-----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, EYXxY1ivut33L4+cvyqMUJL+4Kp/tUDcxE4RBwVYzXhKHBZlNOlMcYVweBR6Hk2b PlwPZLiRUwApAuwCtqS/9Q== 0001047469-98-024976.txt : 19980624 0001047469-98-024976.hdr.sgml : 19980624 ACCESSION NUMBER: 0001047469-98-024976 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980623 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: SEC FILE NUMBER: 811-05954 FILM NUMBER: 98652292 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 N-30D SchwabFunds SCHWAB VALUE ADVANTAGE MONEY FUND-Registered Trademark- Annual Report December 31, 1997 [Photo] Dear Shareholder, With the support of investors like you, SchwabFunds-Registered Trademark- continues to be among the largest and fastest-growing mutual fund families in the nation. Charles Schwab Investment Management, Inc. (CSIM) now manages over $56 billion in assets for nearly 3 million SchwabFunds shareholders and offers 31 funds spanning a spectrum of financial markets and investing styles. MAINTAINING A LONG-TERM PERSPECTIVE The recent volatility in both domestic and international markets reminds us that investments can move in both directions, down as well as up, especially in the short term. For this reason, it is extremely important that you develop and stick with a long-term investment plan that is appropriate for your personal goals, time horizon and tolerance for risk. While it's a good idea to periodically review your portfolio, I would encourage you to avoid making changes merely in response to short-term market movements. If you have any questions about your own investment plan or need help getting started, contact your local Schwab branch to set up a free consultation with one of our representatives. Additionally, I encourage you to visit our Web site at WWW.SCHWAB.COM/SCHWABFUNDS, where you'll find online resources and tools to help you evaluate or develop your investment plan. NEW INVESTMENT OPPORTUNITIES As a strong proponent of indexing as an investment strategy, we've expanded our indexing offering to include bond index funds. SchwabFunds is happy to introduce the Short-Term Bond Market Index Fund and the Total Bond Market Index Fund.(1) Each Fund is broad-based and diversified and seeks to track an index representing a broad spectrum of the bond market. These Funds are straightforward choices for your bond holdings and can represent the core component of your bond portfolio. In addition, we introduced two new municipal money funds in early February. The Schwab New Jersey Municipal Money Fund and the Schwab Pennsylvania Municipal Money Fund are designed to offer taxpayers in those states opportunities for additional tax savings.(2) For a free prospectus on the Schwab Bond Index Funds, the Schwab New Jersey Municipal Money Fund, the Schwab Pennsylvania Municipal Money Fund or any other SchwabFund, please call us toll-free at 1-800-435-4000. The prospectus contains more information, including fees and expenses. Please be sure to read the prospectus before investing. Thank you for placing your trust in SchwabFunds. We will continue to explore new strategies to help meet your investment needs and to provide you with timely information on SchwabFunds. /s/ Charles R. Schwab Charles R. Schwab (1) Formerly the Schwab Short/Intermediate Government Bond Fund and the Schwab Long-Term Government Bond Fund, respectively. (2) Income may be subject to the alternative minimum tax (AMT). TABLE OF CONTENTS
Page ----- A Word from SchwabFunds-Registered Trademark-................................... 2 Schwab Value Advantage Money Fund-Registered Trademark-......................... 3 The Portfolio Management Team................................................... 5 Market Overview................................................................. 6 Questions to the Portfolio Management Team...................................... 11 Glossary of Terms............................................................... 13 Portfolio Summary............................................................... 14 Financial Statements and Notes.................................................. 15
1 A WORD FROM SCHWABFUNDS-REGISTERED TRADEMARK- We're pleased to report on the performance of the Schwab Value Advantage Money Fund-Registered Trademark- for the one-year period ended December 31, 1997. This report includes only the Investor Shares of the Fund, as the Sweep Shares are currently not available for purchase. During the reporting period, the Investor Shares of the Fund continued to provide investors with higher than average money market fund yields on their larger cash balances, combined with capital stability and liquidity. The following pages contain information on the Schwab Value Advantage Money Fund--Investor Shares' performance during the reporting period and on the Fund's portfolio. Please remember that while the Fund seeks to maintain a stable $1.00 share price to protect your principal, as with all money funds, there can be no assurance that the Fund will be able to maintain a $1.00 net asset value per share. It is also important to understand that your investment in the Fund is not insured or guaranteed by the U.S. Government. The Value Advantage Investments-Registered Trademark-, which include the Schwab Value Advantage Money Fund--Investor Shares, as well as three tax-advantaged alternatives, were designed as longer-term money market investment vehicles for larger cash balances that do not require frequent access. As such, they may help fill the cash equivalent sector in your asset allocation plan. Each Fund is managed both to attempt to provide maximum money market income and to preserve capital. It is important to note that unlike Sweep Investments-TM-, the Value Advantage Investments are not designed to automatically cover negative balances in your Schwab account. If you expect to access your money regularly, you may wish to consider investing your short-term cash balances in one of our six sweep money fund products. Our sweep money funds, which also include both taxable and tax-advantaged choices, can be linked to your Schwab account to keep your money invested and available to automatically cover day-to-day transactions such as trade settlements. If you would like more information on the Value Advantage Investments or on other Schwab Money Funds, please call our toll-free line, 1-800-435-4000, and request a free prospectus which contains more information, including fees and expenses. Please be sure to read the prospectus carefully before investing. 2 SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK- PERFORMANCE REVIEW The table below presents 7-day yields as of the end of the reporting period for the Fund. Please remember that money market fund yields fluctuate and past performance is no guarantee of future results.
YIELD SUMMARY AS OF 12/31/97(1) Investor Shares - ----------------------------------------------------------------------------------------- 7-Day Yield 5.46% - ----------------------------------------------------------------------------------------- 7-Day Effective Yield 5.61% - -----------------------------------------------------------------------------------------
YIELD ADVANTAGE The Schwab Value Advantage Money Fund offers you the potential to earn higher yields than most money market funds. The Fund is designed for cash reserves that you do not need to access regularly and, as such, has minimum balance and transaction policies to keep operating expenses low. These lower expenses can mean higher yields for shareholders. The chart below presents the 7-day yields on a weekly basis for the Investor Shares of the Fund and for the average taxable money fund, and shows that the Investor Shares of the Fund consistently outperformed the average of their category during the reporting period. 7-DAY YIELDS FOR THE PERIOD FROM 1/7/97 - 12/30/97(2) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SCHWAB VALUE ADVANTAGE MONEY FUND - INVESTOR SHARES IBC FINANCIAL DATA INC.'S MONEY FUND AVERAGE 1/7 5.11 4.81 1/14 5.12 4.76 1/21 5.12 4.76 1/28 5.12 4.75 2/4 5.12 4.78 2/11 5.13 4.75 2/18 5.13 4.74 2/25 5.11 4.73 3/4 5.12 4.75 3/11 5.12 4.72 3/18 5.12 4.73 3/25 5.11 4.74 4/1 5.14 4.82 4/8 5.15 4.82 4/15 5.18 4.84 4/22 5.19 4.86 4/29 5.22 4.89 5/6 5.26 4.9 5/13 5.28 4.9 5/20 5.3 4.91 5/27 5.31 4.93 6/3 5.34 4.94 6/10 5.35 4.93 6/17 5.36 4.95 6/24 5.35 4.94 7/1 5.36 4.97 7/8 5.36 4.95 7/15 5.37 4.94 7/22 5.34 4.93 7/29 5.34 4.93 8/5 5.35 4.95 8/12 5.34 4.92 8/19 5.34 4.95 8/26 5.32 4.93 9/2 5.33 4.95 9/9 5.33 4.92 9/16 5.33 4.94 9/23 5.31 4.93 9/30 5.32 4.95 10/7 5.32 4.92 10/14 5.32 4.9 10/21 5.32 4.92 10/28 5.33 4.93 11/4 5.34 4.95 11/11 5.34 4.93 11/18 5.36 4.95 11/25 5.35 4.96 12/2 5.37 5 12/9 5.39 5 12/16 5.41 5.03 12/23 5.44 5.06 12/30 5.46 5.07
(1) A portion of the Fund's expenses were reduced during the reporting period. Without these reductions, as of 12/31/97, the 7-day yield and the 7-day effective yield for the Fund would have been 5.18% and 5.31%, respectively. (2) Source: IBC Financial Data, Inc. Average 7-day yield of funds in the first-tier category of taxable money funds for each week ending 1/7 - 12/30/97. Weekly number of funds in the category ranged from 272 to 286. A portion of the Fund's expenses were reduced during the reporting period. Without these reductions, the 7-day yields for the Fund would have been lower. 3 PORTFOLIO COMPOSITION The Schwab Value Advantage Money Fund-Registered Trademark- invests primarily in high-quality commercial paper and other corporate obligations, bank certificates of deposit, time deposits, and bankers' acceptances, as well as repurchase agreements and U.S. Government obligations. The chart below illustrates the composition of the Fund's portfolio as of December 31, 1997 and is not indicative of the holdings after that date. A complete listing of the securities in the Fund's portfolio as of December 31, 1997 is provided in the Schedule of Investments later in this report. SCHWAB VALUE ADVANTAGE MONEY FUND Portfolio Composition as of December 31, 1997 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Commercial Paper & Other Corporate Obligations 80% Certificates of Deposit 12% Variable Rate Obligations 6% Other 2%
4 THE PORTFOLIO MANAGEMENT TEAM STEPHEN B. WARD--Senior Vice President and Chief Investment Officer--has overall responsibility for the management of the Fund's portfolio. Steve joined Charles Schwab Investment Management, Inc. (CSIM) as Vice President and Portfolio Manager in April 1991 and was promoted to his current position in August 1993. Prior to joining CSIM, Steve was Vice President and Portfolio Manager at Federated Investors. LINDA KLINGMAN--Vice President and Senior Portfolio Manager--has managed the Schwab Value Advantage Money Fund-Registered Trademark- since its inception in 1992. Linda joined CSIM in 1990 and was promoted to her current position in August 1996. Prior to joining CSIM, Linda was Senior Money Market Trader with AIM Management. THE FOLLOWING MARKET OVERVIEW AND ANSWERS TO QUESTIONS ARE PROVIDED BY THE PORTFOLIO MANAGEMENT TEAM. A GLOSSARY OF TERMS IS PROVIDED FOR YOUR REFERENCE ON PAGE 13. 5 MARKET OVERVIEW EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
QUARTERLY GDP GROWTH RATE Q1 1990 3.9% Q2 1990 1.2% Q3 1990 -1.9% Q4 1990 -4.0% Q1 1991 -2.1% Q2 1991 1.8% 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 2.0% Q3 1993 2.1% Q4 1993 5.3% Q1 1994 3.0% Q2 1994 4.7% Q3 1994 1.8% Q4 1994 3.6% Q1 1995 0.9% Q2 1995 0.3% Q3 1995 3.0% Q4 1995 2.2% Q1 1996 1.8% Q2 1996 6.0% Q3 1996 1.0% Q4 1996 4.3% Q1 1997 4.9% Q2 1997 3.3% Q3 1997 3.1% Q4 1997 4.3% Source: Bloomberg L.P.
- - The real GDP growth rate was 3.2% for 1996 and 3.8% for 1997--healthy rates of growth for the economy, well in excess of the Federal Reserve's projected non-inflationary growth rate of 2.2%. - - The direct impact of the economic problems of Pacific Rim countries on 1998 U.S. GDP growth is anticipated to be relatively minor. Estimates range from a reduction of 0.25% (as estimated by the Federal Reserve's Chairman Alan Greenspan) to 1%. At the time of this writing, the economy appears poised for continued growth, further extending the current economic expansion that began in 1991. - - Prior to the fourth quarter onset of the "Asian Flu," the strength of the economy and tight labor markets continued to lead to speculation of a potential acceleration in both wage and price inflation and whether a more restrictive Federal Reserve policy was imminent. Throughout most of the reporting period, the Federal Reserve was "on alert" for signs of accelerating inflation, whether caused by tight labor markets or consumer spending fueled by a strong stock market. With the onset of the economic problems in Pacific Rim countries and their potential impact on the U.S. economy, sentiment has shifted--there is no clear consensus whether the Federal Reserve's next move will be to raise or lower short-term rates. 6 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
U.S. UNEMPLOYMENT RATE Jan-90 5.4% Feb-90 5.3% Mar-90 5.2% Apr-90 5.4% May-90 5.4% Jun-90 5.2% Jul-90 5.5% Aug-90 5.7% Sep-90 5.9% Oct-90 5.9% Nov-90 6.2% Dec-90 6.3% Jan-91 6.4% Feb-91 6.6% Mar-91 6.8% Apr-91 6.7% May-91 6.9% Jun-91 6.9% Jul-91 6.8% Aug-91 6.9% Sep-91 6.9% Oct-91 7.0% Nov-91 7.0% Dec-91 7.3% Jan-92 7.3% Feb-92 7.4% Mar-92 7.4% Apr-92 7.4% May-92 7.6% Jun-92 7.8% Jul-92 7.7% Aug-92 7.6% Sep-92 7.6% Oct-92 7.3% Nov-92 7.4% Dec-92 7.4% Jan-93 7.3% Feb-93 7.1% Mar-93 7.0% Apr-93 7.1% May-93 7.1% Jun-93 7.0% Jul-93 6.9% Aug-93 6.8% Sep-93 6.7% Oct-93 6.8% Nov-93 6.6% Dec-93 6.5% Jan-94 6.7% Feb-94 6.6% Mar-94 6.5% Apr-94 6.4% May-94 6.0% Jun-94 6.1% Jul-94 6.1% Aug-94 6.1% Sep-94 5.9% Oct-94 5.8% Nov-94 5.6% Dec-94 5.4% Jan-95 5.6% Feb-95 5.5% Mar-95 5.4% Apr-95 5.7% May-95 5.6% Jun-95 5.6% Jul-95 5.7% Aug-95 5.7% Sep-95 5.7% Oct-95 5.5% Nov-95 5.6% Dec-95 5.6% Jan-96 5.7% Feb-96 5.5% Mar-96 5.5% Apr-96 5.5% May-96 5.5% Jun-96 5.3% Jul-96 5.4% Aug-96 5.2% Sep-96 5.2% Oct-96 5.2% Nov-96 5.3% Dec-96 5.3% Jan-97 5.4% Feb-97 5.3% Mar-97 5.2% Apr-97 4.9% May-97 4.8% Jun-97 5.0% Jul-97 4.8% Aug-97 4.9% Sep-97 4.9% Oct-97 4.7% Nov-97 4.6% Dec-97 4.7% Source: Bloomberg L.P.
- - Job growth has remained robust and the unemployment rate reached a new low for this decade during the reporting period. In fact, the monthly fourth quarter rates of 4.7%, 4.6% and 4.7% for October, November and December, respectively, represent the lowest unemployment rates in 24 years. - - Although inflation has been well contained, the combination of a tight labor market (as evidenced by low unemployment rates) and strong economic growth typically leads to inflationary pressures on wages and, ultimately, prices. In this environment, productivity growth becomes particularly important. Strong productivity gains, such as we experienced in the second and third quarters, allow manufacturers to keep a lid on prices in the face of rising wages without trimming profit margins. 7 MARKET OVERVIEW (continued) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MEASURES OF INFLATION Monthly Consumer Price Index Quarterly Employment Cost Index 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% Jan-97 3.0% 2.8% Feb-97 3.0% 2.8% Mar-97 2.8% 2.8% Apr-97 2.5% 2.8% May-97 2.2% 2.8% Jun-97 2.3% 2.8% Jul-97 2.2% 3.0% Aug-97 2.2% 3.0% Sep-97 2.2% 3.0% Oct-97 2.1% 3.2% Nov-97 1.8% 3.2% Dec-97 1.7% 3.2%
- - Both the Employment Cost Index and Consumer Price Index (CPI) remained in check throughout 1997, reflecting continued low levels of inflation. - - The CPI rose 1.7% during 1997--the lowest rate of increase since 1986. Its core rate (which excludes the more volatile food and energy components) rose 2.2%--the lowest rate of increase since 1965. - - Even though current levels of inflation are very low, the Federal Reserve indicated throughout most of the reporting period that the economy remains in the zone where inflation risks are increasing, and that it is poised to act preemptively by raising interest rates if necessary. The Federal Reserve did take action earlier this year in March, increasing the Federal Funds Rate by 0.25% to 5.50%. At the end of the reporting period, however, sentiment was mixed regarding the direction and timing of the Federal Reserve's next action. 8 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
YIELDS ON 90-DAY COMMERCIAL PAPER AND 3-MONTH TREASURY BILLS FOR THE PERIOD 1/2/97 - 12/31/97 3 Month Treasury Bill 90 Day Commercial Paper 1/2/97 5.18% 5.30% 1/3/97 5.16% 5.29% 1/6/97 5.17% 5.32% 1/7/97 5.15% 5.32% 1/8/97 5.15% 5.29% 1/9/97 5.12% 5.30% 1/10/97 5.16% 5.30% 1/13/97 5.17% 5.34% 1/14/97 5.16% 5.29% 1/15/97 5.14% 5.31% 1/16/97 5.16% 5.29% 1/17/97 5.15% 5.30% 1/20/97 5.15% 5.30% 1/21/97 5.15% 5.29% 1/22/97 5.16% 5.30% 1/23/97 5.16% 5.27% 1/24/97 5.16% 5.32% 1/27/97 5.19% 5.32% 1/28/97 5.19% 5.32% 1/29/97 5.17% 5.31% 1/30/97 5.17% 5.28% 1/31/97 5.15% 5.30% 2/3/97 5.11% 5.30% 2/4/97 5.13% 5.28% 2/5/97 5.12% 5.28% 2/6/97 5.13% 5.30% 2/7/97 5.12% 5.27% 2/10/97 5.13% 5.26% 2/11/97 5.14% 5.29% 2/12/97 5.14% 5.29% 2/13/97 5.12% 5.27% 2/14/97 5.08% 5.26% 2/17/97 5.09% 5.26% 2/18/97 5.09% 5.25% 2/19/97 5.10% 5.25% 2/20/97 5.08% 5.26% 2/21/97 5.09% 5.20% 2/24/97 5.11% 5.22% 2/25/97 5.15% 5.24% 2/26/97 5.18% 5.23% 2/27/97 5.20% 5.38% 2/28/97 5.22% 5.35% 3/3/97 5.23% 5.37% 3/4/97 5.23% 5.29% 3/5/97 5.19% 5.30% 3/6/97 5.21% 5.29% 3/7/97 5.21% 5.29% 3/10/97 5.19% 5.29% 3/11/97 5.17% 5.30% 3/12/97 5.19% 5.30% 3/13/97 5.23% 5.30% 3/14/97 5.23% 5.32% 3/17/97 5.25% 5.34% 3/18/97 5.29% 5.37% 3/19/97 5.29% 5.38% 3/20/97 5.34% 5.39% 3/21/97 5.40% 5.50% 3/24/97 5.38% 5.50% 3/25/97 5.39% 5.52% 3/26/97 5.34% 5.53% 3/27/97 5.37% 5.54% 3/28/97 5.37% 5.54% 3/31/97 5.32% 5.55% 4/1/97 5.30% 5.53% 4/2/97 5.29% 5.58% 4/3/97 5.25% 5.55% 4/4/97 5.27% 5.54% 4/7/97 5.27% 5.61% 4/8/97 5.23% 5.59% 4/9/97 5.22% 5.58% 4/10/97 5.29% 5.53% 4/11/97 5.28% 5.52% 4/14/97 5.29% 5.58% 4/15/97 5.29% 5.56% 4/16/97 5.29% 5.58% 4/17/97 5.29% 5.58% 4/18/97 5.28% 5.57% 4/21/97 5.26% 5.60% 4/22/97 5.32% 5.60% 4/23/97 5.34% 5.62% 4/24/97 5.30% 5.57% 4/25/97 5.31% 5.54% 4/28/97 5.30% 5.61% 4/29/97 5.26% 5.56% 4/30/97 5.23% 5.57% 5/1/97 5.21% 5.60% 5/2/97 5.22% 5.57% 5/5/97 5.11% 5.60% 5/6/97 5.17% 5.56% 5/7/97 5.22% 5.59% 5/8/97 5.21% 5.63% 5/9/97 5.16% 5.55% 5/12/97 5.15% 5.59% 5/13/97 5.20% 5.57% 5/14/97 5.16% 5.57% 5/15/97 5.11% 5.58% 5/16/97 5.18% 5.58% 5/19/97 5.30% 5.56% 5/20/97 5.20% 5.59% 5/21/97 5.12% 5.59% 5/22/97 5.17% 5.59% 5/23/97 5.16% 5.54% 5/26/97 5.16% 5.54% 5/27/97 5.11% 5.56% 5/28/97 5.13% 5.53% 5/29/97 5.01% 5.57% 5/30/97 4.94% 5.54% 6/2/97 4.84% 5.59% 6/3/97 5.07% 5.57% 6/4/97 5.07% 5.56% 6/5/97 5.11% 5.52% 6/6/97 5.04% 5.54% 6/9/97 5.03% 5.54% 6/10/97 5.03% 5.53% 6/11/97 4.96% 5.55% 6/12/97 4.95% 5.52% 6/13/97 4.96% 5.53% 6/16/97 4.97% 5.54% 6/17/97 5.04% 5.54% 6/18/97 5.07% 5.54% 6/19/97 5.07% 5.52% 6/20/97 5.06% 5.53% 6/23/97 5.15% 5.54% 6/24/97 5.18% 5.54% 6/25/97 5.10% 5.52% 6/26/97 5.12% 5.51% 6/27/97 5.14% 5.53% 6/30/97 5.17% 5.56% 7/1/97 5.23% 5.52% 7/2/97 5.22% 5.56% 7/3/97 5.14% 5.52% 7/4/97 5.13% 5.52% 7/7/97 5.07% 5.52% 7/8/97 5.11% 5.51% 7/9/97 5.10% 5.49% 7/10/97 5.15% 5.47% 7/11/97 5.13% 5.49% 7/14/97 5.14% 5.50% 7/15/97 5.19% 5.50% 7/16/97 5.18% 5.50% 7/17/97 5.21% 5.48% 7/18/97 5.24% 5.47% 7/21/97 5.27% 5.48% 7/22/97 5.23% 5.50% 7/23/97 5.19% 5.44% 7/24/97 5.21% 5.45% 7/25/97 5.22% 5.47% 7/28/97 5.23% 5.48% 7/29/97 5.24% 5.45% 7/30/97 5.23% 5.47% 7/31/97 5.23% 5.45% 8/1/97 5.27% 5.48% 8/4/97 5.26% 5.48% 8/5/97 5.29% 5.47% 8/6/97 5.29% 5.48% 8/7/97 5.30% 5.46% 8/8/97 5.28% 5.49% 8/11/97 5.29% 5.48% 8/12/97 5.32% 5.51% 8/13/97 5.31% 5.49% 8/14/97 5.33% 5.49% 8/15/97 5.24% 5.49% 8/18/97 5.27% 5.50% 8/19/97 5.22% 5.48% 8/20/97 5.23% 5.49% 8/21/97 5.24% 5.49% 8/22/97 5.23% 5.45% 8/25/97 5.28% 5.46% 8/26/97 5.27% 5.50% 8/27/97 5.28% 5.49% 8/28/97 5.21% 5.46% 8/29/97 5.22% 5.48% 9/1/97 5.22% 5.48% 9/2/97 5.19% 5.52% 9/3/97 5.13% 5.48% 9/4/97 5.14% 5.51% 9/5/97 5.15% 5.50% 9/8/97 5.14% 5.49% 9/9/97 5.12% 5.50% 9/10/97 5.09% 5.48% 9/11/97 5.13% 5.47% 9/12/97 5.09% 5.48% 9/15/97 5.13% 5.49% 9/16/97 5.08% 5.49% 9/17/97 5.09% 5.48% 9/18/97 5.08% 5.48% 9/19/97 5.04% 5.45% 9/22/97 5.02% 5.48% 9/23/97 4.98% 5.49% 9/24/97 4.92% 5.45% 9/25/97 4.91% 5.46% 9/26/97 4.98% 5.48% 9/29/97 4.99% 5.50% 9/30/97 5.10% 5.48% 10/1/97 5.10% 5.46% 10/2/97 5.06% 5.49% 10/3/97 5.01% 5.47% 10/6/97 4.97% 5.47% 10/7/97 5.05% 5.46% 10/8/97 5.09% 5.47% 10/9/97 5.11% 5.48% 10/10/97 5.12% 5.50% 10/13/97 5.12% 5.50% 10/14/97 5.07% 5.49% 10/15/97 5.04% 5.51% 10/16/97 5.06% 5.48% 10/17/97 5.04% 5.54% 10/20/97 5.03% 5.54% 10/21/97 5.10% 5.54% 10/22/97 5.15% 5.52% 10/23/97 5.12% 5.54% 10/24/97 5.13% 5.54% 10/27/97 5.03% 5.55% 10/28/97 5.26% 5.49% 10/29/97 5.14% 5.54% 10/30/97 5.14% 5.53% 10/31/97 5.20% 5.56% 11/3/97 5.23% 5.54% 11/4/97 5.25% 5.53% 11/5/97 5.24% 5.54% 11/6/97 5.31% 5.53% 11/7/97 5.29% 5.55% 11/10/97 5.33% 5.54% 11/11/97 5.31% 5.54% 11/12/97 5.26% 5.62% 11/13/97 5.26% 5.59% 11/14/97 5.25% 5.67% 11/17/97 5.30% 5.63% 11/18/97 5.29% 5.62% 11/19/97 5.27% 5.61% 11/20/97 5.27% 5.64% 11/21/97 5.24% 5.61% 11/24/97 5.27% 5.63% 11/25/97 5.29% 5.65% 11/26/97 5.21% 5.63% 11/27/97 5.22% 5.63% 11/28/97 5.20% 5.63% 12/1/97 5.23% 5.64% 12/2/97 5.25% 5.67% 12/3/97 5.23% 5.67% 12/4/97 5.25% 5.67% 12/5/97 5.31% 5.69% 12/8/97 5.32% 5.67% 12/9/97 5.23% 5.72% 12/10/97 5.18% 5.69% 12/11/97 5.17% 5.68% 12/12/97 5.17% 5.68% 12/15/97 5.22% 5.70% 12/16/97 5.20% 5.69% 12/17/97 5.24% 5.66% 12/18/97 5.23% 5.64% 12/19/97 5.38% 5.62% 12/22/97 5.43% 5.67% 12/23/97 5.47% 5.64% 12/24/97 5.37% 5.69% 12/25/97 5.37% 5.69% 12/26/97 5.33% 5.67% 12/29/97 5.39% 5.65% 12/30/97 5.38% 5.65% 12/31/97 5.37% 5.57% Source: Bloomberg L.P.
- - Commercial paper rates experienced a moderate increase in the second quarter (following the March Federal Funds Rate hike) and again in the fourth quarter. Throughout most of the reporting period, however, rates remained relatively stable, as illustrated by the 90-day commercial paper yields in the above chart. More notably, the spread between commercial paper and U.S. Treasury bill yields widened significantly during the second quarter and continued to exhibit volatility during the remainder of the reporting period. - - Initially, the widening of the spread between U.S. Treasury bill and commercial paper yields, which made U.S. Treasury bills relatively less attractive than commercial paper, resulted from a reduced supply of U.S. Treasury bills. This reduction in supply was caused by unexpectedly large federal tax receipts collected in April, which led to lower government financing needs. In other words, the spread widening was the result of supply and demand conditions in the U.S. Treasury bill market, not the result of credit concerns in the commercial paper market. - - During September, the spread again widened. This time, however, it was primarily a result of what is typically referred to as a "flight to quality." Investors, concerned about the volatility in the foreign equity markets, sought refuge in U.S. Treasury securities, thereby driving down their yields relative to those of commercial paper. 9 MARKET OVERVIEW (continued) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
90-DAY MUNICIPAL COMMERCIAL PAPER YIELDS FOR THE PERIOD 1/7/97 - 12/30/97 1/7/97 3.25% 1/14/97 3.45% 1/21/97 3.45% 1/28/97 3.55% 2/4/97 3.40% 2/11/97 3.45% 2/18/97 3.35% 2/25/97 3.40% 3/4/97 3.35% 3/11/97 3.30% 3/18/97 3.40% 3/25/97 3.50% 4/1/97 3.45% 4/8/97 3.65% 4/15/97 3.60% 4/22/97 3.70% 4/29/97 3.70% 5/6/97 3.65% 5/13/97 3.75% 5/20/97 3.70% 5/27/97 3.70% 6/3/97 3.65% 6/10/97 3.70% 6/17/97 3.75% 6/24/97 3.70% 7/1/97 3.60% 7/8/97 3.60% 7/16/97 3.65% 7/23/97 3.65% 7/30/97 3.65% 8/6/97 3.60% 8/13/97 3.60% 8/20/97 3.60% 8/27/97 3.65% 9/3/97 3.70% 9/10/97 3.80% 9/17/97 3.80% 9/24/97 3.80% 10/1/97 3.65% 10/8/97 3.65% 10/15/97 3.75% 10/22/97 3.75% 10/29/97 3.75% 11/5/97 3.70% 11/12/97 3.75% 11/19/97 3.75% 11/26/97 3.80% 12/3/97 3.60% 12/10/97 3.60% 12/17/97 3.75% 12/23/97 3.75% 12/30/97 3.75% Source: Lehman Brothers, Inc.
- - Municipal commercial paper yields increased slightly during the weeks following the Federal Funds Rate hike in March but then remained relatively stable throughout the remainder of the reporting period, as illustrated in the above chart. In fact, municipal commercial paper yields exhibited a pattern similar to that of taxable commercial paper yields during the reporting period, as shown in the chart on page 9. 10 QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM Q HOW HAS THE PORTFOLIO MANAGEMENT TEAM ADJUSTED THE FUND'S PORTFOLIO TO RESPOND TO CHANGES IN INTEREST RATES? A During the reporting period, we adjusted the dollar-weighted average maturity (DWAM) of the portfolio in order to buy higher yielding money market instruments available as a result of market fluctuations. Although most economists had accurately predicted the 0.25% increase in the Federal Funds Rate prior to the Federal Open Market Committee meeting held on March 25, 1997, there was speculation that further increases in the Federal Funds Rate were possible. We believed that, without a clear indication of inflationary pressures, further increases in the Federal Funds Rate were unlikely. Consequently, we seized the opportunity to add securities with longer maturities (and higher yields) to the Fund's portfolio. Throughout the reporting period, we maintained slightly longer maturities in our Fund's portfolio compared to funds with similar investment objectives. This strategy had a beneficial impact on the Fund's yields throughout most of the reporting period. Q WHAT IMPACT HAVE THE ECONOMIC PROBLEMS IN THE PACIFIC RIM HAD ON THE MANAGEMENT OF THE FUND'S PORTFOLIO? A Beginning in the fourth quarter of 1997, many Asian countries experienced economic problems and severe currency devaluations--collectively referred to as the "Asian Flu." Although it is a serious global problem, and will no doubt have a credit impact on issuers of securities in those countries and their economies, it has not had a significant effect on issuers of what typically are considered money market-eligible securities. Nevertheless, we continue, as always, to carefully monitor the creditworthiness of any issuers of securities considered for investment in the Schwab Value Advantage Money Fund-Registered Trademark-. During the reporting period, the Schwab Value Advantage Money Fund did, as a precaution, reduce its exposure to Japanese issuers of commercial paper, Japanese providers of credit enhancements and certificates of deposit issued by Japanese banks. As of the June 30, 1997 semi-annual report, the Fund's total Japanese exposure was 3.45% of net assets. By December 31, 1997, the end of the reporting period, the Fund's total Japanese exposure had been reduced to just 1.34% of net assets. There has been a great deal of speculation as to what impact the "Asian Flu" will have on U.S. economic growth, future inflation and Federal Reserve policy. U.S. manufacturers of goods exported to Pacific Rim countries may be affected. At this time, the range of projections for the potential reduction in 1998 GDP growth is generally between 0.25% to 1%, while expectations for 1998 earnings growth of the S&P 500 have been pared back from between 10% and 14% to forecasts between 5.5% and 10%. Expectations that the Federal Reserve will raise short-term rates have shifted to expectations that it may instead actually lower short-term rates. 11 QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM (continued) Q WHAT FACTORS SHOULD I CONSIDER WHEN SELECTING MONEY FUNDS AT SCHWAB? A Schwab offers two types of money funds, Sweep Investments-TM- and Value Advantage Investments-Registered Trademark-, both of which offer taxable and tax-advantaged alternatives. Depending on your investment objectives and risk tolerance, either or both types of funds may have a place in your investment plan. Value Advantage Investments, which include the Schwab Value Advantage Money Fund-Registered Trademark-, can offer higher yields to investors with larger cash balances that don't require frequent access and may help fulfill the cash equivalent sector of an asset allocation plan. With higher minimum investment and account balance requirements and other transaction restrictions designed to minimize operating expenses, Value Advantage Investments can offer the potential of higher yields to investors. It also is important to note that unlike Sweep Investments, the Value Advantage Investments are not designed to automatically cover negative balances in your Schwab account. For cash balances you expect to access regularly, you may wish to consider one of our six sweep money funds. Our sweep money funds can be linked to your Schwab account to keep your money invested and working for you. These Funds automatically invest or "sweep" uninvested cash balances from your account into the sweep money fund you select, according to the terms and conditions of your account. Sweep Investments are available to settle trades and cover other day-to-day transactions. It's a smart, convenient way to manage your short-term cash. If you're in a high tax bracket, one of the Schwab Municipal Money Funds may provide you with higher returns after taxes-- and they are available in Sweep Investments or Value Advantage Investments. The Schwab Municipal Money Fund invests in municipal obligations that generate income free from federal income tax. And for investors in California and New York, Schwab offers funds that can also provide income free from state and local taxes.(3) Consult your tax advisor for specific guidance on your own tax situation before investing. If you would like more information on any of the Schwab Money Funds, please call our toll-free number, 1-800-435-4000, and request a free prospectus which contains more information, including fees and expenses. Please be sure to read the prospectus carefully before investing. (3) Income from all of the Funds may be subject to alternative minimum tax (AMT) and income from the Schwab Municipal Money Fund may be subject to state and local taxes. 12 GLOSSARY OF TERMS COMMERCIAL PAPER--Short-term, interest-paying obligations issued by banks, corporations and other borrowers. CREDIT ENHANCEMENTS--A bank letter of credit, purchase agreement, insurance, line of credit or other instrument that provides an additional level of financial support for debt securities to supplement the creditworthiness of the issuer. DOLLAR-WEIGHTED AVERAGE MATURITY (DWAM)--A measure of the average maturity of a mutual fund's entire portfolio, weighted by the 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 rated in the highest credit rating category. MATURITY--The length of time remaining until the issuer of a debt security must repay the principal amount. REAL GDP--The national Gross Domestic Product (GDP)--the total value of all goods and services produced in the United States over a specific period of time and adjusted for the rate of inflation to allow meaningful year-to-year comparisons. YIELD--The actual income earned on an investment over a stated period of time and annualized (assumed to be generated over a one-year period). An EFFECTIVE YIELD assumes that the income earned is reinvested. 13 SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK- - -------------------------------------------------------------------------------- PORTFOLIO SUMMARY ASSET GROWTH
Total Total Percentage Net Assets Net Assets Growth Over as of 12/31/97 as of 12/31/96 Reporting (000s) (000s) Period - ----------------------------------------------------- $13,662,185 $10,476,537 30% - -----------------------------------------------------
AVERAGE YIELDS FOR THE YEAR ENDED DECEMBER 31, 1997*
Last Last Last Seven Days Three Months Twelve Months - ------------------------------------------------ 5.46% 5.37% 5.28% - ------------------------------------------------
MATURITY SCHEDULE PERCENT OF TOTAL INVESTMENTS
Maturity Range 03/31/97 06/30/97 09/30/97 12/31/97 - --------------------------------------------------------------------- 0 - 15 Days 20.0 % 22.1 % 21.9 % 17.9 % 16 - 30 Days 17.7 21.4 22.6 23.8 31 - 60 Days 30.3 21.9 24.7 19.6 61 - 90 Days 14.4 19.4 14.2 17.6 91 - 120 Days 7.5 3.2 2.4 11.0 Over 120 Days 10.1 12.0 14.2 10.1 Weighted Average 56 Days 57 Days 59 Days 61 Days - ---------------------------------------------------------------------
PORTFOLIO QUALITY
Percent of SEC Tier Net Assets Rating 12/31/97 - ------------------------------- Tier 1 100.0% Tier 2 0.0% - -------------------------------
* A portion of the Fund's expenses were reduced during the periods. Had these expenses not been reduced, yields would have been lower. - -------------------------------------------------------------------------------- 14 SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK- - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1997
Par Value -------- ---------- COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS--80.1%(a) AUTOMOBILE RECEIVABLES--1.0% Fleet Funding Company 5.86%, 01/28/98 $ 90,265 $ 89,871 New Center Asset Trust 5.65%, 01/27/98 48,500 48,306 ---------- 138,177 ---------- AUTOMOTIVE--4.7% American Honda Finance Corp. 5.95%, 01/30/98 50,000 49,762 Ford Credit Europe PLC 5.70%, 01/09/98 50,000 49,937 General Motors Acceptance Corp. 5.83%, 01/14/98 50,000 49,896 5.84%, 01/21/98 50,000 49,840 5.84%, 01/22/98 25,000 24,916 5.83%, 02/11/98 70,000 69,542 5.78%, 04/15/98 160,000 157,407 5.79%, 04/16/98 50,000 49,180 5.79%, 04/17/98 50,000 49,173 5.79%, 04/21/98 100,000 98,283 ---------- 647,936 ---------- BANKING--BELGIUM--3.5% BBL North America 5.70%, 01/05/98 4,400 4,397 5.72%, 01/07/98 81,000 80,925 5.80%, 02/25/98 96,000 95,161 5.73%, 02/25/98 15,000 14,872 Cregem North America, Inc. 5.68%, 01/12/98 50,000 49,914 5.78%, 02/17/98 54,000 53,598 5.68%, 02/23/98 27,500 27,276 Generale Bank, Inc. 5.70%, 02/20/98 49,000 48,623 5.80%, 04/21/98 25,000 24,567 5.81%, 04/28/98 10,000 9,816 Kredietbank N.A. Finance Corp. 5.64%, 01/13/98 75,000 74,861 ---------- 484,010 ---------- BANKING--CANADA--0.4% Toronto--Dominion Holdings 5.71%, 03/27/98 20,000 19,738 5.71%, 03/30/98 39,000 38,471 ---------- 58,209 ---------- Par Value -------- ---------- BANKING--DENMARK--1.3% Den Danske Corp. 5.90%, 01/06/98 $ 45,000 $ 44,963 Unifunding, Inc. 5.66%, 01/20/98 22,000 21,935 5.69%, 01/22/98 39,000 38,872 5.72%, 02/02/98 21,000 20,896 5.75%, 03/03/98 55,000 54,480 ---------- 181,146 ---------- BANKING--DOMESTIC--4.3% Bankers Trust New York Corp. 5.76%, 03/12/98 8,000 7,913 5.74%, 04/17/98 36,000 35,409 5.90%, 06/08/98 133,000 129,661 Enterprise Funding Corp. 5.73%, 01/05/98 74,973 74,925 5.94%, 01/09/98 8,000 7,989 5.93%, 01/09/98 17,186 17,163 5.70%, 01/14/98 31,026 30,963 5.70%, 01/16/98 14,351 14,317 5.91%, 01/26/98 60,000 59,755 5.86%, 02/06/98 10,445 10,384 International Securitization Corp. / (First National Bank of Chicago LOC) 5.81%, 01/22/98 107,000 106,641 5.75%, 01/26/98 5,000 4,980 5.87%, 02/05/98 18,000 17,898 Kitty Hawk Funding Corp. 5.83%, 01/13/98 6,000 5,988 5.82%, 03/02/98 34,000 33,675 Secured Short Term Notes 97-15 5.99%, 03/19/98 22,000 22,000 Vehicle Services of America / (Nationsbank of Texas LOC) 5.80%, 02/12/98 6,500 6,457 5.84%, 03/04/98 7,500 7,426 ---------- 593,544 ---------- BANKING--GERMANY--0.3% Comision Federal de Electricidad / (Westdeutsche Landesbank LOC) 5.86%, 02/12/98 40,000 39,731 ---------- BANKING--JAPAN--0.8% Deerfield Capital Corp. / (Sumitomo Bank LOC) 5.83%, 01/12/98 23,000 22,960
- -------------------------------------------------------------------------------- 15 SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK- - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1997
Par Value -------- ---------- Gotham Funding Corp. / (Bank of Tokyo--Mitsubishi, Ltd. LOC) 5.79%, 01/14/98 $ 10,000 $ 9,979 5.79%, 02/02/98 58,024 57,730 5.79%, 02/04/98 5,000 4,973 Ridge Capital II / (Dai-Ichi Kangyo Bank LOC) 5.83%, 01/12/98 17,000 16,970 ---------- 112,612 ---------- BANKING--SPAIN--0.2% BEX America Finance, Inc. 5.80%, 02/19/98 29,000 28,774 ---------- BANKING--SWEDEN--3.1% Nordbanken of North America, Inc. 5.67%, 01/13/98 13,000 12,976 5.80%, 02/09/98 50,000 49,690 5.84%, 03/06/98 38,000 37,612 5.82%, 03/11/98 60,000 59,340 5.85%, 03/23/98 60,000 59,224 Svenska Handelsbanken, Inc. 5.67%, 01/16/98 18,170 18,128 5.72%, 03/09/98 122,000 120,737 5.75%, 03/13/98 70,000 69,229 ---------- 426,936 ---------- BANKING--UNITED KINGDOM--1.0% Abbey National Treasury Services PLC 6.26%, 04/02/98 110,000 109,956 Banco Nacional de Comercio Exterior / (Barclays Bank LOC) 6.23%, 01/23/98 27,500 27,396 ---------- 137,352 ---------- COMPUTERS AND OFFICE EQUIPMENT--0.3% CSC Enterprises 5.75%, 02/05/98 12,000 11,934 5.88%, 03/12/98 30,000 29,662 ---------- 41,596 ---------- CREDIT CARD RECEIVABLES--1.3% Charta Corp. 5.72%, 02/03/98 13,000 12,933 Par Value -------- ---------- Dakota Certificates Program of Citibank Credit Card Master Trust I 5.73%, 01/09/98 $ 22,000 $ 21,972 5.71%, 01/16/98 60,000 59,859 5.70%, 01/20/98 27,000 26,920 5.70%, 01/21/98 26,000 25,919 5.80%, 01/22/98 26,561 26,472 ---------- 174,075 ---------- DIVERSIFIED FINANCIAL ASSETS--8.7% Alpha Finance Corp. 5.66%, 01/20/98 7,000 6,979 5.71%, 03/18/98 6,000 5,930 Beta Finance, Inc. 5.70%, 03/06/98 70,000 69,309 5.72%, 03/09/98 24,000 23,752 5.72%, 03/27/98 25,000 24,672 5.67%, 04/03/98 5,000 4,930 CC (USA), Inc. 5.70%, 01/12/98 10,000 9,983 5.66%, 01/20/98 12,000 11,965 5.72%, 01/30/98 20,000 19,909 5.73%, 02/04/98 11,500 11,439 5.80%, 02/09/98 20,000 19,876 5.70%, 03/10/98 7,000 6,927 5.83%, 03/12/98 20,000 19,776 5.74%, 03/12/98 17,000 16,815 5.85%, 03/16/98 29,700 29,349 5.80%, 03/24/98 21,500 21,221 Lexington Parker Capital Corp. 5.81%, 01/13/98 36,000 35,931 5.70%, 01/15/98 50,000 49,891 5.74%, 01/26/98 5,000 4,980 5.70%, 01/29/98 30,000 29,869 5.74%, 02/06/98 38,554 38,336 5.75%, 04/07/98 51,441 50,674 Ranger Funding Corp. 5.66%, 01/13/98 12,000 11,978 5.68%, 01/16/98 10,000 9,977 5.81%, 02/13/98 25,000 24,829 5.84%, 03/05/98 15,000 14,849 Repeat Offering Securitization Entity, Inc. 5.70%, 01/27/98 50,000 49,797 5.75%, 02/03/98 50,000 49,740 5.74%, 02/06/98 33,559 33,369 5.78%, 02/12/98 31,000 30,794
- -------------------------------------------------------------------------------- 16 - --------------------------------------------------------------------------------
Par Value -------- ---------- Sigma Finance, Inc. 5.70%, 01/06/98 $ 35,000 $ 34,973 5.66%, 01/15/98 90,000 89,804 5.70%, 01/26/98 50,000 49,807 5.70%, 02/02/98 29,925 29,777 5.80%, 02/10/98 52,000 51,670 5.81%, 02/13/98 55,000 54,624 5.81%, 02/17/98 8,500 8,437 5.82%, 02/20/98 7,000 6,944 5.82%, 02/25/98 24,500 24,286 5.81%, 02/25/98 21,000 20,816 5.70%, 03/30/98 7,513 7,411 Wood Street Funding Corp. 5.95%, 01/09/98 9,700 9,687 5.94%, 01/09/98 25,000 24,967 5.66%, 01/12/98 5,000 4,991 5.71%, 01/20/98 5,765 5,748 5.71%, 01/26/98 10,000 9,961 5.83%, 02/13/98 7,000 6,952 5.81%, 02/18/98 13,900 13,794 ---------- 1,192,495 ---------- FINANCE--COMMERCIAL--7.0% CIT Group Holdings, Inc. 5.71%, 03/31/98 40,000 39,451 General Electric Capital Corp. 5.76%, 01/20/98 20,000 19,940 5.76%, 01/21/98 50,000 49,841 5.71%, 02/13/98 31,000 30,792 5.71%, 02/18/98 100,000 99,251 5.81%, 02/23/98 150,000 148,734 5.80%, 02/24/98 94,000 93,196 5.72%, 03/16/98 65,000 64,258 5.66%, 04/15/98 9,000 8,857 5.71%, 04/16/98 50,000 49,192 General Electric Capital Services 5.71%, 02/17/98 50,000 49,633 5.66%, 02/19/98 50,000 49,618 5.66%, 04/16/98 40,000 39,360 5.84%, 05/22/98 50,000 48,892 Heller Financial, Inc. 5.76%, 01/16/98 18,000 17,958 5.82%, 01/23/98 25,000 24,912 6.07%, 01/26/98 15,000 14,938 5.82%, 01/27/98 14,000 13,942 5.77%, 01/29/98 50,000 49,780 5.74%, 02/04/98 10,000 9,947 5.80%, 02/09/98 16,000 15,901 5.79%, 02/10/98 14,000 13,911 Par Value -------- ---------- 6.11%, 04/06/98 $ 6,000 $ 5,905 ---------- 958,209 ---------- FINANCE--CONSUMER--1.4% Associates Corp. of North America 5.70%, 01/06/98 48,000 47,962 5.70%, 01/13/98 65,000 64,878 Associates First Capital Corp. 5.82%, 02/26/98 25,000 24,777 5.82%, 03/05/98 53,000 52,468 ---------- 190,085 ---------- MISCELLANEOUS SERVICES--0.2% PHH Corp. 5.64%, 01/20/98 30,000 29,912 ---------- MORTGAGE BANKING--0.7% Countrywide Home Loans, Inc. 5.91%, 01/08/98 23,000 22,974 5.76%, 01/09/98 20,000 19,975 5.88%, 01/21/98 52,000 51,831 ---------- 94,780 ---------- SECURITIES BROKERAGE--DEALER--16.1% Bear Stearns Companies, Inc. 5.70%, 03/17/98 20,000 19,769 5.71%, 03/24/98 50,000 49,368 5.73%, 03/26/98 50,000 49,350 5.67%, 04/07/98 42,000 41,383 BT Alex Brown, Inc. 5.85%, 06/04/98 11,000 10,733 Credit Suisse First Boston, Inc. 5.65%, 04/17/98 50,000 49,193 Goldman Sachs Group, LP 5.90%, 01/30/98 24,000 23,887 5.82%, 03/26/98 50,000 49,332 5.82%, 03/27/98 32,000 31,567 5.82%, 05/21/98 107,000 104,649 5.82%, 05/22/98 70,000 68,451 5.83%, 05/26/98 113,000 110,428 Lehman Brothers Holdings, Inc. 6.17%, 01/07/98 25,000 24,974 5.70%, 01/28/98 25,000 24,895 5.85%, 01/29/98 60,000 59,730 5.80%, 02/13/98 31,000 30,792 5.89%, 03/19/98 70,000 69,132 5.87%, 06/16/98 50,000 48,686 5.87%, 06/25/98 18,000 17,501 Merrill Lynch & Co., Inc. 5.66%, 01/14/98 47,000 46,905 5.70%, 01/21/98 40,000 39,875
- -------------------------------------------------------------------------------- 17 SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK- - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1997
Par Value -------- ---------- 5.80%, 02/27/98 $105,000 $ 104,051 5.75%, 03/23/98 47,000 46,410 5.73%, 03/24/98 25,000 24,683 5.70%, 03/24/98 20,000 19,748 5.73%, 03/25/98 65,000 64,167 5.72%, 03/26/98 30,000 29,611 5.73%, 03/31/98 30,000 29,587 5.67%, 04/16/98 23,000 22,631 Morgan Stanley-Dean Witter, Discover 5.71%, 02/17/98 50,000 49,633 5.87%, 03/24/98 50,000 49,342 5.87%, 03/25/98 50,000 49,334 5.84%, 03/25/98 50,000 49,337 5.87%, 03/26/98 116,000 114,436 5.86%, 03/30/98 60,000 59,155 5.65%, 04/17/98 49,000 48,209 5.65%, 04/20/98 150,000 147,512 5.82%, 05/27/98 70,000 68,399 PaineWebber Group, Inc. 5.87%, 01/30/98 15,000 14,930 Salomon, Inc. 5.88%, 02/05/98 46,000 45,740 Smith Barney, Inc. 5.70%, 01/22/98 75,000 74,754 5.70%, 01/27/98 94,000 93,618 5.70%, 01/28/98 22,000 21,907 ---------- 2,197,794 ---------- TRADE RECEIVABLES--23.8% Apreco, Inc. 5.93%, 01/07/98 18,000 17,982 5.74%, 01/28/98 10,000 9,958 5.80%, 02/20/98 14,000 13,889 Asset Securitization Cooperative Corp. 5.70%, 01/20/98 50,000 49,852 5.70%, 01/21/98 50,000 49,844 5.70%, 01/23/98 50,000 49,828 5.70%, 01/29/98 32,000 31,860 5.70%, 01/30/98 33,000 32,851 Barton Capital Corp. 6.03%, 01/08/98 25,000 24,971 5.76%, 01/14/98 26,000 25,946 5.73%, 01/21/98 9,988 9,957 5.71%, 01/21/98 29,717 29,624 5.70%, 01/27/98 7,000 6,972 5.72%, 01/29/98 5,283 5,260 5.89%, 01/30/98 30,000 29,859 5.87%, 02/05/98 22,476 22,349 Clipper Receivables Corp. 5.71%, 01/23/98 20,000 19,931 5.70%, 01/28/98 40,000 39,832 Par Value -------- ---------- Corporate Asset Funding Corp. 5.66%, 01/12/98 $ 60,000 $ 59,898 Corporate Receivables Corp. 5.67%, 01/12/98 40,000 39,932 5.89%, 01/13/98 65,000 64,873 5.89%, 01/23/98 55,000 54,804 5.80%, 01/23/98 25,000 24,912 5.70%, 01/28/98 26,000 25,890 5.90%, 01/30/98 16,000 15,925 5.87%, 02/12/98 27,000 26,817 5.73%, 02/20/98 6,000 5,954 CXC, Inc. 5.70%, 01/20/98 27,000 26,920 5.66%, 01/21/98 75,000 74,768 5.66%, 01/22/98 65,000 64,789 5.70%, 01/27/98 7,000 6,972 5.71%, 01/30/98 23,000 22,896 5.89%, 02/04/98 25,000 24,862 5.89%, 02/11/98 26,000 25,827 5.85%, 03/11/98 60,000 59,338 5.84%, 03/11/98 11,000 10,879 Delaware Funding Corp. 5.71%, 01/16/98 17,529 17,488 5.83%, 01/28/98 7,082 7,051 Edison Asset Securitization Corp., L.L.C. 5.81%, 01/14/98 50,276 50,171 5.89%, 01/23/98 16,972 16,911 5.80%, 02/03/98 30,000 29,842 5.86%, 02/06/98 16,000 15,907 Eureka Securitization, Inc. 5.64%, 01/14/98 18,900 18,862 5.73%, 01/20/98 12,000 11,964 5.70%, 01/23/98 24,000 23,918 5.72%, 01/26/98 50,000 49,804 5.80%, 02/10/98 22,000 21,860 Falcon Asset Securitization Corp. 5.80%, 01/16/98 31,925 31,849 5.66%, 01/16/98 19,850 19,804 5.89%, 01/20/98 27,625 27,540 5.66%, 01/20/98 40,650 40,530 5.81%, 01/23/98 50,000 49,824 Market Street Funding Corp. 6.22%, 01/07/98 20,000 19,979 5.95%, 02/10/98 20,000 19,869 Mont Blanc Capital Corp. 5.88%, 02/12/98 37,706 37,450 5.88%, 02/18/98 22,056 21,885 5.86%, 03/12/98 40,000 39,550 Monte Rosa Capital Corp. 5.90%, 01/12/98 50,000 49,910 5.89%, 01/23/98 19,422 19,353
- -------------------------------------------------------------------------------- 18 - --------------------------------------------------------------------------------
Par Value -------- ---------- 5.89%, 01/26/98 $ 19,000 $ 18,923 5.90%, 01/28/98 45,000 44,803 5.87%, 02/13/98 59,000 58,591 5.92%, 02/19/98 50,000 49,601 Park Avenue Receivables Corp. 6.03%, 01/15/98 11,883 11,855 Preferred Receivables Funding Corp. 5.64%, 01/08/98 23,475 23,450 5.70%, 01/15/98 65,025 64,883 5.68%, 01/23/98 75,318 75,060 5.72%, 01/26/98 25,225 25,126 5.95%, 02/02/98 17,650 17,557 5.88%, 02/03/98 8,875 8,828 5.90%, 02/04/98 33,000 32,818 5.88%, 02/10/98 5,050 5,017 Receivables Capital Corp. 5.81%, 01/26/98 18,000 17,928 5.82%, 01/29/98 100,000 99,549 5.87%, 02/06/98 12,116 12,046 5.86%, 02/06/98 66,000 65,617 Sheffield Receivables Corp. 5.72%, 01/06/98 40,000 39,969 5.72%, 01/07/98 40,000 39,962 5.72%, 01/08/98 21,900 21,876 5.72%, 01/09/98 21,900 21,872 5.73%, 01/15/98 34,400 34,324 5.81%, 01/23/98 19,000 18,933 5.88%, 02/02/98 100,000 99,483 5.86%, 02/05/98 40,000 39,774 5.80%, 02/17/98 25,300 25,111 Special Purpose Accounts Receivable Cooperative Corp. 5.95%, 01/27/98 9,000 8,962 5.97%, 01/28/98 25,000 24,889 5.90%, 03/27/98 42,000 41,425 WCP Funding, Inc. 5.81%, 01/13/98 15,000 14,971 5.90%, 01/27/98 50,000 49,789 5.87%, 02/12/98 20,000 19,865 5.81%, 02/26/98 27,000 26,760 Windmill Funding 5.72%, 01/14/98 20,000 19,959 6.03%, 01/16/98 50,000 49,875 5.70%, 01/23/98 9,821 9,787 5.84%, 01/30/98 23,000 22,893 5.70%, 01/30/98 19,930 19,840 5.87%, 02/11/98 30,000 29,802 5.86%, 02/13/98 4,218 4,189 5.93%, 02/24/98 50,000 49,561 5.93%, 02/26/98 32,000 31,708 5.85%, 02/26/98 35,392 35,074 Par Value -------- ---------- 5.88%, 03/20/98 $ 80,000 $ 78,995 ---------- 3,259,642 ---------- TOTAL COMMERCIAL PAPER AND OTHER CORPORATE OBLIGATIONS (Cost $10,987,015) 10,987,015 ---------- CERTIFICATES OF DEPOSIT--12.5% BANKING--BELGIUM--0.4% Banque Bruxelles Lambert 5.65%, 04/07/98 50,000 50,001 ---------- BANKING--CANADA--0.7% Canadian Imperial Bank of Commerce 5.95%, 08/12/98 50,000 49,989 5.95%, 08/27/98 50,000 49,984 ---------- 99,973 ---------- BANKING--DOMESTIC--2.5% Chase Manhattan Bank USA 5.71%, 03/05/98 67,000 67,000 5.65%, 04/06/98 50,000 50,000 5.65%, 04/07/98 50,000 50,000 5.65%, 04/08/98 50,000 50,000 Morgan Guaranty Trust Co. New York 5.84%, 07/28/98 50,000 49,989 5.90%, 08/06/98 50,000 49,991 Wilmington Trust Company 5.70%, 03/20/98 25,000 25,000 ---------- 341,980 ---------- BANKING--FRANCE--4.9% Banque Nationale de Paris 5.70%, 02/04/98 10,100 10,099 5.73%, 03/09/98 20,000 20,000 5.70%, 03/24/98 30,000 30,000 Caisse Nationale de Credit Agricole 6.01%, 06/26/98 50,000 49,984 Credit Agricole-IndoSuez 5.99%, 12/09/98 50,000 50,004 Societe Generale 5.81%, 01/08/98 50,000 50,000 5.80%, 01/08/98 50,000 50,000 5.92%, 01/13/98 27,400 27,399 5.89%, 03/03/98 39,000 38,998 5.90%, 03/04/98 25,000 24,999 6.14%, 03/10/98 35,000 34,984 6.25%, 04/08/98 35,000 34,999 6.27%, 04/14/98 50,000 49,997 5.92%, 07/14/98 50,000 49,987
- -------------------------------------------------------------------------------- 19 SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK- - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1997
Par Value -------- ---------- 5.92%, 07/22/98 $ 50,000 $ 49,989 6.00%, 08/26/98 25,000 24,991 6.01%, 09/11/98 50,000 49,983 6.00%, 10/20/98 35,000 34,975 ---------- 681,388 ---------- BANKING--JAPAN--0.5% Dai-Ichi Kangyo Bank, Ltd. 5.80%, 01/27/98 9,000 9,000 Sumitomo Bank, Ltd. 5.75%, 01/16/98 60,000 60,000 ---------- 69,000 ---------- BANKING--SWITZERLAND--0.2% Credit Suisse First Boston 6.26%, 04/08/98 25,000 24,999 ---------- BANKING--UNITED KINGDOM--3.3% Abbey National Treasury Services PLC 5.80%, 03/02/98 25,000 25,000 5.65%, 04/09/98 100,000 100,000 5.65%, 04/13/98 50,000 50,000 6.00%, 12/08/98 100,000 100,000 6.00%, 12/09/98 50,000 50,000 Barclays Bank PLC 5.80%, 01/09/98 35,000 35,000 5.80%, 02/03/98 40,000 40,000 National Westminster Bank PLC 6.20%, 05/20/98 51,000 50,987 ---------- 450,987 ---------- TOTAL CERTIFICATES OF DEPOSIT (Cost $1,718,328) 1,718,328 ---------- VARIABLE RATE OBLIGATIONS--5.7%(B) BANKING--DOMESTIC--0.4% BMC Special Care Facilities Financing Authority of the City of Montgomery Taxable Revenue Bonds (Montgomery Baptist Outreach Services Corporation Project) Series 1997A / (Regions Bank LOC) 6.00%, 01/07/98 8,600 8,600 Development Authority of Columbus, Georgia Taxable Variable Fixed Rate Revenue Bonds (Jay Leasing, Inc. Project) Series 1997 / (Regions Bank LOC) Par Value -------- ---------- 6.00%, 01/07/98 $ 7,500 $ 7,500 Keystone Health Resources Corporation Variable Rate Taxable Demand Notes Series 1993 / (PNC Bank LOC) 6.25%, 01/07/98 3,300 3,300 MoviePlex Realty Leasing, L.L.C. Adjustable Rate Tender Securities (Carmike Cinemas, Inc.) 1997 Series B-1 Bonds / (Wachovia Bank N.A. LOC) 5.96%, 01/07/98 7,625 7,625 New Jersey Economic Development Authority Variable Rate Title IX Loan Portfolio Securitization Bonds / (Fleet National Bank LOC) 5.93%, 01/05/98 20,700 20,700 Town of Islip Industrial Development Agency 1992 Taxable Adjustable Rate Industrial Development Revenue Bonds (Nussdorf Associates/Quality King Distributors, Inc. Facility) / (European American Bank LOC) 6.15%, 01/07/98 6,525 6,525 ---------- 54,250 ---------- BANKING--JAPAN--0.0% New York City Industrial Development Agency Industrial Development Revenue Bonds (G.A.F.Seelig, Inc. Project) Series 1993 / (IBJ Schroder Bank & Trust LOC) 6.25%, 01/07/98 1,990 1,990 ---------- BANKING--UNITED KINGDOM & GERMANY--0.5% County of Riverside 1990 Taxable Variable Rate Certificates of Participation (Monterey Avenue Project) / (National Westminister Bank PLC/ Commerzbank LOC) 6.10%, 01/07/98 8,000 8,000
- -------------------------------------------------------------------------------- 20 - --------------------------------------------------------------------------------
Par Value -------- ---------- 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%, 01/07/98 $ 8,460 $ 8,460 Restructured Assets Certificates with Enhanced Returns, Series 1997 MM-8-5 Trust 5.96%, 01/29/98 50,000 50,000 ---------- 66,460 ---------- DIVERSIFIED FINANCIAL ASSETS--0.4% Triangle Funding Ltd. Series 1997-1 Class 1 5.75%, 01/15/98 50,000 50,000 ---------- ELECTRICAL AND ELECTRONICS--0.4% New Jersey Economic Development Authority Taxable Economic Development Bonds, MSNBC/CNBC Project, 1997 Series A / (General Electric Company & Microsoft Corporation Guarantee) 5.97%, 01/02/98 48,600 48,600 ---------- LIFE INSURANCE--1.9% Commonwealth Life Insurance Company 5.86%, 01/01/98 (d) 10,000 10,000 5.77%, 01/01/98 (d) 100,000 100,000 General American Life Insurance Company 5.89%, 01/07/98 125,000 125,000 Jackson National Life Insurance Company 5.77%, 01/01/98 (d) 40,000 40,000 ---------- 275,000 ---------- Par Value -------- ---------- MONOLINE INSURANCE--0.1% Baptist Health Systems of South Florida, Inc. Taxable Variable Rate Direct Note Obligations Series 1995A / (MBIA Insurance) 5.90%, 01/07/98 $ 6,600 $ 6,600 Baptist Health Systems of South Florida, Inc. Taxable Variable Rate Direct Note Obligations Series 1995B / (MBIA Insurance) 5.90%, 01/07/98 4,500 4,500 New Orleans Aviation Board Taxable Refunding Bonds, Series 1993A / (MBIA Insurance) 5.70%, 01/07/98 100 100 ---------- 11,200 ---------- SECURITIES BROKERAGE--DEALER--1.6% Asset-Backed Securities Investment Trust, Series 1997-C 5.96%, 01/15/98 50,000 50,000 Asset-Backed Securities Investment Trust, Series 1997-E 5.96%, 01/15/98 20,000 20,000 Lehman Brothers Holdings, Inc. 5.97%, 01/20/98 50,000 50,000 5.96%, 01/21/98 (d) 95,000 95,000 ---------- 215,000 ---------- TRADE RECEIVABLES--0.4% Ciesco, LP 5.76%, 01/12/98 50,000 49,999 ---------- TOTAL VARIABLE RATE OBLIGATIONS (Cost $772,499) 772,499 ---------- BANK NOTES--0.8% BANKING--DOMESTIC--0.8% BankBoston N.A. 5.65%, 04/06/98 $ 50,000 $ 50,000 5.82%, 05/13/98 65,000 65,000 ---------- TOTAL BANK NOTES (Cost $115,000) 115,000 ----------
- -------------------------------------------------------------------------------- 21 SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK- - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) December 31, 1997
Maturity Value -------- ----------- REPURCHASE AGREEMENTS--0.9%(c) Salomon Brothers, Inc. 6.80%, Issue Date 01/02/97 Due 01/02/98; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations $ 47,017 $ 47,000 Salomon Brothers, Inc. 6.80%, Issue Date 01/31/97 Due 01/02/98;Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations 2,000 2,000 Salomon Brothers, Inc. 6.80%, Issue Date 04/07/97 Due 01/02/98; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations 40,015 40,000 Maturity Value -------- ----------- Salomon Brothers, Inc. 6.80%, Issue Date 09/30/96 Due 01/02/98; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations $ 26,009 $ 26,000 Salomon Brothers, Inc. 6.80%, Issue Date 12/31/97 Due 01/02/98; Tri-Party Repurchase Agreement; Collateralized By: U.S. Government Agency Obligations 15,054 15,049 ----------- TOTAL REPURCHASE AGREEMENTS (Cost $130,049) 130,049 ----------- TOTAL INVESTMENTS--100% (Cost $13,722,891) $13,722,891 ----------- -----------
SEE ACCOMPANYING NOTES TO SCHEDULE OF INVESTMENTS AND NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 22 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS Yields shown are effective yields at the time of purchase, except for variable rate securities which are described below 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 Fund are private placement securities exempt from registration by Section 4(2) of the Securities Act of 1933. These securities generally are issued to institutional investors, such as the Schwab Value Advantage Money Fund. Any resale by the Fund must be in an exempt transaction, normally to a qualified institutional buyer. At December 31, 1997, the aggregate value of private placement securities held by the Fund was $5,841,473,000 which represented 42.76% of net assets. Of this total, $5,596,473,000 or 40.96% 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 as of the report date. Dates shown represent the earlier 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. Repurchase Agreements are payable on seven-day demand. (d) Certain securities cannot be resold to the general public without prior registration under the Securities Act of 1933. If the security is subsequently registered and resold, the issuers would typically bear the expense of all registrations at no cost to the fund. At December 31, 1997, the aggregate value of the restricted securities held by Schwab Value Advantage Fund was $245,000,000, which represented 1.79% of the net assets of the Fund. All of these restricted investments were determined by the Investment Manager to be illiquid in accordance with procedures adopted by the Board of Trustees. Abbreviations - ------------ LOC Letter of Credit MBIA Municipal Bond Investors Assurance Corporation SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 23 SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK- - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES (in thousands) December 31, 1997 ASSETS Investments, at value (Cost: $13,722,891) $13,722,891 Receivables: Interest 49,485 Fund shares sold 78,835 Prepaid expenses 89 ----------- Total assets 13,851,300 ----------- LIABILITIES Payables: Dividends 91,781 Fund shares redeemed 94,356 Investment advisory and administration fees 409 Transfer agency and shareholder service fees 858 Other liabilities 1,711 ----------- Total liabilities 189,115 ----------- Net assets applicable to outstanding shares $13,662,185 ----------- ----------- NET ASSETS CONSIST OF: Paid-in-capital $13,662,310 Accumulated net realized loss on investments sold (125) ----------- $13,662,185 ----------- ----------- PRICING OF SHARES Outstanding shares, $0.00001 par value (unlimited shares authorized) 13,662,310 Net asset value, offering and redemption price per share $1.00
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 24 SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK- - ------------------------------------------------------------------------------ STATEMENT OF OPERATIONS (in thousands) Year ended December 31, 1997 Interest income $ 721,000 --------- Expenses: Investment advisory and administration fees 51,725 Transfer agency and shareholder service fees 31,713 Custodian fees 960 Registration fees 2,088 Professional fees 160 Shareholder reports 127 Trustees' fees 41 Amortization of deferred organization costs 7 Insurance and other expenses 180 --------- 87,001 Less: expenses reduced (see Note 4) (36,259) --------- Total expenses incurred by Fund 50,742 --------- Net investment income 670,258 --------- Increase in net assets resulting from operations $ 670,258 --------- ---------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 25 SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK- - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS (in thousands)
Year Ended December 31, -------------------------- 1997 1996 ------------ ------------ Operations: Net investment income $ 670,258 $ 450,196 Net realized gain on investments sold -- 6 ------------ ------------ Increase in net assets resulting from operations 670,258 450,202 ------------ ------------ Dividends to shareholders from net investment income (670,258) (450,196) ------------ ------------ Capital share transactions (at $1.00 per share): Proceeds from shares sold 19,544,216 14,542,131 Net asset value of shares issued in reinvestment of dividends 617,943 405,539 Less payments for shares redeemed (16,976,511) (11,395,029) ------------ ------------ Increase in net assets from capital share transactions 3,185,648 3,552,641 ------------ ------------ Total increase in net assets 3,185,648 3,552,647 Net assets: Beginning of period 10,476,537 6,923,890 ------------ ------------ End of period $ 13,662,185 $ 10,476,537 ------------ ------------ ------------ ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 26 SCHWAB VALUE ADVANTAGE MONEY FUND-REGISTERED TRADEMARK- - ------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS For a share outstanding throughout each period:
Year Ended December 31, ---------------------------------------------------------- 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- -------- 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 0.06 0.04 0.03 Net realized and unrealized gain (loss) on investments -- -- -- -- -- ----------- ----------- ---------- ---------- -------- Total from investment operations 0.05 0.05 0.06 0.04 0.03 Less distributions Dividends from net investment income (0.05) (0.05) (0.06) (0.04) (0.03) ----------- ----------- ---------- ---------- -------- Total distributions (0.05) (0.05) (0.06) (0.04) (0.03) ----------- ----------- ---------- ---------- -------- Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ----------- ----------- ---------- ---------- -------- ----------- ----------- ---------- ---------- -------- Total return (not annualized) 5.40% 5.26% 5.80% 4.09% 3.02% Ratios/Supplemental data Net assets, end of period (000s) $13,662,185 $10,476,537 $6,923,890 $3,731,629 $729,356 Ratio of expenses to average net assets+ 0.40% 0.40% 0.40% 0.40% 0.39% Ratio of net investment income to average net assets+ 5.28% 5.14% 5.63% 4.40% 2.97%
- --------------- + 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 0.69% 0.70% 0.72% 0.79% 0.82% Ratio of net investment income to average net assets 5.00% 4.84% 5.31% 4.01% 2.54%
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 27 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS Year ended December 31, 1997 1. DESCRIPTION OF THE FUND The Schwab Value Advantage Money Fund-Registered Trademark- (the "Fund") is a 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. This report includes only the Investor Shares of the Fund as the Sweep Shares is currently not available for purchase. In addition to the Fund, the Trust also offers--the Schwab Money Market Fund, Schwab Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Institutional Advantage Money Fund-Registered Trademark-, Schwab Retirement Money Fund-Registered Trademark-, Schwab Municipal Money Fund, Schwab California Municipal Money Fund, Schwab New York Municipal Money Fund and Schwab Government Cash Reserves. (The Schwab Government Cash Reserves was effective on October 20, 1997. However, the Fund has not commenced operations.) 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 obligations. All collateral is held by the Fund's custodian, except in the case of a tri-party agreement, the collateral is held by an agent bank. The collateral is monitored daily to ensure that its market value at least equals the repurchase price under the agreement. DIVIDENDS TO SHAREHOLDERS--The Fund declares a daily dividend, equal to its net investment income for that day, payable monthly. - -------------------------------------------------------------------------------- 28 - -------------------------------------------------------------------------------- EXPENSES--Expenses arising in connection with the Fund are charged directly to the 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 the Fund's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net investment income and realized net capital gains, if any, to shareholders. Therefore, no federal income tax provision is required. The 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, the Fund pays an annual fee, payable monthly, of 0.46% of the first $1 billion of average daily net assets, 0.45% of the next $2 billion, 0.40% of the next $7 billion, 0.37% of the next $10 billion and 0.34% of such assets in excess of $20 billion. The Investment Manager has reduced a portion of its fees for the year ended December 31, 1997 (see Note 4). TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENTS--The Trust has transfer agency and shareholder service agreements with Charles Schwab & Co., Inc. ("Schwab"). For services provided under these agreements, Schwab receives an annual fee, payable monthly, of 0.25% of average daily net assets. In addition, Schwab receives a fee of $5.00 for redemptions in amounts less than $5,000 and may impose a $5.00 fee for monthly balances below the minimum required. Schwab has reduced a portion of its fees for the year ended December 31, 1997 (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, 1997, 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 Fund incurred fees of $41,000 related to the Trust's unaffiliated trustees. - -------------------------------------------------------------------------------- 29 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (continued) 4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB The Investment Manager and Schwab guarantee that, through at least April 30, 1998, the Fund's total operating expenses will not exceed 0.40% of the Fund's average daily net assets, after reductions and reimbursements. For the purpose of this guarantee, operating expenses do not include interest expenses, extraordinary expenses and taxes. For the year ended December 31, 1997, the total of such fees reduced by the Investment Manager and Schwab was $27,753,000 and $8,506,000, respectively (see Financial Highlights). - -------------------------------------------------------------------------------- 30 - -------------------------------------------------------------------------------- To the Trustees and Shareholders of Schwab Value Advantage Money Fund-Registered Trademark- In our opinion, the accompanying statement of assets and liabilities, including the schedule 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 Value Advantage Money Fund (one of the series constituting The Charles Schwab Family of Funds, hereafter referred to as the "Trust") at December 31, 1997, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for 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, 1997 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP San Francisco, California January 30, 1998 - -------------------------------------------------------------------------------- 31 THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU. SCHWABFUNDS FAMILY-Registered Trademark- 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-Registered Trademark--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-Registered Trademark- Schwab S&P 500 Fund Schwab Analytics Fund-Registered Trademark- Schwab Small-Cap Index Fund-Registered Trademark- Schwab OneSource Portfolios--Small Company Schwab International Index Fund-Registered Trademark- Schwab OneSource Portfolios--International SCHWAB BOND FUNDS Schwab Bond Index Funds--Total and Short-Term Bond Market Index Funds* Schwab Tax-Free Bond Funds--Long-Term and Short/Intermediate Schwab California Tax-Free Bond Funds--Long-Term and Short/Intermediate SCHWAB MONEY FUNDS Schwab offers an array of money funds that seek high current income with safety and liquidity.(1) Choose from taxable or tax-advantaged alternatives. Many can be linked to your Schwab account to "sweep" cash balances automatically when you're between investments. Or, for your larger cash reserves, choose one of our Value Advantage Investments.-Registered Trademark- Please call 1-800-435-4000 for a free prospectus and brochure for any of the SchwabFunds.-Registered Trademark- EACH PROSPECTUS PROVIDES MORE COMPLETE INFORMATION, INCLUDING FEES AND EXPENSES. PLEASE READ IT CAREFULLY BEFORE INVESTING. This report must be preceded or accompanied by a current prospectus. * Formerly known as the Schwab Government Bond Funds--Long-Term and Short/Intermediate. (1) 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. SCHWABFUNDS ============== F A M I L Y -Registered Trademark- 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- 1996 Charles Schwab & Co., Inc. All rights reserved. Member SIPC/NYSE. Printed on recycled paper. CRS 20178 (0098-1062) TF6453(2/98) FOLD -----END PRIVACY-ENHANCED MESSAGE-----