-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IOG05IYEZNh0flc0hxKMwtB/cY30WcGk5qeGaD4+6JIOvdtSg5Ps5vG/M2fpUbkj KYiy8FyXoqZIqx9v8M4Y7g== 0000935069-98-000140.txt : 19980828 0000935069-98-000140.hdr.sgml : 19980828 ACCESSION NUMBER: 0000935069-98-000140 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980827 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHWAB CHARLES FAMILY OF FUNDS CENTRAL INDEX KEY: 0000857156 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05954 FILM NUMBER: 98698919 BUSINESS ADDRESS: STREET 1: 101 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4156277000 MAIL ADDRESS: STREET 1: 101 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 N-30D 1 SCHWAB MONEY MARKET FUND - SEMI ANNUAL 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 - ------------------------------------------------ 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 - ------------------------------------------------
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 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 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 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
REAL GDP GROWTH RATE QUARTERLY PERCENTAGE CHANGE (ANNUALIZED RATE) 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.
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
U.S. UNEMPLOYMENT RATE 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.
4 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
MEASURES OF INFLATION MONTHLY CONSUMER PRICE INDEX QUARTERLY EMPLOYMENT COST INDEX 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
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
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 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%
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 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 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 SCHWAB MONEY MARKET FUND FUND PERFORMANCE AND PORTFOLIO COMPOSITION YIELD SUMMARY AS OF 6/30/98(1) - --------------------------------------------------------------------------- Seven-Day Yield 4.91% - --------------------------------------------------------------------------- Seven-Day Effective Yield 5.03% - ---------------------------------------------------------------------------
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 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%
(2)These percentages do not take into account other assets and liabilities. 8 SCHWAB GOVERNMENT MONEY FUND FUND PERFORMANCE AND PORTFOLIO COMPOSITION YIELD SUMMARY AS OF 6/30/98(1) - --------------------------------------------------------------------------- Seven-Day Yield 4.83% - --------------------------------------------------------------------------- Seven-Day Effective Yield 4.95% - ---------------------------------------------------------------------------
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 U.S. Government Securities 51.9% Repurchase Agreements 48.1%
(2)These percentages do not take into account other assets and liabilities. 9 SCHWAB U.S. TREASURY MONEY FUND FUND PERFORMANCE AND PORTFOLIO COMPOSITION YIELD SUMMARY AS OF 6/30/98(1) - --------------------------------------------------------------------------- Seven-Day Yield 4.63% - --------------------------------------------------------------------------- Seven-Day Effective Yield 4.74% - ---------------------------------------------------------------------------
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 U.S. Treasury Obligations 100%
(2)These percentages do not take into account other assets and liabilities. 10 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 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 PORTFOLIO HIGHLIGHTS SCHWAB MONEY MARKET FUND AVERAGE YIELDS FOR THE SIX-MONTH PERIOD ENDED 6/30/98(1) - ------------------------------------------------- Last seven days: 4.91% - ------------------------------------------------- Last three months: 4.91% - ------------------------------------------------- Last 12 months: 4.98% - -------------------------------------------------
MATURITY SCHEDULE: PERCENTAGE OF TOTAL INVESTMENTS
MATURITY RANGE 3/31/98 6/30/98 - ----------------------------------------------------------- 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 - -----------------------------------------------------------
PORTFOLIO QUALITY
SEC TIER RATING PERCENTAGE OF NET ASSETS: 6/30/98 - --------------------------------------------------------------------------- Tier 1 100.0% - --------------------------------------------------------------------------- Tier 2 0.0% - ---------------------------------------------------------------------------
(1)A portion of the Fund's expenses 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) - ------------------------------------------------ Last seven days: 4.83% - ------------------------------------------------ Last three months: 4.84% - ------------------------------------------------ Last 12 months: 4.87% - ------------------------------------------------
MATURITY SCHEDULE: PERCENTAGE OF TOTAL INVESTMENTS
MATURITY RANGE 3/31/98 6/30/98 - ----------------------------------------------------------- 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 - -----------------------------------------------------------
13 PORTFOLIO HIGHLIGHTS (continued) SCHWAB U.S. TREASURY MONEY FUND AVERAGE YIELDS FOR THE SIX-MONTH PERIOD ENDED 6/30/98(1) - ------------------------------------------------ Last seven days: 4.63% - ------------------------------------------------ Last three months: 4.70% - ------------------------------------------------ Last 12 months: 4.75% - ------------------------------------------------
MATURITY SCHEDULE: PERCENTAGE OF TOTAL INVESTMENTS
MATURITY RANGE 3/31/98 6/30/98 - ----------------------------------------------------------- 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 - -----------------------------------------------------------
(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 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 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 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 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 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 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 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 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 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 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 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 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 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 STATEMENTS OF ASSETS AND LIABILITIES (in thousands) June 30, 1998 (Unaudited)
Schwab Schwab Schwab Money Government U.S. Treasury Market Money Money Fund Fund Fund ----------- ---------- ------------- 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
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 28 STATEMENTS OF OPERATIONS (in thousands) For the six months ended June 30, 1998 (Unaudited)
Schwab Schwab Schwab Money Government U.S. Treasury Market Money Money Fund Fund Fund ----------- ---------- ------------- 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 ======== ======= =======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 29 STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
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 ------------ ------------ ------------- ------------ ------------- ------------ 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 ============ ============ =========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 30 THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU. FINANCIAL HIGHLIGHTS For a share outstanding throughout each period:
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 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
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 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 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 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. 36 THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU. 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. -----END PRIVACY-ENHANCED MESSAGE-----