0000950149-95-000569.txt : 19950914 0000950149-95-000569.hdr.sgml : 19950914 ACCESSION NUMBER: 0000950149-95-000569 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950908 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: 1940 Act SEC FILE NUMBER: 811-05954 FILM NUMBER: 95572083 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 VALUE ADVANTAGE MONEY FUND SEMI-A/R 1 SCHWABFUNDS(R) [LOGO] SCHWAB VALUE ADVANTAGE MONEY FUND(R) SEMI-ANNUAL REPORT JUNE 30, 1995 [Photo of the Schwab Building, San Francisco, California] 2 Dear Fellow Shareholder, This year, the SchwabFunds Family(TM) celebrates its fifth anniversary as a mutual fund complex. This celebration follows an [Photo exciting 1994 when the organization experienced tremendous growth of -- the third largest asset growth of all mutual fund companies. Charles By placing your trust in SchwabFunds,(R) you've helped total R.Schwab] assets under management reach $27 billion, ranking SchwabFunds in the top 6% of all mutual fund complexes in just a few years. We believe much of this success can be traced to the Schwab commitment to serving the needs of Fund shareholders, a commitment demonstrated by the entire SchwabFunds staff and, in particular, by our experienced team of portfolio managers. The 20 professionals who make up our growing portfolio management team are devoted to monitoring the financial markets for you. Through careful and disciplined selection of securities, they strive to construct optimal portfolios that provide shareholders with competitive returns that meet their investment goals. Shareholders continue to signal their trust in the 175 years of combined experience behind our SchwabFunds portfolio management by keeping their money invested in SchwabFunds. In fact, a large number of the 1.5 million shareholders have been investing in the SchwabFunds Family since its first year of operation. We believe an important part of serving your needs is keeping you informed about your investments. For example, we've added the question and answer section of this report, developed to address what our portfolio managers feel have been the most pressing questions we've heard from shareholders over the period. It is one way we hope to keep communication open between you and the people managing your investments. In addition, now that Charles Schwab Investment Management, Inc. will be managing the day-to-day portfolio management of the three Schwab equity funds, we will be even better able to meet your service needs and respond to your questions. The SchwabFunds Family has grown to include a solid selection of funds that meet the "core" needs of investors. The 16 funds available to retail investors offer effective diversification of the U.S. and international equity markets, both taxable and tax-free bonds, and a variety of money market investments. With this level of diversification, you may use the SchwabFunds to create an efficient, well-rounded portfolio. Or, they can serve as building blocks to an overall investment program that includes more specialized investments. To receive a brochure and prospectus for any of the SchwabFunds, you can call Schwab's toll-free number, 1-800-2 NO-LOAD, or visit any one of the over 200 Schwab offices. The prospectus includes more complete information on the Funds, including charges and expenses. Please read it carefully before investing. I'd like to extend my personal gratitude for your trust in the SchwabFunds Family. You should feel confident that the outstanding efforts of all those who are part of the SchwabFunds organization will continue going forward. And, we expect these efforts to help us meet even higher standards of excellence in the years ahead. /s/Charles R. Schwab Charles R. Schwab Chairman Cover: The Schwab Building, San Francisco, California 3 YES! I'D LIKE TO TAKE ADVANTAGE OF AN EASY WAY TO EFFECTIVELY DIVERSIFY MY EQUITY PORTFOLIO. PLEASE SEND ME MORE INFORMATION, INCLUDING PROSPECTUSES, FOR THE THREE SCHWABFUNDS(R) EQUITY INDEX FUNDS LISTED BELOW. SCHWAB 1000 Fund(R) is designed to match the total return of the Schwab 1000 Index,(R) Schwab's own benchmark of America s 1,000 largest companies, based on market capitalization. SCHWAB SMALL-CAP INDEX FUND(TM) seeks to track the total return of the Schwab Small-Cap Index(TM), comprised of the second 1,000 largest U.S. companies, ranked by market capitalization. SCHWAB INTERNATIONAL INDEX FUND (TM) seeks to track the total return of the Schwab International Index(TM), comprised of 350 of the ADDRESS largest publicly traded companies (based on market CITY STATE ZIP capitalization) in countries with developed securities markets outside of the U.S. The prospectus provides more complete information, including charges and expenses. Please read it carefully before investing. ------------------------------------------------------------------------------- NAME ------------------------------------------------------------------------------- ADDRESS ------------------------------------------------------------------------------- CITY STATE ZIP See the back page for more information. [SCHWABFUNDS FAMILY LOGO] VALS5 4 ------------- NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES ------------- ---------------------------------------------------- BUSINESS REPLY MAIL FIRST CLASS MAIL PERMIT NO. 18125 SAN FRANCISCO, CA ---------------------------------------------------- POSTAGE WILL BE PAID BY ADDRESSEE CHARLES SCHWAB & CO., INC. P O BOX 7780 SAN FRANCISCO CA 94120-9588 [BARCODE] 5 COMMENTS FROM THE INVESTMENT ADVISER We're pleased to report to you on the performance of the Schwab Value Advantage Money Fund(R) for the six-month period ended June 30, 1995. During the first half of this year, the Fund once again proved successful at providing above average money market returns on the long-term cash reserves you have invested, while maintaining the value and liquidity of your investment. RECORD-BREAKING ASSET GROWTH The Schwab Value Advantage Money Fund experienced exceptionally strong growth during the period, when both net assets and number of shareholders increased to record levels. On June 30, 1995, the Fund's total net assets grew 49% to $5.5 billion in the six-month reporting period since the end of 1994. During the same period, more than 20,000 new shareholders came into the Fund, pushing the total number of shareholders over 58,000. We believe this substantial growth underscores the Fund's success to date at providing shareholders with yields that have been consistently higher than that of most money market funds for the first six months of 1995. PERFORMANCE REVIEW Generally speaking, short-term interest rates declined slightly during the first half of 1995, but our defensive strategy of lengthening portfolio maturity effectively delayed a corresponding decrease in the Fund's yield. The table below presents the Fund's seven-day average yields at the end of the period. As with all money market funds, past performance is no guarantee of future results.
================================================================================ 7-DAY AVERAGE YIELDS (As of 6/30/95) Simple Compound -------------------------------------------------------------------------------- Schwab Value Advantage Money Fund 5.71% 5.87% --------------------------------------------------------------------------------
HIGHER YIELDS ON LARGER BALANCES The Schwab Value Advantage Money Fund is designed to provide higher yields than most money market funds by keeping operating expenses low and spreading total operating costs across accounts with higher balances. The Fund's lower expenses can then be passed through to shareholders in the form of higher yields. For example, although past performance is no guarantee of future results, the Fund's average 7-day simple yield of 5.73% on June 27, 1995 compared very favorably with the 5.41% average 7-day simple 6 yield for the 254 retail taxable money funds tracked by IBC/Donoghue.1 In fact, the Fund's 7-day yield consistently outperformed these other retail money market funds during the six-month reporting period, as the chart below illustrates. SCHWAB VALUE ADVANTAGE MONEY FUND'S(R) YIELD CONSISTENTLY OUTPERFORMED ITS CATEGORY AVERAGE* THROUGHOUT THE FIRST SIX MONTHS OF 1995 [Graph of Schwab Value Advantage Money Fund and IBC Donoghue's Money Fund Averages]
SCHWAB IBC/ VALUE DONOGHUE'S ADVANTAGE MONEY MONEY FUND DATE FUND AVERAGES 1/3/95 5.56% 5.18% 1/10/95 5.58% 5.19% 1/17/95 5.62% 5.19% 24-Jan 5.66% 5.20% 1/31/95 5.69% 5.35% 2/14/95 5.76% 5.40% 2/21/95 5.79% 5.44% 2/28/95 5.80% 5.46% 3/7/95 5.80% 5.45% 3/14/95 5.82% 5.46% 3/21/95 5.83% 5.48% 3/28/95 5.83% 5.49% 4/4/95 5.82% 5.51% 4/11/95 5.85% 5.48% 4/18/95 5.86% 5.49% 4/25/95 5.85% 5.47% 5/2/95 5.83% 5.48% 5/9/95 5.84% 5.47% 5/16/95 5.83% 5.47% 5/23/95 5.82% 5.46% 5/30/95 5.79% 5.45% 6/6/95 5.78% 5.44% 6/13/95 5.75% 5.43% 6/20/95 5.74% 5.42% 6/27/95 5.73% 5.41%
7-Day Ending * First Tier Taxable Money Funds Source: IBC/Donoghue, Inc.'s MONEY FUND REPORT, 1995. Average 7-day current yield of the funds in IBC/Donoghue's First Tier category of the Taxable Money Funds for each week in the first six months of 1995. Weekly number of funds in the category ranged from 245 to 254. The Schwab Value Advantage Money Fund offers you a simple, effective way to keep all of your money working as hard as possible, whether you use it as a stand alone investment for your long-term cash reserves or as a complement to one of our money market fund "sweep shares" linked to your Schwab account. For example, you can invest larger cash balances in the Schwab Value Advantage Money Fund for higher potential yields, and invest ready cash in the "sweep" investments to settle transactions. KEY GOAL: CAPITAL STABILITY If you're like most money market fund investors, preserving the value of your investment is an important concern. That's why the Schwab Value Advantage Money Fund is managed with stability of capital as a fundamental objective. To protect your principal, the Fund seeks to maintain a stable $1 share price. As with all money market funds, of course, there can be no assurance that the Fund will be able to maintain a $1 net asset value, and your investment is neither insured nor guaranteed by the U.S. Government. 1. Source: IBC/Donoghue, average current seven-day yield for the 254 funds in the First Tier category of Taxable Money Funds as of June 27, 1995. 7 HIGH-QUALITY PORTFOLIO The Schwab Value Advantage Money Fund(R) seeks to invest in a diversified portfolio of short-term debt securities issued by the U.S. Government and its agencies, banks and other financial institutions, and creditworthy corporations. To limit credit risk, the Fund primarily invests in high-quality securities rated in the top two rating categories by national rating agencies. We maintain strict credit quality standards for the Fund's portfolio, while actively managing portfolio maturity to help protect and enhance your returns. The chart below illustrates the Fund's portfolio composition on June 30, 1995. In addition, you'll find a complete listing of the securities in the Fund's portfolio as of June 30, 1995 later in this report. SCHWAB VALUE ADVANTAGE MONEY FUND PORTFOLIO COMPOSITION JUNE 30, 1995 [Pie chart indicating percentages as of June 30, 1995 for Value Advantage Money Fund] Commercial Paper 73% Certificates of Deposit 13% Bank Notes 7% Variable Rate Notes 5% Other 2%
The Schwab Value Advantage Money Fund invests in bank certificates of deposit, time deposits, bankers' acceptances, highly rated commercial paper and notes, repurchase agreements, U.S. Treasury securities and other obligations of the U.S. and Canadian Governments, their agencies and instrumentalities. To enhance your understanding of the Schwab Value Advantage Money Fund's performance, the portfolio management team offers insights into economic trends and the Fund's investment strategy in the following section. If you want more information on the Fund, or any of the mutual funds in the SchwabFunds Family(TM), visit your local Schwab office or call 1-800-2 NO-LOAD. LOOKING FORWARD IN 1995 While the outlook for interest rates in the second half of the year is uncertain, we remain confident that the Schwab Value Advantage Money Fund will continue to strive to offer you an effective cash management tool that can help you earn above average money market returns on your investment without sacrificing safety and liquidity. At SchwabFunds(R), we recognize that we earn your trust day by day. We appreciate your continued confidence in our efforts, and we look forward to helping you achieve your financial goals in the future. CHARLES SCHWAB INVESTMENT MANAGEMENT, INC. 8 QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM OF CHARLES SCHWAB INVESTMENT MANAGEMENT, INC. Stephen B. Ward - Senior Vice President and Chief Investment Officer Linda Klingman - Portfolio Manager Q. WHAT HAS BEEN THE ECONOMIC CLIMATE IN THE FIRST SIX MONTHS OF 1995? A. Following an impressive 4.1% growth rate of the Gross Domestic Product (GDP) during 1994, the highest annual growth rate in ten years, economic activity is showing increasing signs of slowing. Recent evidence of this trend includes slowdowns in auto sales, consumer spending and retail sales, home building and home sales, and a somewhat dramatic slowdown in the labor markets. The GDP growth rate for the first quarter of 1995 was 2.7%, and 0.5% for the second quarter. The primary reason for the slowdown in the GDP growth rate has been a series of increases in the federal funds rate implemented by the Federal Reserve ("the Fed") throughout 1994 and into 1995. With the high rate of growth in 1994 and a falling civilian unemployment rate, potential inflation emerged as a major concern at the Fed. As a result, the Fed initiated a series of increases in the federal funds rate, resulting in a rise from 3.0% in January 1994 to 6.0% in February 1995. As evidenced by the Fed's recent 0.25% reduction in the federal funds rate in July 1995, these increases appear to have accomplished their desired effect of slowing the rate of economic growth to more moderate levels and reducing the likelihood of increases in the rate of inflation. Q. HOW HAVE THE ECONOMIC EVENTS OF THE LAST SIX MONTHS IMPACTED SHORT-TERM INTEREST RATES? A. As shown on the chart below, short-term interest rates have been declining slowly since the beginning of 1995. This decline has been a result of both anticipation that the Fed will lower interest rates, a practice known as "easing," as well as the economic slowdown that was brought on by prior increases in interest rates, a practice known as "tightening." INTEREST RATES DECLINED IN THE FIRST HALF OF 1995
YIELDS 90-Day Commercial Paper January 6, 1995 - June 30, 1995 [Graph of 90-Day Commercial Paper] 90-DAY DATE COMMERCIAL PAPER ---- ---------------- 1/6 6.29 1/13 6.17 1/20 6.17 1/27 6.24 2/3 6.23 2/10 6.14 2/17 6.16 2/24 6.12 3/3 6.13 3/10 6.19 3/17 6.15 3/24 6.14 3/31 6.15 4/7 6.15 4/14 6.13 4/21 6.09 4/28 6.09 5/5 6.11 5/12 6.05 5/19 6.06 5/26 6.04 6/2 5.98 6/9 5.91 6/16 5.96 6/23 5.94 6/30 5.94
Source: Bloomberg L.P. 9 Q. HOW HAVE YOU POSITIONED THE FUND'S PORTFOLIO TO RESPOND TO THE CURRENT INTEREST RATE ENVIRONMENT? A. In response to the softer economic environment and the uncertainty surrounding the Fed's next monetary move, the Fund's average maturity was lengthened during the sixmonth reporting period. For example, from 12/31/94 to 6/30/95, the Schwab Value Advantage Money Fund(R) increased its average maturity from 40 days to 64 days. In a declining interest rate environment, lengthening maturity helps protect the Fund from reinvesting at lower rates. Although the Fund's yield has decreased recently in response to the decrease in market interest rates, our strategy of lengthening maturities was successful in delaying the decline in the Fund's yield. Q. WHAT STANDARDS DOES THE INVESTMENT ADVISER USE IN SELECTING SECURITIES FOR THE PORTFOLIO? A. Money market funds are required to hold high-quality securities in their portfolios. For the Schwab Value Advantage Money Fund, we have taken the additional step of only investing in what are referred to as First Tier securities. In general, a First Tier security is one that is within certain maturity limits and carries the top rating from the requisite number of Nationally Recognized Statistical Rating Organizations (NRSROs), or is deemed to be of comparable quality by the Trust's Board of Trustees if unrated. One other method we utilize to increase the overall quality of the Schwab Value Advantage Money Fund's portfolio is to selectively purchase securities which are insured or backed by a letter of credit from a highly rated financial institution. These arrangements are frequently referred to as "credit enhancements" because they provide an incremental level of creditworthiness, in addition to the strength of the underlying issuer. Schwab's thorough credit review of the portfolio's securities includes ongoing review of the issuer as well as the insurance company or financial institution providing any credit enhancement to the security. Banks which provide enhancements on securities we purchase represent some of the highest rated U.S., Japanese, and British banks. Recently there has been a fair amount of news coverage concerning the health of the Japanese economy in general and Japanese banks in particular. As a result of our continuous monitoring of the situation in Japan, we are confident that we have selected the Japanese banks that are among the highest rated in the world. Selected carefully, these banks appear to represent excellent opportunities to provide credit enhancements which improve the overall quality of the portfolios. Q. WE CONTINUE TO READ ABOUT PROBLEMS WITH DERIVATIVES. DOES THE SCHWAB VALUE ADVANTAGE MONEY FUND INVEST IN THE DERIVATIVE SECURITIES WHICH HAVE CAUSED PROBLEMS FOR OTHER MONEY FUNDS? A. No. Unlike some well-publicized examples, it has always been our position that such securities are inappropriate for use in money market funds. Therefore, the Fund has never purchased these types of securities. The Fund only invests in securities appropriate for money market funds, such as fixed rate notes and simple variable rate notes or variable rate demand notes. These types of securities are used in virtually all money market funds. 10 Q. HOW DOES THE SCHWAB VALUE ADVANTAGE MONEY FUND(R) ACHIEVE SUCH A COMPETITIVE YIELD WHILE STILL MAINTAINING SUCH A HIGH-QUALITY INVESTMENT PORTFOLIO? A. The Fund is able to maintain a higher yield relative to many other money market funds primarily because of its relatively low level of operating expenses. The Fund is able to achieve low operating expense levels because it requires higher initial and ongoing balances than most other money funds. Also, unlike many other money market funds (and most other Schwab Money Funds) this Fund does not offer a "sweep" feature in which shareholders automatically invest free cash balances held in their Schwab account on a regular basis, which adds to the expense of operating a fund. The Value Advantage Money Fund's lower operating expenses translate directly into higher yields for investors. Q. DOES THE FUND OWN ANY ORANGE COUNTY SECURITIES? A. No. When we last reported to you in the December 31, 1994 annual report, the Fund owned several notes issued by cities or school districts which had made investments in the Orange County Investment Pool. Since that time, all of these notes have been paid back, in full and on time. Q. WHAT IS THE CURRENT STATUS OF THE ORANGE COUNTY SITUATION AND WHAT IMPACT IS IT LIKELY TO HAVE ON THE FUND? A. Since we last reported to you in the December 31, 1994 annual report, a settlement was approved by the Federal bankruptcy court for Orange County which allowed for the distribution of most of the County's investment pool to its former participants. Since that time, all of the cities, school districts and other municipal entities that had invested in the pool, and also had outstanding notes that have reached their maturity dates, have paid off those notes in full. On June 27, 1995, the voters of Orange County rejected County Measure R which would have provided additional sales tax revenue to assist the County in meeting its obligations. On July 7, 1995, the owners of the Orange County direct securities which remain outstanding agreed to extend the maturity of their outstanding notes to June 30, 1996, in order to provide more time for the County to develop a financial recovery plan. County officials have proposed a plan which requires certain changes in state laws, and diverts for the County's use certain tax revenues which would otherwise go to local cities and public agencies. This proposal has not been adopted by the County, the State of California, or the bankruptcy court, and any solution must survive serious opposition before it can result in a plan which can actually pay note holders. In the event the County officials are not successful in adopting a viable plan, the State of California may require that a bankruptcy trustee be appointed. Since the Fund currently owns no Orange County securities, there should be no further impact on the Fund resulting from the Orange County bankruptcy. 11 SchwabFunds(R) -------------------------------------------------------------------------------- SCHWAB VALUE ADVANTAGE MONEY FUND(R) PORTFOLIO SUMMARY (Unaudited) -------------------------------------------------------------------------------- ASSET GROWTH
Total Total Percentage Net Assets Net Assets Growth Over as of 6/30/95 as of 12/31/94 Reporting (000s) (000s) Period ------------------------------------------------ $ 5,549,807 $3,731,629 49% ------------------------------------------------
AVERAGE YIELDS FOR THE PERIODS ENDED ON JUNE 30, 1995
Last Last Last Seven Days Three Months Twelve Months --------------------------------------------- 5.71% 5.80% 5.22% ---------------------------------------------
MATURITY SCHEDULE PERCENT OF TOTAL INVESTMENTS
Maturity Range 9/30/94 12/31/94 3/31/95 6/30/95 ---------------------------------------------------------------- 0 - 15 Days 18.7% 24.9% 22.3% 11.1% 16 - 30 Days 16.6% 23.6% 13.4% 17.2% 31 - 60 Days 29.9% 28.2% 33.4% 29.4% 61 - 90 Days 21.3% 13.3% 26.2% 21.8% 91 - 120 Days 2.1% 9.4% 2.5% 6.2% Over 120 Days 11.4% 0.6% 2.2% 14.3% Weighted Average 53 Days 40 Days 44 Days 64 Days ----------------------------------------------------------------
PORTFOLIO QUALITY
Percent of SEC Tier Net Assets Rating 6/30/95 ----------------------- Tier 1 100.0% Tier 2 0.0% -----------------------
12 SchwabFunds(R) 1 -------------------------------------------------------------------------------- SCHWAB VALUE ADVANTAGE MONEY FUND(R) SCHEDULE OF INVESTMENTS (in thousands) June 30, 1995 (Unaudited) --------------------------------------------------------------------------------
Par Value ------- ---------- CORPORATE OBLIGATIONS--73.3%(A) ASSET BACKED SECURITIES--16.1% Apreco, Inc. 6.15%, 07/17/95 $ 9,700 $ 9,674 6.04%, 08/18/95 5,000 4,960 Asset Securitization Cooperative Corp. 6.08%, 07/28/95 21,999 21,899 5.87%, 08/14/95 13,000 12,908 Barton Capital Corp. 5.94%, 09/25/95 34,000 33,525 Beta Finance, Inc. 6.23%, 08/04/95 3,000 2,983 6.04%, 08/22/95 33,000 32,717 5.92%, 09/18/95 8,500 8,391 5.72%, 11/20/95 11,000 10,758 5.72%, 11/27/95 10,000 9,769 Broadway Capital Corp. 6.10%, 07/21/95 7,719 7,693 6.04%, 08/14/95 5,000 4,964 6.03%, 08/29/95 5,516 5,462 5.92%, 09/13/95 5,000 4,940 5.92%, 09/14/95 20,000 19,757 Budget Funding Corp. 6.11%, 07/19/95 29,000 28,913 6.05%, 07/24/95 15,000 14,943 6.05%, 07/25/95 25,000 24,900 6.05%, 07/27/95 25,000 24,892 6.07%, 08/03/95 13,000 12,929 Corporate Receivables Corp. 6.11%, 07/20/95 19,000 18,940 5.89%, 08/17/95 30,000 29,772 5.92%, 09/13/95 5,000 4,940 5.93%, 09/20/95 23,000 22,697 5.92%, 09/20/95 20,000 19,737 ESC Securitization, Inc. 6.15%, 07/19/95 25,000 24,924 6.10%, 07/27/95 25,000 24,892 6.13%, 08/01/95 20,000 19,896 6.19%, 08/02/95 32,000 31,827 Enterprise Funding Corp. 6.23%, 07/05/95 8,263 8,257 6.17%, 07/12/95 12,000 11,978 6.11%, 07/12/95 15,382 15,354 6.03%, 07/28/95 5,302 5,278 5.88%, 08/30/95 6,650 6,586 5.89%, 09/07/95 36,677 36,275 5.94%, 09/26/95 10,146 10,003 Falcon Asset Securitization Corp. 6.02%, 07/21/95 15,150 15,100 First Deposit Master Trust Series 1993-3 6.17%, 07/13/95 14,000 13,972 6.01%, 08/28/95 24,990 24,752 5.79%, 09/06/95 10,000 9,894 5.94%, 09/12/95 7,120 7,036 5.99%, 09/20/95 4,925 4,860 6.01%, 09/22/95 15,720 15,505 Preferred Receivables Corp. 6.15%, 07/18/95 27,000 26,923 5.88%, 08/03/95 15,300 15,218 Par Value ------- ---------- Ranger Funding Corp. 6.05%, 07/24/95 $ 7,000 $ 6,973 6.05%, 08/09/95 10,000 9,935 6.07%, 08/14/95 5,000 4,963 6.07%, 08/16/95 5,000 4,962 6.06%, 08/18/95 10,000 9,920 6.07%, 08/21/95 4,000 3,966 6.05%, 08/22/95 10,000 9,914 5.99%, 09/08/95 5,000 4,943 5.96%, 09/19/95 10,000 9,870 5.94%, 09/27/95 25,000 24,643 Receivables Capital Corp. 6.11%, 07/27/95 6,221 6,194 WCP Funding, Inc. 6.11%, 07/17/95 15,400 15,359 6.11%, 07/19/95 18,000 17,946 6.04%, 07/26/95 33,200 33,062 5.99%, 09/21/95 14,000 13,812 ---------- 898,055 ---------- AUTOMOTIVE--8.1% Ford Credit Europe PLC 6.27%, 07/18/95 27,600 27,520 6.13%, 07/20/95 13,300 13,258 6.01%, 08/02/95 35,000 34,815 5.86%, 08/31/95 17,700 17,527 Ford Motor Credit Co. 6.18%, 07/21/95 24,000 23,919 6.01%, 07/24/95 8,000 7,970 General Motors Acceptance Corp. 6.44%, 07/06/95 5,000 4,996 6.33%, 07/14/95 5,000 4,989 6.33%, 07/24/95 5,000 4,980 6.35%, 08/01/95 11,000 10,941 6.31%, 08/07/95 9,000 8,943 6.12%, 08/15/95 75,000 74,435 6.09%, 08/24/95 40,000 39,640 6.25%, 08/30/95 10,000 9,898 Hertz Corp. 6.00%, 07/20/95 26,000 25,918 6.02%, 07/21/95 10,000 9,967 Renault Credit International SA Banque 6.19%, 07/05/95 34,200 34,177 6.15%, 07/31/95 31,000 30,844 6.14%, 07/31/95 15,700 15,621 6.13%, 08/03/95 7,400 7,359 6.11%, 08/08/95 37,000 36,765 5.97%, 09/26/95 8,700 8,576 ---------- 453,058 ---------- BANKING--AUSTRALIA--0.1% ANZ (Delaware), Inc. 6.09%, 07/26/95 8,000 7,967 ---------- BANKING--BELGIUM--2.4% Cregem North America, Inc. 5.82%, 12/13/95 10,000 9,741 5.84%, 12/18/95 7,000 6,813 5.74%, 12/28/95 20,000 19,443
13 SchwabFunds(R) 2 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Par Value ------- ---------- Generale Bank, Inc. 6.39%, 09/27/95 $35,000 $ 34,470 6.36%, 10/03/95 25,000 24,598 6.05%, 10/18/95 37,000 36,339 ---------- 131,404 ---------- BANKING--CANADA--0.8% Bank of Nova Scotia 6.02%, 08/11/95 45,000 44,696 ---------- BANKING--DOMESTIC BANK HOLDING COMPANY--4.7% Bankers Trust New York Corp. 6.22%, 07/03/95 32,000 31,989 6.20%, 07/03/95 14,000 13,995 6.20%, 07/06/95 22,000 21,981 Chemical Banking Corp. 6.28%, 07/11/95 15,000 14,974 5.94%, 09/13/95 4,000 3,952 5.93%, 09/13/95 50,000 49,399 NationsBank Corp. 6.15%, 08/17/95 11,000 10,913 6.37%, 10/04/95 20,000 19,674 6.37%, 10/05/95 47,000 46,227 6.29%, 10/10/95 50,000 49,144 ---------- 262,248 ---------- BANKING--FRANCE--0.3% Indosuez N.A. Inc. 6.10%, 07/26/95 18,000 17,925 ---------- BANKING--GERMANY--0.3% Commerzbank U.S. Finance, Inc. 6.35%, 09/19/95 17,000 16,767 ---------- BANKING--JAPAN--5.7% Anchor Funding Corp./(Dai-Ichi Kangyo Bank LOC) 6.15%, 07/18/95 5,000 4,986 6.07%, 08/08/95 10,000 9,937 6.00%, 09/27/95 8,864 8,736 Bancal Tri-State Corp./ (Mitsubishi Bank Keepwell Agreement) 6.07%, 08/09/95 10,000 9,935 DIC Americas, Inc./ (Mitsubishi Bank LOC) 6.06%, 08/14/95 14,000 13,898 Deerfield Capital Corp./ (Sumitomo Bank LOC) 6.02%, 08/11/95 18,000 17,878 5.92%, 09/06/95 19,250 19,041 Ridge Capital II/(Dai-Ichi Kangyo Bank LOC) 6.19%, 07/13/95 20,300 20,259 6.14%, 07/19/95 10,000 9,970 6.14%, 07/28/95 39,000 38,823 6.11%, 08/04/95 18,000 17,898 6.02%, 08/10/95 6,000 5,960 5.92%, 09/05/95 16,550 16,373 5.97%, 09/13/95 36,380 35,940 5.97%, 09/14/95 35,000 34,571 5.92%, 09/22/95 19,250 18,991 Par Value ------- ---------- Tri-Lateral Capital (U.S.A.), Inc./(Industrial Bank of Japan LOC) 6.11%, 07/12/95 $27,271 $ 27,220 6.06%, 07/21/95 10,100 10,066 ---------- 320,482 ---------- BANKING--NETHERLANDS--1.9% Internationale Nederlanden (U.S.) Funding 6.11%, 07/18/95 76,000 75,784 6.11%, 07/26/95 20,300 20,215 6.04%, 08/16/95 10,000 9,924 ---------- 105,923 ---------- BANKING--SPAIN--3.7% Central Hispano N.A. Capital Corp. 6.16%, 07/06/95 6,000 5,995 6.03%, 08/09/95 25,000 24,839 5.96%, 09/06/95 38,000 37,585 5.96%, 09/07/95 38,000 37,579 6.00%, 09/08/95 50,000 49,434 6.00%, 09/11/95 50,000 49,409 ---------- 204,841 ---------- BANKING--UNITED KINGDOM--5.6% Abbey National Treasury Services 6.60%, 12/15/95 15,000 15,046 Banco Nacional de Mexico S.A./ (Barclays Bank LOC) 5.89%, 09/05/95 3,000 2,968 5.89%, 09/07/95 14,000 13,847 Cheltenham & Gloucester Building Society 6.09%, 07/25/95 49,000 48,804 6.04%, 08/18/95 20,000 19,841 Hanson Finance (UK) PLC 6.09%, 07/26/95 10,000 9,958 6.05%, 08/10/95 35,000 34,768 6.03%, 08/15/95 10,000 9,926 6.03%, 08/17/95 15,000 14,884 6.04%, 08/21/95 40,000 39,663 6.04%, 08/23/95 25,000 24,781 6.04%, 08/24/95 36,000 35,679 5.91%, 09/05/95 6,253 6,186 5.92%, 09/13/95 7,000 6,916 Yorkshire Building Society 5.98%, 09/08/95 27,000 26,695 ---------- 309,962 ---------- COMPUTER AND OFFICE EQUIPMENT--0.8% CSC Enterprises 6.07%, 08/10/95 14,000 13,907 6.07%, 08/18/95 26,500 26,289 5.96%, 09/21/95 4,000 3,946 ---------- 44,142 ---------- DATA PROCESSING--1.0% Electronic Data Systems 6.00%, 09/15/95 17,000 16,788 6.00%, 09/28/95 37,000 36,472 ---------- 53,260 ----------
14 SchwabFunds(R) 3 -------------------------------------------------------------------------------- SCHWAB VALUE ADVANTAGE MONEY FUND(R) SCHEDULE OF INVESTMENTS (in thousands) June 30, 1995 (Unaudited) --------------------------------------------------------------------------------
Par Value ------- ---------- ELECTRICAL AND ELECTRONICS--0.7% MCA Funding Corp. 6.28%, 07/07/95 $10,000 $ 9,990 Panasonic Finance, Inc. 6.20%, 08/16/95 20,000 19,845 6.03%, 09/06/95 10,000 9,890 ---------- 39,725 ---------- FINANCE (CONSUMER)--2.2% American Express Credit Corp. 6.11%, 07/17/95 18,000 17,952 5.84%, 12/06/95 50,000 48,754 5.71%, 12/15/95 25,000 24,358 5.76%, 12/20/95 35,000 34,064 ---------- 125,128 ---------- FINANCE (COMMERCIAL)--3.7% CIT Group Holdings, Inc. 6.04%, 08/25/95 37,000 36,664 General Electric Capital Corp. 6.12%, 08/04/95 16,000 15,909 5.79%, 09/15/95 25,000 24,699 5.76%, 12/22/95 54,000 52,538 General Electric Capital Services 6.39%, 10/03/95 40,000 39,353 6.39%, 10/04/95 40,000 39,347 ---------- 208,510 ---------- FOOD PROCESSING--0.4% Philip Morris Capital Corp. 6.09%, 08/02/95 20,000 19,893 ---------- MEDICAL SUPPLY--1.1% Sherwood Medical Company 6.09%, 08/03/95 62,268 61,926 ---------- MORTGAGE BANKING--1.5% Fleet Mortgage Group, Inc. 6.03%, 07/20/95 40,000 39,874 5.97%, 07/24/95 46,000 45,826 ---------- 85,700 ---------- PAPER AND WOOD PRODUCTS--0.8% Bowater PLC 6.17%, 07/03/95 23,600 23,592 6.10%, 07/28/95 15,000 14,933 6.04%, 08/16/95 6,256 6,208 ---------- 44,733 ---------- PHARMACEUTICALS--0.7% A.H. Robins Company, Inc. 5.90%, 08/01/95 19,500 19,402 6.01%, 09/12/95 20,000 19,759 ---------- 39,161 ---------- SECURITIES BROKERAGE-DEALER--10.7% BT Securities Corp. 6.22%, 07/05/95 21,000 20,986 5.99%, 09/18/95 26,000 25,663 6.00%, 09/20/95 6,000 5,920 Bear Stearns Companies Inc. 6.02%, 08/01/95 12,000 11,939 6.12%, 08/02/95 17,000 16,909 Par Value ------- ---------- 6.01%, 08/23/95 $27,000 $ 26,764 5.91%, 09/01/95 15,000 14,849 5.92%, 09/05/95 35,000 34,625 CS First Boston, Inc. 6.18%, 07/11/95 9,000 8,985 Goldman Sachs Group, LP 6.29%, 08/01/95 27,000 26,857 6.00%, 08/08/95 35,000 34,781 6.00%, 08/09/95 50,000 49,679 6.00%, 08/10/95 34,000 33,776 6.42%, 09/05/95 27,000 26,692 6.01%, 09/08/95 50,000 49,434 5.88%, 11/17/95 19,000 18,579 5.85%, 11/20/95 11,000 10,753 Lehman Brothers Holdings Inc. 6.09%, 07/11/95 4,000 3,993 Morgan Stanley Group Inc. 6.01%, 07/07/95 7,000 6,993 6.01%, 08/07/95 29,000 28,823 6.35%, 09/20/95 5,000 4,931 Nomura Holdings America, Inc. 6.08%, 07/05/95 25,000 24,983 6.10%, 07/06/95 7,000 6,994 6.09%, 07/24/95 13,000 12,950 5.96%, 09/07/95 21,000 20,767 Paine Webber Group Inc. 6.19%, 07/13/95 15,000 14,970 6.20%, 07/19/95 24,000 23,927 6.12%, 07/27/95 16,000 15,930 6.06%, 07/31/95 10,000 9,950 Salomon Inc. 6.40%, 07/03/95 1,729 1,728 ---------- 594,130 ---------- TOTAL CORPORATE OBLIGATIONS (Cost $4,089,636) 4,089,636 ---------- VARIABLE RATE OBLIGATIONS--4.8%(B) ASSET BACKED SECURITIES--0.4% Advanta Credit Card Master Trust 6.12%, 07/07/95 21,200 21,200 ---------- BANKING--DOMESTIC BANK HOLDING COMPANY--0.4% Bankers Trust New York Corp. 6.45%, 07/01/95 25,000 25,000 ---------- BANKING--DOMESTIC--1.2% American Express Centurion Bank 6.06%, 07/14/95 20,000 20,000 Comerica Bank 5.62%, 07/04/95 8,000 7,997 Keystone Health Resources Corp. Variable Rate Taxable Demand Notes Series 1993/ (PNC Bank LOC) 6.10%, 07/07/95 3,400 3,400 ----------
15 SchwabFunds(R) 4 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Par Value ------- ---------- PNC Bank, N.A. 5.64%, 07/04/95 $10,000 $ 10,000 6.06%, 07/17/95 25,000 25,000 ---------- 66,397 ---------- BANKING--FRANCE--0.4% City of New York General Obligation Bonds Fiscal 1995 Series F-8 (Societe Generale LOC) 6.05%, 07/07/95 19,500 19,500 ---------- BANKING--JAPAN--0.2% Missouri Economic Development Export & Infrastructure Board Adjustable Rate Taxable Securities (Biocraft Laboratories, Inc. Project) Series 1989/ (Bank of Tokyo LOC) 6.30%, 07/07/95 5,000 5,000 ---------- New York City Industrial Development Authority GAF Seelig Series 1993/ (IBJ Schroder Bank and Trust LOC) 6.50%, 07/07/95 2,325 2,325 Town of Islip Industrial Development Agency 1992 Taxable Adjustable Rate Industrial Revenue Bonds (Nussdorf Associates/Quality King Distributors, Inc. Facility)/ (Bank of Tokyo LOC) 6.27%, 07/06/95 1,710 1,710 ---------- 9,035 ---------- BANKING--UNITED KINGDOM--0.2% Abbey National Treasury Services PLC 5.61%, 07/04/95 10,000 9,997 ---------- HEALTHCARE--0.3% Catholic Healthcare West Taxable Variable Rate Demand Bonds Series 1993A 6.00%, 07/07/95 17,900 17,900 ---------- INSURANCE--0.2% Commonwealth Life Insurance Co. 6.28%, 09/28/95 10,000 10,000 ---------- MONOLINE INSURANCE--0.0% New Orleans Aviation Board Taxable Refunding Bonds Series 1993A/ (MBIA Insurance) 6.25%, 07/07/95 1,700 1,700 ---------- Par Value ------- ---------- SECURITIES BROKERAGE-DEALER--1.5% Bear Stearns Companies Inc. 6.16%, 07/24/95 $20,000 $ 20,000 6.10%, 09/21/95 45,000 45,000 Lehman Brothers Holdings, Inc. 6.21%, 07/30/95 20,000 20,000 ---------- 85,000 ---------- TOTAL VARIABLE RATE OBLIGATIONS (Cost $265,729) 265,729 ---------- BANKER'S ACCEPTANCES--0.4% BANKING--JAPAN--0.4% Bank of Tokyo, Ltd. 6.02%, 08/22/95 13,000 12,888 Fuji Bank, Ltd. 6.05%, 08/01/95 9,000 8,954 ---------- TOTAL BANKER'S ACCEPTANCES (Cost $21,842) 21,842 ---------- BANK NOTES--6.9% BANKING--DOMESTIC--6.9% Fifth Third Bank 6.08%, 11/07/95 25,000 25,000 6.02%, 11/10/95 25,000 25,005 NationsBank of Georgia, N.A. 6.08%, 11/07/95 25,000 25,000 6.08%, 11/08/95 33,000 33,000 NationsBank of Texas, N.A. 6.09%, 11/21/95 57,000 57,000 5.65%, 12/04/95 30,000 30,000 5.83%, 12/11/95 36,000 36,000 5.83%, 12/12/95 50,000 50,000 PNC Bank, N.A. 6.39%, 10/06/95 55,000 55,000 6.09%, 11/08/95 46,000 46,008 ---------- TOTAL BANK NOTES (Cost $382,013) 382,013 ---------- CERTIFICATES OF DEPOSIT--12.8% BANKING--CANADA--0.5% Canadian Imperial Bank of Commerce 6.03%, 08/11/95 20,000 20,000 6.04%, 08/15/95 8,000 8,000 ---------- 28,000 ----------
16 SchwabFunds(R) 5 -------------------------------------------------------------------------------- SCHWAB VALUE ADVANTAGE MONEY FUND(R) SCHEDULE OF INVESTMENTS (in thousands) June 30, 1995 (Unaudited) --------------------------------------------------------------------------------
Par Value ------- ---------- BANKING--DOMESTIC--1.8% Chemical Bank 5.74%, 12/08/95 $65,000 $ 65,000 MBNA America Bank N.A. 6.00%, 10/19/95 34,000 34,000 ---------- 99,000 ---------- BANKING--FRANCE--0.4% Societe Generale 6.00%, 07/31/95 20,000 20,000 ---------- BANKING--GERMANY--1.8% Bayerische Landesbank Girozentrale 6.88%, 04/02/96 25,000 25,000 6.44%, 05/03/96 50,000 50,000 Commerzbank, AG 5.96%, 09/08/95 25,000 24,997 ---------- 99,997 ---------- BANKING--JAPAN--5.2% Fuji Bank, Ltd. 5.95%, 07/31/95 30,000 30,002 Mitsubishi Bank, Ltd. 6.03%, 09/06/95 25,000 24,988 Sanwa Bank, Ltd. 6.11%, 08/07/95 5,000 5,000 6.04%, 08/14/95 13,000 12,999 Sumitomo Bank, Ltd. 6.02%, 07/05/95 40,000 40,000 6.02%, 07/11/95 30,000 30,000 6.08%, 07/27/95 25,000 25,000 6.03%, 08/02/95 33,000 33,000 6.03%, 08/07/95 33,000 33,000 6.04%, 08/14/95 11,000 11,000 6.02%, 08/30/95 43,000 43,001 ---------- 287,990 ---------- BANKING--UNITED KINGDOM--3.1% Abbey National PLC 6.04%, 08/16/95 57,000 56,998 6.04%, 08/22/95 50,000 50,000 Par Value ------- ---------- Midland Bank PLC 5.80%, 12/15/95 $50,000 $ 50,002 5.80%, 12/15/95 3,000 3,000 National Westminster Bank PLC 5.79%, 02/06/96 14,000 13,991 5.72%, 02/06/96 7,000 7,001 ---------- 180,992 ---------- TOTAL CERTIFICATES OF DEPOSIT (Cost $715,979) 715,979 ---------- REMARKETED CERTIFICATES--1.7% ASSET BACKED SECURITIES--1.7% Black & Decker RECOP Trust 6.05%, 07/24/95 10,000 10,000 6.05%, 08/07/95 25,000 25,000 6.00%, 09/19/95 8,000 8,000 Circuit City RECOP Trust 6.17%, 07/10/95 26,000 26,000 6.16%, 07/10/95 26,500 26,500 ---------- TOTAL REMARKETED CERTIFICATES (Cost $95,500) 95,500 ---------- TAXABLE BONDS--0.1% BANKING--JAPAN--0.1% Oklahoma Industrial Finance Authority Taxable General Obligation Industrial Finance Bonds Series P/ (Mitsubishi Bank LOC) 6.35%, 08/01/95 6,250 6,250 ---------- TOTAL TAXABLE BONDS (Cost $6,250) 6,250 ---------- TOTAL INVESTMENTS--100.0% (Cost $5,576,949) $5,576,949 ============
17 SchwabFunds(R) 6 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS. Yields shown are effective yields at the time of purchase, except for variable rate securities 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 Value Advantage Money Fund(R). Any resale by the Fund must be in an exempt transaction, normally to a qualified institutional buyer. At June 30, 1995, the aggregate value of private placement securities held by the Fund was $1,301,308,000 which represented 23.45% of net assets. Of this total, $1,175,808,000 or 21.19% of net assets, was determined by the Investment Manager to be liquid in accordance with a resolution adopted by the Board of Trustees relating to Rule 144A, promulgated under the Securities Act of 1933. (b) Variable rate securities. Interest rates vary periodically based on current market rates. Rates shown are the effective rates on June 30, 1995. Dates shown represent the latter of the demand date or next interest rate change date, which is considered the maturity date for financial reporting purposes. For variable rate securities without demand features the next interest reset date is shown.
Abbreviations --------------------------------------------------------------- LOC Letter of Credit MBIA Municipal Bond Investors Assurance Corporation RECOP Remarketed Certificates of Participation
See accompanying Notes to Financial Statements. 18 SchwabFunds(R) 7 -------------------------------------------------------------------------------- SCHWAB VALUE ADVANTAGE MONEY FUND(R) STATEMENT OF ASSETS AND LIABILITIES (in thousands) June 30, 1995 (Unaudited) -------------------------------------------------------------------------------- ASSETS Investments, at value (Cost: $5,576,949) $5,576,949 Interest receivable 9,772 Receivable for fund shares sold 51,614 Prepaid expenses 130 Deferred organization costs 40 ---------- Total assets 5,638,505 ---------- LIABILITIES Payable for: Dividends 3,433 Fund shares redeemed 21,464 Investments purchased 61,497 Investment advisory and administration fee 485 Transfer agency and shareholder service fees 1,103 Other 716 ---------- Total liabilities 88,698 ---------- Net assets applicable to outstanding shares $5,549,807 ========== NET ASSETS CONSIST OF: Capital paid in $5,549,933 Accumulated net realized loss on investments sold (126) ---------- $5,549,807 ========== THE PRICING OF SHARES Outstanding shares, $0.00001 par value (unlimited shares authorized) 5,549,933 Net asset value, offering and redemption price per share $1.00
See accompanying Notes to Financial Statements. 19 SchwabFunds(R) 8 -------------------------------------------------------------------------------- SCHWAB VALUE ADVANTAGE MONEY FUND(R) STATEMENT OF OPERATIONS (in thousands) For the six months ended June 30, 1995 (Unaudited) -------------------------------------------------------------------------------- Interest income $142,402 -------- Expenses: Investment advisory and administration fee 10,068 Transfer agency and shareholder service fees 5,765 Custodian fees 217 Registration fees 674 Professional fees 46 Shareholder reports 48 Trustees' fees 7 Amortization of deferred organization costs 11 Insurance and other expenses 30 -------- 16,866 Less expenses reduced (7,648) -------- Total expenses incurred by Fund 9,218 -------- Net investment income 133,184 Net realized loss on investments sold -- -------- Increase in net assets resulting from operations $133,184 ========
See accompanying Notes to Financial Statements. 20 SchwabFunds(R) 9 -------------------------------------------------------------------------------- SCHWAB VALUE ADVANTAGE MONEY FUND(R) STATEMENT OF CHANGES IN NET ASSETS (in thousands) --------------------------------------------------------------------------------
For the six For the months ended year ended June 30, 1995 December 31, (Unaudited) 1994 ------------- ------------ Operations: Net investment income $ 133,184 $ 85,792 Net realized loss on investments sold -- (124) ---------- ---------- Increase in net assets resulting from operations 133,184 85,668 ---------- ---------- Dividends to shareholders from net investment income (133,184) (85,792) ---------- ---------- Capital Share Transactions (dollar amounts and number of shares are the same): Proceeds from shares sold 5,232,178 6,042,841 Net asset value of shares issued in reinvestment of dividends 138,143 63,079 Less payments for shares redeemed (3,552,143) (3,103,523) ---------- ---------- Increase in net assets from capital share transactions 1,818,178 3,002,397 ---------- ---------- Total increase in net assets 1,818,178 3,002,273 Net Assets: Beginning of period 3,731,629 729,356 ---------- ---------- End of period $ 5,549,807 $3,731,629 ========== ==========
See accompanying Notes to Financial Statements. 21 SchwabFunds(R) 10 -------------------------------------------------------------------------------- SCHWAB VALUE ADVANTAGE MONEY FUND(R) NOTES TO FINANCIAL STATEMENTS For the six months ended June 30, 1995 (Unaudited) -------------------------------------------------------------------------------- 1. DESCRIPTION OF THE FUND The Schwab Value Advantage Money Fund (the "Fund") is a series of The Charles Schwab Family of Funds (the "Trust"), an open-end, management investment 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, the Schwab Government Money Fund, the Schwab U.S. Treasury Money Fund, the Schwab Tax-Exempt Money Fund, the Schwab California Tax-Exempt Money Fund, the Schwab New York Tax-Exempt Money Fund, the Schwab Institutional Advantage Money FundTM and the Schwab Retirement Money FundTM. The assets of each series are segregated and accounted for separately. The Schwab Value Advantage Money Fund invests primarily in a diversified portfolio of short-term obligations of major banks and corporations. 2. SIGNIFICANT ACCOUNTING POLICIES Security valuation -- Investments are stated at amortized cost which approximates market value. Security transactions and interest income -- Security transactions, in the accompanying financial statements, are accounted for on a trade date basis (date the order to buy or sell is executed). Interest income is recorded on the accrual basis 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. Treasury or Government agency securities. All collateral is held by the Fund's custodian and is monitored daily to ensure that its market value at least equals the repurchase price under the agreement. Dividends to shareholders -- The Fund declares a daily dividend, equal to its net investment income for that day, payable monthly. Deferred organization costs -- Costs incurred in connection with the organization of the Fund, its initial registration with the Securities and Exchange Commission and with various states are amortized on a straight-line basis over a five year period from the Fund's commencement of operations. Expenses -- Expenses arising in connection with the Fund are charged directly to the Fund. Expenses common to all series of the Trust are allocated to each series in proportion to their relative net assets. Federal income taxes -- It is the Fund's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net investment income and realized net capital gains, if any, to shareholders. Therefore, no federal income tax provision is required. The Fund is considered a separate entity for tax purposes. 22 SchwabFunds(R) 11 -------------------------------------------------------------------------------- SCHWAB VALUE ADVANTAGE MONEY FUND(R) NOTES TO FINANCIAL STATEMENTS For the six months ended June 30, 1995 (Unaudited) -------------------------------------------------------------------------------- 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, the Fund pays an annual fee, payable monthly, of .46% of the first $2 billion of average daily net assets, .45% of such assets over $2 billion, and .40% of such assets in excess of $3 billion. Under these agreements, the Fund incurred investment advisory and administration fees of $10,068,000 during the six months ended June 30, 1995, before the Investment Manager reduced its fee (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 .25% of average daily net assets. In addition, Schwab receives a fee of $5.00 for redemptions in amounts less than $5,000 and may impose a $5.00 fee for monthly balances below the minimum required. For the six months ended June 30, 1995, the Fund incurred transfer agency and shareholder service fees of $5,765,000 before Schwab reduced its fees (see Note 4). Officers and trustees -- Certain officers and trustees of the Trust are also officers or directors of the Investment Manager and/or Schwab. During the six months ended June 30, 1995, 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 $7,000 related to the Trust's unaffiliated trustees. 4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB The Investment Manager and Schwab reduced a portion of their fees in order to limit the Fund's ratio of operating expenses to average net assets. For the six months ended June 30, 1995, the total of such fees reduced by the Investment Manager and Schwab was $7,531,000 and $117,000, respectively. 5. INVESTMENT TRANSACTIONS Purchases, sales and maturities of investment securities for the six months ended June 30, 1995, aggregated (in thousands) $11,724,983 and $9,901,083, respectively. 23 SchwabFunds(R) 12 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 6. FINANCIAL HIGHLIGHTS Per share income and capital changes for a share outstanding throughout the period:
For the period April 30, 1992 For the six (commencement months ended For the year ended of operations) to June 30, 1995 December 31, December 31, (Unaudited) 1994 1993 1992 ------------------------------------------------- Net asset value at beginning of period $1.00 $1.00 $1.00 $1.00 Income from Investment Operations ----------------------------------- Net investment income .03 .04 .03 .02 Net realized and unrealized gain (loss) on investments -- -- -- -- ---------- ---------- -------- -------- Total from investment operations .03 .04 .03 .02 Less Distributions ----------------- Dividends from net investment income (.03) (.04) (.03) (.02) Distributions from realized gains on investments -- -- -- -- ---------- ---------- -------- -------- Total distributions (.03) (.04) (.03) (.02) ---------- ---------- -------- -------- Net asset value at end of period $1.00 $1.00 $1.00 $1.00 ========== ========== ======== ======== Total return (%) 2.90 4.09 3.02 2.33 ---------------- Ratios/Supplemental Data -------------------------- Net assets, end of period (000s) $ 5,549,807 $3,731,629 $729,356 $ 319,024 Ratio of expenses to average net assets (%) .40* .40 .39 .29* Ratio of net investment income to average net assets (%) 5.77* 4.40 2.97 3.27*
The Investment Manager and Schwab have reduced a portion of their fees and absorbed certain expenses in order to limit the Fund's ratio of operating expenses to average net assets. Had these fees and expenses not been reduced and absorbed, the ratio of expenses to average net assets for the periods ended June 30, 1995, December 31, 1994, 1993 and 1992 would have been .73%*, .79%, .82% and .94%*, respectively, and the ratio of net investment income to average net assets would have been 5.44%*, 4.01%, 2.54% and 2.62%*, respectively. * Annualized 24 THIS SPACE IS RESERVED FOR YOUR COMMENTS AND QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU. 25 CAPTURING GROWTH OPPORTUNITIES DOESN'T HAVE TO BE GUESSWORK. Large-cap stocks, small-cap stocks, or international stocks? It's difficult to predict which stock market segment will come out ahead during given time periods, especially since these markets do not always move in tandem. While one market segment may be experiencing only moderate growth, others, at the same time, may be expanding rapidly. SchwabFunds(R) three equity index funds help you take some of the guesswork out of equity investing. These Funds provide a way for you to put the growth potential of all three markets into your portfolio -- rather than relying on just one market. The Funds offer an easy and efficient way to achieve a broad level of effective equity diversification. In fact, they provide market coverage that could require investments in many more funds. [FIGUIRE 1] Schwab 1000 Fund(R) is designed to match the total return of the Schwab 1000 Index,(R) which is comprised of the largest 1,000 publicly traded U.S. companies -- the stocks of which represent about 91% of the total market capitalization of the U.S. stock market. 1 [FIGUIRE 2] Schwab Small-Cap Index Fund(TM) is designed to track the total return of the Schwab Small-Cap Index,(TM) which tracks the performance of smaller-capitalization companies. The Schwab Small-Cap Index is comprised of the second 1,000 largest publicly traded companies in the U.S. 1 [FIGUIRE 3] Schwab International Index Fund(TM) is designed to track the total return of the Schwab International Index,(TM) which is comprised of 350 of the largest companies, based on market capitalization, in foreign countries with developed securities markets. 2 You can begin building your diversified equity investment portfolio with the three SchwabFunds equity index funds by calling Schwab at the toll-free number below, or by sending back the enclosed postcard. We'll be happy to provide you with a free prospectus and brochure for the Funds. EACH PROSPECTUS PROVIDES MORE COMPLETE INFORMATION, INCLUDING CHARGES AND EXPENSES. PLEASE READ IT CAREFULLY BEFORE INVESTING. -------------------------------------------------------------------------------- SCHWAB'S FUNDMAP(TM) SOFTWARE MAKES FUND SELECTION EASIER. FundMap Mutual Fund Selection Software for Windows(R) allows you to calculate your long-term investment needs and can help you to decide how much you may need to invest in each of the three SchwabFunds equity index funds. 3 You can explore ways to allocate your assets, even re-evaluate your current strategy and set up several "what if" scenarios. SchwabFunds and FundMap make it easy for you to build a diversified portfolio today. -------------------------------------------------------------------------------- 1-800-2 NO-LOAD 1-800-266-5623 1 Each Index consists of publicly traded companies ranked by market capitalization. Each Index does not include privately held companies, investment companies and companies incorporated outside of the United States. 2 The Index is comprised of publicly traded companies ranked by market capitalization in countries with developed securities markets around the world. It does not include privately held companies, investment companies, or companies from the United States. 3 FundMap is available for Schwab customers only. Please allow 2 - 4 weeks for delivery. Windows is a registered trademark of Microsoft Corporation. 26 -------------- BULK RATE U.S. POSTAGE PAID CHARLES SCHWAB -------------- [SCHWAB FUNDS FAMILY (TM) LOGO] 101 Montgomery Street San Francisco, California 94104 INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA 94104 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. CRS 3849 TF3631R (8/95) Printed on recycled paper.