SCHWABFUNDS(REGISTRATION MARK) (LOGO)
[GRAPHIC OMITTED]
SCHWAB
INSTITUTIONAL ADVANTAGE
MONEY FUND(REGISTRATION MARK)
Annual Report
December 31, 1998
<PAGE>
Dear Shareholder,
We're pleased to bring you this annual report on performance for the Schwab
Institutional Advantage Money Fund(REGISTRATION MARK) for the one-year period
ended December 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 Institutional Advantage Money
Fund's net assets were approximately $369 million.
FUND PERFORMANCE
YIELD SUMMARY AS OF 12/31/98 1
- -------------------------------------------------------------------
Seven-Day Current Yield 4.90%
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Seven-Day Effective Yield 5.02%
- -------------------------------------------------------------------
Please remember that an investment in the Fund is neither insured nor guaranteed
by the FederalDeposit 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 theFund'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 4.58% and the seven-day effective yield would have been 4.68%
as of 12/31/98.
<PAGE>
PORTFOLIO HIGHLIGHTS
AVERAGE YIELDS FOR THE PERIOD ENDED 12/31/98 1
- ----------------------------------------------------
Last seven days: 4.90%
- ----------------------------------------------------
Last three months: 4.79%
- ----------------------------------------------------
Last 12 months: 4.85%
- ----------------------------------------------------
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 20.5% 24.0% 16.0% 20.5%
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16-30 days 15.8% 20.4% 30.5% 23.8%
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31-60 days 15.9% 28.7% 23.0% 10.9%
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61-90 days 10.5% 13.2% 12.9% 27.8%
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91-120 days 12.9% 3.2% 1.4% 6.1%
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More than 120 days 24.4% 10.5% 16.2% 10.9%
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Weighted average 69 days 49 days 60 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.
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
DECEMBER 31, 1998
Par Value
------- --------
COMMERCIAL PAPER AND OTHER CORPORATE
OBLIGATIONS -- 74.7%
AUTOMOTIVE -- 4.0%
Chrysler Financial Co., L.L.C
5.33%, 02/23/99 $ 5,000 $ 4,961
Hertz Corp.
5.24%, 03/11/99 10,000 9,901
--------
14,862
--------
BANKING - DOMESTIC -- 1.9%(a)(e)
Citibank Capital Markets Assets, L.L.C
5.25%, 03/04/99 5,000 4,956
Intrepid Funding Master Trust
5.20%, 04/30/99 1,000 983
Kitty Hawk Funding Corp.
5.65%, 02/16/99 1,000 993
--------
6,932
--------
BANKING - NETHERLANDS -- 4.5%(e)
Atlantis One Funding Corp.
5.05%, 03/24/99 3,000 2,966
5.06%, 03/25/99 13,000 12,852
5.12%, 04/14/99 1,000 986
--------
16,804
--------
BANKING - NORWAY -- 0.3%
Den Norske Bank
5.40%, 02/17/99 1,000 993
--------
BANKING - SWEDEN -- 4.8%
AB Spintab
5.03%, 06/16/99 5,000 4,887
Nordbanken of North America, Inc.
5.26%, 03/01/99 10,000 9,915
5.15%, 03/12/99 3,000 2,970
--------
17,772
--------
BANKING - SWITZERLAND -- 2.7%
UBS Finance (Delaware) Inc.
4.94%, 03/22/99 10,000 9,893
--------
BANKING - UNITED KINGDOM -- 4.4%(e)
Banco Nacional de Comercio Exterior, S.N.C
5.34%, 01/21/99 16,500 16,452
--------
CREDIT CARD RECEIVABLES -- 6.0%(a)
Dakota Certificates Program
5.26%, 03/03/99 12,000 11,895
Providian Master Trust Series 1993-3
5.46%, 01/27/99 10,367 10,326
--------
22,221
--------
1
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SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
DECEMBER 31, 1998
Par Value
------- --------
COMMERCIAL PAPER AND OTHER CORPORATE
OBLIGATIONS -- (CONTINUED)
DIVERSIFIED FINANCIAL ASSETS -- 13.6%(a)
Ace Overseas Corp.
5.49%, 02/01/99 $ 5,000 $ 4,977
Bavaria Universal Funding Corp.
5.46%, 01/08/99 3,000 2,997
5.46%, 01/14/99 10,980 10,959
Concord Minutemen Capital Co., L.L.C
5.18%, 03/18/99 5,000 4,946
International Securitization Corp.
5.50%, 01/19/99 2,000 1,995
5.57%, 01/21/99 10,000 9,969
Market Street Funding Corp.
5.47%, 01/15/99 5,000 4,989
Sigma Finance, Inc.
5.16%, 04/07/99 2,500 2,466
5.38%, 05/12/99 7,000 6,867
--------
50,165
--------
FINANCE - COMMERCIAL -- 8.4%
CIT Group Holdings, Inc.
5.12%, 01/04/99 16,000 15,993
Finova Capital Corp.
5.53%, 01/22/99 1,000 997
5.47%, 02/18/99 2,000 1,986
General Electric Capital Corp.
5.12%, 03/12/99 7,000 6,931
Heller Financial, Inc.
5.73%, 01/08/99 3,000 2,997
5.58%, 01/12/99 2,000 1,996
--------
30,900
--------
FINANCE - CONSUMER -- 4.8%
Associates Corp. of North America
5.10%, 01/04/99 2,000 1,999
5.14%, 03/10/99 10,000 9,904
Household Finance Corp.
5.50%, 02/17/99 6,000 5,958
--------
17,861
--------
SECURITIES BROKERAGE - DEALER -- 6.2%
BT Alex Brown, Inc.
5.68%, 01/29/99 1,000 996
Lehman Brothers Holdings, Inc.
5.68%, 02/17/99 1,900 1,886
Morgan Stanley Dean Witter & Co
5.35%, 02/12/99 1,000 994
5.41%, 02/12/99 9,000 8,945
5.52%, 02/19/99 5,000 4,963
Salomon Smith Barney Holdings, Inc.
5.67%, 01/22/99 3,000 2,990
5.55%, 02/26/99 2,000 1,983
--------
22,757
--------
2
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SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
DECEMBER 31, 1998
Par Value
------- --------
COMMERCIAL PAPER AND OTHER CORPORATE
OBLIGATIONS -- (CONTINUED)
TRADE RECEIVABLES -- 13.1%(a)
Apreco, Inc.
5.61%, 01/19/99 $16,500 $ 16,454
Barton Capital Corp.
5.41%, 01/15/99 4,000 3,992
5.42%, 01/26/99 6,000 5,978
5.43%, 01/26/99 3,014 3,003
5.31%, 03/09/99 4,000 3,961
Monte Rosa Capital Corp.
5.40%, 01/21/99 7,901 7,878
Windmill Funding
5.41%, 01/13/99 7,000 6,987
--------
48,253
--------
TOTAL COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS
(Cost $275,865) 275,865
--------
CERTIFICATES OF DEPOSIT -- 15.5%
BANKING - CANADA -- 8.4%
Canadian Imperial Bank of Commerce
5.08%, 04/14/99 13,000 13,000
Royal Bank of Canada
5.71%, 07/12/99 10,000 9,997
Toronto-Dominion Holdings
4.94%, 07/08/99 8,000 8,025
--------
31,022
--------
BANKING - DOMESTIC -- 1.1%
Morgan Guaranty Trust Co.
5.09%, 03/22/99 4,000 4,000
--------
BANKING - FRANCE -- 1.4%
Societe Generale
5.10%, 04/01/99 5,000 5,007
--------
BANKING - GERMANY -- 1.1%
Bayerische Hypotheken und Wechsel Bank
5.71%, 06/14/99 4,000 4,000
--------
BANKING - NORWAY -- 0.5%
Den Norske Bank
5.50%, 03/10/99 2,000 2,000
--------
BANKING - SWITZERLAND -- 1.6%
UBS AG
5.70%, 07/09/99 6,000 5,998
--------
BANKING - UNITED KINGDOM -- 1.4%
Barclays Bank PLC
4.94%, 03/05/99 5,000 5,005
--------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $57,032) 57,032
--------
3
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SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
DECEMBER 31, 1998
Par Value
------- --------
VARIABLE RATE OBLIGATIONS -- 8.4%(b)
BANKING - DOMESTIC -- 4.7%(e)
Asset Partners, Inc. Project RB Series 1997
5.20%, 01/07/99 $ 2,685 $ 2,685
BMC Special Care Facilities Financing Authority
of the City of Montgomery, Alabama Taxable RB
(Montgomery Baptist Outreach Services Corp.
Project) Series 1997B
5.50%, 01/07/99 2,200 2,200
City of Aurora, Kane, Dupage, Will & Kendall Counties,
Illinois Taxable IDRB (North American Plastics Corp.
Project) Series 1996B
5.20%, 01/07/99 1,495 1,495
Illinois Development Finance Authority Taxable
Adjustable Rate IDRB (Maples & Sprowl Steel, Ltd.
Project) Series 1996B(a)
5.15%, 01/07/99 828 828
MoviePlex Realty Leasing, L.L.C. Adjustable Rate
Tender Securities (Carmike Cinemas, Inc.)
Series 1997B3
5.49%, 01/07/99 2,675 2,675
New York City IDA Taxable Industrial Revenue
Refunding Bonds (1997 Allway Tools, Inc. Project)
5.45%, 01/07/99 195 195
Strategic Money Market Trust 1998B(a)
5.59%, 01/05/99 5,000 5,000
Upper Illinois River Valley Development Authority
Taxable Solid Waste Disposal RB (Exolon - ESK Co.
Project) Series 1996B
5.20%, 01/07/99 2,000 2,000
--------
17,078
--------
BANKING - IRELAND -- 0.5%(e)
Westminster Economic Development Authority
(Westminster Plaza Urban Renewal Project)
Series 1997B
5.15%, 01/07/99 2,015 2,015
--------
SECURITIES BROKERAGE - DEALER -- 3.2%(d)
Lehman Brothers Holdings, Inc.
5.81%, 01/20/99 8,000 8,000
5.87%, 01/25/99 2,400 2,400
5.88%, 02/01/99 1,400 1,400
--------
11,800
--------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $30,893) 30,893
--------
Maturity Value
--------------
REPURCHASE AGREEMENTS -- 0.8% (c)
Credit Suisse First Boston Corp. Tri-Party
Repurchase Agreement Collateralized by
U.S. Government Securities
5.18% Issue 12/31/98
Due 01/04/99 3,121 3,119
--------
TOTAL REPURCHASE AGREEMENTS (Cost $3,119) 3,119
--------
TOTAL INVESTMENTS -- 99.4% (Cost $366,909) 366,909
--------
OTHER ASSETS AND LIABILITIES -- 0.6%
Other assets 7,395
Liabilities (5,251)
--------
2,144
--------
TOTAL NET ASSETS-- 100.0% $369,053
========
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS AND NOTES TO FINANCIAL
STATEMENTS
4
<PAGE>
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
Institutional Advantage 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 $145,199 which represented 39.34% of net assets. Of this total,
$133,399 or 36.15% 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 of 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 agreements 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 features 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 typically would 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 $11,800 which represented 3.20% 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
IDA Industrial Development Authority
IDRB Industrial Development Revenue Bond
RB Revenue Bond
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
December 31, 1998
ASSETS:
Investments, at value (Cost: $366,909) $366,909
Receivables:
Fund shares sold 5,819
Interest 1,535
Prepaid expenses 41
--------
Total assets 374,304
--------
LIABILITIES
Payables:
Dividends 2,235
Fund shares redeemed 2,861
Investment advisory and administration fees 6
Transfer agency and shareholder service fees 10
Other liabilities 139
--------
Total liabilities 5,251
--------
Net assets applicable to outstanding shares $369,053
========
NET ASSETS CONSIST OF:
Paid-in-capital $369,056
Accumulated net realized loss on investments sold (3)
--------
$369,053
========
PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) 369,114
Net asset value, offering and redemption price per share $1.00
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
For the year ended December 31, 1998
Interest income $18,432
-------
Expenses:
Investment advisory and administration fees 1,509
Transfer agency and shareholder service fees 820
Custodian and portfolio accounting fees 144
Registration fees 49
Professional fees 16
Shareholder reports 7
Trustees' fees 12
Insurance and other expenses 22
-------
2,579
-------
Less: expenses reduced (see Note 4) (939)
-------
Total expenses incurred by Fund 1,640
-------
Net investment income 16,792
-------
Increase in net assets resulting from operations $16,792
=======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
For the year ended December 31,
1998 1997
--------- ---------
Operations:
Net investment income $ 16,792 $ 13,058
--------- ---------
Increase in net assets resulting
from operations 16,792 13,058
--------- ---------
Dividends to shareholders from
net investment income (See Note 2) (16,838) (13,058)
--------- ---------
Capital share transactions (at $1.00 per share):
Proceeds from shares sold 707,322 612,896
Net asset value of shares issued in
reinvestment of dividends 15,535 10,165
Less payments for shares redeemed (629,095) (486,745)
--------- ---------
Increase in net assets from
capital share transactions 93,762 136,316
--------- ---------
Total increase in net assets 93,716 136,316
Net Assets:
Beginning of period 275,337 139,021
--------- ---------
End of period $ 369,053 $ 275,337
========= =========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
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 0.06 0.04
-------- -------- -------- ------- -------
Total from investments operations 0.05 0.05 0.05 0.06 0.04
Less distributions
Dividends from net investment income (0.05)2 (0.05) (0.05) (0.06) (0.04)
-------- -------- -------- ------- -------
Total distributions (0.05) (0.05) (0.05) (0.06) (0.04)
-------- -------- -------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= =======
Total return (%) 5.26 5.31 5.15 5.65 3.86**
RATIOS/SUPPLEMENTAL DATA (%)
- ----------
Ratio of net operating expenses to average net assets 0.50 0.50 0.50 0.53 0.55*
Reductions reflected in above expense ratio 0.29 0.34 0.38 0.37 0.37*
Ratio of net investment income to
average net assets 5.12 5.20 5.03 5.50 4.04*
Net assets, end of period (000s) $369,053 $275,337 $139,021 $80,746 $60,088
<FN>
- --------------
(1) For the period January 4, 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
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(REGISTRATION MARK)
- --------------------------------------------------------------------------------
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 Institutional Advantage Money Fund (the "Fund") is a series of The
Charles Schwab Family of Funds (the "Trust"), a no-load, open-end investment
management company organized as a Massachusetts business trust on October 20,
1989, and registered under the Investment Company Act of 1940, as amended.
In addition to the Fund, the Trust also offers the Schwab Money Market Fund,
Schwab Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Municipal
Money Fund, Schwab California Municipal Money Fund, Schwab New York Municipal
Money Fund, Schwab New Jersey Municipal Money Fund, Schwab Pennsylvania
Municipal Money Fund, Schwab Florida Municipal Money Fund, Schwab Value
Advantage Money Fund,(REGISTRATION MARK) Schwab Retirement 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
<PAGE>
SCHWAB INSTITUTIONAL ADVANTAGE 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: Institutional Advantage Money Fund
- ----------- ----------------------------------
12/31/04 $3
--
Total capital loss carryforward $3
==
RECLASSIFICATION -- Generally accepted accounting principles require that
certain components of net assets be reclassified to reflect permanent
differences between financial and tax reporting. Accordingly, permanent book/tax
differences of $46 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 of 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 0.50% of the Fund's
average daily net assets, after reductions. For the purpose of this guarantee,
operating expenses do not include interest expenses, extraordinary expenses and
taxes.
For the year ended December 31, 1998, the total of such fees reduced by the
Investment Adviser was $939.
11
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
Schwab Institutional Advantage 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 Institutional Advantage
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
<PAGE>
SCHWABFUNDS(REGISTRATION MARK)
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) MKT3860 (1/99)
