-----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, P75mncnSUoDXH4YE+aTDVQzfyMwVE+gYhWDmRbrPlmbgsSJ7eYfcPLOwWQmAy3lO 4kFGh1IOpkcmhvZ8wehH2Q== 0000950149-97-001672.txt : 19970912 0000950149-97-001672.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950149-97-001672 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970903 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: 97674426 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 FUNDS SAR 1 SCHWABFUNDS(R) [LOGO] SCHWAB VALUE ADVANTAGE MONEY FUND(R) SEMI-ANNUAL REPORT JUNE 30, 1997 2 [PHOTO OF CHARLES R. SCHWAB] Dear Shareholder, With the support of investors like you, SchwabFunds(R) continues to be among the largest and fastest-growing mutual fund families in the nation. Charles Schwab Investment Management, Inc. (CSIM) manages over $50 billion in assets for more than 2.5 million SchwabFunds shareholders and offers 30 funds spanning a spectrum of financial markets and investing styles. LONG-TERM INVESTMENT STRATEGIES When it comes to investing, patience is a virtue. Given the market volatility of recent months, it is important to maintain the discipline to adhere to your asset allocation plan -- and to ensure you have a diversified investment portfolio. We created the SchwabFunds Family(R) to offer time-tested strategies for long-term investing -- Indexing, Asset Allocation, Quantitative Models, and Fund-of-Funds -- and to provide investors with easy, cost-efficient options to help achieve portfolio diversification. COMMITMENT TO VALUE In our ongoing commitment to provide cost-efficient ways for you to invest, we recently introduced a new class of shares -- Select Shares(TM) -- for each of our four index funds. Select Shares can offer investors even greater savings through significantly lower expense ratios. EXPANDING CHANNELS OF COMMUNICATION If you're among the millions of people exploring the Internet, I encourage you to visit our Web site at www.schwab.com/funds. There you'll find a wealth of online information on SchwabFunds as well as other resources available at Schwab. You can also access mutual fund performance data, chart daily net asset values, request a free fund prospectus, trade fund shares and more -- 24 hours a day. Continuing our efforts to provide you with up-to-date, useful information, we have recently added monthly portfolio manager commentaries on selected SchwabFunds to our Web site. In these commentaries, our expert portfolio managers give insights into market activity and translate the effects of that activity on fund performance. Thank you for placing your trust in SchwabFunds. We will continue to explore new strategies to help meet your investment needs. /s/ Charles R. Schwab Charles R. Schwab 3 SCHWAB MONEYFUNDERS SCHWAB MONEYFUNDERS SCHWAB MONEYFUNDERS SCHWAB MONEYFUNDERS SCHWAB MONEYFUNDERS SCHWAB MONEYFUNDERS SCHWAB MONEYFUNDERS SCHWAB MONEYFUNDERS MAKE YOUR MONEY WORK HARDER! Use this envelope to easily add to your Schwab Money Market Funds. CHARLES SCHWAB 4 SCHWAB MONEYFUNDERS SCHWAB MONEYFUNDERS SCHWAB MONEYFUNDERS SCHWAB MONEYFUNDERS SCHWAB MONEYFUNDERS SCHWAB MONEYFUNDERS SCHWAB MONEYFUNDERS SCHWAB MONEYFUNDERS TAKE ADVANTAGE OF THIS OPPORTUNITY TO ADD TO YOUR SCHWAB MONEY MARKET FUNDS. Now you can add to your investment by using this convenient envelope and slip below. Please note that this envelope may not be used for any initial investments in Schwab Money Market Funds. Please call 1-800-2 NO-LOAD for a prospectus containing more information including fees and expenses. Be sure to read the prospectus carefully before investing. SO DON'T DELAY. USE THIS CONVENIENT SCHWAB MONEYFUNDER TO SEND YOUR CHECK TODAY! ---------------------------------------------------------------------------- PLEASE DETACH HERE SCHWAB MONEYFUNDER __ __ __ __ - __ __ __ __ Please enclose your check and this completed SCHWAB ACCOUNT NUMBER MoneyFunder slip in the attached postage-paid envelope. PLEASE INDICATE HOW YOUR INVESTMENT SHOULD BE ALLOCATED: - --------------------------------------------- [ ] Add to my sweep money market fund.* $ NAME -------- [ ] Schwab Value Advantage Money Fund*+ $ X -------- - --------------------------------------------- [ ] Schwab Municipal Money Fund--Value*, SIGNATURE Advantage Shares(TM)+ $ -------- [ ] Check here if you would like more Schwab [ ] Schwab California Municipal Money Fund--Value MoneyFunders for future use. Advantage Shares(TM) (for California taxpayers only)+ $ -------- [ ] Schwab New York Municipal Money Fund-- Value Advantage Shares (TM) (for New York taxpayers only)+ $ -------- *SUBSEQUENT MINIMUM $100, CUSTODIAN & IRA ACCOUNTS $1. AN INVESTMENT CONSTITUTES THE PURCHASE OF SHARES IN THE MONEY FUND YOU HAVE TOTAL AMOUNT ENCLOSED $ PREVIOUSLY CHOSEN AS THE PRIMARY FUND FOR -------- YOUR BROKERAGE ACCOUNT. + THIS ENVELOPE MAY NOT BE USED FOR INITIAL IF NO FUND IS INDICATED, OR YOUR INVESTMENT IS BELOW THE SUBSEQUENT PURCHASES OF VALUE ADVANTAGE INVESTMENTS(R). MINIMUM FOR THE VALUE ADVANTAGE INVESTMENTS,+ YOUR INVESTMENT WILL GO SUBSEQUENT INVESTMENT MINIMUM IS $5,000 INTO THE SWEEP MONEY FUND YOU'VE DESIGNATED IN YOUR SCHWAB ACCOUNT. ($2,000 FOR IRAS AND OTHER RETIREMENT ACCOUNTS). IF YOU WOULD LIKE MORE INFORMATION, PLEASE CALL 1-800-2 NO-LOAD. (C) 1997 Charles Schwab & Co., Inc. (Lift here for more information.) All rights reserved. Member SIPC/NYSE. Printed on recycled paper. TF4827(8/97) CRS 20110
5 CHARLES SCHWAB JUST FOLLOW THESE EASY STEPS: 1. Fill out the attached Schwab MoneyFunder slip completely, including your name, account number, signature and the amount of your check. Please use a separate slip for each account 2. Make your check payable to CHARLES SCHWAB & CO., INC., and enclose your check with the completed slip in this postage-paid envelope. 3. Then just drop your Schwab MoneyFunder in the mail today--and start putting your money to work! If you have any questions, don't hesitate to call your local Schwab office or 1-800-2 NO-LOAD. THIS ENVELOPE MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS. AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. 6 -------------- 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 PO BOX 7783 SAN FRANCISCO CA 94120-9330 7 TABLE OF CONTENTS A Word from SchwabFunds(R) ..................... 2 Schwab Value Advantage Money Fund(R) ........... 4 The Portfolio Management Team .................. 7 Market Overview ................................ 8 Questions to the Portfolio Management Team ..... 13 Glossary of Terms .............................. 14 Portfolio Summary .............................. 15 Financial Statements and Notes ................. 16 8 A WORD FROM SCHWABFUNDS(R) We're pleased to report on the performance of the Schwab Value Advantage Money Fund(R) for the six-month period ended June 30, 1997. This report includes only the Investor Shares class of the Fund as the Sweep Shares class is currently not available for purchase. During the reporting period, the Fund continued to provide investors with higher than average money market fund yields on their larger cash balances, combined with capital stability and liquidity. The Value Advantage Investments,(R) which include the Schwab Value Advantage Money Fund - Investor Shares as well as three tax-advantaged alternatives, were designed to be longer-term money market investment vehicles for larger balances that do not require frequent access - and may help fill the cash equivalent sector in your asset allocation plan. Each fund is managed both to attempt to provide maximum money market income and to preserve capital. It is important to note that unlike the sweep money fund products, the Value Advantage Investments are not designed to transfer cash balances for checks, margin calls, and other debit balances in your Schwab account. If you expect to access your money regularly, you may wish to consider investing your short-term funds in one of our six sweep money fund products. Our sweep money funds, which also include both taxable and tax-advantaged choices, can be linked to your Schwab Account to keep all of your money invested and available to automatically cover day-to-day transactions such as trade settlements. 2 9 The following pages contain information on the Schwab Value Advantage Money Fund's(R) performance during the reporting period and on its portfolio. Please remember that while the 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 the Fund will be able to maintain a $1.00 net asset value. It is also important to understand that your investment in the Fund is not insured or guaranteed by the U.S. Government. If you would like more information on the Value Advantage Investments(R) or on other Schwab Money Market Funds, please call our toll-free line, 1-800-435-4000, and request a free prospectus which contains more information, including fees and expenses. Please be sure to read the prospectus before investing. 3 10 SCHWAB VALUE ADVANTAGE MONEY FUND(R) PERFORMANCE REVIEW The table below presents 7-day average yields as of the end of the reporting period for the Fund. Please remember that money market fund yields fluctuate and past performance is no guarantee of future results. YIELD SUMMARY AS OF 6/30/97 1 - ------------------------------------------------
Investor Shares - ------------------------------------------------ 7-day Current Yield 5.36% - ------------------------------------------------ 7-day Effective Yield 5.50% - ------------------------------------------------
YOUR YIELD ADVANTAGE Schwab Value Advantage Money Fund offers you the potential to earn higher yields than most money market funds. The Fund is designed for cash reserves that you do not need to access regularly and as such, has minimum balance and transaction policies to keep operating expenses low. These lower expenses generally mean higher yields for Fund shareholders. The chart at the right presents the 7-day current yields on a weekly basis for the Fund and for the average taxable money fund. Comparing the yields, the Fund consistently outperformed the average for its category during the reporting period. 1 A portion of the Fund's fees were waived or reimbursed during the reporting period. Without the waivers or reimbursements, as of 6/30/97, the 7-day current and 7-day effective yields for the Fund would have been 5.07% and 5.20%, respectively. 4 11 7-DAY CURRENT YIELDS FOR THE PERIOD FROM 1/7 - 6/24/97 2 [GRAPH]
Schwab Value Advantage Money Fund(R) - IBC Financial Data's Investor Shares Money Fund Average ---------------------- --------------------- Jan 7, 97 0.0511% 0.0481% Jan 14, 97 0.0512% 0.0476% Jan 21, 97 0.0512% 0.0476% Jan 28, 97 0.0512% 0.0475% Feb 4, 97 0.0512% 0.0478% Feb 11, 97 0.0513% 0.0475% Feb 18, 97 0.0513% 0.0474% Feb 25, 97 0.0511% 0.0473% Mar 4, 97 0.0512% 0.0475% Mar 11, 97 0.0512% 0.0472% Mar 18, 97 0.0512% 0.0473% Mar 25, 97 0.0511% 0.0474% Apr 1, 97 0.0514% 0.0482% Apr 8, 97 0.0515% 0.0482% Apr 15, 97 0.0518% 0.0484% Apr 22, 97 0.0519% 0.0486% Apr 29, 97 0.0522% 0.0489% May 6, 97 0.0526% 0.049% May 13, 97 0.0528% 0.049% May 20, 97 0.053% 0.0491% May 27, 97 0.0531% 0.0493% Jun 3, 97 0.0534% 0.0494% Jun 10, 97 0.0535% 0.0493% Jun 17, 97 0.0536% 0.0495% Jun 24, 97 0.0535% 0.0494%
2 Source: IBC Financial Data, Inc. Average 7-day current yield of funds in the first-tier category of taxable money funds for each week ending 1/7 - 6/24/97. Weekly number of funds in the category ranged from 269 to 277. A portion of the Fund's fees were waived or reimbursed during the reporting period. Without the waivers or reimbursements, the 7-day current yields for the Fund would have been lower. 5 12 PORTFOLIO COMPOSITION Schwab Value Advantage Money Fund(R) invests primarily in highly-rated commercial paper and other corporate obligations, bank certificates of deposit, time deposits, and bankers' acceptances, as well as in repurchase agreements and U.S. Government obligations. The chart below illustrates the composition of the Fund's portfolio as of June 30, 1997 and is not indicative of the holdings after that date. A complete listing of securities in the Fund's portfolio as of June 30, 1997 is provided in the Schedule of Investments later in this report. SCHWAB VALUE ADVANTAGE MONEY FUND PORTFOLIO COMPOSITION AS OF JUNE 30, 1997 [Pie Chart] Commercial Paper & Other Corporate Obligations 71% Certificates of Deposit 20% Variable Rate Obligations 5% Repurchase Agreements 2% Other 2%
6 13 THE PORTFOLIO MANAGEMENT TEAM STEPHEN B. WARD - Senior Vice President and Chief Investment Officer, has overall responsibility for management of the Fund's portfolio. Steve joined Charles Schwab Investment Management (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 Schwab Value Advantage Money Fund(R) since 1992. Linda joined CSIM as Portfolio Manager 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. The following Market Overview and answers to questions are provided by the Portfolio Management Team. A Glossary of Terms is provided for your reference on page 14. 7 14 MARKET OVERVIEW
REAL GDP GROWTH RATE ---------------------------------------- Q1-90 0.041% Q2-90 0.013% Q3-90 -0.019% Q4-90 -0.041% Q1-91 -0.022% Q2-91 0.017% Q3-91 0.01% Q4-91 0.01% Q1-92 0.047% Q2-92 0.025% Q3-92 0.03% Q4-92 0.043% Q1-93 -0.001% Q2-93 0.019% Q3-93 0.023% Q4-93 0.048% Q1-94 0.025% Q2-94 0.049% Q3-94 0.035% Q4-94 0.03% Q1-95 0.004% Q2-95 0.007% Q3-95 0.038% Q4-95 0.003% Q1-96 0.02% Q2-96 0.047% Q3-96 0.021% Q4-96 0.038% Q1-97 0.049% Q2-97 0.022%
Source: Bloomberg L.P. - - The economy, as measured by the growth of real GDP, continues to expand at a healthy rate. The real GDP growth rate was 3.6% for the first six months of 1997. - - The apparent strength of the economy continues to lead to speculation regarding the potential impact on future inflation and whether more restrictive Federal Reserve policy is imminent. - - At the time of this writing, the economy appears poised for growth, continuing the current economic expansion which began in 1991. 8 15 U.S. UNEMPLOYMENT RATE
U.S. Unemployment Rate - ----------------------------- 1 Jan-90 0.053 2 Feb-90 0.053 3 Mar-90 0.052 4 Apr-90 0.054 5 May-90 0.053 6 Jun-90 0.051 7 Jul-90 0.054 8 Aug-90 0.056 9 Sep-90 0.057 10 Oct-90 0.058 11 Nov-90 0.06 12 Dec-90 0.062 13 Jan-91 0.063 14 Feb-91 0.065 15 Mar-91 0.068 16 Apr-91 0.066 17 May-91 0.068 18 Jun-91 0.068 19 Jul-91 0.067 20 Aug-91 0.068 21 Sep-91 0.068 22 Oct-91 0.069 23 Nov-91 0.069 24 Dec-91 0.071 25 Jan-92 0.071 26 Feb-92 0.073 27 Mar-92 0.073 28 Apr-92 0.073 29 May-92 0.074 30 Jun-92 0.077 31 Jul-92 0.076 32 Aug-92 0.076 33 Sep-92 0.075 34 Oct-92 0.074 35 Nov-92 0.073 36 Dec-92 0.073 37 Jan-93 0.071 38 Feb-93 0.07 39 Mar-93 0.07 40 Apr-93 0.07 41 May-93 0.069 42 Jun-93 0.069 43 Jul-93 0.068 44 Aug-93 0.067 45 Sep-93 0.067 46 Oct-93 0.067 47 Nov-93 0.065 48 Dec-93 0.064 49 Jan-94 0.067 50 Feb-94 0.066 51 Mar-94 0.065 52 Apr-94 0.064 53 May-94 0.06 54 Jun-94 0.06 55 Jul-94 0.061 56 Aug-94 0.061 57 Sep-94 0.059 58 Oct-94 0.056 59 Nov-94 0.056 60 Dec-94 0.054 61 Jan-95 0.056 62 Feb-95 0.054 63 Mar-95 0.058 64 Apr-95 0.057 65 May-95 0.057 66 Jun-95 0.056 67 Jul-95 0.057 68 Aug-95 0.053 69 Sep-95 0.056 70 Oct-95 0.055 71 Nov-95 0.056 72 Dec-95 0.056 73 Jan-96 0.058 74 Feb-96 0.055 75 Mar-96 0.056 76 Apr-96 0.054 77 May-96 0.056 78 Jun-96 0.053 79 Jul-96 0.054 80 Aug-96 0.051 81 Sep-96 0.052 82 Oct-96 0.052 83 Nov-96 0.053 84 Dec-96 0.053 85 Jan-97 0.054 86 Feb-97 0.053 87 Mar-97 0.052 88 Apr-97 0.049 89 May-97 0.048 90 Jun-97 0.05
Source: Bloomberg L.P. - - The unemployment rate during 1996 remained near its lowest point in the decade. This declining trend continued into 1997, with the May 1997 rate of 4.8% representing the lowest rate since December 1973. Low unemployment rates typically lead many economists to question whether continued low levels of unemployment can persist without generating inflationary pressures on wages and, ultimately, prices. 9 16 MEASURES OF INFLATION Source: Bloomberg L.P. [GRAPH]
QUARTERLY EMPLOYMENT COST INDEX MONTHLY CONSUMER PRICE INDEX YOY% Change YOY% Change - ------------------------------- ----------------------------- Jan-90 0.053 Jan-90 0.052 Feb-90 0.053 Feb-90 0.053 Mar-90 0.053 Mar-90 0.052 Apr-90 0.054 Apr-90 0.047 May-90 0.054 May-90 0.044 Jun-90 0.054 Jun-90 0.047 Jul-90 0.051 Jul-90 0.048 Aug-90 0.051 Aug-90 0.056 Sep-90 0.051 Sep-90 0.062 Oct-90 0.048 Oct-90 0.063 Nov-90 0.048 Nov-90 0.063 Dec-90 0.048 Dec-90 0.061 Jan-91 0.046 Jan-91 0.057 Feb-91 0.046 Feb-91 0.053 Mar-91 0.046 Mar-91 0.049 Apr-91 0.045 Apr-91 0.049 May-91 0.045 May-91 0.05 Jun-91 0.045 Jun-91 0.047 Jul-91 0.043 Jul-91 0.044 Aug-91 0.043 Aug-91 0.038 Sep-91 0.043 Sep-91 0.034 Oct-91 0.042 Oct-91 0.029 Nov-91 0.042 Nov-91 0.03 Dec-91 0.042 Dec-91 0.031 Jan-92 0.041 Jan-92 0.026 Feb-92 0.041 Feb-92 0.028 Mar-92 0.041 Mar-92 0.032 Apr-92 0.035 Apr-92 0.032 May-92 0.035 May-92 0.03 Jun-92 0.035 Jun-92 0.031 Jul-92 0.034 Jul-92 0.032 Aug-92 0.034 Aug-92 0.031 Sep-92 0.034 Sep-92 0.03 Oct-92 0.035 Oct-92 0.032 Nov-92 0.035 Nov-92 0.03 Dec-92 0.035 Dec-92 0.029 Jan-93 0.034 Jan-93 0.033 Feb-93 0.034 Feb-93 0.032 Mar-93 0.034 Mar-93 0.031 Apr-93 0.036 Apr-93 0.032 May-93 0.036 May-93 0.032 Jun-93 0.036 Jun-93 0.03 Jul-93 0.036 Jul-93 0.028 Aug-93 0.036 Aug-93 0.028 Sep-93 0.036 Sep-93 0.027 Oct-93 0.034 Oct-93 0.028 Nov-93 0.034 Nov-93 0.027 Dec-93 0.034 Dec-93 0.027 Jan-94 0.032 Jan-94 0.025 Feb-94 0.032 Feb-94 0.025 Mar-94 0.032 Mar-94 0.025 Apr-94 0.031 Apr-94 0.024 May-94 0.031 May-94 0.023 Jun-94 0.031 Jun-94 0.025 Jul-94 0.031 Jul-94 0.028 Aug-94 0.031 Aug-94 0.029 Sep-94 0.031 Sep-94 0.03 Oct-94 0.03 Oct-94 0.026 Nov-94 0.03 Nov-94 0.027 Dec-94 0.03 Dec-94 0.027 Jan-95 0.03 Jan-95 0.028 Feb-95 0.03 Feb-95 0.029 Mar-95 0.03 Mar-95 0.029 Apr-95 0.03 Apr-95 0.031 May-95 0.03 May-95 0.032 Jun-95 0.03 Jun-95 0.03 Jul-95 0.028 Jul-95 0.028 Aug-95 0.028 Aug-95 0.026 Sep-95 0.028 Sep-95 0.025 Oct-95 0.028 Oct-95 0.028 Nov-95 0.028 Nov-95 0.026 Dec-95 0.028 Dec-95 0.025 Jan-96 0.029 Jan-96 0.027 Feb-96 0.029 Feb-96 0.027 Mar-96 0.029 Mar-96 0.028 Apr-96 0.029 Apr-96 0.029 May-96 0.029 May-96 0.029 Jun-96 0.029 Jun-96 0.028 Jul-96 0.029 Jul-96 0.03 Aug-96 0.029 Aug-96 0.029 Sep-96 0.029 Sep-96 0.03 Oct-96 0.03 Oct-96 0.03 Nov-96 0.03 Nov-96 0.033 Dec-96 0.03 Dec-96 0.033 Jan-97 0.028 Jan-97 0.03 Feb-97 0.028 Feb-97 0.03 Mar-97 0.028 Mar-97 0.028 Apr-97 0.028 Apr-97 0.025 May-97 0.028 May-97 0.022 Jun-97 0.028 Jun-97 0.023
- - Both the Employment Cost Index and Consumer Price Index (CPI) continued to remain in check throughout the first half of 1997, reflecting continued low levels of inflation. - - For the 12 months ended June 1997, the CPI rose 2.3%, the lowest rate since February 1987. Its core rate (which excludes the more volatile food and energy components) rose 2.4%, the lowest rate since 1965. - - The Federal Reserve has indicated that the economy continues to remain in the zone where inflation risks are on the upside and that it is poised to act preemptively by raising interest rates if necessary. The Federal Reserve did take action in March, increasing the Federal Funds Rate by 0.25% to 5.50%, yet left rates unchanged at the recent July 1997 Federal Open Market Committee meeting. 10 17 YIELDS ON 90-DAY COMMERCIAL PAPER AND 3-MONTH TREASURY BILLS FOR THE PERIOD FROM 1/2-6/30/97
90-DAY 3-MONTH COMMERCIAL PAPER TREASURY BILL ---------------- ------------- 1/2/97 0.0518% 0.0547% 1/3/97 0.0516% 0.0546% 1/6/97 0.0517% 0.0545% 1/7/97 0.0515% 0.0545% 1/8/97 0.0515% 0.0545% 1/9/97 0.0512% 0.0544% 1/10/97 0.0516% 0.0548% 1/13/97 0.0517% 0.055% 1/14/97 0.0516% 0.0548% 1/15/97 0.0514% 0.0546% 1/16/97 0.0516% 0.0545% 1/17/97 0.0515% 0.0544% 1/20/97 0.0515% 0.0544% 1/21/97 0.0515% 0.0545% 1/22/97 0.0516% 0.0544% 1/23/97 0.0516% 0.0544% 1/24/97 0.0516% 0.0544% 1/27/97 0.0519% 0.0545% 1/28/97 0.0519% 0.0545% 1/29/97 0.0517% 0.0545% 1/30/97 0.0517% 0.0545% 1/31/97 0.0515% 0.0545% 2/3/97 0.0511% 0.0544% 2/4/97 0.0513% 0.0544% 2/5/97 0.0512% 0.0543% 2/6/97 0.0513% 0.0542% 2/7/97 0.0512% 0.054% 2/10/97 0.0513% 0.054% 2/11/97 0.0514% 0.054% 2/12/97 0.0514% 0.054% 2/13/97 0.0512% 0.0539% 2/14/97 0.0508% 0.0538% 2/17/97 0.0509% 0.0538% 2/18/97 0.0509% 0.0538% 2/19/97 0.051% 0.0538% 2/20/97 0.0508% 0.0537% 2/21/97 0.0509% 0.0537% 2/24/97 0.0511% 0.0537% 2/25/97 0.0515% 0.0537% 2/26/97 0.0518% 0.0539% 2/27/97 0.052% 0.0544% 2/28/97 0.0522% 0.0545% 3/3/97 0.0523% 0.0543% 3/4/97 0.0523% 0.0546% 3/5/97 0.0519% 0.0546% 3/6/97 0.0521% 0.0546% 3/7/97 0.0521% 0.0548% 3/10/97 0.0519% 0.0541% 3/11/97 0.0517% 0.0545% 3/12/97 0.0519% 0.0546% 3/13/97 0.0523% 0.0547% 3/14/97 0.0523% 0.0548% 3/17/97 0.0525% 0.055% 3/18/97 0.0529% 0.0552% 3/19/97 0.0529% 0.0553% 3/20/97 0.0534% 0.0557% 3/21/97 0.054% 0.0565% 3/24/97 0.0538% 0.0566% 3/25/97 0.0539% 0.0568% 3/26/97 0.0534% 0.057% 3/27/97 0.0537% 0.0571% 3/28/97 0.0537% 0.0575% 3/31/97 0.0532% 0.0577% 4/1/97 0.053% 0.0572% 4/2/97 0.0529% 0.0571% 4/3/97 0.0525% 0.057% 4/4/97 0.0527% 0.057% 4/7/97 0.0527% 0.057% 4/8/97 0.0523% 0.0569% 4/9/97 0.0522% 0.0569% 4/10/97 0.0529% 0.0568% 4/11/97 0.0528% 0.057% 4/14/97 0.0529% 0.0573% 4/15/97 0.0529% 0.0571% 4/16/97 0.0529% 0.0571% 4/17/97 0.0529% 0.057% 4/18/97 0.0528% 0.057% 4/21/97 0.0526% 0.057% 4/22/97 0.0534% 0.057% 4/23/97 0.0534% 0.057% 4/24/97 0.053% 0.057% 4/25/97 0.0531% 0.0572% 4/28/97 0.053% 0.0574% 4/29/97 0.0526% 0.0572% 4/30/97 0.0523% 0.0572% 5/1/97 0.0521% 0.0571% 5/2/97 0.0522% 0.057% 5/5/97 0.0511% 0.057% 5/6/97 0.0517% 0.0569% 5/7/97 0.0522% 0.057% 5/8/97 0.0521% 0.0571% 5/9/97 0.0516% 0.0569% 5/12/97 0.0515% 0.0569% 5/13/97 0.052% 0.0569% 5/14/97 0.0516% 0.0569% 5/15/97 0.0511% 0.057% 5/16/97 0.0518% 0.057% 5/19/97 0.053% 0.0572% 5/20/97 0.052% 0.0577% 5/21/97 0.0512% 0.0569% 5/22/97 0.0517% 0.0567% 5/23/97 0.0516% 0.0566% 5/26/97 0.0516% 0.0566% 5/27/97 0.0511% 0.0566% 5/28/97 0.0513% 0.0567% 5/29/97 0.0501% 0.0567% 5/30/97 0.0494% 0.0568% 6/2/97 0.0484% 0.0568% 6/3/97 0.0507% 0.0567% 6/4/97 0.0507% 0.0567% 6/5/97 0.0511% 0.0567% 6/6/97 0.0504% 0.0569% 6/9/97 0.0503% 0.0568% 6/10/97 0.0503% 0.0567% 6/11/97 0.0496% 0.0567% 6/12/97 0.0495% 0.0566% 6/13/97 0.0496% 0.0564% 6/16/97 0.0497% 0.0564% 6/17/97 0.0504% 0.0564% 6/18/97 0.0507% 0.0564% 6/19/97 0.0507% 0.0564% 6/20/97 0.0506% 0.0564% 6/23/97 0.0515% 0.0563% 6/24/97 0.0518% 0.0563% 6/25/97 0.051% 0.0563% 6/26/97 0.0512% 0.0563% 6/27/97 0.0514% 0.0563% 6/30/97 0.0517% 0.0563%
- - Although short-term rates were relatively stable during the first quarter of 1997, the spread between commercial paper and U.S. Treasury bill yields widened significantly during the second quarter. This widening, making Treasury bill yields relatively less attractive than commercial paper yields, was a result of the reduced U.S. Treasury bill supply, caused by unexpectedly large April federal tax receipts, which led to lower government financing needs. In other words, the spread widening was the result of supply and demand conditions in the U.S. Treasury bill market, not the result of credit concerns in the commercial paper market. Source: Bloomberg L.P. 11 18 Source: Lehman Brothers, Inc. [GRAPH]
90-DAY MUNICIPAL COMMERCIAL PAPER YIELDS FOR THE PERIOD FROM 1/7-6/24/97 - ----------------------------------------- Jan 7, 97 0.0325 Jan 14, 97 0.0345 Jan 21, 97 0.0345 Jan 28, 97 0.0355 Feb 4, 97 0.034 Feb 11, 97 0.0345 Feb 18, 97 0.0335 Feb 25, 97 0.034 Mar 4, 97 0.0335 Mar 11, 97 0.033 Mar 18, 97 0.034 Mar 25, 97 0.035 Apr 1, 97 0.0345 Apr 8, 97 0.0365 Apr 15, 97 0.036 Apr 22, 97 0.037 Apr 29, 97 0.037 May 6, 97 0.0365 May 13, 97 0.0375 May 20, 97 0.037 May 27, 97 0.037 Jun 3, 97 0.0365 Jun 10, 97 0.037 Jun 17, 97 0.0375 Jun 24, 97 0.037
- - Short-term municipal commercial paper yields exhibited a pattern similar to that of taxable commercial paper yields during the reporting period. 12 19 QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM Q. HOW HAS THE PORTFOLIO MANAGEMENT TEAM ADJUSTED THE FUND'S PORTFOLIO TO RESPOND TO CHANGES IN INTEREST RATES? A. During the reporting period, the portfolio managers adjusted the dollar-weighted average maturity (DWAM) of the Fund as needed in order to capitalize on opportunities to buy higher yielding money market instruments resulting from market fluctuations. For example, while most economists had accurately predicted the 0.25% increase in the Federal Funds Rate prior to the Federal Open Market Committee meeting held on March 25, 1997, the commercial paper market had "priced in" or anticipated an even larger increase. We believed the likelihood of an increase greater than 0.25% was fairly remote and seized the opportunity to add securities with longer maturities (and higher yields) to the Fund's portfolio throughout the month of March. In fact, the Fund's DWAM ranged from 51 days at the beginning of the reporting period to a high of 69 days in early March. Throughout most of the reporting period, the Fund maintained a DWAM which was comparable to or slightly longer than those of other funds with similar investment objectives. Q. WHAT CREDIT STANDARDS DOES THE PORTFOLIO MANAGEMENT TEAM USE IN SELECTING SECURITIES FOR THE FUNDS? A. Money market funds are required by law to hold only high-quality securities which meet certain maturity requirements in their portfolios. Certain of those securities, known as "first-tier securities," carry the highest credit ratings. For Schwab Value Advantage Money Fund(R), we continue to take the additional step of investing only in first-tier securities. Schwab Value Advantage Money Fund invests primarily in securities issued by banks or corporations, such as commercial paper, certificates of deposit, time deposits, bank notes, and bankers' acceptances. Certain securities owned by the Fund are insured or are backed by a letter of credit issued by first-tier financial institutions. These arrangements are frequently referred to as "credit enhancements" because they provide incremental levels of creditworthiness. As part of our regular credit review process, we continually monitor the credit quality of both the enhancement providers and the issuers of the Fund's portfolio securities. 13 20 GLOSSARY OF TERMS COMMERCIAL PAPER Short-term, interest-paying obligations with maturities ranging up to 270 days 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 support 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 that establishes policies on bank reserves and regulations, determines the discount rate, and tightens or loosens the availability of credit. FIRST-TIER SECURITY A security rated in the highest short-term credit rating category. MATURITY The length of time before which 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 U.S. over a specific period of time and adjusted for the rate of inflation to allow meaningful year-to-year comparisons. YIELD The rate of return, usually dividend or interest payments, on an investment, expressed as a percentage of market price. 14 21 SCHWAB VALUE ADVANTAGE MONEY FUND(R) - ------------------------------------------------------------------------------ PORTFOLIO SUMMARY ASSET GROWTH
Total Total Percentage Net Assets Net Assets Growth Over as of 6/30/97 as of 12/31/96 Reporting (000s) (000s) Period - -------------------------------------------------- $12,568,081 $ 10,476,537 20% - --------------------------------------------------
AVERAGE YIELDS FOR THE PERIODS ENDED JUNE 30, 1997* INVESTOR SHARES
Last Last Last Seven Days Three Months Twelve Months - --------------------------------------------- 5.36% 5.28% 5.17% - ---------------------------------------------
MATURITY SCHEDULE PERCENT OF TOTAL INVESTMENTS
Maturity Range 9/30/96 12/31/96 3/31/97 6/30/97 - ----------------------------------------------------------------- 0 - 15 Days 22.7% 18.4% 20.0% 22.1% 16 - 30 Days 20.3 18.8 17.7 21.4 31 - 60 Days 26.6 30.8 30.3 21.9 61 - 90 Days 12.7 20.1 14.4 19.4 91 - 120 Days 2.5 6.8 7.5 3.2 Over 120 Days 15.2 5.1 10.1 12.0 Weighted Average 57 Days 50 Days 56 Days 57 Days - -----------------------------------------------------------------
PORTFOLIO QUALITY
Percent of SEC Tier Net Assets Rating 6/30/97 -------------------------------------------------------- Tier 1 100.0% Tier 2 0.0% --------------------------------------------------------
- --------------- * A portion of the Fund's expenses were reduced during the periods. Had these expenses not been reduced, yields would have been lower. 15 22 SCHWAB VALUE ADVANTAGE MONEY FUND(R) - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1997 (Unaudited)
Par Value -------- ----------- COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS--71.6%(a) ASSET BACKED SECURITIES--23.2% Alamo Funding, LP 5.66%, 08/07/97 $ 45,000 $ 44,741 5.64%, 08/19/97 40,000 39,696 Alpha Finance Corp. 5.80%, 09/24/97 7,000 6,907 Asset Securitization Cooperative Corp. 5.70%, 08/01/97 102,750 102,250 5.68%, 08/21/97 65,000 64,484 5.71%, 09/08/97 20,000 19,785 Barton Capital Corp. 5.71%, 07/29/97 29,000 28,873 5.65%, 08/25/97 8,812 8,737 5.70%, 08/26/97 37,017 36,693 5.66%, 08/27/97 31,596 31,316 5.67%, 09/15/97 37,497 37,054 Beta Finance, Inc. 5.53%, 08/04/97 12,000 11,939 CC (USA), Inc. 5.74%, 07/21/97 20,000 19,937 5.73%, 07/22/97 62,000 61,796 5.74%, 08/15/97 15,000 14,894 5.69%, 09/12/97 7,000 6,920 5.89%, 11/26/97 10,000 9,765 Corporate Receivables Corp. 5.68%, 07/02/97 20,000 19,997 5.74%, 07/10/97 30,000 29,958 5.73%, 07/17/97 15,000 14,962 5.74%, 07/18/97 45,000 44,880 5.73%, 07/18/97 11,000 10,971 5.71%, 07/23/97 57,000 56,804 5.69%, 07/30/97 30,000 29,864 5.76%, 08/05/97 35,000 34,807 5.71%, 09/02/97 20,000 19,803 5.71%, 09/08/97 25,000 24,731 5.66%, 09/08/97 20,000 19,786 5.66%, 09/10/97 7,000 6,923 5.71%, 09/12/97 20,000 19,772
16 23 - ------------------------------------------------------------------------------
Par Value -------- ----------- CXC, Inc. 5.71%, 07/07/97 $ 25,000 $ 24,976 5.71%, 07/08/97 15,000 14,984 5.69%, 07/10/97 40,000 39,944 5.74%, 07/14/97 30,000 29,939 5.73%, 07/21/97 30,000 29,906 5.73%, 07/22/97 30,000 29,901 5.77%, 08/01/97 20,000 19,902 5.64%, 08/12/97 15,000 14,902 5.66%, 08/18/97 25,000 24,813 5.65%, 08/20/97 11,000 10,915 5.67%, 08/26/97 25,000 24,782 5.66%, 08/27/97 20,000 19,823 5.70%, 09/04/97 50,000 49,493 Dakota Certificates Program of Citibank Credit Card Master Trust I 5.72%, 07/21/97 12,000 11,962 5.72%, 07/24/97 30,000 29,892 5.66%, 08/07/97 27,782 27,622 5.63%, 08/15/97 37,824 37,561 5.66%, 08/19/97 29,000 28,779 5.71%, 08/28/97 50,000 49,546 5.66%, 09/22/97 13,000 12,833 Delaware Funding Corp. 5.73%, 07/18/97 50,000 49,867 5.72%, 07/21/97 15,726 15,677 5.71%, 07/25/97 37,211 37,071 5.70%, 08/29/97 97,000 96,107 Enterprise Funding Corp. 5.74%, 07/09/97 18,510 18,487 5.71%, 07/18/97 19,914 19,861 5.70%, 07/23/97 28,000 27,903 5.71%, 07/24/97 89,610 89,287 5.70%, 07/24/97 28,279 28,177 5.71%, 07/25/97 40,000 39,850 5.63%, 08/12/97 31,678 31,472 5.66%, 09/19/97 40,010 39,514 Eureka Securitization, Inc. 5.72%, 07/09/97 39,000 38,951 5.72%, 07/11/97 15,000 14,977 5.73%, 07/22/97 25,000 24,918 5.75%, 08/08/97 14,000 13,916 5.70%, 08/22/97 20,000 19,837 5.66%, 08/27/97 13,000 12,885 5.66%, 09/15/97 20,000 19,764 5.66%, 09/17/97 28,000 27,661 Falcon Asset Securitization Corp. 5.73%, 07/28/97 71,620 71,317
17 24 SCHWAB VALUE ADVANTAGE MONEY FUND(R) - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1997 (Unaudited)
Par Value -------- ----------- Kitty Hawk Funding Corp. 5.72%, 09/02/97 $ 30,000 $ 29,704 5.68%, 09/17/97 19,000 18,769 Market Street Funding Corp. 5.69%, 07/28/97 30,000 29,873 5.69%, 07/29/97 25,000 24,891 5.64%, 08/04/97 10,000 9,947 5.66%, 08/15/97 10,000 9,930 Preferred Receivables Funding Corp. 5.73%, 07/14/97 23,475 23,427 5.73%, 07/16/97 13,475 13,443 5.73%, 07/21/97 38,888 38,766 5.68%, 08/26/97 15,000 14,869 5.66%, 09/12/97 35,210 34,811 Providian Master Trust Series 1993-3 5.74%, 07/24/97 22,872 22,789 Ranger Funding Corp. 5.70%, 07/03/97 24,000 23,992 5.71%, 07/18/97 30,000 29,920 5.74%, 07/22/97 14,000 13,954 5.65%, 08/25/97 8,000 7,932 Receivables Capital Corp. 5.67%, 07/11/97 10,125 10,109 5.63%, 08/13/97 21,996 21,849 WCP Funding, Inc. 5.68%, 07/16/97 25,000 24,941 5.71%, 07/18/97 10,000 9,973 5.71%, 07/22/97 25,000 24,918 5.70%, 08/28/97 10,000 9,909 5.66%, 09/10/97 10,000 9,890 5.66%, 09/12/97 17,000 16,808 Windmill Funding 5.69%, 07/03/97 13,306 13,302 5.73%, 07/17/97 15,211 15,173 5.76%, 07/23/97 6,695 6,672 5.76%, 07/30/97 22,000 21,899 5.76%, 07/30/97 27,094 26,970 5.77%, 07/31/97 25,379 25,259 5.74%, 08/14/97 28,000 27,806 5.71%, 09/12/97 15,000 14,829 5.69%, 09/17/97 18,689 18,462 5.68%, 09/24/97 38,000 37,498
18 25 - ------------------------------------------------------------------------------
Par Value -------- ----------- Wood Street Funding Corp. 5.61%, 07/28/97 $ 13,707 $ 13,650 5.70%, 07/29/97 10,000 9,956 5.65%, 08/19/97 10,095 10,018 5.66%, 08/29/97 25,000 24,771 5.66%, 09/16/97 25,000 24,702 ----------- 2,915,400 ----------- AUTOMOTIVE--5.3% American Honda Finance Corp. 5.61%, 07/21/97 10,000 9,969 5.69%, 08/28/97 50,000 49,546 Chrysler Financial Corp. 5.66%, 08/04/97 50,000 49,735 5.66%, 08/05/97 10,000 9,945 Ford Credit Europe PLC 5.71%, 07/11/97 25,000 24,961 5.71%, 07/14/97 25,000 24,949 5.53%, 07/30/97 30,600 30,467 5.68%, 08/27/97 42,000 41,628 General Motors Acceptance Corp. 5.58%, 07/10/97 29,000 28,961 5.59%, 08/01/97 43,000 42,799 5.58%, 08/08/97 9,000 8,949 5.55%, 08/13/97 85,000 84,453 5.49%, 08/28/97 62,000 61,468 5.49%, 08/29/97 48,000 47,581 6.00%, 10/08/97 94,000 92,493 6.00%, 10/10/97 25,000 24,592 6.01%, 11/03/97 11,000 10,777 6.00%, 11/17/97 22,000 21,506 ----------- 664,779 ----------- BANKING--AUSTRALIA--0.9% Commonwealth Bank of Australia 5.62%, 09/12/97 10,000 9,889 Westpac Capital Corp. 5.52%, 07/02/97 47,000 46,993 5.53%, 07/21/97 10,000 9,970 5.55%, 07/22/97 20,000 19,937 5.54%, 07/31/97 25,000 24,888 ----------- 111,677 ----------- BANKING--BELGIUM--2.4% BBL North America 5.72%, 07/08/97 44,000 43,952 5.72%, 07/10/97 50,000 49,930 5.68%, 08/25/97 25,000 24,786 5.71%, 09/09/97 30,000 29,672
19 26 SCHWAB VALUE ADVANTAGE MONEY FUND(R) - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1997 (Unaudited)
Par Value -------- ----------- Cregem North America, Inc. 5.74%, 08/11/97 $ 11,000 $ 10,929 5.68%, 08/22/97 100,000 99,191 Generale Bank, Inc. 5.55%, 07/24/97 43,000 42,852 ----------- 301,312 ----------- BANKING--CANADA--1.7% Bank of Nova Scotia 5.59%, 07/15/97 50,000 49,895 5.68%, 08/25/97 50,000 49,572 5.65%, 09/16/97 45,000 44,464 5.66%, 09/25/97 49,000 48,348 Royal Bank of Canada 5.94%, 11/07/97 16,000 15,670 ----------- 207,949 ----------- BANKING--DENMARK--1.0% Unifunding Inc. 5.74%, 07/01/97 17,000 17,000 5.73%, 07/16/97 37,000 36,913 5.68%, 08/22/97 40,000 39,677 5.68%, 09/05/97 29,000 28,702 ----------- 122,292 ----------- BANKING--DOMESTIC--3.4% Bankers Trust New York Corp. 5.95%, 10/29/97 122,000 119,654 International Securitization Corp./ (First National Bank of Chicago LOC) 5.72%, 07/10/97 13,890 13,870 5.77%, 07/17/97 24,115 24,054 5.75%, 07/25/97 32,335 32,213 5.77%, 08/08/97 43,000 42,742 5.75%, 08/11/97 32,725 32,514 5.74%, 08/12/97 20,000 19,868 5.67%, 09/16/97 15,000 14,821 5.67%, 09/22/97 6,000 5,923 Nationsbank Corp. 5.73%, 07/09/97 5,000 4,994 5.71%, 07/16/97 50,000 49,883 Nationsbank Corp. (d) 5.61%, 08/01/97 25,000 24,880 Secured Short Term Notes 97-11 5.86%, 09/18/97 30,000 30,000 Vehicle Services of America/ (Nationsbank of Texas LOC) 5.73%, 09/04/97 12,000 11,878 ----------- 427,294 -----------
20 27 - ------------------------------------------------------------------------------
Par Value -------- ----------- BANKING--NETHERLANDS--0.5% Internationale Nederlanden (U.S.) Funding Corp. 5.50%, 07/03/97 $ 57,000 $ 56,983 ----------- BANKING--SPAIN--0.5% B.B.V. Finance (Delaware), Inc. 5.55%, 07/15/97 30,000 29,936 BEX America Finance, Inc. 5.68%, 08/21/97 25,000 24,802 5.66%, 09/23/97 12,000 11,844 ----------- 66,582 ----------- BANKING--SWEDEN--1.0% Nordbanken of North America, Inc. 5.68%, 08/15/97 45,000 44,685 5.68%, 09/08/97 16,000 15,828 Svenska Handelsbanken, Inc. 5.73%, 07/15/97 69,600 69,447 ----------- 129,960 ----------- BANKING--UNITED KINGDOM--2.7% Abbey National N.A. Corp. 5.50%, 07/11/97 25,000 24,963 Abbey National Treasury Services PLC 6.26%, 04/02/98 110,000 109,866 Bradford & Bingley Building Society 5.69%, 09/12/97 24,000 23,727 Cheltenham & Gloucester PLC 5.53%, 07/25/97 42,000 41,850 Halifax PLC 5.60%, 09/11/97 70,000 69,238 Yorkshire Building Society 5.53%, 07/08/97 30,000 29,969 5.72%, 07/14/97 43,500 43,411 ----------- 343,024 ----------- COMPUTERS AND OFFICE EQUIPMENT--0.3% CSC Enterprises 5.66%, 08/05/97 20,000 19,891 5.70%, 09/11/97 17,000 16,809 ----------- 36,700 ----------- ELECTRICAL AND ELECTRONICS--0.8% General Electric Company 6.20%, 07/01/97 62,665 62,665 5.73%, 07/16/97 37,000 36,913 ----------- 99,578 -----------
21 28 SCHWAB VALUE ADVANTAGE MONEY FUND(R) - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1997 (Unaudited)
Par Value -------- ----------- FINANCE--COMMERCIAL--3.7% CIT Group Holdings, Inc. 5.71%, 07/24/97 $ 42,000 $ 41,849 Finova Capital Corp. 5.69%, 09/18/97 37,000 36,544 General Electric Capital Corp. 5.73%, 07/17/97 35,000 34,912 5.95%, 11/04/97 30,000 29,394 5.95%, 11/05/97 30,000 29,389 5.85%, 11/26/97 49,000 47,856 General Electric Capital Services 5.67%, 08/26/97 50,000 49,565 5.85%, 11/28/97 50,000 48,817 Heller Financial, Inc. 5.56%, 07/08/97 15,000 14,984 5.81%, 07/22/97 10,000 9,967 5.95%, 09/18/97 14,000 13,821 5.92%, 10/07/97 13,000 12,795 5.92%, 10/10/97 40,000 39,349 5.81%, 10/16/97 42,000 41,288 5.92%, 10/27/97 16,000 15,696 ----------- 466,226 ----------- FINANCE--CONSUMER--3.8% Associates Corp. of North America 5.68%, 07/02/97 56,000 55,991 5.71%, 07/08/97 25,000 24,973 5.71%, 07/10/97 50,000 49,930 5.73%, 07/28/97 50,000 49,789 5.73%, 07/29/97 50,000 49,781 5.63%, 08/06/97 50,000 49,721 5.64%, 08/07/97 39,000 38,776 5.64%, 08/14/97 50,000 49,659 5.63%, 08/19/97 70,000 69,469 5.68%, 09/18/97 42,000 41,485 ----------- 479,574 ----------- MISCELLANEOUS MANUFACTURING--0.4% Newell Company 5.65%, 08/20/97 21,000 20,837 5.69%, 09/16/97 30,000 29,640 ----------- 50,477 -----------
22 29 - ------------------------------------------------------------------------------
Par Value -------- ----------- MISCELLANEOUS SERVICES--1.8% PHH Corp. 5.63%, 07/21/97 $ 25,000 $ 24,923 5.63%, 07/22/97 25,000 24,919 5.64%, 07/25/97 23,000 22,914 5.76%, 07/30/97 75,000 74,655 5.72%, 09/12/97 12,000 11,863 5.66%, 09/18/97 30,000 29,633 5.68%, 09/19/97 15,000 14,813 5.67%, 09/25/97 20,000 19,733 ----------- 223,453 ----------- MORTGAGE BANKING--0.9% Countrywide Home Loans, Inc. 5.64%, 08/04/97 50,000 49,735 5.69%, 09/12/97 25,000 24,716 5.68%, 09/19/97 33,000 32,589 ----------- 107,040 ----------- PAPER AND WOOD PRODUCTS--0.1% Rexam PLC 5.71%, 09/02/97 9,000 8,911 ----------- PHARMACEUTICALS--0.1% Glaxo Wellcome PLC 5.66%, 09/23/97 19,000 18,753 ----------- SAVINGS AND LOAN--0.2% Bank of America, FSB 5.69%, 09/02/97 23,000 22,775 ----------- SECURITIES BROKERAGE-DEALER--16.9% Bear Stearns Companies, Inc. 5.53%, 07/31/97 50,000 49,776 5.71%, 09/10/97 50,000 49,446 5.70%, 09/17/97 50,000 49,392 5.69%, 09/18/97 10,000 9,877 5.66%, 09/26/97 55,000 54,258 BT Securities Corp. 5.50%, 07/01/97 15,000 15,000 5.78%, 12/16/97 10,000 9,738 Credit Suisse First Boston, Inc. 5.68%, 08/27/97 60,000 59,468 5.97%, 10/24/97 25,000 24,538
23 30 SCHWAB VALUE ADVANTAGE MONEY FUND(R) - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1997 (Unaudited)
Par Value -------- ----------- Goldman Sachs Group, LP 5.53%, 07/14/97 $ 68,000 $ 67,868 5.98%, 10/30/97 50,000 49,026 5.90%, 11/10/97 48,000 46,993 5.90%, 11/12/97 125,000 122,339 5.90%, 11/13/97 100,000 97,855 5.89%, 11/25/97 128,000 125,017 Lehman Brothers Holdings, Inc. 5.65%, 08/06/97 6,000 5,966 5.48%, 08/08/97 78,000 77,560 5.79%, 09/22/97 40,000 39,482 5.94%, 09/24/97 5,000 4,932 5.92%, 12/04/97 60,000 58,505 5.84%, 12/10/97 54,000 52,622 5.83%, 12/17/97 21,000 20,442 5.82%, 12/22/97 17,000 16,536 Merrill Lynch & Co., Inc. 5.55%, 07/23/97 100,000 99,670 5.71%, 09/09/97 14,000 13,847 5.71%, 09/11/97 30,000 29,663 5.95%, 11/03/97 22,000 21,560 Morgan Stanley, Dean Witter, Discover & Co. 5.67%, 07/08/97 50,000 49,945 5.68%, 07/15/97 40,000 39,913 5.69%, 07/21/97 46,000 45,856 5.69%, 07/23/97 50,000 49,828 5.69%, 07/24/97 50,000 49,820 5.70%, 07/29/97 120,000 119,475 5.70%, 09/10/97 33,000 32,635 5.70%, 09/12/97 31,815 31,452 5.70%, 09/16/97 92,000 90,896 5.66%, 09/23/97 32,000 31,584 PaineWebber Group, Inc. 5.83%, 08/06/97 40,000 39,770 Salomon, Inc. 5.94%, 08/25/97 35,000 34,687 5.91%, 08/26/97 30,000 29,728 5.92%, 08/27/97 30,000 29,723 5.86%, 09/23/97 10,000 9,865
24 31 - ------------------------------------------------------------------------------
Par Value -------- ----------- Smith Barney, Inc. 5.71%, 07/08/97 $ 30,000 $ 29,967 5.70%, 07/09/97 91,000 90,886 5.70%, 07/10/97 50,000 49,930 ----------- 2,127,336 ----------- TOTAL COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS (Cost $8,988,075) 8,988,075 ----------- CERTIFICATES OF DEPOSIT--19.7% BANKING--AUSTRALIA--0.2% Australia & New Zealand Bank Group 5.54%, 07/07/97 20,000 20,000 ----------- BANKING--BELGIUM--0.2% BBL North America 5.75%, 08/05/97 22,000 22,000 ----------- BANKING--CANADA--1.1% Bank of Montreal 5.71%, 07/11/97 114,000 114,000 5.56%, 07/16/97 21,000 21,000 ----------- 135,000 ----------- BANKING--DOMESTIC--4.2% Bankers Trust Company 5.53%, 07/09/97 96,000 96,000 5.72%, 07/14/97 80,000 80,000 5.55%, 07/16/97 32,000 32,000 Chase Manhattan Bank USA 5.65%, 09/08/97 90,000 90,000 5.65%, 10/02/97 58,000 58,000 Crestar Bank 5.71%, 07/07/97 40,000 40,000 MBNA America Bank N.A. 5.80%, 10/07/97 46,000 46,000 Mellon Bank N.A. 5.68%, 08/21/97 50,000 50,000 5.63%, 09/04/97 27,000 27,000 Wilmington Trust Company 5.70%, 08/27/97 24,000 24,000 ----------- 543,000 ----------- BANKING--FRANCE--3.8% Banque Nationale de Paris 5.73%, 07/21/97 13,000 13,000 5.95%, 10/14/97 50,000 50,002
25 32 SCHWAB VALUE ADVANTAGE MONEY FUND(R) - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1997 (Unaudited)
Par Value -------- ----------- Caisse Nationale de Credit Agricole 6.01%, 06/26/98 $ 50,000 $ 49,967 Societe Generale 5.83%, 08/20/97 50,000 49,997 5.81%, 01/08/98 50,000 49,997 5.80%, 01/08/98 50,000 49,992 5.92%, 01/13/98 27,400 27,384 5.89%, 03/03/98 39,000 38,990 5.90%, 03/04/98 25,000 24,995 6.14%, 03/10/98 35,000 34,941 6.25%, 04/08/98 35,000 34,997 6.27%, 04/14/98 50,000 49,993 ----------- 474,255 ----------- BANKING--GERMANY--1.6% Bayerische Hypotheken und Wechsel Bank 5.54%, 07/07/97 50,000 49,999 Deutsche Bank 5.50%, 09/03/97 100,000 100,001 5.50%, 09/04/97 25,000 25,000 Landesbank Hessen-Thuringen Girozentrale 6.20%, 09/05/97 25,000 25,000 ----------- 200,000 ----------- BANKING--JAPAN--4.8% Bank of Tokyo - Mitsubishi, Ltd. 5.71%, 08/06/97 76,000 76,008 5.76%, 09/17/97 11,000 11,000 Dai-Ichi Kangyo Bank, Ltd. 5.83%, 07/03/97 14,000 14,000 5.84%, 07/17/97 50,000 50,001 5.80%, 07/17/97 15,000 15,000 5.80%, 07/18/97 5,000 5,000 5.83%, 07/23/97 50,000 50,000 Industrial Bank of Japan, Ltd. 5.83%, 07/11/97 28,000 28,000 5.84%, 07/17/97 100,000 100,002 5.84%, 07/18/97 40,000 40,000 Sanwa Bank, Ltd. 5.83%, 07/01/97 62,000 62,000 5.83%, 07/16/97 40,000 40,000 5.85%, 08/05/97 10,000 10,000 5.76%, 09/17/97 26,000 26,001 5.77%, 09/19/97 43,000 43,001 Sumitomo Bank, Ltd. 5.84%, 07/25/97 30,000 30,000 5.77%, 08/27/97 12,000 12,000 ----------- 612,013 -----------
26 33 - ------------------------------------------------------------------------------
Par Value -------- ----------- BANKING--NETHERLANDS--0.4% ABN-AMRO Bank N.V. 5.73%, 07/22/97 $ 25,000 $ 24,999 5.60%, 09/02/97 30,000 30,000 ----------- 54,999 ----------- BANKING--SPAIN--0.1% Banco Bilbao Vizcaya 5.56%, 07/07/97 10,000 10,000 ----------- BANKING--SWITZERLAND--0.2% Credit Suisse First Boston 6.26%, 04/08/98 25,000 24,996 ----------- BANKING--UNITED KINGDOM--2.6% Abbey National Treasury Services PLC 5.50%, 07/07/97 100,000 100,000 5.59%, 08/29/97 15,000 15,004 5.55%, 09/03/97 50,000 50,000 5.60%, 09/15/97 75,000 75,000 National Westminster Bank PLC 5.60%, 09/05/97 31,000 31,000 6.20%, 05/20/98 51,000 50,969 ----------- 321,973 ----------- SAVINGS AND LOAN--0.5% World Savings Bank, FSB 5.66%, 09/16/97 60,000 59,997 ----------- TOTAL CERTIFICATES OF DEPOSIT (Cost $2,478,233) 2,478,233 ----------- VARIABLE RATE OBLIGATIONS--5.3%(b) ASSET BACKED SECURITIES--0.8% Asset-Backed Securities Investment Trust, Series 1997-C 5.69%, 06/15/98 50,000 50,000 Ciesco, LP 5.60%, 07/14/97 50,000 49,997 ----------- 99,997 ----------- BANKING--DOMESTIC--0.6% Keystone Health Resources Corporation Variable Rate Taxable Demand Notes Series 1993/ (PNC Bank LOC) 5.60%, 07/07/97 3,300 3,300
27 34 SCHWAB VALUE ADVANTAGE MONEY FUND(R) - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1997 (Unaudited)
Par Value -------- ----------- New Jersey Economic Development Authority Variable Rate Title IX Loan Portfolio Securitization Bonds/ (Fleet National Bank LOC) 5.64%, 07/07/97 $ 22,600 $ 22,600 PNC Bank, N.A. 5.59%, 07/25/97 40,000 39,985 Town of Islip Industrial Development Agency 1992 Taxable Adjustable Rate Industrial Development Revenue Bonds (Nussdorf Associates/Quality King Distributors, Inc. Facility)/ (European American Bank LOC) 5.93%, 07/07/97 7,180 7,180 ----------- 73,065 ----------- BANKING--GERMANY--0.1% General Obligation Refunding Bonds of the County of Hudson (State of New Jersey) (Variable Rate Demand Obligations) Taxable Series 1995/ (Landesbank Hessen-Thuringen Girozentrale LOC) 5.60%, 07/07/97 9,300 9,300 ----------- BANKING--JAPAN--0.0% New York City Industrial Development Agency Industrial Development Revenue Bonds (G.A.F. Seelig, Inc. Project) Series1993/(IBJ Schroder Bank & Trust LOC) 6.00%, 07/07/97 2,130 2,130 ----------- BANKING--UNITED KINGDOM--0.1% County of Riverside 1990 Taxable Variable Rate Certificates of Participation (Monterey Avenue Project)/(National Westminister Bank PLC/ Commerzbank LOC) 5.90%, 07/07/97 8,100 8,100 ----------- ELECTRICAL AND ELECTRONICS--0.4% New Jersey Economic Development Authority Taxable Economic Development Bonds, MSNBC/CNBC Project, 1997 Series A /(General Electric Company & Microsoft Corporation Guarantee) 5.69%, 07/01/97 49,900 49,900 ----------- INSURANCE--1.6% Commonwealth Life Insurance Company 5.83%, 07/01/97 10,000 10,000 5.77%, 07/01/97 100,000 100,000
28 35 - ------------------------------------------------------------------------------
Par Value -------- ----------- General American Life Insurance Company 5.89%, 07/07/97 $ 50,000 $ 50,000 Jackson National Life Insurance Company 5.77%, 07/01/97 40,000 40,000 ----------- 200,000 ----------- MONOLINE INSURANCE--0.1% Baptist Health Systems of South Florida, Inc. Taxable Variable Rate Direct Note Obligations Series 1995A/ (MBIA Insurance) 5.60%, 07/07/97 6,600 6,600 Baptist Health Systems of South Florida, Inc. Taxable Variable Rate Direct Note Obligations Series 1995B/ (MBIA Insurance) 5.60%, 07/07/97 4,500 4,500 New Orleans Aviation Board Taxable Refunding Bonds, Series 1993A/(MBIA Insurance) 5.77%, 07/07/97 700 700 ----------- 11,800 ----------- SECURITIES BROKERAGE-DEALER--1.6% Bear Stearns Companies, Inc. 5.72%, 07/07/97 50,000 50,000 5.72%, 07/07/97 60,000 60,000 Lehman Brothers Holdings, Inc. 5.74%, 07/30/97 95,000 95,000 ----------- 205,000 ----------- TOTAL VARIABLE RATE OBLIGATIONS (Cost $659,292) 659,292 ----------- BANK NOTES--1.2% BANKING--DOMESTIC--1.2% FCC National Bank 5.53%, 07/07/97 10,000 10,000 5.65%, 09/09/97 34,000 34,001 First National Bank of Boston 5.72%, 07/08/97 50,000 50,000 5.72%, 07/15/97 60,000 60,000 ----------- TOTAL BANK NOTES (Cost $154,001) 154,001 -----------
29 36 SCHWAB VALUE ADVANTAGE MONEY FUND(R) - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1997 (Unaudited)
Par Value -------- ----------- MUNICIPAL BONDS--0.2%(a) BANKING--FRANCE--0.2% City of New York, General Obligation Bonds, Fiscal 1996 Series A-2/(Societe Generale LOC) 5.85%, 09/02/97 $ 21,770 $ 21,770 ----------- TOTAL MUNICIPAL BONDS (Cost $21,770) 21,770 ----------- Maturity -------- REPURCHASE AGREEMENTS--2.0%(c) Salomon Brothers, Inc. 6.15%, Issue Date 06/30/97 Due 07/01/97; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations 250,043 250,000 ----------- TOTAL REPURCHASE AGREEMENTS (Cost $250,000) 250,000 ----------- TOTAL INVESTMENTS--100% (Cost $12,551,371) $12,551,371 ===========
30 37 - ------------------------------------------------------------------------------ NOTES TO SCHEDULE OF INVESTMENTS Yields shown are effective yields at the time of purchase, except for variable rate securities which are described below 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 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 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, 1997, the aggregate value of private placement securities held by the Fund was $3,519,824,000 which represented 28.01% of net assets. Of this total, $3,274,824,000 or 26.06% 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 securities. Interest rates vary periodically based on current market rates. Rates shown are the effective rates as of the report date. 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. (c) Due dates shown for repurchase agreements represent either the final maturity or put date, which is considered the maturity date for financial reporting purposes. (d) Security traded on a delayed-delivery basis. Payment and delivery is scheduled for a future time, generally within two weeks of entering into the transaction. The transaction is subject to market fluctuation 31 38 - ------------------------------------------------------------------------------ NOTES TO SCHEDULE OF INVESTMENTS (continued) and to the risk that the value may be more or less than the purchase price when the transaction was initiated. The Fund has set aside sufficient investment securities as collateral for securities purchased on a delayed-delivery basis.
Abbreviations - ---------------------------------------------------------------- LOC Letter of Credit MBIA Municipal Bond Investors Assurance Corporation RECOP Remarketed Certificates of Participation
See accompanying Notes to Financial Statements. 32 39 - ------------------------------------------------------------------------------ STATEMENT OF ASSETS AND LIABILITIES (in thousands) June 30, 1997 (Unaudited) ASSETS Investments, at value (Cost: $12,551,371) $12,551,371 Interest receivable 45,102 Receivable for Fund shares sold 81,978 Prepaid expenses 219 ----------- Total assets 12,678,670 ----------- LIABILITIES Payable for: Dividends 25,720 Fund shares redeemed 58,617 Investments purchased 24,880 Investment advisory and administration fee 251 Transfer agency and shareholder service fees 515 Other 606 ----------- Total liabilities 110,589 ----------- Net assets applicable to outstanding shares $12,568,081 =========== NET ASSETS CONSIST OF: Paid-in-capital $12,568,206 Accumulated net realized loss on investments sold (125) ----------- $12,568,081 =========== PRICING OF SHARES Outstanding shares, $0.00001 par value (unlimited shares authorized) 12,568,206 Net asset value, offering and redemption price per share $1.00
See accompanying Notes to Financial Statements. 33 40 - ------------------------------------------------------------------------------ STATEMENTS OF OPERATIONS (in thousands) Six months ended June 30, 1997 (Unaudited) Interest income $329,195 -------- Expenses: Investment advisory and administration fee 24,208 Transfer agency and shareholder service fees 14,687 Custodian fees 468 Registration fees 753 Professional fees 78 Shareholder reports 67 Trustees' fees 18 Amortization of deferred organization costs 7 Insurance and other expenses 60 -------- 40,346 Less: expenses reduced (see Note 4) (16,847) -------- Total expenses incurred by Fund 23,499 -------- Net investment income 305,696 -------- Net realized gain on investments sold 0 -------- Increase in net assets resulting from operations $305,696 ========
See accompanying Notes to Financial Statements. 34 41 - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
Six months ended June 30, Year ended 1997 December 31, (Unaudited) 1996 ----------- ------------ Operations: Net investment income $ 305,696 $ 450,196 Net realized gain on investments sold 0 6 -------- -------- Increase in net assets resulting from operations 305,696 450,202 -------- -------- Dividends to shareholders from net investment income (305,696) (450,196) -------- -------- Capital share transactions (at $1.00 per share): Proceeds from shares sold 9,775,040 14,542,131 Net asset value of shares issued in reinvestment of dividends 330,904 405,539 Less payments for shares redeemed (8,014,400) (11,395,029) -------- -------- Increase in net assets from capital share transactions 2,091,544 3,552,641 -------- -------- Total increase in net assets 2,091,544 3,552,647 Net assets: Beginning of period 10,476,537 6,923,890 -------- -------- End of period $12,568,081 $ 10,476,537 ======== ========
See accompanying Notes to Financial Statements. 35 42 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS Six months ended June 30, 1997 (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. This report includes only the Investor Shares class of the Fund as the Sweep Shares class is currently not available for purchase. 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 Institutional Advantage Money Fund(R), Schwab Retirement Money Fund(R), Schwab Municipal Money Fund, Schwab California Municipal Money Fund and Schwab New York Municipal Money Fund. 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. Treasury or U.S. government obligations. All collateral is held by the Funds' custodian, except in the case of a tri-party agreement, 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. 36 43 - ------------------------------------------------------------------------------ Dividends to shareholders -- The Fund declares a daily dividend, equal to its net investment income for that day, payable monthly. 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. 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. 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 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. The Investment Manager has reduced a portion of its fees for the six months ended June 30, 1997 (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. 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. Schwab has reduced a portion of its fees for the six months ended June 30, 1997 (see Note 4). 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, 1997, 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 $18,000 related to the Trust's unaffiliated trustees. 37 44 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (continued) 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, 1997, the total of such fees reduced by the Investment Manager and Schwab was $8,341,000 and $8,506,000, respectively (see Note 6). 5. INVESTMENT TRANSACTIONS Purchases and sales, including maturities of investment securities for the six months ended June 30, 1997, aggregated (in thousands) $22,550,121 and $20,532,305, respectively. 38 45 - ------------------------------------------------------------------------------ 6. FINANCIAL HIGHLIGHTS For a share outstanding throughout each period:
Six months ended June 30, Period Ended 1997 Year ended December 31, December 31, (Unaudited) 1996 1995 1994 1993 1992++ ------------ ----------- ---------- ---------- -------- ------------ Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ----------- ----------- ---------- ---------- -------- -------- Income from investment - -------------- operations ------- Net investment income 0.03 0.05 0.06 0.04 0.03 0.02 Net realized and unrealized gain (loss) on investments -- -- -- -- -- -- ----------- ----------- ---------- ---------- -------- -------- Total from investment operations 0.03 0.05 0.06 0.04 0.03 0.02 ----------- ----------- ---------- ---------- -------- -------- Less distributions - ---------- Dividends from net investment income (0.03) (0.05) (0.06) (0.04) (0.03) (0.02) Distributions from realized gains on investments -- -- -- -- -- -- ----------- ----------- ---------- ---------- -------- -------- Total distributions (0.03) (0.05) (0.06) (0.04) (0.03) (0.02) ----------- ----------- ---------- ---------- -------- -------- Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 =========== =========== ========== ========== ======== ======== Total return (not annualized) 2.61% 5.26% 5.80% 4.09% 3.02% 2.33% Ratios/Supplemental data - ---------------- Net assets, end of period(000s) $12,568,081 $10,476,537 $6,923,890 $3,731,629 $729,356 $319,024 Ratio of expenses to average net assets+ 0.40%* 0.40% 0.40% 0.40% 0.39% 0.29%* Ratio of net investment income to average net assets+ 5.20%* 5.14% 5.63% 4.40% 2.97% 3.27%*
- --------------- + 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: Ratio of expenses to average net assets 0.68%* 0.70% 0.72% 0.79% 0.82% 0.94%* Ratio of net investment income to average net assets 4.92%* 4.84% 5.31% 4.01% 2.54% 2.62%*
++ Period from April 30, 1992 (commencement of operations) to December 31, 1992. * Annualized 39 46 THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU. 47 THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU. 48 THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU. 49 THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU. 50 THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU. 51 SCHWABFUNDS FAMILY(R) The SchwabFunds Family includes a variety of funds to help meet your investment needs. 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 funds. SCHWAB ASSET ALLOCATION FUNDS Schwab Asset Director(R) -- High Growth Fund Schwab Asset Director -- Balanced Growth Fund Schwab Asset Director -- Conservative Growth Fund Schwab OneSource Portfolios -- Growth Allocation Schwab OneSource Portfolios -- Balanced Allocation SCHWAB STOCK FUNDS Schwab 1000 Fund(R) Schwab S&P 500 Fund Schwab Analytics Fund(TM) Schwab Small-Cap Index Fund(R) Schwab International Index Fund(R) Schwab OneSource Portfolios -- International SCHWAB BOND FUNDS Schwab Government Bond Funds -- Long-Term and Short/Intermediate Schwab Tax-Free Bond Funds -- Long-Term and Short/Intermediate Schwab California Tax-Free Bond Funds -- Long-Term and Short/Intermediate SCHWAB MONEY MARKET FUNDS Schwab offers an array of money market funds* 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(R). Please call 1-800-435-4000 for a free prospectus and brochure for any of the SchwabFunds(R). Each prospectus provides more complete information, including charges and expenses. Please read it carefully before investing. This report must be preceded or accompanied by a current prospectus. * 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. 52 BULK RATE U.S. POSTAGE PAID CHARLES SCHWAB [SCHWABFUNDS FAMILY LOGO] 101 Montgomery Street San Francisco, California 94104 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 94104 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)1997 Charles Schwab & Co., Inc. All rights reserved. Member SIPC/NYSE. TF4823R(7/97) CRS 20110 Printed on recycled paper. -----END PRIVACY-ENHANCED MESSAGE-----