N-CSRS 1 f11490nvcsrs.txt FORM N-CSRS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-5954 The Charles Schwab Family of Funds ---------------------------------- (Exact name of registrant as specified in charter) 101 Montgomery Street, San Francisco, California 94104 -------------------------------------------------------- (Address of principal executive offices) (Zip code) Evelyn Dilsaver The Charles Schwab Family of Funds 101 Montgomery Street, San Francisco, California 94104 ----------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (415) 627-7000 Date of fiscal year end: December 31 Date of reporting period: June 30, 2005 ITEM 1: REPORT(S) TO SHAREHOLDERS. SCHWAB GOVERNMENT CASH RESERVES(TM) SEMIANNUAL REPORT June 30, 2005 [CHARLES SCHWAB LOGO] IN THIS REPORT Management's Discussion ................................................ 2 Performance and Fund Facts ............................................. 5 Fund Expenses .......................................................... 6 Financial Statements ................................................... 7 Financial Notes ........................................................ 13 Investment Advisory Agreement Approval ................................. 16 Trustees and Officers .................................................. 19 Glossary ............................................................... 22 Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM). Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab). [PHOTO OF CHARLES SCHWAB] Charles Schwab Chairman FROM THE CHAIRMAN Dear Shareholder, I have always believed that it's important to make sure that your cash is earning income between long-term investments by putting the money into a money market fund. While no investment is risk-free, money market funds carry, perhaps, the least amount of risk, as they generally are not as volatile as stocks or stock mutual funds. Money funds are good choices for investors who want to mitigate the potential fluctuations that may occur in their mostly stock portfolios. At Schwab, we offer a range of money funds with distinct investment strategies. Our municipal money funds, for example, may be beneficial for those of you in the higher tax brackets. We also offer money funds for those interested in the added protection provided by a portfolio of U.S. government securities. In addition, several of the Schwab money funds offer share classes that carry lower expenses in exchange for higher investment minimums. Now, as a result of the Federal Reserve having raised short-term interest rates eight times in the past 12 months (four during the six-month period covered in this report), yields on money market mutual funds are more attractive than they have been in many years. Not only that, but it's likely that the Fed will raise these rates again this year. Based on this expectation, we anticipate that the yields on money market funds will continue to move upwards over the next few months. On behalf of Schwab Funds, I want to thank you for investing with us and remind you that our commitment to our shareholders will never waver. Sincerely, /s/ Charles R. Schwab MANAGEMENT'S DISCUSSION for the six months ended June 30, 2005 [PHOTO OF EVELYN DILSAVER] EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management, Inc. and is president of the funds covered in this report. She joined the firm in 1992 and has held a variety of executive positions at Schwab. Dear Shareholder, When I assumed my new role as President and CEO of Schwab Funds(R) last year, I pledged that I would be committed to offering you more relevant choices and better value. I am pleased to report that we already have done both. On July 1, 2005, Schwab Funds launched the Schwab Target Funds(TM), a suite of five mutual funds to help keep your retirement investments properly allocated over your lifetime. With a single investment in a Schwab Target Fund, you can avoid a common investment mistake--failing to adjust your portfolio over time. The funds are designed to provide shareholders with investment management, asset allocation and ongoing re-allocation over time. You simply choose the fund that most closely matches the date of your retirement and our experienced portfolio managers will do the rest. They will rebalance four of the five funds from more aggressive to more conservative as you get closer to your retirement date. The fifth fund is designed to help generate income and additional growth after you've retired. It also is a good choice for investors already enjoying their retirement. These no-load funds are a good value, as the funds have access to the lowest-priced eligible share class on the underlying Schwab affiliate funds. And because the funds invest in groups of other Schwab affiliate funds, they provide an additional layer of diversification. At Schwab, we believe that having an asset-allocation plan that fits your retirement goals, time frame and tolerance for risk is a key element in meeting your long-term investment goals. The Schwab Target Funds are designed to help you do this. I encourage you to learn more about these funds at www.schwab.com/target, or call Schwab. Thank you for investing in Schwab Funds. Sincerely, /s/ Evelyn Dilsaver Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus carefully before investing. 2 Schwab Government Cash Reserves [PHOTO OF KAREN WIGGAN] KAREN WIGGAN, a vice president of the investment adviser and senior portfolio manager, has been responsible for day-to-day management of the fund since 1999. She joined the firm in 1987 and has worked in fixed income portfolio management since 1991. THE INVESTMENT ENVIRONMENT AND THE FUND Oil prices hit highs never seen before and the Federal Reserve Open Market Committee continued to raise short-term interest rates to curb inflationary pressures, raising rates for the fourth time this year. At the same time, GDP continued to grow at a healthy pace and the housing market remained strong, largely due to low mortgage rates. The firming labor market, as well as steady gains in capital spending, kept the economic expansion on a self-sustaining path. Businesses, unable to continue boosting productivity by restraining hiring, added new jobs during the six-month report period. Moreover, many leading indicators, such as the Institute for Supply Management's business activity surveys, suggested ongoing expansion, while continuing claims for unemployment benefits remained near cyclical lows. Business investments grew only modestly, but consumers continued to spend. In fact, consumer confidence rose to a level not experienced since before September 11, 2001. With consumers in a spending mode and consumer spending comprising about 70% of GDP, first quarter GDP remained strong and retail sales were healthy. In this positive economic environment, strong labor market conditions remained positive for domestic consumption. While high energy prices remained a significant headwind for economic performance, supply no longer was the issue; demand, especially in China, drove prices up. At the end of the six-month report period, a barrel of oil cost $56.50 versus $42.55 at the beginning of 2005. Though high oil and commodity prices could have hampered growth and stirred inflationary pressures, productivity gains, slow growth in the money supply and slack in the economy have mostly kept a lid on core inflation. The productivity gains, coupled with foreign central banks buying large amounts of U.S. Treasury securities, also helped to keep long-term interest rates under control. These conditions also caused the dollar to rally unexpectedly, which took a little bit of pressure off the price of imported goods. Amid signs of solidly expanding output and improved hiring, the Fed continued to tighten. It increased short-term interest rates at each of Schwab Government Cash Reserves 3 MANAGEMENT'S DISCUSSION continued In this market environment, our strategy was to position the fund for a continued rise in rates. the four meetings in the first half of 2005, ending the six-month report period at a still moderate 3.25%. The moves have had a limited impact on overall economic growth, due primarily to the record-low level of rates from which the increases began. Nonetheless, the higher rates succeeded in moving money fund yields higher, making them a more attractive investment vehicle. In response to the Federal Reserve's stated intentions to raise short-term interest rates at a "measured" pace, the yield curve for money market funds steepened during the first quarter. Over the course of the second quarter the yield curve began to flatten as the market questioned the duration of the Fed's tightening campaign. In this market environment, our strategy was to position the fund for a continued rise in rates. To take advantage of the rising-rate environment, we kept the weighted average maturity (WAM) short. Keeping the WAM short provided flexibility to adapt and respond to the changes in interest rates. This is a similar strategy to our peers, as shortening the WAM enabled money funds to more quickly reinvest at higher rates. 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. 4 Schwab Government Cash Reserves PERFORMANCE AND FUND FACTS as of 6/30/05 Ticker Symbol: SWHXX SEVEN-DAY YIELDS 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. -------------------------------------------------------------------------------- SEVEN-DAY YIELD 1 2.52% -------------------------------------------------------------------------------- SEVEN-DAY YIELD-NO WAIVER 2 1.79% -------------------------------------------------------------------------------- SEVEN-DAY EFFECTIVE YIELD 1 2.55% --------------------------------------------------------------------------------
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.SCHWAB.COM/SCHWABFUNDS. STATISTICS Money funds must maintain a dollar-weighted average maturity of no longer than 90 days, and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months). -------------------------------------------------------------------------------- WEIGHTED AVERAGE MATURITY 14 days -------------------------------------------------------------------------------- CREDIT QUALITY OF HOLDINGS % of portfolio 100% Tier 1 --------------------------------------------------------------------------------
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. 1 Fund expenses have been partially absorbed by CSIM and Schwab. 2 Yield if fund expenses had not been partially absorbed by CSIM and Schwab. Schwab Government Cash Reserves 5 FUND EXPENSES 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, 2005 and held through June 30, 2005. 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 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 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 EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2 (Annualized) at 1/1/05 at 6/30/05 1/1/05 - 6/30/05 ------------------------------------------------------------------------------------------------------------------------------------ SCHWAB GOVERNMENT CASH RESERVES(TM) Actual Return 0.88% $1,000 $1,009.20 $4.38 Hypothetical 5% Return 0.88% $1,000 $1,020.43 $4.41
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year. 6 Schwab Government Cash Reserves SCHWAB GOVERNMENT CASH RESERVES FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.00 1 0.00 1 0.01 0.03 0.05 ------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.00) 1 (0.00) 1 (0.01) (0.03) (0.05) ------------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------------------------- Total return (%) 0.92 2 0.36 0.08 0.68 3.08 5.33 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.88 3 1.03 4 1.14 5 1.25 1.25 1.14 6 Gross operating expenses 1.36 3 1.40 1.45 1.41 1.50 1.47 Net investment income 1.85 3 0.35 0.08 0.67 2.99 5.24 Net assets, end of period ($ x 1,000,000) 597 650 644 639 562 412
* Unaudited. 1 Per-share amount was less than $0.01. 2 Not Annualized. 3 Annualized. 4 In addition to the guaranteed expense limit in place, the investment adviser voluntarily reduced the fund's annualized operating expense ratio by an additional 0.13%. 5 In addition to the guaranteed expense limit in place, the investment adviser voluntarily reduced the fund's annualized operating expense ratio by an additional 0.11%. 6 The ratio of net operating expenses would have been 1.13% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 7 SCHWAB GOVERNMENT CASH RESERVES PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, 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 reviewed 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 the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. * Delayed-delivery security = All or a portion of this security is held as collateral for delayed-delivery security For fixed-rate obligations, the rate shown is the effective yield at the time of purchase, except for U.S. government agency coupon notes and 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 with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date. For variable-rate obligations without demand features, the maturity shown is the next interest rate change date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 36.0% U.S. GOVERNMENT SECURITIES 215,159 215,159 68.5% OTHER INVESTMENTS 408,734 408,734 -------------------------------------------------------------------------------- 104.5% TOTAL INVESTMENTS 623,893 623,893 (4.5)% OTHER ASSETS AND LIABILITIES (26,742) -------------------------------------------------------------------------------- 100.0% NET ASSETS 597,151
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) U.S. GOVERNMENT SECURITIES 36.0% of net assets DISCOUNT NOTES 29.9% ------------------------------------------------------------------------- FANNIE MAE = 3.04%, 07/13/05 12,000 11,988 = 3.07%, 07/13/05 6,100 6,094 3.08%, 07/18/05 1,173 1,171 3.06%, 07/20/05 4,250 4,243 3.17%, 08/10/05 2,700 2,691 3.29%, 09/14/05 20,000 19,864 * 3.45%, 10/03/05 26,000 25,778 FEDERAL HOME LOAN BANK = 3.05%, 07/15/05 5,000 4,994 3.07%, 07/27/05 4,598 4,588 = 3.03%, 08/02/05 28,000 27,925 FREDDIE MAC = 2.70%, 07/05/05 15,000 14,996 = 2.74%, 07/05/05 10,000 9,997 3.03%, 07/12/05 3,100 3,097 3.04%, 07/12/05 12,700 12,688 3.01%, 07/19/05 4,354 4,347 = 3.02%, 07/19/05 20,000 19,970 3.06%, 08/01/05 4,298 4,287 ----------- 178,718 COUPON NOTES 6.1% ------------------------------------------------------------------------- FANNIE MAE 1.45%, 07/08/05 10,000 9,997 FREDDIE MAC 1.50%, 08/15/05 26,500 26,444 ----------- 36,441
8 See financial notes. SCHWAB GOVERNMENT CASH RESERVES
MATURITY AMOUNT VALUE SECURITY ($ x 1,000) ($ x 1,000) OTHER INVESTMENTS 68.5% of net assets REPURCHASE AGREEMENTS 68.5% ------------------------------------------------------------------------- BEAR STEARNS & CO. INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $121,385 3.45%, issued 06/30/05, due 07/01/05 119,011 119,000 CREDIT SUISSE FIRST BOSTON L.L.C. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $123,151 3.40%, issued 06/30/05, due 07/01/05 120,746 120,734 GOLDMAN SACHS & CO. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $121,380 3.45%, issued 06/30/05, due 07/01/05 119,011 119,000 MORGAN STANLEY & CO., INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $30,712 3.26%, issued 06/23/05, due 07/07/05 30,038 30,000 UBS FINANCIAL SERVICES, INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $20,400 3.15%, issued 06/13/05, due 07/07/05 20,042 20,000 ----------- 408,734
END OF INVESTMENTS. See financial notes. 9 SCHWAB GOVERNMENT CASH RESERVES Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $215,159 a Repurchase agreements, at value 408,734 a Interest receivable 307 Prepaid expenses + 199 ----------- TOTAL ASSETS 624,399 LIABILITIES -------------------------------------------------------------------------------- Payables: Dividends to shareholders 613 Investments bought 25,778 Transfer agent and shareholder service fees 5 Transaction service fees 821 Trustees' fees 4 Accrued expenses + 27 ----------- TOTAL LIABILITIES 27,248 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 624,399 TOTAL LIABILITIES - 27,248 ----------- NET ASSETS $597,151 NET ASSETS BY SOURCE Capital received from investors 597,174 Net realized capital losses (23) NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $597,151 597,175 $1.00
Unless stated, all numbers x 1,000. a The amortized cost for the fund's securities was $623,893. FEDERAL TAX DATA -------------------------------------- COST BASIS OF PORTFOLIO $623,893 AS OF DECEMBER 31, 2004: UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2007 $1 2011 + 22 ------------ $23 10 See financial notes. SCHWAB GOVERNMENT CASH RESERVES Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Interest $8,489 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 1,182 a Transfer agent and shareholder service fees 1,399 b Transaction service fees 1,440 c Trustees' fees 12 d Custodian and portfolio accounting fees 32 Professional fees 16 Registration fees 96 Shareholder reports 32 Other expenses + 6 -------- Total expenses 4,215 Expense reduction - 1,484 e -------- NET EXPENSES 2,731 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 8,489 NET EXPENSES - 2,731 -------- NET INVESTMENT INCOME 5,758 -------- INCREASE IN NET ASSETS FROM OPERATIONS $5,758
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.25% of the fund's assets; for shareholder services, 0.20% of the fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For transaction services, Schwab receives a fee based on the number and type of transactions provided. d For the fund's independent trustees only. e Includes $1,087 from the investment adviser (CSIM) and $397 from the transfer agent and shareholder service agent (Schwab). These reductions reflect a guarantee by CSIM and Schwab to limit the operating expenses of this fund through April 29, 2006, to 0.65% of average daily net assets. Prior to April 30, 2005, this limit was 0.99%. This limit excludes interest, taxes and certain non-routine expenses. See financial notes. 11 SCHWAB GOVERNMENT CASH RESERVES Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS --------------------------------------------------------------------------------- 1/1/05-6/30/05 1/1/04-12/31/04 Net investment income $5,758 $2,153 ---------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 5,758 2,153 DISTRIBUTIONS PAID --------------------------------------------------------------------------------- Dividends from net investment income 5,758 2,153 a TRANSACTIONS IN FUND SHARES b --------------------------------------------------------------------------------- Shares sold 3,179,671 5,885,347 Shares reinvested 4,930 2,065 Shares redeemed + (3,237,726) (5,880,712) ---------------------------------- NET TRANSACTIONS IN FUND SHARES (53,125) 6,700 NET ASSETS --------------------------------------------------------------------------------- Beginning of period 650,276 643,576 Total increase or decrease + (53,125) 6,700 c ---------------------------------- END OF PERIOD $597,151 $650,276
Unless stated, all numbers x 1,000. a The tax-basis components of distributions for the period ended 12/31/04 are: Ordinary income $2,153 Long-term capital gains $-- b Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. c Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. 12 See financial notes. SCHWAB GOVERNMENT CASH RESERVES FINANCIAL NOTES unaudited BUSINESS STRUCTURE OF THE FUND THE FUND DISCUSSED IN THIS REPORT IS A SERIES OF THE CHARLES SCHWAB FAMILY OF FUNDS, A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended. The sidebar shows the fund in this report and its trust. THE FUND 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 trust may issue as many shares as necessary. FUND OPERATIONS Most of the fund's investments are described in sections earlier in this report. However, there are certain other fund operations and policies that may affect the fund's financials, as described below. Other policies concerning the fund's business operations also are described here. THE FUND DECLARES DIVIDENDS EVERY DAY IT IS OPEN FOR BUSINESS. These dividends, which are equal to the fund's net investment income for that day, are paid out to shareholders once a month. The fund may make distributions from any net realized capital gains once a year. THE FUND MAY BUY SECURITIES ON A DELAYED-DELIVERY BASIS. In these transactions, the 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 has set aside sufficient securities as collateral for those securities bought on a delayed-delivery basis. THE FUND MAY ENTER INTO REPURCHASE AGREEMENTS. In a repurchase agreement, the 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. Any repurchase agreement with due dates later than seven days from issue dates may be subject to seven day put features for liquidity purposes. The fund's repurchase agreements will be fully collateralized by U.S. government 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 price under the agreement. THE FUND PAYS FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES. Through its trust, the fund has agreements with Charles Schwab Investment Management, Inc. (CSIM) to provide investment advisory and administrative services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent, shareholder services and transaction services. THE TRUST AND ITS FUNDS This list shows all of the funds included in The Charles Schwab Family of Funds. The fund discussed in this report 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 Municipal Money Fund Schwab California Municipal Money Fund Schwab New York Municipal Money Fund Schwab New Jersey Municipal Money Fund Schwab Pennsylvania Municipal Money Fund Schwab Florida Municipal Money Fund Schwab Massachusetts Municipal Money Fund Schwab Retirement Advantage Money Fund Schwab Retirement Money Fund SCHWAB GOVERNMENT CASH RESERVES Schwab Advisor Cash Reserves Schwab Cash Reserves 13 SCHWAB GOVERNMENT CASH RESERVES Although these agreements specify certain fees for these services, CSIM and Schwab have made additional agreements with the fund that may limit the total expenses charged. The rates and limitations for these fees are described in the fund's Statement of Operations. THE FUND MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. The fund may make direct transactions with certain other Schwab Funds(R) 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. Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions within the 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. 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 the fund's Statement of Operations. THE FUND MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The fund may obtain temporary bank loans through the trust to which the fund belongs, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The Schwab Funds has custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A., respectively. The fund pays interest on the amounts that it borrows at rates that are negotiated periodically. There was no borrowing for the fund during the period. 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 net realized capital gains (if any) to its respective shareholders each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax. UNDER THE FUND'S ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE INDEMNIFIED AGAINST CERTAIN LIABILITY 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. ACCOUNTING POLICIES The following are the main policies the fund uses in preparing its financial statements. THE FUND VALUES ITS SECURITIES AT AMORTIZED COST, which approximates market value. SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the security is executed. 14 SCHWAB GOVERNMENT CASH RESERVES INTEREST INCOME is recorded as it accrues. If the fund buys a debt instrument at a discount (that is, for less than its face value) or a premium (more than its 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. REALIZED GAINS AND LOSSES from security transactions are based on the identified costs of the securities involved. EXPENSES that are specific to the fund or a class are charged directly to the fund or class. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets. 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 also may keep certain assets in segregated accounts, as required by securities law. THE ACCOUNTING POLICIES DESCRIBED ABOVE CONFORM WITH 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. 15 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 advisory agreement. In addition, the Securities and Exchange Commission (the "SEC") takes the position that, as part of their fiduciary duties with respect to fund fees, fund boards are required to evaluate the material factors applicable to a decision to approve an investment advisory agreement. Consistent with these responsibilities, the Board of Trustees (the "Board") 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 CSIM (the "Agreement") with respect to existing funds in the Trust, including Schwab Government 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 funds that the Board reviews during the course of each year, including information that relates to fund operations and fund performance. The trustees also receive a memorandum from fund counsel regarding the responsibilities of trustees for the approval of investment advisory contracts. In addition, the Independent Trustees receive advice from independent counsel to the Independent Trustees, meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM. At the May 24, 2005 meeting of the Board, the trustees, including a majority of the Independent Trustees, approved the renewal of the Agreement on an interim basis through September 30, 2005. In connection with the interim approval of the Agreement, the Board requested that CSIM prepare responses to certain questions outlined below in advance of the next regularly scheduled Board meeting. The Board's approval of the Agreement was based on consideration and evaluation of a variety of specific factors discussed at that meeting 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 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. 16 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 the fact that Schwab's extensive branch network, Internet access, investment and research tools, telephone services, and array of account features benefit the funds. 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' investors are also brokerage clients of Schwab, and that CSIM and its affiliates are uniquely positioned to provide services and support to the funds and such shareholders. 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 interim renewal of the Agreement. FUND PERFORMANCE. The Board considered fund performance in determining whether to renew the Agreement. Specifically, the trustees considered each fund's performance relative to a peer group of other mutual funds and appropriate indices/benchmarks, in light of total return, yield and market trends. As part of this review, the trustees considered the composition of the peer group, selection criteria and the reputation of the third party who prepared the peer group analysis. In evaluating the performance of each fund, the trustees considered both risk and shareholder risk expectations for such fund. The Board noted that certain funds, including the Government Cash Reserves, had lower performance relative to their respective peer groups than other funds, and inquired as to the underlying reasons for this relative performance. The Board also requested that CSIM evaluate the reasons for such funds' relative performance, consider appropriate measures to address the performance and report the results of their findings at the next Board meeting. Following such evaluation, and based upon CSIM's agreement to perform such analyses, etc. relating to performance, the Board concluded, within the context of its full deliberations, that the performance of the funds supported interim renewal of the Agreement. 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 voluntary waiver of 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 and offshore funds, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the unique 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 interim renewal of the Agreement. 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 17 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 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 interim renewal of the Agreement. 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 CSIM's agreement to contractual investment advisory fee schedules which include lower fees at higher graduated asset levels. With respect to Schwab Government Cash Reserves, the Board also considered Schwab's agreement that that fund's net operating expenses (excluding interest, taxes and certain non-routine expenses) would not exceed 65 (sixty-five) basis points for the period April 30, 2005 until April 30, 2006. Based on this evaluation, 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, unanimously approved the interim continuation of the Agreement and concluded that the compensation under the Agreement 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. 18 TRUSTEES AND OFFICERS A fund's Board of Trustees is responsible for protecting the interests of that fund's shareholders. The tables below give information about the people who serve as trustees and officers for the Schwab Funds(R), including the funds covered in this report. Trustees remain in office until they resign, retire or are removed by shareholder vote. 1 Under the Investment Company Act of 1940, any officer, director, or employee of Schwab or CSIM is considered an "interested person," meaning that he or she is considered to have a business interest in Schwab or CSIM. These individuals are listed as "interested trustees." The "independent trustees" are individuals who, under the 1940 Act, are not considered to have a business interest in Schwab or CSIM. Each of the 56 Schwab Funds belongs to one of these trusts: The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently all these trusts have the same trustees and officers. The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. 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. INTERESTED TRUSTEES AND OFFICERS
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ CHARLES R. SCHWAB 2 Chairman, Trustee: Chair, CEO, Director, The Charles Schwab Corp., Charles Schwab & 7/29/37 Family of Funds, 1989; Co., Inc.; Chair, Director, Charles Schwab Investment Management, Investments, 1991; Inc.; Chair, Charles Schwab Holdings (UK); Chair, Director, U.S. Trust Capital Trust, 1993; Corp., United States Trust Co. of New York, U.S. Trust Co., N.A.; Annuity Portfolios, 1994. CEO, Director, Charles Schwab Holdings, Inc.; Chair, CEO Schwab (SIS) Holdings, Inc. I, Schwab International Holdings, Inc.; Director, Charles Schwab Bank, N.A., The Charles and Helen Schwab Foundation, All Kinds of Minds (education); Trustee, Stanford University. Until 5/04: Director, The Gap, Inc. (clothing retailer). Until 5/03: Co-CEO, The Charles Schwab Corp. Until 3/02: Director, Audiobase, Inc. (Internet audio solutions). Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications). Until 7/01: Director, The Charles Schwab Trust Co.
1 The Schwab Funds retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010. 2 In addition to his position with the investment adviser and the distributor, Mr. Schwab also owns stock of The Charles Schwab Corporation. 19 INTERESTED TRUSTEES BUT NOT OFFICERS
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ RANDALL W. MERK 2005 (all trusts). EVP, President, AMPS Enterprise. Until 7/04: President, CEO, 7/25/54 Charles Schwab Investment Management, Inc.; VP, Charles Schwab & Co., Inc. Until 8/02: President, Chief Investment Officer, American Century Management; Director, American Century Companies, Inc. Until 6/01: Chief Investment Officer, Fixed Income, American Century Companies, Inc.
OFFICERS OF THE TRUST
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ EVELYN DILSAVER President, CEO EVP, President, Director, Charles Schwab Investment Management, 5/4/55 (all trusts). Inc. Until 7/04: SVP for Development and Distribution, Asset Management Products and Services Enterprise. Until 6/03: EVP, CFO, Chief Administrative Officer, U.S. Trust. ------------------------------------------------------------------------------------------------------------------------------------ STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment 4/5/55 Officer (all trusts). Management, Inc.; Chief Investment Officer, The Charles Schwab Trust Co. ------------------------------------------------------------------------------------------------------------------------------------ KIMON DAIFOTIS SVP, Chief Investment Since 9/04: Chief Investment Officer, Fixed Income, Charles 7/10/59 Officer (all trusts). Schwab Investment Management, Inc. Since 6/04: SVP, Charles Schwab Investment Management, Inc. Until 6/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ JEFFREY MORTIMER SVP, Chief Investment Since 5/04: SVP, Chief Investment Officer, Equities, Charles Schwab 9/29/63 Officer (all trusts). Investment Management, Inc. Since 6/04: VP, Chief Investment Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 5/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ RANDALL FILLMORE Chief Compliance Since 9/04: SVP, Institutional Compliance and Chief Compliance 11/11/60 Officer (all trusts). Officer, Charles Schwab Investment Management, Inc.; Chief Compliance Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 9/04: VP, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. Until 2002: VP of Internal Audit, Charles Schwab & Co., Inc. Prior to 2000: PricewaterhouseCoopers. ------------------------------------------------------------------------------------------------------------------------------------ KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab 3/13/61 Investment Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco. ------------------------------------------------------------------------------------------------------------------------------------ GEORGE PEREIRA Treasurer, Principal Since 11/04: SVP, CFO, Charles Schwab Investment Management, 6/9/64 Financial Officer Inc. Until 11/04: SVP, Financial Reporting, Charles Schwab & Co., Inc. (all trusts). Until 12/99: CFO, Commerzbank Capital Markets. Until 9/99: Managing Director at the New York Stock Exchange.
20 INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC (real estate); Trustee, Stanford 8/13/60 University, America First Cos., Omaha, NE (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital. Since 2/05: Director, Pacific Mutual Holding Company (insurance). Since 2004: Laudus Trust, Laudus Variable Insurance Trust. Until 2001: Stanford University, Special Assistant to the President. From 1996-2001: VP of Business Affairs, CFO. ------------------------------------------------------------------------------------------------------------------------------------ DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing 9/23/31 Investments, 1991; and communications consulting). Until 1999: EVP, Managing Director, Capital Trust, 1993; Grey Advertising. Until 1996: President, CEO, Allen & Dorward Annuity Portfolios, 1994. Advertising. ------------------------------------------------------------------------------------------------------------------------------------ WILLIAM A. HASLER 2000 (all trusts). Dean Emeritus, Haas School of Business, University of California, 11/22/41 Berkeley; Director, Aphton Corp. (bio-pharmaceuticals); Non- Executive Chair, Solectron Corp. (manufacturing), Mission West Properties (commercial real estate), Stratex Networks (network equipment), TOUSA (home building); Public Governor, Member, executive committee, Pacific Stock & Options Exchange. Since 2004: Trustee, Laudus Trust, Laudus Variable Insurance Trust. Until 2/04: Co-CEO, Aphton Corp. (bio-pharmaceuticals). ------------------------------------------------------------------------------------------------------------------------------------ ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial 5/15/31 Investments, 1991; services and investment advisory firm). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisers); 9/28/50 Trustee, Cooper Industries (electrical products, tools and hardware); Chairman, audit committee, Northern Border Partners, L.P. (energy). ------------------------------------------------------------------------------------------------------------------------------------ DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: 6/28/38 Investments, 1991; Chair, CEO, North American Trust (real estate investment trust). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (real estate investment and 8/18/43 Investments, 1991; management, and other investments). Capital Trust, 1993; Annuity Portfolios, 1994.
21 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. ALTERNATIVE MINIMUM TAX (AMT) A federal income tax designed to limit the extent to which high-income taxpayers (including individuals, estates, trusts and corporations) can benefit from certain deductions and exemptions. For example, some types of income that are exempt from regular federal income tax are not exempt from the AMT. ASSET-BACKED SECURITIES Bonds or other debt securities that represent ownership in a pool of assets such as credit card debt. BOND A security representing a loan from the investor to the issuer. A bond typically pays interest at a fixed rate (the "coupon rate") until a specified date (the "maturity date"), at which time the issuer returns the money borrowed ("principal" or "face value") to the bondholder. Because of their structure, bonds are sometimes called "fixed income securities" or "debt securities." An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond's market value prior to call or maturity. There is no guarantee that a bond's yield to call or maturity will provide a positive return over the rate of inflation. BOND FUND A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund's net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed. BOND ANTICIPATION NOTES Obligations sold by a municipality on an interim basis in anticipation of the municipality's issuance of a longer-term bond in the future. 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, state and local governments 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. 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 limit 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 credit-worthiness 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 principal to its debtholders. PORTFOLIO TERMS To help reduce the space occupied by the portfolio holdings, we use the following terms. Most of them appear within descriptions of individual securities in municipal funds, and describe features of the issuer or the security. Some of these are more fully defined elsewhere in the Glossary. ACES Adjustable convertible extendable security BAN Bond anticipation note COP Certificate of participation GAN Grant anticipation note GO General obligation HDA Housing Development Authority HFA Housing Finance Agency IDA Industrial Development Authority IDB Industrial Development Board IDRB Industrial Development Revenue Bond M/F Multi-family RAN Revenue anticipation note RB Revenue bond S/F Single-family TAN Tax anticipation note TECP Tax-exempt commercial paper TRAN Tax and revenue anticipation note VRD Variable-rate demand 22 DOLLAR-WEIGHTED AVERAGE MATURITY (DWAM) See weighted average maturity. EFFECTIVE YIELD A measurement of a fund's yield that assumes that all dividends were 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 a 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 A security that when tendered is paid from funds advanced by an entity other than the issuer (such as a large financial institution). Liquidity enhancements are often used on variable-rate securities where the portfolio manager has an option to tender the securities prior to their final maturity. MATURITY The date a debt security is scheduled to be "retired" and its principal amount returned to the bondholder. MONEY MARKET SECURITIES High-quality, short-term debt securities that may be issued by entities such as the U.S. government, corporations and financial institutions (such as banks). Money market securities include commercial paper, promissory notes, certificates of deposit, banker's acceptances, notes and time deposits. MUNI, MUNICIPAL BONDS, 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. REVENUE ANTICIPATION NOTES Obligations that are issued in expectation of the receipt of revenue, such as income taxes, property taxes, etc. 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%). TOTAL RETURN The percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested. TAX ANTICIPATION NOTES Notes that typically are sold to finance the cash flow needs of municipalities in anticipation of the receipt of taxes on a future date. 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. WEIGHTED AVERAGE MATURITY For mutual funds, the maturity of all the debt securities in its portfolio, calculated as a weighted average. As a rule, the longer a fund's weighted average maturity, the greater its interest rate risk. Money funds are required to maintain a weighted average maturity of no more than 90 days. YIELD The income paid out by an investment, expressed as a percentage of the investment's market value. 23 NOTES Schwab Funds(R) offers you a complete 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're 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, and 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. METHODS FOR PLACING ORDERS The following information outlines how Schwab investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET 1 www.schwab.com SCHWAB BY PHONE(TM) 2 Use our automated voice service or speak to a representative. Call 1-800-435-4000, day or night (for TDD service, call 1-800-345-2550). TELEBROKER(R) Use our automated touch-tone phone service at 1-800-272-4922. MAIL Write to Schwab Funds at: P.O. Box 3812 Englewood, CO 80155-3812 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. 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.schwab.com/schwabfunds, 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.schwab.com/schwabfunds or the SEC's website at http://www.sec.gov. 1 Shares of Sweep Investments(TM) may not be purchased directly over the Internet. 2 Orders placed in person or through a telephone representative may be subject to a service fee payable to Schwab. THE SCHWAB FUNDS FAMILY(R) STOCK FUNDS Schwab S&P 500 Index Fund Schwab 1000 Index(R) Fund Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) Schwab Premier Equity Fund(TM) Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) Schwab Financial Services Fund(TM) Schwab Health Care Fund(TM) Schwab Technology Fund(TM) Schwab Institutional Select(R) S&P 500 Fund ASSET ALLOCATION FUNDS 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 2020 Fund Schwab Target 2030 Fund Schwab Target 2040 Fund Schwab Retirement Income Fund BOND FUNDS Schwab YieldPlus Fund(R) Schwab Short-Term Bond Market Fund(TM) Schwab Total Bond Market Fund(TM) Schwab GNMA Fund(TM) Schwab Tax-Free YieldPlus Fund(TM) Schwab Short/Intermediate Tax-Free Bond Fund(TM) Schwab Long-Term Tax-Free Bond Fund(TM) Schwab California Tax-Free YieldPlus Fund(TM) Schwab California Short/Intermediate Tax-Free Bond Fund(TM) Schwab California Long-Term 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 liquidity. 3 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(R). 3 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. [CHARLES SCHWAB LOGO] INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. (Schwab) FUNDS Schwab Funds(R) P.O. Box 3812, Englewood, CO 80155-3812 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C) 2005 Charles Schwab & Co., Inc. All rights reserved. Member SIPC Printed on recycled paper. MFR13607-09 SCHWAB RETIREMENT ADVANTAGE MONEY FUND(TM) SCHWAB RETIREMENT MONEY FUND(R) SEMIANNUAL REPORT June 30, 2005 [CHARLES SCHWAB LOGO] IN THIS REPORT Management's Discussion ................................................ 2 Performance and Fund Facts ............................................. 5 Schwab Retirement Advantage Money Fund(TM) .......... 5 Schwab Retirement Money Fund(R) ..................... 5 Fund Expenses .......................................................... 6 Financial Statements ................................................... 7 Schwab Retirement Advantage Money Fund(TM) .......... 7 Schwab Retirement Money Fund(R) ..................... 16 Financial Notes ........................................................ 24 Investment Advisory Agreement Approval ................................. 27 Trustees and Officers .................................................. 30 Glossary ............................................................... 33 Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM). Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab). [PHOTO OF CHARLES SCHWAB] Charles Schwab Chairman FROM THE CHAIRMAN Dear Shareholder, I have always believed that it's important to make sure that your cash is earning income between long-term investments by putting the money into a money market fund. While no investment is risk-free, money market funds carry, perhaps, the least amount of risk, as they generally are not as volatile as stocks or stock mutual funds. Money funds are good choices for investors who want to mitigate the potential fluctuations that may occur in their mostly stock portfolios. At Schwab, we offer a range of money funds with distinct investment strategies. Our municipal money funds, for example, may be beneficial for those of you in the higher tax brackets. We also offer money funds for those interested in the added protection provided by a portfolio of U.S. government securities. In addition, several of the Schwab money funds offer share classes that carry lower expenses in exchange for higher investment minimums. Now, as a result of the Federal Reserve having raised short-term interest rates eight times in the past 12 months (four during the six-month period covered in this report), yields on money market mutual funds are more attractive than they have been in many years. Not only that, but it's likely that the Fed will raise these rates again this year. Based on this expectation, we anticipate that the yields on money market funds will continue to move upwards over the next few months. On behalf of Schwab Funds, I want to thank you for investing with us and remind you that our commitment to our shareholders will never waver. Sincerely, /s/ Charles R. Schwab MANAGEMENT'S DISCUSSION for the six months ended June 30, 2005 [PHOTO OF EVELYN DILSAVER] EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management, Inc. and is president of the funds covered in this report. She joined the firm in 1992 and has held a variety of executive positions at Schwab. Dear Shareholder, When I assumed my new role as President and CEO of Schwab Funds(R) last year, I pledged that I would be committed to offering you more relevant choices and better value. I am pleased to report that we already have done both. On July 1, 2005, Schwab Funds launched the Schwab Target Funds(TM), a suite of five mutual funds to help keep your retirement investments properly allocated over your lifetime. With a single investment in a Schwab Target Fund, you can avoid a common investment mistake--failing to adjust your portfolio over time. The funds are designed to provide shareholders with investment management, asset allocation and ongoing re-allocation over time. You simply choose the fund that most closely matches the date of your retirement and our experienced portfolio managers will do the rest. They will rebalance four of the five funds from more aggressive to more conservative as you get closer to your retirement date. The fifth fund is designed to help generate income and additional growth after you've retired. It also is a good choice for investors already enjoying their retirement. These no-load funds are a good value, as the funds have access to the lowest-priced eligible share class on the underlying Schwab affiliate funds. And because the funds invest in groups of other Schwab affiliate funds, they provide an additional layer of diversification. At Schwab, we believe that having an asset-allocation plan that fits your retirement goals, time frame and tolerance for risk is a key element in meeting your long-term investment goals. The Schwab Target Funds are designed to help you do this. I encourage you to learn more about these funds at www.schwab.com/target, or call Schwab. Thank you for investing in Schwab Funds. Sincerely, /s/ Evelyn Dilsaver Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus carefully before investing. 2 Schwab Retirement Advantage Money Fund and Schwab Retirement Money Fund [PHOTO OF LINDA KLINGMAN] LINDA KLINGMAN, a vice president of the investment adviser and senior portfolio manager, has overall responsibility for the management of the funds. She joined the firm in 1990 and has managed money market funds since 1988. [PHOTO OF MIKE NEITZKE] MIKE NEITZKE, a portfolio manager, has day-to-day responsibility for management of the funds. Prior to joining the firm in March 2001, he worked for more than 15 years in the financial industry as a portfolio manager. THE INVESTMENT ENVIRONMENT AND THE FUND Oil prices hit highs never seen before and the Federal Reserve Open Market Committee continued to raise short-term interest rates to curb inflationary pressures, raising rates for the fourth time this year. At the same time, GDP continued to grow at a healthy pace and the housing market remained strong, largely due to low mortgage rates. The firming labor market, as well as steady gains in capital spending, kept the economic expansion on a self-sustaining path. Businesses, unable to continue boosting productivity by restraining hiring, added new jobs during the six-month report period. Moreover, many leading indicators, such as the Institute for Supply Management's business activity surveys, suggested ongoing expansion, while continuing claims for unemployment benefits remained near cyclical lows. Business investments grew only modestly, but consumers continued to spend. In fact, consumer confidence rose to a level not experienced since before September 11, 2001. With consumers in a spending mode and consumer spending comprising about 70% of GDP, first quarter GDP remained strong and retail sales were healthy. In this positive economic environment, strong labor market conditions remained positive for domestic consumption. While high energy prices remained a significant headwind for economic performance, supply no longer was the issue; demand, especially in China, drove prices up. At the end of the six-month report period, a barrel of oil cost $56.50 versus $42.55 at the beginning of 2005. Though high oil and commodity prices could have hampered growth and stirred inflationary pressures, productivity gains, slow growth in the money supply and slack in the economy have mostly kept a lid on core inflation. The productivity gains, coupled with foreign central banks buying large amounts of U.S. Treasury securities, also helped to keep long-term interest rates under control. These conditions also caused the dollar to rally unexpectedly, which took a little bit of pressure off the price of imported goods. Amid signs of solidly expanding output and improved hiring, the Fed continued to tighten. It increased short-term interest rates at each of Schwab Retirement Advantage Money Fund and Schwab Retirement Money Fund 3 MANAGEMENT'S DISCUSSION continued In this market environment, our strategy was to position the funds for a continued rise in rates. the four meetings in the first half of 2005, ending the six-month report period at a still moderate 3.25%. The moves have had a limited impact on overall economic growth, due primarily to the record-low level of rates from which the increases began. Nonetheless, the higher rates succeeded in moving money fund yields higher, making them a more attractive investment vehicle. IN RESPONSE TO THE FEDERAL RESERVE'S STATED INTENTIONS TO RAISE SHORT-TERM INTEREST RATES AT A "MEASURED" PACE, THE YIELD CURVE FOR MONEY MARKET FUNDS STEEPENED DURING THE FIRST QUARTER. Over the course of the second quarter the yield curve began to flatten as the market questioned the duration of the Fed's tightening campaign. In this market environment, our strategy was to position the funds for a continued rise in rates. To accomplish this, we maintained and continued to add to our position of variable-rate securities. The interest rates on these types of securities reset frequently, allowing us the opportunity to capture a rise in market rates. To further take advantage of this rising-rate environment, we kept the weighted average maturity (WAM) short, averaging about 40 days. Maintaining the WAM at this level provided us the flexibility desired to adapt to and respond to anticipated changes in interest rates. This is a similar strategy to our peers, as shortening the WAM enabled money funds to more quickly reinvest at higher rates. 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. 4 Schwab Retirement Advantage Money Fund and Schwab Retirement Money Fund PERFORMANCE AND FUND FACTS as of 6/30/05 SEVEN-DAY YIELDS 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.
RETIREMENT ADVANTAGE MONEY FUND RETIREMENT MONEY FUND Ticker Symbol SWIXX SWRXX -------------------------------------------------------------------------------- SEVEN-DAY YIELD 2.72% 1 2.55% -------------------------------------------------------------------------------- SEVEN-DAY YIELD-NO WAIVER 2.58% 2 n/a -------------------------------------------------------------------------------- SEVEN-DAY EFFECTIVE YIELD 2.76% 1 2.58% --------------------------------------------------------------------------------
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.SCHWAB.COM/SCHWABFUNDS. STATISTICS Money funds must maintain a dollar-weighted average maturity of no longer than 90 days, and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months).
RETIREMENT ADVANTAGE MONEY FUND RETIREMENT MONEY FUND -------------------------------------------------------------------------------- WEIGHTED AVERAGE MATURITY 38 days 39 days -------------------------------------------------------------------------------- CREDIT QUALITY OF HOLDINGS % of portfolio 100% Tier 1 100% Tier 1 -------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 3 $25,000 $1 --------------------------------------------------------------------------------
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. 1 Fund expenses have been partially absorbed by CSIM and Schwab. 2 Yield if fund expenses had not been partially absorbed by CSIM and Schwab. 3 Please see prospectus for further detail and eligibility requirements. Schwab Retirement Advantage Money Fund and Schwab Retirement Money Fund 5 FUND EXPENSES 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, 2005 and held through June 30, 2005. 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 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 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 EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2 (Annualized) at 1/1/05 at 6/30/05 1/1/05-6/30/05 ------------------------------------------------------------------------------------------------------------------------------------ SCHWAB RETIREMENT ADVANTAGE MONEY FUND(TM) Actual Return 0.49% $1,000 $1,011.20 $2.44 Hypothetical 5% Return 0.49% $1,000 $1,022.37 $2.46 ------------------------------------------------------------------------------------------------------------------------------------ SCHWAB RETIREMENT MONEY FUND(R) Actual Return 0.67% $1,000 $1,010.30 $3.34 Hypothetical 5% Return 0.67% $1,000 $1,021.47 $3.36
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for each fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year. 6 Schwab Retirement Advantage Money Fund and Schwab Retirement Money Fund SCHWAB RETIREMENT ADVANTAGE MONEY FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 -------------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 0.01 0.01 0.04 0.06 -------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.01) (0.01) (0.04) (0.06) -------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 -------------------------------------------------------------------------- Total return (%) 1.12 1 0.95 0.74 1.48 3.96 6.12 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.49 2 0.49 0.50 0.50 0.50 0.51 3 Gross operating expenses 0.63 2 0.63 0.63 0.63 0.66 0.69 Net investment income 2.26 2 0.94 0.75 1.46 3.83 5.96 Net assets, end of period ($ x 1,000,000) 661 680 766 907 797 647
* Unaudited. 1 Not annualized. 2 Annualized. 3 The ratio of net operating expenses would have been 0.50% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 7 SCHWAB RETIREMENT ADVANTAGE MONEY FUND PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, 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 reviewed 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 the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. * Asset-backed security + Credit-enhanced security o Illiquid and/or restricted security For fixed-rate obligations, the rate shown is the effective yield at the time of purchase, except for U.S. government agency coupon notes and 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. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date. For variable-rate obligations without demand features, the maturity shown is the next interest rate change date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 66.8% FIXED-RATE OBLIGATIONS 441,630 441,630 16.0% VARIABLE-RATE OBLIGATIONS 106,072 106,072 17.0% OTHER INVESTMENTS 112,283 112,283 -------------------------------------------------------------------------------- 99.8% TOTAL INVESTMENTS 659,985 659,985 0.2% OTHER ASSETS AND LIABILITIES 1,077 -------------------------------------------------------------------------------- 100.0% NET ASSETS 661,062
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) FIXED-RATE OBLIGATIONS 66.8% of net assets COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 41.9% -------------------------------------------------------------------------- AB SPINTAB 3.23%, 08/11/05 4,500 4,484 ALLIANCE & LEICESTER, PLC, SECTION 4(2) / 144A 3.15%, 09/08/05 2,000 1,988 *+ AMSTERDAM FUNDING CORP., SECTION 4(2) / 144A 3.09%, 07/07/05 1,000 999 3.26%, 07/25/05 4,000 3,991 *+ AQUINAS FUNDING, L.L.C., SECTION 4(2) / 144A 2.85%, 07/12/05 2,000 1,998 3.61%, 12/22/05 1,000 983 *+ ASAP FUNDING LTD., SECTION 4(2) / 144A 3.29%, 08/02/05 4,000 3,988 3.30%, 08/26/05 1,000 995 *+ ATLANTIC ASSET SECURITIZATION CORP., SECTION 4(2) / 144A 3.18%, 07/14/05 2,000 1,998 * ATLANTIS ONE FUNDING CORP., SECTION 4(2) / 144A 2.82%, 07/11/05 5,000 4,996 2.98%, 08/11/05 7,000 6,977 3.39%, 11/16/05 2,000 1,974 3.60%, 12/20/05 1,000 983 *+ BARTON CAPITAL CORP 3.16%, 07/14/05 3,000 2,997 *+o BLUE SPICE, L.L.C., SECTION 4(2) / 144A 3.15%, 07/13/05 3,000 2,997 * CC(USA), INC., SECTION 3C7 / 144A 3.13%, 07/22/05 4,000 3,993 + CITIGROUP FUNDING, INC. 3.11%, 07/01/05 5,000 5,000 CITIGROUP GLOBAL MARKETS HOLDINGS, INC. 3.17%, 08/02/05 7,000 6,980 3.46%, 11/30/05 5,700 5,618 *+ CLIPPER RECEIVABLES CO., SECTION 4(2) / 144A 3.08%, 07/05/05 4,000 3,999 3.11%, 07/21/05 2,000 1,997 *+ CONCORD MINUTEMEN CAPITAL CO., SERIES A SECTION 3C7 / 144A 2.78%, 07/06/05 1,000 1,000 *+ CROWN POINT CAPITAL CO., L.L.C., SECTION 4(2) / 144A 3.09%, 07/12/05 5,000 4,995
8 See financial notes. SCHWAB RETIREMENT ADVANTAGE MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) 3.09%, 07/19/05 1,437 1,435 3.32%, 09/21/05 2,521 2,502 * DAKOTA CP NOTES OF CITIBANK CREDIT CARD ISSUANCE TRUST, SECTION 4(2) / 144A 3.16%, 07/13/05 2,500 2,497 3.17%, 07/25/05 10,000 9,979 3.17%, 07/26/05 4,000 3,991 3.30%, 09/06/05 3,000 2,982 + DANSKE CORP. 3.20%, 08/08/05 2,700 2,691 + DEXIA DELAWARE L.L.C. 3.17%, 08/02/05 1,000 997 *+ EIFFEL FUNDING, L.L.C., SECTION 4(2) / 144A 3.26%, 07/21/05 2,000 1,996 3.17%, 07/27/05 3,000 2,993 *+ FAIRWAY FINANCE CO., L.L.C., SECTION 4(2) / 144A 2.96%, 07/28/05 1,000 998 3.23%, 09/12/05 1,294 1,286 *+ FALCON ASSET SECURITIZATION CORP., SECTION 4(2) / 144A 3.18%, 07/18/05 4,000 3,994 3.19%, 07/18/05 1,155 1,153 3.19%, 07/19/05 1,309 1,307 * GALAXY FUNDING, INC., SECTION 4(2) / 144A 3.12%, 07/26/05 1,000 998 GENERAL ELECTRIC CAPITAL CORP. 2.86%, 07/21/05 6,000 5,991 * GIRO FUNDING U.S. CORP., SECTION 4(2) / 144A 3.13%, 07/08/05 7,000 6,996 *+ GRAMPIAN FUNDING, LLC., SECTION 4(2) / 144A 3.60%, 12/20/05 1,000 983 * GREY HAWK FUNDING L.L.C., SECTION 4(2) / 144A 3.15%, 07/11/05 1,000 999 + HBOS TREASURY SERVICES, PLC 3.17%, 07/28/05 1,450 1,447 3.26%, 07/28/05 4,700 4,689 + ING (U.S.) FUNDING, L.L.C. 3.25%, 07/20/05 5,000 4,991 IRISH LIFE & PERMANENT, PLC, SECTION 4(2) / 144A 3.45%, 11/10/05 3,000 2,963 *+ JUPITER SECURITIZATION CORP., SECTION 4(2) / 144A 3.13%, 07/13/05 10,000 9,990 3.16%, 07/18/05 1,000 998 * K2 (USA), L.L.C., SECTION 3C7 / 144A 3.38%, 11/08/05 6,000 5,928 + KBC FINANCIAL PRODUCTS INTERNATIONAL, LTD., SECTION 4(2) / 144A 3.37%, 10/12/05 5,000 4,953 *+ LEXINGTON PARKER CAPITAL CO., L.L.C., SECTION 4(2) / 144A 2.98%, 08/08/05 3,000 2,991 3.07%, 08/23/05 5,000 4,978 * MANE FUNDING CORP., SECTION 4(2) / 144A 3.31%, 07/27/05 6,000 5,986 MORGAN STANLEY 3.15%, 07/19/05 4,000 3,994 3.23%, 07/20/05 6,000 5,990 3.25%, 07/26/05 2,000 1,995 * NEWCASTLE CERTIFICATES PROGRAM, SERIES 2000A SECTION 4(2) / 144A 3.20%, 07/18/05 1,000 998 *+ NIEUW AMSTERDAM RECEIVABLES CORP., SECTION 4(2) / 144A 2.89%, 07/13/05 3,932 3,928 *+ PARK AVENUE RECEIVABLES CORP. L.L.C., SECTION 4(2) / 144A 3.16%, 07/18/05 5,000 4,993 * PARK GRANADA, L.L.C., SECTION 4(2) / 144A 3.30%, 07/12/05 3,000 2,997 3.20%, 08/01/05 1,000 997 *+ PREFERRED RECEIVABLES FUNDING CORP., SECTION 4(2) / 144A 3.13%, 07/14/05 10,340 10,328 RABOBANK USA FINANCIAL CORP. 3.19%, 07/26/05 3,000 2,993 *+ SCALDIS CAPITAL LTD., SECTION 4(2) / 144A 2.86%, 07/15/05 2,000 1,998 3.33%, 09/15/05 3,711 3,685 3.32%, 09/21/05 1,679 1,666 *+ SIGMA FINANCE, INC., SECTION 3C7 / 144A 3.09%, 07/13/05 2,000 1,998 3.46%, 11/21/05 1,000 986 SKANDINAVISKA ENSKILDA BANKEN AB 3.11%, 07/13/05 3,300 3,297 THE GOLDMAN SACHS GROUP, INC. 3.47%, 11/21/05 2,000 1,973 *+ THUNDER BAY FUNDING, L.L.C. SECTION 4(2) / 144A 3.07%, 07/01/05 2,865 2,865
See financial notes. 9 SCHWAB RETIREMENT ADVANTAGE MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) *+ TICONDEROGA FUNDING, LLC., SECTION 4(2) / 144A 3.26%, 07/22/05 5,000 4,991 *+ TRIPLE A-ONE FUNDING CORP., SECTION 4(2) / 144A 3.26%, 07/25/05 3,000 2,993 + UBS FINANCE (DELAWARE) INC. 3.08%, 07/08/05 5,000 4,997 3.09%, 07/22/05 7,000 6,987 + WESTPAC CAPITAL CORP. 3.47%, 11/28/05 8,000 7,886 *+ WINDMILL FUNDING CORP., SECTION 4(2) / 144A 3.17%, 07/18/05 9,000 8,987 ----------- 277,134 CERTIFICATES OF DEPOSIT 21.9% -------------------------------------------------------------------------- ALLIANCE & LEICESTER, PLC 3.32%, 10/18/05 3,000 2,997 BANCO BILBAO VIZCAYA ARGENTARIA S.A. 3.46%, 11/28/05 5,000 5,000 BARCLAYS BANK PLC 3.57%, 12/19/05 4,000 4,000 BNP PARIBAS 3.30%, 09/12/05 9,000 9,000 3.46%, 11/28/05 6,000 6,000 CALYON 2.95%, 08/10/05 2,000 2,000 3.40%, 11/10/05 2,000 2,000 CANADIAN IMPERIAL BANK OF COMMERCE 2.72%, 07/05/05 10,000 10,000 CITIBANK, N.A. 3.27%, 08/31/05 7,000 7,000 CREDIT SUISSE FIRST BOSTON 3.19%, 08/09/05 11,000 11,000 DANSKE BANK A/S 3.23%, 07/26/05 3,000 3,000 DEPFA BANK, PLC 3.11%, 09/01/05 2,000 2,000 DEXIA CREDIT LOCAL 3.23%, 07/22/05 3,000 3,000 HSBC BANK, PLC 3.11%, 07/25/05 2,000 2,000 3.03%, 08/22/05 5,000 5,000 HSBC BANK, USA 3.44%, 11/21/05 3,000 3,000 LANDESBANK HESSEN-THURINGEN GIROZENTRALE 3.15%, 09/12/05 3,000 3,000 LLOYDS TSB BANK, PLC 3.45%, 11/17/05 6,000 6,000 3.46%, 12/01/05 2,000 2,000 MIZUHO CORP. BANK, LTD. 3.21%, 08/08/05 5,000 5,000 ROYAL BANK OF SCOTLAND, PLC 2.17%, 07/01/05 3,000 3,000 SKANDINAVISKA ENSKILDA BANKEN AB 3.20%, 07/22/05 3,000 3,000 SOCIETE GENERALE 3.23%, 09/23/05 5,000 5,000 3.37%, 11/09/05 2,000 2,000 SVENSKA HANDELSBANKEN AB 3.11%, 07/14/05 10,000 10,000 TORONTO DOMINION BANK 3.44%, 11/09/05 2,000 1,999 3.45%, 11/28/05 4,000 4,000 3.47%, 12/05/05 1,000 1,000 U.S. BANK, N.A. 3.34%, 10/03/05 3,000 3,000 UBS, AG 2.71%, 07/08/05 5,000 5,000 UNICREDITO ITALIANO SPA 3.42%, 11/02/05 3,000 3,000 WASHINGTON MUTUAL BANK, FA 3.44%, 11/22/05 4,500 4,500 WELLS FARGO BANK, N.A. 3.27%, 07/12/05 6,000 6,000 ----------- 144,496 BANK NOTES 2.3% -------------------------------------------------------------------------- BANK OF AMERICA, N.A. 2.98%, 08/19/05 10,000 10,000 2.98%, 08/23/05 5,000 5,000 ----------- 15,000
10 See financial notes. SCHWAB RETIREMENT ADVANTAGE MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) PROMISSORY NOTES 0.7% -------------------------------------------------------------------------- o THE GOLDMAN SACHS GROUP, INC. 2.85%, 07/06/05 5,000 5,000 VARIABLE-RATE OBLIGATIONS 16.0% of net assets BARCLAYS BANK, PLC 3.07%, 07/05/05 1,000 1,000 3.26%, 08/01/05 14,000 13,998 + BMC SPECIAL CARE FACILITIES FINANCING AUTHORITY OF THE CITY OF MONTGOMERY, ALABAMA Taxable RB (Montgomery Baptist Outreach Services Corp. Project) Series 1997A 3.34%, 07/07/05 7,800 7,800 Taxable RB (Montgomery Baptist Outreach Services Corp. Project) Series 1997B 3.34%, 07/07/05 2,005 2,005 * CC (USA), INC., SECTION 3C7 / 144A 3.27%, 07/22/05 5,286 5,286 + CITY OF NEW BRITAIN, CONNECTICUT GO Series 2000C 3.34%, 07/07/05 3,500 3,500 * DORADA FINANCE, INC., SECTION 3C7 / 144A 3.17%, 07/14/05 3,000 3,000 FANNIE MAE 2.99%, 07/05/05 3,000 2,999 3.21%, 07/29/05 10,000 9,999 FEDERAL HOME LOAN BANK 3.05%, 07/05/05 2,000 2,000 HSH NORDBANK, AG 3.12%, 07/11/05 3,000 3,000 LANDESBANK BADEN-WURTTEMBERG 3.10%, 07/07/05 5,000 4,999 3.15%, 07/13/05 3,000 3,000 * LIBERTY LIGHTHOUSE U.S. CAPITAL CO. L.L.C. 4(2) / 144A 3.29%, 07/29/05 3,000 3,000 + LOANSTAR ASSETS PARTNERS II, L.P. 3.32%, 07/07/05 5,000 5,000 + MARTINEZ, CALIFORNIA M/F Housing Revenue Refunding Bond (Muirwood Garden Apartments) Series 2003A-T 3.30%, 07/07/05 2,800 2,800 + NEW YORK CITY IDA Taxable Industrial Revenue Refunding Bond (Allway Tools, Inc. Project) Series 1997 3.39%, 07/07/05 165 165 NORDDEUTSCHE LANDESBANK GIROZENTRALE 3.17%, 07/14/05 4,000 3,999 + PALM SPRINGS, CALIFORNIA COP (Downtown Parking Project) Series 2002A 3.36%, 07/07/05 8,000 8,000 ROYAL BANK OF SCOTLAND, PLC 3.09%, 07/05/05 3,000 3,000 3.36%, 07/29/05 5,000 4,999 * SIGMA FINANCE, INC., SECTION 3C7 / 144A 3.28%, 08/01/05 4,000 4,000 o THE GOLDMAN SACHS GROUP, INC. 3.32%, 07/22/05 6,000 6,000 *+ WACHOVIA ASSET SECURITIZATION, INC., / 144A Series 2004-HMIA Class A 3.30%, 07/25/05 2,523 2,523 ----------- 106,072
MATURITY AMOUNT SECURITY ($ x 1,000) OTHER INVESTMENTS 17.0% of net assets REPURCHASE AGREEMENTS 17.0% -------------------------------------------------------------------------- CREDIT SUISSE FIRST BOSTON L.L.C. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $94,132 3.40%, issued 06/30/05, due 07/01/05 92,292 92,283
See financial notes. 11 SCHWAB RETIREMENT ADVANTAGE MONEY FUND PORTFOLIO HOLDINGS continued
MATURITY AMOUNT VALUE SECURITY ($ x 1,000) ($ x 1,000) UBS FINANCIAL SERVICES, INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $20,405 3.21%, issued 06/23/05, due 07/07/05 20,025 20,000 ----------- 112,283
END OF INVESTMENTS.
ISSUER COST/ RATE, ACQUISITION DATE, FACE AMOUNT VALUE MATURITY DATE ($ x 1,000) ($ x 1,000) AT 06/30/05, PORTFOLIO HOLDINGS INCLUDED ILLIQUID AND/OR RESTRICTED SECURITIES AS FOLLOWS: BLUE SPICE, L.L.C. SECTION 4(2) / 144A 3.15%, 06/10/05, 07/13/05 3,000 2,997 THE GOLDMAN SACHS GROUP, INC. 2.85%, 01/06/05, 07/06/05 5,000 5,000 3.32%, 02/22/05, 07/22/05 6,000 6,000 ----------- 11,000
12 See financial notes. SCHWAB RETIREMENT ADVANTAGE MONEY FUND Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $547,702 a Repurchase agreements at value 112,283 a Receivables: Fund shares sold 1,046 Interest 1,229 Prepaid expenses + 28 ---------- TOTAL ASSETS 662,288 LIABILITIES -------------------------------------------------------------------------------- Payables: Fund shares redeemed 440 Dividends to shareholders 727 Investment adviser and administrator fees 13 Transfer agent and shareholder service fees 12 Trustees' fees 4 Accrued expenses + 30 ---------- TOTAL LIABILITIES 1,226 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 662,288 TOTAL LIABILITIES - 1,226 ---------- NET ASSETS $661,062 NET ASSETS BY SOURCE Capital received from investors 661,062 NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $661,062 661,120 $1.00
Unless stated, all numbers x 1,000. a The amortized cost of the fund's securities was $659,985. Includes restricted and/or illiquid securities worth $13,997, or 2.1% of the fund's total net assets. Also, includes other restricted but deemed liquid securities comprised of 144A, section 4(2) and 3c7 securities, worth $205,949 or 31.2% of the fund's total net assets. FEDERAL TAX DATA -------------------------------------- COST BASIS OF PORTFOLIO $659,985 See financial notes. 13 SCHWAB RETIREMENT ADVANTAGE MONEY FUND Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Interest $9,100 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 1,257 a Transfer agent and shareholder service fees 728 b Trustees' fees 12 c Custodian and portfolio accounting fees 36 Professional fees 14 Registration fees 21 Other expenses + 6 -------- Total expenses 2,074 Expense reduction - 454 d -------- NET EXPENSES 1,620 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 9,100 NET EXPENSES - 1,620 -------- NET INVESTMENT INCOME 7,480 -------- INCREASE IN NET ASSETS FROM OPERATIONS $7,480
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.05% of the fund's assets; for shareholder services, 0.17% of the fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the annual operating expenses through April 29, 2006, to 0.49% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. 14 See financial notes. SCHWAB RETIREMENT ADVANTAGE MONEY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS --------------------------------------------------------------------------------- 1/1/05-6/30/05 1/1/04-12/31/04 Net investment income $7,480 $6,778 ---------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 7,480 6,778 DISTRIBUTIONS PAID --------------------------------------------------------------------------------- Dividends from net investment income 7,480 6,778 a TRANSACTIONS IN FUND SHARES b --------------------------------------------------------------------------------- Shares sold 159,744 527,193 Shares reinvested 6,630 6,620 Shares redeemed + (185,480) (619,675) ---------------------------------- NET TRANSACTIONS IN FUND SHARES (19,106) (85,862) NET ASSETS --------------------------------------------------------------------------------- Beginning of period 680,168 766,030 Total decrease + (19,106) (85,862) c ---------------------------------- END OF PERIOD $661,062 $680,168
Unless stated, all numbers x 1,000. a The tax-basis components of distributions for the period ended 12/31/04 are: Ordinary income $6,778 Long-term capital gains $-- b Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. c Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. See financial notes. 15 SCHWAB RETIREMENT MONEY FUND(R) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 -------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 0.01 0.01 0.04 0.06 -------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.01) (0.01) (0.04) (0.06) -------------------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 -------------------------------------------------------------------------------------- Total return (%) 1.03 1 0.77 0.58 1.30 3.75 5.90 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.67 2 0.66 0.66 0.68 0.70 0.72 3 Gross operating expenses 0.67 2 0.66 0.66 0.68 0.70 0.72 Net investment income 2.09 2 0.76 0.58 1.28 3.61 5.77 Net assets, end of period ($ x 1,000,000) 503 492 578 566 515 399
* Unaudited. 1 Not annualized. 2 Annualized. 3 The ratio of net operating expenses would have been 0.71% if certain non-routine expenses (proxy fees) had not been included. 16 See financial notes. SCHWAB RETIREMENT MONEY FUND PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, 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 reviewed 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 the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. * Asset-backed security + Credit-enhanced security o Illiquid and/or restricted security For fixed-rate obligations, the rate shown is the effective yield at the time of purchase, except for U.S. government agency coupon notes and 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. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date. For variable-rate obligations without demand features, the maturity shown is the next interest rate change date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 71.7% FIXED-RATE OBLIGATIONS 361,046 361,046 15.5% VARIABLE-RATE OBLIGATIONS 77,895 77,895 13.2% OTHER INVESTMENTS 66,693 66,693 -------------------------------------------------------------------------------- 100.4% TOTAL INVESTMENTS 505,634 505,634 (0.4)% OTHER ASSETS AND LIABILITIES (2,184) -------------------------------------------------------------------------------- 100.0% NET ASSETS 503,450
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) FIXED-RATE OBLIGATIONS 71.7% of net assets COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 46.4% ------------------------------------------------------------------------- AB SPINTAB 2.95%, 08/08/05 3,000 2,991 ALLIANCE & LEICESTER, PLC, SECTION 4(2) / 144A 3.15%, 09/08/05 1,000 994 *+ AMSTERDAM FUNDING CORP., SECTION 4(2) / 144A 3.11%, 07/12/05 6,000 5,994 *+ AQUINAS FUNDING, L.L.C., SECTION 4(2) / 144A 2.85%, 07/12/05 1,000 999 3.61%, 12/22/05 1,000 983 *+ ASAP FUNDING LTD., SECTION 4(2) / 144A 3.17%, 07/11/05 2,000 1,998 3.29%, 08/02/05 2,000 1,994 *+ ATLANTIC ASSET SECURITIZATION CORP., SECTION 4(2) / 144A 3.18%, 07/14/05 3,000 2,997 * ATLANTIS ONE FUNDING CORP., SECTION 4(2) / 144A 2.87%, 07/22/05 3,000 2,995 2.98%, 08/11/05 4,000 3,987 3.25%, 09/20/05 2,000 1,986 3.39%, 11/16/05 1,000 987 3.44%, 11/18/05 2,000 1,974 BANK OF AMERICA CORP. 3.31%, 10/06/05 5,000 4,956 *+ BARTON CAPITAL CORP 3.16%, 07/14/05 6,000 5,993 *+ BETA FINANCE, INC., SECTION 3C7 / 144A 3.43%, 09/28/05 1,500 1,487 *+o BLUE SPICE, L.L.C., SECTION 4(2) / 144A 3.15%, 07/13/05 2,000 1,998 + CBA (DELAWARE) FINANCE, INC. 3.31%, 07/29/05 1,000 997 CITIGROUP GLOBAL MARKETS HOLDINGS, INC. 3.17%, 08/02/05 5,000 4,986 *+ CLIPPER RECEIVABLES CO., SECTION 4(2) / 144A 3.11%, 07/21/05 2,000 1,997 *+ CONCORD MINUTEMEN CAPITAL CO., SERIES 2000A SECTION 3C7 / 144A 2.83%, 07/06/05 3,000 2,999 3.01%, 08/18/05 2,000 1,992
See financial notes. 17 SCHWAB RETIREMENT MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) *+ CROWN POINT CAPITAL CO., L.L.C., SECTION 4(2) / 144A 3.09%, 07/19/05 5,799 5,790 3.17%, 07/26/05 1,000 998 3.44%, 11/16/05 1,000 987 * DAKOTA CP NOTES OF CITIBANK CREDIT CARD ISSUANCE TRUST, SECTION 4(2) / 144A 3.16%, 07/13/05 1,000 999 3.17%, 07/26/05 7,000 6,985 3.30%, 09/06/05 7,000 6,957 + DANSKE CORP. 3.17%, 08/02/05 5,150 5,136 3.20%, 08/08/05 2,000 1,993 + DEXIA DELAWARE L.L.C. 3.20%, 08/09/05 1,000 997 DNB NOR BANK ASA 3.17%, 07/14/05 1,200 1,199 *+ EIFFEL FUNDING, L.L.C., SECTION 4(2) / 144A 3.17%, 07/27/05 2,000 1,995 * GALAXY FUNDING, INC., SECTION 4(2) / 144A 3.05%, 07/01/05 5,000 5,000 3.12%, 07/26/05 1,000 998 GENERAL ELECTRIC CAPITAL CORP. 2.86%, 07/21/05 3,000 2,995 * GIRO FUNDING U.S. CORP., SECTION 4(2) / 144A 3.13%, 07/08/05 5,000 4,997 *+ GRAMPIAN FUNDING, LLC., SECTION 4(2) / 144A 3.60%, 12/20/05 3,000 2,949 + ING (U.S.) FUNDING, L.L.C. 3.25%, 07/20/05 2,000 1,997 3.17%, 08/03/05 2,700 2,692 3.20%, 08/03/05 1,400 1,396 IRISH LIFE & PERMANENT, PLC, SECTION 4(2) / 144A 3.29%, 09/07/05 2,000 1,988 + IXIS COMMERCIAL PAPER CORP., SECTION 4(2) / 144A 3.20%, 08/12/05 3,000 2,989 *+ JUPITER SECURITIZATION CORP., SECTION 4(2) / 144A 3.13%, 07/13/05 7,000 6,993 3.18%, 08/05/05 1,339 1,335 * K2 (USA), L.L.C., SECTION 3C7 / 144A 2.92%, 07/07/05 2,000 1,999 2.84%, 07/15/05 2,000 1,998 3.25%, 09/19/05 1,000 993 *+ KITTY HAWK FUNDING CORP., SECTION 4(2) / 144A 3.18%, 07/15/05 6,000 5,993 *+ LEXINGTON PARKER CAPITAL CO., L.L.C., SECTION 4(2) / 144A 2.98%, 08/08/05 2,000 1,994 3.22%, 08/08/05 2,000 1,993 3.07%, 08/23/05 2,000 1,991 * MANE FUNDING CORP., SECTION 4(2) / 144A 3.31%, 09/08/05 3,107 3,087 MORGAN STANLEY 3.19%, 07/20/05 2,000 1,997 3.23%, 07/20/05 2,000 1,997 3.25%, 07/26/05 3,000 2,993 * NEWCASTLE CERTIFICATES PROGRAM, SERIES 2000A SECTION 4(2) / 144A 3.21%, 07/11/05 1,000 999 *+ PARK AVENUE RECEIVABLES CORP. L.L.C., SECTION 4(2) / 144A 3.16%, 07/18/05 5,000 4,993 * PARK GRANADA, L.L.C., SECTION 4(2) / 144A 3.26%, 07/25/05 4,000 3,991 *+ PREFERRED RECEIVABLES FUNDING CORP., SECTION 4(2) / 144A 3.13%, 07/14/05 8,000 7,991 *+ RANGER FUNDING CO. L.L.C., SECTION 4(2) / 144A 3.19%, 07/19/05 8,000 7,987 *+ SCALDIS CAPITAL LTD., SECTION 4(2) / 144A 2.84%, 07/11/05 1,896 1,895 2.86%, 07/15/05 2,000 1,998 3.33%, 09/27/05 4,986 4,946 *+ SIGMA FINANCE, INC., SECTION 3C7 / 144A 3.08%, 07/12/05 4,000 3,996 SKANDINAVISKA ENSKILDA BANKEN AB 2.81%, 07/12/05 2,000 1,998 3.25%, 09/16/05 2,000 1,986 *+ TICONDEROGA FUNDING, LLC., SECTION 4(2) / 144A 3.26%, 07/22/05 4,000 3,992 *+ TRIPLE A-ONE FUNDING CORP., SECTION 4(2) / 144A 3.09%, 07/05/05 1,577 1,576 3.26%, 07/25/05 1,306 1,303 + UBS FINANCE (DELAWARE) INC. 3.16%, 07/11/05 2,000 1,998 3.09%, 07/22/05 7,000 6,987 3.24%, 07/25/05 3,000 2,994
18 See financial notes. SCHWAB RETIREMENT MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) + WESTPAC CAPITAL CORP. 3.47%, 11/28/05 6,000 5,915 *+ WINDMILL FUNDING CORP., SECTION 4(2) / 144A 3.17%, 07/18/05 4,000 3,994 3.23%, 07/21/05 1,000 998 *+ YORKTOWN CAPITAL, L.L.C., SECTION 4(2) / 144A 3.16%, 07/11/05 4,334 4,330 3.13%, 07/15/05 1,000 999 ----------- 233,550 CERTIFICATES OF DEPOSIT 23.9% ------------------------------------------------------------------------- ALLIANCE & LEICESTER, PLC 3.32%, 10/18/05 2,000 1,998 3.58%, 12/20/05 1,000 1,000 AMERICAN EXPRESS CENTURION BANK 3.30%, 09/06/05 2,500 2,500 BANCO BILBAO VIZCAYA ARGENTARIA S.A 3.46%, 11/28/05 5,000 5,000 BANK OF THE WEST 3.33%, 09/27/05 4,000 4,000 BANK OF TOKYO-MITSUBISHI, LTD 3.27%, 07/27/05 5,000 5,000 BARCLAYS BANK PLC 3.57%, 12/19/05 4,000 4,000 BNP PARIBAS 3.30%, 09/12/05 5,000 5,000 3.46%, 11/28/05 2,000 2,000 CALYON 3.37%, 11/09/05 5,000 5,000 CANADIAN IMPERIAL BANK OF COMMERCE 2.72%, 07/05/05 7,000 7,000 CITIBANK, N.A 3.27%, 08/31/05 6,000 6,000 CREDIT SUISSE FIRST BOSTON 3.15%, 07/29/05 5,000 5,000 3.19%, 08/09/05 3,000 3,000 DEPFA BANK, PLC 3.11%, 09/01/05 2,000 2,000 DEXIA CREDIT LOCAL 3.23%, 07/22/05 4,000 4,000 DNB NOR BANK ASA 3.25%, 09/22/05 2,000 2,000 HSBC BANK, PLC 3.11%, 07/25/05 3,000 3,000 HSBC BANK, USA 3.44%, 11/21/05 5,000 4,999 LANDESBANK HESSEN-THURINGEN GIROZENTRALE 3.15%, 09/12/05 2,000 2,000 LLOYDS TSB BANK, PLC 3.45%, 11/17/05 5,000 5,000 MIZHO CORP. BANK, LTD. 3.14%, 07/19/05 5,000 5,000 ROYAL BANK OF SCOTLAND, PLC 2.17%, 07/01/05 2,000 2,000 3.25%, 07/28/05 3,000 3,000 SKANDINAVISKA ENSKILDA BANKEN AB 3.20%, 07/22/05 1,000 1,000 SOCIETE GENERALE 3.23%, 09/23/05 5,000 5,000 SVENSKA HANDELSBANKEN AB 3.19%, 08/10/05 7,000 7,000 TORONTO DOMINION BANK 3.44%, 11/09/05 2,000 1,999 3.45%, 11/28/05 2,000 2,000 U.S. BANK, N.A. 3.32%, 10/11/05 2,000 2,000 UNICREDITO ITALIANO SPA 3.42%, 11/02/05 3,000 3,000 WASHINGTON MUTUAL BANK, FA 3.44%, 11/22/05 4,000 4,000 WELLS FARGO BANK, N.A. 3.26%, 07/07/05 5,000 5,000 ----------- 120,496 PROMISSORY NOTES 0.8% ------------------------------------------------------------------------- o THE GOLDMAN SACHS GROUP, INC. 2.85%, 07/06/05 4,000 4,000 BANK NOTES 0.6% ------------------------------------------------------------------------- BANK OF AMERICA, N.A. 2.98%, 08/23/05 3,000 3,000
See financial notes. 19 SCHWAB RETIREMENT MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) VARIABLE-RATE OBLIGATIONS 15.5% of net assets BARCLAYS BANK, PLC 3.13%, 07/11/05 3,000 2,999 3.21%, 07/21/05 1,000 1,000 3.26%, 07/29/05 6,000 5,999 BNP PARIBAS 3.18%, 07/18/05 1,000 1,000 + CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY Solid Waste Disposable RB (Burr Properties Project) Series 1998B 3.44%, 07/07/05 1,760 1,760 * CC (USA), INC., SECTION 3C7 / 144A 3.27%, 07/25/05 4,000 4,000 + COLUMBUS, GEORGIA DEVELOPMENT AUTHORITY Taxable RB (Jay Leasing, Inc. Project) Series 1997 3.36%, 07/07/05 1,790 1,790 * DORADA FINANCE, INC., SECTION 3C7 / 144A 3.20%, 07/15/05 3,000 3,000 + EAGLE COUNTY, COLORADO TAXABLE HOUSING FACILITIES RB (BC Housing, L.L.C. Project) Series 1997B 3.34%, 07/07/05 1,500 1,500 FANNIE MAE 2.99%, 07/05/05 2,000 2,000 3.21%, 07/29/05 10,000 9,999 FEDERAL HOME LOAN BANK 3.05%, 07/05/05 3,000 3,000 + HBOS Treasury Service, PLC 3.27%, 07/26/05 2,000 2,000 HSH NORDBANK, AG 3.12%, 07/11/05 2,000 2,000 LANDESBANK BADEN-WURTTEMBERG 3.10%, 07/07/05 5,000 4,999 3.15%, 07/15/05 2,000 2,000 * LIBERTY LIGHTHOUSE U.S. CAPITAL CO. L.L.C. 4(2) / 144A 3.29%, 07/29/05 2,000 2,000 + LP PINEWOODS SPV 3.34%, 07/07/05 15,000 15,000 NORDDEUTSCHE LANDESBANK GIROZENTRALE 3.17%, 07/14/05 2,000 2,000 ROYAL BANK OF SCOTLAND, PLC 3.26%, 07/27/05 3,000 2,999 o THE GOLDMAN SACHS GROUP, INC. 3.32%, 07/22/05 5,000 5,000 + TRAP ROCK INDUSTRIES, INC. RB Series 1997 3.36%, 07/07/05 1,040 1,040 + VILLAGE OF STURTEVANT, WISCONSIN IDRB (Andis Co. Project) Series 1996B 3.42%, 07/07/05 810 810 ----------- 77,895
MATURITY AMOUNT SECURITY ($ x 1,000) OTHER INVESTMENTS 13.2% of net assets REPURCHASE AGREEMENTS 13.2% ------------------------------------------------------------------------- CREDIT SUISSE FIRST BOSTON L.L.C. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $68,029 3.40%, issued 06/30/05, due 07/01/05 66,700 66,693
END OF INVESTMENTS.
ISSUER COST/ RATE, ACQUISITION DATE FACE AMOUNT VALUE MATURITY DATE ($ x 1,000) ($ x 1,000) AT 06/30/05, PORTFOLIO HOLDINGS INCLUDED RESTRICTED AND/OR ILLIQUID SECURITIES AS FOLLOWS: BLUE SPICE, L.L.C. SECTION 4(2) / 144A 3.15%, 06/10/05, 07/13/05 2,000 1,998 THE GOLDMAN SACHS GROUP, INC 2.85%, 01/06/05, 07/06/05 4,000 4,000 3.32%, 03/22/05, 07/22/05 5,000 5,000 ----------- 9,000
20 See financial notes. SCHWAB RETIREMENT MONEY FUND Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $438,941 a Repurchase agreements at value 66,693 a Receivables: Fund shares sold 195 Interest 824 Prepaid expenses + 48 ----------- TOTAL ASSETS 506,701 LIABILITIES -------------------------------------------------------------------------------- Payables: Fund shares redeemed 2,673 Dividends to shareholders 526 Investment adviser and administrator fees 16 Transfer agent and shareholder service fees 10 Trustees' fees 2 Accrued expenses + 24 ----------- TOTAL LIABILITIES 3,251 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 506,701 TOTAL LIABILITIES - 3,251 ----------- NET ASSETS $503,450 NET ASSETS BY SOURCE Capital received from investors 503,450 NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $503,450 503,508 $1.00
Unless stated, all numbers x 1,000. a The amortized cost of the fund's securities was $505,634. Includes restricted and/or illiquid securities worth $10,998, or 2.2% of the fund's total net assets. Also, includes other restricted but deemed liquid securities comprised of 144A, section 4(2) and 3c7 securities, worth $173,539 or 34.5% of the fund's total net assets. FEDERAL TAX DATA --------------------------------------- COST BASIS OF PORTFOLIO $505,634 See financial notes. 21 SCHWAB RETIREMENT MONEY FUND Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Interest $6,813 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 939 a Transfer agent and shareholder service fees 618 b Trustees' fees 12 c Custodian and portfolio accounting fees 29 Professional fees 14 Registration fees 22 Shareholder reports 12 Other expenses + 5 --------- TOTAL EXPENSES 1,651 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 6,813 TOTAL EXPENSES - 1,651 --------- NET INVESTMENT INCOME 5,162 --------- INCREASE IN NET ASSETS FROM OPERATIONS $5,162
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Mangement, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.05% of the fund's assets; for shareholder services, 0.20% of the fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. 22 See financial notes. SCHWAB RETIREMENT MONEY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS -------------------------------------------------------------------------------- 1/1/05-6/30/05 1/1/04-12/31/04 Net investment income $5,162 $4,155 ---------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 5,162 4,155 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income 5,162 4,155 a TRANSACTIONS IN FUND SHARES b -------------------------------------------------------------------------------- Shares sold 162,708 321,230 Shares reinvested 4,591 4,104 Shares redeemed + (156,194) (410,657) ---------------------------------- NET TRANSACTIONS IN FUND SHARES 11,105 (85,323) NET ASSETS -------------------------------------------------------------------------------- Beginning of period 492,345 577,668 Total increase or decrease + 11,105 (85,323) c ---------------------------------- END OF PERIOD $503,450 $492,345
Unless stated, all numbers x 1,000. a The tax-basis components of distributions for the period ended 12/31/04 are: Ordinary income $4,155 Long-term capital gains $-- b Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. c Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. See financial notes. 23 SCHWAB RETIREMENT ADVANTAGE MONEY FUND AND SCHWAB RETIREMENT MONEY FUND FINANCIAL NOTES unaudited BUSINESS STRUCTURE OF THE FUNDS EACH OF THE FUNDS DISCUSSED IN THIS REPORT IS A SERIES OF THE CHARLES SCHWAB FAMILY OF FUNDS, A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended. The sidebar shows the funds in this report and their trust. THE FUNDS OFFER ONE SHARE CLASS. For these funds, 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 trust may issue as many shares as necessary. FUND OPERATIONS Most of the funds' investments are described in the sections earlier in this report. However, there are certain other fund operations and policies that may affect a fund's financials, as described below. Other policies concerning the funds' business operations also are described here. THE FUNDS DECLARE DIVIDENDS EVERY DAY THEY ARE OPEN FOR BUSINESS. These dividends, which are equal to a fund's net investment income for that day, are paid out to shareholders once a month. The funds may make distributions from any net realized capital gains once a year. THE FUNDS 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, a fund 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. 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. Any repurchase agreements with due dates later than seven days from issue dates may be subject to seven day put features for liquidity purposes. The funds' repurchase agreements will be fully collateralized by U.S. government 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. THE FUNDS PAY FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES. Through their trust, the funds have agreements with Charles Schwab Investment Management, Inc. (CSIM) to provide investment advisory and administrative services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent and shareholder services. THE TRUST AND ITS FUNDS This list shows all of the funds included in The Charles Schwab Family of Funds. The funds discussed in this report 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 Municipal Money Fund Schwab California Municipal Money Fund Schwab New York Municipal Money Fund Schwab New Jersey Municipal Money Fund Schwab Pennsylvania Municipal Money Fund Schwab Florida Municipal Money Fund Schwab Massachusetts Municipal Money Fund SCHWAB RETIREMENT ADVANTAGE MONEY FUND SCHWAB RETIREMENT MONEY FUND Schwab Government Cash Reserves Schwab Advisor Cash Reserves Schwab Cash Reserves 24 SCHWAB RETIREMENT ADVANTAGE MONEY FUND AND SCHWAB RETIREMENT MONEY FUND Although these agreements specify certain fees for these services, CSIM and Schwab have made additional agreements with the funds that may limit the total expenses charged. The rates and limitations for these fees vary from fund to fund, and are described in each fund's Statement of Operations. THE FUNDS MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. The funds may make direct transactions with certain other Schwab Funds(R) 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. Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions within the 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. 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. THE FUNDS MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The funds may obtain temporary bank loans through the trust to which the funds belong, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The Schwab Funds have custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A., respectively. The funds pay interest on the amounts they borrow at rates that are negotiated periodically. There was no borrowing for any funds during the period. 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 net realized 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. UNDER THE FUNDS' ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE INDEMNIFIED AGAINST CERTAIN LIABILITY 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. ACCOUNTING POLICIES The following are the main policies the funds use in preparing their financial statements. THE FUNDS VALUE THEIR SECURITIES AT AMORTIZED COST, which approximates market value. SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the security is executed. 25 SCHWAB RETIREMENT ADVANTAGE MONEY FUND AND SCHWAB RETIREMENT MONEY FUND INTEREST INCOME is recorded as it accrues. If a fund buys a debt instrument at a discount (that is, for less than its 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. REALIZED GAINS AND LOSSES from security transactions are based on the identified costs of the securities involved. EXPENSES that are specific to a fund or a class are charged directly to that fund or class. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets. 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 also may keep certain assets in segregated accounts, as required by securities law. THE ACCOUNTING POLICIES DESCRIBED ABOVE CONFORM WITH 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. 26 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 advisory agreement. In addition, the Securities and Exchange Commission (the "SEC") takes the position that, as part of their fiduciary duties with respect to fund fees, fund boards are required to evaluate the material factors applicable to a decision to approve an investment advisory agreement. Consistent with these responsibilities, the Board of Trustees (the "Board") 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 CSIM (the "Agreement") with respect to existing funds in the Trust, including the Schwab Retirement Advantage Money Fund and Schwab Retirement 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 trustees also receive a memorandum from fund counsel regarding the responsibilities of trustees for the approval of investment advisory contracts. In addition, the Independent Trustees receive advice from independent counsel to the Independent Trustees, meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM. At the May 24, 2005 meeting of the Board, the trustees, including a majority of the Independent Trustees, approved the renewal of the Agreement on an interim basis through September 30, 2005. The Board's approval of the Agreement was based on consideration and evaluation of a variety of specific factors discussed at that meeting 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 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. 27 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 the fact that Schwab's extensive branch network, Internet access, investment and research tools, telephone services, and array of account features benefit the funds. 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' investors are also brokerage clients of Schwab, and that CSIM and its affiliates are uniquely positioned to provide services and support to the funds and such shareholders. 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 interim renewal of the Agreement. FUND PERFORMANCE. The Board considered fund performance in determining whether to renew the Agreement. Specifically, the trustees considered each fund's performance relative to a peer group of other mutual funds and appropriate indices/benchmarks, in light of total return, yield and market trends. As part of this review, the trustees considered the composition of the peer group, selection criteria and the reputation of the third party who prepared the peer group analysis. In evaluating the performance of each fund, the trustees considered both risk and shareholder risk expectations for such fund. Following such evaluation, the Board concluded, within the context of its full deliberations, that the performance of the funds supported interim renewal of the Agreement. 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 voluntary waiver of 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 and offshore funds, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the unique 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 interim renewal of the Agreement. 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 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 con- 28 cluded, within the context of its full deliberations, that the profitability of CSIM is reasonable and supported interim renewal of the Agreement. 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 CSIM's agreement to contractual investment advisory fee schedules which include lower fees at higher graduated asset levels. Based on this evaluation, 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, unanimously approved the interim continuation of the Agreement and concluded that the compensation under the Agreement 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. 29 TRUSTEES AND OFFICERS A fund's Board of Trustees is responsible for protecting the interests of that fund's shareholders. The tables below give information about the people who serve as trustees and officers for the Schwab Funds(R), including the funds covered in this report. Trustees remain in office until they resign, retire or are removed by shareholder vote. 1 Under the Investment Company Act of 1940, any officer, director, or employee of Schwab or CSIM is considered an "interested person," meaning that he or she is considered to have a business interest in Schwab or CSIM. These individuals are listed as "interested trustees." The "independent trustees" are individuals who, under the 1940 Act, are not considered to have a business interest in Schwab or CSIM. Each of the 56 Schwab Funds belongs to one of these trusts: The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently all these trusts have the same trustees and officers. The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. 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. INTERESTED TRUSTEES AND OFFICERS
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ CHARLES R. SCHWAB 2 Chairman, Trustee: Chair, CEO, Director, The Charles Schwab Corp., Charles Schwab & 7/29/37 Family of Funds, 1989; Co., Inc.; Chair, Director, Charles Schwab Investment Management, Investments, 1991; Inc.; Chair, Charles Schwab Holdings (UK); Chair, Director, U.S. Trust Capital Trust, 1993; Corp., United States Trust Co. of New York, U.S. Trust Co., N.A.; Annuity Portfolios, 1994. CEO, Director, Charles Schwab Holdings, Inc.; Chair, CEO Schwab (SIS) Holdings, Inc. I, Schwab International Holdings, Inc.; Director, Charles Schwab Bank, N.A., The Charles and Helen Schwab Foundation, All Kinds of Minds (education); Trustee, Stanford University. Until 5/04: Director, The Gap, Inc. (clothing retailer). Until 5/03: Co-CEO, The Charles Schwab Corp. Until 3/02: Director, Audiobase, Inc. (Internet audio solutions). Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications). Until 7/01: Director, The Charles Schwab Trust Co.
1 The Schwab Funds retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010. 2 In addition to his position with the investment adviser and the distributor, Mr. Schwab also owns stock of The Charles Schwab Corporation. 30 INTERESTED TRUSTEES BUT NOT OFFICERS
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ RANDALL W. MERK 2005 (all trusts). EVP, President, AMPS Enterprise. Until 7/04: President, CEO, 7/25/54 Charles Schwab Investment Management, Inc.; VP, Charles Schwab & Co., Inc. Until 8/02: President, Chief Investment Officer, American Century Management; Director, American Century Companies, Inc. Until 6/01: Chief Investment Officer, Fixed Income, American Century Companies, Inc.
OFFICERS OF THE TRUST
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ EVELYN DILSAVER President, CEO EVP, President, Director, Charles Schwab Investment Management, 5/4/55 (all trusts). Inc. Until 7/04: SVP for Development and Distribution, Asset Management Products and Services Enterprise. Until 6/03: EVP, CFO, Chief Administrative Officer, U.S. Trust. ------------------------------------------------------------------------------------------------------------------------------------ STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment 4/5/55 Officer (all trusts). Management, Inc.; Chief Investment Officer, The Charles Schwab Trust Co. ------------------------------------------------------------------------------------------------------------------------------------ KIMON DAIFOTIS SVP, Chief Investment Since 9/04: Chief Investment Officer, Fixed Income, Charles 7/10/59 Officer (all trusts). Schwab Investment Management, Inc. Since 6/04: SVP, Charles Schwab Investment Management, Inc. Until 6/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ JEFFREY MORTIMER SVP, Chief Investment Since 5/04: SVP, Chief Investment Officer, Equities, Charles Schwab 9/29/63 Officer (all trusts). Investment Management, Inc. Since 6/04: VP, Chief Investment Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 5/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ RANDALL FILLMORE Chief Compliance Since 9/04: SVP, Institutional Compliance and Chief Compliance 11/11/60 Officer (all trusts). Officer, Charles Schwab Investment Management, Inc.; Chief Compliance Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 9/04: VP, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. Until 2002: VP of Internal Audit, Charles Schwab & Co., Inc. Prior to 2000: PricewaterhouseCoopers. ------------------------------------------------------------------------------------------------------------------------------------ KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab 3/13/61 Investment Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco. ------------------------------------------------------------------------------------------------------------------------------------ GEORGE PEREIRA Treasurer, Principal Since 11/04: SVP, CFO, Charles Schwab Investment Management, 6/9/64 Financial Officer Inc. Until 11/04: SVP, Financial Reporting, Charles Schwab & Co., Inc. (all trusts). Until 12/99: CFO, Commerzbank Capital Markets. Until 9/99: Managing Director at the New York Stock Exchange.
31 INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC (real estate); Trustee, Stanford 8/13/60 University, America First Cos., Omaha, NE (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital. Since 2/05: Director, Pacific Mutual Holding Company (insurance). Since 2004: Laudus Trust, Laudus Variable Insurance Trust. Until 2001: Stanford University, Special Assistant to the President. From 1996-2001: VP of Business Affairs, CFO. ------------------------------------------------------------------------------------------------------------------------------------ DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing 9/23/31 Investments, 1991; and communications consulting). Until 1999: EVP, Managing Director, Capital Trust, 1993; Grey Advertising. Until 1996: President, CEO, Allen & Dorward Annuity Portfolios, 1994. Advertising. ------------------------------------------------------------------------------------------------------------------------------------ WILLIAM A. HASLER 2000 (all trusts). Dean Emeritus, Haas School of Business, University of California, 11/22/41 Berkeley; Director, Aphton Corp. (bio-pharmaceuticals); Non- Executive Chair, Solectron Corp. (manufacturing), Mission West Properties (commercial real estate), Stratex Networks (network equipment), TOUSA (home building); Public Governor, Member, executive committee, Pacific Stock & Options Exchange. Since 2004: Trustee, Laudus Trust, Laudus Variable Insurance Trust. Until 2/04: Co-CEO, Aphton Corp. (bio-pharmaceuticals). ------------------------------------------------------------------------------------------------------------------------------------ ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial 5/15/31 Investments, 1991; services and investment advisory firm). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisers); 9/28/50 Trustee, Cooper Industries (electrical products, tools and hardware); Chairman, audit committee, Northern Border Partners, L.P. (energy). ------------------------------------------------------------------------------------------------------------------------------------ DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: 6/28/38 Investments, 1991; Chair, CEO, North American Trust (real estate investment trust). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (real estate investment and 8/18/43 Investments, 1991; management, and other investments). Capital Trust, 1993; Annuity Portfolios, 1994.
32 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. ALTERNATIVE MINIMUM TAX (AMT) A federal income tax designed to limit the extent to which high-income taxpayers (including individuals, estates, trusts and corporations) can benefit from certain deductions and exemptions. For example, some types of income that are exempt from regular federal income tax are not exempt from the AMT. ASSET-BACKED SECURITIES Bonds or other debt securities that represent ownership in a pool of assets such as credit card debt. BOND A security representing a loan from the investor to the issuer. A bond typically pays interest at a fixed rate (the "coupon rate") until a specified date (the "maturity date"), at which time the issuer returns the money borrowed ("principal" or "face value") to the bondholder. Because of their structure, bonds are sometimes called "fixed income securities" or "debt securities." An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond's market value prior to call or maturity. There is no guarantee that a bond's yield to call or maturity will provide a positive return over the rate of inflation. BOND FUND A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund's net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed. BOND ANTICIPATION NOTES Obligations sold by a municipality on an interim basis in anticipation of the municipality's issuance of a longer-term bond in the future. 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, state and local governments 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. 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 limit 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 credit-worthiness 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 principal to its debtholders. PORTFOLIO TERMS To help reduce the space occupied by the portfolio holdings, we use the following terms. Most of them appear within descriptions of individual securities in municipal funds, and describe features of the issuer or the security. Some of these are more fully defined elsewhere in the Glossary. ACES Adjustable convertible extendable security BAN Bond anticipation note COP Certificate of participation GAN Grant anticipation note GO General obligation HDA Housing Development Authority HFA Housing Finance Agency IDA Industrial Development Authority IDB Industrial Development Board IDRB Industrial Development Revenue Bond M/F Multi-family RAN Revenue anticipation note RB Revenue bond S/F Single-family TAN Tax anticipation note TECP Tax-exempt commercial paper TRAN Tax and revenue anticipation note VRD Variable-rate demand 33 DOLLAR-WEIGHTED AVERAGE MATURITY (DWAM) See weighted average maturity. EFFECTIVE YIELD A measurement of a fund's yield that assumes that all dividends were 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 a 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 A security that when tendered is paid from funds advanced by an entity other than the issuer (such as a large financial institution). Liquidity enhancements are often used on variable-rate securities where the portfolio manager has an option to tender the securities prior to their final maturity. MATURITY The date a debt security is scheduled to be "retired" and its principal amount returned to the bondholder. MONEY MARKET SECURITIES High-quality, short-term debt securities that may be issued by entities such as the U.S. government, corporations and financial institutions (such as banks). Money market securities include commercial paper, promissory notes, certificates of deposit, banker's acceptances, notes and time deposits. MUNI, MUNICIPAL BONDS, 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. REVENUE ANTICIPATION NOTES Obligations that are issued in expectation of the receipt of revenue, such as income taxes, property taxes, etc. 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%). TOTAL RETURN The percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested. TAX ANTICIPATION NOTES Notes that typically are sold to finance the cash flow needs of municipalities in anticipation of the receipt of taxes on a future date. 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. WEIGHTED AVERAGE MATURITY For mutual funds, the maturity of all the debt securities in its portfolio, calculated as a weighted average. As a rule, the longer a fund's weighted average maturity, the greater its interest rate risk. Money funds are required to maintain a weighted average maturity of no more than 90 days. YIELD The income paid out by an investment, expressed as a percentage of the investment's market value. 34 NOTES NOTES Schwab Funds(R) offers you a complete 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're 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, and 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. METHODS FOR PLACING ORDERS The following information outlines how Schwab investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET 1 www.schwab.com SCHWAB BY PHONE(TM) 2 Use our automated voice service or speak to a representative. Call 1-800-435-4000, day or night (for TDD service, call 1-800-345-2550). TELEBROKER(R) Use our automated touch-tone phone service at 1-800-272-4922. MAIL Write to Schwab Funds at: P.O. Box 3812 Englewood, CO 80155-3812 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. 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.schwab.com/schwabfunds, 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.schwab.com/schwabfunds or the SEC's website at http://www.sec.gov. 1 Shares of Sweep Investments(TM) may not be purchased directly over the Internet. 2 Orders placed in person or through a telephone representative may be subject to a service fee payable to Schwab. THE SCHWAB FUNDS FAMILY(R) STOCK FUNDS Schwab S&P 500 Index Fund Schwab 1000 Index(R) Fund Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) Schwab Premier Equity Fund(TM) Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) Schwab Financial Services Fund(TM) Schwab Health Care Fund(TM) Schwab Technology Fund(TM) Schwab Institutional Select(R) S&P 500 Fund ASSET ALLOCATION FUNDS 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 2020 Fund Schwab Target 2030 Fund Schwab Target 2040 Fund Schwab Retirement Income Fund BOND FUNDS Schwab YieldPlus Fund(R) Schwab Short-Term Bond Market Fund(TM) Schwab Total Bond Market Fund(TM) Schwab GNMA Fund(TM) Schwab Tax-Free YieldPlus Fund(TM) Schwab Short/Intermediate Tax-Free Bond Fund(TM) Schwab Long-Term Tax-Free Bond Fund(TM) Schwab California Tax-Free YieldPlus Fund(TM) Schwab California Short/Intermediate Tax-Free Bond Fund(TM) Schwab California Long-Term 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 liquidity. 3 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(R). 3 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. [CHARLES SCHWAB LOGO] INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. (Schwab) FUNDS Schwab Funds(R) P.O. Box 3812, Englewood, CO 80155-3812 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)2005 Charles Schwab & Co., Inc. All rights reserved. Member SIPC Printed on recycled paper. MFR13605-09 SCHWAB MONEY MARKET FUND(TM) SEMIANNUAL REPORT June 30, 2005 [CHARLES SCHWAB LOGO] IN THIS REPORT Management's Discussion ................................................ 2 Performance and Fund Facts ............................................. 5 Fund Expenses .......................................................... 6 Financial Statements ................................................... 7 Financial Notes ........................................................ 19 Investment Advisory Agreement Approval ................................. 22 Trustees and Officers .................................................. 25 Glossary ............................................................... 28 Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM). Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab). [PHOTO OF CHARLES SCHWAB] Charles Schwab Chairman FROM THE CHAIRMAN Dear Shareholder, I have always believed that it's important to make sure that your cash is earning income between long-term investments by putting the money into a money market fund. While no investment is risk-free, money market funds carry, perhaps, the least amount of risk, as they generally are not as volatile as stocks or stock mutual funds. Money funds are good choices for investors who want to mitigate the potential fluctuations that may occur in their mostly stock portfolios. At Schwab, we offer a range of money funds with distinct investment strategies. Our municipal money funds, for example, may be beneficial for those of you in the higher tax brackets. We also offer money funds for those interested in the added protection provided by a portfolio of U.S. government securities. In addition, several of the Schwab money funds offer share classes that carry lower expenses in exchange for higher investment minimums. Now, as a result of the Federal Reserve having raised short-term interest rates eight times in the past 12 months (four during the six-month period covered in this report), yields on money market mutual funds are more attractive than they have been in many years. Not only that, but it's likely that the Fed will raise these rates again this year. Based on this expectation, we anticipate that the yields on money market funds will continue to move upwards over the next few months. On behalf of Schwab Funds, I want to thank you for investing with us and remind you that our commitment to our shareholders will never waver. Sincerely, /s/ Charles R. Schwab MANAGEMENT'S DISCUSSION for the six months ended June 30, 2005 [PHOTO OF EVELYN DILSAVER] EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management, Inc. and is president of the funds covered in this report. She joined the firm in 1992 and has held a variety of executive positions at Schwab. Dear Shareholder, When I assumed my new role as President and CEO of Schwab Funds(R) last year, I pledged that I would be committed to offering you more relevant choices and better value. I am pleased to report that we already have done both. On July 1, 2005, Schwab Funds launched the Schwab Target Funds(TM), a suite of five mutual funds to help keep your retirement investments properly allocated over your lifetime. With a single investment in a Schwab Target Fund, you can avoid a common investment mistake--failing to adjust your portfolio over time. The funds are designed to provide shareholders with investment management, asset allocation and ongoing re-allocation over time. You simply choose the fund that most closely matches the date of your retirement and our experienced portfolio managers will do the rest. They will rebalance four of the five funds from more aggressive to more conservative as you get closer to your retirement date. The fifth fund is designed to help generate income and additional growth after you've retired. It also is a good choice for investors already enjoying their retirement. These no-load funds are a good value, as the funds have access to the lowest-priced eligible share class on the underlying Schwab affiliate funds. And because the funds invest in groups of other Schwab affiliate funds, they provide an additional layer of diversification. At Schwab, we believe that having an asset-allocation plan that fits your retirement goals, time frame and tolerance for risk is a key element in meeting your long-term investment goals. The Schwab Target Funds are designed to help you do this. I encourage you to learn more about these funds at www.schwab.com/target, or call Schwab. Thank you for investing in Schwab Funds. Sincerely, /s/ Evelyn Dilsaver Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus carefully before investing. 2 Schwab Money Market Fund [PHOTO OF LINDA KLINGMAN] LINDA KLINGMAN, a vice president of the investment adviser and senior portfolio manager, has overall responsibility for the management of the fund. She joined the firm in 1990 and has managed money market funds since 1988. [PHOTO OF MIKE NEITZKE] MIKE NEITZKE, a portfolio manager, has day-to-day responsibility for management of the fund. Prior to joining the firm in March 2001, he worked for more than 15 years in the financial services industry as a portfolio manager. THE INVESTMENT ENVIRONMENT AND THE FUND Oil prices hit highs never seen before and the Federal Reserve Open Market Committee continued to raise short-term interest rates to curb inflationary pressures, raising rates for the fourth time this year. At the same time, GDP continued to grow at a healthy pace and the housing market remained strong, largely due to low mortgage rates. The firming labor market, as well as steady gains in capital spending, kept the economic expansion on a self-sustaining path. Businesses, unable to continue boosting productivity by restraining hiring, added new jobs during the six-month report period. Moreover, many leading indicators, such as the Institute for Supply Management's business activity surveys, suggested ongoing expansion, while continuing claims for unemployment benefits remained near cyclical lows. Business investments grew only modestly, but consumers continued to spend. In fact, consumer confidence rose to a level not experienced since before September 11, 2001. With consumers in a spending mode and consumer spending comprising about 70% of GDP, first quarter GDP remained strong and retail sales were healthy. In this positive economic environment, strong labor market conditions remained positive for domestic consumption. While high energy prices remained a significant headwind for economic performance, supply no longer was the issue; demand, especially in China, drove prices up. At the end of the six-month report period, a barrel of oil cost $56.50 versus $42.55 at the beginning of 2005. Though high oil and commodity prices could have hampered growth and stirred inflationary pressures, productivity gains, slow growth in the money supply and slack in the economy have mostly kept a lid on core inflation. The productivity gains, coupled with foreign central banks buying large amounts of U.S. Treasury securities, also helped to keep long-term interest rates under control. These conditions also caused the dollar to rally unexpectedly, which took a little bit of pressure off the price of imported goods. Amid signs of solidly expanding output and improved hiring, the Fed continued to tighten. It increased short-term interest rates at each of the four meetings in the first half of 2005, ending the six-month report period at a still moderate 3.25%. The moves have had a limited impact Schwab Money Market Fund 3 MANAGEMENT'S DISCUSSION continued In this market environment, our strategy was to position the fund for a continued rise in rates. on overall economic growth, due primarily to the record-low level of rates from which the increases began. Nonetheless, the higher rates succeeded in moving money fund yields higher, making them a more attractive investment vehicle. IN RESPONSE TO THE FEDERAL RESERVE'S STATED INTENTIONS TO RAISE SHORT-TERM INTEREST RATES AT A "MEASURED" PACE, THE YIELD CURVE FOR MONEY MARKET FUNDS STEEPENED DURING THE FIRST QUARTER. Over the course of the second quarter the yield curve began to flatten as the market questioned the duration of the Fed's tightening campaign. In this market environment, our strategy was to position the fund for a continued rise in rates. To accomplish this, we maintained and continued to add to our position of variable-rate securities. The interest rates on these types of securities reset frequently, allowing us the opportunity to capture a rise in market rates. To further take advantage of the rising-rate environment, we kept the weighted average maturity (WAM) short, at about 42 days. Keeping the WAM short provided flexibility to adapt and respond to the changes in interest rates. This is a similar strategy to our peers, as shortening the WAM enabled money funds to more quickly reinvest at higher rates. 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. 4 Schwab Money Market Fund PERFORMANCE AND FUND FACTS as of 6/30/05 Ticker Symbol: SWMXX SEVEN-DAY YIELDS 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. -------------------------------------------------------------------------------- SEVEN-DAY YIELD 1 2.49% -------------------------------------------------------------------------------- SEVEN-DAY YIELD--NO WAIVER 2 2.44% -------------------------------------------------------------------------------- SEVEN-DAY EFFECTIVE YIELD 1 2.52% --------------------------------------------------------------------------------
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.SCHWAB.COM/SCHWABFUNDS. STATISTICS Money funds must maintain a dollar-weighted average maturity of no longer than 90 days, and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months). -------------------------------------------------------------------------------- WEIGHTED AVERAGE MATURITY 42 days -------------------------------------------------------------------------------- CREDIT QUALITY OF HOLDINGS % of portfolio 100% Tier 1 --------------------------------------------------------------------------------
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. 1 Fund expenses have been partially absorbed by CSIM and Schwab. 2 Yield if fund expenses had not been partially absorbed by CSIM and Schwab. Schwab Money Market Fund 5 FUND EXPENSES 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, 2005 and held through June 30, 2005. 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 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 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 EXPENSE RATIO 1 ACCOUNT VALUE (NET OF EXPENSES) PAID DURING PERIOD 2 (ANNUALIZED) AT 1/1/05 AT 6/30/05 1/1/05-6/30/05 ----------------------------------------------------------------------------------------------------------------- SCHWAB MONEY MARKET FUND(TM) Actual Return 0.74% $1,000 $1,010.00 $3.69 Hypothetical 5% Return 0.74% $1,000 $1,021.13 $3.71
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year. 6 Schwab Money Market Fund SCHWAB MONEY MARKET FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 --------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 0.01 0.01 0.04 0.06 --------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.01) (0.01) (0.04) (0.06) --------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 --------------------------------------------------------------------- Total return (%) 1.00 1 0.68 0.50 1.23 3.73 5.84 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.74 2 0.75 0.75 0.75 0.75 0.76 3 Gross operating expenses 0.79 2 0.78 0.78 0.78 0.79 0.81 Net investment income 2.01 2 0.67 0.50 1.22 3.63 5.70 Net assets, end of period ($ x 1,000,000) 42,213 44,023 49,079 51,063 49,116 41,823
* Unaudited. 1 Not annualized. 2 Annualized. 3 The ratio of net operating expenses would have been 0.75% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 7 SCHWAB MONEY MARKET FUND PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, 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 reviewed 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 the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. * Asset-backed security + Credit-enhanced security o Illiquid and/or restricted security For fixed-rate obligations, the rate shown is the effective yield at the time of purchase, except for U.S. government agency coupon notes and 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. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date. For variable-rate obligations without demand features, the maturity shown is the next interest rate change date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) ----------------------------------------------------------------------------- 64.3% FIXED-RATE OBLIGATIONS 27,143,994 27,143,994 17.3% VARIABLE-RATE OBLIGATIONS 7,309,345 7,309,345 18.5% OTHER INVESTMENTS 7,820,973 7,820,973 ----------------------------------------------------------------------------- 100.1% TOTAL INVESTMENTS 42,274,312 42,274,312 (0.1)% OTHER ASSETS AND LIABILITIES (61,436) ----------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 42,212,876
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) FIXED-RATE OBLIGATIONS 64.3% of net assets COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 36.3% -------------------------------------------------------------------------- AB SPINTAB 2.95%, 08/08/05 137,000 136,580 ALLIANCE & LEICESTER, PLC, SECTION 4(2) / 144A 3.15%, 09/08/05 70,000 69,584 3.20%, 09/12/05 40,000 39,744 * AMSTEL FUNDING CORP., SECTION 4(2) / 144A 3.20%, 07/20/05 13,892 13,869 2.95%, 08/10/05 32,096 31,992 3.28%, 08/31/05 60,000 59,670 *+ AMSTERDAM FUNDING CORP., SECTION 4(2) / 144A 3.09%, 07/07/05 100,000 99,949 3.17%, 07/18/05 100,000 99,851 3.19%, 07/19/05 90,000 89,857 3.23%, 07/21/05 136,030 135,787 3.24%, 07/27/05 100,000 99,767 3.26%, 07/28/05 27,400 27,333 *+ AQUINAS FUNDING, L.L.C., SECTION 4(2) / 144A 3.15%, 09/02/05 45,000 44,756 3.60%, 12/19/05 50,000 49,159 3.61%, 12/19/05 25,000 24,579 3.62%, 12/22/05 28,713 28,220 3.61%, 12/23/05 66,210 65,069 *+ ASAP FUNDING LTD., SECTION 4(2) / 144A 3.17%, 07/11/05 41,000 40,964 3.23%, 07/22/05 16,000 15,970 3.30%, 08/03/05 25,000 24,925 3.23%, 08/08/05 112,000 111,621 3.23%, 08/09/05 55,000 54,809 3.24%, 08/09/05 50,000 49,826 3.30%, 08/26/05 39,000 38,802 *+ ATLANTIC ASSET SECURITIZATION CORP., SECTION 4(2) / 144A 3.09%, 07/05/05 21,860 21,853 3.15%, 07/11/05 74,204 74,139 * ATLANTIS ONE FUNDING CORP., SECTION 4(2) / 144A 2.84%, 07/14/05 279,000 278,718 2.87%, 07/20/05 146,470 146,251 2.87%, 07/21/05 60,882 60,786 2.87%, 07/22/05 50,000 49,917 3.15%, 09/15/05 196,012 194,729 3.25%, 09/20/05 120,000 119,136 3.39%, 11/16/05 60,000 59,234 3.61%, 12/20/05 26,643 26,192
8 See financial notes. SCHWAB MONEY MARKET FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) BANK OF AMERICA CORP. 3.32%, 10/06/05 245,000 242,848 *+o BLUE SPICE, L.L.C., SECTION 4(2) / 144A 3.29%, 07/12/05 70,000 69,930 3.15%, 07/13/05 82,000 81,914 3.21%, 07/20/05 64,000 63,892 * CC (USA), INC., SECTION 3C7 / 144A 2.78%, 07/07/05 15,000 14,993 3.31%, 09/12/05 50,000 49,667 3.43%, 09/29/05 78,000 77,337 3.46%, 09/29/05 64,000 63,451 + CITIGROUP FUNDING, INC. 3.11%, 07/01/05 446,000 446,000 3.21%, 07/21/05 200,000 199,644 3.21%, 07/22/05 181,000 180,662 CITIGROUP GLOBAL MARKETS HOLDINGS, INC. 3.17%, 08/02/05 246,000 245,311 3.27%, 09/01/05 250,000 248,605 *+ CLIPPER RECEIVABLES CO., LLC SECTION 4(2) / 144A 3.09%, 07/05/05 76,000 75,974 3.19%, 07/18/05 30,000 29,955 3.11%, 07/21/05 50,000 49,914 *+ CONCORD MINUTEMEN CAPITAL CO., SERIES A SECTION 3C7 / 144A 2.81%, 07/06/05 30,000 29,988 2.83%, 07/06/05 69,000 68,973 3.25%, 07/22/05 20,000 19,962 2.96%, 08/11/05 50,000 49,834 3.07%, 08/16/05 152,252 151,664 3.01%, 08/18/05 69,000 68,728 *+ CROWN POINT CAPITAL CO., L.L.C., SECTION 3C7 / 144A 3.09%, 07/12/05 36,000 35,966 3.09%, 07/19/05 131,000 130,799 3.17%, 07/26/05 11,000 10,976 2.95%, 08/08/05 99,000 98,696 3.37%, 10/20/05 96,468 95,480 3.44%, 11/16/05 98,292 97,017 * DAKOTA CP NOTES OF CITIBANK CREDIT CARD ISSUANCE TRUST, SECTION 4(2) / 144A 3.16%, 07/13/05 265,000 264,722 3.17%, 07/25/05 200,000 199,580 3.17%, 07/26/05 150,000 149,672 3.17%, 07/27/05 300,000 299,317 3.26%, 07/28/05 150,000 149,634 3.30%, 09/06/05 100,000 99,390 3.30%, 09/07/05 100,000 99,381 + DEXIA DELAWARE L.L.C. 3.30%, 09/09/05 200,000 198,726 * DORADA FINANCE, INC., SECTION 3C7 / 144A 2.78%, 07/07/05 50,000 49,977 2.82%, 07/15/05 20,000 19,978 3.31%, 09/09/05 10,000 9,936 3.43%, 09/28/05 45,000 44,622 *+ EIFFEL FUNDING, L.L.C., SECTION 4(2) / 144A 3.08%, 07/07/05 23,000 22,988 3.13%, 07/08/05 25,000 24,985 3.14%, 07/12/05 20,000 19,981 3.25%, 07/15/05 10,000 9,987 3.23%, 07/25/05 50,000 49,893 3.23%, 07/26/05 47,000 46,895 3.17%, 07/27/05 20,000 19,954 3.26%, 07/28/05 25,000 24,939 3.27%, 07/28/05 25,000 24,939 3.31%, 08/02/05 18,000 17,947 3.46%, 09/28/05 50,000 49,576 *+ FAIRWAY FINANCE CO., L.L.C., SECTION 4(2) / 144A 3.26%, 07/25/05 17,062 17,025 3.17%, 07/27/05 19,162 19,118 2.96%, 07/28/05 11,153 11,129 * GALAXY FUNDING, INC., SECTION 4(2) / 144A 3.05%, 07/01/05 16,000 16,000 3.07%, 07/11/05 11,000 10,991 3.09%, 07/19/05 53,670 53,588 3.09%, 07/20/05 90,000 89,854 3.13%, 07/26/05 53,000 52,886 3.31%, 09/06/05 10,000 9,939 3.43%, 09/26/05 60,000 59,507 GENERAL ELECTRIC CAPITAL CORP. 2.86%, 07/20/05 371,000 370,448 * GIRO FUNDING U.S. CORP., SECTION 4(2) / 144A 3.10%, 07/06/05 96,000 95,959 3.18%, 07/13/05 100,000 99,894 3.09%, 07/18/05 57,958 57,874 3.23%, 07/19/05 100,000 99,839 3.24%, 07/22/05 55,000 54,896 3.29%, 07/28/05 75,000 74,816 3.32%, 08/01/05 9,000 8,974 *+ GRAMPIAN FUNDING, LLC., SECTION 4(2) / 144A 3.43%, 09/28/05 60,000 59,496 3.60%, 12/20/05 100,000 98,309
See financial notes. 9 SCHWAB MONEY MARKET FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) *+ GREYHAWK FUNDING L.L.C., SECTION 4(2) / 144A 3.15%, 07/11/05 39,000 38,966 HSBC U.S.A., INC. 3.32%, 08/01/05 75,000 74,786 3.59%, 12/20/05 50,000 49,159 IRISH LIFE & PERMANENT, PLC, SECTION 4(2) / 144A 3.29%, 09/07/05 85,000 84,477 3.30%, 09/12/05 50,000 49,668 3.30%, 09/13/05 10,000 9,933 3.45%, 11/10/05 50,000 49,379 + IXIS COMMERCIAL PAPER CORP., SECTION 4(2) / 144A 3.26%, 07/11/05 11,250 11,240 *+ JUPITER SECURITIZATION CORP., SECTION 4(2) / 144A 3.13%, 07/13/05 8,078 8,070 3.16%, 07/18/05 44,316 44,250 3.17%, 07/18/05 125,391 125,204 3.19%, 07/19/05 90,229 90,086 3.26%, 07/25/05 49,155 49,048 3.23%, 07/26/05 100,000 99,776 * K2 (USA), L.L.C., SECTION 3C7 / 144A 2.84%, 07/15/05 21,800 21,776 3.07%, 08/25/05 98,700 98,244 3.15%, 09/09/05 38,200 37,970 3.31%, 09/12/05 34,400 34,171 3.25%, 09/19/05 14,000 13,900 3.35%, 10/03/05 100,000 99,141 3.33%, 10/11/05 20,100 19,913 3.38%, 11/08/05 50,000 49,401 3.46%, 11/15/05 28,000 27,637 3.51%, 12/09/05 10,000 9,846 + KBC FINANCIAL PRODUCTS INTERNATIONAL, LTD., SECTION 4(2) / 144A 3.37%, 10/12/05 104,000 103,015 *+ KITTY HAWK FUNDING CORP., SECTION 4(2) / 144A 3.18%, 07/15/05 192,000 191,763 3.25%, 09/20/05 15,000 14,892 *+ LEXINGTON PARKER CAPITAL CO., L.L.C., SECTION 4(2) / 144A 3.09%, 07/14/05 10,000 9,989 2.86%, 07/18/05 14,000 13,981 3.22%, 07/18/05 70,196 70,090 3.26%, 07/18/05 72,000 71,890 2.88%, 07/25/05 45,000 44,915 3.07%, 08/16/05 100,000 99,613 3.07%, 08/23/05 10,000 9,955 3.15%, 09/01/05 225,000 223,799 * MANE FUNDING CORP., SECTION 4(2) / 144A 3.22%, 07/22/05 50,000 49,906 3.27%, 07/25/05 29,640 29,576 3.26%, 07/27/05 100,332 100,096 3.31%, 07/27/05 51,647 51,524 3.31%, 07/29/05 40,115 40,012 3.31%, 09/08/05 48,000 47,698 3.43%, 09/21/05 20,000 19,845 3.43%, 09/22/05 100,000 99,216 3.43%, 09/23/05 60,000 59,524 MORGAN STANLEY 3.15%, 07/19/05 111,000 110,826 3.19%, 07/20/05 50,000 49,916 3.23%, 07/20/05 50,000 49,915 3.45%, 11/14/05 200,000 197,439 + NATIONAL AUSTRALIA FUNDING (DELAWARE) INC. 3.18%, 07/25/05 20,000 19,958 * NEWCASTLE CERTIFICATES PROGRAM, SECTION 4(2) / 144A Series 2000A 3.23%, 07/13/05 77,875 77,791 3.33%, 07/08/05 18,500 18,488 3.24%, 07/18/05 5,300 5,292 3.38%, 07/26/05 25,000 24,941 *+ NIEUW AMSTERDAM RECEIVABLES CORP., SECTION 4(2) / 144A 3.09%, 07/06/05 18,541 18,533 3.30%, 07/07/05 50,000 49,973 2.89%, 07/13/05 13,000 12,988 2.93%, 07/28/05 30,449 30,383 2.96%, 08/08/05 10,000 9,969 *+ PARK AVENUE RECEIVABLES CORP. L.L.C., SECTION 4(2) / 144A 3.14%, 07/14/05 136,069 135,915 3.16%, 07/18/05 87,316 87,186 3.26%, 07/25/05 35,000 34,924 3.23%, 07/26/05 178,000 177,602 * PARK GRANADA, L.L.C., SECTION 4(2) / 144A 3.26%, 07/25/05 45,000 44,903 3.27%, 07/29/05 150,000 149,620 3.20%, 08/01/05 16,500 16,455 *+ PREFERRED RECEIVABLES FUNDING CORP., SECTION 4(2) / 144A 3.13%, 07/14/05 63,000 62,929 3.15%, 07/15/05 81,323 81,224 *+ RANGER FUNDING CO. L.L.C., SECTION 4(2) / 144A 3.19%, 07/19/05 86,590 86,453
10 See financial notes. SCHWAB MONEY MARKET FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) + SAN PAOLO IMI U.S. FINANCIAL CO. 3.09%, 07/21/05 100,000 99,829 + SANTANDER CENTRAL HISPANO FINANCE (DELAWARE), INC. 2.81%, 07/13/05 210,000 209,806 3.31%, 09/09/05 110,000 109,298 *+ SCALDIS CAPITAL LTD., SECTION 4(2) / 144A 2.86%, 07/15/05 82,249 82,159 3.33%, 09/19/05 111,547 110,735 3.33%, 09/27/05 21,000 20,832 *+ SIGMA FINANCE, INC., SECTION 3C7 / 144A 2.81%, 07/01/05 27,000 27,000 3.08%, 07/12/05 200,000 199,813 3.09%, 07/13/05 28,000 27,971 3.15%, 09/02/05 45,000 44,756 3.46%, 11/21/05 84,000 82,866 SKANDINAVISKA ENSKILDA BANKEN AB 2.81%, 07/12/05 70,000 69,941 3.25%, 09/16/05 55,000 54,624 3.26%, 09/16/05 39,000 38,732 SOCIETE GENERALE NORTH AMERICA, INC. 2.73%, 07/06/05 150,000 149,944 THE GOLDMAN SACHS GROUP, INC. 3.47%, 11/21/05 90,000 88,781 *+ THUNDER BAY FUNDING, L.L.C., SECTION 4(2) / 144A 3.26%, 07/27/05 12,000 11,972 *+ TRIPLE-A ONE FUNDING CORP., SECTION 4(2) / 144A 3.26%, 07/25/05 20,658 20,613 + UBS FINANCE (DELAWARE) INC. 3.08%, 07/08/05 315,000 314,812 3.24%, 07/25/05 10,600 10,577 + WESTPAC CAPITAL CORP. 3.45%, 11/28/05 150,000 147,881 3.46%, 11/29/05 100,000 98,574 * WHITE PINE FINANCE, L.L.C., SECTION 3C7 / 144A 2.92%, 07/07/05 10,381 10,376 3.43%, 09/26/05 44,653 44,286 *+ WINDMILL FUNDING CORP., SECTION 4(2) / 144A 3.09%, 07/08/05 49,000 48,971 3.17%, 07/18/05 85,000 84,873 3.19%, 07/19/05 25,000 24,960 3.19%, 07/21/05 160,000 159,717 3.23%, 07/21/05 67,000 66,880 *+ YORKTOWN CAPITAL, L.L.C., SECTION 4(2) / 144A 3.19%, 07/19/05 29,189 29,143 ----------- 15,331,064 CERTIFICATES OF DEPOSIT 26.3% -------------------------------------------------------------------------- ALLIANCE & LEICESTER, PLC 3.08%, 07/18/05 50,000 50,000 3.32%, 10/18/05 55,000 54,945 3.58%, 12/20/05 25,000 25,000 AMERICAN EXPRESS BANK FSB 3.09%, 07/07/05 120,000 120,000 AMERICAN EXPRESS CENTURION BANK 3.30%, 09/06/05 128,000 128,000 BANCO BILBAO VIZCAYA ARGENTARIA S.A. 2.77%, 07/06/05 220,000 220,000 3.33%, 10/11/05 20,000 20,000 3.46%, 11/28/05 185,000 185,000 3.49%, 12/02/05 50,000 50,000 BANK OF THE WEST 3.33%, 09/27/05 46,000 46,000 BANK OF TOKYO-MITSUBISHI, LTD. 3.27%, 07/27/05 170,000 170,000 BARCLAYS BANK PLC 3.57%, 12/19/05 89,000 89,000 BNP PARIBAS 3.30%, 09/12/05 163,000 163,000 3.43%, 11/08/05 300,000 300,000 3.46%, 11/28/05 410,000 410,000 CALYON 3.37%, 11/09/05 265,000 265,000 3.40%, 11/10/05 235,000 235,000 CANADIAN IMPERIAL BANK OF COMMERCE 2.72%, 07/05/05 338,000 338,000 CITIBANK, N.A. 3.27%, 08/31/05 113,000 113,000 CREDIT SUISSE FIRST BOSTON 3.15%, 07/29/05 15,000 15,000 3.19%, 08/09/05 643,000 643,000 3.27%, 09/02/05 75,000 75,000 DANSKE BANK A/S 3.18%, 07/18/05 30,000 30,000 3.23%, 07/26/05 247,000 247,000 DEPFA BANK, PLC 2.77%, 07/05/05 20,000 20,000 3.11%, 09/01/05 80,000 80,000 DEUTSCHE BANK, AG 3.31%, 09/08/05 150,000 149,998 3.31%, 09/16/05 175,000 175,000
See financial notes. 11 SCHWAB MONEY MARKET FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) DEXIA CREDIT LOCAL 3.23%, 07/22/05 182,000 182,000 DNB NOR BANK 3.40%, 11/10/05 50,000 50,001 HSBC BANK, PLC 3.11%, 07/25/05 245,000 245,000 3.03%, 08/22/05 260,000 260,000 HSBC BANK, USA 3.44%, 11/21/05 41,000 40,996 KBC BANK NV 3.11%, 07/15/05 113,000 113,000 3.14%, 07/15/05 122,000 122,000 LANDESBANK HESSEN-THURINGEN GIROZENTRALE 3.15%, 09/12/05 200,000 200,002 3.45%, 11/14/05 50,000 50,000 LLOYDS TSB BANK, PLC 3.45%, 11/17/05 90,000 89,992 3.46%, 12/01/05 115,000 115,002 MIZUHO CORP. BANK, LTD. 3.20%, 08/08/05 80,000 80,000 3.21%, 08/08/05 90,000 90,000 NORDEA BANK FINLAND, PLC 3.30%, 09/09/05 100,000 100,000 ROYAL BANK OF SCOTLAND, PLC 2.17%, 07/01/05 145,000 145,000 3.25%, 07/28/05 195,000 195,000 SKANDINAVISKA ENSKILDA BANKEN AB 3.20%, 07/22/05 160,000 160,000 SOCIETE GENERALE 3.23%, 09/23/05 200,000 200,000 3.51%, 12/15/05 300,000 300,000 3.54%, 12/16/05 200,000 200,000 SVENSKA HANDELSBANKEN AB 3.11%, 07/14/05 282,000 282,000 3.19%, 08/10/05 360,000 360,000 TORONTO DOMINION BANK 3.44%, 11/09/05 15,000 14,996 3.47%, 12/05/05 263,000 263,000 3.54%, 12/09/05 170,000 170,000 U.S. BANK, N.A. 2.86%, 08/03/05 150,000 150,000 3.20%, 09/15/05 20,000 20,000 3.34%, 10/03/05 304,000 304,000 3.32%, 10/11/05 173,000 173,000 3.45%, 11/18/05 100,000 100,000 UNICREDITO ITALIANO SPA 3.34%, 10/12/05 548,000 548,000 WASHINGTON MUTUAL BANK, FA 3.27%, 09/26/05 145,000 145,000 3.44%, 11/22/05 198,000 198,000 WELLS FARGO BANK, N.A. 3.26%, 07/07/05 262,000 261,999 3.27%, 07/12/05 299,000 298,999 3.25%, 07/28/05 230,000 230,000 WESTPAC BANKING CORP. 3.22%, 08/10/05 197,000 197,000 WILMINGTON TRUST CO. 2.81%, 07/05/05 42,000 42,000 ----------- 11,112,930 BANK NOTES 1.5% -------------------------------------------------------------------------- BANK OF AMERICA, N.A. 2.98%, 08/19/05 300,000 300,000 2.98%, 08/23/05 310,000 310,000 ----------- 610,000 PROMISSORY NOTES 0.2% -------------------------------------------------------------------------- o THE GOLDMAN SACHS GROUP, INC. 2.85%, 07/06/05 50,000 50,000 2.93%, 07/15/05 40,000 40,000 ----------- 90,000 VARIABLE-RATE OBLIGATIONS 17.3% of net assets + ABAG FINANCIAL AUTHORITY FOR NONPROFIT CORPS., CALIFORNIA RB (Public Pole Institute) Series 2002B 3.36%, 07/07/05 17,830 17,830 + ALBUQUERQUE, NEW MEXICO AIRPORT RB Series 2000B 3.37%, 07/07/05 16,200 16,200 BANK OF NEW YORK CO., INC., 144A 3.35%, 07/27/05 75,000 75,000 BARCLAYS BANK, PLC 3.28%, 07/05/05 90,000 89,984 3.07%, 07/05/05 128,000 127,973
12 See financial notes. SCHWAB MONEY MARKET FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) 3.13%, 07/11/05 80,000 79,986 3.15%, 07/18/05 45,000 44,985 3.21%, 07/21/05 467,000 466,921 3.26%, 08/01/05 320,000 319,965 *+ BETA FINANCE, INC., SECTION 3C7 / 144A 3.17%, 07/14/05 200,000 199,978 BNP PARIBAS 3.18%, 07/18/05 95,000 94,980 CANADIAN IMPERIAL BANK OF COMMERCE 3.28%, 07/15/05 100,000 100,000 * CC (USA), INC., SECTION 3C7 / 144A 3.27%, 07/22/05 61,000 60,997 + CFM INTERNATIONAL, INC., 144A 3.33%, 07/07/05 18,990 18,990 + COOK COUNTY, ILL. Series 2004D 3.36%, 07/07/05 30,000 30,000 * DORADA FINANCE, INC., SECTION 3C7 / 144A 3.17%, 07/14/05 100,000 99,989 3.20%, 07/15/05 47,000 47,000 FANNIE MAE 2.99%, 07/05/05 195,000 194,967 3.21%, 07/29/05 280,000 279,979 FEDERAL HOME LOAN BANK 3.05%, 07/05/05 250,000 249,967 o GE LIFE & ANNUITY ASSURANCE CO. 3.19%, 07/01/05 150,000 150,000 GENERAL ELECTRIC CAPITAL CORP. 3.28%, 07/11/05 175,000 175,000 3.34%, 07/18/05 75,000 75,000 o THE GOLDMAN SACHS GROUP, INC., 144A 3.23%, 07/11/05 225,000 225,000 o THE GOLDMAN SACHS GROUP, INC. 3.18%, 07/05/05 25,000 25,000 3.36%, 07/28/05 140,000 140,000 3.32%, 07/22/05 185,000 185,000 + HBOS TREASURY SERVICE, PLC 3.09%, 07/05/05 26,000 26,000 3.27%, 07/26/05 160,000 160,000 HSH NORDBANK, AG 3.12%, 07/11/05 291,000 290,977 3.13%, 07/11/05 91,000 90,987 J.P. MORGAN SECURITIES, INC., 144A 3.11%, 07/01/05 200,000 200,000 LANDESBANK BADEN-WURTTEMBERG 3.10%, 07/07/05 24,000 23,997 3.15%, 07/13/05 15,000 14,999 3.22%, 07/22/05 50,000 49,996 * LIBERTY LIGHTHOUSE U.S. CAPITAL CO. L.L.C., SECTION 4(2) / 144A 3.10%, 07/05/05 100,000 99,993 3.23%, 07/19/05 20,000 19,999 3.27%, 07/26/05 75,000 74,998 3.27%, 07/27/05 20,000 19,999 3.29%, 07/29/05 49,000 48,995 *+ LINKS FINANCE, L.L.C., SECTION 3C7 / 144A 3.20%, 07/14/05 27,000 27,000 3.17%, 07/15/05 22,000 21,998 3.27%, 07/25/05 80,000 79,999 3.30%, 07/26/05 25,000 25,000 + LOANSTAR ASSETS PARTNERS II, L.P. 3.32%, 07/07/05 45,000 45,000 + LOWNDES CORP., GEORGIA, 144A Taxable Demand Bond Series 1997 3.36%, 07/07/05 3,300 3,300 + MERLOT TRUST SECTION 4(2) / 144A Series 2000B 3.49%, 07/07/05 32,630 32,630 Series 2001A67 3.49%, 07/07/05 35,065 35,065 Series 2001A7 3.49%, 07/07/05 15,470 15,470 o METROPOLITAN LIFE INSURANCE CO. 3.18%, 07/01/05 100,000 100,000 3.16%, 07/30/05 50,000 50,000 o MONUMENTAL LIFE INSURANCE CO. 3.27%, 07/01/05 100,000 100,000 MORGAN STANLEY 3.13%, 07/05/05 240,000 240,000 + NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY Adjustable Rate Lease Revenue Taxable Bonds (Barnes & Noble, Inc. Distribution & Freight Consolidation Center Project) Series 1995A 3.27%, 07/07/05 13,310 13,310
See financial notes. 13 SCHWAB MONEY MARKET FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) Adjustable Rate Lease Revenue Taxable Bonds (Barnes & Noble, Inc. Distribution & Freight Consolidation Center Project) Series 1995B 3.27%, 07/07/05 10,000 10,000 Adjustable Rate Lease Revenue Taxable Bonds (Camden Center Project) Series 2002A 3.27%, 07/07/05 21,480 21,480 Adjustable Rate Lease Revenue Taxable Bonds (Camden Center Project) Series 2002B 3.27%, 07/07/05 20,000 20,000 NORDDEUTSCHE LANDESBANK GIROZENTRALE 3.10%, 07/05/05 30,000 29,996 3.15%, 07/11/05 100,000 99,981 3.15%, 07/12/05 80,000 79,997 3.17%, 07/14/05 75,000 74,985 3.18%, 07/18/05 50,000 49,998 3.26%, 07/25/05 50,000 50,000 ROYAL BANK OF CANADA 3.20%, 07/11/05 60,000 60,000 ROYAL BANK OF SCOTLAND, PLC 3.09%, 07/05/05 150,000 149,979 3.09%, 07/06/05 90,000 89,985 3.24%, 07/21/05 185,000 185,000 + SANTA ROSA, CALIFORNIA Pension Obligation Revenue Taxable Bonds Series 2003A 3.36%, 07/07/05 9,400 9,400 + SE CHRISTIAN CHURCH, JEFFERSON COUNTY, KENTUCKY Series 2003 3.34%, 07/07/05 9,300 9,300 *+ SIGMA FINANCE, INC., SECTION 3C7 / 144A 3.17%, 07/15/05 166,000 165,986 3.20%, 07/15/05 110,000 110,007 3.26%, 07/25/05 109,000 108,988 3.28%, 08/01/05 72,000 71,998 + SISTERS OF MERCY OF THE AMERICAS REGIONAL COMMUNITY OF OMAHA, NEBRASKA Series 2001 3.34%, 07/07/05 11,860 11,860 o TRAVELERS INSURANCE CO. 3.38%, 07/29/05 100,000 100,000 *+ WACHOVIA ASSET SECURITIZATION, INC., 144A Series 2005-HM1A Class AMM 3.29%, 07/25/05 60,000 60,000 WELLS FARGO & CO., 144A 3.18%, 07/05/05 75,000 75,000 3.19%, 07/15/05 165,000 165,002 ----------- 7,309,345
MATURITY AMOUNT SECURITY ($ x 1,000) OTHER INVESTMENTS 18.5% of net assets REPURCHASE AGREEMENTS 18.5% -------------------------------------------------------------------------- BANK OF AMERICA SECURITIES L.L.C. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $2,300,100 3.45%, issued 06/30/05, due 07/01/05 2,000,192 2,000,000 3.30%, issued 06/28/05, due 07/05/05 255,164 255,000 BEAR STEARNS & CO. INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $411,163 3.45%, issued, 06/30/05 due 07/01/05 253,024 253,000 3.21%, issued, 06/23/05 due 07/07/05 150,187 150,000 CREDIT SUISSE FIRST BOSTON L.L.C. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $319,236 3.40%, issued 06/30/05 due 07/01/05 216,994 216,973 3.09%, issued 05/25/05 due 07/07/05 96,354 96,000 GOLDMAN SACHS GROUP INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $2,040,000 3.45%, issued 06/30/05 due 07/01/05 2,000,192 2,000,000
14 See financial notes. SCHWAB MONEY MARKET FUND
MATURITY AMOUNT VALUE SECURITY ($ x 1,000) ($ x 1,000) J.P. MORGAN CHASE & CO. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $408,000 3.44%, issued 06/30/05 due 07/01/05 400,038 400,000 MORGAN STANLEY & CO. INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $1,280,826 3.40%, issued 06/30/05 due 07/01/05 655,062 655,000 3.45%, issued 06/30/05 due 07/01/05 600,058 600,000 UBS FINANCIAL SERVICES, INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $1,218,906 3.43%, issued 06/30/05 due 07/01/05 900,086 900,000 3.21%, issued 06/23/05 due 07/07/05 295,368 295,000 ----------- 7,820,973
END OF INVESTMENTS.
ISSUER COST/ RATE, ACQUISITION DATE, FACE AMOUNT VALUE MATURITY DATE ($ x 1,000) ($ x 1,000) AT JUNE 30, 2005, PORTFOLIO HOLDINGS INCLUDED ILLIQUID AND/OR RESTRICTED SECURITIES AS FOLLOWS: BLUE SPICE, L.L.C., SECTION 4(2) / 144A 3.29%, 06/28/05, 07/12/05 70,000 69,930 3.15%, 06/10/05, 07/13/05 82,000 81,914 3.21%, 06/16/05, 07/20/05 64,000 63,892 ----------- 215,736 THE GOLDMAN SACHS GROUP, INC. 3.18%, 02/03/05, 07/05/05 25,000 25,000 2.85%, 01/06/05, 07/06/05 50,000 50,000 2.93%, 01/19/05, 07/15/05 40,000 40,000 3.32%, 02/22/05, 07/22/05 185,000 185,000 3.36%, 02/28/05, 07/28/05 140,000 140,000 ----------- 440,000 THE GOLDMAN SACHS GROUP, INC., 144A 3.23%, 07/07/04, 07/11/05 225,000 225,000 GE LIFE & ANNUITY 3.19%, 02/01/05, 07/01/05 150,000 150,000 METROPOLITAN LIFE INSURANCE CO. 3.18%, 02/01/05, 07/01/05 100,000 100,000 3.16%, 12/28/00, 07/30/05 50,000 50,000 ----------- 150,000 MONUMENTAL LIFE INSURANCE CO. 3.27%, 06/10/93, 07/01/05 100,000 100,000 TRAVELERS INSURANCE CO. 3.38%, 10/31/03, 07/29/05 100,000 100,000
See financial notes. 15 SCHWAB MONEY MARKET FUND Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $34,453,339 Repurchase agreements, at value 7,820,973 a Interest receivable 75,002 Prepaid expenses + 555 --------------- TOTAL ASSETS 42,349,869 LIABILITIES -------------------------------------------------------------------------------- Payables: Dividends to shareholders 42,962 Investments bought 89,984 Investment adviser and administrator fees 939 Transfer agent and shareholder service fees 1,569 Trustees' fees 18 Accrued expenses + 1,521 --------------- TOTAL LIABILITIES 136,993 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 42,349,869 TOTAL LIABILITIES - 136,993 --------------- NET ASSETS $42,212,876 NET ASSETS BY SOURCE Capital received from investors 42,212,925 Net realized capital losses (49) NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $42,212,876 42,213,484 $1.00
Unless stated, all numbers x 1,000. a The amortized cost of the fund's securities was $42,274,312 Includes illiquid and/or restricted securities worth $1,380,736, or 3.3% of the fund's total net assets. Also, includes other restricted but deemed liquid securities comprised of 144A, section 4(2) and 3c7 securities, worth $12,865,087 or 30.5% of the fund's total net assets. FEDERAL TAX DATA ---------------------------------------- COST BASIS OF PORTFOLIO $42,274,312 AS OF DECEMBER 31, 2004: UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2007 $49 16 See financial notes. SCHWAB MONEY MARKET FUND Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Interest $592,505 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 67,705 a Transfer agent and shareholder service fees 96,891 b Trustees' fees 89 c Custodian and portfolio accounting fees 1,753 Professional fees 93 Registration fees 313 Shareholder reports 1,876 Other expenses + 313 ----------- Total expenses 169,033 Expense reduction - 9,700 d ----------- NET EXPENSES 159,333 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 592,505 NET EXPENSES - 159,333 ----------- NET INVESTMENT INCOME 433,172 ----------- INCREASE IN NET ASSETS FROM OPERATIONS $433,172
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.25% of the fund's assets; for shareholder services, 0.20% of the fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the annual operating expenses of this fund through December 31, 2005 to 0.74% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. See financial notes. 17 SCHWAB MONEY MARKET FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS -------------------------------------------------------------------------------- 1/1/05-6/30/05 1/1/04-12/31/04 Net investment income $433,172 $316,431 -------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 433,172 316,431 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income 433,172 316,431 a TRANSACTIONS IN FUND SHARES b -------------------------------------------------------------------------------- Shares sold 65,755,636 131,897,898 Shares reinvested 384,918 310,836 Shares redeemed + (67,950,526) (137,265,143) -------------------------------------- NET TRANSACTIONS IN FUND SHARES (1,809,972) (5,056,409) NET ASSETS -------------------------------------------------------------------------------- Beginning of period 44,022,848 49,079,257 Total decrease + (1,809,972) (5,056,409) c -------------------------------------- END OF PERIOD $42,212,876 $44,022,848
Unless stated, all numbers x 1,000. a The tax-basis components of distributions for the period ended 12/31/04 are: Ordinary income $316,431 Long-term capital gains $ -- b Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. c Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. 18 See financial notes. SCHWAB MONEY MARKET FUND FINANCIAL NOTES unaudited BUSINESS STRUCTURE OF THE FUNDS THE FUND DISCUSSED IN THIS REPORT IS A SERIES OF THE CHARLES SCHWAB FAMILY OF FUNDS, A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended. The sidebar shows the fund in this report and its trust. THE FUND 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 trust may issue as many shares as necessary. FUND OPERATIONS Most of the fund's investments are described in the sections earlier in this report. However, there are certain other fund operations and policies that may affect the fund's financials, as described below. Other policies concerning the fund's business operations also are described here. THE FUND DECLARES DIVIDENDS EVERY DAY IT IS OPEN FOR BUSINESS. These dividends, which are equal to the fund's net investment income for that day, are paid out to shareholders once a month. The fund may make distributions from any net realized capital gains once a year. THE FUND MAY BUY SECURITIES ON A DELAYED-DELIVERY BASIS. In these transactions, the 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 has set aside sufficient securities as collateral for those securities bought on a delayed-delivery basis. THE FUND MAY ENTER INTO REPURCHASE AGREEMENTS. In a repurchase agreement, the 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. Any repurchase agreements with due dates later than seven days from issue dates may be subject to seven day put features for liquidity purposes. The fund's repurchase agreements will be fully collateralized by U.S. government 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 price under the agreement. THE FUND PAYS FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES. Through its trust, the fund has agreements with Charles Schwab Investment Management, Inc. (CSIM) to provide Investment Advisory and administrative services and with THE TRUST AND ITS FUNDS This list shows all of the funds included in The Charles Schwab Family of Funds. The fund discussed in this report 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 Municipal Money Fund Schwab California Municipal Money Fund Schwab New York Municipal Money Fund Schwab New Jersey Municipal Money Fund Schwab Pennsylvania Municipal Money Fund Schwab Florida Municipal Money Fund Schwab Massachusetts Municipal Money Fund Schwab Retirement Advantage Money Fund Schwab Retirement Money Fund Schwab Government Cash Reserves Schwab Advisor Cash Reserves Schwab Cash Reserves 19 SCHWAB MONEY MARKET FUND Charles Schwab & Co., Inc. (Schwab) to provide transfer agent and shareholder services. Although these agreements specify certain fees for these services, CSIM and Schwab have made additional agreements with the fund that may limit the total expenses charged. The rates and limitations for these fees are described in the fund's Statement of Operations. THE FUND MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. The fund may make direct transactions with certain other Schwab Funds(R) 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. Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions within the 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. 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 the fund's Statement of Operations. THE FUND MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The fund may obtain temporary bank loans through the trust to which the fund belongs, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The Schwab Funds have custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A., respectively. The fund pays interest on the amounts that it borrows at rates that are negotiated periodically. There was no borrowing for the fund during the period. 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 net realized capital gains (if any) to its respective shareholders each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax. UNDER THE FUND'S ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE INDEMNIFIED AGAINST CERTAIN LIABILITY 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. ACCOUNTING POLICIES The following are the main policies the fund uses in preparing its financial statements. THE FUND VALUES ITS SECURITIES AT AMORTIZED COST, which approximates market value. SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the security is executed. INTEREST INCOME is recorded as it accrues. If the fund buys a debt instrument at a discount (that is, for less than its 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 20 SCHWAB MONEY MARKET FUND 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. REALIZED GAINS AND LOSSES from security transactions are based on the identified costs of the securities involved. EXPENSES that are specific to the 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. 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 also may keep certain assets in segregated accounts, as required by securities law. THE ACCOUNTING POLICIES DESCRIBED ABOVE CONFORM WITH 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. 21 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 advisory agreement. In addition, the Securities and Exchange Commission (the "SEC") takes the position that, as part of their fiduciary duties with respect to fund fees, fund boards are required to evaluate the material factors applicable to a decision to approve an investment advisory agreement. Consistent with these responsibilities, the Board of Trustees (the "Board") 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 CSIM (the "Agreement") with respect to existing funds in the Trust, including the Schwab Money Market 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 trustees also receive a memorandum from fund counsel regarding the responsibilities of trustees for the approval of investment advisory contracts. In addition, the Independent Trustees receive advice from independent counsel to the Independent Trustees, meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM. At the May 24, 2005 meeting of the Board, the trustees, including a majority of the Independent Trustees, approved the renewal of the Agreement on an interim basis through September 30, 2005. In connection with the interim approval of the Agreement, the Board requested that CSIM prepare responses to certain questions outlined below in advance of the next regularly scheduled Board meeting. The Board's approval of the Agreement was based on consideration and evaluation of a variety of specific factors discussed at that meeting 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 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. 22 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 the fact that Schwab's extensive branch network, Internet access, investment and research tools, telephone services, and array of account features benefit the funds. 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' investors are also brokerage clients of Schwab, and that CSIM and its affiliates are uniquely positioned to provide services and support to the funds and such shareholders. 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 interim renewal of the Agreement. FUND PERFORMANCE. The Board considered fund performance in determining whether to renew the Agreement. Specifically, the trustees considered each fund's performance relative to a peer group of other mutual funds and appropriate indices/benchmarks, in light of total return, yield and market trends. As part of this review, the trustees considered the composition of the peer group, selection criteria and the reputation of the third party who prepared the peer group analysis. In evaluating the performance of each fund, the trustees considered both risk and shareholder risk expectations for such fund. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of the funds supported interim renewal of the Agreement. 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 voluntary waiver of 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 and offshore funds, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the unique legal, regulatory, compliance and operating features of mutual funds as compared to these other types of accounts. With respect to Schwab Money Market Fund, the Board asked CSIM to consider whether certain measures might reduce the fund's operating expenses or better allocate overall fund costs to shareholders who are more expensive for the fund to service, per dollar invested, while also permitting shareholders who are less expensive to service to enjoy lower expenses. The Board requested that CSIM report the results of its study at the next regular Board meeting. Following such evaluation and based upon CSIM's agreement to perform such study, as requested by the Board, the Board concluded, within the context of its full deliberations, that the expenses of the funds are reasonable and supported interim renewal of the Agreement. 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 23 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 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 interim renewal of the Agreement. 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 CSIM's agreement to contractual investment advisory fee schedules which include lower fees at higher graduated asset levels. With respect to the Schwab Money Market Fund, the Board also considered Schwab's agreement that that fund's net operating expenses (excluding interest, taxes and certain non-routine expenses) would not exceed 74 (seventy-four) basis points for the period January 1, 2005 until April 30, 2006. Based on this evaluation, 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, unanimously approved the interim continuation of the Agreement and concluded that the compensation under the Agreement 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. 24 TRUSTEES AND OFFICERS A fund's Board of Trustees is responsible for protecting the interests of that fund's shareholders. The tables below give information about the people who serve as trustees and officers for the Schwab Funds(R), including the funds covered in this report. Trustees remain in office until they resign, retire or are removed by shareholder vote. 1 Under the Investment Company Act of 1940, any officer, director, or employee of Schwab or CSIM is considered an "interested person," meaning that he or she is considered to have a business interest in Schwab or CSIM. These individuals are listed as "interested trustees." The "independent trustees" are individuals who, under the 1940 Act, are not considered to have a business interest in Schwab or CSIM. Each of the 56 Schwab Funds belongs to one of these trusts: The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently all these trusts have the same trustees and officers. The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. 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. INTERESTED TRUSTEES AND OFFICERS
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ CHARLES R. SCHWAB 2 Chairman, Trustee: Chair, CEO, Director, The Charles Schwab Corp., Charles Schwab & Co., Inc.; Chair, 7/29/37 Family of Funds, 1989; Director, Charles Schwab Investment Management, Inc.; Chair, Charles Schwab Holdings Investments, 1991; (UK); Chair, Director, U.S. Trust Corp., United States Trust Co. of New York, U.S. Capital Trust, 1993; Trust Co., N.A.; CEO, Director, Charles Schwab Holdings, Inc.; Chair, CEO Schwab Annuity Portfolios, (SIS) Holdings, Inc. I, Schwab International Holdings, Inc.; Director, Charles 1994. Schwab Bank, N.A., The Charles and Helen Schwab Foundation, All Kinds of Minds (education); Trustee, Stanford University. Until 5/04: Director, The Gap, Inc. (clothing retailer). Until 5/03: Co-CEO, The Charles Schwab Corp. Until 3/02: Director, Audiobase, Inc. (Internet audio solutions). Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications). Until 7/01: Director, The Charles Schwab Trust Co.
1 The Schwab Funds retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010. 2 In addition to his position with the investment adviser and the distributor, Mr. Schwab also owns stock of The Charles Schwab Corporation. 25 INTERESTED TRUSTEES BUT NOT OFFICERS
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ RANDALL W. MERK 2005 (all trusts). EVP, President, AMPS Enterprise. Until 7/04: President, CEO, Charles Schwab 7/25/54 Investment Management, Inc.; VP, Charles Schwab & Co., Inc. Until 8/02: President, Chief Investment Officer, American Century Management; Director, American Century Companies, Inc. Until 6/01: Chief Investment Officer, Fixed Income, American Century Companies, Inc.
OFFICERS OF THE TRUST
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ EVELYN DILSAVER President, CEO EVP, President, Director, Charles Schwab Investment Management, Inc. Until 7/04: SVP 5/4/55 (all trusts). for Development and Distribution, Asset Management Products and Services Enterprise. Until 6/03: EVP, CFO, Chief Administrative Officer, U.S. Trust. ------------------------------------------------------------------------------------------------------------------------------------ STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment Management, Inc.; 4/5/55 Officer (all trusts). Chief Investment Officer, The Charles Schwab Trust Co. ------------------------------------------------------------------------------------------------------------------------------------ KIMON DAIFOTIS SVP, Chief Investment Since 9/04: Chief Investment Officer, Fixed Income, Charles Schwab Investment 7/10/59 Officer (all trusts). Management, Inc. Since 6/04: SVP, Charles Schwab Investment Management, Inc. Until 6/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ JEFFREY MORTIMER SVP, Chief Investment Since 5/04: SVP, Chief Investment Officer, Equities, Charles Schwab Investment 9/29/63 Officer (all trusts). Management, Inc. Since 6/04: VP, Chief Investment Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 5/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ RANDALL FILLMORE Chief Compliance Since 9/04: SVP, Institutional Compliance and Chief Compliance Officer, Charles 11/11/60 Officer (all trusts). Schwab Investment Management, Inc.; Chief Compliance Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 9/04: VP, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. Until 2002: VP of Internal Audit, Charles Schwab & Co., Inc. Prior to 2000: PricewaterhouseCoopers. ------------------------------------------------------------------------------------------------------------------------------------ KOJI E. FELTON Secretary SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab Investment 3/13/61 (all trusts). Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco. ------------------------------------------------------------------------------------------------------------------------------------ GEORGE PEREIRA Treasurer, Principal Since 11/04: SVP, CFO, Charles Schwab Investment Management, Inc. Until 11/04: SVP, 6/9/64 Financial Officer Financial Reporting, Charles Schwab & Co., Inc. Until 12/99: CFO, Commerzbank (all trusts). Capital Markets. Until 9/99: Managing Director at the New York Stock Exchange.
26 INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC (real estate); Trustee, Stanford University, America 8/13/60 First Cos., Omaha, NE (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital. Since 2/05: Director, Pacific Mutual Holding Company (insurance). Since 2004: Laudus Trust, Laudus Variable Insurance Trust. Until 2001: Stanford University, Special Assistant to the President. From 1996-2001: VP of Business Affairs, CFO. ------------------------------------------------------------------------------------------------------------------------------------ DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing and communications 9/23/31 Investments, 1991; consulting). Until 1999: EVP, Managing Director, Grey Advertising. Until 1996: Capital Trust, 1993; President, CEO, Allen & Dorward Advertising. Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ WILLIAM A. HASLER 2000 (all trusts). Dean Emeritus, Haas School of Business, University of California, Berkeley; 11/22/41 Director, Aphton Corp. (bio-pharmaceuticals); Non-Executive Chair, Solectron Corp. (manufacturing), Mission West Properties (commercial real estate), Stratex Networks (network equipment), TOUSA (home building); Public Governor, Member, executive committee, Pacific Stock & Options Exchange. Since 2004: Trustee, Laudus Trust, Laudus Variable Insurance Trust. Until 2/04: Co-CEO, Aphton Corp. (bio-pharmaceuticals). ------------------------------------------------------------------------------------------------------------------------------------ ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial services and 5/15/31 Investments, 1991; investment advisory firm). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisers); Trustee, Cooper 9/28/50 Industries (electrical products, tools and hardware); Chairman, audit committee, Northern Border Partners, L.P. (energy). ------------------------------------------------------------------------------------------------------------------------------------ DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: Chair, CEO, North 6/28/38 Investments, 1991; American Trust (real estate investment trust). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (real estate investment and management, and other 8/18/43 Investments, 1991; investments). Capital Trust, 1993; Annuity Portfolios, 1994.
27 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. ALTERNATIVE MINIMUM TAX (AMT) A federal income tax designed to limit the extent to which high-income taxpayers (including individuals, estates, trusts and corporations) can benefit from certain deductions and exemptions. For example, some types of income that are exempt from regular federal income tax are not exempt from the AMT. ASSET-BACKED SECURITIES Bonds or other debt securities that represent ownership in a pool of assets such as credit card debt. BOND A security representing a loan from the investor to the issuer. A bond typically pays interest at a fixed rate (the "coupon rate") until a specified date (the "maturity date"), at which time the issuer returns the money borrowed ("principal" or "face value") to the bondholder. Because of their structure, bonds are sometimes called "fixed income securities" or "debt securities." An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond's market value prior to call or maturity. There is no guarantee that a bond's yield to call or maturity will provide a positive return over the rate of inflation. BOND FUND A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund's net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed. BOND ANTICIPATION NOTES Obligations sold by a municipality on an interim basis in anticipation of the municipality's issuance of a longer-term bond in the future. 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, state and local governments 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. 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 limit 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 principal to its debtholders. PORTFOLIO TERMS To help reduce the space occupied by the portfolio holdings, we use the following terms. Most of them appear within descriptions of individual securities in municipal funds, and describe features of the issuer or the security. Some of these are more fully defined elsewhere in the Glossary. ACES Adjustable convertible extendable security BAN Bond anticipation note COP Certificate of participation GAN Grant anticipation note GO General obligation HDA Housing Development Authority HFA Housing Finance Agency IDA Industrial Development Authority IDB Industrial Development Board IDRB Industrial Development Revenue Bond M/F Multi-family RAN Revenue anticipation note RB Revenue bond S/F Single-family TAN Tax anticipation note TECP Tax-exempt commercial paper TRAN Tax and revenue anticipation note VRD Variable-rate demand 28 DOLLAR-WEIGHTED AVERAGE MATURITY (DWAM) See weighted average maturity. EFFECTIVE YIELD A measurement of a fund's yield that assumes that all dividends were 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 a 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 A security that when tendered is paid from funds advanced by an entity other than the issuer (such as a large financial institution). Liquidity enhancements are often used on variable-rate securities where the portfolio manager has an option to tender the securities prior to their final maturity. MATURITY The date a debt security is scheduled to be "retired" and its principal amount returned to the bondholder. MONEY MARKET SECURITIES High-quality, short-term debt securities that may be issued by entities such as the U.S. government, corporations and financial institutions (such as banks). Money market securities include commercial paper, promissory notes, certificates of deposit, banker's acceptances, notes and time deposits. MUNI, MUNICIPAL BONDS, 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. REVENUE ANTICIPATION NOTES Obligations that are issued in expectation of the receipt of revenue, such as income taxes, property taxes, etc. 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%). TOTAL RETURN The percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested. TAX ANTICIPATION NOTES Notes that typically are sold to finance the cash flow needs of municipalities in anticipation of the receipt of taxes on a future date. 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. WEIGHTED AVERAGE MATURITY For mutual funds, the maturity of all the debt securities in its portfolio, calculated as a weighted average. As a rule, the longer a fund's weighted average maturity, the greater its interest rate risk. Money funds are required to maintain a weighted average maturity of no more than 90 days. YIELD The income paid out by an investment, expressed as a percentage of the investment's market value. 29 NOTES NOTES NOTES Schwab Funds(R) offers you a complete 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're 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, and 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. METHODS FOR PLACING ORDERS The following information outlines how Schwab investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET 1 www.schwab.com SCHWAB BY PHONE(TM) 2 Use our automated voice service or speak to a representative. Call 1-800-435-4000, day or night (for TDD service, call 1-800-345-2550). TELEBROKER(R) Use our automated touch-tone phone service at 1-800-272-4922. MAIL Write to Schwab Funds at: P.O. Box 3812 Englewood, CO 80155-3812 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. 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.schwab.com/schwabfunds, 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.schwab.com/schwabfunds or the SEC's website at http://www.sec.gov. 1 Shares of Sweep Investments(TM) may not be purchased directly over the Internet. 2 Orders placed in person or through a telephone representative may be subject to a service fee payable to Schwab. THE SCHWAB FUNDS FAMILY(R) STOCK FUNDS Schwab S&P 500 Index Fund Schwab 1000 Index(R) Fund Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) Schwab Premier Equity Fund(TM) Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) Schwab Financial Services Fund(TM) Schwab Health Care Fund(TM) Schwab Technology Fund(TM) Schwab Institutional Select(R) S&P 500 Fund ASSET ALLOCATION FUNDS 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 2020 Fund Schwab Target 2030 Fund Schwab Target 2040 Fund Schwab Retirement Income Fund BOND FUNDS Schwab YieldPlus Fund(R) Schwab Short-Term Bond Market Fund(TM) Schwab Total Bond Market Fund(TM) Schwab GNMA Fund(TM) Schwab Tax-Free YieldPlus Fund(TM) Schwab Short/Intermediate Tax-Free Bond Fund(TM) Schwab Long-Term Tax-Free Bond Fund(TM) Schwab California Tax-Free YieldPlus Fund(TM) Schwab California Short/Intermediate Tax-Free Bond Fund(TM) Schwab California Long-Term 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 liquidity. 3 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(R). 3 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. [CHARLES SCHWAB LOGO] INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. (Schwab) FUNDS Schwab Funds(R) P.O. Box 3812, Englewood, CO 80155-3812 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)2005 Charles Schwab & Co., Inc. All rights reserved. Member SIPC Printed on recycled paper. MFR13602-09 SCHWAB MUNICIPAL MONEY FUND(TM) SEMIANNUAL REPORT June 30, 2005 [CHARLES SCHWAB LOGO] IN THIS REPORT Management's Discussion ................................................ 2 Performance and Fund Facts ............................................. 5 Fund Expenses .......................................................... 6 Financial Statements ................................................... 7 Financial Notes ........................................................ 57 Investment Advisory Agreement Approval ................................. 60 Trustees and Officers .................................................. 63 Glossary ............................................................... 66 Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM). Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab). [PHOTO OF CHARLES SCHWAB] Charles Schwab Chairman FROM THE CHAIRMAN Dear Shareholder, I have always believed that it's important to make sure that your cash is earning income between long-term investments by putting the money into a money market fund. While no investment is risk-free, money market funds carry, perhaps, the least amount of risk, as they generally are not as volatile as stocks or stock mutual funds. Money funds are good choices for investors who want to mitigate the potential fluctuations that may occur in their mostly stock portfolios. At Schwab, we offer a range of money funds with distinct investment strategies. Our municipal money funds, for example, may be beneficial for those of you in the higher tax brackets. We also offer money funds for those interested in the added protection provided by a portfolio of U.S. government securities. In addition, several of the Schwab money funds offer share classes that carry lower expenses in exchange for higher investment minimums. Now, as a result of the Federal Reserve having raised short-term interest rates eight times in the past 12 months (four during the six-month period covered in this report), yields on money market mutual funds are more attractive than they have been in many years. Not only that, but it's likely that the Fed will raise these rates again this year. Based on this expectation, we anticipate that the yields on money market funds will continue to move upwards over the next few months. On behalf of Schwab Funds, I want to thank you for investing with us and remind you that our commitment to our shareholders will never waver. Sincerely, /s/ Charles R. Schwab MANAGEMENT'S DISCUSSION for the six months ended June 30, 2005 [PHOTO OF EVELYN DILSAVER] EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management, Inc. and is president of the funds covered in this report. She joined the firm in 1992 and has held a variety of executive positions at Schwab. Dear Shareholder, When I assumed my new role as President and CEO of Schwab Funds(R) last year, I pledged that I would be committed to offering you more relevant choices and better value. I am pleased to report that we already have done both. On July 1, 2005, Schwab Funds launched the Schwab Target Funds(TM), a suite of five mutual funds to help keep your retirement investments properly allocated over your lifetime. With a single investment in a Schwab Target Fund, you can avoid a common investment mistake--failing to adjust your portfolio over time. The funds are designed to provide shareholders with investment management, asset allocation and ongoing re-allocation over time. You simply choose the fund that most closely matches the date of your retirement and our experienced portfolio managers will do the rest. They will rebalance four of the five funds from more aggressive to more conservative as you get closer to your retirement date. The fifth fund is designed to help generate income and additional growth after you've retired. It also is a good choice for investors already enjoying their retirement. These no-load funds are a good value, as the funds have access to the lowest-priced eligible share class on the underlying Schwab affiliate funds. And because the funds invest in groups of other Schwab affiliate funds, they provide an additional layer of diversification. At Schwab, we believe that having an asset-allocation plan that fits your retirement goals, time frame and tolerance for risk is a key element in meeting your long-term investment goals. The Schwab Target Funds are designed to help you do this. I encourage you to learn more about these funds at www.schwab.com/target, or call Schwab. Thank you for investing in Schwab Funds. Sincerely, /s/ Evelyn Dilsaver Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus carefully before investing. 2 Schwab Municipal Money Fund [PHOTO OF KEVIN SHAUGHNESSY] KEVIN SHAUGHNESSY, CFA, a vice president of the investment adviser and senior portfolio manager, is responsible for the overall management of the fund. Prior to joining the firm in 2000, he worked for more than 10 years in fixed income portfolio management. [PHOTO OF WALTER BEVERIDGE] WALTER BEVERIDGE, a portfolio manager, is responsible for day-to-day management of the fund. Prior to joining the firm in 1992, he worked for nearly 10 years in asset management. THE INVESTMENT ENVIRONMENT AND THE FUND Oil prices hit highs never seen before and the Federal Reserve Open Market Committee continued to raise short-term interest rates to curb inflationary pressures, raising rates for the fourth time this year. At the same time, GDP continued to grow at a healthy pace and the housing market remained strong, largely due to low mortgage rates. The firming labor market, as well as steady gains in capital spending, kept the economic expansion on a self-sustaining path. Businesses, unable to continue boosting productivity by restraining hiring, added new jobs during the six-month report period. Moreover, many leading indicators, such as the Institute for Supply Management's business activity surveys, suggested ongoing expansion, while continuing claims for unemployment benefits remained near cyclical lows. Business investments grew only modestly, but consumers continued to spend. In fact, consumer confidence rose to a level not experienced since before September 11, 2001. With consumers in a spending mode and consumer spending comprising about 70% of GDP, first quarter GDP remained strong and retail sales were healthy. In this positive economic environment, strong labor market conditions remained positive for domestic consumption. While high energy prices remained a significant headwind for economic performance, supply no longer was the issue; demand, especially in China, drove prices up. At the end of the six-month report period, a barrel of oil cost $56.50 versus $42.55 at the beginning of 2005. Though high oil and commodity prices could have hampered growth and stirred inflationary pressures, productivity gains, slow growth in the money supply and slack in the economy have mostly kept a lid on core inflation. The productivity gains, coupled with foreign central banks buying large amounts of U.S. Treasury securities, also helped to keep long-term interest rates under control. These conditions also caused the dollar to rally unexpectedly, which took a little bit of pressure off the price of imported goods. Amid signs of solidly expanding output and improved hiring, the Fed continued to tighten. It increased short-term interest rates at each of the four meetings in the first half of 2005, ending the six-month report Schwab Municipal Money Fund 3 MANAGEMENT'S DISCUSSION continued In this type of economic climate and market environment, we allowed the fund's weighted average maturity (WAM) to shorten to a more neutral position versus our peers. period at a still moderate 3.25%. The moves have had a limited impact on overall economic growth, due primarily to the record-low level of rates from which the increases began. Nonetheless, the higher rates succeeded in moving money fund yields higher, making them a more attractive investment vehicle. AS NOTED ABOVE, THE FED CONTINUED IN ITS TIGHTENING MODE, RAISING SHORT-TERM INTEREST RATES 0.25% AT EACH OF ITS FOUR MEETINGS THIS YEAR. At the end of the six-month report period, the rate was 3.25%. The higher taxable rates translated into higher municipal money market yields, as well. Yields on municipal variable-rate demand notes rose significantly during this period. The Bond Market Association's seven-day muni index averaged 2.25% during the six-month report period, 0.80% higher than the prior six-month period. This change had a positive impact on muni money fund yields, which rose 0.60% on average over the report period. In this type of economic climate and market environment, we allowed the fund's weighted average maturity (WAM) to shorten to a more neutral position versus our peers. When the opportunity arose, we added commercial paper with maturities of 30-90 days, as they offered the best relative value of any other assets during the report period. We also increased our exposure to attractively priced seven-day variable-rate notes. Despite the ongoing rising-rate environment, municipal-note supply remained steady in the first half of 2005. During this period, issuance of commercial paper and seven-day variable-rate notes was strong. 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. 4 Schwab Municipal Money Fund PERFORMANCE AND FUND FACTS as of 6/30/05 SEVEN-DAY YIELDS 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.
SWEEP VALUE ADVANTAGE SELECT INSTITUTIONAL SHARES SHARES(TM) SHARES(R) SHARES Ticker Symbol SWXXX SWTXX SWLXX SWOXX ------------------------------------------------------------------------------------------------------------------------------------ SEVEN-DAY YIELD 1 1.84% 2.04% 2.14% 2.25% ------------------------------------------------------------------------------------------------------------------------------------ SEVEN-DAY YIELD-NO WAIVER 2 1.68% 1.91% 1.91% 1.91% ------------------------------------------------------------------------------------------------------------------------------------ SEVEN-DAY EFFECTIVE YIELD 1 1.86% 2.06% 2.17% 2.28% ------------------------------------------------------------------------------------------------------------------------------------ SEVEN-DAY TAXABLE-EQUIVALENT 2.86% 3.17% 3.34% 3.51% EFFECTIVE YIELD 1, 3 ------------------------------------------------------------------------------------------------------------------------------------
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.SCHWAB.COM/SCHWABFUNDS. STATISTICS Money funds must maintain a dollar-weighted average maturity of no longer than 90 days, and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months). WEIGHTED AVERAGE MATURITY 39 days ------------------------------------------------------------------------------------------------------------------------------------ CREDIT QUALITY OF HOLDINGS % of portfolio 100% Tier 1 ------------------------------------------------------------------------------------------------------------------------------------ CREDIT-ENHANCED SECURITIES % of portfolio 75% ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM INITIAL INVESTMENT 4 Sweep Investments(TM) * Value Advantage Shares $25,000 ($15,000 for IRA and custodial accounts) Select Shares $1,000,000 Institutional Shares $3,000,000 ------------------------------------------------------------------------------------------------------------------------------------
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. 1 Fund expenses have been partially absorbed by CSIM and Schwab. 2 Yield if fund expenses had not been partially absorbed by CSIM and Schwab. 3 Taxable-equivalent effective yield assumes a 2005 maximum federal regular income tax rate of 35.00%. Investment income may be subject to the Alternative Minimum Tax. 4 Please see prospectus for further detail and eligibility requirements. * Subject to the eligibility terms and conditions of your Schwab account agreement. Schwab Municipal Money Fund 5 FUND EXPENSES 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, 2005 and held through June 30, 2005. 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 EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2 (Annualized) at 1/1/05 at 6/30/05 1/1/05-6/30/05 ------------------------------------------------------------------------------------------------------------------------------------ SCHWAB MUNICIPAL MONEY FUND(TM) Sweep Shares Actual Return 0.66% $1,000 $1,007.50 $3.29 Hypothetical 5% Return 0.66% $1,000 $1,021.52 $3.31 Value Advantage Shares(TM) Actual Return 0.45% $1,000 $1,008.60 $2.24 Hypothetical 5% Return 0.45% $1,000 $1,022.56 $2.26 Select Shares(R) Actual Return 0.35% $1,000 $1,009.00 $1.74 Hypothetical 5% Return 0.35% $1,000 $1,023.06 $1.76 Institutional Shares Actual Return 0.24% $1,000 $1,009.60 $1.20 Hypothetical 5% Return 0.24% $1,000 $1,023.60 $1.20
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for each share class are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year. 6 Schwab Municipal Money Fund SCHWAB MUNICIPAL MONEY FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- SWEEP SHARES 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 --------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 (0.00) 1 0.01 0.02 0.03 --------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.00) 1 (0.01) (0.02) (0.03) --------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 --------------------------------------------------------------------- Total return (%) 0.75 2 0.60 0.46 0.91 2.23 3.53 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.66 3 0.66 0.66 0.66 0.66 0.67 4 Gross operating expenses 0.81 3 0.81 0.81 0.82 0.83 0.84 Net investment income 1.51 3 0.60 0.46 0.90 2.21 3.47 Net assets, end of period ($ x 1,000,000) 7,067 7,563 7,494 7,435 7,265 6,780
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- VALUE ADVANTAGE SHARES 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 --------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 0.01 0.01 0.02 0.04 --------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.01) (0.01) (0.02) (0.04) --------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 --------------------------------------------------------------------- Total return (%) 0.86 2 0.81 0.68 1.12 2.45 3.75 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.45 3 0.45 0.45 0.45 0.45 0.46 5 Gross operating expenses 0.58 3 0.58 0.58 0.59 0.61 0.64 Net investment income 1.72 3 0.80 0.68 1.11 2.35 3.70 Net assets, end of period ($ x 1,000,000) 3,206 3,245 3,901 4,480 3,778 2,919
* Unaudited. 1 Per-share amount was less than $0.01. 2 Not annualized. 3 Annualized. 4 The ratio of net operating expenses would have been 0.66% if certain non-routine expenses (proxy fees) had not been included. 5 The ratio of net operating expenses would have been 0.45% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 7 SCHWAB MUNICIPAL MONEY FUND
1/1/05- 1/1/04- 6/2/03 1- SELECT SHARES 6/30/05* 12/31/04 12/31/03 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 --------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 (0.00) 2 --------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.00) 2 --------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 --------------------------------------------------------------------- Total return (%) 0.90 3 0.92 0.39 3 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.35 4 0.35 0.35 4 Gross operating expenses 0.59 4 0.58 0.58 4 Net investment income 1.84 4 0.93 0.68 4 Net assets, end of period ($ x 1,000,000) 863 727 474
1/1/05- 1/1/04- 6/2/03 1- INSTITUTIONAL SHARES 6/30/05* 12/31/04 12/31/03 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 --------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 (0.00) 2 --------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.00) 2 --------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 --------------------------------------------------------------------- Total return (%) 0.96 3 1.03 0.45 3 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.24 4 0.24 0.24 4 Gross operating expenses 0.58 4 0.58 0.58 4 Net investment income 1.92 4 1.08 0.80 4 Net assets, end of period ($ x 1,000,000) 1,597 1,459 718
* Unaudited. 1 Commencement of operations. 2 Per-share amount was less than $0.01. 3 Not annualized. 4 Annualized. 8 See financial notes. SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities: + Credit-enhanced security ~ Liquidity-enhanced security @ Variable-rate security * Delayed-delivery security / Restricted but deemed liquid security comprised of 144A = All or a portion of this security is held as collateral for delayed-delivery security For fixed-rate obligations, the rate shown is the effective yield at the time of purchase. For variable-rate obligations, the rate shown is the rate as of the report date. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date. For variable-rate obligations without demand features, the maturity shown is the next interest rate change date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 103.2% MUNICIPAL SECURITIES 13,143,595 13,143,595 -------------------------------------------------------------------------------- 103.2% TOTAL INVESTMENTS 13,143,595 13,143,595 (3.2)% OTHER ASSETS AND LIABILITIES (410,672) -------------------------------------------------------------------------------- 100.0% NET ASSETS 12,732,923
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) MUNICIPAL SECURITIES 103.2% of net assets ALABAMA 0.9% ALABAMA IDA +@ IDRB (Scientific Utilization) Series 1996 2.65%, 07/07/05 1,620 1,620 BESSEMER MEDICAL CLINIC BOARD +~ RB Series 1990A 2.80%, 06/15/06 14,725 14,725 BIRMINGHAM PUBLIC EDUCATIONAL BUILDING AUTH +@ Student Housing RB Series 2005A 2.29%, 07/07/05 6,415 6,415 BIRMINGHAM SPECIAL CARE FACILITIES FINANCING AUTH +@ Health Care Facility RB (Eastern Health System) Series 2003A 2.28%, 07/07/05 36,500 36,500 DAPHNE UTILITIES BOARD +~@ Water, Gas & Sewer Refunding RB Series 2000 2.31%, 07/07/05 7,630 7,630 DECATUR IDB @ Exempt Facilities Refunding RB (Nucor Steel Decatur) Series 2003A 2.33%, 07/07/05 17,000 17,000 DOTHAN IDB +@ IDRB (Baxley Blowpipe) Series 1997 3.03%, 07/07/05 200 200 FT PAYNE IDA +@ IDRB (Charleston Hosiery) Series 1997 2.39%, 07/07/05 800 800 HOOVER BOARD OF EDUCATION +~@/ Capital Outlay TAN Series 2001 2.32%, 07/07/05 9,860 9,860 INDIAN SPRINGS VILLAGE +@ RB (Joseph Bruno Montessori Academy) Series 1999 2.50%, 07/07/05 1,190 1,190
See financial notes. 9 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) SCOTTSBORO +@ School Warrants Series 1997 2.29%, 07/07/05 3,655 3,655 STEVENSON IDB +@ Environmental Improvement RB (Mead Corp) Series 1997 2.32%, 07/07/05 17,300 17,300 TUSCALOOSA CNTY +@ IDRB (Knight Specialties) Series 1998 2.55%, 07/07/05 885 885 ----------- 117,780 ALASKA 0.3% ALASKA HFC +~@/ General Mortgage RB Series 1999A 2.32%, 07/07/05 21,805 21,805 ~@ General Mortgage RB Series 2002A 2.32%, 07/07/05 5,995 5,995 ALASKA INDUSTRIAL DEVELOPMENT & EXPORT AUTH +~@ Revolving Fund Bonds Series 1997A 2.36%, 07/07/05 4,850 4,850 ----------- 32,650 ARIZONA 1.6% ARIZONA HEALTH FACILITIES AUTH +~@ Hospital RB (Northern Arizona Healthcare System) Series 1996B 2.28%, 07/07/05 7,050 7,050 +~@ RB (Arizona Voluntary Hospital Federation Pooled Loan Program) Series 1985A 2.28%, 07/07/05 5,595 5,595 +~@ RB (Arizona Voluntary Hospital Federation Pooled Loan Program) Series 1985B 2.28%, 07/07/05 9,310 9,310 ARIZONA HIGHER EDUCATION LOAN AUTH @ Student Loan RB Sr Series 2005A 2.80%, 08/11/05 88,900 88,900 CHANDLER IDA +@ IDRB (South Bay Circuits) Series 1999A 2.46%, 07/07/05 1,300 1,300 DEER VALLEY UNIFIED SD NO.97 + School Improvement Bonds Project of 2004 Series 2005A 2.64%, 07/01/06 10,000 10,133 MARICOPA CNTY IDA +@ M/F Mortgage Refunding RB (San Fernando Apts) Series 2004 2.32%, 07/07/05 7,750 7,750 PHOENIX CIVIC IMPROVEMENT CORP +@ Subordinated Excise Tax RB (Airport Improvements) Series 1995 2.28%, 07/07/05 1,000 1,000 PINE RIDGE VILLAGE/CAMPUS HEIGHTS LLC +~@ RB (Northern Arizona University) Series 2005 2.32%, 07/07/05 20,000 20,000 SALT RIVER PIMA-MARICOPA INDIAN COMMUNITY +@ Bonds Series 2005 2.30%, 07/07/05 5,000 5,000 SUN DEVIL ENERGY CENTER +~@ RB (Arizona State University) Series 2004 2.32%, 07/07/05 19,000 19,000 TEMPE IDA +@ RB (ASUF Brickyard) Series 2004A 2.30%, 07/07/05 11,210 11,210 YAVAPAI CNTY IDA +~@ Hospital RB (Yavapai Regional Medical Center) Series 1997B 2.28%, 07/07/05 14,250 14,250 ----------- 200,498
10 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) ARKANSAS 0.1% ARKANSAS DEVELOPMENT FINANCE AUTH +@ IDRB (C&C Holding Co) Series 1998 2.40%, 07/07/05 850 850 INDEPENDENCE CNTY +@ IDRB (Townsends) Series 1996 2.34%, 07/07/05 9,000 9,000 ----------- 9,850 CALIFORNIA 3.9% ACCESS LOANS FOR LEARNING STUDENT LOAN CORP +@ Student Loan Program RB Series II-A1 2.33%, 07/07/05 35,000 35,000 +@ Student Loan Program RB Series II-A2 2.35%, 07/07/05 20,000 20,000 +@ Student Loan Program RB Series II-A3 2.33%, 07/07/05 23,700 23,700 +@ Student Loan Program RB Sr Series II-A8 2.35%, 07/07/05 22,150 22,150 +@ Student Loan Program RB Sr Series II-A9 2.30%, 07/07/05 74,000 74,000 CALIFORNIA +~@ Various Purpose GO Bonds 2.56%, 07/07/05 110 110 CALIFORNIA DEPT OF WATER RESOURCES +@ Power Supply RB Series 2002C-17 2.35%, 07/07/05 1,000 1,000 CALIFORNIA HFA +~@ Home Mortgage RB Series 2003D 2.28%, 07/07/05 13,000 13,000 +~@ Home Mortgage RB Series 2003H 2.28%, 07/07/05 975 975 ~@= Home Mortgage RB Series 2005A 2.28%, 07/07/05 52,000 52,000 ~@ Home Mortgage RB Series 2005B 2.37%, 07/01/05 30,220 30,220 ~@ M/F Housing RB III Series 2002E 2.29%, 07/07/05 6,330 6,330 CALIFORNIA SCHOOL CASH RESERVE PROGRAM AUTH + Pool Bonds Series 2004A 1.60%, 07/06/05 10,000 10,002 CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTH * TRAN Series 2005A-2 2.62%, 06/30/06 12,500 12,668 * TRAN Series 2005A-3 2.62%, 06/30/06 7,500 7,600 TRAN Series 2005A-4 * 2.62%, 06/30/06 42,500 43,070 * 2.63%, 06/30/06 30,000 30,399 * TRAN Series 2005A-5 2.62%, 06/30/06 50,000 50,670 2.63%, 06/30/06 18,000 18,240 LOS ANGELES CNTY METROPOLITAN TRANSPORTATION AUTH + Second Subordinate Sales Tax Revenue TECP Series A 2.37%, 07/06/05 28,051 28,051 SAN JOAQUIN CNTY TRANSPORTATION AUTH + Sales Tax Revenue TECP 2.45%, 07/07/05 7,000 7,000 UNIVERSITY OF CALIFORNIA TECP Series A 2.43%, 07/07/05 10,000 10,000 ----------- 496,185 COLORADO 5.0% ARAPAHOE CNTY +@ Refunding IDRB (Denver Jetcenter) Series 1997 3.00%, 07/30/05 3,500 3,500 ARVADA +~@ Water Enterprise RB Series 2001 2.90%, 07/01/05 4,100 4,100
See financial notes. 11 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) CENTERRA METROPOLITAN DIST NO.1 +@ RB Series 2004 2.31%, 07/07/05 10,000 10,000 COLORADO ~@ Education Loan Program TRAN Series 2004A 2.43%, 07/07/05 34,920 34,920 General Fund TRAN Series 2005A 2.62%, 06/27/06 230,000 232,641 COLORADO DEPT OF TRANSPORTATION +~@ Transportation RAN Series 2004A 2.31%, 07/07/05 9,500 9,500 COLORADO EDUCATIONAL & CULTURAL FACILITIES AUTH +@ Student Housing Facilities RB (Campus Village Apts) Series 2005 2.30%, 07/07/05 22,865 22,865 COLORADO HEALTH FACILITIES AUTH +~@ Hospital Revenue RB (NCMC, Inc) Series 2005 2.28%, 07/08/05 17,000 17,000 COLORADO HOUSING & FINANCE AUTH +@ Economic Development RB (Pemracs) Series 2000A 2.46%, 07/07/05 3,370 3,370 S/F Mortgage Class I Bonds Series 2004A-4 1.82%, 08/01/05 26,300 26,300 ~@/ S/F Program Sr Bonds Series 1995D 2.43%, 07/07/05 720 720 COLORADO STUDENT LOAN AUTH +~@ Sr Lien Student Loan RB Series 1999A-2 2.34%, 07/07/05 28,400 28,400 +~@ Sr Lien Student Loan RB Series 1999A-3 2.34%, 07/07/05 29,800 29,800 +~@ Student Loan Program Sr Bonds Series 1990A 2.40%, 07/07/05 14,400 14,400 +~@ Student Loan RB Series 1989A 2.34%, 07/07/05 49,400 49,400 DENVER CITY & CNTY +@= Airport System RB Series 1992F 2.33%, 07/07/05 17,875 17,875 +@= Airport System RB Series 1992G 2.33%, 07/07/05 18,325 18,325 +~@= Airport System Refunding RB Series 2000B 2.40%, 07/07/05 10,000 10,000 +~@= Airport System Refunding RB Series 2000C 2.33%, 07/07/05 50,000 50,000 +~@ Refunding COP (Wellington E Webb Municipal Office Building) Series 2003C-3 2.30%, 07/07/05 20,000 20,000 LOWRY ECONOMIC DEVELOPMENT AUTH +@ IDRB Series 2002B 2.30%, 07/07/05 14,140 14,140 +@ Refunding RB Series 2002A 2.30%, 07/07/05 11,260 11,260 REGIONAL TRANSPORTATION DIST + Subordinated Lien Sales Tax Revenue TECP Series 2001A 2.60%, 07/07/05 7,500 7,500 WESTMINSTER ECONOMIC DEVELOPMENT AUTH +@ Tax Increment RB (Westminster Plaza) Series 1997A 2.46%, 07/07/05 6,310 6,310 ----------- 642,326 CONNECTICUT 1.4% CONNECTICUT HFA +~@/ Housing Draw Down Bonds Series 2004B 2.33%, 07/07/05 8,205 8,205 +~@ S/F Mortgage RB Draw Down Series 2004B 2.33%, 07/07/05 138,780 138,780
12 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) FAIRFIELD GO BAN Series 2004 1.50%, 07/28/05 25,000 25,027 ----------- 172,012 DELAWARE 0.3% DELAWARE ECONOMIC DEVELOPMENT AUTH +~@ RB (Hospital Billing & Collection Service) Series 1985 2.21%, 07/07/05 1,115 1,115 NEW CASTLE CNTY +@ Airport Facility RB (Flightsafety International) Series 2002 2.32%, 07/07/05 16,600 16,600 +@ M/F Rental Housing RB (Fairfield English Village) Series 2005 2.32%, 07/07/05 8,500 8,500 SUSSEX CNTY +@ IDRB (Perdue-Agrirecycle) Series 2000 2.34%, 07/07/05 5,300 5,300 +@ RB (Baywood) Series 1997A 2.51%, 07/07/05 2,400 2,400 ----------- 33,915 DISTRICT OF COLUMBIA 1.3% DISTRICT OF COLUMBIA +@ Enterprise Zone RB (Crowell & Moring) Series 2001 2.34%, 07/07/05 3,300 3,300 Fiscal Year 2005 GO TRAN 2.50%, 09/30/05 100,000 100,234 +~@ GO Bonds Series 2003D-3 2.27%, 07/07/05 9,000 9,000 +~@ GO Refunding Bonds Series 1999B 2.31%, 07/07/05 14,640 14,640 +@ RB (American Psychological Association) Series 2003 2.35%, 07/07/05 2,755 2,755 +@ RB (St Coletta Special Education Public Charter School) Series 2005 2.30%, 07/07/05 4,150 4,150 DISTRICT OF COLUMBIA WATER & SEWER AUTH +~@/ Public Utility Subordinated Lien RB Series 2003 2.31%, 07/07/05 13,185 13,185 METROPOLITAN WASHINGTON AIRPORTS AUTH +~@ Airport System RB Series 1997B 2.36%, 07/07/05 1,655 1,655 +~@ Airport System RB Series 2001A 2.36%, 07/07/05 5,870 5,870 +~@ Airport System Refunding RB Series 2002C 2.30%, 07/07/05 1,900 1,900 +~@ Airport System Refunding RB Series 2004D 2.36%, 07/07/05 2,750 2,750 ----------- 159,439 FLORIDA 8.8% ALACHUA CNTY HEALTH FACILITIES AUTH +~@ Health Facilities RB (Shands Hospital, University of Florida) Series 1992R 2.31%, 07/07/05 29,540 29,540 BREVARD CNTY HEALTH FACILITIES AUTH +@ RB (Wuesthoff Health Systems) Series 2004 2.29%, 07/07/05 10,800 10,800 BREVARD CNTY HFA +@ M/F Housing RB (Manatee Cove Apts) Series 2005 2.34%, 07/07/05 5,715 5,715 +@ M/F Housing Refunding RB (Shore View Apts) Series 1995 2.35%, 07/07/05 1,900 1,900 BROWARD CNTY EDUCATIONAL FACILITIES AUTH +@ Educational Facilities RB (Nova Southeastern University) Series 2000A 2.29%, 07/07/05 10,890 10,890
See financial notes. 13 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) BROWARD CNTY HFA +@ M/F Housing RB (Landings of Inverrary Apts) Series 1985 2.39%, 07/07/05 7,500 7,500 +@ M/F Housing RB (Pembroke Village Apts) Series 2004 2.31%, 07/07/05 7,000 7,000 +@ M/F Housing RB (Pier Club Village Apts) Series 2004 2.29%, 07/07/05 13,800 13,800 +@ M/F Housing RB (Sanctuary Apts) Series 1985 2.39%, 07/07/05 9,000 9,000 +@ M/F Housing RB (Southern Pointe) Series 1997 2.28%, 07/07/05 7,750 7,750 +@ M/F Housing Refunding RB (Island Club Apts) Series 2001A 2.28%, 07/07/05 3,000 3,000 +@ M/F Housing Refunding RB (Reflections Apts) Series 1999 2.30%, 07/07/05 10,000 10,000 +@ M/F Housing Refunding RB (Water's Edge) Series 1997 2.28%, 07/07/05 100 100 BROWARD COUNTY SD +~@ School Board COP Series 2005B 2.30%, 07/07/05 14,460 14,460 CHARLOTTE CNTY +~@ Refunding RB Series 2003A 2.30%, 07/07/05 30,265 30,265 +~@ Refunding RB Series 2003B 2.30%, 07/07/05 5,800 5,800 CHARLOTTE CNTY HFA +@ M/F Housing RB (Murdock Circle Apts) Series 2000 2.34%, 07/07/05 3,240 3,240 CLAY CNTY UTILITY AUTH +@ Utilities System RB Series 2003A 2.30%, 07/07/05 3,225 3,225 COLLIER CNTY HEALTH FACILITIES AUTH +@ Health Facility RB (The Moorings, Inc) Series 2005 2.38%, 07/07/05 27,000 27,000 COLLIER CNTY HFA +@ M/F Housing RB (Brittany Bay Apts) Series 2001A 2.26%, 07/07/05 1,450 1,450 COLLIER CNTY IDA +@ Educational Facilities RB (Community School of Naples) Series 2002 2.30%, 07/07/05 7,650 7,650 DADE CNTY +~@ Water & Sewer System RB Series 1994 2.26%, 07/07/05 95,850 95,850 DAVIE +@ RB (United Jewish Community of Broward Cnty) Series 2003 2.30%, 07/07/05 4,600 4,600 ESCAMBIA HFA +~@ S/F RB Series 2001A 2.40%, 07/07/05 1,705 1,705 EUSTIS +@ RB Installment 1997A 2.29%, 07/07/05 3,475 3,475 FLORIDA HFA +@ Housing RB (Ashley Lake Park II) Series 1989J 2.26%, 07/07/05 19,535 19,535 +@ Housing RB (Caribbean Key Apts) Series 1996F 2.34%, 07/07/05 10,000 10,000 +@ Housing RB (Heron Park) Series 1996U 2.26%, 07/07/05 3,700 3,700 +@ M/F Guaranteed Mortgage RB (Oaks At Regency) Series 1983K 2.30%, 07/07/05 6,925 6,925 +@ M/F Housing RB (Cameron Cove Apts) Series 1985XX 2.41%, 07/07/05 6,100 6,100
14 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ M/F Housing Refunding RB (Reflections Apts) Series 2001K-A 2.27%, 07/07/05 10,600 10,600 +@ M/F Mortgage RB (Arlington Apts) Series 2004G-1 2.35%, 07/07/05 11,340 11,340 +@ M/F Mortgage RB (Clarcona Groves Apts) Series 2005A 2.31%, 07/07/05 1,000 1,000 +@ M/F Mortgage RB (Pinnacle Pointe Apts) Series 2003N 2.31%, 07/07/05 1,200 1,200 +@ M/F Mortgage Refunding RB (Monterey Lake Apts) Series 2005C 2.27%, 07/07/05 7,325 7,325 +@ M/F Mortgage Refunding RB (Victoria Park Apts) 2002J-1 2.28%, 07/07/05 9,370 9,370 +@ RB (Heritage Pointe Apts) Series 1999I-1 2.34%, 07/07/05 8,500 8,500 FLORIDA LOCAL GOVERNMENT FINANCE COMMISSION Pooled TECP Series 1994A + 2.50%, 08/15/05 6,900 6,900 + 2.60%, 09/13/05 18,114 18,114 + 2.58%, 09/14/05 9,000 9,000 FORT LAUDERDALE +~@ RB (Pine Crest Preparatory School) Series 2002 2.30%, 07/07/05 10,000 10,000 GAINESVILLE +@ IDRB (Lifesouth Community Blood Centers) Series 1999 2.29%, 07/07/05 5,100 5,100 GAINESVILLE UTILITY SYSTEM ~ CP Notes Series C 2.50%, 08/08/05 6,776 6,776 GREATER ORLANDO AVIATION AUTH +~@= Airport Facilities RB Series 2002E 2.30%, 07/07/05 67,790 67,790 Airport Facilities Subordinated TECP Series B + 2.48%, 07/07/05 12,650 12,650 + 2.90%, 07/14/05 18,000 18,000 GULF BREEZE +~@ Local Government Loan Program RB Series 1985B 2.29%, 07/07/05 12,620 12,620 +~@ Local Government Loan Program RB Series 1985C 2.29%, 07/07/05 4,000 4,000 +~@ Local Government Loan Program RB Series 1985E 2.29%, 07/07/05 4,900 4,900 HALIFAX HOSPITAL MEDICAL CENTER +@ RB (Florida Health Care Plan) Series 1998 2.31%, 07/07/05 5,200 5,200 HILLSBOROUGH CNTY AVIATION AUTH Airport Facilities Subordinated TECP Series B + 2.48%, 07/14/05 23,700 23,700 + 2.92%, 07/14/05 16,400 16,400 HILLSBOROUGH CNTY EDUCATIONAL FACILITIES AUTH +@ RB (University of Tampa) Series 2000 2.35%, 07/07/05 5,500 5,500 HILLSBOROUGH CNTY IDA +@ Educational Facilities RB (Berkeley Preparatory School, Inc) Series 1999 2.29%, 07/07/05 4,100 4,100 +~ IDRB (University Community Hospital) Series 1994 2.85%, 06/22/06 11,470 11,470 +@ RB (Tampa Metropolitan Area YMCA) Series 2000 2.35%, 07/07/05 7,600 7,600 JACKSONVILLE ECONOMIC DEVELOPMENT COMMISSION +@ Educational Facilities RB (Episcopal High School) Series 2002 2.30%, 07/07/05 5,600 5,600 +@ Refunding RB (YMCA of Florida First Coast) Series 2003 2.30%, 07/07/05 4,800 4,800
See financial notes. 15 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ Special Facility Airport RB (Holland Sheltair Aviation Group) Series 2004A-1 2.35%, 07/07/05 10,355 10,355 JACKSONVILLE HEALTH FACILITIES AUTH +@ Health Facilities RB (River Garden/The Coves) Series 1994 2.34%, 07/07/05 3,265 3,265 LEE CNTY +@ Educational Facilities RB (Canterbury School) Series 1999 2.29%, 07/07/05 5,900 5,900 MANATEE CNTY HFA +@ M/F Housing RB (La Mirada Gardens) Series 2002A 2.36%, 07/07/05 4,000 4,000 +@ M/F Housing RB (Sabal Palm Harbor Apts) Series 2000A 2.34%, 07/07/05 4,200 4,200 +@ M/F Mortgage Refunding RB (Hampton Court) Series 1989A 2.29%, 07/07/05 3,500 3,500 MARION CNTY IDA +@ M/F Housing Refunding RB (Chambrel at Pinecastle) Series 2002 2.27%, 07/07/05 4,000 4,000 MIAMI HEALTH FACILITIES AUTH +@ Health Facilities RB (Miami Jewish Home & Hospital For the Aged) Series 1996 2.29%, 07/07/05 5,800 5,800 MIAMI-DADE CNTY +~@ Solid Waste System RB Series 2005 2.32%, 07/07/05 10,965 10,965 MIAMI-DADE CNTY IDA +~@ IDRB (Airis Miami LLC) Series 1999A 2.30%, 07/07/05 14,100 14,100 +@ RB (Belen Jesuit Preparatory School) Series 1999 2.29%, 07/07/05 6,665 6,665 MIAMI-DADE CNTY SD RAN Series 2005 2.62%, 06/27/06 25,000 25,332 OKEECHOBEE CNTY +@ Exempt Facility RB (Okeechobee Landfill) Series 1999 2.34%, 07/07/05 15,000 15,000 ORANGE CNTY HEALTH FINANCE AUTH + Refunding Program RB (Pooled Hospital Loan) Series 1985 2.90%, 07/26/05 16,100 16,100 ORANGE CNTY HFA +@ M/F Housing Refunding RB (Andover Place Apts) Series 1998F 2.33%, 07/07/05 7,000 7,000 +@ M/F Housing Refunding RB (Heather Glen Apts) Series 2001E 2.25%, 07/07/05 11,900 11,900 +@ M/F Housing Refunding RB (Post Fountains At Lee Vista) Series 1997E 2.55%, 07/07/05 7,235 7,235 +@ M/F Housing Refunding RB (Smokewood/Sun Key Apts) Series 1992A 2.30%, 07/07/05 18,900 18,900 ORANGE CNTY IDA +@ Educational Facilities RB (UCF Hospitality School Student Housing Foundation) Series 2004 2.29%, 07/07/05 9,000 9,000 +@ IDRB (Goodwill Industries of Central Florida) Series 1999 2.29%, 07/07/05 6,000 6,000 +@ RB (Center For Drug Free Living) Series 1999 2.29%, 07/07/05 8,815 8,815 ORLANDO & ORANGE CNTY EXPRESSWAY AUTH +~@ RB Series 2005C 2.22%, 07/07/05 10,000 10,000
16 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) ORLANDO UTILITIES COMMISSION ~@ Water & Electric RB Series 2002B 2.28%, 07/07/05 4,300 4,300 PALM BEACH CNTY +@ Airport RB (Galaxy Aviation) Series 2000A 2.34%, 07/07/05 8,000 8,000 +@ Economic Development Refunding & Improvement RB (YMCA) Series 2003 2.29%, 07/07/05 13,700 13,700 +@ IDBR (South Florida Blood Banks) Series 2002 2.29%, 07/07/05 7,200 7,200 +@ IDRB (Palm Beach Day School) Series 1999 2.29%, 07/07/05 6,000 6,000 PALM BEACH CNTY EDUCATIONAL FACILITIES AUTH +@ Educational Facilities RB (Lynn University) Series 2001 2.30%, 07/07/05 7,135 7,135 PALM BEACH CNTY HEALTH FACILITIES AUTH + Refunding Program RB (Pooled Hospital Loan Program) Series 1985 2.90%, 07/18/05 7,300 7,300 PALM BEACH CNTY SD + Sales Tax Revenue CP Notes 2.67%, 07/05/05 24,700 24,700 PASCO CNTY SD +~@ COP Series 1996 2.28%, 07/07/05 7,000 7,000 PINELLAS CNTY EDUCATIONAL FACILITIES AUTH +@ RB (Shorecrest Preparatory School) Series 2001 2.31%, 07/07/05 905 905 PINELLAS CNTY HFA +@ M/F Housing RB (Greenwood Apts) Series 2002A 2.35%, 07/07/05 6,460 6,460 PINELLAS CNTY IDA +@ RB (Pact) Series 2003 2.30%, 07/07/05 7,500 7,500 PINELLAS CNTY INDUSTRY COUNCIL +@ RB (Operation Par) Series 1999 2.34%, 07/07/05 4,575 4,575 PORT ST LUCIE +~@= Utility System RB Series 2005 2.31%, 07/07/05 40,000 40,000 +~@ Utility System Refunding RB Series 2004A 2.32%, 07/07/05 15,000 15,000 REEDY CREEK IMPROVEMENT DIST +~@ Utilities Refunding RB Series 2003-2 2.31%, 07/07/05 7,585 7,585 SANTA ROSA CNTY +@ Health Facilities RB (Baptist Hospital) Series 2003 2.30%, 07/07/05 7,590 7,590 SUNSHINE STATE GOVERNMENTAL FINANCING COMMISSION +~ CP Revenue Notes (Miami-Dade Cnty Program) Series G 2.35%, 07/06/05 6,439 6,439 TALLAHASSEE-LEON CNTY CIVIC CENTER AUTH +@ Capital Improvement RB Series 1998A 2.29%, 07/07/05 14,290 14,290 TAMPA +@ RB (Tampa Preparatory School) Series 2000 2.28%, 07/07/05 4,500 4,500 TAMPA BAY WATER UTILITY +@ Utility System RB Series 2002 2.35%, 07/07/05 6,900 6,900 UNIVERSITY OF SOUTH FLORIDA RESEARCH FOUNDATION +@ RB (Interdisciplinary Research Building) Series 2004A 2.30%, 07/07/05 18,155 18,155 VOLUSIA CNTY EDUCATIONAL FACILITIES AUTH +@ Educational Facilities RB (Bethune-Cookman College) Series 2001 2.29%, 07/07/05 10,560 10,560
See financial notes. 17 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) WEST PALM BEACH +~@ Utility System Refunding RB Series 2005 2.26%, 06/30/05 9,000 9,000 ----------- 1,124,356 GEORGIA 4.3% ATLANTA +~@/ Airport General Refunding RB Series 2000A 2.31%, 07/07/05 11,195 11,195 +~@/ Airport General Refunding RB Series 2000C 2.36%, 07/07/05 3,385 3,385 +~@ Airport General Refunding RB Series 2003RF-D 2.36%, 07/07/05 6,180 6,180 +~@ Water & Wastewater RB Series 2004 2.32%, 07/07/05 18,320 18,320 ATLANTA URBAN RESIDENTIAL FINANCE AUTH +@ M/F Housing RB (Brentwood Creek Apts) Series 1999 2.34%, 07/07/05 4,425 4,425 +@ M/F Housing RB (Brentwood Meadows Apts) Series 1999 2.34%, 07/07/05 2,865 2,865 +@ M/F Housing RB (Brentwood Village Apts) Series 1999 2.34%, 07/07/05 5,810 5,810 +@ M/F Housing RB (Carver Redevelopment Phase III) Series 2001 2.34%, 07/07/05 3,440 3,440 +@ M/F Housing RB (Delmonte/ Brownlee Court) Series 2001A 2.34%, 07/07/05 4,600 4,600 +@ M/F Housing RB (Lindbergh City Center Apts) Series 2004 2.35%, 07/07/05 5,000 5,000 +@ M/F Housing RB (M St Apts) Series 2003 2.35%, 07/07/05 7,000 7,000 +@ M/F Housing RB (Peaks at West Atlanta Apts) Series 2001 2.34%, 07/07/05 5,000 5,000 +@ M/F Sr Housing RB (Big Bethel Village) Series 2001 2.34%, 07/07/05 4,400 4,400 AUGUSTA HOUSING AUTH +@ M/F Housing RB (G-Hope) Series 2001 2.34%, 07/07/05 3,685 3,685 BARTOW CNTY +@ IDRB (Bartow Paving Co) Series 1998 2.39%, 07/07/05 1,600 1,600 CHEROKEE CNTY +@ IDRB (Universal Alloy Corp) Series 1996 2.34%, 07/07/05 1,900 1,900 CLAYTON CNTY DEVELOPMENT AUTH +@ IDRB (Wilson Holdings) Series 1998 2.39%, 07/07/05 400 400 CLAYTON CNTY HOUSING AUTH +@ M/F Housing RB (Hyde Park Club Apts) Series 1997 2.35%, 07/07/05 11,995 11,995 COBB CNTY HOUSING AUTH +@ M/F Housing RB (Walton Green Apts) Series 1995 2.34%, 07/07/05 13,500 13,500 +@ M/F Housing RB (Woodchase Village Apts) Series 2003 2.35%, 07/07/05 4,000 4,000 +@ M/F Housing Refunding RB (Walton Park Apts) Series 2000 2.34%, 07/07/05 21,100 21,100 COLUMBUS DEVELOPMENT AUTH +@ RB (Foundation Properties) Series 2002 2.40%, 07/07/05 11,285 11,285 COLUMBUS HOUSING AUTH +@ M/F Housing RB (Eagles Trace Apts) Series 2002 2.34%, 07/07/05 6,200 6,200 DALTON DEVELOPMENT AUTH +@ Revenue Certificates (Hamilton Health Care System) Series 2003B 2.30%, 07/07/05 5,245 5,245
18 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) DAWSON CNTY +@ IDRB (World Wide Manufacturing) Series 1998 2.39%, 07/07/05 1,950 1,950 DEKALB CNTY DEVELOPMENT AUTH +@ RB (Arbor Montessori School) Series 1998 2.29%, 07/07/05 1,100 1,100 DEKALB CNTY HOUSING AUTH +@ M/F Housing RB (Brittany Apts) Series 2001 2.32%, 07/07/05 8,000 8,000 +@ M/F Housing RB (Eagles Trace Apts) Series 1996 2.34%, 07/07/05 8,750 8,750 +@ M/F Housing RB (Mountain Crest Apts) Series 2002 2.34%, 07/07/05 7,775 7,775 +@ M/F Housing RB (Villas of Friendly Heights Apts) Series 2001 2.34%, 07/07/05 3,520 3,520 +@ M/F Housing RB (Wesley Club Apts) Series 2002 2.34%, 07/07/05 5,945 5,945 DEKALB CNTY PUBLIC SAFETY & JUDICIAL FACILITIES AUTH ~@ RB Series 2004A 2.32%, 07/07/05 19,985 19,985 DOUGLAS CNTY IDA +@ IDRB (Blue Circle Aggregates) Series 1997 2.35%, 07/07/05 3,800 3,800 EFFINGHAM CNTY IDA +@ RB (TEMCOR) Series 2001 2.34%, 07/07/05 3,355 3,355 FORSYTH CNTY DEVELOPMENT AUTH +@ Economic Development RB (Federal Road) Series 2001 2.34%, 07/07/05 6,700 6,700 FULTON CNTY +~@ Water & Sewerage RB Series 2004 2.32%, 07/07/05 10,000 10,000 FULTON CNTY DEVELOPMENT AUTH +@ RB (Atlanta International School) Series 1997 2.29%, 07/07/05 2,500 2,500 ~@ RB (Robert W Woodruff Arts Center) Series 2004B 2.29%, 07/07/05 16,000 16,000 +@ RB (Trinity School) Series 2001 2.29%, 07/07/05 7,000 7,000 FULTON-DEKALB HOSPITAL AUTH +~ Refunding Revenue Certificates Series 2003 2.31%, 07/07/05 4,995 4,995 GAINESVILLE REDEVELOPMENT AUTH +@ Educational Facilities RB (Riverside Military Academy) Series 1999 2.29%, 07/07/05 29,500 29,500 GEORGIA ~@/ GO Bonds Series 1998B 2.32%, 07/07/05 20,245 20,245 ~@ GO Bonds Series 2002B 2.31%, 07/07/05 1,100 1,100 GORDON CNTY DEVELOPMENT AUTH +@ RB (Constantine Dyeing) Series 2001 2.34%, 07/07/05 3,020 3,020 GWINNETT CNTY HOUSING AUTH +@ M/F Housing RB (Post Court) Series 1998 2.29%, 07/07/05 5,000 5,000 HART CNTY +@ Refunding RB & IDRB (Dundee Mills) Series 1994 2.34%, 07/07/05 1,725 1,725 HOUSTON CNTY DEVELOPMENT AUTH +@ IDRB (Douglas Asphalt Co) Series 2000 2.34%, 07/07/05 1,500 1,500 JEFFERSON CNTY DEVELOPMENT AUTH +@ IDRB (Grove River Mills) Series 1997 2.39%, 07/07/05 1,500 1,500
See financial notes. 19 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) LAURENS CNTY DEVELOPMENT AUTH +@ Solid Waste Disposal RB (Southeast Paper Manufacturing Co) Series 1993 2.34%, 07/07/05 25,000 25,000 +@ Solid Waste Disposal RB (Southeast Paper Manufacturing Co) Series 1997 2.34%, 07/07/05 26,000 26,000 LAWRENCEVILLE HOUSING AUTH +@/ M/F Housing RB (Chatham Club Apts) Series 2002 2.36%, 07/07/05 7,700 7,700 LOWNDES CNTY DEVELOPMENT AUTH +@ M/F Housing RB (FMPH Valdosta) Series 1999 2.34%, 07/07/05 4,735 4,735 MACON-BIBB CNTY HOSPITAL AUTH +@ Revenue Anticipation Certificates (Medical Center of Central Georgia) Series 1998 2.29%, 07/07/05 4,000 4,000 METROPOLITAN ATLANTA RAPID TRANSIT AUTH Sales Tax Revenue CP BAN (Third Indenture) Series 2004A + 2.55%, 08/08/05 5,000 5,000 + 2.55%, 09/12/05 5,000 5,000 + Sales Tax Revenue CP BAN (Third Indenture) Series 2004B 2.53%, 09/08/05 9,500 9,500 MILLER CNTY DEVELOPMENT AUTH +@ IDRB (Birdsong Corp) Series 2000 2.34%, 07/07/05 2,600 2,600 MUNICIPAL GAS AUTH OF GEORGIA +@ Gas RB (Gas Portfolio III) Series B 2.32%, 07/07/05 54,900 54,900 SAVANNAH ECONOMIC DEVELOPMENT AUTH +@ Exempt Facility RB (Georgia Kaolin Terminal) Series 1997 2.35%, 07/07/05 11,000 11,000 +@ Exempt Facility RB (Home Depot) Series 1995B 2.33%, 07/07/05 5,000 5,000 +@ First Mortgage RB (Marshes of Skidaway Island) Series 2003C 2.39%, 07/07/05 15,000 15,000 SAVANNAH HOUSING AUTH +@ M/F Housing RB (Indigo Pointe Apts) Series 2001A-1 2.34%, 07/07/05 3,500 3,500 +@ M/F Housing RB (Live Oak Plantation Apts) Series 2001A-1 2.34%, 07/07/05 2,500 2,500 SUMMERVILLE DEVELOPMENT AUTH +@ Exempt Facility RB (Image Industries) Series 1997 2.37%, 07/07/05 11,000 11,000 THOMASVILLE HOSPITAL AUTH +@ Revenue Anticipation Certificates (John D Archbold Memorial Hospital) Series 2003 2.29%, 07/07/05 5,900 5,900 WALTON CNTY DEVELOPMENT AUTH +@ RB (Tucker Door & Trim Corp) Series 2000 2.44%, 07/07/05 2,600 2,600 WEBSTER CNTY IDA +@ IDRB (Tolleson Lumber Co) Series 1999 2.34%, 07/07/05 4,000 4,000 WHITFIELD CNTY DEVELOPMENT AUTH +@ RB (Product Concepts Residential) Series 2001 2.34%, 07/07/05 480 480 WINDER-BARROW INDUSTRIAL BUILDING AUTH +@ IDRB (Progress Container Corp) Series 2000 2.34%, 07/07/05 2,405 2,405 WORTH CNTY +@ Refunding IDRB (Seabrook Peanut Co) Series 1996B 2.34%, 07/07/05 1,300 1,300 ----------- 546,615
20 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) HAWAII 0.3% HAWAII +~@ GO Bonds Series 2002CZ 2.31%, 07/07/05 5,900 5,900 +~@/ Special Purpose Refunding RB (Hawaiian Electric Co) Series 2000 2.36%, 07/07/05 9,095 9,095 HAWAII AIRPORTS SYSTEM +~@ Airport System Refunding RB Series 2000B 2.36%, 07/07/05 2,215 2,215 HAWAII HOUSING FINANCE & DEVELOPMENT CORP ~@/ S/F Mortgage Purchase RB 2.43%, 07/07/05 2,760 2,760 HONOLULU CITY & CNTY +~@ GO Bonds Series 2003A 2.32%, 07/07/05 14,995 14,995 ----------- 34,965 IDAHO 0.5% IDAHO * TAN Series 2005 2.64%, 06/30/06 50,000 50,661 IDAHO HFA +@ Housing RB (Assisted Living Concepts) Series 1997 2.40%, 07/07/05 2,990 2,990 IDAHO STATE UNIVERSITY FOUNDATION +@ RB (LE & Thelma E Stephens Performing Arts Center) Series 2001 2.30%, 07/07/05 3,955 3,955 ----------- 57,606 ILLINOIS 6.7% AURORA +@ M/F Housing Refunding RB (Apts of Fox Valley Villages) Series 1999A 2.30%, 07/07/05 9,445 9,445 BARTLETT +@ Special Service Area No.1 Unlimited Ad Valorem Tax Bonds Series 2004 2.31%, 07/07/05 16,600 16,600 CAROL STREAM +@ M/F Housing Refunding RB (St Charles Square) Series 1997 2.41%, 07/07/05 4,415 4,415 CHICAGO ~@/ Collateralized S/F Mortgage RB Series 1999A 2.43%, 07/07/05 1,900 1,900 +~@ GO Bonds Project Series 2003C 2.31%, 07/07/05 5,000 5,000 +~@ GO Refunding Bonds Series 2003B-1 2.29%, 07/07/05 18,650 18,650 +@ M/F Housing RB (Central Station Senior Housing) Series 2004 2.33%, 07/07/05 9,500 9,500 +@ M/F Housing RB (Central Station) Series 2004A 2.33%, 07/07/05 25,170 25,170 +~@/ Midway Airport RB Series 1998C 2.32%, 07/07/05 24,480 24,480 ~@/ Sr Lien Water RB Series 2000 2.32%, 07/07/05 12,975 12,975 CHICAGO BOARD OF EDUCATION +~@/ Unlimited Tax GO Bonds Series 1997 2.31%, 07/07/05 7,120 7,120 CHICAGO O'HARE INTERNATIONAL AIRPORT +@ General Airport Second Lien RB Series 1988B 2.28%, 07/07/05 12,300 12,300 +@= General Airport Second Lien RB Series 1994B 2.29%, 07/07/05 41,484 41,484 +~@ General Airport Third Lien Refunding RB Series 2003A-2 2.36%, 07/07/05 5,295 5,295
See financial notes. 21 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +~@ General Airport Third Lien Refunding RB Series 2003B-2 2.35%, 07/07/05 10,800 10,800 Second Lien Passenger Facility Charge RB Series 2001A +~@ 2.36%, 07/07/05 6,315 6,315 +~@/ 2.37%, 07/07/05 11,070 11,070 +@ Special Facilities RB (O'Hare Tech Center II) Series 2002 2.37%, 07/07/05 15,500 15,500 +@ Special Facility Refunding RB (Lufthansa German Airlines) Series 2001 2.31%, 07/07/05 43,770 43,770 COOK CNTY +@ RB (Bernard Zell Anshe Emet Day School) Series 2005 2.31%, 07/07/05 7,500 7,500 +@ RB (Catholic Theological Union) Series 2005 2.31%, 07/07/05 4,000 4,000 DUPAGE CNTY +@ RB (Morton Arboretum) Series 2003 2.30%, 07/07/05 10,000 10,000 EAST DUNDEE, KANE & COOK COUNTIES +@ IDRB (Otto Engineering) Series 1998 2.40%, 07/07/05 1,685 1,685 ELMHURST +@ IDRB (Elm Machining Corp) Series 1997 2.47%, 07/07/05 1,670 1,670 HAMPSHIRE +@ IDRB (Poli-Film America) Series 1998A 2.37%, 07/07/05 2,500 2,500 ILLINOIS +~@ Civic Center Bonds Series 1991 2.38%, 07/07/05 2,940 2,940 GO Bonds Illinois First Series 2000 +~@/ 2.32%, 07/07/05 14,000 14,000 +~@/ 2.33%, 07/07/05 5,000 5,000 +~@/ GO Bonds Illinois First Series 2002 2.32%, 07/07/05 14,125 14,125 ~@ GO Bonds Series A of March 2004 2.31%, 07/07/05 6,675 6,675 ILLINOIS DEVELOPMENT FINANCE AUTH +@ Economic Development RB (Korex Corp) Series 1990 2.40%, 07/07/05 4,000 4,000 +~@ Gas Supply Refunding RB (People's Gas) Series 2003E 2.38%, 07/07/05 14,995 14,995 +@ IDRB (Arc-Tronics) Series 1999 2.35%, 07/07/05 1,785 1,785 +@ IDRB (Camcraft Inc) Series 1993 2.51%, 07/07/05 2,000 2,000 +@ IDRB (Radiological Society of North America) Series 1997 2.32%, 07/07/05 3,230 3,230 +@= Qualified Residential Rental Bonds (River Oaks) Series 1989 2.33%, 07/07/05 32,000 32,000 +@ RB (American College of Surgeons) Series 1996 2.59%, 07/01/05 13,100 13,100 +@ RB (Aurora Central Catholic High School) Series 1994 2.56%, 07/07/05 1,000 1,000 +@ RB (Carmel High School) Series 2003 2.31%, 07/07/05 6,200 6,200 +@ RB (Catholic Charities Housing Development Corp) Series 1993A 2.46%, 07/07/05 9,160 9,160 +@ RB (Catholic Charities Housing Development Corp) Series 1993B 2.46%, 07/07/05 910 910 +@ RB (Chicago Academy of Sciences) Series 1997 2.31%, 07/07/05 2,615 2,615
22 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ RB (Chicago Academy of Sciences) Series 1998 2.31%, 07/07/05 5,700 5,700 +@ RB (Chicago Horticultural Society) Series 1999 2.31%, 07/07/05 20,000 20,000 +@ RB (Francis W Parker School) Series 1999 2.22%, 07/07/05 2,500 2,500 +@ RB (Illinois Institute of Technology) Series 2004 2.31%, 07/07/05 2,500 2,500 +@ RB (Joan W & Irving B Harris Theater For Music & Dance) Series 2005 2.31%, 07/07/05 8,200 8,200 +@ RB (Lake Forest Academy) Series 1994 2.31%, 07/07/05 4,000 4,000 +@ RB (Loyola Academy) Series 2001 2.31%, 07/07/05 10,000 10,000 +@ RB (McCormick Theological Seminary) Series 2001B 2.31%, 07/07/05 20,435 20,435 +@ RB (Perspectives Charter School) Series 2003 2.30%, 07/07/05 5,500 5,500 +~@ RB (Presbyterian Home Lake Forest Place) Series 1996A 2.31%, 07/07/05 34,050 34,050 +@ RB (Presbyterian Homes Two Arbor Lane) Series 2001 2.31%, 07/07/05 9,000 9,000 +@ RB (Richard H Driehaus Museum) Series 2005 2.31%, 07/07/05 3,200 3,200 +@ RB (Sacred Heart Schools) Series 2003 2.31%, 07/07/05 7,100 7,100 +@ RB (Slovak American Charitable Association) Series 2000 2.31%, 07/07/05 7,685 7,685 +@/ RB (St Ignatius College Prep) Series 2002 2.31%, 07/07/05 2,800 2,800 +@ RB (St Ignatius College) Series 1994 2.31%, 07/07/05 12,000 12,000 +@ RB (Wheaton Academy) Series 1998 2.31%, 07/07/05 9,000 9,000 +@ Residential Rental RB (FC Harris Pavilion) Series 1994 2.30%, 07/07/05 7,200 7,200 +~@ Water Facilities Refunding RB (Illinois-American Water Co) Series 2002 2.37%, 07/07/05 5,000 5,000 ILLINOIS EDUCATION FACILITY AUTH +@ RB (Chicago Historical Society) Series 1989 2.35%, 07/07/05 7,600 7,600 +~@/ RB (Shedd Aquarium) Series 1997 2.32%, 07/07/05 2,000 2,000 ILLINOIS FINANCE AUTH +@ M/F Housing RB (Autumn Ridge Apts) Series 2005A 2.30%, 07/07/05 12,400 12,400 +@ RB (Lake Forest Country Day School) Series 2005 2.31%, 06/30/05 4,000 4,000 ILLINOIS HEALTH FACILITIES AUTH +@ RB (Bensenville Home Society) Series 1989A 2.30%, 07/07/05 1,975 1,975 +~ RB (Ingalls Health System) Series 1994 2.18%, 07/07/05 17,810 17,810 +@ RB (Villa St Benedict) Series 2003B 2.36%, 07/07/05 10,150 10,150 +@ RB (Washington & Jane Smith Home) Series 1991 2.40%, 07/07/05 2,800 2,800 ILLINOIS HOUSING DEVELOPMENT AUTH @ Homeowner Mortgage RB Series 2004D 1.68%, 07/27/05 15,000 15,000 +@ M/F Mortgage Refunding RB (Hyde Park Tower Apts) Series 2000A 2.35%, 07/07/05 4,500 4,500
See financial notes. 23 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) ILLINOIS STUDENT ASSISTANCE COMMISSION +@ Student Loan RB Series 1996A 2.34%, 07/07/05 1,200 1,200 LOMBARD +@ Refunding IDRB (B&H Partnership) Series 1995 2.68%, 07/07/05 1,850 1,850 METROPOLITAN PIER & EXPOSITION AUTH +~@/ McCormick Place Expansion Refunding Bonds Series 1998A 2.32%, 07/07/05 14,355 14,355 +~@/ McCormick Place Expansion Refunding Bonds Series 1999A-C 2.32%, 07/07/05 9,790 9,790 +~@/ McCormick Place Expansion Refunding Bonds Series 2002B 2.32%, 07/07/05 18,490 18,490 METROPOLITAN WATER RECLAMATION DIST OF GREATER CHICAGO ~@ GO Refunding Bonds Unlimited Tax Series 2002A 2.30%, 07/07/05 800 800 MONTGOMERY SPECIAL SERVICE AREA NO.10 +@ Special Tax Bonds (Blackberry Crossing West) Series 2004 2.31%, 07/07/05 20,000 20,000 OAK FOREST +@ RB (Homewood) Series 1989 2.54%, 07/07/05 10,000 10,000 PALATINE +@ Special Facility Limited Obligation RB (Little City for Community Development) Series 1998 2.31%, 07/07/05 4,000 4,000 REGIONAL TRANSPORTATION AUTH +~@/ GO Refunding Bonds Series 1999 2.32%, 07/07/05 21,785 21,785 ROCKFORD +@ IDRB (Ring Can Corp) Series 1998 2.34%, 07/07/05 940 940 +@ IDRB (Rockford Industrial Welding Supply) Series 1996 2.47%, 07/07/05 2,000 2,000 SOUTHWESTERN ILLINOIS DEVELOPMENT AUTH +@ Refunding IDRB (Holten Meat) Series 2004 2.40%, 07/07/05 6,860 6,860 UNIVERSITY OF ILLINOIS +~@/ Auxiliary Facilities RB Series 1999A 2.32%, 07/07/05 3,500 3,500 WHEELING +@ M/F Housing Refunding RB (Woodland Creek Apts II) Series 2002 2.33%, 07/07/05 17,655 17,655 WILL-KANKAKEE REGIONAL DEVELOPMENT AUTH +@ IDRB (Toltec Steel Services) Series 2002 2.41%, 07/07/05 6,950 6,950 WOODRIDGE +~@ M/F Housing Refunding RB (Hinsdale Lake Terrace Apts) Series 1990 2.59%, 07/01/05 20,760 20,760 YORKVILLE +@ IDRB (FE Wheaton & Co) Series 1996 2.47%, 07/07/05 950 950 ----------- 858,869 INDIANA 1.6% ELKHART CNTY +@ Economic Development RB (West Plains Apts) Series 1998A 2.36%, 07/07/05 1,800 1,800 INDIANA DEVELOPMENT FINANCE AUTH +@ Environmental RB (PSI Energy) Series 2004A 2.28%, 07/07/05 22,000 22,000
24 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ IDRB (Big Sky Park) Series 1999 2.37%, 07/07/05 4,800 4,800 +@ IDRB (Cives Corp) Series 1998 2.34%, 07/07/05 7,150 7,150 INDIANA EDUCATIONAL FACILITIES AUTH +@ Educational Facilities RB (St Joseph's College) Series 2004 2.30%, 07/07/05 12,000 12,000 INDIANA HEALTH FACILITIES FINANCING AUTH +~@ Hospital RB (Sisters of St Francis Health Services, Inc) Series 1999A 2.31%, 07/07/05 7,605 7,605 +~@ Insured RB Series 1985A 2.30%, 07/07/05 11,610 11,610 RB (Ascension Heatlh Credit Group) Series 2001A-2 1.73%, 07/05/05 9,000 9,000 INDIANA HFA ~@/ S/F Mortgage RB Series 1998D-2 2.43%, 07/07/05 9,995 9,995 ~@/ S/F Mortgage RB Series 2000B-2 2.45%, 07/07/05 5,265 5,265 @ S/F Mortgage RB Series 2004D-2 2.30%, 12/15/05 60,650 60,650 INDIANAPOLIS +@ M/F Housing RB (Nora Pines Apts) Series 2001 2.32%, 07/07/05 9,275 9,275 +~@/ Thermal Energy System RB Series 2001A 2.32%, 07/07/05 9,900 9,900 MARION +@ Economic Development RB (Indiana Wesleyan University) Series 2000 2.30%, 07/07/05 7,500 7,500 ST JOSEPH CNTY +@ Economic Development RB (Corby Apts) Series 1997B 2.41%, 07/07/05 3,430 3,430 +@ Economic Development RB (Pin Oaks Apts) Series 1997A 2.41%, 07/07/05 1,000 1,000 +@ Economic Development RB (Western Manor Apts) Series 1997C 2.41%, 07/07/05 2,130 2,130 UNIVERSITY OF SOUTHERN INDIANA +~@ Auxiliary System RB Series 2001B 2.30%, 07/07/05 10,400 10,400 VIGO CNTY +@ Economic Development RB (Sisters of Providence) Series 2001 2.39%, 07/07/05 3,500 3,500 VINCENNES UNIVERSITY +@ Student Fee Bonds Series G 2.30%, 07/07/05 5,730 5,730 ----------- 204,740 IOWA 1.3% IOWA FINANCE AUTH +@ Retirement Community RB (Western Home Communities) Series 2004 2.33%, 07/07/05 1,100 1,100 IOWA HIGHER EDUCATION LOAN AUTH +@ Private College Facility RB (Graceland University) Series 2003 2.35%, 07/07/05 2,000 2,000 +@ Private College Facility RB (St Ambrose University) Series 2003 2.30%, 07/01/05 8,100 8,100 IOWA SCHOOL CORPORATIONS + Cash Anticipation Program Warrant Certificates Series 2004-2005 B 2.28%, 01/27/06 22,080 22,231 + Cash Anticipation Program Warrant Certificates Series 2005-2006 A 2.63%, 06/28/06 82,000 83,085
See financial notes. 25 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) IOWA STUDENT LOAN LIQUIDITY CORP +~@= Student Loan RB Series 1988B 2.31%, 07/07/05 46,500 46,500 ----------- 163,016 KANSAS 0.8% DOUGLAS CNTY UNIFIED SD NO.497 GO Temporary Notes Series 2005-1 2.64%, 07/12/06 32,200 32,639 KANSAS DEPT OF TRANSPORTATION ~@/ Highway RB Series 1999 2.32%, 07/07/05 37,500 37,500 KANSAS DEVELOPMENT FINANCE AUTH +@ M/F Housing RB (Saddlewood Apts) Series 2004M 2.40%, 07/07/05 6,400 6,400 WICHITA +@ Airport Facility Refunding & Improvement RB (Flightsafety International) Series 1999II 2.32%, 07/07/05 26,170 26,170 ----------- 102,709 KENTUCKY 2.6% ELIZABETHTOWN +@ IDRB (ALTEC) Series 1997 2.40%, 07/07/05 3,000 3,000 JEFFERSON CNTY +@ M/F Housing Refunding RB (Camden Brookside Apts) Series 2002 2.34%, 07/07/05 8,900 8,900 +@ Sports Stadium RB (University of Louisville Athletic Association) Series 1997 2.42%, 07/07/05 2,600 2,600 KENTUCKY ASSET/LIABILITY COMMISSION PROJECT * General Fund TRAN Series 2005A 2.67%, 06/28/06 225,000 227,889 KENTUCKY HIGHER EDUCATION STUDENT LOAN CORP +~@ Insured Student Loan RB Series 1991E 2.30%, 07/07/05 12,600 12,600 +~@ Insured Student Loan RB Series 1996A 2.30%, 07/07/05 23,850 23,850 KENTUCKY HOUSING CORP ~@/ Housing RB Series 1998F 2.43%, 07/07/05 19,320 19,320 ~@/ Housing RB Series 2002A 2.37%, 07/07/05 4,425 4,425 KENTUCKY STATE PROPERTY & BUILDINGS COMMISSION Refunding RB Project No.84 +~@ 2.31%, 07/07/05 4,500 4,500 +~@ 2.32%, 07/07/05 6,850 6,850 LOUISVILLE & JEFFERSON CNTY METROPOLITAN SEWER DIST +~@/ Sewage & Drainage System RB Series 1999A 2.32%, 07/07/05 6,115 6,115 RICHMOND +@ IDRB (Mikron) Series 1995 2.35%, 07/07/05 7,175 7,175 ----------- 327,224 LOUISIANA 2.0% CALCASIEU PARISH IDB +@ Refunding IDRB (Weingarten Realty Investors) Series 1995 2.33%, 07/07/05 1,990 1,990 ERNEST N MORIAL - NEW ORLEANS EXHIBIT HALL AUTH +~@ Sr Subordinate Special Tax Bonds Series 2003A 2.32%, 07/07/05 4,995 4,995 LAFAYETTE PARISH IDB +@ Refunding IDRB (Westwood Village) Series 1995 2.33%, 07/07/05 3,735 3,735 LAFAYETTE PUBLIC POWER AUTH +~@ Electric Refunding RB Series 2003A&B 2.32%, 07/07/05 5,310 5,310
26 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) LAKE CHARLES HARBOR & TERMINAL DIST +@ Dock & Wharf RB (Conoco Inc) Series 2000 2.45%, 07/07/05 10,500 10,500 LOUISIANA Gas & Fuels Tax RB Series 2005A +~@/ 2.31%, 07/07/05 15,970 15,970 +~@ 2.32%, 07/07/05 8,870 8,870 LOUISIANA LOCAL GOVERNMENT ENVIRONMENTAL FACILITIES & COMMUNITY DEVELOPMENT AUTH +@ RB (University of Louisiana- Monroe) Series 2004A 2.30%, 07/07/05 8,000 8,000 +@ RB (University of Louisiana- Monroe) Series 2004C 2.30%, 07/07/05 12,515 12,515 LOUISIANA OFFSHORE TERMINAL AUTH +@ Deepwater Port Refunding RB First State Series 1992A 2.29%, 07/07/05 10,000 10,000 +@ Deepwater Port Refunding RB Series 2003B 2.35%, 07/07/05 5,700 5,700 LOUISIANA PUBLIC FACILITY AUTH +@ IDRB (Kenner Hotel Partnership) Series 1985 2.35%, 07/01/05 1,000 1,000 +~@ Lease Purchase RB Series 2003 2.33%, 07/07/05 20,000 20,000 +@ RB (Tiger Athletic Foundation) Series 2004 2.38%, 07/07/05 18,800 18,800 NEW ORLEANS AVIATION BOARD +~@ Refunding Bonds Series 1993B 2.35%, 07/07/05 4,860 4,860 NEW ORLEANS IDB +@ M/F Housing RB (3700 Orleans) Series 2000 2.36%, 07/07/05 29,000 29,000 PARISH OF EAST BATON ROUGE IDB +@ Solid Waste Disposal RB (Georgia-Pacific Corp) Series 2004 2.34%, 07/07/05 7,100 7,100 ST JAMES PARISH Pollution Control Refunding RB (Texaco) Series 1988A 2.89%, 08/09/05 44,030 44,030 Pollution Control Refunding RB (Texaco) Series 1988B 2.89%, 08/09/05 44,030 44,030 ----------- 256,405 MAINE 0.1% MAINE FINANCE AUTH +@ RB (Jackson Laboratory) Series 2002 2.32%, 07/07/05 5,800 5,800 MAINE HOUSING AUTH ~@ Mortgage Purchase Bonds Series 2002F-2 2.36%, 07/07/05 4,585 4,585 ----------- 10,385 MARYLAND 0.9% BALTIMORE CNTY ~/ Consolidated Public Improvement TECP Series 2002 2.48%, 07/08/05 35,000 35,000 HOWARD CNTY +@ M/F Housing Refunding RB (Sherwood Crossing Apts) Series 2003 2.28%, 07/07/05 10,000 10,000 MARYLAND COMMUNITY DEVELOPMENT ADMINISTRATION ~@/ S/F Program Bonds 1999 Third Series 2.43%, 07/07/05 32,335 32,335 MARYLAND ENERGY FINANCING ADMINISTRATION +@ Limited Obligation Local District Cooling Facilities RB (Comfort Link) Series 2001 2.34%, 07/07/05 10,000 10,000
See financial notes. 27 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) MARYLAND HEALTH & HIGHER EDUCATIONAL FACILITIES AUTH +@ Pooled Loan Program RB Series D 2.26%, 07/07/05 18,780 18,780 MARYLAND STATE ECONOMIC DEVELOPMENT CORP +@ IDRB (Dixon Valve & Coupling Co) Series 1998 2.39%, 07/07/05 1,390 1,390 MONTGOMERY CNTY +@ Economic Development RB (Georgetown Preparatory School) Series 2005 2.28%, 07/07/05 12,000 12,000 ----------- 119,505 MASSACHUSETTS 2.7% COHASSET BAN 1.57%, 08/12/05 25,164 25,199 CONCORD Unlimited Tax School BAN 1.63%, 09/29/05 15,200 15,251 LAWRENCE School BAN 2.28%, 12/22/05 12,000 12,054 MARION BAN 1.68%, 07/15/05 2,000 2,001 MASSACHUSETTS ~@ GO Bonds Consolidated Loan Series 2000C 2.56%, 07/07/05 5,000 5,000 +~@/ GO Bonds Consolidated Loan Series 2001D 2.31%, 07/07/05 2,785 2,785 ~@ GO Bonds Consolidated Loan Series 2004A 2.31%, 07/07/05 4,995 4,995 +~@ GO Bonds Consolidated Loan Series 2005A 2.30%, 07/07/05 5,000 5,000 ~@ GO Refunding Bonds Series 1998B 2.22%, 07/07/05 2,500 2,500 ~@ GO Refunding Bonds Series 2001B 2.43%, 07/07/05 4,750 4,750 ~@ GO Refunding Bonds Series 2001C 2.43%, 07/07/05 17,800 17,800 ~@ GO Refunding Bonds Series 2005A 2.29%, 07/07/05 10,000 10,000 MASSACHUSETTS BAY TRANSPORTATION AUTH +~@ General Transportation System Bonds Series 1999A 2.30%, 07/07/05 9,000 9,000 ~@ Sr Sales Tax Bonds Series 2005A 2.31%, 07/07/05 22,810 22,810 ~@/ Sr Sales Tax RB Series 2005A 2.56%, 07/07/05 7,500 7,500 MASSACHUSETTS DEVELOPMENT FINANCE AGENCY +~@ Education RB (Dexter School) Series 2000 2.27%, 07/07/05 8,210 8,210 +@ M/F Housing Refunding RB (Kensington at Chelmsford) Series 2002 2.40%, 06/30/05 900 900 +@ RB (Assumption College) Series 2002A 2.27%, 07/07/05 11,410 11,410 +@ RB (Brandon Residential Treatment Center) Series 2003 2.28%, 07/07/05 2,290 2,290 +@ RB (Dean College) Series 1999 2.28%, 07/07/05 1,910 1,910 +@ RB (FIBA Technologies) Series 2003 2.38%, 07/07/05 2,000 2,000 +@ RB (Gordon College) Series 2002 2.27%, 06/30/05 2,100 2,100 +@ RB (Third Sector New England) Series 2004A 2.28%, 07/07/05 5,500 5,500
28 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +~@ RB (Wentworth Institute of Technology) Series 2000 2.27%, 07/07/05 6,585 6,585 +@ RB (Worcester Academy) Series 2000 2.30%, 07/01/05 3,000 3,000 +@ RB (YMCA of Greater Boston) Series 2004A 2.30%, 07/07/05 7,300 7,300 MASSACHUSETTS HEALTH & EDUCATIONAL FACILITIES AUTH +~@ RB (Baystate Medical Ctr) Series D 2.30%, 07/07/05 17,500 17,500 +@ RB (Boston Home) Series 2002B 2.27%, 07/07/05 2,500 2,500 ~@ RB (MIT) Series K 2.31%, 07/07/05 6,710 6,710 +@ RB (Sherrill House) Series A-1 2.26%, 07/07/05 6,100 6,100 +~@ RB (Winchester Hospital) Series D 2.31%, 07/07/05 3,000 3,000 MASSACHUSETTS HFA +~@ Housing Bonds Series 2003F 2.22%, 07/07/05 14,535 14,535 MASSACHUSETTS IFA +@ RB (New England College of Optometry) Series 1997 2.30%, 07/07/05 5,600 5,600 +@ RB (Williston Northampton School) Series B 2.28%, 07/07/05 2,625 2,625 MASSACHUSETTS TURNPIKE AUTH +~@/ Metropolitan Highway System Subordinate RB Series 1999A 2.30%, 07/07/05 7,110 7,110 MASSACHUSETTS WATER POLLUTION ABATEMENT TRUST ~@/ Water Pollution Abatement RB Subordinate Series 1999A 2.31%, 07/07/05 1,500 1,500 MASSACHUSETTS WATER RESOURCES AUTH +~@ General Refunding RB Series 2005A 2.30%, 07/07/05 23,995 23,995 NASHOBA VALLEY TECHNICAL HIGH SD BAN 1.48%, 08/12/05 7,441 7,454 NEW BEDFORD BAN 2.70%, 09/29/05 8,630 8,636 RALPH C MAHAR REGIONAL SD BAN 1.69%, 07/14/05 20,000 20,009 SILVER LAKE REGIONAL SD GO BAN 1.61%, 08/26/05 20,000 20,042 SOMERVILLE GO BAN 1.44%, 08/19/05 3,162 3,168 ----------- 348,334 MICHIGAN 4.5% ALLEN PARK PUBLIC SCHOOLS ~@ Unlimited Tax School Building Bonds Series 2003 2.32%, 07/07/05 10,760 10,760 ANN ARBOR ECONOMIC DEVELOPMENT CORP +@ Limited Obligation RB (Glacier Hills) Series 2000A 2.33%, 07/07/05 22,100 22,100 +@ Limited Obligation Refunding RB (Glacier Hills) Series 2000B 2.33%, 07/07/05 8,685 8,685 DETROIT +~@/ Sewage Disposal System RB Series 1999A 2.32%, 07/07/05 34,650 34,650 +~@/ Sewage Disposal System Second Lien RB Series 2001B 2.36%, 07/07/05 4,260 4,260 DETROIT CITY SD +~@/ School Building & Site Improvement Bonds Series 2001A 2.36%, 07/07/05 4,620 4,620
See financial notes. 29 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) GEORGETOWN ECONOMIC DEVELOPMENT CORP +@ Limited Obligation RB (Sunset Manor) Series 2000 2.29%, 07/07/05 8,860 8,860 GRAND RAPIDS ECONOMIC DEVELOPMENT CORP +@ Refunding RB (Amway Hotel Corp) Series 1991A 2.38%, 07/07/05 8,755 8,755 JACKSON CNTY HOSPITAL FINANCE AUTH +@ Hospital Refunding RB (WA Foote Memorial Hospital) Series 2005B 2.30%, 07/07/05 10,000 10,000 MACOMB CNTY HOSPITAL FINANCE AUTH +@ Hospital Refunding RB (Mt Clemens General Hospital) Series 2003A-2 2.45%, 07/01/05 9,100 9,100 MICHIGAN GO Notes Fiscal 2005 Series A 2.54%, 09/30/05 40,000 40,089 MICHIGAN BUILDING AUTH + TECP Series 4 2.68%, 07/21/05 50,000 50,000 MICHIGAN HIGHER EDUCATION FACILITIES AUTH +@ Limited Obligation Refunding RB (Hope College) Series 2004 2.33%, 07/07/05 3,805 3,805 MICHIGAN HIGHER EDUCATION STUDENT LOAN AUTH +~@ Student Loan RB Series XII-X 2.34%, 07/07/05 15,000 15,000 MICHIGAN HOSPITAL FINANCING AUTH +@ Hospital Refunding & RB (Crittenton Hospital Medical Center) Series 2003A 2.30%, 07/01/05 7,900 7,900 MICHIGAN HOUSING DEVELOPMENT AUTH +~@/ S/F Mortgage RB Series 2001A 2.36%, 07/07/05 3,430 3,430 MICHIGAN JOB DEVELOPMENT AUTH +@ Limited Obligation RB (Frankenmuth Bavarian Inn Motor Lodge) Series 1985 2.80%, 07/30/05 7,100 7,100 MICHIGAN MUNICIPAL BOND AUTH +~@ Revenue Notes Series 2004B-2 2.43%, 07/07/05 32,550 32,550 MICHIGAN STRATEGIC FUND +@ Limited Obligation RB (Advance Plastics Corp) Series 1996 2.45%, 07/07/05 870 870 +@ Limited Obligation RB (American Cancer Society) Series 2000 2.35%, 07/07/05 4,210 4,210 +@ Limited Obligation RB (EPI Printers) Series 1997 2.45%, 07/07/05 720 720 +@ Limited Obligation RB (Mans) Series 1991 2.45%, 07/07/05 420 420 +@ Limited Obligation RB (Mans) Series 1998B 2.45%, 07/07/05 935 935 +@ Limited Obligation RB (Mechanics Uniform Rental Co) Series 1995 2.45%, 07/07/05 1,000 1,000 +@ Limited Obligation RB (United Machining) Series 1998 2.45%, 07/07/05 4,000 4,000 +~@ Limited Obligation Refunding RB (Detroit Edison Co Pollution Control Bonds) Series 1999C 2.35%, 07/07/05 9,245 9,245 +~@ Limited Obligation Refunding RB (Detroit Edison Co) Series 2003A 2.36%, 07/07/05 5,995 5,995
30 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) MICHIGAN TRUNK LINE FUND +~@ State Trunk Line Fund Refunding Bonds Series 1998A 2.32%, 07/07/05 46,666 46,666 OAKLAND CNTY +@ Limited Obligation RB (Husky Envelope Products) Series 1999 2.45%, 07/07/05 2,100 2,100 +@ Limited Obligation RB (Pontiac Vision 2000 Schools) Series 2000 2.35%, 07/07/05 8,800 8,800 WAYNE CNTY +~@ Airport RB (Detroit Metropolitan Wayne Cnty Airport) Jr Lien Series 2001 2.57%, 07/07/05 18,075 18,075 +~@ Airport RB (Detroit Metropolitan Wayne Cnty Airport) Series 2002A 2.31%, 07/07/05 139,870 139,870 +~@ Airport Refunding RB (Detroit Metropolitan Wayne Cnty Airport) Series 1996B 2.31%, 07/07/05 24,940 24,940 WAYNE CNTY AIRPORT AUTH +~@ Airport RB (Detroit Metropolitan Wayne Cnty Airport) Series 2005 2.62%, 07/07/05 18,400 18,400 ----------- 567,910 MINNESOTA 2.2% ANDOVER +@ Sr Housing Refunding RB (Presbyterian Homes) Series 2003 2.30%, 07/07/05 6,500 6,500 BLOOMINGTON PORT AUTH +~@ Special Tax Refunding RB (Mall of America) Series 1999B 2.33%, 07/07/05 21,700 21,700 BURNSVILLE +@ M/F Housing Refunding RB (Southwind Apts) Series 2004 2.30%, 07/07/05 8,350 8,350 EDEN PRAIRIE +@ M/F Housing RB (Eden Prairie Leased Housing Associates I) Series 2003A 2.64%, 07/07/05 6,000 6,000 HENNEPIN CNTY @ GO Refunding Bonds Series 1996C 2.40%, 07/07/05 1,350 1,350 HENNEPIN CNTY HOUSING & REDEVELOPMENT AUTH +@/ M/F Housing Refunding RB (Stone Arch Apts) Series 2002 2.35%, 07/07/05 2,800 2,800 INVER GROVE HEIGHTS +@ Sr Housing Refunding RB (PHM/Inver Grove, Inc) Series 2005 2.30%, 07/07/05 6,000 6,000 MENDOTA HEIGHTS +@ Refunding IDRB (Dakota Business Plaza) Series 2000 2.55%, 07/07/05 2,300 2,300 MINNEAPOLIS +~@ Health Care System Refunding RB (Fairview Health Services) Series 2005B 2.30%, 07/07/05 25,000 25,000 +~@ Health Care System Refunding RB (Fairview Health Services) Series 2005C 2.28%, 07/07/05 20,000 20,000 +@ RB (Guthrie Theater) Series 2003A 2.28%, 07/07/05 18,000 18,000 MINNEAPOLIS-ST PAUL METROPOLITAN AIRPORTS COMMISSION +~@/ Airport RB Series 2000B 2.36%, 07/07/05 5,225 5,225 +~@ Subordinate Airport Refunding RB Series 2005B 2.36%, 07/07/05 6,000 6,000
See financial notes. 31 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) + Subordinate Revenue CP Notes Series A 2.50%, 07/07/05 14,119 14,119 + Subordinate Revenue TECP Series B 2.69%, 07/01/05 6,768 6,768 MINNESOTA AGRICULTURAL & ECONOMIC DEVELOPMENT BOARD +@ RB (Evangelical Lutheran Good Samaritan Society) Series 1996 2.33%, 07/07/05 7,400 7,400 MINNESOTA HFA ~@ Residential Housing Finance Bonds Series 2003B 2.30%, 07/07/05 6,000 6,000 ~@ Residential Housing Finance Bonds Series 2004G 2.35%, 07/07/05 12,000 12,000 MINNESOTA HIGHER EDUCATION FACILITIES AUTH +@ RB (Trustees of the Hamline University of Minnesota) Series Six-E1 2.33%, 07/07/05 3,000 3,000 +@ RB (Trustees of the Hamline University of Minnesota) Series Six-E2 2.33%, 07/07/05 4,000 4,000 +@ RB (University of St Thomas) Series 4-O 2.33%, 07/07/05 9,700 9,700 +@ RB (University of St Thomas) Series 5-I 2.33%, 07/07/05 3,600 3,600 ROCHESTER Health Care Facilities RB (Mayo Foundation) Series 1992C 2.52%, 08/08/05 20,200 20,200 ROCHESTER HEALTH CARE FACILITIES ~ RB (Mayo Foundation) Series 2001A 2.53%, 08/01/05 15,000 15,000 2.50%, 08/22/05 31,400 31,400 ~ RB (Mayo Foundation) Series 2001B 2.53%, 08/01/05 13,600 13,600 ST LOUIS PARK +@ M/F Housing RB (Park) Series 2002A 2.65%, 07/07/05 3,300 3,300 ST PAUL HOUSING & REDEVELOPMENT AUTH +@ District Heating RB Series 1999D 2.59%, 07/01/05 3,230 3,230 ----------- 282,542 MISSISSIPPI 0.3% MISSISSIPPI ~@/ GO Refunding Bonds Series 2001 2.32%, 07/07/05 14,880 14,880 MISSISSIPPI BUSINESS FINANCE CORP +@ IDRB (Electric Mills Wood Preserving) Series 1999 2.50%, 07/07/05 5,000 5,000 +@ IDRB (Omega Motion) Series 1996 2.34%, 07/07/05 4,000 4,000 +@ IDRB (VC Regional Assembly & Manufacturing) Series 2003 2.32%, 07/07/05 9,210 9,210 MISSISSIPPI HOME CORP +~@/ S/F Mortgage RB Series 1997C 2.43%, 07/07/05 3,100 3,100 ----------- 36,190 MISSOURI 0.2% MISSOURI DEVELOPMENT FINANCE BOARD +@ IDRB (Milbank Manufacturing Co) Series 1997 2.50%, 07/07/05 3,000 3,000 ST CHARLES CNTY IDA +@ M/F Housing Refunding RB (Time Centre Apts Phase I) Series 2004A 2.34%, 07/07/05 15,600 15,600 +@ M/F Housing Refunding RB (Time Centre Apts Phase II) Series 2004B 2.38%, 07/07/05 4,500 4,500
32 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) ST LOUIS IDA +@ IDRB (Kessler Container) Series 1997A 2.35%, 07/07/05 1,900 1,900 WASHINGTON IDA +@ IDRB (Pauwels Transformers) Series 1995 2.60%, 07/07/05 2,600 2,600 ----------- 27,600 MONTANA 0.0% MONTANA HEALTH FACILITIES AUTH +~@ Health Care RB (Pooled Loan Program) Series 1985A 2.30%, 07/07/05 4,325 4,325 NEBRASKA 0.2% NEBRASKA INVESTMENT FINANCE AUTH ~@/ S/F Housing RB Series 1998G 2.43%, 07/07/05 10,735 10,735 ~@/ S/F Housing RB Series 1999E 2.37%, 07/07/05 475 475 STANTON CNTY @ IDRB (Nucor Corp) Series 1996 2.33%, 07/07/05 19,300 19,300 ----------- 30,510 NEVADA 1.9% CLARK CNTY +@ Airport System Subordinate Lien RB Series 1995A-2 2.30%, 07/07/05 1,100 1,100 +@ Economic Development RB (UNLV Foundation) Series 1999 2.30%, 07/07/05 395 395 +@ IDRB (Southwest Gas Corp) Series 2003A 2.40%, 07/07/05 12,500 12,500 +~@ Las Vegas-McCarran International Airport Passenger Facility Charge Refunding RB Series 2005A-2 2.31%, 07/07/05 26,000 26,000 CLARK CNTY SD +~@/ GO (Limited Tax) Building Bonds Series 2001F 2.33%, 07/07/05 21,715 21,715 +~@ GO (Limited Tax) Refunding Bonds Series 2005A 2.31%, 07/07/05 10,975 10,975 LAS VEGAS CONVENTION & VISITORS AUTH +~@ Refunding RB Series 2005 2.32%, 07/07/05 4,190 4,190 LAS VEGAS VALLEY WATER DIST ~ GO (Limited Tax) Water CP Notes Series 2004 A & B 2.60%, 07/19/05 9,600 9,600 +~@ GO Refunding Bonds Series 2005A 2.31%, 07/07/05 37,025 37,025 NEVADA +~@ Highway Improvement (Motor Vehicle Fuel Tax) RB Series 2003 2.31%, 07/07/05 2,193 2,193 NEVADA HOUSING DIVISION +@ M/F Housing RB (Apache Pines Apts) Series 1999A 2.33%, 07/07/05 7,415 7,415 +@ M/F Housing RB (Banbridge Apts) Series 2000A 2.33%, 07/07/05 3,960 3,960 +@ M/F Housing RB (Bluffs Apts) Series 2002A 2.33%, 07/07/05 17,850 17,850 +@ M/F Housing RB (City Center) Series 2000A 2.33%, 07/07/05 7,550 7,550 +@ M/F Housing RB (Home Suites) Series 1989A 2.27%, 07/07/05 4,800 4,800 +@ M/F Housing RB (Sierra Pointe Apts) Series 2005 2.50%, 07/07/05 9,985 9,985 +@ M/F Housing RB (Silver Pines Apts) Series 2002A 2.30%, 07/07/05 5,500 5,500 +@ M/F Housing RB (Silver Terrace Apts) Series 2003A 2.33%, 07/07/05 5,150 5,150
See financial notes. 33 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ M/F Housing RB (St Rose Senior Apts) Series 2002A 2.33%, 07/07/05 14,770 14,770 +@ M/F Housing RB (Sundance Village Apts) Series 2004 2.33%, 07/07/05 15,000 15,000 +@ M/F Housing Refunding RB (Oakmont) Series 2002 2.33%, 07/07/05 4,350 4,350 WASHOE CNTY +~@/ GO Convention Center Refunding Bonds Series 2001A 2.33%, 07/07/05 21,000 21,000 ----------- 243,023 NEW HAMPSHIRE 0.4% NEW HAMPSHIRE BUSINESS FINANCE AUTH +@ Solid Waste Disposal RB (Lonza Biologics) Series 2003 2.38%, 07/07/05 30,000 30,000 NEW HAMPSHIRE HEALTH & EDUCATIONAL FACILITIES AUTH +~@ RB (Dartmouth-Hitchcock Obligated Group) Series 2001A 2.23%, 07/07/05 815 815 +@ RB (Easter Seals New Hampshire) Series 2004A 2.32%, 07/07/05 6,060 6,060 +@ RB (Frisbie Memorial Hospital) Series 2005 2.32%, 07/07/05 5,115 5,115 +@ RB (Riverwoods) Series 2003 2.38%, 07/07/05 3,085 3,085 NEW HAMPSHIRE HFA +~@/ S/F Mortgage Acquisition RB Series 1997C 2.43%, 07/07/05 1,845 1,845 +~@/ S/F Mortgage Acquisition RB Series 1998B 2.43%, 07/07/05 9,730 9,730 ----------- 56,650 NEW JERSEY 0.6% ENGLEWOOD General Improvement BAN & Special Assessment BAN 1.63%, 07/08/05 23,750 23,756 NEW JERSEY ECONOMIC DEVELOPMENT AUTH +~@/ School Facilities Construction Bonds Series 2004G 2.31%, 07/07/05 4,935 4,935 NEW JERSEY TURNPIKE AUTH +~@ RB Series C 2.31%, 07/07/05 2,000 2,000 +~@/ Turnpike RB Series 2000A 2.31%, 07/07/05 6,100 6,100 +~@ Turnpike RB Series 2004C-2 2.31%, 07/07/05 22,490 22,490 +~@/ Turnpike Revenue RB Series 2004A 2.31%, 07/07/05 5,000 5,000 WOODBRIDGE TOWNSHIP General & Sewer Utility BAN 1.65%, 07/08/05 5,481 5,482 1.67%, 07/08/05 6,519 6,521 ----------- 76,284 NEW MEXICO 0.2% FARMINGTON +@ Hospital RB (San Juan Regional Medical Center) Series 2004B 2.31%, 07/07/05 5,000 5,000 SANTA FE +@ Gross Receipts Tax Subordinate Lien Wastewater System RB Series 1997B 2.32%, 07/07/05 16,300 16,300 ----------- 21,300 NEW YORK 6.9% DUTCHESS CNTY IDA +@ Civic Facility RB (Trinity-Pawling School Corp) Series 1998 2.26%, 07/07/05 4,300 4,300
34 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) LONG ISLAND POWER AUTH +~@/ Electric System RB Series 1998A 2.31%, 07/07/05 10,970 10,970 METROPOLITAN TRANSPORTATION AUTH +~@ Dedicated Tax Fund Refunding Bonds Series 2005A 2.29%, 06/30/05 15,500 15,500 +~@ Transportation Refunding RB Series 2002D-1 2.20%, 07/07/05 20,000 20,000 + Transportation Revenue BAN Sub-Series B 2.51%, 09/13/05 17,000 17,000 NEW YORK CITY +~@/ GO Bonds Fiscal 1998 Series D 2.31%, 07/07/05 17,825 17,825 +~@/ GO Bonds Fiscal 2002 Series A 2.31%, 07/07/05 15,000 15,000 +@ GO Bonds Fiscal 2003 Series C-4 2.18%, 07/07/05 15,000 15,000 +@ GO Bonds Fiscal 2004 Series A-6 2.50%, 07/07/05 23,750 23,750 +@ GO Bonds Fiscal 2004 Series H-2 2.52%, 07/07/05 42,700 42,700 +@ GO Bonds Fiscal 2004 Series H-3 2.18%, 07/07/05 2,300 2,300 +~@ GO Bonds Fiscal 2005 Series N 2.29%, 07/07/05 20,340 20,340 NEW YORK CITY HEALTH & HOSPITALS CORP +~@/ Health System Bonds Series 1999A 2.31%, 07/07/05 8,000 8,000 NEW YORK CITY HOUSING DEVELOPMENT CORP +@ M/F Mortgage RB (2 Gold St) Series 2003A 2.26%, 07/07/05 500 500 +@ M/F Rental Housing RB (One Columbus Place) Series 1998A 2.25%, 07/07/05 5,500 5,500 +@ M/F Rental Housing RB (Sierra) Series 2003A 2.25%, 07/07/05 6,115 6,115 NEW YORK CITY IDA +@ Special Facility RB (Korean Air Lines) Series 1997A 2.27%, 07/07/05 15,100 15,100 NEW YORK CITY MUNICIPAL WATER FINANCE AUTH ~ TECP Notes Series 1 2.50%, 09/08/05 30,000 30,000 + TECP Series 5 2.45%, 07/08/05 27,900 27,900 +~@/ Water & Sewer System RB Fiscal 2002 Series G 2.31%, 07/07/05 13,545 13,545 +~@/ Water & Sewer System RB Fiscal 2005 Series B 2.31%, 07/07/05 4,995 4,995 ~@ Water & Sewer System RB Fiscal 2005 Series D 2.29%, 07/07/05 19,000 19,000 NEW YORK CITY TRANSITIONAL FINANCE AUTH ~@/ Future Tax Secured Bonds Fiscal 1999 Series C 2.31%, 07/07/05 14,725 14,725 ~@ Future Tax Secured Bonds Fiscal 2001 Series B 2.17%, 07/01/05 8,000 8,000 ~@ Future Tax Secured Refunding Bonds Fiscal 2003 Series A 2.31%, 07/07/05 4,640 4,640 ~@ Recovery Bonds Fiscal 2003 Series 2A 2.17%, 07/01/05 32,970 32,970 NEW YORK STATE + Environmental Quality 1986 GO Bonds Series 1998A 2.50%, 08/08/05 16,500 16,500 +~@/ GO Bonds Fiscal 2004 Series F 2.35%, 07/07/05 50,000 50,000
See financial notes. 35 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) NEW YORK STATE DORMITORY AUTH +~@/ State University Educational Facilities RB Series 2000B 2.28%, 07/07/05 20,000 20,000 NEW YORK STATE ENERGY RESEARCH & DEVELOPMENT AUTH +~@/ Gas Facilities RB (Brooklyn Union Gas) Series 1996 2.29%, 07/07/05 1,570 1,570 NEW YORK STATE HFA +@ Housing RB (101 West End Ave) Series 1998A 2.29%, 07/07/05 13,200 13,200 +@ Housing RB (101 West End Ave) Series 1999A 2.29%, 07/07/05 25,750 25,750 +@ Housing RB (150 E44th St) Series 2000A 2.29%, 07/07/05 27,200 27,200 +@ Housing RB (345 E94th St) Series 1998A 2.29%, 07/07/05 565 565 +@ Housing RB (345 E94th St) Series 1999A 2.29%, 07/07/05 6,500 6,500 +@ Housing RB (350 W43rd St) Series 2002A 2.25%, 07/07/05 6,400 6,400 +@ Housing RB (Avalon Chrystie Place I) Series 2004A 2.27%, 07/07/05 17,400 17,400 +@ Housing RB (Clinton Green North) Series 2005A 2.60%, 07/07/05 48,500 48,500 +@ Housing RB (Clinton Green South) Series 2005A 2.60%, 07/07/05 12,000 12,000 +@ Housing RB (The Helena) Series 2003A 2.25%, 07/07/05 12,200 12,200 +@ Housing RB (W20th St) Series 2001A 2.26%, 07/07/05 33,000 33,000 +@= Housing RB (W23rd St) Series 2002A 2.29%, 07/07/05 72,100 72,100 +@ Housing RB (W33rd St) Series 2003A 2.25%, 07/07/05 33,900 33,900 NEW YORK STATE MORTGAGE AGENCY ~@/ Homeowner Mortgage RB Series 77A 2.31%, 07/07/05 10,700 10,700 ~@/ Homeowner Mortgage RB Series 79 2.31%, 07/07/05 14,995 14,995 ~@/ S/F Mortgage RB Series 92 2.31%, 07/07/05 3,230 3,230 PORT AUTH OF NEW YORK & NEW JERSEY +~@ Consolidated Bonds 139th Series 2.59%, 07/07/05 20,000 20,000 TRIBOROUGH BRIDGE & TUNNEL AUTH ~@ General Refunding RB Series 2002B 2.31%, 07/07/05 9,995 9,995 WESTCHESTER CNTY IDA +@ IDRB (Levister Redevelopment Co) Series 2001A 2.25%, 07/07/05 1,000 1,000 WILLIAM FLOYD UNION FREE SD TAN 2005 2.70%, 06/27/06 23,000 23,288 YONKERS IDA +~@ Civic Facility RB (Consumers Union) Series 1994 2.35%, 07/07/05 440 440 ----------- 876,108 NORTH CAROLINA 1.4% CHARLOTTE +~@ Airport Refunding RB Series 1997A 2.31%, 07/07/05 37,400 37,400 DURHAM HOUSING AUTH +@ M/F Housing RB (Pendleton Townhomes) Series 2001 2.34%, 07/07/05 5,490 5,490
36 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) FORSYTH CNTY +@ RB (Plymouth Printing Co) Series 1998 2.39%, 07/07/05 870 870 GUILFORD CNTY INDUSTRIAL FACILITIES & POLLUTION CONTROL FINANCING AUTH +@ IDRB (Metalcraft of Mayville SE Manufacturing) Series 1997 2.35%, 07/07/05 1,300 1,300 HERTFORD CNTY INDUSTRIAL FACILITIES & POLLUTION CONTROL FINANCING AUTH IDRB (Nucor Corp) Series 2000A @ 2.32%, 07/07/05 17,500 17,500 @ 2.45%, 07/07/05 26,500 26,500 JOHNSTON CNTY INDUSTRIAL FACILITIES & POLLUTION CONTROL FINANCING AUTH +@ IDRB (Flanders Corp) Series 1998 2.35%, 07/07/05 4,500 4,500 MECKLENBURG CNTY +@ M/F Housing RB (Sycamore Green Apts) Series 2001 2.30%, 07/07/05 8,240 8,240 NORTH CAROLINA EDUCATIONAL FACILITIES FINANCE AGENCY +@ Educational Facilities RB (High Point University) Series 1997 2.29%, 07/07/05 4,410 4,410 +@ Educational Facilities RB (Queens College) Series 1999B 2.29%, 07/07/05 5,520 5,520 NORTH CAROLINA HFA ~/ Home Ownership RB Series 1A 1.62%, 07/14/05 12,000 12,000 PIEDMONT TRIAD AIRPORT AUTH +~@ Airport RB Series 2004B 2.35%, 07/07/05 19,500 19,500 RALEIGH-DURHAM AIRPORT AUTH +~@ Airport RB Series 2005B 2.36%, 07/07/05 4,680 4,680 ROCKINGHAM CNTY INDUSTRIAL FACILITIES & POLLUTION CONTROL FINANCING AUTH +@ IDRB (McMichael Mills) Series 1997 2.34%, 07/07/05 1,100 1,100 ROWAN CNTY INDUSTRIAL FACILITIES & POLLUTION CONTROL FINANCING AUTH +@ IDRB (Taylor Clay Products) Series 1999 2.34%, 07/07/05 3,400 3,400 SAMPSON CNTY INDUSTRIAL FACILITIES & POLLUTION CONTROL FINANCE AUTH +@ IDRB (Crumpler Plastic Pipe) Series 1999 2.39%, 07/07/05 2,600 2,600 UNION CNTY INDUSTRIAL FACILITIES & POLLUTION CONTROL FINANCING AUTH +@ RB (Rock-Tenn Converting Co) Series 1997 2.34%, 07/07/05 1,750 1,750 WAKE CNTY HOUSING AUTH +@ M/F Housing RB (Walnut Ridge Apts) Series 2000 2.34%, 07/07/05 9,920 9,920 WILMINGTON HOUSING AUTH +@ M/F Housing RB (Garden Lakes Estates) Series 1999 2.34%, 07/07/05 7,055 7,055 ----------- 173,735 NORTH DAKOTA 0.4% NORTH DAKOTA HFA ~@ Home Mortgage Finance Program Series 2004B 2.31%, 07/07/05 24,680 24,680 ~@ Home Mortgage Finance Program Series 2005A 2.31%, 07/07/05 22,100 22,100 RICHLAND CNTY +@ Solid Waste Disposal RB (Minn-Dak Farmers Coop) Series 1996A 2.60%, 07/07/05 6,370 6,370
See financial notes. 37 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ Solid Waste Disposal RB (Minn-Dak Farmers Coop) Series 1996B 2.60%, 07/07/05 585 585 ----------- 53,735 OHIO 0.9% AKRON, BATH & COPLEY JOINT TOWNSHIP HOSPITAL DIST +@ Hospital Facilities RB (Summa Health System) Series 2004B 2.32%, 07/07/05 7,500 7,500 CLEVELAND +@ Airport System RB Series 1997D 2.31%, 07/07/05 34,760 34,760 CUYAHOGA CNTY +@ Economic Development RB (Hathaway Brown School) Series 1999 2.32%, 07/07/05 12,520 12,520 FRANKLIN CNTY +~@ Hospital RB (The Children's Hospital) Series 2003 2.56%, 07/07/05 5,000 5,000 HAMILTON CNTY +@ Healthcare Facilities Improvement & Refunding RB (Episcopal Retirement Homes, Inc) Series 2005A 2.28%, 07/07/05 6,500 6,500 OHIO @ Infrastructure Improvement Refunding GO Bonds Series 2004A 2.22%, 07/07/05 1,000 1,000 +@ RB (Pooled Financing) Series 2004 2.30%, 07/07/05 9,385 9,385 OHIO HFA +~@ M/F Refunding RB (10 Wilmington Place) Series 1991B 2.59%, 07/01/05 8,945 8,945 ~@ Residential Mortgage RB Series 2001C 2.40%, 07/07/05 5,300 5,300 OHIO HIGHER EDUCATIONAL FACILITY COMMISSION +@ Higher Educational Facility RB (Pooled Financing) Series 2003B 2.30%, 07/07/05 4,900 4,900 +@ RB (The Cleveland Institute of Music) Series 2005 2.33%, 07/07/05 5,000 5,000 PORT OF GREATER CINCINNATI DEVELOPMENT AUTH +@ RB (National Underground Railroad Freedom Center) Series 2003A 2.40%, 07/07/05 15,000 15,000 ----------- 115,810 OKLAHOMA 1.1% MULDROW PUBLIC WORKS AUTH +@ IDRB (OK Foods) Series 1995 2.60%, 07/07/05 4,500 4,500 OKLAHOMA CNTY INDUSTRIAL AUTH +@ RB (National Cowboy Hall of Fame) Series 1999 2.30%, 07/07/05 995 995 OKLAHOMA DEVELOPMENT FINANCE AUTH +@ RB (Shawnee Funding) Series 1996 2.34%, 07/07/05 3,100 3,100 OKLAHOMA STUDENT LOAN AUTH +~@ Student Loan Bonds & Notes Series 1996A 2.27%, 07/07/05 32,580 32,580 +~@ Student Loan Bonds & Notes Series 1997A 2.34%, 07/07/05 33,000 33,000 +~@ Student Loan Bonds & Notes Series 1998A 2.34%, 07/07/05 33,100 33,100 +~@ Student Loan Bonds & Notes Series 2000A-4 2.34%, 07/07/05 10,945 10,945 +~@ Student Loan Bonds & Notes Series 2005A 2.34%, 07/07/05 15,045 15,045
38 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) PAYNE CNTY ECONOMIC DEVELOPMENT AUTH +~@ Student Housing RB (OSUF Phase III Student Housing) Series 2005 2.29%, 07/07/05 8,500 8,500 TULSA IDA +@ RB (YMCA) Series 1999 2.30%, 07/07/05 2,400 2,400 ----------- 144,165 OREGON 0.7% OREGON +@ Economic Development RB (Kettle Foods) Series 1998-196 2.37%, 07/07/05 4,500 4,500 OREGON ECONOMIC DEVELOPMENT COMMISSION +@ Economic Development RB (Pendleton Flour Mills) Series 1997-182 2.35%, 07/07/05 3,875 3,875 OREGON FACILITIES AUTH +@ (Quatama Crossing Housing) Series 2005A 2.45%, 07/07/05 10,000 10,000 OREGON HEALTH & SCIENCE UNIVERSITY +@ Special RB (OHSU Medical Group) Series 2004A 2.26%, 07/07/05 10,000 10,000 OREGON HEALTH, HOUSING, EDUCATIONAL & CULTURAL FACILITIES AUTH +@ RB (Quatama Crossing) Series 1998A 2.35%, 07/07/05 8,510 8,510 OREGON HOUSING & COMMUNITY SERVICES DEPT ~@ S/F Mortgage RB Series 2004L 2.33%, 07/07/05 5,000 5,000 S/F Mortgage RB Series 2004R 2.15%, 09/01/05 5,500 5,500 PORT OF PORTLAND +@ Special Obligation RB (Portland Bulk Terminals) Series 1996 2.35%, 07/07/05 28,000 28,000 +@ Special Obligation RB (Portland Bulk Terminals) Series 1999 2.35%, 07/07/05 4,500 4,500 PORTLAND +@ M/F Housing RB (Village of Lovejoy Fountain) Series 1997 2.37%, 07/07/05 8,500 8,500 ----------- 88,385 PENNSYLVANIA 6.6% ALLEGHENY CNTY HOSPITAL DEVELOPMENT AUTH +~@ Hospital RB (Magee-Womens Hospital) Series 1993 2.31%, 07/07/05 5,000 5,000 BERMUDIAN SPRINGS SD +~@ GO Bonds Series 2005 2.30%, 07/07/05 2,100 2,100 CENTRAL BUCKS SD +~@ GO Series 2000A 2.33%, 07/07/05 350 350 CHESTER IDA +@ RB (Archdiocese of Philadelphia) Series 2001 2.42%, 07/01/05 10,900 10,900 DANIEL BOONE AREA SD +~@ GO Bonds Series 2004 2.29%, 07/07/05 5,795 5,795 DAUPHIN CNTY GENERAL AUTH +~@ RB (Education & Health Loan) Series 1997 2.33%, 07/07/05 6,880 6,880 DELAWARE CNTY IDA +@ RB (YMCA of Philadelphia) Series 1999 2.39%, 07/07/05 100 100 +~@ Water Facilities RB (Aqua Pennsylvania Inc) Series 2005A 2.33%, 07/07/05 600 600
See financial notes. 39 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) DELAWARE VALLEY REGIONAL FINANCE AUTH Local Government RB Series 1998A +~@/ 2.36%, 07/07/05 14,510 14,510 +~@/ 2.34%, 07/07/05 500 500 EASTON AREA SD +~@ GO Bonds Series 2005 2.30%, 07/07/05 30,000 30,000 EMMAUS GENERAL AUTH +~@ Bonds Series 1996 2.29%, 07/07/05 3,125 3,125 ERIE SD +~@/ GO Bonds Series 2001A 2.32%, 07/07/05 17,095 17,095 HANOVER PUBLIC SD +~@ GO Series 2005 2.30%, 07/07/05 5,000 5,000 HARRISBURG AUTH +~@ Water Refunding RB Series 2002B 2.33%, 07/07/05 5,000 5,000 +~@ Water Refunding RB Series 2003A 2.33%, 07/07/05 6,400 6,400 LAMPETER-STRASBURG SD +~@ GO Bonds Series 2004A 2.30%, 07/07/05 6,000 6,000 LANCASTER CNTY HOSPITAL AUTH +~@ Health Center RB (Masonic Homes) Series 2002 2.29%, 07/07/05 17,030 17,030 MANHEIM TOWNSHIP SD +~@ GO Bonds Series 2004 2.30%, 07/07/05 7,000 7,000 MERCER CNTY +~@/ GO Bonds Series 2001 2.32%, 07/07/05 7,725 7,725 MONTGOMERY CNTY HIGHER EDUCATION & HEALTH AUTH +@ RB (Madlyn & Leonard Abramson Center For Jewish Life) Series 2001 2.33%, 07/07/05 5,500 5,500 MONTGOMERY CNTY IDA + Pollution Control Refunding RB (Peco Energy Co) Series 1994A 2.56%, 10/18/05 27,560 27,560 +@ Pollution Control Refunding RB (Peco Energy Co) Series 1999A 2.24%, 07/07/05 9,000 9,000 +@ School RB (Friends' Central School) Series 2002 2.33%, 07/07/05 4,225 4,225 MONTGOMERY CNTY REDEVELOPMENT AUTH +@ M/F Housing Refunding RB (Glenmore Associates) Series 1995A 2.59%, 07/07/05 2,750 2,750 NORTHHAMPTON CNTY +~@ County Agreement RB Series 2001 2.32%, 07/07/05 6,995 6,995 NORWIN SD +~/ GO Bonds Series 2001A 2.65%, 01/25/06 11,500 11,500 OWEN J ROBERTS SD +~@ GO Bonds Series 2003 2.30%, 07/07/05 10,000 10,000 PENNSYLVANIA ~@/ GO Bonds First Series 2001 2.36%, 07/07/05 6,860 6,860 +~@ GO Bonds First Series 2003 2.31%, 07/07/05 300 300 +~@/ GO Bonds Second Series 2002 2.31%, 07/07/05 14,995 14,995 PENNSYLVANIA CONVENTION CENTER AUTH +~@/ RB Series 1989A 2.31%, 07/07/05 4,500 4,500 PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING AUTH +@ Exempt Facilities RB (Amtrak) Series 2001B 2.45%, 07/07/05 200 200 @ Exempt Facilities RB (Merck & Co) Series 2001 2.35%, 07/07/05 15,000 15,000
40 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) PENNSYLVANIA ENERGY DEVELOPMENT AUTH +@ Energy Development RB (B&W Ebensburg) Series 1986 2.31%, 07/07/05 6,365 6,365 PENNSYLVANIA HFA +~@ S/F Mortgage RB Drawdown Series 2003 2.35%, 07/07/05 5,030 5,030 ~/ S/F Mortgage RB Series 1999A 2.15%, 08/11/05 18,820 18,820 ~@ S/F Mortgage RB Series 2004-83B 2.27%, 07/07/05 10,000 10,000 ~@ S/F Mortgage RB Series 2004-84C 2.26%, 07/07/05 8,350 8,350 ~@ S/F Mortgage RB Series 2004-84D 2.26%, 07/07/05 3,850 3,850 ~@ S/F Mortgage RB Series 2005-88B 2.26%, 07/07/05 50,000 50,000 ~@/ S/F RB Series 1998-64 2.37%, 07/07/05 495 495 PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY +~@= Student Loan RB Series 1988A 2.33%, 07/07/05 76,000 76,000 +~@ Student Loan RB Series 1988B 2.33%, 07/07/05 36,700 36,700 +~@ Student Loan RB Series 1994A 2.33%, 07/07/05 31,800 31,800 +~@ Student Loan RB Series 1997A 2.45%, 07/07/05 28,900 28,900 +~@ Student Loan RB Series 1999A 2.31%, 07/07/05 36,000 36,000 +~@ Student Loan RB Series 2003A-1 2.45%, 07/07/05 7,000 7,000 +~@ Student Loan RB Series 2003A-2 2.45%, 07/07/05 38,000 38,000 +~@ Student Loan RB Series 2000A 2.45%, 07/07/05 36,775 36,775 +~@ Student Loan RB Series 2001A 2.45%, 07/07/05 22,950 22,950 PENNSYLVANIA HIGHER EDUCATIONAL FACILITIES AUTH +~@ Drexel University RB Series 2005B 2.29%, 07/07/05 5,000 5,000 +~ University of Pennsylvania Health System RB Series 2005A 2.80%, 06/15/06 5,990 5,990 PENNSYLVANIA PUBLIC SCHOOL BUILDING AUTH +~@ School Lease RB (Philadelphia SD) Series 2003 2.31%, 07/07/05 5,900 5,900 +~@ School RB (Parkland SD) Series 1999D 2.33%, 07/07/05 8,665 8,665 PENNSYLVANIA TURNPIKE COMMISSION ~@ Turnpike RB Series 2001U 2.22%, 07/07/05 2,950 2,950 PHILADELPHIA +~@ Airport RB Series 2005B 2.28%, 07/07/05 9,000 9,000 +~@= Airport Refunding RB Series 2005C 2.40%, 07/07/05 53,900 53,900 PHILADELPHIA GAS WORKS +~@/ RB Third Series 2001 2.31%, 07/07/05 4,295 4,295 PHILADELPHIA IDA +~@/ Airport RB Series 1998A 2.15%, 08/11/05 12,710 12,710 +@ RB (City Line Holiday Inn) Series 1996 2.25%, 07/07/05 6,800 6,800 READING SD +~@ GO Bonds Series 2003A 2.32%, 07/07/05 4,225 4,225
See financial notes. 41 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) SCRANTON REDEVELOPMENT AUTH +@ Guaranteed Lease RB Series 2004 2.33%, 07/07/05 2,000 2,000 UNIVERSITY OF PITTSBURGH Pitt Asset Notes Series 2004 1.57%, 10/14/05 8,000 8,033 2.13%, 10/14/05 10,000 10,024 ~@ University Capital Project Bonds Series 2005A 2.40%, 07/07/05 2,900 2,900 ~@ University Capital Project Bonds Series 2005B 2.28%, 07/07/05 10,000 10,000 ~@ University Capital Project Bonds Series 2005C 2.20%, 07/07/05 5,000 5,000 WEST CORNWALL TOWNSHIP MUNICIPAL AUTH +@ RB (Lebanon Valley Brethren Home) Series 1995 2.34%, 07/07/05 1,720 1,720 ----------- 846,642 PUERTO RICO 0.0% PUERTO RICO HIGHWAY & TRANSPORTATION AUTH +~@/ Highway RB Series Y 2.28%, 07/07/05 800 800 RHODE ISLAND 1.0% RHODE ISLAND ECONOMIC DEVELOPMENT CORP Airport RB Series 2005A +~@/ 2.36%, 07/07/05 2,255 2,255 +~@/ 2.36%, 07/07/05 3,925 3,925 +~@/ Airport Refunding RB Series 2005C 2.32%, 07/07/05 6,995 6,995 RHODE ISLAND HOUSING & MORTGAGE FINANCE CORP ~@/ Home Ownership Opportunity Bonds Series 1998-29A 2.43%, 07/07/05 19,020 19,020 RHODE ISLAND IDA +@ IDRB (Greystone of Lincoln) Series 2000 2.55%, 07/07/05 1,700 1,700 RHODE ISLAND STUDENT LOAN AUTH +~@ Student Loan Program RB Series 1995-1 2.31%, 07/07/05 30,000 30,000 +~@ Student Loan Program RB Series 1996-1 2.31%, 07/07/05 19,000 19,000 +~@ Student Loan Program RB Series 1996-2 2.31%, 07/07/05 20,000 20,000 +~@ Student Loan Program RB Series 1996-3 2.31%, 07/07/05 23,000 23,000 ----------- 125,895 SOUTH CAROLINA 1.2% BEAUFORT-JASPER HIGHER EDUCATION COMMISSION +@ Student Housing RB (University of South Carolina-Beaufort Student Housing) Series 2005 2.35%, 07/07/05 16,540 16,540 BERKELEY CNTY SD +~@/ School Building Bonds Series 2002 2.32%, 07/07/05 7,575 7,575 FLORENCE CNTY PUBLIC FACILITIES CORP +~@ Refunding COP (Law Enforcement & Civic Centers) Series 2003 2.37%, 07/07/05 24,985 24,985 GREENVILLE IDA +@ IDRB (Stevens Aviation Technical Services) Series 1997 2.39%, 07/07/05 3,500 3,500 SOUTH CAROLINA HOUSING & DEVELOPMENT AUTH +@ M/F Rental Housing RB (Ashley Apts) Series 1999 2.34%, 07/07/05 4,000 4,000
42 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ M/F Rental Housing RB (Piedmont Manor Apts) Series 2000B-1 2.34%, 07/07/05 5,755 5,755 +@ M/F Rental Housing RB (Spartanburg Terrace Apts) Series 2000C-1 2.34%, 07/07/05 1,960 1,960 +@ M/F Rental Housing Refunding RB (Fairway Apts) Series 2001A 2.34%, 07/07/05 7,735 7,735 SOUTH CAROLINA JOBS ECONOMIC DEVELOPMENT AUTH +@ Economic Development RB (Holcim) Series 2003 2.45%, 07/07/05 6,250 6,250 +@ Economic Development RB (Thomas & Betts Corp) Series 1997 2.39%, 07/07/05 3,250 3,250 +@ IDRB (Sanders Brothers Construction Co) Series 1996 2.39%, 07/07/05 350 350 SOUTH CAROLINA PUBLIC SERVICE AUTH TECP ~ 2.40%, 08/04/05 12,000 12,000 ~ 2.60%, 09/07/05 29,701 29,701 SOUTH CAROLINA TRANSPORTATION INFRASTRUCTURE BANK +~@/ RB Series 1999A 2.32%, 07/07/05 22,610 22,610 SPARTANBURG CNTY IDA +@ Refunding IDRB (Bemis Co) Series 1991 2.34%, 07/07/05 4,750 4,750 ----------- 150,961 SOUTH DAKOTA 0.4% SOUTH DAKOTA HEALTH & EDUCATIONAL FACILITIES AUTH +~@ RB (McKenna Hospital) Series 1994 2.59%, 07/07/05 27,240 27,240 SOUTH DAKOTA HOUSING DEVELOPMENT AUTH ~@ Homeownership Mortgage Bonds Series 2004G 2.31%, 07/07/05 11,000 11,000 +@ M/F Housing RB (Harmony Heights) Series 2001 2.40%, 07/07/05 6,500 6,500 ----------- 44,740 TENNESSEE 3.5% BRISTOL HEALTH & EDUCATIONAL FACILITIES BOARD +@ RB (King College) Series 2001 2.30%, 07/07/05 6,450 6,450 CARTER CNTY IDB +@ M/F Housing Refunding RB (Willow Run Apts) Series 1990 2.65%, 07/07/05 6,675 6,675 CHATTANOOGA HEALTH, EDUCATION & HOUSING FACILITIES BOARD +@ RB (Baylor School) Series 1996 2.29%, 07/07/05 2,035 2,035 +@= THA Program RB (Cumberland Medical Center) Series 2004A 2.28%, 07/07/05 46,000 46,000 CLARKSVILLE PUBLIC BUILDING AUTH +@ Pooled Financing RB (Tennessee Municipal Bond Fund) Series 1997 2.30%, 07/07/05 4,800 4,800 FRANKLIN CNTY IDB +@ IDRB (Hi-Tech) Series 1997 2.40%, 07/07/05 3,800 3,800 GRUNDY CNTY IDB +@ Limited Obligation RB (Toyo Seat USA Corp) Series 2001 2.50%, 07/07/05 3,330 3,330 HENDERSONVILLE IDB +@ Refunding IDRB (Betty Machine Co) Series 2001 2.34%, 07/07/05 3,445 3,445 HUNTINGDON IDB +@ IDRB (Associated Rubber Co) Series 1999 2.34%, 07/07/05 2,200 2,200
See financial notes. 43 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) JACKSON ENERGY AUTH +~@ Gas System RB Series 2002 2.28%, 07/07/05 5,730 5,730 +~@ Water System RB Series 2002 2.28%, 07/07/05 4,800 4,800 JACKSON HEALTH, EDUCATIONAL & HOUSING FACILITIES BOARD +@ M/F Housing RB (Patrician Terrace Apts) Series 2005 2.32%, 07/07/05 2,400 2,400 JACKSON IDB +@ Solid Waste Facility Bonds (Ameristeel Corp) Series 1997 2.35%, 07/07/05 3,800 3,800 MCMINN CNTY IDA +@ Solid Waste Disposal Facilities RB (Bowater) Series 1999 2.34%, 07/07/05 13,500 13,500 MEMPHIS +~@ Electric System Subordinate RB Series 2003A 2.31%, 07/07/05 2,800 2,800 +~@ General Improvement Refunding Bonds Series 2005 2.31%, 07/07/05 5,639 5,639 METROPOLITAN GOVT OF NASHVILLE & DAVIDSON CNTY GO TECP 2.25%, 08/15/05 15,000 15,000 2.55%, 10/25/05 6,250 6,250 2.60%, 11/15/05 12,500 12,500 METROPOLITAN GOVT OF NASHVILLE & DAVIDSON CNTY HEALTH & EDUCATIONAL FACILITIES BOARD +@ Educational Facilities RB (Belmont University) Series 2005 2.28%, 07/07/05 13,000 13,000 +@ M/F Housing RB (Burning Tree Apts) Series 2005 2.32%, 07/07/05 8,815 8,815 +@ RB (Ascension Health Credit Group) Series 2001B-1 1.65%, 08/03/05 4,000 4,000 +@ RB (Ensworth School) Series 2002 2.29%, 07/07/05 7,525 7,525 METROPOLITAN GOVT OF NASHVILLE & DAVIDSON CNTY IDB +@ Educational Facilites Refunding RB (David Lipscomb University) Series 2003 2.29%, 07/07/05 8,300 8,300 +@ IDRB (Bindtech) Series 1997 2.35%, 07/07/05 2,550 2,550 +@ M/F Housing RB (Arbor Crest) 1985B 2.33%, 07/07/05 12,750 12,750 +@ M/F Housing RB (Arbor Knoll) 1985A 2.33%, 07/07/05 13,400 13,400 METROPOLITAN NASHVILLE AIRPORT AUTH +@ Passenger Facility Charge Refunding Bonds Series 2003 2.34%, 07/07/05 6,300 6,300 SEVIER CNTY PUBLIC BUILDING AUTH +~@ Public Improvement Bonds Series 1995C-1 2.30%, 07/07/05 2,775 2,775 +~@ Public Improvement Bonds Series 1996E-4 2.30%, 07/07/05 2,155 2,155 +~@ Public Improvement Bonds Series 1996E-5 2.30%, 07/07/05 1,225 1,225 +~@ Public Improvement Bonds Series 1996F-1 2.30%, 07/07/05 8,150 8,150 +~@ Public Improvement Bonds Series 1996F-2 2.30%, 07/07/05 4,350 4,350 +~@ Public Improvement Bonds Series 1996G 2.30%, 07/07/05 4,810 4,810 +~@ Public Improvement Bonds Series 1996II-C 2.30%, 07/07/05 755 755 +~@ Public Improvement Bonds Series 1998III-C-1 2.30%, 07/07/05 7,400 7,400
44 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) SHELBY CNTY HEALTH, EDUCATION & HOUSING FACILITIES BOARD +@ Educational Facilities RB (Rhodes College) Series 2000 2.30%, 07/07/05 9,545 9,545 +@ M/F Housing RB (TUP I) Series 1997A 2.45%, 07/07/05 5,000 5,000 +@ RB (St Benedict at Auburndale High School) Series 2003 2.32%, 07/07/05 5,000 5,000 +@ RB (The Hutchison School) Series 2005 2.29%, 07/07/05 10,000 10,000 TENNESSEE GO TECP Series A 2.70%, 07/06/05 34,425 34,425 2.60%, 09/13/05 10,000 10,000 2.55%, 09/14/05 20,000 20,000 TENNESSEE HOUSING DEVELOPMENT AGENCY ~@/ Homeownership Program Bonds Series 2001-1C 2.41%, 07/07/05 6,750 6,750 VOLUNTEER STUDENT LOAN FUNDING CORP +@ Student Loan RB Series 1987A-1 2.32%, 07/07/05 15,000 15,000 +@ Student Loan RB Series 1987A-2 2.32%, 07/07/05 13,700 13,700 +@ Student Loan RB Series 1987A-3 2.32%, 07/07/05 59,700 59,700 ----------- 448,534 TEXAS 12.0% AMARILLO HEALTH FACILITY CORP +@ Hospital RB (Panhandle Pooled Health Care Loan) Series 1985 2.45%, 07/07/05 3,000 3,000 AUSTIN ~@/ Public Improvement Bonds Series 2000 2.32%, 07/07/05 6,000 6,000 +~@ Public Improvement Refunding Bonds Series 2005 2.32%, 07/07/05 4,080 4,080 +~@/ Water & Wastewater Refunding RB Series 2001 A&B 2.32%, 07/07/05 1,225 1,225 BEXAR CNTY HEALTH FACILITIES DEVELOPMENT CORP +@ Health Care RB (Chandler Memorial Home) Series 1995 2.31%, 07/07/05 3,445 3,445 BRAZOS RIVER AUTH +@ Pollution Control Refunding RB (TXU Electric Co) Series 2001D-1 2.33%, 07/07/05 14,300 14,300 COLLIN CNTY HFA +@ M/F Housing RB (Huntington Apts) Series 1996 2.40%, 07/07/05 6,150 6,150 CYPRESS-FAIRBANKS INDEPENDENT SD +~@ Unlimited Tax GO Refunding Bonds Series 2005 2.31%, 07/07/05 5,160 5,160 DALLAS AREA RAPID TRANSIT +~@ Dallas/Ft Worth International Airport Joint RB Series 2003A 2.35%, 07/07/05 2,500 2,500 +~@/ Sr Lien Sales Tax RB Series 2001 2.32%, 07/07/05 16,130 16,130 DALLAS FORT WORTH INTERNATIONAL AIRPORT +~@ Airport Joint Improvement RB Series 2003A 2.36%, 07/07/05 14,990 14,990 +~@/ Joint Improvement & Refunding RB Series 2002A 2.36%, 07/07/05 8,995 8,995 +~@ Joint RB Series 2003A 2.36%, 07/07/05 3,370 3,370 DALLAS INDEPENDENT SD +~@ Unlimited Tax School Building & Refunding Bonds Series 2004A 2.31%, 07/07/05 1,200 1,200
See financial notes. 45 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) DENTON UTILITY SYSTEM +~@/ Utility System RB Series 2000A 2.31%, 07/07/05 5,230 5,230 EL PASO +~@/ Water & Sewer Refunding RB Series 1998 2.43%, 07/07/05 9,635 9,635 GRAND PRAIRIE IDA +@ IDRB (NTA Leasing Co) Series 1994 2.45%, 07/07/05 1,280 1,280 GRAPEVINE IDA +@ Airport Improvement RB (Simuflite Training International) Series 1983A 2.70%, 04/03/06 19,000 19,000 GREATER EAST TEXAS STUDENT LOAN CORP Student Loan RB Series 1992B +@= 2.35%, 07/07/05 30,200 30,200 +@ 1.80%, 07/01/05 14,000 14,000 +@ Student Loan RB Series 1995B 1.80%, 07/01/05 10,000 10,000 +@= Student Loan Refunding RB Series 1993A 2.35%, 07/07/05 48,150 48,150 +@= Student Loan Refunding RB Series 1993B 2.35%, 07/07/05 23,400 23,400 +@ Student Loan Refunding RB Series 1995A 2.45%, 07/07/05 35,700 35,700 GREATER TEXAS STUDENT LOAN CORP +@ Student Loan RB Series 1998A 2.35%, 07/07/05 10,250 10,250 GREGG CNTY HEALTH FACILITIES DEVELOPMENT CORP +@ Hospital RB (Good Shepherd Medical Center) Series 2004 2.28%, 07/07/05 21,400 21,400 GULF COAST IDA +@ IDRB (Gruma Corp) Series 1994 2.40%, 07/07/05 6,440 6,440 GULF COAST WASTE DISPOSAL AUTH @ Solid Waste Disposal RB (Amoco Oil Co) Series 1991 2.60%, 10/01/05 9,200 9,200 HARRIS CNTY +~@ Jr Lien Special RB (Rodeo) Series 2001C 2.30%, 07/07/05 1,900 1,900 HARRIS CNTY FLOOD CONTROL DIST + Contract Tax TECP Series F 2.56%, 09/14/05 17,905 17,905 HARRIS CNTY HEALTH FACILITY DEVELOPMENT CORP +~@/ RB (SCH Health Care) Series 1997B 2.32%, 07/07/05 14,850 14,850 HARRIS CNTY HFA +@ M/F Housing RB (Dominion Square Apts) Series 2000 2.43%, 07/07/05 2,825 2,825 +@ M/F Housing RB (Village At Cornerstone Apts) Series 2004 2.32%, 07/07/05 8,360 8,360 HAYS CONSOLIDATED INDEPENDENT SD +~@ Unlimited Tax Refunding Bonds Series 2005 2.31%, 07/07/05 3,690 3,690 HOUSTON +~@ Airport System Subordinate Lien Refunding RB Series 2005A 2.31%, 07/07/05 18,000 18,000 ~@/ Public Improvement Refunding Bonds Series 1998A 2.32%, 07/07/05 21,655 21,655 +~@/ Water & Sewer System Jr Lien Refunding RB Series 2002A 2.36%, 07/07/05 6,530 6,530 HOUSTON COMBINED UTILITY SYSTEM ~ TECP Series A 2.60%, 07/06/05 10,000 10,000 JEWETT ECONOMIC DEVELOPMENT CORP @ IDRB (Nucor Corp) Series 2003 2.33%, 07/07/05 6,200 6,200
46 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) KATY INDEPENDENT SD +~@/ Unlimited Tax School Building Bonds Series 2000A 2.32%, 07/07/05 10,145 10,145 ~@ Unlimited Tax School Building Bonds Series 2004C 2.28%, 07/07/05 28,200 28,200 LAVACA-NAVIDAD RIVER AUTH +@/ Water Supply System Contract RB (Formosa Plastics Corp) Series 1990 2.38%, 07/07/05 13,600 13,600 LEANDER INDEPENDENT SD +~@ Unlimited Tax School Building & Refunding Bonds Series 2003 2.33%, 07/07/05 10,000 10,000 LOWER COLORADO RIVER AUTH +~@/ Refunding RB Series 1999A 2.32%, 07/07/05 10,770 10,770 LUBBOCK INDEPENDENT SD +~@ Unlimited Tax School Building Bonds Series 2005A 2.20%, 12/15/05 23,050 23,172 MANSFIELD IDA +@ IDRB (Southern Champion Tray) Series 1999 2.34%, 07/07/05 1,900 1,900 MATAGORDA CNTY NAVIGATION DIST NO.1 +~@/ Refunding RB (Houston Lighting & Power Co) 2.37%, 07/07/05 19,385 19,385 MIDLOTHIAN INDEPENDENT SD +~@/ Unlimited Tax School Building & Refunding Bonds Series 2004 2.34%, 07/07/05 8,840 8,840 NORTH TEXAS HIGHER EDUCATION AUTH +@= Student Loan RB Series 1987 2.34%, 07/07/05 87,750 87,750 +@ Student Loan RB Series 1998 2.30%, 07/07/05 9,000 9,000 +~@ Student Loan RB Series 2005A 2.30%, 07/07/05 20,600 20,600 NORTH TEXAS TOLLWAY AUTH +~@ Dallas North Tollway System RB Series 2005A 2.31%, 07/07/05 5,985 5,985 PANHANDLE PLAINS HIGHER EDUCATION AUTH +~@ Student Loan RB Series 1991A 2.31%, 07/07/05 27,400 27,400 +~@ Student Loan RB Series 1992A 2.31%, 07/07/05 44,100 44,100 +~@ Student Loan RB Series 1993A 2.31%, 07/07/05 44,200 44,200 PFLUGERVILLE INDEPENDENT SD +~@ Unlimited Tax Refunding Bonds Series 2005 2.31%, 07/07/05 4,000 4,000 PORT ARTHUR INDEPENDENT SD +~@ Unlimited Tax School Building Bonds Series 2005 2.34%, 07/07/05 23,395 23,395 SAN ANTONIO +~@ Airport System Revenue Improvement Bonds Series 2002 2.36%, 07/07/05 9,240 9,240 SAN ANTONIO IDA +@ IDRB (Gruma Corp) Series 1994 2.40%, 07/07/05 4,095 4,095 SOUTHEAST TEXAS HFA S/F Mortgage Refunding & RB Series 1998A +~@/ 2.36%, 07/07/05 4,165 4,165 ~@/ 2.36%, 07/07/05 4,210 4,210 SPRING INDEPENDENT SD +~@ Unlimited Tax Schoolhouse Bonds Series 2005 2.32%, 07/07/05 6,000 6,000 TEXAS ~@/ GO Bonds Veterans' Housing Assistance Program Fund II Series 2002A-2 2.33%, 07/07/05 6,000 6,000
See financial notes. 47 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) ~@ GO Bonds Veterans' Housing Assistance Program Fund II Series 2005A 2.29%, 07/07/05 16,700 16,700 ~@ GO College Student Loan & Refunding Bonds Series 2003 1.80%, 07/01/05 25,690 25,690 TRAN Series 2004 ~@/ 2.43%, 07/07/05 58,000 58,000 1.60%, 08/31/05 100,820 101,052 2.04%, 08/31/05 39,920 39,982 2.08%, 08/31/05 35,000 35,052 2.09%, 08/31/05 25,000 25,036 2.25%, 08/31/05 19,935 19,958 2.50%, 08/31/05 35,000 35,026 2.52%, 08/31/05 3,300 3,302 2.63%, 08/31/05 8,975 8,980 TEXAS A&M BOARD OF REGENTS ~@ Permanent University Fund Bonds Series 2004B 2.31%, 07/07/05 6,500 6,500 TEXAS A&M UNIVERSITY ~@/ Permanent University Fund Bonds Series 1998 2.32%, 07/07/05 28,445 28,445 TEXAS DEPT OF HOUSING & COMMUNITY AFFAIRS +@ M/F Housing RB (Atascocita Pines Apts) Series 2005 2.35%, 07/07/05 11,900 11,900 +@ M/F Housing RB (Bristol Apts) Series 2004 2.32%, 07/07/05 8,625 8,625 +@ M/F Housing RB (Creek Point Apts) Series 2000 2.35%, 07/07/05 6,785 6,785 +@ M/F Housing RB (Lafayette Village Apts) Series 2005 2.35%, 07/07/05 7,100 7,100 +@ M/F Housing RB (Montgomery Pines Apts) Series 2004 2.32%, 07/07/05 12,300 12,300 +@ M/F Housing RB (Pinnacle Apts) Series 2004 2.32%, 07/07/05 7,000 7,000 +@ M/F Housing RB (Tower Ridge Apts) Series 2005 2.50%, 07/07/05 15,000 15,000 ~@/ Residential Mortgage RB Series 1998A 2.43%, 07/07/05 14,950 14,950 ~@ Residential Mortgage Refunding RB Series 2003A 2.36%, 07/07/05 10,000 10,000 +~@ S/F Mortgage RB Series 2002A&B 2.36%, 07/07/05 4,125 4,125 +~@ S/F Mortgage RB Series 2004D 2.35%, 07/07/05 15,100 15,100 TEXAS MUNICIPAL GAS CORP +~@ Sr Lien Gas Reserve RB Series 1998 2.30%, 07/07/05 2,185 2,185 TEXAS PUBLIC FINANCE AUTHORITY ~ Unemployment Compensation Obligation Assessment RB Series 2003C-1 2.55%, 07/07/05 50,000 50,000 TEXAS TRANSPORTATION COMMISSION Mobility Fund Bonds Series 2005A ~@ 2.31%, 07/07/05 50,000 50,000 ~@ 2.32%, 07/07/05 6,000 6,000 TRINITY RIVER AUTH +@ Solid Waste Disposal RB (Community Waste Disposal) Series 1999 2.36%, 07/07/05 4,070 4,070 UNIVERSITY OF TEXAS Permanent University Fund Flexible Rate Notes Series A 2.53%, 09/08/05 5,000 5,000 2.60%, 10/05/05 22,000 22,000 ----------- 1,528,360 UTAH 1.7% INTERMOUNTAIN POWER AGENCY +~@ Power Supply Refunding RB Series 1985E 1.60%, 09/15/05 43,150 43,143 +~@/ Power Supply Refunding RB Series 1996C 2.31%, 07/07/05 15,330 15,330
48 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +~ Power Supply Refunding RB Series 1998A 2.70%, 07/07/05 9,995 9,995 SALT LAKE CITY +~@/ Hospital RB (IHC Health Services) Series 2001 2.32%, 07/07/05 26,730 26,730 +@ RB (Rowland Hall - St Mark's School) Series 2001 2.28%, 07/07/05 9,280 9,280 UNIVERSITY OF UTAH +~@/ Auxiliary & Campus Facilties System Refunding RB Series 1998A 2.32%, 07/07/05 30,060 30,060 +@ Student Loan RB Series 1993A 2.30%, 07/07/05 5,000 5,000 +~@ Student Loan RB Series 1995l 2.30%, 07/07/05 27,500 27,500 UTAH ~@/ GO Highway Bonds Series 1998A 2.31%, 07/07/05 5,000 5,000 UTAH BUILDING OWNERSHIP AUTH +~@/ Lease Refunding RB Series 1998C 2.32%, 07/07/05 9,695 9,695 UTAH STATE BOARD OF REGENTS +~@ Student Loan RB Series 2005W 2.30%, 07/07/05 35,280 35,280 WOODS CROSS CITY +@ M/F Housing Refunding RB (Springwood Apts) Series 2001A 2.29%, 07/07/05 3,605 3,605 ----------- 220,618 VERMONT 0.1% VERMONT ECONOMIC DEVELOPMENT AUTH +@ IDRB (Agri-Mark) Series 1999A 2.50%, 07/07/05 17,000 17,000 +@ IDRB (Agri-Mark) Series 1999B 2.50%, 07/07/05 1,000 1,000 ----------- 18,000 VIRGINIA 0.6% ARLINGTON CNTY IDA +@ M/F Housing RB (Gates of Ballston Apts) Series 2005 2.37%, 07/07/05 14,500 14,500 FAIRFAX CNTY ~@ Public Improvement & Refunding Bonds Series 2004A 2.31%, 07/07/05 1,000 1,000 KING GEORGE CNTY +@ Solid Waste Disposal Facility RB (Garnet) Series 1996 2.35%, 07/07/05 3,700 3,700 MONTGOMERY CNTY IDA +@ RB (Virginia Tech Foundation) Series 2001A 2.29%, 07/07/05 8,500 8,500 +@ RB (Virginia Tech Foundation) Series 2001B 2.38%, 07/07/05 1,015 1,015 +@ RB (Virginia Tech Foundation) Series 2002 2.29%, 07/07/05 4,305 4,305 NEWPORT NEWS IDA +@ RB (CNU Warwick Student Apts) Series 2004 2.30%, 07/07/05 4,300 4,300 NORFOLK +~@/ Parking System Refunding RB Series 2000B 2.32%, 07/07/05 9,450 9,450 NORFOLK REDEVELOPMENT & HOUSING AUTH +@ RB (E2F Student Housing I) Series 2005 2.30%, 07/07/05 7,000 7,000 +@ RB (Old Dominion University Real Estate Foundation Student Housing) Series 2004B 2.30%, 07/07/05 6,000 6,000 PORTSMOUTH REDEVELOPMENT & HOUSING AUTH +@ M/F Housing RB (Churchland North Apts) Series 1999 2.34%, 07/07/05 6,395 6,395
See financial notes. 49 SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) VIRGINIA BEACH DEVELOPMENT AUTH +@ M/F Residential Rental Housing RB (Silver Hill at Thalia) Series 1999 2.34%, 07/07/05 4,100 4,100 VIRGINIA PORT AUTH +~@ Commonwealth Port Fund RB (2002 Resolution) Series 2005A 2.61%, 07/07/05 2,645 2,645 Commonwealth Port Fund Refunding RB Series 1998 1.70%, 07/01/05 8,630 8,630 ----------- 81,540 WASHINGTON 3.7% CENTRAL PUGET SOUND REGIONAL TRANSIT AUTH +~@/ Sales Tax RB Series 2005A 2.32%, 07/07/05 8,000 8,000 DOUGLAS CNTY DEVELOPMENT CORP +@ RB (Executive Flight) Series 1998 2.35%, 07/07/05 6,300 6,300 ENERGY NORTHWEST +~@/ Columbia Generating Station & Project No.3 Refunding Electric RB Series 2001A 2.32%, 07/07/05 29,700 29,700 Project No.1 Refunding Electric RB Series 2002A +~@/ 2.31%, 07/07/05 32,460 32,460 +~@/ 2.32%, 07/07/05 4,195 4,195 +~@ Project No.3 Refunding Electric RB Series 2003A 2.31%, 07/07/05 8,690 8,690 EVERETT IDA @ Exempt Facilities RB (Kimberly-Clark Corp) Series 2002 2.35%, 07/07/05 3,200 3,200 +@ RB (Partners Trust I/Synsor) Series 1996 2.35%, 07/07/05 3,300 3,300 OLYMPIA +@ Solid Waste RB (LeMay Enterprises) Series 1999 2.36%, 07/07/05 5,905 5,905 PIERCE CNTY +@ IDRB (McFarland Cascade) Series 1996 2.40%, 07/07/05 3,945 3,945 +~@ Unlimited Tax GO Bonds Series 2001 2.32%, 07/07/05 43,655 43,655 PIERCE CNTY ECONOMIC DEVELOPMENT CORP +@ RB (Flex-A-Lite Consolidated) Series 1996 2.35%, 07/07/05 2,250 2,250 +@ RB (K&M Holdings II) Series 1997 2.61%, 07/07/05 1,300 1,300 +@ Solid Waste RB (LeMay Enterprises) Series 1999 2.36%, 07/07/05 2,145 2,145 PORT OF CENTRALIA IDA +@ Solid Waste RB (LeMay Enterprises) Series 1999 2.36%, 07/07/05 1,345 1,345 PORT OF MOSES LAKE PUBLIC CORP +@ RB (National Frozen Foods Corp) Series 1997 2.30%, 07/07/05 2,000 2,000 PORT OF SEATTLE +~@ RB Series 2001B 2.36%, 07/07/05 4,430 4,430 +~@ RB Series 2003A 2.31%, 07/07/05 1,000 1,000 +~@/ Special Facility RB (Terminal 18) Series 1999B 2.37%, 07/07/05 49,795 49,795 +~@ Subordinated Lien RB Series 1999B 2.36%, 07/07/05 2,875 2,875 SEATTLE +~@ Drainage & Wastewater Refunding RB Series 2002 2.31%, 07/07/05 6,875 6,875
50 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) SEATTLE HOUSING AUTH +@ RB (CHHIP & HRG) Series 1996 2.35%, 07/07/05 3,410 3,410 +@ RB (Casa Pacifica Apts) Series 1997 2.35%, 07/07/05 2,900 2,900 TACOMA HOUSING AUTH +@ RB (Crown Assisted Living) Series 1998 2.37%, 07/07/05 3,110 3,110 WASHINGTON ~@/ GO Bonds Series 1998C 2.32%, 07/07/05 12,150 12,150 ~@/ GO Bonds Series 2000B 2.32%, 07/07/05 13,380 13,380 +~@ GO Bonds Series 2003A 2.34%, 07/07/05 5,170 5,170 +~@ Unlimited GO Bonds Series B 2.32%, 07/07/05 30,485 30,485 Various Purpose GO Bonds Series 2005D +~@ 2.31%, 07/07/05 5,930 5,930 +~@ 2.32%, 07/07/05 6,500 6,500 WASHINGTON ECONOMIC DEVELOPMENT FINANCE AUTH +@ Economic Development RB (Skills) Series 1998N 2.37%, 07/07/05 2,735 2,735 +@ IDRB (Tonkin Building Associates) Series 1997A 2.40%, 07/07/05 1,000 1,000 +@ RB (Hunter Douglas) Series 1997A 2.34%, 07/07/05 3,500 3,500 +@ Solid Waste Disposal RB (Cedar Grove Composting) Series 2004B 2.36%, 07/07/05 5,905 5,905 +@ Solid Waste Disposal RB (Lemay Enterprises) Series 2005B 2.36%, 07/07/05 5,670 5,670 +@ Solid Waste Disposal RB (Waste Management) Series 2000C 2.37%, 07/07/05 5,500 5,500 Solid Waste Disposal RB (Waste Management) Series 2000I +@ 2.33%, 07/07/05 10,240 10,240 +@ 2.37%, 07/07/05 7,235 7,235 +@ Solid Waste Disposal RB (Waste Management) Series 2000H 2.37%, 07/07/05 6,825 6,825 WASHINGTON HEALTH CARE FACILITIES AUTH +@ RB (Yakima Valley Farm Workers Clinic) Series 1997 2.30%, 07/07/05 3,000 3,000 WASHINGTON HOUSING FINANCE COMMISSION +@ M/F Housing RB (Anchor Village Apts) Series 1997 2.32%, 07/07/05 10,750 10,750 +@ M/F Housing RB (Highlander Apts) Series 2004A 2.32%, 07/07/05 7,000 7,000 +@ M/F Housing RB (Lakewood Meadows Apts) Series 2000A 2.35%, 07/07/05 3,140 3,140 +@ M/F Housing RB (Rainier Court Apts) Series 2003A 2.32%, 07/07/05 12,750 12,750 +@ M/F Housing RB (Silver Creek Apts) Series 2004 2.32%, 07/07/05 4,100 4,100 +@ M/F Housing RB (Vintage at Burien) Series 2004A 2.32%, 07/07/05 6,570 6,570 +@ M/F Housing RB (Woodrose Apts) Series 1999A 2.32%, 07/07/05 6,750 6,750 +@ M/F Mortgage RB (Canyon Lakes) Series 1993 2.63%, 07/07/05 4,295 4,295 +@ M/F Mortgage RB (Lake Washington Apts) Series 1996 2.35%, 07/07/05 8,050 8,050 +@ M/F Mortgage RB (Meridian Court Apts) Series 1996 2.35%, 07/07/05 6,700 6,700 +@ M/F RB (Brittany Park Phase II) Series 1998A 2.32%, 07/07/05 3,480 3,480 +@ M/F RB (Brittany Park) Series 1996A 2.32%, 07/07/05 8,930 8,930
See financial notes. 51 SCHWAB MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ M/F RB (Merrill Gardens at Queen Anne) Series 2004A 2.35%, 07/07/05 11,000 11,000 +@ M/F RB (Merrill Gardens) Series 1997A 2.32%, 07/07/05 6,125 6,125 +@ M/F RB (Rosecreek Apts) Series 1998A 2.35%, 07/07/05 3,570 3,570 YAKAMA INDIAN NATION +@ RB (Yakama Forest Products) Series 1997 2.35%, 07/07/05 2,100 2,100 YAKIMA CNTY PUBLIC CORP +@ IDRB (Cowiche Growers) Series 1998 2.35%, 07/07/05 2,500 2,500 +@ RB (Michelsen Packaging) Series 1996 2.35%, 07/07/05 1,100 1,100 ----------- 466,920 WEST VIRGINIA 0.3% MARION CNTY +@ Solid Waste Disposal Facility RB (Grant Town Cogeneration) Series 1990B 2.32%, 07/07/05 19,925 19,925 +@ Solid Waste Disposal Facility RB (Grant Town Cogeneration) Series 1990C 2.32%, 07/07/05 17,000 17,000 +@ Solid Waste Disposal Facility RB (Grant Town Cogeneration) Series 1990D 2.32%, 07/07/05 3,200 3,200 ----------- 40,125 WISCONSIN 2.4% COLBURN IDA +@ IDRB (Heartland Farms) Series 1994 2.55%, 07/07/05 5,800 5,800 KENOSHA +@ IDRB (Asyst Technologies) Series 1997 2.37%, 07/07/05 5,000 5,000 KIMBERLY AREA SD +~@ GO Refunding Bonds 2.32%, 07/07/05 6,075 6,075 MILWAUKEE CNTY +~@ Airport RB Series 2000A 2.36%, 07/07/05 18,470 18,470 SOUTHEAST WISCONSIN PROFESSIONAL BASEBALL PARK DIST +~@/ Sales Tax Refunding Bonds Series 1998 2.32%, 07/07/05 5,000 5,000 WISCONSIN +~@ GO Bonds Series 2005-1 2.31%, 07/07/05 8,190 8,190 +~@ GO Refunding Bonds Series 2005-1 2.32%, 07/07/05 4,600 4,600 +~@ Transportation RB Series 2005A 2.32%, 07/07/05 9,690 9,690 WISCONSIN HEALTH & EDUCATIONAL FACILITIES AUTH +~@ RB (Sisters of the Sorrowful Mother) Series 1993C 2.31%, 07/07/05 22,015 22,015 WISCONSIN HOUSING & ECONOMIC DEVELOPMENT AUTH +@ Business Development RB (Ultratec) Series 1995-7 2.55%, 07/07/05 2,205 2,205 ~@ Home Ownership RB Series 2002C 2.28%, 07/07/05 3,000 3,000 ~@ Home Ownership RB Series 2002D 2.33%, 07/07/05 830 830 ~@ Home Ownership RB Series 2003B 2.33%, 07/07/05 14,300 14,300 Home Ownership RB Series 2004A ~@ 2.33%, 07/07/05 8,000 8,000 ~@ 2.33%, 07/07/05 11,020 11,020 ~@ 2.33%, 07/07/05 10,000 10,000 ~@ Home Ownership RB Series 2004D 2.29%, 07/07/05 73,800 73,800
52 See financial notes. SCHWAB MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +~@/ Housing RB Series 2002B 2.31%, 07/07/05 15,655 15,655 WISCONSIN HOUSING & ECONOMIC DEVELOPMENT AUTH-1987 HOMEOWNERSHIP RESOLUTION ~@ Home Ownership RB Series 2005A 2.29%, 07/07/05 20,725 20,725 +~@ S/F Draw Down RB Series 2003-1 2.37%, 07/07/05 21,875 21,875 WISCONSIN HOUSING & ECONOMIC DEVELOPMENT AUTH-1988 HOMEOWNERSHIP RESOLUTION ~@ Home Ownership RB Series 2005C 2.33%, 07/07/05 28,500 28,500 WISCONSIN RAPIDS +@ IDRB (Thiele Kaolin) Series 1998 2.34%, 07/07/05 4,500 4,500 ----------- 299,250 WYOMING 0.4% LINCOLN CNTY @ Pollution Control RB (Exxon) Series 1987C 2.38%, 07/01/05 3,000 3,000 WYOMING * Education Fund TRAN Series 2005A 2.63%, 06/28/06 45,000 45,589 WYOMING COMMUNITY DEVELOPMENT AUTH ~@/ Housing RB 2001 Series 1 2.36%, 07/07/05 4,965 4,965 ----------- 53,554
END OF INVESTMENTS. See financial notes. 53 SCHWAB MUNICIPAL MONEY FUND Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS --------------------------------------------------------------------------------- Investments, at value $13,143,595 a Cash 178 Receivables: Fund shares sold 55,595 Investments sold 250,489 Interest 59,931 Prepaid expenses + 809 ------------- TOTAL ASSETS 13,510,597 LIABILITIES --------------------------------------------------------------------------------- Payables: Fund shares redeemed 47,360 Dividends to shareholders 10,100 Investments bought 719,545 Investment adviser and administrator fees 220 Transfer agent and shareholder service fees 313 Trustees' fees 4 Accrued expenses + 132 -------------- TOTAL LIABILITIES 777,674 NET ASSETS --------------------------------------------------------------------------------- TOTAL ASSETS 13,510,597 TOTAL LIABILITIES - 777,674 -------------- NET ASSETS $12,732,923 NET ASSETS BY SOURCE Capital received from investors 12,737,197 Net investment income not yet distributed 305 Net realized capital losses (4,579) NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Sweep Shares $7,066,536 7,070,522 $1.00 Value Advantage Shares $3,205,939 3,206,462 $1.00 Select Shares $863,474 863,595 $1.00 Institutional Shares $1,596,974 1,597,223 $1.00
Unless stated, all numbers x 1,000. a The amortized cost for the fund's securities was $13,143,595. Includes restricted but deemed liquid securities comprised of 144A securities worth $1,523,760 or 12.0% of the fund's total net assets. During the reporting period, the fund had $3,124,514 in transactions with other Schwab Funds. FEDERAL TAX DATA --------------------------------------- COST BASIS OF PORTFOLIO $13,143,807 AS OF JUNE 30, 2005: Unrealized loss ($212) AS OF DECEMBER 31, 2004: UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2005 $523 2007 775 2008 873 2011 241 2012 + 1,479 ------------- $3,891 54 See financial notes. SCHWAB MUNICIPAL MONEY FUND Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME --------------------------------------------------------------------------------- Interest $140,260 NET REALIZED GAINS AND LOSSES --------------------------------------------------------------------------------- Net realized losses on investments sold (476) EXPENSES --------------------------------------------------------------------------------- Investment adviser and administrator fees 22,319 a Transfer agent and shareholder service fees: Sweep Shares 16,619 b Value Advantage Shares 3,508 b Select Shares 886 b Institutional Shares 1,701 b Trustees' fees 32 c Custodian and portfolio accounting fees 531 Professional fees 38 Registration fees 415 Shareholder reports 127 Other expenses + 87 ----------- Total expenses 46,263 Expense reduction - 11,570 d ----------- NET EXPENSES 34,693 INCREASE IN NET ASSETS FROM OPERATIONS --------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 140,260 NET EXPENSES - 34,693 ----------- NET INVESTMENT INCOME 105,567 NET REALIZED LOSSES + (476) ----------- INCREASE IN NET ASSETS FROM OPERATIONS $105,091
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets as follows: TRANSFER AGENT SERVICES: % OF AVERAGE SHARE CLASS DAILY NET ASSETS -------------------------------------- Sweep Shares 0.25 Value Advantage Shares 0.05 Select Shares 0.05 Institutional Shares 0.05 SHAREHOLDER SERVICES: % OF AVERAGE SHARE CLASS DAILY NET ASSETS -------------------------------------- Sweep Shares 0.20 Value Advantage Shares 0.17 Select Shares 0.17 Institutional Shares 0.17 These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d Includes $8,683 from the investment adviser (CSIM) and $2,887 from the transfer agent and shareholder service agent (Schwab). These reductions reflect a guarantee by CSIM and Schwab to limit the operating expenses of this fund through April 29, 2006, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS -------------------------------------- Sweep Shares 0.65 Value Advantage Shares 0.45 Select Shares 0.35 Institutional Shares 0.24 Prior to April 30, 2005, the limit was 0.66% for sweep shares. This limit excludes interest, taxes and certain non-routine expenses. See financial notes. 55 SCHWAB MUNICIPAL MONEY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS --------------------------------------------------------------------------------- 1/1/05-6/30/05 1/1/04-12/31/04 Net investment income $105,567 $95,108 Net realized losses + (476) (1,704) ----------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 105,091 93,404 DISTRIBUTIONS PAID --------------------------------------------------------------------------------- DIVIDENDS FROM NET INVESTMENT INCOME Sweep Shares 55,826 45,088 Value Advantage Shares 27,369 29,727 Select Shares 7,393 5,971 Institutional Shares + 14,870 14,086 ----------------------------------- TOTAL DIVIDENDS FROM NET INVESTMENT INCOME 105,458 94,872 TRANSACTIONS IN FUND SHARES a --------------------------------------------------------------------------------- SHARES SOLD Sweep Shares 16,998,946 32,230,523 Value Advantage Shares 1,984,574 3,977,079 Select Shares 975,890 1,518,310 Institutional Shares + 1,727,193 4,180,409 ----------------------------------- TOTAL SHARES SOLD 21,686,603 41,906,321 SHARES REINVESTED Sweep Shares 49,630 44,201 Value Advantage Shares 22,083 26,335 Select Shares 5,672 5,139 Institutional Shares + 11,771 11,892 ----------------------------------- TOTAL SHARES REINVESTED 89,156 87,567 SHARES REDEEMED Sweep Shares (17,544,928) (32,204,616) Value Advantage Shares (2,045,500) (4,658,834) Select Shares (845,099) (1,270,436) Institutional Shares + (1,600,599) (3,451,756) ----------------------------------- TOTAL SHARES REDEEMED (22,036,126) (41,585,642) NET TRANSACTIONS IN FUND SHARES (260,367) 408,246 b NET ASSETS --------------------------------------------------------------------------------- Beginning of period 12,993,657 12,586,879 Total increase or decrease + (260,734) 406,778 c ----------------------------------- END OF PERIOD $12,732,923 $12,993,657 d
Unless stated, all numbers x 1,000. a Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. The fund started offering Select Shares and Institutional Shares on June 2, 2003. b Represents shares sold plus shares reinvested, minus shares redeemed. c Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. d Includes net investment income not yet distributed in the amount of $305 and $196 at the end of the current and prior period, respectively. 56 See financial notes. SCHWAB MUNICIPAL MONEY FUND FINANCIAL NOTES unaudited BUSINESS STRUCTURE OF THE FUND THE FUND DISCUSSED IN THIS REPORT IS A SERIES OF THE CHARLES SCHWAB FAMILY OF FUNDS, A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended. The sidebar shows the fund in this report and its trust. THE FUND OFFERS FOUR SHARE CLASSES: Sweep Shares, Value Advantage Shares, Select Shares and Institutional Shares. Shares of each class represent interest in the same portfolio, but each class has different expenses and investment minimums. 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 trust may issue as many shares as necessary. FUND OPERATIONS Most of the fund's investments are described in sections earlier in this report. However, there are certain other fund operations and policies that may affect the fund's financials, as described below. Other policies concerning the fund's business operations also are described here. THE FUND DECLARES DIVIDENDS EVERY DAY IT IS OPEN FOR BUSINESS. These dividends, which are equal to the fund's net investment income for that day, are paid out to shareholders once a month. The fund may make distributions from any net realized capital gains once a year. THE FUND MAY BUY SECURITIES ON A DELAYED-DELIVERY BASIS. In these transactions, the 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 has set aside sufficient securities as collateral for those securities bought on a delayed-delivery basis. THE FUND PAYS FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES. Through its trust, the fund has agreements with Charles Schwab Investment Management, Inc. (CSIM) to provide investment advisory and administrative services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent and shareholder services. Although these agreements specify certain fees for these services, CSIM and Schwab have made additional agreements with the fund that may limit the total expenses charged. The rates and limitations for these fees are described in the fund's Statement of Operations. THE FUND MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. The fund may make direct transactions with certain other Schwab Funds when practical. When THE TRUST AND ITS FUNDS This list shows all of the funds included in The Charles Schwab Family of Funds. The fund discussed in this report 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 MUNICIPAL MONEY FUND Schwab California Municipal Money Fund Schwab New York Municipal Money Fund Schwab New Jersey Municipal Money Fund Schwab Pennsylvania Municipal Money Fund Schwab Florida Municipal Money Fund Schwab Massachusetts Municipal Money Fund Schwab Retirement Advantage Money Fund Schwab Retirement Money Fund Schwab Advisor Cash Reserves Schwab Cash Reserves Schwab Government Cash Reserves 57 SCHWAB MUNICIPAL MONEY FUND 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. Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions within the Schwab Funds(R). 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. 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. THE FUND MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The fund may obtain temporary bank loans through the trust to which the fund belongs, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The Schwab Funds has custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A., respectively. The fund pays interest on the amounts it borrows at rates that are negotiated periodically. There was no borrowing for the fund during the period. THE FUND INTENDS TO MEET FEDERAL INCOME AND EXCISE TAX REQUIREMENTS FOR REGULATED INVESTMENT COMPANIES. Accordingly, the fund distributes substantially all of their net investment income and net realized capital gains (if any) to its respective shareholders each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax. The net investment income and net realized capital gains and losses may differ for financial statement and tax purpose primarily due to differing treatments of wash sale losses and market discount. UNDER THE FUND'S ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE INDEMNIFIED AGAINST CERTAIN LIABILITY 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. ACCOUNTING POLICIES The following are the main policies the fund uses in preparing its financial statements. THE FUND VALUES ITS SECURITIES AT AMORTIZED COST, which approximates market value. SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the security is executed. INTEREST INCOME is recorded as it accrues. If the fund buys a debt instrument at a discount (that is, for less than its face value) or a premium (more than its 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. REALIZED GAINS AND LOSSES from security transactions are based on the identified costs of the securities involved. 58 SCHWAB MUNICIPAL MONEY FUND EXPENSES that are specific to the fund or a class are charged directly to the fund or class. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets. FOR FUNDS OFFERING MULTIPLE SHARE CLASSES, all of the realized and unrealized gains or losses and net investment income, other than class specific expenses, are allocated daily to each class in proportion to its net assets. 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 also may keep certain assets in segregated accounts, as required by securities law. THE ACCOUNTING POLICIES DESCRIBED ABOVE CONFORM WITH 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. 59 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 advisory agreement. In addition, the Securities and Exchange Commission (the "SEC") takes the position that, as part of their fiduciary duties with respect to fund fees, fund boards are required to evaluate the material factors applicable to a decision to approve an investment advisory agreement. Consistent with these responsibilities, the Board of Trustees (the "Board") 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 CSIM (the "Agreement") with respect to existing funds in the Trust, including the Schwab Municipal 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 trustees also receive a memorandum from fund counsel regarding the responsibilities of trustees for the approval of investment advisory contracts. In addition, the Independent Trustees receive advice from independent counsel to the Independent Trustees, meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM. At the May 24, 2005 meeting of the Board, the trustees, including a majority of the Independent Trustees, approved the renewal of the Agreement on an interim basis through September 30, 2005. In connection with the interim approval of the Agreement, the Board requested that CSIM prepare responses to certain questions outlined below in advance of the next regularly scheduled Board meeting. The Board's approval of the Agreement was based on consideration and evaluation of a variety of specific factors discussed at that meeting 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 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. 60 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 the fact that Schwab's extensive branch network, Internet access, investment and research tools, telephone services, and array of account features benefit the funds. 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' investors are also brokerage clients of Schwab, and that CSIM and its affiliates are uniquely positioned to provide services and support to the funds and such shareholders. 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 interim renewal of the Agreement. FUND PERFORMANCE. The Board considered fund performance in determining whether to renew the Agreement. Specifically, the trustees considered each fund's performance relative to a peer group of other mutual funds and appropriate indices/benchmarks, in light of total return, yield and market trends. As part of this review, the trustees considered the composition of the peer group, selection criteria and the reputation of the third party who prepared the peer group analysis. In evaluating the performance of each fund, the trustees considered both risk and shareholder risk expectations for such fund. The Board noted that certain funds, including the Municipal Money Fund--Sweep Shares, had lower performance relative to their respective peer groups than other funds, and inquired as to the underlying reasons for this relative performance. The Board also requested that CSIM evaluate the reasons for such funds' relative performance, consider appropriate measures to address the performance and report the results of their findings at the next Board meeting. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of the funds supported interim renewal of the Agreement. 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 voluntary waiver of 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 and offshore funds, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the unique 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 interim renewal of the Agreement. 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 61 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 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 interim renewal of the Agreement. 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 CSIM's agreement to contractual investment advisory fee schedules which include lower fees at higher graduated asset levels. Based on this evaluation, 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, unanimously approved the interim continuation of the Agreement and concluded that the compensation under the Agreement 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. 62 TRUSTEES AND OFFICERS A fund's Board of Trustees is responsible for protecting the interests of that fund's shareholders. The tables below give information about the people who serve as trustees and officers for the Schwab Funds(R), including the funds covered in this report. Trustees remain in office until they resign, retire or are removed by shareholder vote. 1 Under the Investment Company Act of 1940, any officer, director, or employee of Schwab or CSIM is considered an "interested person," meaning that he or she is considered to have a business interest in Schwab or CSIM. These individuals are listed as "interested trustees." The "independent trustees" are individuals who, under the 1940 Act, are not considered to have a business interest in Schwab or CSIM. Each of the 56 Schwab Funds belongs to one of these trusts: The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently all these trusts have the same trustees and officers. The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. 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. INTERESTED TRUSTEES AND OFFICERS
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ CHARLES R. SCHWAB 2 Chairman, Trustee: Chair, CEO, Director, The Charles Schwab Corp., Charles Schwab & 7/29/37 Family of Funds, 1989; Co., Inc.; Chair, Director, Charles Schwab Investment Management, Investments, 1991; Inc.; Chair, Charles Schwab Holdings (UK); Chair, Director, U.S. Trust Capital Trust, 1993; Corp., United States Trust Co. of New York, U.S. Trust Co., N.A.; Annuity Portfolios, CEO, Director, Charles Schwab Holdings, Inc.; Chair, CEO Schwab 1994. (SIS) Holdings, Inc. I, Schwab International Holdings, Inc.; Director, Charles Schwab Bank, N.A., The Charles and Helen Schwab Foundation, All Kinds of Minds (education); Trustee, Stanford University. Until 5/04: Director, The Gap, Inc. (clothing retailer). Until 5/03: Co-CEO, The Charles Schwab Corp. Until 3/02: Director, Audiobase, Inc. (Internet audio solutions). Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications). Until 7/01: Director, The Charles Schwab Trust Co.
1 The Schwab Funds retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010. 2 In addition to his position with the investment adviser and the distributor, Mr. Schwab also owns stock of The Charles Schwab Corporation. 63 INTERESTED TRUSTEES BUT NOT OFFICERS
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ RANDALL W. MERK 2005 (all trusts). EVP, President, AMPS Enterprise. Until 7/04: President, CEO, 7/25/54 Charles Schwab Investment Management, Inc.; VP, Charles Schwab & Co., Inc. Until 8/02: President, Chief Investment Officer, American Century Management; Director, American Century Companies, Inc. Until 6/01: Chief Investment Officer, Fixed Income, American Century Companies, Inc.
OFFICERS OF THE TRUST
NAME AND BIRTHDATE TRUST OFFICE(s) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ EVELYN DILSAVER President, CEO EVP, President, Director, Charles Schwab Investment Management, 5/4/55 (all trusts). Inc. Until 7/04: SVP for Development and Distribution, Asset Management Products and Services Enterprise. Until 6/03: EVP, CFO, Chief Administrative Officer, U.S. Trust. ------------------------------------------------------------------------------------------------------------------------------------ STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment 4/5/55 Officer (all trusts). Management, Inc.; Chief Investment Officer, The Charles Schwab Trust Co. ------------------------------------------------------------------------------------------------------------------------------------ KIMON DAIFOTIS SVP, Chief Investment Since 9/04: Chief Investment Officer, Fixed Income, Charles 7/10/59 Officer (all trusts). Schwab Investment Management, Inc. Since 6/04: SVP, Charles Schwab Investment Management, Inc. Until 6/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ JEFFREY MORTIMER SVP, Chief Investment Since 5/04: SVP, Chief Investment Officer, Equities, Charles Schwab 9/29/63 Officer (all trusts). Investment Management, Inc. Since 6/04: VP, Chief Investment Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 5/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ RANDALL FILLMORE Chief Compliance Since 9/04: SVP, Institutional Compliance and Chief Compliance 11/11/60 Officer (all trusts). Officer, Charles Schwab Investment Management, Inc.; Chief Compliance Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 9/04: VP, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. Until 2002: VP of Internal Audit, Charles Schwab & Co., Inc. Prior to 2000: PricewaterhouseCoopers. ------------------------------------------------------------------------------------------------------------------------------------ KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab 3/13/61 Investment Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco. ------------------------------------------------------------------------------------------------------------------------------------ GEORGE PEREIRA Treasurer, Principal Since 11/04: SVP, CFO, Charles Schwab Investment Management, 6/9/64 Financial Officer Inc. Until 11/04: SVP, Financial Reporting, Charles Schwab & Co., Inc. (all trusts). Until 12/99: CFO, Commerzbank Capital Markets. Until 9/99: Managing Director at the New York Stock Exchange.
64 INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC (real estate); Trustee, Stanford 8/13/60 University, America First Cos., Omaha, NE (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital. Since 2/05: Director, Pacific Mutual Holding Company (insurance). Since 2004: Laudus Trust, Laudus Variable Insurance Trust. Until 2001: Stanford University, Special Assistant to the President. From 1996-2001: VP of Business Affairs, CFO. ------------------------------------------------------------------------------------------------------------------------------------ DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing 9/23/31 Investments, 1991; and communications consulting). Until 1999: EVP, Managing Director, Capital Trust, 1993; Grey Advertising. Until 1996: President, CEO, Allen & Dorward Annuity Portfolios,1994. Advertising. ------------------------------------------------------------------------------------------------------------------------------------ WILLIAM A. HASLER 2000 (all trusts). Dean Emeritus, Haas School of Business, University of California, 11/22/41 Berkeley; Director, Aphton Corp. (bio-pharmaceuticals); Non- Executive Chair, Solectron Corp. (manufacturing), Mission West Properties (commercial real estate), Stratex Networks (network equipment), TOUSA (home building); Public Governor, Member, executive committee, Pacific Stock & Options Exchange. Since 2004: Trustee, Laudus Trust, Laudus Variable Insurance Trust. Until 2/04: Co-CEO, Aphton Corp. (bio-pharmaceuticals). ------------------------------------------------------------------------------------------------------------------------------------ ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial 5/15/31 Investments, 1991; services and investment advisory firm). Capital Trust, 1993; Annuity Portfolios,1994. ------------------------------------------------------------------------------------------------------------------------------------ GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisers); 9/28/50 Trustee, Cooper Industries (electrical products, tools and hardware); Chairman, audit committee, Northern Border Partners, L.P. (energy). ------------------------------------------------------------------------------------------------------------------------------------ DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: 6/28/38 Investments, 1991; Chair, CEO, North American Trust (real estate investment trust). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (real estate investment and 8/18/43 Investments, 1991; management, and other investments). Capital Trust, 1993; Annuity Portfolios, 1994.
65 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. ALTERNATIVE MINIMUM TAX (AMT) A federal income tax designed to limit the extent to which high-income taxpayers (including individuals, estates, trusts and corporations) can benefit from certain deductions and exemptions. For example, some types of income that are exempt from regular federal income tax are not exempt from the AMT. ASSET-BACKED SECURITIES Bonds or other debt securities that represent ownership in a pool of assets such as credit card debt. BOND A security representing a loan from the investor to the issuer. A bond typically pays interest at a fixed rate (the "coupon rate") until a specified date (the "maturity date"), at which time the issuer returns the money borrowed ("principal" or "face value") to the bondholder. Because of their structure, bonds are sometimes called "fixed income securities" or "debt securities." An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond's market value prior to call or maturity. There is no guarantee that a bond's yield to call or maturity will provide a positive return over the rate of inflation. BOND FUND A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund's net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed. BOND ANTICIPATION NOTES Obligations sold by a municipality on an interim basis in anticipation of the municipality's issuance of a longer-term bond in the future. 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, state and local governments 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. 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 limit 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 principal to its debtholders. PORTFOLIO TERMS To help reduce the space occupied by the portfolio holdings, we use the following terms. Most of them appear within descriptions of individual securities in municipal funds, and describe features of the issuer or the security. Some of these are more fully defined elsewhere in the Glossary. ACES Adjustable convertible extendable security BAN Bond anticipation note COP Certificate of participation GAN Grant anticipation note GO General obligation HDA Housing Development Authority HFA Housing Finance Agency IDA Industrial Development Authority IDB Industrial Development Board IDRB Industrial Development Revenue Bond M/F Multi-family RAN Revenue anticipation note RB Revenue bond S/F Single-family TAN Tax anticipation note TECP Tax-exempt commercial paper TRAN Tax and revenue anticipation note VRD Variable-rate demand 66 DOLLAR-WEIGHTED AVERAGE MATURITY (DWAM) See weighted average maturity. EFFECTIVE YIELD A measurement of a fund's yield that assumes that all dividends were 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 a 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 A security that when tendered is paid from funds advanced by an entity other than the issuer (such as a large financial institution). Liquidity enhancements are often used on variable-rate securities where the portfolio manager has an option to tender the securities prior to their final maturity. MATURITY The date a debt security is scheduled to be "retired" and its principal amount returned to the bondholder. MONEY MARKET SECURITIES High-quality, short-term debt securities that may be issued by entities such as the U.S. government, corporations and financial institutions (such as banks). Money market securities include commercial paper, promissory notes, certificates of deposit, banker's acceptances, notes and time deposits. MUNI, MUNICIPAL BONDS, 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. REVENUE ANTICIPATION NOTES Obligations that are issued in expectation of the receipt of revenue, such as income taxes, property taxes, etc. 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%). TOTAL RETURN The percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested. TAX ANTICIPATION NOTES Notes that typically are sold to finance the cash flow needs of municipalities in anticipation of the receipt of taxes on a future date. 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. WEIGHTED AVERAGE MATURITY For mutual funds, the maturity of all the debt securities in its portfolio, calculated as a weighted average. As a rule, the longer a fund's weighted average maturity, the greater its interest rate risk. Money funds are required to maintain a weighted average maturity of no more than 90 days. YIELD The income paid out by an investment, expressed as a percentage of the investment's market value. 67 NOTES Schwab Funds(R) offers you a complete 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're 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, and 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. METHODS FOR PLACING ORDERS The following information outlines how Schwab investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET 1 www.schwab.com SCHWAB BY PHONE(TM) 2 Use our automated voice service or speak to a representative. Call 1-800-435-4000, day or night (for TDD service, call 1-800-345-2550). TELEBROKER(R) Use our automated touch-tone phone service at 1-800-272-4922. MAIL Write to Schwab Funds at: P.O. Box 3812 Englewood, CO 80155-3812 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. 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.schwab.com/schwabfunds, 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.schwab.com/schwabfunds or the SEC's website at http://www.sec.gov. 1 Shares of Sweep Investments(TM) may not be purchased directly over the Internet. 2 Orders placed in person or through a telephone representative may be subject to a service fee payable to Schwab. THE SCHWAB FUNDS FAMILY(R) STOCK FUNDS Schwab S&P 500 Index Fund Schwab 1000 Index(R) Fund Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) Schwab Premier Equity Fund(TM) Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) Schwab Financial Services Fund(TM) Schwab Health Care Fund(TM) Schwab Technology Fund(TM) Schwab Institutional Select(R) S&P 500 Fund ASSET ALLOCATION FUNDS 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 2020 Fund Schwab Target 2030 Fund Schwab Target 2040 Fund Schwab Retirement Income Fund BOND FUNDS Schwab YieldPlus Fund(R) Schwab Short-Term Bond Market Fund(TM) Schwab Total Bond Market Fund(TM) Schwab GNMA Fund(TM) Schwab Tax-Free YieldPlus Fund(TM) Schwab Short/Intermediate Tax-Free Bond Fund(TM) Schwab Long-Term Tax-Free Bond Fund(TM) Schwab California Tax-Free YieldPlus Fund(TM) Schwab California Short/Intermediate Tax-Free Bond Fund(TM) Schwab California Long-Term 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 liquidity. 3 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(R). 3 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. [CHARLES SCHWAB LOGO] INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. (Schwab) FUNDS Schwab Funds(R) P.O. Box 3812, Englewood, CO 80155-3812 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)2005 Charles Schwab & Co., Inc. All rights reserved. Member SIPC Printed on recycled paper. MFR25720-03 SCHWAB MUNICIPAL MONEY FUNDS SEMIANNUAL REPORT June 30, 2005 Schwab New York Municipal Money Fund(TM) Schwab New Jersey Municipal Money Fund(TM) Schwab Pennsylvania Municipal Money Fund(TM) Schwab Florida Municipal Money Fund(TM) Schwab Massachusetts Municipal Money Fund(TM) [CHARLES SCHWAB LOGO] IN THIS REPORT Management's Discussion ................................................. 2 Performance and Fund Facts .............................................. 8 Schwab New York Municipal Money Fund(TM) .............. 8 Schwab New Jersey Municipal Money Fund(TM) ............ 8 Schwab Pennsylvania Municipal Money Fund(TM) .......... 8 Schwab Florida Municipal Money Fund(TM) ............... 8 Schwab Massachusetts Municipal Money Fund(TM) ......... 8 Fund Expenses ........................................................... 9 Financial Statements .................................................... 8 Schwab New York Municipal Money Fund(TM) .............. 10 Schwab New Jersey Municipal Money Fund(TM) ............ 20 Schwab Pennsylvania Municipal Money Fund(TM) .......... 27 Schwab Florida Municipal Money Fund(TM) ............... 34 Schwab Massachusetts Municipal Money Fund(TM) ......... 46 Financial Notes ......................................................... 54 Investment Advisory Agreement Approval .................................. 57 Trustees and Officers ................................................... 60 Glossary ................................................................ 63 Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM). Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab). [PHOTO OF CHARLES SCHWAB] Charles Schwab Chairman FROM THE CHAIRMAN Dear Shareholder, I have always believed that it's important to make sure that your cash is earning income between long-term investments by putting the money into a money market fund. While no investment is risk-free, money market funds carry, perhaps, the least amount of risk, as they generally are not as volatile as stocks or stock mutual funds. Money funds are good choices for investors who want to mitigate the potential fluctuations that may occur in their mostly stock portfolios. At Schwab, we offer a range of money funds with distinct investment strategies. Our municipal money funds, for example, may be beneficial for those of you in the higher tax brackets. We also offer money funds for those interested in the added protection provided by a portfolio of U.S. government securities. In addition, several of the Schwab money funds offer share classes that carry lower expenses in exchange for higher investment minimums. Now, as a result of the Federal Reserve having raised short-term interest rates eight times in the past 12 months (four during the six-month period covered in this report), yields on money market mutual funds are more attractive than they have been in many years. Not only that, but it's likely that the Fed will raise these rates again this year. Based on this expectation, we anticipate that the yields on money market funds will continue to move upwards over the next few months. On behalf of Schwab Funds, I want to thank you for investing with us and remind you that our commitment to our shareholders will never waver. Sincerely, /s/ Charles R. Schwab MANAGEMENT'S DISCUSSION for the six months ended June 30, 2005 [PHOTO OF EVELYN DILSAVER] EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management, Inc. and is president of the funds covered in this report. She joined the firm in 1992 and has held a variety of executive positions at Schwab. Dear Shareholder, When I assumed my new role as President and CEO of Schwab Funds(R) last year, I pledged that I would be committed to offering you more relevant choices and better value. I am pleased to report that we already have done both. On July 1, 2005, Schwab Funds launched the Schwab Target Funds(TM), a suite of five mutual funds to help keep your retirement investments properly allocated over your lifetime. With a single investment in a Schwab Target Fund, you can avoid a common investment mistake -- failing to adjust your portfolio over time. The funds are designed to provide shareholders with investment management, asset allocation and ongoing re-allocation over time. You simply choose the fund that most closely matches the date of your retirement and our experienced portfolio managers will do the rest. They will rebalance four of the five funds from more aggressive to more conservative as you get closer to your retirement date. The fifth fund is designed to help generate income and additional growth after you've retired. It also is a good choice for investors already enjoying their retirement. These no-load funds are a good value, as the funds have access to the lowest-priced eligible share class on the underlying Schwab affiliate funds. And because the funds invest in groups of other Schwab affiliate funds, they provide an additional layer of diversification. At Schwab, we believe that having an asset-allocation plan that fits your retirement goals, time frame and tolerance for risk is a key element in meeting your long-term investment goals. The Schwab Target Funds are designed to help you do this. I encourage you to learn more about these funds at www.schwab.com/target, or call Schwab. Thank you for investing in Schwab Funds. Sincerely, /s/ Evelyn Dilsaver Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus carefully before investing. 2 Schwab Municipal Money Funds [PHOTO OF KEVIN SHAUGHNESSY] KEVIN SHAUGHNESSY, CFA, a vice president of the investment adviser and senior portfolio manager, is responsible for the day-to-day management of the Schwab New York, New Jersey and Massachusetts municipal money funds. Prior to joining the firm in 2000, he worked for more than 10 years in fixed income portfolio management. [PHOTO OF WALTER BEVERIDGE] WALTER BEVERIDGE, a portfolio manager, has been responsible for day-to-day management of the Schwab Pennsylvania and Florida municipal money funds since their inception in 1998. Prior to joining the firm in 1992, he worked for nearly 10 years in asset management. THE INVESTMENT ENVIRONMENT AND THE FUND Oil prices hit highs never seen before and the Federal Reserve Open Market Committee continued to raise short-term interest rates to curb inflationary pressures, raising rates for the fourth time this year. At the same time, GDP continued to grow at a healthy pace and the housing market remained strong, largely due to low mortgage rates. The firming labor market, as well as steady gains in capital spending, kept the economic expansion on a self-sustaining path. Businesses, unable to continue boosting productivity by restraining hiring, added new jobs during the six-month report period. Moreover, many leading indicators, such as the Institute for Supply Management's business activity surveys, suggested ongoing expansion, while continuing claims for unemployment benefits remained near cyclical lows. Business investments grew only modestly, but consumers continued to spend. In fact, consumer confidence rose to a level not experienced since before September 11, 2001. With consumers in a spending mode and consumer spending comprising about 70% of GDP, first quarter GDP remained strong and retail sales were healthy. In this positive economic environment, strong labor market conditions remained positive for domestic consumption. While high energy prices remained a significant headwind for economic performance, supply no longer was the issue; demand, especially in China, drove prices up. At the end of the six-month report period, a barrel of oil cost $56.50 versus $42.55 at the beginning of 2005. Though high oil and commodity prices could have hampered growth and stirred inflationary pressures, productivity gains, slow growth in the money supply and slack in the economy have mostly kept a lid on core inflation. The productivity gains, coupled with foreign central banks buying large amounts of U.S. Treasury securities, also helped to keep long-term interest rates under control. These conditions also caused the dollar to rally unexpectedly, which took a little bit of pressure off the price of imported goods. Amid signs of solidly expanding output and improved hiring, the Fed continued to tighten. It increased short-term interest rates at each of the four meetings in the first half of 2005, ending the six-month report period at a still moderate 3.25%. The moves have had a limited impact on overall economic growth, due primarily to the record-low level Schwab Municipal Money Funds 3 MANAGEMENT'S DISCUSSION continued Though high oil and commodity prices could have hampered growth and stirred inflationary pressures, productivity gains, slow growth in the money supply and slack in the economy have mostly kept a lid on core inflation. of rates from which the increases began. Nonetheless, the higher rates succeeded in moving money fund yields higher, making them a more attractive investment vehicle. AS NOTED ABOVE, THE FED CONTINUED IN ITS TIGHTENING MODE, RAISING SHORT-TERM INTEREST RATES 0.25% AT EACH OF ITS FOUR MEETINGS THIS YEAR. At the end of the six-month report period, the rate was 3.25%. The higher taxable rates translated into higher municipal money market yields, as well. Yields on municipal variable-rate demand notes rose significantly during this period. The Bond Market Association's seven-day muni index averaged 2.25% during the six-month report period, 0.80% higher than the prior six-month period. This change had a positive impact on muni money fund yields, which rose 0.60% on average over the report period. In this type of economic climate and market environment, we allowed the funds' weighted average maturity (WAM) to shorten to a more neutral position versus our peers. When the opportunity arose, we added commercial paper with maturities of 30-90 days, as they offered the best relative value of any other assets during the report period. We also increased our exposure to attractively priced seven-day variable-rate notes. Despite the ongoing rising-rate environment, municipal-note supply remained steady in the first half of 2005. During this period, issuance of commercial paper and seven-day variable-rate notes was strong. FOR THE FIRST TIME IN 21 YEARS, NEW YORK PASSED ITS BUDGET PRIOR TO THE CLOSE OF THE FISCAL YEAR ON MARCH 31, 2005, WITH SOME AMENDMENTS COMPLETED IN THE FOLLOWING TWO WEEKS. The State ended fiscal 2005 with a $1.22 billion surplus due to higher personal and corporate income tax receipts. The surplus represents 2.8% of spending for the year. The fiscal 2006 budget includes $46.21 billion in spending and projects and is slated to end fiscal 2006 with a $1.81 billion fund balance. The State increased funding for education, but not to the levels mandated by a court order requiring higher funding for New York City schools. The budget includes some relief to local governments for state-mandated Medicaid costs in exchange for lower increases in local property taxes. The improved economy also was evident in the State's employment figures. Between May 2004 and May 2005, job growth expanded 1.8%, while unemployment fell from 5.8% down to 5.0%. New York City passed its fiscal 2006 budget on June 29, 2005 for the fiscal year beginning July 1, 2006. The City ended its fiscal 2005 year with a $2.3 billion surplus, which it used to prepay expenses occurring in fiscal 2006. The State's economy remains very strong in the New York 4 Schwab Municipal Money Funds New York remains a strong investment-grade credit due to the diversity of the State economy as well as its revenue raising ability. City metropolitan area. Many local governments in northern and western New York state, however, are operating under tremendous financial pressure, as their manufacturing economies have shrunk over the last several decades. Both the City of Buffalo and Erie County are operating under State-ordered Financial Control Boards to address fiscal problems associated with declining or stagnant tax bases and soaring benefit costs. Nonetheless, New York remains a strong investment-grade credit due to the diversity of the State economy as well as its revenue raising ability. The State's general obligation credit ratings were A1 from Moody's Investors Service, AA from Standard & Poor's and AA- from Fitch at the end of the report period. NEW JERSEY PASSED ITS FISCAL 2006 BUDGET ON JULY 2, 2005, TWO DAYS AFTER THE CLOSE OF FISCAL 2005. The $27.9 billion fiscal 2006 budget holds spending slightly below the fiscal 2005 budget of $28 billion, an improvement over last year's 14% increase in spending. Despite heading into statewide election season, the budget relies on only minor non-recurring revenues, unlike the last three years' budgets that included $5.5 billion in deficit bonds for balance. The improved economy plus tax-rate increases have bolstered state revenues sufficiently to balance the budget without deficit bonds, which were ruled unconstitutional by the State's Supreme Court after last year's budget passed. The improved economy also was evident in the State's employment rate, where job growth increased 1.5% between May 2004 and May 2005. At the same time, unemployment fell a full percentage point, dropping from 4.9% down to 3.9%. Fiscal 2006 expenditures were held steady by reducing property tax rebates by $600 million to $1.1 billion. This required the State to make small cuts in state employment and budgeting for only $400 million of the State's $1.1 billion annual pension costs. The rebates helped to offset the pressure of the nation's highest per-capita property taxes. The 2006 budget anticipates the State will add $200 million to its fund balance by fiscal year end on June 30, 2006, ending the year with a $600 million balance, or 2.1% of expenditures. New Jersey remains a strong investment-grade credit, due to the diversity of the State's economy and its revenue-raising ability. New Jersey's ratings were: Aa3 from Moody's Investors Service, AA- from Fitch, and AA from Standard & Poor's (upgraded from AA- in mid-July 2005) at the end of the report period. Schwab Municipal Money Funds 5 MANAGEMENT'S DISCUSSION continued As Florida does not levy a personal income tax, it is more reliant on sales-tax receipts, which has worked in its favor in recent years. THE ECONOMIC RECOVERY AND THE COMMONWEALTH OF PENNSYLVANIA'S CONSERVATIVE BUDGETING PRODUCED A 5.8% INCREASE IN ITS PROJECTED FISCAL 2005 GENERAL FUND REVENUES, BRINGING THE TOTAL TO $24.2 BILLION. At the same time, spending growth was held to 3.8% for the year. Consequently, the general fund, after adding $67 million to reserves, is expected to have ended the fiscal year with a $201 million balance, or 0.9% of expenditures. The Commonwealth continues to add to reserves after completely depleting them to balance the fiscal 2002 and 2003 budgets. In addition, job growth has reduced the unemployment rate to 4.8% in May 2005, down from 5.6% one year earlier. Governor Ed Rendell signed a $24.3 billion budget for fiscal 2006 on July 7, a week after the beginning of the fiscal year. The budget restricts spending growth to 3.6% to limit the use of one-time revenues. Most of the additional spending is for Medicaid, child welfare and debt service. The proposed budget includes the use of a small amount of reserves; however, revenue collections have exceeded the budget in recent months. This excess may provide additional revenues, which might serve to avoid using reserves in fiscal 2006. The Commonwealth's above-average credit quality is derived from its conservative financial management, increasing economic diversification and moderate debt levels. The Commonwealth's ratings were: Aa2 from Moody's Investors Service, AA from Standard & Poor's and AA from Fitch. WITH ITS STRONG ECONOMIC PERFORMANCE, FLORIDA EXPECTS TO HAVE TAKEN IN $1.1 BILLION IN REVENUES OVER NOVEMBER 2004 PROJECTIONS FOR FISCAL YEAR 2005, WHICH ENDED ON JUNE 30, 2005. This growth was led by increased sales, corporate income, and documentary stamp taxes. The State expects to report a combined general and stabilization fund balance of $4.0 billion as of June 30, 2005, equal to 16% of annual expenditures. As Florida does not levy a personal income tax, it is more reliant on sales-tax receipts, which has worked in its favor in recent years. While the State endured four serious hurricanes in August and September 2004, much of the direct state costs associated with these events were expected to be reimbursed through the Federal Emergency Management Agency. In addition, reconstruction activity related to the hurricanes was reflected in the State's sales-tax collections, which helped to fuel the sales-tax revenue growth. The budget for fiscal 2006, which commenced on July 1, 2005, projects moderate economic growth and provides for $225 million in tax reductions. Net revenues for the State are projected 6 Schwab Municipal Money Funds The recent rise in personal income tax revenues suggests vibrant job growth, as reflected in a drop in the unemployment rate to 4.5% in May from 5.1% in 2004. to grow 3.8%, while appropriations were up 3.9%. The spending plan allocates $750 million of general fund balance to growth-management projects, but year-end balances are still over $2.4 billion. Florida's total non-farm jobs were up a strong 3.3% in 2004, improving on 1.1% growth in the prior year, and have grown over 3% on a month-over-month basis through May 2005. The average unemployment rate for 2004 was 4.8%, down from 5.3% in 2003. Reflecting the State's strong economic performance and strengthened reserves, Moody's raised the State's rating to Aa1 in January 2005, while S&P raised its rating to AAA in February 2005 and Fitch raised its rating to AA+ in March 2005. These ratings remained in effect as of the end of the report period. THE ESTIMATED FISCAL 2005 RESULTS FOR MASSACHUSETTS (YEAR ENDING JUNE 30, 2005) WERE $1 BILLION MORE THAN THE AMOUNT BUDGETED. Tax revenues, which were estimated to increase just 1.8% for the year, were up 7.5% through April, mostly in income tax payments. Much of the excess revenue will be used to replenish $800 million in reserves that were used to balance the 2005 budget. The rest is expected to be added to reserves or used to support additional spending in the new fiscal year. On June 30, 2005, Governor Mitt Romney signed the $23.8 billion fiscal 2006 budget, which includes the use of $600 million in reserves to support a 3.5% increase in spending. These reserves will be used predominantly to restore previous years' cuts in funding for education and local government support. Estimates for revenue growth in the new budget are below the growth rate experienced in recent months, however, so the reserves may not need to be utilized as budgeted. The Commonwealth's economy continues to recover. The recent rise in personal income tax revenues suggests vibrant job growth, as reflected in a drop in the unemployment rate to 4.5% in May from 5.1% in 2004. Due to the diversity of the Commonwealth's economy, its high personal-wealth levels and its associated revenue-raising ability, Massachusetts remains a strong investment-grade credit. As of the report date, the Commonwealth's credit ratings were Aa2 from Moody's, AA from Standard & Poor's and AA from Fitch. 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. Schwab Municipal Money Funds 7 MANAGEMENT'S DISCUSSION continued PERFORMANCE AND FUND FACTS as of 6/30/05 SEVEN-DAY YIELDS The seven-day yields are calculated using standard SEC formulas. The effective yields include the effect of reinvesting daily dividends. Please remember that money market fund yields fluctuate.
MUNICIPAL MONEY FUNDS ----------------------------------------------------------------------------------- NEW YORK NEW JERSEY PENNSYLVANIA FLORIDA MASSACHUSETTS ----------------------------------------------------------------------------------- Value Sweep Advantage Shares Shares(TM) Ticker Symbol SWNXX SWYXX SWJXX SWEXX SWFXX SWDXX ---------------------------------------------------------------------------------------------------------------------------- SEVEN-DAY YIELD 1 1.83% 2.03% 1.86% 1.85% 1.88% 1.80% ---------------------------------------------------------------------------------------------------------------------------- SEVEN-DAY YIELD--NO WAIVER 2 1.64% 1.92% 1.65% 1.62% 1.67% 1.59% ---------------------------------------------------------------------------------------------------------------------------- SEVEN-DAY EFFECTIVE YIELD 1 1.85% 2.05% 1.88% 1.87% 1.89% 1.82% ---------------------------------------------------------------------------------------------------------------------------- SEVEN-DAY TAXABLE-EQUIVALENT 3.24% 3.59% 3.18% 2.97% 2.91% 2.96% EFFECTIVE YIELD 1, 3 ----------------------------------------------------------------------------------------------------------------------------
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.SCHWAB.COM/SCHWABFUNDS. STATISTICS Money funds must maintain a dollar-weighted average maturity of no longer than 90 days, and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months).
MUNICIPAL MONEY FUNDS -------------------------------------------------------------------------- NEW YORK NEW JERSEY PENNSYLVANIA FLORIDA MASSACHUSETTS -------------------------------------------------------------------------- WEIGHTED AVERAGE MATURITY 18 days 20 days 36 days 36 days 36 days ---------------------------------------------------------------------------------------------------------------------------- CREDIT QUALITY OF HOLDINGS % of portfolio 100% Tier 1 100% Tier 1 100% Tier 1 100% Tier 1 100% Tier 1 ---------------------------------------------------------------------------------------------------------------------------- CREDIT-ENHANCED SECURITIES % of portfolio 80% 83% 70% 83% 58% ---------------------------------------------------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 4 Sweep Investments(TM) * * * * * Value Advantage Shares $25,000 n/a n/a n/a n/a ($15,000 for IRA and custodial accounts) ----------------------------------------------------------------------------------------------------------------------------
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. 1 Fund expenses have been partially absorbed by CSIM and Schwab. 2 Yield if fund expenses had not been partially absorbed by CSIM and Schwab. 3 Taxable-equivalent effective yields assume the following 2005 maximum tax rates: New York 42.90% (federal regular income, New York state and New York city taxes); New Jersey 40.83%, Pennsylvania 37.00%, and Massachusetts 38.45% (federal regular and state personal income taxes); Florida 35.00% (federal regular income tax). Investment income may be subject to the Alternative Minimum Tax. 4 Please see prospectus for further detail and eligibility requirements. * Subject to the eligibility terms and conditions of your Schwab account agreement. 8 Schwab Municipal Money Funds FUND EXPENSES 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, 2005 and held through June 30, 2005 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 EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2 (Annualized) at 1/1/05 at 6/30/05 1/1/05 - 6/30/05 --------------------------------------------------------------------------------------------------------------- SCHWAB NEW YORK MUNICIPAL MONEY FUND(TM) Sweep Shares Actual Return 0.68% $1,000 $1,007.40 $3.38 Hypothetical 5% Return 0.68% $1,000 $1,021.42 $3.41 Value Advantage Shares(TM) Actual Return 0.45% $1,000 $1,008.60 $2.24 Hypothetical 5% Return 0.45% $1,000 $1,022.56 $2.26 --------------------------------------------------------------------------------------------------------------- SCHWAB NEW JERSEY MUNICIPAL MONEY FUND(TM) Actual Return 0.65% $1,000 $1,007.60 $3.24 Hypothetical 5% Return 0.65% $1,000 $1,021.57 $3.26 --------------------------------------------------------------------------------------------------------------- SCHWAB PENNSYLVANIA MUNICIPAL MONEY FUND(TM) Actual Return 0.65% $1,000 $1,008.00 $3.24 Hypothetical 5% Return 0.65% $1,000 $1,021.57 $3.26 --------------------------------------------------------------------------------------------------------------- SCHWAB FLORIDA MUNICIPAL MONEY FUND(TM) Actual Return 0.66% $1,000 $1,007.70 $3.29 Hypothetical 5% Return 0.66% $1,000 $1,021.52 $3.31 --------------------------------------------------------------------------------------------------------------- SCHWAB MASSACHUSETTS MUNICIPAL MONEY FUND(TM) Actual Return 0.62% $1,000 $1,007.60 $3.09 Hypothetical 5% Return 0.62% $1,000 $1,021.72 $3.11
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for each fund or share class are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year. Schwab Municipal Money Funds 9 SCHWAB NEW YORK MUNICIPAL MONEY FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- SWEEP SHARES 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 Income from investment operations: ------------------------------------------------------------------------------- Net investment income 0.01 0.01 0.00 1 0.01 0.02 0.03 ------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.00) 1 (0.01) (0.02) (0.03) ------------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------------------------- Total return (%) 0.74 2 0.56 0.41 0.80 2.06 3.39 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.68 3 0.69 0.69 0.69 0.69 0.70 4 Gross operating expenses 0.84 3 0.84 0.84 0.85 0.86 0.88 Net investment income 1.50 3 0.55 0.41 0.80 2.04 3.35 Net assets, end of period ($ x 1,000,000) 1,074 1,073 1,038 944 889 798
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- VALUE ADVANTAGE SHARES 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 Income from investment operations: ------------------------------------------------------------------------------- Net investment income 0.01 0.01 0.01 0.01 0.02 0.04 ------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.01) (0.01) (0.02) (0.04) ------------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------------------------- Total return (%) 0.86 2 0.80 0.66 1.04 2.30 3.64 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.45 3 0.45 0.45 0.45 0.45 0.46 5 Gross operating expenses 0.61 3 0.61 0.61 0.62 0.64 0.68 Net investment income 1.74 3 0.79 0.65 1.04 2.23 3.59 Net assets, end of period ($ x 1,000,000) 764 654 690 676 604 419
* Unaudited. 1 Per share amount was less than $0.01. 2 Not annualized. 3 Annualized. 4 The ratio of net operating expenses would have been 0.69% if certain non-routine expenses (proxy fees) had not been included. 5 The ratio of net operating expenses would have been 0.45% if certain non-routine expenses (proxy fees) had not been included. 10 See financial notes. SCHWAB NEW YORK MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities: + Credit-enhanced security ~ Liquidity-enhanced security @ Variable-rate security / Restricted but deemed liquid security comprised of 144A For fixed-rate obligations, the rate shown is the effective yield at the time of purchase. For variable-rate obligations, the rate shown is the rate as of the report date. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date. For variable-rate obligations without demand features, the maturity shown is the next interest rate change date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 97.2% MUNICIPAL SECURITIES 1,785,664 1,785,664 -------------------------------------------------------------------------------- 97.2% TOTAL INVESTMENTS 1,785,664 1,785,664 2.8% OTHER ASSETS AND LIABILITIES 52,053 -------------------------------------------------------------------------------- 100.0% NET ASSETS 1,837,717
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) MUNICIPAL SECURITIES 97.2% of net assets NEW YORK 97.2% ALBANY IDA +@ IDRB (Newkirk Products) Series 1995A 2.39%, 07/07/05 900 900 +@ Refunding IDRB (United Cerebral Palsy Association-Capital Dist) Series 1997B 2.35%, 07/07/05 10,000 10,000 BROOME CNTY IDA +@ Civic Facility RB (Elizabeth Church Manor Nursing Home) Series 2003 2.30%, 07/07/05 6,050 6,050 +@ Civic Facility RB (Methodist Homes For the Aging) Series 2003 2.30%, 07/07/05 5,415 5,415 CHAUTAUQUA CNTY +@ Civic Facility RB (Jamestown Center City Development Corp) Series 2000A 2.32%, 07/07/05 11,610 11,610 +@ IDRB (Grafco Industries) Series 2002 2.33%, 07/07/05 6,130 6,130 EAST MEADOW UNION FREE SD BAN 2004 1.50%, 08/17/05 10,000 10,019 2.53%, 08/17/05 7,000 7,000 HERKIMER CNTY +@ Civic Facility RB (Templeton Foundation) Series 2000 2.37%, 07/07/05 1,800 1,800 LONG ISLAND POWER AUTH + CP Notes Series CP-1 2.73%, 08/04/05 15,000 15,000 + CP Notes Series CP-2 2.68%, 08/11/05 5,000 5,000 +~@/ Electric System General RB Series 1998A 2.31%, 07/07/05 21,000 21,000
See financial notes. 11 SCHWAB NEW YORK MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +~@/ Electric System General RB Series 2001A 2.31%, 07/07/05 4,365 4,365 +~@/ Electric System RB Series 1998A 2.57%, 07/07/05 1,900 1,900 METROPOLITAN TRANSPORTATION AUTH ~@ Dedicated Tax Fund Bonds Series 1998A 2.31%, 07/07/05 9,440 9,440 ~@/ Dedicated Tax Fund Bonds Series 1999A 2.28%, 07/07/05 10,800 10,800 +~@ Dedicated Tax Fund Bonds Series 2002A 2.57%, 07/07/05 10,980 10,980 +~@/ Transportation RB Series 2003B 2.31%, 07/07/05 3,500 3,500 +~@ Transportation Refunding RB Series 2002A 2.29%, 07/07/05 22,000 22,000 Transportation Revenue BAN Series CP-1A + 2.42%, 08/04/05 17,000 17,000 + 2.48%, 08/04/05 28,000 28,000 + 2.42%, 08/10/05 12,000 12,000 + Transportation Revenue BAN Sub-Series B 2.57%, 07/05/05 25,000 25,000 NASSAU HEALTH CARE CORP +~@ Bonds Series 2004C-1 2.20%, 07/07/05 5,000 5,000 +~@ Bonds Series 2004C-2 2.46%, 07/07/05 5,000 5,000 NEW YORK CITY +@ GO Bonds Fiscal 1994 Series H-4 2.21%, 07/01/05 20,500 20,500 +~@/ GO Bonds Fiscal 1998 Series D 2.31%, 07/07/05 26,000 26,000 +~@/ GO Bonds Fiscal 2000 Series A 2.31%, 07/07/05 3,395 3,395 +~@/ GO Bonds Fiscal 2001 Series A 2.31%, 07/07/05 7,385 7,385 +~@/ GO Bonds Fiscal 2001 Series B 2.29%, 07/07/05 3,460 3,460 +~@/ GO Bonds Fiscal 2002 Series A 2.31%, 07/07/05 9,750 9,750 +~@ GO Bonds Fiscal 2002 Series A-6 2.17%, 07/01/05 1,300 1,300 +~@ GO Bonds Fiscal 2002 Series A-8 2.18%, 07/07/05 1,000 1,000 +~@ GO Bonds Fiscal 2002 Series G 2.31%, 07/07/05 16,400 16,400 +@ GO Bonds Fiscal 2003 Series C-2 2.23%, 07/07/05 6,265 6,265 +@ GO Bonds Fiscal 2004 Series H-1 2.17%, 07/01/05 2,000 2,000 +~@/ GO Bonds Fiscal 2004 Series J 2.31%, 07/07/05 9,160 9,160 +~@/ GO Bonds Fiscal 2005 Series N 2.57%, 07/07/05 10,825 10,825 +~@/ GO Bonds Fiscal 2005 Series P 2.31%, 07/07/05 7,000 7,000 NEW YORK CITY HEALTH & HOSPITALS CORP +~@/ Health System Bonds Series 1999A 2.31%, 07/07/05 9,620 9,620 NEW YORK CITY HOUSING DEVELOPMENT CORP +@ M/F Mortgage RB (Atlantic Court Apts) Series 2003A 2.25%, 07/07/05 41,250 41,250 +@ M/F Mortgage RB (First Avenue) Series 2002A 2.25%, 07/07/05 7,445 7,445 +@ M/F Mortgage RB (Upper East) Series 2003A 2.36%, 07/07/05 4,000 4,000 +@ M/F Rental Housing RB (100 Jane St) Series 1998A 2.25%, 07/07/05 6,525 6,525 +@ M/F Rental Housing RB (One Columbus Place) Series 1998A 2.25%, 07/07/05 44,500 44,500 +@ M/F Rental Housing RB (Sierra) Series 2003A 2.25%, 07/07/05 18,585 18,585 +@ M/F Rental Housing RB (Tribeca Tower) Series 1997A 2.25%, 07/07/05 2,300 2,300 NEW YORK CITY IDA +@ Civic Facility RB (2000 Jewish Board of Family & Childrens Services) 2.29%, 07/07/05 15,820 15,820
12 See financial notes. SCHWAB NEW YORK MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ Refunding IDRB (Allway Tools) Series 1997 2.38%, 07/07/05 1,480 1,480 +@ Special RB (NYSE) Fiscal 2004 Series B 2.28%, 07/07/05 7,000 7,000 NEW YORK CITY MUNICIPAL WATER FINANCE AUTH CP Notes Series 6 2.13%, 07/14/05 35,000 35,000 ~@ Crossover Refunding Bonds Series 2002F 2.31%, 07/01/05 7,495 7,495 ~ TECP Notes Series 1 2.48%, 08/08/05 18,500 18,500 TECP Series 5 + 2.45%, 07/08/05 20,000 20,000 + 2.15%, 07/14/05 14,000 14,000 ~ TECP Series 6 2.88%, 07/13/05 25,000 25,000 +~@ Water & Sewer System RB Fiscal 1995 Series A 2.17%, 07/01/05 6,600 6,600 +~@/ Water & Sewer System RB Fiscal 1998 Series B 2.31%, 07/07/05 4,735 4,735 ~@/ Water & Sewer System RB Fiscal 2001 Series D 2.33%, 07/07/05 4,995 4,995 ~@/ Water & Sewer System RB Fiscal 2002 & Fiscal 2003A 2.31%, 07/07/05 8,500 8,500 +~@/ Water & Sewer System RB Fiscal 2002 Series G 2.31%, 07/07/05 10,000 10,000 +~@/ Water & Sewer System RB Fiscal 2005 Series B 2.57%, 07/07/05 9,645 9,645 +~@ Water & Sewer System RB Fiscal 2005 Series C 2.31%, 07/07/05 2,750 2,750 ~@/ Water & Sewer System RB Fiscal 2005 Series D 2.29%, 07/07/05 10,965 10,965 NEW YORK CITY TRANSITIONAL FINANCE AUTH ~@/ Future Tax Secured Bonds Fiscal 1999 Series A 2.57%, 07/07/05 4,970 4,970 +~@/ Future Tax Secured Bonds Fiscal 2000 Series A 2.31%, 07/07/05 15,720 15,720 ~@/ Future Tax Secured Bonds Fiscal 2000 Series C 2.31%, 07/07/05 14,545 14,545 ~@ Future Tax Secured Bonds Fiscal 2001 Series B 2.17%, 07/01/05 8,400 8,400 ~@ Future Tax Secured Refunding Bonds Fiscal 2003 Series A 2.31%, 07/01/05 6,000 6,000 ~@/ Future Tax Secured Refunding Bonds Fiscal 2005 Series A 2.31%, 07/07/05 26,305 26,305 ~@/ Future Tax Secured Refunding Bonds Fiscal 2005 Series A-1 2.31%, 07/07/05 8,650 8,650 ~@ Recovery Bonds Fiscal 2003 Series 2D 2.18%, 07/07/05 3,500 3,500 ~@ Recovery Bonds Fiscal 2003 Series 2F 2.26%, 07/01/05 1,600 1,600 ~@ Recovery Bonds Fiscal 2003 Series 3H 2.18%, 07/01/05 1,300 1,300 NEW YORK POWER AUTH ~ CP Notes Series 2 2.45%, 08/05/05 17,800 17,800 ~@ Tender Notes Series 1985 2.15%, 09/01/05 22,500 22,500 NEW YORK STATE + Environmental Quality 1986 GO Bonds Series 1998A 2.50%, 08/08/05 20,000 20,000 +~@/ GO Bonds Fiscal 2004 Series F 2.35%, 07/07/05 50,000 50,000 NEW YORK STATE DORMITORY AUTH +~@ City University System Consolidated Fifth General Resolution RB Series 2003A 2.31%, 07/07/05 7,295 7,295 +~@/ Court Facilities Lease RB (New York City) Series 2005A 2.57%, 07/07/05 17,880 17,880
See financial notes. 13 SCHWAB NEW YORK MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +~@/ Insured RB (Mt Sinai School of Medicine) Series 1994A 2.31%, 07/07/05 2,900 2,900 +~@ Lease RB (Suny Dorm Facilities) Series 2005A 2.31%, 07/07/05 5,675 5,675 +~@ Mental Health Services Facilities Improvement RB Series 2005D-1 2.31%, 07/07/05 7,115 7,115 +@ RB (Park Ridge Hospital, Inc) Series 2005 2.28%, 07/07/05 10,000 10,000 +~@/ State Personal Income Tax Refunding RB (Education) Series 2005B 2.31%, 07/07/05 11,865 11,865 +~@/ State University Educational Facilities RB Series 1993A 2.31%, 07/07/05 9,995 9,995 State University Educational Facilities RB Series 2000B +~@/ 2.28%, 07/07/05 27,030 27,030 +~@/ 2.31%, 07/07/05 12,375 12,375 +~@ Third General Resolution RB (State University Educational Facilities) Series 2005A 2.57%, 07/07/05 7,130 7,130 +~@/ Upstate Community Colleges RB Series 2005A 2.31%, 07/07/05 3,880 3,880 NEW YORK STATE ENERGY RESEARCH & DEVELOPMENT AUTH +@ Facilities RB (Consolidated Edison Company of New York, Inc) Series 2005A-1 2.24%, 07/07/05 10,000 10,000 +@ Facilities RB (Consolidated Edison Company of New York, Inc) Series 2005A-2 2.31%, 07/07/05 9,000 9,000 +@ Facilities RB (Consolidated Edison Company of New York, Inc) Series 2005A-3 2.19%, 07/07/05 10,000 10,000 +@ Facilities RB Series 2004C-1 2.27%, 07/07/05 6,000 6,000 +@ Facilities RB Series 2004C-2 2.18%, 07/07/05 5,500 5,500 +@ Facilities RB Series 2004C-3 2.36%, 07/07/05 10,000 10,000 +~@/ Gas Facilities RB (Brooklyn Union Gas) Series 1996 2.29%, 07/07/05 14,125 14,125 NEW YORK STATE ENVIRONMENTAL FACILITIES CORP +@ State Clean & Drinking Water Revolving Funds RB Series 2002B 2.31%, 07/07/05 24,225 24,225 ~@/ State Water Pollution Control Revolving Fund RB Series 1994D 2.31%, 07/07/05 660 660 NEW YORK STATE HFA +@ Housing RB (101 West End Ave) Series 1999A 2.29%, 07/07/05 13,000 13,000 +@ Housing RB (150 E44th St) Series 2000A 2.29%, 07/07/05 45,800 45,800 +@ Housing RB (250 W50th St) Series 1997A 2.25%, 07/07/05 4,800 4,800 +@ Housing RB (250 W93rd St) Series 2005A 2.30%, 07/07/05 7,500 7,500 +@ Housing RB (345 E94th St) Series 1998A 2.29%, 07/07/05 4,700 4,700 +@ Housing RB (345 E94th St) Series 1999A 2.29%, 07/07/05 3,400 3,400 +@ Housing RB (350 W43rd St) Series 2002A 2.25%, 07/07/05 14,000 14,000 +@ Housing RB (70 Battery Place) Series 1997A 2.25%, 07/07/05 23,300 23,300 +@ Housing RB (Avalon Chrystie Place I) Series 2004A 2.27%, 07/07/05 27,900 27,900
14 See financial notes. SCHWAB NEW YORK MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ Housing RB (Clinton Green South) Series 2005A 2.60%, 07/07/05 35,000 35,000 +@ Housing RB (E84th St) Series 1995A 2.53%, 07/07/05 44,100 44,100 +@ Housing RB (Normandie Court I) Series 1991A 2.20%, 07/07/05 5,395 5,395 +@ Housing RB (Sea Park East) Series 2004A 2.32%, 07/07/05 18,500 18,500 +@ Housing RB (Sea Park West) Series 2004A 2.32%, 07/07/05 7,600 7,600 +@ Housing RB (The Helena) Series 2003A 2.25%, 07/07/05 7,800 7,800 +@ Housing RB (The Helena) Series 2004A 2.25%, 07/07/05 39,000 39,000 +@ Housing RB (Tribeca Park) Series 1997A 2.25%, 07/07/05 7,000 7,000 +@ Housing RB (Union Square South) Series 1996A 2.25%, 07/07/05 16,800 16,800 +@ Service Contract Refunding RB Series 2003E 2.23%, 07/07/05 7,000 7,000 NEW YORK STATE LOCAL ASSISTANCE CORP +@ RB Series 1995D 2.10%, 07/07/05 6,120 6,120 +~@/ Refunding RB Series 1993C 2.31%, 07/07/05 9,900 9,900 +~@/ Refunding RB Series 1997B 2.30%, 07/07/05 20,965 20,965 NEW YORK STATE MORTGAGE AGENCY ~@/ Homeowner Mortgage RB Series 65 2.33%, 07/07/05 3,780 3,780 ~@/ Homeowner Mortgage RB Series 77A 2.31%, 07/07/05 24,795 24,795 ~@/ Homeowner Mortgage RB Series 87 2.31%, 07/07/05 9,550 9,550 NEW YORK STATE THRUWAY AUTH +~@/ General RB Series 2005F 2.31%, 07/07/05 25,880 25,880 +~@/ General RB Series F 2.31%, 07/07/05 15,590 15,590 ~@/ General Refunding RB Series E 2.29%, 07/07/05 6,995 6,995 NEW YORK STATE URBAN DEVELOPMENT CORP +~@/ State Personal Income Tax RB (State Facilities & Equipment) Series 2004A-2 2.31%, 07/07/05 4,300 4,300 NEW YORK TOBACCO SETTLEMENT FINANCING CORP +~@/ Asset Backed RB Series 2003A-1C 2.58%, 07/07/05 5,815 5,815 NORTH SYRACUSE CENTRAL SD BAN 2005 2.72%, 06/23/06 6,331 6,393 ONEIDA CNTY IDA +@ Civic Facility RB (Mohawk Valley Community College Dormitory Corp) Series 2004A 2.27%, 07/07/05 8,470 8,470 OYSTER BAY BAN Series 2005B 2.63%, 03/17/06 10,000 10,059 PORT AUTH OF NEW YORK & NEW JERSEY +~@ Consolidated Bonds 127th Series 2.33%, 07/07/05 3,000 3,000 ~@/ Consolidated Bonds 135th Series 2.33%, 07/07/05 20,000 20,000 +~@/ Consolidated Bonds 140th Series 2.57%, 07/07/05 34,115 34,115 Special Project Bonds (JFK International Air Terminal) Series 6 +~@/ 2.36%, 07/07/05 1,475 1,475 +~@/ 2.32%, 07/07/05 1,100 1,100 ~ TECP Series B 2.75%, 07/08/05 10,185 10,185 SALES TAX ASSET RECEIVABLE CORP +~@ Sales Tax Asset RB Fiscal 2005 Series A 2.31%, 07/07/05 1,750 1,750
See financial notes. 15 SCHWAB NEW YORK MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) SCHENECTADY IDA +@ IDRB (Fortitech Holding Corp) Series 1995A 2.64%, 07/07/05 700 700 TOMPKINS CNTY IDA +~@ Civic Facility RB (Ithaca College) Series 2004 2.35%, 07/07/05 7,500 7,500 TRIBOROUGH BRIDGE & TUNNEL AUTH +~@ General Purpose RB Series 2001A 2.30%, 07/07/05 20,000 20,000 General Refunding RB Series 2002B +~@/ 2.31%, 07/07/05 8,960 8,960 ~@/ 2.33%, 07/07/05 14,000 14,000 +~@ General Refunding RB Series 2002C 2.19%, 07/07/05 4,600 4,600 WESTCHESTER CNTY IDA +@ IDRB (Levister Redevelopment Co) Series 2001B 2.25%, 07/07/05 8,000 8,000 WILLIAM FLOYD UNION FREE SD TAN 2005 2.70%, 06/27/06 25,000 25,313 YONKERS IDA +@ Civic Facility RB (Consumers Union) Series 1989 2.35%, 07/07/05 1,200 1,200 +@ Civic Facility RB (Consumers Union) Series 1991 2.35%, 07/07/05 700 700 +~@ Civic Facility RB (Consumers Union) Series 1994 2.35%, 07/07/05 1,660 1,660 ----------- 1,785,464 PUERTO RICO 0.0% PUERTO RICO +~@/ Public Improvement Bonds Series 2001A 2.31%, 07/07/05 200 200
END OF INVESTMENTS. 16 See financial notes. SCHWAB NEW YORK MUNICIPAL MONEY FUND Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $1,785,664 a Cash 164 Receivables: Fund shares sold 3,617 Investment sold 44,564 Interest 6,180 Prepaid expenses + 29 -------------- TOTAL ASSETS 1,840,218 LIABILITIES -------------------------------------------------------------------------------- Payables: Fund shares redeemed 978 Dividends to shareholders 1,396 Investment adviser and administrator fees 32 Transfer agent and shareholder service fees 51 Trustees' fees 3 Accrued expenses + 41 -------------- TOTAL LIABILITIES 2,501 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 1,840,218 TOTAL LIABILITIES - 2,501 -------------- NET ASSETS $1,837,717 NET ASSETS BY SOURCE Capital received from investors 1,838,093 Net realized capital losses (376) NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Sweep Shares $1,074,071 1,074,381 $1.00 Value Advantage Shares $763,646 763,775 $1.00
Unless stated, all numbers x 1,000. a The amortized cost for the fund's securities was $1,785,664. Includes restricted but deemed liquid securities comprised of 144A securities worth $605,320 or 32.9% of the fund's total net assets. During the reporting period, the fund had $539,020 in transactions with other Schwab Funds(R). FEDERAL TAX DATA --------------------------------------- COST BASIS OF PORTFOLIO $1,785,664 AS OF DECEMBER 31, 2004: UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2009 $12 2012 + 244 ------------ $256 See financial notes. 17 SCHWAB NEW YORK MUNICIPAL MONEY FUND Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Interest $19,340 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized losses on investments sold (88) EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 3,257 a Transfer agent and shareholder service fees: Sweep Shares 2,459 b Value Advantage Shares 752 b Trustees' fees 12 c Custodian and portfolio accounting fees 85 Professional fees 19 Registration fees 20 Shareholder reports 23 Other expenses + 13 ----------- Total expenses 6,640 Expense reduction - 1,405 d ----------- NET EXPENSES 5,235 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 19,340 NET EXPENSES - 5,235 ----------- NET INVESTMENT INCOME 14,105 NET REALIZED LOSSES + (88) ----------- INCREASE IN NET ASSETS FROM OPERATIONS $14,017
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets as follows: TRANSFER AGENT SERVICES: % OF AVERAGE SHARE CLASS DAILY NET ASSETS ------------------------------------------ Sweep Shares 0.25% Value Advantage Shares 0.05% SHAREHOLDER SERVICES: % OF AVERAGE SHARE CLASS DAILY NET ASSETS ------------------------------------------ Sweep Shares 0.20% Value Advantage Shares 0.17% These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d Includes $1,330 from the investment adviser (CSIM) and $75 from the transfer agent and shareholder service agent (Schwab). These reductions reflect a guarantee by CSIM and Schwab to limit the annual operating expenses of this fund through April 29, 2006, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS ------------------------------------------ Sweep Shares 0.65% Value Advantage Shares 0.45% Prior to April 30, 2005, the limit was 0.69% for sweep shares. This limit excludes interest, taxes and certain non-routine expenses. 18 See financial notes. SCHWAB NEW YORK MUNICIPAL MONEY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS -------------------------------------------------------------------------------- 1/1/05-6/30/05 1/1/04-12/31/04 Net investment income $14,105 $11,141 Net realized losses + (88) (276) ------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 14,017 10,865 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- DIVIDENDS FROM NET INVESTMENT INCOME Sweep Shares 8,175 5,821 Value Advantage Shares + 5,930 5,320 ------------------------------------- TOTAL DIVIDENDS FROM NET INVESTMENT INCOME 14,105 11,141 TRANSACTIONS IN FUND SHARES a -------------------------------------------------------------------------------- SHARES SOLD Sweep Shares 2,375,490 4,091,385 Value Advantage Shares + 567,599 724,557 ------------------------------------- TOTAL SHARES SOLD 2,943,089 4,815,942 SHARES REINVESTED Sweep Shares 7,239 5,721 Value Advantage Shares + 4,942 4,941 ------------------------------------- TOTAL SHARES REINVESTED 12,181 10,662 SHARES REDEEMED Sweep Shares (2,381,939) (4,061,536) Value Advantage Shares + (462,354) (765,643) ------------------------------------- TOTAL SHARES REDEEMED (2,844,293) (4,827,179) NET TRANSACTIONS IN FUND SHARES 110,977 (575) b NET ASSETS -------------------------------------------------------------------------------- Beginning of period 1,726,828 1,727,679 Total increase or decrease + 110,889 (851) c ------------------------------------- END OF PERIOD $1,837,717 $1,726,828
Unless stated, all numbers x 1,000. a Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. b Represents shares sold plus shares reinvested, minus shares redeemed. c Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. See financial notes. 19 SCHWAB NEW JERSEY MUNICIPAL MONEY FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 0.00 1 0.01 0.02 0.03 ------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.00) 1 (0.01) (0.02) (0.03) ------------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------------------------- Total return (%) 0.76 2 0.57 0.43 0.84 2.13 3.38 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.65 3 0.65 0.65 0.66 4 0.65 0.66 5 Gross operating expenses 0.86 3 0.86 0.86 0.89 0.90 0.93 Net investment income 1.53 3 0.57 0.43 0.83 2.08 3.35 Net assets, end of period ($ x 1,000,000) 456 448 463 425 382 321
* Unaudited. 1 Per share amount was less than $0.01. 2 Not annualized. 3 Annualized. 4 The ratio of net operating expenses would have been 0.65% if certain non-routine expenses (taxes) had not been included. 5 The ratio of net operating expenses would have been 0.65% if certain non-routine expenses (proxy fees) had not been included. 20 See financial notes. SCHWAB NEW JERSEY MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. + Credit-enhanced security ~ Liquidity-enhanced security @ Variable-rate security / Restricted but deemed liquid security comprised of 144A For fixed-rate obligations, the rate shown is the effective yield at the time of purchase. For variable-rate obligations, the rate shown is the rate as of the report date. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date. For variable-rate obligations without demand features, the maturity shown is the next interest rate change date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 93.7% MUNICIPAL SECURITIES 427,156 427,156 -------------------------------------------------------------------------------- 93.7% TOTAL INVESTMENTS 427,156 427,156 6.3% OTHER ASSETS AND LIABILITIES 28,492 -------------------------------------------------------------------------------- 100.0% NET ASSETS 455,648
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) MUNICIPAL SECURITIES 93.7% of net assets NEW JERSEY 89.9% DELAWARE RIVER PORT AUTH RB Series 1999 +~@ 2.31%, 07/07/05 4,495 4,495 +~@/ 2.31%, 07/07/05 10,100 10,100 ENGLEWOOD General Improvement BAN & Special Assessment BAN 1.63%, 07/08/05 7,000 7,002 ESSEX CNTY IMPROVEMENT AUTH +~@ Project Consolidation RB Series 2004 2.31%, 07/07/05 5,895 5,895 FT LEE BAN 1.55%, 07/29/05 5,250 5,255 GARDEN STATE PRESERVATION TRUST +~@ Open Space & Farmland Preservation Bonds Series 2003A 2.30%, 07/07/05 5,000 5,000 HAMMONTON BAN 2.25%, 01/12/06 5,142 5,162 JERSEY CITY School Promissory Notes Series 2005A 2.45%, 02/24/06 4,000 4,020 NEW JERSEY ECONOMIC DEVELOPMENT AUTH +@ Economic Development RB (ENCAP Golf Holdings) Series 2004 2.30%, 07/07/05 21,910 21,910 +@ Economic Development RB (Omni Baking Co) Series 2001 2.30%, 07/07/05 3,600 3,600 +@ Economic Development RB (Stone Brothers Secaucus) Series 2001 2.59%, 07/01/05 1,755 1,755 + Exempt Facility RB (Chambers Co-Generation) 2.93%, 08/05/05 12,100 12,100
See financial notes. 21 SCHWAB NEW JERSEY MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) + Exempt Facility RB (Keystone) 2.75%, 07/08/05 5,000 5,000 +~@ Market Transition Facility Sr Lien Refunding RB Series 2001A 2.31%, 07/07/05 5,000 5,000 Motor Vehicle Surcharge RB Series 2004A +~@ 2.31%, 07/07/05 3,080 3,080 +~@ 2.34%, 07/07/05 7,420 7,420 +~@/ Natural Gas Facilities Refunding RB (Nui Corp) Series 1997A 2.33%, 07/07/05 1,525 1,525 +@ RB (Baptist Home Society of New Jersey) Series 2003 2.51%, 07/07/05 3,520 3,520 +@ RB (G&W Laboratories) Series 2003 2.37%, 07/07/05 5,505 5,505 +@ RB (Geriatric Services Housing Corp) Series 2001 2.26%, 07/07/05 1,500 1,500 +@ RB (Hamilton Industrial Development) Series 1998 2.37%, 07/07/05 5,665 5,665 +@ RB (Meridian Assisted Living at Shrewsbury) Series 2004 2.33%, 07/07/05 5,250 5,250 +@ RB (St James Preparatory School & St James Social Service Corp) Series 1998 2.32%, 07/07/05 4,450 4,450 +@ Refunding RB (Crane's Mill) Series 2005B 2.60%, 07/07/05 6,125 6,125 +@ Refunding RB (Station Plaza Park & Ride) Series 2003 2.37%, 07/07/05 2,945 2,945 +~@/ School Facilities Construction Bonds Series 2004G 2.31%, 07/07/05 6,000 6,000 +~@ School Facilities Construction RB Series 2005K 2.31%, 07/07/05 4,565 4,565 +@ Special Facility RB (Port Newark Container Terminal) Series 2003 2.31%, 07/07/05 3,000 3,000 +@ Thermal Energy Facilities RB (Marina Energy LLC - 2001 Project) Series A 2.22%, 07/07/05 2,500 2,500 +@ Thermal Energy Facilities RB (Thermal Energy Limited Partnership I) Series 1997 2.37%, 07/07/05 5,000 5,000 NEW JERSEY EDUCATIONAL FACILITIES AUTH +~@/ Higher Education Capital Improvement Fund Issue RB Series 2002A 2.31%, 07/07/05 8,610 8,610 NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTH +~@ RB (JFK Health Systems Obligated Group) Series 1993 2.30%, 07/07/05 11,800 11,800 +~@ RB (Jersey Shore Medical Center Obligated Group) Series 1994 2.31%, 07/07/05 7,500 7,500 +~@ RB (Somerset Medical Ctr) Series A 2.32%, 07/07/05 13,600 13,600 +@ RB Composite Program Series 2003A-6 2.30%, 07/07/05 6,100 6,100 +@ RB Composite Program Series 2004A-3 2.24%, 07/07/05 3,200 3,200 + Refunding RB (Saint Clare's Hospital) Series 2004B 2.00%, 07/01/05 1,895 1,895 +~@/ Refunding RB (St Barnabas Health Care System) Series 1998B 2.31%, 07/07/05 1,950 1,950 NEW JERSEY HOUSING & MORTGAGE FINANCE AGENCY +~@ Home Buyer RB Series 2000CC 2.33%, 07/07/05 2,540 2,540 ~@ S/F Housing RB Series 2004K 2.40%, 07/07/05 10,000 10,000 NEW JERSEY SPORTS & EXPOSITION AUTH +~@ State Contract Bonds Series 2002B-2 2.28%, 07/07/05 2,240 2,240
22 See financial notes. SCHWAB NEW JERSEY MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) NEW JERSEY TRANSPORTATION TRUST FUND AUTH +~@ Transportation System Bonds Series 2005A 2.31%, 07/07/05 9,980 9,980 ~@/ Transportation System RB Series 1998A 2.31%, 07/07/05 11,495 11,495 +~@/ Transportation System RB Series 2004B 2.31%, 07/07/05 8,100 8,100 NEW JERSEY TURNPIKE AUTH +~@ RB Series C 2.31%, 07/07/05 8,090 8,090 Turnpike RB Series 2000A +~@ 2.31%, 07/07/05 11,200 11,200 +~@/ 2.31%, 07/07/05 11,565 11,565 +~@ Turnpike RB Series 2003C-1 2.14%, 07/07/05 7,225 7,225 +~@/ Turnpike Revenue RB Series 2004A 2.31%, 07/07/05 8,495 8,495 PORT AUTH OF NEW YORK & NEW JERSEY +~@ Consolidated Bonds 127th Series 2.33%, 07/07/05 8,480 8,480 Consolidated Bonds 137th Series 1.58%, 07/15/05 2,805 2,809 +~@ Consolidated Bonds 138th Series 2.33%, 07/07/05 10,000 10,000 +~@ Consolidated Bonds 139th Series 2.33%, 07/07/05 3,750 3,750 +~@/ Consolidated Bonds 140th Series 2.31%, 07/07/05 5,000 5,000 ~@/ Consolidated Bonds 85th Series 2.31%, 07/07/05 6,795 6,795 Special Project Bonds (JFK International Air Terminal) Series 6 +~@/ 2.36%, 07/07/05 800 800 +~@/ 2.32%, 07/07/05 4,895 4,895 TECP Series A ~ 2.50%, 07/11/05 3,555 3,555 ~ 2.40%, 07/12/05 5,000 5,000 TECP Series B ~ 2.45%, 07/08/05 5,000 5,000 ~ 2.40%, 07/11/05 4,670 4,670 ~ 2.50%, 08/08/05 11,575 11,575 RAHWAY BAN 2.70%, 06/27/06 5,675 5,732 SPARTA TOWNSHIP BAN 2.23%, 01/13/06 4,000 4,016 UNION CNTY IMPROVEMENT AUTH +@ Mortgage RB (Cedar Glen Housing Corp) Series A 2.31%, 07/07/05 9,500 9,500 WOODBRIDGE TOWNSHIP General & Sewer Utility BAN 1.65%, 07/08/05 3,654 3,655 1.67%, 07/08/05 4,346 4,347 ----------- 409,508 PUERTO RICO 3.8% GOVERNMENT DEVELOPMENT BANK OF PUERTO RICO TECP Series 1997 2.90%, 07/11/05 7,948 7,948 PUERTO RICO +~@/ Public Improvement & Refunding Bonds Series 2000 2.28%, 07/07/05 2,935 2,935 +~@/ Public Improvement Bonds Series 2001A 2.31%, 07/07/05 2,000 2,000 PUERTO RICO HFC +~@/ Homeownership Mortgage RB Series 2000A 2.31%, 07/07/05 3,365 3,365 PUERTO RICO HIGHWAY & TRANSPORTATION AUTH +~@ Transportation RB Series 1998A 2.20%, 07/07/05 400 400 PUERTO RICO PUBLIC BUILDINGS AUTH +~@/ Government Facilities RB Series B 2.30%, 07/07/05 1,000 1,000 ----------- 17,648
END OF INVESTMENTS. See financial notes. 23 SCHWAB NEW JERSEY MUNICIPAL MONEY FUND Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $427,156 a Cash 73 Receivables: Investments sold 25,816 Interest 2,965 Prepaid expenses + 19 ----------- TOTAL ASSETS 456,029 LIABILITIES -------------------------------------------------------------------------------- Payables: Dividends to shareholders 342 Investment adviser and administrator fees 7 Transfer agent and shareholder service fees 17 Trustees' fees 3 Accrued expenses + 12 ----------- TOTAL LIABILITIES 381 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 456,029 TOTAL LIABILITIES - 381 ----------- NET ASSETS $455,648 NET ASSETS BY SOURCE Capital received from investors 455,668 Net investment income not yet distributed 28 Net realized capital losses (48) NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $455,648 455,393 $1.00
Unless stated, all numbers x 1,000. a The amortized cost for the fund's securities was $427,156. Includes restricted but deemed liquid securities comprised of 144A securities, worth $94,630 or 20.8% of the fund's total net assets. During the reporting period, the fund had $217,185 in transactions with other Schwab Funds(R). FEDERAL TAX DATA -------------------------------------- COST BASIS OF PORTFOLIO $427,156 AS OF DECEMBER 31, 2004: UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2012 $46 24 See financial notes. SCHWAB NEW JERSEY MUNICIPAL MONEY FUND Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Interest $4,958 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized losses on investments sold (2) EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 865 a Transfer agent and shareholder service fees 1,025 b Trustees' fees 11 c Custodian and portfolio accounting fees 18 Professional fees 14 Registration fees 13 Shareholder reports 8 Other expenses + 5 ---------- Total expenses 1,959 Expense reduction - 478 d ---------- NET EXPENSES 1,481 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 4,958 NET EXPENSES - 1,481 ---------- NET INVESTMENT INCOME 3,477 NET REALIZED LOSSES + (2) ---------- INCREASE IN NET ASSETS FROM OPERATIONS $3,475
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.25% of the fund's assets; for shareholder services, 0.20% of the fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the annual operating expenses through April 29, 2006, to 0.65% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. See financial notes. 25 SCHWAB NEW JERSEY MUNICIPAL MONEY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS -------------------------------------------------------------------------------- 1/1/05-6/30/05 1/1/04-12/31/04 Net investment income $3,477 $2,723 Net realized losses + (2) (54) ---------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 3,475 2,669 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income 3,470 2,694 TRANSACTIONS IN FUND SHARES a -------------------------------------------------------------------------------- Shares sold 766,310 1,561,315 Shares reinvested 3,084 2,651 Shares redeemed + (761,338) (1,579,474) ---------------------------------- NET TRANSACTIONS IN FUND SHARES 8,056 (15,508) NET ASSETS -------------------------------------------------------------------------------- Beginning of period 447,587 463,120 Total increase or decrease + 8,061 (15,533) b ---------------------------------- END OF PERIOD $455,648 $447,587 c
Unless stated, all numbers x 1,000. a Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. b Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. c Includes net investment income not yet distributed in the amount of $28 and $21 at the end of the current and prior report periods, respectively. 26 See financial notes. SCHWAB PENNSYLVANIA MUNICIPAL MONEY FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 Income from investment operations: ------------------------------------------------------------------------------- Net investment income 0.01 0.01 0.00 1 0.01 0.02 0.04 ------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.00) 1 (0.01) (0.02) (0.04) ------------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------------------------- Total return (%) 0.80 2 0.62 0.49 0.87 2.20 3.57 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.65 3 0.65 0.65 0.65 0.65 0.66 4 Gross operating expenses 0.87 3 0.86 0.87 0.89 0.92 0.93 Net investment income 1.61 3 0.62 0.48 0.87 2.14 3.52 Net assets, end of period ($ x 1,000,000) 355 346 328 301 292 225
* Unaudited. 1 Per share amount was less than $0.01. 2 Not annualized. 3 Annualized. 4 The ratio of net operating expenses would have been 0.65% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 27 SCHWAB PENNSYLVANIA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. + Credit-enhanced security ~ Liquidity-enhanced security @ Variable-rate security * Delayed-delivery security / Restricted but deemed liquid security comprised of 144A = All or a portion of this security is held as collateral for delayed-delivery security For fixed-rate obligations, the rate shown is the effective yield at the time of purchase. For variable-rate obligations, the rate shown is the rate as of the report date. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date. For variable-rate obligations without demand features, the maturity shown is the next interest rate change date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 103.0% MUNICIPAL SECURITIES 365,398 365,398 -------------------------------------------------------------------------------- 103.0% TOTAL INVESTMENTS 365,398 365,398 (3.0)% OTHER ASSETS AND LIABILITIES (10,654) -------------------------------------------------------------------------------- 100.0% NET ASSETS 354,744
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) MUNICIPAL SECURITIES 103.0% of net assets PENNSYLVANIA 103.0% ALLEGHENY CNTY HOSPITAL DEVELOPMENT AUTH +@ RB (UPMC Senior Communities) Series 2003 2.28%, 07/07/05 10,000 10,000 ALLEGHENY CNTY IDB +~@/ Pollution Control Refunding RB (Duquesne Light Co) Series 1999B 2.32%, 07/07/05 14,495 14,495 ALLEGHENY CNTY PORT AUTH +* GAN Series 2005 2.68%, 06/30/06 10,000 10,128 +~@ Special Revenue Transportation Bonds Series 1999 2.31%, 07/07/05 2,000 2,000 BERKS CNTY +@ RB (Beacon Container) Series 1998A 2.44%, 07/07/05 745 745 BERMUDIAN SPRINGS SD +~@ GO Bonds Series 2005 2.30%, 07/07/05 1,900 1,900 BLAIR CNTY IDA +@ First Mortgage RB (Village At Penn State) Series 2002C 2.19%, 07/07/05 900 900 CENTRAL BUCKS SD +~@ GO Series 2000A 2.33%, 07/07/05 1,100 1,100 CHESTER CNTY HEALTH & EDUCATION FACILITIES AUTH +@ RB (Simpson Meadows) Series 2000 2.33%, 07/07/05 3,775 3,775 CHESTER IDA +@ RB (Archdiocese of Philadelphia) Series 2001 2.42%, 07/01/05 300 300 DANIEL BOONE AREA SD +~@ GO Bonds Series 2004 2.29%, 07/07/05 100 100 DELAWARE CNTY IDA +@ Hospital RB (Crozer-Chester Medical Center) Series 2002 2.29%, 07/07/05 4,900 4,900
28 See financial notes. SCHWAB PENNSYLVANIA MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ RB (YMCA of Philadelphia) Series 1999 2.39%, 07/07/05 2,005 2,005 +~@ Water Facilities RB (Aqua Pennsylvania Inc) Series 2005A 2.33%, 07/07/05 1,650 1,650 DELAWARE VALLEY REGIONAL FINANCE AUTH +@ Local Government RB Series 1986 2.28%, 07/07/05 10,600 10,600 +~@/ Local Government RB Series 1998A 2.34%, 07/07/05 4,055 4,055 ERIE CITY WATER AUTH + Water RB Series 2004 2.07%, 12/01/05 2,320 2,329 ERIE SD +~@/ GO Bonds Series 2001A 2.32%, 07/07/05 15,550 15,550 HARRISBURG AUTH +~@ Water Refunding RB Series 2003A 2.33%, 07/07/05 10,700 10,700 LUZERNE CNTY IDA +@ RB (Methodist Homes) Series 2003 2.35%, 07/07/05 4,800 4,800 MERCER CNTY +~@/ GO Bonds Series 2001 2.32%, 07/07/05 1,275 1,275 MONTGOMERY CNTY IDA +@ Environmental Facilities RB (Ionza Inc) Series 2000 2.38%, 07/07/05 7,000 7,000 + Pollution Control Refunding RB (Peco Energy Co) Series 1994A 2.56%, 10/18/05 10,000 10,000 MONTGOMERY CNTY REDEVELOPMENT AUTH +@ M/F Housing Refunding RB (Glenmore Associates) Series 1995A 2.59%, 07/07/05 1,000 1,000 NORTHHAMPTON CNTY +~@ County Agreement RB Series 2001 2.32%, 07/07/05 3,000 3,000 ~@ RB (Binney & Smith) Series 1997A 2.34%, 07/07/05 3,250 3,250 +@ RB (Binney & Smith) Series 1997B 2.34%, 07/07/05 810 810 NORWIN SD +~/ GO Bonds Series 2001A 2.65%, 01/25/06 9,710 9,710 PENNSYLVANIA +~@= GO Bonds First Series 2003 2.31%, 07/07/05 14,470 14,470 PENNSYLVANIA CONVENTION CENTER AUTH +~@/ RB Series 1989A 2.31%, 07/07/05 2,745 2,745 PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING AUTH +@ Bonds (Westrum Harleysville II) Series 2005 2.66%, 07/07/05 6,200 6,200 +@ Exempt Facilities RB (Amtrak) Series 2001B 2.45%, 07/07/05 12,300 12,300 @ Exempt Facilities RB (Merck & Co) Series 2000 2.35%, 07/07/05 5,000 5,000 @ Exempt Facilities RB (Merck & Co) Series 2001 2.35%, 07/07/05 13,000 13,000 PENNSYLVANIA ENERGY DEVELOPMENT AUTH +@ Energy Development RB (B&W Ebensburg) Series 1986 2.31%, 07/07/05 17,340 17,340 +@ Energy Development RB (Westrum Hanover) Series 2004 2.33%, 07/07/05 5,900 5,900 PENNSYLVANIA HFA ~@/ Residential Development Refunding RB Series 2002A 2.48%, 07/07/05 6,000 6,000 +~@ S/F Mortgage RB Drawdown Series 2003 2.35%, 07/07/05 3,775 3,775 ~@/ S/F Mortgage RB Series 1999-66A 2.33%, 07/07/05 4,955 4,955 ~/ S/F Mortgage RB Series 1999A 2.15%, 07/07/05 10,785 10,785
See financial notes. 29 SCHWAB PENNSYLVANIA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) ~@/ S/F Mortgage RB Series 2002-74B 2.33%, 07/07/05 7,495 7,495 ~@ S/F Mortgage RB Series 2004-84C 2.26%, 07/07/05 11,400 11,400 ~@ S/F Mortgage RB Series 2004-84D 2.26%, 07/07/05 3,250 3,250 ~@ S/F Mortgage RB Series 2004-86C 2.26%, 07/07/05 5,000 5,000 ~@ S/F Mortgage RB Series 2005-87B 2.27%, 07/07/05 5,000 5,000 ~@/ S/F RB Series 1998-64 2.37%, 07/07/05 15,000 15,000 PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY +~@ Student Loan RB Series 2000A 2.45%, 07/07/05 9,425 9,425 +~@ Student Loan RB Series 2001A 2.45%, 07/07/05 3,550 3,550 PENNSYLVANIA HIGHER EDUCATIONAL FACILITIES AUTH +* State System of Higher Education RB Series AC 2.62%, 06/15/06 2,115 2,142 +~ University of Pennsylvania Health System RB Series 2005A 2.80%, 06/15/06 3,000 3,000 PENNSYLVANIA PUBLIC SCHOOL BUILDING AUTH +~@ School Lease RB (Philadelphia SD) Series 2003 2.31%, 07/07/05 1,895 1,895 +~@ School RB (Parkland SD) Series 1999D 2.33%, 07/07/05 9,400 9,400 PENNSYLVANIA STATE UNIVERSITY @ RB Series 2001A 2.26%, 07/07/05 1,300 1,300 PENNSYLVANIA TURNPIKE COMMISSION ~@ Turnpike RB Series 2001U 2.22%, 07/07/05 1,200 1,200 +~@= Turnpike RB Series 2004A 2.32%, 07/07/05 12,495 12,495 PHILADELPHIA +~@ Airport Refunding RB Series 2005C 2.40%, 07/07/05 4,100 4,100 + Gas Works RB First Series A 1.70%, 07/01/05 5,000 5,000 +~@ Water & Wastewater RB Series 2005A 2.32%, 07/07/05 2,045 2,045 PHILADELPHIA GAS WORKS +~@/ RB Third Series 2001 2.31%, 07/07/05 1,700 1,700 PHILADELPHIA IDA +~/ Airport RB Series 1998A 2.15%, 08/11/05 5,000 5,000 SCRANTON REDEVELOPMENT AUTH +@ Guaranteed Lease RB Series 2004 2.33%, 07/07/05 7,295 7,295 TEMPLE UNIVERSITY Commonwealth System of Higher Education University Funding Obligations Series 2005 2.77%, 04/28/06 6,000 6,059 UNIVERSITY OF PITTSBURGH ~@ University Capital Project Bonds Series 2005A 2.40%, 07/07/05 2,100 2,100 ----------- 365,398
END OF INVESTMENTS. 30 See financial notes. SCHWAB PENNSYLVANIA MUNICIPAL MONEY FUND Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $365,398 a Cash 92 Interest receivable 1,777 Prepaid expenses + 54 ------------ TOTAL ASSETS 367,321 LIABILITIES -------------------------------------------------------------------------------- Payables: Dividends to shareholders 271 Investments bought 12,271 Investment adviser and administrator fees 5 Transfer agent and shareholder service fees 13 Trustees' fees 3 Accrued expenses + 14 ------------ TOTAL LIABILITIES 12,577 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 367,321 TOTAL LIABILITIES - 12,577 ------------ NET ASSETS $354,744 NET ASSETS BY SOURCE Capital received from investors 354,797 Net investment income not yet distributed 2 Net realized capital losses (55) NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $354,744 354,781 $1.00
Unless stated, all numbers x 1,000. a The amortized cost for the fund's securities was $365,398. Includes restricted but deemed liquid securities comprised of 144A securities worth $98,765 or 27.8% of the fund's total net assets. During the reporting period, the fund had $395,349 in transactions with other Schwab Funds. FEDERAL TAX DATA ---------------------------------------- COST BASIS OF PORTFOLIO $365,398 AS OF DECEMBER 31, 2004: UNDISTRIBUTED EARNINGS: Tax-exempt income $2 UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2012 $14 See financial notes. 31 SCHWAB PENNSYLVANIA MUNICIPAL MONEY FUND Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Interest $3,952 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized losses on investments sold (41) EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 666 a Transfer agent and shareholder service fees 788 b Trustees' fees 10 c Custodian and portfolio accounting fees 17 Professional fees 13 Registration fees 20 Shareholder reports 6 Other expenses + 4 ---------- Total expenses 1,524 Expense reduction - 386 d ---------- NET EXPENSES 1,138 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 3,953 NET EXPENSES - 1,138 ---------- NET INVESTMENT INCOME 2,814 NET REALIZED LOSSES + (41) ---------- INCREASE IN NET ASSETS FROM OPERATIONS $2,773
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.25% of the fund's assets; for shareholder services, 0.20% of the fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the annual operating expenses of this fund through April 29, 2006, to 0.65% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. 32 See financial notes. SCHWAB PENNSYLVANIA MUNICIPAL MONEY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS -------------------------------------------------------------------------------- 1/1/05-6/30/05 1/1/04-12/31/04 Net investment income $2,814 $2,157 Net realized losses + (41) (14) ------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS 2,773 2,143 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income 2,814 2,155 TRANSACTIONS IN FUND SHARES a -------------------------------------------------------------------------------- Shares sold 692,344 1,416,322 Shares reinvested 2,501 2,109 Shares redeemed + (685,640) (1,400,551) ------------------------------------ NET TRANSACTIONS IN FUND SHARES 9,205 17,880 NET ASSETS -------------------------------------------------------------------------------- Beginning of period 345,580 327,712 Total increase + 9,164 17,868 b ------------------------------------ END OF PERIOD $354,744 $345,580 c
Unless stated, all numbers x 1,000. a Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. b Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. c Includes net investment income not yet distributed in the amount of $2 at the end of current and prior period. See financial notes. 33 SCHWAB FLORIDA MUNICIPAL MONEY FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ---------------------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) ---------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 Income from investment operations: ------------------------------------------------------------------------- Net investment income 0.01 0.01 0.00 1 0.01 0.02 0.04 ------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.00) 1 (0.01) (0.02) (0.04) ------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------------------- Total return (%) 0.77 2 0.60 0.46 0.96 2.32 3.62 RATIOS/SUPPLEMENTAL DATA (%) ---------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 0.66 3 0.66 0.64 0.59 0.59 0.60 4 Gross operating expenses 0.85 3 0.85 0.85 0.87 0.87 0.89 Net investment income 1.53 3 0.59 0.47 0.95 2.30 3.56 Net assets, end of period ($ x 1,000,000) 1,144 1,905 1,804 1,785 1,518 1,435
* Unaudited. 1 Per share amount was less than $0.01. 2 Not annualized. 3 Annualized. 4 The ratio of net operating expenses would have been 0.59% if certain non-routine expenses (proxy fees) had not been included. 34 See financial notes. SCHWAB FLORIDA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. + Credit-enhanced security ~ Liquidity-enhanced security @ Variable-rate security * Delayed-delivery security / Restricted but deemed liquid security comprised of 144A = All or a portion of this security is held as collateral for delayed-delivery security For fixed-rate obligations, the rate shown is the effective yield at the time of purchase. For variable-rate obligations, the rate shown is the rate as of the report date. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date. For variable-rate obligations without demand features, the maturity shown is the next interest rate change date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) ------------------------------------------------------------------------------- 100.3% MUNICIPAL SECURITIES 1,147,386 1,147,386 ------------------------------------------------------------------------------- 100.3% TOTAL INVESTMENTS 1,147,386 1,147,386 (0.3)% OTHER ASSETS AND LIABILITIES (2,980) ------------------------------------------------------------------------------- 100.0% NET ASSETS 1,144,406
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) MUNICIPAL SECURITIES 100.3% of net assets ALABAMA 1.3% MONTGOMERY DOWNTOWN REDEVELOPMENT AUTH @ Bonds (Southern Poverty Law Center) Series 2000 2.50%, 07/07/05 15,000 15,000 ARIZONA 1.6% MARICOPA CNTY COMMUNITY COLLEGE DIST ~@ GO Bonds Project of 1994 Series 1997B 2.30%, 07/07/05 18,020 18,020 COLORADO 0.4% COLORADO DEPT OF TRANSPORTATION +~ Transportation Refunding RAN Series 2004B 2.31%, 07/07/05 4,745 4,745 CONNECTICUT 0.5% CONNECTICUT HFA +~@ S/F Mortgage RB Draw Down Series 2004B 2.33%, 07/07/05 5,475 5,475 FLORIDA 82.9% ALACHUA CNTY HEALTH FACILITIES AUTH +@ Continuing Care Retirement Community RB (Oak Hammock) Series 2002A 2.30%, 07/01/05 475 475 +~@ Health Facilities RB (Shands Hospital, University of Florida) Series 1992R 2.31%, 07/07/05 41,745 41,745 ALACHUA CNTY SCHOOL BOARD +~@ COP Series 2004 2.57%, 07/07/05 9,045 9,045 BREVARD CNTY HEALTH FACILITIES AUTH +@ RB (Wuesthoff Health Systems) Series 2004 2.29%, 07/07/05 3,400 3,400 BROWARD CNTY + Airport System RB Series L 1.84%, 10/01/05 3,665 3,676
See financial notes. 35 SCHWAB FLORIDA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +~@ Subordinate Port Facilities Refunding RB (Port Everglades) Series 1998 2.35%, 07/07/05 9,025 9,025 BROWARD CNTY EDUCATIONAL FACILITIES AUTH +@ Educational Facilities RB (Nova Southeastern University) Series 2000A 2.29%, 07/07/05 10 10 BROWARD CNTY HFA +@ M/F Housing Refunding RB (Water's Edge) Series 1997 2.28%, 07/07/05 300 300 +~@/ S/F Mortgage RB Series 1999B 2.36%, 07/07/05 1,845 1,845 CAPE CORAL + CP Notes 2.67%, 07/08/05 10,600 10,600 CHARLOTTE CNTY +~@ Refunding RB Series 2003A 2.30%, 07/07/05 800 800 CHARLOTTE CNTY HFA +@ M/F Housing RB (Murdock Circle Apts) Series 2000 2.34%, 07/07/05 6,980 6,980 COLLIER CNTY HFA +@ M/F Housing RB (Brittany Bay Apts) Series 2001A 2.26%, 07/07/05 1,900 1,900 DADE CNTY +~@ Water & Sewer System RB Series 1994 2.26%, 07/07/05 200 200 DADE CNTY IDA +@ IDRB (Michael-Ann Russell Jewish Community Ctr) Series 1997 2.29%, 07/07/05 4,185 4,185 +@ IDRB (South Florida Stadium Corp) Series 1985C 2.22%, 07/07/05 1,050 1,050 DAVIE +@ RB (United Jewish Community of Broward Cnty) Series 2003 2.30%, 07/07/05 1,000 1,000 ESCAMBIA HFA +~@/ S/F RB Series 1997A 2.43%, 07/07/05 1,410 1,410 S/F RB Series 2001A +~@/ 2.36%, 07/07/05 2,050 2,050 +~@ 2.40%, 07/07/05 1,695 1,695 ~/ S/F RB Series 2002A-1 2.45%, 09/29/05 4,585 4,585 FLORIDA +~@/= Dept of Environmental Protection Preservation 2000 RB Series 1997B 2.31%, 07/07/05 22,980 22,980 FLORIDA DEVELOPMENT FINANCE CORP +@ IDRB (Central Farms) Series 1999A4 2.39%, 07/07/05 750 750 +@ IDRB (Schmitt Family Partnership) Series 1999A2 2.39%, 07/07/05 1,875 1,875 +@ IDRB (Sunshine State Christian Homes, Inc) Series 1999A3 2.34%, 07/07/05 1,160 1,160 +@ IDRB (Vutec Corp) Series 1999A1 2.39%, 07/07/05 1,600 1,600 +@ IDRB Enterprise Bond Program (Pioneer-Ram) Series 1998A3 2.39%, 07/07/05 880 880 FLORIDA HFA +~@/ Homeowner Mortgage RB Series 2000-4 2.40%, 07/07/05 3,420 3,420 +@ Housing RB (Caribbean Key Apts) Series 1996F 2.34%, 07/07/05 2,500 2,500 +@ Housing RB (Heron Park) Series 1996U 2.26%, 07/07/05 3,635 3,635 +@ Housing RB (Tiffany Club Apts) Series 1996P 2.34%, 07/07/05 7,050 7,050 +@ M/F Housing RB (Cameron Cove Apts) Series 1985XX 2.37%, 07/07/05 1,700 1,700
36 See financial notes. SCHWAB FLORIDA MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ M/F Housing Refunding RB (Reflections Apts) Series 2001K-A 2.27%, 07/07/05 1,900 1,900 +@ M/F Housing Refunding RB (South Pointe) Series 1998J 2.30%, 07/07/05 4,925 4,925 +@ M/F Mortgage RB (Clarcona Groves Apts) Series 2005A 2.31%, 07/07/05 3,250 3,250 +@ M/F Mortgage RB (Lynn Lake Apts) Series 2005B-1 2.32%, 07/07/05 10,100 10,100 +@ M/F Mortgage RB (Mill Creek Apts) Series 2004K 2.32%, 07/07/05 8,000 8,000 +@ M/F Mortgage RB (Pinnacle Pointe Apts) Series 2003N 2.31%, 07/07/05 6,215 6,215 +@ M/F Mortgage RB (Wellesley Apts) Series 2003O 2.31%, 07/06/05 7,940 7,940 +@ M/F Mortgage RB (Wexford Apts) Series 2003P 2.31%, 07/07/05 8,035 8,035 +@ M/F Mortgage Refunding RB (Victoria Park Apts) Series 2002J-1 2.28%, 07/07/05 1,000 1,000 +@ RB (Heritage Pointe Apts) Series 1999I-1 2.34%, 07/07/05 1,000 1,000 +@ RB (Timberline Apts) Series 1999P 2.30%, 07/07/05 6,135 6,135 FLORIDA LOCAL GOVERNMENT FINANCE COMMISSION Pooled TECP Series 1994A + 2.60%, 09/13/05 4,400 4,400 +@ 2.58%, 09/14/05 20,811 20,811 + Pooled TECP Series 1998B 2.55%, 07/14/05 14,601 14,601 FLORIDA STATE BOARD OF EDUCATION +~@ Lottery RB Series 2005A 2.31%, 07/07/05 22,290 22,290 +~@ Public Education Capital Outlay Bonds Series 1998A 2.31%, 07/07/05 11,000 11,000 ~@/ Public Education Capital Outlay Bonds Series 1998E 2.32%, 07/07/05 12,280 12,280 +~@/= Public Education Capital Outlay Bonds Series 1999C 2.32%, 07/07/05 17,835 17,835 ~@ Public Education Capital Outlay Bonds Series 2001I 2.32%, 07/07/05 4,715 4,715 +~@ Public Education Capital Outlay Bonds Series 2003C 2.31%, 07/07/05 7,500 7,500 ~@/= Public Education Capital Outlay Refunding Bonds Series 2001B 2.32%, 07/07/05 14,100 14,100 ~@ Public Education Capital Outlay Refunding Bonds Series 2005B 2.31%, 07/07/05 5,200 5,200 ~@ Public Education Capital Outlay Refunding Bonds Series 2005C 2.32%, 07/07/05 14,995 14,995 FORT PIERCE UTILITIES AUTH +~@ Utilities Refunding RB Series 2003 2.32%, 07/07/05 6,325 6,325 GAINESVILLE +@ IDRB (Exactech) Series 1997 2.34%, 07/07/05 2,400 2,400 +@ IDRB (Lifesouth Community Blood Centers) Series 1999 2.29%, 07/07/05 350 350 GREATER ORLANDO AVIATION AUTH +~@ Airport Facilities RB Series 2002E 2.30%, 07/07/05 40,100 40,100 + Airport Facilities Subordinated TECP Series B 2.90%, 07/14/05 33,060 33,060 +@ Airport Facility RB (Flightsafety International) Series 2003A 2.34%, 07/07/05 8,900 8,900 GULF BREEZE +~@ Local Government Loan Program RB Series 1985C 2.29%, 07/07/05 2,735 2,735
See financial notes. 37 SCHWAB FLORIDA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +~@ Local Government Loan Program RB Series 1985E 2.29%, 07/07/05 2,240 2,240 HILLSBOROUGH CNTY + Solid Waste & Resource Recovery Refunding RB Series 2004 1.57%, 09/01/05 3,230 3,238 HILLSBOROUGH CNTY AVIATION AUTH Airport Facilities Subordinated TECP Series B + 2.48%, 07/14/05 14,400 14,400 + 2.90%, 07/14/05 8,900 8,900 +~@ Tampa International Airport RB Series 2003A 2.36%, 07/07/05 5,495 5,495 +~@ Tampa International Airport RB Series 2005A 2.35%, 07/07/05 2,600 2,600 HILLSBOROUGH CNTY HFA +@ M/F Housing RB (Meridian Pointe Apts) Series 2005 2.34%, 07/07/05 6,600 6,600 HILLSBOROUGH CNTY IDA +@ Educational Facilities RB (Berkeley Preparatory School, Inc) Series 1999 2.29%, 07/07/05 445 445 +~ IDRB (University Community Hospital) Series 1994 2.85%, 06/22/06 21,085 21,085 +@ RB (Independent Day School) Series 2000 2.35%, 07/07/05 900 900 HILLSBOROUGH CNTY PORT DIST Refunding RB (Tampa Port Auth) Series 2005A +~@ 2.35%, 07/07/05 2,873 2,873 +~@ 2.36%, 07/07/05 11,285 11,285 JACKSONVILLE ECONOMIC DEVELOPMENT COMMISSION +@ RB (Bolles School) Series 1999A 2.29%, 07/07/05 2,900 2,900 +@ Refunding RB (YMCA of Florida First Coast) Series 2003 2.30%, 07/07/05 100 100 +@ Special Facility Airport RB (Holland Sheltair Aviation Group) Series 2005B 2.40%, 07/07/05 2,100 2,100 JACKSONVILLE HEALTH FACILITIES AUTH +@ Hospital RB Series 2003A 2.28%, 07/01/05 600 600 JACKSONVILLE PORT AUTH +~@/ 1996 Port Facility RB 2.61%, 07/07/05 10,100 10,100 LAKE SHORE HOSPITAL AUTH +@ Health Facility RB (Lake Shore Hospital) Series 1991 2.29%, 07/07/05 3,000 3,000 LEE CNTY +~@ Airport RB Series 2000A 2.36%, 07/07/05 4,957 4,957 +@ Educational Facilities RB (Canterbury School) Series 1999 2.29%, 07/07/05 100 100 LEE CNTY HFA +@ M/F Housing RB (Crossings At Cape Coral Apts) Series 1999A 2.35%, 07/07/05 6,160 6,160 +@ M/F Housing RB (University Club Apts) Series 2002A 2.35%, 07/07/05 7,500 7,500 MANATEE CNTY HFA +@ M/F Housing RB (Centre Court Apts) Series 2000 2.35%, 07/07/05 3,760 3,760 +@ M/F Housing RB (Sabal Palm Harbor Apts) Series 2000A 2.34%, 07/07/05 3,070 3,070 +@ M/F Housing RB (Sabal Palm Harbor Apts) Series 2000B 2.34%, 07/07/05 3,695 3,695 MARION CNTY IDA +@ M/F Housing Refunding RB (Chambrel at Pinecastle) Series 2002 2.27%, 07/07/05 3,741 3,741
38 See financial notes. SCHWAB FLORIDA MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) MIAMI HEALTH FACILITIES AUTH +@ Health Facilities RB (Miami Jewish Home & Hospital For the Aged) Series 1996 2.29%, 07/07/05 1,300 1,300 MIAMI-DADE CNTY +~@ Aviation RB (Miami International Airport) Series 2002 2.36%, 07/07/05 5,370 5,370 +~@ Aviation RB (Miami International Airport) Series 2004B 2.32%, 07/07/05 5,000 5,000 Aviation TECP (Miami International Airport) Series A + 2.88%, 07/07/05 19,782 19,782 + 2.53%, 07/08/05 19,621 19,621 + 2.65%, 07/11/05 5,000 5,000 + 2.45%, 07/12/05 18,047 18,047 + 2.65%, 08/01/05 4,000 4,000 + 2.80%, 08/01/05 4,000 4,000 += 2.80%, 08/01/05 15,098 15,098 MIAMI-DADE CNTY HFA +@ M/F Mortgage RB Series 2003-3 2.35%, 07/07/05 9,150 9,150 MIAMI-DADE CNTY IDA +@ IDRB (Airbus Service Co) Series 1998A 2.39%, 07/07/05 8,400 8,400 +@ IDRB (Fine Art Lamps) Series 1998 2.34%, 07/07/05 1,600 1,600 +@ IDRB (Tarmac America) Series 2004 2.35%, 07/07/05 3,200 3,200 +@ RB (Gulliver Schools) Series 2000 2.35%, 07/07/05 3,800 3,800 MIAMI-DADE CNTY SD RAN Series 2005 2.62%, 06/27/06 30,000 30,399 NASSAU CNTY +@ Pollution Control Private Activity RB (Rayonier) Series 1999 2.23%, 07/07/05 7,665 7,665 OCALA +~@ Utility Systems RB Series 2005B 2.32%, 07/07/05 5,550 5,550 OCEAN HIGHWAY & PORT AUTH +@ RB Series 1990 2.40%, 07/07/05 9,800 9,800 ORANGE CNTY HFA +@ Housing Refunding RB (Highland Pointe Apts) Series 1998J 2.56%, 07/07/05 7,455 7,455 +@ M/F Guaranteed Mortgage Refunding RB (Sundown Associates II) Series 1989A 2.39%, 07/07/05 4,600 4,600 +@ M/F Housing RB (Glenn On Millenia Boulevard) Series 2001C 2.26%, 07/07/05 3,355 3,355 +@ M/F Housing RB (Palm Key Apts) Series 1997C 2.31%, 07/07/05 5,000 5,000 +@ M/F Housing RB (The Cove At Lady Lake Apts) Series 2005A 2.29%, 07/07/05 6,500 6,500 +@ M/F Housing RB (West Pointe Villas Apts) Series 2000F 2.32%, 07/07/05 5,750 5,750 +@ M/F Housing RB (Windsor Pines) Series 2000E 2.34%, 07/07/05 3,200 3,200 +@ M/F Housing Refunding RB (Andover Place Apts) Series 1998F 2.33%, 07/07/05 770 770 +@ M/F Housing Refunding RB (Smokewood/Sun Key Apts) Series 1992A 2.30%, 07/07/05 1,150 1,150 ORANGE CNTY IDA +@ IDRB (Central Florida Kidney Centers) Series 2000 2.29%, 07/07/05 5,000 5,000 +@ IDRB (Central Florida YMCA) Series 2002A 2.35%, 07/07/05 4,100 4,100
See financial notes. 39 SCHWAB FLORIDA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) ORANGE COUNTY HEALTH FINANCE AUTH += Refunding Program RB (Pooled Hospital Loan) Series 1985 2.90%, 07/18/05 19,700 19,700 PALM BEACH CNTY +@ IDBR (South Florida Blood Banks) Series 2002 2.29%, 07/07/05 875 875 +@ IDRB (Palm Beach Day School) Series 1999 2.29%, 07/07/05 1,000 1,000 +@ RB (Benjamin Private School) Series 2003 2.30%, 07/07/05 4,500 4,500 +@ RB (Comprehensive Alcoholism Rehabilitation Programs) Series 2000 2.29%, 07/07/05 4,900 4,900 +@ RB (Norton Gallery & School of Art) Series 1995 2.35%, 07/07/05 2,500 2,500 +@ RB (Zoological Society of the Palm Beaches) Series 2001 2.35%, 07/07/05 5,500 5,500 PALM BEACH CNTY EDUCATIONAL FACILITIES AUTH +@ Educational Facilities RB (Lynn University) Series 2001 2.30%, 07/07/05 3,300 3,300 PALM BEACH CNTY HFA +@ M/F Housing RB (Azalea Place Apts) Series 1999A 2.35%, 07/07/05 3,000 3,000 +@ M/F Housing Refunding RB (Emerald Bay Club Apts) Series 2004 2.31%, 07/07/05 6,500 6,500 +@ M/F Housing Refunding RB (Spinnaker Landing Apts) Series 1998 2.32%, 07/07/05 2,745 2,745 PALM BEACH CNTY SD + Sales Tax Revenue CP Notes 2.60%, 09/08/05 11,500 11,500 PINELLAS CNTY EDUCATIONAL FACILITIES AUTH +@ Refunding RB (Canterbury School of Florida) Series 2004 2.31%, 07/07/05 4,645 4,645 PINELLAS CNTY HFA ~@/ S/F Housing RB Series 1999B-1 2.36%, 07/07/05 1,755 1,755 PINELLAS CNTY IDA +@ IDRB (H & S Swansons Tool Co) Series 2001 2.34%, 07/07/05 3,275 3,275 +@ IDRB (Restorative Care of America) Series 2001 2.44%, 07/07/05 1,630 1,630 POLK CNTY IDA +@ IDRB (Lifepath Hospice & Palliative Care) Series 2004 2.29%, 07/07/05 6,600 6,600 +@ IDRB (Pavermodule) Series 1998 2.34%, 07/07/05 2,710 2,710 SARASOTA CNTY +@ RB (Sarasota Family YMCA) Series 1999 2.29%, 07/07/05 2,470 2,470 +~@ Utility System Refunding RB Series 2005A 2.32%, 07/07/05 4,530 4,530 SARASOTA CNTY HEALTH FACILITIES AUTH +@ Health Care Facilities RB (Sarasota-Manatee Jewish Housing Council, Inc) Series 2005A 2.29%, 07/07/05 8,400 8,400 SEMINOLE CNTY IDA +@ IDRB (Amrhein Family Limited Partnership) Series 2001 2.34%, 07/07/05 4,275 4,275 ST PETERSBURG +@ Capital Improvement RB (Airport & Golf Course) Series 1997B 2.28%, 07/07/05 1,830 1,830 +@ Capital Improvement RB (Airport) Series 1997C 2.34%, 07/07/05 335 335 SUMTER CNTY IDA +@ IDRB (Robbins Manufacturing Co) Series 1997 2.39%, 07/07/05 1,200 1,200
40 See financial notes. SCHWAB FLORIDA MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) SUNSHINE STATE GOVERNMENTAL FINANCING COMMISSION +~ CP Revenue Notes (Miami-Dade Cnty Program) Series G 2.35%, 07/06/05 5,000 5,000 TAMPA +@ Educational Facilities RB (Pepin Academy of Tampa) Series 2002 2.33%, 07/07/05 3,875 3,875 +@ Health Care Facilities RB (Lifelink Foundation) Series 1997 2.29%, 07/07/05 4,800 4,800 +@ RB (Tampa Preparatory School) Series 2000 2.28%, 07/07/05 6,500 6,500 TAMPA BAY WATER AUTH +~@/ Utility System Refunding & Improvement RB Series 2001A 2.36%, 07/07/05 5,200 5,200 WEST ORANGE HEALTHCARE DIST +@ RB Series 1999B 2.25%, 07/07/05 2,900 2,900 ----------- 949,079 HAWAII 0.5% HAWAII + Airports System Refunding RB Series 2001 1.68%, 07/01/05 6,000 6,000 ILLINOIS 0.8% CHICAGO +~@ O'Hare International Airport General Airport Third Lien RB Series 2003B-2 2.35%, 07/07/05 8,595 8,595 INDIANA 1.4% INDIANA HFA ~@/ S/F Mortgage RB Series 2002B 2.37%, 07/07/05 4,455 4,455 INDIANAPOLIS LOCAL PUBLIC IMPROVEMENT BOND BANK +~@ (Indianapolis Airport Auth) Series 2004I 2.36%, 07/07/05 11,295 11,295 ----------- 15,750 KENTUCKY 1.0% KENTUCKY HOUSING CORP ~/ Housing RB Series 1998B 1.62%, 07/21/05 11,995 11,995 MASSACHUSETTS 2.1% ARLINGTON School BAN 1.53%, 07/21/05 8,000 8,006 EVERETT BAN 1.82%, 09/09/05 5,880 5,893 RALPH C MAHAR REGIONAL SD BAN 1.69%, 07/14/05 9,700 9,705 ----------- 23,604 MICHIGAN 3.6% DETROIT RAN Series 2005 2.63%, 04/03/06 20,000 20,203 WAYNE CNTY +~@ Airport RB (Detroit Metropolitan Wayne Cnty Airport) Series 2002A 2.31%, 07/07/05 450 450 +~@ Airport Refunding RB (Detroit Metropolitan Wayne Cnty Airport) Series 1996B 2.31%, 07/07/05 20,950 20,950 ----------- 41,603 PENNSYLVANIA 1.3% ALLEGHENY CNTY PORT AUTH +* GAN Series 2005 2.68%, 06/30/06 7,000 7,089 PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY +~@ Student Loan RB Series 1994A 2.33%, 07/07/05 7,700 7,700 ----------- 14,789 TEXAS 2.9% DALLAS FORT WORTH INTERNATIONAL AIRPORT +~@ Joint Improvement & Refunding RB Series 2001A 2.35%, 07/07/05 7,495 7,495 +~@ Joint RB Series 2003A 2.36%, 07/07/05 3,000 3,000
See financial notes. 41 SCHWAB FLORIDA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) HOCKLEY INDUSTRIAL DEVELOPMENT CORP @ Pollution Control RB (AMOCO) Series 1983 2.10%, 09/01/05 7,225 7,225 TEXAS TRAN Series 2004 2.56%, 08/31/05 15,000 15,011 ----------- 32,731
END OF INVESTMENTS. 42 See financial notes. SCHWAB FLORIDA MUNICIPAL MONEY FUND Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $1,147,386 a Cash 161 Receivables: Interest 4,861 Prepaid expenses + 41 -------------- TOTAL ASSETS 1,152,449 LIABILITIES -------------------------------------------------------------------------------- Payables: Dividends to shareholders 873 Investments bought 7,090 Investment adviser and administrator fees 17 Transfer agent and shareholder service fees 42 Trustees' fees 3 Accrued expenses + 18 -------------- TOTAL LIABILITIES 8,043 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 1,152,449 TOTAL LIABILITIES - 8,043 -------------- NET ASSETS $1,144,406 NET ASSETS BY SOURCE Capital received from investors 1,144,662 Net investment income not yet distributed 12 Net realized capital losses (268) NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $1,144,406 1,144,574 $1.00
Unless stated, all numbers x 1,000. a The amortized cost for the fund's securities was $1,147,386. Includes restricted but deemed liquid securities comprised of 144A securities, worth $114,010 or 10.0% of the fund's total net assets. During the reporting period, the fund had $1,316,350 in transactions with other Schwab Funds. FEDERAL TAX DATA -------------------------------------- COST BASIS OF PORTFOLIO $1,147,386 AS OF DECEMBER 31, 2004: UNDISTRIBUTED EARNINGS: Tax-exempt income $12 UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2012 $80 See financial notes. 43 SCHWAB FLORIDA MUNICIPAL MONEY FUND Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Interest $13,627 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized losses on investments sold (180) EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 2,328 a Transfer agent and shareholder service fees 2,801 b Trustees' fees 12 c Custodian and portfolio accounting fees 50 Professional fees 16 Registration fees 27 Shareholder reports 19 Other expenses + 8 ----------- Total expenses 5,261 Expense reduction - 1,173 d ----------- NET EXPENSES 4,088 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 13,627 NET EXPENSES - 4,088 ----------- NET INVESTMENT INCOME 9,539 NET REALIZED LOSSES + (180) ----------- INCREASE IN NET ASSETS FROM OPERATIONS $9,359
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.25% of the fund's assets; for shareholder services, 0.20% of the fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the annual operating expenses through April 29, 2006, to 0.65% of average daily net assets. Prior to April 30, 2005, the limit was 0.66%. This limit excludes interest, taxes and certain non-routine expenses. 44 See financial notes. SCHWAB FLORIDA MUNICIPAL MONEY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS -------------------------------------------------------------------------------- 1/1/05-6/30/05 1/1/04-12/31/04 Net investment income $9,539 $7,043 Net realized losses + (180) (88) ---------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 9,359 6,955 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income 9,539 7,031 TRANSACTIONS IN FUND SHARES a -------------------------------------------------------------------------------- Shares sold 2,455,814 4,541,419 Shares reinvested 8,462 6,847 Shares redeemed + (3,224,319) (4,447,636) ---------------------------------- NET TRANSACTIONS IN FUND SHARES (760,043) 100,630 NET ASSETS -------------------------------------------------------------------------------- Beginning of period 1,904,629 1,804,075 Total increase or decrease + (760,223) 100,554 b ---------------------------------- END OF PERIOD $1,144,406 $1,904,629 c
Unless stated, all numbers x 1,000. a Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. b Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. c Includes net investment income not yet distributed in the amount of $12 at the end of current and prior period. See financial notes. 45 SCHWAB MASSACHUSETTS MUNICIPAL MONEY FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 1/1/04- 5/16/03 1- 6/30/05* 12/31/04 12/31/03 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 ------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 0.00 2 ------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.00) 2 ------------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 ------------------------------------------------------------------------------- Total return (%) 0.76 3 0.64 0.30 3 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.62 4 0.60 0.51 4,5 Gross operating expenses 0.86 4 0.86 0.86 4 Net investment income 1.52 4 0.63 0.48 4 Net assets, end of period ($ x 1,000,000) 350 386 363
* Unaudited. 1 Commencement of operations. 2 Per share amount was less than $0.01. 3 Not annualized. 4 Annualized. 5 In addition to the guaranteed expense limit in place, the investment adviser voluntarily reduced the fund's annualized operating expense by an additional 0.09%. 46 See financial notes. SCHWAB MASSACHUSETTS MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. + Credit-enhanced security ~ Liquidity-enhanced security @ Variable-rate security o Tender Option Bond * Delayed-delivery security / Restricted but deemed liquid security comprised of 144A = All or a portion of this security is held as collateral for delayed-delivery security For fixed-rate obligations, the rate shown is the effective yield at the time of purchase. For variable-rate obligations, the rate shown is the rate as of the report date. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date. For variable-rate obligations without demand features, the maturity shown is the next interest rate change date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 100.4% MUNICIPAL SECURITIES 351,267 351,267 -------------------------------------------------------------------------------- 100.4% TOTAL INVESTMENTS 351,267 351,267 (0.4)% OTHER ASSETS AND LIABILITIES (1,478) -------------------------------------------------------------------------------- 100.0% NET ASSETS 349,789
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) MUNICIPAL SECURITIES 100.4% of net assets MASSACHUSETTS 96.6% AMHERST BAN 1.78%, 07/08/05 4,000 4,001 ARLINGTON School BAN 1.53%, 07/21/05 2,745 2,747 BILLERICA BAN 2.03%, 07/07/05 3,824 3,825 BRIDGEWATER-RAYNHAM REGIONAL SD * BAN 2.70%, 07/05/06 1,726 1,744 COHASSET BAN 1.57%, 08/12/05 5,000 5,007 CONCORD Unlimited Tax School BAN 1.63%, 09/29/05 2,000 2,007 DANVERS BAN 2.40%, 02/03/06 2,300 2,311 DUXBURY BAN 2.25%, 01/13/06 2,000 2,010 FITCHBURG BAN 2.80%, 06/09/06 1,305 1,319 FRAMINGHAM BAN 2.23%, 11/01/05 2,000 2,007 HUDSON BAN 2.82%, 05/12/06 3,000 3,030 LANCASTER BAN 2.80%, 04/21/06 3,157 3,186 LAWRENCE School BAN 2.28%, 12/22/05 2,000 2,009 MARION BAN 1.68%, 07/15/05 2,324 2,325 * 2.72%, 07/14/06 2,561 2,593
See financial notes. 47 SCHWAB MASSACHUSETTS MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) MASSACHUSETTS ~@ GO Bonds Consolidated Loan of 2000 Series C 2.30%, 07/07/05 5,000 5,000 +~@ GO Bonds Consolidated Loan of 1998 Series C 2.31%, 07/07/05 3,485 3,485 ~@/ GO Bonds Consolidated Loan of 2000 Series C 2.30%, 07/07/05 3,000 3,000 +~@/ GO Bonds Consolidated Loan of 2001 Series D 2.31%, 07/07/05 5,610 5,610 +~@/ GO Bonds Consolidated Loan of 2004 Series A 2.31%, 07/07/05 3,950 3,950 +~@/ GO Bonds Consolidated Loan of 2005 Series A 2.30%, 07/07/05 5,500 5,500 ~@ GO Refunding Bonds Series 2001B 2.43%, 07/07/05 400 400 +~@/ GO Refunding Bonds Series 2004A 2.30%, 07/07/05 3,000 3,000 +~@/ Special Obligation RB Consolidated Loan of 2005 Series A 2.30%, 07/07/05 3,520 3,520 MASSACHUSETTS BAY TRANSPORTATION AUTH +~@ General Transportation System Bonds Series 1999A 2.30%, 07/07/05 1,000 1,000 Sr Sales Tax Bonds Series 2004C ~@ 2.30%, 07/07/05 5,000 5,000 ~@/ 2.31%, 07/07/05 5,690 5,690 Sr Sales Tax Bonds Series 2005A ~@ 2.30%, 07/07/05 2,800 2,800 ~@ 2.31%, 07/07/05 2,400 2,400 ~@/ 2.31%, 07/07/05 5,000 5,000 ~@/ Sr Sales Tax RB Series 2005A 2.30%, 07/07/05 2,500 2,500 MASSACHUSETTS DEVELOPMENT FINANCE AGENCY +~@ Education RB (Dexter School) Series 2000 2.27%, 07/07/05 6,320 6,320 +@ First Mortgage RB (Brookhaven at Lexington) Series 2005B 2.28%, 07/07/05 3,000 3,000 +@ M/F Housing RB (Archstone Reading Apts) Series 2004A 2.33%, 07/07/05 8,000 8,000 +@ M/F Housing RB (Midway Studios) Series 2003A 2.36%, 07/07/05 5,000 5,000 +@ M/F Housing RB (Salem Heights Apts) Series 2003A 2.28%, 07/07/05 1,800 1,800 +@ M/F Housing Refunding RB (Kensington at Chelmsford) Series 2002 2.40%, 07/07/05 15,750 15,750 +@ RB (Assumption College) Series 2002A 2.27%, 07/07/05 420 420 +@ RB (Dean College) Series 1999 2.28%, 07/07/05 1,000 1,000 +@ RB (Fessenden School) Series 2001 2.32%, 07/07/05 3,000 3,000 ~@ RB (Phillips Academy) Series 2003 2.27%, 07/07/05 2,000 2,000 +@ RB (Third Sector New England) Series 2004A 2.28%, 07/07/05 800 800 +~@ RB (WGBH Educational Foundation) Series 2002A 2.30%, 07/07/05 3,000 3,000 +@ RB (Worcester Academy) Series 2000 2.30%, 07/07/05 4,500 4,500 +@ RB (YMCA of Greater Boston) Series 2004A 2.30%, 07/07/05 700 700 MASSACHUSETTS HEALTH & EDUCATIONAL FACILITIES AUTH +~@ RB (Baystate Medical Ctr) Series D 2.30%, 07/07/05 20,800 20,800 +@ RB (Boston Home) Series 2002B 2.27%, 07/07/05 2,500 2,500
48 See financial notes. SCHWAB MASSACHUSETTS MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +~@ RB (Capital Assets Program) Series 1985D 2.38%, 07/01/05 1,180 1,180 + RB (Harvard Pilgrim Health Care) Series A 2.29%, 07/01/05 1,750 1,750 @ RB (MIT) Series 2001J-1 2.20%, 07/07/05 1,000 1,000 ~@ RB (MIT) Series K 2.31%, 07/07/05 8,800 8,800 +@ RB (Sherrill House) Series A-1 2.26%, 07/07/05 150 150 +~@ RB (Winchester Hospital) Series D 2.31%, 07/07/05 6,000 6,000 +~@/ RB (Worcester City Campus Corp) Series 2005D 2.30%, 07/07/05 3,000 3,000 MASSACHUSETTS HFA +~@ Housing Bonds Series 2003F 2.22%, 07/07/05 200 200 +~@o M/F Housing Refunding RB Series 1995A 2.30%, 07/07/05 3,780 3,780 ~@/ S/F Housing Notes Series S 2.48%, 07/07/05 8,975 8,975 MASSACHUSETTS IFA +@ RB (New England College of Optometry) Series 1997 2.30%, 07/07/05 905 905 +@ RB (Williston Northampton School) Series B 2.28%, 07/07/05 2,075 2,075 MASSACHUSETTS PORT AUTH +~@ RB Series 2005A & 2005C 2.31%, 07/07/05 6,950 6,950 TECP Series 2003A + 2.75%, 07/05/05 2,000 2,000 + 2.80%, 07/08/05 1,000 1,000 TECP Series 2003B + 2.77%, 07/05/05 2,500 2,500 + 2.95%, 07/07/05 3,000 3,000 + 2.85%, 07/08/05 4,200 4,200 MASSACHUSETTS TURNPIKE AUTH +~@/ Western Turnpike RB Series 1997A 2.31%, 07/07/05 8,500 8,500 MASSACHUSETTS WATER POLLUTION ABATEMENT TRUST ~@/ Pool Program Bonds Series 10 2.31%, 07/07/05 3,845 3,845 ~@ Pool Program Bonds Series 5 2.30%, 07/07/05 5,000 5,000 ~@/= Water Pollution Abatement RB Subordinate Series 1999A 2.31%, 07/07/05 15,000 15,000 MASSACHUSETTS WATER RESOURCES AUTH General Revenue Refunding Bonds Series 2005A +~@/ 2.30%, 07/07/05 5,415 5,415 +~@ 2.31%, 07/07/05 4,705 4,705 TECP Series 1994 + 2.75%, 07/08/05 14,000 14,000 + 2.87%, 07/12/05 5,300 5,300 MEDWAY Unlimited Tax BAN 1.76%, 10/07/05 2,000 2,007 MILTON BAN 2.35%, 08/05/05 5,000 5,003 NASHOBA REGIONAL SD BAN 2.20%, 09/02/05 2,000 2,004 NASHOBA VALLEY TECHNICAL HIGH SD BAN 1.48%, 08/12/05 3,000 3,005 NATICK BAN 2.75%, 04/28/06 2,000 2,016 NEW BEDFORD BAN 2.70%, 09/29/05 5,000 5,004 NORTH ANDOVER BAN 1.76%, 10/07/05 2,000 2,006 NORTHBOROUGH-SOUTHBOROUGH REGIONAL SD BAN 1.84%, 10/27/05 2,000 2,007 RALPH C MAHAR REGIONAL SD BAN 1.69%, 07/14/05 2,000 2,001 SILVER LAKE REGIONAL SD GO BAN 1.61%, 08/26/05 5,000 5,011 2.58%, 03/30/06 3,000 3,020
See financial notes. 49 SCHWAB MASSACHUSETTS MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) SOMERVILLE GO BAN 1.44%, 08/19/05 3,000 3,005 WALTHAM BAN 2.20%, 11/15/05 2,001 2,007 WAYLAND BAN 2.00%, 09/15/05 2,000 2,005 WEST TISBURY BAN 2.85%, 06/15/06 1,850 1,870 ----------- 337,767 PUERTO RICO 3.8% GOVERNMENT DEVELOPMENT BANK OF PUERTO RICO TECP Series 1997 2.90%, 07/11/05 10,000 10,000 PUERTO RICO INFRASTRUCTURE FINANCING AUTH +~@/ Special Tax Refunding RB Series 2005C 2.31%, 07/07/05 3,500 3,500 ----------- 13,500
END OF INVESTMENTS. 50 See financial notes. SCHWAB MASSACHUSETTS MUNICIPAL MONEY FUND Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $351,267 a Cash 186 Interest receivable 2,905 Prepaid expenses + 58 ------------ TOTAL ASSETS 354,416 LIABILITIES -------------------------------------------------------------------------------- Payables: Dividends to shareholders 257 Investments bought 4,337 Investment adviser and administrator fees 5 Transfer agent and shareholder service fees 13 Trustees' fees 1 Accrued expenses + 14 ------------ TOTAL LIABILITIES 4,627 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 354,416 TOTAL LIABILITIES - 4,627 ------------ NET ASSETS $349,789 NET ASSETS BY SOURCE Capital received from investors 349,885 Net realized capital losses (96) NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $349,789 349,885 $1.00
Unless stated, all numbers x 1,000. a The amortized cost for the fund's securities was $351,267. Includes restricted but deemed liquid securities comprised of 144A securities worth of $86,005 or 24.6% of the fund's total net assets. During the reporting period, the fund had $270,855 in transactions with other Schwab Funds. FEDERAL TAX DATA -------------------------------------- COST BASIS OF PORTFOLIO $351,267 AS OF DECEMBER 31, 2004: UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2011 $2 2012 + 83 ------------ $85 See financial notes. 51 SCHWAB MASSACHUSETTS MUNICIPAL MONEY FUND Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Interest $3,902 NET REALIZED GAINS AND LOSSES -------------------------------------------------------------------------------- Net realized losses on investments sold (11) EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 693 a Transfer agent and shareholder service fees 821 b Trustees' fees 12 c Custodian and portfolio accounting fees 16 Professional fees 14 Registration fees 9 Shareholder reports 2 Other expenses + 4 ---------- Total expenses 1,571 Expense reduction - 447 d ---------- NET EXPENSES 1,124 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 3,902 NET EXPENSES - 1,124 ---------- NET INVESTMENT INCOME 2,778 NET REALIZED LOSSES + (11) ---------- INCREASE IN NET ASSETS FROM OPERATIONS $2,767
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.25% of the fund's assets; for shareholder services, 0.20% of the fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the operating expenses of this fund through April 29, 2006, to 0.65% of average daily net assets. Prior to May 1, 2005, this limit was 0.60%. This limit excludes interest, taxes and certain non-routine expenses. 52 See financial notes. SCHWAB MASSACHUSETTS MUNICIPAL MONEY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS -------------------------------------------------------------------------------- 1/1/05-6/30/05 1/1/04-12/31/04 Net investment income $2,778 $2,365 Net realized losses (11) (89) ---------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 2,767 2,276 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income 2,778 2,359 TRANSACTIONS IN FUND SHARES a -------------------------------------------------------------------------------- Shares sold 664,725 1,294,316 Shares reinvested 2,495 2,326 Shares redeemed + (703,136) (1,273,373) ---------------------------------- NET TRANSACTIONS IN FUND SHARES (35,916) 23,269 NET ASSETS -------------------------------------------------------------------------------- Beginning of period 385,716 362,530 Total increase or decrease + (35,927) 23,186 b ---------------------------------- END OF PERIOD $349,789 $385,716
* Commencement of operations. Unless stated, all numbers x 1,000. a Because all transactions in this section took place at $1.00 a share, figures for share quantities are the same as for dollars. b Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. See financial notes. 53 SCHWAB MUNICIPAL MONEY FUNDS FINANCIAL NOTES unaudited BUSINESS STRUCTURE OF THE FUNDS EACH OF THE FUNDS DISCUSSED IN THIS REPORT IS A SERIES OF THE CHARLES SCHWAB FAMILY OF FUNDS, A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended. The sidebar shows the funds in this report and their trust. THE SCHWAB NEW YORK MUNICIPAL MONEY FUND OFFERS TWO SHARE CLASSES : Sweep Shares and Value Advantage Shares. Shares of each class represent interests in the same portfolio, but each class has different expenses and investment minimums. The Schwab New Jersey Municipal Money, Pennsylvania Municipal Money, Florida Municipal Money and Massachusetts Municipal Money Funds 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 trust may issue as many shares as necessary. FUND OPERATIONS Most of the funds' investments are described in the sections earlier in this report. However, there are certain other fund operations and policies that may affect a fund's financials, as described below. Other policies concerning the funds' business operations also are described here. THE FUNDS DECLARE DIVIDENDS EVERY DAY THEY ARE OPEN FOR BUSINESS. These dividends, which are equal to a fund's net investment income for that day, are paid out to shareholders once a month. The funds may make distributions from any net realized capital gains once a year. THE FUNDS 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, a fund 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. THE FUNDS PAY FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES. Through their trust, the funds have agreements with Charles Schwab Investment Management, Inc. (CSIM) to provide investment advisory and administrative services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent and shareholder services. Although these agreements specify certain fees for these services, CSIM and Schwab have made additional agreements with the funds that may limit the total expenses charged.The rates and limitations for these fees vary from fund to fund, and are described in each fund's Statement of Operations. THE TRUST AND ITS FUNDS This list shows all of the funds included in The Charles Schwab Family of Funds. The funds discussed in this report 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 Municipal Money Fund Schwab California Municipal Money Fund SCHWAB NEW YORK MUNICIPAL MONEY FUND SCHWAB NEW JERSEY MUNICIPAL MONEY FUND SCHWAB PENNSYLVANIA MUNICIPAL MONEY FUND SCHWAB FLORIDA MUNICIPAL MONEY FUND SCHWAB MASSACHUSETTS MUNICIPAL MONEY FUND Schwab Retirement Advantage Money Fund Schwab Retirement Money Fund Schwab Government Cash Reserves Schwab Advisor Cash Reserves Schwab Cash Reserves 54 SCHWAB MUNICIPAL MONEY FUNDS THE FUNDS MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. The funds may make 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. Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions within the Schwab Funds(R). 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. 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. THE FUNDS MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The funds may obtain temporary bank loans through the trust to which the funds belong, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The Schwab Funds have custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A., respectively. The funds pay interest on the amounts they borrow at rates that are negotiated periodically. There was no borrowing for any funds during the period. 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 net realized 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. The net investment income and net realized capital gains and losses may differ for financial statement and tax purpose primarily due to differing treatments of wash sale losses and market discount. UNDER THE FUNDS' ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE INDEMNIFIED AGAINST CERTAIN LIABILITY 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. ACCOUNTING POLICIES The following are the main policies the funds use in preparing their financial statements. THE FUNDS VALUE THEIR SECURITIES AT AMORTIZED COST, which approximates market value. SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the security is executed. INTEREST INCOME is recorded as it accrues. If a fund buys a debt instrument at a discount (that is, for less than its 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 55 SCHWAB MUNICIPAL MONEY FUNDS the fund amortizes the premium to the security's call date and price, rather than the maturity date and price. REALIZED GAINS AND LOSSES from security transactions are based on the identified costs of the securities involved. EXPENSES that are specific to a fund or a class are charged directly to that fund or class. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets. FOR FUNDS OFFERING MULTIPLE SHARE CLASSES, all of the realized and unrealized gains or losses and net investment income, other than class specific expenses, are allocated daily to each class in proportion to its net assets. 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 also may keep certain assets in segregated accounts, as required by securities law. THE ACCOUNTING POLICIES DESCRIBED ABOVE CONFORM WITH 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. 56 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 advisory agreement. In addition, the Securities and Exchange Commission (the "SEC") takes the position that, as part of their fiduciary duties with respect to fund fees, fund boards are required to evaluate the material factors applicable to a decision to approve an investment advisory agreement. Consistent with these responsibilities, the Board of Trustees (the "Board") 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 CSIM (the "Agreement") with respect to existing funds in the Trust, including the Schwab New York Municipal Money Fund, the Schwab New Jersey Municipal Money Fund, the Schwab Pennsylvania Municipal Money Fund, the Schwab Florida Municipal Money Fund and the Schwab Massachusetts Municipal 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 trustees also receive a memorandum from fund counsel regarding the responsibilities of trustees for the approval of investment advisory contracts. In addition, the Independent Trustees receive advice from independent counsel to the Independent Trustees, meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM. At the May 24, 2005 meeting of the Board, the trustees, including a majority of the Independent Trustees, approved the renewal of the Agreement on an interim basis through September 30, 2005. In connection with the interim approval of the Agreement, the Board requested that CSIM prepare responses to certain questions outlined below in advance of the next regularly scheduled Board meeting. The Board's approval of the Agreement was based on consideration and evaluation of a variety of specific factors discussed at that meeting 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 Schwab, with respect to each fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and 57 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 the fact that Schwab's extensive branch network, Internet access, investment and research tools, telephone services, and array of account features benefit the funds. 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' investors are also brokerage clients of Schwab, and that CSIM and its affiliates are uniquely positioned to provide services and support to the funds and such shareholders. 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 interim renewal of the Agreement. FUND PERFORMANCE. The Board considered fund performance in determining whether to renew the Agreement. Specifically, the trustees considered each fund's performance relative to a peer group of other mutual funds and appropriate indices/benchmarks, in light of total return, yield and market trends. As part of this review, the trustees considered the composition of the peer group, selection criteria and the reputation of the third party who prepared the peer group analysis. In evaluating the performance of each fund, the trustees considered both risk and shareholder risk expectations for such fund. The Board noted that certain funds, including the Florida Municipal Money Fund -- Sweep Shares, had lower performance relative to their respective peer groups than other funds, and inquired as to the underlying reasons for this relative performance. The Board also requested that CSIM evaluate the reasons for such funds' relative performance, consider appropriate measures to address the performance and report the results of their findings at the next Board meeting. Following such evaluation, and based upon CSIM's agreement to perform such analyses, etc. relating to performance, the Board concluded, within the context of its full deliberations, that the performance of the funds supported interim renewal of the Agreement. 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 voluntary waiver of 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 and offshore funds, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the unique 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 interim renewal of the Agreement. 58 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 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 interim renewal of the Agreement. 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 CSIM's agreement to contractual investment advisory fee schedules which include lower fees at higher graduated asset levels. Based on this evaluation, 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, unanimously approved the interim continuation of the Agreement and concluded that the compensation under the Agreement 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. 59 TRUSTEES AND OFFICERS A fund's Board of Trustees is responsible for protecting the interests of that fund's shareholders. The tables below give information about the people who serve as trustees and officers for the Schwab Funds(R), including the funds covered in this report. Trustees remain in office until they resign, retire or are removed by shareholder vote. 1 Under the Investment Company Act of 1940, any officer, director, or employee of Schwab or CSIM is considered an "interested person," meaning that he or she is considered to have a business interest in Schwab or CSIM. These individuals are listed as "interested trustees." The "independent trustees" are individuals who, under the 1940 Act, are not considered to have a business interest in Schwab or CSIM. Each of the 56 Schwab Funds belongs to one of these trusts: The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently all these trusts have the same trustees and officers. The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. 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. INTERESTED TRUSTEES AND OFFICERS
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ CHARLES R. SCHWAB 2 Chairman, Trustee: Chair, CEO, Director, The Charles Schwab Corp., Charles Schwab & Co., Inc.; 7/29/37 Family of Funds, 1989; Chair, Director, Charles Schwab Investment Management, Inc.; Chair, Charles Investments, 1991; Schwab Holdings (UK); Chair, Director, U.S. Trust Corp., United States Trust Capital Trust, 1993; Co. of New York, U.S. Trust Co., N.A.; CEO, Director, Charles Schwab Holdings, Annuity Portfolios, 1994. Inc.; Chair, CEO Schwab (SIS) Holdings, Inc. I, Schwab International Holdings, Inc.; Director, Charles Schwab Bank, N.A., The Charles and Helen Schwab Foundation, All Kinds of Minds (education); Trustee, Stanford University. Until 5/04: Director, The Gap, Inc. (clothing retailer). Until 5/03: Co-CEO, The Charles Schwab Corp. Until 3/02: Director, Audiobase, Inc. (Internet audio solutions). Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications). Until 7/01: Director, The Charles Schwab Trust Co.
1 The Schwab Funds retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010. 2 In addition to his position with the investment adviser and the distributor, Mr. Schwab also owns stock of The Charles Schwab Corporation. 60 INTERESTED TRUSTEES BUT NOT OFFICERS
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ RANDALL W. MERK 2005 (all trusts). EVP, President, AMPS Enterprise. Until 7/04: President, CEO, Charles Schwab 7/25/54 Investment Management, Inc.; VP, Charles Schwab & Co., Inc. Until 8/02: President, Chief Investment Officer, American Century Management; Director, American Century Companies, Inc. Until 6/01: Chief Investment Officer, Fixed Income, American Century Companies, Inc.
OFFICERS OF THE TRUST
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ EVELYN DILSAVER President, CEO EVP, President, Director, Charles Schwab Investment Management, Inc. Until 5/4/55 (all trusts). 7/04: SVP for Development and Distribution, Asset Management Products and Services Enterprise. Until 6/03: EVP, CFO, Chief Administrative Officer, U.S. Trust. ------------------------------------------------------------------------------------------------------------------------------------ STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment Management, 4/5/55 Officer (all trusts). Inc.; Chief Investment Officer, The Charles Schwab Trust Co. ------------------------------------------------------------------------------------------------------------------------------------ KIMON DAIFOTIS SVP, Chief Investment Since 9/04: Chief Investment Officer, Fixed Income, Charles Schwab Investment 7/10/59 Officer (all trusts). Management, Inc. Since 6/04: SVP, Charles Schwab Investment Management, Inc. Until 6/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ JEFFREY MORTIMER SVP, Chief Investment Since 5/04: SVP, Chief Investment Officer, Equities, Charles Schwab Investment 9/29/63 Officer (all trusts). Management, Inc. Since 6/04: VP, Chief Investment Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 5/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ RANDALL FILLMORE Chief Compliance Since 9/04: SVP, Institutional Compliance and Chief Compliance Officer, 11/11/60 Officer (all trusts). Charles Schwab Investment Management, Inc.; Chief Compliance Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 9/04: VP, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. Until 2002: VP of Internal Audit, Charles Schwab & Co., Inc. Prior to 2000: PricewaterhouseCoopers. ------------------------------------------------------------------------------------------------------------------------------------ KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab Investment 3/13/61 Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco. ------------------------------------------------------------------------------------------------------------------------------------ GEORGE PEREIRA Treasurer, Principal Since 11/04: SVP, CFO, Charles Schwab Investment Management, Inc. Until 11/04: 6/9/64 Financial Officer SVP, Financial Reporting, Charles Schwab & Co., Inc. Until 12/99: CFO, (all trusts). Commerzbank Capital Markets. Until 9/99: Managing Director at the New York Stock Exchange.
61 INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC (real estate); Trustee, Stanford University, 8/13/60 America First Cos., Omaha, NE (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital. Since 2/05: Director, Pacific Mutual Holding Company (insurance). Since 2004: Laudus Trust, Laudus Variable Insurance Trust. Until 2001: Stanford University, Special Assistant to the President. From 1996-2001: VP of Business Affairs, CFO. ------------------------------------------------------------------------------------------------------------------------------------ DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing and communications 9/23/31 Investments, 1991; consulting). Until 1999: EVP, Managing Director, Grey Advertising. Until 1996: Capital Trust, 1993; President, CEO, Allen & Dorward Advertising. Annuity Portfolios,1994. ------------------------------------------------------------------------------------------------------------------------------------ WILLIAM A. HASLER 2000 (all trusts). Dean Emeritus, Haas School of Business, University of California, Berkeley; 11/22/41 Director, Aphton Corp. (bio-pharmaceuticals); Non-Executive Chair, Solectron Corp. (manufacturing), Mission West Properties (commercial real estate), Stratex Networks (network equipment), TOUSA (home building); Public Governor, Member, executive committee, Pacific Stock & Options Exchange. Since 2004: Trustee, Laudus Trust, Laudus Variable Insurance Trust. Until 2/04: Co-CEO, Aphton Corp. (bio-pharmaceuticals). ------------------------------------------------------------------------------------------------------------------------------------ ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial services 5/15/31 Investments, 1991; and investment advisory firm). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisers); Trustee, Cooper 9/28/50 Industries (electrical products, tools and hardware); Chairman, audit committee, Northern Border Partners, L.P. (energy). ------------------------------------------------------------------------------------------------------------------------------------ DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: Chair, CEO, 6/28/38 Investments, 1991; North American Trust (real estate investment trust). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (real estate investment and management, and 8/18/43 Investments, 1991; other investments). Capital Trust, 1993; Annuity Portfolios, 1994.
62 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. ALTERNATIVE MINIMUM TAX (AMT) A federal income tax designed to limit the extent to which high-income taxpayers (including individuals, estates, trusts and corporations) can benefit from certain deductions and exemptions. For example, some types of income that are exempt from regular federal income tax are not exempt from the AMT. ASSET-BACKED SECURITIES Bonds or other debt securities that represent ownership in a pool of assets such as credit card debt. BOND A security representing a loan from the investor to the issuer. A bond typically pays interest at a fixed rate (the "coupon rate") until a specified date (the "maturity date"), at which time the issuer returns the money borrowed ("principal" or "face value") to the bondholder. Because of their structure, bonds are sometimes called "fixed income securities" or "debt securities." An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond's market value prior to call or maturity. There is no guarantee that a bond's yield to call or maturity will provide a positive return over the rate of inflation. BOND FUND A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund's net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed. BOND ANTICIPATION NOTES Obligations sold by a municipality on an interim basis in anticipation of the municipality's issuance of a longer-term bond in the future. 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, state and local governments 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. 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 limit 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 credit-worthiness 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 principal to its debtholders. PORTFOLIO TERMS To help reduce the space occupied by the portfolio holdings, we use the following terms. Most of them appear within descriptions of individual securities in municipal funds, and describe features of the issuer or the security. Some of these are more fully defined elsewhere in the Glossary. ACES Adjustable convertible extendable security BAN Bond anticipation note COP Certificate of participation GAN Grant anticipation note GO General obligation HDA Housing Development Authority HFA Housing Finance Agency IDA Industrial Development Authority IDB Industrial Development Board IDRB Industrial Development Revenue Bond M/F Multi-family RAN Revenue anticipation note RB Revenue bond S/F Single-family TAN Tax anticipation note TECP Tax-exempt commercial paper TRAN Tax and revenue anticipation note VRD Variable-rate demand 63 DOLLAR-WEIGHTED AVERAGE MATURITY (DWAM) See weighted average maturity. EFFECTIVE YIELD A measurement of a fund's yield that assumes that all dividends were 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 a 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 A security that when tendered is paid from funds advanced by an entity other than the issuer (such as a large financial institution). Liquidity enhancements are often used on variable-rate securities where the portfolio manager has an option to tender the securities prior to their final maturity. MATURITY The date a debt security is scheduled to be "retired" and its principal amount returned to the bondholder. MONEY MARKET SECURITIES High-quality, short-term debt securities that may be issued by entities such as the U.S. government, corporations and financial institutions (such as banks). Money market securities include commercial paper, promissory notes, certificates of deposit, banker's acceptances, notes and time deposits. MUNI, MUNICIPAL BONDS, 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. REVENUE ANTICIPATION NOTES Obligations that are issued in expectation of the receipt of revenue, such as income taxes, property taxes, etc. 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%). TOTAL RETURN The percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested. TAX ANTICIPATION NOTES Notes that typically are sold to finance the cash flow needs of municipalities in anticipation of the receipt of taxes on a future date. 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. WEIGHTED AVERAGE MATURITY For mutual funds, the maturity of all the debt securities in its portfolio, calculated as a weighted average. As a rule, the longer a fund's weighted average maturity, the greater its interest rate risk. Money funds are required to maintain a weighted average maturity of no more than 90 days. YIELD The income paid out by an investment, expressed as a percentage of the investment's market value. 64 Schwab Funds(R) offers you a complete 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're 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, and 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. METHODS FOR PLACING ORDERS The following information outlines how Schwab investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET 1 www.schwab.com SCHWAB BY PHONE(TM) 2 Use our automated voice service or speak to a representative. Call 1-800-435-4000, day or night (for TDD service, call 1-800-345-2550). TELEBROKER(R) Use our automated touch-tone phone service at 1-800-272-4922. MAIL Write to Schwab Funds at: P.O. Box 3812 Englewood, CO 80155-3812 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. 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.schwab.com/schwabfunds, 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.schwab.com/schwabfunds or the SEC's website at http://www.sec.gov. 1 Shares of Sweep Investments(TM) may not be purchased directly over the Internet. 2 Orders placed in person or through a telephone representative may be subject to a service fee payable to Schwab. THE SCHWAB FUNDS FAMILY(R) STOCK FUNDS Schwab S&P 500 Index Fund Schwab 1000 Index(R) Fund Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) Schwab Premier Equity Fund(TM) Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) Schwab Financial Services Fund(TM) Schwab Health Care Fund(TM) Schwab Technology Fund(TM) Schwab Institutional Select(R) S&P 500 Fund ASSET ALLOCATION FUNDS 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 2020 Fund Schwab Target 2030 Fund Schwab Target 2040 Fund Schwab Retirement Income Fund BOND FUNDS Schwab YieldPlus Fund(R) Schwab Short-Term Bond Market Fund(TM) Schwab Total Bond Market Fund(TM) Schwab GNMA Fund(TM) Schwab Tax-Free YieldPlus Fund(TM) Schwab Short/Intermediate Tax-Free Bond Fund(TM) Schwab Long-Term Tax-Free Bond Fund(TM) Schwab California Tax-Free YieldPlus Fund(TM) Schwab California Short/Intermediate Tax-Free Bond Fund(TM) Schwab California Long-Term 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 liquidity. 3 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(R). 3 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. [CHARLES SCHWAB LOGO] INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. (Schwab) FUNDS Schwab Funds(R) P.O. Box 3812, Englewood, CO 80155-3812 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)2005 Charles Schwab & Co., Inc. All rights reserved. Member SIPC Printed on recycled paper. MFR13603-09 SCHWAB CALIFORNIA MUNICIPAL MONEY FUND(TM) SEMIANNUAL REPORT June 30, 2005 [CHARLES SCHWAB LOGO] IN THIS REPORT Management's Discussion........................ 2 Performance and Fund Facts..................... 6 Fund Expenses.................................. 7 Financial Statements........................... 8 Financial Notes................................ 29 Investment Advisory Agreement Approval......... 32 Trustees and Officers.......................... 35 Glossary....................................... 38 Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM). Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab). [PHOTO OF CHARLES SCHWAB] Charles Schwab Chairman FROM THE CHAIRMAN Dear Shareholder, I have always believed that it's important to make sure that your cash is earning income between long-term investments by putting the money into a money market fund. While no investment is risk-free, money market funds carry, perhaps, the least amount of risk, as they generally are not as volatile as stocks or stock mutual funds. Money funds are good choices for investors who want to mitigate the potential fluctuations that may occur in their mostly stock portfolios. At Schwab, we offer a range of money funds with distinct investment strategies. Our municipal money funds, for example, may be beneficial for those of you in the higher tax brackets. We also offer money funds for those interested in the added protection provided by a portfolio of U.S. government securities. In addition, several of the Schwab money funds offer share classes that carry lower expenses in exchange for higher investment minimums. Now, as a result of the Federal Reserve having raised short-term interest rates eight times in the past 12 months (four during the six-month period covered in this report), yields on money market mutual funds are more attractive than they have been in many years. Not only that, but it's likely that the Fed will raise these rates again this year. Based on this expectation, we anticipate that the yields on money market funds will continue to move upwards over the next few months. On behalf of Schwab Funds, I want to thank you for investing with us and remind you that our commitment to our shareholders will never waver. Sincerely, /s/ Charles R. Schwab MANAGEMENT'S DISCUSSION for the six months ended June 30, 2005 [PHOTO OF EVELYN DILSAVER] EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management, Inc. and is president of the funds covered in this report. She joined the firm in 1992 and has held a variety of executive positions at Schwab. Dear Shareholder, When I assumed my new role as President and CEO of Schwab Funds(R) last year, I pledged that I would be committed to offering you more relevant choices and better value. I am pleased to report that we already have done both. On July 1, 2005, Schwab Funds launched the Schwab Target Funds(TM), a suite of five mutual funds to help keep your retirement investments properly allocated over your lifetime. With a single investment in a Schwab Target Fund, you can avoid a common investment mistake--failing to adjust your portfolio over time. The funds are designed to provide shareholders with investment management, asset allocation and ongoing re-allocation over time. You simply choose the fund that most closely matches the date of your retirement and our experienced portfolio managers will do the rest. They will rebalance four of the five funds from more aggressive to more conservative as you get closer to your retirement date. The fifth fund is designed to help generate income and additional growth after you've retired. It also is a good choice for investors already enjoying their retirement. These no-load funds are a good value, as the funds have access to the lowest-priced eligible share class on the underlying Schwab affiliate funds. And because the funds invest in groups of other Schwab affiliate funds, they provide an additional layer of diversification. At Schwab, we believe that having an asset-allocation plan that fits your retirement goals, time frame and tolerance for risk is a key element in meeting your long-term investment goals. The Schwab Target Funds are designed to help you do this. I encourage you to learn more about these funds at www.schwab.com/target, or call Schwab. Thank you for investing in Schwab Funds. Sincerely, /s/ Evelyn Dilsaver Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus carefully before investing. 2 Schwab California Municipal Money Fund [PHOTO OF KEVIN SHAUGHNESSY] KEVIN SHAUGHNESSY, CFA, a vice president of the investment adviser and senior portfolio manager, is responsible for the day-to-day management of the fund. Prior to joining the firm in 2000, he worked for more than 10 years in fixed income portfolio management. THE INVESTMENT ENVIRONMENT AND THE FUND Oil prices hit highs never seen before and the Federal Reserve Open Market Committee continued to raise short-term interest rates to curb inflationary pressures, raising rates for the fourth time this year. At the same time, GDP continued to grow at a healthy pace and the housing market remained strong, largely due to low mortgage rates. The firming labor market, as well as steady gains in capital spending, kept the economic expansion on a self-sustaining path. Businesses, unable to continue boosting productivity by restraining hiring, added new jobs during the six-month report period. Moreover, many leading indicators, such as the Institute for Supply Management's business activity surveys, suggested ongoing expansion, while continuing claims for unemployment benefits remained near cyclical lows. Business investments grew only modestly, but consumers continued to spend. In fact, consumer confidence rose to a level not experienced since before September 11, 2001. With consumers in a spending mode and consumer spending comprising about 70% of GDP, first quarter GDP remained strong and retail sales were healthy. In this positive economic environment, strong labor market conditions remained positive for domestic consumption. While high energy prices remained a significant headwind for economic performance, supply no longer was the issue; demand, especially in China, drove prices up. At the end of the six-month report period, a barrel of oil cost $56.50 versus $42.55 at the beginning of 2005. Though high oil and commodity prices could have hampered growth and stirred inflationary pressures, productivity gains, slow growth in the money supply and slack in the economy have mostly kept a lid on core inflation. The productivity gains, coupled with foreign central banks buying large amounts of U.S. Treasury securities, also helped to keep long-term interest rates under control. These conditions also caused the dollar to rally unexpectedly, which took a little bit of pressure off the price of imported goods. Amid signs of solidly expanding output and improved hiring, the Fed continued to tighten. It increased short-term interest rates at each of the four meetings in the first half of 2005, ending the six-month report period at a still moderate 3.25%. The moves have had a limited impact on overall economic growth, due primarily to the record-low level of rates from which the increases began. Nonetheless, the higher rates succeeded in moving money fund yields higher, making them a more attractive investment vehicle. Schwab California Municipal Money Fund 3 MANAGEMENT'S DISCUSSION continued California's economy strengthened, due to renewed growth in employment and exports, as well as continued strong increases in personal income. AS NOTED ABOVE, THE FED CONTINUED IN ITS TIGHTENING MODE, RAISING SHORT-TERM INTEREST RATES 0.25% AT EACH OF ITS FOUR MEETINGS THIS YEAR. At the end of the six-month report period, the rate was 3.25%. The higher taxable rates translated into higher municipal money market yields, as well. Yields on municipal variable-rate demand notes rose significantly during this period. The Bond Market Association's seven-day muni index averaged 2.25% during the six-month report period, 0.80% higher than the prior six-month period. This change had a positive impact on muni money fund yields, which rose 0.60% on average over the report period. In this type of economic climate and market environment, we allowed the funds' weighted average maturity (WAM) to shorten to a more neutral position versus our peers. When the opportunity arose, we added commercial paper with maturities of 30-90 days, as they offered the best relative value of any other assets during the report period. We also increased our exposure to attractively priced seven-day variable-rate notes. Despite the ongoing rising-rate environment, municipal-note supply remained steady in the first half of 2005. During this period, issuance of commercial paper and seven-day variable-rate notes was strong. California's economy strengthened, due to renewed growth in employment and exports, as well as continued strong increases in personal income. The State added more than 241,000 payroll jobs from January to May 2005, up 1.7% over the same period in 2004. This compares with a 1.0% year-over-year increase for all of 2004. The strongest gains were in construction, as well as in professional- and business-services job sectors. The state's unemployment rate dipped to 5.3% in May 2005, its lowest recording since July 2001 and down from 6.3% in May 2004. The State Department of Finance is projecting 1.7% growth in payroll jobs for the full year 2005, and 5.7% growth in personal income. California now expects to report a general fund balance of $7.5 billion as of June 30, 2005, or 9.2% of annual expenditures. This positive result, however, is partly due to the sale of $11 billion in deficit bonds in May and June 2004, and the acceleration of corporate and individual income tax collections associated with a tax-amnesty program in April 2005. Still, California's revenue picture brightened in fiscal year 2005, with revenues now projected to be $2.9 billion ahead of the original budget estimates. On July 11, 2005, Governor Arnold Schwarzenegger signed the state budget for fiscal 2006 which began on July 1, 2005. The $90 billion general fund budget largely reflected the Governor's May revision to spending proposals and was balanced with no new taxes or significant borrowing. In addition, the plan fully funds the State's commitment to 4 Schwab California Municipal Money Fund California's revenue picture brightened in fiscal year 2005, with revenues now projected to be $2.9 billion ahead of the original budget estimates. transportation and begins to pay off prior-year loans from local governments. The budget, however, provided for continued spending in excess of recurring annual revenues, and was balanced largely through the use of recently accumulated reserves. California's Legislative Analyst's Office projects recurring annual budget gaps of as much as $6 billion. Governor Schwarzenegger has called for a special statewide election to be held on November 8, 2005. Among the ballot initiatives to be decided is a measure that would limit the growth of future budgets to the most recent three-year average annual growth rate of the State's general and special revenue funds. The proposal would also grant the Governor significant new powers to cut state spending in the event of mid-year budget shortfalls. Alternative measures may be considered if the Governor and State Legislature can forge a compromise in time to make the November ballot. California's medium investment-grade credit ratings reflect its recent struggles for ongoing financial balance. The credit quality of its many underlying units of government, including counties, cities, universities, and school districts, varies widely, but has been mostly stable through the six-month report period. Still, all three rating agencies raised their ratings for the State in 2004, but the ratings remain the lowest among the U.S. states. At the end of the report period, the State's ratings were A from Standard & Poor's, A- from Fitch, and A3 from Moody's. In early July, however, Moody's raised its rating to A2 and Fitch raised its rating to A. 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. Schwab California Municipal Money Fund 5 MANAGEMENT'S DISCUSSION continued PERFORMANCE AND FUND FACTS as of 6/30/05 SEVEN-DAY YIELDS 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.
SWEEP SHARES VALUE ADVANTAGE SHARES(TM) Ticker Symbol SWCXX SWKXX --------------------------------------------------------------------------------------------------- SEVEN-DAY YIELD 1 1.76% 1.96% --------------------------------------------------------------------------------------------------- SEVEN-DAY YIELD--NO WAIVER 2 1.60% 1.83% --------------------------------------------------------------------------------------------------- SEVEN-DAY EFFECTIVE YIELD 1 1.78% 1.98% --------------------------------------------------------------------------------------------------- SEVEN-DAY TAXABLE-EQUIVALENT EFFECTIVE YIELD 1, 3 3.05% 3.40% ---------------------------------------------------------------------------------------------------
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.SCHWAB.COM/SCHWABFUNDS. STATISTICS Money funds must maintain a dollar-weighted average maturity of no longer than 90 days, and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months). WEIGHTED AVERAGE MATURITY 39 days ---------------------------------------------------------- CREDIT QUALITY OF HOLDINGS % of portfolio 100% Tier 1 ---------------------------------------------------------- CREDIT-ENHANCED SECURITIES % of portfolio 62% ---------------------------------------------------------- MINIMUM INITIAL INVESTMENT 4 Sweep Investments(TM) * Value Advantage Shares $25,000 ----------------------------------------------------------
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. 1 Fund expenses have been partially absorbed by CSIM and Schwab. 2 Yield if fund expenses had not been partially absorbed by CSIM and Schwab. 3 Taxable-equivalent effective yield assumes a 2005 maximum combined federal regular income and California state personal income tax rate of 41.70%. Investment income may be subject to the Alternative Minimum Tax. 4 Please see prospectus for further detail and eligibility requirements. * Subject to the eligibility terms and conditions of your Schwab account agreement. 6 Schwab California Municipal Money Fund FUND EXPENSES 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, 2005 and held through June 30, 2005. 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 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 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 EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2 (Annualized) at 1/1/05 at 6/30/05 1/1/05-6/30/05 ------------------------------------------------------------------------------------------------------------------- SCHWAB CALIFORNIA MUNICIPAL MONEY FUND(TM) Sweep Shares Actual Return 0.65% $1,000 $1,007.50 $3.24 Hypothetical 5% Return 0.65% $1,000 $1,021.57 $3.26 Value Advantage Shares(TM) Actual Return 0.45% $1,000 $1,008.50 $2.24 Hypothetical 5% Return 0.45% $1,000 $1,022.56 $2.26
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for each share class are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year. Schwab California Municipal Money Fund 7 SCHWAB CALIFORNIA MUNICIPAL MONEY FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- SWEEP SHARES 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------------------------ Income from investment operations: Net investment income 0.01 0.01 0.00 1 0.01 0.02 0.03 ------------------------------------------------------------------------------ Less distributions: Dividends from net investment income (0.01) (0.01) (0.00) 1 (0.01) (0.02) (0.03) ------------------------------------------------------------------------------ Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------------------------ Total return (%) 0.75 2 0.59 0.46 0.83 1.99 3.02 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.65 3 0.65 0.65 0.65 0.65 0.66 4 Gross operating expenses 0.82 3 0.82 0.82 0.82 0.82 0.84 Net investment income 1.50 3 0.58 0.45 0.83 1.98 2.98 Net assets, end of period ($ x 1,000,000) 3,998 4,147 4,169 4,056 3,897 3,923
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- VALUE ADVANTAGE SHARES 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------------------------ Income from investment operations: Net investment income 0.01 0.01 0.01 0.01 0.02 0.03 ------------------------------------------------------------------------------ Less distributions: Dividends from net investment income (0.01) (0.01) (0.01) (0.01) (0.02) (0.03) ------------------------------------------------------------------------------ Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------------------------ Total return (%) 0.85 2 0.79 0.66 1.03 2.19 3.22 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.45 3 0.45 0.45 0.45 0.45 0.46 5 Gross operating expenses 0.59 3 0.59 0.59 0.59 0.61 0.63 Net investment income 1.71 3 0.78 0.65 1.03 2.11 3.20 Net assets, end of period ($ x 1,000,000) 3,102 2,825 3,061 3,081 2,563 2,170
* Unaudited. 1 Per-share amount was less than $0.01. 2 Not annualized. 3 Annualized. 4 The ratio of net operating expenses would have been 0.65% if certain non-routine expenses (proxy fees) had not been included. 5 The ratio of net operating expenses would have been 0.45% if certain non-routine expenses (proxy fees) had not been included. 8 See financial notes. SCHWAB CALIFORNIA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. + Credit-enhanced security ~ Liquidity-enhanced security @ Variable-rate security * Delayed-delivery security / Restricted but deemed liquid security comprised of 144A = All or a portion of this security is held as collateral for futures contracts and delayed-delivery security For fixed-rate obligations, the rate shown is the effective yield at the time of purchase. For variable-rate obligations, the rate shown is the rate as of the report date. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date. For variable-rate obligations without demand features, the maturity shown is the next interest rate change date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 105.7% MUNICIPAL SECURITIES 7,506,064 7,506,064 -------------------------------------------------------------------------------- 105.7% TOTAL INVESTMENTS 7,506,064 7,506,064 (5.7)% OTHER ASSETS AND LIABILITIES (405,710) -------------------------------------------------------------------------------- 100.0% TOTAL NET ASSETS 7,100,354
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) MUNICIPAL SECURITIES 105.7% of net assets CALIFORNIA 103.0% ALAMEDA CNTY IDA +@ RB (Aitchison Family Partnership) Series 1993A 2.31%, 07/07/05 2,560 2,560 +@ RB (JMS Family Partnership) Series 1995A 2.31%, 07/07/05 1,000 1,000 +@ RB (Malmberg Engineering) Series 1999A 2.55%, 07/07/05 2,205 2,205 +@ RB (Scientific Technology) Series 1994A 2.36%, 07/07/05 2,200 2,200 ALAMEDA-CONTRA COSTA TRANSIT DIST + 2004-05 RAN 1.58%, 07/07/05 12,000 12,003 ANAHEIM HOUSING AUTH +@ M/F Housing RB (Casa Granada Apts) Series 1997A 2.25%, 07/07/05 3,495 3,495 +@ M/F Housing RB (Park Vista Apts) Series 2000D 2.30%, 07/07/05 21,000 21,000 +@ M/F Housing RB (Port Trinidad Apts) Series 1997C 2.25%, 07/07/05 1,940 1,940 +@ M/F Housing Refunding RB (Sage Park) Series 1998A 2.24%, 07/07/05 5,500 5,500 ASSOCIATION OF BAY AREA GOVERNMENTS +~@ Bart SFO Extension Bonds (Airport Premium Fare) Series 2002A 1.25%, 07/07/05 9,995 9,995 +@ COP (Harker School Foundation) Series 1998 2.28%, 07/07/05 4,300 4,300 +~@ Lease RB Series 2003A 2.40%, 07/07/05 1,000 1,000 +@ M/F Housing RB (Artech Building) Series 1999A 2.30%, 07/07/05 3,200 3,200
See financial notes. 9 SCHWAB CALIFORNIA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@= M/F Housing RB (Crossing Apts) Series 2002A 2.24%, 07/07/05 55,700 55,700 +@ M/F Housing RB (Miramar Apts) Series 2000A 2.24%, 07/07/05 30,000 30,000 +@ M/F Housing RB (Mountain View Apts) Series 1997A 2.35%, 07/07/05 6,130 6,130 +@ M/F Housing RB (Paragon Apts at the Crossing) Series 2005A 2.27%, 07/07/05 22,000 22,000 +@ RB (Public Policy Institute of California) Series 2001A 2.30%, 07/07/05 9,000 9,000 BAY AREA TOLL AUTH +~@ San Francisco Bay Area Toll Bridge RB Series 2003C 2.23%, 07/07/05 25,000 25,000 +~@/ San Francisco Bay Area Toll Bridge RB Series D 2.31%, 07/07/05 10,125 10,125 CALIFORNIA Economic Recovery Bonds Series 2004A +~@ 2.28%, 07/07/05 7,995 7,995 +~@= 2.28%, 07/07/05 25,995 25,995 +~@/ 2.28%, 07/07/05 8,872 8,872 +~@ 2.30%, 07/07/05 31,420 31,420 ~@= 2.30%, 07/07/05 39,995 39,995 +~@ 2.31%, 07/07/05 8,495 8,495 +~@/ 2.31%, 07/07/05 6,700 6,700 ~@ 2.31%, 07/07/05 18,745 18,745 ~@/ 2.38%, 07/07/05 24,000 24,000 ~@/= 2.38%, 07/07/05 145,000 145,000 +@ Economic Recovery Bonds Series 2004C-11 2.15%, 07/07/05 13,615 13,615 +~@ Economic Recovery Bonds Series 2004C-14 2.20%, 07/07/05 14,900 14,900 +~@ Economic Recovery Bonds Series 2004C-15 2.29%, 07/07/05 8,785 8,785 +~@ Economic Recovery Bonds Series 2004C-18 2.22%, 07/07/05 1,000 1,000 ~@ Economic Recovery Bonds Series 2004C-5 1.67%, 07/01/05 6,220 6,220 +@ Economic Recovery Bonds Series 2004C-6 2.15%, 07/01/05 19,900 19,900 GO Bonds +~@ 2.28%, 07/07/05 7,870 7,870 +~@ 2.30%, 07/07/05 16,795 16,795 +~@/ 2.30%, 07/07/05 54,605 54,605 +~@ 2.31%, 07/07/05 15,580 15,580 +~@/= 2.31%, 07/07/05 94,625 94,625 +~@/ 2.32%, 07/07/05 69,545 69,545 +~@/= 2.32%, 07/07/05 38,020 38,020 GO Bonds Series 1999 +~@/ 2.28%, 07/07/05 10,835 10,835 +~@/ 2.31%, 07/07/05 13,675 13,675 +@ GO Bonds Series 2003A-1 2.48%, 07/01/05 3,125 3,125 +@ GO Bonds Series 2003A-3 2.30%, 07/01/05 1,300 1,300 +@ GO Bonds Series 2003B-4 2.25%, 07/07/05 3,000 3,000 +@ GO Bonds Series 2003C-3 2.28%, 07/07/05 35,000 35,000 +@ GO Bonds Series 2003C-4 2.27%, 07/07/05 2,400 2,400 +@ GO Bonds Series 2004A-8 2.25%, 07/07/05 3,000 3,000 +@ GO Bonds Series 2004B-6 2.28%, 07/07/05 21,300 21,300 +~@/ GO Refunding Bonds Series 2005 2.31%, 07/07/05 16,165 16,165 TECP ~ 2.48%, 07/11/05 37,000 37,000 ~ 2.55%, 07/11/05 3,700 3,700 ~ 2.77%, 07/12/05 25,762 25,762 ~ 2.55%, 07/20/05 20,000 20,000 ~ 2.60%, 07/21/05 9,830 9,830 ~ 2.52%, 08/03/05 17,000 17,000 ~ 2.50%, 08/08/05 12,800 12,800 ~ 2.52%, 08/08/05 13,000 13,000 ~ 2.49%, 08/11/05 25,000 25,000 ~ 2.80%, 07/14/05 5,915 5,915 Various Purpose GO Bonds +~@ 2.30%, 07/07/05 4,810 4,810 +~@/ 2.30%, 07/07/05 11,575 11,575 +~@ 2.31%, 07/07/05 7,680 7,680
10 See financial notes. SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) CALIFORNIA ALTERNATIVE ENERGY SOURCE FINANCING AUTH @ Cogeneration Facility RB Series 1993B 2.25%, 07/07/05 13,360 13,360 CALIFORNIA DEPT OF WATER RESOURCES Power Supply RB Series 2002A +~@ 2.30%, 07/07/05 12,835 12,835 +~@/= 2.30%, 07/07/05 34,740 34,740 +~@ 2.38%, 07/07/05 6,325 6,325 +@ Power Supply RB Series 2002B-1 2.22%, 07/01/05 2,135 2,135 +@ Power Supply RB Series 2002B-3 2.15%, 07/01/05 5,400 5,400 +@ Power Supply RB Series 2002B-4 2.15%, 07/01/05 8,100 8,100 +@ Power Supply RB Series 2002B-6 2.20%, 07/01/05 700 700 +@ Power Supply RB Series 2002C-1 2.25%, 07/07/05 35,000 35,000 +@ Power Supply RB Series 2002C-10 2.45%, 07/07/05 18,040 18,040 +@ Power Supply RB Series 2002C-11 2.19%, 07/07/05 3,100 3,100 +@ Power Supply RB Series 2002C-14 2.25%, 07/07/05 2,010 2,010 +@ Power Supply RB Series 2002C-17 2.35%, 07/07/05 9,000 9,000 +~@ Power Supply RB Series 2002C-2 2.25%, 07/07/05 23,800 23,800 +@ Power Supply RB Series 2002C-4 2.35%, 07/07/05 114,350 114,350 +~@ Power Supply RB Series 2002C-7 2.22%, 07/07/05 23,600 23,600 +~@/ Water Refunding RB (Big Bear Lake) Series 1996 2.30%, 07/07/05 8,445 8,445 CALIFORNIA ECONOMIC DEVELOPMENT FINANCING AUTH +@ Airport Facilities RB (Mercury Air Group) Series 1998 2.30%, 07/07/05 13,500 13,500 +@ IDRB (Calco) Series 1997 2.31%, 07/07/05 480 480 +@ IDRB (Gaiser Tool Co) Series 1997 2.31%, 07/07/05 1,660 1,660 +@ IDRB (Lion Raisins) Series 1998 2.30%, 07/07/05 1,055 1,055 CALIFORNIA EDUCATIONAL FACILITIES AUTH ~@/ RB (California Institute of Technology) Series 2003A 2.31%, 07/07/05 5,655 5,655 +@ RB (Chapman University) Series 2000 2.43%, 07/07/05 4,600 4,600 +@ RB (University of Judaism) Series 1998A 2.30%, 07/07/05 5,200 5,200 +~@/ RB (University of San Francisco) Series 1996 2.28%, 07/07/05 8,995 8,995 ~@/ RB (University of Southern California) Series 2003C 2.28%, 07/07/05 10,795 10,795 CALIFORNIA HEALTH FACILITIES FINANCING AUTH +~@ Insured RB (Catholic Healthcare West) Series 1988A 2.53%, 07/07/05 4,200 4,200 +~@/ RB (Kaiser Permanente) Series 1998A 2.31%, 07/07/05 9,995 9,995 CALIFORNIA HFA +~/ Home Mortgage RB Series 1998J 2.20%, 07/07/05 1,550 1,550
See financial notes. 11 SCHWAB CALIFORNIA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +~@ Home Mortgage RB Series 2000N 2.28%, 07/07/05 29,775 29,775 +~@ Home Mortgage RB Series 2001J 2.36%, 07/01/05 25,320 25,320 +~@ Home Mortgage RB Series 2001R 2.38%, 07/01/05 6,600 6,600 +~@ Home Mortgage RB Series 2002F 2.23%, 07/01/05 58,130 58,130 +~@ Home Mortgage RB Series 2002J 2.36%, 07/01/05 46,095 46,095 +~@ Home Mortgage RB Series 2002P 2.40%, 07/07/05 61,000 61,000 +~@ Home Mortgage RB Series 2003D 2.28%, 07/07/05 13,800 13,800 +~@ Home Mortgage RB Series 2003H 2.28%, 07/07/05 49,895 49,895 ~@ Home Mortgage RB Series 2003K 2.45%, 07/07/05 60,110 60,110 Home Mortgage RB Series 2003M ~@ 2.28%, 07/07/05 34,500 34,500 ~@ 2.23%, 09/28/05 9,220 9,220 ~@ Home Mortgage RB Series 2005A 2.28%, 07/07/05 18,000 18,000 ~@ Home Mortgage RB Series 2005B 2.38%, 07/01/05 53,080 53,080 ~@ M/F Housing RB III Series 2001G 2.40%, 07/07/05 56,720 56,720 ~@ M/F Housing RB III Series 2002A 2.29%, 07/07/05 38,850 38,850 ~@ M/F Housing RB III Series 2002E 2.29%, 07/07/05 45,610 45,610 +~@ M/F Housing RB III Series 2005B 2.54%, 07/07/05 67,395 67,395 ~@/ S/F Mortgage Bonds II Series 1997C-4 2.31%, 07/07/05 950 950 +~@ S/F Mortgage RB Draw Down Series 2004B-1 2.35%, 07/07/05 30,000 30,000 S/F Mortgage RB Draw Down Series 2004B-2 +~@= 2.35%, 07/07/05 31,930 31,930 ~@ 2.35%, 07/07/05 23,545 23,545 +~@ S/F Mortgage RB Series 2004B-1 2.35%, 07/07/05 28,085 28,085 +~@/= S/F Mortgage RB Series 2004B-2 2.35%, 07/07/05 52,560 52,560 CALIFORNIA INFRASTRUCTURE & ECONOMIC DEVELOPMENT BANK + Bay Area Toll Bridges Seismic Retrofit Revenue Notes Second Lien CP Series 2005 2.65%, 07/21/05 3,300 3,300 +@ IDRB (American-De Rosa Lamp Arts) Series 1999 2.36%, 07/07/05 4,950 4,950 +@ IDRB (Fairmont Sign Co) Series 2000A 2.45%, 07/07/05 4,250 4,250 +@ IDRB (Lafayette Textile Industries) Series 1999 2.36%, 07/07/05 595 595 +@ IDRB (Nelson Name Plate Co) Series 1999 2.57%, 07/07/05 2,950 2,950 +@ IDRB (Roller Bearing Co) Series 1999 2.55%, 07/07/05 2,400 2,400 +@ RB (Buck Institute For Age Research) Series 2001 2.16%, 07/07/05 8,500 8,500 +@ RB (SRI International) Series 2003A 2.28%, 07/07/05 4,000 4,000
12 See financial notes. SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) CALIFORNIA POLLUTION CONTROL FINANCE AUTH Pollution Control Refunding RB (PG & E Co) Series 1996A +~@/ 2.32%, 07/07/05 34,115 34,115 +~@/ 2.33%, 07/07/05 10,760 10,760 +@ Pollution Control Refunding RB (PG & E Co) Series 1996F 2.23%, 07/01/05 42,050 42,050 +@ Resource Recovery RB (Sanger) Series 1990A 2.31%, 07/07/05 19,200 19,200 +@ Resource Recovery RB (Wadham Energy) Series 1987B 2.21%, 07/07/05 2,800 2,800 +@ Solid Waste Disposal RB (Ag Resources III) Series 2004 2.36%, 07/07/05 2,790 2,790 +@ Solid Waste Disposal RB (Agrifab) Series 2003 2.36%, 07/07/05 2,900 2,900 +@ Solid Waste Disposal RB (Alameda County Industries) Series 2000A 2.36%, 07/07/05 3,375 3,375 +@ Solid Waste Disposal RB (Athens Disposal Co) Series 1995A 2.36%, 07/07/05 8,900 8,900 +@ Solid Waste Disposal RB (Athens Disposal Co) Series 1999A 2.36%, 07/07/05 5,700 5,700 +@ Solid Waste Disposal RB (Athens Services) Series 2001A 2.36%, 07/07/05 3,700 3,700 +@ Solid Waste Disposal RB (Atlas Disposal Industries) Series 1999A 2.36%, 07/07/05 3,000 3,000 +@ Solid Waste Disposal RB (BLT Enterprises of Fremont) Series 2005A 2.46%, 07/07/05 7,280 7,280 +@ Solid Waste Disposal RB (BLT Enterprises of Sacramento) Series 1999A 2.36%, 07/07/05 6,500 6,500 +@ Solid Waste Disposal RB (Blue Line Transfer) Series 1999A 2.36%, 07/07/05 4,300 4,300 +@ Solid Waste Disposal RB (Blue Line Transfer) Series 2001A 2.36%, 07/07/05 4,400 4,400 +@ Solid Waste Disposal RB (Burrtec Waste Group) Series 2004 2.36%, 07/07/05 1,985 1,985 +@ Solid Waste Disposal RB (Burrtec Waste Industries) Series 1997B 2.36%, 07/07/05 3,200 3,200 +@ Solid Waste Disposal RB (CR&R Inc) Series 2000A 2.39%, 07/07/05 2,860 2,860 +@ Solid Waste Disposal RB (CR&R Inc) Series 2002A 2.39%, 07/07/05 3,900 3,900 +~/ Solid Waste Disposal RB (Cal-San) Series 1996B 2.36%, 07/07/05 1,750 1,750 +@ Solid Waste Disposal RB (California Waste Solutions) Series 2002A 2.36%, 07/07/05 3,570 3,570 +@ Solid Waste Disposal RB (California Waste Solutions) Series 2004A 2.36%, 07/07/05 8,350 8,350 +@ Solid Waste Disposal RB (Cheese & Protein International) Series 2001A 2.33%, 07/07/05 10,000 10,000 +@ Solid Waste Disposal RB (Cold Canyon Landfill) Series 1998A 2.36%, 07/07/05 5,845 5,845 +@ Solid Waste Disposal RB (Contra Costa Waste Service) Series 1995A 2.36%, 07/07/05 2,000 2,000
See financial notes. 13 SCHWAB CALIFORNIA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ Solid Waste Disposal RB (EDCO Disposal Corp) Series 1996A 2.36%, 07/07/05 13,950 13,950 +@ Solid Waste Disposal RB (EDCO Disposal Corp) Series 2004A 2.36%, 07/07/05 22,200 22,200 +@ Solid Waste Disposal RB (Escondido Disposal/Jemco Equipment Corp) Series 1998A 2.46%, 07/07/05 7,845 7,845 +@ Solid Waste Disposal RB (Federal Disposal Service) Series 2001A 2.41%, 07/07/05 1,950 1,950 +@ Solid Waste Disposal RB (Greenteam of San Jose) Series 2001A 2.36%, 07/07/05 10,900 10,900 +@ Solid Waste Disposal RB (Greenwaste of Tehama) Series 1999A 2.36%, 07/07/05 1,175 1,175 +@ Solid Waste Disposal RB (Madera Disposal Systems Inc) Series 1998A 2.36%, 07/07/05 1,800 1,800 +@ Solid Waste Disposal RB (Marborg Industries) Series 2000A 2.36%, 07/07/05 4,170 4,170 +@ Solid Waste Disposal RB (Metropolitan Recycling Corp) Series 2000B 2.41%, 07/07/05 3,190 3,190 +@ Solid Waste Disposal RB (Mottra Corp) Series 2002A 2.36%, 07/07/05 1,910 1,910 +@ Solid Waste Disposal RB (Napa Recycling & Waste Services) Series 2005A 2.46%, 07/07/05 5,260 5,260 +@ Solid Waste Disposal RB (Norcal Waste System) Series 2001 2.36%, 07/07/05 11,015 11,015 +@ Solid Waste Disposal RB (Norcal Waste System) Series 2002A 2.36%, 07/07/05 6,000 6,000 +@ Solid Waste Disposal RB (Norcal Waste System) Series 2003A 2.36%, 07/07/05 4,000 4,000 +@ Solid Waste Disposal RB (Orange Ave Disposal Co) Series 2002A 2.36%, 07/07/05 6,105 6,105 +@ Solid Waste Disposal RB (Ratto Group of Companies) Series 2001A 2.36%, 07/07/05 4,045 4,045 +@ Solid Waste Disposal RB (Sanco Services) Series 2002A 2.46%, 07/07/05 3,600 3,600 +@ Solid Waste Disposal RB (Santa Clara Valley Disposal) Series 2001A 2.36%, 07/07/05 5,135 5,135 +@ Solid Waste Disposal RB (Santa Clara Valley Industries) Series 1998A 2.41%, 07/07/05 2,100 2,100 +@ Solid Waste Disposal RB (Solag Disposal) Series 1997A 2.39%, 07/07/05 2,135 2,135 +@ Solid Waste Disposal RB (Specialty Solid Waste & Recycling) Series 2001A 2.41%, 07/07/05 2,280 2,280 +@ Solid Waste Disposal RB (Talco Plastics) Series 1997A 2.36%, 07/07/05 3,275 3,275 +@ Solid Waste Disposal RB (Tri-CED Community Recycling) Series 1998A 2.36%, 07/07/05 1,465 1,465 +@ Solid Waste Disposal RB (Valley Vista Services) Series 2003A 2.36%, 07/07/05 4,310 4,310
14 See financial notes. SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ Solid Waste Disposal RB (West Valley MRF) Series 1997A 2.46%, 07/07/05 3,260 3,260 +@ Solid Waste Disposal RB (Zanker Road Landfill) Series 1999C 2.41%, 07/07/05 5,420 5,420 +@ Solid Waste RB (CR&R Inc) Series 1995A 2.39%, 07/07/05 3,160 3,160 +@ Solid Waste RB (Greenteam of San Jose) Series 1997A 2.36%, 07/07/05 1,280 1,280 CALIFORNIA SCHOOL CASH RESERVE PROGRAM AUTH Pool Bonds Series 2004A += 1.60%, 07/06/05 81,000 81,015 += 1.89%, 07/06/05 12,525 12,527 += 1.94%, 07/06/05 40,000 40,006 += Pool Bonds Series 2005A 2.60%, 07/06/06 121,675 123,335 CALIFORNIA STATE PUBLIC WORKS BOARD +~@ Dept of Corrections Lease Refunding RB Series 2004E 2.31%, 07/07/05 7,100 7,100 +~@/ Lease RB (University of California) Series 1997C 2.31%, 07/07/05 10,900 10,900 +~@/ Lease RB Series 1999A 2.31%, 07/07/05 9,985 9,985 ~@/ Lease Revenue (University of California) Series 2005C 2.13%, 07/07/05 26,785 26,785 +~@/ Refunding Lease RB (Dept of Corrections) Series 1993A 2.31%, 07/07/05 3,000 3,000 CALIFORNIA STATE UNIVERSITY INSTITUTE + TECP Series A 2.68%, 08/08/05 5,545 5,545 CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTH +~@/ 2004 TRAN Series B-1 2.38%, 07/07/05 24,365 24,365 ~@= 2004 TRAN Series B-2 2.38%, 07/07/05 50,000 50,000 +~@/ COP (Sutter Health Related Group) 2.31%, 07/07/05 5,000 5,000 +@ IDRB (Biocol Investments) Series 1997B 2.50%, 07/07/05 1,405 1,405 +@ IDRB (Cowden Metal Stamping & Tooling) Series 1997A 2.50%, 07/07/05 1,145 1,145 +@ IDRB (Golden Valley Grape Juice & Wine) Series 1998 2.45%, 07/07/05 630 630 +@ IDRB (Integrated Rolling Co) Series 1999A 2.57%, 07/07/05 1,600 1,600 +@ IDRB (RL Group) Series 1998C 2.45%, 07/07/05 1,485 1,485 +@ M/F Housing RB (Agave at Elk Grove Apts) Series 2003DD 2.24%, 07/07/05 15,100 15,100 +@ M/F Housing RB (Bay Vista at Meadow Park Apts) Series 2003NN-1 2.27%, 07/07/05 15,000 15,000 +@ M/F Housing RB (Bay Vista at Meadow Park Apts) Series 2003NN-2 2.27%, 07/07/05 5,000 5,000 +@ M/F Housing RB (Creekside at Meadow Park Apts) Series 2002HH 2.24%, 07/07/05 10,135 10,135 +@ M/F Housing RB (Cypress Villa Apts) Series 2000F 2.24%, 07/07/05 4,725 4,725 +@ M/F Housing RB (Dublin Ranch Senior Apts) Series 2003OO 2.27%, 07/07/05 15,090 15,090 +@ M/F Housing RB (Emerald Gardens Apts) Series 2000E 2.24%, 07/07/05 7,320 7,320 +@ M/F Housing RB (Fairway Family Apts) Series 2003PP 2.27%, 07/07/05 30,000 30,000
See financial notes. 15 SCHWAB CALIFORNIA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ M/F Housing RB (Heritage Oaks Apts) Series 2004YY 2.24%, 07/07/05 7,000 7,000 +@ M/F Housing RB (Kimberly Woods Apts) Series 1995B 2.30%, 07/07/05 13,400 13,400 +@ M/F Housing RB (Las Flores Village Apts) Series 2004JJ 2.24%, 07/07/05 13,500 13,500 +@ M/F Housing RB (Laurel Park Senior Apts) Series 2002H 2.30%, 07/07/05 5,500 5,500 +@ M/F Housing RB (Los Padres Apts) Series 2003E 2.24%, 07/07/05 10,750 10,750 +@ M/F Housing RB (Marlin Cove Apts) Series 2000V 2.24%, 07/07/05 8,000 8,000 +@ M/F Housing RB (Oak Center Towers) Series 2005L 2.36%, 07/07/05 11,450 11,450 +@/ M/F Housing RB (Oakmont of Concord) Series 2002Q 2.33%, 07/07/05 25,000 25,000 +@ M/F Housing RB (Park David Senior Apts) Series 1999D 2.24%, 07/07/05 8,220 8,220 +@ M/F Housing RB (Plaza Club Apts) Series 1997A 2.28%, 07/07/05 10,290 10,290 +@ M/F Housing RB (Rancho Santa Fe Village Apts) Series 2004EE 2.35%, 07/07/05 13,000 13,000 +@ M/F Housing RB (Silvercrest Residence) Series 2003EEE 2.30%, 07/07/05 23,130 23,130 +@ M/F Housing RB (The Belmont) Series 2005F 2.24%, 07/07/05 10,500 10,500 +@ M/F Housing RB (The Fountains At Seacliff Apts) Series 2002Y 2.24%, 07/07/05 12,595 12,595 +@ M/F Housing RB (Valley Palms Apts) Series 2002C 2.24%, 07/07/05 12,000 12,000 +@ M/F Housing RB (Victoria Palm Villa Apts) Series 2003VV 2.29%, 07/07/05 34,000 34,000 +@ M/F Housing RB (Wilshire Court Apts) Series 2003M 2.24%, 07/07/05 15,000 15,000 +@ M/F Housing RB (Wilshire Court Apts) Series 2004AAA 2.24%, 07/07/05 5,000 5,000 +@ M/F Housing RB (Woodsong Apts) Series 1997B 2.25%, 07/07/05 3,227 3,227 +@ M/F Housing RB (Wyndover Apts) Series 2004LL 2.24%, 07/07/05 9,000 9,000 +@ RB (Elder Care Alliance) Series 2000 2.29%, 07/07/05 12,560 12,560 +~@ RB (Gemological Institute) Series 2001 2.22%, 07/07/05 8,910 8,910 +@ RB (Japanese American National Museum) Series 2000A 2.28%, 07/07/05 4,600 4,600 +@ RB (Jewish Federation Council of Greater Los Angeles) Series 2000A 2.36%, 07/07/05 3,600 3,600 @ RB (Kaiser Permanente) Series 2001B 1.75%, 07/05/05 31,500 31,500 RB (Kaiser Permanente) Series 2004K 2.58%, 07/20/05 27,000 27,000 +@ RB (Laurence School) Series 2003 2.30%, 07/07/05 3,950 3,950 +@ RB (National Public Radio) Series 2002 2.28%, 07/07/05 1,365 1,365 +@ RB (Painted Turtle) Series 2003 2.30%, 07/07/05 7,460 7,460 +@ Refunding RB (13th & I Associates) Series 1991 2.50%, 07/07/05 3,905 3,905 * TRAN Series 2005A-2 2.62%, 06/30/06 12,500 12,668 * TRAN Series 2005A-3 2.62%, 06/30/06 7,500 7,601
16 See financial notes. SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) TRAN Series 2005A-4 * 2.62%, 06/30/06 42,500 43,070 2.63%, 06/30/06 27,500 27,866 * 2.63%, 06/30/06 19,500 19,760 * TRAN Series 2005A-5 2.62%, 06/30/06 50,000 50,670 CARLSBAD +@ M/F Housing Refunding RB (Santa Fe Ranch Apts) Series 1993A 2.29%, 07/07/05 14,400 14,400 CENTRAL UNIFIED SD +~@/ GO Refunding Bonds Series 2005 2.32%, 07/07/05 11,855 11,855 CLOVIS UNIFIED SD * 2005 TRAN 2.74%, 07/05/06 19,000 19,232 CONTRA COSTA CNTY +@ M/F Mortgage RB (El Cerrito Royale) Series 1987A 2.30%, 07/07/05 2,480 2,480 DAVIS COMMUNITY FACILITIES DIST 1992-2 +@ Special Tax Bonds (East Davis Mace Ranch Area II) Series 2000 2.28%, 07/07/05 3,100 3,100 DIAMOND BAR PUBLIC FINANCING AUTH +@ Lease RB (Community Center) Series 2002A 2.40%, 07/07/05 5,755 5,755 DUBLIN HOUSING AUTH +@ M/F Housing RB (Park Sierra At Iron Horse Trail) Series 1998A 2.28%, 07/07/05 14,900 14,900 EAST BAY MUNICIPAL UTILITY DIST +~@ Wastewater System Subordinated Refunding RB Series 2005-2 2.35%, 07/07/05 5,000 5,000 +~@ Water System Subordinated Refunding RB Series 2005B-3 2.35%, 07/07/05 5,000 5,000 Water System TECP ~ 2.73%, 07/05/05 10,800 10,800 ~ 2.37%, 07/06/05 25,000 25,000 ~ 2.75%, 07/07/05 36,500 36,500 ~ 2.40%, 07/19/05 17,800 17,800 ~ 2.45%, 08/01/05 13,000 13,000 EAST SIDE UNION HIGH SD +~@/ GO Refunding Bonds Series 2003B 2.30%, 07/07/05 24,025 24,025 EL CAJON REDEVELOPMENT AGENCY +@ M/F Housing RB (Park- Mollison & Madison Apts) Series 1998 2.28%, 07/07/05 4,900 4,900 EL CAMINO COMMUNITY COLLEGE DIST +~@/ GO Bonds Series 2003A 2.31%, 07/07/05 16,100 16,100 EMERYVILLE REDEVELOPMENT AGENCY +@ M/F Housing RB (Bay St Apts) Series 2002A 2.28%, 07/07/05 33,215 33,215 EVERGREEN ELEMENTARY SD +~@/ 2005 GO Refunding Bonds 2.30%, 07/07/05 16,230 16,230 FILLMORE PUBLIC FINANCING AUTH +@ RB (Central City Redevelopment Area) Series 2003A 2.32%, 07/07/05 2,585 2,585 FOOTHILL-DE ANZA COMMUNITY COLLEGE DIST ~@/ GO Bonds Series A 2.31%, 07/07/05 9,970 9,970 FRESNO IDA +@ IDRB (Keiser Corp) Series 1997 2.36%, 07/07/05 1,500 1,500
See financial notes. 17 SCHWAB CALIFORNIA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) HAYWARD +@ M/F Housing RB (Lord Tennyson Apts) Series 2005A 2.32%, 07/07/05 13,915 13,915 +@ M/F Housing RB (Shorewood Apts) Series 1984A 2.29%, 07/07/05 12,100 12,100 HAYWARD HOUSING AUTH +@ M/F Mortgage Refunding RB (Huntwood Terrace Apts) Series 1993A 2.54%, 07/07/05 5,255 5,255 HERCULES PUBLIC FINANCING AUTH +@ Lease RB Series 2003A 2.30%, 07/07/05 7,000 7,000 HERCULES REDEVELOPMENT AGENCY +@ IDRB (Pro Media) Series 2000A 2.55%, 07/07/05 2,500 2,500 HUNTINGTON BEACH +@ M/F Housing RB (Five Points Seniors) Series 1991A 2.28%, 07/07/05 9,500 9,500 HUNTINGTON PARK REDEVELOPMENT AGENCY +@ M/F Housing RB (Casa Rita Apts) Series 1994A 2.28%, 07/07/05 4,950 4,950 IRVINE ASSESSMENT DIST NO.04-20 +@ Limited Obligation Improvement Bonds Series A 2.20%, 07/07/05 24,400 24,400 IRVINE ASSESSMENT DIST NO.87-8 +@ Limited Obligation Improvement Bonds Series 1999 2.20%, 07/01/05 200 200 KERN CNTY +@ COP Series 1986A 2.20%, 07/07/05 700 700 LA QUINTA FINANCING AUTH +~@/ Local Agency RB Series 2004A 2.30%, 07/07/05 6,320 6,320 LIVERMORE REDEVELOPMENT AGENCY +@ M/F Housing Refunding RB (Livermore Senior Housing Apts) Series 2002A 2.35%, 07/01/05 4,350 4,350 LONG BEACH +~@ Harbor Refunding RB Series 2005A 2.33%, 07/07/05 8,220 8,220 LONG BEACH HARBOR DEPT +~@/ Harbor Refunding RB Series 2005A 2.33%, 07/07/05 2,560 2,560 LONG BEACH HARBOR FACILITIES CORP +~@ Harbor RB Series 2002A 2.26%, 07/07/05 25,210 25,210 Harbor TECP Series A ~ 2.88%, 07/08/05 9,000 9,000 ~ 2.50%, 08/04/05 28,750 28,750 LONG BEACH HOUSING AUTH +@ M/F Housing Refunding RB (Channel Point Apts) Series 1998A 2.20%, 07/07/05 7,000 7,000 LOS ANGELES +~@ GO Bonds Series 2004A 2.30%, 07/07/05 9,000 9,000 +~@/ GO Refunding Bonds Series 1998A 2.30%, 07/07/05 4,150 4,150 +@ M/F Housing RB (Beverly Park Apts) Series 1988A 2.24%, 07/07/05 34,000 34,000 +@ M/F Housing RB (Channel Gateway Apts) Series 1989B 2.28%, 07/07/05 47,700 47,700 +@ M/F Housing RB (Fountain Park Phase II) Series 2000B 2.20%, 07/07/05 14,185 14,185 +@ M/F Housing RB (Fountain Park) Series 1999P 2.20%, 07/07/05 20,000 20,000 +@ M/F Housing RB Series 1985K 2.32%, 07/07/05 852 852
18 See financial notes. SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ M/F Housing Refunding RB (Tri-City) Series 2001I 2.20%, 07/07/05 600 600 Wastewater System TECP ~= 2.37%, 07/11/05 34,000 34,000 ~= 2.43%, 07/13/05 51,875 51,875 LOS ANGELES AIRPORT DEPT TECP (Los Angeles International Airport) Series A + 2.75%, 07/07/05 6,700 6,700 Series B + 2.77%, 07/07/05 6,800 6,800 LOS ANGELES CNTY = 2005-06 TRAN Series A 2.54%, 06/30/06 94,750 96,095 LOS ANGELES CNTY CAPITAL ASSET LEASING CORP + Lease Revenue TECP 2.37%, 07/06/05 25,710 25,710 2.85%, 07/07/05 17,860 17,860 2.43%, 07/13/05 21,300 21,300 2.45%, 07/08/05 21,500 21,500 LOS ANGELES CNTY METROPOLITAN TRANSPORTATION AUTH +~@/ Sales Tax RB Series 1997A 2.31%, 07/07/05 23,830 23,830 Second Subordinate Sales Tax Revenue TECP Series A + 2.45%, 07/06/05 35,193 35,193 + 2.87%, 07/06/05 26,154 26,154 + 2.37%, 07/07/05 20,000 20,000 + 2.45%, 07/07/05 25,267 25,267 + 2.75%, 07/08/05 18,000 18,000 += 2.53%, 08/08/05 38,684 38,684 +~@/ Sr Sales Tax RB Series 2001A 2.31%, 07/07/05 12,600 12,600 +~@/ Sr Sales Tax Refunding RB Series 2001B 2.31%, 07/07/05 24,750 24,750 LOS ANGELES COMMUNITY REDEVELOPMENT AGENCY +@ M/F Housing RB (Metropolitan Lofts Apts) Series 2002A 2.27%, 07/07/05 17,750 17,750 +@ M/F Housing RB (Wilshire Station Apt) Series 2003A 2.35%, 07/01/05 4,300 4,300 LOS ANGELES DEPT OF WATER & POWER +~@/ Power System RB Series 2001A 2.31%, 07/07/05 24,750 24,750 Power System RB Series 2001A-1 +~@/ 2.31%, 07/07/05 15,000 15,000 ~@ 2.32%, 07/07/05 7,120 7,120 ~@ Power System RB Series 2001B-3 2.22%, 07/01/05 3,670 3,670 Power System Revenue CP Notes ~= 2.85%, 07/12/05 40,000 40,000 ~ 2.40%, 08/10/05 4,000 4,000 ~ 2.40%, 09/06/05 8,000 8,000 ~ 2.50%, 09/07/05 35,000 35,000 +~@/ Water System RB Series 2001A 2.28%, 07/07/05 12,707 12,707 +~@/ Water Works RB Series 1999 2.31%, 07/07/05 22,090 22,090 LOS ANGELES HARBOR DEPT ~ TECP Series B 2.43%, 07/19/05 20,661 20,661 2.63%, 07/01/05 11,282 11,282 2.77%, 07/05/05 10,100 10,100 2.80%, 07/08/05 10,072 10,072 LOS ANGELES MUNICIPAL IMPROVEMENT CORP Lease Revenue TECP Series A-1 + 2.73%, 07/08/05 21,981 21,981 + 2.40%, 08/10/05 13,800 13,800 LOS ANGELES UNIFIED SD 2004-2005 TRAN Series A ~@= 2.38%, 07/07/05 59,500 59,500 ~@/= 2.38%, 07/07/05 79,800 79,800 +~@ GO Bonds Election of 2002 Series 2003A 2.31%, 07/07/05 20,810 20,810 +~@/ GO Bonds Series 1999C 2.31%, 07/07/05 16,400 16,400
See financial notes. 19 SCHWAB CALIFORNIA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) LOS ANGELES WASTEWATER SYSTEM +~@/ RB Series 1998A 2.31%, 07/07/05 17,000 17,000 +~@ Refunding RB Series 2002A 2.31%, 07/07/05 12,245 12,245 M-S-R PUBLIC POWER AGENCY +~@ Subordinate Lien RB (San Juan) Series 1997E 2.20%, 07/07/05 6,500 6,500 MADERA CNTY +@ Lease RB (Madera Municipal Golf Course Refinancing) Series 1993 2.24%, 07/07/05 3,050 3,050 MARTINEZ +@ M/F Housing Refunding RB (Muirwood Garden Apts) Series 2003A 2.23%, 07/07/05 6,800 6,800 MT SAN ANTONIO COMMUNITY COLLEGE DIST +~@/ GO Bonds 2001 Election Series 2004B 2.31%, 07/07/05 13,140 13,140 MT SAN JACINTO WINTER PARK AUTH +@ COP (Palm Springs Aerial Tramway) Series 1998 2.28%, 07/07/05 3,300 3,300 +@ COP (Palm Springs Aerial Tramway) Series 2000B 2.28%, 07/07/05 2,900 2,900 OAKLAND +~@/ Insured RB (180 Harrison Foundation) Series 1999A 2.31%, 07/07/05 4,500 4,500 OCEANSIDE +@ M/F Mortgage RB (Riverview Springs Apts) Series 1990A 2.28%, 07/07/05 11,970 11,970 ORANGE CNTY +@ Apt Development Refunding RB (Villas Aliento) Series 1998E 2.25%, 07/07/05 4,500 4,500 +@ COP (Florence Crittenton Services) Series 1990 2.16%, 07/07/05 4,900 4,900 ORANGE CNTY LOCAL TRANSPORTATION AUTH + Sales Tax Revenue TECP 2.48%, 08/08/05 30,500 30,500 ORANGE CNTY SANITATION DIST +~@/ COP Series 2003 2.28%, 07/07/05 2,132 2,132 PALO ALTO UNIFIED SD ~@/ GO Bonds Series B 2.31%, 07/07/05 6,000 6,000 PETALUMA CITY (ELEMENTARY) SD * 2005 TRAN 2.58%, 07/06/06 4,020 4,075 PETALUMA COMMUNITY DEVELOPMENT COMMISSION +@ M/F Housing RB (Oakmont) Series 1996A 2.30%, 07/07/05 3,350 3,350 PINOLE REDEVELOPMENT AGENCY +@ M/F Housing RB (East Bluff Apts) Series 1998A 2.35%, 07/07/05 4,959 4,959 PITTSBURG REDEVELOPMENT AGENCY +~@ Subordinate Tax Allocation Bonds (Los Medanos Community Development) Series 2004A 2.25%, 07/07/05 2,000 2,000 PLEASANT HILL +@ M/F Mortgage RB (Brookside Apts) Series 1988A 2.20%, 07/07/05 4,300 4,300 PLEASANTON +@ M/F Housing RB (Busch Senior Housing) Series 2003A 2.24%, 07/07/05 13,360 13,360 PORT OF OAKLAND CP Notes Series D + 2.80%, 07/08/05 38,213 38,213 + 2.35%, 07/12/05 24,000 24,000
20 See financial notes. SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) RB Series 2000K +~@ 2.33%, 07/07/05 4,690 4,690 +~@/ 2.33%, 07/07/05 18,370 18,370 +~@/ 2.36%, 07/07/05 15,000 15,000 REDWOOD CITY +@ COP (City Hall) Series 1998 2.30%, 07/07/05 3,070 3,070 RICHMOND +@ M/F Housing RB (Baycliff Apts) Series 2004A 2.24%, 07/07/05 28,800 28,800 RIVERSIDE CNTY + Transportation Commission CP Notes (Limited Tax Bonds) 2.80%, 07/08/05 10,904 10,904 RIVERSIDE CNTY HOUSING AUTH +@ M/F Housing RB (Victoria Springs Apts) Series 1989C 2.28%, 07/07/05 9,000 9,000 +@ M/F Housing Refunding RB (Tyler Springs Apts) Series 1999C 2.20%, 07/07/05 8,300 8,300 ROSEVILLE JOINT UNION HIGH SD +~@ COP Series 2003 2.30%, 07/07/05 5,935 5,935 SACRAMENTO CNTY 2004 TRAN Series A 1.65%, 07/11/05 35,000 35,013 +@ Special Facilities Airport RB (Cessna Aircraft Co) Series 1998 2.29%, 07/07/05 3,300 3,300 SACRAMENTO CNTY HOUSING AUTH +@ M/F Housing RB (Carlton Plaza Senior Apts) Series 2003E 2.33%, 07/07/05 14,000 14,000 +@ M/F Housing RB (Hastings Park Apts) Series 2004G 2.24%, 07/07/05 16,500 16,500 +@ M/F Housing RB (Hidden Oaks Apts) Series 1999C 2.24%, 07/07/05 6,300 6,300 +@ M/F Housing Refunding RB (Chesapeake Commons Apts) Series 2001C 2.28%, 07/07/05 28,000 28,000 SACRAMENTO CNTY SANITATION DIST FINANCING AUTH +~@/ RB (District #1) Series 2005 2.28%, 07/07/05 15,580 15,580 ~@/ RB Series 2000A 2.30%, 07/07/05 6,090 6,090 SACRAMENTO HOUSING AUTH +@ M/F Housing RB (Atrium Court Apts) Series 2002G 2.24%, 07/07/05 17,200 17,200 +@ M/F Housing RB (St Anton Building Apts) Series 2003I 2.24%, 07/07/05 8,000 8,000 SACRAMENTO MUNICIPAL UTILITY DIST += CP Notes Series I 2.48%, 08/11/05 48,000 48,000 SACRAMENTO REDEVELOPMENT AGENCY +@ M/F Housing RB (18th & L Apts) Series 2002E 2.24%, 07/07/05 21,075 21,075 SACRAMENTO UNIFIED SD 2004-05 TRAN 2.05%, 11/30/05 10,000 10,059 SAN BERNARDINO CNTY +~@ COP (Medical Center) Series 1998 2.10%, 07/07/05 2,000 2,000 SAN DIEGO CNTY & SD TRAN Note Participations Series 2004A = 1.58%, 07/25/05 15,000 15,016 = 1.59%, 07/25/05 102,600 102,710 * TRAN Note Participations Series 2005A 2.58%, 07/14/06 45,000 45,644 SAN DIEGO HOUSING AUTH +@ M/F Housing RB (Delta Village Apts) Series 2005A 2.35%, 07/07/05 9,000 9,000
See financial notes. 21 SCHWAB CALIFORNIA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ M/F Housing RB (Hillside Garden Apts) Series 2004B 2.24%, 07/07/05 13,595 13,595 +@ M/F Mortgage Refunding RB (Creekside Villa Apts) Series 1999B 2.28%, 07/07/05 6,000 6,000 SAN DIEGO UNIFIED SD 2004-2005 TRAN Series A 1.59%, 07/25/05 75,000 75,068 * 2005-2006 TRAN Series A 2.64%, 07/24/06 60,000 60,844 +~/ GO Bonds Series 2002D 2.31%, 07/07/05 12,280 12,280 +~@/ GO Bonds Series 2003E 2.31%, 07/07/05 21,665 21,665 SAN FRANCISCO AIRPORTS COMMISSION +~@/ Second Series RB Series 18B 2.28%, 07/07/05 16,255 16,255 +~@/ Second Series RB Series 24A 2.35%, 07/07/05 12,670 12,670 SAN FRANCISCO CITY & CNTY +~@ GO Bonds (Laguna Honda Hospital, 1999) Series 2005D 2.20%, 07/07/05 3,100 3,100 +@ M/F Housing RB (Carter Terrace Apts) Series 2002B 2.34%, 07/07/05 7,000 7,000 +@ M/F Housing Refunding RB (City Heights Apts) Series 1997A 2.30%, 07/07/05 19,800 19,800 SAN FRANCISCO CITY & CNTY HOUSING AUTH +@ M/F Housing Refunding RB (Valencia Gardens) Series 2004 2.28%, 07/07/05 20,000 20,000 SAN FRANCISCO CITY & CNTY REDEVELOPMENT AGENCY +@ M/F Housing RB (Derek Silva Community) Series 2002D 2.34%, 07/07/05 5,900 5,900 +@ M/F Housing RB (Ocean Beach Apts) Series 2001B 2.33%, 07/07/05 7,135 7,135 +@ M/F Housing Refunding RB (Fillmore Center) Series 1992A2 2.31%, 07/07/05 3,750 3,750 SAN FRANCISCO CNTY TRANSPORTATION AUTH CP Notes Series A & B ~ 2.37%, 07/06/05 20,000 20,000 ~ 2.37%, 07/07/05 7,500 7,500 ~ 2.45%, 07/08/05 25,000 25,000 ~ 2.85%, 07/12/05 12,500 12,500 ~ 2.84%, 07/13/05 10,000 10,000 SAN FRANCISCO UNIFIED SD = 2004 TRAN 2.06%, 12/01/05 37,500 37,722 SAN GABRIEL VALLEY COUNCIL OF GOVERNMENTS GAN (Alameda Corridor Transportation) + 2.75%, 07/08/05 12,100 12,100 + 2.37%, 07/12/05 25,300 25,300 SAN JOAQUIN CNTY TRANSPORTATION AUTH + Sales Tax Revenue TECP 2.87%, 07/12/05 7,000 7,000 SAN JOSE +~@/ GO Bonds (Libraries, Parks & Public Safety) Series 2002 2.28%, 07/07/05 11,223 11,223 +@ M/F Housing RB (Almaden Family Apts) Series 2003D 2.24%, 07/07/05 5,000 5,000 +@ M/F Housing RB (Almaden Lake Village Apts) Series 1997A 2.28%, 07/07/05 20,400 20,400 +@ M/F Housing RB (Betty Anne Gardens Apts) Series 2002A 2.28%, 07/07/05 7,510 7,510 +@ M/F Housing RB (El Paseo Apts) Series 2002B 2.28%, 07/07/05 5,145 5,145 +@ M/F Housing RB (Raintree Apts) Series 2005A 2.34%, 07/07/05 10,500 10,500
22 See financial notes. SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) +@ M/F Housing RB (Siena at Renaissance Square Apts) Series 1996A 2.24%, 07/07/05 21,500 21,500 SAN JOSE FINANCING AUTH +~@ Lease RB (Land Acquisition) Series 2005B 2.30%, 07/07/05 12,845 12,845 SAN JOSE REDEVELOPMENT AGENCY +@ M/F Housing RB (101 San Fernando Apts) Series 1998A 2.33%, 07/07/05 38,000 38,000 +@ Merged Area Redevelopment Project Subordinate Housing Tax Allocation Bonds Series 2005C 2.30%, 07/07/05 16,575 16,575 +@ Merged Area Redevelopment Project Subordinate Housing Tax Allocation Bonds Series 2005D 2.30%, 07/07/05 10,000 10,000 SAN MARCOS REDEVELOPMENT AGENCY +@ M/F Housing RB (Grandon Village) Series 2002A 2.35%, 07/07/05 13,500 13,500 SANTA BARBARA CNTY 2004-2005 TRAN Series A 1.57%, 07/26/05 7,375 7,382 * 2005-2006 TRAN Series A 2.64%, 07/25/06 28,500 28,905 SANTA CRUZ CNTY 2004-2005 TRAN Series A 1.62%, 07/06/05 10,000 10,002 SANTA FE SPRINGS IDA +@ IDRB (Tri-West) Series 1983 2.85%, 07/30/05 4,000 4,000 SANTA ROSA +@ Wastewater Refunding RB Series 2004A 2.30%, 07/07/05 23,000 23,000 SANTA ROSA HOUSING AUTH +@ M/F Housing RB (Quail Run Apts) Series 1997A 2.35%, 07/07/05 8,380 8,380 SIERRA JOINT COMMUNITY COLLEGE DIST +~@ School Facilities Improvement Dist No.1 & 2 Election of 2004 GO Bonds Series A 2.30%, 07/07/05 12,460 12,460 SOUTH PLACER WASTEWATER AUTH +~@ Wastewater RB Series B 2.16%, 07/07/05 5,200 5,200 SOUTH SAN FRANCISCO +@ M/F Housing RB (Magnolia Plaza Apts) Series 1987A 2.31%, 07/07/05 5,500 5,500 SOUTHERN CALIFORNIA HOME FINANCING AUTH ~@ S/F Mortgage RB Series 2004A 2.29%, 07/07/05 24,800 24,800 ~@ S/F Mortgage RB Series 2004B 2.29%, 07/07/05 15,980 15,980 SOUTHERN CALIFORNIA METROPOLITAN WATER DIST ~@/ Water RB Series 1999A 2.31%, 07/07/05 18,500 18,500 ~@ Water RB Series 2000B-3 2.30%, 07/01/05 1,000 1,000 ~@ Water RB Series 2001C-2 2.12%, 07/01/05 23,900 23,900 ~@ Water Refunding RB Series 2001B-1 2.20%, 07/07/05 3,000 3,000 ~@ Water Refunding RB Series 2001B-2 2.50%, 07/07/05 4,900 4,900 ~@ Water Refunding RB Series 2002A 2.22%, 07/07/05 6,255 6,255 ~@ Water Refunding RB Series 2003C-2 2.20%, 07/07/05 36,300 36,300
See financial notes. 23 SCHWAB CALIFORNIA MUNICIPAL MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) ~@ Water Refunding RB Series 2003C-3 2.21%, 07/07/05 27,910 27,910 SOUTHERN CALIFORNIA PUBLIC POWER AUTH +~@/ San Juan Power Refunding RB (San Juan Unit 3) Series 2005A 2.31%, 07/07/05 6,250 6,250 STOCKTON +@ Arch Road East Community Facilities Dist No.99-02 Special Tax Bonds Series 1999 2.28%, 07/07/05 1,255 1,255 SUNNYVALE +~@ COP (Government Center Site Acquisition) Series 2001A 2.22%, 07/07/05 6,695 6,695 SWEETWATER UNION HIGH SD +~@ Special Tax RB Series 2005A 2.31%, 07/07/05 8,955 8,955 UNION CITY +@ M/F Housing Refunding RB (Greenhaven Apts) Series 1997A 2.20%, 07/07/05 7,975 7,975 UNIVERSITY OF CALIFORNIA General RB Series 2003A +~@ 2.30%, 07/07/05 9,005 9,005 +~@/ 2.30%, 07/07/05 8,265 8,265 ~@/ RB (Multiple Purpose) Series K 2.31%, 07/07/05 19,430 19,430 +~@/ RB (Multiple Purpose) Series O 2.28%, 07/07/05 7,495 7,495 TECP Series A 2.52%, 07/21/05 12,545 12,545 2.43%, 07/07/05 13,200 13,200 VAL VERDE UNIFIED SD +@ COP (Land Bank) Series 2004A 2.25%, 07/07/05 2,600 2,600 VENTURA CNTY 2004-05 TRAN 1.60%, 07/01/05 60,000 60,000 * 2005-06 TRAN 2.54%, 07/03/06 50,000 50,716 VICTOR VALLEY COMMUNITY COLLEGE DIST +@ COP Series 1997 2.32%, 07/07/05 50,475 50,475 WEST SACRAMENTO COMMUNITY FACILITIES DIST NO.6 +@ Special Tax Bonds Series 1997A 2.38%, 07/07/05 780 780 WESTERN PLACER UNIFIED SD +@ COP (School Facilities) Series 2003 2.30%, 07/07/05 9,000 9,000 WESTMINISTER REDEVELOPMENT AGENCY +~@ Commercial Redevelopment Project No.1 Tax Allocation Refunding RB Series 1997 2.30%, 07/07/05 1,500 1,500 +@ M/F Housing RB (Brookhurst Royale Senior Assisted Living) Series 2000A 2.40%, 07/07/05 7,700 7,700 WESTMINSTER +~@ COP (Civic Center Refunding) Series 1998A 2.30%, 07/07/05 3,175 3,175 ----------- 7,311,194 PUERTO RICO 2.7% PUERTO RICO +~@/ Public Improvement & Refunding Bonds Series 2000 2.28%, 07/07/05 2,200 2,200 +~@/ Public Improvement Bonds Series 2000 2.28%, 07/07/05 6,800 6,800 +~@/ Public Improvement Bonds Series 2001A 2.31%, 07/07/05 5,335 5,335 +~@/ Public Improvement Bonds Series 2001B 2.30%, 07/07/05 7,295 7,295 +~@ Public Improvement Refunding Bonds Series 2002A 2.38%, 07/07/05 4,995 4,995
24 See financial notes. SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) PUERTO RICO ELECTRIC POWER AUTH +~@/ Power RB Series HH 2.30%, 07/07/05 20,765 20,765 +~@/ Power RB Series II 2.29%, 07/07/05 7,405 7,405 +~@/ Power Refunding RB Series SS 2.30%, 07/07/05 4,045 4,045 PUERTO RICO HOUSING FINANCE CORP +~@ Homeownership Mortgage RB Series 2000A 2.31%, 07/07/05 625 625 PUERTO RICO HIGHWAY & TRANSPORTATION AUTH Highway RB Series Y +~@/ 2.28%, 07/07/05 6,700 6,700 +~@ 2.29%, 07/07/05 8,600 8,600 +~@/ Highway Refunding RB Series AA 2.29%, 07/07/05 3,995 3,995 +~@ Subordinated Transportation RB Series 2003 2.28%, 07/07/05 6,200 6,200 +~@ Transportation RB Series 1998A 2.20%, 07/07/05 2,210 2,210 +~@/ Transportation RB Series 2000B 2.29%, 07/07/05 4,950 4,950 +~@ Transportation RB Series G & Subordinated RB Series 2003 2.29%, 07/07/05 9,380 9,380 PUERTO RICO HOUSING FINANCE CORP +~@/ Homeownership Mortgage RB Series 1998A 2.35%, 07/07/05 9,900 9,900 +~@/ M/F Mortgage RB Portfolio A Series I 2.29%, 07/07/05 8,285 8,285 PUERTO RICO INFRASTRUCTURE FINANCING AUTH ~@/ Special Obligation Bonds Series 2000A 2.29%, 07/07/05 20,000 20,000 +~@/ Special Tax RB Series 1997A 2.28%, 07/07/05 3,290 3,290 +~@/ Special Tax RB Series 2005A 2.28%, 07/07/05 12,340 12,340 +~@/ Special Tax Refunding RB Series 2005C 2.28%, 07/07/05 26,960 26,960 +~@/ Special Tax Refunding RB Series 2005C 2.31%, 07/07/05 1,200 1,200 PUERTO RICO PUBLIC BUILDINGS AUTH +~@/ Government Facilities RB Series B 2.30%, 07/07/05 10,095 10,095 +~@ Refunding RB Series L 2.29%, 07/07/05 6,545 6,545 ----------- 194,870
END OF INVESTMENTS. See financial notes. 25 SCHWAB CALIFORNIA MUNICIPAL MONEY FUND Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS ------------------------------------------------------------------------------- Investments, at value $7,506,064 a Cash 146,166 Receivables: Fund shares sold 17,032 Interest 43,214 Prepaid expenses + 28 -------------- TOTAL ASSETS 7,712,504 LIABILITIES ------------------------------------------------------------------------------- Payables: Fund shares redeemed 15,957 Investment bought 590,480 Dividends to shareholders 5,309 Investment adviser and administrator fees 134 Transfer agent and shareholder service fees 194 Trustees' fees 3 Accrued expenses + 73 -------------- TOTAL LIABILITIES 612,150 NET ASSETS ------------------------------------------------------------------------------- TOTAL ASSETS 7,712,504 TOTAL LIABILITIES - 612,150 -------------- NET ASSETS $7,100,354 NET ASSETS BY SOURCE Capital received from investors 7,102,491 Net investment income not yet distributed 9 Net realized capital losses (2,146) NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Sweep Shares $3,997,884 3,999,615 $1.00 Value Advantage Shares $3,102,470 3,102,991 $1.00
Unless stated, all numbers x 1,000. a The amortized cost for the fund's securities was $7,506,064. Includes restricted but deemed liquid securities comprised of 144A securities worth $1,505,629 or 21.2% of the fund's total net assets. During the reporting period, the fund had $905,305 in transactions with other Schwab Funds(R). FEDERAL TAX DATA ---------------------------------------- COST BASIS OF PORTFOLIO $7,506,064 AS OF DECEMBER 31, 2004: UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2008 $955 2011 508 2012 + 397 ------------ $1,860 26 See financial notes. SCHWAB CALIFORNIA MUNICIPAL MONEY FUND Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME ------------------------------------------------------------------------------- Interest $74,916 NET REALIZED GAINS AND LOSSES ------------------------------------------------------------------------------- Net realized losses on investments sold (286) EXPENSES ------------------------------------------------------------------------------- Investment adviser and administrator fees 12,314 a Transfer agent and shareholder service fees: Sweep Shares 9,216 b Value Advantage Shares 3,141 b Trustees' fees 21 c Custodian and portfolio accounting fees 269 Professional fees 27 Registration fees 43 Shareholder reports 51 Other expenses + 49 ----------- Total expenses 25,131 Expense reduction - 5,395 d ----------- NET EXPENSES 19,736 INCREASE IN NET ASSETS FROM OPERATIONS ------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 74,916 NET EXPENSES - 19,736 ----------- NET INVESTMENT INCOME 55,180 NET REALIZED LOSSES + (286) ----------- INCREASE IN NET ASSETS FROM OPERATIONS $54,894
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets as follows: TRANSFER AGENT SERVICES: % OF AVERAGE SHARE CLASS DAILY NET ASSETS -------------------------------------- Sweep Shares 0.25 Value Advantage Shares 0.05 SHAREHOLDER SERVICES: % OF AVERAGE SHARE CLASS DAILY NET ASSETS -------------------------------------- Sweep Shares 0.20 Value Advantage Shares 0.17 These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d Includes $4,781 from the investment adviser (CSIM) and $614 from the transfer agent and shareholder service agent (Schwab). These reductions reflect a guarantee by CSIM and Schwab to limit the annual operating expenses through April 29, 2006, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS -------------------------------------- Sweep Shares 0.65 Value Advantage Shares 0.45 This limit excludes interest, taxes and certain non-routine expenses. See financial notes. 27 SCHWAB CALIFORNIA MUNICIPAL MONEY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000. Figures for the current report are unaudited.
OPERATIONS ------------------------------------------------------------------------------ 1/1/05-6/30/05 1/1/04-12/31/04 Net investment income $55,180 $47,590 Net realized losses + (286) (431) -------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 54,894 47,159 DISTRIBUTIONS PAID ------------------------------------------------------------------------------ DIVIDENDS FROM NET INVESTMENT INCOME Sweep Shares 30,736 24,386 Value Advantage Shares + 24,441 23,164 -------------------------------- TOTAL DIVIDENDS FROM NET INVESTMENT INCOME 55,177 47,550 TRANSACTIONS IN FUND SHARES a ------------------------------------------------------------------------------ SHARES SOLD Sweep Shares 8,971,695 15,986,392 Value Advantage Shares + 2,200,047 3,464,257 -------------------------------- TOTAL SHARES SOLD 11,171,742 19,450,649 SHARES REINVESTED Sweep Shares 27,392 23,979 Value Advantage Shares + 19,306 20,603 -------------------------------- TOTAL SHARES REINVESTED 46,698 44,582 SHARES REDEEMED Sweep Shares (9,148,628) (16,031,992) Value Advantage Shares + (1,941,639) (3,720,576) -------------------------------- TOTAL SHARES REDEEMED (11,090,267) (19,752,568) NET TRANSACTIONS IN FUND SHARES 128,173 (257,337) b NET ASSETS ------------------------------------------------------------------------------ Beginning of period 6,972,464 7,230,192 Total increase or decrease + 127,890 (257,728) c -------------------------------- END OF PERIOD $7,100,354 $6,972,464 d
Unless stated, all numbers x 1,000. a Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. b Represents shares sold plus shares reinvested, minus shares redeemed. c Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. d Includes net investment income not yet distributed in the amount of $9 and $6 at the end of the current and prior period, respectively . 28 See financial notes. SCHWAB CALIFORNIA MUNICIPAL MONEY FUND FINANCIAL NOTES unaudited BUSINESS STRUCTURE OF THE FUND THE FUND DISCUSSED IN THIS REPORT IS A SERIES OF THE CHARLES SCHWAB FAMILY OF FUNDS, A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended. The sidebar shows the fund in this report and its trust. THE FUND OFFERS TWO SHARE CLASSES: Sweep Shares and Value Advantage Shares. Shares of each class represent interest in the same portfolio, but each class has different expenses and investment minimums. 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 trust may issue as many shares as necessary. FUND OPERATIONS Most of the fund's investments are described in sections earlier in this report. However, there are certain other fund operations and policies that may affect the fund's financials, as described below. Other policies concerning the fund's business operations also are described here. THE FUND DECLARES DIVIDENDS EVERY DAY IT IS OPEN FOR BUSINESS. These dividends, which are equal to the fund's net investment income for that day, are paid out to shareholders once a month. The fund may make distributions from any net realized capital gains once a year. THE FUND MAY BUY SECURITIES ON A DELAYED-DELIVERY BASIS. In these transactions, the 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 has set aside sufficient securities as collateral for those securities bought on a delayed-delivery basis. THE FUND PAYS FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES. Through its trust, the fund has agreements with Charles Schwab Investment Management, Inc. (CSIM) to provide investment advisory and administrative services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent and shareholder services. Although these agreements specify certain fees for these services, CSIM and Schwab have made additional agreements with the fund that may limit the total expenses charged. The rates and limitations for these fees are described in the fund's Statement of Operations. THE FUND MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. The fund may make direct transactions with certain other Schwab Funds when practical. When THE TRUST AND ITS FUNDS This list shows all of the funds included in The Charles Schwab Family of Funds. The funds discussed in this report 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 Municipal Money Fund SCHWAB CALIFORNIA MUNICIPAL MONEY FUND Schwab New York Municipal Money Fund Schwab New Jersey Municipal Money Fund Schwab Pennsylvania Municipal Money Fund Schwab Florida Municipal Money Fund Schwab Massachusetts Municipal Money Fund Schwab Retirement Advantage Money Fund Schwab Retirement Money Fund Schwab Government Cash Reserves Schwab Advisor Cash Reserves Schwab Cash Reserves 29 SCHWAB CALIFORNIA MUNICIPAL MONEY FUND 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. Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions within the Schwab Funds(R). 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. 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. THE FUND MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The fund may obtain temporary bank loans through the trust to which the fund belongs, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The Schwab Funds has custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A., respectively. The fund pays interest on the amounts it borrows at rates that are negotiated periodically. There was no borrowing for the fund during the period. 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 net realized capital gains (if any) to its respective shareholders each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax. The net investment income and net realized capital gains and losses may differ for financial statement and tax purpose primarily due to differing treatments of wash sale losses and market discount. UNDER THE FUND'S ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE INDEMNIFIED AGAINST CERTAIN LIABILITY 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. ACCOUNTING POLICIES The following are the main policies the fund uses in preparing its financial statements. THE FUND VALUES ITS SECURITIES AT AMORTIZED COST, which approximates market value. SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the security is executed. INTEREST INCOME is recorded as it accrues. If the fund buys a debt instrument at a discount (that is, for less than its 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. REALIZED GAINS AND LOSSES from security transactions are based on the identified costs of the securities involved. 30 SCHWAB CALIFORNIA MUNICIPAL MONEY FUND EXPENSES that are specific to the fund or a class are charged directly to the fund or class. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets. FOR FUNDS OFFERING MULTIPLE SHARE CLASSES, all of the realized and unrealized gains or losses and net investment income, other than class specific expenses, are allocated daily to each class in proportion to its net assets. 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 also may keep certain assets in segregated accounts, as required by securities law. THE ACCOUNTING POLICIES DESCRIBED ABOVE CONFORM WITH 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. 31 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 advisory agreement. In addition, the Securities and Exchange Commission (the "SEC") takes the position that, as part of their fiduciary duties with respect to fund fees, fund boards are required to evaluate the material factors applicable to a decision to approve an investment advisory agreement. Consistent with these responsibilities, the Board of Trustees (the "Board") 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 CSIM (the "Agreement") with respect to existing funds in the Trust, including the Schwab California Municipal 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 trustees also receive a memorandum from fund counsel regarding the responsibilities of trustees for the approval of investment advisory contracts. In addition, the Independent Trustees receive advice from independent counsel to the Independent Trustees, meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM. At the May 24, 2005 meeting of the Board, the trustees, including a majority of the Independent Trustees, approved the renewal of the Agreement on an interim basis through September 30, 2005. In connection with the interim approval of the Agreement, the Board requested that CSIM prepare responses to certain questions outlined below in advance of the next regularly scheduled Board meeting. The Board's approval of the Agreement was based on consideration and evaluation of a variety of specific factors discussed at that meeting 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 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. 32 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 the fact that Schwab's extensive branch network, Internet access, investment and research tools, telephone services, and array of account features benefit the funds. 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' investors are also brokerage clients of Schwab, and that CSIM and its affiliates are uniquely positioned to provide services and support to the funds and such shareholders. 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 interim renewal of the Agreement. FUND PERFORMANCE. The Board considered fund performance in determining whether to renew the Agreement. Specifically, the trustees considered each fund's performance relative to a peer group of other mutual funds and appropriate indices/benchmarks, in light of total return, yield and market trends. As part of this review, the trustees considered the composition of the peer group, selection criteria and the reputation of the third party who prepared the peer group analysis. In evaluating the performance of each fund, the trustees considered both risk and shareholder risk expectations for such fund. The Board noted that certain funds, including the California Municipal Money Fund--Sweep Shares, had lower performance relative to their respective peer groups than other funds, and inquired as to the underlying reasons for this relative performance. The Board also requested that CSIM evaluate the reasons for such funds' relative performance, consider appropriate measures to address the performance and report the results of their findings at the next Board meeting. Following such evaluation, and based upon CSIM's agreement to perform such analyses, etc. relating to performance, the Board concluded, within the context of its full deliberations, that the performance of the funds supported interim renewal of the Agreement. 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 voluntary waiver of 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 and offshore funds, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the unique 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 interim renewal of the Agreement. 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 com- 33 mentary 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 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 interim renewal of the Agreement. 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 CSIM's agreement to contractual investment advisory fee schedules which include lower fees at higher graduated asset levels. Based on this evaluation, 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, unanimously approved the interim continuation of the Agreement and concluded that the compensation under the Agreement 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. 34 TRUSTEES AND OFFICERS A fund's Board of Trustees is responsible for protecting the interests of that fund's shareholders. The tables below give information about the people who serve as trustees and officers for the Schwab Funds(R), including the funds covered in this report. Trustees remain in office until they resign, retire or are removed by shareholder vote. 1 Under the Investment Company Act of 1940, any officer, director, or employee of Schwab or CSIM is considered an "interested person," meaning that he or she is considered to have a business interest in Schwab or CSIM. These individuals are listed as "interested trustees." The "independent trustees" are individuals who, under the 1940 Act, are not considered to have a business interest in Schwab or CSIM. Each of the 56 Schwab Funds belongs to one of these trusts: The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently all these trusts have the same trustees and officers. The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. 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. INTERESTED TRUSTEES AND OFFICERS
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------- CHARLES R. SCHWAB 2 Chairman, Trustee: Chair, CEO, Director, The Charles Schwab Corp., Charles Schwab & 7/29/37 Family of Funds, 1989; Co., Inc.; Chair, Director, Charles Schwab Investment Management, Investments, 1991; Inc.; Chair, Charles Schwab Holdings (UK); Chair, Director, U.S. Trust Capital Trust, 1993; Corp., United States Trust Co. of New York, U.S. Trust Co., N.A.; Annuity Portfolios, 1994. CEO, Director, Charles Schwab Holdings, Inc.; Chair, CEO Schwab (SIS) Holdings, Inc. I, Schwab International Holdings, Inc.; Director, Charles Schwab Bank, N.A., The Charles and Helen Schwab Foundation, All Kinds of Minds (education); Trustee, Stanford University. Until 5/04: Director, The Gap, Inc. (clothing retailer). Until 5/03: Co-CEO, The Charles Schwab Corp. Until 3/02: Director, Audiobase, Inc. (Internet audio solutions). Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications). Until 7/01: Director, The Charles Schwab Trust Co.
1 The Schwab Funds retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010. 2 In addition to his position with the investment adviser and the distributor, Mr. Schwab also owns stock of The Charles Schwab Corporation. 35 INTERESTED TRUSTEES BUT NOT OFFICERS
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ RANDALL W. MERK 2005 (all trusts). EVP, President, AMPS Enterprise. Until 7/04: President, CEO, 7/25/54 Charles Schwab Investment Management, Inc.; VP, Charles Schwab & Co., Inc. Until 8/02: President, Chief Investment Officer, American Century Management; Director, American Century Companies, Inc. Until 6/01: Chief Investment Officer, Fixed Income, American Century Companies, Inc.
OFFICERS OF THE TRUST
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ EVELYN DILSAVER President, CEO EVP, President, Director, Charles Schwab Investment Management, 5/4/55 (all trusts). Inc. Until 7/04: SVP for Development and Distribution, Asset Management Products and Services Enterprise. Until 6/03: EVP, CFO, Chief Administrative Officer, U.S. Trust. ------------------------------------------------------------------------------------------------------------------------------------ STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment 4/5/55 Officer (all trusts). Management, Inc.; Chief Investment Officer, The Charles Schwab Trust Co. ------------------------------------------------------------------------------------------------------------------------------------ KIMON DAIFOTIS SVP, Chief Investment Since 9/04: Chief Investment Officer, Fixed Income, Charles 7/10/59 Officer (all trusts). Schwab Investment Management, Inc. Since 6/04: SVP, Charles Schwab Investment Management, Inc. Until 6/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ JEFFREY MORTIMER SVP, Chief Investment Since 5/04: SVP, Chief Investment Officer, Equities, Charles Schwab 9/29/63 Officer (all trusts). Investment Management, Inc. Since 6/04: VP, Chief Investment Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 5/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ RANDALL FILLMORE Chief Compliance Since 9/04: SVP, Institutional Compliance and Chief Compliance 11/11/60 Officer (all trusts). Officer, Charles Schwab Investment Management, Inc.; Chief Compliance Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 9/04: VP, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. Until 2002: VP of Internal Audit, Charles Schwab & Co., Inc. Prior to 2000: PricewaterhouseCoopers. ------------------------------------------------------------------------------------------------------------------------------------ KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab 3/13/61 Investment Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco. ------------------------------------------------------------------------------------------------------------------------------------ GEORGE PEREIRA Treasurer, Principal Since 11/04: SVP, CFO, Charles Schwab Investment Management, 6/9/64 Financial Officer Inc. Until 11/04: SVP, Financial Reporting, Charles Schwab & Co., Inc. (all trusts). Until 12/99: CFO, Commerzbank Capital Markets. Until 9/99: Managing Director at the New York Stock Exchange.
36 INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC (real estate); Trustee, Stanford 8/13/60 University, America First Cos., Omaha, NE (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital. Since 2/05: Director, Pacific Mutual Holding Company (insurance). Since 2004: Laudus Trust, Laudus Variable Insurance Trust. Until 2001: Stanford University, Special Assistant to the President. From 1996-2001: VP of Business Affairs, CFO. ------------------------------------------------------------------------------------------------------------------------------------ DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing 9/23/31 Investments, 1991; and communications consulting). Until 1999: EVP, Managing Director, Capital Trust, 1993; Grey Advertising. Until 1996: President, CEO, Allen & Dorward Annuity Portfolios, 1994. Advertising. ------------------------------------------------------------------------------------------------------------------------------------ WILLIAM A. HASLER 2000 (all trusts). Dean Emeritus, Haas School of Business, University of California, 11/22/41 Berkeley; Director, Aphton Corp. (bio-pharmaceuticals); Non- Executive Chair, Solectron Corp. (manufacturing), Mission West Properties (commercial real estate), Stratex Networks (network equipment), TOUSA (home building); Public Governor, Member, executive committee, Pacific Stock & Options Exchange. Since 2004: Trustee, Laudus Trust, Laudus Variable Insurance Trust. Until 2/04: Co-CEO, Aphton Corp. (bio-pharmaceuticals). ------------------------------------------------------------------------------------------------------------------------------------ ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial 5/15/31 Investments, 1991; services and investment advisory firm). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisers); 9/28/50 Trustee, Cooper Industries (electrical products, tools and hardware); Chairman, audit committee, Northern Border Partners, L.P. (energy). ------------------------------------------------------------------------------------------------------------------------------------ DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: 6/28/38 Investments, 1991; Chair, CEO, North American Trust (real estate investment trust). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (real estate investment and 8/18/43 Investments, 1991; management, and other investments). Capital Trust, 1993; Annuity Portfolios, 1994.
37 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. ALTERNATIVE MINIMUM TAX (AMT) A federal income tax designed to limit the extent to which high-income taxpayers (including individuals, estates, trusts and corporations) can benefit from certain deductions and exemptions. For example, some types of income that are exempt from regular federal income tax are not exempt from the AMT. ASSET-BACKED SECURITIES Bonds or other debt securities that represent ownership in a pool of assets such as credit card debt. BOND A security representing a loan from the investor to the issuer. A bond typically pays interest at a fixed rate (the "coupon rate") until a specified date (the "maturity date"), at which time the issuer returns the money borrowed ("principal" or "face value") to the bondholder. Because of their structure, bonds are sometimes called "fixed income securities" or "debt securities." An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond's market value prior to call or maturity. There is no guarantee that a bond's yield to call or maturity will provide a positive return over the rate of inflation. BOND FUND A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund's net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed. BOND ANTICIPATION NOTES Obligations sold by a municipality on an interim basis in anticipation of the municipality's issuance of a longer-term bond in the future. 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, state and local governments 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. 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 limit 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 principal to its debtholders. PORTFOLIO TERMS To help reduce the space occupied by the portfolio holdings, we use the following terms. Most of them appear within descriptions of individual securities in municipal funds, and describe features of the issuer or the security. Some of these are more fully defined elsewhere in the Glossary. ACES Adjustable convertible extendable security BAN Bond anticipation note COP Certificate of participation GAN Grant anticipation note GO General obligation HDA Housing Development Authority HFA Housing Finance Agency IDA Industrial Development Authority IDB Industrial Development Board IDRB Industrial Development Revenue Bond M/F Multi-family RAN Revenue anticipation note RB Revenue bond S/F Single-family TAN Tax anticipation note TECP Tax-exempt commercial paper TRAN Tax and revenue anticipation note VRD Variable-rate demand 38 DOLLAR-WEIGHTED AVERAGE MATURITY (DWAM) See weighted average maturity. EFFECTIVE YIELD A measurement of a fund's yield that assumes that all dividends were 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 a 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 A security that when tendered is paid from funds advanced by an entity other than the issuer (such as a large financial institution). Liquidity enhancements are often used on variable-rate securities where the portfolio manager has an option to tender the securities prior to their final maturity. MATURITY The date a debt security is scheduled to be "retired" and its principal amount returned to the bondholder. MONEY MARKET SECURITIES High-quality, short-term debt securities that may be issued by entities such as the U.S. government, corporations and financial institutions (such as banks). Money market securities include commercial paper, promissory notes, certificates of deposit, banker's acceptances, notes and time deposits. MUNI, MUNICIPAL BONDS, 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. REVENUE ANTICIPATION NOTES Obligations that are issued in expectation of the receipt of revenue, such as income taxes, property taxes, etc. 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%). TOTAL RETURN The percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested. TAX ANTICIPATION NOTES Notes that typically are sold to finance the cash flow needs of municipalities in anticipation of the receipt of taxes on a future date. 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. WEIGHTED AVERAGE MATURITY For mutual funds, the maturity of all the debt securities in its portfolio, calculated as a weighted average. As a rule, the longer a fund's weighted average maturity, the greater its interest rate risk. Money funds are required to maintain a weighted average maturity of no more than 90 days. YIELD The income paid out by an investment, expressed as a percentage of the investment's market value. 39 NOTES Schwab Funds(R) offers you a complete 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're 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, and 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. METHODS FOR PLACING ORDERS The following information outlines how Schwab investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET 1 www.schwab.com SCHWAB BY PHONE(TM) 2 Use our automated voice service or speak to a representative. Call 1-800-435-4000, day or night (for TDD service, call 1-800-345-2550). TELEBROKER(R) Use our automated touch-tone phone service at 1-800-272-4922. MAIL Write to Schwab Funds at: P.O. Box 3812 Englewood, CO 80155-3812 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. 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.schwab.com/schwabfunds, 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.schwab.com/schwabfunds or the SEC's website at http://www.sec.gov. 1 Shares of Sweep Investments(TM) may not be purchased directly over the Internet. 2 Orders placed in person or through a telephone representative may be subject to a service fee payable to Schwab. THE SCHWAB FUNDS FAMILY(R) STOCK FUNDS Schwab S&P 500 Index Fund Schwab 1000 Index(R) Fund Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) Schwab Premier Equity Fund(TM) Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) Schwab Financial Services Fund(TM) Schwab Health Care Fund(TM) Schwab Technology Fund(TM) Schwab Institutional Select(R) S&P 500 Fund ASSET ALLOCATION FUNDS 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 2020 Fund Schwab Target 2030 Fund Schwab Target 2040 Fund Schwab Retirement Income Fund BOND FUNDS Schwab YieldPlus Fund(R) Schwab Short-Term Bond Market Fund(TM) Schwab Total Bond Market Fund(TM) Schwab GNMA Fund(TM) Schwab Tax-Free YieldPlus Fund(TM) Schwab Short/Intermediate Tax-Free Bond Fund(TM) Schwab Long-Term Tax-Free Bond Fund(TM) Schwab California Tax-Free YieldPlus Fund(TM) Schwab California Short/Intermediate Tax-Free Bond Fund(TM) Schwab California Long-Term 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 liquidity. 3 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(R). 3 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. [CHARLES SCHWAB LOGO] INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. (Schwab) FUNDS Schwab Funds(R) P.O. Box 3812, Englewood, CO 80155-3812 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)2005 Charles Schwab & Co., Inc. All rights reserved. Member SIPC Printed on recycled paper. MFR25271-03 SCHWAB TAXABLE MONEY FUNDS SEMIANNUAL REPORT June 30, 2005 Schwab Government Money Fund(TM) Schwab U.S. Treasury Money Fund(TM) Schwab Value Advantage Money Fund(R) [CHARLES SCHWAB LOGO] IN THIS REPORT Management's Discussion ................................................. 2 Performance and Fund Facts .............................................. 5 Schwab Government Money Fund(TM) .......... 5 Schwab U.S. Treasury Money Fund(TM) ....... 5 Schwab Value Advantage Money Fund(R) ...... 5 Fund Expenses ........................................................... 6 Financial Statements .................................................... 7 Schwab Government Money Fund(TM) .......... 7 Schwab U.S. Treasury Money Fund(TM) ....... 14 Schwab Value Advantage Money Fund(R) ...... 20 Financial Notes ......................................................... 32 Investment Advisory Agreement Approval .................................. 35 Trustees and Officers ................................................... 38 Glossary ................................................................ 41 Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM). Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab). [PHOTO OF CHARLES SCHWAB] Charles Schwab Chairman FROM THE CHAIRMAN Dear Shareholder, I have always believed that it's important to make sure that your cash is earning income between long-term investments by putting the money into a money market fund. While no investment is risk-free, money market funds carry, perhaps, the least amount of risk, as they generally are not as volatile as stocks or stock mutual funds. Money funds are good choices for investors who want to mitigate the potential fluctuations that may occur in their mostly stock portfolios. At Schwab, we offer a range of money funds with distinct investment strategies. Our municipal money funds, for example, may be beneficial for those of you in the higher tax brackets. We also offer money funds for those interested in the added protection provided by a portfolio of U.S. government securities. In addition, several of the Schwab money funds offer share classes that carry lower expenses in exchange for higher investment minimums. Now, as a result of the Federal Reserve having raised short-term interest rates eight times in the past 12 months (four during the six-month period covered in this report), yields on money market mutual funds are more attractive than they have been in many years. Not only that, but it's likely that the Fed will raise these rates again this year. Based on this expectation, we anticipate that the yields on money market funds will continue to move upwards over the next few months. On behalf of Schwab Funds, I want to thank you for investing with us and remind you that our commitment to our shareholders will never waver. Sincerely, /s/ Charles R. Schwab MANAGEMENT'S DISCUSSION for the six months ended June 30, 2005 [PHOTO OF EVELYN DILSAVER] EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management, Inc. and is president of the funds covered in this report. She joined the firm in 1992 and has held a variety of executive positions at Schwab. Dear Shareholder, When I assumed my new role as President and CEO of Schwab Funds(R) last year, I pledged that I would be committed to offering you more relevant choices and better value. I am pleased to report that we already have done both. On July 1, 2005, Schwab Funds launched the Schwab Target Funds(TM), a suite of five mutual funds to help keep your retirement investments properly allocated over your lifetime. With a single investment in a Schwab Target Fund, you can avoid a common investment mistake--failing to adjust your portfolio over time. The funds are designed to provide shareholders with investment management, asset allocation and ongoing re-allocation over time. You simply choose the fund that most closely matches the date of your retirement and our experienced portfolio managers will do the rest. They will rebalance four of the five funds from more aggressive to more conservative as you get closer to your retirement date. The fifth fund is designed to help generate income and additional growth after you've retired. It also is a good choice for investors already enjoying their retirement. These no-load funds are a good value, as the funds have access to the lowest-priced eligible share class on the underlying Schwab affiliate funds. And because the funds invest in groups of other Schwab affiliate funds, they provide an additional layer of diversification. At Schwab, we believe that having an asset-allocation plan that fits your retirement goals, time frame and tolerance for risk is a key element in meeting your long-term investment goals. The Schwab Target Funds are designed to help you do this. I encourage you to learn more about these funds at www.schwab.com/target, or call Schwab. Thank you for investing in Schwab Funds. Sincerely, /s/ Evelyn Dilsaver Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus carefully before investing. 2 Schwab Taxable Money Funds [PHOTO OF LINDA KLINGMAN] LINDA KLINGMAN, a vice president of the investment adviser and senior portfolio manager, has overall responsibility for the management of the Value Advantage Money fund. She joined the firm in 1990 and has managed money market funds since 1988. [PHOTO OF MIKE NEITZKE] MIKE NEITZKE, a portfolio manager, has day-to-day responsibility for management of the Value Advantage Money fund. Prior to joining the firm in March 2001, he worked for more than 15 years in the financial services industry as a portfolio manager. THE INVESTMENT ENVIRONMENT AND THE FUND Oil prices hit highs never seen before and the Federal Reserve Open Market Committee continued to raise short-term interest rates to curb inflationary pressures, raising rates for the fourth time this year. At the same time, GDP continued to grow at a healthy pace and the housing market remained strong, largely due to low mortgage rates. The firming labor market, as well as steady gains in capital spending, kept the economic expansion on a self-sustaining path. Businesses, unable to continue boosting productivity by restraining hiring, added new jobs during the six-month report period. Moreover, many leading indicators, such as the Institute for Supply Management's business activity surveys, suggested ongoing expansion, while continuing claims for unemployment benefits remained near cyclical lows. Business investments grew only modestly, but consumers continued to spend. In fact, consumer confidence rose to a level not experienced since before September 11, 2001. With consumers in a spending mode and consumer spending comprising about 70% of GDP, first quarter GDP remained strong and retail sales were healthy. In this positive economic environment, strong labor market conditions remained positive for domestic consumption. While high energy prices remained a significant headwind for economic performance, supply no longer was the issue; demand, especially in China, drove prices up. At the end of the six-month report period, a barrel of oil cost $56.50 versus $42.55 at the beginning of 2005. Though high oil and commodity prices could have hampered growth and stirred inflationary pressures, productivity gains, slow growth in the money supply and slack in the economy have mostly kept a lid on core inflation. The productivity gains, coupled with foreign central banks buying large amounts of U.S. Treasury securities, also helped to keep long-term interest rates under control. These conditions also caused the dollar to rally unexpectedly, which took a little bit of pressure off the price of imported goods. Amid signs of solidly expanding output and improved hiring, the Fed continued to tighten. It increased short-term interest rates at each of the four meetings in the first half of 2005, ending the six-month report period at a still moderate 3.25%. The moves have had a limited impact Schwab Taxable Money Funds 3 MANAGEMENT'S DISCUSSION continued [PHOTO OF KAREN WIGGAN] KAREN WIGGAN, a vice president of the investment adviser and senior portfolio manager, has been responsible for day-to-day management of the Government Money and U.S. Treasury Money funds since 1999. She joined the firm in 1987 and has worked in fixed income portfolio management since 1991. on overall economic growth, due primarily to the record-low level of rates from which the increases began. Nonetheless, the higher rates succeeded in moving money fund yields higher, making them a more attractive investment vehicle. THE SCHWAB GOVERNMENT MONEY FUND took advantage of rising short-term interest rates and increased the percentage of variable rate securities in the Fund. The interest rates on these types of securities reset frequently, allowing the Fund's portfolio managers to capture the rise in market rates. Within this environment, we shortened the Fund's weighted average maturity (WAM) to allow its yield to more quickly reflect rising rates. The average maturity peaked at 46 days early in the year, settling in a range of 36 -42 days for the remainder of the period. During this time, we also took advantage of opportunities to extend the WAM when market conditions were favorable, as yields on longer-term securities became more attractive. We increased our position in repurchase agreements (repo) as the spread between agency discount notes and repo widened, providing a favorable yield advantage. THE SCHWAB U.S. TREASURY MONEY FUND tracked the rising short-term rates, with the 3-month T-bill increasing from 2.25% to 3.11% during the six-month report period. Within this environment, we shortened the Fund's weighted average maturity (WAM) to allow its yield to more quickly reflect rising rates. During the period, we took advantage of opportunities to extend when yields on longer-term securities became more attractive and the WAM peaked at 57 days in April. In general, however, the WAM ranged from the mid 40s to the mid 50s during the report period. THE SCHWAB VALUE ADVANTAGE MONEY FUND was positioned for a continued rise in short-term interest rates by adding to our holdings of variable-rate securities. The interest rates on these types of securities reset frequently, allowing us the opportunity to capture a rise in market rates. To further take advantage of the rising-rate environment, we kept the weighted average maturity (WAM) short, at about 42 days. Keeping the WAM short provided flexibility to adapt and respond to the changes in interest rates. This is a similar strategy to our peers, as shortening the WAM enabled money funds to more quickly reinvest at higher rates 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. 4 Schwab Taxable Money Funds PERFORMANCE AND FUND FACTS as of 6/30/05 SEVEN-DAY YIELDS 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.
GOVERNMENT U.S. TREASURY MONEY FUND MONEY FUND VALUE ADVANTAGE MONEY FUND -------------------------------------------------------------------------------------------------------------- Investor Select Institutional Shares Shares(R) Shares Ticker Symbol SWGXX SWUXX SWVXX SWBXX SWAXX -------------------------------------------------------------------------------------------------------------- SEVEN-DAY YIELD 1 2.43% 2.28% 2.77% 2.87% 2.98% -------------------------------------------------------------------------------------------------------------- SEVEN-DAY YIELD--NO WAIVER 2 2.34% 2.11% 2.66% 2.66% 2.66% -------------------------------------------------------------------------------------------------------------- SEVEN-DAY EFFECTIVE YIELD 1 2.46% 2.31% 2.81% 2.91% 3.02% --------------------------------------------------------------------------------------------------------------
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.SCHWAB.COM/SCHWABFUNDS. STATISTICS Money funds must maintain a dollar-weighted average maturity of no longer than 90 days, and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months).
GOVERNMENT U.S. TREASURY VALUE ADVANTAGE MONEY FUND MONEY FUND MONEY FUND ------------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE MATURITY 36 days 55 days 41 days ------------------------------------------------------------------------------------------------------------- CREDIT QUALITY OF HOLDINGS % of portfolio 100% Tier 1 100% Tier 1 100% Tier 1 ------------------------------------------------------------------------------------------------------------- MINIMUM INITIAL INVESTMENT 3 Sweep Investments(TM) * * n/a Investor Shares ($15,000 for IRA and custodial accounts) n/a n/a $25,000 Select Shares n/a n/a $1,000,000 Institutional Shares n/a n/a $3,000,000 -------------------------------------------------------------------------------------------------------------
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. 1 Fund expenses have been partially absorbed by CSIM and Schwab. 2 Yield if fund expenses had not been partially absorbed by CSIM and Schwab. 3 Please see prospectus for further detail and eligibility requirements. * Subject to the eligibility terms and conditions of your Schwab account agreement. Schwab Taxable Money Funds 5 FUND EXPENSES 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, 2005 and held through June 30, 2005. 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 EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2 (Annualized) at 1/1/05 at 6/30/05 1/1/05-6/30/05 -------------------------------------------------------------------------------------------------------------------------- SCHWAB GOVERNMENT MONEY FUND(TM) Actual Return 0.75% $1,000 $1,009.80 $3.74 Hypothetical 5% Return 0.75% $1,000 $1,021.08 $3.76 -------------------------------------------------------------------------------------------------------------------------- SCHWAB U.S. TREASURY MONEY FUND(TM) Actual Return 0.65% $1,000 $1,009.20 $3.24 Hypothetical 5% Return 0.65% $1,000 $1,021.57 $3.26 -------------------------------------------------------------------------------------------------------------------------- SCHWAB VALUE ADVANTAGE MONEY FUND(TM) Investor Shares Actual Return 0.45% $1,000 $1,011.40 $2.24 Hypothetical 5% Return 0.45% $1,000 $1,022.56 $2.26 Select Shares(R) Actual Return 0.35% $1,000 $1,011.90 $1.75 Hypothetical 5% Return 0.35% $1,000 $1,023.06 $1.76 Institutional Shares Actual Return 0.24% $1,000 $1,012.50 $1.20 Hypothetical 5% Return 0.24% $1,000 $1,023.60 $1.20
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for each fund or share class are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year. 6 Schwab Taxable Money Funds SCHWAB GOVERNMENT MONEY FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 0.00 1 0.01 0.04 0.06 ------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.00) 1 (0.01) (0.04) (0.06) ------------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------------------------------- Total return (%) 0.98 2 0.65 0.48 1.20 3.63 5.69 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.75 3 0.75 0.75 0.75 0.75 0.76 4 Gross operating expenses 0.84 3 0.83 0.83 0.83 0.84 0.85 Net investment income 1.97 3 0.64 0.49 1.19 3.52 5.54 Net assets, end of period ($ x 1,000,000) 2,393 2,535 2,838 3,092 3,054 2,509
* Unaudited. 1 Per share amount was less than $0.01. 2 Not annualized. 3 Annualized. 4 The ratio of net operating expenses would have been 0.75% if certain non-routine expenses (proxy fees) had not been included. See financial notes. 7 SCHWAB GOVERNMENT MONEY FUND PORTFOLIO HOLDINGS June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. ~ Delayed-delivery security = All or a portion of this security are held as collateral for delayed-delivery security For fixed-rate obligations, the rate shown is the effective yield at the time of purchase, except for U.S. government agency coupon notes and U.S. Treasury notes, for which the rate shown is the interest rate (the rate established when the obligation was issued). For variable-rate obligations, the rate shown is the rate as of the report date. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date. For variable-rate obligations without demand features, the maturity shown is the next interest rate change date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 31.9% U.S. GOVERNMENT SECURITIES 763,427 763,427 25.1% VARIABLE-RATE OBLIGATIONS 599,966 599,966 45.4% OTHER INVESTMENTS 1,086,369 1,086,369 -------------------------------------------------------------------------------- 102.4% TOTAL INVESTMENTS 2,449,762 2,449,762 (2.4)% OTHER ASSETS AND LIABILITIES (56,621) -------------------------------------------------------------------------------- 100.0% NET ASSETS 2,393,141
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) U.S. GOVERNMENT SECURITIES 31.9% of net assets DISCOUNT NOTES 30.9% -------------------------------------------------------------------------- FANNIE MAE 3.03%, 07/01/05 30,000 30,000 3.07%, 07/01/05 65,000 65,000 2.75%, 07/06/05 25,000 24,991 3.02%, 07/06/05 3,966 3,964 3.00%, 07/20/05 25,000 24,961 3.03%, 07/22/05 2,000 1,996 2.84%, 07/27/05 20,000 19,960 3.14%, 08/01/05 50,000 49,866 2.88%, 08/03/05 11,689 11,659 3.17%, 08/24/05 7,500 7,465 3.07%, 08/31/05 20,000 19,897 ~ 3.43%, 10/03/05 29,000 28,742 ~ 3.45%, 10/03/05 30,235 29,976 3.29%, 11/02/05 18,037 17,836 = 3.40%, 11/23/05 20,000 19,731 = 3.41%, 11/23/05 15,000 14,797 3.50%, 12/14/05 15,000 14,762 FEDERAL HOME LOAN BANK 3.12%, 09/07/05 15,470 15,380 FREDDIE MAC = 2.70%, 07/05/05 40,000 39,989 = 2.71%, 07/05/05 20,000 19,994 = 2.74%, 07/05/05 7,000 6,998 2.77%, 07/12/05 20,000 19,983 2.79%, 07/12/05 45,000 44,962 3.00%, 07/12/05 6,000 5,995 3.00%, 08/23/05 20,000 19,913 3.02%, 08/23/05 11,146 11,097 3.06%, 08/30/05 6,125 6,094 3.26%, 10/04/05 20,000 19,831 3.29%, 10/18/05 21,252 21,044 3.30%, 10/25/05 20,000 19,791 3.33%, 11/01/05 4,293 4,245 3.37%, 11/08/05 26,300 25,986 = 3.37%, 11/15/05 35,000 34,558 = 3.38%, 11/15/05 10,000 9,873 3.41%, 11/22/05 4,162 4,106 3.43%, 11/29/05 8,302 8,185 3.50%, 12/13/05 15,000 14,763 ----------- 738,390
8 See financial notes. SCHWAB GOVERNMENT MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) COUPON NOTES 1.0% -------------------------------------------------------------------------- FANNIE MAE 7.00%, 07/15/05 25,000 25,037 VARIABLE-RATE OBLIGATIONS 25.1% of net assets COUPON NOTES 25.1% -------------------------------------------------------------------------- FANNIE MAE 2.99%, 07/05/05 30,000 29,995 3.04%, 07/07/05 40,000 39,965 3.05%, 07/07/05 25,000 24,993 3.21%, 07/29/05 50,000 49,996 3.22%, 09/06/05 50,000 49,995 3.25%, 09/09/05 40,000 39,993 FEDERAL HOME LOAN BANK 3.02%, 07/05/05 35,000 34,979 3.05%, 07/05/05 60,000 59,992 3.14%, 07/18/05 50,000 49,996 3.22%, 07/26/05 40,000 39,999 3.10%, 08/02/05 40,000 39,974 3.26%, 09/12/05 30,000 29,989 3.12%, 08/10/05 46,000 45,974 FREDDIE MAC 3.08%, 07/07/05 64,125 64,126 ----------- 599,966
MATURITY AMOUNT VALUE SECURITY ($ x 1,000) ($ x 1,000) OTHER INVESTMENTS 45.4% of net assets REPURCHASE AGREEMENTS 45.4% -------------------------------------------------------------------------- BANK OF AMERICA SECURITIES L.L.C. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $96,900 3.05%, issued 05/04/05, due 07/07/05 30,163 30,000 3.10%, issued 05/20/05, due 07/07/05 25,103 25,000 3.21%, issued 06/10/05, due 07/07/05 20,048 20,000 3.25%, issued 06/03/05, due 07/07/05 20,061 20,000 BEAR STEARNS & CO., INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $181,708 3.45%, issued 06/30/05, due 07/01/05 128,012 128,000 3.20%, issued 05/23/05, due 07/07/05 25,100 25,000 3.30%, issued 06/08/05, due 07/07/05 25,066 25,000 CREDIT SUISSE FIRST BOSTON L.L.C. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $183,981 3.40%, issued 06/30/05, due 07/01/05 130,380 130,369 3.18%, issued 06/16/05, due 07/07/05 30,056 30,000 3.25%, issued 06/24/05, due 07/07/05 20,023 20,000 GOLDMAN SACHS & CO. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $130,560 3.45%, issued 06/30/05, due 07/01/05 128,012 128,000 MORGAN STANLEY & CO., INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $183,600 3.03%, issued 04/15/05, due 07/07/05 35,245 35,000 3.09%, issued 04/28/05, due 07/07/05 30,180 30,000 3.12%, issued 05/02/05, due 07/07/05 35,200 35,000 3.19%, issued 06/17/05, due 07/07/05 40,071 40,000 3.26%, issued 06/23/05, due 07/07/05 40,051 40,000
See financial notes. 9 SCHWAB GOVERNMENT MONEY FUND PORTFOLIO HOLDINGS continued
MATURITY AMOUNT VALUE SECURITY ($ x 1,000) ($ x 1,000) UBS FINANCIAL SERVICES, INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $331,517 3.07%, issued 05/10/05, due 07/07/05 20,099 20,000 3.14%, issued 05/27/05, due 07/07/05 35,125 35,000 3.16%, issued 06/02/05, due 07/07/05 25,077 25,000 3.17%, issued 05/17/05, due 07/07/05 50,225 50,000 3.21%, issued 05/25/05, due 07/07/05 25,096 25,000 3.25%, issued 05/31/05, due 07/07/05 40,134 40,000 3.25%, issued 06/01/05, due 07/07/05 30,098 30,000 3.27%, issued 06/06/05, due 07/07/05 15,042 15,000 3.30%, issued 06/07/05, due 07/07/05 40,110 40,000 3.32%, issued 06/13/05, due 07/07/05 30,066 30,000 3.51%, issued 06/21/05, due 07/07/05 15,023 15,000 ----------- 1,086,369
END OF INVESTMENTS. 10 See financial notes. SCHWAB GOVERNMENT MONEY FUND Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS --------------------------------------------------------------------------------- Investments, at value $1,363,393 a Repurchase agreements, at value 1,086,369 a Interest receivable + 4,721 ------------- TOTAL ASSETS 2,454,483 LIABILITIES --------------------------------------------------------------------------------- Payables: Dividends to shareholders 2,396 Investments bought 58,719 Investment adviser and administrator fees 55 Transfer agent and shareholder service fees 89 Trustees' fees 3 Accrued expenses + 80 ------------- TOTAL LIABILITIES 61,342 NET ASSETS --------------------------------------------------------------------------------- TOTAL ASSETS 2,454,483 TOTAL LIABILITIES - 61,342 ------------- NET ASSETS $2,393,141 NET ASSETS BY SOURCE Capital received from investors 2,393,700 Net realized capital losses (559) NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $2,393,141 2,394,253 $1.00
Unless stated, all numbers x 1,000. a The amortized cost for the fund's securities was $2,449,762. FEDERAL TAX DATA -------------------------------------- COST BASIS OF PORTFOLIO $2,449,762 AS OF DECEMBER 31, 2004: UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2005 $226 2006 119 2007 184 2008 13 2010 1 2011 + 16 ------------ $559 See financial notes. 11 SCHWAB GOVERNMENT MONEY FUND Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Interest $34,127 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 4,538 a Transfer agent and shareholder service fees 5,643 b Trustees' fees 14 c Custodian and portfolio accounting fees 104 Professional fees 16 Registration fees 68 Shareholder reports 53 Other expenses + 20 --------- Total expenses 10,456 Expense reduction - 1,052 d --------- NET EXPENSES 9,404 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 34,127 NET EXPENSES - 9,404 --------- NET INVESTMENT INCOME 24,723 --------- INCREASE IN NET ASSETS FROM OPERATIONS $24,723
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.25% of the fund's assets; for shareholder services, 0.20% of the fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab) c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the annual operating expenses through April 29, 2006 to 0.75% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. 12 See financial notes. SCHWAB GOVERNMENT MONEY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS -------------------------------------------------------------------------------- 1/1/05-6/30/05 1/1/03-12/31/04 Net investment income $24,723 $17,967 ------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS 24,723 17,967 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income 24,723 17,967 a TRANSACTIONS IN FUND SHARES b -------------------------------------------------------------------------------- Shares sold 4,167,575 8,723,826 Shares reinvested 22,057 17,617 Shares redeemed + (4,331,757) (9,043,706) ------------------------------------ NET TRANSACTIONS IN FUND SHARES (142,125) (302,263) NET ASSETS -------------------------------------------------------------------------------- Beginning of period 2,535,266 2,837,529 Total decrease + (142,125) (302,263) c ------------------------------------ END OF PERIOD $2,393,141 $2,535,266
Unless stated, all numbers x 1,000. a The tax-basis components of distributions for the period ended 12/31/04 are: Ordinary income $17,967 Long-term capital gains $-- b Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. c Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. See financial notes. 13 SCHWAB U.S. TREASURY MONEY FUND(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 ----------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 0.00 1 0.01 0.04 0.05 ----------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.00) 1 (0.01) (0.04) (0.05) ----------------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 ----------------------------------------------------------------------------------- Total return (%) 0.92 2 0.62 0.49 1.15 3.61 5.40 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.65 3 0.65 0.65 0.65 0.65 0.66 4 Gross operating expenses 0.83 3 0.82 0.82 0.82 0.84 0.85 Net investment income 1.84 3 0.61 0.49 1.15 3.44 5.27 Net assets, end of period ($ x 1,000,000) 3,460 3,811 4,046 4,323 4,042 2,750
* Unaudited. 1 Per share amount was less than $0.01. 2 Not annualized. 3 Annualized. 4 The ratio of net operating expenses would have been 0.65% if certain non-routine expenses (proxy fees) had not been included. 14 See financial notes. SCHWAB U.S. TREASURY MONEY FUND PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. For fixed-rate obligations, the rate shown is the effective yield at the time of purchase, except U.S. Treasury notes, for which the rate shown is the interest rate (the rate established when the obligation was issued). For variable-rate obligations, the rate shown is the rate as of the report date. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 99.9% U.S. GOVERNMENT SECURITIES 3,456,183 3,456,183 -------------------------------------------------------------------------------- 99.9% TOTAL INVESTMENTS 3,456,183 3,456,183 0.1% OTHER ASSETS AND LIABILITIES 3,510 -------------------------------------------------------------------------------- 100.0% NET ASSETS 3,459,693
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) U.S. GOVERNMENT SECURITIES 99.9% of net assets TREASURY BILLS 91.6% -------------------------------------------------------------------------- U.S. TREASURY BILLS 2.54%, 07/07/05 10,435 10,431 2.72%, 07/07/05 35,000 34,984 2.74%, 07/07/05 7,850 7,846 2.75%, 07/07/05 50,000 49,977 2.76%, 07/07/05 50,000 49,977 2.78%, 07/07/05 13,020 13,014 2.80%, 07/07/05 21,265 21,255 2.81%, 07/07/05 100,000 99,953 2.82%, 07/07/05 81,675 81,637 2.68%, 07/14/05 92,160 92,071 2.78%, 07/14/05 100,000 99,900 2.75%, 07/21/05 9,500 9,486 2.81%, 07/21/05 40,000 39,938 2.84%, 07/21/05 50,000 49,922 2.86%, 07/21/05 4,545 4,538 2.73%, 07/28/05 75,000 74,847 2.74%, 07/28/05 1,930 1,926 2.84%, 08/04/05 6,905 6,887 2.91%, 08/04/05 57,555 57,398 2.87%, 08/11/05 100,000 99,675 2.91%, 08/11/05 6,160 6,140 2.96%, 08/11/05 71,345 71,107 2.90%, 08/18/05 53,425 53,219 2.91%, 08/18/05 11,080 11,037 2.98%, 08/18/05 40,000 39,843 3.03%, 08/18/05 50,000 49,801 2.95%, 08/25/05 75,000 74,665 2.96%, 08/25/05 150,000 149,328 2.97%, 08/25/05 60,000 59,731 2.99%, 08/25/05 50,000 49,774 3.00%, 08/25/05 50,000 49,774 3.04%, 08/25/05 40,940 40,752 2.92%, 09/01/05 25,000 24,875 2.93%, 09/01/05 50,000 49,750 2.94%, 09/01/05 50,000 49,749 2.96%, 09/01/05 210,000 208,938 2.97%, 09/08/05 57,285 56,962 2.98%, 09/08/05 200,000 198,865 3.00%, 09/15/05 350,000 347,802 3.02%, 09/15/05 30,000 29,812 3.03%, 09/15/05 22,315 22,175 3.05%, 09/15/05 15,000 14,905 2.97%, 09/22/05 200,000 198,641 2.98%, 09/22/05 75,000 74,488 3.09%, 09/22/05 32,230 32,004 3.10%, 09/29/05 225,000 223,269 3.07%, 10/06/05 25,000 24,796 3.15%, 11/03/05 50,000 49,461 ----------- 3,167,325
See financial notes. 15 SCHWAB U.S. TREASURY MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE VALUE VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) TREASURY NOTES 8.3% -------------------------------------------------------------------------- U.S. TREASURY NOTES 6.50%, 08/15/05 287,635 288,858
END OF INVESTMENTS. 16 See financial notes. SCHWAB U.S. TREASURY MONEY FUND Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS --------------------------------------------------------------------------------- Investments, at value $3,456,183 a Cash 2 Interest receivable 7,024 Prepaid expenses + 46 ------------- TOTAL ASSETS 3,463,255 LIABILITIES --------------------------------------------------------------------------------- Payables: Dividends to shareholders 3,330 Investment adviser and administrator fees 53 Transfer agent and shareholder service fees 130 Trustees' fees 3 Accrued expenses + 46 ------------- TOTAL LIABILITIES 3,562 NET ASSETS --------------------------------------------------------------------------------- TOTAL ASSETS 3,463,255 TOTAL LIABILITIES - 3,562 ------------- NET ASSETS $3,459,693 NET ASSETS BY SOURCE Capital received from investors 3,460,782 Net realized capital losses (1,089) NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $3,459,693 3,460,846 $1.00
Unless stated, all numbers x 1,000. a The amortized cost for the fund's securities was $3,456,183. FEDERAL TAX DATA -------------------------------------- COST BASIS OF PORTFOLIO $3,456,183 AS OF DECEMBER 31, 2004: UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2005 $62 2006 89 2007 580 2010 66 2011 75 2012 + 125 ------------ $997 DEFERRED CAPITAL LOSSES $51 See financial notes. 17 SCHWAB U.S. TREASURY MONEY FUND Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME --------------------------------------------------------------------------------- Interest $45,288 NET REALIZED GAINS AND LOSSES --------------------------------------------------------------------------------- Net realized losses on investments sold (25) EXPENSES --------------------------------------------------------------------------------- Investment adviser and administrator fees 6,505 a Transfer agent and shareholder service fees 8,172 b Trustees' fees 17 c Custodian and portfolio accounting fees 142 Professional fees 19 Registration fees 48 Shareholder reports 52 Other expenses + 32 ---------- Total expenses 14,987 Expense reduction - 3,182 d ---------- NET EXPENSES 11,805 INCREASE IN NET ASSETS FROM OPERATIONS --------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 45,288 NET EXPENSES - 11,805 ---------- NET INVESTMENT INCOME 33,483 NET REALIZED LOSSES + (25) ---------- INCREASE IN NET ASSETS FROM OPERATIONS $33,458
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.25% of the fund's assets; for shareholder services, 0.20% of the fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab) c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the annual operating expenses through April 29, 2006 to 0.65% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. 18 See financial notes. SCHWAB U.S. TREASURY MONEY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS --------------------------------------------------------------------------------- 1/1/05-6/30/05 1/1/04-12/31/04 Net investment income $33,483 $25,370 Net realized losses + (25) (192) ------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 33,458 25,178 DISTRIBUTIONS PAID --------------------------------------------------------------------------------- Dividends from net investment income 33,483 25,370 a TRANSACTIONS IN FUND SHARES b --------------------------------------------------------------------------------- Shares sold 5,925,875 11,353,793 Shares reinvested 29,764 25,007 Shares redeemed + (6,306,964) (11,613,375) ------------------------------------- NET TRANSACTIONS IN FUND SHARES (351,325) (234,575) NET ASSETS --------------------------------------------------------------------------------- Beginning of period 3,811,043 4,045,810 Total decrease + (351,350) (234,767) c ------------------------------------- END OF PERIOD $3,459,693 $3,811,043
Unless stated, all numbers x 1,000. a The tax-basis components of distributions for the period ended 12/31/04 are: Ordinary income $25,370 Long-term capital gains $-- b Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. c Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. See financial notes. 19 SCHWAB VALUE ADVANTAGE MONEY FUND(R) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- INVESTOR SHARES 6/30/05* 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00 ----------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 0.01 0.02 0.04 0.06 ----------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.01) (0.02) (0.04) (0.06) ----------------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00 ----------------------------------------------------------------------------------- Total return (%) 1.14 1 0.98 0.80 1.55 4.05 6.22 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.45 2 0.45 0.45 0.45 0.43 0.41 3 Gross operating expenses 0.56 2 0.56 0.55 0.54 0.56 0.60 Net investment income 2.30 2 0.97 0.81 1.55 3.92 6.07 Net assets, end of period ($ x 1,000,000) 22,543 23,365 28,860 38,728 44,247 36,319
1/1/05- 1/1/04- 2/28/03 4- SELECT SHARES 6/30/05* 12/31/04 12/31/03 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 ----------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 0.01 ----------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.01) ----------------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 ----------------------------------------------------------------------------------- Total return (%) 1.19 1 1.09 0.72 1 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.35 2 0.35 0.35 2 Gross operating expenses 0.56 2 0.56 0.55 2 Net investment income 2.43 2 1.10 0.83 2 Net assets, end of period ($ x 1,000,000) 1,559 1,209 1,013
* Unaudited. 1 Not annualized. 2 Annualized. 3 The ratio of net operating expenses would have been 0.40% if certain non-routine expenses (proxy fees) had not been included. 4 Commencement of operations. 20 See financial notes. SCHWAB VALUE ADVANTAGE MONEY FUND
1/1/05- 1/1/04- 1/1/03- 7/1/02 1- INSTITUTIONAL SHARES 6/30/05* 12/31/04 12/31/03 12/31/02 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 1.00 1.00 ----------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.01 0.01 0.01 ----------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.01) (0.01) (0.01) ----------------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 ----------------------------------------------------------------------------------- Total return (%) 1.25 2 1.20 1.01 0.81 2 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.24 3 0.24 0.24 0.24 3 Gross operating expenses 0.56 3 0.56 0.55 0.55 3 Net investment income 2.51 3 1.20 1.00 1.57 3 Net assets, end of period ($ x 1,000,000) 1,282 1,054 720 521
* Unaudited. 1 Commencement of operations. 2 Not annualized. 3 Annualized. See financial notes. 21 SCHWAB VALUE ADVANTAGE MONEY FUND PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, 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 reviewed 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 the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. * Asset-backed security + Credit-enhanced security o Illiquid and/or restricted security 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. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 64.5% FIXED-RATE OBLIGATIONS 16,376,982 16,376,982 19.7% VARIABLE-RATE OBLIGATIONS 4,997,846 4,997,846 16.1% OTHER INVESTMENTS 4,081,902 4,081,902 -------------------------------------------------------------------------------- 100.3% TOTAL INVESTMENTS 25,456,730 25,456,730 (0.3)% OTHER ASSETS AND LIABILITIES (73,045) -------------------------------------------------------------------------------- 100.0% NET ASSETS 25,383,685
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) FIXED-RATE OBLIGATIONS 64.5% of net assets COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 33.4% -------------------------------------------------------------------------- AB SPINTAB 2.95%, 08/08/05 25,000 24,923 3.25%, 09/22/05 50,000 49,631 ALLIANCE & LEICESTER, PLC, SECTION 4(2) / 144A 3.20%, 09/12/05 50,000 49,681 * AMSTEL FUNDING CORP., SECTION 4(2) / 144A 2.95%, 08/10/05 50,000 49,838 3.28%, 08/31/05 40,000 39,780 *+ AMSTERDAM FUNDING CORP., SECTION 4(2) / 144A 3.09%, 07/06/05 15,000 14,994 3.09%, 07/07/05 164,000 163,915 3.28%, 07/07/05 85,000 84,954 3.19%, 07/21/05 60,000 59,894 3.26%, 07/25/05 11,000 10,976 *+ AQUINAS FUNDING, L.L.C., SECTION 4(2) / 144A 2.85%, 07/12/05 35,000 34,970 3.60%, 12/13/05 50,000 49,189 3.61%, 12/22/05 43,000 42,263 *+ ASAP FUNDING LTD., SECTION 4(2) / 144A 3.29%, 08/02/05 173,000 172,496 3.23%, 08/08/05 28,000 27,905 *+ ATLANTIC ASSET SECURITIZATION CORP., SECTION 4(2) / 144A 3.18%, 07/14/05 52,000 51,940 * ATLANTIS ONE FUNDING CORP., SECTION 4(2) / 144A 2.82%, 07/11/05 32,990 32,965 2.87%, 07/20/05 57,000 56,915 2.87%, 07/22/05 101,055 100,888 2.98%, 08/12/05 148,000 147,492 3.25%, 09/20/05 8,000 7,942 3.39%, 11/16/05 78,826 77,820 3.44%, 11/18/05 57,230 56,478 3.60%, 12/20/05 16,000 15,729 BANK OF AMERICA CORP. 3.31%, 10/06/05 60,000 59,473 *+ BETA FINANCE, INC., SECTION 3C7 / 144A 3.28%, 08/30/05 25,000 24,865 *+o BLUE SPICE, L.L.C., SECTION 4(2) / 144A 3.29%, 07/12/05 17,000 16,983 3.26%, 07/22/05 100,000 99,810
22 See financial notes. SCHWAB VALUE ADVANTAGE MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) * CC (USA), INC., SECTION 3C7 / 144A 3.13%, 07/22/05 15,000 14,973 3.31%, 09/12/05 25,000 24,833 3.46%, 09/29/05 53,000 52,546 CITIGROUP GLOBAL MARKETS HOLDINGS, INC. 3.17%, 08/02/05 322,000 321,098 3.27%, 09/01/05 190,000 188,940 *+ CLIPPER RECEIVABLES CO., SECTION 4(2) / 144A 3.08%, 07/05/05 14,000 13,995 3.09%, 07/05/05 100,000 99,966 3.11%, 07/21/05 32,500 32,444 *+ CONCORD MINUTEMEN CAPITAL CO., SERIES A SECTION 3C7 / 144A 2.78%, 07/06/05 36,000 35,986 2.80%, 07/06/05 30,000 29,989 2.96%, 08/08/05 95,000 94,707 3.01%, 08/18/05 100,000 99,605 *+ CROWN POINT CAPITAL CO., L.L.C., SECTION 4(2) / 144A 3.17%, 07/26/05 86,000 85,812 3.30%, 09/07/05 15,000 14,907 3.32%, 09/21/05 54,000 53,598 3.44%, 11/16/05 80,000 78,962 * DAKOTA CP NOTES OF CITIBANK CREDIT CARD ISSUANCE TRUST, SECTION 4(2) / 144A 3.25%, 07/20/05 200,000 199,658 3.17%, 07/25/05 75,000 74,843 3.17%, 07/26/05 52,000 51,886 3.17%, 07/27/05 224,000 223,491 3.30%, 09/06/05 173,373 172,316 3.30%, 09/07/05 47,000 46,709 * DORADA FINANCE, INC., SECTION 3C7 / 144A 3.43%, 09/28/05 25,000 24,790 *+ EIFFEL FUNDING, LLC., SECTION 4(2) / 144A 3.24%, 08/11/05 15,000 14,945 *+ FAIRWAY FINANCE CO., LLC, SECTION 4(2) / 144A 3.25%, 07/20/05 89,000 88,848 *+ FALCON ASSET SECURITIZATION CORP., SECTION 4(2) / 144A 3.13%, 07/14/05 51,172 51,114 3.18%, 07/18/05 40,110 40,050 3.19%, 07/19/05 100,000 99,841 3.26%, 07/25/05 110,000 109,762 * GALAXY FUNDING, INC., SECTION 4(2) / 144A 3.09%, 07/20/05 35,000 34,943 3.12%, 07/26/05 33,000 32,929 3.28%, 08/26/05 60,000 59,697 3.43%, 09/26/05 35,000 34,712 GENERAL ELECTRIC CAPITAL CORP. 2.86%, 07/21/05 225,000 224,648 * GIRO FUNDING U.S. CORP., SECTION 4(2) / 144A 3.13%, 07/08/05 35,000 34,979 3.18%, 07/13/05 35,000 34,963 3.18%, 07/14/05 24,000 23,973 3.20%, 07/14/05 25,000 24,971 3.23%, 07/15/05 50,000 49,937 3.24%, 07/18/05 55,000 54,916 3.27%, 07/21/05 35,000 34,937 3.24%, 07/22/05 35,000 34,934 *+ GRAMPIAN FUNDING, LLC., SECTION 4(2) / 144A 3.43%, 09/28/05 6,000 5,950 3.60%, 12/20/05 62,000 60,951 HSBC U.S.A., INC. 3.32%, 08/01/05 13,000 12,963 + ING (U.S.) FUNDING, LLCC 3.25%, 07/20/05 10,000 9,983 IRISH LIFE & PERMANENT, PLC, SECTION 4(2) / 144A 3.30%, 09/12/05 39,450 39,188 3.30%, 09/13/05 32,000 31,785 3.45%, 11/10/05 36,500 36,046 *+ JUPITER SECURITIZATION CORP., SECTION 4(2) / 144A 3.14%, 07/14/05 101,314 101,199 3.29%, 07/14/05 10,015 10,003 3.19%, 07/19/05 100,000 99,841 3.23%, 07/26/05 35,496 35,417 * K2 (USA), L.L.C., SECTION 3C7 / 144A 2.92%, 07/07/05 14,500 14,493 2.96%, 08/11/05 38,500 38,372 2.96%, 08/16/05 41,000 40,847 3.07%, 08/25/05 35,000 34,838 3.31%, 09/12/05 20,000 19,867 3.35%, 10/03/05 70,000 69,399 3.38%, 11/08/05 10,000 9,880 3.51%, 12/09/05 20,000 19,691 + KBC FINANCIAL PRODUCTS INTERNATIONAL, LTD., SECTION 4(2) / 144A 3.37%, 10/12/05 50,000 49,526 *+ KITTY HAWK FUNDING CORP., SECTION 4(2) / 144A 3.26%, 07/25/05 31,287 31,219
See financial notes. 23 SCHWAB VALUE ADVANTAGE MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) *+ LEXINGTON PARKER CAPITAL CO., L.L.C., SECTION 4(2) / 144A 3.07%, 07/06/05 35,000 34,985 2.96%, 08/08/05 67,000 66,793 2.98%, 08/08/05 24,509 24,433 3.15%, 09/01/05 210,000 208,879 *+ LINKS FINANCE, L.L.C., SECTION 3C7 / 144A 3.30%, 07/14/05 8,409 8,399 * MANE FUNDING CORP., SECTION 4(2) / 144A 3.09%, 07/19/05 49,784 49,708 3.31%, 07/27/05 50,000 49,881 3.43%, 09/21/05 100,000 99,226 3.43%, 09/22/05 61,000 60,522 3.43%, 09/23/05 40,000 39,683 MORGAN STANLEY 3.23%, 07/20/05 168,000 167,715 3.25%, 07/26/05 126,000 125,717 * NEWCASTLE CERTIFICATES PROGRAM, SERIES 2000A SECTION 4(2) / 144A 3.21%, 07/11/05 50,800 50,755 3.22%, 07/13/05 25,000 24,973 *+ NIEUW AMSTERDAM RECEIVABLES CORP., SECTION 4(2) / 144A 3.30%, 07/07/05 50,066 50,038 2.89%, 07/13/05 10,000 9,991 2.96%, 08/08/05 20,295 20,232 *+ PARK AVENUE RECEIVABLES CORP. L.L.C., SECTION 4(2) / 144A 3.14%, 07/14/05 51,159 51,101 3.26%, 07/22/05 99,000 98,812 3.26%, 07/25/05 105,000 104,773 * PARK GRANADA, L.L.C., SECTION 4(2) / 144A 3.30%, 07/12/05 10,000 9,990 3.26%, 07/25/05 94,000 93,796 3.17%, 07/26/05 21,000 20,954 3.20%, 08/01/05 1,500 1,496 + SAN PAOLO IMI U.S. FINANCIAL CO. 3.09%, 07/21/05 23,000 22,961 + SANTANDER CENTRAL HISPANO FINANCE (DELAWARE), INC. 2.81%, 07/13/05 55,000 54,949 3.31%, 09/09/05 130,000 129,170 *+ SCALDIS CAPITAL LTD., SECTION 4(2) / 144A 3.33%, 09/15/05 37,000 36,744 3.25%, 09/19/05 20,330 20,185 *+ SIGMA FINANCE, INC., SECTION 3C7 / 144A 2.81%, 07/01/05 20,000 20,000 3.08%, 07/12/05 63,000 62,941 3.09%, 07/13/05 40,000 39,959 3.46%, 11/21/05 10,000 9,865 SKANDINAVISKA ENSKILDA BANKEN AB 2.81%, 07/12/05 40,000 39,966 3.25%, 09/16/05 35,000 34,761 SOCIETE GENERALE NORTH AMERICA, INC. 2.73%, 07/06/05 88,000 87,967 THE GOLDMAN SACHS GROUP, INC. 3.47%, 11/21/05 55,000 54,255 *+ THUNDER BAY FUNDING, LLC., SECTION 4(2) / 144A 3.09%, 07/07/05 14,247 14,240 *+ TICONDEROGA FUNDING, LLC., SECTION 4(2) / 144A 3.26%, 07/22/05 120,385 120,157 *+ TRIPLE A-ONE FUNDING CORP., SECTION 4(2) / 144A 3.15%, 07/13/05 23,409 23,385 + UBS FINANCE (DELAWARE) INC. 3.08%, 07/08/05 400,000 399,761 3.11%, 07/14/05 28,000 27,969 + WESTPAC CAPITAL CORP. 3.47%, 11/28/05 81,000 79,851 3.46%, 11/29/05 50,000 49,287 + WESTPAC TRUST SECURITIES NZ LTD. 3.23%, 08/11/05 7,800 7,771 * WHITE PINE FINANCE, L.L.C., SECTION 3C7 / 144A 3.37%, 10/27/05 8,000 7,913 *+ WINDMILL FUNDING CORP., SECTION 4(2) / 144A 3.26%, 07/26/05 9,150 9,129 3.26%, 07/27/05 141,012 140,681 ----------- 8,484,039 CERTIFICATES OF DEPOSIT 27.6% -------------------------------------------------------------------------- ALLIANCE & LEICESTER, PLC 3.32%, 10/18/05 38,000 37,962 3.58%, 12/20/05 50,000 50,000 AMERICAN EXPRESS BANK FSB 3.09%, 07/07/05 45,000 45,000 AMERICAN EXPRESS CENTURION BANK 3.20%, 07/18/05 75,000 75,000 BANCO BILBAO VIZCAYA ARGENTARIA S.A. 2.77%, 07/06/05 173,000 173,000
24 See financial notes. SCHWAB VALUE ADVANTAGE MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) BANK OF THE WEST 3.33%, 09/27/05 48,000 48,000 BANK OF TOKYO-MITSUBISHI, LTD. 3.32%, 09/12/05 100,000 100,000 BARCLAYS BANK PLC 3.20%, 08/08/05 31,000 31,000 3.57%, 12/19/05 100,000 100,000 BNP PARIBAS 3.30%, 09/12/05 280,000 280,000 3.43%, 11/08/05 325,000 325,000 3.46%, 11/28/05 163,000 163,000 CALYON 2.95%, 08/10/05 103,000 103,000 3.40%, 11/10/05 195,000 195,000 CANADIAN IMPERIAL BANK OF COMMERCE 2.72%, 07/05/05 9,000 9,000 3.11%, 07/14/05 150,000 150,000 CREDIT SUISSE FIRST BOSTON 3.15%, 07/29/05 230,000 230,000 3.19%, 08/09/05 28,000 28,000 3.27%, 09/02/05 180,000 180,000 DANSKE BANK A/S 3.18%, 07/18/05 370,000 370,000 3.23%, 07/26/05 15,000 15,000 DEPFA BANK, PLC 2.77%, 07/05/05 10,000 10,000 3.11%, 09/01/05 56,000 56,000 DEUTSCHE BANK, AG 3.31%, 09/16/05 100,000 100,000 DEXIA CREDIT LOCAL 3.23%, 07/22/05 60,000 60,000 DNB NOR BANK ASA 3.25%, 09/22/05 20,000 20,000 + HBOS TREASURY SERVICES, PLC 2.72%, 07/05/05 72,000 72,000 HSBC BANK, PLC 3.11%, 07/25/05 95,000 95,000 3.03%, 08/22/05 200,000 200,000 HSBC BANK, USA 3.44%, 11/21/05 40,000 39,996 KBC BANK NV 3.11%, 07/15/05 152,000 152,000 LANDESBANK BADEN-WURTTEMBERG 3.31%, 09/09/05 175,000 175,000 LANDESBANK HESSEN-THURINGEN GIROZENTRALE 3.15%, 09/12/05 100,000 100,001 3.45%, 11/14/05 35,000 35,000 LLOYDS TSB BANK, PLC 3.45%, 11/17/05 49,000 48,995 MIZUHO CORP. BANK, LTD. 3.27%, 07/22/05 96,000 96,000 NORDEA BANK FINLAND, PLC 2.71%, 07/08/05 50,000 50,000 ROYAL BANK OF SCOTLAND, PLC 2.17%, 07/01/05 75,000 75,000 SKANDINAVISKA ENSKILDA BANKEN AB 3.20%, 07/22/05 80,000 80,000 SOCIETE GENERALE 2.95%, 08/09/05 54,000 54,000 3.23%, 09/23/05 100,000 100,000 3.37%, 11/09/05 75,000 75,000 3.51%, 12/15/05 155,000 155,000 3.54%, 12/16/05 80,000 80,000 SVENSKA HANDELSBANKEN AB 3.19%, 08/10/05 376,500 376,500 TORONTO DOMINION BANK 2.73%, 07/07/05 31,000 31,000 3.44%, 11/09/05 36,000 35,990 3.45%, 11/28/05 191,000 191,000 3.47%, 12/05/05 14,000 14,000 U.S. BANK, N.A. 3.20%, 09/15/05 125,000 125,000 3.34%, 10/03/05 115,000 115,000 3.32%, 10/11/05 75,000 75,000 3.47%, 11/28/05 154,500 154,500 UBS, AG 2.71%, 07/08/05 215,000 215,000 UNICREDITO ITALIANO SPA 3.34%, 10/12/05 449,000 449,000 WASHINGTON MUTUAL BANK, FA 3.32%, 09/19/05 80,000 80,000 3.27%, 09/26/05 39,000 39,000 3.44%, 11/22/05 86,000 86,000 WELLS FARGO BANK, N.A. 3.27%, 07/12/05 364,000 363,999 WILMINGTON TRUST CO. 2.81%, 07/05/05 25,000 25,000 ----------- 7,012,943
See financial notes. 25 SCHWAB VALUE ADVANTAGE MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) BANK NOTES 2.9% -------------------------------------------------------------------------- BANK OF AMERICA, N.A. 2.98%, 08/19/05 200,000 200,000 2.98%, 08/23/05 350,000 350,000 LASALLE NATIONAL BANK 3.18%, 08/01/05 180,000 180,000 ----------- 730,000 PROMISSORY NOTES 0.6% -------------------------------------------------------------------------- o THE GOLDMAN SACHS GROUP, INC. 2.85%, 07/06/05 30,000 30,000 2.93%, 07/15/05 120,000 120,000 ----------- 150,000 VARIABLE-RATE OBLIGATIONS 19.7% of net assets + ACCESS LOANS FOR LEARNING STUDENT LOAN CORP. Taxable Student Loan RB Series II-A-6 3.32%, 07/07/05 27,800 27,800 BANK OF NEW YORK CO., INC., 144A 3.35%, 07/27/05 50,000 50,000 BARCLAYS BANK, PLC 3.00%, 07/05/05 90,000 89,984 3.13%, 07/11/05 37,000 36,993 3.21%, 07/21/05 10,000 9,998 3.21%, 07/21/05 200,000 199,966 3.26%, 07/29/05 260,000 259,972 BAYERISCHE LANDESBANK GIROZENTRALE 3.25%, 07/29/05 75,000 74,992 BNP PARIBAS 3.18%, 07/18/05 75,000 74,984 CANADIAN IMPERIAL BANK OF COMMERCE 3.28%, 07/15/05 100,000 100,000 + CENTRAL BAPTIST CHURCH OF HIXSON, TENNESSEE 3.39%, 07/07/05 13,000 13,000 + CITY OF NEW BRITAIN, CONNECTICUT GO Pension Bonds Series 1998 3.34%, 07/07/05 40,000 40,000 + COLUMBUS, GEORGIA DEVELOPMENT AUTHORITY Taxable RB (Jay Leasing, Inc. Project) Series 1997 3.36%, 07/07/05 5,700 5,700 * DORADA FINANCE, INC., SECTION 3C7 / 144A 3.17%, 07/14/05 145,000 144,984 FANNIE MAE 2.99%, 07/05/05 100,000 99,983 3.21%, 07/29/05 200,000 199,985 FEDERAL HOME LOAN BANK 3.05%, 07/05/05 225,000 224,970 o GE CAPITAL ASSURANCE 3.19%, 07/01/05 50,000 50,000 GENERAL ELECTRIC CAPITAL CORP. 3.34%, 07/18/05 225,000 225,000 + HBOS TREASURY SERVICE, PLC 3.09%, 07/05/05 92,000 92,000 3.27%, 07/26/05 82,000 82,000 HSH NORDBANK, AG 3.12%, 07/11/05 168,000 167,989 J.P. MORGAN SECURITIES, INC., 144A 3.11%, 07/01/05 100,000 100,000 LANDESBANK BADEN-WURTTEMBERG 3.22%, 07/22/05 30,000 29,997 * LIBERTY LIGHTHOUSE U.S. CAPITAL CO. L.L.C. 4(2) / 144A 3.08%, 07/01/05 31,000 30,999 3.23%, 07/19/05 30,000 29,998 3.27%, 07/26/05 50,000 49,999 3.29%, 07/29/05 40,000 39,996 *+ LINKS FINANCE, L.L.C., SECTION 3C7 / 144A 3.17%, 07/15/05 127,000 126,989 3.27%, 07/25/05 50,000 49,999 3.30%, 07/26/05 25,000 25,000 + LOANSTAR ASSETS PARTNERS II, L.P. 3.32%, 07/07/05 25,000 25,000 + MERLOT TRUST SECTION 4(2) / 144A Series 2000B 3.49%, 07/07/05 30,000 30,000 o METROPOLITAN LIFE INSURANCE CO. 3.18%, 07/01/05 100,000 100,000 3.16%, 07/30/05 50,000 50,000 o MONUMENTAL LIFE INSURANCE CO. 3.18%, 07/01/05 100,000 100,000 3.21%, 07/01/05 10,000 10,000 3.27%, 07/01/05 100,000 100,000 MORGAN STANLEY 3.13%, 07/05/05 140,000 140,000
26 See financial notes. SCHWAB VALUE ADVANTAGE MONEY FUND
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) + NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY Taxable Economic Development Bonds (MSNBC CNBC Project) Series 1997A 3.11%, 07/01/05 17,600 17,600 NORDDEUTSCHE LANDESBANK GIROZENTRALE 3.10%, 07/05/05 130,000 129,982 3.15%, 07/12/05 20,000 19,999 3.17%, 07/14/05 75,000 74,985 ROYAL BANK OF CANADA 3.20%, 07/11/05 40,000 40,000 ROYAL BANK OF SCOTLAND, PLC 3.09%, 07/05/05 90,000 89,988 3.09%, 07/06/05 140,000 139,977 3.24%, 07/21/05 20,000 20,000 3.26%, 07/27/05 112,000 111,984 3.36%, 07/29/05 18,000 17,998 *+ SIGMA FINANCE, INC., SECTION 3C7 / 144A 3.17%, 07/15/05 49,125 49,120 3.20%, 07/15/05 15,000 15,001 3.21%, 07/15/05 20,000 20,000 3.26%, 07/25/05 115,000 114,987 3.26%, 07/25/05 100,000 99,998 3.28%, 08/01/05 15,000 15,000 o THE GOLDMAN SACHS GROUP, INC. 3.18%, 07/05/05 102,000 102,000 3.32%, 07/30/05 87,000 87,000 o THE GOLDMAN SACHS GROUP, INC., 144A 3.23%, 07/11/05 125,000 125,000 + TOWN OF ISLIP, NEW YORK IDA, 144A Taxable Adjustable Rate IDRB (Nussdorf Associates/Quality King Distributions, Inc. Facility) Series 1992 3.65%, 07/07/05 1,940 1,940 o TRAVELERS INSURANCE CO. 3.16%, 07/01/05 25,000 25,000 3.33%, 07/20/05 100,000 100,000 3.38%, 07/29/05 25,000 25,000 *+ WACHOVIA ASSET SECURITIZATION, INC., 144A Series 2005-HM1A Class AMM 3.29%, 07/25/05 40,000 40,000 WELLS FARGO & CO., 144A 3.19%, 07/15/05 120,000 120,001 * WHITE PINE FINANCE, L.L.C., SECTION 3C7 / 144A 3.26%, 07/20/05 42,000 42,010 3.28%, 07/28/05 45,000 44,999 ----------- 4,997,846
MATURITY AMOUNT SECURITY ($ x 1,000) OTHER INVESTMENTS 16.1% of net assets REPURCHASE AGREEMENTS 16.1% -------------------------------------------------------------------------- BANK OF AMERICA SECURITIES LLC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $1,045,500 3.45%, issued 06/30/05, due 07/01/05 1,025,098 1,025,000 CREDIT SUISSE FIRST BOSTON LLC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $564,984 3.40%, issued 06/30/05, due 07/01/05 184,920 184,902 3.09%, issued 05/25/05, due 07/07/05 370,362 369,000 GOLDMAN SACHS & CO. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $1,278,060 3.45%, issued 06/30/05, due 07/01/05 1,253,120 1,253,000 J.P. MORGAN CHASE & CO. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $357,002 3.44%, issued 06/30/05, due 07/01/05 350,033 350,000
See financial notes. 27 SCHWAB VALUE ADVANTAGE MONEY FUND PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) MORGAN STANLEY & CO. INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $613,320 3.40%, issued 06/30/05, due 07/01/05 300,028 300,000 3.45%, issued 06/30/05, due 07/01/05 300,029 300,000 UBS FINANCIAL SERVICES, INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $306,001 3.43%, issued 06/30/05, due 07/01/05 300,029 300,000 ----------- 4,081,902
END OF INVESTMENTS.
ISSUER COST/ RATE, ACQUISITION DATE FACE AMOUNT VALUE MATURITY DATE ($ x 1,000) ($ x 1,000) AT JUNE 30, 2005 PORTFOLIO HOLDINGS INCLUDED ILLIQUID AND/OR RESTRICTED SECURITIES AS FOLLOWS: BLUE SPICE, L.L.C., SECTION 4(2) / 144A 3.29%, 06/28/05, 07/12/05 17,000 16,983 3.26%, 06/22/05, 07/22/05 100,000 99,810 ----------- 116,793 GE CAPITAL ASSURANCE CO. 3.19%, 10/01/04, 07/01/05 50,000 50,000 METROPOLITAN LIFE INSURANCE CO., 144A 3.16%, 12/28/00, 07/30/05 50,000 50,000 METROPOLITAN LIFE INSURANCE CO. 3.18%, 02/01/05, 07/01/05 100,000 100,000 MONUMENTAL LIFE INSURANCE CO. 3.18%, 10/10/96, 07/01/05 100,000 100,000 3.27%, 01/12/00, 07/01/05 100,000 100,000 3.27%, 06/10/93, 07/01/05 10,000 10,000 ----------- 210,000 TRAVELERS INSURANCE CO. 3.38%, 10/29/04, 07/29/05 25,000 25,000 3.16%, 01/31/05, 07/01/05 25,000 25,000 3.33%, 08/20/04, 07/20/05 100,000 100,000 ----------- 150,000 THE GOLDMAN SACHS GROUP, INC. 3.18%, 02/03/05, 07/05/05 102,000 102,000 2.85%, 01/06/05, 07/06/05 30,000 30,000 2.93%, 01/19/05, 07/15/05 120,000 120,000 3.32%, 02/22/05, 07/22/05 87,000 87,000 ----------- 339,000 THE GOLDMAN SACHS GROUP, INC., 144A 3.23%, 07/09/04, 07/11/05 125,000 125,000
28 See financial notes. SCHWAB VALUE ADVANTAGE MONEY FUND Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS --------------------------------------------------------------------------------- Investments, at value $21,374,828 a Repurchase agreements, at value 4,081,902 a Receivables: Fund shares sold 127,384 Interest 54,854 Prepaid expenses + 304 -------------- TOTAL ASSETS 25,639,272 LIABILITIES --------------------------------------------------------------------------------- Payables: Fund shares redeemed 135,557 Dividends to shareholders 28,777 Investments bought 89,984 Investment adviser and administrator fees 450 Transfer agent and shareholder service fees 423 Trustees' fees 7 Accrued expenses + 389 -------------- TOTAL LIABILITIES 255,587 NET ASSETS --------------------------------------------------------------------------------- TOTAL ASSETS 25,639,272 TOTAL LIABILITIES - 255,587 -------------- NET ASSETS $25,383,685 NET ASSETS BY SOURCE Capital received from investors 25,383,788 Net realized capital losses (103) NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Investor Shares $22,542,705 22,542,916 $1.00 Select Shares $1,558,706 1,558,706 $1.00 Institional Shares $1,282,274 1,282,275 $1.00
Unless stated, all numbers x 1,000. a The amortized cost of the fund's securities was $25,456,730. Includes restricted and/or illiquid securities worth $1,140,793, or 4.5% of the fund's total net assets. Also, includes other restricted but deemed liquid securities comprised of 144A, section 4(2) and 3c7 securities, worth $7,598,507 or 29.9% of the fund's total net assets. FEDERAL TAX DATA -------------------------------------- COST BASIS OF PORTFOLIO $25,456,730 AS OF DECEMBER 31, 2004: UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2005 $103 See financial notes. 29 SCHWAB VALUE ADVANTAGE MONEY FUND Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Interest $353,297 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 42,101 a Transfer agent and shareholder service fees: Investor Shares 25,135 b Select Shares 1,608 b Institutional Shares 1,477 b Trustees' fees 47 c Custodian and portfolio accounting fees 1,077 Professional fees 55 Registration fees 339 Shareholder reports 162 Other expenses + 171 ---------- Total expenses 72,172 Expense reduction - 16,592 d ---------- NET EXPENSES 55,580 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 353,297 NET EXPENSES - 55,580 ---------- NET INVESTMENT INCOME 297,717 ---------- INCREASE IN NET ASSETS FROM OPERATIONS $297,717
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.05% of the fund's assets; for shareholder services 0.17% of the fund's assets. These fees are paid by Charles Schwab & Co., Inc. (Schwab) c For the fund's independent trustees only. d Includes $14,452 from the investment adviser (CSIM) and $2,140 from the transfer agent and shareholder service agent (Schwab). These reductions reflect a guarantee by CSIM and Schwab to limit the annual operating expenses through April 29, 2006, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS -------------------------------------- Investor Shares 0.45 Select Shares 0.35 Institutional Shares 0.24 This limit excludes interest, taxes and certain non-routine expenses. 30 See financial notes. SCHWAB VALUE ADVANTAGE MONEY FUND Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS -------------------------------------------------------------------------------- 1/1/05-6/30/05 1/1/04-12/31/04 Net investment income $297,717 $275,461 ----------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 297,717 275,461 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income Investor Shares 263,124 251,075 Select Shares 17,724 12,183 Institutional Shares + 16,869 12,203 ----------------------------------- TOTAL DIVIDENDS FROM NET INVESTMENT INCOME 297,717 275,461 a TRANSACTIONS IN FUND SHARES b -------------------------------------------------------------------------------- SHARES SOLD Investor Shares 10,819,847 18,381,853 Select Shares 1,812,737 2,590,824 Institutional Shares + 1,946,809 2,979,806 ----------------------------------- TOTAL SHARES SOLD 14,579,393 23,952,483 SHARES REINVESTED Investor Shares 215,782 229,151 Select Shares 14,209 10,546 Institutional Shares + 13,154 10,215 ----------------------------------- TOTAL SHARES REINVESTED 243,145 249,912 SHARES REDEEMED Investor Shares (11,858,420) (24,105,952) Select Shares (1,477,131) (2,405,370) Institutional Shares + (1,731,290) (2,656,903) ----------------------------------- TOTAL SHARES REDEEMED (15,066,841) (29,168,225) NET TRANSACTIONS IN FUND SHARES (244,303) (4,965,830) c NET ASSETS -------------------------------------------------------------------------------- Beginning of period 25,627,988 30,593,818 Total decrease + (244,303) (4,965,830) d ----------------------------------- END OF PERIOD $25,383,685 $25,627,988
Unless stated, all numbers x 1,000. a The tax-basis components of distributions for the period ended 12/31/04 are: Ordinary income $275,461 Long-term capital gains $-- b Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. c Represents shares sold plus shares reinvested, minus shares redeemed. d Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. See financial notes. 31 SCHWAB MONEY FUNDS FINANCIAL NOTES unaudited BUSINESS STRUCTURE OF THE FUNDS EACH OF THE FUNDS DISCUSSED IN THIS REPORT IS A SERIES OF THE CHARLES SCHWAB FAMILY OF FUNDS, A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended. The sidebar shows the funds in this report and their trust. THE SCHWAB VALUE ADVANTAGE MONEY FUND OFFERS THREE SHARE CLASSES: Investor Shares, Select Shares and Institutional Shares. Shares of each class represent interest in the same portfolio, but each class has different expenses and investment minimums. The Schwab Government Money and U.S. Treasury Money Funds 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 trust may issue as many shares as necessary. FUND OPERATIONS Most of the funds' investments are described in the sections earlier in this report. However, there are certain other fund operations and policies that may affect a fund's financials, as described below. Other policies concerning the funds' business operations also are described here. THE FUNDS DECLARE DIVIDENDS EVERY DAY THEY ARE OPEN FOR BUSINESS. These dividends, which are equal to a fund's net investment income for that day, are paid out to shareholders once a month. The funds may make distributions from any net realized capital gains once a year. THE FUNDS 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, a fund 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. 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. Any repurchase agreements with due dates later than seven days from issue dates may be subject to seven day put features for liquidity purposes. The funds' repurchase agreements will be fully collateralized by U.S. government 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. THE TRUST AND ITS FUNDS This list shows all of the funds included in The Charles Schwab Family of Funds. The funds discussed in this report 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 Municipal Money Fund Schwab California Municipal Money Fund Schwab New York Municipal Money Fund Schwab New Jersey Municipal Money Fund Schwab Pennsylvania Municipal Money Fund Schwab Florida Municipal Money Fund Schwab Massachusetts Municipal Money Fund Schwab Retirement Advantage Money Fund Schwab Retirement Money Fund Schwab Government Cash Reserves Schwab Advisor Cash Reserves Schwab Cash Reserves 32 SCHWAB MONEY FUNDS THE FUNDS PAY FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES. Through their trust, the funds have agreements with Charles Schwab Investment Management, Inc. (CSIM) to provide investment advisory and administrative services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent and shareholder services. Although these agreements specify certain fees for these services, CSIM and Schwab have made additional agreements with the funds that may limit the total expenses charged. The rates and limitations for these fees vary from fund to fund, and are described in each fund's Statement of Operations. THE FUNDS MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. The funds may make direct transactions with certain other Schwab Funds(R) 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. Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions within the 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. 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. THE FUNDS MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The funds may obtain temporary bank loans through the trust to which the funds belong, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The Schwab Funds have custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A., respectively. The funds pay interest on the amounts they borrow at rates that are negotiated periodically. There was no borrowing for any funds during the period. 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 net realized 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. The net investment and net realized capital gains and losses may differ for financial statement and tax purpose primarily due to differing treatments of wash sale losses and market discount. UNDER THE FUNDS' ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE INDEMNIFIED AGAINST CERTAIN LIABILITY 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. ACCOUNTING POLICIES The following are the main policies the funds use in preparing their financial statements. THE FUNDS VALUE THEIR SECURITIES AT AMORTIZED COST, which approximates market value. SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the security is executed. 33 SCHWAB MONEY FUNDS INTEREST INCOME is recorded as it accrues. If a fund buys a debt security at a discount (that is, for less than its 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. REALIZED GAINS AND LOSSES from security transactions are based on the identified costs of the securities involved. EXPENSES that are specific to a fund or a class are charged directly to that fund or class. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets. FOR FUNDS OFFERING MULTIPLE SHARE CLASSES, all of the realized and unrealized gains or losses and net investment income, other than class specific expenses, are allocated daily to each class in proportion to its net assets. 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 also may keep certain assets in segregated accounts, as required by securities law. THE ACCOUNTING POLICIES DESCRIBED ABOVE CONFORM WITH 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. 34 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 advisory agreement. In addition, the Securities and Exchange Commission (the "SEC") takes the position that, as part of their fiduciary duties with respect to fund fees, fund boards are required to evaluate the material factors applicable to a decision to approve an investment advisory agreement. Consistent with these responsibilities, the Board of Trustees (the "Board") 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 CSIM (the "Agreement") with respect to existing funds in the Trust, including the Schwab Government Money Fund, the Schwab U.S. Treasury Money Fund and the Schwab Value Advantage 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 trustees also receive a memorandum from fund counsel regarding the responsibilities of trustees for the approval of investment advisory contracts. In addition, the Independent Trustees receive advice from independent counsel to the Independent Trustees, meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM. At the May 24, 2005 meeting of the Board, the trustees, including a majority of the Independent Trustees, approved the renewal of the Agreement on an interim basis through September 30, 2005. In connection with the interim approval of the Agreement, the Board requested that CSIM prepare responses to certain questions outlined below in advance of the next regularly scheduled Board meeting. The Board's approval of the Agreement was based on consideration and evaluation of a variety of specific factors discussed at that meeting 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 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. 35 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 the fact that Schwab's extensive branch network, Internet access, investment and research tools, telephone services, and array of account features benefit the funds. 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' investors are also brokerage clients of Schwab, and that CSIM and its affiliates are uniquely positioned to provide services and support to the funds and such shareholders. 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 interim renewal of the Agreement. FUND PERFORMANCE. The Board considered fund performance in determining whether to renew the Agreement. Specifically, the trustees considered each fund's performance relative to a peer group of other mutual funds and appropriate indices/benchmarks, in light of total return, yield and market trends. As part of this review, the trustees considered the composition of the peer group, selection criteria and the reputation of the third party who prepared the peer group analysis. In evaluating the performance of each fund, the trustees considered both risk and shareholder risk expectations for such fund. The Board noted that certain funds, including the U.S. Treasury Money Fund, had lower performance relative to their respective peer groups than other funds, and inquired as to the underlying reasons for this relative performance. The Board also requested that CSIM evaluate the reasons for such funds' relative performance, consider appropriate measures to address the performance and report the results of their findings at the next Board meeting. Following such evaluation, and based upon CSIM's agreement to perform such analyses, etc. relating to performance, the Board concluded, within the context of its full deliberations, that the performance of the funds supported interim renewal of the Agreement. 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 voluntary waiver of 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 and offshore funds, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the unique 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 interim renewal of the Agreement. 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 manage- 36 ment 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 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 interim renewal of the Agreement. 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 CSIM's agreement to contractual investment advisory fee schedules which include lower fees at higher graduated asset levels. With respect to the U.S. Treasury Money Fund, the Board also considered Schwab's agreement that that fund's net operating expenses (excluding interest, taxes and certain non-routine expenses) would not exceed 63 (sixty-three) basis points for the period July 1, 2005 until July 1, 2006. Based on this evaluation, 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, unanimously approved the interim continuation of the Agreement and concluded that the compensation under the Agreement 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. 37 TRUSTEES AND OFFICERS A fund's Board of Trustees is responsible for protecting the interests of that fund's shareholders. The tables below give information about the people who serve as trustees and officers for the Schwab Funds(R), including the funds covered in this report. Trustees remain in office until they resign, retire or are removed by shareholder vote. 1 Under the Investment Company Act of 1940, any officer, director, or employee of Schwab or CSIM is considered an "interested person," meaning that he or she is considered to have a business interest in Schwab or CSIM. These individuals are listed as "interested trustees." The "independent trustees" are individuals who, under the 1940 Act, are not considered to have a business interest in Schwab or CSIM. Each of the 56 Schwab Funds belongs to one of these trusts: The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently all these trusts have the same trustees and officers. The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. 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. INTERESTED TRUSTEES AND OFFICERS
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ CHARLES R. SCHWAB 2 Chairman, Trustee: Chair, CEO, Director, The Charles Schwab Corp., Charles Schwab & Co., Inc.; 7/29/37 Family of Funds, 1989; Chair, Director, Charles Schwab Investment Management, Inc.; Chair, Charles Investments, 1991; Schwab Holdings (UK); Chair, Director, U.S. Trust Corp., United States Trust Co. Capital Trust, 1993; of New York, U.S. Trust Co., N.A.; CEO, Director, Charles Schwab Holdings, Inc.; Annuity Portfolios, 1994. Chair, CEO Schwab (SIS) Holdings, Inc. I, Schwab International Holdings, Inc.; Director, Charles Schwab Bank, N.A., The Charles and Helen Schwab Foundation, All Kinds of Minds (education); Trustee, Stanford University. Until 5/04: Director, The Gap, Inc. (clothing retailer). Until 5/03: Co-CEO, The Charles Schwab Corp. Until 3/02: Director, Audiobase, Inc. (Internet audio solutions). Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications). Until 7/01: Director, The Charles Schwab Trust Co.
1 The Schwab Funds retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010. 2 In addition to his position with the investment adviser and the distributor, Mr. Schwab also owns stock of The Charles Schwab Corporation. 38 INTERESTED TRUSTEES BUT NOT OFFICERS
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ RANDALL W. MERK 2005 (all trusts). EVP, President, AMPS Enterprise. Until 7/04: President, CEO, Charles Schwab 7/25/54 Investment Management, Inc.; VP, Charles Schwab & Co., Inc. Until 8/02: President, Chief Investment Officer, American Century Management; Director, American Century Companies, Inc. Until 6/01: Chief Investment Officer, Fixed Income, American Century Companies, Inc.
OFFICERS OF THE TRUST
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ EVELYN DILSAVER President, CEO EVP, President, Director, Charles Schwab Investment Management, Inc. Until 7/04: 5/4/55 (all trusts). SVP for Development and Distribution, Asset Management Products and Services Enterprise. Until 6/03: EVP, CFO, Chief Administrative Officer, U.S. Trust. ------------------------------------------------------------------------------------------------------------------------------------ STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment Management, 4/5/55 Officer (all trusts). Inc.; Chief Investment Officer, The Charles Schwab Trust Co. ------------------------------------------------------------------------------------------------------------------------------------ KIMON DAIFOTIS SVP, Chief Investment Since 9/04: Chief Investment Officer, Fixed Income, Charles Schwab Investment 7/10/59 Officer (all trusts). Management, Inc. Since 6/04: SVP, Charles Schwab Investment Management, Inc. Until 6/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ JEFFREY MORTIMER SVP, Chief Investment Since 5/04: SVP, Chief Investment Officer, Equities, Charles Schwab Investment 9/29/63 Officer (all trusts). Management, Inc. Since 6/04: VP, Chief Investment Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 5/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ RANDALL FILLMORE Chief Compliance Since 9/04: SVP, Institutional Compliance and Chief Compliance Officer, Charles 11/11/60 Officer (all trusts). Schwab Investment Management, Inc.; Chief Compliance Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 9/04: VP, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. Until 2002: VP of Internal Audit, Charles Schwab & Co., Inc. Prior to 2000: PricewaterhouseCoopers. ------------------------------------------------------------------------------------------------------------------------------------ KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab Investment 3/13/61 Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco. ------------------------------------------------------------------------------------------------------------------------------------ GEORGE PEREIRA Treasurer, Principal Since 11/04: SVP, CFO, Charles Schwab Investment Management, Inc. Until 11/04: 6/9/64 Financial Officer SVP, Financial Reporting, Charles Schwab & Co., Inc. Until 12/99: CFO, (all trusts). Commerzbank Capital Markets. Until 9/99: Managing Director at the New York Stock Exchange. ------------------------------------------------------------------------------------------------------------------------------------
39 INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC (real estate); Trustee, Stanford University, 8/13/60 America First Cos., Omaha, NE (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital. Since 2/05: Director, Pacific Mutual Holding Company (insurance). Since 2004: Laudus Trust, Laudus Variable Insurance Trust. Until 2001: Stanford University, Special Assistant to the President. From 1996-2001: VP of Business Affairs, CFO. ------------------------------------------------------------------------------------------------------------------------------------ DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing and communications 9/23/31 Investments, 1991; consulting). Until 1999: EVP, Managing Director, Grey Advertising. Until 1996: Capital Trust, 1993; President, CEO, Allen & Dorward Advertising. Annuity Portfolios,1994. ------------------------------------------------------------------------------------------------------------------------------------ WILLIAM A. HASLER 2000 (all trusts). Dean Emeritus, Haas School of Business, University of California, Berkeley; 11/22/41 Director, Aphton Corp. (bio-pharmaceuticals); Non-Executive Chair, Solectron Corp. (manufacturing), Mission West Properties (commercial real estate), Stratex Networks (network equipment), TOUSA (home building); Public Governor, Member, executive committee, Pacific Stock & Options Exchange. Since 2004: Trustee, Laudus Trust, Laudus Variable Insurance Trust. Until 2/04: Co-CEO, Aphton Corp. (bio-pharmaceuticals). ------------------------------------------------------------------------------------------------------------------------------------ ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial services 5/15/31 Investments, 1991; and investment advisory firm). Capital Trust, 1993; Annuity Portfolios,1994. ------------------------------------------------------------------------------------------------------------------------------------ GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisers); Trustee, Cooper 9/28/50 Industries (electrical products, tools and hardware); Chairman, audit committee, Northern Border Partners, L.P. (energy). ------------------------------------------------------------------------------------------------------------------------------------ DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: Chair, CEO, 6/28/38 Investments, 1991; North American Trust (real estate investment trust). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (real estate investment and management, and 8/18/43 Investments, 1991; other investments). Capital Trust, 1993; Annuity Portfolios, 1994.
40 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. ALTERNATIVE MINIMUM TAX (AMT) A federal income tax designed to limit the extent to which high-income taxpayers (including individuals, estates, trusts and corporations) can benefit from certain deductions and exemptions. For example, some types of income that are exempt from regular federal income tax are not exempt from the AMT. ASSET-BACKED SECURITIES Bonds or other debt securities that represent ownership in a pool of assets such as credit card debt. BOND A security representing a loan from the investor to the issuer. A bond typically pays interest at a fixed rate (the "coupon rate") until a specified date (the "maturity date"), at which time the issuer returns the money borrowed ("principal" or "face value") to the bondholder. Because of their structure, bonds are sometimes called "fixed income securities" or "debt securities." An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond's market value prior to call or maturity. There is no guarantee that a bond's yield to call or maturity will provide a positive return over the rate of inflation. BOND FUND A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund's net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed. BOND ANTICIPATION NOTES Obligations sold by a municipality on an interim basis in anticipation of the municipality's issuance of a longer-term bond in the future. 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, state and local governments 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. 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 limit 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 credit-worthiness 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 principal to its debtholders. PORTFOLIO TERMS To help reduce the space occupied by the portfolio holdings, we use the following terms. Most of them appear within descriptions of individual securities in municipal funds, and describe features of the issuer or the security. Some of these are more fully defined elsewhere in the Glossary. ACES Adjustable convertible extendable security BAN Bond anticipation note COP Certificate of participation GAN Grant anticipation note GO General obligation HDA Housing Development Authority HFA Housing Finance Agency IDA Industrial Development Authority IDB Industrial Development Board IDRB Industrial Development Revenue Bond M/F Multi-family RAN Revenue anticipation note RB Revenue bond S/F Single-family TAN Tax anticipation note TECP Tax-exempt commercial paper TRAN Tax and revenue anticipation note VRD Variable-rate demand 41 DOLLAR-WEIGHTED AVERAGE MATURITY (DWAM) See weighted average maturity. EFFECTIVE YIELD A measurement of a fund's yield that assumes that all dividends were 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 a 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 A security that when tendered is paid from funds advanced by an entity other than the issuer (such as a large financial institution). Liquidity enhancements are often used on variable-rate securities where the portfolio manager has an option to tender the securities prior to their final maturity. MATURITY The date a debt security is scheduled to be "retired" and its principal amount returned to the bondholder. MONEY MARKET SECURITIES High-quality, short-term debt securities that may be issued by entities such as the U.S. government, corporations and financial institutions (such as banks). Money market securities include commercial paper, promissory notes, certificates of deposit, banker's acceptances, notes and time deposits. MUNI, MUNICIPAL BONDS, 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. REVENUE ANTICIPATION NOTES Obligations that are issued in expectation of the receipt of revenue, such as income taxes, property taxes, etc. 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%). TOTAL RETURN The percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested. TAX ANTICIPATION NOTES Notes that typically are sold to finance the cash flow needs of municipalities in anticipation of the receipt of taxes on a future date. 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. WEIGHTED AVERAGE MATURITY For mutual funds, the maturity of all the debt securities in its portfolio, calculated as a weighted average. As a rule, the longer a fund's weighted average maturity, the greater its interest rate risk. Money funds are required to maintain a weighted average maturity of no more than 90 days. YIELD The income paid out by an investment, expressed as a percentage of the investment's market value. 42 NOTES NOTES Schwab Funds(R) offers you a complete 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're 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, and 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. METHODS FOR PLACING ORDERS The following information outlines how Schwab investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET 1 www.schwab.com SCHWAB BY PHONE(TM) 2 Use our automated voice service or speak to a representative. Call 1-800-435-4000, day or night (for TDD service, call 1-800-345-2550). TELEBROKER(R) Use our automated touch-tone phone service at 1-800-272-4922. MAIL Write to Schwab Funds at: P.O. Box 3812 Englewood, CO 80155-3812 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. 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.schwab.com/schwabfunds, 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.schwab.com/schwabfunds or the SEC's website at http://www.sec.gov. 1 Shares of Sweep Investments(TM) may not be purchased directly over the Internet. 2 Orders placed in person or through a telephone representative may be subject to a service fee payable to Schwab. THE SCHWAB FUNDS FAMILY(R) STOCK FUNDS Schwab S&P 500 Index Fund Schwab 1000 Index(R) Fund Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) Schwab Premier Equity Fund(TM) Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) Schwab Financial Services Fund(TM) Schwab Health Care Fund(TM) Schwab Technology Fund(TM) Schwab Institutional Select(R) S&P 500 Fund ASSET ALLOCATION FUNDS 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 2020 Fund Schwab Target 2030 Fund Schwab Target 2040 Fund Schwab Retirement Income Fund BOND FUNDS Schwab YieldPlus Fund(R) Schwab Short-Term Bond Market Fund(TM) Schwab Total Bond Market Fund(TM) Schwab GNMA Fund(TM) Schwab Tax-Free YieldPlus Fund(TM) Schwab Short/Intermediate Tax-Free Bond Fund(TM) Schwab Long-Term Tax-Free Bond Fund(TM) Schwab California Tax-Free YieldPlus Fund(TM) Schwab California Short/Intermediate Tax-Free Bond Fund(TM) Schwab California Long-Term 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 liquidity.3 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(R). 3 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. [CHARLES SCHWAB LOGO] INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. (Schwab) FUNDS Schwab Funds(R) P.O. Box 3812, Englewood, CO 80155-3812 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C) 2005 Charles Schwab & Co., Inc. All rights reserved. Member SIPC Printed on recycled paper. MFR32957 SCHWAB ADVISOR CASH RESERVES(TM) SEMIANNUAL REPORT June 30, 2005 [CHARLES SCHWAB LOGO] IN THIS REPORT Management's Discussion ................................................ 2 Performance and Fund Facts ............................................. 5 Fund Expenses .......................................................... 6 Financial Statements ................................................... 7 Financial Notes ........................................................ 17 Investment Advisory Agreement Approval ................................. 20 Trustees and Officers .................................................. 23 Glossary ............................................................... 26 Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM). Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab). [PHOTO OF CHARLES SCHWAB] Charles Schwab Chairman FROM THE CHAIRMAN Dear Shareholder, I have always believed that it's important to make sure that your cash is earning income between long-term investments by putting the money into a money market fund. While no investment is risk-free, money market funds carry, perhaps, the least amount of risk, as they generally are not as volatile as stocks or stock mutual funds. Money funds are good choices for investors who want to mitigate the potential fluctuations that may occur in their mostly stock portfolios. At Schwab, we offer a range of money funds with distinct investment strategies. Our municipal money funds, for example, may be beneficial for those of you in the higher tax brackets. We also offer money funds for those interested in the added protection provided by a portfolio of U.S. government securities. In addition, several of the Schwab money funds offer share classes that carry lower expenses in exchange for higher investment minimums. Now, as a result of the Federal Reserve having raised short-term interest rates eight times in the past 12 months (four during the six-month period covered in this report), yields on money market mutual funds are more attractive than they have been in many years. Not only that, but it's likely that the Fed will raise these rates again this year. Based on this expectation, we anticipate that the yields on money market funds will continue to move upwards over the next few months. On behalf of Schwab Funds, I want to thank you for investing with us and remind you that our commitment to our shareholders will never waver. Sincerely, /s/ Charles R. Schwab MANAGEMENT'S DISCUSSION for the six months ended June 30, 2005 [PHOTO OF EVELYN DILSAVER] EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management, Inc. and is president of the funds covered in this report. She joined the firm in 1992 and has held a variety of executive positions at Schwab. Dear Shareholder, When I assumed my new role as President and CEO of Schwab Funds(R) last year, I pledged that I would be committed to offering you more relevant choices and better value. I am pleased to report that we already have done both. On July 1, 2005, Schwab Funds launched the Schwab Target Funds(TM), a suite of five mutual funds to help keep your retirement investments properly allocated over your lifetime. With a single investment in a Schwab Target Fund, you can avoid a common investment mistake--failing to adjust your portfolio over time. The funds are designed to provide shareholders with investment management, asset allocation and ongoing re-allocation over time. You simply choose the fund that most closely matches the date of your retirement and our experienced portfolio managers will do the rest. They will rebalance four of the five funds from more aggressive to more conservative as you get closer to your retirement date. The fifth fund is designed to help generate income and additional growth after you've retired. It also is a good choice for investors already enjoying their retirement. These no-load funds are a good value, as the funds have access to the lowest-priced eligible share class on the underlying Schwab affiliate funds. And because the funds invest in groups of other Schwab affiliate funds, they provide an additional layer of diversification. At Schwab, we believe that having an asset-allocation plan that fits your retirement goals, time frame and tolerance for risk is a key element in meeting your long-term investment goals. The Schwab Target Funds are designed to help you do this. I encourage you to learn more about these funds by calling your investment manager. Thank you for investing in Schwab Funds. Sincerely, /s/ Evelyn Dilsaver Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus carefully before investing. 2 Schwab Advisor Cash Reserves [PHOTO OF LINDA KLINGMAN] LINDA KLINGMAN, a vice president of the investment adviser and senior portfolio manager, has overall responsibility for the management of the fund. She joined the firm in 1990 and has managed money market funds since 1988. [PHOTO OF MIKE NEITZKE] MIKE NEITZKE, a portfolio manager, has day-to-day responsibility for management of the fund. Prior to joining the firm in March 2001, he worked for more than 15 years in the financial services industry as a portfolio manager. THE INVESTMENT ENVIRONMENT AND THE FUND Oil prices hit highs never seen before and the Federal Reserve Open Market Committee continued to raise short-term interest rates to curb inflationary pressures, raising rates for the fourth time this year. At the same time, GDP continued to grow at a healthy pace and the housing market remained strong, largely due to low mortgage rates. The firming labor market, as well as steady gains in capital spending, kept the economic expansion on a self-sustaining path. Businesses, unable to continue boosting productivity by restraining hiring, added new jobs during the six-month report period. Moreover, many leading indicators, such as the Institute for Supply Management's business activity surveys, suggested ongoing expansion, while continuing claims for unemployment benefits remained near cyclical lows. Business investments grew only modestly, but consumers continued to spend. In fact, consumer confidence rose to a level not experienced since before September 11, 2001. With consumers in a spending mode and consumer spending comprising about 70% of GDP, first quarter GDP remained strong and retail sales were healthy. In this positive economic environment, strong labor market conditions remained positive for domestic consumption. While high energy prices remained a significant headwind for economic performance, supply no longer was the issue; demand, especially in China, drove prices up. At the end of the six-month report period, a barrel of oil cost $56.50 versus $42.55 at the beginning of 2005. Though high oil and commodity prices could have hampered growth and stirred inflationary pressures, productivity gains, slow growth in the money supply and slack in the economy have mostly kept a lid on core inflation. The productivity gains, coupled with foreign central banks buying large amounts of U.S. Treasury securities, also helped to keep long-term interest rates under control. These conditions also caused the dollar to rally unexpectedly, which took a little bit of pressure off the price of imported goods. Amid signs of solidly expanding output and improved hiring, the Fed continued to tighten. It increased short-term interest rates at each of the four meetings in the first half of 2005, ending the six-month report Schwab Advisor Cash Reserves 3 MANAGEMENT'S DISCUSSION continued Though high oil and commodity prices could have hampered growth and stirred inflationary pressures, productivity gains, slow growth in the money supply and slack in the economy have mostly kept a lid on core inflation. period at a still moderate 3.25%. The moves have had a limited impact on overall economic growth, due primarily to the record-low level of rates from which the increases began. Nonetheless, the higher rates succeeded in moving money fund yields higher, making them a more attractive investment vehicle. SCHWAB ADVISOR CASH RESERVES was positioned to take advantage of the strong likelihood that the Federal Reserve would continue to raise short-term interest rates. And, indeed, the Fed did continue to tighten, raising rates four times during the six-month report period. In this economic scenario, we continually added to our variable-rate holdings, increasing our position to 12% during the six-month report period. The interest rates on these types of securities reset frequently, allowing us the opportunity to capture a rise in market rates. Also, we kept the fund's weighted average maturity (WAM) at approximately 40 days. Maintaining the WAM at this level provided us the flexibility desired to adapt to and respond to changes in interest rates. 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. 4 Schwab Advisor Cash Reserves PERFORMANCE AND FUND FACTS as of 6/30/05 SEVEN-DAY YIELDS 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.
SWEEP SHARES PREMIER SWEEP SHARES Ticker Symbol SWQXX SWZXX -------------------------------------------------------------------------------- SEVEN-DAY YIELD 1 2.54% 2.64% -------------------------------------------------------------------------------- SEVEN-DAY YIELD-NO WAIVER 2 2.39% 2.39% -------------------------------------------------------------------------------- SEVEN-DAY EFFECTIVE YIELD 1 2.57% 2.67% --------------------------------------------------------------------------------
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.SCHWAB.COM/SCHWABFUNDS. STATISTICS Money funds must maintain a dollar-weighted average maturity of no longer than 90 days, and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months). WEIGHTED AVERAGE MATURITY 42 days -------------------------------------------------------------------------------- CREDIT QUALITY OF HOLDINGS % of portfolio 100% Tier 1 --------------------------------------------------------------------------------
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. 1 Fund expenses have been partially absorbed by CSIM and Schwab. 2 Yield if fund expenses had not been partially absorbed by CSIM and Schwab. Schwab Advisor Cash Reserves 5 FUND EXPENSES 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 invested for six-months beginning January 1, 2005 and held through June 30, 2005. 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 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 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 EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2 (Annualized) at 1/1/05 at 6/30/05 1/1/05-6/30/05 ----------------------------------------------------------------------------------------------------------------- SCHWAB ADVISOR CASH RESERVES(TM) Sweep Shares Actual Return 0.69% $1,000 $1,010.40 $3.44 Hypothetical 5% Return 0.69% $1,000 $1,021.37 $3.46 Premier Sweep Shares Actual Return 0.59% $1,000 $1,010.90 $2.94 Hypothetical 5% Return 0.59% $1,000 $1,021.87 $2.96
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for each share class are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year. 6 Schwab Advisor Cash Reserves SCHWAB ADVISOR CASH RESERVES(TM) FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 8/19/04 1- SWEEP SHARES 6/30/05* 12/31/04 -------------------------------------------------------------------------------- PER-SHARE DATA ($) -------------------------------------------------------------------------------- Net asset value at beginning of period 1.00 1.00 -------------------------------- Income from investment operations: Net investment income 0.01 0.00 2 -------------------------------- Less distributions: Dividends from net investment income (0.01) (0.00) 2 -------------------------------- Net asset value at end of period 1.00 1.00 -------------------------------- Total return (%) 1.04 3 0.45 3 RATIOS/SUPPLEMENTAL DATA (%) -------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 0.69 4 0.69 4 Gross operating expenses 0.84 4 0.85 4 Net investment income 2.12 4 1.30 4 Net assets, end of period ($ x 1,000,000) 1,602 1,271
1/1/05- 8/19/04 1- PREMIER SWEEP SHARES 6/30/05* 12/31/04 -------------------------------------------------------------------------------- PER-SHARE DATA ($) -------------------------------------------------------------------------------- Net asset value at beginning of period 1.00 1.00 -------------------------------- Income from investment operations: Net investment income 0.01 0.00 2 -------------------------------- Less distributions: Dividends from net investment income (0.01) (0.00) 2 -------------------------------- Net asset value at end of period 1.00 1.00 -------------------------------- Total return (%) 1.09 3 0.48 3 RATIOS/SUPPLEMENTAL DATA (%) -------------------------------------------------------------------------------- Ratios to average net assets: Net operating expenses 0.59 4 0.59 4 Gross operating expenses 0.84 4 0.85 4 Net investment income 2.22 4 1.41 4 Net assets, end of period ($ x 1,000,000) 3,144 2,344
* Unaudited. 1 Commencement of operations. 2 Per share amount was less than $0.01. 3 Not annualized. 4 Annualized. See financial notes. 7 SCHWAB ADVISOR CASH RESERVES PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities: * Asset-backed security + Credit-enhanced security o Illiquid and/or restricted security For fixed-rate obligations, the rate shown is the effective yield at the time of purchase, except for U.S. government agency coupon notes and U.S. Treasury notes, for which the rate shown is the interest rate (the rate established when the obligation was issued). For variable-rate obligations, the rate shown is the rate as of the report date. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date. For variable-rate obligations without demand features, the maturity shown is the next interest rate change date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 64.5% FIXED-RATE OBLIGATIONS 3,060,622 3,060,622 13.0% VARIABLE-RATE OBLIGATIONS 619,330 619,330 22.4% OTHER INVESTMENTS 1,063,246 1,063,246 -------------------------------------------------------------------------------- 99.9% TOTAL INVESTMENTS 4,743,198 4,743,198 0.1% OTHER ASSETS AND LIABILITIES 2,642 -------------------------------------------------------------------------------- 100.0% NET ASSETS 4,745,840
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) FIXED-RATE OBLIGATIONS 64.5% of net assets COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 40.5% -------------------------------------------------------------------------- AB SPINTAB 2.95%, 08/08/05 17,000 16,948 3.23%, 08/11/05 7,063 7,037 ALLIANCE & LEICESTER, PLC, SECTION 4(2) / 144A 3.15%, 09/08/05 2,000 1,988 3.20%, 09/12/05 10,000 9,936 * AMSTEL FUNDING CORP., SECTION 4(2) / 144A 3.20%, 07/20/05 10,000 9,983 2.95%, 08/10/05 6,000 5,981 *+ AMSTERDAM FUNDING CORP., SECTION 4(2) / 144A 3.09%, 07/06/05 10,000 9,996 3.09%, 07/07/05 32,000 31,983 3.11%, 07/12/05 9,000 8,991 3.24%, 07/27/05 20,000 19,953 3.26%, 07/28/05 5,000 4,988 *+ AQUINAS FUNDING, L.L.C., SECTION 4(2) / 144A 2.85%, 07/12/05 3,000 2,997 3.15%, 09/02/05 5,000 4,973 3.61%, 12/22/05 5,931 5,829 3.62%, 12/22/05 10,000 9,828 *+ ASAP FUNDING LTD., SECTION 4(2) / 144A 3.17%, 07/11/05 10,000 9,991 3.23%, 07/22/05 10,000 9,981 3.23%, 08/09/05 8,000 7,972 3.30%, 08/26/05 10,000 9,949 * ATLANTIS ONE FUNDING CORP., SECTION 4(2) / 144A 2.82%, 07/11/05 20,000 19,985 2.84%, 07/14/05 7,872 7,864 2.87%, 07/20/05 8,956 8,943 2.87%, 07/22/05 2,154 2,150 2.98%, 08/11/05 6,000 5,980 2.98%, 08/12/05 5,000 4,983 3.15%, 09/15/05 37,000 36,758 3.25%, 09/20/05 4,000 3,971 3.39%, 11/16/05 6,000 5,923 3.44%, 11/18/05 1,000 987 3.60%, 12/20/05 5,000 4,915 BANK OF AMERICA CORP. 3.31%, 10/06/05 50,000 49,561
8 See financial notes. SCHWAB ADVISOR CASH RESERVES
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) *+ BETA FINANCE, INC., SECTION 3C7 / 144A 3.43%, 09/28/05 13,000 12,891 *+o BLUE SPICE, L.L.C., SECTION 4(2) / 144A 3.29%, 07/12/05 13,000 12,987 3.21%, 07/20/05 10,000 9,983 * CC (USA), INC., SECTION 3C7 / 144A 2.78%, 07/07/05 5,000 4,998 3.13%, 07/22/05 15,000 14,973 + CITIGROUP FUNDING, INC. 3.11%, 07/01/05 45,000 45,000 3.21%, 07/22/05 17,000 16,968 CITIGROUP GLOBAL MARKETS HOLDINGS, INC. 3.17%, 08/02/05 10,000 9,972 3.27%, 09/01/05 25,000 24,861 *+ CLIPPER RECEIVABLES CO., SECTION 4(2) / 144A 3.14%, 07/11/05 4,552 4,548 3.19%, 07/18/05 20,000 19,970 3.11%, 07/21/05 2,000 1,997 *+ CONCORD MINUTEMEN CAPITAL CO., SERIES A, SECTION 3C7 / 144A 2.80%, 07/06/05 7,000 6,997 2.81%, 07/06/05 3,000 2,999 2.83%, 07/06/05 22,820 22,811 3.01%, 08/18/05 19,923 19,844 *+ CROWN POINT CAPITAL CO., L.L.C., SECTION 4(2) / 144A 3.09%, 07/12/05 1,000 999 3.09%, 07/19/05 20,000 19,969 2.95%, 08/08/05 1,509 1,504 3.32%, 09/21/05 35,000 34,739 3.44%, 11/16/05 5,000 4,935 * DAKOTA CP NOTES OF CITIBANK CREDIT CARD ISSUANCE TRUST, SECTION 4(2) / 144A 3.14%, 07/12/05 5,469 5,464 3.17%, 07/25/05 20,500 20,457 3.17%, 07/26/05 12,000 11,974 3.17%, 07/27/05 13,000 12,970 3.26%, 07/28/05 17,100 17,058 3.30%, 09/06/05 25,000 24,848 3.30%, 09/07/05 50,000 49,691 + DANSKE CORP. 3.20%, 08/05/05 1,000 997 DNB NOR BANK ASA 3.09%, 07/14/05 1,700 1,698 3.43%, 09/23/05 4,600 4,564 * DORADA FINANCE, INC., SECTION 3C7 / 144A 2.82%, 07/15/05 5,000 4,995 *+ EIFFEL FUNDING, L.L.C., SECTION 4(2) / 144A 3.08%, 07/07/05 2,000 1,999 3.09%, 07/07/05 6,200 6,197 3.26%, 07/21/05 2,000 1,996 *+ FAIRWAY FINANCE CO., L.L.C., SECTION 4(2) / 144A 3.09%, 07/14/05 8,360 8,351 3.17%, 07/27/05 26,000 25,941 2.96%, 07/28/05 5,000 4,989 3.23%, 09/12/05 3,000 2,981 *+ FALCON ASSET SECURITIZATION CORP., SECTION 4(2) / 144A 3.18%, 07/18/05 20,000 19,970 * GALAXY FUNDING, INC., SECTION 4(2) / 144A 3.05%, 07/01/05 10,000 10,000 3.07%, 07/11/05 10,000 9,992 3.09%, 07/20/05 5,000 4,992 3.12%, 07/26/05 7,000 6,985 3.44%, 09/27/05 17,000 16,858 GENERAL ELECTRIC CAPITAL CORP. 2.86%, 07/21/05 50,000 49,922 * GIRO FUNDING U.S. CORP., SECTION 4(2) / 144A 3.24%, 07/22/05 10,000 9,981 3.29%, 07/28/05 10,000 9,975 3.32%, 08/01/05 35,000 34,900 *+ GRAMPIAN FUNDING, LLC., SECTION 4(2) / 144A 3.60%, 12/20/05 9,000 8,848 + HBOS TREASURY SERVICES, PLC 3.09%, 07/21/05 1,000 998 3.17%, 07/28/05 10,000 9,976 3.20%, 08/03/05 2,100 2,094 HSBC U.S.A., INC. 3.32%, 08/01/05 10,000 9,972 IRISH LIFE & PERMANENT, PLC, SECTION 4(2) / 144A 3.29%, 09/07/05 10,000 9,938 3.30%, 09/13/05 2,000 1,987 3.45%, 11/10/05 10,000 9,876 + IXIS COMMERCIAL PAPER CORP., SECTION 4(2) / 144A 3.23%, 08/12/05 1,900 1,893 *+ JUPITER SECURITIZATION CORP., SECTION 4(2) / 144A 3.14%, 07/11/05 3,222 3,219 3.16%, 07/18/05 53,000 52,921 3.19%, 07/19/05 10,382 10,365 3.26%, 07/25/05 2,000 1,996 3.23%, 07/26/05 15,000 14,966
See financial notes. 9 SCHWAB ADVISOR CASH RESERVES PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) * K2 (USA), L.L.C., SECTION 3C7 / 144A 2.84%, 07/15/05 5,000 4,995 3.30%, 09/06/05 3,800 3,777 3.38%, 11/08/05 7,400 7,311 3.51%, 12/09/05 30,000 29,537 + KBC FINANCIAL PRODUCTS INTERNATIONAL, LTD., SECTION 4(2) / 144A 3.37%, 10/12/05 37,000 36,650 *+ KITTY HAWK FUNDING CORP., SECTION 4(2) / 144A 3.26%, 07/25/05 5,000 4,989 3.25%, 09/20/05 3,841 3,813 *+ LEXINGTON PARKER CAPITAL CO., L.L.C., SECTION 4(2) / 144A 3.07%, 07/06/05 7,000 6,997 3.09%, 07/14/05 4,000 3,996 2.86%, 07/18/05 11,364 11,349 2.88%, 07/25/05 19,000 18,964 2.96%, 08/08/05 2,000 1,994 2.98%, 08/08/05 2,000 1,994 3.22%, 08/08/05 2,000 1,993 3.15%, 09/01/05 10,000 9,947 * MANE FUNDING CORP., SECTION 4(2) / 144A 3.43%, 09/22/05 39,000 38,694 3.44%, 09/27/05 18,000 17,850 MORGAN STANLEY 3.15%, 07/19/05 12,000 11,981 3.19%, 07/20/05 16,000 15,973 3.23%, 07/20/05 25,000 24,958 3.45%, 11/14/05 10,000 9,872 * NEWCASTLE CERTIFICATES PROGRAM, SERIES 2000A SECTION 4(2) / 144A 3.21%, 07/11/05 13,000 12,988 3.23%, 07/13/05 1,000 999 *+ PARK AVENUE RECEIVABLES CORP. L.L.C., SECTION 4(2) / 144A 3.26%, 07/25/05 10,000 9,978 3.23%, 07/26/05 20,000 19,955 * PARK GRANADA, L.L.C., SECTION 4(2) / 144A 3.26%, 07/25/05 5,000 4,989 3.17%, 07/26/05 14,111 14,080 *+ PREFERRED RECEIVABLES FUNDING CORP., SECTION 4(2) / 144A 3.13%, 07/14/05 20,000 19,977 3.14%, 07/15/05 20,000 19,976 RABOBANK USA FUNDING CORP. 3.19%, 07/26/05 1,000 998 *+ RANGER FUNDING CO. L.L.C., SECTION 4(2) / 144A 3.19%, 07/19/05 32,603 32,551 + SAN PAOLO IMI U.S. FINANCIAL CO. 3.09%, 07/21/05 27,000 26,954 + SANTANDER CENTRAL HISPANO FINANCE (DELAWARE), INC. 2.81%, 07/13/05 10,000 9,991 3.31%, 09/09/05 10,000 9,936 *+ SCALDIS CAPITAL LTD., SECTION 4(2) / 144A 2.86%, 07/15/05 33,000 32,964 3.44%, 09/26/05 18,000 17,852 *+ SIGMA FINANCE, INC., SECTION 3C7 / 144A 2.81%, 07/01/05 3,000 3,000 3.08%, 07/12/05 28,000 27,974 3.09%, 07/13/05 5,000 4,995 3.15%, 09/02/05 10,000 9,946 3.46%, 11/21/05 5,000 4,932 SKANDINAVISKA ENSKILDA BANKEN AB 3.25%, 09/16/05 5,000 4,966 SOCIETE GENERALE NORTH AMERICA, INC. 2.73%, 07/06/05 9,500 9,496 THE GOLDMAN SACHS GROUP, INC. 3.47%, 11/21/05 30,000 29,594 *+ THUNDER BAY FUNDING, L.L.C., SECTION 4(2) / 144A 3.09%, 07/15/05 3,000 2,996 3.26%, 07/27/05 10,415 10,391 *+ TICONDEROGA FUNDING, LLC., SECTION 4(2) / 144A 3.26%, 07/22/05 5,000 4,991 *+ TRIPLE A-ONE FUNDING CORP., SECTION 4(2) / 144A 3.15%, 07/13/05 27,000 26,972 + UBS FINANCE (DELAWARE) INC. 3.08%, 07/08/05 25,000 24,985 3.11%, 07/14/05 36,000 35,960 3.09%, 07/22/05 1,500 1,497 * WHITE PINE FINANCE, L.L.C., SECTION 3C7 / 144A 2.96%, 08/01/05 20,343 20,292 3.37%, 10/27/05 8,980 8,883 *+ WINDMILL FUNDING CORP., SECTION 4(2) / 144A 3.09%, 07/08/05 3,060 3,058 3.13%, 07/12/05 25,000 24,976 *+ YORKTOWN CAPITAL, L.L.C., SECTION 4(2) / 144A 3.23%, 07/22/05 2,348 2,344 ----------- 1,919,133
10 See financial notes. SCHWAB ADVISOR CASH RESERVES
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) CERTIFICATES OF DEPOSIT 22.9% -------------------------------------------------------------------------- ALLIANCE & LEICESTER, PLC 3.58%, 12/20/05 20,000 20,000 AMERICAN EXPRESS BANK FSB 3.09%, 07/07/05 10,500 10,500 BANCO BILBAO VIZCAYA ARGENTARIA S.A. 2.77%, 07/06/05 3,000 3,000 BANK OF THE WEST 3.33%, 09/27/05 2,000 2,000 BARCLAYS BANK, PLC 2.97%, 08/11/05 50,000 50,000 BNP PARIBAS 3.30%, 09/12/05 18,000 18,000 3.43%, 11/08/05 40,000 40,000 3.46%, 11/28/05 105,000 105,000 CALYON 2.95%, 08/10/05 1,000 1,000 3.37%, 11/09/05 20,000 20,000 3.40%, 11/10/05 35,000 35,000 CANADIAN IMPERIAL BANK OF COMMERCE 2.72%, 07/05/05 30,000 30,000 CITIBANK, N.A. 3.27%, 08/31/05 50,000 50,000 CREDIT SUISSE FIRST BOSTON 3.15%, 07/29/05 30,000 30,000 3.19%, 08/09/05 54,000 54,000 DANSKE BANK A/S 3.23%, 07/26/05 10,000 10,000 DEUTSCHE BANK, AG 3.31%, 09/16/05 25,000 25,000 + HBOS TREASURY SERVICES, PLC 2.72%, 07/05/05 15,000 15,000 HSBC BANK, PLC 3.11%, 07/25/05 20,000 20,000 3.03%, 08/22/05 35,000 35,000 HSBC BANK, USA 3.44%, 11/21/05 5,000 5,000 KBC BANK NV 3.14%, 07/15/05 2,000 2,000 LANDESBANK HESSEN-THURINGEN GIROZENTRALE 3.15%, 09/12/05 10,000 10,000 3.45%, 11/14/05 15,000 15,000 LLOYDS TSB BANK, PLC 3.45%, 11/17/05 50,000 49,995 MIZUHO CORP. BANK, LTD. 3.27%, 07/22/05 4,000 4,000 3.21%, 08/08/05 15,000 15,000 ROYAL BANK OF SCOTLAND, PLC 3.25%, 07/28/05 25,000 25,000 SKANDINAVISKA ENSKILDA BANKEN AB 3.20%, 07/22/05 17,000 17,000 SOCIETE GENERALE 2.95%, 08/09/05 6,000 6,000 3.23%, 09/23/05 10,000 10,000 3.37%, 11/09/05 5,000 5,000 3.51%, 12/15/05 45,000 45,000 3.54%, 12/16/05 15,000 15,000 SVENSKA HANDELSBANKEN AB 3.19%, 08/10/05 55,000 55,000 TORONTO DOMINION BANK 2.73%, 07/07/05 5,000 5,000 3.44%, 11/09/05 20,000 19,994 3.45%, 11/28/05 23,000 23,000 U.S. BANK, N.A. 3.20%, 09/15/05 5,000 5,000 3.34%, 10/03/05 25,000 25,000 3.32%, 10/11/05 7,000 7,000 3.45%, 11/18/05 10,000 10,000 UBS, AG 2.71%, 07/08/05 22,000 22,000 UNICREDITO ITALIANO SPA 3.34%, 10/12/05 43,000 43,000 3.42%, 11/02/05 30,000 30,000 WASHINGTON MUTUAL BANK, FA 3.25%, 09/23/05 20,000 20,000 3.27%, 09/26/05 6,000 6,000 3.44%, 11/22/05 13,000 13,000 WILMINGTON TRUST CO. 2.81%, 07/05/05 5,000 5,000 ----------- 1,086,489 BANK NOTES 0.6% -------------------------------------------------------------------------- BANK OF AMERICA, N.A. 2.98%, 08/19/05 5,000 5,000 2.98%, 08/23/05 25,000 25,000 ----------- 30,000
See financial notes. 11 SCHWAB ADVISOR CASH RESERVES PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) PROMISSORY NOTES 0.5% -------------------------------------------------------------------------- o THE GOLDMAN SACHS GROUP, INC. 2.85%, 07/06/05 10,000 10,000 2.93%, 07/15/05 15,000 15,000 ----------- 25,000 VARIABLE-RATE OBLIGATIONS 13.0% of net assets BARCLAYS BANK, PLC 3.13%, 07/11/05 25,000 24,996 3.15%, 07/18/05 50,000 49,983 3.18%, 07/18/05 13,000 12,998 3.21%, 07/21/05 5,000 4,999 BAYERISCHE LANDESBANK GIROZENTRALE 3.25%, 08/01/05 25,000 24,997 *+ BETA FINANCE, INC., SECTION 3C7 / 144A 3.17%, 07/14/05 19,000 18,998 BNP PARIBAS 3.18%, 07/18/05 4,000 3,999 + BRECKENRIDGE TERRACE L.L.C. 3.39%, 07/07/05 1,000 1,000 * CC (USA), INC., SECTION 3C7 / 144A 3.27%, 07/22/05 45,000 44,998 * DORADA FINANCE, INC., SECTION 3C7 / 144A 3.17%, 07/11/05 7,500 7,500 3.17%, 07/14/05 20,000 19,998 + EAGLE COUNTY, COLORADO HOUSING FACILITIES REVENUE BOND (The Tarnes at BC LLC Project B) Series 1999 3.39%, 07/07/05 2,000 2,000 + HBOS TREASURY SERVICE, PLC 3.09%, 07/05/05 22,000 22,000 3.27%, 07/26/05 7,000 7,000 HSH NORDBANK, AG 3.12%, 07/11/05 44,000 43,997 LANDESBANK BADEN-WURTTEMBERG 3.10%, 07/07/05 15,000 14,998 3.15%, 07/13/05 15,000 14,999 3.22%, 07/22/05 20,000 19,998 * LIBERTY LIGHTHOUSE U.S. CAPITAL CO. L.L.C. 4(2) / 144A 3.08%, 07/01/05 19,000 18,999 3.27%, 07/27/05 5,000 5,000 3.45%, 07/29/05 3,000 3,000 *+ LINKS FINANCE, L.L.C., SECTION 3C7 / 144A 3.17%, 07/15/05 16,000 15,999 MORGAN STANLEY 3.13%, 07/05/05 20,000 20,000 NORDDEUTSCHE LANDESBANK GIROZENTRALE 3.10%, 07/07/05 40,000 39,995 3.17%, 07/14/05 4,000 3,999 ROYAL BANK OF SCOTLAND, PLC 3.24%, 07/21/05 20,000 20,000 3.26%, 07/27/05 15,000 14,998 3.36%, 07/29/05 25,000 24,997 *+ SIGMA FINANCE, INC., SECTION 3C7 / 144A 3.17%, 07/15/05 51,000 50,995 3.27%, 07/25/05 6,000 5,999 + TENDERFOOT SEASONAL HOUSING, L.L.C. Series B 3.39%, 07/07/05 2,885 2,885 o THE GOLDMAN SACHS GROUP, INC. 3.18%, 07/05/05 23,000 23,000 3.32%, 07/22/05 5,000 5,000 * WHITE PINE FINANCE, L.L.C., SECTION 3C7 / 144A 3.26%, 07/20/05 25,000 25,006 ----------- 619,330
12 See financial notes. SCHWAB ADVISOR CASH RESERVES
MATURITY AMOUNT VALUE SECURITY ($ x 1,000) ($ x 1,000) OTHER INVESTMENTS 22.4% of net assets REPURCHASE AGREEMENTS 22.4% -------------------------------------------------------------------------- BANK OF AMERICA SECURITIES L.L.C. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $510,000 3.45%, issued 06/30/05, due 07/01/05 475,046 475,000 3.30%, issued 06/28/05, due 07/05/05 25,016 25,000 BEAR STEARNS & CO., INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $51,036 3.21%, issued 06/23/05, due 07/07/05 50,062 50,000 CREDIT SUISSE FIRST BOSTON L.L.C. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $115,512 3.40%, issued 06/30/05, due 07/01/05 113,257 113,246 MORGAN STANLEY & CO., INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities with a value of $408,743 3.40%, issued 06/30/05, due 07/01/05 200,019 200,000 3.45%, issued 06/30/05, due 07/01/05 200,019 200,000 ----------- 1,063,246
END OF INVESTMENTS.
ISSUER COST/ RATE, ACQUISITION DATE, FACE AMOUNT VALUE MATURITY DATE ($ x 1,000) ($ x 1,000) AT JUNE 30, 2005, PORTFOLIO HOLDINGS INCLUDED ILLIQUID AND/OR RESTRICTED SECURITIES AS FOLLOWS: BLUE SPICE, L.L.C., SECTION 4(2) / 144A 3.29%, 06/28/05, 07/12/05 13,000 12,987 3.21%, 06/16/05, 07/20/05 10,000 9,983 ----------- 22,970 THE GOLDMAN SACHS GROUP, INC. 3.18%, 02/03/05, 07/05/05 23,000 23,000 2.85%, 01/06/05, 07/06/05 10,000 10,000 2.93%, 01/19/05, 07/15/05 15,000 15,000 3.32%, 02/22/05, 07/22/05 5,000 5,000 ----------- 53,000
See financial notes. 13 SCHWAB ADVISOR CASH RESERVES Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS ------------------------------------------------------------------------------- Investments, at value $3,679,952 a Repurchase agreements, at value 1,063,246 a Receivables: Interest 7,349 Prepaid expenses + 1,032 ------------- TOTAL ASSETS 4,751,579 LIABILITIES ------------------------------------------------------------------------------- Payables: Dividends to shareholders 5,075 Investment adviser and administrator fees 80 Transfer agent and shareholder service fees 151 Trustees' fees 25 Accrued expenses + 408 ------------- TOTAL LIABILITIES 5,739 NET ASSETS ------------------------------------------------------------------------------- TOTAL ASSETS 4,751,579 TOTAL LIABILITIES - 5,739 ------------- NET ASSETS $4,745,840 NET ASSETS BY SOURCE Capital received from investors 4,745,840 NET ASSET VALUE (NAV) BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Sweep Shares $1,601,957 1,601,957 $1.00 Premier Sweep Shares $3,143,883 3,143,883 $1.00
Unless stated, all numbers x 1,000. a The amortized cost of the fund's securities was $4,743,198. Includes restricted and/or illiquid securities worth $75,970, or 1.6% of the fund's total net assets. Also, includes other restricted but deemed liquid securities comprised of 144A, section 4(2) and 3c7 securities, worth $1,616,926 or 34.1% of the fund's total net assets. FEDERAL TAX DATA ------------------------------------- COST BASIS OF PORTFOLIO $4,743,198 14 See financial notes. SCHWAB ADVISOR CASH RESERVES Statement of OPERATIONS From January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME ------------------------------------------------------------------------------- Interest $62,811 EXPENSES ------------------------------------------------------------------------------- Investment adviser and administrator fees 7,972 a Transfer agent and shareholder service fees: Sweep Shares 3,398 b Premier Sweep Shares 6,660 b Trustees' fees 20 c Custodian and portfolio accounting fees 208 Professional fees 21 Registration fees 149 Shareholder reports 301 Other expenses + 5 ---------- Total expenses 18,734 Expense reduction - 4,791 d ---------- NET EXPENSES 13,943 INCREASE IN NET ASSETS FROM OPERATIONS TOTAL INVESTMENT INCOME 62,811 NET EXPENSES - 13,943 ---------- NET INVESTMENT INCOME 48,868 ---------- INCREASE IN NET ASSETS FROM OPERATIONS $48,868
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.25% of the fund's assets; for shareholder services, 0.20% of the fund's assets of each respective share class. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d Includes $3,311 from the investment adviser (CSIM) and $1,480 from from the transfer agent and shareholder service agent (Schwab). These reductions reflect a guarantee by CSIM and Schwab to limit the annual operating expenses through April 29, 2006, as follows: % OF AVERAGE SHARE CLASS DAILY NET ASSETS ------------------------------------------ Sweep Shares 0.69 Premier Sweep Shares 0.59 This limit excludes interest, taxes and certain non-routine expenses. See financial notes. 15 SCHWAB ADVISOR CASH RESERVES Statement of CHANGES IN NET ASSETS For the current and prior report period. The fund commenced operations on August 19, 2004. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS -------------------------------------------------------------------------------- 1/1/05-6/30/05 8/19/04-12/31/04 Net investment income $48,868 $12,474 ------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 48,868 12,474 DISTRIBUTIONS PAID -------------------------------------------------------------------------------- Dividends from net investment income Sweep Shares 16,014 4,518 Premier Sweep Shares + 32,854 7,956 ------------------------------------- TOTAL DIVIDENDS FROM NET INVESTMENT INCOME 48,868 12,474 a TRANSACTIONS IN FUND SHARES b -------------------------------------------------------------------------------- SHARES SOLD Sweep Shares 4,409,993 3,294,040 Premier Sweep Shares + 10,341,794 6,173,729 ------------------------------------- TOTAL SHARES SOLD 14,751,787 9,467,769 SHARES REINVESTED Sweep Shares 14,121 4,349 Premier Sweep Shares + 28,993 7,749 ------------------------------------- TOTAL SHARES REINVESTED 43,114 12,098 SHARES REDEEMED Sweep Shares (4,093,215) (2,027,331) Premier Sweep Shares + (9,570,707) (3,837,675) ------------------------------------- TOTAL SHARES REDEEMED (13,663,922) (5,865,006) NET TRANSACTIONS IN FUND SHARES 1,130,979 3,614,861 NET ASSETS -------------------------------------------------------------------------------- Beginning of period 3,614,861 -- Total increase + 1,130,979 3,614,861 c ------------------------------------- END OF PERIOD $4,745,840 $3,614,861
Unless stated, all numbers x 1,000. a The tax-basis components of distributions for the period ended 12/31/04 are: Ordinary income $12,474 Long-term capital gains $-- b Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. c Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. 16 See financial notes. SCHWAB ADVISOR CASH RESERVES FINANCIAL NOTES unaudited BUSINESS STRUCTURE OF THE FUNDS THE FUND DISCUSSED IN THIS REPORT IS A SERIES OF THE CHARLES SCHWAB FAMILY OF FUNDS, A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended. The sidebar shows the funds in this report and their trust. THE FUND OFFERS TWO SHARE CLASSES: Sweep Shares and Premier Sweep Shares. Shares of each class represent interest in the same portfolio, but each class has different expenses and investment minimums. 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 trust may issue as many shares as necessary. FUND OPERATIONS Most of the fund's investments are described in the sections earlier in this report. However, there are certain other fund operations and policies that may affect the fund's financials, as described below. Other policies concerning the fund's business operations also are described here. THE FUND DECLARES DIVIDENDS EVERY DAY IT IS OPEN FOR BUSINESS. These dividends, which are equal to the fund's net investment income for that day, are paid out to shareholders once a month. The fund may make distributions from any net realized capital gains once a year. THE FUND MAY BUY SECURITIES ON A DELAYED-DELIVERY BASIS. In these transactions, the 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 has set aside sufficient securities as collateral for those securities bought on a delayed-delivery basis. THE FUND MAY ENTER INTO REPURCHASE AGREEMENTS. In a repurchase agreement, the 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. Any repurchase agreements with due dates later than seven days from issue dates may be subject to seven day put features for liquidity purposes. The fund's repurchase agreements will be fully collateralized by U.S. government 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 price under the agreement. THE FUND PAYS FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES. Through its trust, the fund has agreements with Charles Schwab Investment Management, Inc. (CSIM) to provide investment advisory and administrative services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent and shareholder services. THE TRUST AND ITS FUNDS This list shows all of the funds included in The Charles Schwab Family of Funds. The funds discussed in this report 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 Municipal Money Fund Schwab California Municipal Money Fund Schwab New York Municipal Money Fund Schwab New Jersey Municipal Money Fund Schwab Pennsylvania Municipal Money Fund Schwab Florida Municipal Money Fund Schwab Massachusetts Municipal Money Fund Schwab Retirement Advantage Money Fund Schwab Retirement Money Fund SCHWAB ADVISOR CASH RESERVES Schwab Cash Reserves Schwab Government Cash Reserves 17 SCHWAB ADVISOR CASH RESERVES Although these agreements specify certain fees for these services, CSIM and Schwab have made additional agreements with the fund that may limit the total expenses charged. The rates and limitations for these fees are described in the fund's Statement of Operations. THE FUND MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. The fund may make direct transactions with certain other Schwab Funds(R) 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. Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions within the 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. 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 the fund's Statement of Operations. THE FUND MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The fund may obtain temporary bank loans through the trust to which the fund belongs, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The Schwab Funds have custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A., respectively. The fund pays interest on the amount that it borrows at rates that are negotiated periodically. There was no borrowing for the fund during the period. 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 net realized capital gains (if any) to its respective shareholders each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax. UNDER THE FUND'S ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE INDEMNIFIED AGAINST CERTAIN LIABILITY 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 funds. However, based on experience, the fund expects the risk of loss to be remote. ACCOUNTING POLICIES The following are the main policies the fund uses in preparing its financial statements. THE FUND VALUES ITS SECURITIES AT AMORTIZED COST, which approximates market value. SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the security is executed. INTEREST INCOME is recorded as it accrues. If a fund buys a debt instrument at a discount (that is, for less than its 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. 18 SCHWAB ADVISOR CASH RESERVES REALIZED GAINS AND LOSSES from security transactions are based on the identified costs of the securities involved. EXPENSES that are specific to the fund or a class are charged directly to the fund or class. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets. 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 also may keep certain assets in segregated accounts, as required by securities law. THE ACCOUNTING POLICIES DESCRIBED ABOVE CONFORM WITH 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. 19 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 advisory agreement. In addition, the Securities and Exchange Commission (the "SEC") takes the position that, as part of their fiduciary duties with respect to fund fees, fund boards are required to evaluate the material factors applicable to a decision to approve an investment advisory agreement. Consistent with these responsibilities, the Board of Trustees (the "Board") 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 CSIM (the "Agreement") with respect to existing funds in the Trust, including the Schwab Advisor 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 funds that the Board reviews during the course of each year, including information that relates to fund operations and fund performance. The trustees also receive a memorandum from fund counsel regarding the responsibilities of trustees for the approval of investment advisory contracts. In addition, the Independent Trustees receive advice from independent counsel to the Independent Trustees, meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM. At the May 24, 2005 meeting of the Board, the trustees, including a majority of the Independent Trustees, approved the renewal of the Agreement on an interim basis through September 30, 2005. The Board's approval of the Agreement was based on consideration and evaluation of a variety of specific factors discussed at that meeting 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 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. 20 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 the fact that Schwab's extensive branch network, Internet access, investment and research tools, telephone services, and array of account features benefit the funds. 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' investors are also brokerage clients of Schwab, and that CSIM and its affiliates are uniquely positioned to provide services and support to the funds and such shareholders. 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 interim renewal of the Agreement. FUND PERFORMANCE. The Board considered fund performance in determining whether to renew the Agreement. Specifically, the trustees considered each fund's performance relative to a peer group of other mutual funds and appropriate indices/benchmarks, in light of total return, yield and market trends. As part of this review, the trustees considered the composition of the peer group, selection criteria and the reputation of the third party who prepared the peer group analysis. In evaluating the performance of each fund, the trustees considered both risk and shareholder risk expectations for such fund. Following such evaluation, the Board concluded, within the context of its full deliberations, that the performance of the funds supported interim renewal of the Agreement. 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 voluntary waiver of 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 and offshore funds, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the unique 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 interim renewal of the Agreement. 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 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, 21 within the context of its full deliberations, that the profitability of CSIM is reasonable and supported interim renewal of the Agreement. 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 CSIM's agreement to contractual investment advisory fee schedules which include lower fees at higher graduated asset levels. Based on this evaluation, 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, unanimously approved the interim continuation of the Agreement and concluded that the compensation under the Agreement 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. 22 TRUSTEES AND OFFICERS A fund's Board of Trustees is responsible for protecting the interests of that fund's shareholders. The tables below give information about the people who serve as trustees and officers for the Schwab Funds(R), including the funds covered in this report. Trustees remain in office until they resign, retire or are removed by shareholder vote. 1 Under the Investment Company Act of 1940, any officer, director, or employee of Schwab or CSIM is considered an "interested person," meaning that he or she is considered to have a business interest in Schwab or CSIM. These individuals are listed as "interested trustees." The "independent trustees" are individuals who, under the 1940 Act, are not considered to have a business interest in Schwab or CSIM. Each of the 56 Schwab Funds belongs to one of these trusts: The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently all these trusts have the same trustees and officers. The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. 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. INTERESTED TRUSTEES AND OFFICERS
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ----------------------------------------------------------------------------------------------------------------------------- CHARLES R. SCHWAB 2 Chairman, Trustee: Chair, CEO, Director, The Charles Schwab Corp., Charles Schwab & 7/29/37 Family of Funds, 1989; Co., Inc.; Chair, Director, Charles Schwab Investment Management, Investments, 1991; Inc.; Chair, Charles Schwab Holdings (UK); Chair, Director, U.S. Trust Capital Trust, 1993; Corp., United States Trust Co. of New York, U.S. Trust Co., N.A.; Annuity Portfolios, 1994. CEO, Director, Charles Schwab Holdings, Inc.; Chair, CEO Schwab (SIS) Holdings, Inc. I, Schwab International Holdings, Inc.; Director, Charles Schwab Bank, N.A., The Charles and Helen Schwab Foundation, All Kinds of Minds (education); Trustee, Stanford University. Until 5/04: Director, The Gap, Inc. (clothing retailer). Until 5/03: Co-CEO, The Charles Schwab Corp. Until 3/02: Director, Audiobase, Inc. (Internet audio solutions). Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications). Until 7/01: Director, The Charles Schwab Trust Co.
1 The Schwab Funds retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010. 2 In addition to his position with the investment adviser and the distributor, Mr. Schwab also owns stock of The Charles Schwab Corporation. 23 INTERESTED TRUSTEES BUT NOT OFFICERS
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ----------------------------------------------------------------------------------------------------------------------------- RANDALL W. MERK 2005 (all trusts). EVP, President, AMPS Enterprise. Until 7/04: President, CEO, 7/25/54 Charles Schwab Investment Management, Inc.; VP, Charles Schwab & Co., Inc. Until 8/02: President, Chief Investment Officer, American Century Management; Director, American Century Companies, Inc. Until 6/01: Chief Investment Officer, Fixed Income, American Century Companies, Inc.
OFFICERS OF THE TRUST
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ----------------------------------------------------------------------------------------------------------------------------- EVELYN DILSAVER President, CEO EVP, President, Director, Charles Schwab Investment Management, 5/4/55 (all trusts). Inc. Until 7/04: SVP for Development and Distribution, Asset Management Products and Services Enterprise. Until 6/03: EVP, CFO, Chief Administrative Officer, U.S. Trust. ----------------------------------------------------------------------------------------------------------------------------- STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment 4/5/55 Officer (all trusts). Management, Inc.; Chief Investment Officer, The Charles Schwab Trust Co. ----------------------------------------------------------------------------------------------------------------------------- KIMON DAIFOTIS SVP, Chief Investment Since 9/04: Chief Investment Officer, Fixed Income, Charles 7/10/59 Officer (all trusts). Schwab Investment Management, Inc. Since 6/04: SVP, Charles Schwab Investment Management, Inc. Until 6/04: VP, Charles Schwab Investment Management, Inc. ----------------------------------------------------------------------------------------------------------------------------- JEFFREY MORTIMER SVP, Chief Investment Since 5/04: SVP, Chief Investment Officer, Equities, Charles Schwab 9/29/63 Officer (all trusts). Investment Management, Inc. Since 6/04: VP, Chief Investment Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 5/04: VP, Charles Schwab Investment Management, Inc. ----------------------------------------------------------------------------------------------------------------------------- RANDALL FILLMORE Chief Compliance Since 9/04: SVP, Institutional Compliance and Chief Compliance 11/11/60 Officer (all trusts). Officer, Charles Schwab Investment Management, Inc.; Chief Compliance Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 9/04: VP, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. Until 2002: VP of Internal Audit, Charles Schwab & Co., Inc. Prior to 2000: PricewaterhouseCoopers. ----------------------------------------------------------------------------------------------------------------------------- KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab 3/13/61 Investment Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco. ----------------------------------------------------------------------------------------------------------------------------- GEORGE PEREIRA Treasurer, Principal Since 11/04: SVP, CFO, Charles Schwab Investment Management, 6/9/64 Financial Officer Inc. Until 11/04: SVP, Financial Reporting, Charles Schwab & Co., Inc. (all trusts). Until 12/99: CFO, Commerzbank Capital Markets. Until 9/99: Managing Director at the New York Stock Exchange.
24 INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ----------------------------------------------------------------------------------------------------------------------------- MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC (real estate); Trustee, Stanford 8/13/60 University, America First Cos., Omaha, NE (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital. Since 2/05: Director, Pacific Mutual Holding Company (insurance). Since 2004: Laudus Trust, Laudus Variable Insurance Trust. Until 2001: Stanford University, Special Assistant to the President. From 1996-2001: VP of Business Affairs, CFO. ----------------------------------------------------------------------------------------------------------------------------- DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing 9/23/31 Investments, 1991; and communications consulting). Until 1999: EVP, Managing Director, Capital Trust, 1993; Grey Advertising. Until 1996: President, CEO, Allen & Dorward Annuity Portfolios, 1994. Advertising. ----------------------------------------------------------------------------------------------------------------------------- WILLIAM A. HASLER 2000 (all trusts). Dean Emeritus, Haas School of Business, University of California, 11/22/41 Berkeley; Director, Aphton Corp. (bio-pharmaceuticals); Non- Executive Chair, Solectron Corp. (manufacturing), Mission West Properties (commercial real estate), Stratex Networks (network equipment), TOUSA (home building); Public Governor, Member, executive committee, Pacific Stock & Options Exchange. Since 2004: Trustee, Laudus Trust, Laudus Variable Insurance Trust. Until 2/04: Co-CEO, Aphton Corp. (bio-pharmaceuticals). ----------------------------------------------------------------------------------------------------------------------------- ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial 5/15/31 Investments, 1991; services and investment advisory firm). Capital Trust, 1993; Annuity Portfolios, 1994. ----------------------------------------------------------------------------------------------------------------------------- GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisers); 9/28/50 Trustee, Cooper Industries (electrical products, tools and hardware); Chairman, audit committee, Northern Border Partners, L.P. (energy). ----------------------------------------------------------------------------------------------------------------------------- DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: 6/28/38 Investments, 1991; Chair, CEO, North American Trust (real estate investment trust). Capital Trust, 1993; Annuity Portfolios, 1994. ----------------------------------------------------------------------------------------------------------------------------- MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (real estate investment and 8/18/43 Investments, 1991; management, and other investments). Capital Trust, 1993; Annuity Portfolios, 1994.
25 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. ALTERNATIVE MINIMUM TAX (AMT) A federal income tax designed to limit the extent to which high-income taxpayers (including individuals, estates, trusts and corporations) can benefit from certain deductions and exemptions. For example, some types of income that are exempt from regular federal income tax are not exempt from the AMT. ASSET-BACKED SECURITIES Bonds or other debt securities that represent ownership in a pool of assets such as credit card debt. BOND A security representing a loan from the investor to the issuer. A bond typically pays interest at a fixed rate (the "coupon rate") until a specified date (the "maturity date"), at which time the issuer returns the money borrowed ("principal" or "face value") to the bondholder. Because of their structure, bonds are sometimes called "fixed income securities" or "debt securities." An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond's market value prior to call or maturity. There is no guarantee that a bond's yield to call or maturity will provide a positive return over the rate of inflation. BOND FUND A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund's net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed. BOND ANTICIPATION NOTES Obligations sold by a municipality on an interim basis in anticipation of the municipality's issuance of a longer-term bond in the future. 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, state and local governments 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. 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 limit 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 credit-worthiness 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 principal to its debtholders. PORTFOLIO TERMS To help reduce the space occupied by the portfolio holdings, we use the following terms. Most of them appear within descriptions of individual securities in municipal funds, and describe features of the issuer or the security. Some of these are more fully defined elsewhere in the Glossary. ACES Adjustable convertible extendable security BAN Bond anticipation note COP Certificate of participation GAN Grant anticipation note GO General obligation HDA Housing Development Authority HFA Housing Finance Agency IDA Industrial Development Authority IDB Industrial Development Board IDRB Industrial Development Revenue Bond M/F Multi-family RAN Revenue anticipation note RB Revenue bond S/F Single-family TAN Tax anticipation note TECP Tax-exempt commercial paper TRAN Tax and revenue anticipation note VRD Variable-rate demand 26 DOLLAR-WEIGHTED AVERAGE MATURITY (DWAM) See weighted average maturity. EFFECTIVE YIELD A measurement of a fund's yield that assumes that all dividends were 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 a 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 A security that when tendered is paid from funds advanced by an entity other than the issuer (such as a large financial institution). Liquidity enhancements are often used on variable-rate securities where the portfolio manager has an option to tender the securities prior to their final maturity. MATURITY The date a debt security is scheduled to be "retired" and its principal amount returned to the bondholder. MONEY MARKET SECURITIES High-quality, short-term debt securities that may be issued by entities such as the U.S. government, corporations and financial institutions (such as banks). Money market securities include commercial paper, promissory notes, certificates of deposit, banker's acceptances, notes and time deposits. MUNI, MUNICIPAL BONDS, 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. REVENUE ANTICIPATION NOTES Obligations that are issued in expectation of the receipt of revenue, such as income taxes, property taxes, etc. 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%). TOTAL RETURN The percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested. TAX ANTICIPATION NOTES Notes that typically are sold to finance the cash flow needs of municipalities in anticipation of the receipt of taxes on a future date. 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. WEIGHTED AVERAGE MATURITY For mutual funds, the maturity of all the debt securities in its portfolio, calculated as a weighted average. As a rule, the longer a fund's weighted average maturity, the greater its interest rate risk. Money funds are required to maintain a weighted average maturity of no more than 90 days. YIELD The income paid out by an investment, expressed as a percentage of the investment's market value. 27 NOTES Schwab Funds(R) offers you a complete 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're 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, and 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. METHODS FOR PLACING ORDERS The following information outlines how Schwab investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET 1 www.schwab.com SCHWAB BY PHONE(TM) 2 Use our automated voice service or speak to a representative. Call 1-800-435-4000, day or night (for TDD service, call 1-800-345-2550). TELEBROKER(R) Use our automated touch-tone phone service at 1-800-272-4922. MAIL Write to Schwab Funds at: P.O. Box 3812 Englewood, CO 80155-3812 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. 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.schwab.com/schwabfunds, 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.schwab.com/schwabfunds or the SEC's website at http://www.sec.gov. 1 Shares of Sweep Investments(TM) may not be purchased directly over the Internet. 2 Orders placed in person or through a telephone representative may be subject to a service fee payable to Schwab. THE SCHWAB FUNDS FAMILY(R) STOCK FUNDS Schwab S&P 500 Index Fund Schwab 1000 Index(R) Fund Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) Schwab Premier Equity Fund(TM) Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) Schwab Financial Services Fund(TM) Schwab Health Care Fund(TM) Schwab Technology Fund(TM) Schwab Institutional Select(R) S&P 500 Fund ASSET ALLOCATION FUNDS 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 2020 Fund Schwab Target 2030 Fund Schwab Target 2040 Fund Schwab Retirement Income Fund BOND FUNDS Schwab YieldPlus Fund(R) Schwab Short-Term Bond Market Fund(TM) Schwab Total Bond Market Fund(TM) Schwab GNMA Fund(TM) Schwab Tax-Free YieldPlus Fund(TM) Schwab Short/Intermediate Tax-Free Bond Fund(TM) Schwab Long-Term Tax-Free Bond Fund(TM) Schwab California Tax-Free YieldPlus Fund(TM) Schwab California Short/Intermediate Tax-Free Bond Fund(TM) Schwab California Long-Term 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 liquidity. 3 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(R). 3 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. [CHARLES SCHWAB LOGO] INVESTMENT ADVISOR Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. (Schwab) FUNDS Schwab Funds(R) P.O. BOX 3812, Englewood, CO 80155-3812 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)2005 Charles Schwab & CO., Inc. All rights reserved. Member SIPC Printed on recycled paper. MFR32959 SCHWAB CASH RESERVES SEMIANNUAL REPORT June 30, 2005 [CHARLES SCHWAB LOGO] IN THIS REPORT Management's Discussion ................................................. 2 Performance and Fund Facts .............................................. 5 Fund Expenses ........................................................... 6 Financial Statements .................................................... 7 Financial Notes ......................................................... 15 Investment Advisory Agreement Approval .................................. 18 Trustees and Officers ................................................... 21 Glossary ................................................................ 24 Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM). Distributor and transfer agent: Charles Schwab & Co., Inc. (Schwab). [PHOTO OF CHARLES SCHWAB] Charles Schwab Chairman FROM THE CHAIRMAN Dear Shareholder, I have always believed that it's important to make sure that your cash is earning income between long-term investments by putting the money into a money market fund. While no investment is risk-free, money market funds carry, perhaps, the least amount of risk, as they generally are not as volatile as stocks or stock mutual funds. Money funds are good choices for investors who want to mitigate the potential fluctuations that may occur in their mostly stock portfolios. At Schwab, we offer a range of money funds with distinct investment strategies. Our municipal money funds, for example, may be beneficial for those of you in the higher tax brackets. We also offer money funds for those interested in the added protection provided by a portfolio of U.S. government securities. In addition, several of the Schwab money funds offer share classes that carry lower expenses in exchange for higher investment minimums. Now, as a result of the Federal Reserve having raised short-term interest rates eight times in the past 12 months (four during the six-month period covered in this report), yields on money market mutual funds are more attractive than they have been in many years. Not only that, but it's likely that the Fed will raise these rates again this year. Based on this expectation, we anticipate that the yields on money market funds will continue to move upwards over the next few months. On behalf of Schwab Funds, I want to thank you for investing with us and remind you that our commitment to our shareholders will never waver. Sincerely, /s/ Charles R. Schwab MANAGEMENT'S DISCUSSION for the six months ended June 30, 2005 [PHOTO OF EVELYN DILSAVER] EVELYN DILSAVER is President and CEO of Charles Schwab Investment Management, Inc. and is president of the funds covered in this report. She joined the firm in 1992 and has held a variety of executive positions at Schwab. Dear Shareholder, When I assumed my new role as President and CEO of Schwab Funds(R) last year, I pledged that I would be committed to offering you more relevant choices and better value. I am pleased to report that we already have done both. On July 1, 2005, Schwab Funds launched the Schwab Target Funds(TM), a suite of five mutual funds to help keep your retirement investments properly allocated over your lifetime. With a single investment in a Schwab Target Fund, you can avoid a common investment mistake--failing to adjust your portfolio over time. The funds are designed to provide shareholders with investment management, asset allocation and ongoing re-allocation over time. You simply choose the fund that most closely matches the date of your retirement and our experienced portfolio managers will do the rest. They will rebalance four of the five funds from more aggressive to more conservative as you get closer to your retirement date. The fifth fund is designed to help generate income and additional growth after you've retired. It also is a good choice for investors already enjoying their retirement. These no-load funds are a good value, as the funds have access to the lowest-priced eligible share class on the underlying Schwab affiliate funds. And because the funds invest in groups of other Schwab affiliate funds, they provide an additional layer of diversification. At Schwab, we believe that having an asset-allocation plan that fits your retirement goals, time frame and tolerance for risk is a key element in meeting your long-term investment goals. The Schwab Target Funds are designed to help you do this. I encourage you to learn more about these funds at www.schwab.com/target, or call Schwab. Thank you for investing in Schwab Funds. Sincerely, /s/ Evelyn Dilsaver Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 1-800-435-4000. Please read the prospectus carefully before investing. 2 Schwab Cash Reserves [PHOTO OF LINDA KLINGMAN] LINDA KLINGMAN, a vice president of the investment adviser and senior portfolio manager, has overall responsibility for the management of the fund. She joined the firm in 1990 and has managed money market funds since 1988. [PHOTO OF MIKE NEITZKE] MIKE NEITZKE, a portfolio manager, has day-to-day responsibility for management of the fund. Prior to joining the firm in March 2001, he worked for more than 15 years in the financial services industry as a portfolio manager. THE INVESTMENT ENVIRONMENT AND THE FUND Oil prices hit highs never seen before and the Federal Reserve Open Market Committee continued to raise short-term interest rates to curb inflationary pressures, raising rates for the fourth time this year. At the same time, GDP continued to grow at a healthy pace and the housing market remained strong, largely due to low mortgage rates. The firming labor market, as well as steady gains in capital spending, kept the economic expansion on a self-sustaining path. Businesses, unable to continue boosting productivity by restraining hiring, added new jobs during the six-month report period. Moreover, many leading indicators, such as the Institute for Supply Management's business activity surveys, suggested ongoing expansion, while continuing claims for unemployment benefits remained near cyclical lows. Business investments grew only modestly, but consumers continued to spend. In fact, consumer confidence rose to a level not experienced since before September 11, 2001. With consumers in a spending mode and consumer spending comprising about 70% of GDP, first quarter GDP remained strong and retail sales were healthy. In this positive economic environment, strong labor market conditions remained positive for domestic consumption. While high energy prices remained a significant headwind for economic performance, supply no longer was the issue; demand, especially in China, drove prices up. At the end of the six-month report period, a barrel of oil cost $56.50 versus $42.55 at the beginning of 2005. Though high oil and commodity prices could have hampered growth and stirred inflationary pressures, productivity gains, slow growth in the money supply and slack in the economy have mostly kept a lid on core inflation. The productivity gains, coupled with foreign central banks buying large amounts of U.S. Treasury securities, also helped to keep long-term interest rates under control. These conditions also caused the dollar to rally unexpectedly, which took a little bit of pressure off the price of imported goods. Amid signs of solidly expanding output and improved hiring, the Fed continued to tighten. It increased short-term interest rates at each of the four meetings in the first half of 2005, ending the six-month report period at a still moderate 3.25%. The moves have had a limited impact Schwab Cash Reserves 3 MANAGEMENT'S DISCUSSION continued Though high oil and commodity prices could have hampered growth and stirred inflationary pressures, productivity gains, slow growth in the money supply and slack in the economy have mostly kept a lid on core inflation. on overall economic growth, due primarily to the record-low level of rates from which the increases began. Nonetheless, the higher rates succeeded in moving money fund yields higher, making them a more attractive investment vehicle. SCHWAB CASH RESERVES was positioned to take advantage of the strong likelihood that the Federal Reserve would continue to raise short-term interest rates. And, indeed, the Fed did continue to tighten, raising rates four times during the six-month report period. In this economic scenario, we continually added to our variable-rate holdings, increasing our position to 16% during the six-month report period. The interest rates on these types of securities reset frequently, allowing us the opportunity to capture a rise in market rates. Also, we kept the fund's weighted average maturity (WAM) at approximately 40 days. Maintaining the WAM at this level provided us the flexibility desired to adapt to and respond to expected changes in interest rates. 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. 4 Schwab Cash Reserves PERFORMANCE AND FUND FACTS as of 6/30/05 Ticker Symbol: SWSXX SEVEN-DAY YIELDS 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. -------------------------------------------------------------------------------- SEVEN-DAY YIELD 1 2.54% -------------------------------------------------------------------------------- SEVEN-DAY YIELD--NO WAIVER 2 2.25% -------------------------------------------------------------------------------- SEVEN-DAY EFFECTIVE YIELD 1 2.57% -------------------------------------------------------------------------------- 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.SCHWAB.COM/SCHWABFUNDS. STATISTICS Money funds must maintain a dollar-weighted average maturity of no longer than 90 days, and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months). -------------------------------------------------------------------------------- WEIGHTED AVERAGE MATURITY 39 days -------------------------------------------------------------------------------- CREDIT QUALITY OF HOLDINGS % of portfolio 100% Tier 1 -------------------------------------------------------------------------------- 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. 1 Fund expenses have been partially absorbed by CSIM and Schwab. 2 Yield if fund expenses had not been partially absorbed by CSIM and Schwab. Schwab Cash Reserves 5 FUND EXPENSES 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 invested for six-months beginning January 1, 2005 and held through June 30, 2005. 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 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 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 EXPENSE RATIO 1 ACCOUNT VALUE (Net of Expenses) PAID DURING PERIOD 2 (Annualized) at 1/1/05 at 6/30/05 1/1/05-6/30/05 ------------------------------------------------------------------------------------------------------------------ SCHWAB CASH RESERVES Actual Return 0.69% $1,000 $1,010.40 $3.44 Hypothetical 5% Return 0.69% $1,000 $1,021.37 $3.46
1 Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. 2 Expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year. 6 Schwab Cash Reserves SCHWAB CASH RESERVES FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
1/1/05- 8/12/04 1- 6/30/05* 12/31/04 ------------------------------------------------------------------------------------------------------------------------------------ PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period 1.00 1.00 ------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.00 2 ------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.00) 2 ------------------------------------------------------------------------------------- Net asset value at end of period 1.00 1.00 ------------------------------------------------------------------------------------- Total return (%) 1.04 3 0.46 3 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net operating expenses 0.69 4 0.69 4 Gross operating expenses 0.98 4 1.05 4 Net investment income 2.15 4 1.24 4 Net assets, end of period ($ x 1,000,000) 223 140
* Unaudited. 1 Commencement of operations. 2 Per share amount was less than $0.01. 3 Not annualized. 4 Annualized. See financial notes. 7 SCHWAB CASH RESERVES PORTFOLIO HOLDINGS as of June 30, 2005; unaudited This section shows all the securities in the fund's portfolio and their value, as of the report date. The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on the fund's most recent Form N-Q is available by visiting Schwab's website at www.schwab.com/schwabfunds. We use the symbols below to designate certain characteristics of the securities. * Asset-backed security + Credit-enhanced security o Illiquid and/or restricted security For fixed-rate obligations, the rate shown is the effective yield at the time of purchase, except U.S. Treasury notes, for which the rate shown is the interest rate (the rate established when the obligation was issued). For variable-rate obligations, the rate shown is the rate as of the report date. For variable-rate obligations with scheduled maturities greater than 397 days, the maturity shown is the later of the next interest rate change date or demand date. For variable-rate obligations with scheduled maturities less than 397 days, the maturity shown is the earlier of the next interest rate change date or demand date.
COST VALUE HOLDINGS BY CATEGORY ($x1,000) ($x1,000) -------------------------------------------------------------------------------- 71.9% FIXED-RATE OBLIGATIONS 160,484 160,484 17.0% VARIABLE-RATE OBLIGATIONS 37,995 37,995 11.1% REPURCHASE AGREEMENTS 24,790 24,790 -------------------------------------------------------------------------------- 100.0% TOTAL INVESTMENTS 223,269 223,269 0.0% OTHER ASSETS AND LIABILITIES 77 -------------------------------------------------------------------------------- 100.0% NET ASSETS 223,346
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) FIXED-RATE OBLIGATIONS 71.9% of net assets COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 43.4% -------------------------------------------------------------------------- AB SPINTAB 3.23%, 08/11/05 2,000 1,993 *+ AMSTERDAM FUNDING CORP., SECTION 4(2) / 144A 3.09%, 07/07/05 3,000 2,998 *+ ASAP FUNDING LTD., SECTION 4(2) / 144A 3.23%, 08/09/05 1,000 996 *+ ATLANTIC ASSET SECURITIZATION CORP., SECTION 4(2) / 144A 3.18%, 07/14/05 1,000 999 * ATLANTIS ONE FUNDING CORP., SECTION 4(2) / 144A 2.82%, 07/11/05 1,000 999 3.25%, 09/20/05 2,000 1,986 3.44%, 11/18/05 2,000 1,974 *+ BARTON CAPITAL CORP., SECTION 4(2) / 144A 3.16%, 07/14/05 1,000 999 *+o BLUE SPICE, L.L.C., SECTION 4(2) / 144A 3.21%, 07/20/05 1,000 998 + CITIGROUP FUNDING, INC. 3.11%, 07/01/05 4,000 4,000 3.21%, 07/22/05 2,000 1,996 *+ CLIPPER RECEIVABLES CO., SECTION 4(2) / 144A 3.11%, 07/21/05 2,000 1,997 *+ CONCORD MINUTEMEN CAPITAL CO., SERIES A SECTION 3C7 / 144A 2.80%, 07/06/05 1,000 1,000 2.96%, 08/08/05 1,000 997 *+ CROWN POINT CAPITAL CO., L.L.C., SECTION 3C7 / 144A 3.17%, 07/26/05 1,000 998 3.44%, 11/16/05 1,000 987 * DAKOTA CP NOTES OF CITIBANK CREDIT CARD ISSUANCE TRUST, SECTION 4(2) / 144A 3.17%, 07/25/05 2,000 1,996 3.30%, 09/07/05 3,000 2,981 DANSKE BANK A/S 3.23%, 08/11/05 1,000 996
8 See financial notes. SCHWAB CASH RESERVES
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) *+ EIFFEL FUNDING, L.L.C., SECTION 4(2) / 144A 3.26%, 07/21/05 1,000 998 *+ FAIRWAY FINANCE CO., L.L.C., SECTION 4(2) / 144A 3.25%, 07/20/05 1,403 1,401 2.96%, 07/28/05 1,000 998 *+ FALCON ASSET SECURITIZATION CORP., SECTION 4(2) / 144A 3.18%, 07/18/05 3,500 3,495 * GALAXY FUNDING, INC., SECTION 4(2) / 144A 3.05%, 07/01/05 2,000 2,000 GENERAL ELECTRIC CAPITAL CORP. 2.86%, 07/21/05 2,000 1,997 * GIRO FUNDING U.S. CORP., SECTION 4(2) / 144A 3.18%, 07/14/05 1,000 999 + HBOS TREASURY SERVICES, PLC 3.26%, 07/28/05 3,000 2,993 + ING (U.S.) FUNDING, L.L.C. 3.25%, 07/20/05 3,000 2,995 *+ JUPITER SECURITIZATION CORP., SECTION 4(2) / 144A 3.16%, 07/18/05 3,000 2,996 3.23%, 07/26/05 1,000 998 * K2 (USA), L.L.C., SECTION 3C7 / 144A 2.84%, 07/15/05 1,000 999 3.33%, 10/11/05 1,000 991 *+ KITTY HAWK FUNDING CORP., SECTION 4(2) / 144A 3.18%, 07/15/05 2,000 1,997 *+ LEXINGTON PARKER CAPITAL CO., L.L.C., SECTION 4(2) / 144A 3.07%, 07/06/05 3,000 2,999 3.26%, 07/18/05 1,000 998 2.88%, 07/25/05 1,000 998 * MANE FUNDING CORP., SECTION 4(2) / 144A 3.31%, 07/27/05 2,000 1,995 MORGAN STANLEY 3.19%, 07/20/05 2,000 1,997 3.23%, 07/20/05 2,000 1,997 *+ PARK AVENUE RECEIVABLES CORP. L.L.C., SECTION 4(2) / 144A 3.14%, 07/14/05 2,000 1,998 * PARK GRANADA, L.L.C., SECTION 4(2) / 144A 3.20%, 08/01/05 1,000 997 *+ RANGER FUNDING CO. L.L.C., SECTION 4(2) / 144A 3.19%, 07/19/05 4,000 3,994 + SANTANDER CENTRAL HISPANO FINANCE (DELAWARE), INC. 2.81%, 07/13/05 1,000 999 *+ SCALDIS CAPITAL LTD., SECTION 4(2) / 144A 2.84%, 07/11/05 1,000 999 3.33%, 09/15/05 1,000 993 *+ SIGMA FINANCE, INC., SECTION 3C7 / 144A 3.08%, 07/12/05 2,000 1,998 SKANDINAVISKA ENSKILDA BANKEN AB 2.81%, 07/12/05 1,000 999 3.25%, 08/18/05 1,300 1,294 *+ THUNDER BAY FUNDING, LLC., SECTION 4(2) / 144A 3.09%, 07/07/05 2,000 1,999 *+ TICONDEROGA FUNDING, LLC., SECTION 4(2) / 144A 3.26%, 07/22/05 1,000 998 + UBS FINANCE (DELAWARE) INC. 3.11%, 07/14/05 8,000 7,991 *+ WINDMILL FUNDING CORP., SECTION 4(2) / 144A 3.17%, 07/18/05 1,000 998 3.23%, 07/21/05 2,000 1,996 ----------- 96,984 CERTIFICATES OF DEPOSIT 27.5% -------------------------------------------------------------------------- ALLIANCE & LEICESTER, PLC 3.58%, 12/20/05 2,000 2,000 BANCO BILBAO VIZCAYA ARGENTARIA S.A. 3.46%, 11/28/05 5,000 5,000 BANK OF THE WEST 3.33%, 09/27/05 5,000 5,000 BNP PARIBAS 3.46%, 11/28/05 1,000 1,000 CALYON 2.95%, 08/10/05 1,000 1,000 3.37%, 11/09/05 5,000 5,000 3.40%, 11/10/05 3,000 3,000
See financial notes. 9 SCHWAB CASH RESERVES PORTFOLIO HOLDINGS continued
ISSUER FACE AMOUNT VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) CANADIAN IMPERIAL BANK OF COMMERCE 2.72%, 07/05/05 4,000 4,000 CREDIT SUISSE FIRST BOSTON 3.15%, 07/29/05 5,000 5,000 DEXIA CREDIT LOCAL 3.23%, 07/22/05 1,000 1,000 DNB NOR BANK ASA 3.25%, 09/22/05 3,000 3,000 HSBC BANK, PLC 3.11%, 07/25/05 2,000 2,000 HSBC BANK, USA 3.44%, 11/21/05 1,000 1,000 MIZUHO CORP. BANK, LTD. 3.14%, 07/19/05 5,000 5,000 ROYAL BANK OF SCOTLAND, PLC 3.25%, 07/28/05 1,000 1,000 SKANDINAVISKA ENSKILDA BANKEN AB 3.20%, 07/22/05 2,500 2,500 TORONTO DOMINION BANK 3.45%, 11/28/05 4,000 4,000 3.47%, 12/05/05 2,000 2,000 3.54%, 12/09/05 2,000 2,000 WASHINGTON MUTUAL BANK, FA 3.44%, 11/22/05 1,000 1,000 WELLS FARGO BANK, N.A. 3.27%, 07/12/05 6,000 6,000 ----------- 61,500 BANK NOTES 0.5% -------------------------------------------------------------------------- BANK OF AMERICA, N.A. 2.98%, 08/23/05 1,000 1,000 PROMISSORY NOTES 0.5% -------------------------------------------------------------------------- o THE GOLDMAN SACHS GROUP, INC. 2.85%, 07/06/05 1,000 1,000 VARIABLE-RATE OBLIGATIONS 17.0% of net assets BARCLAYS BANK, PLC 3.15%, 07/18/05 5,000 4,998 3.18%, 07/18/05 5,000 4,999 o THE GOLDMAN SACHS GROUP, INC. 3.32%, 07/22/05 2,000 2,000 HSH NORDBANK, AG 3.12%, 07/11/05 3,000 3,000 3.13%, 07/11/05 2,000 2,000 LANDESBANK BADEN-WURTTEMBERG 3.15%, 07/13/05 3,000 3,000 NORDDEUTSCHE LANDESBANK GIROZENTRALE 3.10%, 07/07/05 7,000 6,999 3.17%, 07/14/05 3,000 2,999 ROYAL BANK OF SCOTLAND, PLC 3.36%, 07/29/05 2,000 2,000 *+ SIGMA FINANCE, INC., SECTION 3C7 / 144A 3.17%, 07/15/05 2,000 2,000 3.26%, 07/25/05 1,000 1,000 + TENDERFOOT SEASONAL HOUSING, L.L.C. Series B 3.39%, 07/07/05 3,000 3,000 ----------- 37,995
MATURITY AMOUNT SECURITY ($ x 1,000) OTHER INVESTMENTS 11.1% of net assets REPURCHASE AGREEMENTS 11.1% -------------------------------------------------------------------------- CREDIT SUISSE FIRST BOSTON L.L.C. Tri-Party Repurchase Agreement Collaterized by U.S. Government Securities with a value of $25,288 3.40%, issued 06/30/05 due 07/01/05 24,792 24,790
END OF INVESTMENTS. 10 See financial notes. SCHWAB CASH RESERVES
ISSUER COST/ RATE, ACQUISITION DATE, FACE AMOUNT VALUE MATURITY DATE ($ x 1,000) ($ x 1,000) AT JUNE 30, 2005, PORTFOLIO HOLDINGS INCLUDED RESTRICTED AND/OR ILLIQUID SECURITIES AS FOLLOWS: THE GOLDMAN SACHS GROUP, INC. 2.85%, 01/05/05, 07/06/05 1,000 1,000 3.32%, 02/22/05, 07/22/05 2,000 2,000 ----------- 3,000 BLUE SPICE L.L.C. SECTION 4(2) / 144A 3.21%, 06/16/05, 07/20/05 1,000 998
See financial notes. 11 SCHWAB CASH RESERVES Statement of ASSETS AND LIABILITIES As of June 30, 2005; unaudited. All numbers x 1,000 except NAV. ASSETS -------------------------------------------------------------------------------- Investments, at value $198,479 a Repurchase agreements, at value 24,790 a Interest receivable 381 Prepaid expenses + 73 ---------- TOTAL ASSETS 223,723 LIABILITIES -------------------------------------------------------------------------------- Payables: Dividends to shareholders 234 Investment adviser and administrator fees 2 Transfer agent and shareholder service fees 8 Trustees' fees 3 Accrued expenses + 130 ---------- TOTAL LIABILITIES 377 NET ASSETS -------------------------------------------------------------------------------- TOTAL ASSETS 223,723 TOTAL LIABILITIES - 377 ---------- NET ASSETS $223,346 NET ASSETS BY SOURCE Capital received from investors 223,346 NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $223,346 223,346 $1.00
Unless stated, all numbers x 1,000. a The amortized cost of the fund's securities was $223,269. Includes illiquid and/or restricted securities worth $3,998, or 1.8% of the fund's total net assets. Also, includes other restricted but deemed liquid securities comprised of 144A, section 4(2) and 3c7 securities, worth $66,739 or 29.9% of the fund's total net assets. FEDERAL TAX DATA ---------------------------------------- COST BASIS OF PORTFOLIO $223,269 12 See financial notes. SCHWAB CASH RESERVES Statement of OPERATIONS For January 1, 2005 through June 30, 2005; unaudited. All numbers x 1,000. INVESTMENT INCOME -------------------------------------------------------------------------------- Interest $2,683 EXPENSES -------------------------------------------------------------------------------- Investment adviser and administrator fees 359 a Transfer agent and shareholder service fees 426 b Trustees' fees 13 c Custodian and portfolio accounting fees 16 Professional fees 14 Registration fees 19 Shareholder reports 75 Other expenses + 2 -------- Total expenses 924 Expense reduction - 272 d -------- NET EXPENSES 652 INCREASE IN NET ASSETS FROM OPERATIONS -------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME 2,683 NET EXPENSES - 652 -------- NET INVESTMENT INCOME 2,031 -------- INCREASE IN NET ASSETS FROM OPERATIONS $2,031
Unless stated, all numbers x 1,000. a Calculated on a graduated basis as a percentage of average daily net assets: 38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion, 0.30% over $20 billion and 0.27% over $40 billion. These fees are paid to Charles Schwab Investment Management, Inc. (CSIM). b Calculated as a percentage of average daily net assets: for transfer agent services, 0.25% of the fund's assets; for shareholder services, 0.20% of the fund's assets. These fees are paid to Charles Schwab & Co., Inc. (Schwab). c For the fund's independent trustees only. d This reduction was made by the investment adviser (CSIM). It reflects a guarantee by CSIM and the transfer agent and shareholder service agent (Schwab) to limit the annual operating expenses of this fund through April 29, 2006, to 0.69% of average daily net assets. This limit excludes interest, taxes and certain non-routine expenses. See financial notes. 13 SCHWAB CASH RESERVES Statement of CHANGES IN NET ASSETS For the current and prior report periods. The fund commenced operations on August 12, 2004. All numbers x 1,000. Figures for the current period are unaudited.
OPERATIONS --------------------------------------------------------------------------------- 1/1/05-6/30/05 08/12/04-12/31/04 Net investment income $2,031 $521 -------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 2,031 521 DISTRIBUTIONS PAID --------------------------------------------------------------------------------- Dividends from net investment income 2,031 521 a TRANSACTIONS IN FUND SHARES b --------------------------------------------------------------------------------- Shares sold 721,930 384,505 Shares reinvested 1,763 510 Shares redeemed + (640,834) (244,528) -------------------------------------- NET TRANSACTIONS IN FUND SHARES 82,859 140,487 NET ASSETS --------------------------------------------------------------------------------- Beginning of period 140,487 -- Total increase + 82,859 140,487 c -------------------------------------- END OF PERIOD $223,346 $140,487
Unless stated, all numbers x 1,000. a The tax-basis components of distributions for the period ended 12/31/04 are: CURRENT YEAR Ordinary income $521 Long-term capital gains $-- b Because all transactions in this section took place at $1.00 per share, figures for share quantities are the same as for dollars. c Represents the changes in net assets from operations plus the changes in value of transactions in fund shares, minus distributions paid. 14 See financial notes. SCHWAB CASH RESERVES FINANCIAL NOTES unaudited BUSINESS STRUCTURE OF THE FUNDS THE FUND DISCUSSED IN THIS REPORT IS A SERIES OF THE CHARLES SCHWAB FAMILY OF FUNDS, A NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended. The sidebar shows the funds in this report and their trust. THE FUND 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 trust may issue as many shares as necessary. FUND OPERATIONS Most of the fund's investments are described in sections earlier in this report. However, there are certain other fund operations and policies that may affect the fund's financials, as described below. Other policies concerning the fund's business operations also are described here. THE FUND DECLARES DIVIDENDS EVERY DAY IT IS OPEN FOR BUSINESS. These dividends, which are equal to a fund's net investment income for that day, are paid out to shareholders once a month. The fund may make distributions from any net realized capital gains once a year. THE FUND MAY BUY SECURITIES ON A DELAYED-DELIVERY BASIS. In these transactions, the 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 has set aside sufficient securities as collateral for those securities bought on a delayed-delivery basis. THE FUND MAY ENTER INTO REPURCHASE AGREEMENTS. In a repurchase agreement, the 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. Any repurchase agreements with due dates later than seven days from issue dates may be subject to seven day put features for liquidity purposes. The fund's repurchase agreements will be fully collateralized by U.S. government 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 price under the agreement. THE FUND PAYS FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES. Through its trust, the fund has agreements with Charles Schwab Investment Management, Inc. (CSIM) to provide investment advisory and administrative services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent and shareholder services. THE TRUST AND ITS FUNDS This list shows all of the funds included in The Charles Schwab Family of Funds. The funds discussed in this report 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 Municipal Money Fund Schwab California Municipal Money Fund Schwab New York Municipal Money Fund Schwab New Jersey Municipal Money Fund Schwab Pennsylvania Municipal Money Fund Schwab Florida Municipal Money Fund Schwab Massachusetts Municipal Money Fund Schwab Retirement Advantage Money Fund Schwab Retirement Money Fund Schwab Advisor Cash Reserves Schwab Government Cash Reserves SCHWAB CASH RESERVES SCHWAB CASH RESERVES Although these agreements specify certain fees for these services, CSIM and Schwab have made additional agreements with the fund that may limit the total expenses charged. The rates and limitations for these fees are described in the fund's Statement of Operations. THE FUND MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. The fund may make direct transactions with certain other Schwab Funds(R) 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. Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions within the 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. 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 the fund's Statement of Operations. THE FUND MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The fund may obtain temporary bank loans through the trust to which the fund belongs, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The Schwab Funds have custodian overdraft facilities and line of credit arrangements of $150 million and $100 million with PNC Bank, N.A. and Bank of America, N.A., respectively. The fund pays interest on the amounts it borrows at rates that are negotiated periodically. There was no borrowing for the fund during the period. 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 net realized capital gains (if any) to its respective shareholders each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax. UNDER THE FUND'S ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE INDEMNIFIED AGAINST CERTAIN LIABILITY 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. ACCOUNTING POLICIES The following are the main policies the fund uses in preparing its financial statements. THE FUND VALUES ITS SECURITIES AT AMORTIZED COST, which approximates market value. SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the security is executed. 16 SCHWAB CASH RESERVES INTEREST INCOME is recorded as it accrues. If the fund buys a debt instrument at a discount (that is, for less than its 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. REALIZED GAINS AND LOSSES from security transactions are based on the identified costs of the securities involved. EXPENSES that are specific to the 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. 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 also may keep certain assets in segregated accounts, as required by securities law. THE ACCOUNTING POLICIES DESCRIBED ABOVE CONFORM WITH 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. 17 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 advisory agreement. In addition, the Securities and Exchange Commission (the "SEC") takes the position that, as part of their fiduciary duties with respect to fund fees, fund boards are required to evaluate the material factors applicable to a decision to approve an investment advisory agreement. Consistent with these responsibilities, the Board of Trustees (the "Board") 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 CSIM (the "Agreement") with respect to existing funds in the Trust, including the 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 funds that the Board reviews during the course of each year, including information that relates to fund operations and fund performance. The trustees also receive a memorandum from fund counsel regarding the responsibilities of trustees for the approval of investment advisory contracts. In addition, the Independent Trustees receive advice from independent counsel to the Independent Trustees, meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM. At the May 24, 2005 meeting of the Board, the trustees, including a majority of the Independent Trustees, approved the renewal of the Agreement on an interim basis through September 30, 2005. The Board's approval of the Agreement was based on consideration and evaluation of a variety of specific factors discussed at that meeting 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 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. 18 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 the fact that Schwab's extensive branch network, Internet access, investment and research tools, telephone services, and array of account features benefit the funds. 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' investors are also brokerage clients of Schwab, and that CSIM and its affiliates are uniquely positioned to provide services and support to the funds and such shareholders. 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 interim renewal of the Agreement. FUND PERFORMANCE. The Board considered fund performance in determining whether to renew the Agreement. Specifically, the trustees considered each fund's performance relative to a peer group of other mutual funds and appropriate indices/benchmarks, in light of total return, yield and market trends. As part of this review, the trustees considered the composition of the peer group, selection criteria and the reputation of the third party who prepared the peer group analysis. In evaluating the performance of each fund, the trustees considered both risk and shareholder risk expectations for such fund. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of the funds supported interim renewal of the Agreement. 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 voluntary waiver of 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 and offshore funds, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the unique 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 interim renewal of the Agreement. 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 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, 19 within the context of its full deliberations, that the profitability of CSIM is reasonable and supported interim renewal of the Agreement. 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 CSIM's agreement to contractual investment advisory fee schedules which include lower fees at higher graduated asset levels. Based on this evaluation, 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, unanimously approved the interim continuation of the Agreement and concluded that the compensation under the Agreement 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. 20 TRUSTEES AND OFFICERS A fund's Board of Trustees is responsible for protecting the interests of that fund's shareholders. The tables below give information about the people who serve as trustees and officers for the Schwab Funds(R), including the funds covered in this report. Trustees remain in office until they resign, retire or are removed by shareholder vote. 1 Under the Investment Company Act of 1940, any officer, director, or employee of Schwab or CSIM is considered an "interested person," meaning that he or she is considered to have a business interest in Schwab or CSIM. These individuals are listed as "interested trustees." The "independent trustees" are individuals who, under the 1940 Act, are not considered to have a business interest in Schwab or CSIM. Each of the 56 Schwab Funds belongs to one of these trusts: The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently all these trusts have the same trustees and officers. The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. 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. TRUSTEES AND OFFICERS
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ CHARLES R. SCHWAB 2 Chairman, Trustee: Chair, CEO, Director, The Charles Schwab Corp., Charles Schwab & 7/29/37 Family of Funds, 1989; Co., Inc.; Chair, Director, Charles Schwab Investment Management, Investments, 1991; Inc.; Chair, Charles Schwab Holdings (UK); Chair, Director, U.S. Trust Capital Trust, 1993; Corp., United States Trust Co. of New York, U.S. Trust Co., N.A.; Annuity Portfolios, 1994. CEO, Director, Charles Schwab Holdings, Inc.; Chair, CEO Schwab (SIS) Holdings, Inc. I, Schwab International Holdings, Inc.; Director, Charles Schwab Bank, N.A., The Charles and Helen Schwab Foundation, All Kinds of Minds (education); Trustee, Stanford University. Until 5/04: Director, The Gap, Inc. (clothing retailer). Until 5/03: Co-CEO, The Charles Schwab Corp. Until 3/02: Director, Audiobase, Inc. (Internet audio solutions). Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications). Until 7/01: Director, The Charles Schwab Trust Co.
1 The Schwab Funds retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after twenty years of service as a trustee, whichever comes first. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on December 31, 2010. 2 In addition to his position with the investment adviser and the distributor, Mr. Schwab also owns stock of The Charles Schwab Corporation. 21 INTERESTED TRUSTEES BUT NOT OFFICERS
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ RANDALL W. MERK 2005 (all trusts). EVP, President, AMPS Enterprise. Until 7/04: President, CEO, 7/25/54 Charles Schwab Investment Management, Inc.; VP, Charles Schwab & Co., Inc. Until 8/02: President, Chief Investment Officer, American Century Management; Director, American Century Companies, Inc. Until 6/01: Chief Investment Officer, Fixed Income, American Century Companies, Inc.
OFFICERS OF THE TRUST
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ EVELYN DILSAVER President, CEO EVP, President, Director, Charles Schwab Investment Management, 5/4/55 (all trusts). Inc. Until 7/04: SVP for Development and Distribution, Asset Management Products and Services Enterprise. Until 6/03: EVP, CFO, Chief Administrative Officer, U.S. Trust. ------------------------------------------------------------------------------------------------------------------------------------ STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment 4/5/55 Officer (all trusts). Management, Inc.; Chief Investment Officer, The Charles Schwab Trust Co. ------------------------------------------------------------------------------------------------------------------------------------ KIMON DAIFOTIS SVP, Chief Investment Since 9/04: Chief Investment Officer, Fixed Income, Charles 7/10/59 Officer (all trusts). Schwab Investment Management, Inc. Since 6/04: SVP, Charles Schwab Investment Management, Inc. Until 6/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ JEFFREY MORTIMER SVP, Chief Investment Since 5/04: SVP, Chief Investment Officer, Equities, Charles Schwab 9/29/63 Officer (all trusts). Investment Management, Inc. Since 6/04: VP, Chief Investment Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 5/04: VP, Charles Schwab Investment Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ RANDALL FILLMORE Chief Compliance Since 9/04: SVP, Institutional Compliance and Chief Compliance 11/11/60 Officer (all trusts). Officer, Charles Schwab Investment Management, Inc.; Chief Compliance Officer, Laudus Trust, Laudus Variable Insurance Trust. Until 9/04: VP, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. Until 2002: VP of Internal Audit, Charles Schwab & Co., Inc. Prior to 2000: PricewaterhouseCoopers. ------------------------------------------------------------------------------------------------------------------------------------ KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab 3/13/61 Investment Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco. ------------------------------------------------------------------------------------------------------------------------------------ GEORGE PEREIRA Treasurer, Principal Since 11/04: SVP, CFO, Charles Schwab Investment Management, 6/9/64 Financial Officer Inc. Until 11/04: SVP, Financial Reporting, Charles Schwab & Co., Inc. (all trusts). Until 12/99: CFO, Commerzbank Capital Markets. Until 9/99: Managing Director at the New York Stock Exchange.
22 INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ------------------------------------------------------------------------------------------------------------------------------------ MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC (real estate); Trustee, Stanford 8/13/60 University, America First Cos., Omaha, NE (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital. Since 2/05: Director, Pacific Mutual Holding Company (insurance). Since 2004: Laudus Trust, Laudus Variable Insurance Trust. Until 2001: Stanford University, Special Assistant to the President. From 1996-2001: VP of Business Affairs, CFO. ------------------------------------------------------------------------------------------------------------------------------------ DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing 9/23/31 Investments, 1991; and communications consulting). Until 1999: EVP, Managing Director, Capital Trust, 1993; Grey Advertising. Until 1996: President, CEO, Allen & Dorward Annuity Portfolios, 1994. Advertising. ------------------------------------------------------------------------------------------------------------------------------------ WILLIAM A. HASLER 2000 (all trusts). Dean Emeritus, Haas School of Business, University of California, 11/22/41 Berkeley; Director, Aphton Corp. (bio-pharmaceuticals); Non- Executive Chair, Solectron Corp. (manufacturing), Mission West Properties (commercial real estate), Stratex Networks (network equipment), TOUSA (home building); Public Governor, Member, executive committee, Pacific Stock & Options Exchange. Since 2004: Trustee, Laudus Trust, Laudus Variable Insurance Trust. Until 2/04: Co-CEO, Aphton Corp. (bio-pharmaceuticals). ------------------------------------------------------------------------------------------------------------------------------------ ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial 5/15/31 Investments, 1991; services and investment advisory firm). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisers); 9/28/50 Trustee, Cooper Industries (electrical products, tools and hardware); Chairman, audit committee, Northern Border Partners, L.P. (energy). ------------------------------------------------------------------------------------------------------------------------------------ DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996: 6/28/38 Investments, 1991; Chair, CEO, North American Trust (real estate investment trust). Capital Trust, 1993; Annuity Portfolios, 1994. ------------------------------------------------------------------------------------------------------------------------------------ MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (real estate investment and 8/18/43 Investments, 1991; management, and other investments). Capital Trust, 1993; Annuity Portfolios, 1994.
23 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. ALTERNATIVE MINIMUM TAX (AMT) A federal income tax designed to limit the extent to which high-income taxpayers (including individuals, estates, trusts and corporations) can benefit from certain deductions and exemptions. For example, some types of income that are exempt from regular federal income tax are not exempt from the AMT. ASSET-BACKED SECURITIES Bonds or other debt securities that represent ownership in a pool of assets such as credit card debt. BOND A security representing a loan from the investor to the issuer. A bond typically pays interest at a fixed rate (the "coupon rate") until a specified date (the "maturity date"), at which time the issuer returns the money borrowed ("principal" or "face value") to the bondholder. Because of their structure, bonds are sometimes called "fixed income securities" or "debt securities." An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond's market value prior to call or maturity. There is no guarantee that a bond's yield to call or maturity will provide a positive return over the rate of inflation. BOND FUND A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund's net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed. BOND ANTICIPATION NOTES Obligations sold by a municipality on an interim basis in anticipation of the municipality's issuance of a longer-term bond in the future. 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, state and local governments 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. 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 limit 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 principal to its debtholders. PORTFOLIO TERMS To help reduce the space occupied by the portfolio holdings, we use the following terms. Most of them appear within descriptions of individual securities in municipal funds, and describe features of the issuer or the security. Some of these are more fully defined elsewhere in the Glossary. ACES Adjustable convertible extendable security BAN Bond anticipation note COP Certificate of participation GAN Grant anticipation note GO General obligation HDA Housing Development Authority HFA Housing Finance Agency IDA Industrial Development Authority IDB Industrial Development Board IDRB Industrial Development Revenue Bond M/F Multi-family RAN Revenue anticipation note RB Revenue bond S/F Single-family TAN Tax anticipation note TECP Tax-exempt commercial paper TRAN Tax and revenue anticipation note VRD Variable-rate demand 24 DOLLAR-WEIGHTED AVERAGE MATURITY (DWAM) See weighted average maturity. EFFECTIVE YIELD A measurement of a fund's yield that assumes that all dividends were 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 a 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 A security that when tendered is paid from funds advanced by an entity other than the issuer (such as a large financial institution). Liquidity enhancements are often used on variable-rate securities where the portfolio manager has an option to tender the securities prior to their final maturity. MATURITY The date a debt security is scheduled to be "retired" and its principal amount returned to the bondholder. MONEY MARKET SECURITIES High-quality, short-term debt securities that may be issued by entities such as the U.S. government, corporations and financial institutions (such as banks). Money market securities include commercial paper, promissory notes, certificates of deposit, banker's acceptances, notes and time deposits. MUNI, MUNICIPAL BONDS, 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. REVENUE ANTICIPATION NOTES Obligations that are issued in expectation of the receipt of revenue, such as income taxes, property taxes, etc. 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%). TOTAL RETURN The percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested. TAX ANTICIPATION NOTES Notes that typically are sold to finance the cash flow needs of municipalities in anticipation of the receipt of taxes on a future date. 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. WEIGHTED AVERAGE MATURITY For mutual funds, the maturity of all the debt securities in its portfolio, calculated as a weighted average. As a rule, the longer a fund's weighted average maturity, the greater its interest rate risk. Money funds are required to maintain a weighted average maturity of no more than 90 days. YIELD The income paid out by an investment, expressed as a percentage of the investment's market value. 25 NOTES NOTES NOTES Schwab Funds(R) offers you a complete 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're 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, and 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. METHODS FOR PLACING ORDERS The following information outlines how Schwab investors can place orders. If you are investing through a third-party investment provider, methods for placing orders may be different. INTERNET 1 www.schwab.com SCHWAB BY PHONE(TM) 2 Use our automated voice service or speak to a representative. Call 1-800-435-4000, day or night (for TDD service, call 1-800-345-2550). TELEBROKER(R) Use our automated touch-tone phone service at 1-800-272-4922. MAIL Write to Schwab Funds at: P.O. Box 3812 Englewood, CO 80155-3812 When selling or exchanging shares, be sure to include the signatures of at least one of the persons whose name is on the account. 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.schwab.com/schwabfunds, 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.schwab.com/schwabfunds or the SEC's website at http://www.sec.gov. 1 Shares of Sweep Investments(TM) may not be purchased directly over the Internet. 2 Orders placed in person or through a telephone representative may be subject to a service fee payable to Schwab. THE SCHWAB FUNDS FAMILY(R) STOCK FUNDS Schwab S&P 500 Index Fund Schwab 1000 Index(R) Fund Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) Schwab Premier Equity Fund(TM) Schwab Core Equity Fund(TM) Schwab Dividend Equity Fund(TM) Schwab Small-Cap Equity Fund(TM) Schwab Hedged Equity Fund(TM) Schwab Financial Services Fund(TM) Schwab Health Care Fund(TM) Schwab Technology Fund(TM) Schwab Institutional Select(R) S&P 500 Fund ASSET ALLOCATION FUNDS 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 2020 Fund Schwab Target 2030 Fund Schwab Target 2040 Fund Schwab Retirement Income Fund BOND FUNDS Schwab YieldPlus Fund(R) Schwab Short-Term Bond Market Fund(TM) Schwab Total Bond Market Fund(TM) Schwab GNMA Fund(TM) Schwab Tax-Free YieldPlus Fund(TM) Schwab Short/Intermediate Tax-Free Bond Fund(TM) Schwab Long-Term Tax-Free Bond Fund(TM) Schwab California Tax-Free YieldPlus Fund(TM) Schwab California Short/Intermediate Tax-Free Bond Fund(TM) Schwab California Long-Term 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 liquidity. 3 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(R). 3 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. [CHARLES SCHWAB LOGO] INVESTMENT ADVISER Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. (Schwab) FUNDS Schwab Funds(R) P.O. Box 3812, Englewood, CO 80155-3812 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)2005 Charles Schwab & Co., Inc. All rights reserved. Member SIPC Printed on recycled paper. MFR32958 ITEM 2: CODE OF ETHICS. Not applicable to this semi-annual report. ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable to this semi-annual report. ITEM 4: PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable to this semi-annual report. ITEM 5: AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6: SCHEDULE OF INVESTMENTS. The schedules of investments are included as part of the report to shareholders filed under Item 1 of this Form. ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8: PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 9: PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 11: CONTROLS AND PROCEDURES. (a) Based on their evaluation of Registrant's disclosure controls and procedures, as of a date within 90 days of the filing date, Registrant's Chief Executive Officer, Evelyn Dilsaver and Registrant's Principal Financial Officer, George Pereira, have concluded that Registrant's disclosure controls and procedures are: (i) reasonably designed to ensure that information required to be disclosed in this report is appropriately communicated to Registrant's officers to allow timely decisions regarding disclosures required in this report; (ii) reasonably designed to ensure that information required to be disclosed in this report is recorded, processed, summarized and reported in a timely manner; and (iii) are effective in achieving the goals described in (i) and (ii) above. (b) During the second fiscal quarter of the period covered by this report, there have been no changes in Registrant's internal control over financial reporting that the above officers believe to have materially affected, or to be reasonably likely to materially affect, Registrant's internal control over financial reporting. ITEM 12: EXHIBITS. (a) (1) Code of ethics - not applicable to this semi-annual report. (2) Separate certifications for Registrant's principal executive officer and principal financial officer, as required by Rule 30a-2(a) under the 1940 Act, are attached. (3) Not applicable. (b) A certification for Registrant's principal executive officer and principal financial officer, as required by Rule 30a-2(b) under the 1940 Act, is attached. This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. section 1350 and is not being filed as part of the Form N-CSR with the Commission. Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) The Charles Schwab Family of Funds ---------------------------------- By: /s/ Evelyn Dilsaver --------------------------- Evelyn Dilsaver Chief Executive Officer Date: August 17, 2005 --------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Evelyn Dilsaver --------------------------- Evelyn Dilsaver Chief Executive Officer Date: August 17, 2005 --------------- By: /s/ George Pereira -------------------------- George Pereira Principal Financial Officer Date: August 17, 2005 ---------------