<PAGE>
SchwabFunds
SCHWAB
VALUE ADVANTAGE
MONEY FUND-Registered Trademark-
Annual Report
December 31, 1997
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[Photo]
Dear Shareholder,
With the support of investors like you, SchwabFunds-Registered
Trademark- continues to be among the largest and fastest-growing
mutual fund families in the nation. Charles Schwab Investment
Management, Inc. (CSIM) now manages over $56 billion in assets
for nearly 3 million SchwabFunds shareholders and offers 31 funds
spanning a spectrum of financial markets and investing styles.
MAINTAINING A LONG-TERM PERSPECTIVE
The recent volatility in both domestic and international markets reminds us
that investments can move in both directions, down as well as up, especially
in the short term. For this reason, it is extremely important that you
develop and stick with a long-term investment plan that is appropriate for
your personal goals, time horizon and tolerance for risk. While it's a good
idea to periodically review your portfolio, I would encourage you to avoid
making changes merely in response to short-term market movements.
If you have any questions about your own investment plan or need help getting
started, contact your local Schwab branch to set up a free consultation with
one of our representatives. Additionally, I encourage you to visit our Web
site at WWW.SCHWAB.COM/SCHWABFUNDS, where you'll find online resources and
tools to help you evaluate or develop your investment plan.
NEW INVESTMENT OPPORTUNITIES
As a strong proponent of indexing as an investment strategy, we've expanded
our indexing offering to include bond index funds. SchwabFunds is happy to
introduce the Short-Term Bond Market Index Fund and the Total Bond Market
Index Fund.(1) Each Fund is broad-based and diversified and seeks to track an
index representing a broad spectrum of the bond market. These Funds are
straightforward choices for your bond holdings and can represent the core
component of your bond portfolio.
In addition, we introduced two new municipal money funds in early February.
The Schwab New Jersey Municipal Money Fund and the Schwab Pennsylvania
Municipal Money Fund are designed to offer taxpayers in those states
opportunities for additional tax savings.(2)
For a free prospectus on the Schwab Bond Index Funds, the Schwab New Jersey
Municipal Money Fund, the Schwab Pennsylvania Municipal Money Fund or any
other SchwabFund, please call us toll-free at 1-800-435-4000. The prospectus
contains more information, including fees and expenses. Please be sure to
read the prospectus before investing.
Thank you for placing your trust in SchwabFunds. We will continue to explore
new strategies to help meet your investment needs and to provide you with
timely information on SchwabFunds.
/s/ Charles R. Schwab
Charles R. Schwab
(1) Formerly the Schwab Short/Intermediate Government Bond Fund and the Schwab
Long-Term Government Bond Fund, respectively.
(2) Income may be subject to the alternative minimum tax (AMT).
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
A Word from SchwabFunds-Registered Trademark-................................... 2
Schwab Value Advantage Money Fund-Registered Trademark-......................... 3
The Portfolio Management Team................................................... 5
Market Overview................................................................. 6
Questions to the Portfolio Management Team...................................... 11
Glossary of Terms............................................................... 13
Portfolio Summary............................................................... 14
Financial Statements and Notes.................................................. 15
</TABLE>
1
<PAGE>
A WORD FROM SCHWABFUNDS-REGISTERED TRADEMARK-
We're pleased to report on the performance of the Schwab Value Advantage
Money Fund-Registered Trademark- for the one-year period ended December 31,
1997. This report includes only the Investor Shares of the Fund, as the Sweep
Shares are currently not available for purchase.
During the reporting period, the Investor Shares of 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
following pages contain information on the Schwab Value Advantage Money
Fund--Investor Shares' performance during the reporting period and on the Fund's
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 per
share. It is also important to understand that your investment in the Fund is
not insured or guaranteed by the U.S. Government.
The Value Advantage Investments-Registered Trademark-, which include the
Schwab Value Advantage Money Fund--Investor Shares, as well as three
tax-advantaged alternatives, were designed as longer-term money market
investment vehicles for larger cash balances that do not require frequent
access. As such, they 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 Sweep Investments-TM-, the Value
Advantage Investments are not designed to automatically cover negative balances
in your Schwab account.
If you expect to access your money regularly, you may wish to consider
investing your short-term cash balances 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 your money
invested and available to automatically cover day-to-day transactions such as
trade settlements.
If you would like more information on the Value Advantage Investments or on
other Schwab Money 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 carefully before investing.
2
<PAGE>
SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK-
PERFORMANCE REVIEW
The table below presents 7-day 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.
<TABLE>
<CAPTION>
YIELD SUMMARY AS OF 12/31/97(1) Investor Shares
<S> <C>
- -----------------------------------------------------------------------------------------
7-Day Yield 5.46%
- -----------------------------------------------------------------------------------------
7-Day Effective Yield 5.61%
- -----------------------------------------------------------------------------------------
</TABLE>
YIELD ADVANTAGE
The 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 can mean higher yields for shareholders. The chart below presents the
7-day yields on a weekly basis for the Investor Shares of the Fund and for the
average taxable money fund, and shows that the Investor Shares of the Fund
consistently outperformed the average of their category during the reporting
period.
7-DAY YIELDS FOR THE PERIOD FROM 1/7/97 - 12/30/97(2)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB VALUE ADVANTAGE MONEY FUND - INVESTOR SHARES IBC FINANCIAL DATA INC.'S MONEY FUND AVERAGE
<S> <C> <C>
1/7 5.11 4.81
1/14 5.12 4.76
1/21 5.12 4.76
1/28 5.12 4.75
2/4 5.12 4.78
2/11 5.13 4.75
2/18 5.13 4.74
2/25 5.11 4.73
3/4 5.12 4.75
3/11 5.12 4.72
3/18 5.12 4.73
3/25 5.11 4.74
4/1 5.14 4.82
4/8 5.15 4.82
4/15 5.18 4.84
4/22 5.19 4.86
4/29 5.22 4.89
5/6 5.26 4.9
5/13 5.28 4.9
5/20 5.3 4.91
5/27 5.31 4.93
6/3 5.34 4.94
6/10 5.35 4.93
6/17 5.36 4.95
6/24 5.35 4.94
7/1 5.36 4.97
7/8 5.36 4.95
7/15 5.37 4.94
7/22 5.34 4.93
7/29 5.34 4.93
8/5 5.35 4.95
8/12 5.34 4.92
8/19 5.34 4.95
8/26 5.32 4.93
9/2 5.33 4.95
9/9 5.33 4.92
9/16 5.33 4.94
9/23 5.31 4.93
9/30 5.32 4.95
10/7 5.32 4.92
10/14 5.32 4.9
10/21 5.32 4.92
10/28 5.33 4.93
11/4 5.34 4.95
11/11 5.34 4.93
11/18 5.36 4.95
11/25 5.35 4.96
12/2 5.37 5
12/9 5.39 5
12/16 5.41 5.03
12/23 5.44 5.06
12/30 5.46 5.07
</TABLE>
(1) A portion of the Fund's expenses were reduced during the reporting period.
Without these reductions, as of 12/31/97, the 7-day yield and the 7-day
effective yield for the Fund would have been 5.18% and 5.31%, respectively.
(2) Source: IBC Financial Data, Inc. Average 7-day yield of funds in the
first-tier category of taxable money funds for each week ending
1/7 - 12/30/97. Weekly number of funds in the category ranged from 272 to
286. A portion of the Fund's expenses were reduced during the reporting
period. Without these reductions, the 7-day yields for the Fund would have
been lower.
3
<PAGE>
PORTFOLIO COMPOSITION
The Schwab Value Advantage Money Fund-Registered Trademark- invests
primarily in high-quality commercial paper and other corporate obligations, bank
certificates of deposit, time deposits, and bankers' acceptances, as well as
repurchase agreements and U.S. Government obligations. The chart below
illustrates the composition of the Fund's portfolio as of December 31, 1997 and
is not indicative of the holdings after that date. A complete listing of the
securities in the Fund's portfolio as of December 31, 1997 is provided in the
Schedule of Investments later in this report.
SCHWAB VALUE ADVANTAGE MONEY FUND
Portfolio Composition as of December 31, 1997
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Commercial Paper & Other Corporate Obligations 80%
Certificates of Deposit 12%
Variable Rate Obligations 6%
Other 2%
</TABLE>
4
<PAGE>
THE PORTFOLIO MANAGEMENT TEAM
STEPHEN B. WARD--Senior Vice President and Chief Investment Officer--has
overall responsibility for the management of the Fund's portfolio. Steve joined
Charles Schwab Investment Management, Inc. (CSIM) as Vice President and
Portfolio Manager in April 1991 and was promoted to his current position in
August 1993. Prior to joining CSIM, Steve was Vice President and Portfolio
Manager at Federated Investors.
LINDA KLINGMAN--Vice President and Senior Portfolio Manager--has managed the
Schwab Value Advantage Money Fund-Registered Trademark- since its inception in
1992. Linda joined CSIM in 1990 and was promoted to her current position in
August 1996. Prior to joining CSIM, Linda was Senior Money Market Trader with
AIM Management.
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 13.
5
<PAGE>
MARKET OVERVIEW
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
QUARTERLY GDP GROWTH RATE
<S> <C>
Q1 1990 3.9%
Q2 1990 1.2%
Q3 1990 -1.9%
Q4 1990 -4.0%
Q1 1991 -2.1%
Q2 1991 1.8%
Q3 1991 1.0%
Q4 1991 1.0%
Q1 1992 4.7%
Q2 1992 2.5%
Q3 1992 3.0%
Q4 1992 4.3%
Q1 1993 0.1%
Q2 1993 2.0%
Q3 1993 2.1%
Q4 1993 5.3%
Q1 1994 3.0%
Q2 1994 4.7%
Q3 1994 1.8%
Q4 1994 3.6%
Q1 1995 0.9%
Q2 1995 0.3%
Q3 1995 3.0%
Q4 1995 2.2%
Q1 1996 1.8%
Q2 1996 6.0%
Q3 1996 1.0%
Q4 1996 4.3%
Q1 1997 4.9%
Q2 1997 3.3%
Q3 1997 3.1%
Q4 1997 4.3%
Source: Bloomberg L.P.
</TABLE>
- - The real GDP growth rate was 3.2% for 1996 and 3.8% for 1997--healthy rates of
growth for the economy, well in excess of the Federal Reserve's projected
non-inflationary growth rate of 2.2%.
- - The direct impact of the economic
problems of Pacific Rim countries on 1998 U.S. GDP growth is anticipated to be
relatively minor. Estimates range from a reduction of 0.25% (as estimated by
the Federal Reserve's Chairman Alan Greenspan) to 1%. At the time of this
writing, the economy appears poised for continued growth, further extending
the current economic expansion that began in 1991.
- - Prior to the fourth quarter onset of the "Asian Flu," the strength of the
economy and tight labor markets continued to lead to speculation of a
potential acceleration in both wage and price inflation and whether a more
restrictive Federal Reserve policy was imminent.
Throughout most of the reporting period, the Federal Reserve was "on alert"
for signs of accelerating inflation, whether caused by tight labor markets or
consumer spending fueled by a strong stock market. With the onset of the
economic problems in Pacific Rim countries and their potential impact on the
U.S. economy, sentiment has shifted--there is no clear consensus whether the
Federal Reserve's next move will be to raise or lower short-term rates.
6
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. UNEMPLOYMENT RATE
<S> <C>
Jan-90 5.4%
Feb-90 5.3%
Mar-90 5.2%
Apr-90 5.4%
May-90 5.4%
Jun-90 5.2%
Jul-90 5.5%
Aug-90 5.7%
Sep-90 5.9%
Oct-90 5.9%
Nov-90 6.2%
Dec-90 6.3%
Jan-91 6.4%
Feb-91 6.6%
Mar-91 6.8%
Apr-91 6.7%
May-91 6.9%
Jun-91 6.9%
Jul-91 6.8%
Aug-91 6.9%
Sep-91 6.9%
Oct-91 7.0%
Nov-91 7.0%
Dec-91 7.3%
Jan-92 7.3%
Feb-92 7.4%
Mar-92 7.4%
Apr-92 7.4%
May-92 7.6%
Jun-92 7.8%
Jul-92 7.7%
Aug-92 7.6%
Sep-92 7.6%
Oct-92 7.3%
Nov-92 7.4%
Dec-92 7.4%
Jan-93 7.3%
Feb-93 7.1%
Mar-93 7.0%
Apr-93 7.1%
May-93 7.1%
Jun-93 7.0%
Jul-93 6.9%
Aug-93 6.8%
Sep-93 6.7%
Oct-93 6.8%
Nov-93 6.6%
Dec-93 6.5%
Jan-94 6.7%
Feb-94 6.6%
Mar-94 6.5%
Apr-94 6.4%
May-94 6.0%
Jun-94 6.1%
Jul-94 6.1%
Aug-94 6.1%
Sep-94 5.9%
Oct-94 5.8%
Nov-94 5.6%
Dec-94 5.4%
Jan-95 5.6%
Feb-95 5.5%
Mar-95 5.4%
Apr-95 5.7%
May-95 5.6%
Jun-95 5.6%
Jul-95 5.7%
Aug-95 5.7%
Sep-95 5.7%
Oct-95 5.5%
Nov-95 5.6%
Dec-95 5.6%
Jan-96 5.7%
Feb-96 5.5%
Mar-96 5.5%
Apr-96 5.5%
May-96 5.5%
Jun-96 5.3%
Jul-96 5.4%
Aug-96 5.2%
Sep-96 5.2%
Oct-96 5.2%
Nov-96 5.3%
Dec-96 5.3%
Jan-97 5.4%
Feb-97 5.3%
Mar-97 5.2%
Apr-97 4.9%
May-97 4.8%
Jun-97 5.0%
Jul-97 4.8%
Aug-97 4.9%
Sep-97 4.9%
Oct-97 4.7%
Nov-97 4.6%
Dec-97 4.7%
Source: Bloomberg L.P.
</TABLE>
- - Job growth has remained robust and the unemployment rate reached a new low for
this decade during the reporting period. In fact, the monthly fourth quarter
rates of 4.7%, 4.6% and 4.7% for October, November and December, respectively,
represent the lowest unemployment rates in 24 years.
- - Although inflation has been well contained, the combination of a tight labor
market (as evidenced by low unemployment rates) and strong economic growth
typically leads to inflationary pressures on wages and, ultimately, prices. In
this environment, productivity growth becomes particularly important. Strong
productivity gains, such as we experienced in the second and third quarters,
allow manufacturers to keep a lid on prices in the face of rising wages
without trimming profit margins.
7
<PAGE>
MARKET OVERVIEW (continued)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MEASURES OF INFLATION
<S> <C> <C>
Monthly Consumer Price Index Quarterly Employment Cost Index
Jan-90 5.2% 5.3%
Feb-90 5.3% 5.3%
Mar-90 5.2% 5.3%
Apr-90 4.7% 5.4%
May-90 4.4% 5.4%
Jun-90 4.7% 5.4%
Jul-90 4.8% 5.1%
Aug-90 5.6% 5.1%
Sep-90 6.2% 5.1%
Oct-90 6.3% 4.8%
Nov-90 6.3% 4.8%
Dec-90 6.1% 4.8%
Jan-91 5.7% 4.6%
Feb-91 5.3% 4.6%
Mar-91 4.9% 4.6%
Apr-91 4.9% 4.5%
May-91 5.0% 4.5%
Jun-91 4.7% 4.5%
Jul-91 4.4% 4.3%
Aug-91 3.8% 4.3%
Sep-91 3.4% 4.3%
Oct-91 2.9% 4.2%
Nov-91 3.0% 4.2%
Dec-91 3.1% 4.2%
Jan-92 2.6% 4.1%
Feb-92 2.8% 4.1%
Mar-92 3.2% 4.1%
Apr-92 3.2% 3.5%
May-92 3.0% 3.5%
Jun-92 3.1% 3.5%
Jul-92 3.2% 3.4%
Aug-92 3.1% 3.4%
Sep-92 3.0% 3.4%
Oct-92 3.2% 3.5%
Nov-92 3.0% 3.5%
Dec-92 2.9% 3.5%
Jan-93 3.3% 3.4%
Feb-93 3.2% 3.4%
Mar-93 3.1% 3.4%
Apr-93 3.2% 3.6%
May-93 3.2% 3.6%
Jun-93 3.0% 3.6%
Jul-93 2.8% 3.6%
Aug-93 2.8% 3.6%
Sep-93 2.7% 3.6%
Oct-93 2.8% 3.4%
Nov-93 2.7% 3.4%
Dec-93 2.7% 3.4%
Jan-94 2.5% 3.2%
Feb-94 2.5% 3.2%
Mar-94 2.5% 3.2%
Apr-94 2.4% 3.1%
May-94 2.3% 3.1%
Jun-94 2.5% 3.1%
Jul-94 2.8% 3.1%
Aug-94 2.9% 3.1%
Sep-94 3.0% 3.1%
Oct-94 2.6% 3.0%
Nov-94 2.7% 3.0%
Dec-94 2.7% 3.0%
Jan-95 2.8% 3.0%
Feb-95 2.9% 3.0%
Mar-95 2.9% 3.0%
Apr-95 3.1% 3.0%
May-95 3.2% 3.0%
Jun-95 3.0% 3.0%
Jul-95 2.8% 2.8%
Aug-95 2.6% 2.8%
Sep-95 2.5% 2.8%
Oct-95 2.8% 2.8%
Nov-95 2.6% 2.8%
Dec-95 2.5% 2.8%
Jan-96 2.7% 2.9%
Feb-96 2.7% 2.9%
Mar-96 2.8% 2.9%
Apr-96 2.9% 2.9%
May-96 2.9% 2.9%
Jun-96 2.8% 2.9%
Jul-96 3.0% 2.9%
Aug-96 2.9% 2.9%
Sep-96 3.0% 2.9%
Oct-96 3.0% 3.0%
Nov-96 3.3% 3.0%
Dec-96 3.3% 3.0%
Jan-97 3.0% 2.8%
Feb-97 3.0% 2.8%
Mar-97 2.8% 2.8%
Apr-97 2.5% 2.8%
May-97 2.2% 2.8%
Jun-97 2.3% 2.8%
Jul-97 2.2% 3.0%
Aug-97 2.2% 3.0%
Sep-97 2.2% 3.0%
Oct-97 2.1% 3.2%
Nov-97 1.8% 3.2%
Dec-97 1.7% 3.2%
</TABLE>
- - Both the Employment Cost Index and Consumer Price Index (CPI) remained in
check throughout 1997, reflecting continued low levels of inflation.
- - The CPI rose 1.7% during 1997--the lowest rate of increase since 1986. Its
core rate (which excludes the more volatile food and energy components) rose
2.2%--the lowest rate of increase since 1965.
- - Even though current levels of inflation are very low, the Federal Reserve
indicated throughout most of the reporting period that the economy remains in
the zone where inflation risks are increasing, and that it is poised to act
preemptively by raising interest rates if necessary. The Federal Reserve did
take action earlier this year in March, increasing the Federal Funds Rate by
0.25% to 5.50%. At the end of the reporting period, however, sentiment was
mixed regarding the direction and timing of the Federal Reserve's next action.
8
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YIELDS ON 90-DAY COMMERCIAL PAPER
AND 3-MONTH TREASURY BILLS FOR THE
PERIOD 1/2/97 - 12/31/97
<S> <C> <C>
3 Month Treasury Bill 90 Day Commercial Paper
1/2/97 5.18% 5.30%
1/3/97 5.16% 5.29%
1/6/97 5.17% 5.32%
1/7/97 5.15% 5.32%
1/8/97 5.15% 5.29%
1/9/97 5.12% 5.30%
1/10/97 5.16% 5.30%
1/13/97 5.17% 5.34%
1/14/97 5.16% 5.29%
1/15/97 5.14% 5.31%
1/16/97 5.16% 5.29%
1/17/97 5.15% 5.30%
1/20/97 5.15% 5.30%
1/21/97 5.15% 5.29%
1/22/97 5.16% 5.30%
1/23/97 5.16% 5.27%
1/24/97 5.16% 5.32%
1/27/97 5.19% 5.32%
1/28/97 5.19% 5.32%
1/29/97 5.17% 5.31%
1/30/97 5.17% 5.28%
1/31/97 5.15% 5.30%
2/3/97 5.11% 5.30%
2/4/97 5.13% 5.28%
2/5/97 5.12% 5.28%
2/6/97 5.13% 5.30%
2/7/97 5.12% 5.27%
2/10/97 5.13% 5.26%
2/11/97 5.14% 5.29%
2/12/97 5.14% 5.29%
2/13/97 5.12% 5.27%
2/14/97 5.08% 5.26%
2/17/97 5.09% 5.26%
2/18/97 5.09% 5.25%
2/19/97 5.10% 5.25%
2/20/97 5.08% 5.26%
2/21/97 5.09% 5.20%
2/24/97 5.11% 5.22%
2/25/97 5.15% 5.24%
2/26/97 5.18% 5.23%
2/27/97 5.20% 5.38%
2/28/97 5.22% 5.35%
3/3/97 5.23% 5.37%
3/4/97 5.23% 5.29%
3/5/97 5.19% 5.30%
3/6/97 5.21% 5.29%
3/7/97 5.21% 5.29%
3/10/97 5.19% 5.29%
3/11/97 5.17% 5.30%
3/12/97 5.19% 5.30%
3/13/97 5.23% 5.30%
3/14/97 5.23% 5.32%
3/17/97 5.25% 5.34%
3/18/97 5.29% 5.37%
3/19/97 5.29% 5.38%
3/20/97 5.34% 5.39%
3/21/97 5.40% 5.50%
3/24/97 5.38% 5.50%
3/25/97 5.39% 5.52%
3/26/97 5.34% 5.53%
3/27/97 5.37% 5.54%
3/28/97 5.37% 5.54%
3/31/97 5.32% 5.55%
4/1/97 5.30% 5.53%
4/2/97 5.29% 5.58%
4/3/97 5.25% 5.55%
4/4/97 5.27% 5.54%
4/7/97 5.27% 5.61%
4/8/97 5.23% 5.59%
4/9/97 5.22% 5.58%
4/10/97 5.29% 5.53%
4/11/97 5.28% 5.52%
4/14/97 5.29% 5.58%
4/15/97 5.29% 5.56%
4/16/97 5.29% 5.58%
4/17/97 5.29% 5.58%
4/18/97 5.28% 5.57%
4/21/97 5.26% 5.60%
4/22/97 5.32% 5.60%
4/23/97 5.34% 5.62%
4/24/97 5.30% 5.57%
4/25/97 5.31% 5.54%
4/28/97 5.30% 5.61%
4/29/97 5.26% 5.56%
4/30/97 5.23% 5.57%
5/1/97 5.21% 5.60%
5/2/97 5.22% 5.57%
5/5/97 5.11% 5.60%
5/6/97 5.17% 5.56%
5/7/97 5.22% 5.59%
5/8/97 5.21% 5.63%
5/9/97 5.16% 5.55%
5/12/97 5.15% 5.59%
5/13/97 5.20% 5.57%
5/14/97 5.16% 5.57%
5/15/97 5.11% 5.58%
5/16/97 5.18% 5.58%
5/19/97 5.30% 5.56%
5/20/97 5.20% 5.59%
5/21/97 5.12% 5.59%
5/22/97 5.17% 5.59%
5/23/97 5.16% 5.54%
5/26/97 5.16% 5.54%
5/27/97 5.11% 5.56%
5/28/97 5.13% 5.53%
5/29/97 5.01% 5.57%
5/30/97 4.94% 5.54%
6/2/97 4.84% 5.59%
6/3/97 5.07% 5.57%
6/4/97 5.07% 5.56%
6/5/97 5.11% 5.52%
6/6/97 5.04% 5.54%
6/9/97 5.03% 5.54%
6/10/97 5.03% 5.53%
6/11/97 4.96% 5.55%
6/12/97 4.95% 5.52%
6/13/97 4.96% 5.53%
6/16/97 4.97% 5.54%
6/17/97 5.04% 5.54%
6/18/97 5.07% 5.54%
6/19/97 5.07% 5.52%
6/20/97 5.06% 5.53%
6/23/97 5.15% 5.54%
6/24/97 5.18% 5.54%
6/25/97 5.10% 5.52%
6/26/97 5.12% 5.51%
6/27/97 5.14% 5.53%
6/30/97 5.17% 5.56%
7/1/97 5.23% 5.52%
7/2/97 5.22% 5.56%
7/3/97 5.14% 5.52%
7/4/97 5.13% 5.52%
7/7/97 5.07% 5.52%
7/8/97 5.11% 5.51%
7/9/97 5.10% 5.49%
7/10/97 5.15% 5.47%
7/11/97 5.13% 5.49%
7/14/97 5.14% 5.50%
7/15/97 5.19% 5.50%
7/16/97 5.18% 5.50%
7/17/97 5.21% 5.48%
7/18/97 5.24% 5.47%
7/21/97 5.27% 5.48%
7/22/97 5.23% 5.50%
7/23/97 5.19% 5.44%
7/24/97 5.21% 5.45%
7/25/97 5.22% 5.47%
7/28/97 5.23% 5.48%
7/29/97 5.24% 5.45%
7/30/97 5.23% 5.47%
7/31/97 5.23% 5.45%
8/1/97 5.27% 5.48%
8/4/97 5.26% 5.48%
8/5/97 5.29% 5.47%
8/6/97 5.29% 5.48%
8/7/97 5.30% 5.46%
8/8/97 5.28% 5.49%
8/11/97 5.29% 5.48%
8/12/97 5.32% 5.51%
8/13/97 5.31% 5.49%
8/14/97 5.33% 5.49%
8/15/97 5.24% 5.49%
8/18/97 5.27% 5.50%
8/19/97 5.22% 5.48%
8/20/97 5.23% 5.49%
8/21/97 5.24% 5.49%
8/22/97 5.23% 5.45%
8/25/97 5.28% 5.46%
8/26/97 5.27% 5.50%
8/27/97 5.28% 5.49%
8/28/97 5.21% 5.46%
8/29/97 5.22% 5.48%
9/1/97 5.22% 5.48%
9/2/97 5.19% 5.52%
9/3/97 5.13% 5.48%
9/4/97 5.14% 5.51%
9/5/97 5.15% 5.50%
9/8/97 5.14% 5.49%
9/9/97 5.12% 5.50%
9/10/97 5.09% 5.48%
9/11/97 5.13% 5.47%
9/12/97 5.09% 5.48%
9/15/97 5.13% 5.49%
9/16/97 5.08% 5.49%
9/17/97 5.09% 5.48%
9/18/97 5.08% 5.48%
9/19/97 5.04% 5.45%
9/22/97 5.02% 5.48%
9/23/97 4.98% 5.49%
9/24/97 4.92% 5.45%
9/25/97 4.91% 5.46%
9/26/97 4.98% 5.48%
9/29/97 4.99% 5.50%
9/30/97 5.10% 5.48%
10/1/97 5.10% 5.46%
10/2/97 5.06% 5.49%
10/3/97 5.01% 5.47%
10/6/97 4.97% 5.47%
10/7/97 5.05% 5.46%
10/8/97 5.09% 5.47%
10/9/97 5.11% 5.48%
10/10/97 5.12% 5.50%
10/13/97 5.12% 5.50%
10/14/97 5.07% 5.49%
10/15/97 5.04% 5.51%
10/16/97 5.06% 5.48%
10/17/97 5.04% 5.54%
10/20/97 5.03% 5.54%
10/21/97 5.10% 5.54%
10/22/97 5.15% 5.52%
10/23/97 5.12% 5.54%
10/24/97 5.13% 5.54%
10/27/97 5.03% 5.55%
10/28/97 5.26% 5.49%
10/29/97 5.14% 5.54%
10/30/97 5.14% 5.53%
10/31/97 5.20% 5.56%
11/3/97 5.23% 5.54%
11/4/97 5.25% 5.53%
11/5/97 5.24% 5.54%
11/6/97 5.31% 5.53%
11/7/97 5.29% 5.55%
11/10/97 5.33% 5.54%
11/11/97 5.31% 5.54%
11/12/97 5.26% 5.62%
11/13/97 5.26% 5.59%
11/14/97 5.25% 5.67%
11/17/97 5.30% 5.63%
11/18/97 5.29% 5.62%
11/19/97 5.27% 5.61%
11/20/97 5.27% 5.64%
11/21/97 5.24% 5.61%
11/24/97 5.27% 5.63%
11/25/97 5.29% 5.65%
11/26/97 5.21% 5.63%
11/27/97 5.22% 5.63%
11/28/97 5.20% 5.63%
12/1/97 5.23% 5.64%
12/2/97 5.25% 5.67%
12/3/97 5.23% 5.67%
12/4/97 5.25% 5.67%
12/5/97 5.31% 5.69%
12/8/97 5.32% 5.67%
12/9/97 5.23% 5.72%
12/10/97 5.18% 5.69%
12/11/97 5.17% 5.68%
12/12/97 5.17% 5.68%
12/15/97 5.22% 5.70%
12/16/97 5.20% 5.69%
12/17/97 5.24% 5.66%
12/18/97 5.23% 5.64%
12/19/97 5.38% 5.62%
12/22/97 5.43% 5.67%
12/23/97 5.47% 5.64%
12/24/97 5.37% 5.69%
12/25/97 5.37% 5.69%
12/26/97 5.33% 5.67%
12/29/97 5.39% 5.65%
12/30/97 5.38% 5.65%
12/31/97 5.37% 5.57%
Source: Bloomberg L.P.
</TABLE>
- - Commercial paper rates experienced a moderate increase in the second quarter
(following the March Federal Funds Rate hike) and again in the fourth quarter.
Throughout most of the reporting period, however, rates remained relatively
stable, as illustrated by the 90-day commercial paper yields in the above
chart. More notably, the spread between commercial paper and U.S. Treasury
bill yields widened significantly during the second quarter and continued to
exhibit volatility during the remainder of the reporting period.
- - Initially, the widening of the spread between U.S. Treasury bill and
commercial paper yields, which made U.S. Treasury bills relatively less
attractive than commercial paper, resulted from a reduced supply of U.S.
Treasury bills. This reduction in supply was caused by unexpectedly large
federal tax receipts collected in April, 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.
- - During September, the spread again widened. This time, however, it was
primarily a result of what is typically referred to as a "flight to quality."
Investors, concerned about the volatility in the foreign equity markets,
sought refuge in U.S. Treasury securities, thereby driving down their yields
relative to those of commercial paper.
9
<PAGE>
MARKET OVERVIEW (continued)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
90-DAY MUNICIPAL COMMERCIAL PAPER YIELDS
FOR THE PERIOD 1/7/97 - 12/30/97
<S> <C>
1/7/97 3.25%
1/14/97 3.45%
1/21/97 3.45%
1/28/97 3.55%
2/4/97 3.40%
2/11/97 3.45%
2/18/97 3.35%
2/25/97 3.40%
3/4/97 3.35%
3/11/97 3.30%
3/18/97 3.40%
3/25/97 3.50%
4/1/97 3.45%
4/8/97 3.65%
4/15/97 3.60%
4/22/97 3.70%
4/29/97 3.70%
5/6/97 3.65%
5/13/97 3.75%
5/20/97 3.70%
5/27/97 3.70%
6/3/97 3.65%
6/10/97 3.70%
6/17/97 3.75%
6/24/97 3.70%
7/1/97 3.60%
7/8/97 3.60%
7/16/97 3.65%
7/23/97 3.65%
7/30/97 3.65%
8/6/97 3.60%
8/13/97 3.60%
8/20/97 3.60%
8/27/97 3.65%
9/3/97 3.70%
9/10/97 3.80%
9/17/97 3.80%
9/24/97 3.80%
10/1/97 3.65%
10/8/97 3.65%
10/15/97 3.75%
10/22/97 3.75%
10/29/97 3.75%
11/5/97 3.70%
11/12/97 3.75%
11/19/97 3.75%
11/26/97 3.80%
12/3/97 3.60%
12/10/97 3.60%
12/17/97 3.75%
12/23/97 3.75%
12/30/97 3.75%
Source: Lehman Brothers, Inc.
</TABLE>
- - Municipal commercial paper yields increased slightly during the weeks
following the Federal Funds Rate hike in March but then remained relatively
stable throughout the remainder of the reporting period, as illustrated in the
above chart. In fact, municipal commercial paper yields exhibited a pattern
similar to that of taxable commercial paper yields during the reporting
period, as shown in the chart on page 9.
10
<PAGE>
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, we adjusted the dollar-weighted average maturity
(DWAM) of the portfolio in order to buy higher yielding money market instruments
available as a result of market fluctuations.
Although 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, there was speculation that further increases in the Federal
Funds Rate were possible. We believed that, without a clear indication of
inflationary pressures, further increases in the Federal Funds Rate were
unlikely. Consequently, we seized the opportunity to add securities with longer
maturities (and higher yields) to the Fund's portfolio.
Throughout the reporting period, we maintained slightly longer maturities in
our Fund's portfolio compared to funds with similar investment objectives. This
strategy had a beneficial impact on the Fund's yields throughout most of the
reporting period.
Q WHAT IMPACT HAVE THE ECONOMIC PROBLEMS IN THE PACIFIC RIM HAD ON THE
MANAGEMENT OF THE FUND'S PORTFOLIO?
A Beginning in the fourth quarter of 1997, many Asian countries experienced
economic problems and severe currency devaluations--collectively referred to as
the "Asian Flu." Although it is a serious global problem, and will no doubt have
a credit impact on issuers of securities in those countries and their economies,
it has not had a significant effect on issuers of what typically are considered
money market-eligible securities. Nevertheless, we continue, as always, to
carefully monitor the creditworthiness of any issuers of securities considered
for investment in the Schwab Value Advantage Money Fund-Registered Trademark-.
During the reporting period, the Schwab Value Advantage Money Fund did, as a
precaution, reduce its exposure to Japanese issuers of commercial paper,
Japanese providers of credit enhancements and certificates of deposit issued by
Japanese banks. As of the June 30, 1997 semi-annual report, the Fund's total
Japanese exposure was 3.45% of net assets. By December 31, 1997, the end of the
reporting period, the Fund's total Japanese exposure had been reduced to just
1.34% of net assets.
There has been a great deal of speculation as to what impact the "Asian Flu"
will have on U.S. economic growth, future inflation and Federal Reserve policy.
U.S. manufacturers of goods exported to Pacific Rim countries may be affected.
At this time, the range of projections for the potential reduction in 1998 GDP
growth is generally between 0.25% to 1%, while expectations for 1998 earnings
growth of the S&P 500 have been pared back from between 10% and 14% to forecasts
between 5.5% and 10%. Expectations that the Federal Reserve will raise
short-term rates have shifted to expectations that it may instead actually lower
short-term rates.
11
<PAGE>
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM (continued)
Q WHAT FACTORS SHOULD I CONSIDER WHEN SELECTING MONEY FUNDS AT SCHWAB?
A Schwab offers two types of money funds, Sweep Investments-TM- and Value
Advantage Investments-Registered Trademark-, both of which offer taxable and
tax-advantaged alternatives. Depending on your investment objectives and risk
tolerance, either or both types of funds may have a place in your investment
plan.
Value Advantage Investments, which include the Schwab Value Advantage Money
Fund-Registered Trademark-, can offer higher yields to investors with larger
cash balances that don't require frequent access and may help fulfill the cash
equivalent sector of an asset allocation plan. With higher minimum investment
and account balance requirements and other transaction restrictions designed to
minimize operating expenses, Value Advantage Investments can offer the potential
of higher yields to investors. It also is important to note that unlike Sweep
Investments, the Value Advantage Investments are not designed to automatically
cover negative balances in your Schwab account.
For cash balances you expect to access regularly, you may wish to consider
one of our six sweep money funds. Our sweep money funds can be linked to your
Schwab account to keep your money invested and working for you. These Funds
automatically invest or "sweep" uninvested cash balances from your account into
the sweep money fund you select, according to the terms and conditions of your
account. Sweep Investments are available to settle trades and cover other
day-to-day transactions. It's a smart, convenient way to manage your short-term
cash.
If you're in a high tax bracket, one of the Schwab Municipal Money Funds may
provide you with higher returns after taxes-- and they are available in Sweep
Investments or Value Advantage Investments. The Schwab Municipal Money Fund
invests in municipal obligations that generate income free from federal income
tax. And for investors in California and New York, Schwab offers funds that can
also provide income free from state and local taxes.(3) Consult your tax advisor
for specific guidance on your own tax situation before investing.
If you would like more information on any of the Schwab Money Funds, please
call our toll-free number, 1-800-435-4000, and request a free prospectus which
contains more information, including fees and expenses. Please be sure to read
the prospectus carefully before investing.
(3) Income from all of the Funds may be subject to alternative minimum tax (AMT)
and income from the Schwab Municipal Money Fund may be subject to state and
local taxes.
12
<PAGE>
GLOSSARY OF TERMS
COMMERCIAL PAPER--Short-term, interest-paying obligations issued by banks,
corporations and other borrowers.
CREDIT ENHANCEMENTS--A bank letter of credit, purchase agreement, insurance,
line of credit or other instrument that provides an additional level of
financial 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 credit rating category.
MATURITY--The length of time remaining until the issuer of a debt security
must repay the principal amount.
REAL GDP--The national Gross Domestic Product (GDP)--the total value of all
goods and services produced in the United States over a specific period of time
and adjusted for the rate of inflation to allow meaningful year-to-year
comparisons.
YIELD--The actual income earned on an investment over a stated period of
time and annualized (assumed to be generated over a one-year period). An
EFFECTIVE YIELD assumes that the income earned is reinvested.
13
<PAGE>
SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK-
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY
ASSET GROWTH
<TABLE>
<CAPTION>
Total Total Percentage
Net Assets Net Assets Growth Over
as of 12/31/97 as of 12/31/96 Reporting
(000s) (000s) Period
<S> <C> <C>
- -----------------------------------------------------
$13,662,185 $10,476,537 30%
- -----------------------------------------------------
</TABLE>
AVERAGE YIELDS FOR THE YEAR ENDED DECEMBER 31, 1997*
<TABLE>
<CAPTION>
Last Last Last
Seven Days Three Months Twelve Months
<S> <C> <C>
- ------------------------------------------------
5.46% 5.37% 5.28%
- ------------------------------------------------
</TABLE>
MATURITY SCHEDULE
PERCENT OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
Maturity Range 03/31/97 06/30/97 09/30/97 12/31/97
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------
0 - 15 Days 20.0 % 22.1 % 21.9 % 17.9 %
16 - 30 Days 17.7 21.4 22.6 23.8
31 - 60 Days 30.3 21.9 24.7 19.6
61 - 90 Days 14.4 19.4 14.2 17.6
91 - 120 Days 7.5 3.2 2.4 11.0
Over 120 Days 10.1 12.0 14.2 10.1
Weighted Average 56 Days 57 Days 59 Days 61 Days
- ---------------------------------------------------------------------
</TABLE>
PORTFOLIO QUALITY
<TABLE>
<CAPTION>
Percent of
SEC Tier Net Assets
Rating 12/31/97
<S> <C>
- -------------------------------
Tier 1 100.0%
Tier 2 0.0%
- -------------------------------
</TABLE>
* A portion of the Fund's expenses were reduced during the periods. Had these
expenses not been reduced, yields would have been lower.
- --------------------------------------------------------------------------------
14
<PAGE>
SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK-
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS--80.1%(a)
AUTOMOBILE RECEIVABLES--1.0%
Fleet Funding Company
5.86%, 01/28/98 $ 90,265 $ 89,871
New Center Asset Trust
5.65%, 01/27/98 48,500 48,306
----------
138,177
----------
AUTOMOTIVE--4.7%
American Honda Finance Corp.
5.95%, 01/30/98 50,000 49,762
Ford Credit Europe PLC
5.70%, 01/09/98 50,000 49,937
General Motors Acceptance Corp.
5.83%, 01/14/98 50,000 49,896
5.84%, 01/21/98 50,000 49,840
5.84%, 01/22/98 25,000 24,916
5.83%, 02/11/98 70,000 69,542
5.78%, 04/15/98 160,000 157,407
5.79%, 04/16/98 50,000 49,180
5.79%, 04/17/98 50,000 49,173
5.79%, 04/21/98 100,000 98,283
----------
647,936
----------
BANKING--BELGIUM--3.5%
BBL North America
5.70%, 01/05/98 4,400 4,397
5.72%, 01/07/98 81,000 80,925
5.80%, 02/25/98 96,000 95,161
5.73%, 02/25/98 15,000 14,872
Cregem North America, Inc.
5.68%, 01/12/98 50,000 49,914
5.78%, 02/17/98 54,000 53,598
5.68%, 02/23/98 27,500 27,276
Generale Bank, Inc.
5.70%, 02/20/98 49,000 48,623
5.80%, 04/21/98 25,000 24,567
5.81%, 04/28/98 10,000 9,816
Kredietbank N.A. Finance Corp.
5.64%, 01/13/98 75,000 74,861
----------
484,010
----------
BANKING--CANADA--0.4%
Toronto--Dominion Holdings
5.71%, 03/27/98 20,000 19,738
5.71%, 03/30/98 39,000 38,471
----------
58,209
----------
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
BANKING--DENMARK--1.3%
Den Danske Corp.
5.90%, 01/06/98 $ 45,000 $ 44,963
Unifunding, Inc.
5.66%, 01/20/98 22,000 21,935
5.69%, 01/22/98 39,000 38,872
5.72%, 02/02/98 21,000 20,896
5.75%, 03/03/98 55,000 54,480
----------
181,146
----------
BANKING--DOMESTIC--4.3%
Bankers Trust New York Corp.
5.76%, 03/12/98 8,000 7,913
5.74%, 04/17/98 36,000 35,409
5.90%, 06/08/98 133,000 129,661
Enterprise Funding Corp.
5.73%, 01/05/98 74,973 74,925
5.94%, 01/09/98 8,000 7,989
5.93%, 01/09/98 17,186 17,163
5.70%, 01/14/98 31,026 30,963
5.70%, 01/16/98 14,351 14,317
5.91%, 01/26/98 60,000 59,755
5.86%, 02/06/98 10,445 10,384
International Securitization Corp. / (First
National Bank of Chicago LOC)
5.81%, 01/22/98 107,000 106,641
5.75%, 01/26/98 5,000 4,980
5.87%, 02/05/98 18,000 17,898
Kitty Hawk Funding Corp.
5.83%, 01/13/98 6,000 5,988
5.82%, 03/02/98 34,000 33,675
Secured Short Term Notes 97-15
5.99%, 03/19/98 22,000 22,000
Vehicle Services of America / (Nationsbank of
Texas LOC)
5.80%, 02/12/98 6,500 6,457
5.84%, 03/04/98 7,500 7,426
----------
593,544
----------
BANKING--GERMANY--0.3%
Comision Federal de Electricidad /
(Westdeutsche Landesbank LOC)
5.86%, 02/12/98 40,000 39,731
----------
BANKING--JAPAN--0.8%
Deerfield Capital Corp. / (Sumitomo Bank LOC)
5.83%, 01/12/98 23,000 22,960
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK-
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
Gotham Funding Corp. / (Bank of
Tokyo--Mitsubishi, Ltd. LOC)
5.79%, 01/14/98 $ 10,000 $ 9,979
5.79%, 02/02/98 58,024 57,730
5.79%, 02/04/98 5,000 4,973
Ridge Capital II / (Dai-Ichi Kangyo Bank LOC)
5.83%, 01/12/98 17,000 16,970
----------
112,612
----------
BANKING--SPAIN--0.2%
BEX America Finance, Inc.
5.80%, 02/19/98 29,000 28,774
----------
BANKING--SWEDEN--3.1%
Nordbanken of North America, Inc.
5.67%, 01/13/98 13,000 12,976
5.80%, 02/09/98 50,000 49,690
5.84%, 03/06/98 38,000 37,612
5.82%, 03/11/98 60,000 59,340
5.85%, 03/23/98 60,000 59,224
Svenska Handelsbanken, Inc.
5.67%, 01/16/98 18,170 18,128
5.72%, 03/09/98 122,000 120,737
5.75%, 03/13/98 70,000 69,229
----------
426,936
----------
BANKING--UNITED KINGDOM--1.0%
Abbey National Treasury Services PLC
6.26%, 04/02/98 110,000 109,956
Banco Nacional de Comercio Exterior /
(Barclays Bank LOC)
6.23%, 01/23/98 27,500 27,396
----------
137,352
----------
COMPUTERS AND OFFICE EQUIPMENT--0.3%
CSC Enterprises
5.75%, 02/05/98 12,000 11,934
5.88%, 03/12/98 30,000 29,662
----------
41,596
----------
CREDIT CARD RECEIVABLES--1.3%
Charta Corp.
5.72%, 02/03/98 13,000 12,933
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
Dakota Certificates Program of Citibank
Credit Card Master Trust I
5.73%, 01/09/98 $ 22,000 $ 21,972
5.71%, 01/16/98 60,000 59,859
5.70%, 01/20/98 27,000 26,920
5.70%, 01/21/98 26,000 25,919
5.80%, 01/22/98 26,561 26,472
----------
174,075
----------
DIVERSIFIED FINANCIAL ASSETS--8.7%
Alpha Finance Corp.
5.66%, 01/20/98 7,000 6,979
5.71%, 03/18/98 6,000 5,930
Beta Finance, Inc.
5.70%, 03/06/98 70,000 69,309
5.72%, 03/09/98 24,000 23,752
5.72%, 03/27/98 25,000 24,672
5.67%, 04/03/98 5,000 4,930
CC (USA), Inc.
5.70%, 01/12/98 10,000 9,983
5.66%, 01/20/98 12,000 11,965
5.72%, 01/30/98 20,000 19,909
5.73%, 02/04/98 11,500 11,439
5.80%, 02/09/98 20,000 19,876
5.70%, 03/10/98 7,000 6,927
5.83%, 03/12/98 20,000 19,776
5.74%, 03/12/98 17,000 16,815
5.85%, 03/16/98 29,700 29,349
5.80%, 03/24/98 21,500 21,221
Lexington Parker Capital Corp.
5.81%, 01/13/98 36,000 35,931
5.70%, 01/15/98 50,000 49,891
5.74%, 01/26/98 5,000 4,980
5.70%, 01/29/98 30,000 29,869
5.74%, 02/06/98 38,554 38,336
5.75%, 04/07/98 51,441 50,674
Ranger Funding Corp.
5.66%, 01/13/98 12,000 11,978
5.68%, 01/16/98 10,000 9,977
5.81%, 02/13/98 25,000 24,829
5.84%, 03/05/98 15,000 14,849
Repeat Offering Securitization Entity, Inc.
5.70%, 01/27/98 50,000 49,797
5.75%, 02/03/98 50,000 49,740
5.74%, 02/06/98 33,559 33,369
5.78%, 02/12/98 31,000 30,794
</TABLE>
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
Sigma Finance, Inc.
5.70%, 01/06/98 $ 35,000 $ 34,973
5.66%, 01/15/98 90,000 89,804
5.70%, 01/26/98 50,000 49,807
5.70%, 02/02/98 29,925 29,777
5.80%, 02/10/98 52,000 51,670
5.81%, 02/13/98 55,000 54,624
5.81%, 02/17/98 8,500 8,437
5.82%, 02/20/98 7,000 6,944
5.82%, 02/25/98 24,500 24,286
5.81%, 02/25/98 21,000 20,816
5.70%, 03/30/98 7,513 7,411
Wood Street Funding Corp.
5.95%, 01/09/98 9,700 9,687
5.94%, 01/09/98 25,000 24,967
5.66%, 01/12/98 5,000 4,991
5.71%, 01/20/98 5,765 5,748
5.71%, 01/26/98 10,000 9,961
5.83%, 02/13/98 7,000 6,952
5.81%, 02/18/98 13,900 13,794
----------
1,192,495
----------
FINANCE--COMMERCIAL--7.0%
CIT Group Holdings, Inc.
5.71%, 03/31/98 40,000 39,451
General Electric Capital Corp.
5.76%, 01/20/98 20,000 19,940
5.76%, 01/21/98 50,000 49,841
5.71%, 02/13/98 31,000 30,792
5.71%, 02/18/98 100,000 99,251
5.81%, 02/23/98 150,000 148,734
5.80%, 02/24/98 94,000 93,196
5.72%, 03/16/98 65,000 64,258
5.66%, 04/15/98 9,000 8,857
5.71%, 04/16/98 50,000 49,192
General Electric Capital Services
5.71%, 02/17/98 50,000 49,633
5.66%, 02/19/98 50,000 49,618
5.66%, 04/16/98 40,000 39,360
5.84%, 05/22/98 50,000 48,892
Heller Financial, Inc.
5.76%, 01/16/98 18,000 17,958
5.82%, 01/23/98 25,000 24,912
6.07%, 01/26/98 15,000 14,938
5.82%, 01/27/98 14,000 13,942
5.77%, 01/29/98 50,000 49,780
5.74%, 02/04/98 10,000 9,947
5.80%, 02/09/98 16,000 15,901
5.79%, 02/10/98 14,000 13,911
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
6.11%, 04/06/98 $ 6,000 $ 5,905
----------
958,209
----------
FINANCE--CONSUMER--1.4%
Associates Corp. of North America
5.70%, 01/06/98 48,000 47,962
5.70%, 01/13/98 65,000 64,878
Associates First Capital Corp.
5.82%, 02/26/98 25,000 24,777
5.82%, 03/05/98 53,000 52,468
----------
190,085
----------
MISCELLANEOUS SERVICES--0.2%
PHH Corp.
5.64%, 01/20/98 30,000 29,912
----------
MORTGAGE BANKING--0.7%
Countrywide Home Loans, Inc.
5.91%, 01/08/98 23,000 22,974
5.76%, 01/09/98 20,000 19,975
5.88%, 01/21/98 52,000 51,831
----------
94,780
----------
SECURITIES BROKERAGE--DEALER--16.1%
Bear Stearns Companies, Inc.
5.70%, 03/17/98 20,000 19,769
5.71%, 03/24/98 50,000 49,368
5.73%, 03/26/98 50,000 49,350
5.67%, 04/07/98 42,000 41,383
BT Alex Brown, Inc.
5.85%, 06/04/98 11,000 10,733
Credit Suisse First Boston, Inc.
5.65%, 04/17/98 50,000 49,193
Goldman Sachs Group, LP
5.90%, 01/30/98 24,000 23,887
5.82%, 03/26/98 50,000 49,332
5.82%, 03/27/98 32,000 31,567
5.82%, 05/21/98 107,000 104,649
5.82%, 05/22/98 70,000 68,451
5.83%, 05/26/98 113,000 110,428
Lehman Brothers Holdings, Inc.
6.17%, 01/07/98 25,000 24,974
5.70%, 01/28/98 25,000 24,895
5.85%, 01/29/98 60,000 59,730
5.80%, 02/13/98 31,000 30,792
5.89%, 03/19/98 70,000 69,132
5.87%, 06/16/98 50,000 48,686
5.87%, 06/25/98 18,000 17,501
Merrill Lynch & Co., Inc.
5.66%, 01/14/98 47,000 46,905
5.70%, 01/21/98 40,000 39,875
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK-
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
5.80%, 02/27/98 $105,000 $ 104,051
5.75%, 03/23/98 47,000 46,410
5.73%, 03/24/98 25,000 24,683
5.70%, 03/24/98 20,000 19,748
5.73%, 03/25/98 65,000 64,167
5.72%, 03/26/98 30,000 29,611
5.73%, 03/31/98 30,000 29,587
5.67%, 04/16/98 23,000 22,631
Morgan Stanley-Dean Witter, Discover
5.71%, 02/17/98 50,000 49,633
5.87%, 03/24/98 50,000 49,342
5.87%, 03/25/98 50,000 49,334
5.84%, 03/25/98 50,000 49,337
5.87%, 03/26/98 116,000 114,436
5.86%, 03/30/98 60,000 59,155
5.65%, 04/17/98 49,000 48,209
5.65%, 04/20/98 150,000 147,512
5.82%, 05/27/98 70,000 68,399
PaineWebber Group, Inc.
5.87%, 01/30/98 15,000 14,930
Salomon, Inc.
5.88%, 02/05/98 46,000 45,740
Smith Barney, Inc.
5.70%, 01/22/98 75,000 74,754
5.70%, 01/27/98 94,000 93,618
5.70%, 01/28/98 22,000 21,907
----------
2,197,794
----------
TRADE RECEIVABLES--23.8%
Apreco, Inc.
5.93%, 01/07/98 18,000 17,982
5.74%, 01/28/98 10,000 9,958
5.80%, 02/20/98 14,000 13,889
Asset Securitization Cooperative Corp.
5.70%, 01/20/98 50,000 49,852
5.70%, 01/21/98 50,000 49,844
5.70%, 01/23/98 50,000 49,828
5.70%, 01/29/98 32,000 31,860
5.70%, 01/30/98 33,000 32,851
Barton Capital Corp.
6.03%, 01/08/98 25,000 24,971
5.76%, 01/14/98 26,000 25,946
5.73%, 01/21/98 9,988 9,957
5.71%, 01/21/98 29,717 29,624
5.70%, 01/27/98 7,000 6,972
5.72%, 01/29/98 5,283 5,260
5.89%, 01/30/98 30,000 29,859
5.87%, 02/05/98 22,476 22,349
Clipper Receivables Corp.
5.71%, 01/23/98 20,000 19,931
5.70%, 01/28/98 40,000 39,832
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
Corporate Asset Funding Corp.
5.66%, 01/12/98 $ 60,000 $ 59,898
Corporate Receivables Corp.
5.67%, 01/12/98 40,000 39,932
5.89%, 01/13/98 65,000 64,873
5.89%, 01/23/98 55,000 54,804
5.80%, 01/23/98 25,000 24,912
5.70%, 01/28/98 26,000 25,890
5.90%, 01/30/98 16,000 15,925
5.87%, 02/12/98 27,000 26,817
5.73%, 02/20/98 6,000 5,954
CXC, Inc.
5.70%, 01/20/98 27,000 26,920
5.66%, 01/21/98 75,000 74,768
5.66%, 01/22/98 65,000 64,789
5.70%, 01/27/98 7,000 6,972
5.71%, 01/30/98 23,000 22,896
5.89%, 02/04/98 25,000 24,862
5.89%, 02/11/98 26,000 25,827
5.85%, 03/11/98 60,000 59,338
5.84%, 03/11/98 11,000 10,879
Delaware Funding Corp.
5.71%, 01/16/98 17,529 17,488
5.83%, 01/28/98 7,082 7,051
Edison Asset Securitization Corp., L.L.C.
5.81%, 01/14/98 50,276 50,171
5.89%, 01/23/98 16,972 16,911
5.80%, 02/03/98 30,000 29,842
5.86%, 02/06/98 16,000 15,907
Eureka Securitization, Inc.
5.64%, 01/14/98 18,900 18,862
5.73%, 01/20/98 12,000 11,964
5.70%, 01/23/98 24,000 23,918
5.72%, 01/26/98 50,000 49,804
5.80%, 02/10/98 22,000 21,860
Falcon Asset Securitization Corp.
5.80%, 01/16/98 31,925 31,849
5.66%, 01/16/98 19,850 19,804
5.89%, 01/20/98 27,625 27,540
5.66%, 01/20/98 40,650 40,530
5.81%, 01/23/98 50,000 49,824
Market Street Funding Corp.
6.22%, 01/07/98 20,000 19,979
5.95%, 02/10/98 20,000 19,869
Mont Blanc Capital Corp.
5.88%, 02/12/98 37,706 37,450
5.88%, 02/18/98 22,056 21,885
5.86%, 03/12/98 40,000 39,550
Monte Rosa Capital Corp.
5.90%, 01/12/98 50,000 49,910
5.89%, 01/23/98 19,422 19,353
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
5.89%, 01/26/98 $ 19,000 $ 18,923
5.90%, 01/28/98 45,000 44,803
5.87%, 02/13/98 59,000 58,591
5.92%, 02/19/98 50,000 49,601
Park Avenue Receivables Corp.
6.03%, 01/15/98 11,883 11,855
Preferred Receivables Funding Corp.
5.64%, 01/08/98 23,475 23,450
5.70%, 01/15/98 65,025 64,883
5.68%, 01/23/98 75,318 75,060
5.72%, 01/26/98 25,225 25,126
5.95%, 02/02/98 17,650 17,557
5.88%, 02/03/98 8,875 8,828
5.90%, 02/04/98 33,000 32,818
5.88%, 02/10/98 5,050 5,017
Receivables Capital Corp.
5.81%, 01/26/98 18,000 17,928
5.82%, 01/29/98 100,000 99,549
5.87%, 02/06/98 12,116 12,046
5.86%, 02/06/98 66,000 65,617
Sheffield Receivables Corp.
5.72%, 01/06/98 40,000 39,969
5.72%, 01/07/98 40,000 39,962
5.72%, 01/08/98 21,900 21,876
5.72%, 01/09/98 21,900 21,872
5.73%, 01/15/98 34,400 34,324
5.81%, 01/23/98 19,000 18,933
5.88%, 02/02/98 100,000 99,483
5.86%, 02/05/98 40,000 39,774
5.80%, 02/17/98 25,300 25,111
Special Purpose Accounts Receivable
Cooperative Corp.
5.95%, 01/27/98 9,000 8,962
5.97%, 01/28/98 25,000 24,889
5.90%, 03/27/98 42,000 41,425
WCP Funding, Inc.
5.81%, 01/13/98 15,000 14,971
5.90%, 01/27/98 50,000 49,789
5.87%, 02/12/98 20,000 19,865
5.81%, 02/26/98 27,000 26,760
Windmill Funding
5.72%, 01/14/98 20,000 19,959
6.03%, 01/16/98 50,000 49,875
5.70%, 01/23/98 9,821 9,787
5.84%, 01/30/98 23,000 22,893
5.70%, 01/30/98 19,930 19,840
5.87%, 02/11/98 30,000 29,802
5.86%, 02/13/98 4,218 4,189
5.93%, 02/24/98 50,000 49,561
5.93%, 02/26/98 32,000 31,708
5.85%, 02/26/98 35,392 35,074
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
5.88%, 03/20/98 $ 80,000 $ 78,995
----------
3,259,642
----------
TOTAL COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS
(Cost $10,987,015) 10,987,015
----------
CERTIFICATES OF DEPOSIT--12.5%
BANKING--BELGIUM--0.4%
Banque Bruxelles Lambert
5.65%, 04/07/98 50,000 50,001
----------
BANKING--CANADA--0.7%
Canadian Imperial Bank of Commerce
5.95%, 08/12/98 50,000 49,989
5.95%, 08/27/98 50,000 49,984
----------
99,973
----------
BANKING--DOMESTIC--2.5%
Chase Manhattan Bank USA
5.71%, 03/05/98 67,000 67,000
5.65%, 04/06/98 50,000 50,000
5.65%, 04/07/98 50,000 50,000
5.65%, 04/08/98 50,000 50,000
Morgan Guaranty Trust Co. New York
5.84%, 07/28/98 50,000 49,989
5.90%, 08/06/98 50,000 49,991
Wilmington Trust Company
5.70%, 03/20/98 25,000 25,000
----------
341,980
----------
BANKING--FRANCE--4.9%
Banque Nationale de Paris
5.70%, 02/04/98 10,100 10,099
5.73%, 03/09/98 20,000 20,000
5.70%, 03/24/98 30,000 30,000
Caisse Nationale de Credit Agricole
6.01%, 06/26/98 50,000 49,984
Credit Agricole-IndoSuez
5.99%, 12/09/98 50,000 50,004
Societe Generale
5.81%, 01/08/98 50,000 50,000
5.80%, 01/08/98 50,000 50,000
5.92%, 01/13/98 27,400 27,399
5.89%, 03/03/98 39,000 38,998
5.90%, 03/04/98 25,000 24,999
6.14%, 03/10/98 35,000 34,984
6.25%, 04/08/98 35,000 34,999
6.27%, 04/14/98 50,000 49,997
5.92%, 07/14/98 50,000 49,987
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK-
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
5.92%, 07/22/98 $ 50,000 $ 49,989
6.00%, 08/26/98 25,000 24,991
6.01%, 09/11/98 50,000 49,983
6.00%, 10/20/98 35,000 34,975
----------
681,388
----------
BANKING--JAPAN--0.5%
Dai-Ichi Kangyo Bank, Ltd.
5.80%, 01/27/98 9,000 9,000
Sumitomo Bank, Ltd.
5.75%, 01/16/98 60,000 60,000
----------
69,000
----------
BANKING--SWITZERLAND--0.2%
Credit Suisse First Boston
6.26%, 04/08/98 25,000 24,999
----------
BANKING--UNITED KINGDOM--3.3%
Abbey National Treasury Services PLC
5.80%, 03/02/98 25,000 25,000
5.65%, 04/09/98 100,000 100,000
5.65%, 04/13/98 50,000 50,000
6.00%, 12/08/98 100,000 100,000
6.00%, 12/09/98 50,000 50,000
Barclays Bank PLC
5.80%, 01/09/98 35,000 35,000
5.80%, 02/03/98 40,000 40,000
National Westminster Bank PLC
6.20%, 05/20/98 51,000 50,987
----------
450,987
----------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $1,718,328) 1,718,328
----------
VARIABLE RATE OBLIGATIONS--5.7%(B)
BANKING--DOMESTIC--0.4%
BMC Special Care Facilities Financing
Authority of the City of Montgomery Taxable
Revenue Bonds (Montgomery Baptist Outreach
Services Corporation Project) Series 1997A /
(Regions Bank LOC)
6.00%, 01/07/98 8,600 8,600
Development Authority of Columbus, Georgia
Taxable Variable Fixed Rate Revenue Bonds
(Jay Leasing, Inc. Project) Series 1997 /
(Regions Bank LOC)
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
6.00%, 01/07/98 $ 7,500 $ 7,500
Keystone Health Resources Corporation
Variable Rate Taxable Demand Notes Series
1993 / (PNC Bank LOC)
6.25%, 01/07/98 3,300 3,300
MoviePlex Realty Leasing, L.L.C. Adjustable
Rate Tender Securities (Carmike Cinemas,
Inc.) 1997 Series B-1 Bonds / (Wachovia Bank
N.A. LOC)
5.96%, 01/07/98 7,625 7,625
New Jersey Economic Development Authority
Variable Rate Title IX Loan Portfolio
Securitization Bonds / (Fleet National Bank
LOC)
5.93%, 01/05/98 20,700 20,700
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)
6.15%, 01/07/98 6,525 6,525
----------
54,250
----------
BANKING--JAPAN--0.0%
New York City Industrial Development Agency
Industrial Development Revenue Bonds
(G.A.F.Seelig, Inc. Project) Series 1993 /
(IBJ Schroder Bank & Trust LOC)
6.25%, 01/07/98 1,990 1,990
----------
BANKING--UNITED KINGDOM & GERMANY--0.5%
County of Riverside 1990 Taxable Variable
Rate Certificates of Participation (Monterey
Avenue Project) / (National Westminister
Bank PLC/ Commerzbank LOC)
6.10%, 01/07/98 8,000 8,000
</TABLE>
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
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)
5.90%, 01/07/98 $ 8,460 $ 8,460
Restructured Assets Certificates with
Enhanced Returns, Series 1997 MM-8-5 Trust
5.96%, 01/29/98 50,000 50,000
----------
66,460
----------
DIVERSIFIED FINANCIAL ASSETS--0.4%
Triangle Funding Ltd. Series 1997-1 Class 1
5.75%, 01/15/98 50,000 50,000
----------
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)
5.97%, 01/02/98 48,600 48,600
----------
LIFE INSURANCE--1.9%
Commonwealth Life Insurance Company
5.86%, 01/01/98 (d) 10,000 10,000
5.77%, 01/01/98 (d) 100,000 100,000
General American Life Insurance Company
5.89%, 01/07/98 125,000 125,000
Jackson National Life Insurance Company
5.77%, 01/01/98 (d) 40,000 40,000
----------
275,000
----------
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
MONOLINE INSURANCE--0.1%
Baptist Health Systems of South Florida, Inc.
Taxable Variable Rate Direct Note
Obligations Series 1995A / (MBIA Insurance)
5.90%, 01/07/98 $ 6,600 $ 6,600
Baptist Health Systems of South Florida, Inc.
Taxable Variable Rate Direct Note
Obligations Series 1995B / (MBIA Insurance)
5.90%, 01/07/98 4,500 4,500
New Orleans Aviation Board Taxable Refunding
Bonds, Series 1993A / (MBIA Insurance)
5.70%, 01/07/98 100 100
----------
11,200
----------
SECURITIES BROKERAGE--DEALER--1.6%
Asset-Backed Securities Investment Trust,
Series 1997-C
5.96%, 01/15/98 50,000 50,000
Asset-Backed Securities Investment Trust,
Series 1997-E
5.96%, 01/15/98 20,000 20,000
Lehman Brothers Holdings, Inc.
5.97%, 01/20/98 50,000 50,000
5.96%, 01/21/98 (d) 95,000 95,000
----------
215,000
----------
TRADE RECEIVABLES--0.4%
Ciesco, LP
5.76%, 01/12/98 50,000 49,999
----------
TOTAL VARIABLE RATE OBLIGATIONS (Cost $772,499)
772,499
----------
BANK NOTES--0.8%
BANKING--DOMESTIC--0.8%
BankBoston N.A.
5.65%, 04/06/98 $ 50,000 $ 50,000
5.82%, 05/13/98 65,000 65,000
----------
TOTAL BANK NOTES (Cost $115,000) 115,000
----------
</TABLE>
- --------------------------------------------------------------------------------
21
<PAGE>
SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK-
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Maturity Value
-------- -----------
<S> <C> <C>
REPURCHASE AGREEMENTS--0.9%(c)
Salomon Brothers, Inc. 6.80%, Issue Date
01/02/97 Due 01/02/98; Tri-Party Repurchase
Agreement; Collateralized By: U.S.
Government Agency Obligations $ 47,017 $ 47,000
Salomon Brothers, Inc. 6.80%, Issue Date
01/31/97 Due 01/02/98;Tri-Party Repurchase
Agreement; Collateralized By: U.S.
Government Agency Obligations 2,000 2,000
Salomon Brothers, Inc. 6.80%, Issue Date
04/07/97 Due 01/02/98; Tri-Party Repurchase
Agreement; Collateralized By: U.S.
Government Agency Obligations 40,015 40,000
<CAPTION>
Maturity Value
-------- -----------
<S> <C> <C>
Salomon Brothers, Inc. 6.80%, Issue Date
09/30/96 Due 01/02/98; Tri-Party Repurchase
Agreement; Collateralized By: U.S.
Government Agency Obligations $ 26,009 $ 26,000
Salomon Brothers, Inc. 6.80%, Issue Date
12/31/97 Due 01/02/98; Tri-Party Repurchase
Agreement; Collateralized By: U.S.
Government Agency Obligations 15,054 15,049
-----------
TOTAL REPURCHASE AGREEMENTS (Cost $130,049)
130,049
-----------
TOTAL INVESTMENTS--100%
(Cost $13,722,891) $13,722,891
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS AND NOTES TO FINANCIAL
STATEMENTS.
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
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 agency coupon 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 issued to institutional investors, such as
the Schwab Value Advantage Money Fund. Any resale by the Fund must be in an
exempt transaction, normally to a qualified institutional buyer. At December
31, 1997, the aggregate value of private placement securities held by the
Fund was $5,841,473,000 which represented 42.76% of net assets. Of this
total, $5,596,473,000 or 40.96% 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 earlier 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 date or put date, which is considered the maturity date for
financial reporting purposes. Repurchase Agreements are payable on seven-day
demand.
(d) Certain securities cannot be resold to the general public without prior
registration under the Securities Act of 1933. If the security is
subsequently registered and resold, the issuers would typically bear the
expense of all registrations at no cost to the fund. At December 31, 1997,
the aggregate value of the restricted securities held by Schwab Value
Advantage Fund was $245,000,000, which represented 1.79% of the net assets
of the Fund. All of these restricted investments were determined by the
Investment Manager to be illiquid in accordance with procedures adopted by
the Board of Trustees.
Abbreviations
- ------------
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance Corporation
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
23
<PAGE>
SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK-
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
December 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost: $13,722,891) $13,722,891
Receivables:
Interest 49,485
Fund shares sold 78,835
Prepaid expenses 89
-----------
Total assets 13,851,300
-----------
LIABILITIES
Payables:
Dividends 91,781
Fund shares redeemed 94,356
Investment advisory and administration fees 409
Transfer agency and shareholder service fees 858
Other liabilities 1,711
-----------
Total liabilities 189,115
-----------
Net assets applicable to outstanding shares $13,662,185
-----------
-----------
NET ASSETS CONSIST OF:
Paid-in-capital $13,662,310
Accumulated net realized loss on investments sold (125)
-----------
$13,662,185
-----------
-----------
PRICING OF SHARES
Outstanding shares, $0.00001 par value (unlimited shares authorized) 13,662,310
Net asset value, offering and redemption price per share $1.00
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
24
<PAGE>
SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK-
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
Year ended December 31, 1997
<TABLE>
<S> <C>
Interest income $ 721,000
---------
Expenses:
Investment advisory and administration fees 51,725
Transfer agency and shareholder service fees 31,713
Custodian fees 960
Registration fees 2,088
Professional fees 160
Shareholder reports 127
Trustees' fees 41
Amortization of deferred organization costs 7
Insurance and other expenses 180
---------
87,001
Less: expenses reduced (see Note 4) (36,259)
---------
Total expenses incurred by Fund 50,742
---------
Net investment income 670,258
---------
Increase in net assets resulting from operations $ 670,258
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
25
<PAGE>
SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK-
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Operations:
Net investment income $ 670,258 $ 450,196
Net realized gain on investments sold -- 6
------------ ------------
Increase in net assets resulting from operations 670,258 450,202
------------ ------------
Dividends to shareholders from net investment income (670,258) (450,196)
------------ ------------
Capital share transactions (at $1.00 per share):
Proceeds from shares sold 19,544,216 14,542,131
Net asset value of shares issued in reinvestment of dividends 617,943 405,539
Less payments for shares redeemed (16,976,511) (11,395,029)
------------ ------------
Increase in net assets from capital share transactions 3,185,648 3,552,641
------------ ------------
Total increase in net assets 3,185,648 3,552,647
Net assets:
Beginning of period 10,476,537 6,923,890
------------ ------------
End of period $ 13,662,185 $ 10,476,537
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
26
<PAGE>
SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK-
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.05 0.05 0.06 0.04 0.03
Net realized and unrealized gain
(loss) on investments -- -- -- -- --
----------- ----------- ---------- ---------- --------
Total from investment
operations 0.05 0.05 0.06 0.04 0.03
Less distributions
Dividends from net investment
income (0.05) (0.05) (0.06) (0.04) (0.03)
----------- ----------- ---------- ---------- --------
Total distributions (0.05) (0.05) (0.06) (0.04) (0.03)
----------- ----------- ---------- ---------- --------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ---------- ---------- --------
----------- ----------- ---------- ---------- --------
Total return (not annualized) 5.40% 5.26% 5.80% 4.09% 3.02%
Ratios/Supplemental data
Net assets, end of period (000s) $13,662,185 $10,476,537 $6,923,890 $3,731,629 $729,356
Ratio of expenses to average net
assets+ 0.40% 0.40% 0.40% 0.40% 0.39%
Ratio of net investment income to
average net assets+ 5.28% 5.14% 5.63% 4.40% 2.97%
</TABLE>
- ---------------
+ 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:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of expenses to average net
assets 0.69% 0.70% 0.72% 0.79% 0.82%
Ratio of net investment income to
average net assets 5.00% 4.84% 5.31% 4.01% 2.54%
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1997
1. DESCRIPTION OF THE FUND
The Schwab Value Advantage Money Fund-Registered Trademark- (the "Fund") is a
series of The Charles Schwab Family of Funds (the "Trust"), an open-end,
investment management company organized as a Massachusetts business trust on
October 20, 1989 and registered under the Investment Company Act of 1940, as
amended. This report includes only the Investor Shares of the Fund as the Sweep
Shares 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-Registered Trademark-, Schwab Retirement
Money Fund-Registered Trademark-, Schwab Municipal Money Fund, Schwab California
Municipal Money Fund, Schwab New York Municipal Money Fund and Schwab Government
Cash Reserves. (The Schwab Government Cash Reserves was effective on October 20,
1997. However, the Fund has not commenced operations.) 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 Fund's
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.
DIVIDENDS TO SHAREHOLDERS--The Fund declares a daily dividend, equal to its net
investment income for that day, payable monthly.
- --------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
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 year ended December 31, 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 year ended December 31, 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
year ended December 31, 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 $41,000 related to
the Trust's unaffiliated trustees.
- --------------------------------------------------------------------------------
29
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab guarantee that, through at least April 30,
1998, the Fund's total operating expenses will not exceed 0.40% of the Fund's
average daily net assets, after reductions and reimbursements. For the purpose
of this guarantee, operating expenses do not include interest expenses,
extraordinary expenses and taxes.
For the year ended December 31, 1997, the total of such fees reduced by the
Investment Manager and Schwab was $27,753,000 and $8,506,000, respectively (see
Financial Highlights).
- --------------------------------------------------------------------------------
30
<PAGE>
- --------------------------------------------------------------------------------
To the Trustees and Shareholders
of Schwab Value Advantage Money Fund-Registered Trademark-
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Schwab Value Advantage Money
Fund (one of the series constituting The Charles Schwab Family of Funds,
hereafter referred to as the "Trust") at December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
January 30, 1998
- --------------------------------------------------------------------------------
31
<PAGE>
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE>
SCHWABFUNDS FAMILY-Registered Trademark-
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-Registered Trademark--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-Registered Trademark-
Schwab S&P 500 Fund
Schwab Analytics Fund-Registered Trademark-
Schwab Small-Cap Index Fund-Registered Trademark-
Schwab OneSource Portfolios--Small Company
Schwab International Index Fund-Registered Trademark-
Schwab OneSource Portfolios--International
SCHWAB BOND FUNDS
Schwab Bond Index Funds--Total and Short-Term Bond Market Index Funds*
Schwab Tax-Free Bond Funds--Long-Term and Short/Intermediate
Schwab California Tax-Free Bond Funds--Long-Term and Short/Intermediate
SCHWAB MONEY FUNDS
Schwab offers an array of money funds that seek high current income with
safety and liquidity.(1) Choose from taxable or tax-advantaged alternatives.
Many can be linked to your Schwab account to "sweep" cash balances
automatically when you're between investments. Or, for your larger cash
reserves, choose one of our Value Advantage Investments.-Registered Trademark-
Please call 1-800-435-4000 for a free prospectus and brochure for any of the
SchwabFunds.-Registered Trademark-
EACH PROSPECTUS PROVIDES MORE COMPLETE INFORMATION, INCLUDING FEES AND
EXPENSES.
PLEASE READ IT CAREFULLY BEFORE INVESTING.
This report must be preceded or accompanied by a current prospectus.
* Formerly known as the Schwab Government Bond Funds--Long-Term and
Short/Intermediate.
(1) 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.
<PAGE>
SCHWABFUNDS ==============
F A M I L Y -Registered Trademark- BULK RATE
U.S. POSTAGE
101 Montgomery Street PAID
San Francisco, California 94104 CHARLES SCHWAB
==============
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- 1996 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC/NYSE.
Printed on recycled paper. CRS 20178 (0098-1062) TF6453(2/98)
FOLD
