SCHWABFUNDS(REGISTRATION MARK) (LOGO)
[GRAPHIC OMITTED]
SCHWAB
RETIREMENT MONEY FUND(REGISTRATION MARK)
Annual Report
December 31, 1998
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Dear Shareholder,
We're pleased to bring you this annual report on performance for the Schwab
Retirement Money Fund(REGISTRATION MARK) for the one-year period endedDecember
31, 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 period, the Schwab Retirement Money Fund's net assets were approximately
$225 million.
FUND PERFORMANCE
YIELD SUMMARY AS OF 12/31/98 1
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Seven-Day Current Yield 4.66%
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Seven-Day Effective Yield 4.77%
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Please remember that an investment in the Fund is neither insured nor guaranteed
by the Federal Deposit Insurance Corporation (FDIC) or any other government
agency and, although the Fund seeks to preserve the value of your investment at
$1 per share, it is possible to lose money by investing in the Fund.
This report contains a complete list of the Fund's holdings as of December 31,
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,
/s/ CHARLES R. SCHWAB
Charles R. Schwab
Chairman
1 A portion of the Fund's fees was waived or reimbursed during the reporting
period.Without the waivers or reimbursements, the seven-day current yield
would have been 4.60% and the seven-day effective yield would have been 4.71%
as of 12/31/98.
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PORTFOLIO HIGHLIGHTS
AVERAGE YIELDS FOR THE PERIOD ENDED 12/31/98 1
- ----------------------------------------------------
Last seven days: 4.66%
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Last three months: 4.72%
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Last 12 months: 4.92%
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MATURITY SCHEDULE: PERCENTAGE OF TOTAL INVESTMENTS
MATURITY RANGE 3/31/98 6/30/98 9/30/98 12/31/98
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0-15 days 20.3% 21.9% 18.4% 19.0%
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16-30 days 7.0% 14.3% 22.8% 17.9%
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31-60 days 22.1% 31.9% 21.9% 19.8%
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61-90 days 14.4% 18.1% 13.4% 29.5%
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91-120 days 7.9% 4.9% 0.5% 3.8%
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More than 120 days 28.3% 8.9% 23.0% 10.0%
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Weighted average 75 days 53 days 63 days 57 days
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PORTFOLIO QUALITY
SEC TIER RATING PERCENTAGE OF NET ASSETS: 12/31/98
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Tier 1 100.0%
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1 A portion of the Fund's expenses were reduced during the periods. Had these
expenses not been reduced, yields would have been lower.
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SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
DECEMBER 31, 1998
Par Value
------- --------
COMMERCIAL PAPER AND OTHER CORPORATE
OBLIGATIONS -- 73.7%
AUTOMOTIVE -- 0.9%
Hertz Corp.
5.24%, 03/11/99 $ 2,000 $ 1,980
--------
BANKING - DOMESTIC -- 1.8%(a)(e)
Intrepid Funding Master Trust
5.20%, 04/30/99 1,000 983
Kitty Hawk Funding Corp.
5.65%, 02/16/99 3,000 2,979
--------
3,962
--------
BANKING - NETHERLANDS -- 4.0%(e)
Atlantis One Funding Corp.
5.06%, 03/25/99 9,000 8,897
--------
BANKING - SWEDEN -- 6.1%
AB Spintab
5.03%, 06/16/99 7,000 6,841
Nordbanken of North America, Inc.
5.15%, 03/12/99 7,000 6,931
--------
13,772
--------
BANKING - SWITZERLAND -- 2.2%
UBS Finance (Delaware) Inc.
4.94%, 03/22/99 5,000 4,946
--------
BANKING - UNITED KINGDOM -- 1.6%(e)
Banco Nacional de Comercio Exterior, S.N.C
5.34%, 01/21/99 3,500 3,490
--------
CREDIT CARD RECEIVABLES -- 3.5%(a)
Dakota Certificates Program
5.26%, 03/03/99 3,000 2,974
Providian Master Trust Series 93-3
5.45%, 02/05/99 5,000 4,974
--------
7,948
--------
DIVERSIFIED FINANCIAL ASSETS -- 12.6%(a)
Ace Overseas Corp.
5.49%, 02/01/99 3,000 2,986
Bavaria Universal Funding Corp.
5.46%, 01/08/99 2,000 1,998
5.47%, 01/19/99 3,000 2,992
Concord Minutemen Capital Co., LLC
5.18%, 03/18/99 5,000 4,946
International Securitization Corp.
5.50%, 01/19/99 3,000 2,992
5.57%, 01/21/99 5,000 4,985
Mont Blanc Capital Corp.
5.48%, 02/09/99 2,000 1,988
1
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SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
DECEMBER 31, 1998
Par Value
------- --------
COMMERCIAL PAPER AND OTHER CORPORATE
OBLIGATIONS -- (CONTINUED)
DIVERSIFIED FINANCIAL ASSETS -- (CONTINUED)
Sigma Finance, Inc.
5.16%, 04/07/99 $ 2,500 $ 2,466
5.38%, 05/12/99 3,000 2,943
--------
28,296
--------
FINANCE - COMMERCIAL -- 11.1%
CIT Group Holdings, Inc.
5.12%, 01/04/99 10,000 9,996
Finova Capital Corp.
5.53%, 01/22/99 1,000 997
5.47%, 02/18/99 8,000 7,943
General Electric Capital Corp.
5.12%, 03/12/99 3,000 2,970
Heller Financial, Inc.
5.73%, 01/08/99 2,000 1,998
5.58%, 01/12/99 1,000 998
--------
24,902
--------
FINANCE - CONSUMER -- 6.6%
Associates Corp. of North America
5.10%, 01/04/99 6,000 5,998
5.14%, 03/10/99 5,000 4,952
Household Finance Corp.
5.50%, 02/17/99 4,000 3,972
--------
14,922
--------
SECURITIES BROKERAGE - DEALER -- 9.0%
BT Alex Brown, Inc.
5.68%, 01/29/99 4,000 3,983
Lehman Brothers Holdings, Inc.
5.68%, 02/17/99 380 377
Morgan Stanley Dean Witter &Co
5.44%, 02/11/99 4,000 3,976
5.35%, 02/12/99 3,000 2,982
5.52%, 02/19/99 2,000 1,985
Salomon Smith Barney Holdings Inc.
5.55%, 02/26/99 7,000 6,941
--------
20,244
--------
TRADE RECEIVABLES -- 14.3%(a)
Apreco, Inc.
5.61%, 01/19/99 8,500 8,476
Barton Capital Corp.
5.50%, 01/22/99 1,046 1,043
5.42%, 01/26/99 2,000 1,993
5.31%, 03/09/99 5,000 4,951
5.33%, 03/12/99 1,754 1,736
2
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SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
DECEMBER 31, 1998
Par Value
------- --------
COMMERCIAL PAPER AND OTHER CORPORATE
OBLIGATIONS -- (CONTINUED)
TRADE RECEIVABLES -- (CONTINUED)
Monte Rosa Capital Corp.
5.40%, 01/22/99 $3,000 $ 2,991
5.46%, 02/11/99 3,000 2,982
Wood Street Funding Corp.
5.30%, 03/16/99 8,000 7,914
--------
32,086
--------
TOTAL COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS
(Cost $165,445) 165,445
--------
CERTIFICATES OF DEPOSIT -- 13.6%
BANKING - CANADA -- 4.3%
Canadian Imperial Bank of Commerce
5.08%, 04/14/99 5,000 5,000
Toronto Dominion Bank
4.94%, 07/08/99 4,600 4,615
--------
9,615
--------
BANKING - DOMESTIC -- 2.2%
Morgan Guaranty Trust Co.
5.09%, 03/22/99 5,000 5,000
--------
BANKING - GERMANY -- 1.8%
Bayerische Hypotheken Und Wechsel Bank
5.71%, 06/14/99 4,000 4,000
--------
BANKING NORWAY -- 1.3%
Den Norske Bank
5.50%, 03/10/99 3,000 3,000
--------
BANKING - SWITZERLAND -- 1.8%
UBS AG
5.70%, 07/09/99 4,000 3,999
--------
BANKING - UNITED KINGDOM -- 2.2%
Barclays Bank PLC
4.94%, 03/05/99 5,000 5,005
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TOTAL CERTIFICATES OF DEPOSIT
(Cost $30,619) 30,619
--------
VARIABLE RATE SECURITIES -- 10.5%(b)
BANKING - DOMESTIC -- 6.8%(e)
California Pollution Control Financing Authority
Solid Waste Disposable RB (Burr Properties Project)
Series 1998
5.53%, 01/07/99 2,275 2,275
California Pollution Control Financing Authority
Solid Waste RB (Charter Evaporation Resource
Recovery Systems Project) Series 1997B
5.53%, 01/07/99 2,480 2,480
3
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SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
DECEMBER 31, 1998
Par Value
------- --------
VARIABLE RATE SECURITIES -- (CONTINUED)
BANKING - DOMESTIC -- (CONTINUED)
Eagle County, Colorado Taxable Housing Facilities RB
(BC Housing, L.L.C. Project) Series 1997B
5.08%, 01/07/99 $1,500 $ 1,500
MoviePlex Realty Leasing, L.L.C. Adjustable Rate Tender
Securities (Carmike Cinemas, Inc.) Series 1997B2
5.49%, 01/07/99 2,675 2,675
Trap Rock Industries, Inc. RB Series of 1997(a)
6.05%, 01/07/99 2,350 2,350
Upper Illinois River Valley Development Authority
Solid Waste Disposal RB (Exolon - ESK Co. Project)
Series 1996B
5.20%, 01/07/99 2,595 2,595
Village of Sturtevant, Wisconsin IDRB (Andis Co.
Project) Series 1996B
5.15%, 01/07/99 1,500 1,500
--------
15,375
--------
BANKING - UNITED KINGDOM -- 0.7%(e)
City of Gary, Indiana Taxable Adjustable Rate Economic
Development Revenue Refunding Bonds (The Miller
Partnership, L.P. Project) Series 1996B
5.15%, 01/07/99 1,680 1,680
--------
SECURITIES BROKERAGE - DEALER -- 3.0%(d)
Lehman Brothers Holdings, Inc.
5.81%, 01/20/99 6,000 6,000
5.87%, 01/25/99 280 280
5.88%, 02/01/99 280 280
--------
6,560
--------
TOTAL VARIABLE RATE SECURITIES
(Cost $23,615) 23,615
--------
Maturity Value
--------------
REPURCHASE AGREEMENT -- 2.0%(c)
Credit Suisse First Boston Corp. Repurchase Agreement
Collateralized by U.S. Government Securities
5.18% Issue 12/31/98
Due 01/04/99 4,435 4,432
--------
TOTAL REPURCHASE AGREEMENT (Cost $4,432) 4,432
--------
TOTAL INVESTMENTS -- 99.8% (Cost $224,111) 224,111
--------
OTHER ASSETS AND LIABILITIES -- 0.2%
Other assets 4,017
Liabilities (3,533)
--------
484
--------
TOTAL NET ASSETS-- 100.0% $224,595
========
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS AND NOTES TO FINANCIAL
STATEMENTS.
4
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DECEMBER 31, 1998
(All dollar amounts are in thousands unless otherwise noted)
NOTES TO SCHEDULE OF INVESTMENTS
Yields shown are effective yields at the time of purchase, except for variable
rate obligations, which are described below. Yields for each type of security
are stated according to the market convention for that security type. For each
security, cost (for financial reporting and federal income tax purposes) and
carrying value are the same.
(a) Certain securities purchased by the Fund are private placement securities
exempt from registration by Section 4(2) of the Securities Act of 1933. These
securities generally are issued to institutional investors, such as the Schwab
Retirement Money Fund.(REGISTRATION MARK) Any resale by the Fund must be in an
exempt transaction, normally to a qualified institutional buyer. At December 31,
1998, the aggregate value of private placement securities held by the Fund was
$81,202 which represented 36.15% of net assets. Of this total, $74,642 or 33.23%
of net assets was determined by the Investment Adviser 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 seven days from issue dates may be subject
to seven day putable demand feature for liquidity purposes.
(d) Security 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 December 31, 1998, the aggregate value of the restricted
securities held by the Fund was $6,560 which represented 2.92% of the net assets
of the Fund. All of these restricted investments were determined by the
Investment Adviser to be illiquid in accordance with procedures adopted by the
Board of Trustees.
(e) Security has one or more third party credit enhancements.
Abbreviations
IDRB Industrial Development Revenue Bond
RB Revenue Bond
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
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SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
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STATEMENT OF ASSETS AND LIABILITIES (in thousands)
December 31, 1998
ASSETS
Investments, at value (Cost: $224,111) $224,111
Receivables:
Fund shares sold 3,183
Interest 813
Prepaid expenses 21
--------
Total assets 228,128
--------
LIABILITIES
Payables:
Dividends 1,233
Fund shares redeemed 2,240
Investment advisory and administration fees 13
Transfer agency and shareholder service fees 6
Other liabilities 41
--------
Total liabilities 3,533
--------
Net assets applicable to outstanding shares $224,595
========
NET ASSETS CONSIST OF:
Paid-in-capital $224,596
Accumulated net realized loss on investments sold (1)
--------
$224,595
========
PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) 224,653
Net asset value, offering and redemption price per share $1.00
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
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SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
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STATEMENT OF OPERATIONS (in thousands)
For the year ended December 31, 1998
Interest income $10,491
-------
Expenses:
Investment advisory and administration fees 859
Transfer agency and shareholder service fees 467
Custodian and portfolio accounting fees 103
Registration fees 31
Professional fees 15
Shareholder reports 7
Trustees' fees 12
Insurance and other expenses 8
-------
1,502
-------
Less: expenses reduced (see Note 4) (138)
-------
Total expenses incurred by Fund 1,364
-------
Net investment income 9,127
-------
Increase in net assets resulting from operations $ 9,127
=======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
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SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
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STATEMENT OF CHANGES IN NET ASSETS (in thousands)
For the year ended December 31,
1998 1997
--------- --------
Operations:
Net investment income $ 9,127 $ 7,232
--------- ---------
Increase in net assets resulting
from operations 9,127 7,232
--------- ---------
Dividends to shareholders from
net investment income (See Note 2) (9,172) (7,232)
--------- ---------
Capital share transactions (at $1.00 per share):
Proceeds from shares sold 295,869 279,578
Net asset value of shares issued in
reinvestment of dividends 8,885 6,958
Less payments for shares redeemed (235,017) (267,952)
--------- ---------
Increase in net assets from
capital share transactions 69,737 18,584
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Total increase in net assets 69,692 18,584
Net Assets:
Beginning of period 154,903 136,319
--------- ---------
End of period $ 224,595 $ 154,903
========= =========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
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<TABLE>
<CAPTION>
SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
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FINANCIAL HIGHLIGHTS
1998 1997 1996 1995 1994 1
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- -------
From investment operations
Net investment income 0.05 0.05 0.05 0.05 0.03
-------- -------- -------- ------- -------
Total from investments operations 0.05 0.05 0.05 0.05 0.03
Less distributions
Dividends from net investment income (0.05)2 (0.05) (0.05) (0.05) (0.03)
-------- -------- -------- ------- -------
Total distributions (0.05) (0.05) (0.05) (0.05) (0.03)
-------- -------- -------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= =======
Total return (%) 5.03 5.07 4.93 5.43 3.29**
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------
Ratio of net operating expenses to average net assets 0.73 0.73 0.73 0.73 0.73*
Reductions reflected in above expense ratio 0.07 0.11 0.15 0.19 0.32*
Ratio of net investment income to
average net assets 4.88 4.96 4.83 5.28 4.04*
Net assets, end of period (000s) $224,595 $154,903 $136,319 $98,992 $31,415
<FN>
- --------------
1 For the period March 2, 1994 (commencement of operations) to December 31, 1994.
2 The amounts shown include certain reclassifications related to book to tax differences (see Note 2 of
Notes to Financial Statements).
* Annualized.
** Not annualized.
</FN>
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
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SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
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NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1998
(All dollar amounts are in thousands unless otherwise noted)
1. DESCRIPTION OF THE FUND
The Schwab Retirement Money Fund (the "Fund") is a series of The Charles Schwab
Family of Funds (the "Trust"), an open-end, investment management company
organized as a Massachusetts business trust on October 20, 1989 and registered
under the Investment Company Act of 1940, as amended.
In addition to the Fund, the Trust also offers the Schwab Money Market Fund,
Schwab Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Municipal
Money Fund, Schwab California Municipal Money Fund, Schwab New York Municipal
Money Fund, Schwab New Jersey Municipal Money Fund, Schwab Pennsylvania
Municipal Money Fund, Schwab Florida Municipal Money Fund, Schwab Value
Advantage Money Fund,(REGISTRATION MARK) Schwab Institutional Advantage Money
Fund(REGISTRATION MARK) 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. 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 generally are allocated to
each series in proportion to their relative net assets.
FEDERAL INCOME TAXEs -- It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income and realized net capital gains, if
any, to shareholders. Therefore, no federal income tax provision is required.
The Fund is considered a separate entity for tax purposes.
10
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SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1998
At December 31, 1998, the unused capital loss carryforward, for federal income
tax purposes with expiration dates, were as follows:
Schwab
Expiring in: Retirement Money Fund
- ----------- ---------------------
12/31/04 $1
--
Total capital loss carryforward $1
==
RECLASSIFICATION -- Generally accepted accounting principles require that
certain components of net assets be reclassified to reflect permanent
differences between financial and tax reporting. Accordingly, permanent book/tax
differences of $45 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 Adviser"). For advisory services and
facilities furnished, the Fund pays an annual fee, payable monthly, of 0.46% on
the first $1 billion on average daily net assets, 0.45% on the next $2 billion,
0.40% on the next $7 billion, 0.37% on the next $10 billion, and 0.34% on such
net assets in excess of $20 billion. The Investment Adviser has reduced a
portion of its fee for the year ended December 31, 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 Adviser and/or Schwab. During the
year ended December 31, 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 $12 related to the
Trust's unaffiliated trustees.
4. EXPENSES REDUCED BY THE INVESTMENT ADVISER AND SCHWAB
The Investment Adviser and Schwab guarantee that, through at least April 30,
1999, the Fund's total operating expenses will not exceed 0.73% of the Fund's
average daily net assets, after reductions. For the purpose of this guarantee,
operating expenses do not include interest expenses, extraordinary expenses and
taxes.
For the year ended December 31, 1998, the total of such fees reduced by the
Investment Adviser was $138.
11
<PAGE>
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
Schwab Retirement Money Fund(REGISTRATION MARK)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Schwab Retirement Money Fund (one
series constituting part of The Charles Schwab Family of Funds, hereafter
referred to as the "Fund") at December 31, 1998, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for the periods presented,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
January 29, 1999
12
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SCHWABFUNDS(REGISTRATION MARK) (LOGO)
[GRAPHIC OMITTED]
INVESTMENT ADVISER: Charles Schwab Investment Management, Inc., 101 Montgomery
Street, San Francisco, CA 94104
DISTRIBUTOR: Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco,
CA 94104
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
(COPYRIGHT)1999 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC/NYSE.
(0099-0837) MKT3861 (1/99)
