-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D2sCUb4lw0xKL0SSRdoY2fcJ65kTegx+DB5tgaGqwUgwY32FsZOtnjlgcDNPKCGx EO2s5QHQow8S18ON1WrAzw== 0000950149-97-000499.txt : 19970307 0000950149-97-000499.hdr.sgml : 19970307 ACCESSION NUMBER: 0000950149-97-000499 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970306 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHWAB CHARLES FAMILY OF FUNDS CENTRAL INDEX KEY: 0000857156 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05954 FILM NUMBER: 97551979 BUSINESS ADDRESS: STREET 1: 101 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4156277000 MAIL ADDRESS: STREET 1: 101 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 N-30D 1 SCHWAB 3 IN 1 MONEY FUND 1 SchwabFunds(R) Schwab Money Market Fund Schwab Government Money Fund Schwab U.S. Treasury Money Fund [Graphic - The Schwab Building, San Francisco, California] Annual Report December 31, 1996 2 Dear Shareholder, It's been an exciting year at SchwabFunds(R). With the support of [Photo of investors like you, the SchwabFunds Family(R) continues to rank Charles R. among the largest and fastest-growing mutual fund complexes in Schwab] the nation. In total, Charles Schwab Investment Management, Inc. (CSIM) manages over $40 billion in assets for approximately 2.5 million shareholders. Today CSIM offers investors 30 funds spanning a spectrum of financial markets and investing styles. You'll find in-depth information on the performance of your SchwabFunds investment in the following pages. SMART NEW WAYS TO DIVERSIFY YOUR PORTFOLIO Now more than ever, investors tell us they're looking for new ways to diversify their portfolios in order to manage risk and enhance return potential. But with literally thousands of mutual funds to choose from, analyzing and selecting funds can be an overwhelming task. That's why we've introduced the new Schwab OneSource Portfolios -- three "funds of funds" that span both U.S. and international markets. Each OneSource Portfolio is actively managed by an experienced portfolio manager who invests primarily in a variety of mutual funds from well-known fund families, monitors their performance and adjusts the portfolio mix in response to certain changes in the markets. So you can get diversification among different funds and investing styles. OPENING NEW CHANNELS OF COMMUNICATION If you're among the millions of people exploring the Internet, I encourage you to visit our Web site at www.schwab.com. There you'll find a wealth of online information about SchwabFunds as well as a wide range of investments and resources available from Schwab. You can access the latest mutual fund performance data, request a free fund prospectus, trade funds and more -- all from the comfort of your home or office, 24 hours a day. It's just one more way we're harnessing the latest technology to make investing easier and more convenient. Thank you for placing your trust in SchwabFunds. In the year ahead, we'll continue working to provide you with an expanding range of investment opportunities to meet your needs. /s/ Charles R. Schwab ------------------------------ Charles R. Schwab Cover: The Schwab Building, San Francisco, California 3 KEEP YOUR MONEY WORKING HARDER! ---------------------------------- USE THIS ENVELOPE TO EASILY ADD TO YOUR SCHWAB MONEY FUND. CHARLES SCHWAB 4 TAKE ADVANTAGE OF THIS OPPORTUNITY TO ADD TO YOUR SCHWAB MONEY FUND INVESTMENT. Your Schwab Money Fund earns money market returns and gives you direct access to many investment opportunities available through Schwab. By funding your account now, you'll be able to quickly respond to changing market conditions with just a phone call to your Schwab representative. And you keep every dollar working for you. SO DON'T DELAY. USE THIS CONVENIENT SCHWAB MONEYFUNDER TO SEND YOUR CHECK TODAY! - -------------------------------------------------------------------------------- PLEASE DETACH HERE. SCHWAB MONEYFUNDER - ------------------ Please enclose your check and this completed MoneyFunder slip in the attached postage-paid envelope. ------------------------- - -------------------------------------- SCHWAB ACCOUNT NUMBER NAME $ - -------------------------------------- AMOUNT OF INVESTMENT* [ ] Check here if you would like more Schwab MoneyFunders for future use. * MINIMUM INITIAL INVESTMENT $1,000; SUBSEQUENT MINIMUM $100, CUSTODIAN & IRA ACCOUNTS $1. An investment constitutes the purchase of shares in the money fund you have previously chosen as the primary fund for your brokerage account. ---------------------------------------- (LIFT HERE FOR MORE INFORMATION) ---------------------------------------- SMF Member SIPC (C) 1996 Charles Schwab & Co., Inc. 1280-3 (7/96) Printed on recycled paper. 5 CHARLESSCHWAB JUST FOLLOW THESE EASY STEPS TO INVEST IN YOUR SCHWAB MONEY FUND: 1. Fill out the Schwab MoneyFunder slip completely, THIS ENVELOPE MUST including your name, account number and the amount BE PRECEDED OR of your check. Please use one slip for each ACCOMPANIED BY A account. CURRENT SCHWAB MONEY FUND PROSPECTUS. AN 2. Make your check payable to CHARLES SCHWAB & CO., INVESTMENT IN A FUND IS INC. and enclose your check with the completed NEITHER INSURED NOR slip in this postage-paid envelope. GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN 3. Then just drop your Schwab MoneyFunder in the BE NO ASSURANCE THAT A mail today--and start putting your money to work! FUND WILL BE ABLE TO If you have any questions, don't hesitate to call MAINTAIN A STABLE NET 1-800-2 NO LOAD. ASSET VALUE OF $1.00 PER SHARE. 6 Attn: Dept. FP 333-7 -------------- NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES -------------- ------------------------------------- BUSINESS REPLY MAIL FIRST-CLASS MAIL PERMIT NO. 18125 [BAR CODE] SAN FRANCISCO, CA ------------------------------------- POSTAGE WILL BE PAID BY ADDRESSEE CHARLES SCHWAB & CO., INC. PO BOX 7783 SAN FRANCISCO CA 94120-9330 7 TABLE OF CONTENTS OVERVIEW ................................................................ 1 SCHWAB MONEY MARKET FUND SUMMARY ........................................ 2 SCHWAB GOVERNMENT MONEY FUND SUMMARY .................................... 4 SCHWAB U.S. TREASURY MONEY FUND SUMMARY ................................. 6 ECONOMIC HIGHLIGHTS ..................................................... 9 QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM .............................. 13 GLOSSARY OF TERMS ....................................................... 16 PORTFOLIO SUMMARY ....................................................... 17 FINANCIAL STATEMENTS AND NOTES .......................................... 20
OVERVIEW We're pleased to report on the performance of your investment in the Schwab Money Funds for the year ended December 31, 1996. This report covers three Funds: - - Schwab Money Market Fund - - Schwab Government Money Fund - - Schwab U.S. Treasury Money Fund During the year, all three Schwab Money Funds provided competitive money market returns, combined with capital stability and ready access to your money. The Schwab Money Funds seek to maintain a stable $1 share price to protect your principal. As with all money funds, however, there can be no assurance that a Fund will be able to maintain a $1 net asset value per share. It's also important to understand that your investment is not insured or guaranteed by the U.S. government. 1 8 SCHWAB MONEY MARKET FUND SUMMARY PERFORMANCE REVIEW The table below presents the Fund's 7-day average yields at year end. Of course, money market fund yields fluctuate and past performance is no guarantee of future results.
================================================================================ 7-DAY AVERAGE YIELDS 1 (as of 12/31/96) Simple Compound - -------------------------------------------------------------------------------- Schwab Money Market Fund 4.80% 4.91% - --------------------------------------------------------------------------------
Portfolio Composition The chart at the right illustrates the composition of the Fund's portfolio as of December 31, 1996. In addition, you'll find a complete listing of the securities in the Fund's portfolio on December 31, 1996 later in this report. The Schwab Money Market Fund invests in bank certificates of deposit, time deposits, bankers' acceptances, highly-rated commercial paper and notes and other highly-rated corporate obligations, as well as U.S. Treasury securities and other obligations or securities guaranteed by the U.S. or Canadian governments, their agencies, and instrumentalities, and repurchase agreements involving obligations suitable for investment in these categories. 1 A portion of the Fund's fees were waived or reimbursed during the reporting period. Without the waivers or reimbursements, the 7-day simple yield would have been 4.63% and the 7-day compound yield would have been 4.74% at December 31, 1996. 2 9 SCHWAB MONEY MARKET FUND PORTFOLIO COMPOSITION -- DECEMBER 31, 1996 The following is a pie chart illustrating the portfolio composition of the Schwab Money Market Fund as of December 31, 1996. [Pie Chart] Certificates of Deposit 35% Commercial Paper & Other Corporate Obligations 56% Variable Rate Obligations 6% Other 3%
GROWTH IN FUND ASSETS AND SHAREHOLDERS The table below illustrates the growth in the Schwab Money Market Fund's total net assets and number of shareholders during the 12-month reporting period.
12/31/96 12/31/95 CHANGE - -------------------------------------------------------------------------------- TOTAL NET ASSETS (000s) $18,083,671 $14,010,387 +29% - -------------------------------------------------------------------------------- SHAREHOLDER ACCOUNTS 1,752,705 1,395,695 +26% ================================================================================
3 10 SCHWAB GOVERNMENT MONEY FUND SUMMARY PERFORMANCE REVIEW The table below presents the Fund's 7-day average yields at the end of the reporting period. Of course, money market fund yields fluctuate and past performance is no guarantee of future results.
================================================================================ 7-DAY AVERAGE YIELDS(2) (as of 12/31/96) Simple Compound - -------------------------------------------------------------------------------- Schwab Government Money Fund 4.74% 4.85% - --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION The chart at the right illustrates the composition of the Fund's portfolio as of December 31, 1996. In addition, you'll find a complete listing of the securities in the Fund's portfolio on December 31, 1996 later in this report. The Schwab Government Money Fund invests exclusively in U.S. Treasury bills, notes, bonds and other obligations issued or guaranteed by the U.S. government, its agencies and instrumentalities, as well as in repurchase agreements covering such obligations. 2 A portion of the Fund's fees were waived or reimbursed during the reporting period. Without the waivers or reimbursements, the 7-day simple yield would have been 4.58% and the 7-day compound yield would have been 4.68% at December 31, 1996. 4 11 SCHWAB GOVERNMENT MONEY FUND PORTFOLIO COMPOSITION -- DECEMBER 31, 1996 The following is a pie chart illustrating the portfolio composition of the Schwab Government Money Fund as of December 31, 1996. [Pie Chart] Repurchase Agreements 33% U.S. Treasury Notes 7% Variable Rate Obligations 19% Agency Discount Notes 30% Agency Coupon Notes 11%
CHANGES IN FUND ASSETS AND SHAREHOLDERS The table below illustrates the changes in the Schwab Government Money Fund's total net assets and number of shareholders during the 12-month reporting period.
12/31/96 12/31/95 CHANGE - -------------------------------------------------------------------------------- TOTAL NET ASSETS (000s) $1,986,862 $1,884,569 +5% - -------------------------------------------------------------------------------- SHAREHOLDER ACCOUNTS 128,312 130,422 -2% - --------------------------------------------------------------------------------
5 12 SCHWAB U.S. TREASURY MONEY FUND SUMMARY PERFORMANCE REVIEW The table below presents the Fund's 7-day average yields at the end of the reporting period. Of course, money market fund yields fluctuate and past performance is no guarantee of future results.
================================================================================ 7-DAY AVERAGE YIELDS 3 (as of 12/31/96) Simple Compound - -------------------------------------------------------------------------------- Schwab U.S. Treasury Money Fund 4.69% 4.80% - --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION The chart at the right illustrates the composition of the Fund's portfolio as of December 31, 1996. In addition, you'll find a complete listing of the securities in the Fund's portfolio on December 31, 1996 later in this report. The Schwab U.S. Treasury Money Fund invests exclusively in U.S. Treasury bills and notes. 3 A portion of the Fund's fees were waived or reimbursed during the reporting period. Without the waivers or reimbursements, the 7-day simple yield would have been 4.32% and the 7-day compound yield would have been 4.41% at December 31, 1996. 6 13 SCHWAB U.S. TREASURY MONEY FUND PORTFOLIO COMPOSITION -- DECEMBER 31, 1996 The following is a pie chart illustrating the portfolio composition of the Schwab U.S. Treasury Fund as of December 31, 1996. [Pie Chart] U.S. Treasury Bills 2% U.S. Treasury Notes 98%
GROWTH IN FUND ASSETS AND SHAREHOLDERS The table below illustrates the growth in the Schwab U.S. Treasury Money Fund's total net assets and number of shareholders during the 12-month reporting period.
12/31/96 12/31/95 CHANGE - -------------------------------------------------------------------------------- TOTAL NET ASSETS (000s) $1,421,672 $1,193,689 +19% - -------------------------------------------------------------------------------- SHAREHOLDER ACCOUNTS 58,511 51,384 +14% - --------------------------------------------------------------------------------
7 14 SELECTING A MONEY FUND The Schwab sweep money funds can be linked to your Schwab account to keep all of your money invested and working for you. With this special "sweep" feature, a balance of $100 or more in your account can be automatically invested or "swept" on a regular basis into the Sweep Shares you select, where it will be available to settle trades and cover other day-to-day transactions. It can be a smart, convenient way to manage your short-term cash. The most appropriate sweep money fund for you will depend upon such factors as your attitudes toward risk and return, your income tax bracket and how much money you normally keep in a money fund. We offer both taxable and tax-advantaged choices to meet your individual needs. - - The Schwab Money Market Fund invests in high-quality commercial paper, certificates of deposit and other types of investments. - - The Schwab Government Money Fund invests exclusively in obligations issued or guaranteed by the U.S. government, its agencies and instrumentalities. - - The Schwab U.S. Treasury Money Fund invests exclusively in U.S. Treasury notes, bills or other direct obligations of the U.S. government, and pays income free from state and local taxes in the vast majority of states. - - If you're in a high tax bracket, one of our tax-advantaged municipal money funds may provide you with higher returns after taxes. The Schwab Municipal Money Fund-Sweep Shares invests in municipal obligations that generate income free from federal regular income tax.* And for investors in California and New York, Schwab offers Sweep Shares which provide additional state and local tax advantages.* Consult your tax advisor for specific guidance on your own tax situation before investing. If you consistently maintain high money fund balances, you may wish to consider investing your longer-term cash reserves in one of our Value Advantage Investments(R). These money funds offer potentially higher yields than our sweep funds, but they do not include sweep features. * Income may be subject to the federal Alternative Minimum Tax (AMT). 8 15 ECONOMIC HIGHLIGHTS 1996 GROWTH CONTINUES THE SIXTH YEAR OF ECONOMIC EXPANSION REAL GDP GROWTH RATE (QUARTERLY % CHANGE, ANNUAL RATE) [GRAPH] The following is a bar graph which illustrates the Quarterly % change in GDP for each quarter from the first quarter 1990 through the fourth quarter 1996. Real Gross Domestic Product Chain Weighted Percent change from preceeding quarter, seasonally adjusted at annual rates Source: Bloomberg
CHART 9 Real GDP Q1 1990 4.1% Q2 1990 1.3% Q3 1990 -1.9% Q4 1990 -4.1% Q1 1991 -2.2% Q2 1991 1.7% Q3 1991 1.0% Q4 1991 1.0% Q1 1992 4.7% Q2 1992 2.5% Q3 1992 3.0% Q4 1992 4.3% Q1 1993 -0.1% Q2 1993 1.9% Q3 1993 2.3% Q4 1993 4.8% Q1 1994 2.5% Q2 1994 4.9% Q3 1994 3.5% Q4 1994 3.0% Q1 1995 0.4% Q2 1995 0.7% Q3 1995 3.8% Q4 1995 0.3% Q1 1996 2.0% Q2 1996 4.7% Q3 1996 2.1% Q4 1996 4.7%
Source Bloomberg L.P. - - The GDP growth rate for 1996 was 3.4%. This growth rate represents a significant improvement from the relatively weak 1.3% overall rate in 1995 and in particular, the 0.3% fourth quarter 1995 rate, which caused concern over the possibility of a recession early in 1996. - - The 1996 second and fourth quarter growth rates of 4.7% resulted in sentiment focusing on the apparent strength of the economy and its potential impact on future inflation and Federal Reserve Board policy. - - At the time of this writing, the economy appears to be on track for moderate growth, continuing the six year expansion which began in 1991. 9 16 U.S. UNEMPLOYMENT RATE The following is a line graph which illustrates the monthly unemployment rate from January 1990 through December 1996. [GRAPH] US Unemployment Rate Source: Bloomberg
Unemployment Rate Jan-90 5.3% Feb-90 5.3% Mar-90 5.2% Apr-90 5.4% May-90 5.3% Jun-90 5.1% Jul-90 5.4% Aug-90 5.6% Sep-90 5.7% Oct-90 5.8% Nov-90 6.0% Dec-90 6.2% Jan-91 6.3% Feb-91 6.5% Mar-91 6.8% Apr-91 6.6% May-91 6.8% Jun-91 6.8% Jul-91 6.7% Aug-91 6.8% Sep-91 6.8% Oct-91 6.9% Nov-91 6.9% Dec-91 7.1% Jan-92 7.1% Feb-92 7.3% Mar-92 7.3% Apr-92 7.3% May-92 7.4% Jun-92 7.7% Jul-92 7.6% Aug-92 7.6% Sep-92 7.5% Oct-92 7.4% Nov-92 7.3% Dec-92 7.3% Jan-93 7.1% Feb-93 7.0% Mar-93 7.0% Apr-93 7.0% May-93 6.9% Jun-93 6.9% Jul-93 6.8% Aug-93 6.7% Sep-93 6.7% Oct-93 6.7% Nov-93 6.5% Dec-93 6.4% Jan-94 6.7% Feb-94 6.6% Mar-94 6.5% Apr-94 6.4% May-94 6.0% Jun-94 6.0% Jul-94 6.1% Aug-94 6.1% Sep-94 5.9% Oct-94 5.6% Nov-94 5.6% Dec-94 5.4% Jan-95 5.6% Feb-95 5.4% Mar-95 5.8% Apr-95 5.7% May-95 5.7% Jun-95 5.6% Jul-95 5.7% Aug-95 5.3% Sep-95 5.6% Oct-95 5.5% Nov-95 5.6% Dec-95 5.6% Jan-96 5.8% Feb-96 5.5% Mar-96 5.6% Apr-96 5.4% May-96 5.6% Jun-96 5.3% Jul-96 5.4% Aug-96 5.1% Sep-96 5.2% Oct-96 5.2% Nov-96 5.3% Dec-96 5.3%
Source Bloomberg L.P. - - The unemployment rate during 1996 remained near its lows for the decade, leading many economists to question whether such low levels can continue without generating inflationary pressures on wages and, ultimately, prices. - - Job creation slowed during the latter half of 1996, consistent with the slowing of the economy in the third quarter from the second quarter of 1996. 10 17 MEASURES OF INFLATION The following is a bar and line graph which illustrates the monthly consumer price index and the quarterly employment cost index from January 1990 through December 1996. [GRAPH] Consumer Price Index - All Items YOY Employment Cost Index (includes both wages and salaries and benefits components) - - Quarterly Data Annualized Source: Bloomberg CHART 14
Monthly Quarterly Consumer Employment Price Cost Index - Index - YOY % YOY % Change Change Jan-90 5.2% 5.3% Feb-90 5.3% 5.3% Mar-90 5.2% 5.3% Apr-90 4.7% 5.4% May-90 4.4% 5.4% Jun-90 4.7% 5.4% Jul-90 4.8% 5.1% Aug-90 5.6% 5.1% Sep-90 6.2% 5.1% Oct-90 6.3% 4.8% Nov-90 6.3% 4.8% Dec-90 6.1% 4.8% Jan-91 5.7% 4.6% Feb-91 5.3% 4.6% Mar-91 4.9% 4.6% Apr-91 4.9% 4.5% May-91 5.0% 4.5% Jun-91 4.7% 4.5% Jul-91 4.4% 4.3% Aug-91 3.8% 4.3% Sep-91 3.4% 4.3% Oct-91 2.9% 4.2% Nov-91 3.0% 4.2% Dec-91 3.1% 4.2% Jan-92 2.6% 4.1% Feb-92 2.8% 4.1% Mar-92 3.2% 4.1% Apr-92 3.2% 3.5% May-92 3.0% 3.5% Jun-92 3.1% 3.5% Jul-92 3.2% 3.4% Aug-92 3.1% 3.4% Sep-92 3.0% 3.4% Oct-92 3.2% 3.5% Nov-92 3.0% 3.5% Dec-92 2.9% 3.5% Jan-93 3.3% 3.4% Feb-93 3.2% 3.4% Mar-93 3.1% 3.4% Apr-93 3.2% 3.6% May-93 3.2% 3.6% Jun-93 3.0% 3.6% Jul-93 2.8% 3.6% Aug-93 2.8% 3.6% Sep-93 2.7% 3.6% Oct-93 2.8% 3.4% Nov-93 2.7% 3.4% Dec-93 2.7% 3.4% Jan-94 2.5% 3.2% Feb-94 2.5% 3.2% Mar-94 2.5% 3.2% Apr-94 2.4% 3.1% May-94 2.3% 3.1% Jun-94 2.5% 3.1% Jul-94 2.8% 3.1% Aug-94 2.9% 3.1% Sep-94 3.0% 3.1% Oct-94 2.6% 3.0% Nov-94 2.7% 3.0% Dec-94 2.7% 3.0% Jan-95 2.8% 3.0% Feb-95 2.9% 3.0% Mar-95 2.9% 3.0% Apr-95 3.1% 3.0% May-95 3.2% 3.0% Jun-95 3.0% 3.0% Jul-95 2.8% 2.8% Aug-95 2.6% 2.8% Sep-95 2.5% 2.8% Oct-95 2.8% 2.8% Nov-95 2.6% 2.8% Dec-95 2.5% 2.8% Jan-96 2.7% 2.9% Feb-96 2.7% 2.9% Mar-96 2.8% 2.9% Apr-96 2.9% 2.9% May-96 2.9% 2.9% Jun-96 2.8% 2.9% Jul-96 3.0% 2.9% Aug-96 2.9% 2.9% Sep-96 3.0% 2.9% Oct-96 3.0% 3.0% Nov-96 3.3% 3.0% Dec-96 3.3% 3.0%
- -- Quarterly Employment Cost Index --- Monthly Consumer Price Index Source Bloomberg L.P. - - Although trending slightly upward, both employment cost and CPI remained in check during 1996, reflecting continued low levels of inflation. - - CPI rose 3.3% in 1996, the highest annual rate since 1990. However, the core rate (which excludes the more volatile food and energy components) rose 2.6%, the lowest rate since 1965. - - The Fed has indicated it will maintain a posture of "heightened surveillance" and remain diligent in its effort to prevent increases in inflation. 11 18 SHORT-TERM INTEREST RATES IN 1996 YIELDS 90-DAY COMMERCIAL PAPER AND 3-MONTH TREASURY BILLS JANUARY 2, 1996 - DECEMBER 31, 1996 The following is a line graph which illustrates the 90 day commercial paper and 3 month treasury bill rates for each day in 1996. [GRAPH] Interest Rate Graph Data
CHART 11 90 Day T-Bill 90 Day Commercial Paper 1/2/96 5.12% 5.50% 1/3/96 5.21% 5.51% 1/4/96 5.19% 5.49% 1/5/96 5.18% 5.46% 1/8/96 5.17% 5.48% 1/9/96 5.15% 5.47% 1/10/96 5.17% 5.45% 1/11/96 5.17% 5.44% 1/12/96 5.17% 5.43% 1/15/96 5.17% 5.43% Martin Luther King Day 1/16/96 5.14% 5.42% 1/17/96 5.13% 5.41% 1/18/96 5.11% 5.39% 1/19/96 5.11% 5.38% 1/22/96 5.13% 5.37% 1/23/96 5.12% 5.36% 1/24/96 5.11% 5.35% 1/25/96 5.13% 5.34% 1/26/96 5.10% 5.34% 1/29/96 5.15% 5.32% 1/30/96 5.12% 5.31% 1/31/96 5.05% 5.27% 2/1/96 5.00% 5.21% 2/2/96 4.98% 5.17% 2/5/96 5.00% 5.17% 2/6/96 4.99% 5.16% 2/7/96 4.93% 5.16% 2/8/96 4.91% 5.15% 2/9/96 4.93% 5.14% 2/12/96 4.93% 5.13% 2/13/96 4.92% 5.13% 2/14/96 4.93% 5.12% 2/15/96 4.90% 5.12% 2/16/96 4.89% 5.12% 2/20/96 4.96% 5.14% 2/21/96 4.96% 5.16% 2/22/96 4.94% 5.14% 2/23/96 4.95% 5.13% 2/26/96 4.98% 5.14% 2/27/96 5.02% 5.16% 2/28/96 5.01% 5.16% 2/29/96 5.03% 5.19% 3/1/96 5.00% 5.19% 3/4/96 5.03% 5.17% 3/5/96 5.03% 5.18% 3/6/96 5.03% 5.19% 3/7/96 5.03% 5.19% 3/8/96 5.03% 5.31% 3/11/96 5.10% 5.31% 3/12/96 5.10% 5.32% 3/13/96 5.12% 5.34% 3/14/96 5.12% 5.34% 3/15/96 5.15% 5.34% 3/18/96 5.18% 5.36% 3/19/96 5.21% 5.36% 3/20/96 5.14% 5.36% 3/21/96 5.06% 5.35% 3/22/96 5.11% 5.35% 3/25/96 5.07% 5.37% 3/26/96 5.15% 5.36% 3/27/96 5.16% 5.37% 3/28/96 5.19% 5.39% 3/29/96 5.14% 5.38% 4/1/96 5.16% 5.36% 4/2/96 5.17% 5.36% 4/3/96 5.15% 5.36% 4/4/96 5.12% 5.36% 4/5/96 5.16% 5.36% Good Friday 4/8/96 5.16% 5.40% 4/9/96 5.09% 5.41% 4/10/96 5.09% 5.41% 4/11/96 5.10% 5.41% 4/12/96 5.08% 5.41% 4/15/96 5.00% 5.41% 4/16/96 4.97% 5.40% 4/17/96 4.96% 5.39% 4/18/96 5.00% 5.39% 4/19/96 5.03% 5.38% 4/22/96 5.00% 5.38% 4/23/96 5.11% 5.38% 4/24/96 5.14% 5.38% 4/25/96 5.10% 5.38% 4/26/96 5.12% 5.38% 4/29/96 5.16% 5.38% 4/30/96 5.15% 5.39% 5/1/96 5.11% 5.40% 5/2/96 5.13% 5.41% 5/3/96 5.14% 5.41% 5/6/96 5.12% 5.41% 5/7/96 5.15% 5.41% 5/8/96 5.13% 5.41% 5/9/96 5.14% 5.40% 5/10/96 5.14% 5.39% 5/13/96 5.17% 5.38% 5/14/96 5.13% 5.38% 5/15/96 5.14% 5.38% 5/16/96 5.16% 5.38% 5/17/96 5.16% 5.38% 5/20/96 5.16% 5.38% 5/21/96 5.19% 5.37% 5/22/96 5.19% 5.37% 5/23/96 5.19% 5.37% 5/24/96 5.18% 5.37% 5/27/96 5.18% 5.37% Memorial Day 5/28/96 5.18% 5.37% 5/29/96 5.19% 5.37% 5/30/96 5.18% 5.39% 5/31/96 5.18% 5.40% 6/3/96 5.22% 5.43% 6/4/96 5.22% 5.42% 6/5/96 5.21% 5.42% 6/6/96 5.19% 5.41% 6/7/96 5.25% 5.50% 6/10/96 5.27% 5.51% 6/11/96 5.27% 5.50% 6/12/96 5.25% 5.49% 6/13/96 5.23% 5.49% 6/14/96 5.20% 5.49% 6/17/96 5.18% 5.50% 6/18/96 5.23% 5.50% 6/19/96 5.24% 5.50% 6/20/96 5.28% 5.50% 6/21/96 5.28% 5.50% 6/24/96 5.28% 5.51% 6/25/96 5.23% 5.50% 6/26/96 5.22% 5.50% 6/27/96 5.19% 5.51% 6/28/96 5.16% 5.52% 7/1/96 5.23% 5.50% 7/2/96 5.33% 5.50% 7/3/96 5.21% 5.50% 7/4/96 5.23% 5.50% 7/5/96 5.29% 5.59% 7/8/96 5.28% 5.59% 7/9/96 5.34% 5.56% 7/10/96 5.28% 5.54% 7/11/96 5.25% 5.54% 7/12/96 5.29% 5.55% 7/15/96 5.27% 5.56% 7/16/96 5.27% 5.56% 7/17/96 5.27% 5.55% 7/18/96 5.27% 5.54% 7/19/96 5.30% 5.51% 7/22/96 5.32% 5.51% 7/23/96 5.30% 5.51% 7/24/96 5.31% 5.50% 7/25/96 5.28% 5.50% 7/26/96 5.28% 5.52% 7/29/96 5.34% 5.52% 7/30/96 5.34% 5.54% 7/31/96 5.31% 5.55% 8/1/96 5.24% 5.54% 8/2/96 5.20% 5.47% 8/5/96 5.18% 5.44% 8/6/96 5.18% 5.43% 8/7/96 5.15% 5.43% 8/8/96 5.15% 5.42% 8/9/96 5.15% 5.41% 8/12/96 5.14% 5.40% 8/13/96 5.19% 5.40% 8/14/96 5.16% 5.40% 8/15/96 5.19% 5.41% 8/16/96 5.18% 5.40% 8/19/96 5.19% 5.40% 8/20/96 5.16% 5.40% 8/21/96 5.14% 5.40% 8/22/96 5.13% 5.39% 8/23/96 5.17% 5.39% 8/26/96 5.19% 5.42% 8/27/96 5.18% 5.42% 8/28/96 5.19% 5.42% 8/29/96 5.22% 5.42% 8/30/96 5.28% 5.45% 9/2/96 5.28% 5.45% 9/3/96 5.30% 5.53% 9/4/96 5.32% 5.53% 9/5/96 5.36% 5.55% 9/6/96 5.32% 5.57% 9/9/96 5.27% 5.54% 9/10/96 5.30% 5.53% 9/11/96 5.31% 5.53% 9/12/96 5.28% 5.51% 9/13/96 5.21% 5.47% 9/16/96 5.20% 5.46% 9/17/96 5.31% 5.50% 9/18/96 5.25% 5.52% 9/19/96 5.22% 5.54% 9/20/96 5.27% 5.56% 9/23/96 5.28% 5.59% 9/24/96 5.11% 5.61% 9/25/96 5.05% 5.48% 9/26/96 5.00% 5.46% 9/27/96 5.02% 5.47% 9/30/96 5.03% 5.49% 10/1/96 5.10% 5.48% 10/2/96 5.02% 5.48% 10/3/96 5.01% 5.49% 10/4/96 5.00% 5.44% 10/7/96 5.05% 5.43% 10/8/96 5.14% 5.43% 10/9/96 5.13% 5.43% 10/10/96 5.16% 5.43% 10/11/96 5.15% 5.43% 10/14/96 5.14% 5.43% 10/15/96 5.18% 5.42% 10/16/96 5.13% 5.42% 10/17/96 5.10% 5.42% 10/18/96 5.11% 5.42% 10/21/96 5.12% 5.42% 10/22/96 5.12% 5.42% 10/23/96 5.12% 5.42% 10/24/96 5.12% 5.42% 10/25/96 5.12% 5.42% 10/28/96 5.16% 5.43% 10/29/96 5.14% 5.42% 10/30/96 5.14% 5.41% 10/31/96 5.15% 5.41% 11/1/96 5.16% 5.41% 11/4/96 5.14% 5.41% 11/5/96 5.17% 5.41% 11/6/96 5.16% 5.41% 11/7/96 5.15% 5.41% 11/8/96 5.18% 5.40% 11/11/96 5.17% 5.40% 11/12/96 5.18% 5.40% 11/13/96 5.16% 5.40% 11/14/96 5.16% 5.40% 11/15/96 5.14% 5.42% 11/18/96 5.15% 5.42% 11/19/96 5.16% 5.41% 11/20/96 5.15% 5.41% 11/21/96 5.16% 5.41% 11/22/96 5.16% 5.40% 11/25/96 5.16% 5.41% 11/26/96 5.15% 5.41% 11/27/96 5.15% 5.42% 11/28/96 5.15% 5.42% 11/29/96 5.13% 5.44% 12/2/96 5.06% 5.44% 12/3/96 5.02% 5.42% 12/4/96 5.02% 5.42% 12/5/96 5.05% 5.41% 12/6/96 5.02% 5.43% 12/9/96 4.98% 5.43% 12/10/96 4.94% 5.43% 12/11/96 4.96% 5.44% 12/12/96 4.95% 5.44% 12/13/96 4.92% 5.47% 12/16/96 4.98% 5.48% 12/17/96 5.03% 5.49% 12/18/96 5.02% 5.52% 12/19/96 4.98% 5.55% 12/20/96 5.02% 5.57% 12/23/96 5.07% 5.58% 12/24/96 5.08% 5.60% 12/25/96 5.08% 5.60% 12/26/96 5.09% 5.61% 12/27/96 5.10% 5.64% 12/30/96 5.15% 5.65% 12/31/96 5.17% 5.63%
- -- 90-Day Commercial Paper --- 3-Month Treasury Bills Source Bloomberg L.P. - - Short-term interest rates displayed a moderate decline early in the year in response to fears of an economic recession, and then increased moderately during the middle of the year in response to concerns over excessive growth and its potential impact on future inflation. - - Short-term rates exhibited a significant degree of volatility, much of which was a result of the market's reaction to strong employment reports. 12 19 QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM OF CHARLES SCHWAB INVESTMENT MANAGEMENT, INC. STEPHEN B. WARD - Senior Vice President of Charles Schwab and Co., Inc. and Chief Investment Officer of Charles Schwab Investment Management, Inc. Mr. Ward has held this position since 1993. He joined CSIM in 1991 as a Vice President and Portfolio Manager. LINDA KLINGMAN - Senior Portfolio Manager and Vice President, Schwab Money Market Fund. Ms. Klingman has managed the Schwab Money Market Fund since April of 1991. She joined CSIM in 1990. ANDREA REGAN - Senior Portfolio Manager and Vice President, Schwab Government Money Fund and Schwab U.S. Treasury Money Fund. Ms. Regan has managed these Funds since 1991 when she joined CSIM. AMY TREANOR - Associate Portfolio Manager. Ms. Treanor joined the Portfolio Management Team in 1992. Q. HOW HAS THE PORTFOLIO MANAGEMENT TEAM ADJUSTED EACH FUND'S PORTFOLIO TO RESPOND TO CHANGES IN INTEREST RATES? A. During the reporting period, the Portfolio Managers adjusted the weighted average maturity of each Fund in an effort to capitalize on opportunities to buy higher yielding money market instruments resulting from market fluctuations. Specifically, periodic uncertainties about the future direction of the economy led the market to overreact to reports of economic growth. An example of this was strong employment reports released throughout the year, which drove up interest rates for short periods. The resulting increase in short-term rates presented us with opportunities to moderately extend each Fund's average maturity and lock in higher yields at different points throughout the year. Conversely, during periods when there was no clear benefit to extend maturity, we elected not to do so. Additionally the Funds, particularly the Government and U.S. Treasury Money Funds, took advantage of anomalies in the pricing of money market instruments that arose from technical conditions affecting the 13 20 market, such as supply and demand imbalances. These pricing deviations presented opportunities to lock in higher yields periodically throughout the year. The chart below shows each Fund's weighted average maturity at the beginning and end of the reporting period.
BEGINNING OF END OF PERIOD PERIOD - -------------------------------------------------------------------------------- SCHWAB MONEY MARKET FUND 60 56 - -------------------------------------------------------------------------------- SCHWAB GOVERNMENT MONEY FUND 55 46 - -------------------------------------------------------------------------------- SCHWAB U.S. TREASURY MONEY FUND 80 83 - --------------------------------------------------------------------------------
Q. WHAT STANDARDS DOES THE PORTFOLIO MANAGEMENT TEAM USE IN SELECTING SECURITIES FOR THE FUNDS? A. Money market funds are required by law to hold high-quality securities in their portfolios. For the Schwab Money Market Fund, we have continued to take the additional step of only investing in what are referred to as First Tier securities. In general, a First Tier security provides certain maturity limits and carries the highest credit rating from the required number of nationally recognized statistical rating organizations (NRSROs). If unrated, a security must be deemed to be of comparable quality to a First Tier security according to guidelines approved by the Board of Trustees of The Charles Schwab Family of Funds. Certain securities owned by the Schwab Money Market Fund are insured or are backed by a Letter of Credit issued by a First Tier financial institution. These arrangements are frequently referred to as "credit enhancements" because they provide incremental levels of creditworthiness in addition to the underlying strength of the primary issuer. The credit quality of the insurance companies and financial institutions 14 21 providing credit enhancements are reviewed by Charles Schwab Investment Management, Inc. as a regular part of our thorough credit review procedures for all portfolio securities and issuers. The U.S. government, agency or Treasury securities owned by the Schwab Government Money Fund and the Schwab U.S. Treasury Money Fund are all considered to be First Tier securities. 15 22 GLOSSARY OF TERMS COMMERCIAL PAPER Short-term, interest-paying obligations with maturities ranging up to 270 days issued by banks, corporations, and other borrowers. CREDIT ENHANCEMENTS A bank letter of credit, purchase agreement, insurance, or line of credit that provides an additional level of creditworthiness for debt securities to supplement the financial strength of the issuer. DOLLAR-WEIGHTED AVERAGE MATURITY A measure of the average maturity of a mutual fund's entire portfolio, weighted by the value of its individual holdings. FEDERAL FUNDS RATE A key interest rate charged by banks when lending money to other banks overnight. FEDERAL RESERVE The central bank of the United States that establishes policies on bank reserves and regulations, determines the discount rate, and tightens or loosens the availability of credit. FIRST TIER SECURITY A security that matures within certain recognized limits and carries the top credit rating from the requisite number of NRSROs, or if unrated, is of comparable credit quality. HIGH-QUALITY SECURITY A security ranked in the highest two rating comparable categories by a nationally recognized statistical rating organization (NRSRO), or if unrated, is of comparable credit quality. MATURITY The length of time before which the issuer of a debt security must repay the principal amount. NRSRO A nationally recognized statistical rating organization, such as Standard & Poor's or Moody's Investor Services, which evaluates and rates the credit quality of securities. REAL GDP The national Gross Domestic Product (GDP) -- the total value of all goods and services produced in the U.S. over a specific period of time -- adjusted for the rate of inflation to allow meaningful year-to-year comparisons. YIELD The rate of return, usually dividend or interest payments, on an investment, expressed as a percentage of market price. 16 23 SCHWAB MONEY MARKET FUND - ------------------------------------------------------------------------------ PORTFOLIO SUMMARY ASSET GROWTH
Total Total Percentage Net Assets Net Assets Growth Over as of 12/31/96 as of 12/31/95 Reporting (000s) (000s) Period --------------------------------------------------- $ 18,083,671 $ 14,010,387 29% ---------------------------------------------------
AVERAGE YIELDS FOR THE PERIODS ENDED DECEMBER 31, 1996
Last Last Last Seven Days Three Months Twelve Months --------------------------------------------------- 4.80% 4.79% 4.80% ---------------------------------------------------
MATURITY SCHEDULE PERCENT OF TOTAL INVESTMENTS
Maturity Range 3/31/96 6/30/96 9/30/96 12/31/96 - --------------------------------------------------------------------- 0 - 15 Days 27.0% 18.4% 21.4% 16.8% 16 - 30 Days 12.9 18.6 19.3 15.4 31 - 60 Days 22.6 34.1 27.2 29.0 61 - 90 Days 22.0 14.4 15.9 22.2 91 - 120 Days 6.9 5.0 2.8 9.4 Over 120 Days 8.6 9.5 13.4 7.2 Weighted Average 58 Days 57 Days 56 Days 56 Days - ---------------------------------------------------------------------
PORTFOLIO QUALITY
Percent of SEC Tier Net Assets Rating 12/31/96 ----------------------- Tier 1 100.00% Tier 2 0.00 -----------------------
17 24 SCHWAB GOVERNMENT MONEY FUND - ------------------------------------------------------------------------------ PORTFOLIO SUMMARY ASSET GROWTH
Total Total Percentage Net Assets Net Assets Growth Over as of 12/31/96 as of 12/31/95 Reporting (000s) (000s) Period --------------------------------------------------- $1,986,862 $1,884,569 5% ---------------------------------------------------
AVERAGE YIELDS FOR THE PERIODS ENDED DECEMBER 31, 1996
Last Last Last Seven Days Three Months Twelve Months --------------------------------------------------- 4.74% 4.71% 4.73% ---------------------------------------------------
MATURITY SCHEDULE PERCENT OF TOTAL INVESTMENTS
Maturity Range 3/31/96 6/30/96 9/30/96 12/31/96 - --------------------------------------------------------------------- 0 - 15 Days 54.8% 53.3% 46.4% 57.5% 16 - 30 Days 5.3 0.6 7.7 9.5 31 - 60 Days 4.6 7.1 4.7 11.4 61 - 90 Days 10.3 17.7 13.2 6.5 91 - 120 Days 3.6 3.3 14.9 4.5 Over 120 Days 21.4 18.0 13.1 10.6 Weighted Average 65 Days 62 Days 57 Days 46 Days - ---------------------------------------------------------------------
18 25 SCHWAB U.S. TREASURY MONEY FUND - ------------------------------------------------------------------------------ PORTFOLIO SUMMARY ASSET GROWTH
Total Total Percentage Net Assets Net Assets Growth Over as of 12/31/96 as of 12/31/95 Reporting (000s) (000s) Period --------------------------------------------------- $1,421,672 $1,193,689 19% ---------------------------------------------------
AVERAGE YIELDS FOR THE PERIODS ENDED DECEMBER 31, 1996
Last Last Last Seven Days Three Months Twelve Months --------------------------------------------------- 4.69% 4.70% 4.67% ---------------------------------------------------
MATURITY SCHEDULE PERCENT OF TOTAL INVESTMENTS
Maturity Range 3/31/96 6/30/96 9/30/96 12/31/96 - --------------------------------------------------------------------- 0 - 15 Days 1.8% 6.4% 13.2% 0.4% 16 - 30 Days 30.9 0.2 1.6 0.0 31 - 60 Days 26.9 39.9 32.3 58.4 61 - 90 Days 8.7 19.7 11.2 6.6 91 - 120 Days 4.1 13.5 2.9 6.6 Over 120 Days 27.6 20.3 38.8 28.0 Weighted Average 77 Days 81 Days 84 Days 83 Days - ---------------------------------------------------------------------
19 26 SCHWAB MONEY MARKET FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1996
Par Value -------- ----------- COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS--55.5%(a) ASSET BACKED SECURITIES--14.5% Alamo Funding, LP 5.40%, 01/14/97 $31,000 $30,940 Apreco, Inc. 5.50%, 03/20/97 25,000 24,706 Asset Securitization Cooperative Corp. 5.42%, 01/10/97 25,000 24,967 5.39%, 01/22/97 75,000 74,767 5.40%, 01/24/97 50,000 49,830 5.40%, 01/28/97 50,000 49,801 5.40%, 01/30/97 60,000 59,743 5.38%, 02/20/97 23,000 22,831 5.46%, 03/25/97 56,000 55,305 Barton Capital Corp. 5.41%, 02/27/97 18,000 17,848 Beta Finance, Inc. 5.42%, 01/07/97 10,000 9,991 5.40%, 03/06/97 14,000 13,867 5.80%, 03/10/97 90,000 89,045 5.51%, 04/23/97 23,000 22,616 5.45%, 05/14/97 14,000 13,726 CC (USA) Incorporated 5.40%, 03/06/97 13,000 12,877 5.41%, 03/17/97 40,000 39,556 Corporate Asset Funding Corp. 5.38%, 02/07/97 50,000 49,728 5.38%, 03/10/97 22,900 22,671 Corporate Receivables Corp. 5.44%, 01/22/97 28,000 27,913 5.42%, 01/22/97 50,000 49,844 5.41%, 02/10/97 50,000 49,704 5.38%, 02/21/97 30,000 29,774 5.38%, 02/25/97 25,000 24,798 5.38%, 02/27/97 50,000 49,580 5.41%, 03/13/97 25,000 24,737 5.54%, 04/16/97 27,000 26,571 CXC Inc. 5.40%, 01/28/97 21,000 20,916 5.40%, 01/29/97 50,000 49,793 5.40%, 02/03/97 25,000 24,878 5.42%, 02/04/97 25,000 24,874 5.41%, 02/06/97 50,000 49,734 5.38%, 02/13/97 53,000 52,664 5.38%, 02/19/97 47,000 46,661 5.56%, 03/04/97 35,000 34,668
20 27 - ------------------------------------------------------------------------------
Par Value -------- ----------- Eiger Capital Corporation 5.50%, 03/17/97 $19,000 $18,785 Enterprise Funding Corp. 5.41%, 01/08/97 10,343 10,332 5.41%, 01/13/97 50,000 49,911 5.41%, 01/15/97 49,950 49,846 5.39%, 01/30/97 20,000 19,914 5.40%, 02/05/97 32,461 32,293 5.38%, 02/12/97 30,104 29,918 5.40%, 02/13/97 28,038 27,860 5.44%, 03/11/97 60,700 60,076 Eureka Securitization, Inc. 5.44%, 01/09/97 25,400 25,370 5.41%, 01/16/97 25,000 24,944 5.43%, 01/17/97 20,000 19,952 5.42%, 01/23/97 25,000 24,918 5.39%, 02/18/97 25,000 24,823 5.38%, 02/24/97 49,000 48,610 5.40%, 03/04/97 15,000 14,862 5.46%, 03/18/97 30,000 29,659 First Deposit Master Trust Series 1993-3 5.42%, 01/09/97 20,000 19,976 5.41%, 01/09/97 13,000 12,985 5.43%, 01/21/97 12,278 12,242 Kitty Hawk Funding Corp. 5.47%, 03/14/97 45,900 45,404 5.54%, 03/17/97 7,000 6,920 McKenna Triangle National Corp. 5.37%, 02/18/97 25,000 24,823 5.38%, 02/24/97 25,000 24,801 Mont Blanc Capital Corp. 5.50%, 03/14/97 19,000 18,794 5.46%, 03/17/97 50,000 49,440 5.46%, 03/18/97 16,789 16,598 New Center Asset Trust 5.41%, 01/29/97 50,000 49,793 5.40%, 02/20/97 50,000 49,631 5.39%, 02/26/97 50,000 49,587 5.39%, 02/27/97 64,000 63,462 Preferred Receivables Funding Corp. 5.38%, 02/05/97 27,200 27,060 Ranger Funding Corp. 5.42%, 01/16/97 19,000 18,958 5.45%, 03/12/97 21,000 20,780 5.50%, 03/21/97 35,000 34,584 Sheffield Receivables Corp. 6.75%, 01/02/97 13,728 13,725
21 28 SCHWAB MONEY MARKET FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1996
Par Value -------- ----------- WCP Funding, Inc. 5.42%, 01/07/97 $ 10,000 $ 9,991 5.43%, 01/09/97 10,000 9,988 5.42%, 01/22/97 10,000 9,969 5.40%, 01/22/97 30,000 29,907 5.41%, 01/29/97 25,000 24,896 5.40%, 02/10/97 15,000 14,911 Windmill Funding 5.40%, 01/03/97 14,106 14,102 5.39%, 01/16/97 10,520 10,497 5.86%, 01/27/97 31,233 31,101 5.87%, 02/14/97 25,000 24,822 5.50%, 03/19/97 8,391 8,294 5.53%, 03/20/97 28,947 28,605 5.53%, 03/21/97 23,909 23,623 5.51%, 03/21/97 15,224 15,043 --------- 2,599,309 --------- AUTOMOTIVE--6.9% Chrysler Financial Corp. 5.48%, 01/08/97 50,000 49,947 5.49%, 01/09/97 48,000 47,942 5.49%, 01/23/97 25,000 24,917 5.49%, 01/24/97 47,000 46,838 5.49%, 01/28/97 50,000 49,797 5.49%, 01/29/97 30,000 29,874 Ford Credit Europe PLC 5.41%, 02/06/97 25,000 24,867 5.38%, 02/11/97 25,000 24,849 5.38%, 02/25/97 15,000 14,879 5.38%, 02/26/97 50,000 49,588 5.37%, 03/07/97 30,000 29,713 5.49%, 04/16/97 25,000 24,611 Ford Motor Credit 5.37%, 02/04/97 50,000 49,750 5.38%, 02/10/97 100,000 99,412 5.38%, 02/12/97 50,000 49,691 5.38%, 02/14/97 24,000 23,845 5.37%, 03/06/97 135,000 133,731 General Motors Acceptance Corp. 5.87%, 01/30/97 75,000 74,656 5.61%, 02/12/97 33,000 32,790 5.76%, 03/14/97 55,000 54,384 5.50%, 05/16/97 136,000 133,274 5.56%, 06/20/97 25,000 24,361 5.56%, 06/23/97 50,000 48,700 5.60%, 06/25/97 29,000 28,233 5.60%, 06/26/97 15,000 14,600 5.60%, 06/30/97 30,000 29,184
22 29 - ------------------------------------------------------------------------------
Par Value -------- ----------- Renault Credit Internationale SA Banque 5.49%, 01/13/97 $12,000 $ 11,978 5.60%, 03/10/97 11,000 10,885 --------- 1,237,296 --------- BANKING--AUSTRALIA--0.5% National Australia Funding (Delaware) Inc. 5.79%, 04/17/97 40,000 39,340 5.51%, 04/18/97 36,800 36,215 SBNSW Delaware, Inc. 5.61%, 04/01/97 20,000 19,727 ------ 95,282 ------ BANKING--BELGIUM--0.5% Cregem North America, Inc. 5.42%, 01/14/97 23,000 22,956 5.44%, 01/24/97 8,000 7,973 5.44%, 01/30/97 40,000 39,827 Generale Bank, Inc. 5.54%, 04/10/97 25,000 24,629 ------ 95,385 ------ BANKING--CANADA--1.2% Bank of Montreal 5.38%, 01/06/97 50,000 49,963 5.38%, 01/07/97 19,000 18,983 Bank of Nova Scotia 5.38%, 02/19/97 98,000 97,293 5.40%, 03/17/97 57,000 56,368 ------- 222,607 ------- BANKING--DENMARK--0.7% Den Danske Corp. 5.38%, 02/28/97 19,000 18,838 Unifunding, Inc. 5.39%, 01/09/97 40,000 39,953 5.41%, 01/22/97 48,000 47,850 5.45%, 03/04/97 19,000 18,824 ------- 125,465 ------- BANKING--DOMESTIC--3.0% Bankers Trust New York Corp. 5.86%, 01/06/97 50,000 49,960 5.58%, 02/10/97 45,000 44,729 5.57%, 02/18/97 64,000 63,537 5.57%, 02/19/97 50,000 49,631 5.50%, 06/19/97 84,000 81,895 International Securitization Corp./(First National Bank of Chicago LOC) 5.53%, 03/18/97 49,896 49,322
23 30 SCHWAB MONEY MARKET FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1996
Par Value -------- ----------- NationsBank Corp. 5.40%, 02/03/97 $50,000 $ 49,756 5.40%, 02/04/97 50,000 49,749 5.53%, 02/11/97 59,000 58,638 Secured Short Term Notes 96-7 5.68%, 03/21/97 37,400 37,400 Vehicle Services of America/(NationsBank of Texas LOC) 5.42%, 02/10/97 15,000 14,911 ------- 549,528 ------- BANKING--ITALY--0.3% Cariplo Finance, Inc. 5.42%, 01/16/97 50,000 49,888 5.37%, 02/26/97 10,000 9,918 ------ 59,806 ------ BANKING--JAPAN--1.1% Broadway Capital Corp./(Bank of Tokyo-Mitsubishi LOC) 5.87%, 03/12/97 25,000 24,718 Gotham Funding Corp./(Bank of Tokyo-Mitsubishi LOC) 5.48%, 02/21/97 20,000 19,847 5.53%, 03/03/97 20,000 19,815 5.71%, 03/17/97 12,023 11,882 5.62%, 03/17/97 30,000 29,654 5.71%, 03/21/97 9,303 9,188 Mitsubishi Motors Credit of America, Inc./(Bank of Tokyo-Mitsubishi LOC) 5.53%, 01/10/97 16,450 16,428 Ridge Capital II/(Dai-Ichi Kangyo Bank, Ltd. LOC) 5.55%, 01/07/97 30,000 29,973 SRD Finance, Inc./(Bank of Tokyo-Mitsubishi LOC) 5.73%, 01/09/97 39,000 38,950 ------- 200,455 ------- BANKING--SPAIN--0.4% BBV Finance (Delaware) Inc. 5.55%, 02/18/97 15,000 14,892 BEX America Finance, Inc. 5.43%, 01/07/97 50,000 49,955 ------ 64,847 ------ BANKING--SWEDEN--0.4% Nordbanken of North America, Inc. 5.40%, 03/03/97 65,000 64,413 5.47%, 03/07/97 15,000 14,854 ------ 79,267 ------
24 31 - ------------------------------------------------------------------------------
Par Value -------- ----------- BANKING--UNITED KINGDOM--1.9% Abbey National N.A. Corp. 5.37%, 03/05/97 $138,000 $136,720 5.61%, 04/02/97 50,000 49,311 Bank of Scotland Treasury Services PLC 5.50%, 04/09/97 50,000 49,272 Yorkshire Building Society 5.44%, 01/10/97 30,000 29,960 5.40%, 02/05/97 25,000 24,871 5.40%, 02/19/97 30,000 29,783 5.38%, 02/27/97 25,000 24,790 ------- 344,707 ------- COMPUTERS AND OFFICE EQUIPMENT--0.1% CSC Enterprises 5.45%, 01/09/97 16,000 15,981 5.75%, 02/20/97 10,000 9,921 ------ 25,902 ------ FINANCE--COMMERCIAL--4.4% Finova Capital Corp. 5.48%, 01/13/97 25,000 24,955 5.49%, 01/16/97 25,000 24,944 General Electric Capital Corp. 5.41%, 01/14/97 98,000 97,812 5.41%, 01/16/97 63,000 62,860 5.41%, 01/17/97 50,000 49,882 5.37%, 02/28/97 74,000 73,369 General Electric Capital Services 5.41%, 01/14/97 46,000 45,911 5.55%, 01/16/97 47,000 46,893 5.40%, 01/30/97 41,000 40,824 5.40%, 02/05/97 50,000 49,741 5.37%, 02/28/97 50,000 49,574 Heller Financial Inc. 5.53%, 02/04/97 29,000 28,851 5.54%, 02/05/97 48,000 47,746 5.50%, 02/19/97 55,000 54,596 5.45%, 03/04/97 22,000 21,797 5.48%, 03/19/97 16,000 15,816 5.46%, 03/27/97 20,000 19,747 5.49%, 04/03/97 20,000 19,725 National Rural Utilities Cooperative Finance Corp. 5.38%, 02/12/97 20,000 19,876 ------- 794,919 -------
25 32 SCHWAB MONEY MARKET FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1996
Par Value -------- ----------- FINANCE--CONSUMER--4.3% American Express Credit Corp. 5.40%, 02/04/97 $30,000 $ 29,849 5.40%, 02/06/97 31,000 30,835 5.38%, 02/06/97 50,000 49,735 5.38%, 02/11/97 35,000 34,789 5.38%, 02/12/97 38,000 37,765 Associates Corp. of North America 5.40%, 01/28/97 37,000 36,852 5.40%, 01/30/97 30,000 29,871 5.38%, 02/03/97 44,000 43,786 5.40%, 02/04/97 50,000 49,749 5.38%, 02/04/97 50,000 49,750 5.38%, 02/06/97 50,000 49,735 5.38%, 02/07/97 50,000 49,728 5.39%, 02/12/97 50,000 49,690 5.39%, 02/14/97 50,000 49,676 Household Finance Corp. 5.40%, 01/22/97 31,000 30,904 5.43%, 01/24/97 42,000 41,857 5.39%, 02/25/97 21,000 20,829 Sears Roebuck Acceptance Corp. 5.41%, 02/26/97 50,000 49,585 5.41%, 02/27/97 50,000 49,578 ------- 784,563 MISCELLANEOUS MANUFACTURING--0.2% Newell Co. 5.41%, 02/25/97 40,000 39,674 ------ MORTGAGE BANKING--0.5% Countrywide Home Loans, Inc. 5.41%, 01/08/97 81,000 80,916 5.43%, 01/31/97 10,000 9,955 90,871 ------ PAPER AND WOOD PRODUCTS--0.1% Rexam PLC 5.41%, 01/23/97 20,300 20,234 ------ SAVINGS AND LOAN--0.3% Bank of America, FSB 5.42%, 01/06/97 25,000 24,981 5.42%, 01/15/97 25,000 24,948 ------ 49,929 ------ SECURITIES BROKERAGE-DEALER--14.0% BT Securities Corp. 5.58%, 02/13/97 26,000 25,831 5.54%, 06/18/97 15,000 14,623
26 33 - ------------------------------------------------------------------------------
Par Value -------- ----------- CS First Boston Corp. 5.41%, 01/08/97 $ 20,000 $ 19,979 5.38%, 02/27/97 25,000 24,790 5.40%, 03/04/97 50,000 49,541 5.43%, 03/13/97 60,000 59,367 Goldman Sachs Group, LP 5.38%, 02/06/97 25,000 24,868 5.38%, 02/12/97 25,000 24,845 5.38%, 02/13/97 38,000 37,760 5.39%, 03/14/97 54,000 53,426 5.40%, 03/18/97 25,000 24,719 5.43%, 03/20/97 148,000 146,284 5.57%, 03/27/97 100,000 98,701 5.58%, 04/01/97 100,000 98,625 5.58%, 04/03/97 50,000 49,297 5.52%, 06/24/97 43,000 41,884 Lehman Brothers Holdings, Inc. 5.67%, 01/23/97 19,000 18,935 5.85%, 01/27/97 30,000 29,877 5.84%, 03/07/97 99,000 97,986 5.84%, 03/13/97 27,000 26,698 5.52%, 05/02/97 50,000 49,098 5.50%, 06/05/97 59,000 57,641 5.55%, 06/16/97 19,000 18,527 5.55%, 06/17/97 50,000 48,748 5.55%, 06/18/97 50,000 48,740 5.55%, 06/20/97 35,000 34,108 Merrill Lynch & Co., Inc. 5.43%, 01/09/97 25,000 24,970 5.40%, 02/13/97 98,000 97,377 5.39%, 02/26/97 30,000 29,752 5.38%, 03/04/97 49,000 48,553 5.40%, 03/11/97 50,000 49,490 5.41%, 03/13/97 89,000 88,064 5.51%, 04/16/97 90,000 88,593 Morgan Stanley Group, Inc. 5.42%, 01/21/97 75,000 74,778 5.40%, 01/23/97 80,900 80,637 5.40%, 01/28/97 143,000 142,429 5.40%, 01/29/97 60,000 59,752 5.40%, 02/05/97 80,000 79,586 5.39%, 02/06/97 14,000 13,926 5.75%, 03/19/97 25,000 24,701 5.75%, 03/24/97 47,000 46,402 5.60%, 03/24/97 92,000 90,858 5.64%, 04/01/97 95,000 93,699
27 34 SCHWAB MONEY MARKET FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1996
Par Value -------- ----------- Nomura Holdings America, Inc. 5.45%, 01/17/97 $13,000 $ 12,969 PaineWebber Group, Inc. 5.58%, 01/03/97 39,000 38,988 Salomon, Inc. 5.55%, 01/10/97 15,000 14,979 5.58%, 02/20/97 50,000 49,618 5.54%, 02/26/97 30,000 29,745 5.61%, 03/18/97 13,000 12,848 --------- 2,517,612 --------- WASTE MANAGEMENT--0.2% WMX Technologies Inc. 6.01%, 04/04/97 42,700 42,066 ---------- TOTAL COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS (Cost $10,039,724) 10,039,724 ---------- CERTIFICATES OF DEPOSIT--34.8% BANKING--AUSTRALIA--1.0% Australia & New Zealand Bank Group 5.38%, 03/07/97 50,000 50,000 5.75%, 03/21/97 25,000 25,001 5.50%, 04/07/97 20,000 20,004 5.56%, 04/15/97 40,000 40,001 Westpac Banking Group 5.64%, 03/03/97 50,000 50,000 ------- 185,006 ------- BANKING--BELGIUM--0.1% Kredietbank N.V. 5.38%, 02/18/97 25,000 25,000 ------- BANKING--CANADA--0.6% Bank of Montreal 5.42%, 01/10/97 50,000 50,000 Canadian Imperial Bank of Commerce 5.42%, 01/14/97 50,000 50,000 ------- 100,000 ------- BANKING--DENMARK--0.1% Den Danske Bank 5.38%, 03/10/97 25,000 25,001 ------
28 35 - ------------------------------------------------------------------------------
Par Value -------- ----------- BANKING--DOMESTIC--5.8% Bankers Trust Company 5.43%, 01/08/97 $100,000 $ 100,000 5.57%, 04/07/97 175,000 174,999 5.50%, 04/21/97 20,000 20,000 Chase Manhattan Bank 5.75%, 03/11/97 73,000 73,000 5.60%, 04/01/97 40,000 40,000 5.60%, 04/02/97 48,000 48,000 5.60%, 04/03/97 100,000 100,000 First Deposit National Bank 5.50%, 02/07/97 25,000 25,000 5.47%, 02/10/97 25,000 25,000 MBNA America Bank N.A. 5.51%, 02/07/97 96,000 96,000 5.44%, 03/04/97 13,000 13,000 5.54%, 03/18/97 12,000 12,000 Mellon Bank N.A. 5.50%, 04/08/97 38,000 38,000 Morgan Guaranty Trust Co. New York 5.37%, 02/11/97 50,000 50,001 5.37%, 02/12/97 50,000 50,001 5.37%, 02/14/97 50,000 50,001 5.22%, 02/28/97 50,000 49,989 Providian National Bank 5.43%, 01/31/97 25,000 25,000 5.48%, 03/06/97 21,000 21,000 5.54%, 03/19/97 34,000 34,000 --------- 1,044,991 --------- BANKING--FRANCE--6.5% Banque Nationale de Paris 5.40%, 01/15/97 20,000 20,000 5.40%, 02/03/97 25,000 25,000 5.38%, 02/11/97 50,000 50,000 5.38%, 02/14/97 50,000 50,000 5.38%, 02/20/97 95,000 95,001 5.38%, 03/04/97 27,000 27,000 5.38%, 03/05/97 100,000 100,001 5.38%, 03/06/97 20,000 20,000 5.38%, 03/07/97 50,000 50,001 5.38%, 03/10/97 50,000 50,000 5.40%, 03/11/97 25,000 25,000 5.75%, 03/21/97 15,000 15,000 5.50%, 04/04/97 20,000 20,000 5.50%, 04/08/97 25,000 25,001 5.65%, 05/27/97 30,000 30,017
29 36 SCHWAB MONEY MARKET FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1996
Par Value -------- ----------- Societe Generale 5.54%, 03/14/97 $50,000 $ 50,001 5.55%, 03/26/97 25,000 25,000 5.65%, 03/31/97 50,000 49,992 5.60%, 04/03/97 50,000 50,001 5.80%, 04/11/97 50,000 49,997 5.90%, 05/30/97 40,000 39,995 6.10%, 06/10/97 36,000 35,994 6.09%, 06/10/97 50,000 49,994 6.12%, 06/13/97 53,000 52,990 6.10%, 06/13/97 25,000 24,999 5.58%, 07/28/97 65,000 65,102 5.83%, 08/20/97 75,000 74,977 --------- 1,171,063 --------- BANKING--GERMANY--2.5% Bayerische Hypotheken und Wechsel Bank 5.38%, 02/11/97 50,000 50,000 5.38%, 02/13/97 50,000 50,000 5.38%, 02/27/97 50,000 50,000 Bayerische Landesbank Girozentrale 4.94%, 01/13/97 35,000 35,003 Bayerische Vereinsbank, AG 5.50%, 04/14/97 10,000 10,003 5.50%, 04/25/97 14,000 14,000 5.50%, 06/19/97 50,000 50,002 Commerzbank, AG 5.18%, 02/21/97 20,000 19,998 5.50%, 06/30/97 50,000 50,006 Deutsche Bank 5.38%, 01/06/97 50,000 50,000 Landesbank Hessen-Thuringen Girozentrale 6.10%, 06/13/97 25,000 24,995 6.20%, 09/05/97 49,000 49,003 ------- 453,010 ------- BANKING--ITALY--0.6% Cariplo SpA 5.38%, 01/07/97 30,000 30,000 5.42%, 01/27/97 75,000 75,001 ------- 105,001 ------- BANKING--JAPAN--12.1% Bank of Tokyo-Mitsubishi Ltd. 5.62%, 01/02/97 50,000 50,000 5.52%, 03/11/97 50,000 50,000 5.53%, 03/20/97 50,000 50,001
30 37 - ------------------------------------------------------------------------------
Par Value -------- ----------- Dai-Ichi Kangyo Bank, Ltd. 5.50%, 01/13/97 $ 62,000 $ 62,000 5.54%, 01/15/97 50,000 50,000 5.52%, 01/17/97 50,000 50,000 5.52%, 03/05/97 50,000 50,001 5.70%, 03/12/97 48,000 47,986 5.61%, 03/12/97 25,000 24,997 5.53%, 03/12/97 50,000 50,002 5.60%, 03/13/97 50,000 49,996 5.61%, 03/19/97 32,000 32,003 Industrial Bank of Japan, Ltd. 5.58%, 01/02/97 60,000 60,000 5.61%, 01/03/97 24,000 24,000 5.50%, 01/07/97 22,000 22,000 5.93%, 01/21/97 10,000 10,000 5.50%, 02/03/97 39,000 39,000 5.50%, 02/04/97 50,000 50,000 5.50%, 02/05/97 50,000 50,000 5.50%, 02/06/97 50,000 50,000 5.50%, 02/07/97 50,000 50,000 5.48%, 02/21/97 125,000 125,001 5.48%, 02/24/97 109,000 109,000 5.48%, 02/25/97 93,000 93,000 5.56%, 03/18/97 106,000 106,000 5.58%, 03/19/97 54,000 54,000 Sanwa Bank, Ltd. 5.62%, 01/02/97 50,000 50,000 5.50%, 01/03/97 50,000 50,000 5.49%, 01/06/97 75,000 75,000 5.61%, 01/07/97 50,000 50,000 5.52%, 01/17/97 50,000 50,000 5.49%, 01/17/97 50,000 50,000 5.52%, 01/21/97 50,000 50,000 5.51%, 01/21/97 100,000 100,001 5.52%, 01/23/97 50,000 50,000 5.51%, 01/23/97 52,000 52,001 5.51%, 01/24/97 25,000 25,000 5.51%, 01/27/97 50,000 50,000 5.50%, 01/27/97 30,000 30,000 5.49%, 01/27/97 15,000 15,000 5.52%, 01/29/97 50,000 50,000 5.50%, 01/31/97 25,000 25,000 5.69%, 03/10/97 11,000 10,997 --------- 2,191,986 ---------
31 38 SCHWAB MONEY MARKET FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1996
Par Value -------- ----------- BANKING--NETHERLANDS--0.6% ABN-Amro Bank N.V. 4.95%, 02/14/97 $ 49,000 $ 48,997 5.82%, 02/18/97 30,000 29,988 5.55%, 03/18/97 30,000 29,998 ------- 108,983 ------- BANKING--SWEDEN--1.6% Svenska Handelsbanken 5.50%, 01/10/97 50,000 50,003 5.38%, 02/27/97 40,000 40,000 5.60%, 03/31/97 10,000 10,000 5.54%, 04/10/97 100,000 100,002 5.50%, 04/17/97 50,000 49,999 5.51%, 04/28/97 20,000 20,001 5.51%, 06/17/97 18,000 18,001 ------- 288,006 ------- BANKING--UNITED KINGDOM--3.3% Abbey National Treasury Services PLC 5.13%, 02/20/97 50,000 50,001 5.08%, 02/26/97 25,000 25,000 5.38%, 03/03/97 50,000 50,000 5.38%, 03/05/97 50,000 50,000 5.38%, 03/12/97 150,000 150,000 5.61%, 04/02/97 75,000 75,000 5.50%, 04/08/97 50,000 50,001 Bank of Scotland 5.38%, 02/28/97 25,000 25,000 5.61%, 04/04/97 75,000 75,002 5.50%, 06/05/97 50,000 49,984 --------- 599,988 --------- TOTAL CERTIFICATES OF DEPOSIT (Cost $6,298,035) 6,298,035 --------- VARIABLE RATE OBLIGATIONS--6.0%(a) (b) ASSET BACKED SECURITIES--0.6% Short Term Credit Card Account Trust 1995-1 Floating Rate Asset Backed Notes, Class A-1 5.63%, 01/15/97 100,000 100,000 ------- BANKING--DOMESTIC--0.1% 6700 Cherry Avenue Partners Variable Rate Demand Bonds Series 1993/(Wells Fargo Bank LOC) 5.80%, 01/07/97 10,500 10,500 ------
32 39 - ------------------------------------------------------------------------------
Par Value -------- ----------- BANKING--FRANCE--0.2% New Jersey Economic Development Authority Taxable Adjustable Rate Money Market Securities (GE Aerospace Camden Development Project) Series A/(Banque Nationale de Paris LOC) 5.90%, 01/07/97 $25,650 $25,650 New Jersey Economic Development Authority Taxable Adjustable Rate Money Market Securities (GE Aerospace Camden Development Project) Series B/(Banque Nationale de Paris LOC) 5.90%, 01/07/97 10,000 10,000 ------ 35,650 ------ BANKING--GERMANY--0.1% General Obligation Refunding Bonds of the County of Hudson (State of New Jersey) (Variable Rate Demand Obligations) Taxable Series 1995/(Landesbank Hessen-Thuringen Girozentrale LOC) 5.90%, 01/07/97 20,940 20,940 ------ BANKING--NETHERLANDS--0.2% New Jersey Economic Development Authority Adjustable Rate Lease Revenue Taxable Bonds (Barnes & Noble, Inc. Distribution & Freight Consolidation Center Project) Series 1995A/ (Rabobank Nederland N.V. LOC) 5.91%, 01/07/97 21,700 21,700 New Jersey Economic Development Authority Adjustable Rate Lease Revenue Taxable Bonds (Barnes & Noble, Inc. Distribution & Freight Consolidation Center Project) Series 1995B/ (Rabobank Nederland N.V. LOC) 5.91%, 01/07/97 10,000 10,000 ------ 31,700 ------ EDUCATION--0.2% Development Authority of Dekalb County Taxable Variable Rate Revenue Bonds (Emory University Project) Series 1995B 5.90%, 01/07/97 35,415 35,415 ------
33 40 SCHWAB MONEY MARKET FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1996
Par Value -------- ----------- INSURANCE--1.5% Commonwealth Life Insurance Co. 5.64%, 01/01/97 $100,000 $ 100,000 General American Life Insurance Co. 5.58%, 01/07/97 100,000 100,000 Transamerica Life Insurance & Annuity Co. 5.41%, 01/07/97 75,000 75,000 ------- 275,000 ------- MONOLINE INSURANCE--0.3% Baptist Health Systems of South Florida, Inc. Taxable Variable Rate Direct Note Obligations Series 1995A/ (MBIA Insurance) 5.90%, 01/07/97 13,000 13,000 Baptist Health Systems of South Florida, Inc. Taxable Variable Rate Direct Note Obligations Series 1995B/ (MBIA Insurance) 5.90%, 01/07/97 19,000 19,000 Dade County, Florida Expressway Authority (Florida) Toll System Revenue Bonds, Series 1996/(FGIC LOC) 5.90%, 01/07/97 20,000 20,000 New Orleans Aviation Board Taxable Refunding Bonds Series 1993A/(MBIA LOC) 6.03%, 01/07/97 3,500 3,500 ------ 55,500 ------ SECURITIES BROKERAGE-DEALER--2.8% Bear Stearns Companies, Inc. 5.61%, 01/06/97 85,000 85,000 5.59%, 01/06/97 240,000 240,000 5.67%, 01/21/97 100,000 100,000 Lehman Brothers Holdings, Inc. 5.67%, 01/30/97 100,000 100,000 ------- 525,000 ------- TOTAL VARIABLE RATE OBLIGATIONS (Cost $1,089,705) 1,089,705 --------- U.S. TREASURY OBLIGATIONS--1.2% U.S. Treasury Notes 7.50%, 01/31/97 175,000 175,354 6.88%, 02/28/97 49,000 49,126 ------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $224,480) 224,480 -------
34 41 - ------------------------------------------------------------------------------
Par Value -------- ----------- MUNICIPAL BONDS--0.6% BANKING--FRANCE--0.6% The City of New York General Obligation Bonds, Fiscal 1995 Series F-8 (Societe Generale LOC) 5.55%, 02/25/97 $ 51,000 $ 51,000 The City of New York General Obligation Bonds, Fiscal 1996 Series F (Societe Generale LOC) 5.55%, 02/25/97 50,500 50,500 ------- TOTAL MUNICIPAL BONDS (Cost $101,500) 101,500 ------- BANK NOTES--0.4% BANKING--DOMESTIC--0.4% FCC National Bank 5.38%, 02/20/97 15,000 15,002 5.55%, 02/21/97 10,000 10,000 First Bank South Dakota 5.87%, 01/15/97 25,000 24,996 First Tennessee Bank N.A. 5.38%, 01/07/97 25,000 25,000 ------ TOTAL BANK NOTES (Cost $74,998) 74,998 ------ Maturity -------- REPURCHASE AGREEMENTS--1.5%(c) Salomon Brothers, Inc. 7.00%, Issue Date 12/31/96 Due 01/02/97; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations 271,105 271,000 ----------- TOTAL REPURCHASE AGREEMENTS (Cost $271,000) TOTAL INVESTMENTS--100% (Cost $18,099,442) $18,099,442 ===========
See accompanying Notes to Schedules of Investments. 35 42 SCHWAB GOVERNMENT MONEY FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1996
Par Value -------- ----------- AGENCY OBLIGATIONS--41.1% COUPON NOTES--11.4% Federal Farm Credit Bank 5.55%, 05/02/97 $20,000 $ 19,983 5.85%, 08/01/97 31,000 31,051 5.62%, 09/03/97 20,000 19,996 5.40%, 12/02/97 50,000 49,943 Federal Home Loan Bank 5.43%, 01/10/97 37,000 37,000 4.82%, 01/27/97 17,500 17,489 4.30%, 06/30/97 10,000 9,923 Student Loan Marketing Assoc. 5.99%, 09/18/97 20,000 20,047 Tennessee Valley Authority 6.00%, 01/15/97 20,573 20,575 ------- 226,007 ------- DISCOUNT NOTES--29.7% Federal Home Loan Bank 5.35%, 01/10/97 26,965 26,930 5.62%, 01/15/97 20,000 19,957 5.47%, 01/17/97 25,000 24,940 5.64%, 01/27/97 20,000 19,921 5.55%, 01/29/97 9,865 9,823 5.41%, 02/04/97 19,350 19,254 5.33%, 02/04/97 13,080 13,015 5.39%, 02/18/97 20,000 19,859 Federal Home Loan Mortgage Corp. 5.30%, 01/03/97 7,055 7,053 5.31%, 01/16/97 4,705 4,695 5.32%, 02/10/97 12,050 11,980 5.43%, 02/24/97 23,810 23,618 5.39%, 02/24/97 37,020 36,725 5.46%, 02/26/97 25,000 24,790 5.44%, 02/28/97 7,750 7,683
36 43 - ------------------------------------------------------------------------------
Par Value -------- ----------- Federal National Mortgage Assoc. 5.54%, 01/02/97 $ 25,000 $ 24,996 5.35%, 01/03/97 20,700 20,694 5.69%, 01/10/97 25,545 25,510 5.31%, 01/13/97 5,750 5,740 5.54%, 01/21/97 25,760 25,682 5.60%, 01/24/97 25,000 24,913 5.36%, 01/28/97 22,000 21,913 5.30%, 01/28/97 3,280 3,267 5.29%, 01/28/97 155 154 5.62%, 02/26/97 25,000 24,787 5.37%, 03/06/97 25,055 24,818 5.37%, 03/21/97 25,000 24,709 5.66%, 03/24/97 19,255 19,014 5.41%, 03/24/97 25,000 24,696 5.45%, 04/07/97 20,000 19,717 5.32%, 04/17/97 15,015 14,784 5.39%, 04/21/97 15,000 14,759 ------- 590,396 ------- TOTAL AGENCY OBLIGATIONS (Cost $816,403) 816,403 ------- VARIABLE RATE OBLIGATIONS--18.7%(b) Federal Farm Credit Bank 5.52%, 01/01/97 20,000 19,997 5.46%, 03/01/97 35,000 35,011 Federal Home Loan Bank 5.31%, 02/14/97 20,000 20,000 Federal Home Loan Mortgage Corp. 5.40%, 01/07/97 25,000 24,994 Student Loan Marketing Assoc. 5.62%, 01/07/97 9,165 9,166 5.57%, 01/07/97 100,330 100,316 5.54%, 01/07/97 25,000 25,001 5.46%, 01/07/97 20,000 19,987 5.43%, 01/07/97 15,000 15,000 5.41%, 01/07/97 62,150 62,079 5.39%, 01/07/97 40,000 39,964 ------- TOTAL VARIABLE RATE OBLIGATIONS (Cost $371,515) 371,515 -------
37 44 SCHWAB GOVERNMENT MONEY FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1996
Par Value -------- ----------- U.S. TREASURY OBLIGATIONS--7.6% U.S. Treasury Notes 8.00%, 01/15/97 $25,000 $ 25,024 6.88%, 02/28/97 25,000 25,054 6.50%, 04/30/97 40,000 40,092 6.50%, 05/15/97 35,000 35,077 6.50%, 08/15/97 25,000 25,083 ------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $150,330) 150,330 ------- Maturity -------- REPURCHASE AGREEMENTS--32.6%(c) Credit Suisse First Boston Corp. 5.55%, Issue Date 12/19/96; Last Put Date 12/31/96; Due 01/07/97; Collateralized By: FNMA: $16,660 Par; 6.50%, Due 03/17/18 FNMA: $13,963 Par; 6.50%, Due 12/25/23 29,003 28,918 Credit Suisse First Boston Corp. 5.35%, Issue Date 11/19/96; Last Put Date 12/31/96; Due 01/07/97; Collateralized By: FNMA: $34,215 Par; 5.75%, Due 06/25/06 FHLMC: $15,175 Par; 6.64%, Due 03/18/25 FHLMC: $20,698 Par; 6.69%, Due 08/25/23 FHLMC: $12,100 Par; 6.89%, Due 10/15/23 FHLMC: $680 Par; 7.20%, Due 06/15/18 FHLMC: $1,435 Par; 7.95%, Due 03/15/20 64,322 63,857 Donaldson, Lufkin & Jenrette Securities Corp. 5.38%, Issue Date 12/03/96; Last Put Date 12/30/96; Due 01/06/97; Collateralized By: FHLMC: $3,184 Par; 6.50%, Due 07/15/15 FHLMC: $26,870 Par; 6.50%, Due 02/15/23 28,363 28,220 Donaldson, Lufkin & Jenrette Securities Corp. 5.37%, Issue Date 12/09/96; Last Put Date 12/31/96; Due 01/07/97; Collateralized By: FHLMC: $2,923 Par; 6.79%, Due 04/25/24 FHLMC: $6,579 Par; 7.00%, Due 06/15/18 FNMA: $5,000 Par; 7.50%, Due 03/25/21 FHLMC: $23,565 Par; 6.50%, Due 08/15/22 36,632 36,474 Donaldson, Lufkin & Jenrette Securities Corp. 5.35%, Issue Date 10/18/96; Last Put Date 12/31/96; Due 01/07/97; Collateralized By: FHLMC: $45,535 Par; 6.50%, Due 03/15/24 FNMA: $10,405 Par; 7.50%, Due 10/25/23 32,776 32,386
38 45 - ------------------------------------------------------------------------------
Maturity Value -------- ----------- Donaldson, Lufkin & Jenrette Securities Corp. 5.35%, Issue Date 11/18/96; Last Put Date 12/31/96; Due 01/07/97; Collateralized By: FHLMC: $5,325 Par; 9.00%, Due 04/15/20 FHLMC: $15,000 Par; 6.50%, Due 07/15/18 FHLMC: $28,835 Par; 7.50%, Due 10/15/25 $45,334 $45,000 Lehman Brothers, Inc. 5.45%, Issue Date 12/11/96 Last Put Date 12/26/96; Due 01/02/97; Collateralized By: FHLMC: $16,401 Par; 6.24%, Due 04/15/24 FHLMC: $11,666 Par; 6.50%, Due 12/15/23 25,518 25,433 Lehman Brothers, Inc. 5.38%, Issue Date 12/05/96 Last Put Date 12/31/96; Due 01/07/97; Collateralized By: FNMA: $24,648 Par; 6.25%, Due 08/25/19 FHLMC: $17,628 Par; 6.50%, Due 08/15/20 FHLMC: $6,646 Par; 7.00%, Due 10/15/21 FHLMC: $942 Par; 6.49%, Due 03/15/24 45,092 44,871 Lehman Brothers, Inc. 5.38%, Issue Date 12/03/96 Last Put Date 12/31/96; Due 01/07/97; Collateralized By: FHLMC: $16,790 Par; 5.99%, Due 12/15/22 FNMA: $12,124 Par; 5.86%, Due 06/25/22 28,146 28,000 Salomon Brothers, Inc. 5.36%, Issue Date 11/05/96 Last Put Date 12/30/96; Due 01/06/97; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations 35,865 35,537 Salomon Brothers, Inc. 5.52%, Issue Date 12/19/96 Last Put Date 12/31/96; Due 01/07/97; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations 44,943 44,812 Salomon Brothers, Inc. 5.50%, Issue Date 12/17/96 Last Put Date 12/31/96; Due 01/07/97; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations 33,415 33,308 Salomon Brothers, Inc. 5.46%, Issue Date 12/13/96 Last Put Date 12/31/96; Due 01/07/97; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations 25,503 25,407 Salomon Brothers, Inc. 5.43%, Issue Date 12/10/96 Last Put Date 12/31/96; Due 01/07/97; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations 37,156 37,000 Salomon Brothers, Inc. 5.43%, Issue Date 12/10/96 Last Put Date 12/31/96; Due 01/07/97; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations 43,182 43,000
39 46 SCHWAB GOVERNMENT MONEY FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1996
Maturity Value -------- ----------- Salomon Brothers, Inc. 5.42%, Issue Date 12/06/96 Last Put Date 12/31/96; Due 01/07/97; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations $33,741 $ 33,579 Salomon Brothers, Inc. 5.39%, Issue Date 12/04/96 Last Put Date 12/31/96; Due 01/07/97; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations 26,515 26,381 Salomon Brothers, Inc. 5.35%, Issue Date 10/21/96, Due 01/22/97; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations 35,484 35,000 --------- TOTAL REPURCHASE AGREEMENTS (Cost $647,183) 647,183 --------- TOTAL INVESTMENTS--100% (Cost $1,985,431) $1,985,431 ==========
See accompanying Notes to Schedules of Investments. 40 47 SCHWAB U.S. TREASURY MONEY FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1996
Par Value -------- ---------- U.S. TREASURY OBLIGATIONS--100.0% U.S. Treasury Bills 5.30%, 01/09/97 $ 4,915 $ 4,909 5.08%, 01/09/97 120 120 5.45%, 02/06/97 15,000 14,920 5.07%, 02/06/97 1,015 1,010 5.02%, 03/06/97 2,870 2,845 4.94%, 03/06/97 1,250 1,239 5.12%, 04/24/97 2,105 2,072 U.S. Treasury Notes 7.50%, 01/31/97 272,465 272,934 6.25%, 01/31/97 4,345 4,348 4.75%, 02/15/97 127,845 127,732 6.88%, 02/28/97 288,890 289,565 6.75%, 02/28/97 110,000 110,226 6.88%, 03/31/97 78,045 78,339 6.63%, 03/31/97 10,000 10,034 6.88%, 04/30/97 11,390 11,448 6.50%, 04/30/97 78,305 78,607 8.50%, 05/15/97 13,705 13,854 6.50%, 05/15/97 193,160 193,864 6.13%, 05/31/97 140,200 140,609 5.63%, 06/30/97 6,330 6,339 5.88%, 07/31/97 38,630 38,735 --------- TOTAL INVESTMENTS--100% (Cost $1,403,749) $1,403,749 ==========
See accompanying Notes to Schedules of Investments. 41 48 - ------------------------------------------------------------------------------ NOTES TO SCHEDULES OF INVESTMENTS December 31, 1996 Yields shown are effective yields at the time of purchase, except for variable rate securities which are described below and Treasury and Agency coupon notes which reflect the coupon rate of the security. Yields for each type of security are stated according to the market convention for that security type. For each security, cost (for financial reporting and federal income tax purposes) and carrying value are the same. (a) Certain securities purchased by the Schwab Money Market Fund are private placement securities exempt from registration by Section 4(2) of the Securities Act of 1933. These securities generally are sold to institutional investors, such as the Schwab Money Market Fund. Any resale by the Fund must be in an exempt transaction, normally to a qualified institutional buyer. At December 31, 1996, the aggregate value of private placement securities held by the Schwab Money Market Fund was $3,054,668,000 which represented 16.89% of net assets. Of this total, $2,854,668,000 or 15.79% of net assets, was determined by the Investment Manager to be liquid in accordance with procedures adopted by the Board of Trustees. (b) Variable rate securities. Interest rates vary periodically based on current market rates. Rates shown are the effective rates on December 31, 1996. Dates shown represent the latter of the demand date or next interest rate change date, which is considered the maturity date for financial reporting purposes. For variable rate securities without demand features, the next interest reset date is shown. (c) Due dates shown for repurchase agreements represent either the final maturity date or put date, which is considered the maturity date for financial reporting purposes.
Abbreviations ------------- FGIC Financial Guaranty Insurance Company FHLMC Federal Home Loan Mortgage Corporation FNMA Federal National Mortgage Association LOC Letter of Credit MBIA Municipal Bond Investors Assurance Corporation
See accompanying Notes to Financial Statements. 42 49 - ------------------------------------------------------------------------------ STATEMENTS OF ASSETS AND LIABILITIES (in thousands) December 31, 1996
Schwab Schwab Schwab Money Government U.S. Treasury Market Money Money Fund Fund Fund ----------- ---------- ------------- ASSETS Investments, at value (Cost: $18,099,442, $1,985,431 and $1,403,749, respectively) $18,099,442 $1,985,431 $ 1,403,749 Interest receivable 95,770 13,777 26,251 Prepaid expenses 246 52 38 ---------- --------- --------- Total assets 18,195,458 1,999,260 1,430,038 ---------- --------- --------- LIABILITIES Payable for: Dividends 107,405 11,954 8,107 Investment advisory and administration fee 898 100 46 Transfer agency and shareholder service fees 1,225 151 79 Other 2,259 193 134 ---------- --------- --------- Total liabilities 111,787 12,398 8,366 ---------- --------- --------- Net assets applicable to outstanding shares $18,083,671 $1,986,862 $ 1,421,672 =========== ========== ========== NET ASSETS CONSIST OF: Paid-in-capital $18,084,007 $1,987,318 $ 1,421,929 Accumulated net realized loss on investments sold (336) (456) (257) ---------- --------- --------- $18,083,671 $1,986,862 $ 1,421,672 =========== ========== =========== PRICING OF SHARES Outstanding shares, $0.00001 par value (unlimited shares authorized) 18,084,007 1,987,318 1,421,929 Net asset value, offering and redemption price per share $1.00 $1.00 $1.00
See accompanying Notes to Financial Statements. 43 50 - ------------------------------------------------------------------------------ STATEMENTS OF OPERATIONS (in thousands) Year ended December 31, 1996
Schwab Schwab Schwab Money Government U.S. Treasury Market Money Money Fund Fund Fund -------- ---------- ------------- Interest income $885,054 $107,152 $67,729 -------- -------- ------- Expenses: Investment advisory and administration fee 65,520 8,518 5,722 Transfer agency and shareholder service fees 71,798 8,800 5,732 Custodian fees 1,066 265 220 Registration fees 1,843 130 125 Professional fees 272 52 38 Shareholder reports 1,312 107 54 Trustees' fees 67 14 11 Amortization of deferred organization costs -- -- 11 Insurance and other expenses 310 45 24 -------- -------- ------- 142,188 17,931 11,937 Less: expenses reduced (see Note 4) (22,525) (3,265) (3,658) -------- -------- ------- Total expenses incurred by Fund 119,663 14,666 8,279 -------- -------- ------- Net investment income 765,391 92,486 59,450 Net realized gain (loss) on investments sold 14 (187) (125) -------- -------- ------- Increase in net assets resulting from operations $765,405 $ 92,299 $59,325 ======== ======== =======
See accompanying Notes to Financial Statements. 44 51 - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
Schwab Money Schwab Government Schwab U.S. Treasury Market Fund Money Fund Money Fund -------------------------- ------------------------ ------------------------ /------------------------Year ended December 31,-----------------------------/ 1996 1995 1996 1995 1996 1995 -------------------------- ------------------------ ------------------------ Operations: Net investment income $ 765,391 $ 666,138 $ 92,486 $ 98,873 $ 59,450 $ 51,132 Net realized gain (loss) on investments sold 14 4 (187) (162) (125) (60) ----------- ------------ ----------- ----------- ----------- ----------- Increase in net assets resulting from operations 765,405 666,142 92,299 98,711 59,325 51,072 ----------- ------------ ----------- ----------- ----------- ----------- Dividends to shareholders from net investment income (765,391) (666,138) (92,486) (98,873) (59,450) (51,132) ----------- ------------ ----------- ----------- ----------- ----------- Capital share transactions (at $1.00 per share): Proceeds from shares sold 50,575,596 35,277,474 4,805,031 4,120,476 3,744,370 2,979,266 Net asset value of shares issued in reinvestment of dividends 733,559 630,347 91,224 95,940 56,622 46,352 Less payments for shares redeemed (47,235,885) (33,124,743) (4,793,775) (4,229,013) (3,572,884) (2,635,740) ------------ ------------ ----------- ----------- ----------- ----------- Increase (decrease) in net assets from capital share transactions 4,073,270 2,783,078 102,480 (12,597) 228,108 389,878 ------------ ------------ ----------- ----------- ----------- ----------- Total increase (decrease) in net assets 4,073,284 2,783,082 102,293 (12,759) 227,983 389,818 Net assets: Beginning of period 14,010,387 11,227,305 1,884,569 1,897,328 1,193,689 803,871 ------------ ------------ ----------- ----------- ----------- ----------- End of period $ 18,083,671 $ 14,010,387 $ 1,986,862 $ 1,884,569 $ 1,421,672 $ 1,193,689 ============ ============ =========== =========== =========== ===========
See accompanying Notes to Financial Statements. 45 52 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS Year ended December 31, 1996 1. DESCRIPTION OF THE FUNDS The Schwab Money Market Fund, Schwab Government Money Fund and Schwab U.S. Treasury Money Fund (the "Funds") are series of The Charles Schwab Family of Funds (the "Trust"), an open-end, investment management company organized as a Massachusetts business trust on October 20, 1989 and registered under the Investment Company Act of 1940, as amended. In addition to the three funds described above, the Trust also offers -- the Schwab Municipal Money Fund, Schwab California Municipal Money Fund, Schwab New York Municipal Money Fund, Schwab Value Advantage Money Fund(R), Schwab Institutional Advantage Money Fund(R) and Schwab Retirement Money Fund(R). The assets of each series are segregated and accounted for separately. 2. SIGNIFICANT ACCOUNTING POLICIES The following significant accounting policies are in conformity with generally accepted accounting principles for investment companies. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Security valuation -- Investments are stated at amortized cost which approximates market value. Security transactions, interest income and realized gains (losses) -- Security transactions are accounted for on a trade date basis (date the order to buy or sell is executed). Interest income is accrued daily and includes amortization of premium and accretion of discount on investments. Realized gains and losses from security transactions are determined on an identified cost basis. Repurchase agreements -- Repurchase agreements are fully collateralized by U.S. Treasury or U.S. government agency obligations. All collateral is held by the Funds' custodian, except in the case of a tri-party agreement, the collateral is held by an agent bank. The collateral is monitored daily to 46 53 - ------------------------------------------------------------------------------ ensure that its market value at least equals the repurchase price under the agreement. Dividends to shareholders -- Each Fund declares a daily dividend, equal to its net investment income for that day, payable monthly. Deferred organization costs -- Costs incurred in connection with the organization of the Funds and their initial registration with the Securities and Exchange Commission are amortized on a straight-line basis over a five-year period from each Fund's commencement of operations. Expenses -- Expenses arising in connection with a Fund are charged directly to that Fund. Expenses common to all series of the Trust are generally allocated to each series in proportion to their relative net assets. Federal income taxes -- It is each Fund's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all net investment income and realized net capital gains, if any, to shareholders. Therefore, no federal income tax provision is required. Each Fund is considered a separate entity for tax purposes. 3. TRANSACTIONS WITH AFFILIATES Investment advisory and administration agreements -- The Trust has investment advisory and administration agreements with Charles Schwab Investment Management, Inc. (the "Investment Manager"). For advisory services and facilities furnished, Schwab Money Market Fund pays an annual fee, payable monthly, of 0.46% of the first $2 billion of average daily net assets, 0.45% of the next $1 billion, and 0.40% of such assets in excess of $3 billion. For advisory services and facilities furnished, the Schwab Government Money Fund and Schwab U.S. Treasury Money Fund each pay an annual fee, payable monthly, of 0.46% of the first $1 billion of each Fund's average daily net assets, 0.41% of the next $1 billion, and 0.40% of such assets in excess of $2 billion. The Investment Manager has reduced a portion of its fees for the year ended December 31, 1996 (see Note 4). 47 54 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS Year ended December 31, 1996 Transfer agency and shareholder service agreements -- The Trust has transfer agency and shareholder service agreements with Charles Schwab & Co., Inc. ("Schwab"). For services provided under these agreements, Schwab receives an annual fee, payable monthly, of 0.45% of each Fund's average daily net assets. Schwab has reduced a portion of its fees for the year ended December 31, 1996 (see Note 4). Officers and trustees -- Certain officers and trustees of the Trust are also officers and/or directors of the Investment Manager and/or Schwab. During the year ended December 31, 1996, the Trust made no direct payments to its officers or trustees who are "interested persons" within the meaning of the Investment Company Act of 1940, as amended. The Schwab Money Market Fund, Schwab Government Money Fund and Schwab U.S. Treasury Money Fund incurred fees aggregating $92,000, related to the Trust's unaffiliated trustees. 4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB The Investment Manager and Schwab reduced a portion of their fees in order to limit each Fund's ratio of operating expenses to average net assets. For the year ended December 31, 1996, the total of such fees reduced by the Investment Manager was $19,250,000, $2,847,000 and $3,302,000 for the Schwab Money Market Fund, Schwab Government Money Fund and Schwab U.S. Treasury Money Fund, respectively, and the total of such fees reduced by Schwab was $3,275,000, $418,000 and $356,000 for the Schwab Money Market Fund, Schwab Government Money Fund and Schwab U.S. Treasury Money Fund, respectively (see Note 6). 5. INVESTMENT TRANSACTIONS Purchases and sales, including maturities of investment securities during the year ended December 31, 1996, were as follows (in thousands):
Schwab Schwab Schwab Money Government U.S. Treasury Market Money Money Fund Fund Fund ----------- ---------- -------------- Purchases $61,907,183 $9,909,977 $5,665,609 Proceeds of sales and maturities $57,860,002 $9,810,224 $5,441,207
48 55 - ------------------------------------------------------------------------------ 6. FINANCIAL HIGHLIGHTS For a share outstanding throughout each period:
Schwab Money Market Fund ----------------------------------------------------------------- /--------------------Year ended December 31,--------------------/ 1996 1995 1994 1993 1992 ----------------------------------------------------------------- Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income from investment operations Net investment income 0.05 0.05 0.04 0.03 0.03 Net realized and unrealized gain (loss) on investments -- -- -- -- -- ----------- ----------- ----------- ---------- ---------- Total from investment operations 0.05 0.05 0.04 0.03 0.03 Less distributions Dividends from net investment income (0.05) (0.05) (0.04) (0.03) (0.03) Distributions from realized gain on investments -- -- -- -- -- ----------- ----------- ----------- ---------- ---------- Total distributions (0.05) (0.05) (0.04) (0.03) (0.03) ----------- ----------- ----------- ---------- ---------- Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 =========== =========== =========== ========== ========== Total return 4.91% 5.41% 3.68% 2.67% 3.48% Ratios/Supplemental data Net assets, end of period (000s) $18,083,671 $14,010,387 $11,227,305 $8,164,599 $6,134,167 Ratio of expenses to average net assets+ 0.75% 0.75% 0.74% 0.73% 0.70% Ratio of net investment income to average net assets+ 4.80% 5.27% 3.68% 2.64% 3.40%
- --------------- + The information contained in the above table is based on actual expenses for the periods, after giving effect to the portion of expenses reduced and absorbed by the Investment Manager and Schwab. Had these expenses not been reduced and absorbed, the Fund's expense and net investment income ratios would have been: Ratio of expenses to average net assets 0.89% 0.90% 0.90% 0.91% 0.92% Ratio of net investment income to average net assets 4.66% 5.12% 3.52% 2.46% 3.18%
49 56 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS Year ended December 31, 1996 6. FINANCIAL HIGHLIGHTS (continued)
Schwab Government Money Fund -------------------------------------------------------------- /-------------------Year ended December 31,------------------/ 1996 1995 1994 1993 1992 -------------------------------------------------------------- Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income from investment operations Net investment income 0.05 0.05 0.04 0.03 0.03 Net realized and unrealized gain (loss) on investments -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.05 0.05 0.04 0.03 0.03 Less distributions Dividends from net investment income (0.05) (0.05) (0.04) (0.03) (0.03) Distributions from realized gain on investments -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.05) (0.05) (0.04) (0.03) (0.03) ---------- ---------- ---------- ---------- ---------- Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ========== ========== ========== ========== ========== Total return 4.83% 5.34% 3.62% 2.66% 3.42% Ratios/Supplemental data Net assets, end of period (000s) $1,986,862 $1,884,569 $1,897,328 $1,744,603 $1,592,793 Ratio of expenses to average net assets+ 0.75% 0.75% 0.74% 0.73% 0.72% Ratio of net investment income to average net assets+ 4.73% 5.21% 3.56% 2.63% 3.36%
- --------------- + The information contained in the above table is based on actual expenses for the periods, after giving effect to the portion of expenses reduced and absorbed by the Investment Manager and Schwab. Had these expenses not been reduced and absorbed, the Fund's expense and net investment income ratios would have been: Ratio of expenses to average net assets 0.92% 0.92% 0.92% 0.93% 0.94% Ratio of net investment income to average net assets 4.56% 5.04% 3.38% 2.43% 3.14%
50 57 - ------------------------------------------------------------------------------ 6. FINANCIAL HIGHLIGHTS (continued)
Schwab U.S. Treasury Money Fund -------------------------------------------------------- /--------------Year ended December 31,-----------------/ 1996 1995 1994 1993 1992 -------------------------------------------------------- Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income from investment operations Net investment income 0.05 0.05 0.04 0.03 0.03 Net realized and unrealized gain (loss) on investments -- -- -- -- -- ---------- ---------- -------- -------- -------- Total from investment operations 0.05 0.05 0.04 0.03 0.03 Less distributions Dividends from net investment income (0.05) (0.05) (0.04) (0.03) (0.03) Distributions from realized gain on investments -- -- -- -- -- ---------- ---------- -------- -------- -------- Total distributions (0.05) (0.05) (0.04) (0.03) (0.03) ---------- ---------- -------- -------- -------- Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ========== ========== ======== ======== ======== Total return 4.77% 5.25% 3.52% 2.54% 3.26% Ratios/Supplemental data Net assets, end of period (000s) $1,421,672 $1,193,689 $803,871 $378,143 $178,895 Ratio of expenses to average net assets+ 0.65% 0.65% 0.65% 0.65% 0.59% Ratio of net investment income to average net assets+ 4.67% 5.11% 3.60% 2.50% 2.91%
- --------------- + The information contained in the above table is based on actual expenses for the periods, after giving effect to the portion of expenses reduced and absorbed by the Investment Manager and Schwab. Had these expenses not been reduced and absorbed, the Fund's expense and net investment income ratios would have been: Ratio of expenses to average net assets 0.94% 0.96% 1.00% 1.05% 1.15% Ratio of net investment income to average net assets 4.38% 4.80% 3.25% 2.10% 2.35%
51 58 - ------------------------------------------------------------------------------ To the Board of Trustees and Shareholders of the Schwab Money Market Fund, Schwab Government Money Fund and Schwab U.S. Treasury Money Fund In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Schwab Money Market Fund, Schwab Government Money Fund and Schwab U.S. Treasury Money Fund (three series constituting part of The Charles Schwab Family of Funds, hereafter referred to as the "Trust") at December 31, 1996, 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 generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trust's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 1996 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP San Francisco, California January 31, 1997 52 59 THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU. 60 THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU. 61 THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU. 62 THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU. 63 SCHWABFUNDS FAMILY(R) The SchwabFunds Family includes a variety of funds to help meet your investment needs. You can diversify your portfolio in a single step with our asset allocation funds. Or you can customize your portfolio with a combination of our stock funds as well as our taxable and tax-advantaged bond and money funds. SCHWAB ASSET ALLOCATION FUNDS Schwab Asset Director(R) -- High Growth Fund Schwab Asset Director -- Balanced Growth Fund Schwab Asset Director -- Conservative Growth Fund Schwab OneSource Portfolios -- Growth Allocation Schwab OneSource Portfolios -- Balanced Allocation SCHWAB STOCK FUNDS Schwab 1000 Fund(R) Schwab S&P 500 Fund Schwab Analytics Fund(TM) Schwab Small-Cap Index Fund(R) Schwab International Index Fund(R) Schwab OneSource Portfolios -- International SCHWAB BOND FUNDS Schwab Government Bond Funds -- Long-Term and Short/Intermediate Schwab Tax-Free Bond Funds -- Long-Term and Short/Intermediate Schwab California Tax-Free Bond Funds -- Long-Term and Short/Intermediate SCHWAB MONEY MARKET FUNDS Schwab offers an array of money market funds* that seek high current income with safety and liquidity. 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). Please call 1-800-2 NO-LOAD for a free prospectus and brochure for any of the SchwabFunds(R). Each prospectus provides more complete information, including charges and expenses. Please read it carefully before investing. This report must be preceded or accompanied by a current prospectus. * Investments in money market funds are neither insured nor guaranteed by the U.S. government, and there is no assurance that the funds will be able to maintain a stable share price of $1. 64 SCHWABFUNDS ============== FAMILY [LOGO] (R) BULK RATE U.S. POSTAGE 101 Montgomery Street PAID San Francisco, California 94104 CHARLES SCHWAB ============== INVESTMENT ADVISOR Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 DISTRIBUTOR Charles Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA 94104 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)1997 Charles Schwab & Co., Inc. All rights reserved. Member SIPC/NYSE. TF4499R(2/97) CRS 11011 Printed on recycled paper. -----END PRIVACY-ENHANCED MESSAGE-----