<PAGE>
SchwabFunds
SCHWAB
MONEY FUNDS
- - SCHWAB MONEY MARKET FUND
- - SCHWAB GOVERNMENT
MONEY FUND
- - SCHWAB U.S. TREASURY
MONEY FUND
Annual Report
December 31, 1997
<PAGE>
[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 Money Market Fund........................................................ 3
Schwab Government Money Fund.................................................... 4
Schwab U.S. Treasury Money Fund................................................. 5
The Portfolio Management Team................................................... 6
Market Overview................................................................. 7
Questions to the Portfolio Management Team...................................... 12
Glossary of Terms............................................................... 14
Portfolio Summaries............................................................. 15
Financial Statements and Notes.................................................. 18
</TABLE>
1
<PAGE>
A WORD FROM SCHWABFUNDS-REGISTERED TRADEMARK-
We're pleased to report on the performance of the three Schwab Money Funds
listed below (the Funds) for the one-year period ended December 31, 1997:
- Schwab Money Market Fund
- Schwab Government Money Fund
- Schwab U.S. Treasury Money Fund
During the reporting period, the Funds continued to provide competitive
money market returns, combined with capital stability and liquidity. The
following pages contain information on the Funds' performances during the
reporting period and on their portfolios. Please remember that while each Fund
seeks to maintain a stable $1.00 share price to protect your principal, as with
all money funds, there can be no assurance that a Fund will be able to maintain
a $1.00 net asset value per share. It is also important to understand that your
investment in a Fund is not insured or guaranteed by the U.S. Government.
The Funds presented in this report are Sweep Investments-TM- that are
designed for cash balances requiring frequent access. These shares can be linked
to your Schwab account and contain a feature that automatically "sweeps"
uninvested cash balances into the fund you designate, according to the terms and
conditions of your Schwab account--a smart, convenient way to manage your
short-term cash. If you're in a high tax bracket, SchwabFunds offers three tax-
advantaged municipal money funds that may provide you with higher returns after
taxes.(1)
For your larger cash balances, and to help fill the cash equivalent sector
of your asset allocation plan, you may wish to consider the Value Advantage
Investments-Registered Trademark-, which include both taxable and tax-advantaged
money funds. The Value Advantage Investments were designed for larger,
longer-term cash balances that do not require frequent access. These Funds have
minimum investment and balance requirements as well as transaction restrictions
designed to minimize operating expenses. All else being equal, lower expenses
can mean higher yields. It is important to note that unlike Sweep Investments,
the Value Advantage Investments are not designed to automatically cover negative
balances in your Schwab account.
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.
(1) Income may be subject to alternative minimum tax (AMT).
2
<PAGE>
SCHWAB MONEY MARKET FUND
PERFORMANCE REVIEW
The table below presents 7-day yields as of the end of the reporting period.
Please remember that money market fund yields fluctuate and past performance is
no guarantee of future results.
YIELD SUMMARY AS OF 12/31/97(2)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
<S> <C>
7-Day Yield 5.12%
- ----------------------------------------------------------------------------------------
7-Day Effective Yield 5.25%
- ----------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO COMPOSITION
The Schwab Money Market Fund 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 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 MONEY MARKET 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 76%
Certificates of Deposit 14%
Variable Rate Obligations 7%
Repurchase Agreements 2%
Bank Notes 1%
</TABLE>
(2) 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 would have been 5.01% and 5.14%, respectively.
3
<PAGE>
SCHWAB GOVERNMENT MONEY FUND
PERFORMANCE REVIEW
The table below presents 7-day yields as of the end of the reporting period.
Please remember that money market fund yields fluctuate and past performance is
no guarantee of future results.
YIELD SUMMARY AS OF 12/31/97(3)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
<S> <C>
7-Day Yield 4.99%
- ----------------------------------------------------------------------------------------
7-Day Effective Yield 5.12%
- ----------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO COMPOSITION
The Schwab Government Money Fund invests exclusively in U.S. Government
securities, including obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities, U.S. Treasury bills, notes, bonds and
repurchase agreements. The chart below illustrates the composition of the Fund's
portfolio as of December 31, 1997 and is not indicative of 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 GOVERNMENT MONEY FUND
Portfolio Composition as of December 31, 1997
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Agency Obligations 57%
Repurchase Agreements 36%
Variable Rate Obligations 6%
U.S. Treasury Obligations 1%
</TABLE>
(3) 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 would have been 4.82% and 4.94%, respectively.
4
<PAGE>
SCHWAB U.S. TREASURY MONEY FUND
PERFORMANCE REVIEW
The table below presents 7-day yields as of the end of the reporting period.
Please remember that money market fund yields fluctuate and past performance is
no guarantee of future results.
YIELD SUMMARY AS OF 12/31/97(4)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
<S> <C>
7-Day Yield 4.78%
- ----------------------------------------------------------------------------------------
7-Day Effective Yield 4.89%
- ----------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO COMPOSITION
The Schwab U.S. Treasury Money Fund invests exclusively in U.S. Treasury
notes, bills and other direct obligations of the U.S. Treasury that are backed
by the full faith and credit of the U.S. Government. The chart below illustrates
the composition of the Fund's portfolio as of December 31, 1997 and is not
indicative of 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 U.S. TREASURY MONEY FUND
Portfolio Composition as of December 31, 1997
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S TREASURY OBLIGATIONS 100%
<S> <C>
</TABLE>
(4) 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 would have been 4.51% and 4.61%, respectively.
5
<PAGE>
THE PORTFOLIO MANAGEMENT TEAM
STEPHEN B. WARD--Senior Vice President and Chief Investment Officer--has
overall responsibility for the management of the Funds' portfolios. Steve joined
Charles Schwab Investment Management, Inc. (CSIM) as Vice President and
Portfolio Manager in April 1991 and was promoted to his current position in
August 1993. Prior to joining CSIM, Steve was Vice President and Portfolio
Manager at Federated Investors.
LINDA KLINGMAN--Vice President and Senior Portfolio Manager--has managed the
Schwab Money Market Fund since April of 1991. Linda joined CSIM in 1990 and was
promoted to her current position in August 1996. Prior to joining CSIM, Linda
was Senior Money Market Trader with AIM Management.
AMY TREANOR--Portfolio Manager--has managed the Schwab Government Money Fund
and the Schwab U.S. Treasury Money Fund since 1997. Amy joined CSIM in 1992 as
Associate Portfolio Trader and was promoted to her current position in May 1997.
Prior to joining CSIM, Amy was Portfolio Manager and Assistant Vice President
with Capitalcorp Asset Management.
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.
6
<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.
7
<PAGE>
MARKET OVERVIEW (continued)
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.
8
<PAGE>
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.
9
<PAGE>
MARKET OVERVIEW (continued)
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.
10
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
90-DAY MUNICIPAL COMMERCIAL PAPER
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 10.
11
<PAGE>
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM
Q HOW HAS THE PORTFOLIO MANAGEMENT TEAM ADJUSTED EACH FUND'S PORTFOLIO TO
RESPOND TO CHANGES IN INTEREST RATES?
A During the reporting period, we adjusted the dollar-weighted average
maturities (DWAM) of the portfolios 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 Funds' portfolios.
Throughout the reporting period, we maintained slightly longer maturities in
our Funds' portfolios compared to funds with similar investment objectives. This
strategy had a beneficial impact on the Funds' yields throughout most of the
reporting period.
Q WHAT IMPACT HAVE THE ECONOMIC PROBLEMS IN THE PACIFIC RIM HAD ON THE
MANAGEMENT OF THE FUNDS' PORTFOLIOS?
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 a Fund.
By virtue of their respective investment objectives, neither the Schwab U.S.
Treasury Money Fund nor the Schwab Government Money Fund has any exposure to
Asian countries. The Schwab Money Market Fund, however, is able to invest in
high-quality U.S. dollar-denominated money market securities of foreign issuers.
During the reporting period, the Schwab Money Market Fund did, as a
precaution, reduce its exposure to Japanese issuers of commercial paper,
Japanese providers of credit enhancements and certificates of deposit issued by
Japanese banks. For example, as of June 30, 1997, the total Japanese exposure
was 4.91% of the Schwab Money Market Fund's net assets. As of December 31, 1997,
the end of the reporting period, the total Japanese exposure had been reduced to
just 1.16% 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.
12
<PAGE>
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 may have a place in your investment plan.
Sweep Investments can be linked to your Schwab account to help keep your
money invested and working for you. These Funds automatically invest or "sweep"
uninvested cash balances from your Schwab 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.
Value Advantage Investments-Registered Trademark- offer the advantage of
higher yields to investors with larger cash balances that don't require frequent
access, and may help fulfill the cash equivalent sector of your 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
is important to note that, unlike Sweep Investments, the Value Advantage
Investments are not designed to automatically cover negative balances in your
Schwab account.
The three Funds included in this report are Sweep Investments. If you are
selecting from among them, you should consider your attitude toward risk and
return, as well as your income tax bracket.
- - SCHWAB MONEY MARKET FUND invests in high-quality money market securities,
including commercial paper and certificates of deposit.
- - SCHWAB GOVERNMENT MONEY FUND invests exclusively in obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, and
repurchase agreements.
- - SCHWAB U.S. TREASURY MONEY FUND invests exclusively in U.S. Treasury notes,
bills or other direct obligations of the U.S. Government, and pays income free
from state and local taxes in the vast majority of states.
The Schwab Municipal Money Funds may provide you with higher returns after
taxes, especially if you're in a high tax bracket. The Schwab Municipal Money
Fund--Sweep Shares-TM- invests in municipal obligations that generate income
free from federal income tax.(5) And for investors in California and New York,
Schwab offers Sweep Investments that can also provide income free from state and
local taxes.(5) Consult your tax advisor for specific guidance on your tax
situation before investing.
If you would like more informationon either the Value Advantage Investments
or the Schwab Municipal MoneyFunds, 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.
(5)Income from all of the Funds may be subject to the alternative minimum tax
(AMT) and income from the Schwab Municipal Money Fund may be subject to state
and local taxes.
13
<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.
14
<PAGE>
SCHWAB MONEY MARKET FUND
- ------------------------------------------------------------------------------
PORTFOLIO SUMMARY
ASSET GROWTH
<TABLE>
<CAPTION>
Total
Total Net Assets Percentage
Net Assets as of Growth Over
as of 12/31/97 12/31/96 Reporting
(000s) (000s) Period
<S> <C> <C>
- --------------------------------------------
$21,421,437 $18,083,671 18%
- --------------------------------------------
</TABLE>
AVERAGE YIELDS FOR THE YEAR ENDED DECEMBER 31, 1997*
<TABLE>
<CAPTION>
Last Last Last
Seven Days Three Months Twelve Months
<S> <C> <C>
- ----------------------------------------------
5.12% 5.02% 4.93%
- ----------------------------------------------
</TABLE>
MATURITY SCHEDULE
PERCENT OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
Maturity Range 3/31/97 6/30/97 9/30/97 12/31/97
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------
0 - 15 Days 20.1% 21.2% 20.9% 17.7%
16 - 30 Days 16.1 18.1 18.4 20.0
31 - 60 Days 26.1 19.5 26.9 23.4
61 - 90 Days 17.9 23.5 18.3 18.0
91 - 120 Days 10.2 4.7 2.4 9.5
Over 120 Days 9.6 13.0 13.1 11.4
Weighted Average 57 Days 59 Days 62 Days 63 Days
- ---------------------------------------------------------------------
</TABLE>
PORTFOLIO QUALITY
<TABLE>
<CAPTION>
Percent of Net
SEC Tier Assets
Rating 12/31/97
<S> <C>
- -------------------------------------------------
Tier 1 100.00%
Tier 2 0.00
- -------------------------------------------------
</TABLE>
* A portion of the Fund's expenses were reduced during the periods. Had these
expenses not been reduced, yields would have been lower.
- --------------------------------------------------------------------------------
15
<PAGE>
SCHWAB GOVERNMENT MONEY FUND
- ------------------------------------------------------------------------------
PORTFOLIO SUMMARY
ASSET GROWTH
<TABLE>
<CAPTION>
Total
Total Net Assets Percentage
Net Assets as of Growth Over
as of 12/31/97 12/31/96 Reporting
(000s) (000s) Period
<S> <C> <C>
- --------------------------------------------
$1,981,926 $1,986,862 0%
- --------------------------------------------
</TABLE>
AVERAGE YIELDS FOR THE YEAR ENDED DECEMBER 31, 1997*
<TABLE>
<CAPTION>
Last Last Last
Seven Days Three Months Twelve Months
<S> <C> <C>
- ----------------------------------------------
4.99% 4.90% 4.84%
- ----------------------------------------------
</TABLE>
MATURITY SCHEDULE
PERCENT OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
Maturity Range 3/31/97 6/30/97 9/30/97 12/31/97
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------
0 - 15 Days 56.2% 51.7% 52.1% 40.1%
16 - 30 Days 3.2 0.1 6.3 6.5
31 - 60 Days 4.5 15.7 3.7 14.4
61 - 90 Days 9.9 8.8 6.3 22.1
91 - 120 Days 0.5 8.4 2.6 2.6
Over 120 Days 25.7 15.3 29.0 14.3
Weighted Average 64 Days 58 Days 67 Days 56 Days
- ---------------------------------------------------------------------
</TABLE>
* A portion of the Fund's expenses were reduced during the periods. Had these
expenses not been reduced, yields would have been lower.
- --------------------------------------------------------------------------------
16
<PAGE>
SCHWAB U.S. TREASURY MONEY FUND
- ------------------------------------------------------------------------------
PORTFOLIO SUMMARY
ASSET GROWTH
<TABLE>
<CAPTION>
Total
Total Net Assets Percentage
Net Assets as of Growth Over
as of 12/31/97 12/31/96 Reporting
(000s) (000s) Period
<S> <C> <C>
- -----------------------------------------------
$1,765,445 $1,421,672 24%
- -----------------------------------------------
</TABLE>
AVERAGE YIELDS FOR THE YEAR ENDED DECEMBER 31, 1997*
<TABLE>
<CAPTION>
Last Last Last
Seven Days Three Months Twelve Months
<S> <C> <C>
- ----------------------------------------------
4.78% 4.75% 4.75%
- ----------------------------------------------
</TABLE>
MATURITY SCHEDULE
PERCENT OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
Maturity Range 3/31/97 6/30/97 9/30/97 12/31/97
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------
0 - 15 Days 0.0% 2.8% 9.0% 0.0%
16 - 30 Days 25.5 0.0 0.0 11.8
31 - 60 Days 19.6 36.3 23.0 40.4
61 - 90 Days 21.3 23.7 27.6 8.7
91 - 120 Days 1.8 18.7 5.0 24.9
Over 120 Days 31.8 18.5 35.4 14.2
Weighted Average 76 Days 75 Days 86 Days 79 Days
- ---------------------------------------------------------------------
</TABLE>
* A portion of the Fund's expenses were reduced during the periods. Had these
expenses not been reduced, yields would have been lower.
- --------------------------------------------------------------------------------
17
<PAGE>
SCHWAB MONEY MARKET FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
COMMERCIAL PAPER AND OTHER CORPORATE
OBLIGATIONS--76.9%(A)
AUTOMOBILE RECEIVABLES--0.9%
New Center Asset Trust
5.70%, 01/30/98 $ 40,000 $ 39,819
5.85%, 03/13/98 100,000 98,860
5.86%, 03/17/98 60,000 59,278
------------
197,957
------------
AUTOMOTIVE--4.5%
American Honda Finance Corp.
5.96%, 01/09/98 50,000 49,934
5.72%, 01/21/98 40,000 39,874
Ford Credit Europe PLC
5.66%, 04/09/98 43,000 42,356
General Motors Acceptance
Corp.
5.83%, 01/14/98 70,000 69,854
5.84%, 01/21/98 50,000 49,840
5.84%, 01/22/98 75,000 74,748
5.83%, 02/11/98 145,000 144,051
5.78%, 04/15/98 52,000 51,157
5.78%, 04/16/98 100,000 98,364
5.78%, 04/17/98 50,000 49,174
5.79%, 04/20/98 100,000 98,298
5.79%, 04/21/98 130,000 127,768
5.84%, 04/30/98 48,000 47,100
General Motors Corp.
6.28%, 01/22/98 24,000 23,913
------------
966,431
------------
BANKING--BELGIUM--2.6%
BBL North America
5.72%, 01/07/98 57,000 56,947
5.70%, 01/08/98 25,000 24,973
5.80%, 02/25/98 89,000 88,221
5.73%, 02/25/98 35,000 34,702
5.83%, 03/10/98 75,046 74,231
Cregem North America, Inc.
5.68%, 01/06/98 25,000 24,981
5.68%, 01/12/98 25,000 24,957
5.66%, 01/12/98 51,000 50,913
Generale Bank, Inc.
5.70%, 02/13/98 45,000 44,702
5.70%, 02/18/98 37,000 36,727
5.65%, 04/08/98 50,000 49,260
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
Kredietbank N.A. Finance Corp.
5.66%, 01/16/98 $ 50,000 $ 49,884
------------
560,498
------------
BANKING--CANADA--0.8%
National Bank of Canada
5.74%, 04/13/98 25,000 24,605
Toronto--Dominion Holdings
5.71%, 03/27/98 100,000 98,689
5.71%, 03/30/98 41,000 40,444
------------
163,738
------------
BANKING--DENMARK--1.3%
Den Danske Corp.
5.70%, 01/21/98 27,700 27,614
5.70%, 01/22/98 42,000 41,862
Unifunding, Inc.
5.66%, 01/09/98 30,000 29,963
5.66%, 01/20/98 24,000 23,929
5.66%, 01/21/98 50,000 49,845
5.69%, 01/22/98 26,000 25,915
5.72%, 02/02/98 12,000 11,940
5.75%, 03/03/98 65,000 64,385
------------
275,453
------------
BANKING--DOMESTIC--3.8%
Bankers Trust New York Corp.
5.70%, 02/17/98 13,000 12,906
5.76%, 03/12/98 92,000 91,000
5.74%, 04/17/98 39,000 38,359
5.90%, 06/08/98 107,000 104,311
Enterprise Funding Corp.
5.73%, 01/05/98 20,000 19,987
5.71%, 01/06/98 11,583 11,574
5.81%, 01/09/98 32,985 32,943
5.72%, 01/13/98 20,238 20,200
5.70%, 01/16/98 36,000 35,916
5.70%, 01/23/98 110,860 110,480
5.86%, 02/06/98 15,000 14,913
International Securitization
Corp./(First National Bank of
Chicago LOC)
6.31%, 01/06/98 20,187 20,169
6.31%, 01/07/98 50,000 49,948
5.81%, 01/22/98 8,060 8,033
5.87%, 02/05/98 32,000 31,819
5.88%, 02/12/98 15,150 15,047
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
5.79%, 02/18/98 $ 51,475 $ 51,083
5.87%, 02/19/98 15,000 14,882
5.92%, 02/26/98 56,350 55,837
Kitty Hawk Funding Corp.
5.67%, 01/15/98 32,000 31,930
Secured Short Term Notes 97-15
5.99%, 03/19/98 22,000 22,000
Vehicle Services of America/
(NationsBank of Texas LOC)
5.70%, 01/14/98 13,700 13,672
------------
807,009
------------
BANKING--JAPAN--0.7%
Gotham Funding Corp./(Bank of
Tokyo--Mitsubishi, Ltd. LOC)
5.81%, 01/05/98 19,913 19,900
5.79%, 01/14/98 42,841 42,753
5.80%, 01/22/98 10,149 10,115
5.79%, 02/04/98 47,308 47,053
Mitsubishi Motors Credit of
America, Inc./(Bank of
Tokyo-- Mitsubishi, Ltd. LOC)
5.80%, 01/28/98 25,000 24,893
------------
144,714
------------
BANKING--NETHERLANDS--0.2%
Rabobank Nederland N.V.
5.70%, 04/02/98 44,000 43,383
------------
BANKING--SPAIN--0.3%
BEX America Finance, Inc.
5.80%, 02/19/98 23,000 22,821
5.79%, 02/24/98 40,000 39,658
------------
62,479
------------
BANKING--SWEDEN--1.9%
Nordbanken of North America,
Inc.
5.64%, 01/12/98 15,000 14,975
5.67%, 01/13/98 37,000 36,931
5.80%, 02/13/98 25,000 24,829
5.84%, 03/04/98 50,000 49,505
5.84%, 03/05/98 12,000 11,879
5.84%, 03/06/98 50,000 49,489
5.82%, 03/11/98 90,000 89,009
5.84%, 03/18/98 50,000 49,394
Svenska Handelsbanken, Inc.
5.65%, 01/12/98 26,070 26,026
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
5.67%, 01/16/98 $ 18,000 $ 17,958
5.72%, 03/09/98 28,000 27,710
------------
397,705
------------
BANKING--UNITED KINGDOM--1.5%
Abbey National N.A. Corp.
5.65%, 04/01/98 113,000 111,449
5.65%, 04/02/98 50,000 49,305
Abbey National Treasury
Services PLC
6.26%, 04/02/98 50,000 49,980
5.75%, 04/02/98 50,000 50,024
Banco Nacional de Comercio
Exterior/(Barclays Bank LOC)
6.23%, 01/23/98 35,000 34,867
Bank of Scotland Treasury
Services
5.70%, 02/02/98 20,000 19,901
------------
315,526
------------
COMPUTERS AND OFFICE EQUIPMENT--0.3%
CSC Enterprises
5.75%, 02/05/98 21,000 20,884
5.75%, 02/10/98 16,000 15,899
5.89%, 03/19/98 25,000 24,690
------------
61,473
------------
CREDIT CARD RECEIVABLES--0.6%
Charta Corp.
5.93%, 01/15/98 15,000 14,966
Eiger Capital Corp.
5.87%, 01/26/98 15,000 14,939
5.91%, 02/19/98 50,000 49,602
5.92%, 02/20/98 50,517 50,106
------------
129,613
------------
DIVERSIFIED FINANCIAL ASSETS--5.2%
Alpha Finance Corp.
5.68%, 01/09/98 10,000 9,988
5.66%, 01/15/98 10,000 9,978
Beta Finance, Inc.
5.71%, 01/22/98 13,000 12,957
5.70%, 03/05/98 24,000 23,767
5.75%, 03/12/98 15,000 14,837
5.70%, 03/16/98 41,874 41,397
5.72%, 03/27/98 25,000 24,672
5.82%, 05/15/98 17,000 16,642
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
SCHWAB MONEY MARKET FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
CC (USA), Inc.
5.70%, 01/12/98 $ 23,000 $ 22,961
5.81%, 02/19/98 30,000 29,766
5.70%, 03/10/98 39,000 38,591
5.71%, 03/20/98 25,000 24,699
Lexington Parker Capital Corp.
5.71%, 01/21/98 10,000 9,969
5.70%, 01/22/98 100,000 99,672
5.73%, 01/23/98 33,636 33,520
5.73%, 02/02/98 15,000 14,925
5.74%, 02/06/98 10,000 9,944
5.86%, 06/02/98 21,000 20,495
Ranger Funding Corp.
5.67%, 01/13/98 14,000 13,974
5.66%, 01/13/98 13,000 12,976
5.68%, 01/16/98 15,000 14,965
5.71%, 01/27/98 18,000 17,927
5.70%, 01/28/98 10,000 9,958
5.80%, 02/20/98 10,000 9,921
Repeat Offering Securitization
Entity, Inc.
5.88%, 01/28/98 37,000 36,838
5.70%, 01/28/98 50,000 49,789
5.80%, 02/06/98 12,192 12,122
5.74%, 02/06/98 9,000 8,949
5.88%, 02/09/98 12,000 11,924
5.89%, 02/26/98 16,935 16,782
5.85%, 03/03/98 27,000 26,736
5.84%, 03/03/98 50,000 49,513
Sigma Finance, Inc.
5.68%, 01/26/98 18,000 17,930
5.80%, 02/02/98 51,450 51,188
5.80%, 02/10/98 48,000 47,695
5.82%, 02/20/98 20,000 19,841
5.74%, 02/27/98 17,000 16,850
5.70%, 03/10/98 50,000 49,476
5.74%, 03/19/98 24,000 23,713
5.70%, 03/30/98 20,000 19,729
5.67%, 04/06/98 10,000 9,855
Wood Street Funding Corp.
6.19%, 01/08/98 47,223 47,166
5.66%, 01/08/98 10,000 9,989
6.20%, 01/16/98 50,220 50,091
5.68%, 01/26/98 10,000 9,961
------------
1,124,638
------------
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
FINANCE--COMMERCIAL--8.6%
CIT Group Holdings, Inc.
5.68%, 01/29/98 $ 100,000 $ 99,564
5.82%, 03/09/98 50,000 49,466
5.71%, 03/31/98 30,000 29,588
Commercial Credit Corp.
5.70%, 02/05/98 50,000 49,727
5.70%, 02/06/98 50,000 49,719
General Electric Capital Corp.
6.31%, 01/05/98 14,500 14,490
5.76%, 01/13/98 50,000 49,905
5.76%, 01/15/98 50,000 49,889
5.76%, 01/16/98 50,000 49,881
5.76%, 01/30/98 45,000 44,793
5.70%, 02/06/98 30,000 29,831
5.71%, 02/13/98 47,000 46,684
5.71%, 02/17/98 50,000 49,633
5.71%, 02/19/98 50,000 49,618
5.81%, 02/23/98 35,000 34,705
5.80%, 02/24/98 56,000 55,521
5.80%, 02/25/98 150,000 148,695
5.72%, 03/31/98 25,000 24,656
5.66%, 04/15/98 112,000 110,224
5.71%, 04/16/98 95,000 93,465
5.84%, 05/22/98 70,000 68,448
General Electric Capital
Services
5.76%, 01/20/98 50,000 49,849
5.70%, 02/06/98 30,000 29,831
5.71%, 02/18/98 92,000 91,311
5.71%, 02/19/98 43,000 42,671
5.67%, 02/20/98 46,000 45,641
5.72%, 03/16/98 75,000 74,144
5.72%, 03/31/98 70,000 69,038
5.66%, 04/16/98 10,000 9,840
Heller Financial, Inc.
5.78%, 01/14/98 10,000 9,980
6.07%, 01/26/98 21,000 20,913
5.82%, 01/27/98 46,000 45,810
5.82%, 01/28/98 14,000 13,940
5.74%, 02/03/98 23,000 22,881
5.74%, 02/04/98 15,000 14,920
5.80%, 02/09/98 25,000 24,845
5.79%, 02/10/98 13,000 12,918
5.78%, 02/17/98 50,000 49,630
6.11%, 04/06/98 11,000 10,826
5.95%, 04/30/98 25,000 24,518
------------
1,862,008
------------
</TABLE>
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
FINANCE--CONSUMER--3.0%
Associates Corp. of North
America
5.70%, 01/07/98 $ 50,000 $ 49,953
5.70%, 01/08/98 50,000 49,945
5.70%, 01/09/98 50,000 49,937
5.70%, 02/04/98 100,000 99,469
5.70%, 02/06/98 50,000 49,719
5.82%, 02/26/98 125,000 123,886
5.82%, 02/27/98 75,000 74,319
Associates First Capital Corp.
5.71%, 02/03/98 25,000 24,871
5.82%, 02/26/98 75,000 74,330
5.82%, 03/06/98 47,000 46,520
------------
642,949
------------
MISCELLANEOUS SERVICES--0.1%
PHH Corp.
5.64%, 01/20/98 11,100 11,067
------------
MORTGAGE BANKING--1.2%
Countrywide Home Loans, Inc.
5.71%, 01/05/98 48,750 48,719
6.51%, 01/07/98 90,000 89,903
6.47%, 01/09/98 43,000 42,938
5.76%, 01/09/98 30,000 29,962
5.89%, 01/30/98 43,000 42,798
------------
254,320
------------
SECURITIES BROKERAGE--DEALER--14.7%
Bear Stearns Companies, Inc.
5.83%, 02/23/98 100,000 99,153
5.70%, 03/17/98 50,000 49,423
5.67%, 04/07/98 8,000 7,882
BT Alex Brown, Inc.
5.84%, 03/06/98 10,000 9,898
5.75%, 04/14/98 24,000 23,616
5.85%, 06/04/98 8,000 7,806
Credit Suisse First Boston,
Inc.
5.71%, 01/27/98 40,000 39,838
5.65%, 04/17/98 15,000 14,758
Goldman Sachs Group, LP
5.89%, 01/26/98 60,000 59,756
5.82%, 05/19/98 100,000 97,834
5.82%, 05/20/98 200,000 195,637
5.82%, 05/21/98 181,000 177,023
5.82%, 05/22/98 118,000 115,389
5.83%, 05/26/98 91,000 88,929
5.72%, 06/30/98 44,000 42,777
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
Lehman Brothers Holdings, Inc.
6.17%, 01/07/98 $ 25,000 $ 24,974
5.70%, 01/28/98 75,000 74,684
5.80%, 02/13/98 64,000 63,570
5.89%, 03/24/98 75,000 74,009
5.89%, 03/25/98 50,000 49,331
5.87%, 06/25/98 75,000 72,922
Merrill Lynch & Co., Inc.
5.66%, 01/14/98 27,000 26,946
5.79%, 02/26/98 35,000 34,689
5.80%, 02/27/98 172,000 170,445
5.83%, 03/13/98 70,000 69,208
5.72%, 03/26/98 20,000 19,741
5.73%, 03/30/98 20,000 19,728
5.73%, 03/31/98 50,000 49,311
5.68%, 04/14/98 40,000 39,369
5.67%, 04/16/98 32,000 31,486
5.99%, 12/04/98 150,000 149,979
Morgan Stanley-Dean Witter,
Discover
5.71%, 02/17/98 75,000 74,450
5.84%, 03/23/98 50,000 49,353
5.87%, 03/24/98 40,000 39,474
5.84%, 03/24/98 100,000 98,690
5.87%, 03/25/98 50,000 49,334
5.84%, 03/25/98 100,000 98,674
5.87%, 03/26/98 100,000 98,651
5.87%, 03/27/98 74,000 72,990
5.86%, 03/30/98 43,000 42,395
5.65%, 04/17/98 76,000 74,774
5.82%, 05/27/98 70,000 68,399
PaineWebber Group, Inc.
5.74%, 01/16/98 35,000 34,918
5.87%, 01/22/98 24,000 23,919
Salomon, Inc.
5.88%, 02/03/98 60,000 59,680
Smith Barney, Inc.
5.70%, 01/22/98 50,000 49,836
5.70%, 01/26/98 100,000 99,610
5.70%, 01/28/98 20,000 19,916
5.69%, 01/29/98 120,000 119,477
------------
3,174,651
------------
TRADE RECEIVABLES--24.7%
Apreco, Inc.
5.94%, 01/13/98 20,000 19,961
5.73%, 01/14/98 22,000 21,955
5.74%, 01/28/98 20,000 19,915
</TABLE>
- --------------------------------------------------------------------------------
21
<PAGE>
SCHWAB MONEY MARKET FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
Asset Securitization
Cooperative Corp.
5.70%, 01/21/98 $ 125,000 $ 124,610
5.70%, 01/23/98 50,000 49,828
5.70%, 01/27/98 100,000 99,594
5.70%, 01/29/98 125,000 124,454
5.70%, 01/30/98 147,000 146,334
5.85%, 03/20/98 120,629 119,126
Barton Capital Corp.
5.76%, 01/14/98 14,000 13,971
5.66%, 01/14/98 13,528 13,501
5.88%, 01/20/98 11,000 10,966
5.70%, 01/23/98 42,512 42,366
5.70%, 01/27/98 71,968 71,676
5.72%, 01/29/98 45,000 44,803
5.88%, 01/30/98 11,359 11,306
5.88%, 02/06/98 21,684 21,558
5.87%, 02/06/98 36,480 36,268
5.87%, 02/10/98 22,000 21,858
5.88%, 02/11/98 43,752 43,462
Clipper Receivables Corp.
5.90%, 01/14/98 13,000 12,972
5.71%, 01/23/98 30,000 29,897
5.70%, 01/27/98 69,342 69,061
5.70%, 01/28/98 29,799 29,674
Corporate Asset Funding Corp.
5.66%, 01/13/98 75,000 74,861
5.85%, 02/05/98 85,000 84,522
5.83%, 02/11/98 75,000 74,508
Corporate Receivables Corp.
5.67%, 01/12/98 75,000 74,872
5.89%, 01/13/98 20,000 19,961
5.81%, 01/20/98 25,000 24,924
5.81%, 01/21/98 20,000 19,936
5.71%, 01/21/98 50,000 49,843
5.90%, 01/26/98 19,000 18,923
5.81%, 01/29/98 35,000 34,843
5.86%, 02/11/98 40,000 39,736
5.87%, 02/12/98 23,000 22,844
5.80%, 02/24/98 10,000 9,914
CXC, Inc.
5.73%, 01/14/98 25,000 24,949
5.66%, 01/16/98 10,000 9,977
5.66%, 01/22/98 15,000 14,951
5.70%, 01/27/98 43,000 42,825
5.71%, 01/30/98 27,000 26,878
5.87%, 02/03/98 100,000 99,467
5.89%, 02/04/98 25,000 24,862
5.71%, 02/05/98 17,000 16,907
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
5.90%, 02/12/98 $ 74,000 $ 73,497
5.84%, 03/09/98 25,000 24,732
5.84%, 03/11/98 49,000 48,460
5.80%, 03/17/98 75,000 74,106
5.81%, 03/18/98 75,000 74,094
Delaware Funding Corp.
5.66%, 01/08/98 13,171 13,157
5.70%, 01/20/98 14,788 14,744
Eureka Securitization, Inc.
5.73%, 01/20/98 25,000 24,925
5.70%, 01/30/98 40,000 39,819
5.92%, 02/05/98 50,000 49,714
5.84%, 03/09/98 15,000 14,839
Falcon Asset Securitization
Corp.
5.71%, 01/12/98 14,875 14,849
5.66%, 01/13/98 50,000 49,907
5.66%, 01/15/98 85,482 85,297
5.71%, 01/16/98 13,007 12,976
5.66%, 01/16/98 50,000 49,884
5.70%, 01/23/98 18,000 17,938
5.70%, 01/26/98 11,050 11,007
Mont Blanc Capital Corp.
5.96%, 02/23/98 30,000 29,739
Monte Rosa Capital Corp.
5.91%, 01/14/98 60,000 59,873
5.89%, 01/21/98 59,620 59,427
5.81%, 01/28/98 44,053 43,863
5.80%, 01/28/98 52,000 51,776
5.88%, 02/09/98 25,000 24,842
5.88%, 02/10/98 50,000 49,676
5.87%, 02/13/98 89,340 88,721
5.88%, 02/18/98 15,000 14,884
5.88%, 02/19/98 50,000 49,604
5.88%, 02/20/98 50,000 49,596
Preferred Receivables Funding
Corp.
5.71%, 01/13/98 30,000 29,944
5.66%, 01/14/98 26,000 25,948
5.66%, 01/15/98 28,375 28,313
5.66%, 01/20/98 20,825 20,764
5.70%, 01/21/98 9,425 9,396
5.68%, 01/23/98 60,000 59,795
5.90%, 02/03/98 17,000 16,909
5.90%, 02/04/98 50,000 49,724
5.88%, 02/04/98 10,085 10,029
5.72%, 02/05/98 53,325 53,033
5.84%, 02/09/98 22,850 22,707
5.88%, 02/11/98 11,625 11,548
5.99%, 02/18/98 10,100 10,020
</TABLE>
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
Receivables Capital Corp.
5.93%, 01/05/98 $ 55,827 $ 55,790
5.94%, 01/09/98 45,663 45,603
5.94%, 01/12/98 10,108 10,090
5.80%, 01/12/98 11,716 11,695
5.81%, 01/15/98 20,208 20,163
5.89%, 01/22/98 28,969 28,870
5.81%, 01/26/98 42,858 42,687
5.86%, 02/06/98 25,141 24,995
5.80%, 02/12/98 150,000 148,998
5.99%, 02/20/98 17,188 17,046
Sheffield Receivables Corp.
5.72%, 01/08/98 80,000 79,912
5.93%, 01/13/98 45,000 44,912
5.94%, 01/15/98 50,000 49,885
5.73%, 01/15/98 50,000 49,890
5.94%, 01/16/98 33,000 32,919
5.92%, 01/20/98 32,000 31,901
5.88%, 02/02/98 136,000 135,297
5.86%, 02/05/98 50,000 49,718
5.89%, 02/06/98 9,900 9,842
5.85%, 03/06/98 8,900 8,809
Special Purpose Accounts
Receivable Cooperative Corp.
5.89%, 02/24/98 39,000 38,660
5.90%, 03/26/98 20,000 19,729
WCP Funding, Inc.
5.81%, 01/13/98 35,000 34,933
5.90%, 01/22/98 25,000 24,915
5.73%, 01/22/98 25,000 24,917
5.80%, 02/10/98 25,000 24,841
5.87%, 02/12/98 40,000 39,729
Windmill Funding
5.71%, 01/09/98 11,574 11,559
5.72%, 01/14/98 36,332 36,258
5.65%, 01/15/98 74,353 74,192
5.84%, 01/26/98 53,904 53,688
5.70%, 01/28/98 45,514 45,322
5.83%, 02/05/98 14,000 13,922
5.87%, 02/10/98 45,000 44,710
5.87%, 02/12/98 30,000 29,797
5.87%, 02/20/98 39,000 38,686
5.93%, 02/23/98 84,474 83,745
5.93%, 02/24/98 68,000 67,402
5.85%, 02/24/98 62,000 61,463
5.81%, 02/24/98 8,240 8,169
5.88%, 03/19/98 50,000 49,380
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
5.88%, 03/20/98 $ 22,780 $ 22,494
------------
5,321,228
------------
TOTAL COMMERCIAL PAPER AND OTHER
CORPORATE OBLIGATIONS
(Cost $16,516,840) 16,516,840
------------
CERTIFICATES OF DEPOSIT--13.7%
BANKING--BELGIUM--0.2%
Banque Bruxelles Lambert
5.65%, 04/07/98 50,000 50,001
------------
BANKING--CANADA--1.8%
Canadian Imperial Bank of
Commerce
5.80%, 03/30/98 110,000 109,999
5.80%, 03/31/98 100,000 100,000
5.90%, 08/12/98 19,300 19,301
6.01%, 10/21/98 49,000 48,976
Toronto Dominion Bank
5.70%, 02/25/98 100,000 100,000
------------
378,276
------------
BANKING--DOMESTIC--1.8%
Chase Manhattan Bank USA
5.71%, 03/04/98 100,000 100,000
5.71%, 03/05/98 107,000 107,000
5.65%, 04/07/98 122,000 122,000
Nationsbank NA
5.80%, 04/23/98 25,000 25,000
Wilmington Trust Company
5.70%, 03/20/98 15,000 15,000
5.83%, 05/21/98 27,000 27,000
------------
396,000
------------
BANKING--FRANCE--4.2%
Banque Nationale de Paris
5.80%, 02/26/98 75,000 74,994
5.67%, 04/07/98 10,000 10,000
5.75%, 04/15/98 30,000 30,000
Societe Generale
5.80%, 01/05/98 85,000 85,000
6.22%, 03/10/98 97,500 97,439
6.14%, 03/10/98 50,000 49,977
6.25%, 03/25/98 13,000 12,995
5.98%, 05/26/98 39,000 39,014
5.88%, 07/13/98 65,000 64,992
5.82%, 07/13/98 25,000 25,005
5.93%, 07/21/98 50,000 49,982
5.91%, 07/21/98 100,000 99,984
</TABLE>
- --------------------------------------------------------------------------------
23
<PAGE>
SCHWAB MONEY MARKET FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
5.90%, 08/04/98 $ 50,000 $ 49,961
6.00%, 08/26/98 65,000 64,976
6.00%, 09/04/98 117,000 116,927
6.01%, 10/20/98 37,000 36,969
------------
908,215
------------
BANKING--GERMANY--0.5%
Westdeutsche Landesbank
6.20%, 01/06/98 100,000 100,000
------------
BANKING--JAPAN--0.5%
Dai-Ichi Kangyo Bank, Ltd.
5.80%, 01/27/98 45,000 44,999
Sumitomo Bank, Ltd.
5.75%, 01/16/98 60,000 60,000
------------
104,999
------------
BANKING--SWEDEN--0.5%
Svenska Handelsbanken
5.65%, 04/08/98 100,000 100,001
------------
BANKING--SWITZERLAND--0.4%
Credit Suisse First Boston
6.24%, 04/08/98 85,000 85,000
------------
BANKING--UNITED KINGDOM--3.8%
Abbey National Treasury
Services PLC
5.80%, 03/02/98 75,000 75,000
5.65%, 04/09/98 100,000 100,000
5.65%, 04/13/98 100,000 100,000
5.93%, 08/07/98 100,000 100,000
6.00%, 12/08/98 150,000 150,001
Barclays Bank PLC
5.80%, 02/03/98 25,000 25,000
5.90%, 08/21/98 150,000 149,936
National Westminster Bank PLC
5.70%, 01/20/98 75,000 74,997
6.20%, 05/20/98 49,000 48,987
------------
823,921
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $2,946,413) 2,946,413
------------
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
VARIABLE RATE OBLIGATIONS--6.7%(B)
BANKING--DOMESTIC--0.6%
6700 Cherry Avenue Partners
Variable Rate Taxable Demand
Bonds Series 1993 / (Wells
Fargo Bank LOC)
5.85%, 01/07/98 $ 10,500 $ 10,500
Lowndes Corporation, GA
Taxable Variable Rate Demand
Bonds Series 1997
6.10%, 01/07/98 10,000 10,000
MoviePlex Realty Leasing
L.L.C. Adjustable Rate Tender
Securities (Carmike Cinemas,
Inc.) 1997 Series A-1
(Wachovia Bank LOC)
5.96%, 01/07/98 35,125 35,125
MoviePlex Realty Leasing
L.L.C. Adjustable Rate Tender
Securities (Carmike Cinemas,
Inc.) 1997 Series A-2
(Suntrust Bank of Atlanta
LOC)
5.96%, 01/07/98 12,325 12,325
MoviePlex Realty Leasing
L.L.C. Adjustable Rate Tender
Securities (Carmike Cinemas,
Inc.) 1997 Series A-3 (Bank
of New York LOC)
5.96%, 01/07/98 12,325 12,325
Strategic Money Market
1997-A
5.91%, 03/23/98 40,000 40,000
------------
120,275
------------
BANKING--FRANCE--0.2%
New Jersey Economic
Development Authority
Adjustable Rate Money Market
Securities (GE Aerospace
Camden Development Project)
Series A / (Banque Nationale
de Paris LOC)
5.95%, 01/07/98 22,325 22,325
</TABLE>
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
New Jersey Economic
Development Authority
Adjustable Rate Money Market
Securities (GE Aerospace
Camden Development Project)
Series B / (Banque Nationale
de Paris LOC)
5.95%, 01/07/98 $ 10,000 $ 10,000
------------
32,325
------------
BANKING--NETHERLANDS--0.1%
New Jersey Economic
Development Authority
Adjustable Rate Lease Revenue
Taxable Bonds (Barnes &
Noble, Inc. Distribution and
Freight Consolidation Center
Project) 1995 Series A /
(Rabobank Nederland N.V. LOC)
5.93%, 01/07/98 20,920 20,920
New Jersey Economic
Development Authority
Adjustable Rate Lease Revenue
Taxable Bonds (Barnes &
Noble, Inc. Distribution and
Freight Consolidation Center
Project) Series B / (Rabobank
Nederland N.V. LOC)
5.93%, 01/07/98 10,000 10,000
------------
30,920
------------
BANKING--UNITED KINGDOM & 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)
5.90%, 01/07/98 19,140 19,140
------------
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
EDUCATION--0.2%
Development Authority of
Dekalb County Taxable Rate
Variable Rate Revenue Bonds
(Emory University Project)
Series 1995B
5.90%, 01/07/98 $ 34,125 $ 34,125
------------
HEALTHCARE--0.2%
Catholic Health Initiatives
Taxable Variable Rate Demand
Bonds Series 1997C
5.90%, 01/07/98 33,800 33,800
------------
LIFE INSURANCE--2.5%
Commonwealth Life Insurance
Co.
5.86%, 01/01/98 (d) 100,000 100,000
First Allmerica Financial Life
5.78%, 01/01/98 (d) 50,000 50,000
General American Life
Insurance Co.
5.89%, 01/07/98 75,000 75,000
5.89%, 01/07/98 100,000 100,000
Jackson National Life
Insurance Co.
5.77%, 01/01/98 (d) 60,000 60,000
Pacific Mutual Life Insurance
5.67%, 01/01/98 (d) 100,000 100,000
Transamerica Life Insurance &
Annuity Co.
5.69%, 01/07/98 75,000 75,000
------------
560,000
------------
MONOLINE INSURANCE--0.3%
Baptist Health Systems of
South Florida, Inc. Taxable
Variable Rate Direct Note
Obligations Series 1995A /
(MBIA Insurance)
5.90%, 01/07/98 13,000 13,000
Baptist Health Systems of
South Florida, Inc. Taxable
Variable Rate Direct Note
Obligations Series 1995B /
(MBIA Insurance)
5.90%, 01/07/98 19,000 19,000
</TABLE>
- --------------------------------------------------------------------------------
25
<PAGE>
SCHWAB MONEY MARKET FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Par Value
--------- ------------
<S> <C> <C>
Dade County, Expressway
Authority (Florida) Toll
System Revenue Bonds Series
1996 / (FGIC Insurance)
6.15%, 01/07/98 $ 31,200 $ 31,200
New Orleans Aviation Board
Taxable Refunding Bonds,
Series 1993A / (MBIA
Insurance)
5.70%, 01/07/98 200 200
The Community Redevelopment
Agency of the City of Los
Angeles California (Bunker
Hill Project) Subordinate Tax
Allocation Refunding Bonds,
1997 Series A (FSA Insurance)
6.50%, 01/07/98 10,000 10,000
------------
73,400
------------
SECURITIES BROKERAGE--DEALER--2.5%
Bear Stearns Companies, Inc.
5.98%, 01/12/98 200,000 200,000
5.94%, 01/20/98 50,000 50,000
5.95%, 01/22/98 10,000 10,000
Lehman Brothers Holdings, Inc.
5.97%, 01/20/98 170,000 170,000
5.96%, 01/21/98 (d) 100,000 100,000
------------
530,000
------------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $1,433,985) 1,433,985
------------
BANK NOTES--0.9%
BANKING--DOMESTIC--0.9%
Bank of New York
5.64%, 03/03/98 25,000 24,998
BankBoston N.A.
5.65%, 04/06/98 30,000 30,000
5.82%, 05/11/98 92,000 92,000
LaSalle National Bank
5.85%, 06/09/98 40,000 40,000
------------
TOTAL BANK NOTES
(Cost $186,998) 186,998
------------
<CAPTION>
Maturity Value
--------- ------------
<S> <C> <C>
REPURCHASE AGREEMENTS--1.8%(C)
Salomon Brothers, Inc. 6.80%,
Issue Date 03/31/97 Due
01/02/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations $ 35,013 $ 35,000
Salomon Brothers, Inc. 6.80%,
Issue Date 04/7/97 Due
01/02/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 100,038 100,000
Salomon Brothers, Inc. 6.80%,
Issue Date 08/19/96 Due
01/02/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 143,053 143,000
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 71,026 71,000
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 50,249 50,230
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $399,230) 399,230
------------
TOTAL INVESTMENTS--100%
(Cost $21,483,466) $ 21,483,466
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS AND NOTES TO FINANCIAL
STATEMENTS.
- --------------------------------------------------------------------------------
26
<PAGE>
SCHWAB GOVERNMENT MONEY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Par Value
--------- -----------
<S> <C> <C>
AGENCY OBLIGATIONS--57.2%
COUPON NOTES--20.5%
Federal Farm Credit Bank
5.45%, 03/03/98 $ 55,000 $ 54,971
5.90%, 06/02/98 70,000 70,034
Federal Home Loan Bank
5.88%, 01/30/98 7,900 7,900
5.81%, 01/30/98 6,000 6,000
5.72%, 03/20/98 18,000 18,003
5.80%, 06/12/98 25,000 24,992
5.82%, 06/16/98 33,420 33,417
5.71%, 10/01/98 25,000 24,991
Federal National Mortgage
Assoc.
6.81%, 03/17/98 25,000 25,059
5.79%, 03/25/98 25,000 25,007
6.08%, 05/06/98 18,000 18,021
5.63%, 08/14/98 12,000 11,991
5.71%, 09/09/98 26,000 25,989
Student Loan Marketing Assoc.
7.00%, 03/03/98 9,400 9,421
5.78%, 09/09/98 25,000 24,987
5.82%, 09/16/98 25,000 25,002
-----------
405,785
-----------
DISCOUNT NOTES--36.7%
Federal Farm Credit Bank
5.60%, 03/26/98 3,660 3,614
Federal Home Loan Bank
5.64%, 01/21/98 20,000 19,938
5.65%, 01/28/98 20,000 19,916
5.57%, 02/06/98 19,855 19,747
5.55%, 02/13/98 14,340 14,247
5.56%, 02/20/98 5,875 5,831
5.58%, 03/04/98 25,000 24,766
5.59%, 03/05/98 22,220 22,008
5.55%, 03/20/98 16,903 16,705
Federal Home Loan Mortgage
Corp.
5.72%, 01/30/98 24,230 24,119
5.59%, 02/04/98 18,245 18,150
5.68%, 02/06/98 1,440 1,432
5.61%, 02/23/98 10,810 10,722
5.69%, 03/06/98 25,000 24,751
5.71%, 03/10/98 20,000 19,787
<CAPTION>
Par Value
--------- -----------
<S> <C> <C>
Federal National Mortgage
Assoc.
5.57%, 01/12/98 $ 17,020 $ 16,991
5.64%, 01/16/98 52,000 51,881
5.56%, 02/05/98 25,000 24,867
5.55%, 02/05/98 55,280 54,988
5.70%, 02/11/98 2,995 2,976
5.51%, 02/12/98 1,880 1,868
5.60%, 02/18/98 20,000 19,853
5.61%, 02/20/98 17,000 16,869
5.61%, 02/24/98 30,000 29,751
5.57%, 02/25/98 20,000 19,833
5.65%, 02/26/98 25,000 24,783
5.64%, 03/02/98 20,000 19,815
5.65%, 03/04/98 25,000 24,760
5.70%, 03/10/98 20,400 20,183
5.70%, 03/12/98 17,150 16,963
5.60%, 03/19/98 35,040 34,633
5.58%, 03/26/98 26,665 26,331
5.63%, 04/15/98 25,000 24,603
5.73%, 04/22/98 26,335 25,879
5.61%, 05/07/98 25,000 24,523
-----------
728,083
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $1,133,868) 1,133,868
-----------
VARIABLE RATE OBLIGATIONS--5.7%(B)
Federal Farm Credit Bank
5.58%, 03/01/98 50,000 50,003
Student Loan Marketing Assoc.
5.66%, 01/06/98 20,000 19,994
5.62%, 01/06/98 42,150 42,121
-----------
TOTAL VARIABLE RATE
OBLIGATIONS
(Cost $112,118) 112,118
-----------
U.S. TREASURY OBLIGATIONS--1.0%
TREASURY NOTES--1.0%
U.S. Treasury Notes
7.25%, 02/15/98 20,000 20,035
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $20,035) 20,035
-----------
</TABLE>
- --------------------------------------------------------------------------------
27
<PAGE>
SCHWAB GOVERNMENT MONEY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Maturity Value
--------- -----------
<S> <C> <C>
REPURCHASE AGREEMENTS--36.1%(C)
DLJ Securities Corp. 5.61%,
Issue Date 11/05/97 Due
01/07/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations $ 35,344 $ 35,000
Lehman Brothers, Inc. 5.60%,
Issue Date 10/01/97 Due
01/07/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 50,762 50,000
Lehman Brothers, Inc. 5.64%,
Issue Date 10/20/97 Due
01/07/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 31,375 30,991
Lehman Brothers, Inc. 5.67%,
Issue Date 11/18/97 Due
01/07/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 75,106 74,518
Lehman Brothers, Inc. 5.67%,
Issue Date 11/19/97 Due
01/07/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 34,257 33,995
Lehman Brothers, Inc. 5.82%,
Issue Date 12/18/97 Due
01/06/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 50,154 50,000
Lehman Brothers, Inc. 5.82%,
Issue Date 12/18/97 Due
01/07/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 50,162 50,000
<CAPTION>
Maturity Value
--------- -----------
<S> <C> <C>
Morgan Stanley Group, Inc.
6.00%, Issue Date 12/19/97
Due 01/08/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations $ 55,242 $ 55,058
Morgan Stanley Group, Inc.
6.13%, Issue Date 12/22/97
Due 01/05/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 45,558 45,449
Morgan Stanley Group, Inc.
6.25%, Issue Date 12/29/97
Due 01/06/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 9,710 9,697
Salomon Brothers, Inc. 5.60%,
Issue Date 10/14/97 Due
01/07/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 24,889 24,564
Salomon Brothers, Inc. 5.62%,
Issue Date 10/16/97 Due
01/07/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 41,977 41,440
Salomon Brothers, Inc. 5.62%,
Issue Date 11/10/97 Due
01/07/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 19,901 19,723
Salomon Brothers, Inc. 5.63%,
Issue Date 10/15/97 Due
01/07/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 40,082 39,562
</TABLE>
- --------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity Value
--------- -----------
<S> <C> <C>
Salomon Brothers, Inc. 5.63%,
Issue Date 11/13/97 Due
01/07/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations $ 26,585 $ 26,359
Salomon Brothers, Inc. 5.64%,
Issue Date 10/17/97 Due
01/07/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 50,642 50,000
Salomon Brothers, Inc. 5.73%,
Issue Date 12/03/97 Due
01/07/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations 43,380 43,140
<CAPTION>
Maturity Value
--------- -----------
<S> <C> <C>
Salomon Brothers, Inc. 5.90%,
Issue Date 12/15/97 Due
01/07/98; Tri-Party
Repurchase Agreement;
Collateralized By: U.S.
Government Agency Obligations $ 36,829 $ 36,691
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $716,187) 716,187
-----------
TOTAL INVESTMENTS--100%
(Cost $1,982,208) $ 1,982,208
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS AND NOTES TO FINANCIAL
STATEMENTS.
- --------------------------------------------------------------------------------
29
<PAGE>
SCHWAB U.S. TREASURY MONEY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Par Value
--------- -----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS--100.0%
U.S. Treasury Bills
4.90%, 01/02/98 $ 350 $ 350
4.87%, 01/02/98 365 365
5.34%, 01/22/98 1,725 1,720
5.30%, 01/22/98 1,415 1,411
5.29%, 01/22/98 7,720 7,696
5.27%, 01/22/98 50,000 49,848
5.26%, 01/22/98 69,910 69,697
5.25%, 01/22/98 66,715 66,513
5.23%, 01/22/98 3,665 3,654
5.22%, 01/22/98 2,125 2,119
5.21%, 01/22/98 3,205 3,195
5.37%, 02/26/98 3,490 3,461
5.27%, 02/26/98 2,540 2,519
5.24%, 03/26/98 25,000 24,698
5.21%, 03/26/98 25,000 24,700
5.18%, 03/26/98 295 291
5.25%, 04/02/98 3,105 3,065
5.34%, 04/09/98 1,740 1,715
<CAPTION>
Par Value
--------- -----------
<S> <C> <C>
U.S. Treasury Notes
5.00%, 01/31/98 $ 146,755 $ 146,689
8.13%, 02/15/98 50,000 50,146
7.25%, 02/15/98 266,865 267,389
5.13%, 02/28/98 237,355 237,211
6.13%, 03/31/98 37,845 37,898
5.13%, 03/31/98 64,130 64,078
7.88%, 04/15/98 128,160 128,977
5.88%, 04/30/98 267,710 268,064
5.13%, 04/30/98 35,000 34,959
6.13%, 05/15/98 109,805 110,006
6.00%, 05/31/98 138,905 139,127
-----------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $1,751,561) 1,751,561
-----------
TOTAL INVESTMENTS--100%
(Cost $1,751,561) $ 1,751,561
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS AND NOTES TO FINANCIAL
STATEMENTS.
- --------------------------------------------------------------------------------
30
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO SCHEDULE OF INVESTMENTS
Year ended December 31, 1997
Yields shown are effective yields at the time of purchase, except for variable
rate securities, which are described below, and Treasury 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 Schwab Money Market Fund are private
placement securities exempt from registration by Section 4(2) of the
Securities Act of 1933. These securities generally are sold to
institutional investors, such as the Schwab Money Market Fund. Any resale
by the Fund must be in an exempt transaction, normally to a qualified
institutional buyer. At December 31, 1997, the aggregate value of private
placement securities held by the Schwab Money Market Fund was
$8,151,472,000, which represented 38.05% of net assets. Of this total,
$7,741,472,000 or 36.14% 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 Money
Market Fund were $410,000, which represented 1.93% of the net assets. All
of these restricted investments were determined by the Investment Manager
to be illiquid in accordance with procedures adopted by the Board of
Trustees.
<TABLE>
<CAPTION>
Abbreviations
- ---------
FGIC Federal Guaranty Insurance Company
<S> <C>
FSA Financial Security Assurance
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance Corporation
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
31
<PAGE>
- ------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (in thousands)
December 31, 1997
<TABLE>
<CAPTION>
Schwab Schwab Schwab
Money Government U.S. Treasury
Market Money Money
Fund Fund Fund
----------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Investments, at value (Cost: $21,483,466, $1,982,208 and
$1,751,561 respectively) $21,483,466 $1,982,208 $ 1,751,561
Cash -- -- 4
Interest receivable 73,640 12,165 24,176
Prepaid expenses 168 24 42
----------- ------------ -------------
Total assets 21,557,274 1,994,397 1,775,783
----------- ------------ -------------
LIABILITIES
Payables:
Dividends 129,553 11,906 9,879
Investment advisory and administration fees 1,448 130 71
Transfer agency and shareholder service fees 2,358 219 192
Other liabilities 2,478 216 196
----------- ------------ -------------
Total liabilities 135,837 12,471 10,338
----------- ------------ -------------
Net assets applicable to outstanding shares $21,421,437 $1,981,926 $ 1,765,445
----------- ------------ -------------
----------- ------------ -------------
NET ASSETS CONSIST OF:
Paid-in-capital $21,421,772 $1,982,606 $ 1,765,863
Accumulated net realized loss on investments sold (335) (680) (418)
----------- ------------ -------------
$21,421,437 $1,981,926 $ 1,765,445
----------- ------------ -------------
----------- ------------ -------------
PRICING OF SHARES
Outstanding shares, $0.00001 par value (unlimited shares
authorized) 21,421,772 1,982,606 1,765,863
Net asset value, offering and redemption price per share $1.00 $1.00 $1.00
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
32
<PAGE>
- ------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (in thousands)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Schwab Schwab Schwab
Money Government U.S. Treasury
Market Money Money
Fund Fund Fund
---------- ------------ -------------
<S> <C> <C> <C>
Interest income $1,129,182 $ 111,563 $ 83,740
---------- ------------ -------------
Expenses:
Investment advisory and administration fees 78,975 8,679 6,858
Transfer agency and shareholder service fees 89,452 8,978 6,979
Custodian fees 1,425 263 235
Registration fees 1,771 163 137
Professional fees 141 40 36
Shareholder reports 1,472 109 63
Trustees' fees 70 28 16
Insurance and other expenses 288 48 36
---------- ------------ -------------
173,594 18,308 14,360
Less: expenses reduced (see Note 4) (24,506) (3,345) (4,280)
---------- ------------ -------------
Total expenses incurred by Fund 149,088 14,963 10,080
---------- ------------ -------------
Net investment income 980,094 96,600 73,660
Net realized gain (loss) on investments sold 1 (224) (161)
---------- ------------ -------------
Increase in net assets resulting from operations $ 980,095 $ 96,376 $ 73,499
---------- ------------ -------------
---------- ------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
33
<PAGE>
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Schwab Schwab Schwab
Money Market Fund Government Money Fund U.S. Treasury Money Fund
---------------------------- ---------------------------- ----------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31, December 31,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 980,094 $ 765,391 $ 96,600 $ 92,486 $ 73,660 $ 59,450
Net realized gain (loss)
on investments sold 1 14 (224) (187) (161) (125)
------------- ------------- ------------- ------------- ------------- -------------
Increase in net assets
resulting from
operations 980,095 765,405 96,376 92,299 73,499 59,325
------------- ------------- ------------- ------------- ------------- -------------
Dividends to shareholders
from net investment
income (980,094) (765,391) (96,600) (92,486) (73,660) (59,450)
------------- ------------- ------------- ------------- ------------- -------------
Capital share transactions
(at $1.00 per share):
Proceeds from shares
sold 68,079,039 50,575,596 5,066,477 4,805,031 4,613,920 3,744,370
Net asset value of
shares issued in
reinvestment of
dividends 938,142 733,559 94,961 91,224 70,360 56,622
Less payments for shares
redeemed (65,679,416) (47,235,885) (5,166,150) (4,793,775) (4,340,346) (3,572,884)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in
net assets from
capital share
transactions 3,337,765 4,073,270 (4,712) 102,480 343,934 228,108
------------- ------------- ------------- ------------- ------------- -------------
Total increase
(decrease) in net
assets 3,337,766 4,073,284 (4,936) 102,293 343,773 227,983
Net assets:
Beginning of period 18,083,671 14,010,387 1,986,862 1,884,569 1,421,672 1,193,689
------------- ------------- ------------- ------------- ------------- -------------
End of period $21,421,437 $18,083,671 $ 1,981,926 $ 1,986,862 $ 1,765,445 $ 1,421,672
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
34
<PAGE>
SCHWAB MONEY MARKET FUND
- ------------------------------------------------------------------------------
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 0.05 0.04 0.03
Net realized and unrealized gain
(loss) on investments -- -- -- -- --
----------- ----------- ----------- ----------- ----------
Total from investment
operations 0.05 0.05 0.05 0.04 0.03
Less distributions
Dividends from net investment
income (0.05) (0.05) (0.05) (0.04) (0.03)
----------- ----------- ----------- ----------- ----------
Total distributions (0.05) (0.05) (0.05) (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) 5.04% 4.91% 5.41% 3.68% 2.67%
Ratios/Supplemental data
Net assets, end of period (000s) $21,421,437 $18,083,671 $14,010,387 $11,227,305 $8,164,599
Ratio of expenses to average net
assets+ 0.75% 0.75% 0.75% 0.74% 0.73%
Ratio of net investment income to
average net assets+ 4.93% 4.80% 5.27% 3.68% 2.64%
</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 0.87% 0.89% 0.90% 0.90% 0.91%
Ratio of net investment income
to average net assets 4.81% 4.66% 5.12% 3.52% 2.46%
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
35
<PAGE>
SCHWAB GOVERNMENT MONEY FUND
- ------------------------------------------------------------------------------
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 0.05 0.04 0.03
Net realized and unrealized gain
(loss)
on investments -- -- -- -- --
----------- ------------ ----------- ----------- ----------
Total from investment
operations 0.05 0.05 0.05 0.04 0.03
Less distributions
Dividends from net investment
income (0.05) (0.05) (0.05) (0.04) (0.03)
----------- ------------ ----------- ----------- ----------
Total distributions (0.05) (0.05) (0.05) (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) 4.95% 4.83% 5.34% 3.62% 2.66%
Ratios/Supplemental data
Net assets, end of period (000s) $ 1,981,926 $ 1,986,862 $ 1,884,569 $ 1,897,328 $1,744,603
Ratio of expenses to average net
assets+ 0.75% 0.75% 0.75% 0.74% 0.73%
Ratio of net investment income to
average net assets+ 4.84% 4.73% 5.21% 3.56% 2.63%
</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 0.92% 0.92% 0.92% 0.92% 0.93%
Ratio of net investment income
to average net assets 4.67% 4.56% 5.04% 3.38% 2.43%
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
36
<PAGE>
SCHWAB U.S. TREASURY MONEY FUND
- ------------------------------------------------------------------------------
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 0.05 0.04 0.03
Net realized and unrealized gain
(loss)
on investments -- -- -- -- --
----------- ----------- ----------- ----------- ----------
Total from investment
operations 0.05 0.05 0.05 0.04 0.03
Less distributions
Dividends from net investment
income (0.05) (0.05) (0.05) (0.04) (0.03)
----------- ----------- ----------- ----------- ----------
Total distributions (0.05) (0.05) (0.05) (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) 4.85% 4.77% 5.25% 3.52% 2.54%
Ratios/Supplemental data
Net assets, end of period (000s) $ 1,765,445 $ 1,421,672 $ 1,193,689 $ 803,871 $ 378,143
Ratio of expenses to average net
assets+ 0.65% 0.65% 0.65% 0.65% 0.65%
Ratio of net investment income to
average net assets+ 4.75% 4.67% 5.11% 3.60% 2.50%
</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 0.93% 0.94% 0.96% 1.00% 1.05%
Ratio of net investment income
to average net assets 4.47% 4.38% 4.80% 3.25% 2.10%
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
37
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1997
1. DESCRIPTION OF THE FUNDS
The Schwab Money Market Fund, Schwab Government Money Fund and Schwab U.S.
Treasury Money Fund (the "Funds") are series of The Charles Schwab Family of
Funds (the "Trust"), an open-end, management investment company organized as a
Massachusetts business trust on October 20, 1989 and registered under the
Investment Company Act of 1940, as amended.
In addition to the three funds described above, the Trust also offers--the
Schwab Municipal Money Fund, Schwab California Municipal Money Fund, Schwab New
York Municipal Money Fund, Schwab Value Advantage Money Fund-Registered
Trademark-, Schwab Institutional Advantage Money Fund-Registered Trademark-,
Schwab Retirement Money Fund-Registered Trademark- 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.
Government securities. All collateral is held by the Funds' custodian, except in
the case of a tri-party agreement, under which the collateral is held by an
agent bank. The collateral is monitored daily to ensure that its market value at
least equals the repurchase price under the agreement.
DIVIDENDS TO SHAREHOLDERS--Each Fund declares a daily dividend, equal to its net
investment income for that day, payable monthly.
- --------------------------------------------------------------------------------
38
<PAGE>
- --------------------------------------------------------------------------------
EXPENSES--Expenses arising in connection with a Fund are charged directly to
that Fund. Expenses common to all series of the Trust are generally allocated to
each series in proportion to their relative net assets.
FEDERAL INCOME TAXES--It is each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all net investment income and realized net capital gains, if any, to
shareholders. Therefore, no federal income tax provision is required. Each Fund
is considered a separate entity for tax purposes.
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS--The Trust has investment
advisory and administration agreements with Charles Schwab Investment
Management, Inc. (the "Investment Manager"). For advisory services and
facilities furnished, Schwab Money Market Fund pays an annual fee, payable
monthly, of 0.46% of the first $1 billion of average daily net assets, 0.45% of
the next $2 billion, 0.40% of the next $7 billion, 0.37% of the next $10
billion, and 0.34% of such assets in excess of $20 billion. For advisory
services and facilities furnished, the Schwab Government Money Fund and Schwab
U.S. Treasury Money Fund each pay an annual fee, payable monthly, of 0.46% of
the first $1 billion of each Fund's average daily net assets, 0.41% of the next
$1 billion, and 0.40% of such assets in excess of $2 billion. The Investment
Manager has reduced a portion of its fees for the 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 a
combined annual fee, payable monthly, of 0.45% of each Fund's average daily net
assets. 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 Schwab Money Market Fund, Schwab Government
Money Fund and Schwab U.S. Treasury Money Fund incurred fees aggregating
$114,000, related to the Trust's unaffiliated trustees.
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab guarantee that, through at least April 30,
1998, the Schwab Money Market Fund, Schwab Government Money Fund and Schwab U.S.
Treasury
- --------------------------------------------------------------------------------
39
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Money Funds' total operating expenses will not exceed 0.75%, 0.75% and 0.65%,
respectively, of each Fund's average daily net assets, after reductions 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 was $23,541,000, $3,208,000 and $4,184,000 for the Schwab
Money Market Fund, Schwab Government Money Fund and Schwab U.S. Treasury Money
Fund, respectively, and the total of such fees reduced by Schwab was $965,000,
$137,000 and $96,000 for the Schwab Money Market Fund, Schwab Government Money
Fund and Schwab U.S. Treasury Money Fund, respectively.
- --------------------------------------------------------------------------------
40
<PAGE>
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of Schwab Money Market Fund,
Schwab Government Money Fund and Schwab U.S. Treasury Money Fund
In our opinion, the accompanying statements of assets and liabilities, including
the schedules 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 Schwab Money Market Fund, Schwab
Government Money Fund and Schwab U.S. Treasury Money Fund (three series
constituting part of The Charles Schwab Family of Funds, hereafter referred to
as the "Trust") at December 31, 1997, the results of each of their operations
for the year then ended, the changes in each of their 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
- --------------------------------------------------------------------------------
41
<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 BONDS FUNDS
Schwab Bond Index Funds--Total and Short-Term Bond Market Index
Funds-Registered Trademark-
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.
(1) Formerly known as the Schwab Government Bond Funds--Long-Term and
Short/Intermediate.
(2) 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
