N-30D 1 f87422nv30d.txt CHARLES SCHWAB FAMILY OF FUNDS FORM N-30D Schwab Money Funds ANNUAL REPORT December 31, 2002 Schwab Money Market Fund Schwab Government Money Fund Schwab U.S. Treasury Money Fund Schwab Value Advantage Money Fund(R) [CHARLES SCHWAB LOGO] In this report: Market overview ...................... 2 Schwab Money Market Fund ............. 4 Schwab Government Money Fund ........................... 21 Schwab U.S. Treasury Money Fund ........................... 30 Schwab Value Advantage Money Fund(R) ........................ 38 Financial notes ...................... 54 Fund trustees ........................ 57 Glossary ............................. 60 [PHOTO OF CHARLES R. SCHWAB] Charles R. Schwab Chairman Dear Shareholder, As an investor, how you feel about 2002 probably depends a lot on how much exposure you had to each asset class. If you're reading this report, you probably had some assets in money market investments. Although money fund yields were low when the year began and lower still when it ended, the capital preservation these funds provided meant that they still fared better than many stock investments. At the same time, money market investments lagged bond investments, which as a category actually performed quite well in 2002. Does this mean that long-term investors should now limit their portfolios to bonds and money funds? By no means. While there can be times when such an approach might happen to yield better results (as 2002 showed), history clearly shows that this isn't usual for longer periods. Investors have seen many changes in the past few years. But the basic principles of investing remain very much the same. Concepts such as asset allocation and portfolio rebalancing are as timely and important as ever. So is dollar-cost averaging 1--a basic mathematical principle you can bring into play simply by investing a set amount on a regular schedule. For most people, investing is a long-term proposition. Today's bad news often has an impact on financial markets. But over time, it's factors such as economic growth that shape broader trends. And those trends are what long-term investing is about. I want to thank you for choosing SchwabFunds(R) during this difficult time for investors. We strive to help you reach your financial goals, and look forward to serving you in the future. Sincerely, /s/ Charles R. Schwab 1 Dollar-cost averaging does not assure a profit and does not protect against loss in declining markets. MARKET OVERVIEW A YEAR OF FALLING SHORT-TERM RATES AND A MODERATE, PROTRACTED ECONOMIC RECOVERY. Calendar 2002 saw the U.S. economy making evident but very slow progress in recovering from the recession that was brought on by the collapse of the "new economy" and exacerbated by the 9/11 attacks. Through the policies of the Federal Reserve (the Fed) as well as through fiscal policies, the U.S. government continued to take action during 2002 to turn the economy around. Although the full effect of these policy actions may not be felt for some time, the economy did see some benefit during the year from these actions and perhaps even greater benefit from actions taken earlier. The rate cuts that the Fed had made in 2001 served their purpose of creating liquidity in 2002. In addition, a series of tax cuts enacted in 2001--criticized by some at the time as being unnecessary--turned out to benefit the economy at a time when help was much needed. One of the features of the 2001 recession was a steep fall-off in capital investment by businesses. This type of spending continued to languish even after the recession was over, and indeed remained relatively weak throughout 2002. Spending by consumers--most of whom have kept their jobs--was another story. Robust prior to the recession, consumer spending kept right on going through the recession and afterward with barely a pause until late in 2002. Low interest rates have been a boon for consumers as far as financing goes, and this was reflected in strong activity during 2002 in housing purchases and mortgage refinancings as well as auto sales. ASSET CLASS PERFORMANCE COMPARISON % returns during the report period This graph compares the performance of various asset classes during the report period. Final performance figures for the period are in the key below. 1.70% THREE-MONTH U.S. TREASURY BILLS (T-BILLS): measures short-term U.S. Treasury obligations 10.26% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: Measures the U.S. bond market -22.10% S&P 500(R) INDEX: measures U.S. large-cap stocks -20.48% RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks -15.94% MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East [LINE GRAPH]
Lehman Aggregate Bond Index MSCI EAFE Index Russell 2000 Small-Cap Index S&P 500 Index 3 Month T-Bill 31-Dec-01 0 0 0 0 0 Jan-02 -0.24 1.57 2.21 2.13 0.02 Jan-02 1.27 -1.4 0.32 -0.22 0.08 Jan-02 1.1 -3.23 -2.86 -1.79 0.1 Jan-02 0.57 -4.29 -1.83 -1.28 0.11 Feb-02 1.01 -5.38 -1.66 -2.15 0.14 Feb-02 1.34 -6.71 -4.38 -4.41 0.18 Feb-02 1.57 -4.37 -3.81 -3.72 0.21 Feb-02 1.76 -6.38 -4.65 -4.97 0.24 Mar-02 1.35 -3.34 -1.91 -1.16 0.27 Mar-02 0.21 2.25 2.53 1.68 0.3 Mar-02 0.01 2.11 2.41 1.84 0.32 Mar-02 -0.08 0.86 3.09 0.32 0.35 Mar-02 0.09 0.62 3.98 0.29 0.4 Apr-02 1.08 0.61 2.21 -1.87 0.44 Apr-02 1.33 -1.12 5.87 -2.89 0.48 Apr-02 1.56 2.1 6.28 -1.66 0.51 Apr-02 2.12 1.16 3.03 -5.93 0.54 May-02 2.18 1.87 5.29 -6.1 0.57 May-02 2.14 1.19 1.29 -7.71 0.61 May-02 1.72 3.97 4.65 -3.2 0.65 May-02 2.37 3.32 1.52 -5.19 0.69 May-02 2.89 2.45 0.27 -6.49 0.72 Jun-02 2.84 -0.78 -3.21 -9.96 0.75 Jun-02 3.95 -4.94 -5.52 -11.74 0.79 Jun-02 4.11 -4.99 -5.09 -13.33 0.82 Jun-02 3.79 -1.62 -4.7 -13.16 0.85 Jul-02 3.68 -2.1 -9.16 -13.23 0.86 Jul-02 4.9 -6.49 -14.84 -19.16 0.9 Jul-02 5 -9.14 -20.41 -25.62 0.93 Jul-02 5.23 -14.72 -21.21 -25.18 0.97 Aug-02 5.83 -13.81 -22.38 -24.09 1.03 Aug-02 5.9 -11.19 -19.88 -20.19 1.06 Aug-02 5.63 -10.36 -18.3 -18.42 1.09 Aug-02 6.39 -9.45 -17.43 -17.36 1.12 Aug-02 6.81 -11.59 -19.3 -19.4 1.15 Sep-02 7.11 -14.18 -19.15 -21.35 1.18 Sep-02 7.79 -15.97 -19.44 -21.72 1.21 Sep-02 8.14 -19.38 -24.12 -25.62 1.25 Sep-02 8.26 -19.09 -25.19 -27.21 1.28 Oct-02 8.26 -21.77 -28.04 -29.45 1.31 Oct-02 7.74 -20.84 -28.65 -26.39 1.33 Oct-02 6.64 -17.23 -24.82 -22.07 1.34 Oct-02 7.04 -18.19 -22.89 -20.9 1.37 Nov-02 7.84 -17.15 -20.62 -20.5 1.44 Nov-02 8.68 -16.02 -21.53 -21.04 1.51 Nov-02 8.32 -15.45 -20.06 -19.71 1.54 Nov-02 7.97 -13.54 -17.14 -17.89 1.56 Nov-02 8.02 -13.09 -15.79 -17.25 1.59 Dec-02 8.61 -15.77 -17.77 -12.87 1.61 Dec-02 8.98 -17.26 -19.55 -21.38 1.63 Dec-02 9.59 -17.2 -19.76 -20.83 1.66 Dec-02 10.2 -17.52 -20.27 -22.63 1.69 31-Dec-02 10.26 -15.94 -20.48 -22.1 1.7
These figures assume dividends and distributions were reinvested. Index figures don't include trading and managements costs, which would lower performance. Indices are unmanaged and you can't invest in them directly. Remember that past performance isn't an indication of future results. Data source: Charles Schwab & Co., Inc. (Schwab). Schwab Money Funds 2 WITH LOW YIELDS, MONEY MARKET INVESTMENTS GENERALLY LAGGED BOND INVESTMENTS DURING 2002, BUT STILL FARED BETTER THAN MOST CATEGORIES OF STOCKS. MONEY MARKET YIELDS FELL DURING 2002 ON ECONOMIC SOFTNESS AND A FED RATE CUT. The prices and yields of short-term securities reflected an unusual amount of uncertainty about the direction of the economy during 2002. As the short-term market scrutinized each new economic indicator--both negative and positive-- the direction of short-term rates changed frequently. At one point during the report period the yield curve became inverted, with yields on overnight securities actually higher than yields on 12-month securities. At other times in the year, the yield curve was essentially flat (similar rates for all maturities), and at still other times it was a "normal" rising curve (higher rates paid in exchange for longer maturities). Overall, however, short-term rates went down during 2002, retreating even further from the low levels they had reached in the wake of the Fed's dramatic series of interest rate cuts (which ended in December 2001). Short-term markets began the year with some optimism that the recovery was gathering steam, and short-term yields rose modestly through March 2002. When this optimism began to appear premature, however, rates began a steady slide downward that continued through October. In November, short-term markets were surprised by the Fed's 0.50% cut in its target rate (from 1.75% to 1.25%). Short-term investors generally appeared to believe the Fed would cut rates only 0.25%, if at all. As a result, short-term yields fell sharply on the Fed's announcement. THE VIEW FROM HERE: SLOW-PACED ECONOMIC IMPROVEMENT MAY CONTINUE. Although consumer spending appeared to be flagging somewhat as 2002 drew to a close, capital spending by corporations began showing signs of revival and may be able to take up some of the slack. The Fed's interest rate cuts appear to be achieving their goal of injecting liquidity into the economy, with the main effects of the November 2002 cut still to be felt (aside, of course, from its effect in pushing down short-term rates). Although in our opinion the threat of deflation cannot be discounted, it is worth noting that the Fed still has a variety of tools at its disposal, and has indicated that it may use them if it believes the circumstances warrant. One major concern is geopolitical risk. The outcome and ultimate impact of the situations in Iraq, North Korea and the Middle East are unknown. We believe that this uncertainty may be making the Fed's actions less effective than they otherwise would be. Likewise, it may be that businesses are holding back on capital spending more than they otherwise might. Based on past history and on the yield curve as it stood at the end of 2002, one thing that does appear likely is that when the Fed is satisfied that the current low interest rate environment has done its job in helping the economy regain momentum, it will raise interest rates, and short-term yields will likely follow. When that might happen, and whether any further cuts will occur before then, however, is unclear. 3 The fund seeks the highest current income consistent with stability of capital and liquidity. Schwab Money Market Fund [PHOTO OF LINDA KLINGMAN AND MIKE NEITZKE] LINDA KLINGMAN, a vice president of the investment advisor and senior portfolio manager, has overall responsibility for the management of the fund. She joined the firm in 1990 and has nearly 16 years of experience managing money market funds. 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 industry as a portfolio manager. TICKER SYMBOL: SWMXX MANAGERS' PERSPECTIVE SHORT-TERM YIELDS DECLINED DURING THE REPORT PERIOD AS THE ECONOMIC RECOVERY FAILED TO PICK UP SPEED. After peaking in March, yields fell steadily through October, then declined more sharply in November with the Fed's 0.50% rate cut. One development that affected the market was a decline in the supply of commercial paper during 2002. We trace this decline to a combination of factors associated with the soft economy. In particular, issuers reined in their short-term borrowing as they sought to cut costs and defer capital spending. This reduction in supply, in part, put downward pressure on yields. THE FUND GENERALLY MAINTAINED A LONGER AVERAGE MATURITY THAN ITS PEERS 1 DURING 2002, WHICH CONTRIBUTED POSITIVELY TO ITS PERFORMANCE. Because the fund held a higher proportion of fixed-rate securities than the average for its peer group, and maintained a somewhat longer weighted average maturity in its portfolio, it was able to mitigate the effects on its yield as short-term rates declined. Money market investors may also take some comfort from the fact that although money market investments generally lagged bond investments during 2002, they still fared better than most categories of stocks. 1 Source: iMoney Net, Inc., First Tier Retail Category, 12/31/02. Schwab Money Funds 4 PERFORMANCE AND FUND FACTS SEVEN-DAY YIELDS 1 as of 12/31/02 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, and that past performance is not an indication of future results. ---------------------------------------------------- SEVEN-DAY YIELD 0.86% ---------------------------------------------------- SEVEN-DAY EFFECTIVE YIELD 0.86% ----------------------------------------------------
WEIGHTED AVERAGE MATURITY during the period 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). [LINE CHART]
Monthly Maturity 31-Dec-01 63 Jan-02 57 Feb-02 62 Mar-02 59 Apr-02 59 May-02 65 Jun-02 64 Jul-02 63 Aug-02 61 Sep-02 56 Oct-02 63 Nov-02 61 31-Dec-02 59
PORTFOLIO COMPOSITION 2 as of 12/31/02 All figures are shown as a percentage of the fund's investments. All of the fund's securities were in the top tier of credit quality at the time of purchase. BY SECURITY TYPE [PIE CHART] 49.7% COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 36.8% CERTIFICATES OF DEPOSIT 5.1% REPURCHASE AGREEMENTS 5.1% VARIABLE-RATE OBLIGATIONS 2.0% PROMISSORY NOTES 1.3% BANK NOTES
BY CREDIT QUALITY [PIE CHART] 100.0% TIER 1
1 A portion of the fund's expenses was reduced during the reporting period. Without this reduction, the fund's seven-day yield would have been 0.83% and the seven-day effective yield would have been 0.83%. 2 Composition of the fund's portfolio is as of 12/31/02 and is not indicative of holdings after that date. 5 SCHWAB MONEY MARKET FUND -- Financials Financial tables These tables provide additional data on the fund's performance, portfolio holdings and business operations. Complementing the tables is the financial notes section at the end of this report, which describes the fund's business structure, accounting practices and other matters. The financial tables and the financial notes have both been audited by PricewaterhouseCoopers LLP. Look online at WWW.SCHWAB.COM/SCHWABFUNDS/HOW2READ for guides that are designed to help you read the financial tables in any SchwabFunds(R) shareholder report. FINANCIAL HIGHLIGHTS
1/1/02- 1/1/01- 1/1/00- 1/1/99- 1/1/98- 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98 --------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) --------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 ---------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.04 0.06 0.05 0.05 ---------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.04) (0.06) (0.05) (0.05) ---------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 ---------------------------------------------------------- Total return (%) 1.23 3.73 5.84 4.64 4.99 RATIOS/SUPPLEMENTAL DATA (%) --------------------------------------------------------------------------------------------------------- Ratio of net operating expenses to average net assets 0.75 0.75 0.75 1 0.75 0.75 Expense reductions reflected in above ratio 0.03 0.04 0.05 0.09 0.11 Ratio of net investment income to average net assets 1.22 3.63 5.70 4.56 4.87 Net assets, end of period ($ x 1,000,000) 51,063 49,116 41,823 36,099 27,439
1 Would have been 0.76% if certain non-routine expenses (proxy fees) had been included. See financial notes. 6 PORTFOLIO HOLDINGS As of December 31, 2002. This section shows all the securities in the fund's portfolio and their market value, as of the report date. We use the symbols below to designate certain characteristics: * Asset-backed security + Credit-enhanced security o Illiquid restricted security = 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. The pie chart below shows the fund's major categories and the market value and cost of the securities in each category. For definitions of abbreviations and acronyms used in security descriptions, see "portfolio terms" in the glossary. ALL DOLLAR VALUES ARE IN THOUSANDS. [PIE CHART] 89.8% FIX RATE OBLIGATIONS Market Value: $45,938,769 Cost: $45,938,769 5.1% VARIABLE-RATE OBLIGATIONS Market Value: $2,628,856 5.1% OTHER INVESTMENTS Market Value: $2,614,498 Cost: $2,614,498 ------------------------------------ 100.0% TOTAL INVESTMENTS Market Value: $51,182,123 Cost: $51,182,123
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) FIXED-RATE OBLIGATIONS 89.8% of investments COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 49.7% ------------------------------------------------------------------------------ AB SPINTAB 1.34%, 02/20/03 16,000 15,970 1.33%, 03/12/03 85,000 84,780 ABBEY NATIONAL NORTH AMERICA, L.L.C. 1.78%, 01/24/03 18,000 17,980 ALLIANCE & LEICESTER, PLC 1.71%, 01/15/03 10,000 9,993 1.32%, 02/10/03 95,000 94,861 1.33%, 03/17/03 10,000 9,972 AMERICAN EXPRESS CREDIT CORP. 1.70%, 01/24/03 60,000 59,935 1.35%, 01/28/03 80,000 79,919 * AMSTEL FUNDING CORP. 1.83%, 01/16/03 15,000 14,989 1.35%, 02/14/03 15,000 14,975 1.37%, 03/06/03 125,000 124,696 1.37%, 03/10/03 7,000 6,982 1.37%, 03/17/03 49,000 48,860 1.35%, 03/19/03 45,000 44,870 * AMSTERDAM FUNDING CORP. 1.79%, 01/16/03 125,000 124,907 1.37%, 01/17/03 40,000 39,976 1.75%, 01/17/03 60,000 59,954 1.79%, 01/30/03 40,000 39,943 1.34%, 03/03/03 75,000 74,830 1.34%, 03/07/03 23,000 22,944 1.34%, 03/12/03 40,000 39,896 1.34%, 03/24/03 50,000 49,847 ANZ (DELAWARE), INC. 1.33%, 03/18/03 198,000 197,446 * APRECO, INC. 1.36%, 01/10/03 50,000 49,983 1.80%, 01/15/03 10,000 9,993 1.39%, 01/29/03 60,000 59,935 1.36%, 02/10/03 60,000 59,909 1.35%, 02/18/03 10,000 9,982 * ASSET SECURITIZATION COOPERATIVE CORP. 1.80%, 01/09/03 127,000 126,949 1.79%, 01/14/03 87,000 86,944 1.34%, 01/16/03 85,000 84,953
See financial notes. 7 SCHWAB MONEY MARKET FUND -- Financials PORTFOLIO HOLDINGS As of December 31, 2002. Continued
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) 1.79%, 01/22/03 105,000 104,891 1.79%, 01/23/03 35,000 34,962 1.35%, 02/26/03 48,000 47,899 1.35%, 03/06/03 100,000 99,760 *+ ATLANTIS ONE FUNDING CORP. 1.86%, 01/10/03 20,515 20,506 1.79%, 01/15/03 200,000 199,862 1.79%, 01/23/03 50,000 49,946 1.73%, 01/24/03 94,674 94,570 1.74%, 01/30/03 113,000 112,843 1.69%, 01/31/03 150,000 149,790 1.35%, 02/27/03 50,000 49,893 1.67%, 03/04/03 113,694 113,369 1.33%, 03/12/03 45,000 44,884 1.34%, 03/12/03 75,000 74,805 1.33%, 03/13/03 30,000 29,921 1.34%, 03/13/03 41,000 40,892 1.34%, 03/21/03 98,000 97,712 1.35%, 03/21/03 40,000 39,881 1.34%, 03/26/03 50,000 49,844 BANK OF IRELAND 1.34%, 02/27/03 25,000 24,947 1.34%, 03/05/03 22,750 22,697 BANK OF NOVA SCOTIA 1.54%, 02/06/03 27,000 26,959 BARCLAYS U.S. FUNDING CORP. 1.36%, 03/05/03 310,000 309,266 1.33%, 03/19/03 100,000 99,716 * BARTON CAPITAL CORP. 1.36%, 01/03/03 90,485 90,478 1.80%, 01/13/03 42,626 42,601 1.80%, 01/14/03 53,866 53,831 1.36%, 01/24/03 49,205 49,162 *+ BAVARIA TRR CORP. 1.76%, 01/06/03 23,000 22,994 * BAVARIA UNIVERSAL FUNDING CORP. 1.76%, 01/06/03 25,117 25,111 1.79%, 01/06/03 13,281 13,278 1.76%, 01/10/03 20,115 20,106 1.77%, 01/15/03 25,000 24,983 1.84%, 01/17/03 11,000 10,991 1.86%, 01/27/03 30,000 29,960 BEAR STEARNS COMPANIES, INC. 1.73%, 01/10/03 89,000 88,962 1.56%, 02/07/03 24,000 23,962 1.34%, 02/26/03 245,000 244,490 1.33%, 03/26/03 49,000 48,848 1.33%, 03/28/03 53,000 52,832 * BETA FINANCE, INC. 1.87%, 01/06/03 6,238 6,236 1.77%, 01/22/03 88,000 87,910 1.71%, 02/18/03 115,000 114,739 2.03%, 03/21/03 11,000 10,952 * BETA FINANCE, INC., 144A 2.13%, 02/14/03 81,000 81,000 1.58%, 11/20/03 50,000 50,000 CBA (DELAWARE) FINANCE, INC. 1.33%, 02/24/03 46,300 46,208 1.34%, 03/05/03 21,800 21,749 * CC (USA), INC. 1.76%, 01/06/03 50,000 49,988 1.74%, 01/07/03 61,000 60,982 1.78%, 01/10/03 55,000 54,976 1.78%, 01/15/03 20,000 19,986 1.79%, 01/21/03 12,000 11,988 1.80%, 02/03/03 20,000 19,967 1.36%, 02/26/03 37,000 36,922 1.36%, 02/28/03 50,000 49,891 1.37%, 03/03/03 47,000 46,892 * CC (USA), INC., 144A 2.13%, 02/14/03 62,000 62,000 2.97%, 04/16/03 25,000 24,999 3.08%, 05/02/03 30,000 30,000 CDC COMMERCIAL PAPER CORP. 1.64%, 03/06/03 60,000 59,826 1.64%, 03/07/03 100,000 99,706 CIT GROUP, INC. 1.73%, 02/12/03 47,000 46,906 1.51%, 02/19/03 49,000 48,900 CITICORP 1.72%, 01/07/03 100,000 99,971 1.72%, 01/08/03 100,000 99,967 1.72%, 01/13/03 50,000 49,971 1.35%, 01/14/03 100,000 99,951 1.73%, 01/16/03 50,000 49,964 1.34%, 01/23/03 75,000 74,939 1.78%, 01/24/03 60,000 59,932 1.34%, 01/28/03 89,000 88,911 1.77%, 02/07/03 25,000 24,955 1.35%, 02/28/03 48,000 47,896 1.33%, 03/12/03 100,000 99,742
See financial notes. 8
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) * CLIPPER RECEIVABLES CORP. 1.33%, 01/14/03 79,975 79,937 1.34%, 02/25/03 215,000 214,560 1.34%, 03/11/03 134,000 133,656 = 1.33%, 03/28/03 95,000 94,705 * CONCORD MINUTEMEN CAPITAL CO., L.L.C. Series A 1.73%, 01/09/03 174,000 173,933 1.81%, 01/22/03 30,740 30,708 1.37%, 02/05/03 50,000 49,933 1.38%, 02/10/03 79,000 78,879 1.36%, 02/14/03 12,250 12,230 1.38%, 02/14/03 60,000 59,899 * CORPORATE ASSET FUNDING CO., INC. 1.33%, 01/29/03 100,000 99,897 1.33%, 01/30/03 70,000 69,925 * DAKOTA CP NOTES OF CITIBANK CREDIT CARD ISSUANCE TRUST 1.74%, 01/09/03 40,000 39,985 1.54%, 01/13/03 25,000 24,987 1.73%, 01/14/03 18,000 17,989 1.35%, 01/22/03 30,000 29,976 1.81%, 01/23/03 14,000 13,985 1.34%, 01/29/03 55,000 54,943 1.35%, 02/11/03 100,000 99,846 1.35%, 02/12/03 31,000 30,951 1.35%, 02/18/03 10,000 9,982 1.35%, 02/19/03 24,000 23,956 1.34%, 03/11/03 50,000 49,872 1.34%, 03/19/03 17,000 16,951 1.34%, 03/21/03 95,000 94,721 DEN NORSKE BANK ASA 1.33%, 02/10/03 35,000 34,948 1.32%, 02/13/03 80,000 79,874 1.34%, 03/05/03 38,000 37,911 DANSKE CORP. 1.71%, 01/21/03 89,000 88,916 1.78%, 01/22/03 95,000 94,902 1.54%, 02/06/03 36,000 35,945 DEPFA BANK, PLC 1.34%, 03/13/03 25,000 24,934 1.34%, 03/18/03 75,000 74,789 DEUTSCHE BANK FINANCIAL, L.L.C. 1.53%, 02/07/03 640,000 639,000 * DORADA FINANCE, INC. 1.86%, 01/15/03 11,000 10,992 1.80%, 01/21/03 21,800 21,778 1.65%, 02/04/03 30,500 30,453 1.36%, 02/21/03 100,000 99,807 1.37%, 02/27/03 24,000 23,948 2.03%, 03/21/03 27,000 26,881 * DORADA FINANCE, INC., 144A 2.13%, 02/14/03 53,000 53,000 2.37%, 02/25/03 35,000 35,000 3.08%, 05/02/03 26,000 26,000 1.96%, 09/16/03 30,000 30,000 DRESDNER U.S. FINANCE, INC. 1.77%, 05/20/03 50,000 49,662 * EDISON ASSET SECURITIZATION CORP., L.L.C. 1.73%, 01/08/03 150,000 149,950 1.79%, 01/27/03 180,488 180,256 1.68%, 02/13/03 300,000 299,402 1.35%, 03/11/03 11,229 11,200 1.62%, 04/04/03 165,000 164,314 1.64%, 04/08/03 10,000 9,956 *+ ENTERPRISE FUNDING CORP. 1.54%, 02/06/03 35,394 35,340 * FALCON ASSET SECURITIZATION CORP. 1.34%, 01/10/03 100,000 99,966 1.35%, 01/14/03 25,000 24,988 1.36%, 01/28/03 100,000 99,898 1.36%, 04/17/03 7,032 7,004 *+ FORRESTAL FUNDING MASTER TRUST NOTES Series 2000A 1.36%, 01/28/03 215,000 214,781 1.37%, 02/10/03 100,000 99,848 FORTIS FUNDING, L.L.C. 1.72%, 01/15/03 50,000 49,967 1.67%, 01/31/03 24,000 23,967 1.34%, 03/03/03 45,000 44,898 1.33%, 03/12/03 27,600 27,529 1.77%, 03/14/03 45,000 44,842 1.33%, 03/17/03 50,000 49,861 1.33%, 03/24/03 20,000 19,940 1.60%, 04/07/03 28,000 27,881 * GALAXY FUNDING, INC. 1.78%, 01/08/03 110,000 109,962 1.35%, 02/10/03 10,000 9,985 1.36%, 02/11/03 35,000 34,946 1.34%, 02/12/03 48,000 47,925 1.37%, 02/13/03 20,000 19,967 1.36%, 02/18/03 85,000 84,846
See financial notes. 9 SCHWAB MONEY MARKET FUND -- Financials PORTFOLIO HOLDINGS As of December 31, 2002. Continued
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) 1.36%, 02/19/03 17,000 16,969 1.36%, 02/20/03 115,000 114,784 1.35%, 02/25/03 17,250 17,214 1.37%, 02/25/03 13,000 12,973 1.36%, 02/26/03 10,000 9,979 1.34%, 03/24/03 40,000 39,878 GE CAPITAL INTERNATIONAL FUNDING, INC. 1.75%, 01/21/03 23,000 22,978 1.79%, 01/29/03 15,000 14,979 1.55%, 02/07/03 62,000 61,902 1.33%, 02/11/03 74,000 73,888 1.33%, 02/12/03 56,000 55,913 1.78%, 02/14/03 35,000 34,924 1.35%, 02/27/03 170,000 169,637 1.73%, 03/25/03 200,000 199,207 1.33%, 03/28/03 19,000 18,940 1.32%, 04/08/03 85,000 84,698 1.78%, 04/14/03 180,000 179,094 GE FINANCIAL ASSURANCE HOLDINGS, INC. 1.80%, 01/27/03 23,000 22,970 1.34%, 03/21/03 95,000 94,721 GENERAL ELECTRIC CAPITAL CORP. 2.32%, 02/03/03 49,000 48,898 1.32%, 02/12/03 85,000 84,869 2.26%, 02/14/03 100,000 99,729 2.32%, 02/14/03 40,000 39,889 2.29%, 02/18/03 40,000 39,880 2.31%, 02/19/03 140,000 139,567 2.27%, 02/24/03 350,000 348,829 2.24%, 02/27/03 115,000 114,599 1.33%, 03/12/03 27,000 26,930 GENERAL ELECTRIC CAPITAL SERVICES 1.73%, 01/09/03 180,000 179,931 1.72%, 01/10/03 27,000 26,988 1.33%, 03/21/03 60,000 59,825 GENERAL ELECTRIC CO. 1.35%, 01/14/03 40,000 39,980 1.35%, 01/17/03 120,000 119,928 * GIRO FUNDING U.S. CORP. 1.78%, 01/02/03 45,000 44,998 1.75%, 01/06/03 50,000 49,988 1.74%, 01/09/03 10,000 9,996 1.35%, 01/14/03 50,000 49,976 1.38%, 01/21/03 20,500 20,484 1.76%, 01/24/03 180,000 179,799 1.75%, 02/05/03 96,000 95,838 1.35%, 02/20/03 40,000 39,926 1.34%, 03/13/03 50,016 49,884 1.33%, 03/25/03 20,000 19,939 * GIRO MULTI-FUNDING CORP. 1.67%, 01/15/03 27,000 26,983 1.38%, 01/31/03 39,095 39,050 1.67%, 01/31/03 11,000 10,985 1.36%, 02/18/03 100,000 99,819 1.35%, 03/17/03 79,226 79,003 1.43%, 05/15/03 24,148 24,020 *o GREENWICH FUNDING CORP. 1.40%, 01/13/03 14,000 13,993 1.38%, 01/16/03 70,000 69,960 1.36%, 01/24/03 33,000 32,971 1.34%, 02/03/03 93,400 93,286 1.35%, 02/04/03 50,000 49,936 1.35%, 02/05/03 50,000 49,934 * GREYHAWK FUNDING, L.L.C. 1.33%, 01/16/03 52,000 51,971 1.36%, 01/17/03 150,000 149,909 1.35%, 02/21/03 110,000 109,790 1.36%, 02/21/03 10,000 9,981 1.34%, 02/25/03 75,000 74,846 *+ HALOGEN CAPITAL CO., L.L.C. 1.37%, 01/17/03 20,000 19,988 1.34%, 02/05/03 150,379 150,183 * HATTERAS FUNDING CORP. 1.71%, 01/09/03 20,000 19,992 1.78%, 01/13/03 18,000 17,989 1.73%, 01/14/03 66,000 65,959 1.74%, 01/16/03 26,500 26,481 1.35%, 01/17/03 19,000 18,989 1.36%, 01/17/03 30,000 29,982 1.79%, 01/21/03 25,000 24,975 1.37%, 02/05/03 38,000 37,949 1.37%, 03/11/03 55,604 55,459 HBOS TREASURY SERVICES, PLC 1.57%, 01/31/03 180,000 179,765 1.33%, 03/07/03 10,000 9,976 1.34%, 03/14/03 13,000 12,965 HSBC USA, INC. 1.78%, 01/23/03 72,000 71,922 *+ INDEPENDENCE FUNDING, L.L.C. 1.86%, 01/08/03 50,000 49,982 1.35%, 01/14/03 64,000 63,969
See financial notes. 10
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) 1.34%, 02/27/03 30,000 29,936 1.36%, 03/06/03 103,000 102,751 ING (U.S.) FUNDING, L.L.C. 1.61%, 04/01/03 135,000 134,460 *+ INTREPID FUNDING MASTER TRUST 1.34%, 02/24/03 50,000 49,899 1.36%, 03/05/03 90,000 89,787 J.P. MORGAN CHASE & Co. 1.84%, 01/22/03 93,000 92,901 1.63%, 02/07/03 63,000 62,895 1.53%, 02/11/03 100,000 99,827 1.53%, 02/12/03 185,000 184,672 1.76%, 05/14/03 25,000 24,839 * JUPITER SECURITIZATION CORP. 1.77%, 01/06/03 38,330 38,321 1.36%, 01/10/03 116,000 115,961 1.36%, 01/14/03 14,849 14,842 1.35%, 01/15/03 10,000 9,995 1.36%, 01/17/03 23,000 22,986 1.39%, 01/28/03 79,000 78,918 1.80%, 01/28/03 96,543 96,413 1.35%, 02/03/03 115,000 114,858 * K2 (USA), L.L.C. 1.73%, 01/13/03 15,000 14,991 2.03%, 01/15/03 30,000 29,977 1.81%, 01/21/03 20,000 19,980 1.75%, 01/30/03 51,000 50,929 1.68%, 02/03/03 75,000 74,885 1.68%, 02/06/03 24,500 24,459 1.34%, 02/10/03 36,000 35,946 1.77%, 02/25/03 31,000 30,917 1.36%, 02/27/03 20,000 19,957 1.37%, 02/28/03 66,000 65,854 KBC FINANCIAL PRODUCTS INTERNATIONAL, LTD. 1.72%, 01/13/03 100,000 99,943 *+ KITTY HAWK FUNDING CORP. 1.35%, 03/03/03 53,518 53,396 1.77%, 03/20/03 65,581 65,332 LANDESBANK SCHLESWIG-HOLSTEIN GIROZENTRALE 1.84%, 01/16/03 12,000 11,991 2.44%, 01/27/03 10,000 9,983 1.34%, 02/24/03 30,000 29,940 1.35%, 02/24/03 70,000 69,858 2.22%, 03/10/03 93,000 92,617 1.33%, 03/13/03 115,000 114,699 * LEXINGTON PARKER CAPITAL CO., L.L.C. 1.76%, 01/10/03 20,000 19,991 1.83%, 01/10/03 38,142 38,124 1.78%, 01/14/03 51,560 51,527 1.81%, 01/17/03 19,000 18,985 1.82%, 01/17/03 23,397 23,378 1.82%, 01/21/03 40,000 39,960 1.83%, 01/21/03 26,000 25,974 1.82%, 01/27/03 165,000 164,784 1.37%, 02/05/03 20,000 19,973 1.74%, 03/03/03 31,817 31,724 1.66%, 04/01/03 25,231 25,127 * LINKS FINANCE, L.L.C. 1.85%, 01/21/03 45,000 44,954 1.80%, 01/22/03 15,000 14,984 1.35%, 02/25/03 28,000 27,942 1.35%, 03/11/03 30,000 29,922 MERRILL LYNCH & Co., Inc. 1.65%, 03/21/03 69,000 68,752 * MONT BLANC CAPITAL CORP. 1.39%, 01/07/03 8,988 8,986 1.80%, 01/22/03 40,000 39,958 1.36%, 02/20/03 70,000 69,868 1.35%, 02/24/03 70,000 69,858 1.36%, 03/04/03 16,000 15,963 1.36%, 03/06/03 27,000 26,935 1.36%, 03/18/03 20,000 19,943 MORGAN STANLEY 1.78%, 01/24/03 25,000 24,972 1.34%, 02/13/03 50,000 49,920 1.34%, 02/26/03 45,000 44,906 1.33%, 03/14/03 358,000 357,051 1.33%, 03/20/03 245,000 244,297 1.33%, 03/26/03 150,000 149,534 1.33%, 03/27/03 42,000 41,868 1.35%, 04/16/03 210,000 209,176 * NEWCASTLE CERTIFICATES PROGRAM Series 2000A 1.73%, 01/08/03 22,180 22,173 1.35%, 02/11/03 18,000 17,972 1.36%, 02/11/03 103,157 102,997 1.35%, 02/12/03 75,000 74,882 1.35%, 02/13/03 12,200 12,180 1.36%, 02/21/03 122,000 121,765 * PREFERRED RECEIVABLES FUNDING CORP. 1.36%, 01/07/03 50,000 49,989
See financial notes. 11 SCHWAB MONEY MARKET FUND -- Financials PORTFOLIO HOLDINGS As of December 31, 2002. Continued
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) * QUINCY CAPITAL CORP. 1.36%, 01/16/03 33,161 33,142 1.34%, 02/03/03 29,066 29,030 1.34%, 03/17/03 9,159 9,133 * RECEIVABLES CAPITAL CORP. 1.35%, 01/23/03 12,342 12,332 SALOMON SMITH BARNEY HOLDINGS, INC. 1.33%, 01/17/03 100,000 99,941 1.79%, 01/28/03 20,000 19,973 1.32%, 02/13/03 100,000 99,842 1.34%, 02/25/03 82,000 81,833 1.34%, 03/07/03 36,000 35,913 1.78%, 03/10/03 73,000 72,757 1.33%, 03/12/03 70,000 69,819 1.33%, 03/14/03 54,000 53,856 SAN PAOLO IMI U.S. FINANCIAL CO. 1.34%, 01/23/03 190,000 189,845 1.35%, 01/29/03 50,000 49,947 1.35%, 01/29/03 50,000 49,947 1.32%, 03/11/03 55,000 54,861 1.33%, 03/12/03 35,000 34,909 * SIGMA FINANCE, INC. 1.86%, 01/13/03 22,000 21,986 1.90%, 01/13/03 15,000 14,991 1.35%, 01/31/03 50,000 49,944 1.35%, 02/27/03 49,000 48,895 1.35%, 03/04/03 35,000 34,919 1.35%, 03/05/03 35,000 34,917 1.80%, 04/07/03 20,000 19,905 1.62%, 04/08/03 10,000 9,957 1.66%, 04/14/03 131,000 130,382 1.69%, 04/14/03 20,000 19,904 1.36%, 06/03/03 14,115 14,034 * SIGMA FINANCE, INC., 144A 2.24%, 01/27/03 5,000 4,999 2.34%, 02/11/03 50,000 50,000 2.07%, 02/28/03 50,000 50,035 SOCIETE GENERALE, N.A., INC. 1.53%, 01/08/03 210,000 209,938 1.34%, 02/20/03 245,000 244,544 STADSHYPOTEK DELAWARE, INC. 1.35%, 01/22/03 10,000 9,992 1.37%, 02/13/03 25,000 24,959 1.34%, 02/21/03 108,000 107,795 * STELLAR FUNDING GROUP, INC. 1.86%, 01/08/03 9,187 9,184 1.64%, 01/13/03 12,824 12,817 1.66%, 01/21/03 16,988 16,972 1.65%, 01/29/03 11,456 11,441 1.65%, 01/31/03 10,268 10,254 1.76%, 02/07/03 8,045 8,031 1.36%, 02/18/03 8,572 8,556 1.36%, 03/03/03 12,815 12,785 1.66%, 03/31/03 14,947 14,886 SVENSKA HANDELSBANKEN INC. 1.34%, 04/10/03 11,483 11,441 *+ TRIPLE-A ONE FUNDING CORP. 1.36%, 01/10/03 30,087 30,077 1.36%, 01/24/03 50,000 49,956 1.35%, 02/03/03 34,758 34,715 1.35%, 02/12/03 13,093 13,072 1.34%, 03/26/03 13,178 13,137 *+ TULIP FUNDING CORP. 1.69%, 02/03/03 17,119 17,093 UBS FINANCE (DELAWARE), INC. 1.33%, 03/13/03 435,000 433,863 1.33%, 03/17/03 50,000 49,862 * VARIABLE FUNDING CAPITAL CORP. 1.78%, 01/07/03 223,000 222,934 1.73%, 01/08/03 100,000 99,967 1.73%, 01/09/03 50,000 49,981 1.77%, 01/16/03 60,783 60,738 1.79%, 01/23/03 100,000 99,891 1.71%, 01/27/03 50,000 49,939 VEHICLE SERVICES CORP. OF AMERICA 1.38%, 04/15/03 11,000 10,956 WESTPAC TRUST SECURITIES NZ, LTD. 1.34%, 02/13/03 50,000 49,920 * WINDMILL FUNDING CORP. 1.80%, 01/09/03 28,000 27,989 1.79%, 01/16/03 189,000 188,860 1.79%, 01/30/03 100,000 99,857 1.34%, 03/04/03 25,000 24,942 1.34%, 03/05/03 25,000 24,941 WYETH 1.75%, 02/03/03 50,000 49,920 1.75%, 02/04/03 22,000 21,964 1.75%, 02/10/03 80,000 79,844 1.75%, 02/11/03 50,000 49,900 ---------- 25,397,414
See financial notes. 12
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) CERTIFICATES OF DEPOSIT 36.8% ------------------------------------------------------------------------------ ABN AMRO Bank, NV 1.78%, 01/21/03 100,000 100,000 2.51%, 04/02/03 48,000 48,000 2.80%, 04/09/03 49,000 48,999 2.95%, 04/17/03 74,000 73,996 ABBEY NATIONAL TREASURY SERVICES, PLC 1.72%, 01/13/03 88,000 88,000 1.71%, 01/15/03 250,000 250,000 1.77%, 01/15/03 81,000 80,998 1.77%, 01/23/03 76,000 76,000 1.33%, 02/20/03 244,000 244,000 1.33%, 03/18/03 105,000 105,000 BANK OF MONTREAL 1.33%, 03/21/03 85,000 85,000 BANK OF NOVA SCOTIA 1.55%, 02/03/03 50,000 50,000 1.34%, 02/26/03 270,000 270,000 1.35%, 03/10/03 12,000 12,000 1.33%, 03/25/03 150,000 150,000 BARCLAYS BANK, PLC 1.70%, 01/07/03 69,000 69,000 1.34%, 01/13/03 200,000 200,000 1.35%, 01/13/03 75,000 74,999 1.35%, 01/21/03 40,000 40,000 1.33%, 03/03/03 231,000 231,008 1.65%, 03/03/03 92,000 92,014 1.30%, 05/02/03 141,000 141,000 1.60%, 11/25/03 120,000 120,005 BAYERISCHE HYPO-UND VEREINSBANK, AG 1.73%, 01/10/03 30,000 30,000 1.84%, 01/17/03 90,000 90,000 1.40%, 03/13/03 34,000 34,000 1.78%, 04/16/03 60,000 60,000 BAYERISCHE LANDESBANK GIROZENTRALE 1.62%, 01/21/03 37,000 37,003 1.33%, 04/16/03 150,000 150,000 BNP PARIBAS 1.54%, 02/04/03 250,000 250,000 1.55%, 02/04/03 100,000 100,000 1.54%, 02/05/03 200,000 200,000 1.55%, 02/05/03 123,000 123,000 1.54%, 02/06/03 360,000 360,000 1.55%, 02/06/03 100,000 100,000 1.65%, 03/10/03 270,000 270,000 2.04%, 03/27/03 40,000 40,000 1.74%, 04/17/03 245,000 245,000 1.80%, 06/17/03 90,000 90,251 CANADIAN IMPERIAL BANK OF COMMERCE 1.33%, 02/14/03 136,000 136,000 1.34%, 02/19/03 150,000 150,000 1.35%, 02/27/03 150,000 150,000 1.33%, 03/10/03 10,000 10,000 1.34%, 03/10/03 160,000 160,000 CHASE MANHATTAN BANK USA, N.A. 1.78%, 01/22/03 115,000 115,000 1.77%, 01/23/03 63,000 63,000 1.79%, 01/24/03 75,000 75,000 1.62%, 02/07/03 30,000 30,000 1.32%, 02/10/03 200,000 200,000 1.60%, 04/03/03 190,000 190,000 CITIBANK, N.A. 1.77%, 01/22/03 40,000 40,000 1.78%, 01/22/03 70,000 70,000 1.35%, 03/04/03 500,000 500,000 1.33%, 03/12/03 50,000 50,000 1.33%, 03/19/03 300,000 300,000 COMMONWEALTH BANK OF AUSTRALIA 1.33%, 03/18/03 95,000 95,000 CREDIT AGRICOLE INDOSUEZ 1.78%, 01/21/03 20,000 20,000 1.77%, 02/10/03 25,000 25,014 1.33%, 02/18/03 100,000 100,000 CREDIT LYONNAIS S.A. 1.37%, 03/06/03 200,000 200,000 DEUTSCHE BANK, AG 1.53%, 02/04/03 300,000 300,000 1.32%, 02/11/03 130,000 130,000 2.34%, 03/07/03 239,000 238,998 2.38%, 03/10/03 80,000 79,998 2.39%, 03/14/03 200,000 199,996 1.85%, 10/15/03 150,000 149,988 DEXIA BANK BELGIUM 1.62%, 01/27/03 93,000 93,010 2.30%, 02/21/03 41,000 41,000 1.33%, 03/06/03 74,000 74,001 1.33%, 03/24/03 10,000 10,000 2.51%, 04/02/03 93,000 92,999 2.96%, 04/04/03 73,000 72,991 2.41%, 07/18/03 133,000 132,986
See financial notes. 13 SCHWAB MONEY MARKET FUND -- Financials PORTFOLIO HOLDINGS As of December 31, 2002. Continued
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) DRESDNER BANK, AG 1.73%, 01/30/03 164,000 164,000 1.33%, 02/19/03 38,000 38,000 1.35%, 02/21/03 115,000 115,000 1.68%, 04/11/03 100,000 100,000 1.35%, 05/12/03 100,000 100,000 1.75%, 05/16/03 46,000 46,000 FIRST TENNESSEE BANK, N.A. 1.33%, 03/18/03 80,000 80,000 1.33%, 03/20/03 20,000 20,000 HBOS TREASURY SERVICES, PLC 1.70%, 01/29/03 55,000 55,000 1.55%, 02/06/03 150,000 150,000 1.34%, 02/18/03 33,000 33,000 1.36%, 03/10/03 68,000 68,000 1.34%, 03/31/03 50,000 50,000 HSBC BANK USA 1.55%, 02/28/03 48,000 48,018 1.33%, 03/19/03 100,000 100,000 ING BANK, NV 1.72%, 01/09/03 86,000 86,000 1.77%, 01/16/03 38,000 38,000 1.84%, 01/21/03 166,000 166,000 1.77%, 01/23/03 40,000 40,000 1.75%, 01/31/03 227,000 227,000 1.36%, 02/24/03 60,000 60,000 1.74%, 04/17/03 340,000 340,000 J.P. MORGAN CHASE BANK 1.60%, 04/01/03 113,000 113,000 LANDESBANK BADEN WURTTEMBERG 1.52%, 02/10/03 37,000 37,000 1.33%, 02/12/03 74,000 74,000 1.33%, 02/25/03 100,000 100,001 1.35%, 02/25/03 48,000 48,000 LANDESBANK HESSEN-THURINGEN GIROZENTRALE 1.62%, 01/30/03 158,000 158,011 2.01%, 04/09/03 100,000 100,000 1.40%, 07/09/03 45,000 45,000 LLOYDS TSB BANK, PLC 1.32%, 03/27/03 92,000 92,000 1.33%, 03/27/03 100,000 100,000 2.53%, 04/02/03 50,000 49,999 1.63%, 04/03/03 50,000 49,996 1.76%, 05/16/03 25,000 25,077 1.75%, 05/19/03 200,000 200,000 1.75%, 05/23/03 100,000 100,000 NATEXIS BANQUES POPULAIRES 1.34%, 02/19/03 150,000 150,000 NATIONAL AUSTRALIA BANK, LTD. 1.60%, 04/07/03 156,000 156,000 1.63%, 04/08/03 100,000 100,000 NATIONAL BANK OF CANADA 1.33%, 02/12/03 35,000 35,000 1.33%, 02/13/03 25,000 25,000 NORDDEUTSCHE LANDESBANK GIROZENTRALE 1.63%, 01/30/03 25,000 25,000 1.63%, 02/03/03 30,000 30,000 1.50%, 03/07/03 65,000 65,000 1.33%, 03/27/03 75,000 75,000 1.33%, 03/28/03 90,000 90,000 1.68%, 04/15/03 50,000 50,000 1.57%, 11/07/03 75,000 74,994 1.49%, 12/29/03 48,000 48,000 NORDEA BANK FINLAND, PLC 1.77%, 03/17/03 55,000 54,999 1.34%, 03/31/03 100,000 100,001 1.65%, 04/08/03 50,000 50,000 RABOBANK NEDERLAND, NV 2.36%, 01/03/03 100,000 100,000 1.96%, 01/14/03 45,000 45,006 2.47%, 02/28/03 42,000 42,000 2.49%, 02/28/03 87,000 86,999 2.98%, 04/04/03 47,000 46,994 ROYAL BANK OF CANADA 2.30%, 02/21/03 40,000 40,000 2.38%, 03/07/03 52,000 52,000 2.38%, 03/26/03 97,000 96,999 1.61%, 11/25/03 120,000 119,995 ROYAL BANK OF SCOTLAND, PLC 1.34%, 03/31/03 250,000 250,000 1.85%, 10/20/03 160,000 159,987 SAN PAOLO IMI SPA 1.34%, 03/06/03 45,000 45,000 1.34%, 06/27/03 50,000 50,000 SOCIETE GENERALE 1.84%, 01/13/03 51,000 51,001 1.34%, 03/20/03 282,000 282,000 2.04%, 03/27/03 4,000 4,000 2.05%, 03/31/03 140,000 140,000 2.01%, 04/09/03 183,000 183,000 SOUTHTRUST BANK 1.35%, 06/06/03 23,000 23,000
See financial notes. 14
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) STATE STREET BANK & TRUST CO., N.A. 1.72%, 01/24/03 80,000 80,000 SVENSKA HANDELSBANKEN, AB 1.75%, 01/06/03 100,000 100,000 1.66%, 03/19/03 140,000 140,003 1.65%, 04/15/03 10,000 10,000 TORONTO DOMINION BANK 2.47%, 01/06/03 46,000 46,000 1.33%, 02/14/03 25,000 25,032 2.61%, 04/04/03 10,000 10,000 2.95%, 04/16/03 95,000 94,996 3.07%, 05/02/03 100,000 99,997 1.35%, 06/24/03 235,000 235,000 UBS, AG 2.43%, 01/06/03 50,000 50,000 2.44%, 01/06/03 47,000 47,000 2.24%, 02/04/03 97,000 97,019 2.30%, 02/21/03 75,000 75,001 2.27%, 02/28/03 147,000 146,993 1.59%, 12/16/03 128,000 128,000 UNICREDITO ITALIANO SPA 1.75%, 01/06/03 281,000 281,000 1.75%, 01/07/03 274,000 274,000 1.72%, 01/15/03 15,000 15,000 1.61%, 02/04/03 22,000 22,000 1.35%, 03/11/03 50,000 50,000 1.35%, 03/12/03 75,000 75,000 WELLS FARGO BANK, N.A. 1.65%, 01/02/03 100,000 100,000 1.64%, 01/10/03 100,000 100,000 1.62%, 01/29/03 150,000 150,000 1.60%, 01/31/03 80,000 80,000 1.54%, 02/03/03 150,000 150,000 WESTLB AG 1.60%, 04/03/03 50,000 50,000 1.60%, 04/07/03 190,000 190,000 1.65%, 04/10/03 100,000 100,000 1.76%, 05/20/03 25,000 25,000 1.77%, 09/08/03 70,000 69,986 1.93%, 09/18/03 140,000 140,000 1.84%, 10/15/03 74,000 73,994 WILMINGTON TRUST CO. 1.75%, 02/06/03 25,000 25,000 ---------- 18,843,352 PROMISSORY NOTES 2.0% ------------------------------------------------------------------------------ o THE GOLDMAN SACHS GROUP, INC. 1.86%, 01/27/03 143,000 143,000 1.75%, 02/04/03 10,000 10,000 1.87%, 02/05/03 45,000 45,000 1.84%, 03/18/03 263,000 263,000 1.75%, 04/10/03 73,000 73,000 1.83%, 04/22/03 9,000 9,000 1.48%, 05/30/03 50,000 50,000 1.50%, 06/02/03 180,000 180,000 1.45%, 06/10/03 153,000 153,000 1.45%, 06/17/03 50,000 50,000 1.45%, 06/18/03 25,000 25,000 1.40%, 07/01/03 32,000 32,000 ---------- 1,033,000 BANK NOTES 1.3% ------------------------------------------------------------------------------ BANK ONE, N.A. 1.65%, 03/19/03 25,000 25,003 1.54%, 04/30/03 200,000 200,000 BANK OF AMERICA, N.A. 2.50%, 05/02/03 190,000 190,000 2.50%, 05/06/03 250,000 250,000 ---------- 665,003 VARIABLE-RATE OBLIGATIONS 5.1% of investments + 6700 CHERRY AVENUE PARTNERS Demand Bond Series 1993 1.60%, 01/07/03 9,300 9,300 ABAG FINANCIAL AUTHORITY FOR NONPROFIT CORPS., CALIFORNIA RB (Public Poll Institution) Series 2000B 1.65%, 01/07/03 17,905 17,905 * ASSET SECURITIZATION COOPERATIVE CORP., 144A 1.38%, 01/22/03 273,000 273,000 + CFM INTERNATIONAL, INC. 144A 1.50%, 01/07/03 29,045 29,045 + CITY OF SANTA ROSA VRD Wastewater Series 2001A 1.65%, 01/07/03 15,050 15,050
See financial notes. 15 SCHWAB MONEY MARKET FUND -- Financials PORTFOLIO HOLDINGS As of December 31, 2002. Continued
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) o GE LIFE & ANNUITY ASSURANCE CO., 144A 1.49%, 01/30/03 150,000 150,000 1.79%, 02/03/03 50,000 50,000 GENERAL ELECTRIC CAPITAL CORP. 1.46%, 01/09/03 175,000 175,000 1.45%, 01/17/03 75,000 75,000 + LOANSTAR ASSETS PARTNERS II, L.P., 144A 1.50%, 01/07/03 45,000 45,000 + LOWNDES CORP., GEORGIA Taxable Demand Bond, 144A Series 1997 1.47%, 01/07/03 5,650 5,650 + MERLOT TRUST Series 2000B, 144A 1.57%, 01/07/03 32,630 32,630 Series 2001A, 144A 1.57%, 01/07/03 35,065 35,065 Series 2001A7, 144A 1.57%, 01/07/03 15,470 15,470 o METROPOLITAN LIFE INSURANCE CO, 144A 1.44%, 01/30/03 50,000 50,000 o MONUMENTAL LIFE INSURANCE CO., 144A 1.55%, 01/02/03 100,000 100,000 MORGAN STANLEY 1.52%, 01/15/03 50,000 50,000 + NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY Adjustable Rate Lease Revenue Taxable Bonds (Barnes & Noble, Inc. Distribution & Freight Consolidation Center Project) Series 1995A 1.39%, 01/07/03 15,930 15,930 Adjustable Rate Lease Revenue Taxable Bonds (Barnes & Noble, Inc. Distribution & Freight Consolidation Center Project) Series 1995B 1.39%, 01/07/03 10,000 10,000 Adjustable Rate Lease Revenue Taxable Bonds (Camden Center Project) Series 2002A 1.39%, 01/07/03 23,000 23,000 Adjustable Rate Lease Revenue Taxable Bonds (Camden Center Project) Series 2002B 1.39%, 01/07/03 20,000 20,000 o PACIFIC LIFE INSURANCE CO., 144A 1.43%, 01/01/03 100,000 100,000 SALOMON SMITH BARNEY HOLDINGS, INC. 1.39%, 01/16/03 200,000 200,000 1.62%, 02/05/03 200,000 200,000 1.36%, 02/10/03 85,000 85,000 SIGMA FINANCE, INC., 144A 1.40%, 01/02/03 65,000 64,997 1.41%, 01/02/03 60,000 59,996 1.42%, 01/02/03 200,000 199,983 1.41%, 01/07/03 125,000 124,989 1.39%, 01/15/03 20,000 20,000 1.39%, 01/21/03 50,000 49,996 1.40%, 01/23/03 90,000 89,993 1.59%, 02/06/03 50,000 49,997 + SISTERS OF MERCY OF THE AMERICAS REGIONAL COMMUNITY OF OMAHA, NEBRASKA Series 2001 1.42%, 01/07/03 11,860 11,860 o TRAVELERS INSURANCE CO., 144A 1.72%, 02/01/03 100,000 100,000 WELLS FARGO & Co. 1.42%, 01/02/03 75,000 75,000 ---------- 2,628,856
MATURITY VALUE MKT. VALUE SECURITY ($ x 1,000) ($ x 1,000) OTHER INVESTMENTS 5.1% of investments REPURCHASE AGREEMENTS 5.1% --------------------------------------------------------------------------------- BEAR STEARNS COMPANIES, INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities 1.28%, issued 12/31/02, due 01/02/03 600,043 600,000 CREDIT SUISSE FIRST BOSTON CORP. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities 1.28%, issued 12/31/02, due 01/02/03 712,549 712,498
See financial notes. 16
MATURITY VALUE MKT. VALUE SECURITY ($ x 1,000) ($ x 1,000) SALOMON SMITH BARNEY, INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities 1.28%, issued 12/31/02, due 01/02/03 427,030 427,000 UBS PAINEWEBBER, INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities 1.28%, issued 12/31/02, due 01/02/03 875,062 875,000 ---------- 2,614,498
END OF PORTFOLIO HOLDINGS. For totals, please see the first page of holdings for this fund. See financial notes. 17 Statement of ASSETS AND LIABILITIES As of December 31, 2002. All numbers x 1,000 except NAV. ASSETS ------------------------------------------------------------------------------ Investments, at market value $51,182,123 a Interest receivable 121,911 Prepaid expenses + 920 --------------- TOTAL ASSETS 51,304,954 LIABILITIES ------------------------------------------------------------------------------ Payables: Dividends to shareholders 1,186 Investments bought 235,705 Investment adviser and administrator fees 1,150 Transfer agent and shareholder service fees 1,891 Accrued expenses + 1,639 --------------- TOTAL LIABILITIES 241,571 NET ASSETS ------------------------------------------------------------------------------ TOTAL ASSETS 51,304,954 TOTAL LIABILITIES - 241,571 --------------- NET ASSETS $51,063,383 NET ASSETS BY SOURCE Capital received from investors 51,063,459 Net realized capital losses (76)
NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $51,063,383 51,063,991 $1.00 a Includes illiquid restricted securities worth $1,893,080, or 3.70% of the fund's investments. The fund's amortized cost for these securities was $51,182,123. FEDERAL TAX DATA COST BASIS OF PORTFOLIO $51,182,123 UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2003 $27 2007 + 49 ------------ $76
See financial notes. 18 Statement of OPERATIONS For January 1, 2002 through December 31, 2002. All numbers x 1,000. INVESTMENT INCOME ------------------------------------------------------------------------------ Interest $ 990,369 EXPENSES ------------------------------------------------------------------------------ Investment adviser and administrator fees 154,898 a Transfer agent and shareholder service fees 225,996 b Trustees' fees 156 c Custodian and portfolio accounting fees 3,689 Professional fees 146 Registration fees 177 Shareholder reports 7,119 Other expenses + 288 --------------- Total expenses 392,469 Expense reduction - 15,808 d --------------- NET EXPENSES 376,661 INCREASE IN NET ASSETS FROM OPERATIONS ------------------------------------------------------------------------------ TOTAL INVESTMENT INCOME 990,369 NET EXPENSES - 376,661 --------------- NET INVESTMENT INCOME 613,708 --------------- INCREASE IN NET ASSETS FROM OPERATIONS $ 613,708
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. 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. c For the fund's independent trustees only. d The investment adviser (CSIM), the transfer agent and shareholder service agent (Schwab) voluntarily limited the operating expenses of this fund to 0.75% of average daily net assets through December 31, 2002. This limit did not include interest, taxes and certain non-routine expenses. See financial notes. 19 Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS ------------------------------------------------------------------------------ 1/1/02-12/31/02 1/1/01-12/31/01 Net investment income $ 613,708 $ 1,680,000 Net realized gains + -- 31 ---------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 613,708 1,680,031 DISTRIBUTIONS PAID ------------------------------------------------------------------------------ Dividends from net investment income 613,708 1,680,000 a TRANSACTIONS IN FUND SHARES b ------------------------------------------------------------------------------ Shares sold 137,199,724 141,136,281 Shares reinvested 604,716 1,653,875 Shares redeemed + (135,856,854) (135,497,141) ---------------------------------- NET INCREASE 1,947,586 7,293,015 NET ASSETS ------------------------------------------------------------------------------ Beginning of period 49,115,797 41,822,751 Total increase + 1,947,586 7,293,046 c ---------------------------------- END OF PERIOD $51,063,383 $49,115,797
a The tax-basis components of distributions paid for the current period are: Ordinary income $ 613,708 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. 20 The fund seeks the highest current income consistent with stability of capital and liquidity. Schwab Government Money Fund [PHOTO OF KAREN WIGGAN] KAREN WIGGAN, a portfolio manager, has been responsible for day-to-day management of the fund since 1999. She joined the firm in 1987 and has been working in fixed-income portfolio management for eight years. TICKER SYMBOL: SWGXX MANAGER'S PERSPECTIVE DURING A YEAR OF FALLING SHORT-TERM YIELDS, WE GENERALLY KEPT THE FUND'S AVERAGE MATURITY LONGER THAN THAT OF ITS PEER GROUP 1, WHICH HELPED THE FUND PERFORM WELL RELATIVE TO THAT GROUP. As the market's perceptions of the economy shifted back and forth from positive to negative--which happened many times during the year--we saw corresponding changes in the yields of shorter and longer maturity money market instruments. In the first few months of 2002, as some economic indicators began pointing to an upturn in the economy, the longer maturity end of the scale offered the most attractive yields. We took advantage of this opportunity to add these attractive yields to the fund, in the process lengthening the portfolio's weighted average maturity. We continued to invest to some extent in longer securities even during those times when they offered about the same yields as shorter securities, seeking to lock in yields in case near-term yields fell further. When the economic outlook turned negative later in the year and rates did indeed fall, our strategy of locking in longer-term yields offered a degree of protection against the decline. As a result, the fund's overall return for the year was somewhat higher than the average for its peer group. AS YIELDS ACROSS MONEY MARKET SECURITIES CONVERGED, INVESTOR DEMAND FOR GOVERNMENT SECURITIES INCREASED. At the same time, government agencies were finding alternative funding sources, and, therefore, issued fewer short-term securities than they did in 2001. The combination of unusually high demand for these securities and unusually low supply was an additional factor in pushing their prices up and their yields down. 1 Source: iMoney Net, Inc., Government and Agencies Retail Category, 12/31/02. 21 SCHWAB GOVERNMENT MONEY FUND PERFORMANCE AND FUND FACTS SEVEN-DAY YIELDS 1 as of 12/31/02 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, and that past performance is not an indication of future results. --------------------------------------- SEVEN-DAY YIELD 0.76% --------------------------------------- SEVEN-DAY EFFECTIVE YIELD 0.76% ---------------------------------------
WEIGHTED AVERAGE MATURITY during the period 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). [LINE GRAPH]
Monthly Maturity 31-Dec-01 56 Jan-02 56 Feb-02 51 Mar-02 56 Apr-02 58 May-02 57 Jun-02 59 Jul-02 54 Aug-02 58 Sep-02 53 Oct-02 54 Nov-02 55 31-Dec-02 57
PORTFOLIO COMPOSITION 2 as of 12/31/02 All figures are shown as a percentage of the fund's investments. All of the fund's securities were in the top tier of credit quality at the time of purchase. BY SECURITY TYPE [PIE CHART] 54.3% U.S. GOVERNMENT AGENCY DISCOUNT NOTES 39.9% REPURCHASE AGREEMENTS 5.8% U.S. GOVERNMENT AGENCY COUPON NOTES
BY CREDIT QUALITY [PIE CHART] 100.0% TIER 1
1 A portion of the fund's expenses was reduced during the reporting period. Without this reduction, the fund's seven-day yield would have been 0.68% and the seven-day effective yield would have been 0.68%. 2 Composition of the fund's portfolio is as of 12/31/02 and is not indicative of holdings after that date. Schwab Money Funds 22 SCHWAB GOVERNMENT MONEY FUND -- Financials Financial tables These tables provide additional data on the fund's performance, portfolio holdings and business operations. Complementing the tables is the financial notes section at the end of this report, which describes the fund's business structure, accounting practices and other matters. The financial tables and the financial notes have both been audited by PricewaterhouseCoopers LLP. Look online at WWW.SCHWAB.COM/SCHWABFUNDS/HOW2READ for guides that are designed to help you read the financial tables in any SchwabFunds(R) shareholder report. FINANCIAL HIGHLIGHTS
1/1/02- 1/1/01- 1/1/00- 1/1/99- 1/1/98- 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98 ------------------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) ------------------------------------------------------------------------------------------------------------- Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 ---------------------------------------------------------------- Income from investment operations: Net investment income 0.01 0.04 0.06 0.04 0.05 ---------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) (0.04) (0.06) (0.04) (0.05) ---------------------------------------------------------------- Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 ---------------------------------------------------------------- Total return (%) 1.20 3.63 5.69 4.50 4.88 RATIOS/SUPPLEMENTAL DATA (%) ------------------------------------------------------------------------------------------------------------- Ratio of net operating expenses to average net assets 0.75 0.75 0.75 1 0.75 0.75 Expense reductions reflected in above ratio 0.08 0.09 0.09 0.10 0.17 Ratio of net investment income to average net assets 1.19 3.52 5.54 4.42 4.76 Net assets, end of period ($ x 1,000,000) 3,092 3,054 2,509 2,545 2,207
1 Would have been 0.76% if certain non-routine expenses (proxy fees) had been included. See financial notes. 23 SCHWAB GOVERNMENT MONEY FUND -- Financials PORTFOLIO HOLDINGS As of December 31, 2002. This section shows all the securities in the fund's portfolio and their market value, as of the report date. 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. The pie chart below shows the fund's major categories and the market value and cost of the securities in each category. For definitions of abbreviations and acronyms used in security descriptions, see "portfolio terms" in the glossary. ALL DOLLAR VALUES ARE IN THOUSANDS. [PIE CHART] 60.1% U.S. GOVERNMENT SECURITIES Market Value: $1,855,959 Cost: $1,855,959 39.9% OTHER INVESTMENTS Market Value: $1,233,315 Cost: $1,233,315 ------------------------------------- 100.0% TOTAL INVESTMENTS Market Value: $3,089,274 Cost: $3,089,274
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) U.S. GOVERNMENT SECURITIES 60.1% of investments DISCOUNT NOTES 54.3% -------------------------------------------------------------------------- FANNIE MAE 1.69%, 01/08/03 10,000 9,997 1.71%, 01/08/03 12,000 11,996 1.27%, 01/15/03 20,000 19,990 1.28%, 01/15/03 17,600 17,591 1.58%, 01/15/03 30,000 29,982 1.66%, 01/15/03 20,000 19,987 1.75%, 01/15/03 5,000 4,997 1.27%, 01/21/03 25,000 24,982 1.27%, 01/22/03 30,000 29,978 1.88%, 01/23/03 20,000 19,977 1.29%, 01/29/03 20,000 19,980 1.51%, 01/29/03 8,050 8,041 1.76%, 01/29/03 10,000 9,986 1.28%, 02/03/03 10,000 9,988 1.62%, 02/05/03 15,000 14,976 1.27%, 02/06/03 25,000 24,968 1.28%, 02/07/03 3,726 3,721 2.38%, 02/07/03 30,000 29,928 2.48%, 02/07/03 10,000 9,975 1.25%, 02/12/03 30,000 29,956 1.27%, 02/13/03 20,000 19,970 1.29%, 02/14/03 35,000 34,945 1.25%, 02/19/03 30,000 29,949 1.27%, 02/19/03 20,000 19,965 2.71%, 02/25/03 10,000 9,960 1.27%, 02/26/03 10,000 9,980 1.28%, 02/26/03 30,000 29,940 2.06%, 03/03/03 15,000 14,949 1.28%, 03/05/03 60,000 59,866 1.26%, 03/06/03 20,000 19,956 1.28%, 03/12/03 30,300 30,225 1.60%, 03/12/03 15,000 14,954 1.27%, 03/19/03 35,000 34,905 1.28%, 03/19/03 25,000 24,932 1.60%, 03/19/03 25,000 24,915 1.63%, 03/19/03 35,000 34,879 1.28%, 03/26/03 20,000 19,940 1.29%, 03/26/03 20,000 19,940 1.68%, 03/26/03 20,000 19,922 1.30%, 04/25/03 30,000 29,877 2.00%, 05/02/03 10,521 10,451 2.45%, 05/02/03 15,000 14,879
See financial notes. 24
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) 2.12%, 05/30/03 15,000 14,871 1.30%, 06/18/03 20,000 19,880 1.77%, 07/25/03 35,000 34,653 1.75%, 09/19/03 12,000 11,850 1.77%, 09/19/03 20,000 19,747 1.57%, 11/14/03 8,000 7,891 FEDERAL HOME LOAN BANK 1.77%, 01/17/03 20,000 19,984 1.25%, 01/22/03 9,000 8,993 1.49%, 01/31/03 30,180 30,143 1.27%, 02/05/03 5,000 4,994 1.28%, 02/26/03 20,000 19,960 1.28%, 03/18/03 11,805 11,773 FREDDIE MAC 1.64%, 01/09/03 32,000 31,988 1.66%, 01/09/03 53,000 52,981 1.29%, 01/15/03 15,000 14,992 1.70%, 01/16/03 20,000 19,986 1.25%, 01/17/03 8,000 7,996 1.29%, 01/28/03 10,000 9,990 1.76%, 01/30/03 9,566 9,553 1.27%, 02/13/03 25,000 24,962 1.30%, 02/13/03 6,000 5,991 1.28%, 02/20/03 14,700 14,674 1.28%, 02/27/03 28,781 28,723 2.29%, 02/27/03 15,000 14,947 1.27%, 03/03/03 19,415 19,374 1.28%, 03/13/03 19,000 18,952 1.28%, 03/20/03 20,000 19,945 1.28%, 03/27/03 20,000 19,939 2.00%, 03/27/03 46,346 46,130 2.83%, 03/27/03 10,000 9,935 2.00%, 04/24/03 15,000 14,907 2.01%, 04/24/03 15,000 14,907 2.00%, 05/22/03 20,000 19,846 2.02%, 05/22/03 20,000 19,845 1.30%, 06/19/03 9,500 9,442 1.77%, 07/17/03 20,000 19,810 1.96%, 07/17/03 20,000 19,790 2.02%, 07/17/03 10,000 9,892 1.77%, 07/30/03 21,227 21,012 1.78%, 08/14/03 20,000 19,781 1.39%, 08/22/03 11,265 11,165 1.44%, 09/22/03 10,000 9,896 1.77%, 10/09/03 10,000 9,864 1.48%, 10/20/03 12,000 11,858 SALLIE MAE 2.32%, 01/27/03 10,000 9,984 ---------- 1,678,091 COUPON NOTES 5.8% -------------------------------------------------------------------------- FANNIE MAE 5.00%, 02/14/03 13,000 13,039 5.75%, 04/15/03 21,000 21,224 4.75%, 11/14/03 13,710 14,089 1.60%, 12/24/03 10,000 10,000 FEDERAL FARM CREDIT BANK 1.22%, 03/03/03 10,000 9,999 FEDERAL HOME LOAN BANK 4.50%, 04/25/03 6,860 6,928 2.79%, 05/07/03 10,000 10,000 4.13%, 08/15/03 10,790 10,969 5.13%, 09/15/03 17,000 17,384 1.86%, 11/10/03 22,000 22,000 3.13%, 11/14/03 17,000 17,238 2.05%, 11/17/03 10,000 10,000 SALLIE MAE 2.70%, 04/25/03 15,000 14,998 ---------- 177,868
MATURITY VALUE MKT. VALUE SECURITY ($ x 1,000) ($ x 1,000) OTHER INVESTMENTS 39.9% of investments REPURCHASE AGREEMENTS 39.9% -------------------------------------------------------------------------- CREDIT SUISSE FIRST BOSTON CORP. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities 1.28%, issued 12/31/02, due 01/02/03 67,320 67,315 1.31%, issued 12/17/02, due 01/07/03 20,015 20,000 1.33%, issued 12/12/02, due 01/07/03 200,192 200,000 1.37%, issued 12/26/02, due 01/07/03 50,023 50,000 1.72%, issued 10/16/02, due 01/07/03 35,139 35,000
See financial notes. 25 SCHWAB GOVERNMENT MONEY FUND -- Financials PORTFOLIO HOLDINGS As of December 31, 2002. Continued
MATURITY VALUE MKT. VALUE SECURITY ($ x 1,000) ($ x 1,000) SALOMON SMITH BARNEY, INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities 1.28%, issued 12/31/02, due 01/02/03 69,005 69,000 1.27%, issued 12/31/02, due 01/07/03 50,012 50,000 1.28%, issued 11/21/02, due 01/07/03 35,058 35,000 1.60%, issued 11/01/02, due 01/07/03 30,089 30,000 UBS PAINEWEBBER, INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities 1.28%, issued 12/31/02, due 01/02/03 250,018 250,000 1.28%, issued 11/07/02, due 01/07/03 20,043 20,000 1.28%, issued 11/13/02, due 01/07/03 70,137 70,000 1.28%, issued 11/20/02, 01/07/03 70,119 70,000 1.29%, issued 11/14/02, due 01/07/03 35,068 35,000 1.29%, issued 11/19/02, due 01/07/03 35,061 35,000 1.29%, issued 11/22/02, due 01/07/03 30,049 30,000 1.29%, issued 11/25/02, due 01/07/03 27,042 27,000 1.31%, issued 11/15/02, due 01/07/03 40,077 40,000 1.32%, issued 12/02/02, due 01/07/03 25,033 25,000 1.47%, issued 11/06/02, due 01/07/03 50,127 50,000 1.48%, issued 11/05/02, due 01/07/03 25,065 25,000 ---------- 1,233,315
END OF PORTFOLIO HOLDINGS. For totals, please see the first page of holdings for this fund. See financial notes. 26 Statement of ASSET AND LIABILITIES As of December 31, 2002. All numbers x 1,000 except NAV. ASSETS ------------------------------------------------------------------------------ Investments, at market value $1,855,959 a Repurchase agreements, at market value 1,233,315 a Interest receivable 2,576 Prepaid expenses + 96 --------------- TOTAL ASSETS 3,091,946 LIABILITIES ------------------------------------------------------------------------------ Payables: Dividends to shareholders 59 Investment adviser and administrator fees 70 Transfer agent and shareholder service fees 114 Accrued expenses + 132 --------------- TOTAL LIABILITIES 375 NET ASSETS ------------------------------------------------------------------------------ TOTAL ASSETS 3,091,946 TOTAL LIABILITIES - 375 --------------- NET ASSETS $3,091,571 NET ASSETS BY SOURCE Capital received from investors 3,092,437 Net realized capital losses (866)
NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $3,091,571 3,092,667 $1.00 a The amortized cost for the fund's securities was $3,089,274. FEDERAL TAX DATA
COST BASIS OF PORTFOLIO $3,089,274 UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2003 $161 2004 162 2005 226 2006 119 2007 184 2008 13 2010 + 1 ------------ $866 RECLASSIFICATIONS: Net realized capital gains $ 74 Reclassified as: Capital received from investors ($74)
See financial notes. 27 Statement of OPERATIONS For January 1, 2002 through December 31, 2002. All numbers x 1,000.
INVESTMENT INCOME ------------------------------------------------------------------------------ Interest $62,108 NET REALIZED LOSSES ------------------------------------------------------------------------------ Net realized losses on investments sold (1) EXPENSES ------------------------------------------------------------------------------ Investment adviser and administrator fees 11,485 a Transfer agent and shareholder service fees 14,381 b Trustees' fees 37 c Custodian and portfolio accounting fees 313 Professional fees 29 Registration fees 175 Shareholder reports 150 Other expenses + 24 ----------- Total expenses 26,594 Expense reduction - 2,626 d ----------- NET EXPENSES 23,968 INCREASE IN NET ASSETS FROM OPERATIONS ------------------------------------------------------------------------------ TOTAL INVESTMENT INCOME 62,108 NET EXPENSES - 23,968 ----------- NET INVESTMENT INCOME 38,140 NET REALIZED LOSSES + (1) ----------- INCREASE IN NET ASSETS FROM OPERATIONS $38,139
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. 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. 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 at least April 30, 2003 to 0.75% of average daily net assets. This limit doesn't include interest, taxes and certain non-routine expenses. See financial notes. 28 Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS ------------------------------------------------------------------------------- 1/1/02-12/31/02 1/1/01-12/31/01 Net investment income $38,140 $99,440 Net realized losses + (1) -- ----------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 38,139 99,440 DISTRIBUTIONS PAID ------------------------------------------------------------------------------- Dividends from net investment income 38,140 99,440 a TRANSACTIONS IN FUND SHARES b ------------------------------------------------------------------------------- Shares sold 7,912,017 7,798,623 Shares reinvested 37,703 98,149 Shares redeemed + (7,911,680) (7,351,773) ----------------------------------- NET INCREASE 38,040 544,999 NET ASSETS ------------------------------------------------------------------------------- Beginning of period 3,053,532 2,508,533 Total increase + 38,039 544,999 c ----------------------------------- END OF PERIOD $3,091,571 $3,053,532
a The tax-basis components of distributions paid for the current period are: Ordinary income $38,140 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. 29 The fund seeks the highest current income consistent with stability of capital and liquidity. Schwab U.S. Treasury Money Fund [PHOTO OF KAREN WIGGAN] KAREN WIGGAN, a portfolio manager, has been responsible for day-to-day management of the fund since 1999. She joined the firm in 1987 and has been working in fixed-income portfolio management for eight years. TICKER SYMBOL: SWUXX MANAGER'S PERSPECTIVE UNPRECEDENTED ISSUANCE OF U.S. TREASURY BILLS WAS MET BY ABOVE-AVERAGE DEMAND FOR TREASURY SECURITIES. As the federal budget swung from surplus to deficit, the U.S. Treasury reacted by issuing short-term debt at record levels. The combination of increased spending for the war on terrorism and unexpectedly low tax receipts in April (a result of the weak economy) left the Treasury with a substantial funding gap--something we have not seen for a number of years. The Treasury reacted in several different ways, including increasing the supply of 1-, 3-, and 6-month issues as well as issuing cash management bills (issues geared to a specific purpose). Initially, this increase in supply lowered prices and boosted yields on short-term Treasury securities. However, as yields across money market securities converged, traditional commercial paper investors moved into the Treasury market, bringing demand for these securities to an unusually high level. With so many new investors competing for the same pool of securities, prices once again rose, and yields dropped accordingly. Short-term treasuries also felt the downward yield pressure of the Fed's 0.50% interest rate cut in November, and ended the year below the already low levels that prevailed at the beginning of the year. THE FUND MAINTAINED A NEUTRAL TO LONG AVERAGE WEIGHTED MATURITY, WHICH HELPED PERFORMANCE RELATIVE TO ITS PEERS 1. Within the maturity range of money market securities, the yields of longer maturity securities were sometimes higher than those of shorter maturity securities (a "normal" yield curve), sometimes lower (inverted yield curve) and sometimes comparable. By buying longer securities when their yields were attractive, we were able to hold on to their relatively higher yields when the Fed cut rates in November. 1 Source: iMoney Net, Inc., Treasury Retail Category, 12/31/02. Schwab Money Funds 30 PERFORMANCE AND FUND FACTS SEVEN-DAY YIELDS 1 AS OF 12/31/02 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, and that past performance is not an indication of future results. ------------------------------------------ SEVEN-DAY YIELD 0.83% ------------------------------------------ SEVEN-DAY EFFECTIVE YIELD 0.83% ------------------------------------------
WEIGHTED AVERAGE MATURITY during the period 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). [LINE GRAPH]
Monthly Maturity 31-Dec-01 71 Jan-02 75 Feb-02 82 Mar-02 69 Apr-02 74 May-02 69 Jun-02 69 Jul-02 71 Aug-02 72 Sep-02 73 Oct-02 72 Nov-02 69 31-Dec-02 74
PORTFOLIO COMPOSITION 2 as of 12/31/02 All figures are shown as a percentage of the fund's investments. All of the fund's securities were in the top tier of credit quality at the time of purchase. BY SECURITY TYPE [PIE CHART] 92.1% U.S TREASURY BILLS 7.9% U.S TREASURY NOTES
BY CREDIT QUALITY [PIE CHART] 100.0% TIER 1
1 A portion of the fund's expenses was reduced during the reporting period. Without this reduction, the fund's seven-day yield would have been 0.66% and the seven-day effective yield would have been 0.66%. 2 Composition of the fund's portfolio is as of 12/31/02 and is not indicative of holdings after that date. 31 SCHWAB U.S. TREASURY MONEY FUND -- Financials Financial tables These tables provide additional data on the fund's performance, portfolio holdings and business operations. Complementing the tables is the financial notes section at the end of this report, which describes the fund's business structure, accounting practices and other matters. The financial tables and the financial notes have both been audited by PricewaterhouseCoopers LLP. Look online at WWW.SCHWAB.COM/SCHWABFUNDS/HOW2READ for guides that are designed to help you read the financial tables in any SchwabFunds(R) shareholder report. FINANCIAL HIGHLIGHTS
1/1/02- 1/1/01- 1/1/00- 1/1/99- 1/1/98- 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98 ---------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) ---------------------------------------------------------------------------------------------------- Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------ Income from investment operations: Net investment income 0.01 0.04 0.05 0.04 0.05 ------------------------------------------------------ Less distributions: Dividends from net investment income (0.01) (0.04) (0.05) (0.04) (0.05) ------------------------------------------------------ Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------ Total return (%) 1.15 3.61 5.40 4.25 4.69 RATIOS/SUPPLEMENTAL DATA (%) ---------------------------------------------------------------------------------------------------- Ratio of net operating expenses to average net assets 0.65 0.65 0.65 1 0.65 0.65 Expense reductions reflected in above ratio 0.17 0.19 0.19 0.21 0.26 Ratio of net investment income to average net assets 1.15 3.44 5.27 4.18 4.58 Net assets, end of period ($ x 1,000,000) 4,323 4,042 2,750 2,592 2,131
1 Would have been 0.66% if certain non-routine expenses (proxy fees) had been included. See financial notes. 32 PORTFOLIO HOLDINGS As of December 31, 2002. This section shows all the securities in the fund's portfolio and their market value, as of the report date. 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. The pie chart below shows the fund's major categories and the market value and cost of the securities in each category. For definitions of abbreviations and acronyms used in security descriptions, see "portfolio terms" in the glossary. ALL DOLLAR VALUES ARE IN THOUSANDS. [PIE CHART] 100.0% U.S. GOVERNMENT SECURITIES Market Value: $4,318,540 Cost: $4,318,540 ------------------------------------------ 100.0% TOTAL INVESTMENTS Market Value: $4,318,540 Cost: $4,318,540
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) U.S. GOVERNMENT SECURITIES 100.0% of investments Treasury Bills 92.1% U.S. TREASURY BILLS 1.55%, 01/02/03 48,730 48,728 1.59%, 01/02/03 8,720 8,720 1.59%, 01/09/03 100,000 99,965 1.60%, 01/09/03 12,000 11,996 1.62%, 01/09/03 26,565 26,555 1.75%, 01/09/03 31,255 31,243 1.49%, 01/16/03 50,000 49,969 1.53%, 01/16/03 27,870 27,852 1.59%, 01/16/03 50,000 49,967 1.60%, 01/16/03 42,670 42,642 1.61%, 01/16/03 50,000 49,967 1.71%, 01/16/03 200,000 199,859 1.73%, 01/16/03 6,945 6,940 1.74%, 01/16/03 40,000 39,971 1.40%, 01/23/03 50,000 49,957 1.61%, 01/23/03 50,000 49,951 1.41%, 01/30/03 12,200 12,186 1.48%, 01/30/03 50,000 49,941 1.52%, 01/30/03 6,445 6,437 1.53%, 01/30/03 109,100 108,966 1.57%, 01/30/03 50,000 49,937 1.60%, 01/30/03 50,000 49,936 1.62%, 01/30/03 100,000 99,870 1.66%, 01/30/03 42,285 42,229 1.70%, 01/30/03 25,000 24,966 1.71%, 01/30/03 25,000 24,966 1.39%, 02/06/03 42,360 42,302 1.40%, 02/06/03 100,000 99,861 1.19%, 02/13/03 650 649 1.48%, 02/13/03 50,000 49,912 1.53%, 02/13/03 100,000 99,818 1.57%, 02/13/03 40,000 39,925 1.59%, 02/13/03 100,000 99,812 1.61%, 02/13/03 85,000 84,838 1.63%, 02/13/03 34,430 34,363 1.64%, 02/13/03 50,000 49,903 1.20%, 02/20/03 2,275 2,271 1.64%, 02/20/03 75,000 74,830 1.67%, 02/20/03 50,000 49,885 1.20%, 02/27/03 38,295 38,222 1.53%, 02/27/03 50,000 49,879 1.66%, 02/27/03 25,000 24,935
See financial notes. 33 SCHWAB U.S. TREASURY MONEY FUND -- Financials PORTFOLIO HOLDINGS AS of December 31, 2002, Continued
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) 1.68%, 02/27/03 50,000 49,868 1.19%, 03/06/03 102,515 102,298 1.20%, 03/06/03 50,000 49,893 1.21%, 03/06/03 100,000 99,786 1.46%, 03/06/03 75,000 74,807 1.65%, 03/06/03 11,440 11,407 1.66%, 03/06/03 50,000 49,854 1.68%, 03/06/03 6,305 6,286 1.22%, 03/13/03 2,310 2,304 1.60%, 03/20/03 100,000 99,657 1.22%, 04/03/03 94,560 94,268 1.17%, 04/10/03 1,060 1,057 1.19%, 04/10/03 90,000 89,705 1.22%, 04/10/03 23,970 23,890 1.54%, 04/10/03 50,000 49,790 1.55%, 04/10/03 40,000 39,831 1.17%, 04/17/03 13,210 13,165 1.24%, 04/17/03 50,000 49,819 1.64%, 04/17/03 75,000 74,640 1.21%, 05/01/03 42,115 41,946 1.22%, 05/01/03 43,890 43,712 1.24%, 05/01/03 70,000 69,712 1.25%, 05/01/03 165,000 164,315 1.24%, 05/15/03 50,000 49,771 1.22%, 05/29/03 12,400 12,338 1.28%, 05/29/03 50,000 49,739 1.29%, 05/29/03 30,265 30,105 1.25%, 06/05/03 50,000 49,733 1.20%, 06/12/03 34,015 33,833 1.25%, 06/12/03 175,000 174,022 1.19%, 06/19/03 40,000 39,777 1.23%, 06/19/03 83,535 83,055 1.26%, 06/19/03 50,000 49,705 ---------- 3,979,209 Treasury Notes 7.9% -------------------------------------------------------------------------- U.S. TREASURY NOTES 6.25%, 02/15/03 78,845 79,317 5.50%, 03/31/03 113,775 114,820 4.00%, 04/30/03 12,000 12,066 3.88%, 06/30/03 18,465 18,705 3.88%, 07/31/03 73,455 74,534 3.63%, 08/31/03 29,360 29,792 2.75%, 09/30/03 10,000 10,097 ---------- 339,331
END OF PORTFOLIO HOLDINGS. For totals, please see the first page of holdings for this fund. See financial notes. 34 Statement of ASSETS AND LIABILITIES As of December 31, 2002. All numbers x 1,000 except NAV. ASSETS ------------------------------------------------------------------------------ Investments, at market value $ 4,318,540 a Cash 3 Interest receivable 5,167 Prepaid expenses + 136 ----------- TOTAL ASSETS 4,323,846 LIABILITIES ------------------------------------------------------------------------------ Payables: Dividends to shareholders 100 Investment adviser and administrator fees 67 Transfer agent and shareholder service fees 160 Accrued expenses + 137 ----------- TOTAL LIABILITIES 464 NET ASSETS ------------------------------------------------------------------------------ TOTAL ASSETS 4,323,846 TOTAL LIABILITIES - 464 ----------- NET ASSETS $ 4,323,382 NET ASSETS BY SOURCE Capital received from investors 4,324,198 Net realized capital losses (816)
NET ASSET VALUE (NAV) SHARES NET ASSETS / OUTSTANDING = NAV $4,323,382 4,324,262 $1.00 a The amortized cost for the fund's securities was $4,318,540. FEDERAL TAX DATA COST BASIS OF PORTFOLIO $4,318,559 UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2005 $ 62 2006 89 2007 580 2010 + 66 ------------ $797
See financial notes. 35 Statement of OPERATIONS For January 1, 2002 through December 31, 2002. All numbers x 1,000. INVESTMENT INCOME ------------------------------------------------------------------------------ Interest $ 71,654 NET REALIZED LOSSES ------------------------------------------------------------------------------ Net realized losses on investments sold (72) EXPENSES ------------------------------------------------------------------------------ Investment adviser and administrator fees 14,270 a Transfer agent and shareholder service fees 17,962 b Trustees' fees 34 c Custodian and portfolio accounting fees 350 Professional fees 31 Registration fees 138 Shareholder reports 93 Other expenses + 26 ------------ Total expenses 32,904 Expense reduction - 6,959 d ------------ NET EXPENSES 25,945 INCREASE IN NET ASSETS FROM OPERATIONS ------------------------------------------------------------------------------ TOTAL INVESTMENT INCOME 71,654 NET EXPENSES - 25,945 ------------ NET INVESTMENT INCOME 45,709 NET REALIZED LOSSES + (72) ------------ INCREASE IN NET ASSETS FROM OPERATIONS $ 45,637
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. 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. 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 at least April 30, 2003 to 0.65% of average daily net assets. This limit doesn't include interest, taxes and certain non-routine expenses. See financial notes. 36 Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS ------------------------------------------------------------------------------ 1/1/02-12/31/02 1/1/01-12/31/01 Net investment income $ 45,709 $ 110,000 Net realized gains or losses + (72) 113 ------------------------------------ INCREASE IN NET ASSETS FROM OPERATIONS 45,637 110,113 DISTRIBUTIONS PAID ------------------------------------------------------------------------------ Dividends from net investment income 45,709 110,000 a TRANSACTIONS IN FUND SHARES b ------------------------------------------------------------------------------ Shares sold 10,640,600 9,616,410 Shares reinvested 45,056 108,428 Shares redeemed + (10,404,554) (8,432,154) ------------------------------------ NET INCREASE 281,102 1,292,684 NET ASSETS ------------------------------------------------------------------------------ Beginning of period 4,042,352 2,749,555 Total increase + 281,030 1,292,797 c ------------------------------------ END OF PERIOD $ 4,323,382 $ 4,042,352
a The tax-basis components of distributions paid for the current period are: Ordinary income $45,709 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. 37 The fund seeks the highest current income consistent with stability of capital and liquidity. Schwab Value Advantage Money Fund(R) [PHOTO OF LINDA KLINGMAN AND MIKE NEITZKE] LINDA KLINGMAN, a vice president of the investment advisor and senior portfolio manager, has overall responsibility for the management of the fund. She joined the firm in 1990 and has nearly 16 years of experience managing money market funds. 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 industry as a portfolio manager. TICKER SYMBOLS Investor Shares: SWVXX Institutional Shares: SWAXX MANAGERS' PERSPECTIVE SHORT-TERM YIELDS DECLINED DURING THE REPORT PERIOD AS THE ECONOMIC RECOVERY FAILED TO PICK UP SPEED. After peaking in March, yields fell steadily through October, then declined more sharply in November with the Fed's 0.50% rate cut. One development that affected the market was a decline in the supply of commercial paper during 2002. We trace this decline to a combination of factors associated with the soft economy. In particular, issuers reined in their short-term borrowing as they sought to cut costs and defer capital spending. This reduction in supply, in part, put downward pressure on yields. THE FUND GENERALLY MAINTAINED A LONGER AVERAGE MATURITY THAN ITS PEERS 1 DURING 2002, WHICH CONTRIBUTED POSITIVELY TO ITS PERFORMANCE. Because the fund held a higher proportion of fixed-rate securities than the average for its peer group, and maintained a somewhat longer weighted average maturity in its portfolio, it was able to mitigate the effects on its yield as short-term rates declined. Money market investors may also take some comfort from the fact that although money market investments generally lagged bond investments during 2002, they still fared better than most categories of stocks. 1 Source: iMoney Net, Inc., First Tier Retail Category, 12/31/02. Schwab Money Funds 38 SCHWAB VALUE ADVANTAGE MONEY FUND(R) PERFORMANCE AND FUND FACTS SEVEN-DAY YIELDS 1 as of 12/31/02 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, and that past performance is not an indication of future results.
INVESTOR INSTITUTIONAL SHARES SHARES ------------------------------------------------------ SEVEN-DAY YIELD 1.17% 1.38% ------------------------------------------------------ SEVEN-DAY EFFECTIVE YIELD 1.18% 1.39% ------------------------------------------------------
WEIGHTED AVERAGE MATURITY during the period 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). [LINE GRAPH]
Monthly Maturity 31-Dec-01 63 Jan-02 57 Feb-02 64 Mar-02 62 Apr-02 64 May-02 65 Jun-02 65 Jul-02 65 Aug-02 61 Sep-02 56 Oct-02 62 Nov-02 63 31-Dec-02 56
PORTFOLIO COMPOSITION 2 as of 12/31/02 All figures are shown as a percentage of the fund's investments. All of the fund's securities were in the top tier of credit quality at the time of purchase. BY SECURITY TYPE [PIE CHART] 49.1% COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 38.0% CERTIFICATES OF DEPOSIT 5.9% VARIABLE-RATE OBLIGATIONS 3.7% REPURCHASE AGREEMENTS 2.1% PROMISSORY NOTES 1.2% BANK NOTES
BY CREDIT QUALITY [PIE CHART] 100.0% TIER 1
1 A portion of the fund's expenses was reduced during the reporting period. Without this reduction, Investor Shares' and Institutional Shares' seven-day yields would have been 1.07% and the seven-day effective yields would have been 1.08%. 2 Composition of the fund's portfolio is as of 12/31/02 and is not indicative of holdings after that date. 39 SCHWAB VALUE ADVANTAGE MONEY FUND(R) -- Financials Financial tables These tables provide additional data on the fund's performance, portfolio holdings and business operations. Complementing the tables is the financial notes section at the end of this report, which describes the fund's business structure, accounting practices and other matters. The financial tables and the financial notes have both been audited by PricewaterhouseCoopers LLP. Look online at WWW.SCHWAB.COM/SCHWABFUNDS/HOW2READ for guides that are designed to help you read the financial tables in any SchwabFunds(R) shareholder report. FINANCIAL HIGHLIGHTS
1/1/02- 1/1/01- 1/1/00- 1/1/99- 1/1/98- INVESTOR SHARES 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98 ---------------------------------------------------------------------------------------------------- PER-SHARE DATA ($) ---------------------------------------------------------------------------------------------------- Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------ Income from investment operations: Net investment income 0.02 0.04 0.06 0.05 0.05 ------------------------------------------------------ Less distributions: Dividends from net investment income (0.02) (0.04) (0.06) (0.05) (0.05) ------------------------------------------------------ Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 ------------------------------------------------------ Total return (%) 1.55 4.05 6.22 5.01 5.35 RATIOS/SUPPLEMENTAL DATA (%) ---------------------------------------------------------------------------------------------------- Ratio of net operating expenses to average net assets 0.45 0.43 0.40 1 0.40 0.40 Expense reductions reflected in above ratio 0.09 0.13 0.19 0.21 0.27 Ratio of net investment income to average net assets 1.55 3.92 6.07 4.91 5.21 Net assets, end of period ($ x 1,000,000) 38,728 44,247 36,319 27,265 22,196
1 Would have been 0.41% if certain non-routine expenses (proxy fees) had been included. See financial notes. 40
7/1/02- INSTITUTIONAL SHARES 12/31/02 --------------------------------------------------------- PER-SHARE DATA ($) --------------------------------------------------------- Net asset value at beginning of period 1.00 --------- Income from investment operations: Net investment income 0.01 --------- Less distributions: Dividends from net investment income (0.01) --------- Net asset value at end of period 1.00 --------- Total return (%) 0.81 2 RATIOS/SUPPLEMENTAL DATA (%) --------------------------------------------------------- Ratio of net operating expenses to average net assets 0.24 3 Expense reductions reflected in above ratio 0.31 3 Ratio of net investment income to average net assets 1.57 3 Net assets, end of period ($ x 1,000,000) 521
1 Commencement of operations. 2 Not annualized. 3 Annualized. See financial notes. 41 SCHWAB VALUE ADVANTAGE MONEY FUND(R) -- Financials PORTFOLIO HOLDINGS As of December 31, 2002. This section shows all the securities in the fund's portfolio and their market value, as of the report date. We use the symbols below to designate certain characteristics: * Asset-backed security + Credit-enhanced security o Illiquid 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. The pie chart below shows the fund's major categories and the market value and cost of the securities in each category. For definitions of abbreviations and acronyms used in security descriptions, see "portfolio terms" in the glossary. ALL DOLLAR VALUES ARE IN THOUSANDS. [PIE CHART] 90.4% FIXED-RATE OBLIGATIONS Market Value: $35,442,875 Cost: $35,442,875 5.9% VARIABLE-RATE OBLIGATIONS Market Value: $2,313,419 Cost: $2,313,419 3.7% OTHER INVESTMENTS Market Value: $1,447,893 Cost: $1,447,893 ------------------------------------------ 100.0% TOTAL INVESTMENTS Market Value: $39,204,187 Cost: $39,204,187
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) FIXED-RATE OBLIGATIONS 90.4% of investments COMMERCIAL PAPER & OTHER CORPORATE OBLIGATIONS 49.1% ---------------------------------------------------------------------------- AB SPINTAB 1.71%, 02/18/03 18,000 17,959 1.34%, 02/20/03 62,000 61,885 ABBEY NATIONAL NORTH AMERICA, L.L.C. 1.78%, 01/24/03 1 82,000 181,794 ALLIANCE & Leicester, PLC 1.33%, 03/17/03 20,000 19,945 AMERICAN EXPRESS CREDIT CORP. 1.70%, 01/24/03 60,000 59,935 1.35%, 01/28/03 15,000 14,985 * AMSTEL FUNDING CORP. 1.76%, 01/09/03 95,000 94,963 1.35%, 02/14/03 10,000 9,984 1.65%, 02/14/03 79,000 78,842 1.36%, 02/18/03 19,000 18,966 * AMSTERDAM FUNDING CORP. 1.79%, 01/16/03 75,000 74,944 1.37%, 01/17/03 10,000 9,994 1.37%, 02/13/03 50,000 49,918 1.35%, 02/26/03 94,000 93,803 1.34%, 03/14/03 23,000 22,938 1.34%, 03/21/03 47,000 46,862 * APRECO, INC. 1.39%, 01/29/03 37,000 36,960 1.35%, 03/17/03 20,000 19,944 * ASSET SECURITIZATION COOPERATIVE CORP. 1.80%, 01/13/03 78,000 77,953 1.79%, 01/14/03 60,000 59,961 1.79%, 01/23/03 136,000 135,852 *+ ATLANTIS ONE FUNDING CORP. 1.79%, 01/15/03 50,000 49,965 1.79%, 01/23/03 48,601 48,548 1.76%, 02/04/03 100,000 99,836 1.35%, 02/27/03 75,000 74,840 1.33%, 03/12/03 95,000 94,754 1.34%, 03/12/03 82,000 81,786 1.33%, 03/13/03 10,000 9,974 1.35%, 03/21/03 38,000 37,887 1.34%, 03/25/03 167,000 166,484 1.69%, 03/25/03 32,000 31,876
See financial notes. 42
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) BANK OF NOVA SCOTIA 1.54%, 02/06/03 20,000 19,969 BARCLAYS U.S. FUNDING CORP. 1.36%, 03/05/03 365,000 364,136 1.33%, 03/13/03 37,000 36,903 * BARTON CAPITAL CORP. 1.33%, 01/10/03 17,179 17,173 1.80%, 01/14/03 100,000 99,935 1.36%, 01/15/03 121,289 121,225 1.79%, 01/17/03 15,069 15,057 1.80%, 01/17/03 58,228 58,182 1.38%, 01/23/03 25,000 24,979 * BAVARIA UNIVERSAL FUNDING CORP. 1.76%, 01/06/03 17,000 16,996 1.88%, 01/10/03 16,663 16,655 1.78%, 01/15/03 16,698 16,687 1.84%, 01/17/03 14,000 13,989 BEAR STEARNS COMPANIES, INC. 1.73%, 01/10/03 31,000 30,987 1.56%, 02/05/03 13,000 12,980 1.34%, 02/26/03 142,000 141,704 1.34%, 03/17/03 133,000 132,629 1.33%, 03/26/03 40,000 39,876 * BETA FINANCE, INC. 1.33%, 02/18/03 82,500 82,354 2.03%, 03/21/03 39,000 38,829 * BETA FINANCE, INC., 144A 1.58%, 11/20/03 48,000 48,000 BNP PARIBAS FINANCE, INC. 2.01%, 04/01/03 90,000 89,555 CANADIAN IMPERIAL HOLDINGS, INC. 1.34%, 03/19/03 200,000 199,427 CBA (DELAWARE) FINANCE, INC. 1.33%, 03/19/03 100,000 99,717 * CC (USA), INC. 1.78%, 01/06/03 21,300 21,295 1.74%, 01/07/03 45,000 44,987 1.79%, 01/21/03 26,000 25,974 1.35%, 01/28/03 17,400 17,382 1.35%, 02/07/03 10,500 10,485 1.35%, 02/18/03 42,000 41,924 1.71%, 02/18/03 12,000 11,973 1.36%, 02/27/03 20,000 19,957 1.37%, 03/20/03 7,500 7,478 1.61%, 04/22/03 16,300 16,220 * CC (USA), INC., 144A 2.36%, 01/10/03 42,000 42,000 2.43%, 01/27/03 39,000 38,994 CIT GROUP, INC. 1.53%, 03/03/03 40,000 39,897 1.54%, 03/17/03 50,000 49,841 CITICORP 1.73%, 01/06/03 100,000 99,976 1.72%, 01/13/03 126,000 125,928 1.35%, 01/14/03 100,000 99,951 1.73%, 01/16/03 137,000 136,902 1.34%, 01/23/03 25,000 24,980 1.78%, 01/24/03 20,000 19,977 1.77%, 02/07/03 25,000 24,955 1.35%, 02/27/03 50,000 49,893 1.33%, 03/12/03 100,000 99,742 * CONCORD MINUTEMEN CAPITAL CO., L.L.C. Series A 1.73%, 01/09/03 46,745 46,727 1.81%, 01/22/03 120,000 119,874 1.37%, 02/05/03 38,000 37,949 1.38%, 02/10/03 91,000 90,860 1.38%, 02/14/03 25,750 25,707 * CORPORATE ASSET FUNDING CO., INC. 1.33%, 01/28/03 99,783 99,683 * DAKOTA CP NOTES OF CITIBANK CREDIT CARD ISSUANCE TRUST 1.54%, 01/13/03 74,000 73,962 1.54%, 01/14/03 30,000 29,983 1.35%, 01/22/03 20,000 19,984 1.35%, 01/23/03 48,000 47,960 1.35%, 02/12/03 69,000 68,891 1.35%, 02/19/03 61,000 60,888 1.34%, 03/21/03 100,000 99,706 DEN NORSKE BANK ASA 1.33%, 02/10/03 15,000 14,978 1.34%, 03/05/03 83,000 82,806 DANSKE CORP. 1.54%, 02/06/03 134,000 133,795 DEPFA BANK, PLC 1.33%, 03/10/03 80,000 79,799 DEUTSCHE BANK FINANCIAL, L.L.C. 1.53%, 02/07/03 431,000 430,327 * DORADA FINANCE, INC. 1.78%, 01/06/03 100,000 99,975 1.35%, 01/21/03 40,000 39,970
See financial notes. 43 SCHWAB VALUE ADVANTAGE MONEY FUND(R) -- Financials PORTFOLIO HOLDINGS As of December 31, 2002. Continued
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) 1.85%, 01/22/03 18,000 17,981 1.35%, 02/27/03 13,000 12,972 1.71%, 02/28/03 10,484 10,455 1.66%, 04/10/03 15,000 14,932 * DORADA FINANCE, INC., 144A 1.95%, 09/16/03 122,000 122,000 1.96%, 09/16/03 45,000 45,000 DRESDNER U.S. FINANCE, INC. 1.77%, 05/20/03 50,000 49,662 * EDISON ASSET SECURITIZATION CORP., L.L.C. 1.73%, 01/08/03 55,000 54,982 1.79%, 01/27/03 200,000 199,743 1.65%, 04/04/03 17,000 16,928 1.64%, 04/08/03 20,000 19,912 * FALCON ASSET SECURITIZATION CORP. 1.33%, 01/08/03 241,000 240,938 FORENINGSSPARBANKEN (SWEDBANK) 1.35%, 02/05/03 12,000 11,984 * FORRESTAL FUNDING MASTER TRUST NOTES Series 1999A 1.37%, 01/30/03 15,858 15,841 Series 2000A 1.37%, 01/23/03 104,000 103,913 1.36%, 01/28/03 138,812 138,671 1.37%, 02/10/03 95,414 95,269 FORTIS FUNDING, L.L.C. 1.67%, 01/31/03 25,000 24,965 1.60%, 02/03/03 49,000 48,928 1.33%, 03/12/03 15,000 14,961 1.65%, 04/09/03 19,000 18,915 * GALAXY FUNDING, INC. 1.78%, 01/08/03 80,000 79,972 1.73%, 01/21/03 160,000 159,847 1.35%, 03/20/03 95,000 94,722 1.34%, 03/24/03 70,000 69,786 GE CAPITAL INTERNATIONAL FUNDING, INC. 1.79%, 01/29/03 112,155 112,000 1.63%, 02/06/03 36,000 35,942 1.78%, 02/14/03 122,000 121,736 1.33%, 02/24/03 32,000 31,936 1.35%, 02/27/03 40,000 39,915 1.78%, 04/14/03 90,000 89,547 GE FINANCIAL ASSURANCE HOLDINGS, INC. 1.32%, 02/13/03 45,000 44,929 1.34%, 03/21/03 38,000 37,888 GENERAL ELECTRIC CAPITAL CORP. 2.32%, 02/03/03 49,000 48,898 2.26%, 02/14/03 188,000 187,490 2.32%, 02/14/03 117,000 116,674 2.29%, 02/18/03 250,000 249,250 2.31%, 02/19/03 175,000 174,459 2.27%, 02/20/03 160,000 159,504 2.24%, 02/27/03 130,000 129,547 1.33%, 03/12/03 11,000 10,972 GENERAL ELECTRIC CAPITAL SERVICES 1.73%, 01/09/03 68,000 67,974 1.72%, 01/10/03 124,000 123,947 1.34%, 01/23/03 25,000 24,980 GENERAL ELECTRIC CO. 1.35%, 01/14/03 70,000 69,966 1.35%, 01/15/03 55,000 54,971 1.35%, 01/16/03 170,000 169,904 * GIRO FUNDING U.S. CORP. 1.74%, 01/09/03 20,000 19,992 1.73%, 01/14/03 49,000 48,970 1.78%, 01/21/03 12,000 11,988 1.79%, 01/21/03 40,000 39,960 1.76%, 01/24/03 120,000 119,866 1.65%, 02/10/03 50,000 49,909 1.35%, 02/20/03 60,000 59,888 1.36%, 02/24/03 60,000 59,878 1.36%, 03/06/03 50,000 49,879 * GIRO MULTI-FUNDING CORP. 1.67%, 01/15/03 200,000 199,871 1.65%, 01/31/03 41,538 41,481 *o GREENWICH FUNDING CORP. 1.36%, 01/10/03 43,000 42,985 1.38%, 01/16/03 110,000 109,937 1.34%, 01/24/03 143,000 142,878 * GREYHAWK FUNDING, L.L.C. 1.33%, 01/16/03 37,000 36,980 1.35%, 02/10/03 20,000 19,970 1.34%, 02/20/03 167,000 166,689 1.35%, 02/21/03 35,000 34,933 1.36%, 02/21/03 30,000 29,942 1.34%, 03/06/03 25,000 24,940 HBOS TREASURY SERVICES, PLC 1.55%, 02/06/03 110,000 109,831 1.33%, 03/07/03 110,000 109,736 HSBC USA, INC. 1.78%, 01/23/03 36,000 35,961
See financial notes. 44
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) *+ HALOGEN CAPITAL CO., L.L.C. 1.75%, 01/17/03 65,951 65,900 1.81%, 01/17/03 10,000 9,992 1.34%, 02/07/03 50,000 49,931 * HATTERAS FUNDING CORP. 1.78%, 01/06/03 5,179 5,178 1.71%, 01/09/03 45,000 44,983 1.76%, 01/14/03 29,000 28,982 1.79%, 01/21/03 17,000 16,983 1.37%, 02/05/03 29,000 28,961 1.37%, 03/11/03 56,000 55,854 1.35%, 03/14/03 47,367 47,239 *+ INDEPENDENCE FUNDING, L.L.C. 1.86%, 01/08/03 27,884 27,874 1.35%, 01/14/03 20,000 19,990 1.34%, 02/27/03 112,317 112,079 1.36%, 03/06/03 60,000 59,855 ING (U.S.) FUNDING, L.L.C. 1.61%, 03/28/03 75,000 74,713 1.61%, 04/01/03 15,000 14,940 *+ INTREPID FUNDING MASTER TRUST 1.34%, 02/24/03 85,514 85,342 1.36%, 03/05/03 30,000 29,929 J.P. MORGAN CHASE & Co. 1.84%, 01/22/03 150,000 149,840 1.53%, 02/11/03 185,000 184,680 1.53%, 02/12/03 15,000 14,973 1.76%, 05/14/03 15,000 14,904 * JUPITER SECURITIZATION CORP. 1.64%, 01/15/03 50,000 49,968 1.34%, 01/28/03 93,692 93,598 1.37%, 01/29/03 50,000 49,947 * K2 (USA), L.L.C. 1.73%, 01/13/03 60,000 59,966 1.90%, 01/15/03 50,000 49,963 2.03%, 01/15/03 26,000 25,980 1.79%, 01/21/03 17,000 16,983 1.38%, 02/10/03 13,500 13,479 1.77%, 02/20/03 18,000 17,956 1.77%, 02/25/03 25,000 24,933 1.36%, 02/27/03 10,500 10,478 2.04%, 03/11/03 15,000 14,942 2.05%, 03/20/03 23,500 23,397 1.39%, 04/28/03 15,100 15,032 1.38%, 06/02/03 16,500 16,405 KBC FINANCIAL PRODUCTS INTERNATIONAL, LTD. 1.72%, 01/13/03 80,000 79,954 *+ KITTY HAWK FUNDING CORP. 1.33%, 02/14/03 50,130 50,049 1.35%, 03/03/03 50,000 49,886 1.34%, 03/10/03 18,000 17,955 LANDESBANK SCHLESWIG-HOLSTEIN GIROZENTRALE 1.84%, 01/16/03 37,000 36,972 1.35%, 02/25/03 100,000 99,794 1.33%, 03/13/03 87,000 86,773 2.05%, 03/21/03 36,000 35,841 * LEXINGTON PARKER CAPITAL CO., L.L.C. 1.72%, 01/10/03 20,000 19,991 1.73%, 01/10/03 104,025 103,980 1.83%, 01/10/03 60,413 60,386 1.74%, 01/17/03 43,296 43,263 1.83%, 01/21/03 75,449 75,373 1.83%, 01/22/03 20,000 19,979 1.82%, 01/27/03 45,000 44,941 * LINKS FINANCE, L.L.C. 1.79%, 01/17/03 19,000 18,985 1.80%, 01/22/03 13,000 12,986 1.36%, 03/03/03 29,000 28,933 MERRILL LYNCH & CO., INC. 1.65%, 01/24/03 25,000 24,974 1.65%, 03/21/03 30,000 29,892 * MONT BLANC CAPITAL CORP. 1.79%, 01/14/03 66,000 65,958 1.79%, 01/17/03 20,093 20,077 1.80%, 01/22/03 35,000 34,963 1.36%, 02/20/03 20,000 19,962 1.35%, 02/24/03 50,000 49,899 1.36%, 03/06/03 9,000 8,978 MORGAN STANLEY 1.78%, 01/24/03 80,000 79,909 1.34%, 02/13/03 50,000 49,920 1.33%, 03/14/03 35,000 34,907 1.33%, 03/20/03 315,000 314,095 1.33%, 03/26/03 100,000 99,690 1.33%, 03/27/03 100,000 99,686 1.31%, 04/01/03 165,000 164,460 * NEWCASTLE CERTIFICATES PROGRAM Series 2000A 1.73%, 01/08/03 150,000 149,950 1.73%, 01/09/03 15,000 14,994 1.75%, 01/09/03 40,000 39,985
See financial notes. 45 SCHWAB VALUE ADVANTAGE MONEY FUND(R) -- Financials PORTFOLIO HOLDINGS As of December 31, 2002. Continued
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) 1.79%, 01/23/03 23,000 22,975 1.35%, 02/12/03 50,000 49,921 1.36%, 02/21/03 2,500 2,495 * PARK AVENUE RECEIVABLES CORP. 1.35%, 02/11/03 13,000 12,980 * PREFERRED RECEIVABLES FUNDING CORP. 1.33%, 01/07/03 60,000 59,987 1.35%, 01/29/03 35,000 34,963 1.35%, 02/03/03 98,000 97,879 * QUINCY CAPITAL CORP. 1.37%, 01/28/03 38,812 38,772 1.36%, 02/05/03 8,000 7,989 1.36%, 02/10/03 100,264 100,113 * RECEIVABLES CAPITAL CORP. 1.35%, 01/14/03 177,084 176,998 SALOMON SMITH BARNEY HOLDINGS, INC. 1.31%, 01/09/03 129,000 128,962 1.32%, 02/05/03 140,000 139,820 1.32%, 02/13/03 100,000 99,842 1.34%, 03/07/03 37,000 36,911 1.78%, 03/10/03 27,000 26,910 1.33%, 03/12/03 11,000 10,972 1.33%, 03/14/03 12,000 11,968 SAN PAOLO IMI U.S. FINANCIAL CO. 1.35%, 01/28/03 145,000 144,853 1.35%, 01/29/03 105,000 104,890 1.32%, 03/11/03 30,000 29,924 1.33%, 03/12/03 15,000 14,961 * SIGMA FINANCE, INC. 1.86%, 01/13/03 16,000 15,990 1.90%, 01/13/03 35,000 34,978 1.35%, 01/30/03 100,000 99,891 1.35%, 03/05/03 15,000 14,965 2.05%, 03/17/03 21,000 20,912 1.80%, 04/07/03 23,430 23,319 1.62%, 04/08/03 60,000 59,740 1.69%, 04/14/03 20,000 19,904 1.75%, 05/16/03 10,000 9,935 * SIGMA FINANCE, INC., 144A 2.24%, 01/27/03 15,000 14,998 2.13%, 02/14/03 100,000 100,000 SOCIETE GENERALE, N.A., INC. 1.53%, 01/08/03 20,000 19,994 1.34%, 02/12/03 112,500 112,324 1.34%, 02/20/03 91,000 90,831 1.34%, 02/25/03 61,887 61,760 STADSHYPOTEK DELAWARE, INC. 1.37%, 02/13/03 15,000 14,975 1.34%, 02/21/03 50,000 49,905 * STELLAR FUNDING GROUP, INC. 1.34%, 01/07/03 11,010 11,008 1.81%, 01/15/03 7,967 7,961 1.80%, 01/16/03 8,143 8,137 1.81%, 01/16/03 9,140 9,133 1.36%, 01/28/03 1,507 1,505 1.36%, 02/20/03 10,036 10,017 1.36%, 02/24/03 6,587 6,574 1.38%, 02/28/03 12,745 12,717 SVENSKA HANDELSBANKEN, INC. 1.33%, 03/27/03 23,000 22,928 *+ TRIPLE-A ONE FUNDING CORP. 1.35%, 01/10/03 25,412 25,403 *+ TULIP FUNDING CORP. 1.73%, 01/08/03 18,000 17,994 1.79%, 01/16/03 18,096 18,083 UBS FINANCE (DELAWARE), INC. 1.32%, 03/03/03 58,750 58,619 1.33%, 03/13/03 275,000 274,281 1.33%, 03/17/03 236,000 235,349 * VARIABLE FUNDING CAPITAL CORP. 1.80%, 01/06/03 99,000 98,975 1.78%, 01/07/03 160,000 159,953 1.73%, 01/08/03 98,000 97,968 1.79%, 01/23/03 99,000 98,892 1.71%, 01/27/03 50,000 49,939 1.34%, 02/03/03 50,000 49,939 1.34%, 02/06/03 50,000 49,933 WESTPAC TRUST SECURITIES NZ, LTD. 1.34%, 02/13/03 22,818 22,782 * WINDMILL FUNDING CORP. 1.80%, 01/09/03 20,000 19,992 1.37%, 02/13/03 25,000 24,959 WYETH 1.75%, 02/04/03 90,000 89,851 1.75%, 02/11/03 70,000 69,861 ----------- 19,235,736
See financial notes. 46
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) CERTIFICATES OF DEPOSIT 38.0% ---------------------------------------------------------------------------- ABBEY NATIONAL TREASURY SERVICES, PLC 1.77%, 01/15/03 13,000 13,000 1.33%, 02/20/03 115,000 115,000 1.33%, 03/18/03 180,000 180,000 ABN AMRO BANK, NV 1.70%, 01/07/03 100,000 100,000 2.51%, 04/02/03 100,000 100,000 2.80%, 04/09/03 50,000 49,999 2.95%, 04/17/03 26,000 25,999 2.42%, 07/18/03 125,000 124,980 ALLIANCE & LEICESTER 1.75%, 01/30/03 56,000 56,000 AMERICAN EXPRESS CENTURION BANK 1.37%, 01/28/03 115,000 115,000 BANK OF NOVA SCOTIA 1.52%, 02/10/03 50,000 50,000 1.34%, 02/26/03 210,000 210,000 1.50%, 03/07/03 50,000 50,000 1.35%, 03/10/03 28,000 28,000 BANK OF SCOTLAND 2.28%, 02/28/03 50,000 50,000 BARCLAYS BANK, PLC 1.70%, 01/07/03 75,000 75,000 1.34%, 01/13/03 91,000 91,000 1.35%, 01/21/03 150,000 150,002 1.65%, 03/03/03 92,000 92,014 1.30%, 05/02/03 100,000 100,000 1.60%, 11/25/03 174,000 174,008 BAYERISCHE HYPO-UND VEREINSBANK, AG 1.73%, 01/10/03 10,000 10,000 1.77%, 01/17/03 100,000 100,000 1.84%, 01/17/03 40,000 40,000 1.80%, 02/18/03 55,000 55,034 1.40%, 03/13/03 130,000 130,000 BAYERISCHE LANDESBANK GIROZENTRALE 1.62%, 01/27/03 92,000 92,010 1.33%, 03/17/03 50,000 50,001 BNP PARIBAS 1.54%, 02/04/03 137,000 137,000 1.55%, 02/04/03 100,000 100,000 1.54%, 02/05/03 197,000 197,000 1.55%, 02/05/03 90,000 90,000 1.54%, 02/06/03 156,000 156,000 1.55%, 02/06/03 100,000 100,000 1.65%, 03/10/03 190,000 190,000 2.04%, 03/27/03 107,000 107,000 1.74%, 04/17/03 242,000 242,000 CANADIAN IMPERIAL BANK OF COMMERCE 2.30%, 02/21/03 48,000 48,000 1.35%, 02/27/03 80,000 80,000 1.33%, 03/12/03 60,000 60,002 2.00%, 04/10/03 90,000 90,000 CHASE MANHATTAN BANK USA, N.A. 1.78%, 01/22/03 62,000 62,000 1.77%, 01/23/03 125,000 125,000 1.62%, 02/07/03 100,000 100,000 1.32%, 02/11/03 143,000 143,000 1.32%, 02/12/03 147,000 147,000 1.76%, 05/20/03 35,000 35,000 CITIBANK, N.A. 1.77%, 01/22/03 48,000 48,000 1.78%, 01/22/03 75,000 75,000 1.35%, 03/04/03 500,000 500,000 1.33%, 03/12/03 96,000 96,000 1.33%, 03/18/03 100,000 100,000 1.33%, 03/19/03 40,000 40,000 COMMONWEALTH BANK OF AUSTRALIA 1.33%, 01/31/03 194,000 194,000 1.33%, 03/18/03 96,000 96,000 CREDIT AGRICOLE INDOSUEZ 1.78%, 01/21/03 85,000 85,000 CREDIT LYONNAIS S.A. 1.37%, 03/14/03 160,000 160,000 CREDIT SUISSE FIRST BOSTON 1.65%, 02/03/03 34,000 34,004 1.33%, 03/19/03 63,000 63,000 DEN NORSKE BANK ASA 1.57%, 02/05/03 22,000 22,000 DEUTSCHE BANK, AG 1.32%, 02/11/03 73,000 73,000 2.34%, 03/07/03 110,000 109,999 2.38%, 03/10/03 48,000 47,999 1.35%, 05/07/03 200,000 200,000 1.85%, 10/15/03 247,000 246,981 DEXIA BANK BELGIUM 1.62%, 01/27/03 98,000 98,011 2.30%, 02/21/03 200,000 200,000 2.55%, 03/05/03 45,000 45,000 1.33%, 03/24/03 10,000 10,000 2.51%, 04/02/03 55,000 54,999
See financial notes. 47 SCHWAB VALUE ADVANTAGE MONEY FUND(R) -- Financials PORTFOLIO HOLDINGS As of December 31, 2002. Continued
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) DRESDNER BANK, AG 1.73%, 01/30/03 136,000 136,000 1.33%, 02/19/03 155,000 155,000 1.35%, 02/21/03 27,000 27,000 1.68%, 04/11/03 100,000 100,000 1.61%, 04/17/03 15,000 15,049 FIRST TENNESSEE BANK, N.A. 1.33%, 03/20/03 62,000 62,000 HBOS TREASURY SERVICES, PLC 1.56%, 02/06/03 48,000 48,000 1.36%, 03/10/03 70,000 70,000 1.34%, 03/31/03 45,000 45,000 HSBC BANK USA 1.55%, 02/28/03 45,000 45,017 1.33%, 03/19/03 100,000 100,000 ING BANK, NV 1.77%, 01/16/03 110,000 110,000 1.84%, 01/21/03 50,000 50,000 1.77%, 01/23/03 34,000 34,000 1.75%, 01/31/03 106,000 106,000 1.36%, 02/24/03 30,000 30,000 1.37%, 03/10/03 185,000 185,000 1.74%, 04/17/03 125,000 125,000 LANDESBANK BADEN WURTTEMBERG 1.78%, 01/21/03 30,000 30,000 1.52%, 02/10/03 18,000 18,000 1.35%, 02/25/03 47,000 47,000 1.33%, 03/17/03 82,000 82,001 1.73%, 09/30/03 25,000 25,011 1.85%, 10/17/03 94,000 94,000 LANDESBANK HESSEN-THURINGEN GIROZENTRALE 2.01%, 04/09/03 40,000 40,000 1.40%, 07/09/03 30,000 30,000 1.86%, 10/20/03 70,000 70,000 LLOYDS TSB BANK, PLC 1.60%, 01/27/03 90,000 90,010 2.53%, 04/02/03 50,000 49,999 1.63%, 04/03/03 50,000 49,996 1.75%, 05/19/03 200,000 200,000 1.75%, 05/23/03 100,000 100,000 NATEXIS BANQUES POPULAIRES 1.34%, 02/19/03 120,000 120,000 NATIONAL AUSTRALIA BANK, LTD. 1.60%, 04/07/03 225,000 225,000 1.63%, 04/08/03 100,000 100,000 NATIONAL BANK OF CANADA 1.33%, 02/13/03 25,000 25,000 NORDDEUTSCHE LANDESBANK GIROZENTRALE 1.63%, 01/30/03 45,000 45,000 1.63%, 02/03/03 70,000 70,000 1.33%, 03/28/03 100,000 100,000 1.68%, 04/15/03 44,000 44,000 1.55%, 05/05/03 25,000 25,000 1.57%, 11/07/03 25,000 24,998 1.49%, 12/29/03 48,000 48,000 NORDEA BANK FINLAND, PLC 1.34%, 03/31/03 186,000 186,002 RABOBANK NEDERLAND, NV 2.36%, 01/03/03 86,000 86,000 2.47%, 02/28/03 37,000 37,000 2.98%, 04/04/03 100,000 99,987 1.63%, 04/21/03 50,000 50,033 ROYAL BANK OF CANADA 1.78%, 01/17/03 267,000 267,000 2.30%, 02/21/03 35,000 35,000 1.61%, 11/25/03 125,000 124,994 ROYAL BANK OF SCOTLAND, PLC 1.34%, 03/31/03 150,000 150,000 SAN PAOLO IMI SPA 1.35%, 01/29/03 137,000 137,000 SOCIETE GENERALE 1.84%, 01/13/03 131,000 131,001 1.34%, 03/20/03 200,000 200,000 1.34%, 03/21/03 180,000 180,000 2.04%, 03/27/03 71,000 71,000 SOUTHTRUST BANK 1.35%, 06/06/03 23,000 23,000 STATE STREET BANK & TRUST CO., N.A. 1.72%, 01/22/03 160,000 160,000 1.72%, 01/24/03 58,000 58,000 SVENSKA HANDELSBANKEN, AB 1.66%, 03/19/03 50,000 50,001 1.32%, 03/28/03 100,000 100,000 1.64%, 04/07/03 25,000 25,000 1.65%, 04/15/03 50,000 50,001 TORONTO DOMINION BANK 2.47%, 01/06/03 46,000 46,000 2.61%, 04/04/03 50,000 50,000 1.32%, 05/13/03 48,000 48,005 1.35%, 06/24/03 130,000 130,000
See financial notes. 48
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) UBS, AG 2.43%, 01/06/03 50,000 50,000 2.44%, 01/06/03 47,000 47,000 2.30%, 02/21/03 75,000 75,001 2.27%, 02/28/03 147,000 146,993 1.59%, 12/16/03 115,000 115,000 UNICREDITO ITALIANO SPA 1.75%, 01/06/03 44,000 44,000 1.75%, 01/07/03 50,000 50,000 1.72%, 01/15/03 50,000 50,000 1.70%, 01/21/03 47,000 47,002 1.35%, 03/11/03 316,000 316,000 1.35%, 03/12/03 23,000 23,000 1.68%, 04/15/03 39,000 39,000 WELLS FARGO BANK, N.A. 1.65%, 01/02/03 100,000 100,000 1.64%, 01/10/03 91,000 91,000 1.62%, 01/29/03 36,000 36,000 1.60%, 01/31/03 120,000 120,000 1.54%, 02/03/03 50,000 50,000 WESTLB AG 1.60%, 04/03/03 170,000 170,000 1.65%, 04/10/03 250,000 250,000 1.93%, 09/18/03 97,000 97,000 1.84%, 10/15/03 46,000 45,996 WILMINGTON TRUST CO. 1.84%, 01/21/03 25,000 25,000 ----------- 14,914,139 PROMISSORY NOTES 2.1% ---------------------------------------------------------------------------- o THE GOLDMAN SACHS GROUP, INC. 1.86%, 01/27/03 87,000 87,000 1.75%, 02/04/03 55,000 55,000 1.87%, 02/05/03 18,000 18,000 1.84%, 03/18/03 306,000 306,000 1.48%, 05/30/03 15,000 15,000 1.50%, 06/02/03 85,000 85,000 1.45%, 06/10/03 7,000 7,000 1.45%, 06/17/03 50,000 50,000 1.45%, 06/18/03 185,000 185,000 ----------- 808,000 BANK NOTES 1.2% ---------------------------------------------------------------------------- BANK OF AMERICA, N.A. 2.50%, 05/02/03 185,000 185,000 2.50%, 05/06/03 300,000 300,000 ----------- 485,000 VARIABLE-RATE OBLIGATIONS 5.9% of investments + ACCESS LOANS FOR LEARNING STUDENT LOAN CORP. Taxable Student Loan RB Series II-A-6 1.50%, 01/07/03 27,800 27,800 + ACTIVE LIVING OF GLENVIEW, L.L.C. Senior Floating Rate Note Series 1998, 144A 1.49%, 01/07/03 10,900 10,900 * ASSET SECURITIZATION COOPERATIVE CORP., 144A 1.38%, 01/22/03 272,000 272,000 * BETA FINANCE, INC., 144A 1.39%, 01/15/03 80,000 79,994 + CITY OF NEW BRITAIN, CONNECTICUT GO Pension Bonds 1.52%, 01/07/03 40,000 40,000 + CITY OF SANTA ROSA VRD Wastewater Series 1998A 1.65%, 01/07/03 17,000 17,000 VRD Wastewater Series 2002A 1.65%, 01/07/03 40,000 40,000 + COLUMBUS, GEORGIA DEVELOPMENT AUTHORITY Taxable RB (Jay Leasing, Inc. Project) Series 1997 1.52%, 01/07/03 6,495 6,495 + FILLMORE, CALIFORNIA PUBLIC FINANCING AUTHORITY VRD Tax Allocation Bond (Fillmore Redevelopment Agency Central City Redevelopment Project Area) Series 1998A 1.57%, 01/07/03 10,120 10,120 o GE LIFE & ANNUITY ASSURANCE CO., 144A 1.49%, 01/01/03 50,000 50,000 GENERAL ELECTRIC CAPITAL CORP. 1.45%, 01/17/03 225,000 225,000 + LOANSTAR ASSETS PARTNERS II, L.P., 144A 1.50%, 01/07/03 25,000 25,000 MERLOT TRUST Series 2000B, 144A 1.57%, 01/07/03 30,000 30,000
See financial notes. 49 SCHWAB VALUE ADVANTAGE MONEY FUND(R) -- Financials PORTFOLIO HOLDINGS As of December 31, 2002. Continued
ISSUER FACE VALUE MKT. VALUE RATE, MATURITY DATE ($ x 1,000) ($ x 1,000) o METROPOLITIAN LIFE INSURANCE CO., 144A 1.44%, 01/30/03 50,000 50,000 1.79%, 02/03/03 100,000 100,000 o MONUMENTAL LIFE INSURANCE CO., 144A 1.52%, 01/02/03 100,000 100,000 1.54%, 01/02/03 100,000 100,000 1.55%, 01/02/03 10,000 10,000 MORGAN STANLEY 1.52%, 01/15/03 50,000 50,000 + NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY Taxable Economic Development Bonds (MSNBC CNBC Project) Series 1997A, 144A 1.70%, 01/02/03 27,900 27,900 SALOMON SMITH BARNEY HOLDINGS, INC. 1.62%, 02/05/03 300,000 300,000 1.36%, 02/10/03 45,000 45,000 o SECURITY LIFE OF DENVER INSURANCE CO. 144A 1.93%, 01/22/03 100,000 100,000 * SIGMA FINANCE, INC., 144A 1.40%, 01/02/03 35,000 34,999 1.42%, 01/02/03 30,000 29,997 1.43%, 01/06/03 97,000 96,989 1.39%, 01/15/03 31,000 30,999 1.39%, 01/21/03 50,000 49,996 1.40%, 01/23/03 100,000 99,992 1.59%, 02/06/03 50,000 49,997 1.36%, 02/18/03 100,000 99,991 + TOWN OF ISLIP, NEW YORK IDA Taxable Adjustable Rate IDRB (Nussdorf Associates/Quality King Distributors, Inc. Facility) Series 1992 1.55%, 01/07/03 3,250 3,250 o TRAVELERS INSURANCE CO., 144A 1.72%, 01/31/03 25,000 25,000 1.72%, 02/01/03 25,000 25,000 1.50%, 02/21/03 50,000 50,000 ----------- 2,313,419 OTHER INVESTMENTS 3.7% of investments REPURCHASE AGREEMENTS 3.7% ---------------------------------------------------------------------------- CREDIT SUISSE FIRST BOSTON CORP. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities 1.28%, issued 12/31/02, due 01/02/03 145,903 145,893 SALOMON SMITH BARNEY, INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities 1.28%, issued 12/31/02, due 01/02/03 427,030 427,000 UBS PAINEWEBBER, INC. Tri-Party Repurchase Agreement Collateralized by U.S. Government Securities 1.28%, issued 12/31/02, due 01/02/03 875,062 875,000 ----------- 1,447,893
END OF PORTFOLIO HOLDINGS. For totals, please see the first page of holdings for this fund. See financial notes. 50 Statement of ASSETS AND LIABILITIES As of December 31, 2002. All numbers x 1,000 except NAV.
ASSETS ------------------------------------------------------------------------------ Investments, at market value $39,204,187 a Receivables: Fund shares sold 275,104 Interest 90,690 Prepaid expenses + 650 -------------- TOTAL ASSETS 39,570,631 LIABILITIES ------------------------------------------------------------------------------ Payables: Fund shares redeemed 165,891 Dividends to shareholders 5,350 Investments bought 148,095 Investment adviser and administrator fees 692 Transfer agent and shareholder service fees 699 Accrued expenses + 558 -------------- TOTAL LIABILITIES 321,285 NET ASSETS ------------------------------------------------------------------------------ TOTAL ASSETS 39,570,631 TOTAL LIABILITIES - 321,285 -------------- NET ASSETS $39,249,346 NET ASSETS BY SOURCE Capital received from investors 39,249,450 Net realized capital losses (104)
NET ASSETS BY SHARE CLASS SHARES SHARE CLASS NET ASSETS / OUTSTANDING = NAV Investor Shares $38,727,954 38,728,167 $1.00 Institutional Shares $ 521,392 521,392 $1.00 a Includes illiquid restricted securities worth $1,713,800, or 4.37% of the fund's investments. The amortized cost for the fund's securities was $39,204,187. FEDERAL TAX DATA COST BASIS OF PORTFOLIO $39,204,187 UNUSED CAPITAL LOSSES: Expires 12/31 of: Loss amount: 2003 $104
See financial notes. 51 Statement of OPERATIONS For January 1, 2002 through December 31, 2002. All numbers x 1,000.
INVESTMENT INCOME ------------------------------------------------------------------------------ Interest $ 839,997 EXPENSES ------------------------------------------------------------------------------ Investment adviser and administrator fees 133,024 a Transfer agent and shareholder service fees: Investor Shares 92,296 b Institutional Shares 372 b Trustees' fees 163 c Custodian and portfolio accounting fees 3,211 Professional fees 132 Registration fees (848) d Shareholder reports 456 Other expenses + 231 ------------- Total expenses 229,037 Expense reduction - 39,844 e ------------- NET EXPENSES 189,193 INCREASE IN NET ASSETS FROM OPERATIONS ------------------------------------------------------------------------------ TOTAL INVESTMENT INCOME 839,997 NET EXPENSES - 189,193 ------------- NET INVESTMENT INCOME 650,804 ------------- INCREASE IN NET ASSETS FROM OPERATIONS $ 650,804
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. 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. c For the fund's independent trustees only. d Amount represents a retroactive reduction in SEC registration fees that was refunded in the current year. e Includes $39,489 from the investment adviser (CSIM) and $355 from the transfer agent and shareholder service agent (Schwab). These reductions reflect a guarantee by CSIM and Schwab to limit the operating expenses of Investor shares and Institutional shares through at least April 30, 2003 and 2004, respectively, as follows:
% OF AVERAGE SHARE CLASS DAILY NET ASSETS ----------------------------------------------------- Investor Shares 0.45 Institutional Shares 0.24
This limit doesn't include interest, taxes and certain non-routine expenses. See financial notes. 52 Statements of CHANGES IN NET ASSETS For the current and prior report periods. All numbers x 1,000.
OPERATIONS ----------------------------------------------------------------------------------- 1/1/02-12/31/02 1/1/01-12/31/01 Net investment income $ 650,804 $ 1,741,560 Net realized gains + -- 21 ------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 650,804 1,741,581 DISTRIBUTIONS PAID ----------------------------------------------------------------------------------- Dividends from net investment income Investor Shares 648,150 1,741,560 Institutional Shares + 2,654 -- ------------------------------------- TOTAL DIVIDENDS FROM NET INVESTMENT INCOME 650,804 1,741,560 a TRANSACTIONS IN FUND SHARES b ----------------------------------------------------------------------------------- SHARES SOLD Investor Shares 34,345,512 52,214,557 Institutional Shares + 1,058,467 -- ------------------------------------- TOTAL SHARES SOLD 35,403,979 52,214,557 SHARES REINVESTED Investor Shares 608,484 1,633,497 Institutional Shares + 1,551 -- ------------------------------------- TOTAL SHARES REINVESTED 610,035 1,633,497 SHARES REDEEMED Investor Shares (40,473,102) (45,920,355) Institutional Shares + (538,626) -- ------------------------------------- TOTAL SHARES REDEEMED (41,011,728) (45,920,355) NET INCREASE OR DECREASE (4,997,714) 7,927,699 c NET ASSETS ----------------------------------------------------------------------------------- Beginning of period 44,247,060 36,319,340 Total increase or decrease + (4,997,714) 7,927,720 d ------------------------------------- END OF PERIOD $ 39,249,346 $ 44,247,060
a The tax-basis components of distributions paid for the current period are: Ordinary income $650,804 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. The fund started offering Institutional Shares on July 1, 2002. 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. 53 FINANCIAL NOTES BUSINESS STRUCTURE OF THE FUNDS EACH OF THE FUNDS DISCUSSED IN THIS REPORT IS A SERIES OF THE CHARLES SCHWAB FAMILY OF FUNDS(TM), A NO-LOAD, OPENEND 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(R)OFFERS TWO SHARE CLASSES: Investor Shares and Institutional Shares. Shares of each class represent interests in the same portfolio, but each class has different expenses and investment minimums. The Schwab Money Market, 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 fund-by-fund sections earlier in this report. However, there are certain other investments and policies that may affect a fund's financials. The most significant of these are 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 FOR VARIOUS SERVICES. Through their trust, the funds have agreements with Charles Schwab 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(R) 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 Institutional Advantage Money Fund(R) Schwab Retirement Money Fund(R) Schwab Government Cash Reserves Schwab Money Funds 54 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. 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 ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. The funds may make direct transactions with certain other SchwabFunds(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. THE FUNDS INTEND TO MEET FEDERAL INCOME AND EXCISE TAX REQUIREMENTS FOR REGULATED INVESTMENT COMPANIES. Accordingly, the funds distribute substantially all of their net investment income and realized net capital gains (if any) to their respective shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax. 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 bought 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 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 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 keeps certain assets in segregated accounts, as may be 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. 55 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF: Schwab Money Market Fund Schwab Government Money Fund Schwab U.S. Treasury Money Fund Schwab Value Advantage Money Fund(R) In our opinion, the accompanying statements of assets and liabilities, including the Portfolio holdings, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Schwab Money Market Fund, Schwab Government Money Fund, Schwab U.S. Treasury Money Fund and Schwab Value Advantage Money Fund (four of the portfolios constituting The Charles Schwab Family of Funds, hereafter referred to as the "Funds") at December 31, 2002, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and the financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2002 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP San Francisco, CA February 7, 2003 Schwab Money Funds 56 FUND TRUSTEES unaudited 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 SchwabFunds(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 SchwabFunds (of which there were 45 as of 12/31/02) 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. INDIVIDUALS WHO ARE INTERESTED TRUSTEES AND OFFICERS OF THE TRUST
TRUST POSITION(S); NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ---------------------------------------------------------------------------------------------------------------------------------- CHARLES R. SCHWAB 2 Chair, Trustee: Chair, Co-CEO, Director, The Charles Schwab Corp.; CEO, Director, 7/29/37 Family of Funds, 1989; Schwab Holdings, Inc.; Chair, Director, Charles Schwab & Co., Inc., Investments, 1991; Charles Schwab Investment Management, Inc.; Chair, Charles Schwab Capital Trust, 1993; Holdings (UK); Chair, CEO, Schwab (SIS) Holdings, Inc. I, Schwab Annuity Portfolios, 1994. International Holdings, Inc.; Director, U.S. Trust Corp., United States Trust Co. of New York, The Gap, Inc. (clothing retailer), Audiobase, Inc. (Internet audio solutions), Vodaphone AirTouch PLC (telecom), Siebel Systems (software), Xign, Inc. (electronic payment systems). Until 7/01: Director, The Charles Schwab Trust Co. Until 1/99: Director, Schwab Retirement Plan Services, Inc., Mayer & Schweitzer, Inc. (securities brokerage subsidiary of The Charles Schwab Corp.), Performance Technologies, Inc. (technology), TrustMark, Inc.
1 The SchwabFunds 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 their positions with the investment adviser and the distributor, Messrs. Schwab, Coghlan and Lyons, and some of Mr. Lyons's immediate family members, also own stock of the Charles Schwab Corporation. 57 INDIVIDUALS WHO ARE INTERESTED TRUSTEES BUT NOT OFFICERS OF THE TRUST
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ---------------------------------------------------------------------------------------------------------------------------------- JOHN PHILIP COGHLAN 1 Trustee: 2000 Vice Chair, EVP, The Charles Schwab Corp.; Vice Chair, President- 5/6/51 (all trusts). Retail, Charles Schwab & Co., Inc.; President, CEO, Director, The Charles Schwab Trust Co.; Chair, Director, Schwab Retirement Plan Services, Inc., Schwab Retirement Technologies, Inc. (formerly TrustMark, Inc.); Director, Charles Schwab Investment Management, Inc., Performance Technologies, Inc. (technology). Until 7/02: Vice Chair, Enterprise President, Retirement Plan Services, Services for Investment Managers, Charles Schwab & Co., Inc. Until 3/02: Director, Charles Schwab Asset Management (Ireland) Ltd., Charles Schwab Worldwide Funds PLC. ---------------------------------------------------------------------------------------------------------------------------------- JEFFREY M. LYONS 1 Trustee: 2002 EVP, Asset Management Products and Services, Charles Schwab & 2/22/55 (all trusts). Co., Inc. Until 9/01: EVP, Mutual Funds, Charles Schwab & Co., Inc.
INDIVIDUALS WHO ARE OFFICERS OF THE TRUST BUT NOT TRUSTEES
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ---------------------------------------------------------------------------------------------------------------------------------- RANDALL W. MERK President, CEO President, CEO, Charles Schwab Investment Management, Inc; 7/25/54 (all trusts). EVP, Charles Schwab & Co., Inc. Until 9/02: President and CIO, American Century Investment Management; Director, American Century Cos., Inc. Until 6/01: CIO, Fixed Income, American Century Cos., Inc. Until 1997: SVP, Director, Fixed Income and Quantitative Equity Portfolio Management, Twentieth Century Investors, Inc. ---------------------------------------------------------------------------------------------------------------------------------- TAI-CHIN TUNG Treasurer, Principal SVP, CFO, Charles Schwab Investment Management, Inc.; VP, 3/7/51 Financial Officer The Charles Schwab Trust Co.; Director, Charles Schwab Asset (all trusts). Management (Ireland) Ltd., Charles Schwab Worldwide Funds PLC. ---------------------------------------------------------------------------------------------------------------------------------- STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment 4/5/55 Officer Management, Inc.; Chief Investment Officer, The Charles Schwab (all trusts). Trust Co. ---------------------------------------------------------------------------------------------------------------------------------- KOJI E. FELTON Secretary SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab 3/13/61 (all trusts). Investment Management, Inc. Until 6/98: Branch Chief in Enforcement, U.S. Securities and Exchange Commission, San Francisco.
1 In addition to their positions with the investment adviser and the distributor, Messrs. Schwab, Coghlan and Lyons, and some of Mr. Lyons's immediate family members, also own stock of the Charles Schwab Corporation. Schwab Money Funds 58 INDIVIDUALS WHO ARE INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS ---------------------------------------------------------------------------------------------------------------------------------- MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC; Director, Stanford University, America 8/13/60 First Cos., (venture capital/fund management), Redwood Trust, Inc. (mortgage finance), Stanford Hospitals and Clinics, SRI International (research), LookSmart, Ltd. (Internet infrastructure), PMI Group, Inc. (mortgage insurance), Lucile Packard Children's Hospital. 2001: Special Advisor to the President, Stanford University. Until 2001: VP, Business Affairs, CFO, Stanford University. ---------------------------------------------------------------------------------------------------------------------------------- DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (management, marketing and 9/23/31 Investments, 1991; communications consulting). Until 1999: EVP, Managing Director, Capital Trust, 1993; Grey Advertising. Annuity Portfolios, 1994. ---------------------------------------------------------------------------------------------------------------------------------- WILLIAM A. HASLER 2000 (all trusts). Co-CEO, Aphton Corp. (bio-pharmaceuticals). Director, Solectron Corp. 11/22/41 (manufacturing), Tenera, Inc. (services and software), Airlease Ltd. (aircraft leasing), Mission West Properties (commercial real estate), Digital Microwave Corp. (network equipment). Until 1998: Dean, Haas School of Business, University of California, Berkeley. ---------------------------------------------------------------------------------------------------------------------------------- ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial 5/15/31 Investments, 1991; services and investment advice). Capital Trust, 1993; Annuity Portfolios, 1994. ---------------------------------------------------------------------------------------------------------------------------------- GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisors); 9/28/50 Director, Pennzoil-Quaker State Co. (oil and gas), Rorento N.V. (investments--Netherlands), Cooper Industries (electrical products); Member, 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 investments). Capital Trust, 1993; Annuity Portfolios, 1994. ---------------------------------------------------------------------------------------------------------------------------------- MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (transportation, real estate and 8/18/43 Investments, 1991; investments). Capital Trust, 1993; Annuity Portfolios, 1994.
59 GLOSSARY Words and phrases that appear in financial reports often have specific meanings that are different from their everyday meanings. The glossary below tells you what is meant by the following terms when they are used in this report. 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 ALLOCATION The practice of dividing a portfolio among different asset classes, with each asset class assigned a particular percentage. ASSET-BACKED SECURITIES Securities that are backed by the loans or accounts receivable of an entity, such as a bank or credit card company. These securities are obligations that the issuer intends to repay using the assets backing them (once collected). Therefore, repayment depends largely on the cash flows generated by the assets backing the securities. ASSET CLASS A group of securities with similar structure and basic characteristics. Stocks, bonds and cash are the three main examples of asset classes. 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." 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 and other institutions to finance short-term credit needs. These securities generally are structured as discount notes but sometimes may be interest-bearing notes. Commercial paper, which may be unsecured, is subject to credit risk. 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 Moody's Investor Service, Standard & Poor's and Fitch, Inc., 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 TOB Tender option bond TOBP Tender option bond partnership TRAN Tax and revenue anticipation note VRD Variable-rate demand Schwab Money Funds 60 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. INTEREST Payments to holders of debt securities as compensation for loaning a security's principal to the issuer. MATURITY Generally, 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. 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. REVENUE ANTICIPATION NOTES Obligations that are issued in expectation of the receipt of other types of revenue, such as that available under the Federal Revenue Sharing Program. 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 working capital needs of municipalities in anticipation of the receipt of property taxes on a future date. TIER ONE, TIER TWO Tier one is the highest category of credit quality, tier two 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 one securities. WEIGHTED AVERAGE For mutual funds, an average that gives the same weight to each security as the security represents in the fund's portfolio. 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 an annual rate and calculated as a percentage of the investment's market value. 61 NOTES NOTES NOTES CONTACT SCHWAB SchwabFunds(R) offers you a complete family of mutual funds, each one based on a time-tested investment approach and using disciplined, clearly defined management strategies. Actively managed funds include multi-manager stock funds, a long-short stock fund with hedging capabilities, and a range of taxable and tax-free bond funds. Index funds include large-cap, small-cap and international stock funds. The list at right shows all currently available SchwabFunds. Whether you're an experienced investor or just starting out, SchwabFunds can help you achieve your financial goals. Please call 1-800-435-4000 for a free prospectus and brochure for any SchwabFund. 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) Automated touch-tone phone service at 1-800-272-4922. MAIL Write to SchwabFunds 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. 1 Shares of Sweep Investments(TM)may not be purchased over the Internet. 2 Orders placed in person or through a telephone representative are subject to a service fee payable to Schwab. THE SCHWABFUNDS FAMILY STOCK FUNDS Schwab S&P 500 Fund Schwab 1000 Fund(R) Schwab Small-Cap Index Fund(R) Schwab Total Stock Market Index Fund(R) Schwab International Index Fund(R) Schwab Core Equity Fund(TM) Schwab Hedged Equity Fund(TM) Schwab Focus Funds Communications Focus Fund Financial Services Focus Fund Health Care Focus Fund Technology Focus Fund Schwab MarketMasters Funds(TM)formerly MarketManager Portfolios U.S. MarketMasters Fund(TM) Small-Cap MarketMasters Fund(TM) International MarketMasters Fund(TM) Balanced MarketMasters Fund(TM) ASSET ALLOCATION FUNDS Schwab MarketTrack Portfolios(R) All Equity Portfolio Growth Portfolio Balanced Portfolio Conservative Portfolio BOND FUNDS Schwab Short-Term Bond Market Fund Schwab Total Bond Market Fund Schwab YieldPlus Fund(R) Schwab Short/Intermediate Tax-Free Bond Fund Schwab Long-Term Tax-Free Bond Fund Schwab California Short/Intermediate Tax-Free Bond Fund Schwab California Long-Term Tax-Free Bond Fund SCHWAB MONEY FUNDS Schwab offers an array of money market funds that seek high current income consistent with safety and liquidity. 3 Choose from taxable or tax-advantaged alternatives. Many can be linked to your Schwab account to "sweep" cash balances automatically when you're between investments. Or, for your larger cash reserves, choose one of our Value Advantage Investments(R). 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 SchwabFunds(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)2002 Charles Schwab & Co., Inc. All rights reserved. Member SIPC/NYSE. Printed on recycled paper. REG13857-05