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From the President

Randall W. Merk is President and CEO of Charles Schwab Investment Management, Inc. and the funds covered in this report.

Dear Shareholder,

Even though U.S. and global economies have experienced modest improvements in the last six months, they remain in a state of uncertainty. The Federal Open Market Committee (FOMC) reflected this sentiment in its comments on June 23, 2010, when it reported that “financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.”

In response to these conditions, the FOMC kept the federal funds rate in the historically low range of 0.00% to 0.25%. Low interest rates have, in turn, helped to drive down yields on investments associated with money market funds to near-zero levels. These low yields have been compressed further by a steady reduction in the supply of high-quality securities available for purchase by money market funds throughout the industry.

Also during the last six months, the money fund industry continued to evolve in response to new regulatory requirements from the U.S. Securities and Exchange Commission (SEC). On February 23, 2010, the SEC approved amendments to the section of the Investment Company Act of 1940 that governs money market funds. These changes are designed mainly to improve portfolio quality, shorten portfolio maturities, support liquidity, and protect shareholders in the event of a sudden large increase in fund redemption requests. We welcome these changes, and believe that they will support investors’ confidence in money market funds as well as support the way that Schwab manages its money market funds.

All of Schwab’s money market funds maintained a stable $1 Net Asset Value (NAV) and provided shareholders with safety and liquidity during the reporting period. The challenging investment environment resulted in lower yields for securities normally associated with money market funds, and this translated into lower yields for Schwab money market funds as well. For more information about the yields for each fund, please see the fund managers’ discussion and analysis found in the following pages of this report.

Recognizing the important role that money market funds play in an investor’s portfolio, Charles Schwab & Co., Inc. (Schwab), and the funds’ investment adviser, Charles Schwab Investment Management, Inc. (CSIM), continued to voluntarily waive certain fees or expenses to maintain a positive net yield for certain Schwab money market funds.

If you’d like to know more about Schwab’s money market funds or other Schwab funds, we are always available to talk with you at 1-800-435-4000, and additional resources may be found on schwab.com.

Sincerely,

Schwab Retirement Advantage Money Fund & Schwab Investor Money Fund 1

The Investment Environment

The pace of the U.S. economy’s recovery remained uneven during the past six-month period. The Federal Reserve (Fed) recently reported that the “the economic recovery is proceeding” and that “the labor market is improving gradually,” but challenges remain. With the labor market improving gradually, spending by consumers and businesses also inched upward. However, these mild advances were constrained by a national unemployment rate that hovered around 10% and a housing market that continued to struggle. Real Gross Domestic Product (GDP) growth, another market indicator, increased by 2.7% for the first quarter of 2010, which contrasted with its increase of 5.6% for the fourth quarter of 2009. GDP is the output of goods and services produced by labor and property in the United States.

At the international level, financial markets fluctuated during the reporting period. In Europe, sovereign debt obligations reached unprecedented levels, and were followed by downgrades in the ratings of many foreign credit securities. The news caused temporary turmoil in the U.S. and global financial markets in early May. While the markets have seen some recovery to pre-May levels, central banks remain attentive to debt ratios, monetary exchange rates, interest rates, and inflation measurements.

The U.S. equity markets outperformed international equity markets during the six-month period, however both had negative returns. For example, the S&P 500^® Index, which is usually seen as a bellwether for domestic financial markets, returned −6.65%. All sectors in the S&P 500 had negative returns. For the international equity markets, the MSCI EAFE Index (Gross) returned −12.93%.

In the U.S. fixed income markets, accommodative Federal Reserve policy in the form of a near-zero federal funds rate continued, and recent statements from the Fed affirmed that rates will remain low “for an extended period.” In addition, the euro-debt concerns that crystallized in May put downward pressure on U.S. Treasury rates for intermediate- and longer-term bonds. During this time, investors sought a safe haven in U.S. Treasuries, causing prices to increase and yields to decrease to a range of two-to-three percent for the intermediate- and longer-term bonds.

The low interest rate environment, combined with a limited supply of short-term, high-quality taxable and tax-free credit securities, also suppressed short-term yields in the fixed income markets, to nearly zero percent. Securities normally purchased by money market funds were in short supply and had low rates of return. This shortage, combined with the prevailing low interest rates, depressed yields throughout the money market industry, causing yields on most money market funds to stay below 0.10% for the six-month period. In response to these market conditions, many money market fund managers waived fees to maintain positive net yields and a stable $1 NAV (net asset value).

Similar to the intermediate returns seen in U.S. Treasuries, returns for intermediate-term taxable securities, as reflected in the Barclays Capital U.S. Aggregate Intermediate Bond Index, were positive and stood at 4.78% for the six-month period. On the tax-free side, returns were more modest. The Barclays Capital General Muni Bond Index returned 3.31% for the same time frame. Overall, the past six months were characterized by negative returns in the U.S. and international equity markets, with modest relief provided by the fixed income markets.

Nothing in this report represents a recommendation of a security by the investment adviser.

Manager views and portfolio holdings may have changed since the report date.

2 Schwab Retirement Advantage Money Fund & Schwab Investor Money Fund

Schwab Retirement Advantage Money Fund^®

Schwab Retirement Advantage Money Fund provided safety and liquidity to shareholders throughout the six-month reporting period. The fund’s low yield reflected the prevailing low interest-rate environment. For example, the federal funds rate has remained at a target range of 0.00% to 0.25% since December 2008, which has put downward pressure on the yields of government agencies and other securities. Furthermore, yields on the majority of securities in which the fund invests are pegged to the London Interbank Offered Rate (LIBOR); this key benchmark for short-term interest rates also reported low returns for the reporting period.

This challenging interest-rate environment has left most money market funds with historically low performance. Consequently, the investment adviser continued to reduce the fund’s position in lower-yielding, government agency securities and increased its exposure to higher-yielding, credit-sensitive securities. At the same time, in response to new regulatory requirements from the U.S. Securities and Exchange Commission, the fund increased its position in cash, or securities that can be readily converted into cash, and shortened its Weighted Average Maturity (WAM)—an indication of the portfolio’s sensitivity to interest rate changes. During the six-month period, the WAM for the fund ranged from a high of 67 days to a low of 31 days.

Charles Schwab & Co., Inc. (Schwab) and the fund’s investment adviser continued to voluntarily waive certain fees or expenses to maintain a positive net yield for the fund.* For more information about the fund’s yield, please see the charts and relevant footnotes on the next page.

As of 6/30/10:

Portfolio Composition by Maturity¹


		% of Investments

1-15 Days		48.9%
16-30 Days		13.0%
31-60 Days		17.8%
61-90 Days		8.5%
91-120 Days		10.0%
More than 120 Days		1.8%

Statistics


Weighted Average Maturity²		33 Days
Credit Quality of Holdings³ % of portfolio		99.99% Tier 1

Portfolio Composition by Security Type⁴


				% of Investments

U.S. Treasury				1.6%
Government Agency⁵				12.1%
Repurchase Agreement				13.0%
Commercial Paper (CP)
Asset Backed CP				14.4%
Bank/Financial CP				13.8%
Other CP				0.9%
Certificate of Deposit				33.9%
Bank Note				1.9%
Corporate Note				3.2%
Time Deposit				4.3%
Other				0.9%
Total				100.0%

An investment in a money fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. 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.

Portfolio holdings may have changed since the report date.


*		Schwab and the investment adviser may recapture expenses or fees they voluntarily waived until the third anniversary of the end of the fiscal year in which such waiver occurs, subject to certain limitations. For more information on the potential impact of such recapture on future yields, please see Note 4 of the Financial Notes section.
¹		As shown in the Portfolio Holdings section of the shareholder report.
²		Money funds must maintain a dollar-weighted average maturity of no longer than 60 days (effective June 30, 2010), and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months).
³		Based on ratings from Moody’s Investors Service, Standard & Poor’s Corp. and/or Fitch Ratings or, if unrated, is determined to be of comparable quality. The fund may use different ratings provided by other rating agencies for purposes of determining compliance with the fund’s investment policies. The fund itself has not been rated by an independent credit rating agency.
⁴		Portfolio Composition is calculated using the Par Value of Investments.
⁵		Includes debt issued by Straight A Funding LLC, which the U.S. Securities and Exchange Commission has stated is permissible for money market funds to treat as government securities for the purpose of compliance with the diversification requirements of Rule 2a-7(c)(4)(i).

4 Schwab Retirement Advantage Money Fund^®

Performance and Fund Facts as of 6/30/10

The performance data quoted represents past performance. Past performance does not guarantee future results. Current performance may be lower or higher than performance data quoted. To obtain more current performance information, please visit www.schwabfunds.com/prospectus.

Weighted Average Maturity Trend for previous 12 months

Money funds must maintain a dollar-weighted average maturity of no longer than 60 days (effective June 30, 2010), and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months).

7-Day Average Yield Trend for previous 12 months

Seven-Day Yields

The seven-day yield is the income generated by the fund’s portfolio holdings minus the fund’s operating expenses. The seven-day yields are calculated using standard SEC formulas. The effective yield includes the effect of reinvesting daily dividends. Please remember that money market fund yields fluctuate.


		Schwab Retirement
		Advantage
		Money Fund

Ticker Symbol		SWIXX
Minimum Initial Investment¹		$25,000


Seven-Day Yield²		0.01%


Seven-Day Yield—Without Contractual Expense Limitation³		-0.13%


Seven-Day Effective Yield²		0.01%

Portfolio holdings may have changed since the report date.


¹		Please see prospectus for further detail and eligibility requirements.
²		Yield reflects the benefit of the fund’s agreement with Schwab and the investment adviser to limit total annual fund operating expenses to certain levels (contractual expense limitation). In addition, Schwab and the investment adviser have voluntarily waived expenses in excess of the contractual expense limitation to maintain a positive net yield for the fund (voluntary expense waiver). Without the contractual expense limitation and the voluntary expense waiver, the fund’s yield would have been lower. Please see Note 4 in the Financial Notes section for additional details.
³		Yield does not reflect the benefit of the contractual expense limitation but does reflect the benefit of the voluntary expense waiver. The voluntary expense waiver added 0.11% to the seven-day yield.

Schwab Retirement Advantage Money Fund^® 5

Schwab Investor Money Fund^®

Schwab Investor Money Fund provided safety and liquidity to shareholders throughout the six-month reporting period. The fund’s low yield reflected the prevailing low interest-rate environment. For example, the federal funds rate has remained at a target range of 0.00% to 0.25% since December 2008, which has put downward pressure on the yields of government agencies and other securities. Furthermore, yields on the majority of securities in which the fund invests are pegged to the London Interbank Offered Rate (LIBOR); this key benchmark for short-term interest rates also reported low returns for the reporting period.

As of 6/30/10:

Portfolio Composition by Maturity¹


		% of Investments

1-15 Days		47.1%
16-30 Days		17.0%
31-60 Days		16.4%
61-90 Days		8.8%
91-120 Days		9.3%
More than 120 Days		1.4%

Statistics


Weighted Average Maturity²		32 Days
Credit Quality of Holdings³ % of portfolio		99.99% Tier 1

Portfolio Composition by Security Type⁴


				% of Investments

U.S. Treasury				1.6%
Government Agency⁵				15.1%
Repurchase Agreement				11.5%
Commercial Paper (CP)
Asset Backed CP				15.9%
Bank/Financial CP				8.7%
Certificate of Deposit				36.1%
Bank Note				1.6%
Corporate Note				4.2%
Time Deposit				4.9%
Other				0.4%
Total				100.0%

Portfolio holdings may have changed since the report date.


*		Schwab and the investment adviser may recapture expenses or fees they voluntarily waived until the third anniversary of the end of the fiscal year in which such waiver occurs, subject to certain limitations. For more information on the potential impact of such recapture on future yields, please see Note 4 of the Financial Notes section.
¹		As shown in the Portfolio Holdings section of the shareholder report.
²		Money funds must maintain a dollar-weighted average maturity of no longer than 60 days (effective June 30, 2010), and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months).
³		Based on ratings from Moody’s Investors Service, Standard & Poor’s Corp. and/or Fitch Ratings or, if unrated, is determined to be of comparable quality. The fund may use different ratings provided by other rating agencies for purposes of determining compliance with the fund’s investment policies. The fund itself has not been rated by an independent credit rating agency.
⁴		Portfolio Composition is calculated using the Par Value of Investments.
⁵		Includes debt issued by Straight A Funding LLC, which the U.S. Securities and Exchange Commission has stated is permissible for money market funds to treat as government securities for the purpose of compliance with the diversification requirements of Rule 2a-7(c)(4)(i).

6 Schwab Investor Money Fund^®

Performance and Fund Facts as of 6/30/10

Weighted Average Maturity Trend for previous 12 months

7-Day Average Yield Trend for previous 12 months

Seven-Day Yields


		Schwab Investor
		Money Fund

Ticker Symbol		SWRXX
Minimum Initial Investment¹		$1 Retirement Plan Participants
		$2,500 Other Investors


Seven-Day Yield²		0.01%


Seven-Day Yield—Without Contractual Expense Limitation³		-0.03%


Seven-Day Effective Yield²		0.01%

Portfolio holdings may have changed since the report date.


¹		Please see prospectus for further detail and eligibility requirements.
²		Yield reflects the benefit of the fund’s agreement with Schwab and the investment adviser to limit total annual fund operating expenses to certain levels (contractual expense limitation). In addition, Schwab and the investment adviser have voluntarily waived expenses in excess of the contractual expense limitation to maintain a positive net yield for the fund (voluntary expense waiver). Without the contractual expense limitation and the voluntary expense waiver, the fund’s yield would have been lower. Please see Note 4 in the Financial Notes section for additional details.
³		Yield does not reflect the benefit of the contractual expense limitation but does reflect the benefit of the voluntary expense waiver. The voluntary expense waiver added 0.23% to the seven-day yield.

Schwab Investor Money Fund^® 7

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

As a fund shareholder, you incur two types of costs: transaction costs, such as redemption fees; and, ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses.

The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six months beginning January 1, 2010 and held through June 30, 2010.

Actual Return lines in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value ¸ $1,000 = 8.6), then multiply the result by the number given for your fund or share class under the heading entitled “Expenses Paid During Period.”

Hypothetical Return lines in the table below provide information about hypothetical account values and hypothetical expenses based on a fund’s or share class’ actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period.

You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only, and do not reflect any transactional costs, such as redemption fees. If these transactional costs were included, your costs would have been higher.


					Ending
			Beginning		Account Value		Expenses Paid
	Expense Ratio¹		Account Value		(Net of Expenses)		During Period²
	(Annualized)		at 1/1/10		at 6/30/10		1/1/10–6/30/10

Schwab Retirement Advantage Money Fund^®
Actual Return		0.31%	$	1,000	$	1,000.10	$	1.54
Hypothetical 5% Return		0.31%	$	1,000	$	1,023.26	$	1.56


Schwab Investor Money Fund^®
Actual Return		0.31%	$	1,000	$	1,000.10	$	1.54
Hypothetical 5% Return		0.31%	$	1,000	$	1,023.26	$	1.56


¹		Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights.
²		Expenses for each fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year.

8 Schwab Retirement Advantage Money Fund & Schwab Investor Money Fund

Schwab Retirement Advantage Money Fund^®

Financial Statements

Financial Highlights


	1/1/10–			1/1/09–			1/1/08–			1/1/07–			1/1/06–			1/1/05–
	6/30/10*			12/31/09			12/31/08			12/31/07			12/31/06			12/31/05


Per-Share Data ($)

Net asset value at beginning of period		1.00			1.00			1.00			1.00			1.00			1.00

Income (loss) from investment operations:
Net investment income (loss)		0.00	¹		0.00	¹		0.03			0.05			0.05			0.03
Net realized and unrealized gains (losses)		0.00	¹		(0.00	)¹		—			—			—			—

Total from investment operations		0.00	¹		0.00	¹		0.03			0.05			0.05			0.03
Less distributions:
Distributions from net investment income		(0.00	)¹		(0.00	)¹		(0.03	)		(0.05	)		(0.05	)		(0.03	)

Net asset value at end of period		1.00			1.00			1.00			1.00			1.00			1.00

Total return (%)		0.01	²		0.20			2.56			4.96			4.67			2.81

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.31	³		0.44	⁴		0.48	⁴		0.48			0.49			0.49
Gross operating expenses		0.60	³		0.62			0.60			0.62			0.64			0.63
Net investment income (loss)		0.01	³		0.20			2.52			4.85			4.59			2.75
Net assets, end of period ($ x 1,000,000)		879			954			984			946			802			571

* Unaudited.

¹ Per-share amount was less than $0.01.

² Not annualized.

³ Annualized.

⁴ The ratio of net operating expenses would have been 0.41% for 2009 and 0.47% for 2008, respectively, if certain non-routine expenses (participation fees for the Treasury’s Temporary Guarantee Program for Money Market Funds) had not been incurred.

See financial notes 9

Schwab Retirement Advantage Money Fund

Portfolio Holdings as of June 30, 2010 (Unaudited)

This section shows all the securities in the fund’s portfolio and their values as of the report date.

The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the SEC’s website at http://www.sec.gov and may be viewed and copied at the SEC’s Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on a fund’s most recent Form N-Q is also available by visiting Schwab’s website at www.schwabfunds.com/prospectus.

For fixed rate obligations, the rate shown is the effective yield at the time of purchase, except U.S. Treasury notes, for which the rate shown is the interest rate (the rate established when the obligation was issued). For variable-rate obligations, the rate shown is the rate as of the report date and the maturity date shown is the next interest rate change date.


				Cost		Value
Holdings by Category				($)		($)

	71	.7%	Fixed-Rate Obligations		630,961,487		630,961,487
	13	.2%	Variable-Rate Obligations		116,114,451		116,114,451
	13	.1%	Other Investments		115,024,523		115,024,523
	2	.5%	U.S. Government Securities		21,998,904		21,998,904


	100	.5%	Total Investments		884,099,365		884,099,365
	(0	.5)%	Other Assets and Liabilities, Net				(4,732,283	)


	100	.0%	Net Assets				879,367,082


	Face
Issuer	Amount		Value
Rate, Maturity Date	($)		($)

Fixed-Rate Obligations 71.7% of net assets

Bank Notes 1.9%
Bank of America, N.A.
0.30%, 07/12/10		1,000,000		1,000,000
0.28%, 07/14/10		5,000,000		5,000,000
0.47%, 09/14/10		11,000,000		11,000,000

				17,000,000

Certificates of Deposit 30.7%
Abbey National Treasury Services PLC
0.24%, 07/02/10 (a)		4,000,000		4,000,000
Bank of Nova Scotia
0.21%, 07/28/10		15,000,000		15,000,000
Bank of Tokyo Mitsubishi UFJ Ltd.
0.46%, 08/10/10		4,000,000		4,000,000
0.32%, 08/23/10		4,000,000		4,000,000
0.80%, 10/22/10		1,000,000		1,000,000
Barclays Bank PLC
1.25%, 10/21/10		2,000,000		2,000,000
0.87%, 12/10/10		5,000,000		5,000,000
BNP Paribas
0.29%, 07/12/10		6,000,000		6,000,000
0.40%, 07/26/10		5,000,000		5,000,000
0.43%, 08/03/10		1,000,000		1,000,000
0.49%, 08/16/10		10,000,000		10,000,000
0.61%, 09/09/10		12,000,000		12,000,000
0.61%, 09/28/10		7,000,000		7,000,000
Canadian Imperial Bank of Commerce
0.13%, 07/06/10		10,000,000		10,000,000
Citibank, N.A.
0.30%, 07/06/10		8,000,000		8,000,000
0.43%, 07/28/10		3,000,000		3,000,000
0.42%, 08/04/10		8,000,000		8,000,000
0.42%, 08/06/10		9,000,000		9,000,000
Commerzbank AG
0.50%, 08/12/10		5,000,000		5,000,000
Credit Agricole S.A.
0.42%, 09/08/10		2,000,000		2,000,000
Credit Suisse
0.25%, 07/29/10		4,000,000		4,000,000
Deutsche Bank AG
0.30%, 07/19/10		5,000,000		5,000,000
0.45%, 08/09/10		3,000,000		3,000,000
0.45%, 09/24/10		20,000,000		20,000,000
ING Bank N.V.
0.34%, 08/09/10		4,000,000		4,000,000
Intesa Sanpaolo
0.32%, 07/01/10		7,000,000		7,000,000
0.30%, 07/08/10		10,000,000		10,000,000
Landesbank Hessen-Thuringen Girozentrale
0.50%, 08/06/10		2,000,000		2,000,000
Lloyds TSB Bank PLC
0.43%, 08/04/10		6,000,000		6,000,000
0.35%, 09/01/10		1,000,000		1,000,000
0.62%, 10/12/10		5,000,000		5,000,000
1.20%, 11/02/10		3,000,000		3,000,000
Mitsubishi UFJ Trust & Banking Corp.
0.35%, 07/28/10		2,000,000		2,000,000
0.56%, 10/01/10		7,000,000		7,000,000
Mizuho Corporate Bank Ltd.
0.40%, 07/12/10		2,000,000		2,000,000
0.40%, 07/16/10		6,000,000		6,000,000
National Australia Bank Ltd.
0.31%, 07/30/10		5,000,000		5,000,020
Rabobank Nederland
0.52%, 09/15/10		1,000,000		1,000,000
0.56%, 10/01/10		4,000,000		4,000,000
Royal Bank of Scotland PLC
0.98%, 08/11/10		5,000,000		5,000,000
0.50%, 08/16/10		1,000,000		1,000,000
1.37%, 10/21/10		3,000,000		3,000,000
0.62%, 12/13/10		4,000,000		4,000,000
Societe Generale
0.38%, 07/08/10		2,000,000		2,000,000
0.60%, 09/02/10		5,000,000		5,000,000
0.63%, 09/17/10		1,000,000		1,000,000
Sumitomo Mitsui Banking Corp.
0.40%, 07/06/10		10,000,000		10,000,000
0.41%, 07/08/10		3,000,000		3,000,000
Sumitomo Trust & Banking Co.
0.52%, 08/10/10		2,000,000		2,000,011
0.35%, 08/20/10		3,000,000		3,000,021
0.60%, 10/22/10		3,000,000		3,000,000
UBS AG
0.42%, 08/09/10		6,000,000		6,000,000
1.28%, 10/25/10		1,000,000		1,000,000
Union Bank, N.A.
0.30%, 07/20/10		3,000,000		3,000,000

				270,000,052

10 See financial notes

Schwab Retirement Advantage Money Fund

Portfolio Holdings (Unaudited) continued


	Face
Issuer	Amount		Value
Rate, Maturity Date	($)		($)

Commercial Paper & Other Corporate Obligations 29.2%
Alpine Securitzation Corp.
0.26%, 07/06/10 (a)(b)(c)		2,000,000		1,999,928
0.32%, 07/20/10 (a)(b)(c)		4,000,000		3,999,324
Amsterdam Funding Corp.
0.46%, 08/18/10 (a)(b)(c)		7,000,000		6,995,707
ANZ National (Int’l) Ltd.
0.50%, 08/23/10 (a)		3,000,000		2,997,792
Argento Variable Funding Co., L.L.C.
0.35%, 08/02/10 (a)(b)(c)		4,000,000		3,998,755
Atlantic Asset Securitization, L.L.C.
0.24%, 07/06/10 (a)(b)(c)		3,000,000		2,999,900
Atlantis One Funding Corp.
0.22% - 0.33%, 07/02/10 (a)(b)(c)		9,000,000		8,999,920
0.41%, 07/21/10 (a)(b)(c)		4,000,000		3,999,089
0.39%, 09/02/10 (a)(b)(c)		5,000,000		4,996,587
Banco Bilbao Vicaya London
0.30%, 07/14/10 (c)		7,000,000		6,999,242
Bank of America Corp.
0.41%, 07/23/10		7,000,000		6,998,246
BNZ International Funding Ltd.
0.50%, 08/16/10 (a)		2,000,000		1,998,722
CAFCO, L.L.C.
0.31%, 07/12/10 (a)(b)(c)		2,000,000		1,999,811
0.40%, 07/29/10 (a)(b)(c)		2,000,000		1,999,378
Cancara Asset Securitization, L.L.C.
0.38%, 07/07/10 (a)(b)(c)		5,000,000		4,999,683
0.38%, 07/14/10 (a)(b)(c)		3,000,000		2,999,588
0.50%, 08/18/10 (a)(b)(c)		2,000,000		1,998,667
Ciesco, L.L.C.
0.28%, 07/07/10 (a)(b)(c)		4,000,000		3,999,813
0.33%, 08/04/10 (a)(b)(c)		4,000,000		3,998,753
Citigroup Funding, Inc.
0.37%, 07/12/10 (a)		7,000,000		6,999,209
0.40%, 07/16/10 (a)		3,000,000		2,999,500
0.46%, 08/10/10 (a)		1,000,000		999,489
0.60%, 10/18/10 (a)		2,000,000		1,996,367
Commonwealth Bank of Australia
0.34%, 07/30/10 (c)		7,000,000		6,998,083
CRC Funding, L.L.C.
0.33%, 08/03/10 (a)(b)(c)		9,000,000		8,997,277
Dakota CP Notes of Citibank Credit Card Issuance Trust
0.37%, 07/07/10 (b)(c)		1,000,000		999,938
0.40%, 08/03/10 (b)(c)		2,000,000		1,999,267
0.60%, 09/02/10 (b)(c)		4,000,000		3,995,800
Danske Corp. (Danish Government Guarantee)
0.35%, 07/06/10 (a)(c)		9,000,000		8,999,569
0.58%, 10/20/10 (a)(c)		4,000,000		3,992,847
General Electric Capital Corp.
0.52%, 10/15/10		9,000,000		8,986,220
0.52%, 10/18/10		12,000,000		11,981,107
Gotham Funding Corp.
0.40%, 07/09/10 (a)(b)(c)		1,045,000		1,044,907
Grampian Funding, L.L.C.
0.37%, 07/08/10 (a)(b)(c)		4,000,000		3,999,712
0.49%, 08/12/10 (a)(b)(c)		1,000,000		999,428
Market Street Funding Corp.
0.29%, 07/12/10 (a)(b)(c)		3,000,000		2,999,734
Nationwide Building Society
0.35%, 08/18/10		4,000,000		3,998,133
0.70%, 11/09/10		1,000,000		997,453
Nieuw Amsterdam Receivables Corp.
0.46%, 08/10/10 (a)(b)(c)		6,000,000		5,996,933
Nordea North America, Inc.
0.38%, 08/16/10 (a)		12,000,000		11,994,173
Ranger Funding Co., L.L.C.
0.38%, 08/10/10 (a)(b)(c)		6,000,000		5,997,467
Royal Park Investment Funding Corp.
0.30%, 07/12/10 (a)(b)(c)		8,000,000		7,999,267
Santander Central Hispano Finance (Delaware), Inc.
0.41%, 09/03/10 (a)		6,000,000		5,995,627
Societe Generale North America, Inc.
0.30%, 07/02/10 (a)		9,000,000		8,999,925
0.63%, 10/01/10 (a)		4,000,000		3,993,560
Solitaire Funding, L.L.C.
0.44%, 07/20/10 (a)(b)(c)		3,741,000		3,740,131
0.47%, 07/26/10 (a)(b)(c)		1,000,000		999,674
0.48%, 08/10/10 (a)(b)(c)		4,000,000		3,997,867
Starbird Funding Corp.
0.35%, 07/21/10 (a)(b)(c)		4,000,000		3,999,222
State Street Corp.
0.25%, 07/07/10		4,000,000		3,999,833
Thames Asset Global Securitization No. 1, Inc.
0.42%, 07/08/10 (a)(b)(c)		8,000,000		7,999,347
Thunder Bay Funding, L.L.C.
0.35%, 07/06/10 (a)(b)(c)		2,025,000		2,024,902
Ticonderoga Funding, L.L.C.
0.53%, 10/25/10 (a)(b)(c)		3,000,000		2,994,877
UniCredit Bank Ireland PLC
0.34%, 07/14/10 (a)(c)		4,000,000		3,999,516
UniCredit Delaware, Inc.
0.33%, 07/02/10 (a)(c)		5,000,000		4,999,955
Windmill Funding Corp.
0.28%, 07/16/10 (a)(b)(c)		1,000,000		999,883
0.32%, 07/19/10 (a)(b)(c)		3,000,000		2,999,520

				256,694,624

Fixed-Rate Coupon Notes 3.8%
Federal Home Loan Bank
0.58%, 08/05/10		5,000,000		4,999,824
0.53%, 10/19/10		8,000,000		7,999,378
0.54%, 10/20/10		16,000,000		15,998,178
0.51%, 10/25/10		5,000,000		4,999,582

				33,996,962

Fixed-Rate Discount Notes 1.2%
Federal Home Loan Bank
0.13%, 08/11/10		4,000,000		3,999,408
Freddie Mac
0.50%, 07/06/10		5,000,000		4,999,652
0.13%, 08/16/10		1,271,000		1,270,789

				10,269,849

Promissory Note 0.6%
The Goldman Sachs Group, Inc.
0.70%, 08/04/10 (c)(d)		2,000,000		2,000,000
0.95%, 11/04/10 (c)(d)		3,000,000		3,000,000

				5,000,000

Time Deposits 4.3%
Australia & New Zealand Banking Group Ltd.
0.23%, 07/01/10		10,000,000		10,000,000
0.23%, 07/02/10		9,000,000		9,000,000

See financial notes 11

Schwab Retirement Advantage Money Fund

Portfolio Holdings (Unaudited) continued


	Face
Issuer	Amount		Value
Rate, Maturity Date	($)		($)
Dexia Credit Local
0.44%, 07/02/10		3,000,000		3,000,000
Northern Trust Co.
0.16%, 07/01/10		6,000,000		6,000,000
Svenska Handelsbanken AB
0.18%, 07/01/10		10,000,000		10,000,000

				38,000,000

Total Fixed-Rate Obligations
(Cost $630,961,487)				630,961,487




Variable-Rate Obligations 13.2% of net assets


Banco Bilbao Vizcaya Argentaria S.A.
0.35%, 07/16/10		5,000,000		5,000,000
Barclays Bank PLC
0.72%, 07/13/10		10,000,000		10,000,000
Commonwealth Bank of Australia
0.40%, 07/12/10 (c)		13,000,000		13,000,000
Dexia Credit Local
0.45%, 07/29/10		5,000,000		5,000,000
Fannie Mae
0.19%, 07/13/10		25,000,000		24,999,449
Freddie Mac
0.09%, 07/12/10		15,000,000		15,000,000
0.20%, 07/14/10		15,000,000		15,000,364
JPMorgan Chase Bank, N.A.
0.35%, 07/21/10		10,000,000		10,000,000
New York City IDA
Revenue Bonds (Allway Tools) Series 1997
0.80%, 07/01/10 (a)		115,000		115,000
Palm Springs, CA
Certificates of Participation Series 2002A
0.55%, 07/01/10 (a)		8,000,000		8,000,000
Toronto Dominion Bank
0.35%, 07/09/10		5,000,000		5,000,000
Westpac Banking Corp.
0.39%, 07/15/10		5,000,000		4,999,638

Total Variable-Rate Obligations
(Cost $116,114,451)				116,114,451



	Face/
	Maturity
Issuer	Amount		Value
Rate, Maturity Date	($)		($)

Other Investments 13.1% of net assets


Whistlejacket Capital, L.L.C.

n/a, n/a (c)(d)(e)		42,587		42,587

Repurchase Agreements 13.1%
Credit Suisse Securities (USA), L.L.C.
Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $22,423,276.
0.05%, issued 06/30/10, due 07/01/10		21,981,967		21,981,936
Deutsche Bank Securities, Inc.
Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $88,400,000
0.04%, issued 06/30/10, due 07/01/10		85,000,094		85,000,000
Goldman Sachs & Co.
Tri-Party Repurchase Agreement Collateralized by Equity Securities with a value of $1,050,003.
0.50%, issued 04/22/10, due 07/22/10 (d)		1,001,264		1,000,000
Tri-Party Repurchase Agreement Collateralized by Equity Securities with a value of $2,100,004.
0.50%, issued 04/23/10, due 07/23/10 (d)		2,002,528		2,000,000
Tri-Party Repurchase Agreement Collateralized by Equity Securities with a value of $5,250,045.
0.63%, issued 05/10/10, due 08/23/10 (d)		5,009,188		5,000,000

Total Other Investments
(Cost $115,024,523)				115,024,523



	Face
Issuer	Amount		Value
Rate, Maturity Date	($)		($)

U.S. Government Securities 2.5% of net assets

Other Government Related 0.9%
Straight A Funding, L.L.C.
0.30%, 07/02/10 (a)(b)(c)(f)		4,000,000		3,999,967
0.31%, 07/20/10 (a)(b)(c)(f)		4,000,000		3,999,345

				7,999,312

U.S. Treasury Bill 1.6%
U.S. Treasury Bills
0.03% - 0.10%, 07/15/10		14,000,000		13,999,592

Total U.S. Government Securities
(Cost $21,998,904)				21,998,904



End of Investments.

At 06/30/10, the tax basis cost of the fund’s investments was $884,099,365.


(a)		Credit-enhanced security.
(b)		Asset-backed security.
(c)		Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $196,801,167 or 22.4% of net assets.
(d)		Illiquid security. At the period end, the value of these amounted to $13,042,587 or 1.5% of net assets.
(e)		Whistlejacket notes are in receivership, and the fund elected to sell all of its Whistlejacket notes at auction (4/29/2009). The remaining investment represents an interest in a small residual fund that is being held to cover any remaining expenses and liabilities associated with receivership.
(f)		The U.S. Securities and Exchange Commission has stated that it is permissible for money market funds to treat Straight A Funding LLC securities as government securities for the purpose of compliance with the diversification requirements of Rule 2a-7(c)(4)(i).


IDA —		Industrial development agency/authority

12 See financial notes

Schwab Investor Money Fund^®

Financial Statements

Financial Highlights


	1/1/10–			1/1/09–			1/1/08–			1/1/07–			1/1/06–			1/1/05–
	6/30/10*			12/31/09			12/31/08			12/31/07			12/31/06			12/31/05


Per-Share Data ($)

Net asset value at beginning of period		1.00			1.00			1.00			1.00			1.00			1.00

Income (loss) from investment operations:
Net investment income (loss)		0.00	¹		0.00	¹		0.02			0.05			0.04			0.03
Net realized and unrealized gains (losses)		0.00	¹		(0.00	)¹		—			—			—			—

Total from investment operations		0.00	¹		0.00	¹		0.02			0.05			0.04			0.03
Less distributions:
Distributions from net investment income		(0.00	)¹		(0.00	)¹		(0.02	)		(0.05	)		(0.04	)		(0.03	)

Net asset value at end of period		1.00			1.00			1.00			1.00			1.00			1.00

Total return (%)		0.01	²		0.16			2.41			4.82			4.50			2.63

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.31	³		0.51	⁴		0.60			0.62			0.67			0.67
Gross operating expenses		0.62	³		0.64			0.62			0.63			0.67			0.67
Net investment income (loss)		0.01	³		0.17			2.37			4.71			4.50			2.61
Net assets, end of period ($ x 1,000,000)		1,606			1,832			2,360			2,089			1,314			521

* Unaudited.

¹ Per-share amount was less than $0.01.

² Not annualized.

³ Annualized.

⁴ The ratio of net operating expenses would have been 0.48% if certain non-routine expenses (participation fees for the Treasury’s Temporary Guarantee Program for Money Market Funds) had not been incurred.

16 See financial notes

Schwab Investor Money Fund

Portfolio Holdings as of June 30, 2010 (Unaudited)

This section shows all the securities in the fund’s portfolio and their values as of the report date.


				Cost		Value
Holdings by Category				($)		($)

	69	.0%	Fixed-Rate Obligations		1,109,090,437		1,109,090,437
	14	.3%	Variable-Rate Obligations		228,991,897		228,991,897
	11	.5%	Other Investments		184,410,968		184,410,968
	5	.1%	U.S. Government Securities		82,435,052		82,435,052


	99	.9%	Total Investments		1,604,928,354		1,604,928,354
	0	.1%	Other Assets and Liabilities, Net				1,539,912


	100	.0%	Net Assets				1,606,468,266


	Face
Issuer	Amount		Value
Rate, Maturity Date	($)		($)

Fixed-Rate Obligations 69.0% of net assets

Bank Notes 1.6%
Bank of America, N.A.
0.29%, 07/01/10		1,000,000		1,000,000
0.30%, 07/12/10		9,000,000		9,000,000
0.40%, 08/19/10		15,000,000		15,000,000

				25,000,000

Certificates of Deposit 33.0%
Abbey National Treasury Services PLC
0.60%, 09/27/10 (a)		7,000,000		7,000,000
Bank of Nova Scotia
0.20%, 07/29/10		28,000,000		28,000,000
Bank of Tokyo Mitsubishi UFJ Ltd.
0.46%, 08/10/10		1,000,000		1,000,000
0.80%, 10/22/10		6,000,000		6,000,000
Barclays Bank PLC
1.25%, 10/21/10		4,000,000		4,000,000
BNP Paribas
0.30%, 07/19/10		7,000,000		7,000,000
0.42%, 07/28/10		27,000,000		27,000,000
0.61%, 09/09/10		12,000,000		12,000,000
0.61%, 09/28/10		26,000,000		26,000,000
0.61%, 10/01/10		4,000,000		4,000,000
Canadian Imperial Bank of Commerce
0.13%, 07/06/10		20,000,000		20,000,000
Citibank, N.A.
0.30%, 07/06/10		30,000,000		30,000,000
0.36%, 07/07/10		1,000,000		1,000,000
0.37%, 07/12/10		7,000,000		7,000,000
0.44%, 07/29/10		6,000,000		6,000,000
0.42%, 08/04/10		5,000,000		5,000,000
0.42%, 08/06/10		4,000,000		4,000,000
Commerzbank AG
0.43%, 07/12/10		8,000,000		8,000,000
0.50%, 08/12/10		1,000,000		1,000,000
Credit Agricole S.A.
0.42%, 09/08/10		8,000,000		8,000,000
0.41%, 09/15/10		5,000,000		5,000,000
Credit Suisse
0.25%, 07/29/10		6,000,000		6,000,000
Deutsche Bank AG
0.30%, 07/19/10		19,000,000		19,000,000
0.46%, 07/26/10		6,000,000		6,000,000
0.45%, 08/06/10		10,000,000		10,000,000
0.45%, 09/24/10		18,000,000		18,000,000
DnB NOR Bank ASA
0.30%, 08/09/10		1,000,000		1,000,000
HSBC Bank PLC
0.30%, 08/16/10		6,000,000		6,000,000
0.32%, 08/31/10		4,000,000		4,000,000
ING Bank N.V.
0.34%, 08/09/10		8,000,000		8,000,000
Intesa Sanpaolo
0.32%, 07/01/10		10,000,000		10,000,000
Landesbank Hessen-Thuringen Girozentrale
0.50%, 08/06/10		3,000,000		3,000,000
Lloyds TSB Bank PLC
0.43%, 08/04/10		9,000,000		9,000,000
0.62%, 10/12/10		15,000,000		15,000,000
1.20%, 11/02/10		6,000,000		6,000,000
Mitsubishi UFJ Trust & Banking Corp.
0.33%, 07/01/10		6,000,000		6,000,000
0.35%, 07/28/10		10,000,000		10,000,000
0.46%, 08/03/10		6,000,000		6,000,000
Mizuho Corporate Bank Ltd.
0.40%, 07/12/10		6,000,000		6,000,000
0.40%, 07/16/10		10,000,000		10,000,000
Rabobank Nederland
0.56%, 10/01/10		17,000,000		17,000,000
Royal Bank of Scotland PLC
0.47%, 08/06/10		6,000,000		6,000,000
0.94%, 08/27/10		2,000,000		2,000,000
1.37%, 10/21/10		6,000,000		6,000,000
0.62%, 12/13/10		6,000,000		6,000,000
Societe Generale
0.38%, 07/07/10		7,000,000		7,000,000
0.60%, 09/02/10		9,000,000		9,000,000
0.60%, 09/03/10		2,000,000		2,000,000
0.63%, 09/17/10		4,000,000		4,000,000
Sumitomo Mitsui Banking Corp.
0.40%, 07/06/10		6,000,000		6,000,000
0.40%, 07/13/10		17,000,000		17,000,000
0.38%, 07/15/10		1,000,000		1,000,000
Sumitomo Trust & Banking Co.
0.47%, 07/26/10		10,000,000		10,000,035
0.52%, 08/10/10		1,000,000		1,000,005
Toronto Dominion Bank
0.68%, 08/16/10		21,000,000		21,000,000
UBS AG
0.42%, 08/09/10		20,000,000		20,000,000
1.28%, 10/25/10		4,000,000		4,000,000

See financial notes 17

Schwab Investor Money Fund

Portfolio Holdings (Unaudited) continued


	Face
Issuer	Amount		Value
Rate, Maturity Date	($)		($)
UniCredit Bank AG
0.45%, 07/02/10		3,000,000		3,000,000
UniCredit S.p.A.
0.54%, 07/26/10		11,000,000		11,000,038
0.50%, 08/13/10		2,000,000		2,000,000

				531,000,078

Commercial Paper & Other Corporate Obligations 24.6%
Alpine Securitization Corp.
0.29%, 07/29/10 (a)(b)(c)		10,000,000		9,997,744
Amsterdam Funding Corp.
0.46%, 08/18/10 (a)(b)(c)		15,000,000		14,990,800
Argento Variable Funding Co., L.L.C.
0.35%, 08/02/10 (a)(b)(c)		7,000,000		6,997,822
Atlantis One Funding Corp.
0.22%, 07/02/10 (a)(b)(c)		1,000,000		999,994
0.41%, 07/28/10 (a)(b)(c)		14,000,000		13,995,695
0.43%, 08/11/10 (a)(b)(c)		2,000,000		1,999,021
0.38%, 09/02/10 (a)(b)(c)		6,000,000		5,996,010
BNZ International Funding Ltd.
0.60%, 08/26/10 (a)		4,000,000		3,996,267
CAFCO, L.L.C.
0.31%, 07/12/10 (a)(b)(c)		8,000,000		7,999,242
Cancara Asset Securitization, L.L.C.
0.40%, 07/01/10 (a)(b)(c)		2,000,000		2,000,000
0.38%, 07/07/10 (a)(b)(c)		1,000,000		999,937
0.37%, 08/20/10 (a)(b)(c)		2,000,000		1,998,972
Ciesco, L.L.C.
0.28%, 07/07/10 (a)(b)(c)		14,000,000		13,999,347
0.50%, 09/16/10 (a)(b)(c)		3,000,000		2,996,792
Citigroup Funding, Inc.
0.33% - 0.34%, 07/06/10 (a)		4,000,000		3,999,814
0.37%, 07/15/10 (a)		8,000,000		7,998,849
0.46%, 08/10/10 (a)		4,000,000		3,997,956
0.44%, 09/13/10 (a)		8,000,000		7,992,764
CRC Funding, L.L.C.
0.33%, 08/03/10 (a)(b)(c)		15,000,000		14,995,462
Dakota CP Notes of Citibank Credit Card Issuance Trust
0.40%, 08/03/10 (b)(c)		4,000,000		3,998,533
0.60%, 09/02/10 (b)(c)		13,300,000		13,286,035
Danske Corp. (Danish Government Guarantee)
0.35%, 07/06/10 (a)(c)		8,000,000		7,999,617
0.45%, 07/27/10 (a)(c)		6,000,000		5,998,050
0.41%, 08/09/10 (a)(c)		10,000,000		9,995,558
Falcon Asset Securitization Corp.
0.08%, 07/01/10 (a)(b)(c)		5,000,000		5,000,000
0.40%, 08/02/10 (a)(b)(c)		8,000,000		7,997,156
General Electric Capital Corp.
0.52%, 10/15/10		8,000,000		7,987,751
0.52%, 10/18/10		9,000,000		8,985,830
0.50%, 10/26/10		23,000,000		22,962,625
Gotham Funding Corp.
0.39%, 07/20/10 (a)(b)(c)		6,000,000		5,998,765
Grampian Funding, L.L.C.
0.50%, 08/17/10 (a)(b)(c)		13,000,000		12,991,514
Intesa Funding, L.L.C.
0.27%, 07/07/10 (a)		10,000,000		9,999,550
0.30%, 08/11/10 (a)		2,000,000		1,999,317
Jupiter Securitization Corp.
0.33%, 07/02/10 (a)(b)(c)		8,000,000		7,999,927
Nationwide Building Society
0.35%, 08/18/10		5,000,000		4,997,667
0.70%, 11/09/10		3,000,000		2,992,358
Nieuw Amsterdam Receivables Corp.
0.46%, 08/10/10 (a)(b)(c)		11,000,000		10,994,378
Ranger Funding Co., L.L.C.
0.38%, 08/09/10 (a)(b)(c)		15,000,000		14,993,825
Santander Central Hispano Finance (Delaware), Inc.
0.41%, 09/03/10 (a)		13,000,000		12,990,524
Sheffield Receivables Corp.
0.30%, 07/07/10 (a)(b)(c)		1,000,000		999,950
0.30%, 07/12/10 (a)(b)(c)		13,000,000		12,998,808
Societe Generale North America, Inc.
0.63%, 10/01/10 (a)		9,000,000		8,985,510
Solitaire Funding, L.L.C.
0.41%, 07/02/10 (a)(b)(c)		11,000,000		10,999,875
0.47%, 07/26/10 (a)(b)(c)		5,000,000		4,998,368
0.48%, 08/10/10 (a)(b)(c)		2,000,000		1,998,933
0.58%, 09/14/10 (a)(b)(c)		2,000,000		1,997,583
Starbird Funding Corp.
0.35%, 07/21/10 (a)(b)(c)		7,000,000		6,998,639
Thames Asset Global Securitization No. 1, Inc.
0.42%, 07/08/10 (a)(b)(c)		15,000,000		14,998,775
0.60%, 08/31/10 (a)(b)(c)		1,000,000		998,983
UniCredit Delaware, Inc.
0.33%, 07/02/10 (a)(c)		6,000,000		5,999,946
Variable Funding Capital Corp.
0.34%, 07/07/10 (a)(b)(c)		15,000,000		14,999,150

				395,095,988

Fixed-Rate Coupon Notes 3.4%
Federal Home Loan Bank
0.58%, 08/05/10		10,000,000		9,999,647
0.53%, 10/19/10		15,000,000		14,998,834
0.54%, 10/20/10		30,000,000		29,996,585

				54,995,066

Fixed-Rate Discount Note 0.6%
Freddie Mac
0.50%, 07/06/10		10,000,000		9,999,305

Promissory Note 0.9%
The Goldman Sachs Group, Inc.
0.70%, 08/04/10 (c)(d)		7,000,000		7,000,000
0.95%, 11/04/10 (c)(d)		7,000,000		7,000,000

				14,000,000

Time Deposits 4.9%
Australia & New Zealand Banking Group Ltd.
0.11%, 07/01/10		14,000,000		14,000,000
0.23%, 07/02/10		10,000,000		10,000,000
Dexia Credit Local
0.44%, 07/02/10		7,000,000		7,000,000
Northern Trust Co.
0.16%, 07/01/10		12,000,000		12,000,000
Svenska Handelsbanken AB
0.18%, 07/01/10		36,000,000		36,000,000

				79,000,000

Total Fixed-Rate Obligations
(Cost $1,109,090,437)				1,109,090,437

18 See financial notes

Schwab Investor Money Fund

Portfolio Holdings (Unaudited) continued


	Face
Issuer	Amount		Value
Rate, Maturity Date	($)		($)

Variable-Rate Obligations 14.3% of net assets


Banco Bilbao Vizcaya Argentaria S.A.
0.35%, 07/16/10		9,000,000		9,000,000
Barclays Bank PLC
0.72%, 07/13/10		10,000,000		10,000,000
Commonwealth Bank of Australia
0.40%, 07/12/10 (c)		15,000,000		15,000,000
Dexia Credit Local
0.45%, 07/29/10		9,000,000		9,000,000
Eagle County, CO
Housing Facilities Revenue Bonds (BC Housing) Series 1997B
0.35%, 07/01/10 (a)		1,500,000		1,500,000
Fannie Mae
0.19%, 07/13/10		85,000,000		84,998,347
Federal Farm Credit Bank
0.36%, 07/28/10		10,000,000		10,000,000
Freddie Mac
0.09%, 07/12/10		25,000,000		25,000,000
JPMorgan Chase Bank, N.A.
0.35%, 07/21/10		38,000,000		38,000,000
Labcon, NA
Bonds Series 2010
0.43%, 07/07/10 (a)		2,495,000		2,495,000
Rabobank Nederland
0.35%, 07/09/10		1,000,000		1,000,000
Texas
General Obligation Bonds (Veterans Housing Assistance) Series 1994A2
0.40%, 07/07/10 (a)		1,000,000		1,000,000
General Obligation Refunding Bonds (Veterans Land) Series 2006A
0.52%, 07/07/10 (a)		2,000,000		2,000,000
Westpac Banking Corp.
0.39%, 07/15/10		20,000,000		19,998,550

Total Variable-Rate Obligations
(Cost $228,991,897)				228,991,897



	Face/
	Maturity
Issuer	Amount		Value
Rate, Maturity Date	($)		($)

Other Investments 11.5% of net assets


Whistlejacket Capital, L.L.C.

n/a, n/a (c)(d)(e)		141,949		141,949

Repurchase Agreements 11.5%
Credit Suisse Securities (USA), L.L.C.
Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $14,554,531
0.05%, issued 06/30/10, due 07/01/10		14,269,039		14,269,019
Deutsche Bank Securities, Inc.
Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $166,400,000
0.04%, issued 06/30/10, due 07/01/10		160,000,178		160,000,000
Goldman Sachs & Co.
Tri-Party Repurchase Agreement Collateralized by Equity Securities with a value of $4,200,004
0.50%, issued 04/22/10, due 07/22/10 (d)		4,005,056		4,000,000
Tri-Party Repurchase Agreement Collateralized by Equity Securities with a value of $6,300,072
0.50%, issued 04/26/10, due 07/26/10 (d)		6,007,583		6,000,000

Total Other Investments
(Cost $184,410,968)				184,410,968



	Face
Issuer	Amount		Value
Rate, Maturity Date	($)		($)

U.S. Government Securities 5.1% of net assets

Other Government Related 3.6%
Straight A Funding, L.L.C.
0.30%, 07/02/10 (a)(b)(c)(f)		25,441,000		25,440,788
0.30%, 07/07/10 (a)(b)(c)(f)		11,000,000		10,999,450
0.35%, 07/15/10 (a)(b)(c)(f)		6,000,000		5,999,183
0.31%, 07/20/10 (a)(b)(c)(f)		9,000,000		8,998,528
0.31%, 08/12/10 (a)(b)(c)(f)		6,000,000		5,997,830

				57,435,779

U.S. Treasury Bill 1.5%
U.S. Treasury Bills
0.03% - 0.10%, 07/15/10		25,000,000		24,999,273

Total U.S. Government Securities
(Cost $82,435,052)				82,435,052



End of Investments.

At 06/30/10, the tax basis cost of the fund’s investments was $1,604,928,354.


(a)		Credit-enhanced security.
(b)		Asset-backed security.
(c)		Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $371,786,934 or 23.1% of net assets.
(d)		Illiquid security. At the period end, the value of these amounted to $24,141,949 or 1.5% of net assets.
(e)		Whistlejacket notes are in receivership, and the fund elected to sell all of its Whistlejacket notes at auction (4/29/2009). The remaining investment represents an interest in a small residual fund that is being held to cover any remaining expenses and liabilities associated with receivership.
(f)		The U.S. Securities and Exchange Commission has stated that it is permissible for money market funds to treat Straight A Funding LLC securities as government securities for the purpose of compliance with the diversification requirements of Rule 2a-7(c)(4)(i).

See financial notes 19

Schwab Retirement Advantage Money Fund and Schwab Investor Money Fund

Financial Notes, unaudited

1. Business Structure of the Funds:

Each of the funds in this report is a series of The Charles Schwab Family of Funds (the “trust”), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The list below shows all the funds in the trust including the funds discussed in this report, which are highlighted:



The Charles Schwab Family of Funds (organized October 20, 1989) Schwab Money Market Fund Schwab Government Money Fund Schwab U.S. Treasury Money Fund Schwab Value Advantage Money Fund Schwab Advisor Cash Reserves Schwab Cash Reserves Schwab Retirement Advantage Money Fund Schwab Investor Money Fund		Schwab Municipal Money Fund Schwab AMT Tax-Free Money Fund Schwab California Municipal Money Fund Schwab California AMT Tax-Free Money Fund Schwab New York AMT Tax-Free Money Fund Schwab New Jersey AMT Tax-Free Money Fund Schwab Pennsylvania Municipal Money Fund Schwab Massachusetts AMT Tax-Free Money Fund

Schwab Retirement Advantage Money Fund and Schwab Investor Money Fund each offers one share class. Shares are bought and sold at $1.00 per share. Each share has a par value of 1/1,000 of a cent, and the trustees may authorize the issuance of as many shares as necessary.

Each fund maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, each fund may also keep certain assets in segregated accounts, as required by securities laws.

2. Significant Accounting Policies:

The following is a summary of the significant accounting policies the funds use in their preparation of financial statements. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

(a) Security Valuation:

Securities in the funds are valued at amortized cost (which approximates market value) as permitted in accordance with Rule 2a-7 of the 1940 Act. In the event that security valuations do not approximate market value, securities may be valued as determined in accordance with procedures adopted by the Board of Trustees.

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the funds disclose the fair value of their investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (level 3 measurements).

The funds adopted the authoritative guidance under GAAP on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. Accordingly, if the funds determine that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value.

The guidance establishes three levels of the fair value hierarchy as follows:


	•	Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities. The funds do not adjust the quoted price for such investments, even in situations where the funds hold a large position and a sale could reasonably impact the quoted prices.

	•	Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) — Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and

Schwab Retirement Advantage Money Fund and Schwab Investor Money Fund

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):


		state, municipal and provincial obligations. In addition, international securities whose markets close hours before the funds value their holdings may require fair valuations due to significant movement in the U.S. markets occurring after the daily close of the foreign markets. The Board of Trustees has approved a vendor that would calculate fair valuations of international equity securities based on a number of factors that appear to correlate to the movements in the U.S. markets. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. Securities held by money funds operating under Rule 2a-7 of the 1940 Act are valued at amortized cost which approximates current market value and are considered to be valued using Level 2 inputs.


	•	Level 3 — significant unobservable inputs (including the funds’ own assumptions in determining the fair value of investments) — Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the funds use one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the funds in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the funds in the absence of market information. Assumptions used by the funds due to the lack of observable inputs may significantly impact the resulting fair value and therefore the funds’ results of operations.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. At June 30, 2010, all of the funds’ investment securities were classified as Level 2. The breakdown of the funds’ investments into major categories is disclosed on the portfolio holdings.

(b) Portfolio Investments:

Repurchase Agreements: The funds may enter into repurchase agreements. In a repurchase agreement, a fund buys a security from another party (usually a financial institution) with the agreement that it be sold back in the future. The date, price and other conditions are all specified when the agreement is created.

The funds’ repurchase agreements are fully collateralized by cash, U.S. government securities, U.S. government agency securities or other securities. All collateral is held by the funds’ custodian (or, with tri-party agreements, the agent’s bank) and is monitored daily to ensure that its market value is at least equal to the repurchase price under the agreement.

Delayed-Delivery: The funds may buy securities on a delayed-delivery basis. In these transactions, the funds agree to buy a security for a stated price, with settlement generally occurring within two weeks. If the security’s value falls before settlement occurs, the funds could end up paying more for the security than its market value at the time of settlement. The funds have set aside sufficient securities as collateral for those securities bought on a delayed-delivery basis.

(c) Security Transactions:

Security transactions are recorded as of the date the order to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.

(d) Investment Income:

Interest income is recorded as it accrues. If a fund buys a debt security at a discount (less than face value) or a premium (more than face value), it amortizes the discount or premium from the current date up to maturity. The fund then increases (in the case of discounts) or reduces (in the case of premiums) the income it records from the security. If the security is callable (meaning that the issuer has the option to pay it off before its maturity date), then the fund amortizes the premium to the security’s call date and price, rather than the maturity date and price.

Schwab Retirement Advantage Money Fund and Schwab Investor Money Fund

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

(e) Expenses:

Expenses that are specific to a fund are charged directly to the fund. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets.

(f) Distributions to Shareholders:

The funds make distributions from net investment income, if any, every day they are open for business. These distributions, which are substantially equal to a fund’s net investment income for that day, are paid out to shareholders once a month. The funds make distributions from net realized capital gains, if any, once a year.

(g) Custody Credit:

Certain funds have an arrangement with their custodian bank, State Street Bank and Trust Company, under which the funds receive a credit for their uninvested cash balance to offset their custody fees and accounting fees. The credit amounts, if any, are disclosed in the Statement of Operations as a reduction to the funds’ operating expenses.

(h) Accounting Estimates:

The accounting policies described in this report conform to accounting principles generally accepted in the United States of America. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s possible that once the results are known, they may turn out to be different from these estimates.

(i) Federal Income Taxes:

The funds intend to meet federal income and excise tax requirements for regulated investment companies. Accordingly, the funds distribute substantially all of their net investment income and realized net capital gains, if any, to their respective shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.

(j) Indemnification:

Under the funds’ organizational documents, the officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the funds. In addition, in the normal course of business the funds enter into contracts with their vendors and others that provide general indemnifications. The funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect the risk of loss to be remote.

3. Risk factors:

Investing in the funds may involve certain risks, as discussed in the funds’ prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.

An investment in a fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency. Although the funds seek to preserve the value of a shareholder’s investment at $1 per share, it is possible to lose money by investing in the funds.

Interest rates rise and fall over time. As with any investment whose yield reflects current interest rates, a fund’s yield will change over time. During periods when interest rates are low, a fund’s yield (and total return) also will be low. In addition, to the extent a fund makes any reimbursement payments to the investment adviser and/or its affiliates, the fund’s yield would be lower.

A fund is subject to the risk that a decline in the credit quality of a portfolio investment could cause the fund to lose money or underperform. A fund could lose money if the issuer or guarantor of a portfolio investment fails to make timely principal or interest payments or otherwise honor its obligations. The negative perceptions of an issuer’s ability to make such payments could also cause the price of that investment to decline. The credit quality of a fund’s portfolio holdings can change rapidly in certain market environments and any default on the part of a single portfolio investment could cause the fund’s share price or yield to fall. The additional risks of foreign investments are due to reasons ranging from a lack of issuer information to the risk of political uncertainties. Many of the U.S. government securities that the funds invest in are not backed by the full faith and

Schwab Retirement Advantage Money Fund and Schwab Investor Money Fund

Financial Notes, unaudited (continued)

3. Risk factors (continued):

credit of the United States government, which means they are neither issued nor guaranteed by the U.S. Treasury. There can be no assurance that the U.S. government will provide financial support to securities of its agencies and instrumentalities if it is not obligated to do so under law. Also, any government guarantees on securities a fund owns do not extend to the shares of the fund itself.

Any actively managed mutual fund is subject to the risk that its investment adviser will make poor security selections. A fund’s investment adviser applies its own investment techniques and risk analyses in making investment decisions for the fund, but there can be no guarantee that they will produce the desired results. The investment adviser’s maturity decisions will also affect a fund’s yield, and in unusual circumstances potentially could affect its share price. To the extent that the investment adviser anticipates interest rate trends imprecisely, a fund’s yield at times could lag those of other money market funds.

Liquidity risk exists when particular investments are difficult to purchase or sell. The market for certain investments may become illiquid due to specific adverse changes in the conditions of a particular issuer or under adverse market or economic conditions independent of the issuer. A fund’s investments in illiquid securities may reduce the returns of the fund because it may be unable to sell the illiquid securities at an advantageous time or price. Further, transactions in illiquid securities may entail transaction costs that are higher than those for transactions in liquid securities.

A fund may experience periods of heavy redemptions that could cause the fund to liquidate its assets at inopportune times or at a loss or depressed value, particularly during periods of declining or illiquid markets. Redemptions by a few large investors in a fund may have a significant adverse effect on the fund’s ability to maintain a stable $1.00 share price. In the event any money market fund fails to maintain a stable net asset value, other money market funds, including the funds, could face a market-wide risk of increased redemption pressures, potentially jeopardizing the stability of their $1.00 share prices.

The funds are not designed to offer capital appreciation. In exchange for their emphasis on stability and liquidity, money market investments may offer lower long-term performance than stock or bond investments.

Please refer to the funds’ prospectus for a more complete description of the principal risks of investing in the funds.

4. Affiliates and Affiliated Transactions:

Charles Schwab Investment Management, Inc. (“CSIM” or the “investment adviser”), a wholly owned subsidiary of The Charles Schwab Corporation, serves as each fund’s investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement (“Advisory Agreement”) between it and the trust.

For its advisory and administrative services to the funds, CSIM is entitled to receive an annual fee payable monthly based on each fund’s average daily net assets described as follows:


Average Daily Net Assets

First $1 billion			0.35%
$1 billion to $10 billion			0.32%
$10 billion to $20 billion			0.30%
$20 billion to $40 billion			0.27%
Over $40 billion			0.25%

The Board of Trustees has adopted a Shareholder Servicing Plan (the “Plan”) on behalf of the funds. The Plan enables each fund to bear expenses relating to the provision by service providers, including Charles Schwab & Co., Inc. (a broker-dealer affiliate of CSIM, “Schwab”), of certain account maintenance, customer liaison and shareholder services to the current shareholders of the funds. Schwab serves as the funds’ paying agent under the Plan for making payments of the shareholder service fee due to the service providers (other than Schwab) under the Plan. All shareholder service fees paid by the funds to Schwab in its capacity as the funds’ paying agent will be passed through to the service providers, and Schwab will not retain any portion of such fees.

Schwab Retirement Advantage Money Fund and Schwab Investor Money Fund

Financial Notes, unaudited (continued)

4. Affiliates and Affiliated Transactions (continued):

regardless of Schwab’s or the service provider’s actual cost of providing the services. If the cost of providing the services under the Plan is less than the payments received, the unexpected portion of the fees may be retained as profit by Schwab or the service provider.


	Shareholder Service Fees

Schwab Retirement Advantage Money Fund		0.22%
Schwab Investor Money Fund		0.25%

Contractual Expense Limitations

Although these agreements specify certain fees for these services, CSIM and Schwab have made an additional agreement with the Schwab Retirement Advantage Money Fund to limit (“expense limitation”) the total annual fund operating expenses, excluding interest, taxes, and certain non-routine expenses, to 0.49% through April 29, 2012, which may only be amended or terminated with the approval of the fund’s Board of Trustees.

In addition, effective January 1, 2010 through December 31, 2010, CSIM and Schwab agreed to waive an additional amount of the Schwab Retirement Advantage Money Fund and Schwab Investor Money Fund expenses equal to 0.035% of the funds’ net assets.

Voluntary Expense Waiver/Reimbursement

In addition to the contractual expense limitation agreement noted above, Schwab and the investment adviser also may voluntarily waive and/or reimburse expenses to the extent necessary to maintain a positive net yield for each fund. Schwab and the investment adviser may recapture from a fund any of these expenses or fees they have waived and/or reimbursed until the third anniversary of the end of the fiscal year in which such waiver and/or reimbursement occurs, subject to certain limitations. These reimbursement payments by a fund to Schwab and/or the investment adviser are considered “non-routine expenses” and are not subject to any operating expense limitations in effect at the time of such payment. This recapture could negatively affect a fund’s future yield. As of June 30, 2010, the balance of the recoupable expenses is as follows:


	Schwab		Schwab
	Retirement Advantage		Investor
Expiration Date	Money Fund		Money Fund

December 31, 2012		$428,510		$2,068,715
December 31, 2013		657,688		2,308,619

Total		$1,086,198		$4,377,334

The funds may engage in direct transactions with certain other Schwab Funds when practical. When one fund is seeking to sell a security that another is seeking to buy, an interfund transaction can allow both funds to benefit by reducing transaction costs. This practice is limited to funds that share the same investment adviser, trustees and officers. As of June 30, 2010, the funds had no direct security transactions with other Schwab Funds.

Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions with other Schwab Funds. All loans are for temporary or emergency purposes only. The interest rate charged on the loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The interfund lending facility is subject to the oversight and periodic review of the Board of Trustees of the Schwab Funds. The funds had no interfund borrowing or lending activity during the period.

5. Board of Trustees:

Trustees may include people who are officers and/or directors of the investment adviser or Schwab. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these persons for their service as trustees, but it did pay non-interested persons (independent trustees), as noted in each fund’s Statement of Operations.

Schwab Retirement Advantage Money Fund and Schwab Investor Money Fund

Financial Notes, unaudited (continued)

6. Borrowing from Banks:

The funds may borrow money from banks and custodians. The funds have custodian overdraft facilities, a committed line of credit of $150 million with State Street Bank and Trust Company, an uncommitted line of credit of $100 million with Bank of America, N.A. and an uncommitted line of credit of $50 million with Brown Brothers Harriman. The funds pay interest on the amounts they borrow at rates that are negotiated periodically. The funds also pay an annual fee to State Street Bank and Trust Company for the committed line of credit.

There were no borrowings from the lines of credit during the period. However, the funds utilized their overdraft facility and incurred interest expense, which is disclosed in the Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.

7. Federal Income Taxes:

Capital loss carry forwards may be used to offset future realized capital gains for federal income tax purposes. As of December 31, 2009, the following funds had capital loss carry forwards available to offset net capital gains before the expiration date:


	Schwab		Schwab
	Retirement Advantage		Investor
Expiration Date	Money Fund		Money Fund

December 31, 2017		$463,376		$1,508,658

For tax purposes, realized net capital losses, incurred after October 31, may be deferred and treated as occurring on the first day of the following fiscal year. As of December 31, 2009, the funds had no capital losses utilized or capital losses deferred.

As of December 31, 2009, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the funds, and has determined that no provision for income tax is required in the funds’ financial statements. The funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended December 31, 2009, the funds did not incur any interest or penalties. The funds are not subject to examination by U.S. federal tax authorities for tax years before 2006 and by state tax authorities for tax years before 2005.

8. Subsequent Events:

Management has evaluated subsequent events and transactions through the date the financial statements were available to be issued and determined that there are no such events or transactions that would have materially impacted the financial statements as presented.

Investment Advisory Agreement Approval

The Investment Company Act of 1940 (the “1940 Act”) requires that initial approval of, as well as the continuation of, a fund’s investment advisory agreement must be specifically approved (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “interested persons” of any party (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In connection with such approvals, the fund’s trustees must request and evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the terms of the investment advisory agreement.

The Board of Trustees (the “Board” or the “Trustees”, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory agreement between The Charles Schwab Family of Funds (the “Trust”) and Charles Schwab Investment Management, Inc. (“CSIM”) (the “Agreement”) with respect to the existing funds in the Trust, including the Schwab Retirement Advantage Money Fund and Schwab Investor Money Fund, and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about CSIM’s affiliates, personnel and operations. The Board also receives extensive data provided by third parties. This information is in addition to the detailed information about the funds that the Board reviews during the course of each year, including information that relates to fund operations and fund performance. The Independent Trustees receive advice from independent counsel to the Independent Trustees, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM.

The Board, including a majority of the Independent Trustees, considered information specifically relating to its consideration of the continuance of the Agreement with respect to the funds at meetings held on April 28, 2010, and June 3, 2010, and approved the renewal of the Agreement with respect to the funds for an additional one year term at the meeting held on May 15, 2009. The Board’s approval of the Agreement with respect to the funds was based on consideration and evaluation of a variety of specific factors discussed at these meetings and at prior meetings, including:


1.	the nature, extent and quality of the services provided to the funds under the Agreement, including the resources of CSIM and its affiliates dedicated to the funds;

2.	each fund’s investment performance and how it compared to that of certain other comparable mutual funds;

3.	each fund’s expenses and how those expenses compared to those of certain other comparable mutual funds;

4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to each fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and

5.	the extent to which economies of scale would be realized as the funds grow and whether fee levels in the Agreement reflect those economies of scale for the benefit of fund investors.

Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM to the funds and the resources of CSIM and its affiliates dedicated to the funds. In this regard, the Trustees evaluated, among other things, CSIM’s personnel, experience, track record and compliance program. The Trustees also considered Schwab’s wide range of products, services, and channel alternatives such as free advice, investment research tools and Internet access and an array of account features that benefit the funds and their shareholders. The Trustees also considered Schwab’s excellent reputation as a full service brokerage firm and its overall financial condition. Finally, the Trustees considered that the vast majority of the funds’ shareholders are also brokerage clients of Schwab. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM to the funds and the resources of CSIM and its affiliates dedicated to the funds supported renewal of the Agreement with respect to the funds.

Fund Performance. The Board considered the funds’ performance in determining whether to renew the Agreement with respect to the funds. Specifically, the Trustees considered each fund’s performance relative to a peer category of other mutual funds and appropriate indices/benchmarks, in light of total return, yield, if applicable, and market trends. As part of this review, the Trustees considered the composition of the peer category, selection criteria and the reputation of the third party who prepared the peer category analysis. In evaluating the performance of each fund, the Trustees considered both risk and shareholder risk expectations for such fund and the appropriateness of the benchmark used to

compare the performance of each fund. The Trustees further considered the level of fund performance in the context of its review of fund expenses and adviser profitability discussed below. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of the funds supported renewal of the Agreement with respect to the funds.

Fund Expenses. With respect to the funds’ expenses, the Trustees considered the rate of compensation called for by the Agreement, and each fund’s net operating expense ratio, in each case, in comparison to those of other comparable mutual funds, such peer groups and comparisons having been selected and calculated by an independent third party. The Trustees considered the effects of CSIM’s and Schwab’s historical practice of voluntarily waiving management and other fees to prevent total fund expenses from exceeding a specified cap. The Trustees also considered fees charged by CSIM to other mutual funds and to other types of accounts, such as wrap accounts, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the different legal, regulatory, compliance and operating features of mutual funds as compared to these other types of accounts. Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the funds are reasonable and supported renewal of the Agreement with respect to the funds.

Profitability. With regard to profitability, the Trustees considered the compensation flowing to CSIM and its affiliates, directly or indirectly. In this connection, the Trustees reviewed management’s profitability analyses, together with certain commentary thereon from an independent accounting firm. The Trustees also considered any other benefits derived by CSIM from its relationship with the funds, such as whether, by virtue of its management of the funds, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. The Trustees considered whether the varied levels of compensation and profitability with respect to the funds under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to each fund by CSIM and its affiliates. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the profitability of CSIM is reasonable and supported renewal of the Agreement with respect to the funds.

Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to a fund’s shareholders through a graduated investment advisory fee schedule or other means, including any fee waivers by CSIM and its affiliates. In this regard, and consistent with their consideration of fund expenses, the Trustees considered that CSIM and Schwab have previously committed resources to minimize the effects on shareholders of diseconomies of scale during periods when fund assets were relatively small through their contractual expense waivers. For example, such diseconomies of scale may particularly affect newer funds or funds with investment strategies that are from time to time out of favor, but shareholders may benefit from the continued availability of such funds at subsidized expense levels. The Trustees also considered contractual investment advisory fee schedules with respect to the funds that include lower fees at higher graduated asset levels. The Board also considered certain commitments by CSIM and Schwab that are designed to pass along potential economies of scale to fund shareholders. Specifically, the Board considered CSIM and Schwab’s previously negotiated commitments, which may be changed only with Board approval, relating to: (i) reductions of contractual advisory fees or addition of breakpoints for certain funds within the fund complex, (ii) implementation, by means of expense limitation agreement, of additional reductions in net overall expenses for certain funds, and (iii) future net total operating expense reductions for taxable money funds as a group and non-taxable money funds as a group when aggregate assets of such group of funds exceed certain levels. In particular, the Board considered the actual expense reductions with respect to the funds that resulted from CSIM and Schwab’s commitments set forth above. Based on this evaluation, and in consideration of the previously negotiated commitments made by CSIM and Schwab as discussed above, the Board concluded, within the context of its full deliberations, that the funds obtain reasonable benefit from economies of scale.

In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, approved the continuation of the Agreement with respect to the funds and concluded that the compensation under the Agreement with respect to the funds is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.

Trustees and Officers

The tables below give information about the trustees and officers for The Charles Schwab Family of Funds which includes the funds covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust, Laudus Trust and Laudus Institutional Trust. The Fund Complex includes 84 funds.

The address for all trustees and officers is 211 Main Street, San Francisco, CA 94105. You can find more information about the trustees and officers in the Statement of Additional Information, which is available free by calling 1-800-435-4000.

Independent Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee	Other Directorships

Mariann Byerwalter 1960 Trustee (Trustee of The Charles Schwab Family of Funds since 2000.)	Chairman of JDN Corporate Advisory LLC.	73	Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009) Director, Excelsior Funds (2006 – 2007)


John F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds since 2008.)	Senior Fellow: The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University (Sept. 1994 – present).	73	Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009)


William A. Hasler 1941 Trustee (Trustee of The Charles Schwab Family of Funds since 2000.)	Dean Emeritus, Haas School of Business, University of California, Berkeley (July 1998 – present).	73	Director, Ditech Networks Corporation (1997 – present) Director, TOUSA (1998 – present) Director, Mission West Properties (1998 – present) Director, Globalstar, Inc. (2009 – present) Director, Harris-Stratex Networks (2001 – present) Director, Aphton Corp. (1991 – 2007) Director, Solectron Corporation (1998 – 2007) Director, Genitope Corporation (2000 – 2009) Director, Excelsior Funds (2006 – 2007)


Gerald B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds since 2000.)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present).	73	Lead Independent Director, Board of Cooper Industries (2002 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – present) Director, Oneok, Inc (2009 – present)


Donald R. Stephens 1938 Trustee (Trustee of The Charles Schwab Family of Funds since 1989.)	Managing Partner, D.R. Stephens & Company (investments) (1973 – present).	73	None

Independent Trustees (continued)


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee	Other Directorships

Joseph H. Wender 1944 Trustee (Trustee of The Charles Schwab Family of Funds since 2008.)	Senior Consultant, Goldman Sachs & Co., Inc. (Jan. 2008- present); Partner, Colgin Partners, LLC (vineyards) (February 1998 – present); Senior Director, Chairman of the Finance Committee, GSC Group (July 2005 – Dec. 2007); General Partner, Goldman Sachs & Co., Inc. (Oct. 1982 – June 2005).	73	Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present)


Michael W. Wilsey 1943 Trustee (Trustee of The Charles Schwab Family of Funds since 1993.)	Chairman and Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment and management, and other investments).	73	None

Interested Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served )	During the Past Five Years	the Trustee	Other Directorships

Charles R. Schwab²1937 Chairman and Trustee (Chairman and Trustee of The Charles Schwab Family of Funds since 1989.)	Chairman and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Charles Schwab Bank, N. A.; Chairman and Chief Executive Officer, Schwab (SIS) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive Officer, Schwab Holdings, Inc.; Through June 2007, Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until October 2008, Chief Executive Officer, The Charles Schwab Corporation, Charles Schwab & Co., Inc.	73	None


Walter W. Bettinger II²1960 Trustee (Trustee of The Charles Schwab Family of Funds since 2008.)	As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation.	84	None

Officers of the Trust


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Randall W. Merk 1954 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds since 2004.)		Executive Vice President and President, Investment Management Services, Charles Schwab & Co., Inc. (August 2004 – present); Executive Vice President, Charles Schwab & Co., Inc. (2002 – present); Director, President and Chief Executive Officer, Charles Schwab Investment Management, Inc. (August 2007 – present); Director, Charles Schwab Asset Management (Ireland) Limited and Charles Schwab Worldwide Funds PLC (Sept. 2002 – present); President and Chief Executive Officer, Schwab Strategic Trust (Oct. 2009 – present); Trustee (June 2006 – Dec. 2009), President and Chief Executive Officer (July 2007 – March 2008, July 2010 – present), Laudus Trust and Laudus Institutional Trust; President and Chief Executive Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc. and Excelsior Funds Trust (June 2006 – June 2007).


George Pereira 1964 Treasurer and Principal Financial Officer (Officer of The Charles Schwab Family of Funds since 2004.)		Senior Vice President and Chief Financial Officer, Charles Schwab Investment Management, Inc. (November 2004 – present); Treasurer and Chief Financial Officer, Laudus Trust and Laudus Institutional Trust (2006 – present); Treasurer and Principal Financial Officer, Schwab Strategic Trust (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present); Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust (June 2006 – June 2007).


Koji E. Felton 1961 Secretary and Chief Legal Officer (Officer of The Charles Schwab Family of Funds since 1998.)		Senior Vice President, Chief Counsel and Corporate Secretary, Charles Schwab Investment Management, Inc. (July 2000 – present); Senior Vice President and Deputy General Counsel, Charles Schwab & Co., Inc. (June 1998 – present); Vice President and Assistant Clerk, Laudus Trust and Laudus Institutional Trust (Jan. 2010 – present); Chief Legal Officer and Secretary, Schwab Strategic Trust (Oct. 2009 – present); Chief Legal Officer and Secretary, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust (June 2006 – June 2007).


Catherine MacGregor 1964 Vice President (Officer of The Charles Schwab Family of Funds since 2005.)		Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (March 2007 – present) of Laudus Trust and Laudus Institutional Trust; Vice President, Schwab Strategic Trust (Oct. 2009 – present).


Michael Haydel 1972 Vice President (Officer of The Charles Schwab Family of Funds since 2006.)		Vice President, Asset Management Client Services, Charles Schwab & Co., Inc. (2004 – present); Vice President (Sept. 2005 – present), Anti-Money Laundering Officer (Oct. 2005 – Feb. 2009), Laudus Trust, Laudus Institutional Trust; Vice President, Schwab Strategic Trust (Oct. 2009 – present).


¹		Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab Funds^® retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after 20 years of service as a trustee, whichever comes first, provided that any trustee who serves on both Schwab Funds and Laudus Funds retires from both boards when first required to retire by either board. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Stephens and Wilsey will retire on December 31, 2010.
²		Mr. Schwab and Mr. Bettinger are Interested Trustees because they are employees of Schwab and/or the investment adviser. In addition to their employment with Schwab and/or the investment adviser, Messrs. Schwab and Bettinger also own stock of The Charles Schwab Corporation.
³		The President, Treasurer and Secretary hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.

Glossary

agency discount notes Notes issued by federal agencies—known as Government Sponsored Enterprises, or GSEs—at a discount to their value at maturity. An agency discount note is a short-term investment alternative offering a high degree of credit quality.

asset-backed commercial paper A short-term investment that is typically issued by a bank or other financial institution. The notes represent an interest in financial assets such as trade receivables, credit card receivables, auto receivables, etc. and are generally used for the short-term financing needs of companies.

capital gain, capital loss The difference between the amount paid for an investment and its value at a later time. If the investment has been sold, the capital gain or loss is considered a realized gain or loss. If the investment is still held, the gain or loss is still “on paper” and is considered unrealized.

commercial paper Promissory notes issued by banks, corporations and other entities to finance short-term credit needs. These securities generally are structured on a discounted basis but sometimes may be interest-bearing notes. Commercial paper, which may be unsecured, is subject to credit risk.

corporate note An unsecured debt security issued by a corporation that is subject to the credit risk of the issuer.

credit-enhanced securities Securities that are backed by the credit of an entity other than the issuer (such as a financial institution). Credit enhancements, which can equal up to 100% of the security’s value, are designed to help lower the risk of default on a security and may also make the security more liquid.

credit quality The capacity of an issuer to make its interest and principal payments. Federal regulations strictly regulate the credit quality of the securities a money market fund can buy.

credit ratings Debt issuers, including corporations, states and municipalities, may arrange with a recognized independent rating organization, such as Standard & Poor’s, Fitch, Inc. and Moody’s Investor Service, to rate their creditworthiness and/or the creditworthiness of their debt issues. For example, an issuer may obtain a long-term rating within the investment grade rating category, which is, from high to low, AAA, AA, A and BBB for Standard & Poor’s and Fitch, and Aaa, Aa, A and Baa for Moody’s.

credit risk The risk that a debt issuer may be unable to pay interest or repay principal to its debt holders.

dollar-weighted average maturity (DWAM) See weighted average maturity.

effective yield A measurement of a fund’s yield that assumes that all interest income is reinvested in additional shares of the fund.

expense ratio The amount that is taken from a mutual fund’s assets each year to cover the fund’s operating expenses. An expense ratio of 0.50% means that a fund’s expenses amount to half of one percent of its average net assets for the year.

face value The value of a bond, note, mortgage or other security as given on the certificate or instrument. Face value is also referred to as par value or nominal value.

illiquid securities Securities are generally considered illiquid if they cannot be disposed of promptly (typically within seven days) and in the ordinary course of business at approximately the amount at which a fund has valued the instruments.

interest Payments to holders of debt securities as compensation for loaning a security’s principal to the issuer.

liquidity-enhanced security The security’s structure includes a liquidity arrangement that requires an entity other than the issuer (such as a large financial institution) to provide funds to pay a tender under most circumstances. Liquidity enhancements are often used on variable-rate securities where the portfolio manager has an option to tender the securities for repayment within a specified time period (usually one day or one week) at any time prior to their final maturity.

maturity The date a debt security is scheduled to be “retired” and its principal amount repaid to the bond holder. The Maturity of an investment will generally reflect the security’s final maturity date unless the security’s structure includes a maturity-shortening provision such as an interest rate reset, demand feature or put feature which reflects the security’s Effective Maturity Date. For those securities with a maturity-shortening provision, including variable-rate demand securities, the Maturity is determined by using the Effective Maturity Date.

municipal securities Debt securities issued by a state, its counties, municipalities, authorities and other subdivisions, or the territories and possessions of the United States and the District of Columbia, including their subdivisions, agencies and instrumentalities and corporations. These securities may be issued to obtain money for various public purposes, including the construction of a wide range of public facilities such as airports, bridges, highways, housing, hospitals, mass transportation, public utilities, schools, streets, and water and sewer works.

net asset value per share (NAV) The value of one share of a mutual fund. NAV is calculated by taking the fund’s total assets, subtracting liabilities, and dividing by the number of shares outstanding. Money funds seek to maintain a steady NAV of $1.00.

outstanding shares, shares outstanding When speaking of a company or mutual fund, indicates all shares currently held by investors.

restricted securities Securities that are subject to contractual restrictions on resale. These securities are often purchased in private placement transactions.

section 3c7 securities Section 3c7 of the Investment Company Act of 1940 (the “1940 Act”) exempts certain issuers from many regulatory requirements applicable to investment companies under the 1940 Act. An issuer whose outstanding securities are exclusively owned by “qualified purchasers” and who is not making or proposing to make a public offering of the securities may qualify for this exemption.

section 4(2)/144A securities Securities exempt from registration under Section 4(2) of the Securities Act of 1933. These securities may be sold only to qualified institutional buyers under Securities Act Rule 144A.

taxable-equivalent yield The yield an investor would need to get from a taxable investment in order to match the yield paid by a given tax-exempt investment, once the effect of all applicable taxes is taken into account. For example, if your tax rate were 25%, a tax-exempt investment paying 4.5% would have a taxable-equivalent yield for you of 6.0% (4.5% ¸ [1 − 0.25%] = 6.0%).

Temporary Liquidity Guarantee Program (TLGP) The Federal Deposit Insurance Corporation (FDIC) created the Temporary Liquidity Guarantee Program (TLGP) to strengthen investor confidence and encourage liquidity in the banking system. The TLGP-backed obligations, such as commercial paper or commercial notes, are issued by private issuers and are guaranteed as to principal and interest by the FDIC. These securities are considered U.S. government securities under the rules that govern money market funds and the FDIC has stated that they are backed by the full faith and credit of the United States.

Tier 1, Tier 2 Tier 1 is the highest category of credit quality, Tier 2 the second highest. A security’s tier can be established either by an independent rating organization or by a determination of the investment adviser. Money market fund shares and U.S. government securities are automatically considered Tier 1 securities. The Schwab Money Funds only purchase securities which are considered to be Tier 1.

total return The percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested.

weighted average maturity For money market mutual funds as per rule 2a-7, the sooner of the maturity (see definition of maturity) of all the debt securities in its portfolio or the date the interest rate on those securities is reset or those securities that can be redeemed through demand, calculated as a weighted average. As a rule, the longer the fund’s weighted average maturity, the greater its interest rate risk. Effective June 30, 2010, money funds are required to maintain a weighted average maturity of no more than 60 days.

yield The income paid out by an investment, expressed as a percentage of the investments market value.

Schwab Funds^® offers you an extensive family of mutual funds, each one based on a clearly defined investment approach and using disciplined management strategies. The list at right shows all currently available Schwab Funds.

Whether you are an experienced investor or just starting out, Schwab Funds can help you achieve your financial goals. An investor should consider a fund’s investment objectives, risks, charges and expenses carefully before investing or sending money. This and other important information can be found in the fund’s prospectus. Please call 1-800-435-4000 for a prospectus and brochure for any Schwab Fund. Please read the prospectus carefully before you invest. This report must be preceded or accompanied by a current prospectus.

Proxy Voting Policies, Procedures and Results

A description of the proxy voting policies and procedures used to determine how to vote proxies on behalf of the funds is available without charge, upon request, by visiting Schwab’s website at www.schwabfunds.com/prospectus, the SEC’s website at http://www.sec.gov, or by contacting Schwab Funds at 1-800-435-4000.

Information regarding how a fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting Schwab’s website at www.schwabfunds.com/prospectus or the SEC’s website at http://www.sec.gov.

The Schwab Funds Family^®

Stock Funds

Schwab Premier Equity Fund^®

Schwab Core Equity Fund^tm

Schwab Dividend Equity Fund^tm

Schwab Large-Cap Growth Fund^tm

Schwab Small-Cap Equity Fund^tm

Schwab Hedged Equity Fund^tm

Schwab Financial Services Fund^tm

Schwab Health Care Fund^tm

Schwab^® International Core Equity Fund

Schwab Fundamental US Large* Company Index Fund

Schwab Fundamental US Small-Mid* Company Index Fund

Schwab Fundamental International* Large Company Index Fund

Schwab Fundamental International* Small-Mid Company Index Fund

Schwab Fundamental Emerging Markets* Index Fund

Schwab Global Real Estate Fund^tm

Schwab S&P 500 Index Fund

Schwab 1000 Index^® Fund

Schwab Small-Cap Index Fund^®

Schwab Total Stock Market Index Fund^®

Schwab International Index Fund^®

Asset Allocation Funds

Schwab Balanced Fund^tm

Schwab MarketTrack All Equity Portfolio^tm

Schwab MarketTrack Growth Portfolio^tm

Schwab MarketTrack Balanced Portfolio^tm

Schwab MarketTrack Conservative Portfolio^tm

Schwab Target 2010 Fund

Schwab Target 2015 Fund

Schwab Target 2020 Fund

Schwab Target 2025 Fund

Schwab Target 2030 Fund

Schwab Target 2035 Fund

Schwab Target 2040 Fund

Schwab^® Monthly Income Fund – Moderate Payout

Schwab^® Monthly Income Fund – Enhanced Payout

Schwab^® Monthly Income Fund – Maximum Payout

Bond Funds

Schwab YieldPlus Fund^®

Schwab Short-Term Bond Market Fund^tm

Schwab^® Premier Income Fund

Schwab Total Bond Market Fund^tm

Schwab GNMA Fund^tm

Schwab Inflation Protected Fund^tm

Schwab Tax-Free YieldPlus Fund^tm

Schwab Tax-Free Bond Fund^tm

Schwab Long-Term Tax-Free Bond Fund^tm

Schwab California Tax-Free YieldPlus Fund^tm

Schwab California Tax-Free Bond Fund^tm

Schwab Money Funds

Schwab offers an array of money market funds that seek high current income consistent with safety and liquidity¹. Choose from taxable or tax-advantaged alternatives. Many can be linked to your eligible Schwab account to “sweep” cash balances automatically, subject to availability, when you’re between investments. Or, for your larger cash reserves, choose one of our Value Advantage Investments^®.


*		SCHWAB is a registered trademark of Charles Schwab & Co., Inc. FUNDAMENTAL INDEX, FUNDAMENTAL US LARGE, FUNDAMENTAL US SMALL-MID, FUNDAMENTAL INTERNATIONAL AND FUNDAMENTAL EMERGING MARKETS are trademarks of Research Affiliates LLC.

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.

From the President

Randall W. Merk is President and CEO of Charles Schwab Investment Management, Inc. and the funds covered in this report.

Dear Shareholder,

Sincerely,

Schwab Cash Reserves 1

The Investment Environment

Nothing in this report represents a recommendation of a security by the investment adviser.

Manager views and portfolio holdings may have changed since the report date.

2 Schwab Cash Reserves

Schwab Cash Reserves™

Schwab Cash Reserves provided safety and liquidity to shareholders throughout the six-month reporting period. The fund’s low yield reflected the prevailing low interest-rate environment. For example, the federal funds rate has remained at a target range of 0.00% to 0.25% since December 2008, which has put downward pressure on the yields of government agencies and other securities. Furthermore, yields on the majority of securities in which the fund invests are pegged to the London Interbank Offered Rate (LIBOR); this key benchmark for short-term interest rates also reported low returns for the reporting period.

This challenging interest-rate environment has left most money market funds with historically low yields. Consequently, the investment adviser continued to reduce the fund’s position in lower-yielding, government agency securities and increased its exposure to higher-yielding, credit-sensitive securities. At the same time, in response to new regulatory requirements from the U.S. Securities and Exchange Commission, the fund increased its position in cash, or securities that can be readily converted into cash, and shortened its Weighted Average Maturity (WAM)—an indication of the portfolio’s sensitivity to interest rate changes. During the reporting period, the WAM for the fund ranged from a high of 67 days to a low of 32 days.

As of 6/30/10:

Portfolio Composition by Maturity¹


		% of Investments

1-15 Days		41.6%
16-30 Days		16.6%
31-60 Days		19.3%
61-90 Days		11.8%
91-120 Days		8.3%
More than 120 Days		2.4%

Statistics


Weighted Average Maturity²		35 Days
Credit Quality of Holdings³ % of portfolio		99.99% Tier 1

Portfolio Composition by Security Type⁴


				% of Investments

U.S. Treasury				1.5%
Government Agency⁵				9.1%
Repurchase Agreement				9.3%
Commercial Paper (CP)
Asset Backed CP				15.0%
Bank/Financial CP				10.4%
Other CP				0.8%
Certificate of Deposit				41.0%
Bank Note				2.7%
Corporate Note				4.1%
Time Deposit				5.7%
Other				0.4%
Total				100.0%

Portfolio holdings may have changed since the report date.


*		Schwab and the investment adviser may recapture expenses or fees they voluntarily waived until the third anniversary of the end of the fiscal year in which such waiver occurs, subject to certain limitations. For more information on the potential impact of such recapture on future yields, please see Note 4 of the Financial Notes section.
¹		As shown in the Portfolio Holdings section of the shareholder report.
²		Money funds must maintain a dollar-weighted average maturity of no longer than 60 days (effective June 30, 2010), and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months).
³		Based on ratings from Moody’s Investors Service, Standard & Poor’s Corp. and/or Fitch Ratings or, if unrated, is determined to be of comparable quality. The fund may use different ratings provided by other rating agencies for purposes of determining compliance with the fund’s investment policies. The fund itself has not been rated by an independent credit rating agency.
⁴		Portfolio Composition is calculated using the Par Value of Investments.
⁵		Includes debt issued by Straight A Funding LLC, which the U.S. Securities and Exchange Commission has stated is permissible for money market funds to treat as government securities for the purpose of compliance with the diversification requirements of Rule 2a-7(c)(4)(i).

4 Schwab Cash Reserves^tm

Performance and Fund Facts as of 6/30/10

Weighted Average Maturity Trend for previous 12 months

7-Day Average Yield Trend for previous 12 months

Seven-Day Yields


		Schwab Cash Reserves
		Sweep Shares

Ticker Symbol		SWSXX
Minimum Initial Investment¹		*


Seven-Day Yield²		0.08%


Seven-Day Yield—Without Contractual Expense Limitation³		-0.01%


Seven-Day Effective Yield²		0.08%

Portfolio holdings may have changed since the report date.


*		Subject to eligibility terms and conditions of your Schwab account agreement.
¹		Please see prospectus for further detail and eligibility requirements.
²		Yield reflects the benefit of the fund’s agreement with Schwab and the investment adviser to limit total annual fund operating expenses to certain levels (contractual expense limitation). In addition, Schwab and the investment adviser have voluntarily waived expenses in excess of the contractual expense limitation to maintain a positive net yield for the fund (voluntary expense waiver). Without the contractual expense limitation and the voluntary expense waiver, the fund’s yield would have been lower. Please see Note 4 in the Financial Notes section for additional details.
³		Yield does not reflect the benefit of the contractual expense limitation but does reflect the benefit of the voluntary expense waiver. The voluntary expense waiver added 0.33% to the seven-day yield.

Schwab Cash Reserves^tm 5

Fund Expenses (Unaudited)

Examples for a $1,000 Investment


					Ending
			Beginning		Account Value		Expenses Paid
	Expense Ratio¹		Account Value		(Net of Expenses)		During Period²
	(Annualized)		at 1/1/10		at 6/30/10		1/1/10–6/30/10

Schwab Cash Reserves^tm
Actual Return		0.24%	$	1,000	$	1,000.40	$	1.19
Hypothetical 5% Return		0.24%	$	1,000	$	1,023.60	$	1.20


¹		Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights.
²		Expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year.

6 Schwab Cash Reserves

Schwab Cash Reserves™

Financial Statements

Financial Highlights


	1/1/10–			1/1/09–			1/1/08–			1/1/07–			1/1/06–			1/1/05–
	6/30/10*			12/31/09			12/31/08			12/31/07			12/31/06			12/31/05


Per-Share Data ($)

Net asset value at beginning of period		1.00			1.00			1.00			1.00			1.00			1.00

Income (loss) from investment operations:
Net investment income (loss)		0.00	¹		0.00	¹		0.02			0.05			0.04			0.03
Net realized and unrealized gains (losses)		0.00	¹		(0.00	)¹		—			—			—			—

Total from investment operations		0.00	¹		0.00	¹		0.02			0.05			0.04			0.03
Less distributions:
Distributions from net investment income		(0.00	)¹		(0.00	)¹		(0.02	)		(0.05	)		(0.04	)		(0.03	)

Net asset value at end of period		1.00			1.00			1.00			1.00			1.00			1.00

Total return (%)		0.04	²		0.16			2.36			4.77			4.50			2.65

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.24	³		0.47	⁴		0.66	⁵		0.68			0.69			0.69
Gross operating expenses		0.71	³		0.74			0.73			0.74			0.82			0.92
Net investment income (loss)		0.08	³		0.16			2.33			4.66			4.59			2.90
Net assets, end of period ($ x 1,000,000)		31,185			31,720			29,253			26,162			16,738			822

* Unaudited.

¹ Per-share amount was less than $0.01.

² Not annualized.

³ Annualized.

⁴ The ratio of net operating expenses would have been 0.45% if certain non-routine expenses (participation fees for the Treasury’s Temporary Guarantee Program for Money Market Funds) had not been incurred.

⁵ The ratio of net operating expenses would have been 0.65% if certain non-routine expenses (participation fees for the Treasury’s Temporary Guarantee Program for Money Market Funds) had not been incurred.

See financial notes 7

Schwab Cash Reserves

Portfolio Holdings as of June 30, 2010 (Unaudited)

This section shows all the securities in the fund’s portfolio and their values as of the report date.


				Cost		Value
Holdings by Category				($)		($)

	78	.4%	Fixed-Rate Obligations		24,446,649,395		24,446,649,395
	10	.1%	Variable-Rate Obligations		3,150,770,327		3,150,770,327
	2	.1%	U.S. Government Securities		659,212,893		659,212,893
	9	.4%	Other Investments		2,913,721,516		2,913,721,516


	100	.0%	Total Investments		31,170,354,131		31,170,354,131
	0	.0%	Other Assets and Liabilities, Net				14,692,951


	100	.0%	Net Assets				31,185,047,082


	Face
Issuer	Amount		Value
Rate, Maturity Date	($)		($)

Fixed-Rate Obligations 78.4% of net assets

Bank Notes 2.7%
Bank of America, N.A.
0.30%, 07/12/10		182,000,000		182,000,000
0.29%, 07/15/10		175,000,000		175,000,000
0.32%, 07/15/10		267,000,000		267,000,000
0.47%, 09/14/10		31,000,000		31,000,000
0.52%, 11/01/10		193,000,000		193,000,000

				848,000,000

Certificates of Deposit 36.8%
Abbey National Treasury Services PLC
0.60%, 09/27/10 (a)		155,000,000		155,000,000
Banco Bilbao Vizcaya Argentaria S.A.
0.30%, 07/07/10		45,000,000		45,000,000
Bank of Nova Scotia
0.21%, 07/28/10		301,000,000		301,000,000
0.20%, 07/29/10		139,000,000		139,000,000
Bank of Tokyo Mitsubishi UFJ Ltd.
0.32%, 07/20/10		15,000,000		15,000,000
0.46%, 08/10/10		60,000,000		60,000,000
0.32%, 08/23/10		156,000,000		156,000,000
0.53%, 09/07/10		14,000,000		14,000,000
0.55%, 09/08/10		1,000,000		1,000,000
0.80%, 10/22/10		39,000,000		39,000,000
0.60%, 10/25/10		276,000,000		276,000,000
Barclays Bank PLC
0.35%, 08/06/10		68,000,000		68,000,000
0.61%, 10/04/10		87,000,000		87,000,000
1.25%, 10/21/10		59,000,000		59,000,000
BNP Paribas
0.29%, 07/12/10		300,000,000		300,000,000
0.30%, 07/19/10		35,000,000		35,000,000
0.40%, 07/26/10		100,000,000		100,000,000
0.43%, 08/03/10		9,000,000		9,000,000
0.32%, 08/06/10		358,000,000		358,000,000
0.49%, 08/16/10		22,000,000		22,000,000
0.61%, 09/09/10		150,000,000		150,000,000
0.63%, 09/13/10		158,000,000		158,000,000
0.62%, 09/20/10		90,000,000		90,000,000
0.61%, 09/28/10		192,000,000		192,000,000
0.61%, 10/01/10		71,000,000		71,000,000
Canadian Imperial Bank of Commerce
0.13%, 07/06/10		46,000,000		46,000,000
Citibank, N.A.
0.30%, 07/01/10		202,000,000		202,000,000
0.30%, 07/02/10		20,000,000		20,000,000
0.32%, 07/02/10		181,000,000		181,000,000
0.36%, 07/07/10		13,000,000		13,000,000
0.32%, 07/09/10		40,000,000		40,000,000
0.44%, 07/29/10		54,000,000		54,000,000
0.44%, 08/02/10		130,000,000		130,000,000
0.42%, 08/04/10		280,000,000		280,000,000
Commerzbank AG
0.50%, 08/12/10		7,000,000		7,000,000
0.50%, 08/13/10		92,000,000		92,000,000
0.52%, 08/19/10		92,000,000		92,000,000
Commonwealth Bank of Australia
0.48%, 10/06/10		6,000,000		6,000,000
Credit Agricole S.A.
0.42%, 09/08/10		105,000,000		105,000,000
0.41%, 09/15/10		101,000,000		101,000,000
Credit Suisse
0.25%, 07/29/10		178,000,000		178,000,000
0.25%, 07/30/10		132,000,000		132,000,000
0.40%, 08/09/10		161,000,000		161,000,000
Deutsche Bank AG
0.30%, 07/19/10		186,000,000		186,000,000
0.46%, 07/26/10		342,000,000		342,000,000
0.45%, 09/22/10		502,000,000		502,000,000
HSBC Bank PLC
0.30%, 08/16/10		239,000,000		239,000,000
0.32%, 08/31/10		33,000,000		33,000,000
ING Bank N.V.
0.34%, 08/09/10		160,000,000		160,000,000
Intesa Sanpaolo
0.32%, 07/01/10		632,000,000		632,000,000
Landesbank Hessen-Thuringen Girozentrale
0.50%, 08/06/10		70,000,000		70,000,000
Lloyds TSB Bank PLC
0.35%, 09/01/10		301,000,000		301,000,000
0.62%, 10/12/10		45,000,000		45,000,000
1.20%, 11/02/10		88,000,000		88,000,000
Mitsubishi UFJ Trust & Banking Corp.
0.33%, 07/01/10		89,000,000		89,000,000
Mizuho Corporate Bank Ltd.
0.40%, 07/08/10		78,000,000		78,000,000

8 See financial notes

Schwab Cash Reserves

Portfolio Holdings (Unaudited) continued


	Face
Issuer	Amount		Value
Rate, Maturity Date	($)		($)
0.40%, 07/16/10		234,000,000		234,000,000
National Australia Bank Ltd.
0.38%, 08/06/10		230,000,000		230,000,000
Nordea Bank Finland PLC
0.42%, 08/04/10		135,000,000		135,000,000
0.42%, 08/10/10		13,000,000		13,000,000
Rabobank Nederland
0.55%, 09/13/10		192,000,000		192,000,000
0.56%, 10/01/10		8,000,000		8,000,000
Royal Bank of Scotland PLC
0.50%, 08/16/10		110,000,000		110,000,000
0.94%, 08/27/10		48,000,000		48,000,000
0.65%, 10/05/10		22,000,000		22,000,000
1.37%, 10/21/10		88,000,000		88,000,000
0.62%, 12/13/10		281,000,000		281,000,000
Societe Generale
0.38%, 07/07/10		152,000,000		152,000,000
0.60%, 09/02/10		120,000,000		120,000,000
0.60%, 09/03/10		102,000,000		102,000,000
0.62%, 09/16/10		85,000,000		85,000,000
0.63%, 09/17/10		100,000,000		100,000,000
State Street Bank & Trust
0.29%, 07/08/10		220,000,000		220,000,000
Sumitomo Mitsui Banking Corp.
0.40%, 07/01/10		17,000,000		17,000,000
0.41%, 07/08/10		85,000,000		85,000,000
0.40%, 07/13/10		75,000,000		75,000,000
0.39%, 07/21/10		207,000,000		207,000,000
0.31%, 08/02/10		20,000,000		20,000,000
0.39%, 08/02/10		63,000,000		63,000,000
Sumitomo Trust & Banking Co.
0.47%, 07/26/10		47,000,000		47,000,163
0.52%, 08/10/10		46,000,000		46,000,255
0.35%, 08/20/10		66,000,000		66,000,458
0.35%, 09/07/10		100,000,000		100,000,000
0.60%, 10/22/10		54,000,000		54,000,000
Toronto Dominion Bank
0.68%, 08/16/10		139,000,000		139,000,000
0.50%, 10/06/10		145,000,000		145,000,000
UBS AG
0.50%, 08/16/10		140,000,000		140,000,000
0.60%, 09/10/10		276,000,000		276,000,000
1.28%, 10/25/10		59,000,000		59,000,000
UniCredit Bank AG
0.45%, 07/02/10		95,000,000		95,000,000
UniCredit S.p.A.
0.54%, 07/26/10		31,000,000		31,000,107
0.50%, 08/13/10		31,000,000		31,000,000
Union Bank, N.A.
0.30%, 07/20/10		78,000,000		78,000,000
0.35%, 07/30/10		49,000,000		49,000,000

				11,468,000,983

Commercial Paper & Other Corporate Obligations 26.2%
Alpine Securitization Corp.
0.26%, 07/06/10 (a)(b)(c)		133,865,000		133,860,166
0.32%, 07/20/10 (a)(b)(c)		15,000,000		14,997,467
Amsterdam Funding Corp.
0.47%, 08/18/10 (a)(b)(c)		76,908,000		76,859,804
0.63%, 09/13/10 (a)(b)(c)		9,000,000		8,988,345
Argento Variable Funding Co., L.L.C.
0.40%, 07/07/10 (a)(b)(c)		6,000,000		5,999,600
0.35%, 08/02/10 (a)(b)(c)		162,000,000		161,949,600
0.40%, 08/26/10 (a)(b)(c)		120,000,000		119,925,333
Atlantic Asset Securitization, L.L.C.
0.24%, 07/06/10 (a)(b)(c)		43,000,000		42,998,567
Atlantis One Funding Corp.
0.22%, 07/02/10 (a)(b)(c)		18,000,000		17,999,890
0.41%, 07/28/10 (a)(b)(c)		70,000,000		69,978,475
0.43%, 08/11/10 (a)(b)(c)		171,000,000		170,916,257
0.43%, 08/12/10 (a)(b)(c)		306,000,000		305,846,490
Banco Bilbao Vicaya London
0.30%, 07/14/10 (c)		140,000,000		139,984,833
Bank of America Corp.
0.41%, 07/23/10		119,000,000		118,970,184
BNZ International Funding Ltd.
0.45%, 08/11/10 (a)		13,000,000		12,993,338
0.50%, 08/16/10 (a)		32,600,000		32,579,172
0.60%, 08/26/10 (a)		34,000,000		33,968,267
CAFCO, L.L.C.
0.29%, 07/08/10 (a)(b)(c)		50,000,000		49,997,181
0.30%, 07/14/10 (a)(b)(c)		50,000,000		49,994,583
0.30%, 07/15/10 (a)(b)(c)		100,000,000		99,988,333
0.50%, 09/07/10 (a)(b)(c)		36,000,000		35,966,000
0.49%, 09/21/10 (a)(b)(c)		40,000,000		39,955,356
Cancara Asset Securitization, L.L.C.
0.40%, 07/01/10 (a)(b)(c)		47,000,000		47,000,000
0.46%, 07/23/10 (a)(b)(c)		53,000,000		52,985,101
0.37%, 08/20/10 (a)(b)(c)		19,000,000		18,990,236
0.37%, 08/23/10 (a)(b)(c)		69,000,000		68,962,414
Chariot Funding, L.L.C.
0.36%, 07/19/10 (a)(b)(c)		59,920,000		59,909,214
0.39%, 07/26/10 (a)(b)(c)		15,000,000		14,995,938
0.40%, 08/02/10 (a)(b)(c)		120,000,000		119,957,333
Ciesco, L.L.C.
0.28%, 07/07/10 (a)(b)(c)		40,000,000		39,998,133
0.29%, 07/13/10 (a)(b)(c)		151,000,000		150,985,403
0.50%, 09/08/10 (a)(b)(c)		100,000,000		99,904,167
0.50%, 09/16/10 (a)(b)(c)		10,000,000		9,989,306
0.53%, 09/20/10 (a)(b)(c)		3,000,000		2,996,423
0.50%, 09/21/10 (a)(b)(c)		36,000,000		35,959,000
Citigroup Funding, Inc.
0.34%, 07/06/10 (a)		179,000,000		178,991,547
0.30%, 07/12/10 (a)		125,000,000		124,988,542
0.41%, 07/21/10 (a)		76,000,000		75,982,689
0.60%, 10/18/10 (a)		88,000,000		87,840,133
Commonwealth Bank of Australia
0.34%, 07/30/10 (c)		58,000,000		57,984,114
CRC Funding, L.L.C.
0.33%, 07/08/10 (a)(b)(c)		4,925,000		4,924,684
0.33%, 08/03/10 (a)(b)(c)		10,000,000		9,996,975
0.33%, 08/04/10 (a)(b)(c)		150,000,000		149,953,250
Dakota CP Notes of Citibank Credit Card Issuance Trust
0.37%, 07/07/10 (b)(c)		142,000,000		141,991,243
0.40%, 08/03/10 (b)(c)		66,000,000		65,975,800
0.60%, 09/02/10 (b)(c)		28,000,000		27,970,600
0.60%, 09/03/10 (b)(c)		44,000,000		43,953,067
0.55%, 09/21/10 (b)(c)		35,050,000		35,006,090
Danske Corp. (Danish Government Guarantee)
0.35%, 07/06/10 (a)(c)		102,000,000		101,995,112
0.34%, 07/07/10 (a)(c)		11,000,000		10,999,377
0.41%, 08/09/10 (a)(c)		250,000,000		249,888,958
0.39%, 08/23/10 (a)(c)		64,000,000		63,963,253
0.58%, 10/20/10 (a)(c)		43,000,000		42,923,102
Enterprise Funding Co., L.L.C.
0.34%, 07/14/10 (a)(b)(c)		93,000,000		92,988,582
Falcon Asset Securitization Corp.
0.08%, 07/01/10 (a)(b)(c)		40,000,000		40,000,000
0.36%, 07/19/10 (a)(b)(c)		50,000,000		49,991,000

See financial notes 9

Schwab Cash Reserves

Portfolio Holdings (Unaudited) continued


	Face
Issuer	Amount		Value
Rate, Maturity Date	($)		($)
0.32%, 07/27/10 (a)(b)(c)		15,000,000		14,996,533
General Electric Capital Corp.
0.17%, 07/30/10		150,000,000		149,979,458
0.52%, 10/15/10		50,000,000		49,923,444
0.52%, 10/18/10		90,000,000		89,858,300
0.52%, 10/19/10		97,000,000		96,845,878
0.50%, 10/26/10		188,000,000		187,694,500
0.50%, 10/27/10		210,000,000		209,655,833
Grampian Funding, L.L.C.
0.37%, 07/08/10 (a)(b)(c)		157,000,000		156,988,705
0.57%, 09/17/10 (a)(b)(c)		137,000,000		136,830,805
Market Street Funding Corp.
0.29%, 07/12/10 (a)(b)(c)		14,199,000		14,197,742
Nationwide Building Society
0.40%, 07/07/10		40,000,000		39,997,333
0.37%, 07/14/10		20,000,000		19,997,328
0.35%, 08/18/10		7,000,000		6,996,733
0.42%, 09/10/10		60,000,000		59,950,300
0.70%, 11/09/10		29,000,000		28,926,131
Nieuw Amsterdam Receivables Corp.
0.23%, 07/02/10 (a)(b)(c)		27,000,000		26,999,827
0.46%, 08/10/10 (a)(b)(c)		172,714,000		172,625,724
0.53%, 09/14/10 (a)(b)(c)		45,000,000		44,950,312
Nordea North America, Inc.
0.40%, 07/27/10 (a)		116,000,000		115,966,908
0.38%, 08/16/10 (a)		130,000,000		129,936,878
Ranger Funding Co., L.L.C.
0.38%, 08/09/10 (a)(b)(c)		40,000,000		39,983,533
Royal Park Investment Funding Corp.
0.29%, 07/02/10 (a)(b)(c)		42,000,000		41,999,662
0.30%, 07/09/10 (a)(b)(c)		42,000,000		41,997,200
0.30%, 07/12/10 (a)(b)(c)		29,000,000		28,997,342
0.30%, 07/16/10 (a)(b)(c)		72,000,000		71,991,000
Santander Central Hispano Finance (Delaware), Inc.
0.41%, 08/13/10 (a)		150,000,000		149,926,542
0.41%, 09/03/10 (a)		113,000,000		112,917,636
0.51%, 10/01/10 (a)		11,000,000		10,985,663
Sheffield Receivables Corp.
0.34%, 07/01/10 (a)(b)(c)		50,000,000		50,000,000
0.34%, 07/02/10 (a)(b)(c)		30,000,000		29,999,717
0.30% - 0.34%, 07/07/10 (a)(b)(c)		56,000,000		55,996,933
Societe de Prise de Participation de I’Etat (French Government Guarantee)
0.36%, 07/07/10 (a)(c)		50,000,000		49,997,042
Societe Generale North America, Inc.
0.30%, 07/02/10 (a)		50,000,000		49,999,583
0.60%, 09/14/10 (a)		18,000,000		17,977,500
0.63%, 10/01/10 (a)		50,000,000		49,919,500
Solitaire Funding, L.L.C.
0.41%, 07/02/10 (a)(b)(c)		68,000,000		67,999,226
0.47%, 07/26/10 (a)(b)(c)		100,000,000		99,967,361
0.60%, 08/23/10 (a)(b)(c)		100,000,000		99,911,667
0.58%, 09/14/10 (a)(b)(c)		144,000,000		143,826,000
Starbird Funding Corp.
0.35%, 07/21/10 (a)(b)(c)		26,000,000		25,994,944
State Street Corp.
0.25%, 07/07/10		79,000,000		78,996,708
Thames Asset Global Securitization No. 1, Inc.
0.42%, 07/06/10 (a)(b)(c)		60,403,000		60,399,476
0.42%, 07/08/10 (a)(b)(c)		112,242,000		112,232,834
0.60%, 08/31/10 (a)(b)(c)		20,000,000		19,979,667
Ticonderoga Funding, L.L.C.
0.53%, 10/25/10 (a)(b)(c)		79,000,000		78,865,086
0.53%, 11/01/10 (a)(b)(c)		45,000,000		44,918,512
UniCredit Bank Ireland PLC
0.35%, 07/14/10 (a)(c)		116,000,000		115,985,339
UniCredit Delaware, Inc.
0.34%, 07/13/10 (a)(c)		140,000,000		139,984,367
Variable Funding Capital Corp.
0.33%, 07/02/10 (a)(b)(c)		25,000,000		24,999,771
0.41%, 07/29/10 (a)(b)(c)		150,000,000		149,952,167
Victory Receivables Corp.
0.39%, 07/12/10 (a)(b)(c)		48,000,000		47,994,280
Windmill Funding Corp.
0.28%, 07/16/10 (a)(b)(c)		74,000,000		73,991,367
Yorktown Capital, L.L.C.
0.34%, 07/19/10 (a)(b)(c)		100,000,000		99,983,000

				8,167,647,324

Fixed-Rate Coupon Notes 2.2%
Federal Home Loan Bank
0.53% - 0.58%, 08/05/10		125,000,000		124,997,880
0.53%, 08/27/10		85,000,000		85,112,186
0.53%, 10/19/10		67,000,000		66,994,792
0.54%, 10/20/10		312,000,000		311,964,480
0.51%, 10/25/10		100,000,000		99,991,630

				689,060,968

Fixed-Rate Discount Notes 4.2%
Fannie Mae
0.18% - 0.19%, 07/07/10		89,700,000		89,697,214
0.19%, 07/12/10		75,500,000		75,495,628
0.19%, 07/14/10		1,500,000		1,499,897
0.11%, 07/21/10		14,000,000		13,999,144
0.19%, 08/11/10		96,860,000		96,839,082
Federal Home Loan Bank
0.18%, 07/02/10		57,200,000		57,199,714
0.19%, 07/07/10		11,300,000		11,299,642
0.19%, 07/09/10		101,000,000		100,995,736
0.18% - 0.19%, 07/14/10		14,200,000		14,199,068
0.11% - 0.19%, 07/21/10		250,959,000		250,943,455
0.19%, 08/11/10		77,000,000		76,983,777
0.14%, 08/25/10		49,500,000		49,489,791
0.14%, 08/27/10		16,000,000		15,996,453
Freddie Mac
0.18% - 0.50%, 07/06/10		241,774,000		241,766,333
0.18%, 07/09/10		2,000,000		1,999,920
0.16%, 07/12/10		20,450,000		20,449,000
0.21%, 07/13/10		5,000,000		4,999,650
0.19%, 07/19/10		5,300,000		5,299,510
0.19%, 08/11/10		177,825,000		177,787,106

				1,306,940,120

Municipal Note 0.1%
Los Angeles Community College District, CA
Bond Anticipation Notes Series 2010A2
0.70%, 09/13/10		45,000,000		45,000,000

Promissory Note 0.5%
The Goldman Sachs Group, Inc.
0.70%, 08/04/10 (c)(d)		30,000,000		30,000,000
0.95%, 11/04/10 (c)(d)		120,000,000		120,000,000

				150,000,000

10 See financial notes

Schwab Cash Reserves

Portfolio Holdings (Unaudited) continued


	Face
Issuer	Amount		Value
Rate, Maturity Date	($)		($)

Time Deposits 5.7%
Australia & New Zealand Banking Group Ltd.
0.11%, 07/01/10		465,000,000		465,000,000
0.23%, 07/02/10		45,000,000		45,000,000
Bank of Ireland
0.35%, 07/01/10		135,000,000		135,000,000
Citibank, N.A.
0.10%, 07/01/10		200,000,000		200,000,000
Dexia Credit Local
0.44%, 07/02/10		156,000,000		156,000,000
National Australia Bank
0.02%, 07/01/10		155,000,000		155,000,000
Northern Trust Co.
0.16%, 07/01/10		189,000,000		189,000,000
Royal Bank of Canada
0.06%, 07/01/10		170,000,000		170,000,000
Svenska Handelsbanken AB
0.18%, 07/01/10		102,000,000		102,000,000
UniCredit Bank AG
0.37%, 07/06/10		155,000,000		155,000,000

				1,772,000,000

Total Fixed-Rate Obligations
(Cost $24,446,649,395)				24,446,649,395




Variable-Rate Obligations 10.1% of net assets


Australia & New Zealand Banking Group Ltd.
0.35%, 07/02/10		50,000,000		50,000,000
Banco Bilbao Vizcaya Argentaria S.A.
0.44%, 07/12/10		60,000,000		60,000,000
0.35%, 07/16/10		165,000,000		165,000,000
Bank of America, N.A.
0.56%, 07/22/10		174,000,000		174,000,000
Bank of Nova Scotia
0.35%, 07/06/10		109,000,000		109,000,000
Barclays Bank PLC
0.55%, 07/12/10		17,000,000		17,000,000
0.75%, 07/12/10		90,000,000		90,000,000
0.72%, 07/13/10		50,000,000		50,000,000
Commonwealth Bank of Australia
0.40%, 07/12/10 (c)		322,000,000		322,000,000
Dexia Credit Local
0.45%, 07/29/10		166,000,000		166,000,000
Fannie Mae
0.19%, 07/13/10		200,000,000		199,995,591
0.30%, 08/05/10		50,000,000		49,998,256
Federal Farm Credit Bank
0.36%, 07/28/10		105,000,000		105,000,000
Federal Home Loan Bank
0.25%, 07/25/10		75,000,000		74,963,398
Freddie Mac
0.09%, 07/12/10		220,000,000		220,000,000
JPMorgan Chase Bank, N.A.
0.35%, 07/21/10		250,000,000		250,000,000
Rabobank Nederland
0.35%, 07/06/10		100,000,000		100,000,000
0.35%, 07/09/10		48,000,000		48,000,000
Royal Bank of Canada
0.35%, 07/06/10		75,000,000		75,000,000
Svenska Handelsbanken AB
0.29%, 07/02/10 (c)		240,000,000		240,000,000
Tenderfoot Seasonal Housing, CO
Housing Facilities Revenue Notes Series 2000B
0.35%, 07/01/10 (a)		3,000,000		3,000,000
Texas
General Obligation Bonds (Veterans Housing Assistance) Series 1994A2
0.40%, 07/07/10 (a)		32,000,000		32,000,000
General Obligation Refunding Bonds (Veterans Land) Series 2006A
0.52%, 07/07/10 (a)		25,000,000		25,000,000
Toronto Dominion Bank
0.35%, 07/09/10		130,000,000		130,000,000
Wells Fargo & Co.
0.39%, 07/12/10		29,818,000		29,816,706
Westpac Banking Corp.
0.35%, 07/06/10		215,000,000		215,000,000
0.39%, 07/15/10		50,000,000		49,996,376
0.32%, 07/28/10 (c)		100,000,000		100,000,000

Total Variable-Rate Obligations
(Cost $3,150,770,327)				3,150,770,327




U.S. Government Securities 2.1% of net assets

Other Government Related 0.6%
Straight A Funding, L.L.C.
0.30%, 07/02/10 (a)(b)(c)(f)		60,000,000		59,999,500
0.35%, 07/15/10 (a)(b)(c)(f)		44,247,000		44,240,978
0.31%, 07/20/10 (a)(b)(c)(f)		50,000,000		49,991,819
0.31%, 08/12/10 (a)(b)(c)(f)		24,000,000		23,991,320

				178,223,617

U.S. Treasury Bills 1.5%
U.S. Treasury Bills
0.09% - 0.11%, 07/08/10		181,000,000		180,996,451
0.03% - 0.10%, 07/15/10		300,000,000		299,992,825

				480,989,276

Total U.S. Government Securities
(Cost $659,212,893)				659,212,893



	Face/
	Maturity
Issuer	Amount		Value
Rate, Maturity Date	($)		($)

Other Investments 9.4% of net assets


Whistlejacket Capital, L.L.C.

n/a, n/a (c)(d)(e)		2,824,255		2,824,255

Repurchase Agreements 9.4%
Banc of America Securities, L.L.C.
Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $1,199,950,000
0.05%, issued 06/30/10, due 07/01/10		1,165,001,618		1,165,000,000
Barclays Capital, Inc.
Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $442,000,001
0.02%, issued 06/30/10, due 07/01/10		425,000,236		425,000,000

See financial notes 11

Schwab Cash Reserves

Portfolio Holdings (Unaudited) continued


	Face/
	Maturity
Issuer	Amount		Value
Rate, Maturity Date	($)		($)
Credit Suisse Securities (USA), L.L.C.
Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $178,503,478
0.03%, issued 06/30/10, due 07/01/10		175,000,146		175,000,000
Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $148,816,461
0.05%, issued 06/30/10, due 07/01/10		145,897,464		145,897,261
Deutsche Bank Securities, Inc.
Tri-Party Repurchase Agreement collateralized by U.S. Government Securities with a value of $124,800,000
0.04%, issued 06/30/10, due 07/01/10		120,000,133		120,000,000
Goldman Sachs & Co.
Tri-Party Repurchase Agreement collateralized by U.S. Government Securities with a value of $367,500,001
0.03%, issued 06/30/10, due 07/01/10		350,000,292		350,000,000
Tri-Party Repurchase Agreement collateralized by Equity Securities with a value of $170,100,002
0.50%, issued 04/22/10, due 07/22/10 (d)		162,204,750		162,000,000
Tri-Party Repurchase Agreement collateralized by Equity Securities with a value of $68,250,030
0.50%, issued 04/26/10, due 07/26/10 (d)		65,082,153		65,000,000
Tri-Party Repurchase Agreement collateralized by Equity Securities with a value of $92,400,002
0.50%, issued 04/27/10, due 07/27/10 (d)		88,111,222		88,000,000
Tri-Party Repurchase Agreement collateralized by Equity Securities with a value of $15,750,026
0.63%, issued 05/10/10, due 08/23/10 (d)		15,027,563		15,000,000
Morgan Stanley & Co., Inc.
Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $204,000,001
0.06%, issued 06/30/10, due 07/01/10		200,000,333		200,000,000

Total Other Investments
(Cost $2,913,721,516)				2,913,721,516



End of Investments.

At 06/30/10, the tax basis cost of the fund’s investments was $31,170,354,131.


(a)		Credit-enhanced security.
(b)		Asset-backed security.
(c)		Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $6,837,929,168 or 21.9% of net assets.
(d)		Illiquid security. At the period end, the value of these amounted to $482,824,255 or 1.5% of net assets.
(e)		Whistlejacket notes are in receivership, and the fund elected to sell all of its Whistlejacket notes at auction (4/29/2009). The remaining investment represents an interest in a small residual fund that is being held to cover any remaining expenses and liabilities associated with receivership.
(f)		The U.S. Securities and Exchange Commission has stated that it is permissible for money market funds to treat Straight A Funding LLC securities as government securities for the purpose of compliance with the diversification requirements of Rule 2a-7(c)(4)(i).

12 See financial notes

Schwab Cash Reserves

Financial Notes, unaudited

1. Business Structure of the Fund:

Schwab Cash Reserves is a series of The Charles Schwab Family of Funds (the “trust”), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The list below shows all the funds in the trust including the fund discussed in this report, which is highlighted:



The Charles Schwab Family of Funds (organized October 20, 1989) Schwab Money Market Fund Schwab Government Money Fund Schwab U.S. Treasury Money Fund Schwab Value Advantage Money Fund Schwab Advisor Cash Reserves Fund Schwab Cash Reserves Fund Schwab Retirement Advantage Money Fund Schwab Investor Money Fund		Schwab Municipal Money Fund Schwab California Municipal Money Fund Schwab New York AMT Tax-Free Money Fund Schwab New Jersey AMT Tax-Free Money Fund Schwab Pennsylvania Municipal Money Fund Schwab AMT Tax-Free Money Fund Schwab Massachusetts AMT Tax-Free Money Fund Schwab California AMT Tax-Free Money Fund

Schwab Cash Reserves offers one share class. Shares are bought and sold at $1.00 per share. Each share has a par value of 1/1,000 of a cent, and the trustees may authorize the issuance of as many shares as necessary.

The fund maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, the fund may also keep certain assets in segregated accounts, as required by securities laws.

2. Significant Accounting Policies:

The following is a summary of the significant accounting policies the fund uses in the preparation of its financial statements. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

(a) Security Valuation:

Securities in the fund are valued at amortized cost (which approximates market value) as permitted in accordance with Rule 2a-7 of the 1940 Act. In the event that security valuations do not approximate market value, securities may be valued as determined in accordance with procedures adopted by the Board of Trustees.

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the fund discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (level 3 measurements).

The fund adopted the authoritative guidance under GAAP on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. Accordingly, if the fund determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value.

The guidance establishes three levels of the fair value hierarchy as follows:


	•	Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities. The fund does not adjust the quoted price for such instruments, even in situations where the fund holds a large position and a sale could reasonably impact the quoted prices.

	•	Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) — Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and

Schwab Cash Reserves

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):


		state, municipal and provincial obligations. In addition, international securities whose markets close hours before the fund values its holdings may require fair valuations due to significant movement in the U.S. markets occurring after the daily close of the foreign markets. The Board of Trustees has approved a vendor that would calculate fair valuations of international equity securities based on a number of factors that appear to correlate to the movements in the U.S. markets. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or nontransferability, which are generally based on available market information. Securities held by money funds operating under Rule 2a-7 of the 1940 Act are valued at amortized cost which approximates current market value and are considered to be valued using Level 2 inputs.


	•	Level 3 — significant unobservable inputs (including the fund’s own assumption in determining the fair value of investments) — Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the fund’s results of operations.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. At June 30, 2010, all of the fund’s investment securities were classified as Level 2. The breakdown of the fund’s investments into major categories is disclosed on the portfolio holdings.

(b) Portfolio Investments:

Repurchase Agreements: The fund may enter into repurchase agreements. In a repurchase agreement, a fund buys a security from another party (usually a financial institution) with the agreement that it be sold back in the future. The date, price and other conditions are all specified when the agreement is created.

The fund’s repurchase agreements are fully collateralized by cash, U.S. government securities, U.S. government agency securities or other securities. All collateral is held by the fund’s custodian (or, with tri-party agreements, the agent’s bank) and is monitored daily to ensure that its market value is at least equal to the repurchase or sale price under the agreement.

Delayed-Delivery: The fund may buy securities on a delayed-delivery basis. In these transactions, a fund agrees to buy a security for a stated price, with settlement generally occurring within two weeks. If the security’s value falls before settlement occurs, the fund could end up paying more for the security than its market value at the time of settlement. The fund sets aside sufficient securities as collateral for those securities bought on a delayed-delivery basis.

(c) Security Transactions:

(d) Investment Income:

Schwab Cash Reserves

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

(e) Expenses:

Expenses that are specific to a fund are charged directly to that fund. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets.

(f) Distributions to Shareholders:

The fund makes distributions from net investment income, if any, every day it is open for business. These distributions, which are substantially equal to the fund’s net investment income for that day, are paid out to shareholders once a month. The fund makes distributions from net realized capital gains, if any, once a year.

(g) Custody Credits:

The fund has an arrangement with its custodian bank, State Street Bank and Trust Company, under which the fund receives a credit for its uninvested cash balance to offset its custody fees and accounting fees. The credit amounts, if any, are disclosed in the Statement of Operations as a reduction to the fund’s operating expenses.

(h) Accounting Estimates:

(i) Federal Income Taxes:

The fund intends to meet federal income and excise tax requirements for regulated investment companies. Accordingly, the fund distributes substantially all of its net investment income and realized net capital gains, if any, to its respective shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.

(j) Indemnification:

Under the fund’s organizational documents, the officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business the fund enters into contracts with its vendors and others that provide general indemnifications. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the fund. However, based on experience, the fund expects the risk of loss to be remote.

3. Risk factors:

An investment in the fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of a shareholder’s investment at $1 per share, it is possible to lose money by investing in the fund.

Interest rates rise and fall over time. As with any investment whose yield reflects current interest rates, the fund’s yield will change over time. During periods when interest rates are low, the fund’s yield (and total return) also will be low. In addition, to the extent the fund makes any reimbursement payments to the investment adviser and/or its affiliates, the fund’s yield would be lower.

The fund is subject to the risk that a decline in the credit quality of a portfolio investment could cause the fund to lose money or underperform. The fund could lose money if the issuer or guarantor of a portfolio investment fails to make timely principal or interest payments or otherwise honor its obligations. The negative perceptions of an issuer’s ability to make such payments could also cause the price of that investment to decline. The credit quality of the fund’s portfolio holdings can change rapidly in certain market environments and any default on the part of a single portfolio investment could cause the fund’s share price or yield to fall. The additional risks of foreign investments are due to reasons ranging from a lack of issuer information to the risk of political uncertainties. Many of the U.S. government securities that the fund invests in are not backed by the full faith and credit of the United States government, which means they are neither issued nor guaranteed by the U.S. Treasury. There can be

Schwab Cash Reserves

Financial Notes, unaudited (continued)

3. Risk factors (continued):

no assurance that the U.S. government will provide financial support to securities of its agencies and instrumentalities if it is not obligated to do so under law. Also, any government guarantees on securities the fund owns do not extend to the shares of the fund itself.

Any actively managed mutual fund is subject to the risk that its investment adviser will make poor security selections. The fund’s investment adviser applies its own investment techniques and risk analyses in making investment decisions for the fund, but there can be no guarantee that they will produce the desired results. The investment adviser’s maturity decisions will also affect the fund’s yield, and in unusual circumstances potentially could affect its share price. To the extent that the investment adviser anticipates interest rate trends imprecisely, the fund’s yield at times could lag those of other money market funds.

Liquidity risk exists when particular investments are difficult to purchase or sell. The market for certain investments may become illiquid due to specific adverse changes in the conditions of a particular issuer or under adverse market or economic conditions independent of the issuer. The fund’s investments in illiquid securities may reduce the returns of the fund because it may be unable to sell the illiquid securities at an advantageous time or price. Further, transactions in illiquid securities may entail transaction costs that are higher than those for transactions in liquid securities.

The fund may experience periods of heavy redemptions that could cause the fund to liquidate its assets at inopportune times or at a loss or depressed value, particularly during periods of declining or illiquid markets. Redemptions by a few large investors in the fund may have a significant adverse effect on the fund’s ability to maintain a stable $1.00 share price. In the event any money market fund fails to maintain a stable net asset value, other money market funds, including the fund, could face a market-wide risk of increased redemption pressures, potentially jeopardizing the stability of their $1.00 share prices.

The fund is not designed to offer capital appreciation. In exchange for their emphasis on stability and liquidity, money market investments may offer lower long-term performance than stock or bond investments.

4. Affiliates and Affiliated Transactions:

Charles Schwab Investment Management, Inc. (“CSIM” or the “investment adviser”), a wholly owned subsidiary of The Charles Schwab Corporation, serves as the fund’s investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement (“Advisory Agreement”) between it and the trust.

For its advisory and administrative services to the fund, CSIM is entitled to receive an annual fee payable monthly based on the fund’s average daily net assets described as follows:


Average Daily Net Assets

First $1 billion	0.35	%
$1 billion to $10 billion	0.32	%
$10 billion to $20 billion	0.30	%
$20 billion to $40 billion	0.27	%
Over $40 billion	0.25	%

The Board of Trustees has adopted a Shareholder Servicing and Sweep Administration Plan (the “Plan”) on behalf of the funds. The Plan enables the fund to bear expenses relating to the provision by Charles Schwab & Co., Inc. (a broker-dealer affiliate of CSIM, “Schwab”) of certain account maintenance, customer liaison and shareholder services to the current shareholders of the fund. The Plan also enables the fund to pay Schwab for certain sweep administration services, such as processing of automatic purchases and redemptions it provides to fund shareholders.

Pursuant to the Plan, the fund’s shares are subject to an annual shareholder servicing fee of up to 0.25%. The shareholder servicing fee paid to Schwab is made pursuant to its written agreement with the fund and the fund will pay no more than 0.25% of the average annual daily net assets value of the fund shares owned by shareholders holding shares through Schwab. Pursuant to the Plan, the fund’s shares are subject to an annual sweep administration fee of up to 0.15%. The sweep administration fee paid to Schwab is based on the average daily net asset value of the fund shares owned by shareholders holding shares through Schwab. Payments under the Plan are made as described above regardless of Schwab’s actual cost of providing the services. If the cost of providing the services under the Plan is less than the payments received, the unexpended portion of the fees may be retained as profit by Schwab.

Schwab Cash Reserves

Financial Notes, unaudited (continued)

4. Affiliates and Affiliated Transactions (continued):

Contractual Expense Limitation

Although these agreements specify certain fees for these services, CSIM and Schwab have made additional agreements with the fund to limit (“expense limitation”) the total annual fund operating expenses, excluding interest, taxes, and certain non-routine expenses to 0.66% for so long as CSIM serves as the investment adviser to the fund, which may only be amended or terminated with the approval of the fund’s Board of Trustees.

In addition, effective January 1, 2010 through December 31, 2010, CSIM and Schwab agreed to waive an additional amount of the fund’s expenses equal to 0.035% of the fund’s net assets.

Voluntary Expense Waiver/Reimbursement

In addition to the contractual expense limitation agreement noted above, Schwab and the investment adviser also may voluntarily waive and/or reimburse expenses to the extent necessary to maintain a positive net yield for the fund. Schwab and the investment adviser may recapture from the fund any of these expenses or fees they have waived and/or reimbursed until the third anniversary of the end of the fiscal year in which such waiver and/or reimbursement occurs, subject to certain limitations. These reimbursement payments by the fund to Schwab and/or the investment adviser are considered “non-routine expenses” and are not subject to any operating expense limitations in effect at the time of such payment. This recapture could negatively affect the fund’s future yield. As of June 30, 2010, the balance of recoupable expenses is as follows:


	Schwab
Expiration Date	Cash Reserves

December 31, 2012		$55,069,426
December 31, 2013		61,284,131

Total		$116,353,557

The fund may engage in direct transactions with certain other Schwab Funds when practical. When one fund is seeking to sell a security that another is seeking to buy, an interfund transaction can allow both funds to benefit by reducing transaction costs. This practice is limited to funds that share the same investment adviser, trustees and officers. As of June 30, 2010, the funds had no interfund borrowing or lending activity during the period.

Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions with other Schwab Funds. All loans are for temporary or emergency purposes only. The interest rate charged on the loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The interfund lending facility is subject to the oversight and periodic review of the Board of Trustees of the Schwab Funds. The fund had no interfund borrowing or lending activity during the period.

5. Board of Trustees:

Trustees may include people who are officers and/or directors of the investment adviser or Charles Schwab & Co., Inc. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these persons for their service as trustees, but it did pay non-interested persons (independent trustees), as noted in the fund’s Statement of Operations.

6. Borrowing from Banks:

The fund may borrow money from banks and custodians. The fund has custodian overdraft facilities, a committed line of credit of $150,000,000 with State Street Bank and Trust Company, an uncommitted line of credit of $100,000,000 with Bank of America, N.A. and an uncommitted line of credit of $50,000,000 with Brown Brothers Harriman. The fund pays interest on the amounts it borrows at rates that are negotiated periodically. The fund also pays an annual fee to State Street Bank and Trust Company for the committed line of credit.

There were no borrowings from the lines of credit during the period. However, the fund utilized its overdraft facility and incurred interest expense, which is disclosed in the Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds rate.

Schwab Cash Reserves

Financial Notes, unaudited (continued)

7. Federal Income Taxes:

As of December 31, 2009, the fund had no components of distributable earnings on a tax-basis.

Capital loss carry forwards may be used to offset future realized capital gains for federal income tax purposes. As of December 31, 2009, the fund had capital loss carry forwards of $27,991,931 available to offset net capital gains before December 31, 2017.

For tax purposes, realized net capital losses, incurred after October 31, may be deferred and treated as occurring on the first day of the following year. For the period ended December 31, 2009, the fund had no capital losses utilized or capital losses deferred.

As of December 31, 2009, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the fund, and has determined that no provision for income tax is required in the fund’s financial statements. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended December 31, 2009, the fund did not incur any interest or penalties. The fund is not subject to examination by U.S. federal tax authorities for tax years before 2006 and by state tax authorities for tax years before 2005.

8. Subsequent Events:

Investment Advisory Agreement Approval

In connection with such approvals, the fund’s trustees must request and evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the terms of the investment advisory agreement.

The Board of Trustees (the “Board” or the “Trustees”, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory agreement between The Charles Schwab Family of Funds (the “Trust”) and Charles Schwab Investment Management, Inc. (“CSIM”) (the “Agreement”) with respect to the existing funds in the Trust, including Schwab Cash Reserves, and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about CSIM’s affiliates, personnel and operations. The Board also receives extensive data provided by third parties. This information is in addition to the detailed information about the fund that the Board reviews during the course of each year, including information that relates to fund operations and fund performance. The Independent Trustees receive advice from independent counsel to the Independent Trustees, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM.

The Board, including a majority of the Independent Trustees, considered information specifically relating to its consideration of the continuance of the Agreement with respect to the fund at meetings held on April 28, 2010, and June 3, 2010, and approved the renewal of the Agreement with respect to the fund for an additional one year term at the meeting held on June 3, 2010. The Board’s approval of the Agreement with respect to the fund was based on consideration and evaluation of a variety of specific factors discussed at these meetings and at prior meetings, including:


1.	the nature, extent and quality of the services provided to the fund under the Agreement, including the resources of CSIM and its affiliates dedicated to the fund;

2.	the fund’s investment performance and how it compared to that of certain other comparable mutual funds;

3.	the fund’s expenses and how those expenses compared to those of certain other comparable mutual funds;

4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to each fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and

5.	the extent to which economies of scale would be realized as the fund grows and whether fee levels in the Agreement reflect those economies of scale for the benefit of fund investors.

Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM to the fund and the resources of CSIM and its affiliates dedicated to the fund. In this regard, the Trustees evaluated, among other things, CSIM’s personnel, experience, track record and compliance program. The Trustees also considered Schwab’s wide range of products, services, and channel alternatives such as free advice, investment research tools and Internet access and an array of account features that benefit the fund and its shareholders. The Trustees also considered Schwab’s excellent reputation as a full service brokerage firm and its overall financial condition. Finally, the Trustees considered that the vast majority of the fund’s shareholders are also brokerage clients of Schwab. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM to the funds and the resources of CSIM and its affiliates dedicated to the fund supported renewal of the Agreement with respect to the fund.

Fund Performance. The Board considered the fund’s performance in determining whether to renew the Agreement with respect to the fund. Specifically, the Trustees considered the fund’s performance relative to a peer category of other mutual funds and appropriate indices/benchmarks, in light of total return, yield, if applicable, and market trends. As part of this review, the Trustees considered the composition of the peer category, selection criteria and the reputation of the third party who prepared the peer category analysis. In evaluating the performance of the fund, the Trustees considered both risk and shareholder risk expectations for the fund and the appropriateness of the benchmark used to compare the performance of the fund. The Trustees further considered the level of fund performance in the context of its review of fund expenses and adviser profitability discussed below. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of the

funds supported renewal of the Agreement with respect to the fund.

Fund Expenses. With respect to the fund’s expenses, the Trustees considered the rate of compensation called for by the Agreement, and the fund’s net operating expense ratio, in each case, in comparison to those of other comparable mutual funds, such peer groups and comparisons having been selected and calculated by an independent third party. The Trustees considered the effects of CSIM’s and Schwab’s historical practice of voluntarily waiving management and other fees to prevent total fund expenses from exceeding a specified cap. The Trustees also considered fees charged by CSIM to other mutual funds and to other types of accounts, such as wrap accounts, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the different legal, regulatory, compliance and operating features of mutual funds as compared to these other types of accounts. Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the fund are reasonable and supported renewal of the Agreement with respect to the fund.

Profitability. With regard to profitability, the Trustees considered the compensation flowing to CSIM and its affiliates, directly or indirectly. In this connection, the Trustees reviewed management’s profitability analyses, together with certain commentary thereon from an independent accounting firm. The Trustees also considered any other benefits derived by CSIM from its relationship with the fund, such as whether, by virtue of its management of the fund, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. The Trustees considered whether the varied levels of compensation and profitability with respect to the fund under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to the fund by CSIM and its affiliates. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the profitability of CSIM is reasonable and supported renewal of the Agreement with respect to the fund.

Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to the fund’s shareholders through a graduated investment advisory fee schedule or other means, including any fee waivers by CSIM and its affiliates. In this regard, and consistent with their consideration of fund expenses, the Trustees considered that CSIM and Schwab have previously committed resources to minimize the effects on shareholders of diseconomies of scale during periods when fund assets were relatively small through their contractual expense waivers. For example, such diseconomies of scale may particularly affect newer funds or funds with investment strategies that are from time to time out of favor, but shareholders may benefit from the continued availability of such funds at subsidized expense levels. The Trustees also considered the contractual investment advisory fee schedules with respect to the fund that include lower fees at higher graduated asset levels. The Board also considered certain commitments by CSIM and Schwab that are designed to pass along potential economies of scale to the fund’s shareholders. Specifically, the Board considered CSIM and Schwab’s previously negotiated commitments, which may be changed only with Board approval, relating to: (i) reductions of contractual advisory fees or addition of breakpoints for certain funds within the fund complex, (ii) implementation, by means of expense limitation agreement, of additional reductions in net overall expenses for certain funds, and (iii) future net total operating expense reductions for taxable money funds as a group and non-taxable money funds as a group when aggregate assets of such group of funds exceed certain levels. In particular, the Board considered the actual expense reductions with respect to the fund that resulted from CSIM and Schwab’s commitments set forth above. Based on this evaluation, and in consideration of the previously negotiated commitments made by CSIM and Schwab as discussed above, the Board concluded, within the context of its full deliberations, that the fund obtains reasonable benefit from economies of scale.

In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, approved the continuation of the Agreement with respect to the fund and concluded that the compensation under the Agreement with respect to the fund is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.

Trustees and Officers

The tables below give information about the trustees and officers for The Charles Schwab Family of Funds which includes the fund covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust, Laudus Trust and Laudus Institutional Trust. The Fund Complex includes 84 funds.

Independent Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee	Other Directorships

Mariann Byerwalter 1960 Trustee (Trustee of The Charles Schwab Family of Funds since 2000.)	Chairman of JDN Corporate Advisory LLC.	73	Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009) Director, Excelsior Funds (2006 – 2007)


John F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds since 2008.)	Senior Fellow: The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University (Sept. 1994 – present).	73	Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009)


William A. Hasler 1941 Trustee (Trustee of The Charles Schwab Family of Funds since 2000.)	Dean Emeritus, Haas School of Business, University of California, Berkeley (July 1998 – present).	73	Director, Ditech Networks Corporation (1997 – present) Director, TOUSA (1998 – present) Director, Mission West Properties (1998 – present) Director, Globalstar, Inc. (2009 – present) Director, Harris-Stratex Networks (2001 – present) Director, Aphton Corp. (1991 – 2007) Director, Solectron Corporation (1998 – 2007) Director, Genitope Corporation (2000 – 2009) Director, Excelsior Funds (2006 – 2007)


Gerald B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds since 2000.)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present).	73	Lead Independent Director, Board of Cooper Industries (2002 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – present) Director, Oneok, Inc (2009 – present)


Donald R. Stephens 1938 Trustee (Trustee of The Charles Schwab Family of Funds since 1989.)	Managing Partner, D.R. Stephens & Company (investments) (1973 – present).	73	None

Independent Trustees (continued)


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee	Other Directorships

Joseph H. Wender 1944 Trustee (Trustee of The Charles Schwab Family of Funds since 2008.)	Senior Consultant, Goldman Sachs & Co., Inc. (Jan. 2008- present); Partner, Colgin Partners, LLC (vineyards) (February 1998 – present); Senior Director, Chairman of the Finance Committee, GSC Group (July 2005 – Dec. 2007); General Partner, Goldman Sachs & Co., Inc. (Oct. 1982 – June 2005).	73	Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present)


Michael W. Wilsey 1943 Trustee (Trustee of The Charles Schwab Family of Funds since 1993.)	Chairman and Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment and management, and other investments).	73	None

Interested Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served )	During the Past Five Years	the Trustee	Other Directorships

Charles R. Schwab²1937 Chairman and Trustee (Chairman and Trustee of The Charles Schwab Family of Funds since 1989.)	Chairman and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Charles Schwab Bank, N. A.; Chairman and Chief Executive Officer, Schwab (SIS) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive Officer, Schwab Holdings, Inc.; Through June 2007, Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until October 2008, Chief Executive Officer, The Charles Schwab Corporation, Charles Schwab & Co., Inc.	73	None


Walter W. Bettinger II²1960 Trustee (Trustee of The Charles Schwab Family of Funds since 2008.)	As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation.	84	None

Officers of the Trust


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Randall W. Merk 1954 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds since 2004.)		Executive Vice President and President, Investment Management Services, Charles Schwab & Co., Inc. (August 2004 – present); Executive Vice President, Charles Schwab & Co., Inc. (2002 – present); Director, President and Chief Executive Officer, Charles Schwab Investment Management, Inc. (August 2007 – present); Director, Charles Schwab Asset Management (Ireland) Limited and Charles Schwab Worldwide Funds PLC (Sept. 2002 – present); President and Chief Executive Officer, Schwab Strategic Trust (Oct. 2009 – present); Trustee (June 2006 – Dec. 2009), President and Chief Executive Officer (July 2007 – March 2008, July 2010 – present), Laudus Trust and Laudus Institutional Trust; President and Chief Executive Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc. and Excelsior Funds Trust (June 2006 – June 2007).


George Pereira 1964 Treasurer and Principal Financial Officer (Officer of The Charles Schwab Family of Funds since 2004.)		Senior Vice President and Chief Financial Officer, Charles Schwab Investment Management, Inc. (November 2004 – present); Treasurer and Chief Financial Officer, Laudus Trust and Laudus Institutional Trust (2006 – present); Treasurer and Principal Financial Officer, Schwab Strategic Trust (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present); Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust (June 2006 – June 2007).


Koji E. Felton 1961 Secretary and Chief Legal Officer (Officer of The Charles Schwab Family of Funds since 1998.)		Senior Vice President, Chief Counsel and Corporate Secretary, Charles Schwab Investment Management, Inc. (July 2000 – present); Senior Vice President and Deputy General Counsel, Charles Schwab & Co., Inc. (June 1998 – present); Vice President and Assistant Clerk, Laudus Trust and Laudus Institutional Trust (Jan. 2010 – present); Chief Legal Officer and Secretary, Schwab Strategic Trust (Oct. 2009 – present); Chief Legal Officer and Secretary, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust (June 2006 – June 2007).


Catherine MacGregor 1964 Vice President (Officer of The Charles Schwab Family of Funds since 2005.)		Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (March 2007 – present) of Laudus Trust and Laudus Institutional Trust; Vice President, Schwab Strategic Trust (Oct. 2009 – present).


Michael Haydel 1972 Vice President (Officer of The Charles Schwab Family of Funds since 2006.)		Vice President, Asset Management Client Services, Charles Schwab & Co., Inc. (2004 – present); Vice President (Sept. 2005 – present), Anti-Money Laundering Officer (Oct. 2005 – Feb. 2009), Laudus Trust, Laudus Institutional Trust; Vice President, Schwab Strategic Trust (Oct. 2009 – present).


¹		Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab Funds^® retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after 20 years of service as a trustee, whichever comes first, provided that any trustee who serves on both Schwab Funds and Laudus Funds retires from both boards when first required to retire by either board. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Stephens and Wilsey will retire on December 31, 2010.
²		Mr. Schwab and Mr. Bettinger are Interested Trustees because they are employees of Schwab and/or the investment adviser. In addition to their employment with Schwab and/or the investment adviser, Messrs. Schwab and Bettinger also own stock of The Charles Schwab Corporation.
³		The President, Treasurer and Secretary hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.