-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UcDA8vG8u4SdiSLEDvA4h/FGEqLQekqDdUVpi5guynjCdx6bt7L+kSgk3TvTf/wR U5skm82pWHoESfGloYvKuA== 0000935069-01-000184.txt : 20010312 0000935069-01-000184.hdr.sgml : 20010312 ACCESSION NUMBER: 0000935069-01-000184 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHWAB CHARLES FAMILY OF FUNDS CENTRAL INDEX KEY: 0000857156 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05954 FILM NUMBER: 1563519 BUSINESS ADDRESS: STREET 1: 101 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4156277000 MAIL ADDRESS: STREET 1: 101 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 N-30D 1 0001.txt SCHWAB MONEY FUNDS ANNUAL REPORT IMPORTANT NOTICE REGARDING DELIVERY OF SHAREHOLDER DOCUMENTS SCHWAB MONEY FUNDS December 31, 2000 Annual Report enclosed SCHWAB MONEY MARKET FUND SCHWAB GOVERNMENT MONEY FUND SCHWAB U.S. TREASURY MONEY FUND This report is not authorized for distribution to prospective investors unless preceeded or accompanied by a current prospectus. [GRAPHIC OMITTED] CHARLES SCHWAB SCHWAB MONEY FUNDS December 31, 2000 Annual Report SCHWAB MONEY MARKET FUND SCHWAB GOVERNMENT MONEY FUND SCHWAB U.S. TREASURY MONEY FUND [GRAPHIC OMITTED] CHARLES SCHWAB IMPORTANT NOTICE REGARDING DELIVERY OF SHAREHOLDER DOCUMENTS The Securities and Exchange Commission (SEC) permits mutual funds to deliver only one copy of shareholder documents, including prospectuses and shareholder reports, to fund investors with multiple accounts at the same residential or post office box address. This practice is commonly called "householding" and is intended to eliminate duplicate mailings of shareholder documents. MAILING OF YOUR SCHWABFUNDS(R) SHAREHOLDER DOCUMENTS MAY BE HOUSEHOLDED INDEFINITELY UNLESS YOU INSTRUCT US OTHERWISE. ADDITIONAL COPIES OF SHAREHOLDER DOCUMENTS All SchwabFunds prospectuses and shareholder reports are available free of charge and may be requested at any time by calling Schwab as indicated below. SchwabFunds prospectuses are also available on our Web site at WWW.SCHWAB.COM/SCHWABFUNDS. If you would prefer that your SchwabFunds mailings not be householded, please contact: SCHWAB SIGNATURE SERVICES(TM) CLIENTS Schwab Signature Services. INVESTMENT MANAGER CLIENTS Schwab at 1-800-515-2157, or your investment manager. ALL OTHER CLIENTS Schwab at 1-800-435-4000. Your instructions that householding not apply to your accounts holding SchwabFunds will be effective within 30 days of receipt by Schwab SCHWAB MONEY FUNDS(R) We're pleased to bring you this annual report for the following funds (the funds) for the one-year period ended December 31, 2000: o Schwab Money Market Fund o Schwab Government Money Fund o Schwab U.S. Treasury Money Fund During the reporting period, the funds continued to provide competitive money market returns, combined with stability of capital and liquidity. The funds presented in this report are Sweep Investments(TM) that are designed for your cash balances requiring frequent access. The funds can be conveniently linked to your Schwab account to serve as a primary sweep money fund. For your larger cash balances that do not require frequent access, you may wish to consider the Schwab Value Advantage Investments(R). You'll find more information on Schwab's money funds on page 3 of this report. Please remember that an investment in the funds is neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency and although the funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the funds. CONTENTS - --------------------------------------------------- A Message from the Chairman 1 - --------------------------------------------------- What Money Fund Investors Should Know 2 - --------------------------------------------------- Market Overview 5 - --------------------------------------------------- Portfolio Management 10 - --------------------------------------------------- Schwab Money Market Fund 11 - --------------------------------------------------- Schwab Government Money Fund 12 - --------------------------------------------------- Schwab U.S. Treasury Money Fund 13 - --------------------------------------------------- Questions to the Portfolio Management Team 14 - --------------------------------------------------- Glossary of Terms 15 - --------------------------------------------------- Portfolio Highlights 16 - --------------------------------------------------- Financial Statements and Notes 19 - --------------------------------------------------- A MESSAGE FROM THE CHAIRMAN [GRAPHIC OMITTED] Dear Shareholder, During the last few years, the benefits of investing have been readily apparent, while the risks have been somewhat less obvious. In recent months, however, investors have been subject to larger swings in the market, even within the span of a single day. Given this divergent environment, the message is clear: Expect volatility, maintain a long-term view and ensure your investment strategy is appropriate for your risk tolerance and time horizon. One way to lessen the impact of volatility on your portfolio is to adequately diversify your investments, both within and across asset sectors, namely stocks, bonds and cash equivalents. Since we launched our first equity fund in 1991, SchwabFunds(R) has become one of the largest and fastest-growing mutual fund companies in the United States. With more than $125 billion net assets under management and nearly six million accounts, we now manage 44 mutual funds, covering nearly every asset class. Our broad range of funds can help form the foundation of a diversified investment plan. SchwabFunds' asset allocation funds can even provide diversification within a single fund. As a leader in online brokerage, we recognize the value of the web as a means of communicating timely, relevant information to investors. Regular updates on all the SchwabFunds, including performance data, are available on our Web site at WWW.SCHWAB.COM/SCHWABFUNDS. We encourage you to take advantage of this valuable resource. Thank you for your investment in SchwabFunds. For its part, SchwabFunds will do everything we can to warrant the trust you have placed in us. Sincerely, /S/Charles Schwab Charles Schwab December 31, 2000 1 WHAT MONEY FUND INVESTORS SHOULD KNOW WHY ASSET ALLOCATION MATTERS As most investors know, one of the most compelling reasons to invest in a mutual fund is diversification. By allocating your assets across many different securities, a diversified fund helps to reduce the risk that you might otherwise encounter by owning just a few stocks or bonds. Don't forget, however, that diversification across your portfolio is just as important as diversification within one of the mutual funds you own. As you probably know, stocks historically have offered much higher returns over the long term than other asset classes, such as bonds or cash, but those returns have come at the price of higher volatility. To help mitigate some of that risk, many investors often include at least some bonds, money market securities or funds, and cash in their portfolio. CHOOSING A MONEY MARKET FUND Some investors may believe that there is no good reason to shop around for a money market fund. This may be partially due to the fact that 20 years ago, practically the only feature that differentiated one money market fund from another was whether it allowed investors to write checks against it. Today, investors can choose from a wide variety of options and features offered by the more than 1,000 money market funds currently available.1 You can help assure that you've chosen the right money market fund by considering the role it will play in your investment portfolio. Here are some factors to consider when making or reviewing your money market fund choice. EXPENSES: Because expenses are one of the key determining factors in a money market fund's performance, investors are wise to seek out funds with low operating expense ratios. Also, beware of those that have temporary expense waivers that waive expenses to zero because expenses can't stay at zero forever, and fees will undoubtedly eventually rise. Also consider 12b-1 fees, which some money market funds include in their expense ratios to pay for marketing costs. These fees can reduce yield, in some cases by a full percentage point. When comparing money market fund choices, you may want to avoid funds that carry these unnecessary fees. YIELDS: Look for competitive yields, but don't stop there. Many institutions advertise their money market funds on the basis of yield.2 Although getting a competitive yield is important, other features, such as convenient access to your investment, also are important considerations. Furthermore, stretching for an additional 10 or 20 basis points in yield (0.10% to 0.20%) may not be worth the time, effort or added risk. For example, a $10,000 investment in a money fund that yields 0.10% more amounts to only an additional $10 over a one-year period. SWEEP FEATURES: If you're looking for a convenient way to link your money market fund with your brokerage account, consider an account that has a "sweep" feature. Accounts with this feature automatically "sweep" uninvested cash into the fund you select as your primary money fund. The upshot: It keeps cash working. In addition, shares of your fund will be redeemed automatically to cover 1 An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency and, although money funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in a money fund. 2 Yields may vary. 2 WHAT MONEY FUND INVESTORS SHOULD KNOW (continued) investment purchases and other debits in your account. This convenience may be well worth the small additional cost. LARGER CASH BALANCES: You may earn higher yields for larger cash balances. If you don't need frequent access to the money in your money market fund, consider one designed to pay higher yields for larger cash balances. These funds typically have higher minimum balance requirements and transaction policies designed to minimize fund operating expenses, and may be able to post higher yields, all else being equal. TAXES: Don't forget to consider your tax situation. If you're in a high tax bracket, investing in tax-free or municipal money market funds may help take a bite out of your tax bill.3 And, if you live in a state with a high personal state income tax, you may be best served by choosing a state-specific tax-free fund that provides income free from federal, state and, in some cases, local income taxes.3 SCHWAB MONEY FUNDS Schwab offers two types of money funds--Sweep Investments(R) and Value Advantage Investments(R). Both include funds that offer taxable and tax-free income. Depending on the role that cash and cash-equivalent investments play in your investment plan, either or both may have a place in your investment portfolio. SWEEP INVESTMENTS are designed for your cash balances requiring frequent access. These funds can be linked to your Schwab account to serve as a primary sweep money fund. That means uninvested cash in your Schwab brokerage account is automatically swept in and out of the fund, based on transactions in your account and the terms and conditions of your account agreement. VALUE ADVANTAGE INVESTMENTS are designed for your larger cash balances that don't require frequent access. Value Advantage Investments have higher minimum initial and ongoing balance requirements than Sweep Investments. These requirements, along with policies designed to discourage frequent transactions, can help minimize fund expenses-- which in turn can mean higher returns for investors. Unlike Sweep Investments, Value Advantage Investments cannot be linked to your Schwab account to serve as your primary sweep fund. Schwab offers a variety of money funds. If you are selecting from among them, you should consider your attitude toward risk and return, as well as your income tax bracket. SCHWAB TAXABLE MONEY FUNDS SCHWAB MONEY MARKET FUND A high-quality money fund for investors interested in the potential for high money market yields. SCHWAB VALUE ADVANTAGE MONEY FUND(R) A high-quality money fund designed for larger cash balances that don't require frequent access. SCHWAB GOVERNMENT MONEY FUND Designed for investors who want current money market yields along with the added margin of safety provided by a portfolio of U.S. government securities and repurchase agreements. 3 This may not be true for investors subject to the federal alternative minimum tax (AMT); consult your tax advisor. 3 WHAT MONEY FUND INVESTORS SHOULD KNOW (continued) SCHWAB U.S. TREASURY MONEY FUND Of all the money funds offered by Schwab, this one seeks to provide the highest degree of safety. The fund invests exclusively in U.S. Treasury securities and other investments that are backed by the full faith and credit of the U.S. government. What's more, income from the fund is generally free from state and local income taxes. SCHWAB MUNICIPAL MONEY FUNDS4 SCHWAB MUNICIPAL MONEY FUND A high-quality municipal money fund that seeks to provide income that is free from federal income tax. SCHWAB STATE-SPECIFIC MUNICIPAL MONEY FUNDS Each of these funds is designed for taxpayers of a particular state and seeks to provide income that is exempt from federal, state and, in some cases, local income taxes. The Schwab Florida Municipal Money Fund also seeks to have its shares exempt from the Florida Intangible Tax. o Schwab California Municipal Money Fund o Schwab New York Municipal Money Fund o Schwab New Jersey Municipal Money Fund o Schwab Pennsylvania Municipal Money Fund o Schwab Florida Municipal Money Fund The table below presents the various money fund choices available at Schwab.
Value Advantage Taxable Money Funds Sweep Investments(R) Investments(R) - ------------------------------------------------------------------------------------------- Schwab Money Market Fund O - ------------------------------------------------------------------------------------------- Schwab Value Advantage Money Fund(R)--Investor Shares O - ------------------------------------------------------------------------------------------- Schwab Government Money Fund O - ------------------------------------------------------------------------------------------- Schwab U.S. Treasury Money Fund O - ------------------------------------------------------------------------------------------- Municipal Money Funds - ------------------------------------------------------------------------------------------- Schwab Municipal Money Fund O O - ------------------------------------------------------------------------------------------- Schwab California Municipal Money Fund O O - ------------------------------------------------------------------------------------------- Schwab New York Municipal Money Fund O O - ------------------------------------------------------------------------------------------- Schwab New Jersey Municipal Money Fund O - ------------------------------------------------------------------------------------------- Schwab Pennsylvania Municipal Money Fund O - ------------------------------------------------------------------------------------------- Schwab Florida Municipal Money Fund O - -------------------------------------------------------------------------------------------
If you would like more information on any of these funds, please call 800-435-4000 and request a prospectus. The prospectus contains more information on fund fees and expenses as well as risks. Please read it carefully before investing. 4 Income may be subject to the federal alternative minimum tax (AMT), and income from the Schwab Municipal Money Fund may be subject to state and local income taxes. 4 MARKET OVERVIEW GROWTH PERIOD IS THE LONGEST IN U.S. HISTORY. The year 2000 marked the tenth year of continuing U.S. economic expansion--the longest period of continuous growth in U.S. history. The main forces behind the expansion have been high levels of consumer spending--fueled by increases in personal income, personal wealth and consumer confidence--as well as a healthy housing sector and strong investment in capital improvements by businesses. However, as the year ended, it appeared that the current ten-year cycle may have run its course. In an effort to slow the economy while reducing inflationary pressures, the Federal Reserve Bank (the Fed) raised short-term interest rates from 5.5% to 6.5% in three separate actions during the first six months of 2000. These rate hikes proved to be effective as Q3 Gross Domestic Product (GDP) fell to 2.2%, its lowest level since Q3 1996, and well below the 5.6% rate of Q2 2000. Consumer and business spending, the main drivers of the expansion, decreased significantly later in the year and caused the [GRAPHIC OMITTED] - -------------------------------------------------------------------------- ASSET CLASS PERFORMANCE COMPARISON % returns during the report period - -------------------------------------------------------------------------- This graph compares the performance of various asset classes during the reporting period. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF PLOT POINTS IN PRINTED GRAPHIC
Lehman Aggregate MSCI EAFE Russell 2000 S&P 500 3 Month T-Bill Bond Index Index Small-Cap Index Index 01/07/00 -0.06 -4.56 -3.23 -1.89 0.12 01/14/00 -0.52 -2.21 0.6 -0.28 0.2 01/21/00 -0.68 -4.39 5.82 -1.9 0.3 01/28/00 -0.01 -4.83 0.05 -7.42 0.38 02/04/00 0.12 -2.85 4.21 -2.99 0.51 02/11/00 -0.17 -2.3 6.54 -5.53 0.63 02/18/00 0.37 -3.76 8.26 -8.32 0.68 02/25/00 1.02 -3.01 10.45 -9.19 0.8 03/03/00 1.2 -0.97 18.72 -3.92 0.91 03/10/00 1 -0.99 19.84 -4.88 1.01 03/17/00 1.69 -2.17 14.09 -0.15 1.14 03/24/00 1.57 -0.25 14.01 4.14 1.25 03/31/00 2.2 -0.4 7.09 2.27 1.39 04/07/00 3.02 -1.4 7.88 3.48 1.51 04/14/00 2.95 -4.85 -9.8 -7.42 1.64 04/21/00 2.85 -5.64 -4.23 -2.1 1.7 04/28/00 1.9 -5.73 0.64 -0.81 1.85 05/05/00 0.47 -6.12 1.98 -2.16 1.99 05/12/00 0.34 -7.08 -2.33 -2.95 2.09 05/19/00 0.54 -10.41 -4.56 -3.91 2.27 05/26/00 1.64 -9.93 -8.97 -5.89 2.36 06/02/00 2.83 -3.95 2.11 1.04 2.47 06/09/00 3.15 -4.1 4.16 -0.35 2.58 06/16/00 4.02 -4.46 2.37 0.17 2.71 06/23/00 3.05 -5.35 1.75 -1.4 2.83 06/30/00 3.97 -4.62 3.05 -0.44 2.93 07/07/00 4.44 -3.74 5.17 1.23 3.02 07/14/00 4.29 -4.15 8.07 3.35 3.12 07/21/00 4.88 -6.31 4.11 1.32 3.24 07/28/00 4.87 -9.35 -2.34 -2.81 3.35 08/04/00 5.66 -9.73 0.37 0.22 3.48 08/11/00 5.85 -8.41 1.74 0.83 3.59 08/18/00 5.98 -7.68 2.82 2.19 3.72 08/25/00 6.38 -7.03 4.77 3.2 3.82 09/01/00 6.7 -6.06 8.16 4.32 3.97 09/08/00 6.62 -9.9 6.8 2.51 4.13 09/13/00 6.44 -11.95 6.02 0.54 4.26 09/22/00 6.68 -13.19 3.63 -0.63 4.38 09/29/00 7.13 -12.67 4.21 -1.4 4.5 10/06/00 7.1 -12.93 -1.84 -3.29 4.63 10/13/00 7.48 -15.54 -3.93 -5.68 4.76 10/20/00 8.05 -15.71 -2.51 -4.12 4.87 10/27/00 7.92 -14.42 -4.01 -5.3 4.98 11/03/00 7.72 -11.72 1.6 -2 5.05 11/10/00 7.93 -13.63 -3.73 -6.17 5.23 11/17/00 8.41 -14.94 -3.34 -6.05 5.37 11/24/00 8.73 -17.27 -5.49 -7.84 5.5 12/01/00 9.33 -15.87 -8.47 -9.53 5.64 12/08/00 10.36 -14.84 -3.99 -5.77 5.78 12/15/00 11.19 -15.73 -8.17 -9.74 5.9 12/22/00 11.91 -16.69 -7.16 -10.16 6.2 12/29/00 11.63 -14.17 -3.02 -9.1 6.31
S&P 500(R) INDEX: measures U.S. large-cap stocks RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks THREE MONTH U.S. TREASURY BILLS (T-BILLS): measures short-term U.S. Treasury Obligations MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in Europe, Austalasia and the Far East LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: measures the U.S. bond market These figures assume dividends and distributions were reinvested. Index figures don't include trading and management costs, which would lower performance. Indices are unmanaged and you can't invest in them directly. Remember that past performance isn't an indication of future results. Data source: Charles Schwab & Co., Inc. (Schwab). 5 economy to slow even further as reflected in the Q4 GDP release of 1.4%. Concerned about this dramatic reduction, the Fed reversed its tightening bias and reduced interest rates from 6.5% to 6.0% on January 3, 2001. UNEMPLOYMENT HITS NEW LOWS. After trending downward for years, unemployment fell below the 4% mark (a level once considered improbable without high inflation) in April 2000, reaching a three-decade low. After trending slightly upward during the summer months, the unemployment rate settled back to the 4% level by year end. While the unemployment rate is low by historical standards, there have been some ominous indicators pointing to a weakening labor market. The manufacturing sector shed over 60,000 jobs in December while the average hours worked in that sector declined for the third consecutive month. Additionally, reports detailing job cuts in many companies, especially in the technology sector, were prevalent. Consensus forecasts call for unemployment to continue to rise during the first half of 2001 as the pace of growth moderates. [GRAPHIC OMITTED] ECONOMIC FACTORS AND THEIR EFFECTS ON THESE FUNDS. - -------------------------------------------------- The following charts show recent figures for common measures of the state of the U.S. economy and the interest rate environment. While the relationship of each of these factors to the performance of the funds is complex, the captions over each chart and the discussion above include analysis of how we believe these factors may have influenced market behavior during the report period. REAL GDP GROWTH Annualized growth rate for each quarter shown THE U.S. ECONOMY HAS GROWN STEADILY FOR THE PAST TEN YEARS BUT SLOWED DRAMATICALLY IN THE 4TH QUARTER OF 2000. REAL GDP GREW JUST 1.4% DURING THE QUARTER, SIGNIFICANTLY BELOW THE 5.2% RATE DURING THE FIRST HALF OF 2000. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF PLOT POINTS IN PRINTED GRAPHIC Mar-91 -2 Jun-91 2.3 Sep-91 1 Dec-91 2.2 Mar-92 3.8 Jun-92 3.8 Sep-92 3.1 Dec-92 5.4 Mar-93 -0.1 Jun-93 2.5 Sep-93 1.8 Dec-93 6.2 Mar-94 3.4 Jun-94 5.7 Sep-94 2.2 Dec-94 5 Mar-95 1.5 Jun-95 0.8 Sep-95 3.1 Dec-95 3.2 Mar-96 2.9 Jun-96 6.8 Sep-96 2 Dec-96 4.6 Mar-97 4.4 Jun-97 5.9 Sep-97 4.2 Dec-97 2.8 Mar-98 6.5 Jun-98 2.9 Sep-98 3.4 Dec-98 5.6 Mar-99 3.5 Jun-99 2.5 Sep-99 5.7 Dec-99 8.3 Mar-00 4.8 Jun-00 5.6 Sep-00 2.2 Dec-00 1.4 Gross domestic product (GDP), a broad measure of the goods and services produced in the United States during a given time period, is a prime indicator of the health of the country's economy. Typically, investors see increases in GDP as a positive, since it indicates stronger demand, production and corporate earnings. The figures shown here are adjusted for inflation. Data source: Bloomberg L.P. 6 STOCKS STUMBLE; MOST BONDS POST HEALTHY RETURNS. The equity markets continued to grow at a rapid rate as 2000 began and Y2K fears subsided. Most sectors of the stock market reached their highs in the early spring, before beginning a steady decline that continued throughout the rest of the year. The initial decline occurred when the Fed raised short-term interest rates, increasing pressure on stocks. Stocks of all sizes, both in the U.S. and overseas, posted negative returns for the period. Price declines were particularly steep in technology issues as investors turned their attention to more conservative investments. The NASDAQ composite index fell from its high of 5,048.62 in March to 2,470.52 at year end, a stunning decline of over 50%. As evidence began to emerge that the economy was slowing, many companies issued earnings warnings, sparking fears over equity valuations and leading to further declines. [GRAPHIC OMITTED] U.S. UNEMPLOYMENT RATE Adjusted for seasonal variations UNEMPLOYMENT HIT A THREE-DECADE LOW OF 3.9% IN APRIL 2000. ALTHOUGH IT TRENDED UP TO 4.1% DURING THE SUMMER MONTHS, IT CLOSED THE REPORTING PERIOD AT 4%, JUST ABOVE THE THREE DECADE LOW. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF PLOT POINTS IN PRINTED GRAPHIC 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 Nov-91 7 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 Apr-93 7.1 May-93 7.1 Jun-93 7 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 6.8 Feb-94 6.6 Mar-94 6.5 Apr-94 6.4 May-94 6.1 Jun-94 6.1 Jul-94 6.3 Aug-94 6 Sep-94 5.8 Oct-94 5.8 Nov-94 5.6 Dec-94 5.5 Jan-95 5.6 Feb-95 5.4 Mar-95 5.4 Apr-95 5.8 May-95 5.6 Jun-95 5.6 Jul-95 5.7 Aug-95 5.7 Sep-95 5.6 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 5.6 Jun-96 5.3 Jul-96 5.5 Aug-96 5.1 Sep-96 5.2 Oct-96 5.2 Nov-96 5.4 Dec-96 5.4 Jan-97 5.3 Feb-97 5.3 Mar-97 5.2 Apr-97 5 May-97 4.9 Jun-97 5 Jul-97 4.8 Aug-97 4.8 Sep-97 4.9 Oct-97 4.7 Nov-97 4.6 Dec-97 4.7 Jan-98 4.7 Feb-98 4.6 Mar-98 4.7 Apr-98 4.3 May-98 4.4 Jun-98 4.5 Jul-98 4.5 Aug-98 4.5 Sep-98 4.5 Oct-98 4.5 Nov-98 4.4 Dec-98 4.4 Jan-99 4.3 Feb-99 4.4 Mar-99 4.2 Apr-99 4.3 May-99 4.2 Jun-99 4.3 Jul-99 4.3 Aug-99 4.2 Sep-99 4.2 Oct-99 4.1 Nov-99 4.1 Dec-99 4.1 Jan-00 4 Feb-00 4.1 Mar-00 4.1 Apr-00 3.9 May-00 4.1 Jun-00 4 Jul-00 4 Aug-00 4.1 Sep-00 3.9 Oct-00 3.9 Nov-00 4 Dec-00 4 This measures the portion of the U.S. labor force that is unemployed and is either seeking a job or waiting to return to one. Low unemployment often accompanies prosperity and is generally a positive factor for investors, although very low unemployment may boost inflation as employers raise pay to compete for workers. Rising unemployment may mean a softening economy. Data source: Bloomberg L.P. MEASURES OF INFLATION Annualized figures for the Consumer Price Index (monthly) and Employment Cost Index (quarterly) CPI WAS UP 3.4% FOR THE 12 MONTHS ENDED DECEMBER 31, 2000 (2.6% IF FOOD AND ENERGY ARE EXCLUDED). ECI ROSE 4.1% (FOR THE 12 MONTHS ENDED DECEMBER 31, 2000). [GRAPHIC OMITTED] EDGAR REPRESENTATION OF PLOT POINTS IN PRINTED GRAPHIC Date Consumer Employment Price Index Cost Index Jan-91 5.6 4.6 Feb-91 5.3 4.6 Mar-91 4.9 4.6 Apr-91 4.8 4.6 May-91 5 4.6 Jun-91 4.7 4.6 Jul-91 4.4 4.6 Aug-91 3.8 4.6 Sep-91 3.4 4.3 Oct-91 2.8 4.3 Nov-91 3.1 4.3 Dec-91 3 4.3 Jan-92 2.7 4.3 Feb-92 2.8 4.3 Mar-92 3.2 4 Apr-92 3.2 4 May-92 3 4 Jun-92 3 3.6 Jul-92 3.2 3.6 Aug-92 3.1 3.6 Sep-92 3 3.5 Oct-92 3.3 3.5 Nov-92 3.1 3.5 Dec-92 3 3.5 Jan-93 3.2 3.5 Feb-93 3.2 3.5 Mar-93 3 3.5 Apr-93 3.2 3.5 May-93 3.2 3.5 Jun-93 3 3.6 Jul-93 2.8 3.6 Aug-93 2.8 3.6 Sep-93 2.8 3.6 Oct-93 2.8 3.6 Nov-93 2.7 3.6 Dec-93 2.8 3.5 Jan-94 2.5 3.5 Feb-94 2.5 3.5 Mar-94 2.6 3.2 Apr-94 2.4 3.2 May-94 2.3 3.2 Jun-94 2.5 3.2 Jul-94 2.7 3.2 Aug-94 2.9 3.2 Sep-94 3 3.2 Oct-94 2.6 3.2 Nov-94 2.7 3.2 Dec-94 2.6 3 Jan-95 2.8 3 Feb-95 2.9 3 Mar-95 2.9 2.9 Apr-95 2.8 2.9 May-95 3.1 2.9 Jun-95 3 2.9 Jul-95 2.8 2.9 Aug-95 2.6 2.9 Sep-95 2.5 2.7 Oct-95 2.8 2.7 Nov-95 2.6 2.7 Dec-95 2.6 2.8 Jan-96 2.7 2.8 Feb-96 2.7 2.8 Mar-96 2.9 2.8 Apr-96 2.8 2.8 May-96 2.9 2.8 Jun-96 2.8 2.9 Jul-96 2.9 2.9 Aug-96 2.8 2.9 Sep-96 3 2.8 Oct-96 3 2.8 Nov-96 3.2 2.8 Dec-96 3.2 2.9 Jan-97 3 2.9 Feb-97 3 2.9 Mar-97 2.8 2.9 Apr-97 2.5 2.9 May-97 2.2 2.9 Jun-97 2.3 2.8 Jul-97 2.2 2.8 Aug-97 2.2 2.8 Sep-97 2.2 3 Oct-97 2.1 3 Nov-97 1.9 3 Dec-97 1.7 3.3 Jan-98 1.6 3.3 Feb-98 1.4 3.3 Mar-98 1.4 3.3 Apr-98 1.5 3.3 May-98 1.7 3.3 Jun-98 1.6 3.5 Jul-98 1.7 3.5 Aug-98 1.7 3.5 Sep-98 1.4 3.7 Oct-98 1.4 3.7 Nov-98 1.5 3.7 Dec-98 1.6 3.4 Jan-99 1.7 3.4 Feb-99 1.7 3.4 Mar-99 1.8 3 Apr-99 2.3 3 May-99 2.1 3 Jun-99 2 3.2 Jul-99 2.1 3.2 Aug-99 2.3 3.2 Sep-99 2.6 3.1 Oct-99 2.6 3.1 Nov-99 2.6 3.1 Dec-99 2.7 3.4 Jan-00 2.7 3.4 Feb-00 3.2 3.4 Mar-00 3.8 4.3 Apr-00 3.1 4.3 May-00 3.2 4.3 Jun-00 3.7 4.4 Jul-00 3.7 4.4 Aug-00 3.4 4.4 Sep-00 3.5 4.3 Oct-00 3.4 4.3 Nov-00 3.4 4.3 Dec-00 The Consumer Price Index (CPI) tracks changes in the cost of goods and services and is the most common measure of inflation. The Employment Cost Index (ECI) measures the cost of employing workers, including benefits costs. Financial markets are very sensitive to increases in inflation because of the potentially negative impact on corporate earnings, investors and consumers. Data source: Bloomberg L.P. 7 Yields on short-term debt securities generally increased during the reporting period, due to a combination of a robust U.S. economy and the three rate hikes imposed by the Fed in an effort to stave off inflationary threats. During the report period, 90-day commercial paper yields reached a high of 6.62% and three-month T-bill yields reached a high of 6.40%. [GRAPHIC OMITTED] While short-term interest rates generally rose during the report period, intermediate- and long-term bond rates actually fell. A major factor for bonds was the U.S. Treasury's decision to use some of the budget surplus to buy back its own bonds. This action resulted in an inversion of the normal relationship between short-term and long-term rates, creating a situation where short-term bonds paid higher yields than long-term bonds. This scenario gave a boost to bond prices and to returns of most bond investments over the period. During the report period, the Lehman Brothers U.S. Aggregate Bond Index gained 11.63% while the Lehman General Muni Bond Index was up 11.68%. YIELDS OF U.S. TREASURY BONDS Effective yields of five-year and ten-year Treasuries WITH ITS BUYBACK PROGRAM, THE TREASURY SUDDENLY EMERGED AS A MAJOR CUSTOMER FOR ITS OWN BONDS, DRIVING PRICES UP (AND YIELDS DOWN) ON LONG-TERM TREASURIES. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF PLOT POINTS IN PRINTED GRAPHIC Five-Year Ten-Year Treasury Treasury Bond Yield Bond Yield Jan-91 7.61 8.01 Feb-91 7.7 8.03 Mar-91 7.75 8.06 Apr-91 7.61 8.01 May-91 7.71 8.06 Jun-91 7.88 8.23 Jul-91 7.74 8.15 Aug-91 7.34 7.82 Sep-91 6.91 7.45 Oct-91 6.74 7.46 Nov-91 6.48 7.38 Dec-91 5.93 6.7 Jan-92 6.43 7.27 Feb-92 6.56 7.25 Mar-92 6.92 7.53 Apr-92 6.88 7.58 May-92 6.6 7.32 Jun-92 6.27 7.12 Jul-92 5.82 6.71 Aug-92 5.58 6.6 Sep-92 5.32 6.35 Oct-92 5.89 6.79 Nov-92 6.22 6.94 Dec-92 5.99 6.69 Jan-93 5.55 6.36 Feb-93 5.21 6.02 Mar-93 5.24 6.02 Apr-93 5.11 6.01 May-93 5.37 6.15 Jun-93 5.05 5.78 Jul-93 5.15 5.81 Aug-93 4.79 5.45 Sep-93 4.77 5.38 Oct-93 4.85 5.43 Nov-93 5.16 5.82 Dec-93 5.21 5.79 Jan-94 5.02 5.64 Feb-94 5.57 6.13 Mar-94 6.23 6.74 Apr-94 6.64 7.04 May-94 6.76 7.15 Jun-94 6.95 7.32 Jul-94 6.73 7.11 Aug-94 6.8 7.17 Sep-94 7.28 7.6 Oct-94 7.49 7.81 Nov-94 7.79 7.91 Dec-94 7.83 7.82 Jan-95 7.51 7.58 Feb-95 7.04 7.2 Mar-95 7.07 7.2 Apr-95 6.88 7.06 May-95 6.05 6.28 Jun-95 5.97 6.2 Jul-95 6.16 6.43 Aug-95 6.07 6.28 Sep-95 6.02 6.18 Oct-95 5.81 6.02 Nov-95 5.52 5.74 Dec-95 5.38 5.57 Jan-96 5.24 5.58 Feb-96 5.73 6.1 Mar-96 6.09 6.33 Apr-96 6.41 6.67 May-96 6.63 6.85 Jun-96 6.46 6.71 Jul-96 6.57 6.79 Aug-96 6.73 6.94 Sep-96 6.46 6.7 Oct-96 6.07 6.34 Nov-96 5.83 6.04 Dec-96 6.21 6.42 Jan-97 6.25 6.49 Feb-97 6.39 6.55 Mar-97 6.75 6.9 Apr-97 6.57 6.72 May-97 6.5 6.66 Jun-97 6.38 6.5 Jul-97 5.9 6.01 Aug-97 6.22 6.34 Sep-97 5.99 6.1 Oct-97 5.71 5.83 Nov-97 5.84 5.87 Dec-97 5.71 5.74 Jan-98 5.38 5.51 Feb-98 5.59 5.62 Mar-98 5.62 5.65 Apr-98 5.64 5.67 May-98 5.55 5.55 Jun-98 5.47 5.45 Jul-98 5.5 5.49 Aug-98 4.8 4.98 Sep-98 4.22 4.42 Oct-98 4.23 4.61 Nov-98 4.48 4.71 Dec-98 4.54 4.65 Jan-99 4.55 4.65 Feb-99 5.22 5.29 Mar-99 5.1 5.24 Apr-99 5.21 5.35 May-99 5.58 5.62 Jun-99 5.65 5.78 Jul-99 5.79 5.9 Aug-99 5.87 5.97 Sep-99 5.75 5.88 Oct-99 5.95 6.02 Nov-99 6.11 6.19 Dec-99 6.34 6.44 Jan-00 6.68 6.67 Feb-00 6.6 6.41 Mar-00 6.31 6 Apr-00 6.54 6.21 May-00 6.52 6.27 Jun-00 6.18 6.03 Jul-00 6.15 6.03 Aug-00 5.97 5.72 Sep-00 5.85 5.8 Oct-00 5.81 5.75 Nov-00 5.43 5.47 Dec-00 4.98 5.11 Yields, or interest rates, represent the cost of borrowing money. Rapid economic growth or the expectation of higher inflation can drive rates up, while the opposite conditions can push rates down. 90-DAY COMMERCIAL PAPER AND THREE-MONTH TREASURY BILL YIELDS SHORT-TERM YIELDS ROSE DURING THE FIRST HALF OF THE REPORT PERIOD DUE TO THE FED'S ACTIONS TO INCREASE INTEREST RATES BEFORE STABILIZING DURING THE SECOND HALF OF THE YEAR. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF PLOT POINTS IN PRINTED GRAPHIC Three-Month T-Bill 90-Day Commercial Paper 01/00 5.38 5.66 5.41 5.71 5.47 5.77 5.63 5.79 5.67 5.85 5.64 5.86 5.75 5.86 5.77 5.88 03/00 5.82 5.89 5.9 5.91 5.88 6 5.91 6.05 5.88 6.09 5.9 6.09 5.78 6.08 5.8 6.12 5.83 6.17 05/00 5.97 6.41 6.14 6.54 5.88 6.59 5.83 6.61 5.87 6.62 5.91 6.57 5.83 6.57 5.85 6.57 5.86 6.58 07/00 6.04 6.53 6.18 6.51 6.12 6.52 6.19 6.51 6.23 6.51 6.31 6.49 6.27 6.48 6.3 6.48 09/00 6.27 6.48 6.16 6.52 6.14 6.52 6.16 6.46 6.22 6.47 6.25 6.5 6.19 6.51 6.31 6.52 6.34 6.5 11/00 6.4 6.5 6.37 6.49 6.35 6.51 6.37 6.48 12/00 6.22 6.5 6.07 6.43 6.04 6.33 5.27 6.28 5.9 6.28 Commercial paper and T-bills are two types of investments for many money market funds. Commercial paper consists of short-term obligations issued by banks, corporations and other institutions. T-bills are issued by the U.S. government with three-month, six-month and one-year maturities. The yields of commercial paper and T-bills normally move in the same direction and are impacted by the Federal Funds Rate. The spread between the two yields is typically an indication of investors' current sentiment of commercial paper's risk versus the higher credit quality, but lower-yielding T-bill. Data source: Bloomberg L.P. 8 - --------------------------------------------------------------------------- THE CONSENSUS AMONG ECONOMISTS IS THAT THE U.S. ECONOMY APPEARS POISED FOR CONTINUED GROWTH, ALBEIT AT LOWER RATES THAN THOSE OF THE PAST FEW YEARS. - --------------------------------------------------------------------------- Source: Schwab. LOOKING AHEAD: GROWTH MAY CONTINUE, BUT RATE MAY SLOW. Recent evidence indicates that the economy has indeed slowed and while there has been talk of a possible recession in the press, the consensus among most economists is that the U.S. economy appears poised for continued growth, albeit at much lower rates than those of the past few years. In a recent survey of 54 leading U.S. economists in THE WALL STREET JOURNAL, the consensus estimate for GDP growth was 2% in Q1 2001 and 2.1% in Q2 2001. The slowdown also increases the chances that some form of a tax cut proposed by President Bush may be enacted. It is anticipated that the combination of a reduction in short-term rates and a tax cut should provide the necessary stimulus to avoid an economic downturn, while setting the stage for continued growth in the second half of the year. 9 PORTFOLIO MANAGEMENT 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. KAREN WIGGAN--portfolio manager, has managed the Schwab Government Money Fund and the Schwab U.S. Treasury Fund since March 1999. Karen joined Schwab in 1986, CSIM in 1991, and was promoted to her current position in March 1999. 10 SCHWAB MONEY MARKET FUND YIELD SUMMARY AS OF 12/31/00 1 - -------------------------------------------------------------------------------- Seven-Day Yield 5.95% - -------------------------------------------------------------------------------- Seven-Day Effective Yield 6.13% - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION The Schwab Money Market Fund invests in high-quality short-term money market investments issued by U.S. and foreign issuers, such as commercial paper, including asset-backed commercial paper and promissory notes, certificates of deposit and time deposits, variable and floating-rate debt securities, bank notes and bankers' acceptances and repurchase agreements. The chart to the right illustrates the composition of the fund's portfolio as of December 31, 2000 and is not indicative of its holdings after that date. A complete list of the securities in the fund's portfolio as of December 31, 2000 is provided in the Schedule of Investments later in this report. Please remember that money market fund yields fluctuate and that past performance is no guarantee of future results. 1 A portion of the fund's expenses was reduced during the reporting period. Without this reduction, the fund's yields would have been lower. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF PLOT POINTS IN PRINTED GRAPHIC PORTFOLIO COMPOSITION AS A PERCENTAGE OF FUND INVESTMENTS as of 12/31/00 Commercial Paper and other Corporate Obligations 57.1% Certificates of Deposit 32.3% Variable Rate Obligations 3.7% Repurchase Agreements 2.9% Bank Notes 2.1% Promissory Notes 1.9% 11 SCHWAB GOVERNMENT MONEY FUND YIELD SUMMARY AS OF 12/31/00 1 - -------------------------------------------------------------------------------- Seven-Day Yield 5.78% - -------------------------------------------------------------------------------- Seven-Day Effective Yield 5.95% - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION The Schwab Government Money Fund invests in U.S. government securities such as U.S. Treasury bills, notes and bonds and other obligations that are issued or guaranteed by the U.S. government, its agencies or instrumentalities including Fannie Maes, Freddie Macs and Sallie Maes, and repurchase agreements for these securities. The chart to the right illustrates the composition of the fund's portfolio as of December 31, 2000 and is not indicative of its holdings after that date. A complete list of the securities in the fund's portfolio as of December 31, 2000 is provided in the Schedule of Investments later in this report. Please remember that money market fund yields fluctuate and that past performance is no guarantee of future results. 1 A portion of the fund's expenses was reduced during the reporting period. Without this reduction, the fund's yields would have been lower. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF PLOT POINTS IN PRINTED GRAPHIC PORTFOLIO COMPOSITION AS A PERCENTAGE OF FUND INVESTMENTS as of 12/31/00 Government Securities (Fixed) 55.2% Repurchase Agreements 32.8% Government Securities (Variable Rate Obligations) 12.0% 12 SCHWAB U.S. TREASURY MONEY FUND YIELD SUMMARY AS OF 12/31/00 1 - -------------------------------------------------------------------------------- Seven-Day Yield 5.60% - -------------------------------------------------------------------------------- Seven-Day Effective Yield 5.76% - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION The Schwab U.S. Treasury Money Fund invests exclusively in securities backed by the full faith and credit of the U.S. government, such as U.S. Treasury notes, bills and bonds. The chart to the right illustrates the composition of the fund's portfolio as of December 31, 2000 and is not indicative of its holdings after that date. A complete list of the securities in the fund's portfolio as of December 31, 2000 is provided in the Schedule of Investments later in this report. Please remember that money market fund yields fluctuate and that past performance is no guarantee of future results. 1 A portion of the fund's expenses was reduced during the reporting period. Without this reduction, the fund's yields would have been lower. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF PLOT POINTS IN PRINTED GRAPHIC PORTFOLIO COMPOSITION AS A PERCENTAGE OF FUND INVESTMENTS as of 12/31/00 Government Securities 100.0% 13 QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM Q. CAN YOU DESCRIBE THE SHORT-TERM INTEREST RATE ENVIRONMENT DURING THE ONE-YEAR REPORTING PERIOD? A. Short-term interest rates increased during the first half of the reporting period as the strength of the U.S. economy prompted the Fed to raise short-term interest rates three times. Initially, the Fed adopted a gradual approach in its effort to slow down the economy, raising the Federal Funds Rate by 0.25% both in February and March 2000. When April's unemployment rate declined to 3.9%, the lowest level in 30 years, the Fed abandoned its gradual approach and raised the federal funds rate by 0.50% in May. This increase lifted the federal funds rate to 6.5%; its highest level since 1991. In the second half of the year, the economy's pace of growth did slow, as explained in the Market Overview section. Consequently, the Fed ceased its campaign to increase rates and adopted a "neutral" bias. Towards the end of the year, consumer and business spending suffered steep declines, partly in response to the higher cost of borrowing. These declines fueled speculation that a reduction in rates would be forthcoming to boost a suddenly slumping economy. Although the Fed left short-term interest rates unchanged after its regular December meeting, hints of a reduction emerged for January 2001. (NOTE: THE FED ULTIMATELY DECIDED TO ACT BETWEEN REGULAR MEETINGS, LOWERING SHORT-TERM RATES BY 0.50% ON JANUARY 3, 2001.) Q. HOW HAS THE PORTFOLIO MANAGEMENT TEAM ADJUSTED THE FUNDS' PORTFOLIOS IN RESPONSE TO CHANGES IN INTEREST RATES? A. As discussed in the first question, the first half of the year was characterized by a sharply rising interest rate environment. During this period, we lowered the dollar weighted average maturity (DWAM) of the funds. This strategy enabled us to reinvest proceeds from maturing securities into newly issued, higher yielding securities. As rates began to stabilize and inflationary pressures eased, market sentiment started to turn. It also became apparent that the economy was slowing down and the Fed would not continue to raise interest rates. As a result, we gradually began extending the DWAM of the portfolios in order to lock in higher yields, in anticipation of a reduction in interest rates. Of course, SEC regulations require that money funds maintain a DWAM of no more than 90 days at all times. Further, each individual security purchased must mature in 397 days or less. While money funds' DWAMs will vary depending on their respective portfolio managers' outlooks for interest rates, our long-term strategy is to maintain DWAMs that are slightly longer than those of other money funds with similar investment objectives. We deviated from this strategy somewhat during the first half of the reporting period by shortening the funds' DWAMs to be comparable to those of their peers. However, we believe that shortening the funds' DWAMs allowed the funds to take advantage of the rising rate environment of the first half of the year, as explained above. 14 GLOSSARY OF TERMS COMMERCIAL PAPER--Short-term 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 strength 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 values 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, which establishes policies on bank reserves and regulations, determines the discount rate and the federal funds rate, and tightens or loosens the availability of credit. FIRST-TIER SECURITY--Generally, a security rated in the highest credit-rating category by a requisite number of nationally recognized statistical rating organizations, such as Moody's, Standard & Poor's(R), or Fitch. 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) is the total market value of all goods and services produced in the United States over a specific period of time adjusted for the rate of inflation to allow meaningful year-to-year comparisons. YIELD--The actual annualized income earned on an investment over a stated period of time (assumed to be generated over a one-year period). An EFFECTIVE YIELD assumes that the income earned is reinvested. 15 PORTFOLIO HIGHLIGHTS SCHWAB MONEY MARKET FUND AVERAGE YIELDS FOR PERIODS ENDED 12/31/00 1 - -------------------------------------------------------------------------- Last seven days 5.95% - -------------------------------------------------------------------------- Last three months 5.95% - -------------------------------------------------------------------------- Last 12 months 5.69% - -------------------------------------------------------------------------- MATURITY SCHEDULE PERCENTAGE OF TOTAL INVESTMENTS MATURITY RANGE 3/31/00 6/30/00 9/30/00 12/31/00 - -------------------------------------------------------------------------- 0-15 days 14.6% 28.2% 27.7% 13.3% - -------------------------------------------------------------------------- 16-30 days 15.4% 23.7% 13.7% 11.1% - -------------------------------------------------------------------------- 31-60 days 32.8% 8.7% 25.7% 28.2% - -------------------------------------------------------------------------- 61-90 days 24.6% 13.4% 16.6% 26.2% - -------------------------------------------------------------------------- 91-120 days 3.0% 10.5% 2.3% 10.3% - -------------------------------------------------------------------------- More than 120 days 9.6% 15.5% 14.0% 10.9% - -------------------------------------------------------------------------- Weighted average 62 days 63 days 59 days 67 days - -------------------------------------------------------------------------- PORTFOLIO QUALITY SEC TIER RATING PERCENTAGE OF TOTAL INVESTMENTS: 12/31/00 - -------------------------------------------------------------------------- Tier 1 100% - -------------------------------------------------------------------------- 1 A portion of the fund's expenses was reduced during these periods. Without this reduction, yields would have been lower. 16 PORTFOLIO HIGHLIGHTS SCHWAB GOVERNMENT MONEY FUND AVERAGE YIELDS FOR PERIODS ENDED 12/31/00 1 - ----------------------------------------------------------------------- Last seven days 5.78% - ----------------------------------------------------------------------- Last three months 5.84% - ----------------------------------------------------------------------- Last 12 months 5.55% - ----------------------------------------------------------------------- MATURITY SCHEDULE PERCENTAGE OF TOTAL INVESTMENTS MATURITY RANGE 3/31/00 6/30/00 9/30/00 12/31/00 - ----------------------------------------------------------------------- 0-15 days 45.9% 54.9% 57.1% 46.5% - ----------------------------------------------------------------------- 16-30 days 8.0% 7.3% 3.9% 12.1% - ----------------------------------------------------------------------- 31-60 days 15.3% 5.7% 5.1% 14.2% - ----------------------------------------------------------------------- 61-90 days 10.5% 13.2% 6.2% 8.8% - ----------------------------------------------------------------------- 91-120 days 5.3% 3.4% 5.9% 6.1% - ----------------------------------------------------------------------- More than 120 days 15.0% 15.5% 21.8% 12.3% - ----------------------------------------------------------------------- Weighted average 61 days 54 days 55 days 47 days - ----------------------------------------------------------------------- 1 A portion of the fund's expenses was reduced during these periods. Without this reduction, yields would have been lower. 17 PORTFOLIO HIGHLIGHTS SCHWAB U.S. TREASURY MONEY FUND AVERAGE YIELDS FOR PERIODS ENDED 12/31/00 1 - ---------------------------------------------------------------------------- Last seven days 5.60% - ---------------------------------------------------------------------------- Last three months 5.60% - ---------------------------------------------------------------------------- Last 12 months 5.27% - ---------------------------------------------------------------------------- MATURITY SCHEDULE PERCENTAGE OF TOTAL INVESTMENTS MATURITY RANGE 3/31/00 6/30/00 9/30/00 12/31/00 - ---------------------------------------------------------------------------- 0-15 days 3.0% 8.5% 11.0% 1.0% - ---------------------------------------------------------------------------- 16-30 days 30.2% 10.3% 6.3% 9.3% - ---------------------------------------------------------------------------- 31-60 days 18.5% 28.5% 28.3% 39.5% - ---------------------------------------------------------------------------- 61-90 days 20.7% 18.7% 26.2% 21.0% - ---------------------------------------------------------------------------- 91-120 days 5.9% 14.5% 3.7% 11.9% - ---------------------------------------------------------------------------- More than 120 days 21.7% 19.5% 24.5% 17.3% - ---------------------------------------------------------------------------- Weighted average 70 days 67 days 67 days 73 days - ---------------------------------------------------------------------------- 1 A portion of the fund's expenses was reduced during these periods. Without this reduction, yields would have been lower. 18 SCHWAB MONEY MARKET FUND SCHEDULE OF INVESTMENTS (in thousands) December 31, 2000 Par Value -------- ----------- COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS -- 56.7% AUTOMOTIVE -- 4.9% FCE Bank, PLC 6.49%, 03/02/01 $100,000 $ 98,935 6.45%, 03/16/01 100,000 98,695 6.36%, 03/22/01 120,000 118,331 6.34%, 04/12/01 10,000 9,825 Ford Motor Credit 6.46%, 03/08/01 29,000 28,662 6.45%, 03/16/01 265,000 261,541 6.47%, 03/16/01 50,000 49,346 6.44%, 03/20/01 255,000 251,500 6.33%, 04/12/01 220,000 216,164 General Motors Acceptance Corp. 6.65%, 02/06/01 199,000 197,695 6.65%, 02/07/01 200,000 198,652 6.66%, 02/07/01 140,000 139,063 6.68%, 02/09/01 100,000 99,294 6.73%, 02/16/01 45,000 44,626 6.63%, 02/20/01 200,000 198,190 6.59%, 03/02/01 32,000 31,654 6.47%, 03/20/01 32,000 31,558 ----------- $ 2,073,731 ----------- BANKING - AUSTRALIA -- 0.2% Westpac Capital Corp. 6.60%, 03/30/01 50,000 49,215 6.61%, 04/30/01 50,000 48,944 ----------- 98,159 ----------- BANKING - BELGIUM -- 0.3% (a) Fortis Funding, L.L.C. 6.71%, 01/08/01 23,640 23,610 6.33%, 03/29/01 100,000 98,494 ----------- 122,104 ----------- BANKING - CANADA -- 1.2% Bank of Nova Scotia 6.61%, 02/07/01 83,000 82,443 6.47%, 03/13/01 200,000 197,489 6.44%, 03/15/01 100,000 98,715 National Bank of Canada 6.64%, 03/05/01 50,000 49,429 6.58%, 03/07/01 26,000 25,696 6.66%, 04/04/01 50,000 49,168 ----------- 502,940 ----------- Par Value -------- ----------- BANKING - DENMARK -- 0.8% Danske Corp. 6.33%, 03/30/01 $ 70,000 $ 68,934 6.68%, 04/02/01 48,000 47,216 6.63%, 04/17/01 15,750 15,452 6.61%, 04/30/01 25,000 24,472 6.62%, 04/30/01 21,000 20,556 Unifunding, Inc. 6.44%, 03/12/01 50,000 49,383 6.45%, 03/14/01 50,000 49,365 6.37%, 06/13/01 50,000 48,603 ----------- 323,981 ----------- BANKING - FRANCE -- 0.1% Societe Generale, N.A. 6.65%, 04/04/01 50,000 49,169 ----------- BANKING - GERMANY -- 3.2% Bavaria TRR Corp. (a)(e) 6.75%, 01/02/01 19,241 19,237 6.74%, 01/24/01 10,137 10,094 6.68%, 02/01/01 50,000 49,717 6.67%, 04/17/01 32,195 31,585 Deutsche Bank Financial, Inc. 6.63%, 02/15/01 255,000 252,922 6.63%, 02/16/01 191,000 189,409 6.63%, 02/23/01 235,000 232,741 6.66%, 03/02/01 215,000 212,678 6.70%, 03/02/01 40,000 39,568 6.57%, 03/06/01 125,000 123,563 Giro US Funding Corp. (a)(e) 6.71%, 01/16/01 14,564 14,524 6.66%, 02/13/01 49,363 48,977 6.66%, 02/16/01 50,857 50,431 6.66%, 02/20/01 28,552 28,292 6.66%, 02/21/01 12,000 11,889 6.51%, 02/26/01 11,000 10,890 6.71%, 03/09/01 24,000 23,710 6.72%, 03/20/01 9,000 8,873 ----------- 1,359,100 ----------- BANKING - NETHERLANDS -- 2.5% Atlantis One Funding Corp. (e) 6.68%, 02/13/01 181,129 179,723 6.70%, 02/13/01 30,000 29,767 6.68%, 02/22/01 103,931 102,954 6.45%, 03/09/01 130,535 128,992 19 SCHWAB MONEY MARKET FUND SCHEDULE OF INVESTMENTS (in thousands) (continued) December 31, 2000 Par Value -------- ----------- Internationale Nederlanden (U.S.) Funding Corp. 6.75%, 02/20/01 $50,000 $49,547 Tulip Funding Corp. (a)(e) 6.68%, 01/12/01 94,676 94,485 6.68%, 01/17/01 39,339 39,223 6.72%, 01/25/01 179,758 178,961 6.73%, 01/29/01 36,000 35,814 6.63%, 03/14/01 46,153 45,557 6.39%, 03/15/01 50,000 49,361 6.63%, 03/20/01 10,000 9,860 6.70%, 03/26/01 34,000 33,486 6.63%, 04/24/01 48,000 47,033 ----------- 1,024,763 ----------- BANKING - NORWAY -- 0.5% Christiania Capital Corp. (a) 6.66%, 02/15/01 62,000 61,495 Den Norske Bank 6.66%, 02/05/01 61,000 60,614 6.15%, 05/29/01 84,000 81,930 ----------- 204,039 ----------- BANKING - SPAIN -- 0.4% Santander Finance (Delaware), Inc. 6.44%, 03/14/01 100,000 98,731 6.65%, 04/12/01 50,000 49,097 ----------- 147,828 ----------- BANKING - SWEDEN -- 1.2% AB Spintab 6.65%, 02/06/01 85,000 84,444 6.64%, 02/07/01 72,000 71,517 Forenings Sparbanken AB (Swedbank) 6.65%, 02/07/01 95,000 94,362 6.56%, 03/09/01 178,000 175,863 Nordbanken of North America, Inc. 6.61%, 04/20/01 50,000 49,031 Svenska Handelsbanken, Inc. 6.65%, 04/17/01 40,000 39,244 ----------- 514,461 ----------- BANKING - SWITZERLAND -- 0.5% (a) Credit Suisse First Boston Corp. 6.71%, 03/13/01 50,000 49,360 6.45%, 04/11/01 80,000 78,598 6.63%, 04/16/01 75,000 73,589 ----------- 201,547 ----------- Par Value -------- ----------- BANKING - UNITED STATES -- 4.4% Banc One Financial Corp. 6.38%, 03/27/01 $ 20,000 $ 19,704 BankAmerica Corp. 6.82%, 01/26/01 140,000 139,358 6.42%, 04/26/01 100,000 97,998 Citicorp 6.65%, 02/01/01 100,000 99,434 6.61%, 02/02/01 200,000 198,838 6.65%, 02/06/01 96,000 95,370 6.56%, 02/12/01 45,000 44,659 6.51%, 02/21/01 115,000 113,951 Enterprise Funding Corp. (a)(e) 6.56%, 03/30/01 7,500 7,382 Forrestal Funding Master Trust (a)(e) 6.65%, 02/12/01 13,216 13,115 6.65%, 02/13/01 41,331 41,007 6.55%, 02/21/01 33,000 32,698 6.66%, 02/22/01 41,886 41,490 6.65%, 03/05/01 20,000 19,772 6.70%, 03/06/01 18,000 17,792 6.66%, 03/09/01 22,000 21,734 6.42%, 03/16/01 38,000 37,506 6.51%, 03/21/01 8,000 7,888 6.64%, 04/05/01 150,000 147,470 6.23%, 06/08/01 16,501 16,062 Intrepid Funding Master Trust (a)(e) 6.70%, 02/26/01 70,000 69,292 6.68%, 03/05/01 50,000 49,431 6.65%, 03/09/01 150,158 148,342 6.65%, 03/12/01 82,000 80,965 Kitty Hawk Funding Corp. (a)(e) 6.73%, 01/10/01 182,835 182,530 6.78%, 02/15/01 79,312 78,663 Vehicle Services of America 6.60%, 02/01/01 25,550 25,406 ----------- 1,847,857 ----------- CREDIT CARD RECEIVABLES -- 1.9% (a)(f) Dakota Certificates Program SCCMT-1 6.69%, 01/05/01 181,000 180,867 6.68%, 01/11/01 50,000 49,909 6.66%, 01/12/01 37,000 36,926 6.66%, 01/19/01 50,000 49,836 6.67%, 01/19/01 6,000 5,980 6.58%, 02/09/01 50,000 49,648 6.59%, 02/09/01 43,000 42,696 20 Par Value -------- ----------- Montauk Funding Corp. 6.70%, 01/17/01 $42,000 $41,876 Newcastle Certificates Program 6.80%, 01/09/01 4,000 3,994 6.69%, 01/24/01 198,000 197,165 6.77%, 01/30/01 120,000 119,352 ----------- 778,249 ----------- DIVERSIFIED FINANCIAL ASSETS -- 16.8% (f) Amsterdam Funding Corp. (a) 6.69%, 01/02/01 21,000 20,996 6.69%, 01/04/01 25,000 24,986 6.69%, 01/10/01 70,000 69,884 6.70%, 01/10/01 100,000 99,834 6.69%, 01/17/01 24,000 23,929 Bavaria Universal Funding Corp. (a) 6.67%, 02/09/01 15,255 15,147 6.67%, 02/15/01 100,000 99,180 6.81%, 02/22/01 15,517 15,370 6.68%, 02/26/01 12,250 12,125 6.54%, 03/14/01 23,600 23,297 6.46%, 03/19/01 50,000 49,320 6.70%, 03/19/01 7,000 6,903 6.45%, 03/21/01 24,000 23,666 6.67%, 04/17/01 92,000 90,253 Beta Finance, Inc. (a) 6.69%, 01/08/01 24,500 24,469 6.68%, 02/01/01 15,000 14,915 6.70%, 03/08/01 68,500 67,685 6.71%, 03/12/01 73,000 72,079 6.72%, 03/22/01 97,000 95,601 6.54%, 03/26/01 20,000 19,700 6.69%, 03/28/01 87,000 85,655 6.68%, 04/10/01 70,500 69,248 6.62%, 05/01/01 34,000 33,275 CC (USA), Inc. (a) 6.66%, 01/25/01 35,500 35,345 6.68%, 01/25/01 90,000 89,604 6.66%, 01/26/01 45,500 45,293 6.67%, 02/01/01 52,500 52,203 6.67%, 02/02/01 55,000 54,679 6.80%, 02/06/01 75,000 75,000 6.67%, 02/12/01 24,500 24,313 6.66%, 02/13/01 25,000 24,804 6.68%, 03/22/01 13,000 12,813 6.70%, 03/22/01 13,000 12,813 6.66%, 05/09/01 62,000 60,580 Par Value -------- ----------- Charta Corp. (a) 6.70%, 01/11/01 $ 44,000 $ 43,919 6.66%, 02/14/01 50,000 49,600 6.66%, 02/27/01 27,000 26,721 6.63%, 02/28/01 50,000 49,474 Concord Minutemen Capital Co., L.L.C Series A (a) 6.68%, 01/12/01 13,042 13,016 6.72%, 01/12/01 25,000 24,949 6.68%, 01/19/01 50,654 50,487 6.69%, 01/23/01 13,000 12,948 6.67%, 01/25/01 53,000 52,768 6.66%, 02/02/01 64,000 63,627 6.66%, 02/07/01 35,000 34,764 6.69%, 02/22/01 63,358 62,763 6.67%, 04/10/01 10,089 9,910 6.66%, 04/11/01 21,627 21,240 6.66%, 04/23/01 19,154 18,770 6.64%, 04/25/01 77,271 75,693 Delaware Funding Corp. (a) 6.69%, 01/16/01 25,267 25,197 6.69%, 01/22/01 75,000 74,711 6.70%, 01/22/01 196,205 195,447 6.68%, 01/25/01 124,496 123,948 Dorada Finance, Inc. (a) 6.68%, 01/18/01 20,000 19,938 6.66%, 01/26/01 42,000 41,809 6.66%, 02/01/01 5,000 4,972 6.66%, 02/09/01 30,500 30,284 6.66%, 02/13/01 23,500 23,316 6.66%, 02/15/01 18,000 17,853 6.66%, 02/23/01 26,500 26,245 6.63%, 03/13/01 19,375 19,126 6.71%, 03/14/01 20,000 19,740 6.64%, 04/12/01 28,500 27,984 6.69%, 04/12/01 17,000 16,691 6.77%, 10/09/01 21,000 20,996 Galaxy Funding, Inc. (a) 6.66%, 02/14/01 25,000 24,798 6.66%, 02/23/01 82,000 81,210 6.67%, 02/23/01 40,000 39,614 6.64%, 02/26/01 25,000 24,748 6.66%, 02/26/01 25,000 24,747 6.64%, 03/23/01 35,000 34,491 6.65%, 04/25/01 82,000 80,329 6.66%, 04/25/01 25,000 24,490 6.52%, 06/18/01 25,000 24,265 6.53%, 06/18/01 50,000 48,529 21 SCHWAB MONEY MARKET FUND SCHEDULE OF INVESTMENTS (in thousands) (continued) December 31, 2000 Par Value -------- ----------- Greenwich Funding Corp. (d) 6.51%, 03/12/01 $ 13,496 $ 13,328 6.46%, 03/19/01 182,152 179,674 Jupiter Securitization Corp. (a) 6.68%, 01/12/01 109,000 108,780 6.75%, 01/16/01 16,000 15,955 6.69%, 01/17/01 103,370 103,066 6.70%, 01/17/01 10,000 9,971 6.72%, 01/26/01 12,000 11,945 6.68%, 01/31/01 20,237 20,126 6.66%, 02/09/01 67,000 66,522 6.60%, 02/14/01 25,000 24,801 6.63%, 03/01/01 11,000 10,882 6.50%, 03/09/01 9,000 8,893 6.47%, 03/20/01 10,000 9,862 6.42%, 03/30/01 10,250 10,092 6.30%, 04/24/01 7,000 6,864 6.64%, 04/27/01 30,000 29,378 6.68%, 05/08/01 12,000 11,727 6.40%, 06/11/01 10,000 9,723 Lexington Parker Capital Corp. (a) 6.69%, 01/12/01 85,000 84,828 6.69%, 01/18/01 26,481 26,398 6.68%, 01/19/01 47,000 46,845 6.50%, 03/01/01 25,000 24,737 6.54%, 03/02/01 22,078 21,841 6.47%, 03/15/01 30,000 29,612 6.69%, 04/12/01 88,862 87,249 Links Finance, L.L.C. (a) 6.73%, 01/12/01 13,000 12,974 6.68%, 01/23/01 18,710 18,635 6.66%, 02/13/01 20,000 19,844 6.66%, 02/16/01 40,000 39,665 6.67%, 02/20/01 11,000 10,900 6.66%, 03/27/01 17,000 16,740 Market Street Funding Corp. (a) 6.60%, 01/02/01 130,000 129,976 6.69%, 01/05/01 28,000 27,979 6.73%, 01/10/01 132,082 131,862 MOAT Funding, L.L.C. (a) 6.66%, 02/09/01 53,000 52,624 6.70%, 02/26/01 51,250 50,732 6.65%, 02/28/01 40,000 39,580 6.47%, 03/16/01 31,500 31,088 6.50%, 03/27/01 60,000 59,096 6.46%, 03/29/01 7,000 6,893 6.47%, 03/29/01 65,000 64,002 Par Value -------- ----------- Mont Blanc Capital Corp. (a) 6.69%, 01/09/01 $ 70,000 $ 69,897 6.69%, 01/12/01 38,000 37,923 6.68%, 01/16/01 49,000 48,865 Sigma Finance, Inc. (a) 6.69%, 01/04/01 10,000 9,994 6.73%, 01/16/01 30,000 29,917 6.73%, 01/19/01 37,000 36,877 6.68%, 02/05/01 75,000 74,524 6.66%, 02/16/01 22,000 21,816 6.61%, 02/27/01 44,100 43,645 6.50%, 03/07/01 25,000 24,711 6.71%, 03/07/01 143,000 141,324 6.71%, 03/08/01 11,000 10,869 6.71%, 03/12/01 28,000 27,647 6.70%, 03/13/01 16,860 16,645 6.71%, 03/13/01 28,000 27,642 6.68%, 03/14/01 50,000 49,352 6.70%, 03/20/01 50,000 49,298 6.68%, 04/04/01 50,000 49,166 6.68%, 04/10/01 17,000 16,698 6.66%, 04/12/01 48,500 47,622 6.63%, 04/17/01 65,000 63,771 6.64%, 04/24/01 70,000 68,589 6.64%, 04/25/01 100,000 97,967 6.65%, 05/01/01 78,800 77,107 6.65%, 05/07/01 42,430 41,474 6.66%, 05/09/01 10,000 9,771 6.65%, 05/10/01 24,000 23,446 6.13%, 06/20/01 61,000 59,286 Stellar Funding Group, Inc. (a) 6.74%, 01/03/01 25,311 25,302 6.68%, 01/17/01 14,000 13,959 6.74%, 01/18/01 18,990 18,930 6.72%, 01/22/01 10,000 9,961 6.67%, 01/25/01 20,000 19,912 6.68%, 01/25/01 13,000 12,943 6.72%, 01/29/01 7,593 7,554 6.72%, 03/05/01 7,431 7,346 6.50%, 03/12/01 20,694 20,436 6.52%, 03/12/01 15,728 15,532 6.62%, 03/14/01 15,200 15,002 6.62%, 03/15/01 6,404 6,319 6.50%, 03/22/01 15,000 14,787 6.40%, 06/05/01 20,639 20,087 6.42%, 06/11/01 13,359 12,987 22 Par Value -------- ----------- Thames Asset Global Securitization No. 1, Inc. (a) 6.69%, 01/08/01 $ 71,394 $ 71,302 6.71%, 01/29/01 59,000 58,699 6.68%, 01/31/01 30,136 29,971 6.66%, 02/05/01 11,000 10,930 6.66%, 02/15/01 29,137 28,898 6.67%, 02/15/01 50,145 49,736 6.70%, 02/28/01 23,000 22,758 6.50%, 03/12/01 10,000 9,876 Variable Funding Capital Corp. (a) 6.68%, 01/11/01 50,000 49,908 6.67%, 01/18/01 100,000 99,689 6.70%, 02/22/01 50,000 49,531 6.54%, 02/23/01 93,000 92,116 ----------- 7,007,094 ----------- FINANCE - COMMERCIAL -- 2.8% CIT Group Holdings, Inc. 6.64%, 02/07/01 95,000 94,362 6.47%, 03/13/01 19,000 18,762 6.45%, 03/14/01 160,000 157,968 6.47%, 03/15/01 49,000 48,368 General Electric Capital Corp. 6.65%, 03/06/01 50,000 49,425 6.65%, 03/07/01 41,000 40,521 General Electric Capital International Funding, Inc. (a) 6.64%, 02/05/01 125,000 124,203 6.65%, 02/06/01 101,000 100,337 6.65%, 02/08/01 100,000 99,313 General Electric Capital Services 6.65%, 02/09/01 100,000 99,295 6.66%, 02/12/01 20,000 19,848 6.59%, 03/05/01 125,000 123,583 6.32%, 04/09/01 89,000 87,495 Halogen Capital Co., L.L.C. (a) 6.67%, 01/26/01 80,000 79,634 6.70%, 02/09/01 45,253 44,932 ----------- 1,188,046 ----------- FINANCE - CONSUMER -- 1.4% Associates Corp. of North America 6.65%, 02/02/01 75,000 74,562 6.65%, 02/05/01 80,000 79,490 6.63%, 02/14/01 60,000 59,522 6.63%, 02/16/01 40,000 39,667 6.64%, 02/20/01 98,000 97,112 Par Value -------- ----------- Associates First Capital, B.V 6.65%, 02/06/01 $ 53,000 $ 52,652 6.63%, 02/09/01 30,000 29,788 6.63%, 02/15/01 26,000 25,788 6.46%, 03/15/01 50,000 49,356 6.32%, 04/16/01 50,000 49,096 6.30%, 04/18/01 50,000 49,081 ----------- 606,114 ----------- INSURANCE - MONOLINE -- 0.2% (a) Triple-A One Funding Corp. 6.73%, 01/05/01 17,000 16,987 6.69%, 01/16/01 25,291 25,221 6.69%, 01/22/01 51,033 50,837 ----------- 93,045 ----------- INSURANCE - MULTILINE -- 0.2% GE Financial Assurance Holdings, Inc. 6.65%, 02/08/01 100,000 99,308 ----------- SECURITIES BROKERAGE - DEALER -- 5.5% Bear Stearns Companies, Inc. 6.47%, 03/09/01 105,000 103,755 6.42%, 03/16/01 63,000 62,182 6.48%, 03/16/01 45,000 44,411 6.44%, 03/23/01 35,000 34,502 6.35%, 03/26/01 50,000 49,271 6.35%, 03/28/01 90,000 88,656 JP Morgan & Co., Inc. 6.58%, 03/08/01 306,000 302,370 6.46%, 03/13/01 70,000 69,122 6.47%, 03/13/01 30,000 29,624 6.11%, 06/26/01 100,000 97,101 Merrill Lynch & Co., Inc. 6.61%, 02/28/01 40,000 39,581 6.86%, 03/29/01 100,000 100,000 Morgan Stanley, Dean Witter, Discover & Co. 6.45%, 03/19/01 300,000 295,925 6.45%, 03/20/01 250,000 246,560 6.40%, 03/21/01 50,000 49,309 Salomon Smith Barney Holdings, Inc. 6.60%, 03/05/01 107,000 105,785 6.47%, 03/06/01 200,000 197,735 6.48%, 03/06/01 100,000 98,866 6.47%, 03/07/01 100,000 98,850 6.47%, 03/08/01 20,000 19,766 23 SCHWAB MONEY MARKET FUND SCHEDULE OF INVESTMENTS (in thousands) (continued) December 31, 2000 Par Value -------- ----------- Ventures Business Trust (a) 6.67%, 01/22/01 $ 26,000 $ 25,900 6.60%, 03/07/01 128,000 126,500 ----------- 2,285,771 ----------- TELECOMMUNICATIONS SERVICES & EQUIPMENT -- 0.3% Vodafone Airtouch, PLC 6.71%, 01/31/01 119,000 118,342 ----------- TRADE RECEIVABLES -- 7.4% (a)(f) Apreco, Inc. 6.67%, 01/25/01 21,000 20,908 6.47%, 03/15/01 50,000 49,354 Asset Securitization Cooperative Corp. 6.69%, 01/09/01 50,000 49,926 6.71%, 01/09/01 36,000 35,947 6.69%, 01/11/01 200,000 199,632 Barton Capital Corp. 6.69%, 01/03/01 117,981 117,938 6.69%, 01/04/01 106,922 106,863 6.69%, 01/05/01 22,105 22,089 6.69%, 01/10/01 168,446 168,167 6.68%, 01/12/01 43,255 43,168 Compass Securitization, L.L.C 6.74%, 01/02/01 10,447 10,445 6.68%, 01/12/01 1,000 998 6.70%, 01/18/01 44,000 43,862 6.69%, 01/19/01 107,993 107,638 6.70%, 01/22/01 20,000 19,923 6.69%, 02/15/01 50,000 49,591 6.66%, 02/16/01 49,000 48,590 6.61%, 03/06/01 20,881 20,640 Corporate Asset Funding Co., Inc. 6.69%, 01/05/01 45,000 44,967 Corporate Receivables Corp. 6.70%, 01/05/01 39,000 38,971 6.69%, 01/09/01 40,000 39,941 CXC, Inc. 6.60%, 01/02/01 100,000 99,982 6.69%, 01/04/01 6,000 5,997 6.66%, 01/16/01 50,000 49,863 Edison Asset Securitization Corp., L.L.C 6.60%, 01/02/01 400,000 399,927 6.75%, 01/09/01 50,000 49,926 6.72%, 01/24/01 89,118 88,739 Falcon Asset Securitization Corp. 6.68%, 01/18/01 60,000 59,813 6.59%, 02/12/01 19,000 18,856 Par Value -------- ----------- Giro Multi Funding Corp. 6.69%, 01/12/01 $ 14,290 $ 14,261 6.66%, 02/13/01 83,264 82,613 6.66%, 02/20/01 54,356 53,862 6.51%, 02/26/01 30,094 29,793 6.69%, 03/20/01 15,622 15,403 Monte Rosa Capital Corp. 6.68%, 01/26/01 20,000 19,908 6.68%, 01/29/01 32,699 32,531 6.59%, 02/05/01 71,000 70,550 6.59%, 02/06/01 10,000 9,935 Park Avenue Receivables Corp. 6.69%, 01/16/01 25,000 24,931 6.66%, 01/19/01 100,000 99,672 Preferred Receivables Funding Corp. 6.40%, 03/23/01 10,000 9,858 Quincy Capital Corp. 6.69%, 01/04/01 187,779 187,675 6.70%, 01/11/01 210,191 209,803 WCP Funding, Inc. 6.68%, 01/10/01 85,000 84,859 6.66%, 01/25/01 34,000 33,851 Windmill Funding 6.69%, 01/09/01 50,000 49,926 6.69%, 01/16/01 35,000 34,903 ----------- 3,076,995 ----------- TOTAL COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS (Cost $23,722,643) 23,722,643 ----------- CERTIFICATES OF DEPOSIT -- 32.1% BANKING - AUSTRALIA -- 0.4% Australia & New Zealand Bank Group 6.46%, 03/12/01 60,000 60,000 Westpac Banking Corp. 6.61%, 05/02/01 50,000 50,002 6.61%, 05/03/01 50,000 50,000 ----------- 160,002 ----------- BANKING - BELGIUM -- 1.6% Dexia Bank 6.63%, 02/16/01 200,000 200,000 6.49%, 03/08/01 400,000 400,000 6.45%, 03/14/01 75,000 75,003 ----------- 675,003 ----------- 24 Par Value -------- ----------- BANKING - CANADA -- 3.6% Bank of Nova Scotia 6.47%, 03/13/01 $ 50,000 $ 50,000 Canadian Imperial Bank of Commerce 6.50%, 02/27/01 400,000 400,000 6.46%, 03/12/01 115,000 115,000 6.75%, 03/27/01 122,000 121,989 6.88%, 08/14/01 100,000 99,982 6.72%, 10/10/01 43,000 42,994 National Bank of Canada 6.60%, 03/01/01 25,000 25,000 6.63%, 03/01/01 50,000 50,000 Royal Bank of Canada 6.75%, 02/14/01 100,000 99,995 6.48%, 03/01/01 75,000 75,001 6.90%, 03/29/01 100,000 99,993 7.00%, 05/02/01 75,000 74,995 6.75%, 09/24/01 25,000 24,995 Toronto Dominion Bank 6.77%, 04/18/01 100,000 99,992 7.00%, 05/02/01 100,000 99,994 6.61%, 05/03/01 50,000 50,000 ----------- 1,529,930 ----------- BANKING - DENMARK -- 0.4% Danske Bank 6.44%, 03/19/01 50,000 50,001 6.61%, 05/08/01 42,000 42,000 6.40%, 05/14/01 75,000 75,000 ----------- 167,001 ----------- BANKING - FINLAND -- 1.0% Merita Bank, Ltd. 6.92%, 01/08/01 40,000 40,000 6.61%, 05/01/01 94,000 94,009 6.63%, 05/01/01 100,000 100,000 6.64%, 05/08/01 75,000 75,000 6.64%, 05/09/01 37,000 37,001 6.37%, 06/12/01 59,000 59,000 ----------- 405,010 ----------- BANKING - FRANCE -- 1.6% BNP Paribas 6.66%, 04/10/01 95,000 95,000 6.13%, 06/27/01 100,000 100,002 Par Value -------- ----------- Credit Agricole Indosuez 6.66%, 02/12/01 $175,000 $ 175,000 6.32%, 03/29/01 100,000 100,000 Societe Generale 6.56%, 03/02/01 200,000 200,000 ----------- 670,002 ----------- BANKING - GERMANY -- 9.5% Bayeriche HypoVereinsbank, AG 6.63%, 02/13/01 145,000 145,000 6.50%, 02/28/01 115,000 115,000 6.60%, 03/06/01 80,000 80,001 6.46%, 03/12/01 86,000 86,000 6.44%, 03/19/01 44,000 44,000 6.45%, 03/19/01 90,000 90,002 6.51%, 05/04/01 100,000 100,016 Bayerische Landesbank Girozentrale 6.62%, 02/28/01 50,000 50,000 Commerzbank, AG 6.64%, 02/05/01 92,000 92,000 6.64%, 02/08/01 103,000 103,000 Deutsche Bank, AG 6.55%, 01/12/01 100,000 99,999 6.56%, 01/29/01 95,000 94,996 6.45%, 03/15/01 95,000 95,000 6.37%, 05/03/01 20,000 20,026 7.18%, 06/12/01 250,000 249,979 6.92%, 08/20/01 100,000 99,982 6.80%, 09/10/01 41,500 41,495 6.80%, 09/11/01 55,000 54,993 Dresdner Bank 6.89%, 01/16/01 88,000 87,998 6.77%, 04/19/01 132,000 132,000 6.80%, 04/25/01 50,000 49,997 Landesbank Baden Wurttemberg 6.65%, 02/09/01 71,000 71,000 6.65%, 02/28/01 20,000 20,000 6.50%, 03/08/01 81,000 81,001 6.45%, 03/15/01 32,000 32,000 6.62%, 03/30/01 50,000 50,001 6.66%, 04/10/01 41,000 41,001 6.62%, 04/30/01 50,000 50,001 6.63%, 05/02/01 50,000 50,002 7.36%, 06/05/01 50,000 50,006 Landesbank Hessen-Thuringen Girozentrale 7.22%, 05/04/01 100,000 99,966 25 SCHWAB MONEY MARKET FUND SCHEDULE OF INVESTMENTS (in thousands) (continued) December 31, 2000 Par Value -------- ----------- Norddeutsche Landesbank Girozentrale 6.89%, 01/19/01 $100,000 $ 100,000 6.87%, 01/22/01 23,000 23,000 6.60%, 02/01/01 50,000 49,998 6.86%, 02/01/01 43,000 43,000 6.62%, 02/09/01 50,000 50,000 6.64%, 02/09/01 28,000 28,000 6.60%, 03/07/01 32,000 31,999 6.51%, 03/09/01 11,000 10,998 6.62%, 03/09/01 50,000 49,997 7.02%, 07/10/01 45,000 44,996 Westdeutsche Landesbank Girozentrale 6.66%, 02/13/01 125,000 125,000 6.73%, 02/14/01 200,000 200,001 6.69%, 04/03/01 150,000 150,000 6.60%, 04/20/01 135,000 135,001 6.60%, 04/26/01 200,000 200,000 6.64%, 05/02/01 230,000 230,000 7.00%, 05/02/01 50,000 50,000 ----------- 3,998,452 ----------- BANKING - ITALY -- 0.7% San Paolo IMI SPA 6.68%, 04/02/01 40,000 40,001 Unicredito Italiano SPA 6.64%, 02/14/01 100,000 100,001 6.64%, 02/20/01 50,000 49,999 6.63%, 02/28/01 50,000 50,001 6.40%, 03/22/01 50,000 50,001 ----------- 290,003 ----------- BANKING - NETHERLANDS -- 3.3% ABN AMRO Bank, NV 6.47%, 03/13/01 50,000 50,000 ING Bank, NV 6.64%, 02/12/01 100,000 100,000 6.64%, 02/14/01 120,000 120,000 6.75%, 02/15/01 100,000 99,998 6.63%, 02/16/01 200,000 200,000 6.63%, 02/20/01 222,000 222,000 6.49%, 03/13/01 12,000 12,000 6.45%, 03/19/01 49,000 49,000 6.67%, 04/10/01 188,000 188,000 6.40%, 05/14/01 81,000 81,000 6.37%, 06/14/01 92,000 92,000 6.10%, 06/28/01 50,000 50,000 6.10%, 06/29/01 27,000 27,000 Par Value -------- ----------- Rabobank Nederland, NV 6.72%, 10/09/01 $100,000 $ 99,985 ----------- 1,390,983 ----------- BANKING - NORWAY -- 0.2% Christiania Bank 6.65%, 02/06/01 50,000 50,000 6.47%, 03/16/01 20,000 20,000 ----------- 70,000 ----------- BANKING - SPAIN -- 0.4% Banco Bilbao Vizcaya Argentaria SA 6.57%, 03/07/01 50,000 50,000 6.66%, 04/06/01 100,000 100,000 ----------- 150,000 ----------- BANKING - SWEDEN -- 0.6% Forenings Sparbanken AB (Swedbank) 6.66%, 02/12/01 55,000 55,000 6.64%, 03/01/01 25,000 25,000 6.58%, 03/05/01 50,000 50,000 Svenska Handelsbanken 6.65%, 02/28/01 50,000 50,000 6.68%, 04/12/01 25,000 25,000 6.61%, 05/16/01 33,000 33,062 ----------- 238,062 ----------- BANKING - SWITZERLAND -- 2.1% UBS, AG 6.50%, 01/02/01 200,000 200,000 6.85%, 04/27/01 100,000 99,991 7.25%, 06/12/01 100,000 99,992 6.99%, 06/22/01 25,000 25,004 7.03%, 06/22/01 40,000 40,003 6.70%, 09/10/01 45,000 45,010 6.72%, 10/09/01 371,000 370,946 ----------- 880,946 ----------- BANKING - UNITED KINGDOM -- 6.6% Abbey National Treasury Services, PLC 6.59%, 03/01/01 300,000 300,000 6.60%, 03/05/01 400,000 400,000 6.56%, 03/07/01 143,000 143,000 6.43%, 03/20/01 19,000 19,000 6.62%, 03/20/01 125,000 125,000 Bank of Scotland Treasury Services, PLC 6.64%, 02/08/01 140,000 140,000 6.62%, 02/09/01 113,000 113,001 26 Par Value -------- ----------- 6.75%, 02/14/01 $ 45,000 $ 44,999 6.63%, 02/15/01 50,000 50,000 6.45%, 03/15/01 71,000 71,005 Barclays Bank, PLC 6.63%, 02/08/01 95,000 95,005 6.60%, 04/17/01 100,000 100,011 Halifax, PLC 6.63%, 02/15/01 75,000 75,000 6.59%, 03/01/01 250,000 250,000 6.47%, 03/13/01 50,000 50,000 6.45%, 03/15/01 234,000 234,000 Lloyds TSB Bank, PLC 6.46%, 03/12/01 100,000 100,000 6.77%, 04/17/01 35,000 34,999 National Westminster Bank, PLC 6.70%, 02/01/01 100,000 99,996 6.77%, 04/20/01 100,000 99,994 7.27%, 05/09/01 117,000 116,988 6.89%, 09/04/01 100,000 99,987 ----------- 2,761,985 ----------- BANKING - UNITED STATES -- 0.1% Wilmington Trust Co. 6.48%, 03/12/01 25,000 25,000 ----------- TOTAL CERTIFICATES OF DEPOSIT (Cost $13,412,379) 13,412,379 ----------- VARIABLE RATE OBLIGATIONS -- 3.7% (b) BANKING - FRANCE -- 0.0% (e) New Jersey Economic Development Authority Adjustable Rate Money Market Securities (GE Aerospace Camden Development Project) Series A 6.70%, 01/07/01 10,675 10,675 New Jersey Economic Development Authority Adjustable Rate Money Market Securities (GE Aerospace Camden Development Project) Series B 6.70%, 01/07/01 10,000 10,000 ----------- 20,675 ----------- BANKING - GERMANY -- 0.1% (d)(e) Restructured Asset Securities With Enhanced Returns Series 2000-15-MM-MBS 6.73%, 01/16/01 38,000 38,000 Par Value -------- ----------- BANKING - NETHERLANDS -- 0.1% (e) New Jersey Economic Development Authority Adjustable Rate Lease Revenue Taxable Bonds (Barnes & Noble, Inc. Distribution & Freight Consolidation Center Project) Series 1995A 6.61%, 01/07/01 $ 18,160 $ 18,160 New Jersey Economic Development Authority Adjustable Rate Lease Revenue Taxable Bonds (Barnes & Noble, Inc. Distribution & Freight Consolidation Center Project) Series B 6.61%, 01/07/01 10,000 10,000 ----------- 28,160 ----------- BANKING - SWITZERLAND -- 0.1% (d) Structured Products Asset Return Certificates Series 2000-5 6.80%, 01/24/01 50,000 50,000 ----------- BANKING - UNITED STATES -- 0.3% 6700 Cherry Avenue Partners Demand Bond Series 1993 (e) 6.65%, 01/07/01 9,300 9,300 Lowndes Corp., Georgia Taxable Demand Bond Series 1997 (a)(e) 7.10%, 01/07/01 7,730 7,730 Strategic Money Market Trust Series 2000A (d) 6.73%, 01/16/01 60,000 60,000 Strategic Money Market Trust Series 2000E (d) 6.73%, 01/16/01 33,000 33,000 Strategic Money Market Trust Series 2000M (d) 6.58%, 03/13/01 20,000 20,000 ----------- 130,030 ----------- CREDIT CARD RECEIVABLES -- 0.1% (a)(f) Short Term Repackaged Asset Trust Series 1998E 6.73%, 01/18/01 50,000 50,000 ----------- 27 SCHWAB MONEY MARKET FUND SCHEDULE OF INVESTMENTS (in thousands) (continued) December 31, 2000 Par Value -------- ----------- DIVERSIFIED FINANCIAL ASSETS -- 0.6% (f) CC (USA), Inc. (a) 6.69%, 01/19/01 $ 17,000 $ 17,000 Copelco Capital Receivables, L.L.C. Series 2000-A 6.70%, 01/18/01 23,000 23,000 Sigma Finance, Inc. (a) 6.82%, 01/02/01 50,000 50,000 6.61%, 01/21/01 20,000 20,000 6.65%, 01/25/01 40,000 40,000 Variable Funding Capital Corp. (a) 6.71%, 01/10/01 93,000 93,000 ----------- 243,000 ----------- ELECTRICAL & ELECTRONICS -- 0.1% (a) CFM International, Inc. 6.71%, 01/07/01 37,020 37,020 ----------- INSURANCE - MONOLINE -- 0.1% Merlot Trust Series 2000B 6.88%, 01/07/01 32,630 32,630 The Community Redevelopment Agency of the City of Los Angeles, California (Bunker Hill Project ) Subordinate Tax Allocation Refunding Bonds Series 1997A (e) 6.75%, 01/07/01 10,000 10,000 ----------- 42,630 ----------- LIFE & HEALTH INSURANCE -- 1.1% (d) General Elecrtic Life & Annuity Assurance Co. 6.87%, 01/30/01 150,000 150,000 Metropolitan Life Insurance Co. 6.70%, 01/30/01 50,000 50,000 Monumental Life Insurance Co. 6.79%, 01/01/01 100,000 100,000 Pacific Life Insurance Co. 6.87%, 01/01/01 100,000 100,000 United of Omaha Life Insurance Co. 6.90%, 01/02/01 60,000 60,000 ----------- 460,000 ----------- Par Value -------- ----------- SECURITIES BROKERAGE - DEALER -- 0.5% JP Morgan & Co., Inc. 6.69%, 01/16/01 $100,000 $ 100,000 Merrill Lynch & Co., Inc. 6.73%, 01/30/01 50,000 50,000 Morgan Stanley, Dean Witter, Discover & Co. (a) 6.74%, 01/16/01 50,000 50,000 ----------- 200,000 ----------- TELECOMMUNICATIONS SERVICES & EQUIPMENT -- 0.6% (a) AT & T Corp. 6.70%, 01/16/01 248,000 248,000 ----------- TOTAL VARIABLE RATE OBLIGATIONS (Cost $1,547,515) 1,547,515 ----------- BANK NOTES -- 2.1% Bank of America, NA 6.93%, 01/03/01 60,000 60,000 6.83%, 01/26/01 171,000 171,000 6.80%, 02/05/01 95,000 95,000 6.65%, 04/05/01 250,000 250,000 7.20%, 06/05/01 200,000 200,000 6.75%, 09/18/01 100,000 100,000 ----------- TOTAL BANK NOTES (Cost $876,000) 876,000 ----------- PROMISSORY NOTES -- 1.9% (d) The Goldman Sachs Group, Inc. 6.73%, 02/26/01 100,000 100,000 6.80%, 03/01/01 199,000 199,000 6.80%, 03/02/01 100,000 100,000 6.75%, 03/21/01 100,000 100,000 6.71%, 04/30/01 205,000 205,000 6.68%, 05/03/01 93,000 93,000 ----------- TOTAL PROMISSORY NOTES (Cost $797,000) 797,000 ----------- 28 Maturity Value Value -------- ----------- REPURCHASE AGREEMENTS -- 2.8% (c) Bank of America Securities, L.L.C. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities 6.55% Issue 12/29/00 Due 01/02/01 $400,291 $ 400,000 Credit Suisse First Boston Corp. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities 6.54% Issue 12/29/00 Due 01/02/01 792,042 791,467 ----------- TOTAL REPURCHASE AGREEMENTS (Cost $1,191,467) 1,191,467 ----------- TOTAL INVESTMENTS -- 99.3% (Cost $41,547,004) 41,547,004 ----------- OTHER ASSETS AND LIABILITIES-- 0.7% Other assets 288,556 Liabilities (12,809) ----------- 275,747 ----------- TOTAL NET ASSETS-- 100.0% $41,822,751 =========== SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS AND NOTES TO FINANCIAL STATEMENTS. 29 SCHWAB GOVERNMENT MONEY FUND SCHEDULE OF INVESTMENTS (in thousands) December 31, 2000 Par Value -------- ----------- U.S. GOVERNMENT SECURITIES -- 55.0% COUPON NOTES -- 10.5% Federal Home Loan Bank 6.35%, 02/02/01 $ 20,000 $ 19,998 6.30%, 02/07/01 20,000 19,988 6.58%, 02/09/01 22,000 22,000 6.67%, 04/06/01 30,000 29,995 Federal Home Loan Mortgage Corp. 6.35%, 01/05/01 43,955 43,955 5.00%, 02/15/01 18,000 17,965 Federal National Mortgage Association 6.47%, 02/16/01 40,000 39,999 6.57%, 02/22/01 25,000 24,998 6.57%, 04/26/01 25,000 24,969 6.64%, 09/18/01 18,000 17,995 ---------- 261,862 ---------- DISCOUNT NOTES -- 44.5% Federal Home Loan Bank 6.67%, 01/17/01 9,103 9,077 6.66%, 01/19/01 15,000 14,952 6.54%, 01/26/01 23,000 22,897 6.61%, 02/28/01 11,343 11,226 6.53%, 03/14/01 6,424 6,343 6.53%, 03/16/01 4,867 4,804 6.53%, 03/21/01 34,000 33,528 6.25%, 05/30/01 20,484 19,969 5.99%, 06/27/01 20,000 19,429 6.01%, 06/27/01 13,000 12,627 Federal Home Loan Mortgage Corp. 6.54%, 01/17/01 15,000 14,957 6.55%, 01/18/01 102,000 101,690 6.54%, 01/25/01 28,000 27,880 6.68%, 02/01/01 20,000 19,889 6.54%, 02/08/01 15,000 14,898 6.61%, 02/14/01 12,000 11,906 6.51%, 03/01/01 25,000 24,738 6.53%, 03/29/01 5,000 4,924 6.54%, 03/29/01 58,369 57,475 6.55%, 03/29/01 23,332 22,974 6.65%, 04/26/01 25,000 24,502 6.01%, 05/24/01 14,104 13,776 6.39%, 05/24/01 50,000 48,770 6.24%, 05/25/01 12,000 11,709 6.59%, 07/19/01 15,000 14,483 6.61%, 07/19/01 15,000 14,481 Par Value -------- ---------- Federal National Mortgage Association 6.53%, 01/19/01 $ 34,000 $ 33,891 6.55%, 01/25/01 52,000 51,777 6.67%, 01/25/01 25,000 24,892 6.61%, 02/01/01 15,000 14,917 6.52%, 02/07/01 15,000 14,902 6.54%, 02/08/01 15,000 14,898 6.60%, 02/08/01 15,000 14,899 6.64%, 02/08/01 18,000 17,878 6.61%, 02/22/01 20,000 19,815 6.64%, 03/01/01 29,000 28,695 6.53%, 03/08/01 12,218 12,076 6.54%, 03/22/01 55,000 54,225 6.50%, 03/29/01 25,000 24,616 6.54%, 04/05/01 12,000 11,801 6.55%, 04/05/01 23,000 22,619 6.54%, 04/12/01 38,815 38,126 6.48%, 05/31/01 50,000 48,694 6.25%, 06/07/01 50,000 48,677 6.01%, 06/14/01 36,616 35,642 ---------- 1,116,944 ---------- TOTAL U.S. GOVERNMENT SECURITIES (Cost $1,378,806) 1,378,806 ---------- VARIABLE RATE OBLIGATIONS -- 11.9% (b) Federal Home Loan Bank 6.32%, 01/02/01 100,000 100,000 6.35%, 01/03/01 30,000 29,998 Student Loan Marketing Association 6.16%, 01/02/01 40,000 40,000 6.22%, 01/02/01 50,000 50,000 6.31%, 01/02/01 78,600 78,598 ---------- TOTAL VARIABLE RATE OBLIGATIONS (Cost $298,596) 298,596 ---------- 30 Maturity Value Value -------- ---------- REPURCHASE AGREEMENTS -- 32.6% (c) Credit Suisse First Boston Corp. Tri-Party Repurchase Agreements Collateralized by U.S. Government Securities 6.54% Issue 12/29/00 Due 01/02/01 $ 22,695 $ 22,679 6.43% Issue 12/08/00 Due 01/07/01 35,188 35,000 6.55% Issue 11/13/00 Due 01/07/01 20,200 20,000 6.55% Issue 11/15/00 Due 01/07/01 30,289 30,000 6.57% Issue 11/07/00 Due 01/07/01 18,200 18,000 6.57% Issue 11/08/00 Due 01/07/01 27,296 27,000 6.57% Issue 11/09/00 Due 01/07/01 55,592 55,000 6.57% Issue 11/13/00 Due 01/07/01 22,221 22,000 6.57% Issue 11/22/00 Due 01/07/01 15,126 15,000 Lehman Brothers, Inc. Tri-Party Repurchase Agreements Collateralized by U.S. Government Securities 6.29% Issue 12/27/00 Due 01/07/01 25,048 25,000 6.34% Issue 12/19/00 Due 01/07/01 50,167 50,000 Morgan Stanley, Dean Witter, Discover & Co. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities 6.54% Issue 11/20/00 Due 01/07/01 30,262 30,000 PaineWebber, Inc. Tri-Party Repurchase Agreements Collateralized by U.S. Government Securities 6.41% Issue 12/14/00 Due 01/07/01 45,192 45,000 Maturity Value Value -------- ----------- 6.42% Issue 12/13/00 Due 01/07/01 $ 30,134 $ 30,000 6.43% Issue 12/08/00 Due 01/07/01 40,214 40,000 6.43% Issue 12/12/00 Due 01/07/01 30,139 30,000 6.47% Issue 12/11/00 Due 01/07/01 30,146 30,000 6.48% Issue 12/06/00 Due 01/07/01 30,173 30,000 6.48% Issue 12/07/00 Due 01/07/01 40,223 40,000 6.49% Issue 12/04/00 Due 01/07/01 30,184 30,000 6.49% Issue 12/05/00 Due 01/07/01 27,161 27,000 6.51% Issue 11/30/00 Due 01/07/01 45,309 45,000 6.53% Issue 11/20/00 Due 01/07/01 20,174 20,000 6.53% Issue 12/15/00 Due 01/07/01 20,083 20,000 6.54% Issue 11/21/00 Due 01/07/01 20,171 20,000 Salomon Smith Barney, Inc. Tri-Party Repurchase Agreements Collateralized by U.S. Government Securities 6.54% Issue 12/29/00 Due 01/02/01 12,009 12,000 6.38% Issue 12/18/00 Due 01/07/01 30,106 30,000 6.54% Issue 11/22/00 Due 01/07/01 20,167 20,000 ---------- TOTAL REPURCHASE AGREEMENTS (Cost $818,679) 818,679 ---------- TOTAL INVESTMENTS -- 99.5% (Cost $2,496,081) 2,496,081 ---------- OTHER ASSETS AND LIABILITIES-- 0.5% Other assets 13,267 Liabilities (815) ---------- 12,452 ---------- TOTAL NET ASSETS-- 100.0% $2,508,533 ========== SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS AND NOTES TO FINANCIAL STATEMENTS. 31 SCHWAB U.S. TREASURY MONEY FUND SCHEDULE OF INVESTMENTS (in thousands) December 31, 2000 Par Value -------- ---------- U.S. GOVERNMENT SECURITIES -- 94.1% U.S. TREASURY OBLIGATIONS -- 94.1% U.S. Treasury Bills 5.96%, 01/11/01 $ 25,035 $ 24,994 6.42%, 01/16/01 79,645 79,447 6.23%, 01/18/01 12,975 12,938 6.24%, 01/18/01 20,000 19,943 6.28%, 01/18/01 30,000 29,912 6.21%, 01/25/01 24,505 24,406 6.22%, 01/25/01 6,305 6,280 6.23%, 01/25/01 46,995 46,804 6.24%, 01/25/01 9,985 9,944 6.26%, 01/25/01 10,810 10,766 6.27%, 02/01/01 122,700 122,048 6.32%, 02/01/01 40,000 39,786 5.68%, 02/08/01 1,520 1,511 6.13%, 02/08/01 40,000 39,744 6.25%, 02/08/01 30,000 29,808 6.26%, 02/08/01 65,000 64,579 6.28%, 02/15/01 25,000 24,807 6.23%, 02/22/01 20,000 19,825 6.25%, 02/22/01 12,900 12,785 6.26%, 02/22/01 90,570 89,764 6.13%, 03/01/01 64,235 63,599 6.21%, 03/01/01 25,000 24,753 6.29%, 03/01/01 30,000 29,696 6.03%, 03/08/01 43,000 42,532 6.06%, 03/08/01 95,000 93,960 5.89%, 03/15/01 45,000 44,470 5.94%, 03/15/01 41,030 40,542 5.95%, 03/15/01 75,000 74,108 5.97%, 03/15/01 3,965 3,918 6.02%, 03/15/01 50,000 49,399 5.78%, 03/22/01 4,110 4,058 5.66%, 03/29/01 62,000 61,164 5.70%, 03/29/01 3,000 2,959 5.73%, 03/29/01 1,705 1,682 5.77%, 03/29/01 20,470 20,188 Par Value -------- ---------- 5.78%, 03/29/01 $ 25,000 $ 24,656 5.97%, 03/29/01 4,365 4,303 6.27%, 04/19/01 16,100 15,806 6.29%, 04/19/01 52,800 51,834 6.28%, 04/26/01 56,755 55,651 6.20%, 05/03/01 40,000 39,181 5.84%, 05/10/01 6,800 6,661 5.92%, 05/17/01 20,000 19,564 5.84%, 05/24/01 30,000 29,321 5.97%, 05/31/01 30,000 29,275 5.77%, 06/07/01 30,000 29,265 5.86%, 06/14/01 30,000 29,222 U.S. Treasury Notes 4.500%, 01/31/01 187,380 187,091 5.375%, 02/15/01 18,605 18,582 7.750%, 02/15/01 15,000 15,023 5.000%, 02/28/01 110,205 109,990 5.625%, 02/28/01 130,255 130,121 4.875%, 03/31/01 74,730 74,537 5.000%, 04/30/01 132,000 131,447 6.250%, 04/30/01 53,685 53,675 5.625%, 05/15/01 115,000 114,733 8.000%, 05/15/01 46,110 46,448 5.250%, 05/31/01 80,000 79,675 6.625%, 07/31/01 25,000 25,065 ---------- TOTAL U.S. GOVERNMENT SECURITIES (Cost $2,588,245) 2,588,245 ---------- TOTAL INVESTMENTS -- 94.1% (Cost $2,588,245) 2,588,245 ---------- OTHER ASSETS AND LIABILITIES-- 5.9% Other assets 241,391 Liabilities (80,081) ---------- 161,310 ---------- TOTAL NET ASSETS-- 100.0% $2,749,555 ========== SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS AND NOTES TO FINANCIAL STATEMENTS. 32 NOTES TO SCHEDULES OF INVESTMENTS December 31, 2000 (All dollar amounts are in thousands unless otherwise noted) Yields shown are effective yields at the time of purchase, except for variable rate obligations, which are described below, and U.S. government coupon notes and U.S. Treasury notes, which reflect the coupon rate of the security. Yields for each type of security are stated according to the market convention for that security type. For each security, cost (for financial reporting and federal income tax purposes) and carrying value are the same. (a) These securities can be resold to qualified institutional buyers within seven business days. Such securities are deemed liquid in accordance with procedures adopted by the Board of Trustees. At December 31, 2000, the aggregate value of such securities held by the Schwab Money Market Fund was $14,248,864, which represented 34.07% of net assets. (b) Variable rate obligations have interest rates that vary periodically based on current market rates. Rates shown are the effective rates as of the report date. Dates shown for securities with scheduled maturities within 397 days or less represent the earlier of the demand date or next interest rate change date. Dates shown for securities with scheduled maturities greater than 397 days represent the later of the demand date or next interest rate change date. For variable rate obligations without demand features, the next interest reset date is shown. All dates shown are considered the maturity date for financial reporting purposes. (c) Repurchase agreements due dates are considered the maturity date. Repurchase agreements with due dates later than seven days from issue dates may be subject to seven day putable demand features for liquidity purposes. (d) These securities have legal or contractual restrictions on resale. Such securities are deemed illiquid in accordance with procedures adopted by the Board of Trustees. At December 31, 2000, the aggregate value of such securities held by Schwab Money Market Fund were $1,651,002, which represented 3.95% of the net assets. (e) Security has one or more third party credit enhancements. (f) Asset-backed securities are securities backed by underlying assets and categorized by industry. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 33 STATEMENTS OF ASSETS AND LIABILITIES (in thousands, except for net asset value per share) December 31, 2000
Schwab Schwab Schwab Money Government U.S. Treasury Market Money Money Fund Fund Fund ----------- ---------- ------------- ASSETS Investments, at value (Cost: $40,355,537, $1,677,402 and $2,588,245, respectively) $40,355,537 $1,677,402 $2,588,245 Repurchase agreements, at value (Cost: $1,191,467, $818,679 and $0, respectively) 1,191,467 818,679 -- Receivables: Interest 288,124 13,143 17,065 Investments sold -- -- 79,061 Investments matured -- -- 145,200 Prepaid expenses 432 124 65 ----------- ---------- ---------- Total assets 41,835,560 2,509,348 2,829,636 ----------- ---------- ---------- LIABILITIES Payables: Dividends 7,157 506 341 Investments purchased -- -- 79,447 Investment advisory and administration fees 1,629 94 67 Transfer agency and shareholder service fees 2,597 156 169 Other liabilities 1,426 59 57 ----------- ---------- ---------- Total liabilities 12,809 815 80,081 ----------- ---------- ---------- Net assets applicable to outstanding shares $41,822,751 $2,508,533 $2,749,555 =========== ========== ========== NET ASSETS CONSIST OF: Paid-in capital $41,822,858 $2,509,525 $2,750,412 Accumulated net realized loss on investments sold (107) (992) (857) ----------- ---------- ---------- $41,822,751 $2,508,533 $2,749,555 =========== ========== ========== PRICING OF SHARES Outstanding shares, $0.00001 par value (unlimited shares authorized) 41,823,390 2,509,628 2,750,476 Net asset value, offering and redemption price per share $ 1.00 $ 1.00 $ 1.00
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 34 STATEMENTS OF OPERATIONS (in thousands) For the year ended December 31, 2000
Schwab Schwab Schwab Money Government U.S. Treasury Market Money Money Fund Fund Fund ---------- ---------- ------------- Interest income $2,530,700 $157,853 $146,329 ---------- -------- -------- Expenses: Investment advisory and administration fees 124,844 9,070 8,938 Transfer agency and shareholder service fees 176,315 11,276 11,106 Custodian and portfolio accounting fees 2,671 297 288 Registration fees 3,839 174 137 Professional fees 132 25 27 Shareholder reports 3,543 107 61 Trustees' fees 81 18 22 Proxy fees 3,535 209 187 Other expenses 403 41 38 ---------- -------- -------- 315,363 21,217 20,804 Less: expenses reduced (see Note 4) (17,969) (2,215) (4,575) ---------- -------- -------- Net expenses incurred by fund 297,394 19,002 16,229 ---------- -------- -------- Net investment income 2,233,306 138,851 130,100 Net realized gain (loss) on investments sold 62 (6) 189 ---------- -------- -------- Increase in net assets resulting from operations $2,233,368 $138,845 $130,289 ========== ======== ========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 35 STATEMENTS OF CHANGES IN NET ASSETS (in thousands) For the year ended December 31,
Schwab Schwab Schwab Money Market Fund Government Money Fund U.S. Treasury Money Fund ------------------------------ -------------------------- -------------------------- 2000 1999 2000 1999 2000 1999 ------------- ------------- ----------- ----------- ----------- ----------- Operations: Net investment income $ 2,233,306 $ 1,456,752 $ 138,851 $ 103,912 $ 130,100 $ 95,582 Net realized gain (loss) on investments sold 62 2 (6) (169) 189 (243) ------------- ------------- ----------- ----------- ----------- ----------- Increase in net assets resulting from operations 2,233,368 1,456,754 138,845 103,743 130,289 95,339 ------------- ------------- ----------- ----------- ----------- ----------- Dividends to shareholders from net investment income (see Note 2): (2,233,306) (1,456,752) (138,851) (103,912) (130,100) (95,582) ------------- ------------- ----------- ----------- ----------- ----------- Capital share transactions (at $1.00 per share): Proceeds from shares sold 184,154,775 138,436,982 9,101,323 7,964,015 9,250,769 7,589,276 Net asset value of shares issued in reinvestment of dividends 2,185,595 1,575,675 136,330 114,148 127,697 104,530 Payments for shares redeemed (180,616,417) (131,353,391) (9,274,256) (7,740,303) (9,220,848) (7,232,645) ------------- ------------- ----------- ----------- ----------- ----------- Increase (decrease) in net assets from capital share transactions 5,723,953 8,659,266 (36,603) 337,860 157,618 461,161 ------------- ------------- ----------- ----------- ----------- ----------- Total increase (decrease) in net assets 5,724,015 8,659,268 (36,609) 337,691 157,807 460,918 Net assets: Beginning of period 36,098,736 27,439,468 2,545,142 2,207,451 2,591,748 2,130,830 ------------- ------------- ----------- ----------- ----------- ----------- End of period $ 41,822,751 $ 36,098,736 $ 2,508,533 $ 2,545,142 $ 2,749,555 $ 2,591,748 ============= ============= =========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 36 FINANCIAL HIGHLIGHTS
Schwab Money Market Fund 1/1/00- 1/1/99- 1/1/98- 1/1/97- 1/1/96- 12/31/00 12/31/99 12/31/98 12/31/97 12/31/96 PER-SHARE DATA ($) - -------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------ Income from investment operations: Net investment income 0.06 0.05 0.05 0.05 0.05 ------------------------------------------------------------ Total from investment operations 0.06 0.05 0.05 0.05 0.05 Less distributions: Dividends from net investment income (0.06) (0.05) (0.05) (0.05) (0.05) ------------------------------------------------------------ Total distributions (0.06) (0.05) (0.05) (0.05) (0.05) ------------------------------------------------------------ Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------ Total return (%) 5.84 4.64 4.99 5.04 4.91 RATIOS/SUPPLEMENTAL DATA (%) - -------------------------------------------------------------------------------------------------------------------------- Ratio of net operating expenses to average net assets 0.75 1 0.75 0.75 0.75 0.75 Expense reductions reflected in above ratio 0.05 0.09 0.11 0.12 0.14 Ratio of net investment income to average net assets 5.70 4.56 4.87 4.93 4.80 Net assets, end of period ($ x 1,000,000) 41,823 36,099 27,439 21,421 18,084
Schwab Government Money Fund 1/1/00- 1/1/99- 1/1/98- 1/1/97- 1/1/96- 12/31/00 12/31/99 12/31/98 12/31/97 12/31/96 PER-SHARE DATA ($) - -------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------ Income from investment operations: Net investment income 0.06 0.04 0.05 0.05 0.05 ------------------------------------------------------------ Total from investment operations 0.06 0.04 0.05 0.05 0.05 Less distributions: Dividends from net investment income (0.06) (0.04) (0.05) (0.05) (0.05) ------------------------------------------------------------ Total distributions (0.06) (0.04) (0.05) (0.05) (0.05) ------------------------------------------------------------ Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------ Total return (%) 5.69 4.50 4.88 4.95 4.83 RATIOS/SUPPLEMENTAL DATA (%) - -------------------------------------------------------------------------------------------------------------------------- Ratio of net operating expenses to average net assets 0.75 1 0.75 0.75 0.75 0.75 Expense reductions reflected in above ratio 0.09 0.10 0.17 0.17 0.17 Ratio of net investment income to average net assets 5.54 4.42 4.76 4.84 4.73 Net assets, end of period ($ x 1,000,000) 2,509 2,545 2,207 1,982 1,987 1 Would have been 0.76% if certain non-routine expenses (proxy fees) had been included.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 37 FINANCIAL HIGHLIGHTS (continued)
Schwab U.S. Treasury Money Fund 1/1/00- 1/1/99- 1/1/98- 1/1/97- 1/1/96- 12/31/00 12/31/99 12/31/98 12/31/97 12/31/96 PER-SHARE DATA ($) - -------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------ Income from investment operations: Net investment income 0.05 0.04 0.05 0.05 0.05 ------------------------------------------------------------ Total from investment operations 0.05 0.04 0.05 0.05 0.05 Less distributions: Dividends from net investment income (0.05) (0.04) (0.05) (0.05) (0.05) ------------------------------------------------------------ Total distributions (0.05) (0.04) (0.05) (0.05) (0.05) ------------------------------------------------------------ Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------ Total return (%) 5.40 4.25 4.69 4.85 4.77 RATIOS/SUPPLEMENTAL DATA (%) - -------------------------------------------------------------------------------------------------------------------------- Ratio of net operating expenses to average net assets 0.65 1 0.65 0.65 0.65 0.65 Expense reductions reflected in above ratio 0.19 0.21 0.26 0.28 0.29 Ratio of net investment income to average net assets 5.27 4.18 4.58 4.75 4.67 Net assets, end of period ($ x 1,000,000) 2,750 2,592 2,131 1,765 1,422 1 Would have been 0.66% if certain non-routine expenses (proxy fees) had been included.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 38 NOTES TO FINANCIAL STATEMENTS For the year ended December 31, 2000 (All dollar amounts are in thousands unless otherwise noted.) 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 investment management company organized as a Massachusetts business trust on October 20, 1989 and registered under the Investment Company Act of 1940, as amended, (the "1940 Act"). In addition to the funds, the trust also offers the Schwab Municipal Money Fund, Schwab California Municipal Money Fund, Schwab New York Municipal Money Fund, Schwab New Jersey Municipal Money Fund, Schwab Pennsylvania Municipal Money Fund, Schwab Florida Municipal Money Fund, Schwab Value Advantage Money Fund(R), Schwab Institutional Advantage Money Fund(R), Schwab Retirement Money Fund(R), and Schwab Government Cash Reserves. The assets of each series are segregated and accounted for separately. 2. SIGNIFICANT ACCOUNTING POLICIES The following significant accounting policies are in conformity with generally accepted accounting principles. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. SECURITY VALUATION -- Investments are stated at amortized cost, which approximates market value. SECURITY TRANSACTIONS, INTEREST INCOME AND REALIZED GAINS (LOSSES) -- Security transactions are accounted for on a trade date basis (date the order to buy or sell is executed). Interest income is accrued daily and includes amortization of premium and accretion of discount on investments. Realized gains and losses from security transactions are determined on an identified cost basis. REPURCHASE AGREEMENTS -- Repurchase agreements are fully collateralized by U.S. government securities. All collateral is held by the funds' custodian, except in the case of a tri-party agreement, under which the collateral is held by an agent bank. The collateral is monitored daily to ensure that its market value at least equals the repurchase price under the agreement. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Each fund declares a daily dividend, equal to its net investment income for that day, payable monthly. Net realized capital gains, if any, are normally distributed annually. EXPENSES -- Expenses arising in connection with 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. 39 NOTES TO FINANCIAL STATEMENTS (continued) 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 federal income tax purposes. As of December 31, 2000, the unused capital loss carryforwards for federal income tax purposes, with expiration dates, were as follows:
Schwab Schwab Schwab Money Government U.S. Treasury Market Fund Money Fund Money Fund ----------- ---------- ---------- Expiring in: ------------ 12/31/01 $ -- $ 53 $ -- 12/31/02 -- 74 -- 12/31/03 58 161 -- 12/31/04 -- 162 51 12/31/05 -- 226 137 12/31/06 -- 119 89 12/31/07 49 184 580 12/31/08 -- 13 -- ---- ---- ---- Total capital loss carryforwards $107 $992 $857 ==== ==== ====
3. TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS -- The funds have investment advisory and administration agreements with Charles Schwab Investment Management, Inc. (the "investment adviser"). For advisory services and facilities furnished, each fund pays an annual fee, payable monthly, of 0.38% on the first $1 billion of average daily net assets, 0.35% on such assets in excess of $1 billion to $10 billion, 0.32% on such assets in excess of $10 billion to $20 billion, and 0.30% on such assets in excess of $20 billion. The investment adviser has reduced a portion of its fee for the year ended December 31, 2000 (see Note 4). TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENTS -- The trust has transfer agency and shareholder service agreements with Charles Schwab & Co., Inc. ("Schwab"). For services provided under these agreements, Schwab receives an annual fee, payable monthly, of 0.25% of each fund's average daily net assets for transfer agency services and 0.20% of such net assets for shareholder services. OFFICERS AND TRUSTEES -- Certain officers and trustees of the trust are also officers and/or directors of the investment adviser and/or Schwab. During the year ended December 31, 2000, the trust made no direct payments to its officers or trustees who are "interested persons" within the meaning of the 1940 Act. The funds incurred fees aggregating $121 related to the trust's unaffiliated trustees. 40 4. EXPENSES REDUCED BY THE INVESTMENT ADVISER AND SCHWAB The investment adviser and Schwab guarantee that, through at least April 30, 2001, the Schwab Money Market Fund, Schwab Government Money Fund and Schwab U.S. Treasury 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. For the purpose of this guarantee, operating expenses do not include interest, taxes, and certain non-routine expenses. The actual operating expense ratio for the year ended December 31, 2000 did include non-routine expenses. For the year ended December 31, 2000, the total of such fees reduced by the investment adviser was $17,969, $2,215 and $4,575 for the Schwab Money Market Fund, Schwab Government Money Fund and Schwab U.S. Treasury Money Fund, respectively. 41 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of 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 of the portfolios constituting The Charles Schwab Family of Funds, hereafter referred to as the "Funds") at December 31, 2000, 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 each of the five years in period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' 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 auditing standards generally accepted in the United States of America, 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, 2000 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California February 14, 2001 42 CONTACT SCHWAB The SchwabFunds Family(R) 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 market funds. Please call 1-800-435-4000 for a free prospectus and brochure for any of these SchwabFunds.(R) This report must be preceded or accompanied by a current prospectus. METHODS FOR PLACING ORDERS The following information outlines how Schwab brokerage account investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET* WWW.SCHWAB.COM SCHWAB BY PHONE(TM) Use our automated voice service or speak to a representative. Call 1-800-435-4000, day or night (for TDD service, call 1-800-345-2550). TELEBROKER(R) Automated touch-tone phone service at 1-800-272-4922 MAIL Write to SchwabFunds at: P. O. Box 7575 San Francisco, CA 94120-7575 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. * Shares of Sweep Investments(R) may not be purchased over the Internet. THE SCHWABFUNDS FAMILY EQUITY INDEX FUNDS Schwab S&P 500 Fund Schwab 1000 Fund(R) Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(TM) Schwab International Index Fund(R) QUANTITATIVE/SECTOR FUNDS Schwab Analytics Fund(R) Schwab Focus Funds Communications Focus Fund Financial Services Focus Fund Health Care Focus Fund Technology Focus Fund ASSET ALLOCATION FUNDS Schwab MarketTrack Portfolios(R) All Equity Portfolio Growth Portfolio Balanced Portfolio Conservative Portfolio Schwab MarketManager Portfolios(R) Growth Portfolio Balanced Portfolio Small Cap Portfolio International Portfolio BOND FUNDS Schwab Short-Term Bond Market Index Fund Schwab Total Bond Market Index Fund Schwab YieldPlus Fund(TM) Schwab Short/Intermediate Tax-Free Bond Fund Schwab Long-Term Tax-Free Bond Fund Schwab California Short/Intermediate Tax-Free Bond Fund Schwab California Long-Term Tax-Free Bond Fund SCHWAB MONEY FUNDS Schwab offers an array of money market funds that seek high current income consistent 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.(R) 1 Investments in money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency and, although they seek to preserve the value of your investment at $1 per share, it is possible to lose money. [GRAPHIC OMITTED](R) SCHWABFUNDS INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. P.O. Box 7575, San Francisco, CA 94120-7575 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C) 2001 Charles Schwab & Co., Inc. All rights reserved. Member SIPC/NYSE. Printed on recycled paper. MKT3857-3 (2/01) -----END PRIVACY-ENHANCED MESSAGE-----