable Rate Tender Securities
(Carmike Cinemas, Inc.)
Series 1997A2/(Suntrust Bank
of Atlanta LOC)
5.60%, 07/07/98 12,325 12,325
MoviePlex Realty Leasing, L.L.C
Adjustable Rate Tender Securities
(Carmike Cinemas, Inc.)
Series 1997A3/(Bank of
New York LOC)
5.60%, 07/07/98 12,325 12,325
Salts (II) Cayman Islands Corp.
Secured Short Term Notes
Series 1998-19
(Bankers Trust Co. Guaranty)
5.74%, 09/18/98 20,000 20,000
Strategic Money Market Trust 1997A
(Morgan Guaranty Trust Co. Guaranty)
5.69%, 09/23/98 40,000 40,000
----------
140,275
----------
Par Value
------- ----------
BANKING - FRANCE -- 0.3%
New Jersey Economic Development
Authority Adjustable Rate Money
Market Securities (GE Aerospace
Camden Development Project)
Series A/(Banque Nationale de
Paris LOC)
5.58%, 07/07/98 $20,575 $ 20,575
New Jersey Economic Development
Authority Adjustable Rate Money
Market Securities (GE Aerospace
Camden Development Project)
Series B/(Banque Nationale de
Paris LOC)
5.58%, 07/07/98 10,000 10,000
Societe Generale
5.56%, 07/20/98 50,000 49,967
----------
80,542
----------
BANKING - NETHERLANDS -- 0.1%
New Jersey Economic Development
Authority Adjustable Rate Lease
Revenue Taxable Bonds (Barnes &
Noble, Inc. Distribution & Freight
Consolidation Center Project)
Series 1995A/(Rabobank LOC)
5.57%, 07/07/98 20,920 20,920
New Jersey Economic Development
Authority Adjustable Rate Lease
Revenue Taxable Bonds (Barnes &
Noble, Inc. Distribution & Freight
Consolidation Center Project)
Series B/(Rabobank LOC)
5.57%, 07/07/98 10,000 10,000
----------
30,920
----------
BANKING - UNITED KINGDOM & GERMANY -- 0.1%
GO Refunding Bonds of the County of
Hudson (State of New Jersey) (VRDO)
Taxable Series 1995 /(Landesbank
Hessen-Thuringen Girozentrale LOC)
5.60%, 07/07/98 19,140 19,140
----------
EDUCATION -- 0.2%
Development Authority of Dekalb
County Taxable Rate RB (Emory
University Project) Series 1995B
5.60%, 07/07/98 34,125 34,125
----------
22
<PAGE>
Par Value
------- ----------
HEALTH CARE -- 0.1%
Catholic Health Initiatives Taxable
Demand Bonds
Series 1997C
5.60%, 07/07/98 $ 33,800 $ 33,800
----------
LIFE INSURANCE -- 2.6%
Commonwealth Life Insurance Co. (d)
5.81%, 07/01/98 100,000 100,000
First Allmerica Financial Life (d)
Insurance Co.
5.74%, 07/01/98 50,000 50,000
General American Life Insurance Co.
5.85%, 07/01/98 175,000 175,000
Jackson National Life Insurance Co. (d)
5.73%, 07/01/98 60,000 60,000
John Hancock Mutual Life
Insurance Co. (d)
5.69%, 07/01/98 50,000 50,000
Pacific Mutual Life Insurance Co. (d)
5.62%, 07/01/98 100,000 100,000
Transamerica Life Insurance &
Annuity Co.
5.65%, 07/01/98 75,000 75,000
----------
610,000
----------
MONOLINE INSURANCE -- 0.3%
Baptist Health Systems of South
Florida,Inc. Taxable Direct Note
Obligations Series 1995A
(MBIA Insurance)
5.60%, 07/07/98 13,000 13,000
Baptist Health Systems of South
Florida,Inc. Taxable Direct Note
Obligations Series 1995B
(MBIA Insurance)
5.60%, 07/07/98 19,000 19,000
Dade County, Florida Expressway
Authority Toll System RB
Series 1996/(FGIC Insurance)
5.60%, 07/07/98 31,200 31,200
The Community Redevelopment
Agency of the City of Los Angeles,
California (Bunker Hill Project)
Subordinate Tax Allocation Refunding
Bonds Series 1997A /(FSA Insurance)
5.65%, 07/07/98 10,000 10,000
----------
73,200
----------
Par Value
------- ----------
SECURITIES BROKERAGE - DEALER -- 2.5%
Bear Stearns Companies, Inc.
5.64%, 07/13/98 $ 200,000 $ 200,000
5.64%, 07/20/98 50,000 50,000
5.64%, 07/22/98 10,000 10,000
J.P. Morgan Securities
5.65%, 07/01/98 50,000 50,000
Lehman Brothers Holdings, Inc.
5.72%, 07/06/98 85,000 85,017
5.65%, 07/15/98 (d) 100,000 100,000
5.66%, 07/16/98 90,000 90,000
-----------
585,017
-----------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $1,607,019) 1,607,019
-----------
BANK NOTES -- 0.5%
BANKING - DOMESTIC -- 0.5%
BankBoston N.A
5.57%, 07/08/98 65,000 65,000
5.59%, 08/18/98 50,000 50,000
-----------
TOTAL BANK NOTES
(Cost $115,000) 115,000
-----------
REPURCHASE AGREEMENTS -- 1.6% (c)
Salomon Brothers Inc. Tri-Party
Repurchase Agreements; Collateralized
by: U.S. Government Securities
6.25% Issue 08/19/96
Due 07/01/98 123,000 123,000
6.25% Issue 09/30/96
Due 07/01/98 91,000 91,000
6.25% Issue 03/31/97
Due 07/01/98 35,000 35,000
6.25% Issue 04/07/97
Due 07/01/98 100,000 100,000
6.25% Issue 06/30/98
Due 07/01/98 20,037 20,037
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $369,037) 369,037
-----------
TOTAL INVESTMENTS -- 99.8%
(Cost $23,488,796) 23,488,796
-----------
OTHER ASSETS AND LIABILITIES -- 0.2%
Other Assets 87,291
Liabilities (53,589)
-----------
33,702
-----------
NET ASSETS -- 100.0% $23,522,498
===========
SEE ACCOMPANYING NOTES TO STATEMENTS OF NET ASSETS AND
NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
SCHWAB GOVERNMENT MONEY FUND
STATEMENT OF NET ASSETS (in thousands)
June 30, 1998 (Unaudited)
Par Value
-------- ----------
U.S. GOVERNMENT SECURITIES -- 48.0%
COUPON NOTES -- 16.7%
FFCB
5.50%, 04/01/99 $34,805 $ 34,765
FHLB
5.71%, 10/01/98 25,000 24,997
5.56%, 03/25/99 49,125 49,099
5.54%, 04/07/99 35,000 34,959
5.57%, 04/07/99 30,000 29,981
5.58%, 05/12/99 20,630 20,608
FHLMC
5.61%, 03/12/99 10,115 10,115
FNMA
5.63%, 08/14/98 12,000 11,998
5.71%, 09/09/98 26,000 25,997
5.84%, 03/29/99 19,470 19,491
5.56%, 05/21/99 27,860 27,826
SLMA
5.78%, 09/09/98 25,000 24,996
5.82%, 09/16/98 25,000 25,001
----------
339,833
----------
DISCOUNT NOTES -- 31.3%
FHLMC
5.51%, 07/27/98 20,165 20,085
5.50%, 08/24/98 46,050 45,674
5.51%, 09/04/98 28,000 27,724
5.50%, 09/08/98 5,115 5,062
5.51%, 09/14/98 27,385 27,075
5.51%, 09/25/98 40,000 39,482
FNMA
5.59%, 07/07/98 40,000 39,963
5.54%, 07/30/98 32,555 32,411
5.50%, 08/28/98 98,745 97,894
5.51%, 09/14/98 2,000 1,977
5.51%, 09/23/98 39,242 38,745
5.51%, 09/25/98 25,000 24,676
5.51%, 09/28/98 75,000 73,992
5.53%, 10/02/98 37,950 37,423
5.51%, 12/24/98 20,000 19,476
5.54%, 02/22/99 25,000 24,128
5.56%, 02/22/99 25,000 24,126
5.56%, 02/23/99 29,285 28,257
5.58%, 03/22/99 28,244 27,140
----------
635,310
----------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $975,143) 975,143
----------
Par Value
------- ----------
VARIABLE RATE OBLIGATIONS -- 3.8% (b)
FFCB
5.46%, 09/01/98 $50,000 $ 50,001
SLMA
5.32%, 07/07/98 7,000 6,998
5.37%, 07/07/98 20,000 19,997
----------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $76,996) 76,996
----------
REPURCHASE AGREEMENTS -- 47.9% (c)
Lehman Brothers Inc. Tri-Party
Repurchase Agreements; Collateralized
by: U.S. Government Securities
5.85% Issue 06/30/98
Due 07/01/98 35,875 35,875
5.52% Issue 04/03/98
Due 07/02/98 64,869 64,869
5.53% Issue 06/02/98
Due 07/06/98 30,977 30,977
5.54% Issue 06/05/98
Due 07/07/98 53,933 53,933
5.50% Issue 04/06/98
Due 07/08/98 59,127 59,127
5.51% Issue 04/08/98
Due 07/09/98 43,453 43,453
5.53% Issue 05/14/98
Due 07/13/98 50,000 50,000
5.53% Issue 06/04/98
Due 07/16/98 55,828 55,828
5.53% Issue 05/19/98
Due 07/17/98 43,115 43,115
5.55% Issue 05/19/98
Due 08/14/98 37,000 37,000
Morgan Stanley-Dean Witter,
Discover & Co. Tri-Party
Repurchase Agreements; Collateralized
by: U.S. Government Securities
5.53% Issue 06/03/98
Due 07/14/98 50,000 50,000
5.53% Issue 06/10/98
Due 07/15/98 28,708 28,708
5.54% Issue 05/06/98
Due 08/04/98 40,000 40,000
5.54% Issue 05/07/98
Due 08/05/98 25,000 25,000
5.55% Issue 05/08/98
Due 08/06/98 25,355 25,355
24
<PAGE>
Par Value
------- ----------
Salomon Brothers Inc. Tri-Party
Repurchase Agreements; Collateralized
by: U.S. Government Securities
5.52% Issue 05/01/98
Due 07/01/98 $36,005 $ 36,005
5.59% Issue 06/16/98
Due 07/01/98 63,436 63,436
5.58%Issue 06/23/98
Due 07/06/98 29,785 29,785
5.58% Issue 06/24/98
Due 07/08/98 26,637 26,637
5.51% Issue 04/09/98
Due 07/10/98 47,855 47,855
5.54% Issue 06/18/98
Due 07/20/98 47,114 47,114
5.53% Issue 05/28/98
Due 07/27/98 50,000 50,000
5.53% Issue 05/29/98
Due 07/28/98 30,312 30,312
----------
TOTAL REPURCHASE AGREEMENTS
(Cost $974,384) 974,384
----------
Value
----------
TOTAL INVESTMENTS -- 99.7%
(Cost $2,026,523) $2,026,523
----------
OTHER ASSETS AND LIABILITIES -- 0.3%
Other Assets 11,691
Liabilities (4,667)
----------
7,024
----------
NET ASSETS -- 100.0% $2,033,547
==========
SEE ACCOMPANYING NOTES TO STATEMENTS OF NET ASSETS AND
NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
SCHWAB U.S. TREASURY MONEY FUND
STATEMENT OF NET ASSETS (in thousands)
June 30, 1998 (Unaudited)
Par Value
-------- ----------
U.S. GOVERNMENT SECURITIES -- 98.4%
U.S. TREASURY OBLIGATIONS -- 98.4%
U.S. Treasury Notes
8.25%, 07/15/98 $ 7,520 $ 7,528
6.25%, 07/31/98 409,030 409,336
5.88%, 08/15/98 409,635 409,864
4.75%, 08/31/98 82,135 82,057
6.13%, 08/31/98 35,570 35,614
4.75%, 09/30/98 25,000 24,959
6.00%, 09/30/98 293,955 294,387
5.88%, 10/31/98 88,815 88,918
5.50%, 11/15/98 225,970 226,013
5.75%, 12/31/98 1,180 1,182
5.88%, 01/31/99 30,000 30,050
5.50%, 02/28/99 45,000 45,007
5.88%, 02/28/99 78,460 78,629
----------
1,733,544
----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $1,733,544) 1,733,544
----------
Value
----------
TOTAL INVESTMENTS -- 98.4%
(Cost $1,733,544) $1,733,544
----------
OTHER ASSETS AND LIABILITIES -- 1.6%
Other Assets 32,308
Other Liabilities (3,797)
----------
28,511
----------
NET ASSETS -- 100.0% $1,762,055
==========
SEE ACCOMPANYING NOTES TO STATEMENTS OF NET ASSETS AND
NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
NOTES TO STATEMENTS OF NET ASSETS
June 30, 1998 (Unaudited)
Yields shown are effective yields at the time of purchase, except for variable
rate obligations, which are described below, and U.S. Government coupons and
Treasury 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 Schwab Money Market Fund are private
placement securities exempt from registration by Section 4(2) of the
Securities Act of 1933. These securities generally are sold to
institutional investors, such as the Schwab Money Market 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 Schwab Money Market Fund was $8,223,000,
which represented 34.96% of net assets. Of this total, $7,763,000 or 33.00%
of net assets, was 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. For variable rate obligations without demand features, the
next interest reset date is shown. All dates shown are considered the
maturity date for financial reporting purposes.
(c) Repurchase agreements 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.
(d) Certain securities cannot be resold to the general public without prior
registration under the Securities Act of 1933. If the security is
subsequently registered and resold, the issuers would typically bear the
expense of all registrations at no cost to the fund. At June 30, 1998, the
aggregate value of the restricted securities held by Schwab Money Market
Fund were $460,000,000, which represented 1.96% of the net assets. All of
these restricted investments were determined by the Investment Manager to
be illiquid in accordance with procedures adopted by the Board of Trustees.
Portfolio Abbreviations
- -----------------------
FFCB Federal Farm Credit Bank
FGIC Federal Guaranty Insurance Company
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FSA Financial Security Assurance
GO General Obligation
LOC Letter of Credit
MTN Medium-Term Note
RB Revenue Bond
SLMA Student Loan Marketing Association
VRDO Variable Rate Demand Obligations
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES (in thousands)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Schwab Schwab Schwab
Money Government U.S. Treasury
Market Money Money
Fund Fund Fund
----------- ---------- -------------
<S> <C> <C> <C>
ASSETS
Investments, at value (Cost: $23,488,796, $2,026,523 and
$1,733,544 respectively) $23,488,796 $2,026,523 $1,733,544
Cash -- -- 4
Receivables:
Interest 87,137 11,670 32,250
Prepaid expenses 154 21 54
----------- ---------- ----------
Total assets 23,576,087 2,038,214 1,765,852
----------- ---------- ----------
LIABILITIES
Payables:
Dividends 48,637 4,134 3,410
Investment advisory and administration fees 1,075 90 48
Transfer agency and shareholder service fees 1,738 151 131
Other liabilities 2,139 292 208
----------- ---------- ----------
Total liabilities 53,589 4,667 3,797
----------- ---------- ----------
Net assets applicable to outstanding shares $23,522,498 $2,033,547 $1,762,055
=========== ========== ==========
NET ASSETS CONSIST OF:
Paid-in-capital $23,522,833 $2,034,346 $1,762,539
Accumulated net realized loss on investments sold (335) (799) (484)
----------- ---------- ----------
$23,522,498 $2,033,547 $1,762,055
=========== ========== ==========
PRICING OF SHARES
Outstanding shares, $0.00001 par value (unlimited shares
authorized) 23,523,156 2,034,449 1,762,623
Net asset value, offering and redemption price per share $1.00 $1.00 $1.00
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
STATEMENTS OF OPERATIONS (in thousands)
For the six months ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Schwab Schwab Schwab
Money Government U.S. Treasury
Market Money Money
Fund Fund Fund
----------- ---------- -------------
<S> <C> <C> <C>
Interest income $640,197 $56,183 $46,410
-------- ------- -------
Expenses:
Investment advisory and administration fees 43,468 4,366 3,790
Transfer agency and shareholder service fees 50,574 4,521 3,887
Custodian and portfolio accounting fees 754 130 122
Registration fees 468 70 84
Professional fees 229 30 25
Shareholder reports 1,021 81 37
Trustees' fees 27 10 10
Insurance and other expenses 46 10 12
-------- ------- -------
96,587 9,218 7,967
Less: expenses reduced (see Note 4) (12,297) (1,682) (2,352)
-------- ------- -------
Total expenses incurred by Fund 84,290 7,536 5,615
-------- ------- -------
Net investment income 555,907 48,647 40,795
Net realized loss on investments sold -- (100) (66)
-------- ------- -------
Increase in net assets resulting from operations $555,907 $48,547 $40,729
======== ======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Schwab Schwab Schwab
Money Market Fund Government Money Fund U.S. Treasury Money Fund
---------------------------- ---------------------------- ----------------------------
Six months Six months Six months
ended Year ended ended Year ended ended Year ended
June 30, 1998 December 31, June 30, 1998 December 31, June 30, 1998 December 31,
(Unaudited) 1997 (Unaudited) 1997 (Unaudited) 1997
------------ ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 555,907 $ 980,094 $ 48,647 $ 96,600 $ 40,795 $ 73,660
Net realized gain (loss) on
investments sold -- 1 (100) (224) (66) (161)
------------ ------------ ----------- ----------- ----------- -----------
Increase in net assets
resulting from operations 555,907 980,095 48,547 96,376 40,729 73,499
------------ ------------ ----------- ----------- ----------- -----------
Dividends to shareholders from
net investment income
(see Note 2) (556,230) (980,094) (48,769) (96,600) (40,879) (73,660)
------------ ------------ ----------- ----------- ----------- -----------
Capital share transactions
(at $1.00 per share):
Proceeds from shares sold 42,672,509 68,079,039 2,940,177 5,066,477 2,732,551 4,613,920
Net asset value of shares
issued in reinvestment
of dividends 623,201 938,142 55,639 94,961 46,413 70,360
Less payments for shares
redeemed (41,194,326) (65,679,416) (2,943,973) (5,166,150) (2,782,204) (4,340,346)
------------ ------------ ----------- ----------- ----------- -----------
Increase (decrease) in
net assets from capital
share transactions 2,101,384 3,337,765 51,843 (4,712) (3,240) 343,934
------------ ------------ ----------- ----------- ----------- -----------
Total increase (decrease)
in net assets 2,101,061 3,337,766 51,621 (4,936) (3,390) 343,773
Net assets:
Beginning of period 21,421,437 18,083,671 1,981,926 1,986,862 1,765,445 1,421,672
------------ ------------ ----------- ----------- ----------- -----------
End of period $ 23,522,498 $ 21,421,437 $ 2,033,547 $ 1,981,926 $ 1,762,055 $ 1,765,445
============ ============ =========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE>
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Income from
Investment Operations Less Distributions
---------------------------------------- --------------------------
Net
Fiscal Net Asset Realized & Total Dividends Net Asset
Period Value At Net Unrealized from from Net Value at
Ended Beginning Investment Gain (Loss) on Investment Investment Total End of
December 31, of Period Income Investments Operations Income Distributions Period
- ------------ --------- ---------- -------------- ---------- ---------- ------------- ---------
SCHWAB MONEY MARKET FUND
<S> <C> <C> <C> <C> <C> <C> <C>
1998 2 $1.00 $0.03 $-- $0.03 $(0.03)3 $(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 $1.00 $0.04 $-- $0.04 $(0.04) $(0.04) $1.00
1993 $1.00 $0.03 $-- $0.03 $(0.03) $(0.03) $1.00
SCHWAB GOVERNMENT MONEY FUND
1998 2 $1.00 $0.02 $-- $0.02 $(0.02)3 $(0.02) $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 $1.00 $0.04 $-- $0.04 $(0.04) $(0.04) $1.00
1993 $1.00 $0.03 $-- $0.03 $(0.03) $(0.03) $1.00
SCHWAB U.S. TREASURY MONEY FUND
1998 2 $1.00 $0.03 $-- $0.03 $(0.03)3 $(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 $1.00 $0.04 $-- $0.04 $(0.04) $(0.04) $1.00
1993 $1.00 $0.03 $-- $0.03 $(0.03) $(0.03) $1.00
</TABLE>
Ratios/Supplemental Data
---------------------------------------------------------------
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 1 Net Assets 1
December 31, (%) (000's) (%) (%)
- ------------ ---------------- ------------- ------------ ------------
SCHWAB MONEY MARKET FUND
1998 2 2.48 $23,522,498 0.75* 4.95*
1997 5.04 $21,421,437 0.75 4.93
1996 4.91 $18,083,671 0.75 4.80
1995 5.41 $14,010,387 0.75 5.27
1994 3.68 $11,227,305 0.74 3.68
1993 2.67 $ 8,164,599 0.73 2.64
SCHWAB GOVERNMENT MONEY FUND
1998 2 2.42 $ 2,033,547 0.75* 4.84*
1997 4.95 $ 1,981,926 0.75 4.84
1996 4.83 $ 1,986,862 0.75 4.73
1995 5.34 $ 1,884,569 0.75 5.21
1994 3.62 $ 1,897,328 0.74 3.56
1993 2.66 $ 1,744,603 0.73 2.63
SCHWAB U.S. TREASURY MONEY FUND
1998 2 2.43 $ 1,762,055 0.65* 4.72*
1997 4.85 $ 1,765,445 0.65 4.75
1996 4.77 $ 1,421,672 0.65 4.67
1995 5.25 $ 1,193,689 0.65 5.11
1994 3.52 $ 803,871 0.65 3.60
1993 2.54 $ 378,143 0.65 2.50
1 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:
SCHWAB MONEY MARKET FUND SCHWAB GOVERNMENT MONEY FUND
- ------------------------------------- -------------------------------------
Fiscal Period Ratio of Net Fiscal Period Ratio of Net
Ended Ratio of Investment Ended Ratio of Investment
December 31, Expenses Income December 31, Expenses Income
- ------------ -------- ------------ ------------- -------- ------------
1998 2 0.86%* 4.84%* 1998 2 0.92%* 4.67%*
1997 0.87% 4.81% 1997 0.92% 4.67%
1996 0.89% 4.66% 1996 0.92% 4.56%
1995 0.90% 5.12% 1995 0.92% 5.04%
1994 0.90% 3.52% 1994 0.92% 3.38%
1993 0.91% 2.46% 1993 0.93% 2.43%
SCHWAB U.S. TREASURY MONEY FUND
- -------------------------------------
Fiscal Period Ratio of Net
Ended Ratio of Investment
December 31, Expenses Income
- ------------- -------- ------------
1998 2 0.92%* 4.45%*
1997 0.93% 4.47%
1996 0.94% 4.38%
1995 0.96% 4.80%
1994 1.00% 3.25%
1993 1.05% 2.10%
2 For the six months ended June 30, 1998 (Unaudited)
3 The amounts shown include certain reclassifications related to book to tax
differences (see Note 2 of Notes to Financial Statements).
* Annualized.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32-33
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the six months ended June 30, 1998 (Unaudited)
1. DESCRIPTION OF THE FUNDS
The Schwab Money Market Fund, Schwab Government Money Fund and Schwab U.S.
Treasury Money Fund (the "Funds") are 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 three funds described above, the Trust also offers -- the
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 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 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 -- Each 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 a Fund are charged directly to
that Fund. Expenses common to all series of the Trust are generally allocated to
each series in proportion to their relative net assets.
34
<PAGE>
FEDERAL INCOME TAXES -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all net investment income and realized net capital gains, if any, to
shareholders. Therefore, no federal income tax provision is required. Each Fund
is considered a separate entity for tax purposes.
As of December 31, 1997, the unused capital loss carryforwards, for federal
income tax purposes with expiration dates, were as follows:
Schwab Schwab Schwab
Money Government U.S. Treasury
Market Fund Money Fund Money Fund
----------- ---------- -------------
Expiring in:
------------
12/31/99 $216,000 $ -- $ --
12/31/01 -- 53,000 28,000
12/31/02 2,000 74,000 23,000
12/31/03 118,000 161,000 49,000
12/31/04 -- 162,000 113,000
12/31/05 -- 226,000 137,000
-------- -------- --------
Total capital loss carryforwards $336,000 $676,000 $350,000
======== ======== ========
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 $ 323,000, $122,000, $84,000 for the Schwab Money Market Fund,
Schwab Government Money Fund and Schwab U.S. Treasury Money Fund, respectively,
were reclassified from paid-in-capital to undistributed net investment income.
In Schwab Government Money Fund $19,000 was reclassified between paid in capital
and accumulated realized capital loss. These reclassifications have no effect on
net assets or net asset values per share.
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, Schwab Money Market Fund pays an annual fee, payable
monthly, of 0.46% of the first $1 billion of average daily net assets, 0.45% of
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. For advisory
services and facilities furnished, the Schwab Government Money Fund and Schwab
U.S. Treasury Money Fund each pay an annual fee, payable monthly, of 0.46% of
the first $1 billion of each Fund's average daily net assets, 0.41% of the next
$1 billion, and 0.40% of such assets in excess of $2 billion. The Investment
Manager has reduced a portion of its fees for the six months ended June 30, 1998
(see Note 4).
35
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NOTES TO FINANCIAL STATEMENTS (continued)
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 a
combined annual fee, payable monthly, of 0.45% of each Fund's 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's incurred fees aggregating
$47,000 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 Schwab Money Market Fund, Schwab Government Money Fund and Schwab U.S.
Treasury Money Funds' total operating expenses will not exceed 0.75%, 0.75% and
0.65%, respectively, of each 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 $12,297,000, $1,682,000 and $2,352,000 for the Schwab
Money Market Fund, Schwab Government Money Fund and Schwab U.S. Treasury Money
Fund, respectively.
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THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE>
THE SCHWABFUNDS FAMILY-REGISTERED TRADEMARK-
The SchwabFunds Family includes a variety of funds to help you meet your
investment goals. You can diversify your portfolio in a single step with our
asset allocation funds. Or you can customize your portfolio with a combination
of our stock funds as well as our taxable and tax-advantaged bond and money
market funds.
Please call 1-800-435-4000 for a free prospectus and brochure for any of these
SchwabFunds.
This report must be preceded or accompanied by a current prospectus.
SCHWAB ASSET ALLOCATION FUNDS
Schwab MarketTrack All Equity Portfolio(1)
Schwab MarketTrack Growth Portfolio(1)
Schwab MarketTrack Balanced Portfolio(1)
Schwab MarketTrack Conservative Portfolio(1)
Schwab MarketManager Growth Portfolio(2)
Schwab MarketManager Balanced Portfolio(2)
SCHWAB STOCK FUNDS
Schwab 1000 Fund-Registered Trademark-
Schwab S&P 500 Fund
Schwab Analytics Fund-Registered Trademark-
Schwab Small-Cap Index Fund-Registered Trademark-
Schwab MarketManager Small Cap Portfolio(2)
Schwab International Index Fund-Registered Trademark-
Schwab MarketManager International Portfolio(2)
SCHWAB BOND FUNDS
Schwab Total Bond Market Index Fund(3)
Schwab Short-Term Bond Market Index Fund(3)
Schwab Long-Term Tax-Free Bond Fund
Schwab Short/Intermediate Tax-Free Bond Fund
Schwab California Long-Term Tax-Free Bond Fund
Schwab California Short/Intermediate
Tax-Free Fund
SCHWAB MONEY MARKET FUNDS
Schwab offers an array of money market funds(4) that seek high current income
with safety and liquidity. Choose from taxable or tax-advantaged alternatives.
Many can be linked to your Schwab account to "sweep" cash balances automatically
when you're between investments. Or, for your larger cash reserves, choose one
of our Value Advantage Investments-Registered Trademark-.
(1)Formerly the Schwab Asset Director Funds.
(2)Formerly the Schwab OneSource-TM- Portfolios.
(3)Formerly the Schwab Government Bond Funds.
(4)Investments in money market funds are neither insured nor guaranteed by the
U.S. government, and there is no assurance that the funds will be able to
maintain a stable share price of $1.
