-----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, Rsc8qRj34ZT4/CggjfHWSFdlW9F7JnNEsgCeoOA60G89otyTHzK4vV80wnBfD5rd I/LS1XiRE7GUYPBV4bEAyA== 0000935069-98-000149.txt : 19980831 0000935069-98-000149.hdr.sgml : 19980831 ACCESSION NUMBER: 0000935069-98-000149 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980828 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: 98700570 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 RETIREMENT MONEY FUND SCHWABFUNDS(REGISTRATION MARK) SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK) Semiannual Report June 30, 1998 SCHWABFUNDS(REGISTRATION MARK) Dear Shareholder: We're pleased to bring you this semiannual report on performance for the Schwab Retirement Money Fund for the six-month period ended June 30, 1998. During the reporting period, the Fund continued to provide investors with current income consistent with the preservation of capital. By the end of the six-month period, the Schwab Retirement Money Fund's net assets were nearly $174 million. FUND PERFORMANCE YIELD SUMMARY AS OF 6/30/98 1 - ------------------------------------------------- Seven-Day Current Yield 4.99% - ------------------------------------------------- Seven-Day Effective Yield 5.11% - ------------------------------------------------- Please remember that, as with all money market funds, yields will fluctuate, and past performance is no guarantee of future results. Also note that although the Fund seeks to maintain a stable $1.00 share price, money market funds are neither insured nor guaranteed by the U.S. government, and there can be no assurance that the Fund will be able to maintain a stable net asset value of $1.00 per share. This report contains a complete list of the Fund's holdings as of June 30, 1998. We appreciate your confidence in SchwabFunds(REGISTRATION MARK) and look forward to continuing to help you achieve your financial goals in the future. Sincerely, Charles R. Schwab Chairman The Charles Schwab Family of Funds 1 A portion of the Fund's fees were waived or reimbursed during the reporting period. Without the waivers or reimbursements, as of 6/30/98, the seven-day current yield would have been 4.92%, and the seven-day effective yield would have been 5.04%. PORTFOLIO HIGHLIGHTS AVERAGE YIELDS FOR THE SIX-MONTH PERIOD ENDED 6/30/98 1 - ------------------------------------------------------- Last seven days: 4.99% - ------------------------------------------------------- Last three months: 4.99% - ------------------------------------------------------- Last 12 months: 5.02% - ------------------------------------------------------- MATURITY SCHEDULE: PERCENTAGE OF TOTAL INVESTMENTS MATURITY RANGE 3/31/98 6/30/98 - -------------------------------------------------------------------------------- 0-15 days 20.3% 21.9% - -------------------------------------------------------------------------------- 16-30 days 7.0% 14.3% - -------------------------------------------------------------------------------- 31-60 days 22.1% 31.9% - -------------------------------------------------------------------------------- 61-90 days 14.4% 18.1% - -------------------------------------------------------------------------------- 91-120 days 7.9% 4.9% - -------------------------------------------------------------------------------- More than 120 days 28.3% 8.9% - -------------------------------------------------------------------------------- Weighted average 75 days 53 days - -------------------------------------------------------------------------------- PORTFOLIO QUALITY SEC TIER RATING PERCENTAGE OF NET ASSETS: 6/30/98 - ---------------------------------------------------------------- Tier 1 100.0% - ---------------------------------------------------------------- Tier 2 0.0% - ---------------------------------------------------------------- 1 A portion of the Fund's expenses were reduced during the periods. Had these expenses not been reduced, yields would have been lower. SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK) STATEMENT OF NET ASSETS (IN THOUSANDS) JUNE 30, 1998 (UNAUDITED) Par Value ------- ------- COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS -- 81.7% AUTOMOBILE RECEIVABLES -- 2.9% New Center Asset Trust Plus 5.64%, 08/20/98 $ 5,000 $ 4,962 ------- AUTOMOTIVE -- 8.0% American Honda Finance Corp. 5.58%, 07/28/98 7,000 6,971 Chrysler Financial Corp. 5.58%, 07/13/98 3,000 2,994 FCE Bank, PLC 5.58%, 08/10/98 4,000 3,976 ------- 13,941 ------- BANKING-BELGIUM -- 4.0% Cregem North America, Inc. 5.59%, 08/11/98 7,000 6,956 ------- BANKING-CANADA -- 3.5% Bank of Nova Scotia 5.45%, 07/09/98 4,000 3,995 5.50%, 07/16/98 2,000 1,995 ------- 5,990 ------- BANKING-DENMARK -- 4.5% Unifunding, Inc. 5.68%, 10/19/98 5,000 4,915 5.65%, 12/03/98 3,000 2,929 ------- 7,844 ------- BANKING-DOMESTIC -- 5.2% Bankers Trust Co. 5.66%, 12/10/98 4,000 3,901 International Securitization Corp. /(First National Bank of Chicago LOC)(a) 5.65%, 12/15/98 1,300 1,267 JP Morgan & Co. 5.65%, 12/14/98 4,000 3,899 ------- 9,067 ------- 1 SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK) STATEMENT OF NET ASSETS (IN THOUSANDS) JUNE 30, 1998 (UNAUDITED) Par Value ------- ------- COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS -- (CONTINUED) BANKING-NORWAY -- 2.8% Den Norske Bank 5.64%, 10/27/98 $ 3,000 $ 2,946 5.65%, 11/20/98 2,000 1,957 ------- 4,903 ------- BANKING-SWEDEN -- 3.4% Nordbanken of North America, Inc. 5.65%, 12/16/98 2,000 1,949 Svenska Handelsbanken, Inc. 5.61%, 09/04/98 4,000 3,961 ------- 5,910 ------- BANKING-UNITED KINGDOM -- 4.6% Banco Nacional de Mexico S.A. / (Barclays Bank LOC) 5.54%, 07/13/98 5,000 4,991 5.60%, 09/09/98 3,000 2,968 ------- 7,959 ------- COMPUTERS & OFFICE EQUIPMENT -- 2.0% CSC Enterprises 5.67%, 08/13/98 3,470 3,447 ------- CONSUMER PRODUCTS -- 4.0% Philip Morris Capital Corp. 5.57%, 07/20/98 7,000 6,980 ------- DIVERSIFIED FINANCIAL ASSETS -- 0.9% Bavaria GLB Corp.(a) 5.57%, 08/18/98 1,564 1,553 ------- FINANCE-COMMERCIAL -- 14.8% CIT Group Holdings, Inc. 5.60%, 09/18/98 5,000 4,940 General Electric Capital Corp. 5.61%, 07/24/98 2,000 1,993 5.60%, 08/24/98 6,000 5,951 General Electric Capital Services 5.57%, 08/03/98 5,000 4,975 Heller Financial, Inc. 5.84%, 08/28/98 5,000 4,954 2 SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK) STATEMENT OF NET ASSETS (IN THOUSANDS) JUNE 30, 1998 (UNAUDITED) Par Value ------- -------- COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS -- (CONTINUED) FINANCE-COMMERCIAL -- (CONTINUED) Heller Financial, Inc. 5.83%, 09/01/98 $ 2,000 $ 1,980 5.79%, 09/16/98 1,000 988 -------- 25,781 -------- MISCELLANEOUS SERVICES -- 1.7% PHH Corp. 5.67%, 07/01/98 3,000 3,000 -------- MORTGAGE BANKING -- 4.6% Countrywide Home Loans, Inc. 5.68%, 08/14/98 8,000 7,945 -------- SECURITIES BROKERAGE-DEALER -- 13.1% Lehman Brothers Holdings, Inc. 5.58%, 07/28/98 2,000 1,992 5.60%, 08/17/98 4,000 3,971 5.58%, 08/19/98 1,000 993 5.67%, 09/09/98 1,000 989 Merrill Lynch & Co., Inc. 5.57%, 07/24/98 3,000 2,989 5.61%, 09/18/98 5,000 4,940 Salomon Smith Barney Holdings Inc. 5.60%, 07/07/98 1,000 999 5.60%, 08/31/98 6,000 5,944 -------- 22,817 -------- TRADE RECEIVABLES -- 1.7% Apreco, Inc. (a) 5.61%, 07/24/98 3,000 2,989 -------- TOTAL COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS 142,044 (Cost $142,044) -------- VARIABLE RATE OBLIGATIONS -- 10.4%(b) BANKING-DOMESTIC -- 9.5% California Pollution Control Financing Authority Solid Waste Disposable RB (Burr Properties Project) Series 1997 / (Union Bank of California LOC) 5.80%, 07/07/98 2,275 2,275 California Pollution Control Financing Authority Solid Waste RB (Charter Evaporation Resource Recovery Systems Project) Series 1997B / (Union Bank of California LOC) 5.80%, 07/07/98 2,480 2,480 3 SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK) STATEMENT OF NET ASSETS (IN THOUSANDS) JUNE 30, 1998 (UNAUDITED) Par Value ------- -------- VARIABLE RATE OBLIGATIONS -- (CONTINUED) BANKING-DOMESTIC -- (CONTINUED) Eagle County, Colorado Taxable Housing Facilities RB (BC Housing, L.L.C. Project) Series 1997B / (Norwest Bank Minnesota NA LOC) 5.66%, 07/07/98 $ 1,500 $ 1,500 MoviePlex Realty Leasing, L.L.C. Adjustable Rate Tender Securities (Carmike Cinemas, Inc.) Series 1997B2 /(Sun Trust Bank, Atlanta LOC) 5.60%, 07/07/98 2,675 2,675 Trap Rock Industries, Inc. RB Series of 1997/ (CoreStates Bank NA LOC)(a) 5.75%, 07/07/98 3,435 3,435 Upper Illinois River Valley Development Authority Solid Waste Disposal RB (Exolon - ESK Co. Project) Series 1996B /(Chase Manhattan Bank LOC) 5.70%, 07/07/98 2,595 2,595 Village of Sturtevant, Wisconsin IDRB (Andis Co. Project) Series 1996B / (Marshall & Ilsley Bank LOC) 5.70%, 07/07/98 1,500 1,500 -------- 16,460 -------- BANKING-UNITED KINGDOM -- 0.9% City of Gary, Indiana Taxable Adjustable Rate Economic Development Revenue Refunding Bonds (The Miller Project, L.P. Project) Series 1996B / (Royal Bank of Scotland LOC) 5.70%, 07/07/98 1,680 1,680 -------- TOTAL VARIABLE RATE OBLIGATIONS (Cost $18,140) 18,140 -------- CERTIFICATES OF DEPOSIT -- 8.6% BANKING-AUSTRIA -- 3.4% Creditanstalt 5.60%, 09/25/98 6,000 6,001 -------- BANKING-CANADA -- 0.6% Canadian Imperial Bank of Commerce 6.01%, 10/21/98 1,000 1,000 -------- BANKING-DOMESTIC -- 1.7% Morgan Guaranty Trust Co. 5.90%, 08/06/98 3,000 3,000 -------- BANKING-FRANCE -- 2.9% Societe Generale 5.90%, 08/21/98 5,000 4,999 -------- TOTAL CERTIFICATES OF DEPOSIT (Cost $15,000) 15,000 -------- 4 SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK) STATEMENT OF NET ASSETS (IN THOUSANDS) JUNE 30, 1998 (UNAUDITED) Par Value ------- -------- BANK NOTES -- 2.9% BANKING-DOMESTIC -- 2.9% BankBoston N.A. 5.57%, 07/08/98 $ 5,000 $ 5,000 -------- TOTAL BANK NOTES (Cost $5,000) 5,000 -------- REPURCHASE AGREEMENT -- 0.3%(c) Salomon Brothers Inc. Tri-Party Repurchase Agreement Collateralized by: U.S. Government Securities 6.25% Issue 06/30/98 Due 07/01/98 461 461 -------- TOTAL REPURCHASE AGREEMENT (Cost $461) 461 -------- TOTAL INVESTMENTS -- 103.9% (Cost $180,645) 180,645 -------- LIABILITIES IN EXCESS OF OTHER ASSETS -- (3.9%) (6,733) -------- TOTAL NET ASSETS -- 100.0% $173,912 ======== SEE ACCOMPANYING NOTES TO STATEMENT OF NET ASSETS AND NOTES TO FINANCIAL STATEMENTS. 5 SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK) JUNE 30, 1998 (UNAUDITED) NOTES TO STATEMENT OF NET ASSETS Yields shown are effective yields at the time of purchase, except for variable rate obligations, which are described below. Yields for each type of security are stated according to the market convention for that security type. For each security, cost (for financial reporting and federal income tax purposes) and carrying value are the same. (a) Certain securities purchased by the Fund are private placement securities exempt from registration by Section 4(2) of the Securities Act of 1933. These securities generally are issued to institutional investors, such as the Schwab Retirement Money Fund. Any resale by the Fund must be in an exempt transaction, normally to a qualified institutional buyer. At June 30, 1998, the aggregate value of private placement securities held by the Fund was $9,244,000 which represented 5.32 % of net assets. All of these private placement securities were determined by the Investment Manager to be liquid in accordance with procedures adopted by the Board of Trustees. (b) Variable rate obligations -- Interest rates vary periodically based on current market rates. Rates shown are the effective rates as of the report date. Dates shown for securities with scheduled maturities within 397 days or less represent the earlier of the demand date or next interest rate change date. Dates shown for securities with scheduled maturities greater than 397 days represent the later of the demand date or next interest rate change date. All dates shown are considered the maturity date for financial reporting purposes. For variable rate securities without demand features, the next interest reset date is shown. (c) Repurchase agreement due dates are considered the maturity date. Repurchase agreements with due dates later than 7 days from issue dates may be subject to 7-day putable demand features for liquidity purposes. Abbreviations IDRB Industrial Development Revenue Bond LOC Letter of Credit RB Revenue Bond SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 6 SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK) - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES (in thousands) June 30, 1998 (Unaudited) ASSETS Investments, at value (Cost: $180,645) $ 180,645 Receivables: Fund shares sold 1,431 Interest 848 Prepaid expenses 21 --------- Total assets 182,945 --------- LIABILITIES Payables: Dividends 382 Investments purchased 2,595 Fund shares redeemed 5,984 Investment advisory and administration fees 12 Transfer agency and shareholder service fees 8 Other liabilities 52 --------- Total liabilities 9,033 --------- Net assets applicable to outstanding shares $ 173,912 ========= NET ASSETS CONSIST OF: Paid-in-capital $ 173,903 Undistributed net investment income 10 Accumulated net realized loss on investments sold (1) --------- $ 173,912 ========= PRICING OF SHARES Outstanding shares, $0.00001 par value (unlimited shares authorized) 173,960 Net asset value, offering and redemption price per share $1.00 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 7 SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK) - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS (in thousands) For the six months ended June 30, 1998 (Unaudited) Interest income $4,891 ------ Expenses: Investment advisory and administration fees 395 Transfer agency and shareholder service fees 215 Custodian and portfolio accounting fees 49 Registration fees 5 Professional fees 10 Shareholder reports 5 Trustees' fees 9 Insurance and other expenses 8 ------ 696 Less: expenses reduced (see Note 4) (69) ------ Total expenses incurred by Fund 627 ------ Net investment income 4,264 ------ Increase in net assets resulting from operations $4,264 ====== SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 8 SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK) - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (in thousands) Six months ended June 30, Year ended 1998 December 31, (Unaudited) 1997 ----------- ------------ Operations: Net investment income $ 4,264 $ 7,232 --------- --------- Increase in net assets resulting from operations 4,264 7,232 --------- --------- Dividends to shareholders from net investment income (See Note 2) (4,299) (7,232) --------- --------- Capital share transactions (at $1.00 per share): Proceeds from shares sold 140,313 279,578 Net asset value of shares issued in reinvestment of dividends 4,896 6,958 Less payments for shares redeemed (126,165) (267,952) --------- --------- Increase in net assets from capital share transactions 19,044 18,584 --------- --------- Total increase in net assets 19,009 18,584 Net Assets: Beginning of period 154,903 136,319 --------- --------- End of period $ 173,912 $ 154,903 ========= ========= SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 9 SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK) - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share outstanding throughout each period:
Net Fiscal Net Asset Realized & Total Dividends Net Asset Period Value Net Unrealized from from Net Value at Ended Beginning Investment Gains on Investment Investment Total End of December 31, Of Period Income Investments Operation Income Distributions Period - ------------ --------- ---------- ----------- ---------- ---------- ------------- --------- 1998 1 $1.00 $0.03 $-- $0.03 $(0.03)* $(0.03) $1.00 1997 $1.00 $0.05 $-- $0.05 $(0.05) $(0.05) $1.00 1996 $1.00 $0.05 $-- $0.05 $(0.05) $(0.05) $1.00 1995 $1.00 $0.05 $-- $0.05 $(0.05) $(0.05) $1.00 1994 2 $1.00 $0.03 $-- $0.03 $(0.03) $(0.03) $1.00 (DAGGER) The information contained in the above table is based on actual expenses for the periods, after giving effect to the portion of expenses reduced and absorbed by the Investment Manager and Schwab. Had these expenses not been reduced and absorbed, the Fund's expense and net investment income ratios would have been: Fiscal Ratio of Net Period Ratio of Investment Ended Dec. 31, Expenses Income -------------- -------- ------------ 1998 1 0.81%** 4.88%** 1997 0.84% 4.85% 1996 0.88% 4.68% 1995 0.92% 5.09% 1994 2 1.05%** 3.72%** (1) For the six month period ended June 30, 1998 (Unaudited). (2) For the period from March 2, 1994 (commencement of operations) to December 31, 1994. * The amounts shown include certain reclassifications related to book tax differences (See Note 2 of Notes to Fiancial Statements). ** Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 10
Ratio of Net Ratio of Investment Fiscal Total Expenses Income Period Return Net Assets to Average to Average Ended (not annualized) End of Period Net Assets(DAGGER) Net Assets(DAGGER) December 31, % (000's) (%) (%) - ------------ ---------------- ------------- ------------------ ------------------ 1998 1 2.51 $173,912 0.73** 4.96** 1997 5.07 $154,903 0.73 4.96 1996 4.93 $136,319 0.73 4.83 1995 5.43 $98,992 0.73 5.28 1994 2 3.29 $31,415 0.73** 4.04**
11 SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK) - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS For the six months ended June 30, 1998 (Unaudited) 1. DESCRIPTION OF THE FUND The Schwab Retirement Money Fund (the "Fund") is a series of the Charles Schwab Family of Funds (the "Trust"), an open-end, investment management company organized as a Massachusetts business trust on October 20, 1989 and registered under the Investment Company Act of 1940, as amended. In addition to the Fund, the Trust also offers -- the Schwab Money Market Fund, Schwab Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Municipal Money Fund, Schwab California Municipal Money Fund, Schwab New York Municipal Money Fund, Schwab Value Advantage Money Fund(REGISTRATION MARK), Schwab Institutional Advantage 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 -- The Fund declares a daily dividend, equal to its net investment income for that day, payable monthly. Net realized capital gains, if any, are normally distributed annually. EXPENSES -- Expenses arising in connection with the Fund are charged directly to the Fund. Expenses common to all series of the Trust are generally allocated to each series in proportion to their relative net assets. 12 SCHWAB RETIREMENT MONEY FUND(REGISTRATION MARK) ================================================================================ NOTES TO FINANCIAL STATEMENTS Six months ended June 30, 1998(Unaudited) FEDERAL INCOME TAXES -- It is the Fund's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net investment income and realized net capital gains, if any, to shareholders. Therefore, no federal income tax provision is required. The Fund is considered a separate entity for tax purposes. At December 31, 1997, the unused capital loss carryforwards, for federal income tax purposes with expiration dates, were as follows: Schwab Expiring in: Retirement Money Fund(REGISTRATION MARK) - ---------------- ---------------------------------------- 12/31/03 $ 120 12/31/04 1,081 ------ Total capital loss carryforwards $1,201 ====== RECLASSIFICATION -- Generally accepted accounting principles require that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. Accordingly, permanent book/tax differences of $45,000 were reclassified from paid-in-capital to undistributed net investment income. These reclassifications have no effect on net assets or net asset values per share. 3. TRANSACTIONS WITH AFFILIATES Investment advisory and administration agreement - The Trust has investment advisory and administration agreements with Charles Schwab Investment Management, Inc. (the "Investment Manager"). For advisory services and facilities furnished, the Fund pays an annual fee, payable monthly, of 0.46% of the first $1 billion of average daily net assets, 0.45% the next $2 billion, 0.40% of the next $7 billion, 0.37% of the next $10 billion, and 0.34% of such assets in excess of $20 billion. The Investment Manager has reduced a portion if its fee for the six months ended June 30, 1998 (see Note 4). TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENTS -- The Trust has transfer agency and shareholder service agreements with Charles Schwab & Co., Inc. ("Schwab"). For services provided under these agreements, Schwab receives an annual fee, payable monthly, of 0.25% of average daily net assets. OFFICERS AND TRUSTEES -- Certain officers and trustees of the Trust are also officers and/or directors of the Investment Manager and/or Schwab. During the six months ended June 30, 1998, the Trust made no direct payments to its officers or trustees who are "interested persons" within the meaning of the Investment Company Act of 1940, as amended. The fund incurred fees of $9,000 related to the Trust's unaffiliated trustees. 4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB The Investment Manager and Schwab guarantee that, through at least April 30, 1999, the Fund's total operating expenses will not exceed 0.73% of the Fund's average daily net assets, after reductions. For the purpose of this guarantee, operating expenses do not include interest expenses, extraordinary expenses and taxes. For the six months ended June 30, 1998, the total of such fees reduced by the Investment Manager was $69,000. 13 SCHWABFUNDS(REGISTRATION MARK) INVESTMENT ADVISOR: Charles Schwab Investment Management, Inc., 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR: Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA 94014 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)1998 Charles Schwab & Co., Inc. All rights reserved. Member SIPC/NYSE. (0098-3109) MKT3606 (8/98) -----END PRIVACY-ENHANCED MESSAGE-----