SCHWAB CHARLES FAMILY OF FUNDS, 485BPOS, 1995-06-06

SCHWAB CHARLES FAMILY OF FUNDS
485BPOS, 1995-06-06

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<PAGE> 1

As filed with the Securities and Exchange Commission on June 6, 1995

File Nos. 33-31894 and 811-05954
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 19 /X/

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 21 /X/

THE CHARLES SCHWAB FAMILY OF FUNDS
(Exact Name of Registrant as Specified in Charter)

101 Montgomery Street, San Francisco, California 94104
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code:
(415) 627-7000

Elizabeth G. Sawi, President
The Charles Schwab Family of Funds
101 Montgomery Street, San Francisco, California 94104
(Name and Address of Agent for Service)

Copies of communications to:

Martin E. Lybecker, Esq. Frances Cole, Esq.
Ropes & Gray Charles Schwab Investment Management, Inc.
Suite 1200 South 101 Montgomery Street
1001 Pennsylvania Avenue, N.W. San Francisco, CA 94104
Washington, D.C. 20004

It is proposed that this filing will become effective (check appropriate box):
/ X / Immediately upon filing pursuant to paragraph (b)
/ / On (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / On (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / On (date) pursuant to paragraph (a)(ii) of Rule 485
if appropriate, check appropriate box: / / This post-effective amendment
designates a new effective
date for a previously filed
post-effective amendment

DECLARATION PURSUANT TO RULE 24f-2: Pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended, Registrant has registered an
indefinite number or amount of its shares of beneficial interest under the
Securities Act of 1933, as amended. The Rule 24f-2 Notice for Registrant's
fiscal year ended December 31, 1994 was filed on February 23, 1995.

<PAGE> 2

PART A

THE CHARLES SCHWAB FAMILY OF FUNDS

The information required by Items 1 through 9 for Schwab Retirement
Money Fund and Schwab Institutional Advantage Money Fund, two separate
portfolios of Registrant, is hereby incorporated by reference to Part A of
Post-Effective Amendment No. 17 to Registrant's Registration Statement on Form
N-1A, filed with the SEC on April 6, 1995.

In addition, the information required by Items 1 through 9 for Schwab
Value Advantage Money Fund, a separate portfolio of Registrant, is hereby
incorporated by reference to Part A of Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A, filed with the SEC on
February 28, 1995.

<PAGE> 3

CROSS REFERENCE SHEET

THE CHARLES SCHWAB FAMILY OF FUNDS:
Schwab New York Tax-Exempt Money Fund-Sweep Shares

<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page Cover Page

Synopsis Key Features of the Fund; Summary of Expenses

Condensed Financial Information Financial Highlights

General Description of Registrant Matching the Fund to Your Investment Objective and Needs; Investment Objective
and Policies; Municipal Securities and Investment Techniques

Management of the Fund General Information; Management of the Fund

Management's Discussion of [Discussion included in Registrant's
Fund Performance Annual Report]

Capital Stock and Other Securities Cover Page; Matching the Fund to Your Investment Objective and Needs; Management
of the Fund; Distributions and Taxes; General Information; Shareholder Guide;
Tax-Advantaged Retirement Plans

Purchase of Securities Being Offered Share Price Calculation; How to Purchase Shares; Other Important Information

Redemption or Repurchase How to Redeem Shares; Other Important Information

Pending Legal Proceedings Inapplicable
</TABLE>

<PAGE> 4

SCHWAB NEW YORK TAX-EXEMPT MONEY FUND -- SWEEP SHARES

- --------------------------------------------------------------------------------
PROSPECTUS June 6, 1995

TO PLACE ORDERS AND FOR ACCOUNT INFORMATION: Contact your local Charles Schwab &
Co., Inc. ("Schwab") office or call 800-2 NO-LOAD.

THE SCHWAB NEW YORK TAX-EXEMPT MONEY FUND (the "Fund") is designed for investors
who seek maximum current income that is exempt from federal income taxes and
personal income taxes imposed by New York State and New York municipalities to
the extent consistent with liquidity and stability of capital. The Fund is a
non-diversified investment portfolio of The Charles Schwab Family of Funds (the
"Schwab Fund Family"), a no-load, open-end, management investment company.
Shares of the Fund are offered to New York residents and the residents of
selected other states. This Prospectus describes the Sweep Shares of the Fund,
one of the two classes of shares of the Fund offered by Schwab ("Sweep Shares").
Prior to the date of this Prospectus, the Fund was not offered in two classes of
shares. The existing shares of the Fund are redesignated as Sweep Shares. For a
prospectus describing the other class of shares of the Fund (the "Value
Advantage Shares"), call your local Schwab office or 800-2 NO-LOAD.

ABOUT THIS PROSPECTUS: THIS PROSPECTUS CONCISELY PRESENTS IMPORTANT INFORMATION
YOU SHOULD KNOW BEFORE INVESTING IN THE FUND. PLEASE READ IT CAREFULLY AND
RETAIN IT FOR FUTURE REFERENCE. This Prospectus may be available via electronic
mail. For a free paper copy of this Prospectus call 800-2 NO-LOAD. You can find
more detailed information pertaining to this Fund in the Statement of Additional
Information, dated June 6, 1995 (as may be amended from time to time), and filed
with the Securities and Exchange Commission. The Statement of Additional
Information is incorporated by reference into this Prospectus, and may be
obtained without charge by contacting Schwab at 800-2 NO-LOAD or 101 Montgomery
Street, San Francisco, CA 94104.

ATTENTION OHIO INVESTORS. THE OHIO ADMINISTRATIVE CODE REQUIRES US TO MAKE THE
FOLLOWING DISCLOSURE. UNLIKE CERTAIN OTHER MUTUAL FUNDS WHICH MAY INVEST NO MORE
THAN 15% OF THEIR TOTAL ASSETS IN THE SECURITIES OF ISSUERS WHICH TOGETHER WITH
ANY PREDECESSORS HAVE A RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS OR
SECURITIES OF ISSUERS WHICH ARE RESTRICTED AS TO DISPOSITION, THIS FUND MAY
INVEST UP TO 50% OF ITS TOTAL ASSETS IN SUCH SECURITIES.

TABLE OF CONTENTS

<TABLE>
<S> <C>
KEY FEATURES OF THE FUND............................................................... 2
SUMMARY OF EXPENSES.................................................................... 3
MATCHING THE FUND TO YOUR INVESTMENT NEEDS............................................. 3
INVESTMENT OBJECTIVE AND POLICIES...................................................... 4
MUNICIPAL SECURITIES AND INVESTMENT TECHNIQUES......................................... 6
MANAGEMENT OF THE FUND................................................................. 9
DISTRIBUTIONS AND TAXES................................................................ 11
SHARE PRICE CALCULATION................................................................ 13
HOW THE FUND SHOWS PERFORMANCE......................................................... 13
GENERAL INFORMATION.................................................................... 14
SHAREHOLDER GUIDE...................................................................... 15
HOW TO PURCHASE SHARES............................................................... 15
HOW TO EXCHANGE SHARES............................................................... 17
HOW TO REDEEM SHARES................................................................. 18
OTHER IMPORTANT INFORMATION............................................................ 19
</TABLE>

- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT.
THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE
NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 5

KEY FEATURES OF THE FUND

TRIPLE TAX-EXEMPT INCOME AND SAFETY. The Schwab New York Tax-Exempt Money Fund
is designed for investors who seek maximum after-tax current income consistent
with liquidity and stability of capital. The Fund primarily invests in high
quality, short-term debt securities the interest on which is exempt from federal
income taxes and personal income taxes imposed by New York State and New York
municipalities. The Fund attempts to maintain a stable net asset value of $1.00
per share. (See "Investment Objective and Policies.")

AUTOMATIC INVESTMENT/REDEMPTION FEATURE. For the Sweep Shares of the Fund, if
you elect, free credit balances in your Schwab brokerage account (including your
Schwab One(R) account) will be automatically invested or "swept" into the Fund,
subject to the terms and conditions of your brokerage account agreement. Shares
will also be sold as necessary to settle securities transactions, collateralize
margin obligations or cover debit balances. This feature keeps your money
working and saves you the time and trouble of withdrawing and redepositing
funds. (See "How to Purchase Shares" and "How to Redeem Shares.")

LIQUIDITY. You can conveniently place orders to redeem your investment in the
Fund at any time. (See "How to Redeem Shares.")

LOW COST INVESTING. The Fund imposes no sales or transaction fees on purchases
or redemptions of shares of the Fund. (See "Summary of Expenses.") In addition,
the total fund operating expenses of the Sweep Shares of the Fund will not
exceed 0.59% through at least August 31, 1995, as guaranteed by Schwab and
Charles Schwab Investment Management, Inc. (See "Matching the Fund to Your
Investment Needs" and "Management of the Fund.")

PROFESSIONAL MANAGEMENT. Charles Schwab Investment Management, Inc. (the
"Investment Manager") currently provides investment management services to the
SchwabFunds(R), a family of 19 mutual funds with over $26 billion in assets as
of June 3, 1995. (See "Management of the Fund.")

SHAREHOLDER SERVICE. Schwab's professional representatives are available
toll-free 24 hours a day to receive your Fund orders. Call your local Schwab
office during business hours or 800-2 NO-LOAD. As a discount broker, Schwab
gives you investment choices and lets you make your own decisions. Schwab has
many services that help you make the most informed investment decisions. (See
"How to Purchase Shares," "How to Exchange Between Funds" and "How to Redeem
Shares.")

CONVENIENT REPORTING. Customers receive regular Schwab statements that combine
all their mutual fund investment activity on one report.

SPECIAL RISK CONSIDERATIONS. An investment in the Fund is subject to certain
risks arising out of the Fund's investment in New York Municipal Securities,
Municipal leases, participation interests and certain other securities. (See
"Municipal Securities and Investment Techniques.")

NATIONWIDE NETWORK OF SCHWAB OFFICES. Schwab has over 200 offices throughout the
U.S. where customers can place purchase and redemption orders.

2
<PAGE> 6

SUMMARY OF EXPENSES -- SWEEP SHARES

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
Management Fee (after fee reduction)1........................................ 0.20%
12b-1 Fees................................................................... None
Other Expenses (after reduction and/or expense reimbursement)2............... 0.39%
TOTAL FUND OPERATING EXPENSES2,3,4................................................ 0.59%
</TABLE>

1 This amount reflects a reduction by the Investment Manager, which is
guaranteed through at least August 31, 1995. If there were no such reduction,
the maximum management fee for the Fund would be 0.46%. (See "Management of the
Fund--Fees and Expenses.")

2 See "Management of the Fund--Fees and Expenses" for information regarding the
differing expenses for the multiple classes of shares of the Fund.

3 Schwab currently imposes no fees for opening a standard brokerage account,
including a Schwab One(R) account with a minimum of $5,000 account equity.
Schwab One accounts of less than $5,000 account equity are subject to a fee of
$5 per month if there have been fewer than two commissionable trades within the
last twelve months. See "How to Purchase Shares" for information regarding the
differing minimum balance and minimum investment requirements of the multiple
classes of shares of the Fund.

4 This amount reflects Schwab's and the Investment Manager's guarantee that,
through at least August 31, 1995, the total operating expenses of the Sweep
Shares of the Fund will not exceed 0.59% of the Sweep Shares average daily net
assets. Without this guarantee, and absent Schwab and the Investment Manager's
reduction of its fees, it is estimated that total operating expenses would be
approximately 1.05% of the Sweep Shares' average daily net assets.

EXAMPLE. You would pay the following expenses on a $1,000 investment in the
Sweep Shares of the Fund, assuming (1) a 5% annual return and (2) redemption at
the end of each period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
- ------ -------
<S> <C>
$6 $19
</TABLE>

THE PURPOSE OF THE PRECEDING TABLE IS TO ASSIST INVESTORS IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE SWEEP SHARES OF THE FUND WILL
BEAR DIRECTLY OR INDIRECTLY. This example reflects Schwab and the Investment
Manager's guarantee that, through at least August 31, 1995, the total operating
expenses of the Sweep Shares of the Fund will not exceed 0.59%. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The example assumes a 5% annual rate of
return pursuant to requirements of the Securities and Exchange Commission. THIS
HYPOTHETICAL RATE OF RETURN IS NOT INTENDED TO BE REPRESENTATIVE OF PAST OR
FUTURE PERFORMANCE.

MATCHING THE FUND TO YOUR INVESTMENT NEEDS

The Fund may be appropriate for a variety of investment programs which can be
long-term or short-term in nature. While the Fund is not a substitute for
building an investment portfolio tailored to an

3
<PAGE> 7

individual's investment needs and risk tolerance, it can be used as a high
quality, conveniently liquid money market investment for your brokerage account
cash when it is not fully invested in other securities. The Fund would not be an
appropriate investment for retirement plans such as IRAs and Keogh plans.
- --------------------------------------------------------------------------------
THE FUND MAY BE ESPECIALLY SUITABLE FOR SHORT-TERM INVESTORS.
- --------------------------------------------------------------------------------

Because the Fund is designed to provide liquidity and stability of capital, as
well as automatic investment of free credit balances, it may be especially
suitable for investors with short-term investment objectives, including those
who are awaiting an opportune time to invest in the equity and/or bond markets.

- --------------------------------------------------------------------------------
THE FUND MAY ALSO BE APPROPRIATE FOR LONG-TERM INVESTORS.
- --------------------------------------------------------------------------------

The Fund may also be appropriate for long-term investors seeking a low-risk
investment alternative which is designed to provide income which is exempt from
federal income taxes and personal income taxes imposed by New York State and New
York municipalities.

In addition to the Sweep Shares of the Fund, Schwab also offers Value Advantage
Shares of the Fund, pursuant to a multiple class plan (the "Plan") adopted by
the Board of Trustees of the Schwab Fund Family. Under the Plan, Value Advantage
Shares of the Fund, which are not available through automatic ("sweep")
investment programs, are subject to lower transfer agency expenses than the
Sweep Shares of the Fund. In addition, the minimum investment and minimum
account balance requirements of the Value Advantage Shares of the Fund are
higher than those applicable to the Sweep Shares. See "Management of the
Fund--Fees and Expenses" and "How to Purchase Shares."

For information regarding Value Advantage Shares, call your local Schwab office
or 800-2 NO-LOAD. You may also obtain information about Value Advantage Shares
from your Schwab broker.

INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
THE FUND SEEKS MAXIMUM CURRENT INCOME CONSISTENT WITH
LIQUIDITY AND STABILITY OF CAPITAL THAT IS EXEMPT FROM FEDERAL
INCOME TAXES AND PERSONAL INCOME TAXES IMPOSED
BY NEW YORK STATE AND NEW YORK MUNICIPALITIES.
- --------------------------------------------------------------------------------

The investment objective of the Fund is maximum current income that is exempt
from federal income taxes and personal income taxes imposed by New York State
and New York municipalities, to the extent consistent with liquidity and
stability of capital. This investment objective is fundamental, and cannot be
changed without approval by holders of a majority of the Fund's outstanding
voting shares, as defined in the Investment Company Act of 1940 (the "1940
Act"). The Fund pursues its objective primarily by investing in short-term high
quality municipal obligations, the income from which is exempt from federal
income taxes and personal income taxes imposed by New York State and New York
municipalities.

4
<PAGE> 8

Under normal market conditions, the Fund attempts to invest 100%, and will
invest at least 80%, of its total assets in debt obligations issued by or on
behalf of New York and other states, territories and possessions of the United
States (including the District of Columbia) and their political subdivisions,
agencies and instrumentalities that generate interest which, in the opinion of
bond counsel, is exempt from federal income taxes ("Municipal Securities").
Absent unusual market conditions, the Fund will invest at least 65% of its total
assets in such obligations which also generate interest which, in the opinion of
bond counsel, is exempt from State of New York and New York municipal personal
income tax ("New York Municipal Securities"). Under normal market conditions,
the Fund is authorized to invest up to 20% of its total assets in "private
activity bonds." (See "Distributions and Taxes-Federal Income Taxes.") The
Fund's investment in private activity bonds will not be included in the amount
deemed to be invested in New York Municipal Securities.

Provided that certain minimum conditions are met, dividends paid to New York
residents consisting of interest income received on New York Municipal
Securities will be exempt from State of New York personal income taxes.
- -----------------------------------------------------------------
THE FUND ONLY INVESTS IN HIGH QUALITY SECURITIES.
- -----------------------------------------------------------------

The Fund invests only in Municipal Securities which at the time of purchase: (a)
are rated in one of the two highest rating categories for municipal commercial
paper or short-term municipal securities assigned by Moody's Investors Service,
Standard & Poor's Corporation or any other nationally recognized statistical
rating organization ("NRSRO"); (b) are guaranteed or insured by the U.S.
Government as to the payment of principal and interest; (c) are fully
collateralized by an escrow of U.S. Government securities acceptable to the
Investment Manager; or (d) are unrated by any NRSRO, if they are determined by
the Investment Manager, using guidelines approved by the Board of Trustees, to
be at least equal in quality to one or more of the above referenced securities.
(For a description of the ratings, see "Appendix--Ratings of Investment
Securities" in the Statement of Additional Information.)

After its purchase by the Fund, a Municipal Security may cease to be rated or
its rating may be reduced below that required for purchase by the Fund. Neither
event would necessarily require the elimination of such an obligation from the
Fund's investment portfolio. However, the obligation generally would be retained
only if such retention was determined by the Board of Trustees to be in the best
interests of the Fund.

With the exception of securities issued or guaranteed by the U.S. Government,
its agencies and instrumentalities, the Fund may not:

1. Purchase the securities of any issuer if as a result more than 5% of the
value of the Fund's total assets would be invested in the securities of that
issuer. However, provided that no more than 25% of the value of the Fund's
total assets are invested in the securities of any one issuer, up to 50% of
the value of the Fund's total assets may be invested without regard to this
5% limitation. For purposes of this limitation, a security is considered to
be issued by the governmental entity (or entities) whose assets and revenues
back the security, or, with respect to a private activity or an industrial
revenue bond that is backed only by the assets and revenues of a
non-governmental

5
<PAGE> 9

user, by such non-governmental user. In certain circumstances, the guarantor
of a security may also be considered to be an issuer in connection with such
guarantee.

2. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in the securities
of issuers conducting their principal business activities in the same
industry. However, this limitation shall not apply to Municipal Securities
issued by governmental entities.

From time to time, as a defensive measure under abnormal market conditions, the
Fund may invest any or all of its assets in taxable "temporary investments"
which include: obligations of the U.S. Government, its agencies or
instrumentalities; debt securities rated (other than Municipal Securities) in
one of the two highest categories by any NRSRO; commercial paper (other than
Municipal Securities) rated in one of the two highest rating categories by any
NRSRO; certificates of deposit of domestic banks having capital, surplus, and
undivided profits in excess of $100 million; and any of the foregoing temporary
investments subject to repurchase agreements. While purchases by the Fund of
certain temporary investments could cause it to generate dividends taxable to
shareholders as ordinary income (see "Distributions And Taxes"), it is the
Fund's primary intention to produce dividends which are not subject to federal
income or New York personal income taxes.

The investment policies set forth above (except for the policy regarding
temporary investments, or as otherwise noted) are fundamental. They, along with
certain investment restrictions adopted by the Fund (see "Investment
Restrictions" in the Statement of Additional Information), cannot be changed
without approval by holders of a majority of the Fund's outstanding voting
shares, as defined in the 1940 Act.

MUNICIPAL SECURITIES AND INVESTMENT TECHNIQUES

The two principal classifications of Municipal Securities which may be held by
the Fund are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being
financed. Revenue securities may include private activity bonds (and industrial
development bonds). Such bonds may be issued by or on behalf of public
authorities to finance various privately operated facilities, and are not
payable from the unrestricted revenues of the issuer. As a result, the credit
quality of private activity bonds is frequently related directly to the credit
standing of private corporations or other entities. From time to time, the Fund
may invest more than 25% of its total assets in industrial development and
private activity bonds.

The Fund's portfolio may also include "moral obligation" securities, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.

Municipal Securities purchased by the Fund may include variable rate demand
instruments issued by industrial development authorities and other government
entities. In the event variable rate demand

6
<PAGE> 10

instruments which the Fund can purchase are not rated by credit rating agencies,
such instruments must be determined by the Investment Manager, using guidelines
approved by the Board of Trustees, to be of comparable quality at the time of
purchase to rated instruments which the Fund can purchase. In some cases, the
Fund may require that the issuer's obligation to pay the principal of the note
be backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend. Although there may be no active secondary market with
respect to a particular variable rate demand instrument purchased by the Fund,
the Fund may (at any time or during specified periods not exceeding one year,
depending upon the instrument involved) demand payment in full of the principal
of the instrument and may resell the instrument to a third party. The absence of
such an active secondary market, however, could make it difficult for the Fund
to dispose of a variable rate demand instrument in the event the issuer
defaulted on its payment obligation or during periods that the Fund is not
entitled to exercise its demand rights, and the Fund could, for this or other
reasons, suffer a loss with respect to such instruments. To the extent that the
absence of an active secondary market for such securities causes them to be
"illiquid," such securities will be subject to the Fund's restrictions on
acquiring and holding illiquid securities.

Participation interests in Municipal Securities with fixed, floating or variable
rates of interest may be purchased by the Fund from financial institutions. The
buyer of a participation interest receives an undivided interest in the
securities underlying the instrument. The Fund will only purchase a
participation interest if: (a) the Municipal Securities subject to it mature in
one year or less or the instrument includes a right to demand payment, usually
within seven days, from the Seller, (b) the instrument meets the Fund's
previously described quality standards for Municipal Securities, and (c) the
instrument is issued with an opinion of counsel or is the subject of a ruling of
the Internal Revenue Service, stating that the interest earned on the
participation interest is exempt from federal income tax.

The Fund may purchase securities on a "when-issued" or "delayed delivery" basis.
When-issued or delayed delivery securities are securities purchased for future
delivery at a stated price and yield. The Fund will generally not pay for such
securities or start earning interest on them until they are received. Securities
purchased on a when-issued or delayed delivery basis are recorded as an asset
and are subject to changes in value based upon changes in the general level of
interest rates. The Fund will not invest more than 25% of its assets in
when-issued or delayed delivery securities, does not intend to purchase such
securities for speculative purposes and will make commitments to purchase
securities on a when-issued or delayed delivery basis with the intention of
actually acquiring the securities. However, the Fund reserves the right to sell
acquired when-issued or delayed delivery securities before their settlement
dates if deemed advisable.

7
<PAGE> 11

municipality's appropriating body does not allocate the funds necessary to make
lease payments. In such circumstances, the lessor is typically entitled to
repossess the property. The private sector value of the property is, however,
generally less than the value of the property to the municipality. The
Investment Manager, pursuant to guidelines established by the Board of Trustees,
is responsible for determining the credit quality of unrated municipal leases,
on an ongoing basis, including an assessment of the likelihood of whether the
lease will be terminated.

The Fund may also invest up to 25% of its assets in synthetic variable rate
municipal securities. These securities generally comprise the following elements
in a trust: (i) a fixed-rate municipal bond (of any duration); (ii) a right to
put the bond at par value on seven days notice or after a specific interval of
time depending on the terms of the synthetic security; and (iii) a contractual
agreement pursuant to which the investing Fund and the issuer determine the
lowest rate that would permit the bond to be remarketed at par, taking into
account the put right. The trustee of the trust is generally a bank trust
department.

These securities may include tender option bond trust receipts, in which a
fixed-rate municipal bond (or group of bonds) is placed into a trust from which
two classes of trust receipts are issued, which represent proportionate
interests in the underlying bond(s). Interest payments are made on the bond(s)
based upon a pre-determined rate. Under certain circumstances, the holder of a
trust receipt may also participate in any gain or loss on the sale of such
bond(s). Tender option bond trust receipts generally are structured as private
placements and, accordingly, may be deemed to be restricted securities for
purposes of the Fund's investment limitations. Tender option bond trust receipts
are considered to be Municipal Securities for purposes of the Fund's policy to
invest at least 80% of its total assets in Municipal Securities.

The Fund will limit its investments in tender option bond trust receipts and
other synthetic floating-rate municipal securities to no more than 25% of its
total assets.

The Fund may also acquire "stand-by commitments" with respect to Municipal
Securities held in its portfolio. Under a stand-by commitment, a dealer agrees
to purchase at the Fund's option specified Municipal Securities at a price equal
to their amortized cost value plus accrued interest. The Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder solely for trading purposes.

The Fund may engage in "repurchase agreements." In entering into a repurchase
agreement, the Fund acquires ownership of a security from a broker-dealer or
bank that agrees to repurchase the security at a mutually agreed upon time and
price (which price is higher than the purchase price), thereby determining the
yield during the Fund's holding period. Repurchase agreements with broker-dealer
firms will be limited to obligations of the U.S. Government, its agencies or
instrumentalities. Maturity of the securities subject to repurchase may exceed
one year.

As a matter of fundamental policy, the Fund may borrow money for temporary
purposes, but not for the purpose of purchasing investments, in an amount up to
one-third of the value of the Fund's total assets and may pledge up to 10% of
the Fund's net assets to secure borrowings. The Fund will not purchase illiquid
securities, including repurchase agreements maturing in more than seven days,
if, as a result thereof, more than 10% of the Fund's net assets valued at the
time of the transaction would be invested in such securities.

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<PAGE> 12

Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax (and, with respect to New York
Municipal Securities, to the exemption of interest thereon from New York State
and New York municipalities personal income taxes) are rendered by bond counsel
to the respective issuers at the time of issuance. The Fund and the Investment
Manager will not review the proceedings relating to the issuance of Municipal
Securities or the bases for such opinions.

SPECIAL RISK CONSIDERATIONS. The Fund intends to follow the diversification
standards set forth in the 1940 Act, except to the extent that, in the
Investment Manager's judgment, non-diversification is appropriate to maximize
the percentage of the Fund's assets that are New York Municipal Securities. The
investment return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of issuers relative to the number of issuers
held in a diversified portfolio. In the event of changes in the financial
condition or in the market's assessment of certain issuers, the Fund's policy of
acquiring large positions in the obligations of a relatively small number of
issuers may affect the value of the Fund's portfolio to a greater extent than it
would that of a diversified portfolio.

Although the Fund does not presently intend to do so on a regular basis, it may
invest more than 25% of its assets in Municipal Securities the interest on which
is paid solely from revenues on similar projects if such investment is deemed
necessary or appropriate by the Investment Manager. To the extent that the
Fund's assets are concentrated in Municipal Securities payable from revenues on
similar projects, the Fund will be subject to the particular risks presented by
such projects to a greater extent than it would be if the Fund's assets were not
so concentrated.

Certain New York constitutional amendments, legislative measures, executive
orders, administrative regulations and voter initiatives could result in certain
adverse consequences affecting New York Municipal Securities. (See "Municipal
Securities" in the Statement of Additional Information for more information
about these significant financial considerations.)

Participation interests in Municipal Securities and other derivative securities
eligible for purchase by the Fund involve special risks, including a risk that
the Internal Revenue Service may characterize some or all of the interest paid
on such securities to the Fund as taxable. There is also an increased risk, most
typically associated with "municipal lease" obligations, that a municipality
will not appropriate the funds necessary to make the scheduled payments on, or
may seek to cancel or otherwise avoid its obligations under, the lease that
supports the security owned by the Fund.

MANAGEMENT OF THE FUND

Responsibility for overall management of the Fund rests with the trustees and
officers of the Schwab Fund Family. Professional investment management for the
Fund is provided by the Investment Manager, Charles Schwab Investment
Management, Inc., 101 Montgomery Street, San Francisco, CA 94104. The Investment
Manager provides a continuous investment program, including general investment
and economic advice regarding the Fund's investment strategies, manages the
Fund's investment portfolio and performs expense management, accounting and
record keeping, and other services necessary to the operation of the Fund and
the Schwab Fund Family. The Investment Manager, formed in 1989, is a
wholly-owned subsidiary of The Charles Schwab Corporation and is the

9
<PAGE> 13

investment adviser and administrator of the SchwabFunds(R) mutual funds. As of
June 3, 1995, the SchwabFunds had aggregate net assets in excess of $26 billion.

Charles Schwab & Co., Inc. ("Schwab" or the "Transfer Agent"), 101 Montgomery
Street, San Francisco, CA 94104, serves as shareholder services agent and
transfer agent for the Fund. Schwab provides information and services to
shareholders, which include reporting share ownership, sales and dividend
activity (and associated tax consequences), responding to daily inquiries,
effecting the transfer of Fund shares and facilitating effective cash management
of shareholders' Schwab account balances. It furnishes office space and
equipment, telephone facilities, personnel and informational literature
distribution as is necessary or appropriate in providing shareholder and
transfer agency information and services. Schwab is also the Fund's distributor,
but receives no compensation for its services as such.

Schwab was established in 1971 and is one of America's largest discount brokers.
The firm provides low-cost securities brokerage and related financial services
to over 2.5 million active customer accounts and has over 200 offices. Schwab
also offers convenient access to financial information services and provides
products and services that help investors make investment decisions. Schwab is a
wholly-owned subsidiary of The Charles Schwab Corporation. Charles R. Schwab is
the founder, Chairman, Chief Executive Officer and a director of The Charles
Schwab Corporation and, as of March 10, 1995, the beneficial owner of
approximately 23.3% of the outstanding shares of that corporation. Mr. Schwab
may be deemed to be a controlling person of Schwab and the Investment Manager.

FEES AND EXPENSES. Pursuant to its Investment Advisory and Administration
Agreement with the Schwab Fund Family, the Investment Manager receives from the
Fund a graduated annual fee, payable monthly, of 0.46% of the Fund's average
daily net assets not in excess of $1 billion, 0.41% of such net assets over $1
billion but not in excess of $2 billion and 0.40% of such net assets over $2
billion. The Investment Manager may reduce its management fee from time to time
in the future. Fee reductions lower the Fund's expenses and thus increase the
total return it provides shareholders. At least through August 31, 1995, the
Investment Manager guarantees that the Fund's management fee will not exceed
0.20% of the Fund's average daily net assets and that total operating expenses
will not exceed 0.59% of the average daily net assets of the Sweep Shares.
Interest expenses, taxes and capital items such as, but not limited to, costs
incurred in connection with the purchase or sale of portfolio securities,
including brokerage fees or commissions, are not included as operating expenses
the purpose of this guarantee. The effect of this guarantee is to maintain or
lower expenses of the Sweep Shares and thus maintain or increase the total
return to shareholders. Without this guarantee, and absent the Investment
Manager's reduction of its fee, it is estimated that total operating expenses of
the Sweep Shares would be approximately 1.06% of its average daily net assets.

For the transfer agency services provided, the Transfer Agent receives an annual
fee, payable monthly, of 0.25% of the average daily net assets of the Sweep
Shares. In addition, for shareholder services provided, Schwab receives an
annual fee, payable monthly, of 0.20% of the average daily net assets of the
Sweep Shares. For the Value Advantage Shares, the Transfer Agent receives an
annual fee of 0.05% of the average daily net assets of that class' shares of
beneficial interest. PNC Bank is the Fund's Custodian.

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<PAGE> 14

The Schwab Fund Family pays the expenses of its operations, including the fees
and expenses of independent accountants, counsel and custodian, and the costs of
calculating net asset values, brokerage commissions or transaction costs, taxes,
registration fees, and the fees and expenses of qualifying the Schwab Fund
Family and its shares for distribution. These expenses are generally allocated
among the Schwab Fund Family's investment portfolios ("Series") on the basis of
relative net assets at the time of allocation. However, expenses directly
attributable to a particular Series or class of a Series are charged to that
Series or class, respectively. The differing expenses applicable to the Sweep
Shares and the Value Advantage Shares will cause the performance of the two
classes of shares of the Fund Sweep Shares to differ.

DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
THE FUND DECLARES DAILY DIVIDENDS WHICH ARE PAID MONTHLY.
- --------------------------------------------------------------------------------

DIVIDENDS AND OTHER DISTRIBUTIONS. On each day that the net asset value per
share of the Fund is determined ("Business Day"), the Fund's net investment
income will be declared as of the close of trading on the New York Stock
Exchange (the "Exchange") (generally 4:00 p.m. Eastern time) as a dividend to
shareholders already of record at the previous net asset value calculation.
Dividends are normally paid (and, where applicable, reinvested) on the 15th of
each month, if a Business Day, otherwise on the next Business Day.

TAX INFORMATION. The Fund intends to be treated as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code") and
applicable state laws. In order to so qualify, the Fund will distribute on a
current basis substantially all of its investment company taxable income, its
net exempt-interest income and its capital gain net income (if any), and will
meet certain other requirements. Such qualification relieves the Fund of
liability for federal and New York income taxes to the extent the Fund's
earnings are distributed. In addition, if the Fund does not distribute 98% of
its taxable investment income and capital gains, it will be subject to a
non-deductible 4% excise tax on such undistributed amounts.

FEDERAL INCOME TAXES. Dividends derived from exempt-interest on state and local
obligations (known as "exempt-interest dividends") may be treated by the Fund's
shareholders as items of interest excludable from their federal gross income. A
shareholder should consult his or her own tax adviser with respect to whether
exempt-interest dividends would be excludable from gross income if the
shareholder were treated as a "substantial user" of facilities financed by an
obligation held by the Fund or a "related person" to such user under the Code.
Any loss on the sale or exchange of any share held for six months or less will
be disallowed to the extent of the amount of the exempt-interest dividend
received with respect to such share. The U.S. Treasury Department is authorized
to issue regulations reducing the period to not less than 31 days for certain
regulated investment companies, but no such regulations have been issued as of
the date of this Prospectus. To the extent dividends paid to shareholders are
derived from taxable interest or short-term or long-term capital gains, such
dividends will be subject to federal income tax whether paid in the form of cash
or additional shares. Fund dividends derived from interest on U.S. Treasury and
agency obligations are subject to federal income tax.

11
<PAGE> 15

The Fund may at times purchase Municipal Securities or New York Municipal
Securities at a discount from the price at which they were initially issued. For
federal income tax purposes, some or all of this market discount will be
included in the Fund's ordinary income and will be taxable to shareholders as
such when it is distributed to them.

If the Fund holds certain "private activity bonds" ("industrial development
bonds" under prior law), dividends derived from interest on such obligations
will be classified as an item of tax preference which could subject certain
shareholders to federal alternative minimum tax liability. Corporate
shareholders must also take all exempt-interest dividends into account in
determining "adjusted current earnings" for purposes of calculating their
alternative minimum tax.

Private activity bonds and industrial development bonds generally are bonds
issued by or on behalf of public authorities to obtain funds to provide
financing to certain privately owned or operated facilities. Private activity
bonds and industrial development bonds also are generally limited obligation (or
revenue) securities, which means that they are payable only from the revenues
derived from a particular facility or class of facilities, or, in some cases,
from some other specific revenue source. (See "Municipal Securities" in the
Statement of Additional Information.)

Reinvested distributions will be taxable as if they had been received by
shareholders in cash. It is not expected that any portion of the dividends paid
by the Fund will be eligible for the corporate dividends received deduction.
Shareholders should note that all exempt-interest dividends will be taken into
account in determining the taxability of Social Security benefits or Railroad
Retirement Act benefits. (See "Distributions and Taxes" in the Statement of
Additional Information.)

NEW YORK INCOME TAXES. Dividends paid by the Fund to non-corporate shareholders
and derived from interest on New York Municipal Securities or federal
obligations are also exempt from personal income taxes imposed by New York State
and New York municipalities. For this purpose, federal obligations are
obligations the interest on which is excludable from gross income for state
income tax purposes under the Constitution or laws of the United States.
However, dividends paid to shareholders that are corporations subject to New
York franchise tax or corporate income tax will be taxed as ordinary income to
such shareholders, notwithstanding that all or a portion of such dividends are
exempt from New York personal income tax. Moreover, to the extent that the
Fund's dividends are derived from interest on debt obligations other than New
York Municipal Securities or federal obligations, such dividends will be subject
to New York personal income tax, even though such dividends may be exempt for
federal income tax purposes.

To the extent, if any, that dividends paid to shareholders are derived from
taxable interest or from long-term or short-term capital gains, such dividends
will not be exempt from New York personal income tax whether received in cash or
reinvested in shares.

Records of dividends and other distributions, purchases and redemptions will be
reflected on shareholders' regular Schwab brokerage statements. The Fund will
notify shareholders at least annually as to the federal income and New York
personal income tax consequences of distributions made each year.

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<PAGE> 16

The foregoing is only a brief summary of some of the federal and New York income
tax considerations affecting the Fund and its shareholders. (See the Trust's
Statement of Additional Information for more information.) Potential investors
should consult their tax advisers with specific reference to their own tax
situations.

SHARE PRICE CALCULATION
- -------------------------------------------------------------------------------
THERE ARE NO SALES CHARGES OR TRANSACTION FEES TO PURCHASE
OR REDEEM SHARES OF THE FUND.
- -------------------------------------------------------------------------------

The price of a Sweep Share of the Fund on any given day is its "net asset value"
per share or "NAV." This figure is computed by dividing total Fund assets
allocable to that class, less any liabilities allocable to the class, by the
number of shares of the class outstanding. The net asset value per share of the
Sweep Shares of the Fund is determined on each day both the Federal Reserve Bank
of New York and the Exchange are open for business, first at 10:00 a.m. (Eastern
time), then again as of the close of normal trading on the Exchange (generally
4:00 p.m. Eastern time). While the Fund attempts to maintain its net asset value
at a constant $1.00 per share, Fund shares are not insured against reduction in
net asset value.

The Fund values its portfolio securities at amortized cost, which means that
they are valued at their acquisition cost (as adjusted for amortization of
premium or discount) rather than at current market value. Calculations are made
to compare the value of the Fund's investments using the amortized cost method
with market values. Market valuations are obtained by using actual quotations
provided by market makers, estimates of market value, or values obtained from
yield data relating to classes of money market instruments published by
reputable sources at the mean between the bid and asked prices for the
instruments. If a deviation of 1/2 of 1% or more were to occur between the net
asset value per share of the Sweep Shares of the Fund calculated by reference to
market values and the $1.00 per share amortized cost value of the Sweep Shares
of the Fund, or if there were any other deviation which the Board of Trustees
believed would result in a material dilution to shareholders or purchasers, the
Board of Trustees would promptly consider what action, if any, should be
initiated.

HOW THE FUND SHOWS PERFORMANCE

From time to time the Fund may advertise the yield, effective yield,
tax-equivalent yield and tax-equivalent effective yield of the Sweep Shares of
the Fund. Performance figures are based upon historical results and are not
intended to indicate future performance.

The yield of the Sweep Shares of the Fund refers to the income generated by a
hypothetical investment in Sweep Shares of the Fund over a specific 7-day
period. This income is then annualized, which means that the income generated
during the 7-day period is assumed to be generated each week over an annual
period and is shown as a percentage of the hypothetical investment.

Effective yield is calculated similarly, but the income earned by the investment
is assumed to be compounded weekly when annualized. The effective yield will be
slightly higher than the yield due to this compounding effect.

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<PAGE> 17

Tax-equivalent yield is the yield that a taxable investment must generate in
order to equal (after applicable taxes are deducted) the Sweep Share's yield for
an investor in stated federal, State of New York, and New York Municipal income
tax brackets (normally assumed to be the applicable maximum tax rate).
Tax-equivalent yield is based upon, and will be higher than, the portion of the
Sweep Share's yield that is tax-exempt. (See "Yield" in the Statement of
Additional Information.)

The tax-equivalent effective yield is computed in the same manner as is the
tax-equivalent yield, except that the effective yield is substituted for yield
in the calculation.

The performance of the Sweep Shares of the Fund may be compared to that of other
mutual funds tracked by mutual fund rating services, various indices of
investment performance, United States government obligations, bank certificates
of deposit, other investments for which reliable performance data is available
and the consumer price index.

Because the Sweep Shares of the Fund are subject to different expenses than the
Value Advantage Shares, the performance of the two classes of shares will
differ.

Additional performance information about the Sweep Shares of the Fund is
available in the Fund's Annual Report, which is sent to all shareholders. To
request a free copy, call your local Schwab office at 800-2 NO-LOAD.

GENERAL INFORMATION

The Schwab Fund Family was organized as a business trust under the laws of
Massachusetts on October 20, 1989 and may issue an unlimited number of shares of
beneficial interest or classes of shares in one or more Series. Currently,
Schwab Fund Family offers shares of nine Series which may be organized into one
or more classes of shares of beneficial interest. The Board of Trustees may
authorize the issuance of shares of additional Series or classes if it deems it
desirable to do so. Shares of each Series have equal noncumulative voting rights
and equal rights as to dividends, assets, and liquidation of such Series, except
to the extent such voting rights or rights as to dividends, assets, and
liquidation vary among classes of a Series.

The Schwab Fund Family is not required to hold annual shareholders' meetings. It
will, however, hold special meetings as required or deemed desirable by the
Board of Trustees for such purposes as electing trustees, changing fundamental
policies, or approving an investment advisory or sub-advisory agreement. In
addition, a Trustee may be elected or removed by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Schwab Fund Family. Shareholders will vote by Series
and not in the aggregate (for example, when voting to approve the investment
advisory agreement), except when voting in the aggregate is permitted under the
1940 Act, such as for the election of Trustees. In addition, holders of the
Sweep Shares will vote exclusively as a class on any matter relating solely to
the Sweep Shares' arrangement as a class and on any matter in which the
interests of the holders of the Sweep Shares differ from the interests of the
holders of Value Advantage Shares.

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<PAGE> 18

SHAREHOLDER GUIDE
- ----------------------------------------------------------------------------
SCHWAB'S OFFICES ACCEPT ORDERS AND PROVIDE SHAREHOLDER
SERVICE INFORMATION.
- ----------------------------------------------------------------------------

SHAREHOLDER SERVICE. You may place Fund purchase and redemption orders as well
as request exchanges at any one of over 200 Schwab offices nationwide or by
calling 800-2 NO-LOAD, where trained representatives are available to answer
questions about the Fund and your account. The privilege to initiate
transactions by telephone, as discussed below, is automatically available
through your Schwab account. The Fund will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. If these
procedures are not followed, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions. These procedures may include requiring
a form of personal identification prior to acting upon instructions received by
telephone, providing written confirmation of such instructions and tape
recording telephone transactions.

HOW TO PURCHASE SHARES
- ----------------------------------------------------------------------
YOU MAY PURCHASE SHARES OF THE FUND ONLY THROUGH
A SCHWAB ACCOUNT.
- ----------------------------------------------------------------------

You may purchase shares of the Fund exclusively through an account maintained
with Schwab, and payment for shares must be made directly to Schwab. The
Securities Investor Protection Corporation ("SIPC") will provide account
protection, in an amount up to $500,000, for securities, including Fund shares
which you hold in a Schwab brokerage account. Of course, SIPC account protection
does not protect shareholders from share price fluctuations.

If you already have a Schwab brokerage account, you may purchase shares in the
Fund as described below and need not open a new account.

If you do not presently maintain a Schwab brokerage account and wish to
establish one, simply complete a Schwab Brokerage Account Application available
at any Schwab office. Corporations and other organizations should contact their
local Schwab office to determine which additional forms may be necessary to open
a Schwab brokerage account.

You may deposit funds into your Schwab brokerage account by check or wire. All
deposit checks should be made payable to Charles Schwab & Co., Inc. If you would
like to wire funds into your Schwab brokerage account, please contact your local
Schwab office for instructions.

WHEN AND AT WHAT PRICE SHARES WILL BE PURCHASED. You must have funds in your
Schwab brokerage account in order to purchase Fund shares. If funds (including
those transmitted by wire) are received by Schwab before 4:00 p.m. (Eastern
time), they will be available for investment on the day of receipt. If funds
arrive after that time, they will be available for investment the next Business
Day.

Orders to purchase shares will be executed at the next determined net asset
value after receipt by Schwab's Mutual Fund Transfer Agency Department. (See
"Share Price Calculation.")

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<PAGE> 19

- ---------------------------------------------------------------------------
THE FUND MAY BE USED TO "SWEEP" FREE CREDIT BALANCES
IN YOUR SCHWAB BROKERAGE ACCOUNT.
- ---------------------------------------------------------------------------

METHODS OF PURCHASING SHARES. Automatic Investment: When opening a Schwab
brokerage account, an investor will be asked to select a SchwabFunds(R) class or
series with sweep privileges as a "primary fund." (If a selection is not made,
the Schwab Money Market Fund will automatically become the investor's primary
fund.) An initial purchase of shares of the primary fund selected will be made
automatically pursuant to the procedures described below when the free credit
balance in the investor's Schwab brokerage account (including deposits, proceeds
of sales of securities, and miscellaneous cash dividends and interest, but not
amounts held by Schwab as collateral for margin obligations to Schwab) exceeds
$1,000 on the last Business Day of the week. Thereafter, free credit balances in
the investor's Schwab brokerage account which, in total, equal or exceed $100 on
the last Business Day of any week will be automatically invested in the primary
fund on the first Business Day of the following week. If an investor's free
credit balance is less than $100, it will not be invested in the primary fund,
but will remain a credit to the investor's Schwab brokerage account. In certain
limited circumstances, free credit balances in certain accounts may be
automatically invested at different times. Upon request, a free credit balance
in a Schwab brokerage account totaling $20,000 or more may be invested in the
appropriate primary fund on the Business Day following receipt by the Transfer
Agent of investor instructions.

An investor with an existing Schwab brokerage account may add the automatic
investment feature to his or her account by completing the appropriate section
of the Schwab brokerage account application available at any Schwab office. A
shareholder may change primary funds by calling or writing his or her local
Schwab office or writing Schwab at the address listed on the cover of this
Prospectus. Note that the automatic reinvestment feature is not available for
Value Advantage Shares of any Fund.
- ----------------------------------------------------------------------
SHARES OF THE FUND MAY ALSO BE PURCHASED DIRECTLY.
- ----------------------------------------------------------------------

DIRECT PURCHASE: A Schwab brokerage account holder may buy shares of the Fund
(if it is not his or her primary fund) by placing an order directly with a
Schwab registered representative. The minimum initial investment for such a
"secondary fund" purchase is $1,000, and subsequent investments must be at least
$100. The minimum initial investment for the Value Advantage Shares is $25,000
and the minimum account balance for the Value Advantage Shares is $20,000.

- -----------------------------------------------------
TWO DISTRIBUTION OPTIONS ARE AVAILABLE.
- -----------------------------------------------------

DISTRIBUTION OPTIONS. The brokerage account standing instructions that you
selected in your Schwab Brokerage Account Application will determine which of
the two distribution options listed below will apply to you. Fund distributions
will be automatically reinvested, unless the Transfer Agent has received
instructions that distributions be mailed to you as they are paid. Please
contact your local Schwab office if you already have a Schwab brokerage account
and wish to change your brokerage account standing instructions.

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<PAGE> 20

1.AUTOMATIC REINVESTMENT: All distributions will be reinvested in additional
full Sweep Shares of the Fund at the net asset value next determined after
their payable date.

2. RECEIVE DIVIDENDS BY MAIL: All distributions will be credited to your Schwab
account as of the payable date. If your account is coded to have dividends
mailed immediately, checks will normally be mailed the Business Day after
distributions are credited.

For information on how to wire funds from your Schwab brokerage account to your
bank, see "Other Important Information--Wire Transfers to Your Bank."

OTHER PURCHASE INFORMATION. The minimum amounts required for automatic
investment/direct purchase may be reduced or waived on certain occasions. (See
"Purchase and Redemption of Shares" in the Statement of Additional Information.)
Free credit balances in accounts of certain categories of investors, such as
holders of Schwab custodial accounts, may be invested automatically irrespective
of amount. The Fund reserves the right, in its sole discretion and without prior
notice to shareholders, to withdraw or suspend all or any part of the offering
made by this Prospectus, to reject purchase orders or to change the minimum
investment requirements. All orders to purchase shares of the Fund are subject
to acceptance by the Fund and are not binding until confirmed or accepted.
Schwab will charge a $15 service fee against an investor's Schwab brokerage
account should his or her check be returned because of insufficient or
uncollected funds or a stop payment order.

HOW TO EXCHANGE SHARES

- --------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE EXCHANGED FOR SHARES OF OTHER FUNDS
SPONSORED BY SCHWAB WITHOUT CHARGE.
- --------------------------------------------------------------------------------

The exchange privilege allows you to exchange your SchwabFunds(R) shares for
shares of any other SchwabFunds class or series available to investors in your
state. Thus, you can conveniently modify your investments if your goals or
market conditions change. An exchange will involve the redemption of shares at
the net asset value next determined after receipt by the Transfer Agent of an
exchange request (on the same day as the Transfer Agent received your request,
if it was received by 4:00 p.m. (Eastern time) and on the next business day if
the request was received after that time) and the purchase of shares in another
fund at the net asset value of that fund next determined after sale of the
shares involved in the exchange (on the same day as the Transfer Agent received
your request, if it was received by 4:00 p.m. (Eastern time) and on the next
business day if the request was received after that time). An exchange of shares
will be treated as a sale of the shares for federal income tax purposes. Note
that you must meet the minimum initial or subsequent investment requirements
applicable to the shares you wish to receive in an exchange. The Fund reserves
the right on 60 days' written notice to modify, limit or terminate the exchange
privilege.

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<PAGE> 21

METHODS OF EXCHANGING SHARES.

BY PHONE:

To exchange between any of the SchwabFunds by telephone, please call your
local Schwab office during regular business hours or 800-2 NO-LOAD, 24 hours a
day. Investors should be aware that telephone exchanges may be difficult to
implement during periods of drastic economic or market changes.

To properly process your telephone exchange request, we will need the
following information:

- your Schwab brokerage account number;
- the name of the fund into which shares are to be exchanged; and the
number of shares of the Fund to be exchanged.

BY MAIL:

You may also request an exchange by writing your local Schwab office or Schwab
at the address listed on the Prospectus cover page.

To properly process your mailed exchange request, we will need a letter from
you which:

- references your Schwab brokerage account number;
- specifies that you would like to exchange shares from the Fund;
- indicates the fund into which shares are to be exchanged; describes
the number of shares of the Fund to be exchanged; and
- is signed by at least one of the registered Schwab account holders, in
the exact form specified in the account.

IN PERSON AT A SCHWAB OFFICE:

You can also place your exchange request in person at your local Schwab
office.

HOW TO REDEEM SHARES

THE PRICE AT WHICH SHARES WILL BE REDEEMED. Sweep Shares will be redeemed at the
net asset value per share next determined after receipt by the Transfer Agent of
proper redemption instructions, as set forth below. Investors will receive
dividends declared for the day on which shares are redeemed.

AUTOMATIC REDEMPTION. Redemptions will be automatically effected by the Transfer
Agent to satisfy debit balances in an investor's Schwab brokerage account or to
provide necessary cash collateral for an investor's margin obligation to Schwab.
Redemptions will also be automatically effected to settle securities
transactions with Schwab if an investor's free credit balance on the day before
settlement is insufficient to settle the transactions. Each Schwab brokerage
account will, as of the close of business each Business Day, be automatically
reviewed for debits and pending securities settlements, and, after application
of any free credit balances in the account to such debits, a sufficient number
of shares of the primary fund and, to the extent necessary, any other Schwab
Money Fund(s) in the account, will be redeemed the following Business Day to
satisfy any remaining debits.

18
<PAGE> 22

DIRECT REDEMPTION. Shareholders may also place redemption orders directly by
contacting their local Schwab office by telephone, mail or in person, or by
mailing written instructions to Schwab (at the address listed on the Prospectus
cover page). Investors should be aware that telephone redemption may be
difficult to implement during periods of drastic economic or market changes.
Shareholders who experience difficulties in redeeming by telephone can utilize
one of the above-noted alternatives to place their redemption orders.

Telephone redemption orders received prior to 6:00 p.m. (Eastern time) on any
Business Day, once they have been verified as to the caller's identity and
account ownership, will be deemed to be received by Schwab's Mutual Fund
Transfer Agency Department prior to the next net asset value determination. All
subsequent telephone redemption orders received prior to the first net asset
value determination on the following day will be deemed received prior to that
day's second net asset value determination.

Normally a check for a shareholder's redemption proceeds will be available at
the investor's local Schwab office on the Business Day after the Transfer Agent
receives proper redemption instructions. Checks will normally be mailed to
investors who specifically request such mailing on the Business Day following
share redemption. If you purchased shares by check, your redemption proceeds may
be held in your Schwab brokerage account until your check clears (which may take
up to 15 days). Depending on the type of Schwab brokerage account you have, your
money may earn interest during any holding period.

The Fund may suspend redemption rights or postpone payments at times when
trading on the Exchange is restricted, the Exchange is closed for any reason
other than its customary weekend or holiday closings, emergency circumstances as
determined by the Securities and Exchange Commission exist, or for such other
circumstances as the Commission may permit.

OTHER IMPORTANT INFORMATION

MINIMUM BALANCE AND BROKERAGE ACCOUNT REQUIREMENTS. Due to the relatively high
cost of maintaining smaller holdings, the Fund reserves the right to redeem a
shareholder's shares if, as a result of redemptions, their aggregate value drops
below the $100 minimum balance requirement for the Sweep Shares of the Fund. The
Fund will notify shareholders in writing 30 days before taking such action to
allow them to increase their holdings to at least the minimum level. Also note
that, because they can only be held in Schwab brokerage accounts, Fund shares
will be automatically redeemed should the Schwab brokerage account in which they
are carried be closed.

CONSOLIDATED MAILINGS. In an effort to reduce the Fund's mailing costs, the Fund
consolidates shareholder mailings by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a single package during each shareholder mailing. If you do not wish
this consolidation to apply to your account(s), please write to SchwabFunds at
101 Montgomery Street, San Francisco, CA 94104 to that effect.

WIRE TRANSFERS TO YOUR BANK. If you so instruct your local Schwab office, funds
can be wired from your Schwab brokerage account to your bank account. Call your
local Schwab office for additional information. A $15 service fee will be
charged against your Schwab brokerage account for each wire sent.

19
<PAGE> 23

SCHWAB ONE(R) ACCOUNT FEATURES. Shareholders who hold shares of the Fund in
Schwab One(R) accounts are entitled to redeem Fund shares through debit cards
and checks. Investors should contact Schwab if they are interested in the
benefits and requirements of a Schwab One account.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE
LAWFULLY MADE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

20
<PAGE> 24

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.

<PAGE> 25

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.

<PAGE> 26

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.

<PAGE> 27

2239-2(06/95) Printed on recycled paper

PROSPECTUS JUNE 6, 1995

PROSPECTUS JUNE 6, 1995
<PAGE> 28
CROSS REFERENCE SHEET

THE CHARLES SCHWAB FAMILY OF FUNDS:
Schwab Money Market Fund
Schwab Government Money Fund
Schwab U.S. Treasury Money Fund
Schwab Tax-Exempt Money Fund-Sweep Shares

<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page Cover Page

Synopsis Key Features of the Funds; Summary of Expenses

Condensed Financial Information Financial Highlights

General Description of Registrant Matching the Funds to Your Investment Needs; Investment Objective and Policies;
Municipal Securities and Investment Techniques

Management of the Fund General Information; Organization and Management of the Funds

Management's Discussion of [Discussion included in Registrant's
Fund Performance Annual Report]

Capital Stock and Other Securities Cover Page, Matching the Funds to Your Investment Needs; Management of the Funds;
Distributions and Taxes; General Information; Shareholder Guide; Tax-Advantaged
Retirement Plans

Purchase of Securities Being Offered Share Price Calculation; How to Purchase Shares; Other Important Information

Redemption or Repurchase How to Redeem Shares; Other Important Information

Pending Legal Proceedings Inapplicable
</TABLE>

<PAGE> 29

SCHWAB MONEY MARKET FUND
SCHWAB GOVERNMENT MONEY FUND
SCHWAB U.S. TREASURY MONEY FUND

SCHWAB TAX-EXEMPT MONEY FUND--SWEEP SHARES

- --------------------------------------------------------------------------------

PROSPECTUS June 6, 1995

TO PLACE ORDERS AND FOR ACCOUNT INFORMATION: Contact your local Charles Schwab &
Co., Inc. ("Schwab") office or call 800-2 NO-LOAD.

THE SCHWAB MONEY MARKET FUND, SCHWAB GOVERNMENT MONEY FUND, SCHWAB U.S. TREASURY
MONEY FUND, AND SCHWAB TAX-EXEMPT MONEY FUND (the "Funds") are designed for
investors who seek current income consistent with liquidity and stability of
capital. The Funds are diversified investment portfolios of The Charles Schwab
Family of Funds (the "Schwab Fund Family"), a no-load, open-end, management
investment company. With respect to the Schwab Tax-Exempt Money Fund, this
Prospectus describes the Sweep Shares of the Fund, one of the two classes of
shares of the Fund (the "Sweep Shares") offered by Schwab. Prior to the date of
this Prospectus, the Schwab Tax-Exempt Money Fund was not offered in two classes
of shares. The existing shares of the Schwab Tax-Exempt Money Fund are
redesignated as Sweep Shares. The Schwab Money Market Fund, Schwab Government
Money Fund, and the Schwab U.S. Treasury Money Fund are not offered in multiple
classes of shares. For a prospectus describing the other class of shares of the
Schwab Tax-Exempt Money Fund (the "Value Advantage Shares"), call your local
Schwab office or 800-2 NO-LOAD.

ABOUT THIS PROSPECTUS: THIS PROSPECTUS CONCISELY PRESENTS IMPORTANT INFORMATION
YOU SHOULD KNOW BEFORE INVESTING IN THE FUNDS. PLEASE READ IT CAREFULLY AND
RETAIN IT FOR FUTURE REFERENCE. This Prospectus may be available via electronic
mail. For a free paper copy of this Prospectus call 800-2 NO-LOAD. You can find
more detailed information pertaining to the Funds in the Statement of Additional
Information dated June 6, 1995 (as may be amended from time to time), and filed
with the Securities and Exchange Commission. The Statement of Additional
Information is incorporated by reference into this Prospectus, and may be
obtained without charge by contacting Schwab at 800-2 NO-LOAD or 101 Montgomery
Street, San Francisco, CA 94104.

ATTENTION OHIO INVESTORS. THE OHIO ADMINISTRATIVE CODE REQUIRES US TO MAKE THE
FOLLOWING DISCLOSURE. UNLIKE CERTAIN OTHER MUTUAL FUNDS WHICH MAY INVEST NO MORE
THAN 15% OF THEIR TOTAL ASSETS IN THE SECURITIES OF ISSUERS WHICH TOGETHER WITH
ANY PREDECESSORS HAVE A RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS OR
SECURITIES OF ISSUERS WHICH ARE RESTRICTED AS TO DISPOSITION, THE SCHWAB
TAX-EXEMPT MONEY FUND MAY INVEST UP TO 50% OF ITS TOTAL ASSETS IN SUCH
SECURITIES.

TABLE OF CONTENTS

<TABLE>
<S> <C>
KEY FEATURES OF THE FUNDS.............................................................. 2
SUMMARY OF EXPENSES.................................................................... 3
FINANCIAL HIGHLIGHTS................................................................... 5
MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS............................................ 6
INVESTMENT OBJECTIVES AND POLICIES..................................................... 7
MUNICIPAL SECURITIES AND INVESTMENT TECHNIQUES......................................... 11
MANAGEMENT OF THE FUNDS................................................................ 14
DISTRIBUTIONS AND TAXES................................................................ 16
SHARE PRICE CALCULATION................................................................ 17
HOW THE FUNDS SHOW PERFORMANCE......................................................... 19
TAX-ADVANTAGED RETIREMENT PLANS........................................................ 20
GENERAL INFORMATION.................................................................... 20
SHAREHOLDER GUIDE...................................................................... 21
HOW TO PURCHASE SHARES............................................................... 21
HOW TO EXCHANGE SHARES............................................................... 23
HOW TO REDEEM SHARES................................................................. 24
OTHER IMPORTANT INFORMATION............................................................ 25
</TABLE>

AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 30

KEY FEATURES OF THE FUNDS

CURRENT INCOME AND SAFETY. The Funds are designed for investors who seek current
income consistent with liquidity and stability of capital. The Funds invest in
high quality, short-term debt securities. The Schwab Tax-Exempt Money Fund also
seeks to produce income for its shareholders which is exempt from federal income
taxes. Each Fund attempts to maintain a stable net asset value of $1.00 per
share. (See "Investment Objectives and Policies.")

AUTOMATIC INVESTMENT/REDEMPTION FEATURE. For the Sweep Shares of the Schwab
Tax-Exempt Money Fund and for the other Funds, if you elect, free credit
balances in your Schwab brokerage account (including your Schwab One(R) account)
will be automatically invested or "swept" into the Fund you select, subject to
the terms and conditions of your brokerage account agreement. Shares will also
be sold as necessary to settle securities transactions, collateralize margin
obligations or cover debit balances. This feature keeps your money working and
saves you the time and trouble of withdrawing and redepositing funds. (See "How
to Purchase Shares" and "How to Redeem Shares.")

LIQUIDITY. You can conveniently place orders to redeem your investment in any of
the Funds at any time. (See "How to Redeem Shares.")

LOW COST INVESTING. The Funds impose no sales or transaction fees on purchases
or redemptions of shares of the Funds. In addition, the total fund operating
expenses of the Schwab Money Market Fund, Schwab Government Money Fund, Schwab
U.S. Treasury Money Fund and the Sweep Shares of the Schwab Tax-Exempt Money
Fund will not exceed 0.75%, 0.75%, 0.65% and 0.66%, respectively, through at
least August 31, 1995, as guaranteed by Charles Schwab Investment Management,
Inc. (See "Matching the Fund to Your Investment Needs,"and "Management of the
Funds.")

SPECIAL RISK CONSIDERATIONS. An investment in the Schwab Tax-Exempt Money Fund
is subject to certain risks arising out of the Fund's investment in municipal
securities, municipal leases, participation interests and certain other
securities. (See "Municipal Securities and Investment Techniques.")

CONVENIENT REPORTING. Customers receive regular Schwab statements that combine
all their mutual fund investment activity on one report.

NATIONWIDE NETWORK OF SCHWAB OFFICES. Schwab has over 200 offices throughout the
U.S. where customers can place purchase and redemption orders.

2
<PAGE> 31

SUMMARY OF EXPENSES

SHAREHOLDER TRANSACTION EXPENSES: None

<TABLE>
<CAPTION>
SCHWAB SCHWAB
SCHWAB SCHWAB U.S. TAX-EXEMPT
MONEY GOVERNMENT TREASURY MONEY
MARKET MONEY MONEY FUND-
FUND FUND FUND SWEEP SHARES
------- ----------- --------- ------------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees (after fee reductions)(1)... 0.29% 0.29% 0.19% 0.20%
12b-1 Fees.................................. None None None None
Other Expenses (after expense
reimbursement)............................ 0.46% 0.46% 0.46% 0.46%(2)
TOTAL FUND OPERATING EXPENSES(2,3,4)............. 0.75% 0.75% 0.65% 0.66%
</TABLE>

(1) These amounts reflect reductions by the Investment Manager, which are
guaranteed through at least August 31, 1995. If there were no such reductions,
the maximum management fee for the Schwab Money Market Fund, Schwab Government
Money Fund, Schwab U.S. Treasury Money Fund and Schwab Tax-Exempt Money Fund
would have been 0.42%, 0.44%, 0.46% and 0.43%, respectively, for the fiscal year
ended December 31, 1994. (See Management of the Funds--Fees and Expenses).

(2) See "Management of the Funds--Fees and Expenses" for information
regarding the differing expenses for the multiple classes of shares of the
Schwab Tax-Exempt Money Fund.

(3) Schwab currently imposes no fees for opening a standard brokerage account,
including a Schwab One(R) account with a minimum of $5,000 account equity.
Schwab One accounts of less than $5,000 account equity are subject to a fee of
$5 per month if there have been fewer than two commissionable trades within the
last twelve months. Schwab Individual Retirement Accounts with account equity of
$10,000 or more by September 15, 1995 are currently free from Schwab's annual
account fee of $29. Schwab Keogh plans are currently charged an annual fee of
$45. The Schwab Tax-Exempt Money Fund would not be an appropriate investment for
retirement plans such as IRAs and Keoghs. See "How to Purchase Shares" for
information regarding the differing minimum balance and minimum investment
requirements of the multiple classes of shares of the Schwab Tax-Exempt Money
Fund.

(4) These amounts reflect the Investment Manager's guarantee that, through at
least August 31, 1995, the total fund operating expenses of the Schwab Money
Market Fund, Schwab Government Money Fund, Schwab U.S. Treasury Money Fund and
the Schwab Tax-Exempt Money Fund-Sweep Shares will not exceed 0.75%, 0.75%,
0.65% and 0.66%, respectively. Without similar guarantees, which were in effect
during the prior fiscal year as to the Schwab Money Market Fund, Schwab
Government Money Fund, Schwab Tax-Exempt Money Fund-Sweep Shares and the Schwab
U.S. Treasury Money Fund, total fund operating expenses would have been 0.90%,
0.92%, 0.91%, and 1.00%, respectively.

3
<PAGE> 32

EXAMPLE. You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Schwab Money Market Fund.................................... $8 $24 $42 $ 93
Schwab Government Money Fund................................ $8 $24 $42 $ 93
Schwab U.S. Treasury Money Fund............................. $7 $21 $36 $ 81
Schwab Tax-Exempt Money Fund-Sweep Shares................... $7 $21 $37 $ 82
</TABLE>

The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in any of the Funds will bear
directly or indirectly. This example reflects the Investment Manager's guarantee
that, through at least August 31, 1995, the total fund operating expenses of the
Schwab Money Market Fund, Schwab Government Money Fund, Schwab U.S. Treasury
Money Fund and the Sweep Shares of the Schwab Tax-Exempt Money Fund will not
exceed 0.75%, 0.75%, 0.65% and 0.66%, respectively. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. The example assumes a 5% annual rate of return
pursuant to requirements of the Securities and Exchange Commission. THIS
HYPOTHETICAL RATE OF RETURN IS NOT INTENDED TO BE REPRESENTATIVE OF PAST OR
FUTURE PERFORMANCE.

<PAGE> 33

FINANCIAL HIGHLIGHTS

The following information with respect to per share data and ratios for each
Fund has been audited by Price Waterhouse LLP, independent accountants, whose
unqualified report covering each of the periods presented is incorporated by
reference herein. This information should be read in conjunction with the
financial statements and accompanying notes which are also incorporated by
reference to the Statement of Additional Information.

<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------ ------------------------
NET DIVIDENDS
REALIZED & TOTAL FROM NET
NET ASSET NET UNREALIZED FROM DIVIDENDS REALIZED ASSET
PERIOD VALUE INVEST- GAINS INVEST- FROM NET GAIN ON VALUE
ENDED BEGINNING MENT (LOSSES) ON MENT INVESTMENT INVEST- TOTAL END OF
DEC. 31 OF YEAR INCOME INVESTMENT OPERATION INCOME MENT DISTRIBUTIONS YEAR
------- --------- ------ ----------- --------- ---------- --------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SCHWAB MONEY MARKET FUND
1994 $1.00 $0.04 -- $0.04 $(0.04) -- $ (0.04) $ 1.00
1993 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
1992 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
1991 1.00 0.06 -- 0.06 (0.06) -- (0.06) 1.00
1990(1) 1.00 0.07 -- 0.07 (0.07) -- (0.07) 1.00
SCHWAB GOVERNMENT MONEY FUND
1994 1.00 0.04 -- 0.04 (0.04) -- (0.04) 1.00
1993 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
1992 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
1991 1.00 0.05 -- 0.05 (0.05) -- (0.05) 1.00
1990(1) 1.00 0.07 -- 0.07 (0.07) -- (0.07) 1.00
SCHWAB U.S. TREASURY MONEY FUND
1994 1.00 0.04 -- 0.04 (0.04) -- (0.04) 1.00
1993 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
1992 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
1991(2) 1.00 0.01 -- 0.01 (0.01) -- (0.01) 1.00
SCHWAB TAX-EXEMPT MONEY FUND-SWEEP SHARES
1994 1.00 0.02 -- 0.02 (0.02) -- (0.02) 1.00
1993 1.00 0.02 -- 0.02 (0.02) -- (0.02) 1.00
1992 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
1991 1.00 0.04 -- 0.04 (0.04) -- (0.04) 1.00
1990(1) 1.00 0.05 -- 0.05 (0.05) -- (0.05) 1.00

RATIOS/SUPPLEMENTAL DATA RATIO OF
------------------------------------ NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TOTAL NET ASSETS TO AVERAGE TO AVERAGE
ENDED RETURN END OF YEAR NET ASSETS NET ASSETS
DEC. 31 (%) (000'S) (%) (%)
- ------- ------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
SCHWAB MONEY MARKET FUND
1994 3.68 $11,227,305 0.74 3.68
1993 2.67 8,164,599 0.73 2.64
1992 3.48 6,134,167 0.70 3.40
1991 5.70 4,866,584 0.78 5.52
1990 7.23 4,058,408 0.82* 7.51*
SCHWAB GOVERNMENT MONEY FUND
1994 3.62 1,897,328 0.74 3.56
1993 2.66 1,744,603 0.73 2.63
1992 3.42 1,592,793 0.72 3.36
1991 5.53 1,458,705 0.70 5.38
1990 7.23 1,424,377 0.70* 7.51*
SCHWAB U.S. TREASURY MONEY FUND
1994 3.52 803,871 0.65 3.60
1993 2.54 378,143 0.65 2.50
1992 3.26 178,895 0.59 2.91
1991 0.68 16,906 0.24* 4.11*
SCHWAB TAX-EXEMPT MONEY FUND-SWEEP SHARES(3)
1994 2.32 3,015,951 0.65 2.31
1993 1.93 2,423,317 0.63 1.92
1992 2.49 1,744,903 0.63 2.45
1991 4.01 1,359,121 0.63 3.91
1990 5.08 1,185,974 0.63* 5.33*
</TABLE>

(1) For the period January 26, 1990 (commencement of operations) to December 31,
1990.
(2) For the period November 6, 1991 (commencement of operations) to December 31,
1991.

(3) Prior to June 6, 1995, The Schwab Tax-Exempt Money Fund did not offer
multi classes of shares of beneficial interest. The information contained in
this table regarding the Schwab Tax-Exempt Money Fund-Sweep Shares relates to
shares which were redesignated as Sweep Shares as of June 6, 1995.

The Investment Manager and Schwab reduced a portion of their fees and absorbed
certain expenses in order to limit each Fund's ratio of operating expenses to
average net assets. Had these fees and

*Annualized

<PAGE> 34

expenses not been reduced and absorbed, the ratio of expenses to average net
assets for the Schwab Money Market Fund for the periods ended December 31, 1994,
1993, 1992, 1991 and 1990 would have been 0.90%, 0.91%, 0.92%, 0.94% and 0.95%*,
respectively, and the ratio of net investment income to average net assets would
have been 3.52%, 2.46%, 3.18%, 5.36% and 7.38%*, respectively. With respect to
the Schwab Government Money Fund, the ratio of expenses to average net assets
for the periods ended December 31, 1994, 1993, 1992, 1991 and 1990 would have
been 0.92%, 0.93%, 0.94%, 0.95% and 0.96%*, respectively, and the ratio of net
investment income to average net assets would have been 3.38%, 2.43%, 3.14%,
5.13% and 7.25%*, respectively. With respect to the Schwab U.S. Treasury Money
Fund, the ratio of expenses to average net assets for the periods ended December
31, 1994, 1993, 1992 and 1991 would have been 1.00%, 1.05%, 1.15% and 4.11%*,
respectively, and the ratio of net investment income to average net assets would
have been 3.25%, 2.10%, 2.35% and 0.24%*, respectively. With respect to the
Schwab Tax-Exempt Money Fund--Sweep Shares, the ratio of expenses to average net
assets for the periods ended December 31, 1994, 1993, 1992, 1991 and 1990 would
have been 0.91%, 0.93%, 0.94%, 0.95% and 0.95%*, respectively, and the ratio of
net investment income to average net assets would have been 2.05%, 1.62%, 2.14%,
3.59% and 5.01%*, respectively.

MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS

The Funds may be appropriate for a variety of investment programs which can be
long-term or short-term in nature. While a Fund is not a substitute for building
an investment portfolio tailored to an individual's investment needs and risk
tolerance, it can be used as a high quality, conveniently liquid money market
investment for your brokerage account cash when it is not fully invested in
other securities. The Schwab Tax-Exempt Money Fund would not be an appropriate
investment for retirement plans such as IRAs and Keogh plans.
- --------------------------------------------------------------------------------
THE FUNDS MAY BE ESPECIALLY SUITABLE FOR SHORT-TERM INVESTORS.
- --------------------------------------------------------------------------------

Because the Funds are designed to provide liquidity and stability of capital, as
well as automatic investment of free credit balances, they may be especially
suitable for investors with short-term investment objectives, including those
who are awaiting an opportune time to invest in the equity and/or bond markets.

- --------------------------------------------------------------------------------
THE FUNDS MAY ALSO BE APPROPRIATE FOR LONG-TERM INVESTORS.
- --------------------------------------------------------------------------------

The Funds may also be appropriate for long-term investors seeking low-risk
investment alternatives which are designed to provide current (and in the case
of the Schwab Tax-Exempt Money Fund, federally tax-free) income.

In addition to the Sweep Shares of the Schwab Tax-Exempt Money Fund, Schwab also
offers Value Advantage Shares of the Fund, pursuant to a multiple class plan
(the "Plan") adopted by the Board of Trustees of the Schwab Fund Family. Under
the Plan, Value Advantage Shares of the Schwab Tax-Exempt Money Fund, which are
not available through automatic ("sweep") investment programs,

* Annualized

<PAGE> 35

are subject to lower transfer agency expenses than the Sweep Shares of the Fund.
In addition, the minimum investment and minimum account balance requirements of
the Value Advantage Shares of the Schwab Tax-Exempt Money Fund are higher than
those applicable to the Sweep Shares. See "Management of the Funds -- Fees and
Expenses" and "How to Purchase Shares."

For information regarding Value Advantage Shares, call your local Schwab office
or 800-2 NO-LOAD. You may also obtain information about Value Advantage Shares
from your Schwab broker.

INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------------------------------------------------
THE SCHWAB MONEY MARKET FUND SEEKS MAXIMUM CURRENT
INCOME CONSISTENT WITH STABILITY OF CAPITAL.
- -------------------------------------------------------------------------------

THE SCHWAB MONEY MARKET FUND. The Schwab Money Market Fund seeks maximum current
income consistent with stability of capital. The Fund pursues its objective by
investing exclusively in the following types of U.S. dollar-denominated money
market instruments which mature in 12 months or less and which the Investment
Manager has determined to present minimal credit risk:

1. Bank certificates of deposit, time deposits or bankers' acceptances of
domestic banks (including their foreign branches) and Canadian chartered
banks having capital, surplus and undivided profits in excess of $100
million.

2. Bank certificates of deposit, time deposits or bankers' acceptances of United
States branches of foreign banks and foreign branches of foreign banks having
capital, surplus and undivided profits in excess of $100 million.

3. Commercial paper rated in one of the two highest rating categories by Moody's
Investors Service ("Moody's"), Standard & Poor's Corporation ("S&P"), Duff &
Phelps, Inc. ("Duff"), Fitch Investors Service, Inc. ("Fitch"), or any other
nationally recognized statistical rating organization ("NRSRO") or commercial
paper or notes of issuers with an unsecured debt issue outstanding currently
rated in one of the two highest rating categories by any NRSRO where the
obligation is on the same or a higher level of priority and collateralized to
the same extent as the rated issue. Each Fund may also invest in other
corporate obligations such as publicly traded bonds, debentures and notes
rated in one of the two highest rating categories by any NRSRO and other
similar securities which, if unrated by any NRSRO, are determined by the
Investment Manager, using guidelines approved by the Board of Trustees, to be
at least equal in quality to one or more of the above referenced securities.
(For a description of the ratings, see "Appendix--Ratings of Investment
Securities" in the Statement of Additional Information.)

4. Obligations of, or guaranteed by, the United States or Canadian governments,
their agencies or instrumentalities.

5. Repurchase agreements involving obligations that are suitable for investment
under the categories set forth above.

7
<PAGE> 36

To the extent the Schwab Money Market Fund purchases Eurodollar certificates of
deposit, consideration will be given to their marketability and possible
restrictions on international currency transactions and to regulations imposed
by the domicile country of the foreign issuer. Eurodollar certificates of
deposit may not be subject to the same regulatory requirements as certificates
of deposit issued by U.S. banks and associated income may be subject to the
imposition of foreign taxes.

Investments in securities of foreign issuers or securities principally traded
overseas may involve certain special risks due to foreign economic, political
and legal developments, including favorable or unfavorable changes in currency
exchanges rates, exchange control regulations (including currency blockage),
expropriation of assets or nationalization, imposition of withholding taxes on
dividend or interest payments, and possible difficulty in obtaining and
enforcing judgments against foreign entities. Furthermore, issuers of foreign
securities are subject to different, often less comprehensive, accounting,
reporting and disclosure requirements than domestic issuers. The securities of
some foreign companies and foreign securities markets are less liquid and at
times more volatile than securities of comparable U.S. companies and U.S.
securities markets. Foreign brokerage commissions and other fees are also
generally higher than in the United States. There are also special tax
considerations which apply to securities of foreign issuers and securities
principally traded overseas.

The Schwab Money Market Fund may invest in commercial paper issued in reliance
on the so-called "private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, and resold to qualified
institutional buyers under Securities Act Rule 144A ("Section 4(2) paper").
Section 4(2) paper is restricted as to disposition under the federal securities
laws, and generally is sold to institutional investors such as the Schwab Money
Market Fund who agree that they are purchasing the paper for investment and not
with a view to public distribution. Any resale by the purchaser must be in an
exempt transaction and may be accomplished in accordance with Rule 144A. Section
4(2) paper normally is resold to other institutional investors like the Fund
through or with the assistance of the issuer or investment dealers who make a
market in the Section 4(2) paper, thus providing liquidity. The Schwab Money
Market Fund will invest no more than 10% of its assets in Section 4(2) paper and
illiquid securities unless the Investment Manager determines, by continuous
reference to the appropriate trading markets and pursuant to guidelines approved
by the Board of Trustees, that any Section 4(2) paper held by the Fund in excess
of this level is liquid.

Because it is not possible to predict with assurance exactly how this market for
Section 4(2) paper sold and offered under Rule 144A will continue to develop,
the Investment Manager, pursuant to the guidelines approved by the Board of
Trustees, will carefully monitor the Fund's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity, and
availability of information. Investments in Section 4(2) paper could have the
effect of reducing the Fund's liquidity to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.

The Fund may invest in asset-backed commercial paper. Repayment of this type of
commercial paper is intended to be obtained from an identified pool of assets,
including automobile receivables, credit-card receivables and other types of
receivables. Asset-backed commercial paper is issued by a special purpose
vehicle (usually a corporation) that has been established for the purpose of
issuing the

<PAGE> 37

commercial paper and purchasing the underlying pool of assets. The issuer of the
commercial paper bears the direct risk of prepayment on the receivables
constituting the underlying pool of assets. Credit support for asset-backed
securities may be based on the underlying assets or provided by a third party.
Credit enhancement techniques include letters of credit, insurance bonds,
limited guarantees (which are generally provided by the issuer), and over
collateralization. Asset-backed securities purchased by the Fund will be subject
to the same quality requirements as other securities purchased by the Fund.

- ----------------------------------------------------------------------------
THE SCHWAB GOVERNMENT MONEY FUND SEEKS MAXIMUM
CURRENT INCOME CONSISTENT WITH STABILITY OF CAPITAL.
- ----------------------------------------------------------------------------

THE SCHWAB GOVERNMENT MONEY FUND. The Schwab Government Money Fund seeks maximum
current income consistent with stability of capital. The Fund pursues its
objective by investing exclusively in U.S. Treasury bills, notes, bonds and
other obligations issued or guaranteed by the United States Government, its
agencies, or instrumentalities, and repurchase agreements covering such
obligations. All securities purchased mature within 12 months or less. Some
securities issued by U.S. Government agencies or instrumentalities are supported
only by the credit of the agency or instrumentality, for example, those issued
by the Federal Home Loan Bank, while others, such as those issued by the Federal
National Mortgage Association, Farm Credit System and Student Loan Marketing
Association, have an additional line of credit with the U.S. Treasury.
Short-term U.S. Government obligations generally are considered to be among the
safest short-term investments. The Government guarantee of the securities owned
by the Schwab Government Money Fund, however, does not guarantee the net asset
value of the Fund's shares, which the Fund seeks to maintain at $1.00 per share.
(See "Share Price Calculation.") Also, with respect to securities supported only
by the credit of the issuing agency or instrumentality or by an additional line
of credit with the U.S. Treasury, there is no guarantee that the U.S. Government
will provide support to such agencies or instrumentalities. Accordingly, such
securities may involve risk of loss of principal and interest.
- --------------------------------------------------------------------------------
THE SCHWAB U.S. TREASURY MONEY FUND SEEKS HIGH CURRENT
INCOME CONSISTENT WITH LIQUIDITY AND STABILITY OF CAPITAL.
- --------------------------------------------------------------------------------

THE SCHWAB U.S. TREASURY MONEY FUND. The investment objective of the Schwab U.S.
Treasury Money Fund is high current income consistent with liquidity and
stability of capital. The Fund pursues its objective by investing solely in
United States Treasury notes, bills and other direct obligations of the United
States Treasury that are backed by the "full faith and credit" of the United
States Government. The Fund will only purchase securities that mature in 397
days or less, or which have a variable rate of interest readjusted no less
frequently than every 397 days. Fund shares themselves are not subject to any
U.S. Government guarantee. The Fund does not enter into repurchase agreements,
nor does it purchase obligations of agencies or instrumentalities of the U.S.
Government. The Fund may hold its investments to maturity and receive the entire
face amount of the security, or the Fund may sell its investments at a gain or
loss before maturity to meet redemptions or for other investment purposes.

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<PAGE> 38

- --------------------------------------------------------------------------------
THE SCHWAB TAX-EXEMPT MONEY FUND SEEKS TO PROVIDE ITS SHAREHOLDERS
WITH MAXIMUM CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAXES.
- --------------------------------------------------------------------------------

THE SCHWAB TAX-EXEMPT MONEY FUND. The investment objective of the Schwab
Tax-Exempt Money Fund is maximum current income that is exempt from federal
income taxes consistent with stability of capital. The Fund pursues its
objective primarily by investing in short-term, high quality municipal
obligations the income from which is exempt from federal income taxes.

Under normal market conditions, the Fund attempts to invest 100%, and will
invest at least 80%, of its total assets in debt obligations issued by or on
behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities that generate interest exempt from federal income tax and not
treated as a tax preference item for purposes of the federal alternative minimum
tax ("Municipal Securities").

Dividends representing net interest income received by the Schwab Tax-Exempt
Money Fund on Municipal Securities will be exempt from federal income tax when
distributed to the Fund's shareholders. Such dividend income may be subject to
state and local taxes. (See "Distributions And Taxes--The Schwab Tax-Exempt
Money Fund.")

The Schwab Tax-Exempt Money Fund will invest only in Municipal Securities which
at the time of purchase: (a) are rated within the two highest rating categories
for municipal commercial paper or short-term municipal securities assigned by
any NRSRO; (b) are guaranteed or insured by the U.S. Government as to the
payment of principal and interest; (c) are fully collateralized by an escrow of
U.S. Government securities acceptable to the Fund's Investment Manager; or (d)
are unrated by any NRSRO, if they are determined by the Investment Manager,
using guidelines approved by the Board of Trustees, to be at least equal in
quality to one or more of the above referenced securities. (For a description of
the ratings, see "Appendix--Ratings of Investment Securities" in the Statement
of Additional Information.)

After its purchase by the Fund, a Municipal Security may cease to be rated or
its rating may be reduced below that required for purchase by the Fund. Neither
event would under all circumstances require the elimination of such an
obligation from the Fund's investment portfolio. However, the obligation
generally would be retained only if such retention was determined by the Board
of Trustees to be in the best interests of the Fund.

From time to time, as a defensive measure, the Schwab Tax-Exempt Money Fund may
invest any or all of its assets in taxable "temporary investments" which
include: obligations of the U.S. Government, its agencies, or instrumentalities;
debt securities rated within the two highest rating categories by any NRSRO;
commercial paper rated in the two highest rating categories by such rating
services; certificates of deposit of domestic banks having capital, surplus, and
undivided profits in excess of $100 million; and any of the foregoing temporary
investments subject to repurchase agreements. While purchase by the Fund of
certain temporary investments could cause it to generate dividends taxable to
shareholders as ordinary income (see "Distributions and Taxes"), it is the
Fund's primary intention to produce dividends which are not subject to federal
income taxes.

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<PAGE> 39

The investment objective of each Fund and the investment policies set forth
above are fundamental. They, along with certain investment restrictions adopted
by the Funds (see "Investment Restrictions" in the Statement of Additional
Information), cannot be changed without approval by holders of a majority of a
Fund's outstanding voting shares, as defined in the Investment Company Act of
1940 (the "1940 Act").

MUNICIPAL SECURITIES AND INVESTMENT TECHNIQUES

The two principal classifications of Municipal Securities which may be held by
the Schwab Tax-Exempt Money Fund are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the issuer's
pledge of its full credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Industrial development bonds held by the Fund are in
most cases revenue bonds and are not payable from the unrestricted revenues of
the issuer. Among other types of instruments, the Fund may purchase tax-exempt
commercial paper and short-term municipal notes such as tax anticipation notes,
bond anticipation notes, revenue anticipation notes, construction loan notes and
other forms of short-term loans. Such notes are issued with a short-term
maturity in anticipation of the receipt of tax payments, the proceeds of bond
placements, or other revenues. A more detailed discussion of Municipal
Securities and the ratings outlined above is contained in the Statement of
Additional Information.

In seeking to achieve its investment objective, the Schwab Tax-Exempt Money Fund
may invest all or any part of its assets in Municipal Securities that are
industrial development bonds. Moreover, although the Fund does not currently
intend to do so on a regular basis, it may invest more than 25% of its assets in
Municipal Securities that are repayable out of revenue streams generated from
economically related projects or facilities, if such investment is deemed
necessary or appropriate by the Fund's Investment Manager. To the extent that
the Fund's assets are concentrated in Municipal Securities payable from revenues
on economically related projects and facilities, the Fund will be subject to the
risks presented by such projects to a greater extent than it would be if the
Fund's assets were not so concentrated.

The Fund may invest in municipal leases, which are obligations issued by state
and local governments or authorities to finance the acquisition of equipment and
facilities. These obligations may take the form of a lease, an installment
purchase contract, a conditional sales contract, or a participation interest in
any of the above. Investments in municipal leases may be considered to be
illiquid. The Fund will limit its investment in municipal leases to no more than
25% of its total assets (no more than 10% of which may be illiquid municipal
leases). Municipal leases are subject to "nonappropriation risk," which is the
risk that the municipality may terminate the lease in the event that the
municipality's appropriating body does not allocate the funds necessary to make
lease payments. In such circumstances, the lessor is typically entitled to
repossess the property. The private sector value of the property is, however,
generally less than the value of the property to the municipality. The
Investment Manager, pursuant to guidelines established by the Board of Trustees,
is responsible for

11
<PAGE> 40

determining the credit quality of unrated municipal leases, on an ongoing basis,
including an assessment of the likelihood of whether the lease will be
terminated.

These securities may include tender option bond trust receipts, in which a
fixed-rate municipal bond (or group of bonds) is placed into a trust from which
two classes of trust receipts are issued, which represent proportionate
interests in the underlying bond(s). Interest payments are made on the bond(s)
based upon a predetermined rate. Under certain circumstances, the holder of a
trust receipt may also participate in any gain or loss on the sale of such
bond(s). Tender option bond trust receipts are considered to be Municipal
Securities for purposes of the Fund's policy to invest at least 80% of its total
assets in Municipal Securities. Tender option bond trust receipts generally are
structured as private placements and, accordingly, may be deemed to be
restricted securities for purposes of the Fund's investment limitations.

The Fund will limit its investments in tender option bond trust receipts and
other synthetic floating rate municipal securities to no more than 25% of its
total assets.

In addition, the Schwab Tax-Exempt Money Fund may acquire "stand-by commitments"
with respect to Municipal Securities held in its portfolio. Under a stand-by
commitment, a dealer agrees to purchase at the Fund's option specified Municipal
Securities at a price equal to their amortized cost value plus accrued interest.
Securities may cost more with Standby Commitments than without them. The Fund's
policy is to enter into Standby Commitments only with issuers, banks or dealers
that are determined by the Investment Manager to present minimal credit risks.
If an issuer, bank or dealer should default on its obligations to repurchase an
underlying security, the Fund might be unable to recover all or a portion of any
loss sustained from having to sell the securities elsewhere. The Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity and does
not intend to exercise its rights thereunder solely for trading purposes.

Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax are rendered by bond counsel to the
respective issuers at the time of issuance. The Schwab Tax-Exempt Money Fund and
the Investment Manager will not review the proceedings relating to the issuance
of Municipal Securities or the bases for such opinions.

OTHER INVESTMENT TECHNIQUES--"WHEN-ISSUED" SECURITIES, REPURCHASE AGREEMENTS AND
VARIABLE RATE SECURITIES. Each Fund may purchase securities on a "when-issued"
or "delayed delivery" basis. When-issued or delayed delivery securities are
securities purchased for future delivery at a stated price and yield. A Fund
will generally not pay for such securities or start earning interest on them
until they are received. Securities purchased on a when-issued or delayed
delivery basis are recorded as an

12
<PAGE> 41

asset and are subject to changes in value based upon changes in the general
level of interest rates. Each Fund will not invest more than 25% of its assets
in when-issued or delayed delivery securities, does not intend to purchase such
securities for speculative purposes and will make commitments to purchase
securities on a when-issued or delayed delivery basis with the intention of
actually acquiring the securities. However, each Fund reserves the right to sell
acquired when-issued or delayed delivery securities before their settlement
dates if deemed advisable.

Each Fund (except the Schwab U.S. Treasury Money Fund) may invest in repurchase
agreements, which are instruments under which a Fund acquires ownership of a
security from a broker-dealer or bank that agrees to repurchase the security at
a mutually agreed upon time and price (which price is higher than the purchase
price), thereby determining the yield during the Fund's holding period. Maturity
of the securities subject to repurchase may exceed one year. In the event of a
bankruptcy or other default of a repurchase agreement counterparty, a Fund might
have expenses in enforcing its rights, and could experience losses, including a
decline in the value of the underlying securities and loss of income. The Fund
will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Investment
Manager to be creditworthy under guidelines adopted by the Board of Trustees. A
Fund will not purchase illiquid securities, including time deposits and
repurchase agreements maturing in more than seven days if, as a result thereof,
more than 10% of the Fund's net assets valued at the time of the transaction
would be invested in such securities.

Each Fund may invest in instruments having rates of interest that are adjusted
periodically or which "float" continuously according to formulae intended to
minimize fluctuation in values of the instruments ("Variable Rate Securities").
The interest rate of Variable Rate Securities ordinarily is determined by
reference to, or is a percentage of, an objective standard such as a bank's
prime rate, the 90-day U.S. Treasury Bill rate, or the rate of return on
commercial paper or bank certificates of deposit. Generally, the changes in the
interest rate on Variable Rate Securities reduce the fluctuation in the market
value of such securities. Accordingly, as interest rates decrease or increase,
the potential for capital appreciation or depreciation is less than for
fixed-rate obligations. Some Variable Rate Securities ("Variable Rate Demand
Securities") have a demand feature entitling the purchaser to resell the
securities at an amount approximately equal to amortized cost or the principal
amount thereof plus accrued interest. As is the case for other Variable Rate
Securities, the interest rate on Variable Rate Demand Securities varies
according to some objective standard intended to minimize fluctuation in the
values of the instruments. Each Fund determines the maturity of Variable Rate
Securities in accordance with Securities and Exchange Commission rules which
allow the Fund to consider certain of such instruments as having maturities
shorter than the maturity date on the face of the instrument. Under such rules,
the maturity date may be considered to be the longer of the period remaining
until the next readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand.

None of the Funds may borrow money except as a temporary measure for
extraordinary or emergency purposes, and then only in an amount up to one-third
of the value of its total assets in order to meet redemption requests. Any
borrowings under this provision will not be collateralized, except that the
Schwab Tax-Exempt Money Fund may pledge up to 10% of its net assets, and the
Schwab

13
<PAGE> 42

U.S. Treasury Money Fund may pledge up to 33% of its net assets, to secure
borrowings. No Fund will borrow for leverage purposes.

Participation interests in Municipal Securities and other derivative securities
eligible for purchase by the Funds involve special risks, including a risk that
the Internal Revenue Service may characterize some or all of the interest paid
on such securities to the Fund as taxable. There is also an increased risk, most
typically associated with "municipal lease" obligations, that a municipality
will not appropriate the funds necessary to make the scheduled payments on, or
may seek to cancel or otherwise avoid its obligations under, the lease that
supports the security owned by the Fund.

MANAGEMENT OF THE FUNDS

Responsibility for overall management of the Funds rests with the trustees and
officers of the Schwab Fund Family. Professional investment management for each
Fund is provided by the Investment Manager, Charles Schwab Investment
Management, Inc., 101 Montgomery Street, San Francisco, CA 94104. The Investment
Manager provides a continuous investment program, including general investment
and economic advice regarding each Fund's investment strategies, manages each
Fund's investment portfolio and performs expense management, accounting and
recordkeeping, and other services necessary to the operation of each Fund and
the Schwab Fund Family. The Investment Manager, formed in 1989, is a
wholly-owned subsidiary of The Charles Schwab Corporation and is the investment
adviser and administrator of the SchwabFunds(R) mutual funds. As of June 3,
1995, the SchwabFunds had aggregate net assets in excess of $26 billion.

Charles Schwab & Co., Inc. ("Schwab" or the "Transfer Agent"), 101 Montgomery
Street, San Francisco, CA 94104, serves as shareholder services agent and
transfer agent for the Funds. Schwab provides information and services to
shareholders, which include reporting share ownership, sales and dividend
activity (and associated tax consequences), responding to daily inquiries,
effecting the transfer of Fund shares and facilitating effective cash management
of shareholders' Schwab account balances. It furnishes such office space and
equipment, telephone facilities, personnel and informational literature
distribution as is necessary or appropriate in providing shareholder and
transfer agency information and services. Schwab is also the Funds' distributor,
but receives no compensation for its services as such.

Schwab was established in 1971 and is one of America's largest discount brokers.
The firm provides low-cost securities brokerage and related financial services
to over 2.5 million active customer accounts and has over 200 offices. Schwab
also offers convenient access to financial information services and provides
products and services that help investors make investment decisions. Schwab is a
wholly-owned subsidiary of The Charles Schwab Corporation. Charles R. Schwab is
the founder, Chairman and Chief Executive Officer and a director of The Charles
Schwab Corporation and, as of March 10, 1995 the beneficial owner of
approximately 23.3% of the outstanding shares of that corporation. Mr. Schwab
may be deemed to be a controlling person of Schwab and the Investment Manager.

FEES AND EXPENSES. Pursuant to its Investment Advisory and Administration
Agreement with the Schwab Fund Family, the Investment Manager receives from the
Schwab Money Market Fund a

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<PAGE> 43

graduated annual fee, payable monthly, of 0.46% of the Fund's average daily net
assets not in excess of $2 billion, 0.45% of such net assets over $2 billion but
not in excess of $3 billion, and 0.40% of such net assets over $3 billion; the
Investment Manager receives from the Schwab Government Money Fund and the Schwab
Tax-Exempt Money Fund a graduated annual fee, payable monthly, of 0.46% of each
Fund's average daily net assets not in excess of $1 billion, 0.41% of such net
assets over $1 billion but not in excess of $2 billion and 0.40% of such net
assets over $2 billion. Pursuant to a separate but substantially similar
Investment Advisory and Administration Agreement with the Schwab Fund Family,
the Investment Manager receives from the Schwab U.S. Treasury Money Fund a
graduated annual fee, payable monthly, of 0.46% of the Fund's average daily net
assets not in excess of $1 billion, 0.41% of such net assets over $1 billion but
not in excess of $2 billion, and 0.40% of such net assets over $2 billion.

The Investment Manager has guaranteed that, at least through August 31, 1995,
the investment management fee of the Schwab Money Market Fund, Schwab Government
Money Fund, Schwab U.S. Treasury Money Fund and Schwab Tax-Exempt Money Fund
will not exceed 0.29%, 0.29%, 0.19% and 0.20%, respectively, of each such Fund's
average daily net assets. In addition, the Investment Manager has guaranteed
that, through at least August 31, 1995, the total fund operating expenses of the
Schwab Money Market Fund, Schwab Government Money Fund, Schwab U.S. Treasury
Money Fund and the Sweep Shares of the Schwab Tax-Exempt Money Fund will not
exceed 0.75%, 0.75%, 0.65% and 0.66%, respectively. The effect of these
guarantees is to maintain or lower the expenses and thus maintain or increase
such Fund's total return to shareholders. For the fiscal year ended December 31,
1994, the Schwab Money Market Fund, the Schwab Government Money Fund, the Schwab
U.S. Treasury Money Fund, and the Schwab Tax-Exempt Money Fund--Sweep Shares
paid investment management fees equal to 0.28%, 0.28%, 0.19%, and 0.19%,
respectively, of each such Fund's average daily net assets and paid total fund
operating expenses of 0.74%, 0.74%, 0.65% and 0.65%, respectively, of each such
Fund's average daily net assets.

For the Schwab Money Market Fund, Schwab Government Money Fund and Schwab U.S.
Treasury Money Fund for transfer agency services provided, the Transfer Agent
receives an annual fee, payable monthly, of 0.25% of the average daily net
assets of each such Fund. In addition, for shareholder services provided, Schwab
receives an annual fee, payable monthly, of 0.20% of the average daily net
assets of each such Fund. For the Sweep Shares of the Schwab Tax-Exempt Money
Fund, for transfer agency services provided, the Transfer Agent receives an
annual fee, payable monthly, of 0.25% of the average daily net assets of that
class. In addition, for shareholder services provided, Schwab receives an annual
fee, payable monthly of 0.20% of the average daily net assets of the class. For
the Value Advantage Shares of the Schwab Tax-Exempt Money Fund, the Transfer
Agent receives an annual fee of 0.05% of the average daily net assets of that
class' shares of beneficial interest. PNC Bank is the Funds' Custodian.

The Schwab Fund Family pays the expenses of its operations. These expenses are
generally allocated among the Schwab Fund Family's investment portfolios
("Series") on the basis of relative net assets at the time of allocation.
However, expenses directly attributable to a particular Series or class of a
Series are charged to that Series or class, respectively. The differing expenses
applicable to the Sweep Shares of the Schwab Tax-Exempt Money Fund and the Value
Advantage Shares will cause the performance of the two classes of shares of the
Schwab Tax-Exempt Money Fund to differ.

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<PAGE> 44

DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
EACH FUND DECLARES DAILY DIVIDENDS WHICH ARE PAID MONTHLY.
- --------------------------------------------------------------------------------

DIVIDENDS AND OTHER DISTRIBUTIONS. On each day that the net asset value per
share of a Fund is determined ("Business Day"), the Fund's net investment income
is declared as of the close of trading on the New York Stock Exchange (generally
4:00 p.m. Eastern time) as a dividend to shareholders already of record at the
previous net asset value calculation. Dividends are normally paid (and, where
applicable, reinvested) on the 15th of each month, if a Business Day, otherwise
on the next Business Day.

FEDERAL INCOME TAX INFORMATION. Each Fund has elected to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), qualified as such, and intends to continue to so qualify. In order
to so qualify, each Fund will distribute on a current basis substantially all of
its investment company taxable income, its net exempt-interest income (if any),
and its capital gain net income (if any) and will meet certain other
requirements. Such qualification relieves a Fund of liability for federal income
taxes to the extent the Fund's earnings are distributed. In addition, if each
Fund does not distribute 98% of its taxable investment income and capital gains,
it will be subject to a non-deductible 4% excise tax on such undistributed
amounts.

All distributions are taxable to shareholders as ordinary income, except that
long-term capital gains distributions (if any) are taxable as such, regardless
of how long the shareholder has held the shares. Reinvested distributions will
be taxable as if they had been received by shareholders in cash. It is not
expected that any portion of the dividends paid by the Funds will qualify for
the corporate dividends received deduction.

Records of dividends and other distributions, purchases and redemptions will be
reflected on shareholders' regular Schwab brokerage account statements. The
Funds will notify shareholders at least annually as to the federal income tax
consequences of distributions made each year. The Funds do not expect to realize
any net long-term capital gains and, therefore, do not foresee paying any
capital gains dividends.

THE SCHWAB U.S. TREASURY MONEY FUND: Because this Fund will invest exclusively
in United States Treasury obligations and other securities backed by the full
faith and credit of the U.S. Government, its dividends are free from state and
local income taxes in the vast majority of states. Potential investors in this
Fund should consult their tax advisers with specific reference to their own tax
situations.

THE SCHWAB TAX-EXEMPT MONEY FUND: Dividends paid by the Fund that are derived
from exempt-interest income (known as "exempt-interest dividends") will be
treated by the Fund's shareholders as items of interest excludable from their
federal gross income. (Shareholders should consult their own tax adviser with
respect to whether exempt-interest dividends would be excludable from gross
income if the shareholder were treated as a "substantial user" of facilities
financed by an obligation held by Schwab Tax-Exempt Money Fund or a "related
person" to such user under the Code.) If a shareholder receives an
exempt-interest dividend with respect to any share held for six months or less,
any loss on the sale or exchange of such share will be disallowed to the extent
of the amount of

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<PAGE> 45

the exempt-interest dividend. The U.S. Treasury Department is authorized to
issue regulations reducing the period to not less than 31 days for certain
regulated investment companies. No such regulations have been issued as of the
date of this Prospectus. To the extent dividends paid to shareholders are
derived from taxable income (for example, from interest on certificates of
deposit) or from short-term or long-term capital gains, such dividends will be
subject to federal income tax, whether they are paid in the form of cash or
additional shares.

The Fund may at times purchase Municipal Securities or California Municipal
Securities at a discount from the price at which they were initially issued. For
federal income tax purposes, some or all of this market discount will be
included in the Fund's ordinary income and will be taxable to shareholders as
such when it is distributed to them.

If the Schwab Tax-Exempt Money Fund holds certain "private activity bonds"
("industrial development bonds" under prior law), dividends derived from
interest on such obligations will be classified as an item of tax preference
which could subject certain shareholders to alternative minimum tax liability.
Corporate shareholders must also take all exempt-interest dividends into account
in determining "adjusted current earnings" for purposes of calculating their
alternative minimum tax liability.

Private activity bonds and industrial development bonds generally are bonds
issued by or on behalf of public authorities to obtain funds to provide certain
privately owned or operated facilities. Private activity bonds and industrial
development bonds also are generally limited obligation (or revenue) securities,
which means that they are payable only from the revenues derived from a
particular facility or class of facilities, or, in some cases, from some other
specific revenue source. (See "Municipal Securities" in the Statement of
Additional Information.)

Distributions by the Schwab Tax-Exempt Money Fund of net investment income may
be taxable to investors under state or local law as dividend income even though
all or a portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.

Shareholders receiving Social Security benefits or Railroad Retirement Act
benefits should note that all exempt-interest dividends will be taken into
account in determining the taxability of such benefits.

The foregoing is only a brief summary of some of the federal and state income
tax considerations affecting the Funds and their shareholders. Accordingly,
potential investors should consult their tax advisers with specific reference to
their own tax situations.

SHARE PRICE CALCULATION
- -------------------------------------------------------------------------------
THERE ARE NO SALES CHARGES OR TRANSACTION FEES TO PURCHASE
OR REDEEM SHARES OF THE FUNDS.
- -------------------------------------------------------------------------------

The price of a share of a Fund class described in this Prospectus on any given
day is its "net asset value" or "NAV." For the Schwab Money Market Fund, Schwab
Government Money Fund and Schwab U.S. Treasury Money Fund, this figure is
computed by dividing total Fund assets, less any liabilities of the Fund, by the
number of shares of the Fund outstanding. For the Sweep Shares of the

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<PAGE> 46

Schwab Tax-Exempt Money Fund, this figure is computed by dividing total Fund
assets allocable to that class, less any liabilities allocable to the class, by
the number of Sweep Shares of the Fund outstanding. The net asset value per
share of a Fund is determined on each day both the Federal Reserve Bank of New
York and the New York Stock Exchange (the "Exchange") are open for business,
first at 10:00 a.m. (Eastern time), then again as of the close of normal trading
on the Exchange (generally 4:00 p.m. Eastern time).

Each Fund values its portfolio securities at amortized cost, which means that
they are valued at their acquisition cost (as adjusted for amortization of
premium or discount) rather than at current market value. Calculations are made
to compare the value of the Fund's investments using the amortized cost method
with market values. Except as described below, market valuations are obtained by
using actual quotations provided by third-party pricing services, market makers,
estimates of market value, or values obtained from yield data relating to
comparable classes of money market instruments published by reputable sources at
the mean between the bid and asked prices for the instruments. If a deviation of
1/2 of 1% or more were to occur between the net asset value per share of a Fund
(or Sweep Shares for the Schwab Tax-Exempt Money Fund) calculated by reference
to market values and the $1.00 per share amortized cost value of a Fund (or
Sweep Shares for the Schwab Tax-Exempt Money Fund), or if there were any other
deviation which the Board of Trustees believed would result in a material
dilution to shareholders or purchasers, the Board of Trustees would promptly
consider what action, if any, should be initiated. While each Fund attempts to
maintain a net asset value at a constant $1.00 per share, Fund shares are not
insured against a reduction in net asset value.

The Schwab Tax-Exempt Money Fund and the Schwab Money Market Fund have entered
into transactions with Bank of America National Trust and Savings Association
("Bank of America") pursuant to which each such Fund is a beneficiary of an
irrevocable Letter of Credit (each a "Letter of Credit") issued by Bank of
America. The Letters of Credit provide a degree of credit support for certain
securities held by each such Fund, currently including certain obligations of
Orange County, California and issuers that participated in the investment pool
maintained by Orange County (each a "Covered Security"). Orange County and the
investment pool maintained by the County have filed for protection under Chapter
9 of the federal Bankruptcy Code. Pursuant to each Letter of Credit, Bank of
America will make certain payments to each of the above-referenced Funds (each a
"Payment") upon presentation of a certificate as required under each Letter of
Credit in the event that (i) the issuer of a Covered Security defaults on a
repayment of the principal amount of the Covered Security, or (ii) the proceeds
received in the disposition of a Covered Security are less than a specified
percentage of the Covered Security's par amount. Neither Fund is obligated to
reimburse Bank of America for any amount drawn under the Letters of Credit. The
Letters of Credit, however, do not ensure that each such Fund will receive
Payments equal to the aggregate amount of each Fund's Covered Securities.
Accordingly, although the Board of Trustees has determined that the Covered
Securities subject to the Letters of Credit currently present minimal credit
risks, each Fund could incur losses as a result of its holdings of Covered
Securities.

Each Letter of Credit will continue in effect with respect to each Fund until
the earlier of (i) the date on which Bank of America has made Payments to the
Fund equaling the total amount available under the Letter of Credit, or (ii)
August 1, 1995, after each Covered Security is scheduled to mature.

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<PAGE> 47

The Board of Trustees has approved the payment of fees by each Fund for the
availability of each Letter of Credit, as well as revised pricing procedures
that take into account the effect of the Letters of Credit on the value of the
Covered Securities (the "Pricing Procedures"). Pursuant to the Pricing
Procedures, the value of a Covered Security may be determined in good faith
after consideration of the credit support provided by each Letter of Credit in
order to cause the calculation of that Fund's market-based net asset value per
share to accurately reflect the actual value of all of its assets.

HOW THE FUNDS SHOW PERFORMANCE

From time to time the Schwab Money Market Fund, Schwab Government Money Fund and
Schwab U.S. Treasury Money Fund may advertise its yield and effective yield. In
the case of the Sweep Shares of the Schwab Tax-Exempt Money Fund only, the Fund
may advertise the yield, effective yield, tax-equivalent yield and
tax-equivalent effective yield of the Sweep Shares of the Fund. Performance
figures are based upon historical results and are not intended to indicate
future performance.

Yield refers to the income generated by a hypothetical investment in a Fund (or,
in the case of the Schwab Tax-Exempt Money Fund only, the Sweep Shares of the
Fund) over a specific 7-day period. This income is then annualized, which means
that the income generated during the 7-day period is assumed to be generated
each week over an annual period and is shown as a percentage of the hypothetical
investment.

Tax-equivalent yield is the yield that a taxable investment must generate in
order to equal (after applicable taxes are deducted) the Sweep Shares of the
Schwab Tax-Exempt Money Fund's yield for an investor in a stated federal income
tax bracket (normally assumed to be the applicable maximum tax rate).
Tax-equivalent yield is based upon, and will be higher than, the Sweep Shares of
the Schwab Tax-Exempt Money Fund's tax-exempt yield. (See "Yield" in the
Statement of Additional Information.)

The tax-equivalent effective yield is computed in the same manner as is the tax
equivalent yield, except that the effective yield is substituted for yield in
the calculation.

The performance of the Schwab Money Market Fund, Schwab Government Money Fund,
Schwab U.S. Treasury Money Fund and the Sweep Shares of the Schwab Tax-Exempt
Money Fund may be compared to that of other mutual funds tracked by mutual fund
rating services, various indices of investment performance, United States
government obligations, bank certificates of deposit, other investments for
which reliable performance data is available and the consumer price index.

Because the Sweep Shares of the Schwab Tax-Exempt Money Fund are subject to
different expenses than the Value Advantage Shares, the performance of the two
classes of shares will differ.

Additional performance information about the Schwab Money Market Fund, Schwab
Government Money Fund, Schwab U.S. Treasury Money Fund and the Sweep Shares of
the Schwab Tax-Exempt

19
<PAGE> 48

Money Fund is available in the Funds' Annual Reports, which are sent to all
shareholders. To request a free copy, call your local Schwab office or
800-2NO-LOAD.

TAX-ADVANTAGED RETIREMENT PLANS
- --------------------------------------------------------------------------------
THE SCHWAB MONEY MARKET FUND, SCHWAB GOVERNMENT
MONEY FUND AND SCHWAB U.S. TREASURY MONEY FUND MAY
BE SUITABLE INVESTMENTS FOR TAX-ADVANTAGED RETIREMENT PLANS.
- --------------------------------------------------------------------------------

Schwab offers tax-advantaged retirement plans for which the Schwab Money Market
Fund, Schwab Government Money Fund and Schwab U.S. Treasury Money Fund may be
appropriate investments. It is not recommended that the Schwab Tax-Exempt Money
Fund be used as an investment vehicle for Individual Retirement Accounts or
qualified retirement plans. Schwab's retirement plans allow participants to
defer taxes while helping them build their retirement savings.

SCHWAB IRA. A retirement plan with a wide choice of investments offering people
with earned income the opportunity to compound earnings on a tax-deferred basis.
Schwab provides the IRA free of Schwab's $29 annual fee to customers who
establish a $10,000 account balance by September 15, 1995.

SCHWAB KEOGH. A tax-advantaged plan for self-employed individuals and their
employees that permits the employer to make annual tax-deductible contributions
of up to $30,000.

SCHWAB CORPORATE RETIREMENT PLANS. A well designed retirement program can help a
company attract and retain valuable employees. Call your local Schwab office or
800-2 NO-LOAD for more information.

GENERAL INFORMATION

The Schwab Fund Family was organized as a business trust under the laws of
Massachusetts on October 20, 1989 and may issue an unlimited number of shares of
beneficial interest or classes of shares in one or more Series. Currently, the
Schwab Fund Family offers shares of nine Series which may be organized into one
or more classes of shares of beneficial interest. The Board of Trustees may
authorize the issuance of shares of additional Series or classes if it deems it
desirable to do so. Shares of each Series have equal, noncumulative voting
rights and equal rights as to dividends, assets, and liquidation of such Series,
except to the extent such voting rights or rights as to dividends, assets, and
liquidation vary among classes of a Series.

The Schwab Fund Family is not required to hold annual shareholders' meetings. It
will, however, hold special meetings as required or deemed desirable by the
Board of Trustees for such purposes as electing trustees, changing fundamental
policies or approving an investment advisory agreement. In addition, a Trustee
may be elected or removed by shareholders at a special meeting called upon
written request of shareholders owning at least 10% of the outstanding shares of
the Schwab Fund Family. Shareholders will vote by Series and not in the
aggregate (for example, when voting to approve the investment advisory
agreement), except when voting in the aggregate is permitted under the 1940 Act,
such as for the election of Trustees. In addition, holders of the Sweep Shares
of the

20
<PAGE> 49

Schwab Tax-Exempt Money Fund will vote exclusively as a class on any matter
relating solely to the arrangement of the Sweep Shares as a class and on any
matter in which the interests of holders of the Sweep Shares differ from the
interests of the holders of the Value Advantage Shares of the Fund.

SHAREHOLDER GUIDE
- ----------------------------------------------------------------------------
SCHWAB'S OFFICES ACCEPT ORDERS AND PROVIDE SHAREHOLDER
SERVICE AND INFORMATION.
- ----------------------------------------------------------------------------

SHAREHOLDER SERVICE. You may place Fund purchase and redemption orders as well
as request exchanges at any one of over 200 Schwab offices nationwide or by
calling 1-800-2 NO-LOAD, where trained representatives are available to answer
questions about the Funds and your account. The privilege to initiate
transactions by telephone, as discussed below, is automatically available
through your Schwab account. Each Fund will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. If these
procedures are not followed, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions. These procedures may include requiring
a form of personal identification prior to acting upon instructions received by
telephone, providing written confirmation of such instructions and tape
recording telephone transactions.

HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------
YOU MAY PURCHASE SHARES OF THE FUNDS ONLY THROUGH A
SCHWAB ACCOUNT.
- --------------------------------------------------------------------------

You may purchase shares of the Funds exclusively through an account maintained
with Schwab, and payment for shares must be made directly to Schwab. Schwab
brokerage accounts are free of maintenance fees, although there may be charges
for Schwab IRAs and Keogh plans. (See "Summary of Expenses.") The Securities
Investor Protection Corporation ("SIPC") will provide account protection, in an
amount up to $500,000, for securities, including Fund shares, which you hold in
a Schwab brokerage account. Of course, SIPC account protection does not protect
shareholders from principal fluctuations.

If you already have a Schwab brokerage account, you may purchase shares in a
Fund as described below and need not open a new account.

WHEN AND AT WHAT PRICE SHARES WILL BE PURCHASED. You must have funds in your
Schwab brokerage account in order to purchase Fund shares. If funds (including
those transmitted by wire) are received

21
<PAGE> 50

by Schwab before 4:00 p.m. (Eastern time), they will be available for investment
on the day of receipt. If funds arrive after that time, they will be available
for investment the next Business Day.

Orders to purchase shares will be executed at the next determined net asset
value after receipt by Schwab's Mutual Fund Transfer Agency Department. (See
"Share Price Calculation.")

- -----------------------------------------------------------------------------
THE FUNDS MAY BE USED TO "SWEEP" FREE CREDIT BALANCES
IN YOUR SCHWAB BROKERAGE ACCOUNT.
- -----------------------------------------------------------------------------

METHODS OF PURCHASING SHARES. Automatic Investment: When opening a Schwab
brokerage account, an investor will be asked to select a SchwabFunds(R) class or
series with sweep privileges as a "primary fund." (If a selection is not made,
the Schwab Money Market Fund will automatically become the investor's primary
fund.) An initial purchase of shares of the primary fund selected will be made
automatically pursuant to the procedures described below when the free credit
balance in the investor's Schwab brokerage account (including deposits, proceeds
of sales of securities, and miscellaneous cash dividends and interest, but not
amounts held by Schwab as collateral for margin obligations to Schwab) exceeds
$1,000 on the last Business Day of the week. Thereafter, free credit balances in
the investor's Schwab brokerage account which, in total, equal or exceed $100 on
the last Business Day of any week will be automatically invested in the primary
fund on the first Business Day of the following week. If an investor's free
credit balance is less than $100, it will not be invested in the primary fund,
but will remain a credit to the investor's Schwab brokerage account. In certain
limited circumstances, free credit balances in certain accounts may be
automatically invested at different times. Upon request, a free credit balance
in a Schwab brokerage account totalling $20,000 or more may be invested in the
appropriate primary fund on the Business Day following receipt by the Transfer
Agent of investor instructions.

An investor with an existing Schwab brokerage account may add the automatic
investment feature to his or her account by completing the appropriate section
of the Schwab brokerage account application available at any Schwab office. A
shareholder may change primary funds by calling or writing his or her local
Schwab office or writing Schwab at the above address. Note that the automatic
investment feature is not available for Value Advantage Shares of any Fund.
- --------------------------------------------------------------------------------
SHARES OF THE FUNDS MAY ALSO BE PURCHASED DIRECTLY.
- --------------------------------------------------------------------------------

DIRECT PURCHASE: A Schwab brokerage account holder may buy shares of a Fund (if
it is not his or her primary fund) by placing an order directly with a Schwab
registered representative. The minimum initial investment for such "secondary
fund" purchase is $1,000, and subsequent investments must be at least $100. The
minimum initial investment for the Value Advantage Shares of the Schwab Tax-
Exempt Money Fund is $25,000 and the minimum account balance for the Value
Advantage Shares is $20,000.

- --------------------------------------------------------------------------------
TWO DISTRIBUTION OPTIONS ARE AVAILABLE.
- --------------------------------------------------------------------------------

DISTRIBUTION OPTIONS. The brokerage account standing instructions that you
selected in your Schwab Brokerage Account Application will determine which of
the two distribution options listed below will

22
<PAGE> 51

apply to you. Fund distributions will be automatically reinvested, unless the
Transfer Agent has received instructions that distributions be mailed to you as
they are paid. Please contact your local Schwab office if you already have a
Schwab brokerage account and wish to change your brokerage account standing
instructions.

1. AUTOMATIC REINVESTMENT: For the Schwab Money Market Fund, Schwab Government
Money Fund and Schwab U.S. Treasury Fund, distributions will be reinvested in
additional full Shares of the applicable Fund at the net asset value next
determined after their payable date. For the Schwab Tax-Exempt Money
Fund--Sweep Shares, all distributions will be reinvested in additional full
Sweep Shares of the Fund at the net asset value next determined after their
payable date.

2. RECEIVE DIVIDENDS IN CASH: All distributions will be credited to your Schwab
account as of the payable date. If your account is coded to have dividends
mailed immediately, checks will normally be mailed the business day after
distributions are credited.

For information on how to wire funds from your Schwab brokerage account to your
bank, see "Other Important Information--Wire Transfers to Your Bank."

OTHER PURCHASE INFORMATION. The minimum amounts required for automatic
investment/direct purchase may be reduced or waived on certain occasions. (See
"Purchase and Redemption of Shares" in the Statement of Additional Information.)
Free credit balances in accounts of certain categories of investors, such as
holders of Schwab custodial accounts, may be invested automatically irrespective
of amount. Each Fund reserves the right, in its sole discretion and without
prior notice to shareholders, to withdraw or suspend all or any part of the
offering made by this Prospectus, to reject purchase orders or to change the
minimum investment requirements. All orders to purchase shares of a Fund are
subject to acceptance by the Fund and are not binding until confirmed or
accepted. Schwab will charge a $15 service fee against an investor's Schwab
brokerage account should his or her check be returned because of insufficient or
uncollected funds or a stop payment order.

HOW TO EXCHANGE SHARES

- --------------------------------------------------------------------------------
SHARES OF THE FUNDS MAY BE EXCHANGED FOR SHARES OF OTHER
FUNDS SPONSORED BY SCHWAB WITHOUT CHARGE.
- --------------------------------------------------------------------------------

The exchange privilege allows you to exchange your SchwabFunds(R) shares for
shares of any other SchwabFunds class or series available to investors in your
state. Thus, you can conveniently modify your investments if your goals or
market conditions change. An exchange will involve the redemption of shares at
the net asset value next determined after receipt by the Transfer Agent of an
exchange request (on the same day as the Transfer Agent received your request,
if it was received by 4:00 p.m. (Eastern time) and on the next Business Day if
the request was received after that time) and the purchase of shares in another
fund at the net asset value of that fund next determined after sale of the
shares involved in the exchange (on the same day as the Transfer Agent received
your request, if it was received by 4:00 p.m. (Eastern time) and on the next
Business Day if the request was received after that time). An exchange of shares
will be treated as a sale of the shares for federal income tax purposes. Note
that you must meet the minimum investment requirements applicable to the shares

23
<PAGE> 52

you wish to receive in an exchange. Each Fund reserves the right on 60 days'
written notice to modify, limit or terminate the exchange privilege.

METHODS OF EXCHANGING SHARES.

BY PHONE:

To exchange between funds by telephone, please call your local Schwab office
during regular business hours or 800-2 NO-LOAD. Investors should be aware that
telephone exchanges may be difficult to implement during periods of drastic
economic or market changes.

To properly process your telephone exchange request, we will need the
following information:

- your Schwab brokerage account number;
- the name of the fund into which shares are to be exchanged; and
- the number of shares of the Fund to be exchanged.

BY MAIL:

You may also request an exchange by writing your local Schwab office or Schwab
at the address listed on the Prospectus cover page.

To properly process your mailed exchange request, we will need a letter from
you which:

- references your Schwab brokerage account number;
- specifies the Fund from which you would like to exchange shares;
- indicates the fund into which shares are to be exchanged;
- describes the number of shares to be exchanged; and
- is signed by at least one of the registered Schwab account holders, in
the exact form specified in the account.

IN PERSON AT A SCHWAB OFFICE:

You can also place your exchange request in person at your local Schwab
office.

HOW TO REDEEM SHARES

THE PRICE AT WHICH SHARES WILL BE REDEEMED. Shares will be redeemed at the net
asset value per share next determined after receipt by the Transfer Agent of
proper redemption instructions, as set forth below. Investors will receive
dividends declared for the day on which shares are redeemed.

24
<PAGE> 53

each Business Day, be automatically scanned for debits and pending securities
settlements, and, after application of any free credit balances in the account
to such debits, a sufficient number of shares of the primary fund and, to the
extent necessary, any other Schwab Money Fund(s) in the account, will be
redeemed the following Business Day to satisfy any remaining debits.

DIRECT REDEMPTION: Shareholders may also place redemption orders directly by
contacting their local Schwab office by telephone, mail or in person, or by
mailing written instructions to Schwab (at the address listed on the Prospectus
cover page). Investors should be aware that telephone redemption may be
difficult to implement during periods of drastic economic or market changes.
Shareholders who experience difficulties in redeeming by telephone can utilize
one of the above-noted alternatives to place their redemption orders.

Each Fund may suspend redemption rights or postpone payments at times when
trading on the New York Stock Exchange is restricted, the Exchange is closed for
any reason other than its customary weekend or holiday closings, emergency
circumstances as determined by the Securities and Exchange Commission exist, or
for such other circumstances as the Commission may permit.

OTHER IMPORTANT INFORMATION

MINIMUM BALANCE AND BROKERAGE ACCOUNT REQUIREMENTS. Due to the relatively high
cost of maintaining smaller holdings, each Fund reserves the right to redeem a
shareholder's shares if, as a result of redemptions, their aggregate value drops
below the $100 minimum balance requirement for the Schwab Money Market Fund,
Schwab Government Money Fund, Schwab U.S. Treasury Money Fund and the Sweep
Shares of the Schwab Tax-Exempt Money Fund. A Fund will notify shareholders in
writing 30 days before taking such action to allow them to increase their
holdings to at least the minimum level. Also note that, because they can only be
held in Schwab brokerage accounts, Fund shares will be automatically redeemed
should the Schwab brokerage account in which they are carried be closed.

CONSOLIDATED MAILINGS. In an effort to reduce the Funds' mailing costs, the
Funds consolidate shareholder mailings by household. This consolidation means
that a household having multiple accounts with the identical address of record
will receive a single package during each shareholder

25
<PAGE> 54

mailing. If you do not wish this consolidation to apply to your account(s),
please write to SchwabFunds(R) at 101 Montgomery Street, San Francisco, CA 94104
to that effect.

SCHWAB ONE(R) Account Features. Shareholders who hold shares of the Schwab
Tax-Exempt Money Fund in Schwab One accounts are entitled to redeem shares of
the Fund through debit cards and checks. Investors should contact Schwab if they
are interested in the benefits and requirements of a Schwab One account.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

26
<PAGE> 55

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.

A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.

<PAGE> 56

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.

A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.

<PAGE> 57

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.

A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.

<PAGE> 58

PROSPECTUS JUNE 6, 1995

625-14 (6/95)
<PAGE> 59
CROSS REFERENCE SHEET

THE CHARLES SCHWAB FAMILY OF FUNDS:
Schwab California Tax-Exempt Money Fund-Sweep Shares

<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page Cover Page

Synopsis Key Features of the Fund; Summary of Expenses

Condensed Financial Information Financial Highlights

General Description of Registrant Matching the Fund to Your Investment Needs; Investment Objective and Policies;
Municipal Securities and Investment Techniques

Management of the Fund General Information; Management of the Fund

Management's Discussion of [Discussion included in Registrant's
Fund Performance Annual Report]

Capital Stock and Other Securities Cover Page; Matching the Fund to Your Investment Needs; Management of the Fund;
Distributions and Taxes; General Information; Shareholder Guide; Tax-Advantaged
Retirement Plans

Purchase of Securities Being Offered Share Price Calculation; How to Purchase Shares; Other Important Information

Redemption or Repurchase How to Redeem Shares; Other Important Information

Pending Legal Proceedings Inapplicable
</TABLE>

<PAGE> 60

SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND--SWEEP SHARES

- --------------------------------------------------------------------------------
PROSPECTUS June 6, 1995

TO PLACE ORDERS AND FOR ACCOUNT INFORMATION: Contact your local Charles Schwab &
Co., Inc. ("Schwab") office or call 800-2 NO-LOAD.

THE SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND (the "Fund") is designed for
investors who seek maximum current income that is exempt from federal income and
State of California personal income taxes to the extent consistent with
liquidity and stability of capital. The Fund is a non-diversified investment
portfolio of The Charles Schwab Family of Funds (the "Schwab Fund Family"), a
no-load, open-end, management investment company. Shares of the Fund are offered
to California residents and the residents of selected other states. This
Prospectus describes the Sweep Shares of the Fund, one of the two classes of
shares of the Fund (the "Sweep Shares") offered by Schwab. Prior to the date of
this Prospectus, the Fund was not offered in two classes of shares. The existing
Shares of the Fund are redesignated as Sweep Shares. For a prospectus describing
the other class of shares of the Fund (the "Value Advantage Shares"), call your
local Schwab office or 800-2 NO-LOAD.

TABLE OF CONTENTS

<TABLE>
<S> <C>
KEY FEATURES OF THE FUND............................................................... 2
SUMMARY OF EXPENSES.................................................................... 3
FINANCIAL HIGHLIGHTS................................................................... 4
MATCHING THE FUND TO YOUR INVESTMENT NEEDS............................................. 4
INVESTMENT OBJECTIVE AND POLICIES...................................................... 5
MUNICIPAL SECURITIES AND INVESTMENT TECHNIQUES......................................... 7
MANAGEMENT OF THE FUND................................................................. 10
DISTRIBUTIONS AND TAXES................................................................ 12
SHARE PRICE CALCULATION................................................................ 14
HOW THE FUND SHOWS PERFORMANCE......................................................... 15
GENERAL INFORMATION.................................................................... 16
SHAREHOLDER GUIDE...................................................................... 16
HOW TO PURCHASE SHARES............................................................... 17
HOW TO EXCHANGE SHARES............................................................... 19
HOW TO REDEEM SHARES................................................................. 20
OTHER IMPORTANT INFORMATION.......................................................... 21
</TABLE>

- --------------------------------------------------------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 61

KEY FEATURES OF THE FUND

MAXIMUM DOUBLE TAX-EXEMPT INCOME AND SAFETY. The Schwab California Tax-Exempt
Money Fund is designed for investors who seek maximum after-tax current income
consistent with liquidity and stability of capital. The Fund invests in high
quality, short-term debt securities the interest on which is exempt from federal
income and State of California personal income taxes. The Fund attempts to
maintain a stable net asset value of $1.00 per share. (See "Investment Objective
and Policies.")

AUTOMATIC INVESTMENT/REDEMPTION FEATURE. If you elect, free credit balances in
your Schwab brokerage account (including your Schwab One(R) account) will be
automatically invested or "swept" into the Fund, subject to the terms and
conditions of your brokerage account agreement. Shares will also be sold as
necessary to settle securities transactions, collateralize margin obligations or
cover debit balances. This feature keeps your money working and saves you the
time and trouble of withdrawing and redepositing funds. (See "How to Purchase
Shares" and "How to Redeem Shares.")

LIQUIDITY. You can conveniently place orders to redeem your investment in the
Fund at any time. (See "How to Redeem Shares.")

LOW COST INVESTING. The Fund imposes no sales or transaction fees on purchases
or redemptions of shares of the Fund. (See "Summary of Expenses.") In addition,
the total fund operating expenses of the Sweep Shares of the Fund will not
exceed 0.65% through at least August 31, 1995, as guaranteed by Charles Schwab
Investment Management, Inc. (See "Matching the Fund to Your Investment Needs,"
and "Management of the Fund.")

CONVENIENT REPORTING. Customers receive regular Schwab statements that combine
all their mutual fund investment activity on one report.

SPECIAL RISK CONSIDERATIONS. An investment in the Fund is subject to certain
risks arising out of the Fund's investments in California Municipal Securities,
municipal leases, participation interests and certain other securities. (See
"Municipal Securities and Investment Techniques.")

NATIONWIDE NETWORK OF SCHWAB OFFICES. Schwab has over 200 offices throughout the
U.S. where customers can place purchase and redemption orders.

2
<PAGE> 62

SUMMARY OF EXPENSES--SWEEP SHARES

SHAREHOLDER TRANSACTION EXPENSES: NONE

<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees (after fee reduction)(1)............................................ 0.19%
12b-1 Fees........................................................................ None
Other Expenses (after expense reimbursement)(2)..................................... 0.46%
TOTAL FUND OPERATING EXPENSES(2,3,4).................................................. 0.65%
</TABLE>

(1) This amount reflects a reduction by the Investment Manager, which is
guaranteed through at least August 31, 1995. If there were no such reduction,
the maximum management fee for the Fund would have been 0.45% for the fiscal
year ended December 31, 1994. (See Management of the Fund--Fees and Expenses.)

(2) See "Management of the Fund--Fees and Expenses" for information regarding
the
the differing expenses for the multiple classes of shares of the Fund.

(4) This amount reflects the Investment Manager's guarantee that, through at
least August 31, 1995, the total fund operating expenses of the Sweep Shares
of the Fund will not exceed 0.65%. Without a similar guarantee, which was in
effect during the fiscal year ended December 31, 1994, total fund operating
expenses for the Sweep Shares of the Fund would have been 0.94%.

EXAMPLE. You would pay the following expenses on a $1,000 investment in the
Sweep Shares of the Fund, assuming (1) a 5% annual return and (2) redemption at
the end of each period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$7 $21 $36 $ 81
</TABLE>

The purpose of the preceding table is to assist investors in understanding the
various cost and expenses that an investor in the Sweep Shares of the Fund will
bear directly or indirectly. This example reflects the Investment Manager's
guarantee that, through at least August 31, 1995, the total fund operating
expenses for the Sweep Shares of the Fund will not exceed 0.65%. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The example assumes a 5% annual rate of
return pursuant to requirements of the Securities and Exchange Commission. THIS
HYPOTHETICAL RATE OF RETURN IS NOT INTENDED TO BE REPRESENTATIVE OF PAST OR
FUTURE PERFORMANCE.

3
<PAGE> 63

FINANCIAL HIGHLIGHTS

The following information with respect to per share data and ratios has been
audited by Price Waterhouse LLP, independent accountants, whose unqualified
report covering each of the periods presented is incorporated by reference
herein. This information should be read in conjunction with the financial
statements and accompanying notes which are also incorporated by reference to
the Statement of Additional Information.

RATIOS/SUPPLEMENTAL DATA RATIO OF
------------------------------------------- NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TOTAL NET ASSETS TO AVERAGE TO AVERAGE
ENDED RETURN END OF YEAR NET ASSETS NET ASSETS
DEC. 31 (%) (000'S) (%) (%)
- ------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
1994 2.26 $ 1,293,883 0.64 2.25
1993 1.91 1,062,042 0.63 1.89
1992 2.35 691,176 0.63 2.31
1991 3.77 494,214 0.61 3.70
19901 0.77 339,292 0.28* 5.06*
</TABLE>

(1) For the period from November 6, 1990 (commencement of operations) to
December 31, 1990.

The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses of the Fund. Had these fees and expenses not been
reduced and absorbed, the ratio of expenses to average net assets for the
periods ended December 31, 1994, 1993, 1992, 1991 and 1990 would have been
0.94%, 0.96%, 0.97%, 0.98% and 1.17%*, respectively, and the ratio of net
investment income to average net assets would have been 1.95%, 1.56%, 1.97%,
3.33% and 4.17%*, respectively.

Prior to June 6, 1995, the Fund did not offer multiple classes of shares of
beneficial interest. The information contained in this table relates to shares
which were redesignated as Sweep Shares as of June 6, 1995.

MATCHING THE FUND TO YOUR INVESTMENT NEEDS

The Fund may be appropriate for a variety of investment programs which can be
long-term or short-term in nature. While the Fund is not a substitute for
building an investment portfolio tailored to an individual's investment needs
and risk tolerance, it can be used as a high quality, conveniently liquid money
market investment for your brokerage account cash when it is not fully invested
in other securities. The Fund would not be an appropriate investment for
retirement plans such as IRAs and Keogh plans.
- --------------------------------------------------------------------------------
THE FUND MAY BE ESPECIALLY SUITABLE FOR SHORT-TERM INVESTORS.
- --------------------------------------------------------------------------------

* Annualized

4
<PAGE> 64

The Fund may also be appropriate for long-term investors seeking a low-risk
investment alternative which is designed to provide double tax-free income.

For information regarding Value Advantage Shares, call your local Schwab office
or 800-2 NO-LOAD. You may also obtain information about Value Advantage Shares
from your Schwab broker.

INVESTMENT OBJECTIVE AND POLICIES
- -------------------------------------------------------------------------------
THE FUND SEEKS MAXIMUM CURRENT INCOME CONSISTENT WITH
STABILITY OF CAPITAL THAT IS EXEMPT FROM FEDERAL INCOME
AND STATE OF CALIFORNIA PERSONAL INCOME TAXES.
- -------------------------------------------------------------------------------

The investment objective of the Fund is maximum current income that is exempt
from federal income and State of California personal income taxes, to the extent
consistent with stability of capital. This investment objective is fundamental,
and cannot be changed without approval by holders of a majority of the Fund's
outstanding voting shares, as defined in the Investment Company Act of 1940 (the
"1940 Act"). The Fund pursues its objective primarily by investing in short-term
high quality municipal obligations, the income from which is exempt from federal
income and California personal income taxes.

Under normal market conditions, the Fund attempts to invest 100%, and will
invest at least 80%, of its total assets in debt obligations issued by or on
behalf of California and other states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities that generate interest which, in the opinion of bond
counsel, is exempt from federal income tax ("Municipal Securities") and will
invest at least 65% of its total assets in such obligations which also generate
interest which, in the opinion of bond counsel, is exempt from State of
California personal income tax ("California Municipal Securities").

Dividends paid to California residents to the extent of interest income received
on California Municipal Securities will be exempt from State of California
personal income taxes provided that at the end of each quarter of its taxable
year at least 50% of the Fund's total assets are invested in California
Municipal Securities and obligations of the U.S. Government, its agencies and
instrumentalities which are by federal law exempt from local income taxes.

5
<PAGE> 65

- ----------------------------------------------------------------------
THE FUND WILL ONLY INVEST IN HIGH QUALITY SECURITIES.
- ----------------------------------------------------------------------

The Fund will invest only in Municipal Securities which at the time of purchase:
(a) are rated in one of the two highest rating categories for municipal
commercial paper or short-term municipal securities assigned by Moody's
Investors Service ("Moody's"), Standard & Poor's Corporation ("S&P") or any
other nationally recognized statistical rating organization ("NRSRO"); (b) are
guaranteed or insured by the U.S. Government as to the payment of principal and
interest; (c) are fully collateralized by an escrow of U.S. Government
securities acceptable to the Investment Manager; or (d) are unrated by any
NRSRO, if they are determined by the Investment Manager, using guidelines
approved by the Board of Trustees, to be at least equal in quality to one or
more of the above referenced securities. (For a description of the ratings, see
"Appendix--Ratings of Investment Securities" in the Statement of Additional
Information.)

With the exception of securities issued or guaranteed by the U.S. Government,
its agencies and instrumentalities, the Fund may not:

1. Purchase the securities of any issuer if as a result more than 5% of the
value of the Fund's total assets would be invested in the securities of that
issuer. However, provided no more than 25% of the value of the Fund's total
assets are invested in the securities of any one issuer, up to 50% of the
value of the Fund's total assets may be invested without regard to this 5%
limitation. For purposes of this limitation, a security is considered to be
issued by the governmental entity (or entities) whose assets and revenues
back the security, or, with respect to an industrial revenue bond that is
backed only by the assets and revenues of a non-governmental user, by such
non-governmental user. In certain circumstances, the guarantor of a security
may also be considered to be an issuer in connection with such guarantee.

From time to time, as a defensive measure or under abnormal market conditions,
the Fund may invest any or all of its assets in taxable "temporary investments"
which include: obligations of the U.S. Government, its agencies or
instrumentalities; debt securities (other than Municipal Securities) rated in
one of the two highest categories by any NRSRO; commercial paper (other than
Municipal Securities) rated in one of the two highest grades by any NRSRO;
certificates of deposit of domestic banks having capital, surplus, and undivided
profits in excess of $100 million; and any of the foregoing temporary
investments subject to repurchase agreements. While purchases by the Fund of
certain temporary investments could cause it to generate dividends taxable to
shareholders as ordinary

6
<PAGE> 66

income (see "Distributions And Taxes"), it is the Fund's primary intention to
produce dividends which are not subject to federal income or State of California
personal income taxes.

MUNICIPAL SECURITIES AND INVESTMENT TECHNIQUES

Municipal Securities purchased by the Fund may include variable rate demand
instruments issued by industrial development authorities and other government
entities. In the event variable rate demand instruments which the Fund can
purchase are not rated by credit rating agencies, such instruments must be
determined by the Investment Manager, using guidelines approved by the Board of
Trustees, to be of comparable quality at the time of purchase to rated
instruments which the Fund can purchase. In some cases, the Fund may require
that the issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
Although there may be no active secondary market with respect to a particular
variable rate demand instrument purchased by the Fund, the Fund may (at any time
or during specified periods not exceeding one year, depending upon the
instrument involved) demand payment in full of the principal of the instrument
and may resell the instrument to a third party. The absence of such an active
secondary market, however, could make it difficult for the Fund to dispose of a
variable rate demand instrument in the event the issuer defaulted on its payment
obligation or during periods that the Fund is not entitled to exercise its
demand rights, and the Fund could, for this or other reasons, suffer a loss with
respect to such instruments. To the extent that the absence of an active
secondary market for such securities causes them to be "illiquid," such
securities will be subject to the Fund's restrictions on acquiring and holding
illiquid securities.

7
<PAGE> 67

These securities may include tender option bond trust receipts, in which a
fixed-rate municipal bond (or group of bonds) is placed into a trust from which
two classes of trust receipts are issued, which represent proportionate
interests in the underlying bond(s). Interest payments are made on the bond(s)
based upon a predetermined rate. Under certain circumstances, the holder of a
trust receipt may also participate in any gain or loss on the sale of such
bond(s). Tender option bond trust receipts are considered to be Municipal
Securities for purposes of the Fund's policy to invest at least 80% of its total
assets in Municipal Securities. Tender option bond trust receipts generally are
structured as private placements and, accordingly, may be deemed to be
restricted securities for purposes of the Fund's investment limitations.

The Fund will limit its investments in tender option bond trust receipts and
other synthetic floating rate municipal securities to no more than 25% of its
total assets.

8
<PAGE> 68

Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax (and, with respect to California
Municipal Securities, to the exemption of interest thereon from State of
California personal income taxes) are rendered by bond counsel to the respective
issuers at the time of issuance. The Fund and the Investment Manager will not
review the proceedings relating to the issuance of Municipal Securities or the
bases for such opinions.

SPECIAL RISK CONSIDERATIONS. The Fund intends to follow the diversification
standards set forth in the 1940 Act, except to the extent that, in the
Investment Manager's judgment, non-diversification is appropriate to maximize
the percentage of the Fund's assets that are California Municipal Securities.
The investment return on a non-diversified portfolio typically is dependent upon
the performance of a smaller number of issuers relative to the number of issuers
held in a diversified portfolio. In the event of changes in the financial
condition or in the market's assessment of certain issuers, the Fund's policy of
acquiring large positions in the obligations of a relatively small number of
issuers may affect the value of the Fund's portfolio to a greater extent than
that of a diversified portfolio.

<PAGE> 69

Certain California constitutional amendments, legislative measures, executive
orders, administrative regulations and voter initiatives could result in adverse
consequences affecting California Municipal Securities. For example, in recent
years "Proposition 13" and similar California constitutional and statutory
amendments and initiatives have restricted the ability of California taxing
entities to increase real property tax revenues. Other initiative measures
approved by California voters, through limiting various other taxes, have
resulted in a substantial reduction in state revenues. Decreased state revenues
may result in reductions in allocations of state revenues to local governments.
It is not possible to determine the impact of these initiatives on the ability
of California issuers to pay interest or repay principal on their obligations.
There is no assurance that any California issuer will make full or timely
payments of principal and interest or remain solvent. For example, in December
1994, Orange County filed for bankruptcy. In addition, from time to time,
federal legislative proposals have threatened the tax-exempt status or use of
municipal securities. (An expanded discussion of the risks associated with
municipal securities and California issuers is contained in the Statement of
Additional Information.)

For more information, see the section of this Prospectus entitled "Share Price
Calculation."

MANAGEMENT OF THE FUND

Responsibility for overall management of the Fund rests with the trustees and
officers of the Schwab Fund Family. Professional investment management for the
Fund is provided by the Investment Manager, Charles Schwab Investment
Management, Inc., 101 Montgomery Street, San Francisco, CA 94104. The Investment
Manager provides a continuous investment program, including general investment
and economic advice regarding the Fund's investment strategies, manages the
Fund's investment portfolio and performs expense management, accounting and
recordkeeping, and other services necessary to the operation of the Fund and the
Schwab Fund Family. The Investment Manager, formed in 1989, is a wholly owned
subsidiary of The Charles Schwab Corporation and is the investment adviser and
administrator of the SchwabFunds(R) mutual funds. As of June 3, 1995, the Schwab
Funds had aggregate net assets in excess of $26 billion.

10
<PAGE> 70

Charles Schwab & Co., Inc. ("Schwab" or the "Transfer Agent"), 101 Montgomery
Street, San Francisco, CA 94104, serves as shareholder services agent and
transfer agent for the Fund. Schwab provides information and services to
shareholders, which include reporting share ownership, sales and dividend
activity (and associated tax consequences), responding to daily inquiries,
effecting the transfer of Fund shares and facilitating effective cash management
of shareholders' Schwab account balances. It furnishes such office space and
equipment, telephone facilities, personnel and informational literature
distribution as is necessary or appropriate in providing shareholder and
transfer agency information and services. Schwab is also the Fund's distributor,
but receives no compensation for its services as such.

Schwab was established in 1971 and is one of America's largest discount brokers.
The firm provides low-cost securities brokerage and related financial services
to over 2.5 million active customer accounts and has over 200 offices. Schwab
also offers convenient access to financial information services and provides
products and services that help investors make investment decisions. Schwab is a
wholly-owned subsidiary of The Charles Schwab Corporation. Charles R. Schwab is
the founder, Chairman and Chief Executive Officer and a director of The Charles
Schwab Corporation and, as of March 10, 1995, the beneficial owner of
approximately 23.3% of the outstanding shares of that corporation. Mr. Schwab
may be deemed to be a controlling person of Schwab and the Investment Manager.

FEES AND EXPENSES. Pursuant to its Investment Advisory and Administration
Agreement with the Schwab Fund Family, the Investment Manager receives from the
Fund a graduated annual fee, payable monthly, of 0.46% of the Fund's average
daily net assets not in excess of $1 billion, 0.41% of such net assets over $1
billion but not in excess of $2 billion and 0.40% of such net assets over $2
billion. The Investment Manager may reduce its management fee from time to time
in the future. Fee reductions lower the Fund's expenses and thus increase the
total return it provides shareholders. At least through August 31, 1995, the
Investment Manager guarantees that the management fee will not exceed 0.19% of
the Fund's average daily net assets and total fund operating expenses will not
exceed 0.65% of the average daily net assets of the Sweep Shares of the Fund.
The effect of this guarantee is to maintain or lower the expenses of the Sweep
Shares of the Fund and thus maintain or increase total return to shareholders.
For the fiscal year ended December 31, 1994, the Fund paid investment management
fees of 0.18% of its average daily net assets and paid total expenses of 0.64%
of its average daily net assets.

For the transfer agency services provided, the Transfer Agent receives an annual
fee, payable monthly, of 0.25% of the average daily net assets of the Sweep
Shares of the Fund. In addition, for shareholder services provided, Schwab
receives an annual fee, payable monthly, of 0.20% of the average daily net
assets of the Sweep Shares of the Fund. For the Value Advantage Shares, the
Transfer Agent receives an annual fee of 0.05% of the average daily net assets
of that class' shares of beneficial interest. PNC Bank is the Fund's Custodian.

11
<PAGE> 71

Series are charged to that Series or class, respectively. The differing expenses
applicable to the Sweep Shares and the Value Advantage Shares will cause the
performance of the two classes of shares of the Fund to differ.

TAX INFORMATION. The Fund has elected to be treated as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"),
qualified as such, and intends to continue to so qualify. In order to so
qualify, the Fund will distribute on a current basis substantially all of its
investment company taxable income, its net exempt-interest income and its
capital gain net income (if any), and will meet certain other requirements. Such
qualification relieves the Fund of liability for federal and California income
taxes to the extent the Fund's earnings are distributed. In addition, if the
Fund does not distribute 98% of its taxable investment income and capital gains,
it will be subject to a non-deductible 4% excise tax on such undistributed
amounts.

FEDERAL INCOME TAXES: Dividends derived from exempt-interest on state and local
obligations (known as "exempt-interest dividends") may be treated by the Fund's
shareholders as items of interest excludable from their federal gross income. A
shareholder should consult his or her own tax adviser with respect to whether
exempt-interest dividends would be excludable from gross income if the
shareholder were treated as a "substantial user" of facilities financed by an
obligation held by the Fund or a "related person" to such user under the Code.
Any loss on the sale or exchange of any share held for six months or less will
be disallowed to the extent of the amount of the exempt-interest dividend
received with respect to such share. The U.S. Treasury Department is authorized
to issue regulations reducing the period to not less than 31 days for certain
regulated investment companies, but no such regulations have been issued as of
the date of this Prospectus. To the extent dividends paid to shareholders are
derived from taxable interest or short-term or long-term capital gains, such
dividends will be subject to federal income tax whether paid in the form of cash
or additional shares. Fund dividends derived from interest on U.S. Treasury and
agency obligations are subject to federal income tax.

12
<PAGE> 72

CALIFORNIA INCOME TAXES: Dividends paid by the Fund to non-corporate
shareholders and derived from interest on California Municipal Securities or
federal obligations are also exempt from State of California personal income
tax. For this purpose, federal obligations are obligations the interest on which
is excludable from gross income for state income tax purposes under the
Constitution or laws of the United States. However, dividends paid to
shareholders that are corporations subject to California franchise tax or
corporate income tax will be taxed as ordinary income to such shareholders,
notwithstanding that all or a portion of such dividends are exempt from State of
California personal income tax. Moreover, to the extent that the Fund's
dividends are derived from interest on debt obligations other than California
Municipal Securities or federal obligations, such dividends will be subject to
State of California personal income tax, even though such dividends may be
exempt for federal income tax purposes.

Except as noted with respect to State of California personal income tax,
distributions of net investment income may be taxable to investors under state
or local law as dividend income even though all or a portion of such
distributions may be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such income taxes. In addition, to the
extent, if any, that dividends paid to shareholders are derived from taxable
interest or from long-term or short-term capital gains, such dividends will not
be exempt from State of California personal income tax whether received in cash
or reinvested in shares.

Records of dividends and other distributions, purchases and redemptions will be
reflected on shareholders' regular Schwab brokerage statements. The Fund will
notify shareholders at least annually as to the federal income and State of
California personal income tax consequences of distributions made each year.

13
<PAGE> 73

The foregoing is only a brief summary of some of the federal and State of
California income tax considerations affecting the Fund and its shareholders.
Accordingly, potential investors should consult their tax advisers with specific
reference to their own tax situations.

SHARE PRICE CALCULATION
- ------------------------------------------------------------------
THERE ARE NO SALES CHARGES OR TRANSACTION FEES TO
PURCHASE OR REDEEM SHARES OF THE FUND.
- ------------------------------------------------------------------

The price of a Sweep Share of the Fund on any given day is its "net asset value"
or "NAV." This figure is computed by dividing total Fund assets allocable to
that class, less any liabilities allocable to the class, by the number of shares
of the class outstanding. The net asset value per share of the Sweep Shares of
the Fund is determined on each day both the Federal Reserve Bank of New York and
the Exchange are open for business, first at 10:00 a.m. (Eastern time), then
again as of the close of normal trading on the Exchange (generally 4:00 p.m.
Eastern time).

The Fund values its portfolio securities at amortized cost, which means that
they are valued at their acquisition cost (as adjusted for amortization of
premium or discount) rather than at current market value. Calculations are made
to compare the value of the Fund's investments using the amortized cost method
with market values. Except as described below, market valuations are obtained by
using actual quotations provided by third-party pricing services, market makers,
estimates of market value, or values obtained from yield data relating to
classes of money market instruments published by reputable sources at the mean
between the bid and asked prices for the instruments. If a deviation of 1/2 of
1% or more were to occur between the net asset value per share of the Sweep
Shares of the Fund calculated by reference to market values and the $1.00 per
share amortized cost value of the Sweep Shares of the Fund, or if there were any
other deviation which the Board of Trustees believed would result in a material
dilution to shareholders or purchasers, the Board of Trustees would promptly
consider what action, if any, should be initiated. While the Fund attempts to
maintain a net asset value at a constant $1.00 per share, Fund shares are not
insured against a reduction in net asset value.

The Fund has entered into a transaction with Bank of America National Trust and
Savings Association ("Bank of America") pursuant to which the Fund is a
beneficiary of an irrevocable Letter of Credit (the "Letter of Credit") issued
by Bank of America. The Letter of Credit provides a degree of credit support for
certain securities held by the Fund, currently including certain obligations of
Orange County, California and issuers that participated in the investment pool
maintained by Orange County (each a "Covered Security"). Orange County and the
investment pool maintained by the County have filed for protection under Chapter
9 of the federal Bankruptcy Code. Pursuant to the Letter of Credit, Bank of
America will make certain payments to the Fund (each a "Payment") upon
presentation of a certificate as required under the Letter of Credit in the
event that (i) the issuer of a Covered Security defaults on a repayment to the
Fund of the principal amount of the Covered Security, or (ii) the proceeds
received by the Fund in the disposition of a Covered Security are less than a
specified percentage of the Covered Security's par amount. The Fund has no
obligation to reimburse Bank of America for any amount drawn under the Letter of
Credit. The Letter of Credit,

14
<PAGE> 74

however, does not ensure that the Fund will receive Payments equal to the
aggregate amount of all Covered Securities. Accordingly, although the Board of
Trustees has determined that the Covered Securities subject to the Letter of
Credit currently present minimal credit risks, the Fund could incur losses as a
result of its holdings of Covered Securities.

The Letter of Credit will continue in effect until the earlier of (i) the date
on which Bank of America has made Payments to the Fund equaling the total amount
available under the Letter of Credit, or (ii) August 1, 1995, after each Covered
Security is scheduled to mature.

The Board of Trustees has approved the payment of fees by the Fund for the
availability of the Letter of Credit, as well as revised pricing procedures that
take into account the effect of the Letter of Credit on the value of the Covered
Securities (the "Pricing Procedures"). Pursuant to the Pricing Procedures, the
value of a Covered Security may be determined in good faith after consideration
of the credit support provided by the Letter of Credit in order to cause the
calculation of the Fund's market-based net asset value per share to accurately
reflect the actual value of all of its assets.

HOW THE FUND SHOWS PERFORMANCE

The yield of the Sweep Shares of the Fund refers to the income generated by a
hypothetical investment in the Sweep Shares of the Fund over a specific 7-day
period. This income is then annualized, which means that the income generated
during the 7-day period is assumed to be generated each week over an annual
period and is shown as a percentage of the hypothetical investment.

Tax-equivalent yield is the yield that a taxable investment must generate in
order to equal (after applicable taxes are deducted) the Sweep Share's yield for
an investor in stated federal income and State of California tax brackets
(normally assumed to be the applicable maximum tax rate). Tax-equivalent yield
is based upon, and will be higher than, the portion of the Sweep Share's yield
that is tax-exempt. (See "Yield" in the Statement of Additional Information.)

The tax-equivalent effective yield is computed in the same manner as is the
tax-equivalent yield, except that the effective yield is substituted for yield
in the calculation.

15
<PAGE> 75

Because the Sweep Shares of the Fund are subject to different expenses than the
Value Advantage Shares of the Fund, the performance of the two classes of shares
will differ.

GENERAL INFORMATION

The Schwab Fund Family was organized as a business trust under the laws of
Massachusetts on October 20, 1989 and may issue an unlimited number of shares of
beneficial interest or classes of shares in one or more Series. Currently, the
Schwab Fund Family offers shares of nine Series which may be organized into one
or more classes of shares of beneficial interest. The Board of Trustees may
authorize the issuance of shares of additional Series or classes if it deems it
desirable to do so. Shares of each Series have equal, noncumulative voting
rights, and equal rights as to dividends, assets, and liquidation of such
Series, except to the extent such voting rights or rights as to dividends,
assets and liquidation vary among classes of a Series. The Schwab California
Tax-Exempt Money Fund was formerly known as the Schwab California Tax-Free Money
Fund.

SHAREHOLDER GUIDE
- -----------------------------------------------------------
SCHWAB'S OFFICES ACCEPT ORDERS AND PROVIDE
SHAREHOLDER SERVICE AND INFORMATION.
- -----------------------------------------------------------

16
<PAGE> 76

HOW TO PURCHASE SHARES
- -------------------------------------------------------------------------
YOU MAY PURCHASE SHARES OF THE FUND ONLY THROUGH A
SCHWAB ACCOUNT.
- -------------------------------------------------------------------------

Shares of the Fund are designed for sale to California residents only.

You may purchase shares of the Fund exclusively through an account maintained
with Schwab, and payment for shares must be made directly to Schwab. Schwab
brokerage accounts are free of maintenance fees. (See "Summary of Expenses.")
The Securities Investor Protection Corporation ("SIPC") will provide account
protection, in an amount up to $500,000, for securities, including Fund shares,
which you hold in a Schwab brokerage account. Of course, SIPC account protection
does not protect shareholders from principal fluctuations.

If you already have a Schwab brokerage account, you may purchase shares in the
Fund as described below and need not open a new account.

Orders to purchase shares will be executed at the next determined net asset
value after receipt by Schwab's Mutual Fund Transfer Agency Department. (See
"Share Price Calculation.")

17
<PAGE> 77

of the following week. If an investor's free credit balance is less than $100,
it will not be invested in the primary fund, but will remain a credit to the
investor's Schwab brokerage account. In certain limited circumstances, free
credit balances in certain accounts may be automatically invested at different
times. Upon request, a free credit balance in a Schwab brokerage account
totalling $20,000 or more may be invested in the appropriate primary fund on the
Business Day following receipt by the Transfer Agent of investor instructions.

An investor with an existing Schwab brokerage account may add the automatic
investment feature to his or her account by completing the appropriate section
of the Schwab brokerage account application available at any Schwab office. A
shareholder may change primary funds by calling or writing his or her local
Schwab office or writing Schwab at the above address. Note that the automatic
investment feature is not available for Value Advantage Shares of any Fund.
- ----------------------------------------------------------------------
SHARES OF THE FUND MAY ALSO BE PURCHASED DIRECTLY.
- ----------------------------------------------------------------------

DIRECT PURCHASE: A Schwab brokerage account holder may buy shares of the Fund
(if it is not his or her primary fund) by placing an order directly with a
Schwab registered representative. The minimum initial investment for such
"secondary fund" purchase is $1,000, and subsequent investments must be at least
$100. The minimum initial investment for the Value Advantage Shares is $25,000
and the minimum account balance for the Value Advantage Shares is $20,000.

- -----------------------------------------------------------------------
TWO DISTRIBUTION OPTIONS ARE AVAILABLE.
- -----------------------------------------------------------------------

1. AUTOMATIC REINVESTMENT: All distributions will be reinvested in additional
full Sweep Shares of the Fund at the net asset value next determined after
their payable date.

For information on how to wire funds from your Schwab brokerage account to your
bank, see "Other Important Information--Wire Transfers to Your Bank."

18
<PAGE> 78

purchase orders or to change the minimum investment requirements. All orders to
purchase shares of the Fund are subject to acceptance by the Fund and are not
binding until confirmed or accepted. Schwab will charge a $15 service fee
against an investor's Schwab brokerage account should his or her check be
returned because of insufficient or uncollected funds or a stop payment order.

HOW TO EXCHANGE SHARES

- ----------------------------------------------------------------------
SHARES OF THE FUND MAY BE EXCHANGED FOR SHARES OF
OTHER FUNDS SPONSORED BY SCHWAB WITHOUT CHARGE.
- ----------------------------------------------------------------------

The exchange privilege allows you to exchange your SchwabFunds(R) shares for
shares of any other SchwabFunds class or series available to investors in your
state. Thus, you can conveniently modify your investments if your goals or
market conditions change. An exchange will involve the redemption of shares at
the net asset value next determined after receipt by the Transfer Agent of an
exchange request (on the same day as the Transfer Agent received the request, if
it was received by 4:00 p.m. (Eastern time) and on the next Business Day if the
request was received after that time) and the purchase of shares at their net
asset value next determined after sale of the shares involved in the exchange
(on the same day as the Transfer Agent received the request, if it was received
by 4:00 p.m. (Eastern time) and on the next Business Day if the request was
received after that time). An exchange of shares will be treated as a sale of
the shares for federal income tax purposes. Note that you must meet the minimum
initial or subsequent investment requirements applicable to the shares you wish
to receive in an exchange. The Fund reserves the right on 60 days' written
notice to modify, limit or terminate the exchange privilege.

METHODS OF EXCHANGING SHARES.

BY PHONE:

To properly process your telephone exchange request, we will need the
following information:

- your Schwab brokerage account number;
- the name of the fund into which shares are to be exchanged; and
- the number of shares of the Fund to be exchanged.

BY MAIL:

You may also request an exchange by writing your local Schwab office or Schwab
at the address listed on the Prospectus cover page.

To properly process your mailed exchange request, we will need a letter from
you which:

- references your Schwab brokerage account number;
- specifies that you would like to exchange shares from the Fund;
- indicates the fund into which shares are to be exchanged;

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<PAGE> 79

- describes the number of shares of the Fund to be exchanged; and
- is signed by at least one of the registered Schwab account holders, in
the exact form specified in the account.

IN PERSON AT A SCHWAB OFFICE:

You can also place your exchange request in person at your local Schwab
office.

HOW TO REDEEM SHARES

AUTOMATIC REDEMPTION: Redemptions will be automatically effected by the Transfer
Agent to satisfy debit balances in an investor's Schwab brokerage account or to
provide necessary cash collateral for an investor's margin obligation to Schwab.
Redemptions will also be automatically effected to settle securities
transactions with Schwab if an investor's free credit balance on the day before
settlement is insufficient to settle the transactions. Each Schwab brokerage
account will, as of the close of business each Business Day, be automatically
scanned for debits and pending securities settlements, and, after application of
any free credit balances in the account to such debits, a sufficient number of
shares of the primary fund and, to the extent necessary, any other Schwab Money
Fund(s) in the account, will be redeemed the following Business Day to satisfy
any remaining debits.

The Fund may suspend redemption rights or postpone payments at times when
trading on the Exchange is restricted, the Exchange is closed for any reason
other than its customary weekend or

20
<PAGE> 80

holiday closings, emergency circumstances as determined by the Securities and
Exchange Commission exist, or for such other circumstances as the Commission may
permit.

OTHER IMPORTANT INFORMATION

SCHWAB ONE(R) ACCOUNT FEATURES. Shareholders who hold shares of the Fund in
Schwab One accounts are entitled to redeem Fund shares through debit cards and
checks. Investors should contact Schwab if they are interested in the benefits
and requirements of a Schwab One account.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

21
<PAGE> 81

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.

A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.

<PAGE> 82

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.

A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.

<PAGE> 83

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.

A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.

<PAGE> 84

PROSPECTUS JUNE 6, 1995
725-5 (6/95)

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<PAGE> 85
CROSS REFERENCE SHEET

THE CHARLES SCHWAB FAMILY OF FUNDS:
Schwab Tax-Exempt Money Fund -- Value Advantage Shares
Schwab California Tax-Exempt Money Fund -- Value Advantage Shares
Schwab New York Tax-Exempt Money Fund -- Value Advantage Shares

<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page Cover Page

Synopsis Key Features of the Funds; Summary of Expenses

Condensed Financial Information Inapplicable

General Description of Registrant Matching the Funds to Your Investment Needs; Investment Objectives and Policies;
Investment Techniques Used by Our Funds; Special Risk Considerations
Management of the Fund Organization and Management of Our Funds

Management's Discussion of [Discussion to be included in Registrant's
Fund Performance Annual Report]

Capital Stock and Other Securities Cover Page; Matching the Funds to Your Investment Needs; Organization and
Management of the Funds; Important Information About Your Investment
Purchase of Securities Being Offered Investing in the Value Advantage Shares; Important Information About Your
Investment

Redemption or Repurchase Investing in the Value Advantage Shares; Important Information About Your
Investment

Pending Legal Proceedings Inapplicable
</TABLE>

<PAGE> 86

SCHWAB TAX-EXEMPT MONEY FUND -- VALUE ADVANTAGE SHARES

SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND -- VALUE ADVANTAGE SHARES

SCHWAB NEW YORK TAX-EXEMPT MONEY FUND -- VALUE ADVANTAGE SHARES

- --------------------------------------------------------------------------------

PROSPECTUS June 6, 1995

TO PLACE ORDERS AND FOR ACCOUNT INFORMATION: Contact your local Charles Schwab &
Co., Inc. ("Schwab") office, or call 800-2 NO-LOAD.

THE SCHWAB TAX-EXEMPT MONEY FUND (THE "TAX-EXEMPT FUND"), SCHWAB CALIFORNIA
TAX-EXEMPT MONEY FUND (THE "CALIFORNIA FUND"), AND SCHWAB NEW YORK TAX-EXEMPT
MONEY FUND (THE "NEW YORK FUND") (the "Funds") are designed to provide you with
the highest possible current income consistent with each Fund's investment
objective while seeking to preserve your investment and provide you with
liquidity. As a matter of fundamental policy, the Tax-Exempt Fund is a
diversified investment portfolio, and the New York Fund and California Fund are
non-diversified investment portfolios, of The Charles Schwab Family of Funds
(the "Trust"), a no-load, open-end management investment company. Shares of the
California Fund are offered to California residents and the residents of
selected other states. Shares of the New York Fund are offered to New York
residents and the residents of selected other states. This Prospectus relates to
the Value Advantage Shares of each Fund. For a prospectus describing the other
class of shares of the Fund (the "Sweep Shares"), call your local Schwab office
or 800-2 NO-LOAD.

ABOUT THIS PROSPECTUS: THIS PROSPECTUS PROVIDES YOU WITH CONCISE INFORMATION
THAT YOU SHOULD KNOW BEFORE YOU DECIDE IF THE FUNDS PROVIDE THE INVESTMENT
OPPORTUNITY YOU WANT. READ IT CAREFULLY, AND RETAIN IT FOR FUTURE REFERENCE.
This Prospectus may be available via electronic mail. For a free paper copy call
800-2 NO-LOAD. You can find more detailed information in the Statement of
Additional Information, dated June 6, 1995. The Statement has been filed with
the SEC and is incorporated in this Prospectus by reference (which means that it
is legally considered part of this Prospectus even though it is not printed
here). You can get your own free copy of the Statement of Additional Information
by calling Schwab at 800-2 NO-LOAD, or by writing the Funds at 101 Montgomery
Street, San Francisco, California 94104.

ATTENTION OHIO INVESTORS. THE OHIO ADMINISTRATIVE CODE REQUIRES US TO MAKE THE
FOLLOWING DISCLOSURE. UNLIKE OTHER MUTUAL FUNDS WHICH MAY INVEST NO MORE THAN
15% OF THEIR TOTAL ASSETS IN THE SECURITIES OF ISSUERS WHICH TOGETHER WITH ANY
PREDECESSORS HAVE A RECORD OF LESS THAN THREE YEARS CONTINUOUS OPERATIONS OR
SECURITIES OF ISSUERS WHICH ARE RESTRICTED AS TO DISPOSITION, THE TAX-EXEMPT
FUND AND THE NEW YORK FUND MAY EACH INVEST UP TO 50% OF THEIR TOTAL ASSETS IN
SUCH SECURITIES.

TABLE OF CONTENTS

<TABLE>
<S> <C>
KEY FEATURES OF THE FUNDS................................................................... 2
SUMMARY OF EXPENSES......................................................................... 3
MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS................................................. 4
INVESTMENT OBJECTIVES AND POLICIES.......................................................... 6
SPECIAL RISK CONSIDERATIONS................................................................. 12
ORGANIZATION AND MANAGEMENT OF THE FUNDS.................................................... 13
MANAGEMENT FUNCTIONS AND RESPONSIBILITIES................................................. 13
OPERATING FEES AND EXPENSES............................................................... 13
OTHER INFORMATION......................................................................... 14
INVESTING IN VALUE ADVANTAGE SHARES OF THE FUNDS............................................ 15
HOW TO BUY SHARES........................................................................... 15
YOU CAN BUY SHARES........................................................................ 16
HOW TO EXCHANGE VALUE ADVANTAGE SHARES...................................................... 16
HOW TO SELL YOUR SHARES..................................................................... 18
IMPORTANT INFORMATION ABOUT YOUR INVESTMENT................................................. 19
DIVIDENDS AND OTHER DISTRIBUTIONS........................................................... 19
INCOME TAX INFORMATION...................................................................... 19
HOW WE DETERMINE THE PRICE OF YOUR VALUE ADVANTAGE SHARES................................. 21
HOW THE FUNDS REPORT PERFORMANCE............................................................ 22
GLOSSARY OF IMPORTANT TERMS................................................................. 24
</TABLE>

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AN INVESTMENT IN EACH FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT ANY OF THE FUNDS WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.

<PAGE> 87

KEY FEATURES OF THE FUNDS

MAXIMUM CURRENT INCOME AND SAFETY. Our goal is to provide you with the highest
possible current income consistent with the investment objectives of each Fund
while preserving your investment and providing you with quick access to your
money. To achieve this goal, the Funds invest in high-quality, short-term debt
securities. The Tax-Exempt Fund seeks to provide you with current income that is
exempt from Federal income taxes. The California Fund seeks to provide you with
current income that is exempt from Federal income taxes and California personal
income taxes. The New York Fund seeks to provide you with current income that is
exempt from Federal income taxes and personal income taxes imposed by New York
State and New York municipalities. (See "Investment Objectives and Policies.")

PRESERVATION OF INVESTMENT. Each Fund seeks to maintain a stable net asset value
(known as the Fund's "NAV") of $1.00 per share.

READY ACCESS TO YOUR CASH. You can conveniently sell your shares of any Fund at
any time. Generally, your redemption check will be available the next Business
Day at your local Schwab office, or it can be mailed directly to you.

LOW COST INVESTING. The Value Advantage Shares of the Funds were designed with
operating expenses well below the industry average. (See "Matching the Funds to
Your Investment Needs.") Additionally, you pay no sales fee when you buy shares
of the Funds. Fees may be charged for balances and transactions under the
required minimums.

PROFESSIONAL MANAGEMENT OF THE FUNDS. Charles Schwab Investment Management, Inc.
(referred to in this Prospectus as the "Investment Manager") currently manages
the mutual funds in the SchwabFunds Family(TM), a family of 19 mutual funds with
over $26 billion in assets as of June 3, 1995. (See "Organization and Management
of the Funds--The Investment Manager.")

SHAREHOLDER SERVICES. Schwab's professional representatives are available
toll-free 24 hours a day at 800-2 NO-LOAD to service your account, or you can
call your local Schwab office during regular business hours. (See "Investing in
the Funds.")

CONVENIENT REPORTING. You receive one consolidated account statement for all of
your account activity that combines all of your mutual fund activity into one
report.

READING THIS PROSPECTUS. For your ease of reading, we have italicized certain
terms which have been included in the glossary at the end of this Prospectus. If
you are unsure of the meaning of any italicized term, check the glossary.
References to "you" and "your" in this Prospectus refer to prospective investors
and/or current shareholders, while references to "us", "our", or "our Funds"
refer to the Value Advantage Shares or to the three Funds generally.

SPECIAL RISK CONSIDERATIONS. An investment in any of the Funds is subject to
certain risks arising out of each such Fund's investments in Municipal
Securities issued by a single state, municipal leases, participation interests
and certain other securities, as discussed in this Prospectus. (See "Investment
Techniques Used by the Funds" and "Special Risk Considerations" for more
information.)

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<PAGE> 88

SUMMARY OF EXPENSES

ANNUAL OPERATING EXPENSES

Each class of our Funds pays its own annual operating expenses. These expenses
include management fees paid to the Investment Manager, transfer agency fees,
and other expenses. These expenses cover, for example, services such as
investment research and management of the portfolios, and maintaining
shareholder records. Because these fees are paid from the income and assets of
the Value Advantage Shares of each Fund, they are factored into the price of
each Fund's Value Advantage Shares and into the annual dividends paid to holders
of Value Advantage Shares. As a shareholder, you are not charged any of these
fees directly.

YOUR FEES FOR BUYING AND SELLING SHARES

You pay no sales fee when you buy shares of our Funds. Because the Value
Advantage Shares of the Funds are designed for individuals who maintain high
balances in their Schwab accounts, the Transfer Agent charges a $5
administrative fee if you sell or exchange shares worth less than $5,000. The
Transfer Agent charges a $5 fee each month that your Fund account balance falls
below the required $20,000 minimum. The Transfer Agent will notify you in
writing 15 days before this fee is assessed in order to give you time to bring
your account balance up to the minimum amount.

The following fees (except the administrative fee) are stated as a percentage of
how much the Value Advantage Shares of each Fund are worth on an average day.

<TABLE>
<CAPTION>
NEW YORK CALIFORNIA TAX-EXEMPT
FUND FUND FUND
-------- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Administrative Fee1...................................... $ 5.00 $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fee (after fee reduction)2.................... 0.20% 0.19% 0.20%
12b-1 Fees............................................... None None None
Other Expenses (after expense reimbursement3............. 0.25% 0.26% 0.25%
TOTAL FUND OPERATING EXPENSES4,5.............................. 0.45% 0.45% 0.45%
</TABLE>

1 If you sell or exchange shares in an amount less than $5,000, you will be
subject to a $5 administrative fee.

2 This amount reflects a reduction by the Investment Manager, which is
guaranteed through at least August 31, 1995. If there were no such reduction,
the maximum management fee would be 0.46% of each Fund's average daily net
assets.

3 "Other Expenses" are based on estimated amounts for the current fiscal year
for each Fund. See "Matching the Fund to Your Investment Needs" for information
regarding the differing Transfer Agency fees for the multiple classes of shares
of the Funds.

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<PAGE> 89

4 This amount reflects the guarantee by Schwab and our Investment Manager that,
through at least August 31, 1995, the total operating expenses of the Value
Advantage Shares of each Fund will not exceed 0.45% of average daily net assets
of the Value Advantage Shares of each Fund. If there were no such reduction, the
estimated maximum total operating expenses would be 0.70% of the average daily
net assets of the Value Advantage Shares of each Fund.

5 Schwab currently imposes no fees for opening a standard brokerage account,
including a Schwab One(R) account with a minimum of $5,000 account equity.
Schwab One(R) accounts of less than $5,000 account equity are subject to a fee
of $5 per month if there have been fewer than two commissionable trades within
the last twelve months. See "How To Buy Shares" for information regarding the
differing minimum balance and minimum investment requirements of the multiple
classes of shares of the Funds.

EXAMPLE. You would pay the following expenses on a $1,000 investment in the
Value Advantage Shares of each Fund assuming (1) 5% annual return; and (2)
redemption at the end of each period.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Tax-Exempt Fund....................................... $5 $14 $25 $ 57
California Fund....................................... $5 $14 $25 $ 57
New York Fund......................................... $5 $14 $25 $ 57
</TABLE>

THE PRECEDING TABLE IS AN EXAMPLE ONLY, AND DOES NOT REPRESENT PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THE EXPENSES SHOWN IN THE
EXAMPLE. This example reflects the guarantee by Schwab and the Investment
Manager that, through at least August 31, 1995, total operating expenses for the
Value Advantage Shares of each Fund will not exceed 0.45% of the class' average
daily net assets. Also, this example does not include the $5 administrative fee
on sales or exchanges of Fund shares equal to or less than $5,000. Nor does this
example include the $5 monthly fee charged on balances that fall below $20,000.
Please remember, that while this example assumes a 5% annual return on
investment, the actual return for the Value Advantage Shares of each Fund may be
more or less than the 5% annual return used in this example.

The purpose of the preceding table is to help you understand the various costs
and expenses you will bear directly or indirectly when you invest in the Value
Advantage Shares of the Funds. (See "Organization and Management of the
Funds--Operating Fees and Expenses.")

MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS

Because the Value Advantage Shares of the Funds are designed for Schwab accounts
with larger balances and less frequent shareholder transactions, we can keep the
operating expenses lower than the industry average, which helps provide more
competitive yields. The table below shows the

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<PAGE> 90

anticipated total operating expenses of the Value Advantage Shares of each Fund
compared to the industry average for similar type funds.

<TABLE>
<CAPTION>
VALUE ADVANTAGE SHARES INDUSTRY AVERAGES*
- -------------------------------------------- --------------------------------------------
<S> <C> <C> <C>
Tax-Exempt Fund................... 0.45% Tax-Exempt Money Market Funds..... 0.70%
California Tax-Exempt
California Fund................... 0.45% Money Market Funds................ 0.53%
New York Tax-Exempt
New York Fund..................... 0.45% Money Market Funds................ 0.58%
</TABLE>

Note: These amounts represent total operating expenses after fee waivers for
first tier money market funds, not including institutional money funds.

* Fourth quarter industry averages as reported by IBC/Donoghue Quarterly Report
on Money Fund Performance, 4th Quarter, 1994.

Our Funds invest in high-quality money market instruments and are designed for
high current yields. Because shares of our Funds are held in your Schwab
account, the proceeds from redemptions you make are available for other
investment purchases you make in your account. Keep in mind, however, that
because the Value Advantage Shares of the Funds are intended for larger balance
accounts, you may be charged a fee for redemptions or exchanges under the
required minimum or if your balance falls below the required minimum. These fees
are designed to keep shareholder transactions to a minimum which contributes to
the Value Advantage Shares lower operating expense ratio.

Schwab also offers an additional class of shares of each of the Funds ("Sweep
Shares") which automatically invest the uninvested cash balances in your Schwab
account in a Schwab money fund which you select. Sweep Shares may be more
suitable for providing income on fluctuating cash balances in your account in
between other investments. The Funds may be appropriate for a variety of
investment programs. Unlike the Sweep Shares, however, the Value Advantage
Shares have been designed for cash reserves which may be held for longer periods
of time and may not require frequent investor access. The Funds should not be a
substitute for building an investment portfolio tailored to your individual
investment needs and risk tolerance. Additionally, the Funds are not suitable
for tax-advantaged plans such as Individual Retirement Plans and Keogh plans.

Schwab offers these multiple classes of shares pursuant to a multiple class plan
(the "Plan") adopted by the Board of Trustees of the Trust. Pursuant to the
Plan, Value Advantage Shares of each Fund are subject to lower transfer agency
expenses than the Sweep Shares, as the Sweep Shares offer the "sweep" services
described above not available to investors in Value Advantage Shares. In
addition, the minimum initial investment and Sweep Shares, and minimum account
balance requirements are higher for the Value Advantage Shares than for the
Sweep Shares. See "Organization and Management of the Funds--Operating Fees and
Expenses" and "How to Buy Shares." For more information regarding the Sweep
Shares of the Funds, call your local Schwab office or 800-2 NO-LOAD. You may
also obtain information about Sweep Shares from your Schwab broker.

5
<PAGE> 91

INVESTMENT OBJECTIVES AND POLICIES

THE TAX-EXEMPT FUND

The investment objective of the Tax-Exempt Fund is to provide you with maximum
current income that is exempt from federal income taxes consistent with
stability of capital. Because any investment involves risk, we cannot guarantee
achieving this objective.

To achieve our investment objective, we normally will attempt to invest 100%,
and will invest at least 80%, of our total assets in short-term, high-quality
debt obligations issued by or on behalf of states, territories and possessions
of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities that generate interest, which in
the opinion of bond counsel, is exempt from federal income taxes and not treated
as a tax preference item for purposes of the federal alternative minimum tax
("Municipal Securities").

The investment objective and policies stated above are fundamental to the
Tax-Exempt Fund.

Provided that we meet certain minimum conditions (described in the Statement of
Additional Information under "Investment Restrictions"), dividends that
represent interest income received on Municipal Securities will be exempt from
federal income taxes when paid to you. However, such dividend income may be
subject to state and local taxes. See "Important Information About Your
Investment--Income Tax Information" and the Statement of Additional Information.

THE CALIFORNIA FUND

The investment objective of the California Fund is to provide you with maximum
current income that is exempt from federal income and State of California
personal income taxes, to the extent consistent with stability of capital.
Because any investment involves risk, we cannot guarantee achieving this
objective.

To achieve our objective, we normally will attempt to invest 100%, and will
invest at least 80%, of our total assets in Municipal Securities.

Absent unusual market conditions, we will invest at least 65% of our total
assets in such obligations which also generate interest which, in the opinion of
bond counsel, is exempt from State of California personal income taxes
("California Municipal Securities").

The investment objective and policies stated above are fundamental to the
California Fund.

Provided that we meet certain minimum conditions (described in the Statement of
Additional Information under "Investment Restrictions"), dividends that
represent interest income received on California Municipal Securities will be
exempt from State of California personal income taxes when paid to California
residents. See "Important Information About Your Investment--Income Tax
Information" and the Statement of Additional Information.

THE NEW YORK FUND

The investment objective of the New York Fund is to provide you with maximum
current income that is exempt from federal income taxes and personal income
taxes imposed by New York State and

6
<PAGE> 92

New York municipalities, to the extent consistent with liquidity and stability
of capital. Because any investment involves risk, we cannot guarantee achieving
this objective.

To achieve our objective, we normally will attempt to invest 100%, and will
invest at least 80%, of our total assets in Municipal Securities.

Absent unusual market conditions, we will invest at least 65% of our total
assets in such obligations which also generate interest which, in the opinion of
bond counsel, is exempt from State of New York and New York municipalities
personal income taxes ("New York Municipal Securities").

The investment objective and policies stated above are fundamental to the New
York Fund.

Provided that we meet certain minimum conditions (described in the Statement of
Additional Information under "Investment Restrictions"), dividends that
represent interest income received on New York Municipal Securities will be
exempt from State of New York and New York municipalities personal income taxes
when paid to New York residents. See "Important Information About Your
Investment--Income Tax Information" and the Statement of Additional Information.

MUNICIPAL SECURITIES. Our Funds will invest only in Municipal Securities which
at the time of purchase: (a) are rated within the two highest rating categories
for municipal commercial paper or short-term municipal securities assigned by
any nationally recognized statistical rating organization (NRSRO); (b) are
guaranteed or insured by the U.S. Government as to the payment of principal and
interest; (c) are fully collateralized by an escrow of U.S. Government
securities acceptable to our Investment Manager; or (d) are unrated by any
NRSRO, if they are determined by our Investment Manager, using guidelines
approved by the Board of Trustees, to be at least equal in quality to one or
more of the securities mentioned above. (See "Appendix--Ratings of Investment
Securities" in the Statement of Additional Information.)

We may purchase a security that, after being purchased by a Fund, ceases to have
a rating, or is downgraded, causing its rating to fall below that required for
purchase by the Fund. Neither event would necessarily require the Fund to sell
the security. However, we will keep such a security in its portfolio only if the
Board of Trustees determines that keeping the security is in the best interests
of that Fund.

Municipal Securities in which we may invest are generally classified in one of
two categories: "general obligation" securities and "revenue" securities.

General obligation securities are secured by the issuer's pledge of its full
faith, credit, and taxing power for the payment of principal and interest.

Revenue securities are secured only by the revenues derived from a particular
facility or class of facilities, or from a specific revenue source such as a
special excise tax or from the user of the facility being financed.

Revenue securities may include private activity bonds and industrial development
bonds. Such bonds may be issued by or on behalf of public authorities to finance
various privately operated facilities, and they are not payable from the
unrestricted revenues of the issuer. As a result, the credit quality of

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<PAGE> 93

private activity bonds is frequently related directly to the credit standing of
private corporations or other entities. From time to time, each of our Funds may
invest more than 25% of its total assets in industrial development and private
activity bonds.

We may also invest in "moral obligation" securities, which are normally issued
by special purpose public authorities. If the issuer of moral obligation
securities is unable to meet its debt service obligations from current revenues,
it may draw on a reserve fund. The state or municipality which created the
issuer has a moral commitment but not a legal obligation to restore the reserve
fund.

Our Funds may also invest up to 25% of their total assets in municipal leases,
no more than 10% of which may be in illiquid leases. Municipal leases are
obligations issued by state and local governments or authorities to finance the
acquisition of equipment and facilities. These obligations may take the form of
a lease, an installment purchase contract, a conditional sales contract, or a
participation interest in any of the above. Some investments in municipal leases
may be considered to be illiquid. Municipal leases are subject to
"nonappropriation risk," which is the risk that the municipality may terminate
the lease in the event that the municipality's appropriating body does not
allocate the funds necessary to make lease payments. In such circumstances, the
lessor is typically entitled to repossess the property. The private sector value
of the property is, however, generally less than value of the property to the
municipality. The Investment Manager, pursuant to guidelines established by the
Board of Trustees, is responsible for continuously determining the credit
quality of unrated municipal leases, including an assessment of the likelihood
that the lease will not be terminated.

Our Funds may also invest up to 25% of their assets in synthetic floating-rate
municipal securities. These securities generally comprise the following elements
in a trust: (i) a fixed-rate municipal bond (of any duration); (ii) a right to
put the bond at par value on seven days notice, or after a specific interval of
time, depending on the terms of the synthetic security; and (iii) a contractual
agreement pursuant to which the investing Fund and the issuer determine the
lowest rate that would permit the bond to be remarketed at par, taking into
account the put right. The trustee of the trust is generally a bank trust
department.

These synthetic floating-rate municipal securities may include tender option
bond trust receipts, in which a fixed-rate municipal bond (or group of bonds) is
placed into a trust from which two classes of trust receipts are issued, which
represent proportionate interests in the underlying bond(s). Interest payments
are made on the bond(s) based upon a predetermined rate. Under certain
circumstances, the holder of a trust receipt may also participate in any gain or
loss on the sale of such bond(s). Tender option bond trust receipts are
considered to be Municipal Securities for purposes of each Fund's policy to
invest at least 80% of its total assets in Municipal Securities. Tender option
bond trust receipts generally are structured as private placements and,
accordingly, may be deemed to be restricted securities for purposes of the
Funds' investment limitations.

Each Fund will limit its investments in tender option bond trust receipts and
other synthetic floating-rate municipal securities to no more than 25% of its
total assets.

We may invest in variable rate demand instruments issued by industrial
development authorities and other government entities. In the event that a
variable rate demand instrument to be purchased by a

8
<PAGE> 94

Fund is not rated by credit rating agencies, our Investment Manager, using
guidelines approved by the Board of Trustees, must determine that such
instrument is of comparable quality at the time of purchase to a rated
instrument that would be eligible for purchase by the Fund. In some cases, the
Fund may require that the issuer's obligation to pay the principal of the note
be backed by an unconditional bank letter, line of credit, guarantee, or
commitment to lend.

Although there may be no active secondary market for a particular variable rate
demand instrument purchased by the Fund, each Fund may, at any time or during
specified periods not exceeding one year (depending upon the instrument
involved), demand payment in full of the principal of the instrument and may
resell the instrument to a third party.

We could suffer a loss from a variable rate demand instrument because of the
absence of an active secondary market, because it may be difficult for the Fund
to dispose of the instrument in the event an issuer defaults on its payment
obligation, because the Fund is only entitled to exercise its demand rights at
certain times, or for other reasons.

Variable rate demand instruments will be subject to each Fund's restrictions on
acquiring and holding illiquid securities to the extent that the absence of an
active secondary market for such securities causes them to be illiquid.

We may purchase from financial institutions participation interests in Municipal
Securities with fixed, floating, or variable rates of interest. The buyer of a
participation interest receives an undivided interest in the securities
underlying the instrument.

We will purchase a participation interest only if: (a) the instrument subject to
the participation interest matures in one year or less, or the instrument
includes a right to demand payment, usually within seven days, from the seller;
(b) the instrument meets our previously described quality standards for
Municipal Securities; and (c) the instrument is issued with an opinion of
counsel or is the subject of a ruling of the Internal Revenue Service stating
that the interest earned on the participation interest is exempt from federal
income tax.

We may also acquire "stand-by commitments" for Municipal Securities held in our
portfolios. Under a stand-by commitment, a dealer agrees to purchase at our
option specified Municipal Securities at a price equal to their amortized cost
value plus accrued interest. We will acquire stand-by commitments solely to
improve portfolio liquidity. We do not intend to exercise our stand-by rights
solely for trading purposes.

VARIABLE RATE SECURITIES. We may invest in instruments which have interest rates
that are adjusted periodically, or which "float" continuously according to
formulas intended to minimize any fluctuation in the values of the instruments
("Variable Rate Securities"). The interest rate of Variable Rate Securities is
ordinarily determined by reference to, or is a percentage of, an objective
standard such as a bank's prime rate, the 90-day U.S. Treasury bill rate, or the
rate of return on commercial paper or bank certificates of deposit.

9
<PAGE> 95

Generally, changes in the interest rate on Variable Rate Securities reduce the
fluctuation of their market value. Accordingly, as interest rates decrease (or
increase), Variable Rate Securities experience less capital appreciation (or
depreciation) than fixed-rate obligations.

Some Variable Rate Securities ("Variable Rate Demand Securities") allow the
purchaser to resell the securities at an amount approximately equal to amortized
cost, or to the principal amount plus accrued interest. Like other Variable Rate
Securities, the interest rate on Variable Rate Demand Securities varies
according to some objective standard that is intended to minimize fluctuations
in the values of the securities. We determine the maturity of Variable Rate
Securities in accordance with SEC rules.

ILLIQUID SECURITIES. We may purchase illiquid securities, including repurchase
agreements maturing in more than seven days, provided that no more than 10% of a
Fund's net assets valued at the time of the transaction are invested in such
securities.

GOVERNMENT SECURITIES. We may invest in government securities, including U.S.
Treasury notes, bills, and bonds, which are backed by the full faith and credit
of the U.S. Government. Some securities issued by U.S. Government agencies or
instrumentalities are supported by the credit of the agency or instrumentality,
for example, those issued by the Federal Home Loan Bank, while others, such as
those issued by the Federal National Mortgage Association, Farm Credit System,
and Student Loan Marketing Association have an additional line of credit with
the U.S. Treasury. However, there is no guarantee that the U.S. Government will
provide support to such agencies or instrumentalities. Accordingly, such
securities may involve risk of loss of principal and interest.

INVESTMENT TECHNIQUES USED BY THE FUNDS

MATURITY. We will purchase only securities that mature in 397 days or less, or
securities which have a variable rate of interest that is readjusted no less
frequently than every 397 days.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. We may purchase securities on a
"when-issued" or "delayed delivery" basis. When-issued or delayed delivery
securities are securities purchased for future delivery at a stated price and
yield. Generally, we will not pay for such securities or start earning interest
on them until we receive them. Securities purchased on a when-issued or delayed
delivery basis are recorded as an asset. The value of such securities may change
as the general level of interest rates changes.

Each Fund will not invest more than 25% of its assets in when-issued or delayed
delivery securities. We will not purchase such securities for speculative
purposes, and will expect to actually acquire the securities when we purchase
them. However, we reserve the right to sell any such securities before their
settlement dates, if our Investment Manager deems such a sale advisable.

REPURCHASE AGREEMENTS. Each of our Funds may engage in repurchase agreements. By
entering into a repurchase agreement, a Fund acquires ownership of a security
from a broker-dealer or bank that agrees to repurchase the security at a
mutually agreed upon time and price. The repurchase price is higher than the
purchase price, thereby determining the yield during the Fund's holding period.

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<PAGE> 96

Repurchase agreements with broker-dealer firms will be limited to obligations of
the U.S. government, its agencies or instrumentalities. Maturity of the
securities subject to repurchase may exceed one year.

TEMPORARY INVESTMENTS. Each Fund may, from time to time, as a defensive measure
under abnormal market conditions, invest any or all of its assets in taxable
"temporary investments," which include: obligations of the U.S. Government, its
agencies, or instrumentalities; debt securities (other than "Municipal
Securities") rated within the two highest rating categories by any NRSRO;
commercial paper (other than "Municipal Securities") rated in the two highest
rating categories by any NRSRO; certificates of deposit of domestic banks having
capital, surplus, and undivided profits in excess of $100 million; and any of
the foregoing temporary investments subject to repurchase agreements. While a
temporary investment could cause a Fund to generate dividends taxable to
shareholders as ordinary income, it is the Funds' primary intention to produce
dividends which are not subject to federal income taxes, or state personal
income taxes, in the case of the California Fund and the New York Fund. (See
"Important Information about Your Investment--Income Tax Information.")

BORROWING POLICY. We may not borrow money except for temporary purposes to meet
redemption requests that could not otherwise be met without immediately selling
portfolio securities. A Fund may borrow an amount up to one-third of the value
of its total assets and may pledge up to 10% of its net assets to secure such
borrowings. No Fund may borrow for leverage purposes. This borrowing policy is
fundamental to each Fund.

LIMITATIONS ON INVESTMENTS. We are subject to the following limitations, which
apply to all investments by our Funds other than securities issued or guaranteed
by the U.S. Government, its agencies, and instrumentalities:

1. DIVERSIFICATION. Except as provided in this paragraph, no Fund may invest
more than 5% of the value of its total assets in the securities of one issuer.
The California Fund and the New York Fund, which are non-diversified portfolios,
may each invest up to 50% of the value of their total assets without regard to
this 5% limitation, provided no more than 25% of the value of each Fund's total
assets is invested in the securities of any one issuer. The Tax-Exempt Fund,
which is a diversified portfolio, may invest up to 25% of the value of its
assets without regard to this 5% limitation.

For purposes of this limitation with respect to each Fund, a security is
considered to be issued by the governmental entity (or entities) whose assets
and revenues back the security. An industrial revenue bond that is backed only
by the assets and revenues of a non-governmental user is considered to be issued
by the non-governmental user. In certain circumstances, the guarantor of a
security may also be considered to be an issuer in connection with such a
guarantee.

2. CONCENTRATION. As a matter of fundamental policy, no Fund will invest 25% or
more of the value of its total assets in the securities of issuers conducting
their principal business activities in the same industry. However, this
limitation shall not apply to Municipal Securities issued by governmental
entities.

LEGAL OPINIONS. Bond counsel will render opinions on the validity of Municipal
Securities. Bond counsel will also render opinions on whether the interest paid
on Municipal Securities is exempt from federal income tax, and whether the
interest paid on California or New York Municipal Securities is

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exempt from California State or New York State and New York municipalities
personal income taxes. Bond counsel will render such opinions to the issuers of
Municipal Securities at the time the securities are issued. The Funds and the
Investment Manager will not review the proceedings on the issuance of Municipal
Securities or the bases for such opinions.

SPECIAL RISK CONSIDERATIONS

The California Fund and the New York Fund are non-diversified portfolios of the
Trust. The investment return on a non-diversified portfolio typically is
dependent on the performance of a smaller number of issuers, while a diversified
portfolio is dependent on a larger number of issuers. If financial conditions
change, or if the market's assessment of certain issuers changes, a Fund's
policy of acquiring large positions in the obligations of a relatively small
number of issuers may affect the value of that Fund's portfolio to a greater
extent than that of a diversified portfolio.

Each Fund may invest more than 25% of its assets in Municipal Securities that
produce interest that is paid solely from revenues on similar projects. However,
we do not presently intend to invest in such securities on a regular basis, but
will do so if deemed necessary or appropriate by our Investment Manager. To the
extent that each Fund's assets are invested in Municipal Securities payable from
revenues on similar projects, that Fund will be subject to the particular risks
presented by such projects to a greater extent than it would be if that Fund's
assets were not so invested.

Certain California or New York constitutional amendments, legislative measures,
executive orders, administrative regulations, and voter initiatives could result
in adverse consequences affecting California or New York Municipal Securities.
For example, in recent years "Proposition 13" and similar California
constitutional and statutory amendments and initiatives have restricted the
ability of California taxing entities to increase real property tax revenues.
Other initiative measures approved by California voters, through limiting
various other taxes, have resulted in a substantial reductions in state
revenues. Decreased state revenues may result in reductions in allocations of
state revenues to local governments. It is not possible to determine the impact
of these initiatives on the ability of California issuers to pay interest or
repay principal on their obligations. There is no assurance that any California
issuer will make full or timely payments of principal and interest or remain
solvent. For example, in December 1994, Orange County, California filed for
bankruptcy. In addition, from time to time, federal legislative proposals have
threatened the tax-exempt status or use of Municipal Securities. (An expanded
discussion of the risks associated with Municipal Securities and California and
New York issuers is contained in the Statement of Additional Information.)

We may purchase participation interests in Municipal Securities and other
derivative securities that involve special risks, including the risk that the
Internal Revenue Service may characterize some or all of the interest paid on
such securities as taxable. There is also an increased risk, most typically
associated with "municipal lease" obligations, that a municipality will not
appropriate the funds necessary to make the scheduled payments on the lease that
supports the security owned by the Funds, or it may seek to cancel or otherwise
avoid its obligations under the lease. (See "Important Information about Your
Investment--How We Determine the Price of Your Value Advantage Shares.")

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ORGANIZATION AND MANAGEMENT OF THE FUNDS

MANAGEMENT FUNCTIONS AND RESPONSIBILITIES

GENERAL OVERSIGHT. Our Board of Trustees and officers meet regularly to review
our investments, performance, expenses and other business affairs.

THE INVESTMENT MANAGER. Our Investment Manager, Charles Schwab Investment
Management, Inc., manages our Funds, subject to the authority of the trustees
and officers of the Trust. Our Investment Manager, founded in 1989, is a wholly
owned subsidiary of The Charles Schwab Corporation and is the investment adviser
and administrator of the SchwabFunds(R) mutual funds. As of June 3, 1995, the
SchwabFunds had aggregate net assets in excess of $26 billion.

Through a professional staff of portfolio managers and securities analysts, our
Investment Manager provides us with a continuous investment program, including
general investment and economic advice regarding our investment strategies,
manages our investment portfolio, performs expense management, accounting, and
record keeping, and provides other services necessary to our operation.

TRANSFER AGENT AND SHAREHOLDER SERVICES. Schwab serves as our Transfer Agent and
Shareholder Services Agent. Schwab provides information to our shareholders,
reports share ownership and all account activities, and responds to all
inquiries from shareholders. Schwab also distributes informational literature,
and furnishes the office space and equipment, telephone facilities, and
personnel that is necessary in providing shareholders services.

Schwab was established in 1971 and is one of America's largest discount brokers.
Schwab provides low-cost securities brokerage and related financial services to
over 2.5 million active customer accounts and has over 200 branch offices.
Schwab also offers convenient access to financial information services and
provides products and services that help investors make investment decisions.
Schwab is a wholly owned subsidiary of The Charles Schwab Corporation. Charles
R. Schwab is the founder, Chairman and Chief Executive Officer, and a Director
of The Charles Schwab Corporation and, as of March 10, 1995, was the beneficial
owner of approximately 23.3% of the outstanding shares of that corporation. Mr.
Schwab may be deemed to be a controlling person of Schwab and our Investment
Manager.

ACCOUNTANTS. Price Waterhouse LLP is our independent accountant. Their address
is 555 California Street, San Francisco, California 94104.

OPERATING FEES AND EXPENSES

For investment management services, under the terms of its Investment Advisory
and Administration Agreement with the Trust, our Funds pay a graduated annual
fee to the Investment Manager. This fee is based on the value of the average
daily net assets of each Fund, and is payable monthly by each Fund in the amount
of 0.46% of each Fund's average daily net assets not in excess of $1 billion,
0.41% of such net assets over $1 billion, but not more than $2 billion, and
0.40% of such net assets over $2 billion.

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Our Investment Manager guarantees that, through at least August 31, 1995, our
management fee will not exceed 0.20%, 0.19%, and 0.20% of the average daily net
assets of the New York Fund, the California Fund, and the Tax-Exempt Fund,
respectively, and total operating expenses will not exceed 0.45% of average
daily net assets of the Value Advantage Shares of each Fund. The effect of this
voluntary expense limitation is to maintain or increase each Fund's total return
to shareholders. The following expenses are not included as "operating expenses"
for purposes of this guarantee: interest expenses, taxes and capital items such
as costs of purchase or sale of portfolio securities, including brokerage fees
or commissions.

For its services as Transfer Agent, Schwab receives an annual fee of 0.05% of
the average daily net assets of each Fund's Value Advantage Shares. For transfer
agency services to each Fund's Sweep Shares, Schwab receives an annual fee of
0.25% of the average daily net assets of each Fund's Sweep Shares. In addition,
for shareholder services provided, Schwab receives an annual fee of 0.20% of the
average daily net assets of each Fund's Value Advantage Shares.

Schwab serves as our Funds' distributor but receives no compensation for this
service. PNC Bank, N.A. is our Funds' custodian.

OTHER EXPENSES. The Trust pays the expenses of our Funds' operations, including
the fees and expenses for independent auditors, legal counsel, custodians, the
cost of maintaining books and records of account, taxes, registration fees, and
the fees and expenses of qualifying the Trust and its shares for distribution
under federal and state securities laws, and industry association membership
dues.

The Trust generally allocates these expenses among the individual investment
portfolios ("Series"). This allocation is based on the relative net assets of
the Series at the time the expenses are incurred. However, expenses directly
attributable to a particular Series or class of a Series are charged to that
Series or class, respectively. The differing expenses applicable to the Value
Advantage Shares and Sweep Shares of the Funds will cause the performance of the
two classes to differ.

OTHER INFORMATION

The Trust was organized as a business trust under the laws of Massachusetts on
October 20, 1989 and may issue an unlimited number of shares of beneficial
interest or classes of shares in one or more Series. Currently the Trust offers
shares of nine Series, which may be organized into one or more classes of shares
of beneficial interest. The Tax-Exempt Fund was formerly known as the Schwab
Tax-Exempt Fund. The California Fund was formerly known as the Schwab California
Tax-Free Money Fund.

The Board of Trustees may authorize the issuance of shares of additional Series
or classes, if it deems it to be desirable to do so. Shares of each Series have
equal, noncumulative voting rights and equal rights as to dividends, assets and
liquidation of such Series except to the extent such voting rights or rights as
to dividends, assets and liquidation vary among classes of a Series.

ANNUAL SHAREHOLDER MEETINGS. The Trust is not required to hold annual meetings
and does not intend to do so except in connection with certain matters, such as
a change in a Fund's fundamental policies, election of Trustees or approval of a
new investment advisory agreement. In addition, a Trustee may

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be elected or removed by shareholders at a special meeting called upon written
request of shareholders owning in the aggregate at least 10% of the outstanding
shares of the Trust.

YOUR VOTING RIGHTS. If we were to make changes to a Fund's management or
fundamental policies, you would be asked to vote as a shareholder because
shareholders have voting rights on these matters. If a meeting is held and you
cannot attend, you may vote by proxy. Before the meeting, we will send you proxy
materials that explain the issues to be decided and include a voting card for
you to mail back. You are entitled to one vote for each share owned. Unless
permitted by the 1940 Act, shareholders vote by Series and not in the aggregate.
For example, when voting to approve an investment advisory agreement for a
Series, only shareholders of that Series may vote; when voting to elect
Trustees, shareholders of all the Series vote in the aggregate. In addition,
holders of Value Advantage Shares will vote exclusively as a class on any matter
relating solely to their arrangement as a class, and on any matter in which the
interests of the Value Advantage Shares of a Fund differ from the interests of
any other class of the Fund.

INVESTING IN VALUE ADVANTAGE SHARES OF THE FUNDS

HOW TO BUY SHARES

OPENING A SCHWAB ACCOUNT. You may buy our shares only through a Schwab account.
You can open a Schwab account by completing the appropriate account application.
(Corporations and other organizations should contact a Schwab office to find out
the additional forms that must be completed to open an account.)

Within your Schwab account, you have access to other investments available at
Schwab such as stocks, bonds and other mutual funds. Additionally, the
Securities Investor Protection Corporation (known as "SIPC") will provide
account protection up to $500,000 for your securities, including shares in the
Funds, which you hold in a Schwab brokerage account. However, SIPC account
protection does not protect you from any loss of principal due to market or
economic conditions.

SCHWAB ACCOUNT MINIMUMS AND ASSOCIATED FEES. Schwab reserves the right to
require a $1,000 initial deposit and account balance minimum to maintain a
Schwab standard brokerage account. Schwab may charge a fee if your balance is
under this minimum or if trading requirements are not met.

Schwab currently imposes no fee for opening a standard brokerage account or a
Schwab One(R) account with a minimum of $5,000 account equity. Schwab One(R)
accounts containing less than $5,000 account equity are subject to a fee of $5
per month imposed by Schwab if there have been fewer than two commissionable
trades within the last twelve months. Note that, in addition to these Schwab
One(R) account minimums, there are higher minimum investment and other
requirements applicable to the Value Advantage Shares of the Funds, which are
described below.

DEPOSITING FUNDS AND MEETING THE FUNDS' INVESTMENT MINIMUMS. Once you have
opened your account or if you already have a Schwab account, you can deposit
funds by check or wire. Your check should be made payable to Charles Schwab &
Co., Inc. Contact your Schwab representative for instructions on how to deposit
funds by wire.

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The minimum initial investment in the Value Advantage Shares of each Fund is
$25,000. After you have bought the minimum amount of Value Advantage Shares for
your initial investment, you can buy additional Value Advantage Shares in
amounts of at least $5,000. The Transfer Agent imposes a $5 fee for each month
your Fund account balance falls below the required $20,000 minimum. The minimum
initial investment to purchase Sweep Shares of each Fund is $1,000, and
subsequent investments in Sweep Shares must be at least $100. The Transfer Agent
reserves the right to waive these minimums from time to time for clients of
Schwab Institutional, a division of Schwab, and for certain other investors. See
the Statement of Additional Information for more details.

We, in our sole discretion and without prior notice to you, reserve the right to
reject orders to buy shares, to change the minimum investment requirements, and
to withdraw or suspend any part of the offering made by this Prospectus. In
particular, if you engage in excessive exchange or redemption activity, we
reserve the right to refuse your future orders to buy shares in order to
minimize the costs to the Funds associated with these practices. All orders to
buy shares must be accepted by us, and orders are not binding until we confirm
or accept them in writing. Schwab will charge your Schwab brokerage account a
$15 service fee for any check returned because of insufficient or uncollected
funds, or because of a stop payment order.

WHEN YOU CAN BUY SHARES. You must have funds in your Schwab account in order to
buy our shares. Funds received by Schwab before 4:00 p.m. (Eastern time) can be
used to buy our shares on that day. Funds that arrive after that time can be
used to buy shares the next Business Day. Schwab's Mutual Fund Transfer Agency
Department will execute an order to buy shares upon receipt of the order.

DISTRIBUTION OPTIONS. When you first buy our shares, you may choose one of the
two following distribution options:

AUTOMATIC REINVESTMENT: All distributions will be reinvested in
additional full and fractional Value Advantage Shares of the Fund at the
net asset value next determined on their payable date; or

RECEIVE YOUR DIVIDENDS IN CASH: All distributions will be credited to
your Schwab account on the date distributions are payable. If you choose
to have your dividends mailed, a check will be mailed to you the
Business Day after distributions are credited to your account.

To change the distribution option you have selected, call your local Schwab
office or 800-2 NO-LOAD.

You can request that your Schwab office wire funds from your Schwab account to
your bank account. There is a $15 fee for each wire transfer of funds.

HOW TO EXCHANGE VALUE ADVANTAGE SHARES

You can exchange your SchwabFunds(R) shares for shares of other SchwabFunds(R)
classes or series available in your state provided you meet the minimum
investment and any other requirements relating to the class of shares you wish
to purchase.

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To exchange your Value Advantage Shares:

- The shares you seek to buy must be available in your state.

- After the Transfer Agent receives your exchange request, the Transfer
Agent will sell your shares at the net asset value next determined (on
the same day as the Transfer Agent received your request, if it was
received by 4:00 p.m. (Eastern time) and on the next Business Day if
your request was received after that time).

- The Transfer Agent will buy shares in the fund you have selected at
the net asset value of that fund's shares next determined after the
sale of the Fund shares you are exchanging (on the same day as the
Transfer Agent received your request, if it was received by 4:00 p.m.
(Eastern time) and on the next Business Day if your request was
received after that time).

- The Transfer Agent will charge you a $5 administrative fee if you are
exchanging less than $5,000 of Value Advantage Shares.

- You must meet the minimum investment requirements of the fund or class
whose shares you are buying in the exchange.

We reserve the right to modify, limit, or terminate the exchange privilege upon
60 days' written notice. For federal income tax purposes, an exchange of shares
is treated as a sale of shares.

EXCHANGING SHARES BY TELEPHONE. You can exchange shares by telephone by calling
your local Schwab office during regular business hours, or by calling 800-2
NO-LOAD. The right to initiate transactions by telephone is automatically
available through your Schwab account.

We will follow reasonable procedures to confirm that your telephone instructions
are genuine. If we follow telephone orders that we reasonably believe to be
genuine, we will not be liable for any losses you may experience. If we do not
follow reasonable procedures to confirm that your telephone order is genuine, we
may be liable for any losses you may suffer from unauthorized or fraudulent
orders. These procedures may include:

- requiring a form of personal identification before we act upon any
instructions received by telephone;

- providing written confirmation of your telephone instructions; and

- tape recording all telephone transactions.

We need the following information in order to process your telephone exchange
request:

- your Schwab brokerage account number;

- the name of the fund into which you want to exchange shares; and

- the number of our shares you want to exchange.

You should remember that it may be difficult to reach us by telephone to
exchange shares during periods of drastic economic or market changes, when our
phone lines become very busy with calls from other investors. If you want to
exchange your shares but have trouble reaching us by telephone, you may want to
use one of the other ways we offer for exchanging your shares, even though these
procedures may mean the exchange of your shares may take longer.

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EXCHANGING SHARES BY MAIL. You can also exchange shares by writing to your local
Schwab office or to the address on the cover of this Prospectus.

We need the following information in a letter from you in order to process your
mail exchange request:

- your Schwab brokerage account number;

- a statement that you want to exchange our shares;

- the name of the fund into which you want to exchange shares;

- the number of our shares you want to exchange; and

- the signature of at least one of the registered Schwab brokerage
account holders of your account in the exact form specified in the
account.

HOW TO SELL YOUR SHARES

You can sell our shares at any time, in person, by telephone, or by mail,
subject to the following terms and conditions:

- the selling price of your shares will be the net asset value per share
next determined after the Schwab's Mutual Fund Transfer Agency
Department has received proper instructions from you;

- the Transfer Agent may sell additional shares from your account to pay
the administrative fee;

- if you bought your shares by check, we will send you your money as
soon as your check clears your bank, which may take up to 15 days;

- depending on the type of Schwab brokerage account you have, your money
may earn interest during any holding period;

- you will receive the dividends declared for the day on which you sell
your shares;

- we will have a check for your shares at your local Schwab office on
the Business Day after the Transfer Agent receives proper instructions
to sell your shares;

- a check will be mailed to you on the Business Day following the sale
of your shares if you specifically request that it be mailed; and

- we may suspend the right to sell shares or postpone payment for a sale
of shares when trading on the New York Stock Exchange (the "Exchange")
is restricted, the Exchange is closed for any reason other than its
normal weekend or holiday closings, emergency circumstances as
determined by the SEC, or for any other circumstances as the SEC may
permit.

The Transfer Agent will charge you a $5 administrative fee if you sell Value
Advantage Shares equal to or less than $5,000.

The Transfer Agent will waive this minimum for certain clients of Schwab
Institutional, a division of Schwab, and for certain other investors. See the
Statement of Additional Information for more details.

SELLING YOUR SHARES BY TELEPHONE. You can sell your shares by telephone by
calling your local Schwab office during regular business hours, or by calling
800-2 NO-LOAD.

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- requiring a form of personal identification before we act upon any
instructions received by telephone;

- providing written confirmation of your telephone instructions; and

- tape recording all telephone transactions.

Schwab's Mutual Fund Transfer Agency Department must receive and verify your
telephone order before 4:00 p.m. (Eastern time) on a Business Day. Schwab's
Mutual Fund Transfer Agency Department will consider all other telephone orders
as received on the following Business Day.

We need the following information in order to process your telephone sale
request:

- your Schwab brokerage account number; and

- the number of shares you want to sell.

You should remember that it may be difficult to reach us by telephone to sell
shares during periods of drastic economic or market changes, when our phone
lines may become very busy with calls from other investors. If you want to sell
your shares but have trouble reaching us by telephone, you may want to use one
of the other ways we offer for selling your shares, even though these procedures
may mean that the sale of your shares may take longer.

IMPORTANT INFORMATION ABOUT YOUR INVESTMENT

DIVIDENDS AND OTHER DISTRIBUTIONS

Each Business Day we determine our net investment income, which we compute by
subtracting the expenses of the Value Advantage Shares of a Fund for that day
from the amount the Fund earned on its investments on that day. We declare
dividends from this net investment income each Business Day for those who were
shareholders of record at the previous net asset value calculation. We pay, or
reinvest, dividends on the 15th day of each month if it is a Business Day. If
the 15th is not a Business Day, we pay dividends on the next Business Day.

INCOME TAX INFORMATION

The following is only a very brief summary of some of the federal, California
and New York income tax consequences that affect us and our shareholders.
Therefore, it is important that you consult with advisers about your own tax
situation.

We have qualified as a regulated investment company under the Code. In order to
continue to qualify, we will distribute to our shareholders on a current basis
substantially all of our investment company taxable income, its net
exempt-interest income, and its capital gain net income (if any), and we will
meet certain other requirements. As a regulated investment company, we will pay
no federal income taxes (or California State or New York State or municipal
income taxes, in the case of the California

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Fund and the New York Fund, respectively) to the extent that we distribute our
earnings to our shareholders. In addition, if a Fund does not distribute 98% of
its taxable investment income and capital gains, it will be subject to a
non-deductible 4% excise tax on the undistributed amount.

THE TAX-EXEMPT FUND. Dividends representing net interest income received by the
Tax-Exempt Fund on Municipal Securities will generally be exempt from federal
income tax when distributed to you. However, such dividends may be subject to
the federal alternative minimum tax. Such dividend income may also be taxable to
you under state and local law as dividend income even though all or a portion of
such distributions may be derived from interest on tax-exempt obligations which,
if received directly by you, would be exempt from such income taxes.

THE CALIFORNIA FUND. Dividends representing net interest income received by the
California Fund on Municipal Securities will generally be exempt from federal
income tax when distributed to you. However, such dividends may be subject to
the federal alternative minimum tax. Dividends paid to California residents to
the extent of interest income received on California Municipal Securities will
also be exempt from California personal income taxes provided that at the end of
each quarter of its taxable year, at least 50% of the Fund's total assets are
invested in California Municipal Securities and obligations of the U.S.
Government, its agencies and instrumentalities which are by federal law exempt
from local income taxes. Fund dividends derived from interest on U.S. Treasury
and agency obligations, if any, are subject to federal income tax. Dividends
paid to shareholders that are corporations subject to California franchise tax
or corporate income tax will be taxed as ordinary income to such shareholders
for California State tax purposes.

THE NEW YORK FUND. Dividends representing net interest income received by the
New York Fund on Municipal Securities will generally be exempt from federal
income tax when distributed to you. However, such dividends may be subject to
the federal alternative minimum tax. Dividends paid to New York residents to the
extent of interest income received on New York Municipal Securities will also be
exempt from State of New York and New York municipalities personal income taxes.
Fund dividends derived from interest on U.S. Treasury and agency obligations, if
any, are subject to federal income tax. Dividends paid to shareholders that are
corporations subject to New York franchise tax or corporate income tax will be
taxed as ordinary income to such shareholders for New York State tax purposes.

ADDITIONAL INFORMATION. Further, if you receive Social Security or railroad
retirement benefits, an investment in any of the Funds may affect the taxation
of your benefits.

Each Fund may at times purchase Municipal Securities, California Municipal
Securities, or New York Municipal Securities, as the case may be, at a discount
from the original issue price. For federal income tax purposes, some or all of
this "market discount" will be included in the Fund's ordinary income and will
be taxable to you as this ordinary income is distributed.

To the extent dividends are attributable to taxable interest or short-term or
long-term capital gains, such dividends will be taxable to you whether you
receive them as cash or as additional Value Advantage Shares.

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We will provide you with a record of all dividends, distributions, purchases,
and sales on your regular Schwab brokerage account statement. At least once a
year we will notify you of the federal (and California and New York) income tax
consequences of all distributions made that year to your account. The Funds do
not expect to realize any net long-term capital gains and, therefore, do not
foresee paying any capital gains dividends.

HOW WE DETERMINE THE PRICE OF YOUR VALUE ADVANTAGE SHARES

The price of a Value Advantage Share is its net asset value, which we determine
each Business Day at the close of trading on the Exchange, generally at 4:00
p.m., Eastern time. We determine the price of a Value Advantage Share by taking
the total assets of each Fund allocable to the Value Advantage Shares,
subtracting any liabilities allocable to the Value Advantage Shares of the Fund,
and then dividing the resulting number by the number of each Fund's Value
Advantage Shares outstanding. While we try to maintain our net asset value at a
constant $1 per share, we cannot guarantee this value.

We do not price the securities in our portfolios at market value. Instead, we
value our portfolio securities at the price we paid when we bought them,
adjusting this price to reflect amortization of premium or any discount. After
using this amortized cost method to determine the value of our investments, we
then compare this value with the market value of our investments.

We calculate the market value of our investments using one of the following
three methods: (1) we may use actual quotations provided by third-party pricing
services or market makers; (2) we may estimate the market value of the
instruments; or (3) we may use a value obtained from the yield data (published
by reputable sources) of money market instruments that are comparable to the
securities we are valuing, using the mean between the bid and asked prices for
the instruments as the value of the instruments.

If deviation of 1/2 of 1% or more between our net asset value per share as
calculated by market values and our $1 per share amortized cost value, or if
there is any other deviation which the Board of Trustees believes would result
in a material dilution to shareholders or purchasers, the Board of Trustees will
promptly consider what action, if any, should be taken.

The Schwab Tax-Exempt Money Fund and the Schwab California Tax-Exempt Money Fund
have entered into transactions with Bank of America National Trust and Savings
Association ("Bank of America") pursuant to which each such Fund is a
beneficiary of an irrevocable Letter of Credit (each a "Letter of Credit")
issued by Bank of America. The Letters of Credit provide a degree of credit
support for certain securities held by each such Fund, currently including
certain obligations of Orange County, California and issuers that participated
in the investment pool maintained by Orange County (each a "Covered Security").
Orange County and the investment pool maintained by Orange County have filed for
protection under Chapter 9 of the federal Bankruptcy Code. Pursuant to each
Letter of Credit, Bank of America will make certain payments to each of the
above-referenced Funds (each a "Payment") upon presentation of a certificate as
required under each Letter of Credit in the

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event that (i) the issuer of a Covered Security defaults on a repayment of the
principal amount of the Covered Security, or (ii) the proceeds received in the
disposition of a Covered Security are less than a specified percentage of the
Covered Security's par amount. Neither Fund is obligated to reimburse Bank of
America for any amount drawn under the Letters of Credit. The Letters of Credit,
however, do not ensure that each such Fund will receive Payments equal to the
aggregate amount of each Fund's Covered Securities. Accordingly, although the
Board of Trustees has determined that the Covered Securities subject to the
Letters of Credit currently present minimal credit risks, each Fund could incur
losses as a result of its holdings of Covered Securities.

HOW THE FUNDS REPORT PERFORMANCE

From time to time, we may advertise the yield and effective yield of our Value
Advantage Shares. Our actual performance will, of course, vary from year to
year, and past performance in no way represents or guarantees future
performance. How we perform in any given year will depend on the type and
quality of securities in which we invest, the market, and the operating expenses
of each Fund's Value Advantage Shares. Because the Value Advantage Shares are
subject to different expenses than Sweep Shares, the performance of the two
classes of each Fund will differ.

YIELD. When we calculate the yield of the Value Advantage Shares, we make some
hypothetical assumptions about how the Fund will do for one year. Using the
income generated over one 7-day period by a hypothetical investment, we assume
that this amount of income is generated each week for one year. This income for
the year is then shown as a percentage of our hypothetical investment. (See the
section entitled "Yield" in the Statement of Additional Information for more
information.)

EFFECTIVE YIELD. We calculate effective yield the same way, but we assume that
the income generated by our hypothetical investment is compounded weekly over
our hypothetical year. Because of the effect of compounding, the effective yield
will be slightly higher than the yield.

TAXABLE EQUIVALENT YIELD. The taxable equivalent yield is the yield that a
taxable investment must generate in order to equal (after applicable taxes are
deducted, assuming the investor is in the highest federal income tax bracket)
the yield for a tax-free investment. The taxable equivalent yield may be
reported for the Value Advantage Shares of our Funds and will be based on, and
will be higher than, the yield for the Sweep Shares of our Funds.

22
<PAGE> 108

COMPARING THE PERFORMANCE OF THE VALUE ADVANTAGE SHARES OF THE FUNDS WITH OTHER
FUNDS. We may compare the performance of the Value Advantage Shares of our Funds
with the performance of other mutual funds by comparing the ratings of mutual
fund rating services, various indices of investment performance, United States
government obligations, bank certificates of deposit, the consumer price index,
and other investments for which reliable data is available.

ANNUAL REPORT AND SEMI-ANNUAL REPORT MAILINGS. Twice a year, we will provide a
report to all shareholders describing the performance of the Value Advantage
Shares of the Funds and outlining the investments held in the portfolios. In
order to reduce mailing costs, we consolidate these shareholder mailings by
household. If a household has multiple accounts and the same address of record
for all the accounts, we will send mailings for all accounts at that address in
a single package. If you do not want this consolidation of mailings to apply to
your account, please write to SchwabFunds(R) at the address on the front of this
Prospectus. To request a free copy of our Annual Report (or SemiAnnual Report)
to Shareholders, call your local Schwab office or call 800-2 NO-LOAD.

23
<PAGE> 109

GLOSSARY OF IMPORTANT TERMS

AMORTIZED COST METHOD: the method of calculating a money market mutual fund's
net asset value whereby portfolio securities are valued at the fund's
acquisition cost, as adjusted for amortization or premium or accretion of
discount, rather than at their value based on current market factors.

ANNUALIZED: calculated to represent a year; a statement produced by calculating
financial results covering less than a year to show what might happen when the
results are hypothetically extended to cover an entire year.

BOND: a debt obligation that requires the issuer to pay a fixed sum of money
each year (the interest payments) until maturity, the date on which the bond
comes due and the principal (the amount borrowed) must be paid. Floating or
variable rate bonds have an interest rate that rises or falls if general
interest rates or some other security (such as Treasury bills) rises or falls.

BUSINESS DAY: any day both the Federal Reserve Bank of New York and the New York
Stock Exchange are open for business. A Business Day normally begins at 9 a.m.
(Eastern time) when the Exchange opens, and usually ends at 4 p.m. (Eastern
time) when the Exchange closes.

CAPITAL GAIN OR LOSS: the increase or decrease in the value of a security over
the original purchase price. A gain is realized when the security that has
increased in value is sold. An unrealized gain or loss occurs when the value of
a security increases or decreases but the security is not sold. If a security is
held for more than 12 months and then sold at a profit, that profit is a
realized long-term capital gain. If it is sold at a profit after being held for
less than 12 months, that profit is a realized short-term capital gain.

CODE: The Internal Revenue Code of 1986, as amended.

COMMERCIAL PAPER: unsecured debt obligations issued by businesses and sold at a
discount but redeemed at par within 2 to 270 days.

DISTRIBUTION: payment a fund makes to shareholders. There are two kinds of
distributions: dividends, or the profits (after expenses) from a fund's
investments, and capital gains distributions.

DIVERSIFIED: Under the 1940 Act, a diversified money market fund generally may
not invest more than 5% of its assets in the securities of any one issuer, and
may not hold more than 10% of the voting shares of any one issuer. Certain minor
exceptions apply to this policy, which are described under "INVESTMENT
TECHNIQUES USED BY THE FUND--Limitations on Investments--Diversification."

DUFF: Duff & Phelps Credit Rating Co., an NRSRO.

FIRST-TIER: The highest ratings category assigned by an NRSRO. A first-tier
money market fund invests only in securities that are rated first-tier.

FITCH: Fitch Investor Services, Inc., an NRSRO.

FUNDAMENTAL: a policy which can not be changed without the approval of a
majority (as defined in the 1940 Act) of the shareholders of a fund.

24
<PAGE> 110

HIGH-QUALITY: rated in one of the two highest ratings categories assigned by any
NRSRO.

INVESTMENT MANAGER: Charles Schwab Investment Management, Inc.

LIQUIDITY: ability to convert assets into cash or cash equivalents within seven
days at a fair value.

MATURITY: the date on which the principal of a debt obligation such as a bond
comes due and must be repaid.

MONEY MARKET INSTRUMENT: short-term, liquid debt such as Treasury bills and
commercial paper, which is sold at a discount but redeemed at par. See
Commercial Paper.

MOODY'S: Moody's Investors Service, an NRSRO.

MUTUAL FUND: See definition of "Open-End Fund" below.

NET ASSET VALUE (NAV): on a per share basis, the value of one share of a class
of a fund. This value is determined by adding the total fund assets, subtracting
all liabilities applicable to the class, and then dividing the resulting number
by the number of shares of the class outstanding.

1940 ACT: the Investment Company Act of 1940, as amended.

NONCUMULATIVE VOTING RIGHTS: the right of a shareholder to vote only the number
of shares owned at the time of voting.

NONDIVERSIFIED: under the 1940 Act no fund may invest more than 5% of the value
of its total assets in the securities of one issuer except that, a
non-diversified money market fund may invest up to 50% of the value of its total
asset without regard to the 5% limitation, provided no more than 25% of the
Fund's total assets are invested in the securities of any one issuer.

NRSRO: a Nationally Recognized Statistical Rating Organization, such as Moody's,
S&P, Duff or Fitch.

OPEN-END FUND: also called a mutual fund; an investment company in which people
invest by buying its shares, thereby pooling their money and allowing the fund
to invest in a number of securities. The fund distributes the profits from these
investments, after expenses, to the fund's shareholders. Although shares in the
fund are sold publicly, they are not traded on an open exchange because the fund
will buy and sell shares to meet investor demand. Since the company is not
limited as to the number of shares it can issue, the company's capitalization is
not fixed but open.

PAR: for a stock, par is the value assigned to the stock at the time it is
issued. It does not reflect either the intrinsic value of the security nor its
market value. For a bond, par is the price at which the bond will be redeemed at
its date of maturity, and the value on which the calculation interest payments
is based.

PORTFOLIO: the total stocks, bonds, and other securities held by an individual
investor, a mutual fund, or a financial institution.

PRINCIPAL: capital; the original value of an investment or a debt; the face
value of a bond.

25
<PAGE> 111

PRIVATE PLACEMENT: the sale of stocks or bonds directly to an investor without
the services of an underwriter or without registering them with the SEC.

PUT: an option that allows the holder to sell the stated amount of a specified
stock or commodity for a specific amount within a certain time period.

RESTRICTED SECURITY: securities that cannot be sold publicly without prior
agreement with the issuer to register the securities under the Securities Act of
1933, which permits only limited sale under specified conditions.

RISK: the possibility of losing all or part of an investment, that the value of
the investment will decrease, or that the investor will receive little or no
return on the investment.

S&P: Standard & Poor's Corporation, an NRSRO.

SCHWAB: Charles Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA
94104.

SECURITIES AND EXCHANGE COMMISSION (SEC): established by Congress to administer
the Securities Act of 1933 and other securities-related laws.

SECURITIES INVESTOR PROTECTION CORPORATION (SIPC): a government sponsored
private corporation that insures securities accounts held in brokerages for up
to $500,000 in the event of the bankruptcy or financial failure of the
brokerage. The insurance does not cover loss due to financial risk.

SHORT-TERM: with respect to a fund's portfolio investments, maturing in 397 days
or less.

SYNTHETIC: an investment instrument (such as a fixed rate municipal bond) and an
option contract (such as a put) combined to create a security with desired
maturity or risk/return characteristics that may not be achievable through other
available investments.

TRANSFER AGENT: Charles Schwab & Co., Inc., 101 Montgomery Street, San
Francisco, CA 94104.

TRUST: The Charles Schwab Family of Funds.

YIELD: the dividend or interest paid by a security. The yield is calculated as a
percentage of the security's current market price. A stock selling for $80 per
share and paying dividends of $6.40 is yielding 8 percent ($6.40 / $80 = .08).
Likewise, a bond with a par or face value of $1,000 and a 9 percent interest
rate selling for $600 is yielding 15 percent ($90 / $600 = .15). Interest on a
bond is always based on the par or face value of the bond, while the yield or
return is based on the market price.

26
<PAGE> 112

================================================================================

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THEIR
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUNDS OR BY
THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH AN OFFER MAY NOT BE LAWFULLY
MADE.
================================================================================

27
<PAGE> 113

Prospectus June 6, 1995

2400 (6/95)

<PAGE> 114

PART B

THE CHARLES SCHWAB FAMILY OF FUNDS:

The information required by Items 10 through 23 for Schwab Value
Advantage Money Fund, a separate portfolio of Registrant, is hereby
incorporated by reference to Part B of Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N- 1A, filed with the Securities
and Exchange Commission on February 28, 1995.

In addition, the information required by Items 10 through 23 for
Schwab Money Market Fund Schwab Government Money Fund, Schwab U.S. Treasury
Money Fund, Schwab Tax-Exempt Money Fund, Schwab California Tax-Exempt Money
Fund, Schwab Retirement Money Fund, Schwab Institutional Advantage Money Fund,
Schwab New York Tax-Exempt Money Fund, Schwab Tax- Exempt Money Fund -- Value
Advantage Shares, Schwab California Tax-Exempt Money Fund -- Value Advantage
Shares, and Schwab New York Tax-Exempt Money Fund -- Value Advantage Shares,
separate portfolios of Registrant, is hereby incorporated by reference to Part
B of Post-Effective Amendment No. 18 to Registrant's Registration Statement on
Form N-1A, filed with the Securities and Exchange Commission on April 7, 1995.

<PAGE> 115
PART C

OTHER INFORMATION

THE CHARLES SCHWAB FAMILY OF FUNDS

Item 24. Financial Statements and Exhibits.

(a) Financial Statements:

Included in Part A, Prospectus:

--Condensed Financial Information

Incorporated by reference to Part B, Statement of Additional
Information, to Post-Effective Amendment No. 18 to Registrant's Registration
Statement on Form N-1A, filed on April 7, 1995:

-- Schwab Money Market Fund Schedule of Investments
dated December 31, 1994 (Audited)

-- Schwab Government Money Fund Schedule of Investments
dated December 31, 1994 (Audited)

-- Schwab U.S. Treasury Money Fund Schedule of
Investments dated December 31, 1994 (Audited)

-- Schwab Money Market Fund, Schwab Government Money
Fund and Schwab U.S. Treasury Money Fund Statement of
Assets and Liabilities dated December 31, 1994
(Audited)

-- Schwab Money Market Fund, Schwab Government Money
Fund and Schwab U.S. Treasury Money Fund Statement of
Operations for the year ended December 31, 1994
(Audited)

-- Schwab Money Market Fund, Schwab Government Money
Fund and Schwab U.S. Treasury Money Fund Statement of
Changes in Net Assets dated December 31, 1994
(Audited)

-- Schwab Money Market Fund, Schwab Government Money
Fund and Schwab U.S. Treasury Money Fund Notes to
Financial Statements for the year ended December 31,
1994 (Audited)

-- Report of the Independent Accountants for the Schwab
Money Market Fund, Schwab Government Money Fund and
Schwab U.S. Treasury Money Fund dated January 31,
1995

-- Schwab Tax-Exempt Money Fund Schedule of Investments
dated December 31, 1994 (Audited)

<PAGE> 116
(b) Exhibits:

(1) -- Amended and Restated Agreement and
Declaration of Trust is filed herewith

(2) -- Amended and Restated By-Laws are filed
herewith

(3) -- Inapplicable

(4) (a) -- Article III, Sections 4 and 5;
Article IV, Section 1; Article V;
Article VI, Section 2; Article VIII,
Section 4; and Article IX, Sections
1, 4, and 7 of the Agreement and
Declaration of Trust is incorporated
by reference to Exhibit (1) to
Registrant's Pre- Effective
Amendment No. 1 on Form N-1A, filed
on December 11, 1989

(b) -- Article 9 and Article 10 of the
By-Laws is incorporated by reference
to Exhibit (2) to Post-Effective
Amendment No. 16 to Registrant's
Registration Statement on Form N-1A,
filed on February 28, 1995

(5) (a) -- Investment Advisory and
Administration Agreement between
Registrant and Charles Schwab
Investment Management, Inc. (the
"Investment Manager") with respect
to Schwab Money Market Fund, Schwab
Government Money Fund, and Schwab
Tax-Exempt Money Fund, dated June
15, 1994, is incorporated by
reference to Exhibit (5)(a) to
Post-Effective Amendment No. 13 to
Registrant's Registration Statement
on Form N-1A, filed on June 29, 1994

(b) -- Investment Advisory and
Administration Agreement between
Registrant and the Investment
Manager with respect to Schwab
California Tax-Exempt Money Fund,
Schwab U.S. Treasury Money Fund,
Schwab Value Advantage Money Fund,
Schwab Institutional Advantage Money
Fund, Schwab Retirement Money Fund,
and New York Tax-Exempt Money Fund,
dated June 15, 1994, is incorporated
by reference to Exhibit (5)(b) to
Post-Effective Amendment No. 13 to
Registrant's Registration Statement
on Form N-1A, filed on June 29, 1994

(c) -- Amended Schedules to the Investment
Advisory and Administration
Agreement between Registrant and the
Investment Manager referred to at
Exhibit (5)(b) above is incorporated
by reference to Exhibit (5)(c) to
Post-Effective Amendment No. 16 to
Registrant's Registration Statement
on Form N-1A, filed on February 28,
1995

(6) (a) -- Distribution Agreement between
Registrant and Charles Schwab & Co.,
Inc. ("Schwab"), dated June 15,
1994, is incorporated by reference
to Exhibit (6)(a) to Post-Effective

<PAGE> 117
Amendment No. 13 to Registrant's
Registration Statement on Form N-1A,
filed on June 29, 1994

(b) -- Amended Schedule to the Distribution
Agreement between Registrant and
Schwab referred to at Exhibit (6)(a)
above is incorporated by reference
to Exhibit (6)(b) to Post-Effective
Amendment No. 16 to Registrant's
Registration Statement on Form N-1A,
filed on February 28, 1995

(7) -- Inapplicable

(8) (a) -- Accounting Services Agreement
between Registrant and PFPC Inc.
(formerly, Provident Financial
Processing Corporation) dated April
8, 1991 is incorporated by reference
to Exhibit (8)(c) to Post-Effective
Amendment No. 5 to Registrant's
Registration Statement on Form N-1A,
filed on December 10, 1991

(b) -- Amended Schedule to the Accounting
Services Agreement referred to at
Exhibit (8)(a) above is incorporated
by reference to Exhibit (8)(b) to
Post-Effective Amendment No. 16 to
Registrant's Registration Statement
on Form N-1A, filed on February 28,
1995

(d) -- Shareholder Service Agreement
between Registrant and Schwab dated
May 1, 1993 is incorporated by
reference to Exhibit (8)(f) to
Post-Effective Amendment No. 10 to
Registrant's Registration Statement
on Form N-1A, filed on September 28,
1993

(e) -- Amended Schedules to the Shareholder
Service Agreement between Registrant
and Schwab referred to at Exhibit
(8)(e) above are incorporated by
reference to Exhibit (8)(f) to
Post-Effective Amendment No. 16 to
Registrant's Registration Statement
on Form N-1A, filed on February 28,
1995

(f) -- Custodian Services Agreement between
Registrant and PNC Bank, N.A.
(formerly, Provident National Bank)
dated April 8, 1991 is incorporated
by reference to Exhibit (8)(b) to
Post- Effective Amendment No. 5 to
Registrant's Registration Statement
on Form N-1A, filed on December 10,
1991

(g) -- Amended Schedule to the Custodian
Services Agreement referred to at
Exhibit (8)(g) above is incorporated
by reference to Exhibit (8)(h) to
Post-Effective Amendment No. 16 to
Registrant's Registration Statement
on Form N-1A, filed on February 28,
1995

<PAGE> 118

(9) -- Inapplicable

(10) -- Opinion and Consent of Ropes & Gray
as to legality of the securities
being registered is incorporated by
reference to Registrant's Rule 24f-2
Notice, filed on February 23, 1995

(11) (a) -- Consent of Ropes & Gray is filed
herewith

(b) -- Consent of Price Waterhouse LLP,
Independent Accountants, is filed
herewith

(12) -- Inapplicable

(13) (a) -- Purchase Agreement between
Registrant and Schwab relating to
the Schwab U.S. Treasury Money Fund
is incorporated by reference to
Exhibit (13)(a) to Post-Effective
Amendment No. 5 to Registrant's
Registration Statement on Form N-1A,
filed on December 10, 1992

(b) -- Purchase Agreement between
Registrant and Schwab relating to
the Schwab Value Advantage Money
Fund is incorporated by reference to
Exhibit (13)(b) to Post-Effective
Amendment No. 6 to Registrant's
Registration Statement on Form N-1A,
filed on March 3, 1992

(c) -- Purchase Agreement between
Registrant and Schwab relating to
the Schwab Retirement Money Fund and
the Schwab Institutional Advantage
Money Fund is incorporated by
reference to Exhibit (13)(c) to
Post-Effective Amendment No. 11 to
Registrant's Registration Statement
on Form N-1A, filed on December 1,
1993

(d) -- Purchase Agreement between
Registrant and Schwab relating to
the Schwab New York Tax- Exempt
Money Fund is incorporated by
reference to Exhibit (13)(d) to
Post-Effective Amendment No. 16 to
Registrant's Registration Statement
on Form N-1A, filed February 28,
1995

(e) -- Purchase Agreement between
Registrant and Schwab relating to
the Schwab Tax-Exempt Money
Fund--Value Advantage Shares is
filed herewith

(f) -- Purchase Agreement between
Registrant and Schwab relating to
the Schwab California Tax- Exempt
Money Fund--Value Advantage Shares
is filed herewith

(g) -- Purchase Agreement between
Registrant and Schwab relating to
the Schwab New York Tax- Exempt
Money Fund--Value Advantage Shares
is filed herewith

<PAGE> 119
(14) (a) -- Model Charles Schwab & Co., Inc.
Individual Retirement Plan is
incorporated by reference to Exhibit
(14)(a) to Post-Effective Amendment
No. 14 to Registrant's Registration
Statement on Form N-1A, filed on
August 25, 1994

(b) -- Model Charles Schwab & Co., Inc.
KEOGH Plan is incorporated by
reference to Exhibit (14)(b) to
Post-Effective Amendment No. 14 to
Registrant's Registration Statement
on Form N-1A, filed on August 25,
1994

(15) -- Inapplicable

(16) (a) -- Performance Calculations for Schwab
Money Market Fund, Schwab Government
Money Fund, Schwab Tax-Exempt Money
Fund, Schwab California Tax-Exempt
Money Fund, and Schwab U.S.
Treasury Money Fund are incorporated
by reference to Exhibit (16) to
Post-Effective Amendment No. 6 to
Registrant's Registration Statement
on Form N-1A, filed on March 3, 1992

(b) -- Performance Calculations for Schwab
Value Advantage Money Fund are
incorporated by reference to Exhibit
(16) to Post-Effective Amendment No.
7 to Registrant's Registration
Statement on Form N-1A, filed on
August 7, 1992

(c) -- Performance Calculations for Schwab
Institutional Advantage Money Fund
and Schwab Retirement Money Fund are
incorporated by reference to Exhibit
(16) to Post-Effective Amendment No.
17 to Registrant's Registration
Statement on Form N-1A, filed on
April 6, 1995

(18) -- Multiple Class Plan of Registrant is
filed herewith

(27) (a) -- Financial Data Schedule for Schwab
Money Market Fund is filed herewith

(27) (b) -- Financial Data Schedule for Schwab
Government Money Fund is filed
herewith

(27) (c) -- Financial Data Schedule for Schwab
U.S. Treasury Money Fund is filed
herewith

(27) (d) -- Financial Data Schedule for Schwab
Tax-Exempt Money Fund is filed
herewith

(27) (e) -- Financial Data Schedule for Schwab
California Tax-Exempt Money Fund is
filed herewith

(27) (f) -- Financial Data Schedule for Schwab
Retirement Money Fund is filed
herewith

(27) (g) -- Financial Data Schedule for Schwab
Institutional Advantage Money Fund
is filed herewith

(27) (h) -- Financial Data Schedule for Schwab
New York Tax-Exempt Money Fund is
filed herewith

(27) (i) -- Financial Data Schedule for Schwab
Value Advantage Money Fund is filed
herewith

Item 25. Persons Controlled by or under Common Control with Registrant.

Schwab Investments, Schwab Capital Trust, Schwab Annuity
Portfolios, and Schwab Advantage Trust are each Massachusetts business trusts
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). Each is advised by the Investment Manager and employs Schwab as its
principal underwriter, transfer agent, and shareholder services agent. As a
result, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios,
and Schwab Advantage Trust may be deemed to be under common control with
Registrant.

<PAGE> 120
Item 26. Number of Holders of Securities.

As of May 15, 1995, the number of record holders of shares of
beneficial interest for the series of Registrant was:

<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Schwab Money Market Fund 1 (for the benefit of 1,267,810 accounts)
Schwab Government Money Fund 1 (for the benefit of 133,195 accounts)
Schwab U.S. Treasury Money Fund 1 (for the benefit of 46,569 accounts)
Schwab Tax-Exempt Money Fund 1 (for the benefit of 118,860 accounts)
Schwab California Tax-Exempt Money Fund 1 (for the benefit of 42,005 accounts)
Schwab Value Advantage Money Fund 1 (for the benefit of 53,273 accounts)
Schwab Retirement Money Fund 1 (for the benefit of 252 accounts)
Schwab Institutional Advantage Money Fund 1 (for the benefit of 145 accounts)
Schwab New York Tax-Exempt Money Fund 1 (for the benefit of 5,447 accounts)
</TABLE>

Item 27. Indemnification.

Article VIII of Registrant's Amended and Restated Agreement
and Declaration of Trust (Exhibit (1) hereto, which is filed herewith) provides
in effect that Registrant will indemnify its officers and trustees against all
liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgments, in compromise, or as fines and penalties, and
counsel fees reasonably incurred by any such officer or trustee in connection
with the defense or disposition of any action, suit, or other proceeding.
However, in accordance with Section 17(h) and 17(i) of the 1940 Act and its own
terms, said Agreement and Declaration of Trust does not protect any person
against any liability to Registrant or its shareholders to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office. In any event, Registrant will comply with 1940 Act Releases No.
7221 and 11330 respecting the permissible boundaries of indemnification by an
investment company of its officers and trustees.

Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to trustees,
officers, and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933
Act and will be governed by the final adjudication of such issue.

Item 28. Business and Other Connections of Investment Manager.

(a) Information pertaining to business and other connections
of Registrant's Investment Manager is hereby incorporated by reference to the
section of the Prospectuses for Schwab Money Market Fund, Schwab Government
Money Fund, Schwab U.S. Treasury Money Fund, Schwab

<PAGE> 121
Tax-Exempt, Money Fund, Schwab California Tax-Exempt Money Fund, Schwab
Retirement Money, Fund, Schwab Institutional Advantage Money Fund, and Schwab
New York Tax-Exempt Money Fund captioned "Management of the Fund(s)" and the
section of the Prospectus for Schwab Value Advantage Money Fund captioned
"Organization and Management of Our Fund" and to the section of the Statements
of Additional Information captioned "Management of the Trust."

Registrant's Investment Manager, Charles Schwab Investment
Management, Inc., a Delaware corporation, organized in October 1989 to serve as
investment manager to Registrant, also serves as the Investment Manager to
Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, and Schwab
Advantage Trust, each an open-end, management investment company. The
principal place of business of the Investment Manager is 101 Montgomery Street,
San Francisco, California 94104. The only business in which the Investment
Manager engages is that of investment manager and administrator to Registrant,
Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab
Advantage Trust, and any other investment companies that Schwab may sponsor in
the future.

(b) The business, profession, vocation or employment of a
substantial nature in which each director and/or executive officer of Schwab
and/or the Investment Manager is or has been engaged during the past two fiscal
years for his or her own account in the capacity of director, officer,
employee, partner or trustee is as follows:

<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
Charles R. Schwab, Charles Schwab & Co., Inc. Founder, Chairman and Director
Chairman and Trustee
The Charles Schwab Corporation Chairman, Chief Executive Officer
and Director

Charles Schwab Investment Chairman and Director
Management, Inc.

The Charles Schwab Trust Company Chairman and Director

Mayer & Schweitzer, Inc. Chairman and Director

The Gap, Inc. Director

Transamerica Corporation Director

AirTouch Communications Director

Lawrence J. Stupski Charles Schwab & Co., Inc. Director until February 1995; Vice
Chairman until August 1994

The Charles Schwab Corporation Vice Chairman and Director; Chief
Operating Officer until March 1994

The Charles Schwab Trust Company Director
</TABLE>

<PAGE> 122

<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
David S. Pottruck Charles Schwab & Co., Inc. President, Chief Executive
Officer, and Director

The Charles Schwab Corporation President, Chief Operating
Officer, and Director

Charles Schwab Investment Chief Executive Officer and
Management, Inc. Director

Mayer & Schweitzer, Inc. Director

Ronald W. Readmond Charles Schwab & Co., Inc. Vice Chairman and Director; Senior
Executive Vice President and Chief
Operating Officer until January
1995

The Charles Schwab Corporation Executive Vice President; Senior
Executive Vice President until
January 1995

Mayer & Schweitzer, Inc. Director

John P. Coghlan Charles Schwab & Co., Inc. Executive Vice President - Schwab
Institutional

The Charles Schwab Corporation Executive Vice President - Schwab
Institutional

The Charles Schwab Trust Company Director

A. John Gambs, Charles Schwab & Co., Inc. Executive Vice President, Chief
Treasurer and Principal Financial Financial Officer, and Director
Officer
The Charles Schwab Corporation Executive Vice President and Chief
Financial Officer

Charles Schwab Investment Chief Financial Officer and
Management, Inc. Director

The Charles Schwab Trust Company Chief Financial Officer

Mayer & Schweitzer, Inc. Director

Dawn G. Lepore Charles Schwab & Co., Inc. Executive Vice President and Chief
Information Officer

The Charles Schwab Corporation Executive Vice President and Chief
Information Officer
</TABLE>

<PAGE> 123

<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
Elizabeth G. Sawi, Charles Schwab & Co., Inc. Executive Vice President - Mutual
Trustee and President Funds

The Charles Schwab Corporation Executive Vice President - Mutual
Funds
Charles Schwab Investment
Management, Inc. President

Tom D. Seip Charles Schwab & Co., Inc. Executive Vice President - Retail
Brokerage

The Charles Schwab Corporation Executive Vice President - Retail
Brokerage

Charles Schwab Investment President and Chief Operating
Management, Inc. Officer until 1994

John N. Tognino Charles Schwab & Co., Inc. Executive Vice President - Capital
Markets and Trading

The Charles Schwab Corporation Executive Vice President - Capital
Markets and Trading

Mayer & Schweitzer, Inc. Director

Luis E. Valencia Charles Schwab & Co., Inc. Executive Vice President - Human
Resources

The Charles Schwab Corporation Executive Vice President - Human
Resources

Commercial Credit Corporation Managing Director until February
1994

Christopher V. Dodds Charles Schwab & Co., Inc. Treasurer and Senior Vice
President

The Charles Schwab Corporation Treasurer and Senior Vice
President

Mayer & Schweitzer, Inc. Treasurer

William J. Klipp, Charles Schwab & Co., Inc. Senior Vice President;
Trustee, Senior Vice President, and Treasurer until 1993
Chief Operating Officer
Charles Schwab Investment Senior Vice President and Chief
Management, Inc. Operating Officer

Mayer & Schweitzer, Inc. Treasurer until 1993
</TABLE>

<PAGE> 124

<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
Stephen B. Ward, Charles Schwab Investment Senior Vice President
Senior Vice President and Chief Management, Inc.
Investment Officer

Frances Cole, Charles Schwab Investment Chief Counsel and Compliance
Secretary Management, Inc. Officer and Assistant Corporate
Secretary

Pamela E. Herlich, The Charles Schwab Corporation Assistant Corporate Secretary
Assistant Secretary
Charles Schwab & Co., Inc. Assistant Corporate Secretary

Charles Schwab Investment Corporate Secretary
Management, Inc.

Mayer & Schweitzer, Inc. Corporate Secretary

The Charles Schwab Trust Company Corporate Secretary
</TABLE>

Item 29. Principal Underwriters.

(a) Schwab acts as a principal underwriter and distributor of
Registrant's shares. Schwab currently also acts as a principal underwriter for
Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab
Advantage Trust and intends to act as such for any other investment company
which Schwab may sponsor in the future.
(b) See Item 28(b) for information on the officers and
directors of Schwab. The principal business address of Schwab is 101
Montgomery Street, San Francisco, California 94104.
(c) Not applicable.

Item 30. Location of Accounts and Records.

All accounts, books and other documents required to be maintained
pursuant to Section 31(a) of the 1940 Act and the Rules thereunder are
maintained at the offices of: Registrant (transfer agency and shareholder
records); Registrant's investment manager and administrator, Charles Schwab
Investment Management, Inc., 101 Montgomery Street, San Francisco, California
94104; Registrant's sub-investment adviser, Dimensional Fund Advisors Inc.,
1299 Ocean Avenue, Suite 1100, Santa Monica, California 90401; Registrant's
principal underwriter, Charles Schwab & Co., Inc., 101 Montgomery Street, San
Francisco, California 94104; Registrant's Custodian, PNC Bank, National
Association, Broad and Market Streets, Philadelphia, Pennsylvania 19104
(ledgers, receipts, and brokerage orders); Registrant's fund accountants, PFPC,
Inc., 103 Bellevue Parkway, Wilmington, Delaware 19809; or Ropes & Gray,
counsel to Registrant, 1001 Pennsylvania Avenue, N.W., Washington, D.C. 20004
(minute books, bylaws, and declaration of trust).

Item 31. Management Services.

Not applicable.

<PAGE> 125

Item 32. Undertakings.

(a) Registrant undertakes to call a meeting of Shareholders, at
the request of at least 10% of registrant's outstanding shares, for the purpose
of voting upon the question of removal of a trustee or trustees and to assist
in communications with other Shareholders as required by Section (16) of the
1940 Act.
(b) Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of Registrant's latest Annual Report to
Shareholders upon request and without charge.
<PAGE> 126
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended
(the "1933 Act"), and the Investment Company Act of 1940, as amended,
Registrant certifies that it meets all the requirements for effectiveness of
this Post-Effective Amendment No. 19 to the Registrant's Registration Statement
on Form N-1A pursuant to Rule 485(b) of the 1933 Act and has duly caused this
Post- Effective Amendment No. 19 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Francisco, State of California,
on 5th day of June 1995.

THE CHARLES SCHWAB FAMILY OF FUNDS
Registrant

Charles R. Schwab*
-------------------------------------
Charles R. Schwab, Chairman

Pursuant to the requirements of the 1933 Act, this Post-Effective
Amendment No. 19 to Registrant's Registration Statement on Form N-1A has been
signed below by the following persons in the capacities indicated this 5th day
of June 1995.

<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
Charles R. Schwab* Chairman and Trustee
- ---------------------------------
Charles R. Schwab

Elizabeth G. Sawi* President and Trustee
- ---------------------------------
Elizabeth G. Sawi

William J. Klipp* Senior Vice President, Chief
- --------------------------------- Operating Officer, and Trustee
William J. Klipp

Donald F. Dorward* Trustee
- ---------------------------------
Donald F. Dorward

Robert G. Holmes* Trustee
- ---------------------------------
Robert G. Holmes

Donald R. Stephens* Trustee
- ---------------------------------
Donald R. Stephens

Michael W. Wilsey* Trustee
- ---------------------------------
Michael W. Wilsey

A. John Gambs* Principal Financial Officer
- ---------------------------------
A. John Gambs

*By: /s/ Martin E. Lybecker
--------------------------------------------------------------
Martin E. Lybecker, Attorney-in-Fact pursuant
to Powers of Attorney previously filed
</TABLE>

<PAGE> 127
Exhibit Index

<TABLE>
<CAPTION>
Exhibit No. Page Number
- ----------- -----------
<S> <C> <C> <C>
1. Amended and Restated Agreement
and Declaration of Trust _____

2. Amended and Restated By-Laws _____

8. (c) Amended and Restated Transfer
Agency Agreement _____

11. (a) Consent of Ropes & Gray _____

11. (b) Consent of Price Waterhouse LLP _____

13. (e) Purchase Agreement for Schwab Tax-
Exempt Money Fund--Value Advantage
Shares _____

13. (f) Purchase Agreement for Schwab California
Tax-Exempt Money Fund--Value Advantage
Shares _____

13. (g) Purchase Agreement for Schwab New York
Tax-Exempt Money Fund--Value Advantage
Shares _____

18. Multiple Class Plan _____

27. (a) Financial Data Schedule for Schwab Money Market Fund _____

27. (b) Financial Data Schedule for Schwab Government Money Fund _____

27. (c) Financial Data Schedule for Schwab U.S. Treasury Money
Fund _____

27. (d) Financial Data Schedule for Schwab Tax-Exempt Money Fund _____

27. (e) Financial Data Schedule for Schwab California Tax-Exempt
Money Fund _____

27. (f) Financial Data Schedule for Schwab Retirement Money Fund _____

27. (g) Financial Data Schedule for Schwab Institutional
Advantage Money Fund _____

27. (h) Financial Data Schedule for Schwab New York Tax-Exempt
Money Fund _____

27. (i) Financial Data Schedule for Schwab Value Advantage
Money Fund _____
</TABLE>

<PAGE> 1

AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
EXHIBIT 1
<PAGE> 2
THE CHARLES SCHWAB FAMILY OF FUNDS

_______________

AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST

_______________

AGREEMENT AND RESTATED DECLARATION OF TRUST made at San Francisco,
California on the 9th day of May, 1995, by the Trustees hereunder, and by the
holders of shares of beneficial interest to be issued hereunder as hereinafter
provided.

WITNESSETH that

WHEREAS, this Trust has been formed to carry on the business of an
investment company; and

WHEREAS, the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts voluntary association with
transferable shares in accordance with the provisions hereinafter set forth.

NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets, which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same
upon the following terms and conditions for the pro rata benefit of the holders
from time to time of Shares in this Trust as hereinafter set forth.

ARTICLE I
Name and Definitions

Name

Section 1. This Trust shall be known as "THE CHARLES SCHWAB FAMILY OF
FUNDS", and the Trustees shall conduct the business of the Trust under that
name or any other name as they may from time to time determine.

Definitions

Section 2. Whenever used herein, unless otherwise required by the
context or specifically provided:
<PAGE> 3
(a) The "Trust" refers to the Massachusetts business trust
established by this Agreement and Declaration of Trust, as amended
from time to time;

(b) "Trustees" refers to the Trustees of the Trust named
herein or elected in accordance with Article IV;

(c) "Shares" means the equal proportionate transferable units
of interest into which the beneficial interest in the Trust shall be
divided from time to time or, if more than one series or classes of
Shares is authorized by the Trustees, the equal proportionate
transferable units into which the beneficial interest of each series
or classes of Shares shall be divided from time to time, and includes
fractions of Shares as well as whole Shares;

(d) "Shareholder" means a record owner of Shares;

(e) The "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as amended from
time to time;

(f) The terms "Affiliated Person", "Assignment",
"Commission", "Interested Person", "Principal Underwriter" and
"Majority Shareholder Vote" (the 67% or 50% requirement of the third
sentence of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) shall have the meanings given them in the 1940 Act;

(g) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust, as amended or restated from time to time; and

(h) "Bylaws" shall mean the Bylaws of the Trust, as amended
from time to time.

ARTICLE II
Purpose of Trust

The purpose of the Trust is to provide investors a managed investment
primarily in securities and debt instruments and to carry on such other
business as the Trustees may from time to time determine pursuant to their
authority under this Declaration of Trust.

ARTICLE III
Shares

Division of Beneficial Interests

Section 1. The Shares of the Trust shall be issued in one or more
series as the Trustees may, without Shareholder approval, authorize. Each
series shall be preferred over all

-2-
<PAGE> 4
other series in respect of the assets allocated to that series. Each series
may be divided into two or more classes, as the Trustees may, without
Shareholder approval, authorize. The beneficial interest in each series shall
be divided into Shares, with a par value of $0.00001. Unless the Trustees have
authorized the issuance of Shares of a series in two or more classes, each
Share of a series shall represent an equal proportionate interest in the series
with each other Share of the same series, none having priority or preference
over another. If the Trustees have authorized the issuance of Shares of a
series in two or more classes, then the classes may have such variations as to
dividend, redemption, and voting rights, net asset values, expenses borne by
the classes, and other matters as the Trustees have authorized. The number of
Shares authorized shall be unlimited. The Trustees may from time to time
divide or combine the Shares of any series or of any class of a series into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the series.

Ownership of Shares

Section 2. The ownership of Shares shall be recorded on the books of
the Trust or a transfer or similar agent. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or by any
transfer or similar agent, as the case may be, shall be conclusive as to who
are the Shareholders of each series and as to the number of Shares of each
series held from time to time by each Shareholder.

Investment in the Trust

Section 3. The Trustees shall accept investments in the Trust from
such persons and on such terms and for such consideration, which may consist of
cash or tangible or intangible property or a combination thereof, as they from
time to time authorize.

All consideration received by the Trust for the issue or sale of
Shares of each series, together with all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, shall irrevocably belong to the
series of Shares with respect to which the same were received by the Trust for
all purposes, subject only to the rights of creditors, and shall be so handled
upon the books of account of the Trust and are herein referred to as "assets
of" such series.

No Preemptive Rights

Section 4. Shares shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust.

-3-
<PAGE> 5
Status of Shares and Limitation of Personal Liability

Section 5. Shares shall be deemed to be personal property giving only
the rights provided in this instrument. Every Shareholder by virtue of having
become a Shareholder shall be held to have expressly assented and agreed to the
terms hereof and to have become a party hereto. The death of a Shareholder
during the continuance of the Trust shall not operate to terminate the same nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Trust. Ownership of Shares
shall not entitle the Shareholder to any title in or to the whole or any part
of the Trust property or right to call for a partition or division of the same
or for an accounting, nor shall the ownership of Shares constitute the
Shareholders partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholder, nor except as specifically provided herein to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.

ARTICLE IV
The Trustees

Election

Section 1. The number of Trustees shall be as provided in the Bylaws
or as fixed from time to time by the Trustees. The Shareholders may elect
Trustees at any meeting of Shareholders called by the Trustees for that
purpose. Each Trustee shall serve during the continued lifetime of the Trust
until he or she dies, resigns or is removed, or, if sooner, until the next
meeting of Shareholders called for the purpose of electing Trustees and the
election and qualification of his or her successor. Any Trustee may resign at
any time by written instrument signed by him and delivered to any officer of
the Trust, to each other Trustee or to a meeting of the Trustees. Such
resignation shall be effective upon receipt unless specified to be effective at
some other time. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee resigning and no Trustee removed shall
have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal.

Effect of Death, Resignation, etc. of a Trustee

Section 2. The death, declination, resignation, retirement, removal
or incapacity of the Trustees, or any one of them, shall not operate to annul
the Trust or to revoke any existing agency created pursuant to the terms of
this Declaration of Trust.

-4-
<PAGE> 6
Powers

Section 3. Subject to the provisions of this Declaration of Trust,
the business of the Trust shall be managed by the Trustees, and they shall have
all powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt Bylaws not inconsistent with
this Declaration of Trust providing for the conduct of the business of the
Trust and may amend and repeal them to the extent that such Bylaws do not
reserve that right to the Shareholders; they may enlarge or reduce their
number, may fill vacancies in their number, including vacancies caused by
enlargement of their number, and may remove Trustees with or without cause;
they may elect and remove, with or without cause, such officers and appoint and
terminate such agents as they consider appropriate; they may appoint from their
own number, and terminate, any one or more committees consisting of two or more
Trustees, including an executive committee which may, when the Trustees are not
in session, exercise some or all of the power and authority of the Trustees as
the Trustees may determine; they may employ one or more custodians of the
assets of the Trust and may authorize such custodians to employ subcustodians
and to deposit all or any part of such assets in a system or systems for the
central handling of securities, retain a transfer agent or a Shareholder
servicing agent, or both, provide for the distribution of Shares by the Trust,
through one or more principal underwriters or otherwise, set record dates for
the determination of Shareholders with respect to various matters, and in
general delegate such authority as they consider desirable to any officer of
the Trust, to any committee of the Trustees and to any agent or employee of the
Trust or to any such custodian or underwriter.

Without limiting the foregoing, the Trustees shall have power and authority:

(a) To invest and reinvest cash, and to hold cash uninvested;

(b) To sell, exchange, lend, pledge, mortgage, hypothecate,
write options on and lease any or all of the assets of the Trust;

(d) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property; and
to execute and deliver proxies or powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities or
property as the Trustees shall deem proper;

(e) To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities;

(f) To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form,
or in the name of the Trustees or of

-5-
<PAGE> 7
the Trust or in the name of a custodian, subcustodian or other
depository or a nominee or nominees or otherwise;

(g) To allocate assets, liabilities and expenses of the Trust
to a particular series of Shares or to apportion the same among two or
more series, provided that any liabilities or expenses incurred by a
particular series of Shares shall be payable solely out of the assets
of that series;

(h) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer,
any security of which is or was held in the Trust; to consent to any
contract, lease, mortgage, purchase or sale of property by such
corporation or issuer, and to pay calls or subscriptions with respect
to any security held in the Trust;

(i) To join with other security holders in acting through a
committee depositary, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security to,
any such committee, depositary or trustee, and to delegate to them
such power and authority with relation to any security (whether or not
so deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees
shall deem proper;

(j) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy, including
but not limited to claims for taxes;

(k) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;

(l) To borrow funds;

(m) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof; and to
mortgage and pledge the Trust property or any part thereof to secure
any of or all such obligations;

(n) To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the
conduct of the business, including without limitation, insurance
policies insuring the assets of the Trust and payment of distributions
and principal on its portfolio investments, and insurance policies
insuring the Shareholders, Trustees, officers, employees, agents,
investment advisers or managers, principal underwriters, or
independent contractors of the Trust individually against all claims
and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action
alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee,

-6-
<PAGE> 8
agent, investment adviser or manager, principal underwriter, or
independent contractor, including any action taken or omitted that may
be determined to constitute negligence, whether or not the Trust would
have the power to indemnify such person against such liability;

(o) To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out
pension, profit-sharing, Share bonus, Share purchase, savings, thrift
and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits,
for any or all of the Trustees, officers, employees and agents of the
Trust; and

(p) To engage in any other lawful act or activity in which
corporations organized under the Massachusetts Business Corporation
Law may engage. The Trustees shall not in any way be bound or limited
by any present or future law or custom in regard to investments by
trustees.

Except as otherwise provided herein or from time to time in the
Bylaws, any action to be taken by the Trustees may be taken by a majority of
the Trustees present at a meeting of Trustees (a quorum being present), within
or without Massachusetts, including any meeting held by means of a conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting,
or by written consents of a majority of the Trustees then in office.

Payment of Expenses by Trust

Section 4. The Trustees are authorized to pay or to cause to be paid
out of the principal or income of the Trust, or partly out of principal and
partly out of income, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, in connection
with the management thereof, or in connection with the financing of the sale of
Shares, including, but not limited to, the Trustees' compensation and such
expenses and charges for the services of the Trust's officers, employees, any
investment adviser, sub-adviser, principal underwriter, auditor, counsel,
custodian, sub-custodian, transfer agent, administrator, sub-administrator,
distributor, shareholder servicing agent, and such other agents or independent
contractors and such other expenses and charges as the Trustees may deem
necessary or proper to incur, provided, however, that all expenses, fees,
charges, taxes and liabilities incurred or arising in connection with a
particular series of Shares as determined by the Trustees, shall be payable
solely out of the assets of that series.

Ownership of Assets of the Trust

Section 5. Title to all of the assets of each series of Shares and of
the Trust shall at all times be considered as vested in the Trustees.

-7-
<PAGE> 9
Advisory, Management and Distribution

Section 6. The Trustees may, at any time and from time to time,
contract for exclusive or nonexclusive advisory and/or management services with
any corporation, trust, association or other organization (the "Manager"),
every such contract to comply with such requirements and restrictions as may be
set forth in the Bylaws; and any such contract may provide for one or more Sub-
advisers who shall perform all or part of the obligations of the Manager under
such Contract and may contain such other terms interpretive of or in addition
to said requirements and restrictions as the Trustees may determine, including,
without limitation, authority to determine from time to time what investments
shall be purchased, held, sold or exchanged and what portion, if any, of the
assets of the Trust shall be held uninvested and to make changes in the Trust's
investments. The Trustees may also, at any time and from time to time,
contract with the Manager or any other corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor or principal
underwriter for the Shares, every such contract to comply with such
requirements and restrictions as may be set forth in the Bylaws; and any such
contract may contain such other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine.

The fact that:

(i) any of the Shareholders, Trustees or officers of the
Trust is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent of or
for any corporation, trust, association, or other organization, or of
or for any parent or affiliate of any organization, with which an
advisory or management contract, or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other
agency contract may have been or may hereafter be made, or that any
such organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that

(ii) any corporation, trust, association or other
organization with which an advisory or management contract or
principal underwriter's or distributor's contract, or transfer,
Shareholder servicing or other agency contract may have been or may
hereafter be made also has an advisory or management contract, or
principal underwriter's or distributor's contract, or transfer,
Shareholder servicing or other agency contract with one or more other
corporations, trusts, associations, or other organizations, or has
other business or interests shall not affect the validity of any such
contract or disqualify any Shareholder, Trustee or officer of the
Trust from voting

-8-
<PAGE> 10
upon or executing the same or create any liability or accountability
to the Trust or its Shareholders.

ARTICLE V
Shareholders' Voting Powers and Meetings

Shareholders shall have such power to vote as is provided for in, and
may hold meetings and take actions pursuant to the provisions of the Bylaws.

ARTICLE VI
Distributions, Redemptions and Repurchases

Distributions

Section 1. The Trustees may each year, or more frequently if they so
determine, distribute to the Shareholders of each series such income and
capital gains, accrued or realized, as the Trustees may determine, after
providing for actual and accrued expenses and liabilities (including such
reserves as the Trustees may establish) determined in accordance with good
accounting practices. The Trustees shall have full discretion to determine
which items shall be treated as income and which items as capital and their
determination shall be binding upon the Shareholders. Distributions of each
year's income of each series shall be distributed pro rata to Shareholders in
proportion to the number of Shares of each series held by each of them. Such
distributions shall be made in cash or Shares or a combination thereof as
determined by the Trustees. Any such distribution paid in Shares will be paid
at the net asset value thereof as determined in accordance with the Bylaws.

Redemptions and Repurchases

Section 2. The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of any certificate for the
Shares to be purchased, a proper instrument of transfer and a request directed
to the Trust or a person designated by the Trust that the Trust purchase such
Shares, or in accordance with such other procedures for redemption as the
Trustees may from time to time authorize; and the Trust will pay therefor the
net asset value thereof, as next determined in accordance with the Bylaws, less
such redemption charge or fee as the Trustees may determine from time to time.
Payment for said Shares shall be made by the Trust to the Shareholder within
seven days after the date on which the request is made. The obligation set
forth in this Section 2 is subject to the provision that in the event that any
time the New York Stock Exchange is closed for other than customary weekends or
holidays, or, if permitted by rules of the Commission, during periods when
trading on the Exchange is restricted or during any emergency which makes it
impractical for the Trust to dispose of its investments or to determine fairly
the value of its net assets, or during any other period permitted by order of
the Commission for the protection of investors, such obligation may be
suspended or postponed by the Trustees. The Trust may also purchase or
repurchase Shares at a price not exceeding the net asset value of such

-9-
<PAGE> 11
Shares in effect when the purchase or repurchase or any contract to purchase or
repurchase is made. The Trust may refuse to honor a request by a Shareholder
for redemption of his or her Shares for a specified time after such
Shareholder's purchase of such Shares, such specified time, if any, to be set
forth in the Bylaws.

Redemptions at the Option of the Trust

Section 3. The Trust shall have the right at its option and at any
time to redeem Shares of any Shareholder at the net asset value thereof as
determined in accordance with the Bylaws: (i) if at such time such Shareholder
owns fewer Shares than, or Shares having an aggregate net asset value of less
than, an amount determined from time to time by the Trustees; or (ii) to the
extent that such Shareholder owns Shares of a particular series of Shares equal
to or in excess of a percentage of the outstanding Shares of that series
determined from time to time by the Trustees; or (iii) to the extent that such
Shareholder owns Shares of the Trust representing a percentage equal to or in
excess of such percentage of the aggregate number of outstanding Shares of the
Trust or the aggregate net asset value of the Trust determined from time to
time by the Trustees. In addition, if the Net Income of any series of Shares
of the Trust which uses the amortized cost method of valuation pursuant to the
1940 Act is determined at any time to be a negative amount, then, with respect
to a Shareholder owning Shares of such series, such Shareholder's pro rata
share of such negative amount shall constitute a liability of such Shareholder
to the Trust which shall be paid at such times and in such manner as the
Trustees may from time to time determine out of such Shareholder's accrued
dividend account in such series or otherwise. As used in this Article VI,
Section 3, "Net Income" shall mean all interest income accrued on portfolio
investments of the series plus or minus realized or unrealized gains and losses
on portfolio investments of the series, less all actual and accrued expenses
and liabilities determined in according with generally accepted accounting
practices. Determination of Net Income of a series made by the Trustees, or as
they may authorize, in good faith, shall be binding on all parties concerned.

Dividends, Distributions, Redemptions and Repurchases

Section 4. No dividend or distribution (including, without
limitation, any distribution paid upon termination of the Trust or of any
series) with respect to, nor any redemption or repurchase of, the Shares of any
series shall be effected by the Trust other than from the assets of such
series.

ARTICLE VII
Compensation and Limitation of Liability of Trustees

Compensation

Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way

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<PAGE> 12
prevent the employment of any Trustee for advisory, management, legal,
accounting, investment banking, underwriting, brokerage, or investment dealer
or other services and payment for the same by the Trust.

Limitation of Liability

Section 2. The Trustees shall not be responsible or liable in any
event for any neglect or wrongdoing of any officer, agent, employee, manager or
principal underwriter of the Trust, nor shall any Trustee be responsible for
the act or omission of any other Trustee, but nothing herein contained shall
protect any Trustee against any liability to which he or she would otherwise be
subject by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.

Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.

ARTICLE VIII
Indemnification

Trustees, Officers, etc.

Section 1. The Trust shall indemnify each of its Trustees and
officers (including persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any
interest as a shareholder, creditor or otherwise) (hereinafter referred to as a
"Covered Person") against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person except with respect to any matter as to which such
Covered Person shall have been finally adjudicated in any such action, suit or
other proceeding to be liable to the Trust or its Shareholders by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by the Trust in advance of the
final disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, provided, however, that

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<PAGE> 13
either (a) such Covered Person shall have provided appropriate security for
such undertaking, (b) the Trust shall be insured against losses arising from
any such advance payments or (c) either a majority of the disinterested
Trustees acting on the matter (provided that a majority of the disinterested
Trustees then in office act on the matter), or independent legal counsel in a
written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a full trial type inquiry) that there is reason
to believe that such Covered Person will be found entitled to indemnification
under this Article.

Compromise Payment

Section 2. As to any matter disposed of (whether by a compromise
payment, pursuant to a consent decree or otherwise) without an adjudication by
a court, or by any other body before which the proceeding was brought, that
such Covered Person either (a) did not act in good faith in the reasonable
belief that his or her action was in the best interests of the Trust or (b) is
liable to the Trust or its Shareholders by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office, indemnification shall be provided if (a) approved
as in the best interests of the Trust, after notice that it involves such
indemnification, by at least a majority of the disinterested Trustees acting on
the matter (provided that a majority of the disinterested Trustees then in
office act on the matter) upon a determination, based upon a review of readily
available facts (as opposed to a full trial type inquiry) that such Covered
Person acted in good faith in the reasonable belief that his or her action was
in the best interests of the Trust and is not liable to the Trust or its
Shareholders by reasons of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office,
or (b) there has been obtained an opinion in writing of independent legal
counsel, based upon a review of readily available facts (as opposed to a full
trial type inquiry) to the effect that such Covered Person appears to have
acted in good faith in the reasonable belief that his or her action was in the
best interests of the Trust and that such indemnification would not protect
such Person against any liability to the Trust to which he or she would
otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
or her office. Any approval pursuant to this Section shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with this Section as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's action was in
the best interests of the Trust or to have been liable to the Trust or its
Shareholders by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office.

Indemnification Not Exclusive

Section 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which such Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall
include such person's heirs, executors and administrators and a "disinterested
Trustee" is a Trustee who is not an "interested person" of

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<PAGE> 14
the Trust as defined in Section 2(a)(19) of the 1940 Act (or who has been
exempted from being an "interested person" by any rule, regulation or order of
the Commission) and against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this Article shall
affect any rights to indemnification to which personnel of the Trust, other
than Trustees or officers, and other persons may be entitled by contract or
otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such person; provided, however, that the
Trust shall not purchase or maintain any such liability insurance in
contravention of applicable law, including without limitation the 1940 Act.

Shareholders

Section 4. In case any Shareholder or former Shareholder shall be
held to be personally liable solely by reason of his or her being or having
been a Shareholder and not because of his or her acts or omissions or for some
other reason, the Shareholder or former Shareholder (or his or her heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled to be held harmless from and indemnified against all loss and expense
arising from such liability, but only out of the assets of the particular
series of Shares of which he or she is or was a Shareholder.

ARTICLE IX
Miscellaneous

Trustees, Shareholders, etc. Not Personally Liable; Notice

Section 1. All persons extending credit to, contracting with or
having any claim against the Trust or a particular series of Shares shall look
only to the assets of the Trust or the assets of that particular series of
Shares for payment under such credit, contract or claim; and neither the
Shareholders nor the Trustees, nor any of the Trust's officers, employees or
agents, whether past, present or future, shall be personally liable therefor.
Nothing in this Declaration of Trust shall protect any Trustee against any
liability to which such Trustee would otherwise be subject by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee.

Every note, bond, contract, instrument, certificate or undertaking
made or issued by the Trustees or by any officer or officers shall give notice
that this Declaration of Trust is on file with the Secretary of The
Commonwealth of Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust or by them as Trustee or Trustees or as
officer or officers and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually
but are binding only upon the assets and property of the Trust, and may contain
such further recital as he or she or they

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<PAGE> 15
may deem appropriate, but the omission thereof shall not operate to bind any
Trustee or Trustees or officer or officers or Shareholder or Shareholders
individually.

Trustee's Good Faith Action, Expert Advice, No Bond or Surety

Section 2. The exercise by the Trustees of their powers and
discretion hereunder shall be binding upon everyone interested. A Trustee
shall be liable for his or her own wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees may take advice of counsel
or other experts with respect to the meaning and operation of this Declaration
of Trust, and shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice. Except as may be
required by applicable law, including, without limitation, the 1940 Act, the
Trustees shall not be required to give any bond as such, nor any surety if a
bond is required.

Liability of Third Persons Dealing with Trustees

Section 3. No person dealing with the Trustees shall be bound to make
any inquiry concerning the validity of any transaction made or to be made by
the Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.

Duration and Termination of Trust

Section 4. Unless terminated as provided herein, the Trust shall
continue without limitation of time. The Trust may be terminated at any time
by the vote of Shareholders holding at least a majority of the Shares of each
series entitled to vote or by the Trustees by written notice to the
Shareholders. Any series of Shares may be terminated at any time by vote of
Shareholders holding at least a majority of the Shares of such series entitled
to vote or by the Trustees by written notice to the Shareholders of such
series.

Upon termination of the Trust or of any one or more series of Shares,
after paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated, of the Trust or of the
particular series as may be determined by the Trustees, the Trust shall, in
accordance with such procedures as the Trustees consider appropriate, reduce
the remaining assets to distributable form in cash or shares or other
securities, or any combination thereof, and distribute the proceeds to the
Shareholders of the series involved, ratably according to the number of Shares
of such series held by the several Shareholders of such series on the date of
termination.

Filing of Copies, References, Headings

Section 5. The original or a copy of this instrument and of each
amendment hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A

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<PAGE> 16
copy of this instrument and of each amendment hereto shall be filed by the
Trust with the Secretary of The Commonwealth of Massachusetts and with the
Boston City Clerk, as well as any other governmental office where such filing
may from time to time be required. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any such amendments
have been made and as to any matters in connection with the Trust hereunder,
and, with the same effect as if it were the original, may rely on a copy
certified by an officer of the Trust to be a copy of this instrument or of any
such amendments. In this instrument and in any such amendment, references to
this instrument, and all expressions like "herein", "hereof" and "hereunder"
shall be deemed to refer to this instrument as amended or affected by any such
amendments. Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. This instrument may be executed in
any number of counterparts each of which shall be deemed an original.

Applicable Law

Section 6. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall
be of the type commonly called a Massachusetts business trust, and without
limiting the provisions hereof, the Trust may exercise all powers which are
ordinarily exercised by such a trust.

Amendments

Section 7. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
to do so by vote of Shareholders holding a majority of the Shares of each
series entitled to vote, except that an amendment which shall affect the
holders of one or more series of Shares but not the holders of all outstanding
series shall be authorized by vote of the Shareholders holding a majority of
the Shares entitled to vote of each series affected and no vote of Shareholders
of a series not affected shall be required. Amendments having the purpose of
changing the name of the Trust, of establishing, changing, or eliminating the
par value of the Shares or of supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or inconsistent provision
contained herein shall not require authorization by Shareholder vote.

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<PAGE> 17
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Agreement and Declaration of Trust as Trustee and not individually, as
of the 9th day of May, 1995.

/s/ Charles R. Schwab
- ------------------------------
Charles R. Schwab
Trustee

/s/ Elizabeth G. Sawi
- ------------------------------
Elizabeth G. Sawi
Trustee

/s/ Donald F. Dorward
- ------------------------------
Donald F. Dorward
Trustee

/s/ Robert G. Holmes
- ------------------------------
Robert G. Holmes
Trustee

/s/ Donald R. Stephens
- ------------------------------
Donald R. Stephens
Trustee

/s/ Michael W. Wilsey
- ------------------------------
Michael W. Wilsey
Trustee

/s/ William J. Klipp
- ------------------------------
William J. Klipp
Trustee

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<PAGE> 18

COUNTY OF SAN FRANCISCO :
: ss
STATE OF CALIFORNIA :

On this 9th day of May, 1995, Charles R. Schwab, Elizabeth G. Sawi,
Donald F. Dorward, Robert G. Holmes, Donald R. Stephens, Michael W. Wilsey,
and William J. Klipp, known to me and known to be the individuals described
herein and who executed the foregoing instrument, before me and acknowledged
the foregoing instrument to be their free act and deed.

/s/ Sebastian Chanler von Nagel
---------------------------------------------
Sebastian Chanler von Nagel, Notary Public
My Commission Expires: April 10, 1999

[Notary's Seal Affixed]

Address of the Trustees:

Charles R. Schwab
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, California 94104

Elizabeth G. Sawi
Charles Schwab & Co., Inc.
101 Montgomery Street, 101-27
San Francisco, CA 94104

Robert G. Holmes
Semloh Financial, Inc.
60 Melody Lane, Building H
Post Office Box 719
Orinda, California 94563

Donald F. Dorward
Dorward & Associates
150 Grand Avenue, 2nd Floor
Oakland, CA 94612

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<PAGE> 19
Donald R. Stephens
D.R. Stephens & Co.
500 Sansome Street
Suite 600
San Francisco, California 94111

Michael W. Wilsey
Wilsey, Bennett Company
2351 Powell Street
5th Floor
San Francisco, California 94133

William J. Klipp
Charles Schwab & Co., Inc.
101 Montgomery Street, 101-27
San Francisco, CA 94104

Address of the Trust:

101 Montgomery Street
Suite 1M-19
San Francisco, CA 94101

Resident Agent:

CT Corporation System
2 Oliver Street
Boston, MA 02109

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<PAGE> 1

AMENDED AND RESTATED BYLAWS
EXHIBIT 2
<PAGE> 2
AMENDED AND RESTATED BYLAWS
OF
THE CHARLES SCHWAB FAMILY OF FUNDS

* * * * *

ARTICLE I.
Agreement and Declaration of Trust,
Resident Agent and Principal Office

A. Agreement and Declaration of Trust. These Bylaws
shall be subject to the Amended and Restated Agreement and Declaration of Trust
dated May 9, 1995, as from time to time in effect (the "Declaration of Trust"),
of The Charles Schwab Family of Funds, the Massachusetts business trust
established by the Declaration of Trust (the "Trust"). Unless otherwise
specified herein, capitalized terms in these Bylaws shall have the meaning
given such terms in the Declaration of Trust.

B. Resident Agent of the Trust. The Trust shall have an
agent for service of process residing in The Commonwealth of Massachusetts.

C. Principal Office. The initial principal office of
the Trust shall be located in San Francisco, California, and the Trust may
maintain such other office or offices as the Trustees may from time to time
determine.

ARTICLE II.
Meetings of Trustees

A. Regular Meetings. Regular meetings of the Trustees
may be held without call or notice at such places and at such times as the
Trustees may from time to time determine, provided that notice of the first
regular meeting following any such determination shall be given to absent
Trustees.

B. Notice. It shall be sufficient notice to the Trustee
of a special meeting to send notice by mail at least forty-eight hours or by
telegram, telex or telecopy or other electronic facsimile transmission method
at least twenty-four hours before the meeting addressed to the Trustee at his
or her usual or last known business or resident address or to give notice to
him or her in person or by telephone at least twenty-four hours before the
meeting. Notice of a meeting need not be given to any Trustee if a written
waiver of notice, executed by him or her before the meeting, is filed with the
records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him or
her.

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<PAGE> 3
Neither notice of a meeting nor a waiver of a notice need specify the purposes
of the meeting.

C. Quorum. At any meeting of the Trustees a majority of
the Trustees then in office shall constitute a quorum. Any meeting may be
adjourned from time to time by a majority of the votes cast upon the question,
whether or not a quorum is present, and the meeting may be held as adjourned
without further notice.

ARTICLE III.
Officers

A. Enumeration: Qualification. The officers of the
Trust shall be a President, a Treasurer, a Secretary, who shall also be the
Clerk, and such other officers including a Chairman of the Trustees, if any, as
the Trustees from time to time may in their discretion elect. The Trust may
also have such agents as the Trustees from time to time may in their discretion
appoint. The Chairman of the Trustees, if one is elected, shall be a Trustee
and may but need not be a Shareholder; and any other officer may but not need
be a Trustee or a Shareholder. Any two or more offices may be held by the same
person.

B. Election. The President, the Treasurer, and the
Secretary shall be elected by the Trustees upon the occurrence of a vacancy in
any such office. Other officers, if any, may be elected or appointed by the
Trustees at any time. Vacancies in any office may be filled at any time.

C. Tenure. The Chairman of the Trustees, if one is
elected, the President, the Treasurer and the Secretary shall hold office until
their respective successors are chosen and qualified, or in each case until he
or she sooner dies, resigns, is removed or becomes disqualified. Each other
officer shall hold office and each agent shall retain authority at the pleasure
of the Trustees.

D. Powers. Subject to the other provisions of these
Bylaws, each officer shall have, in addition to the duties and powers herein
and in the Declaration of Trust set forth, such duties and powers as are
commonly incident to the office occupied by him or her as if the Trust were
organized as a Massachusetts business corporation and such other duties and
powers as the Trustees may from time to time designate.

E. Chairman; President. The Chairman of the Trustees, if
there is one, shall be the chief executive officer and, unless the Trustees
otherwise provide, the President shall be the chief operating officer.

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<PAGE> 4
F. Treasurer. Unless otherwise provided by the
Trustees, the Treasurer shall be the chief financial and accounting officer of
the Trust, and shall, subject to the provisions of the Declaration of Trust and
to any arrangement made by the Trustees with a custodian, investment adviser or
manager, or transfer, shareholder servicing or similar agent, be in charge of
the valuable papers, books of account and accounting records of the Trust, and
shall have such other duties and powers as may be designed from time to time by
the Trustees or by the President.

G. Secretary. The Secretary shall record all
proceedings of the Shareholders and the Trustees in books to be kept therefor,
which books or a copy thereof shall be kept at the principal office of the
Trust. In the absence of the Secretary from any meeting of the Shareholders or
Trustees, an assistant secretary, or if there be none or if he or she is
absent, a temporary secretary chosen at such meeting shall record the
proceedings thereof in the aforesaid books.

H. Resignations. Any officer may resign at any time by
written instrument signed by him or her and delivered to the Chairman, the
President, or the Secretary or to a meeting of the Trustees. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. Except to the extent expressly provided in a written agreement with the
Trust, no officer resigning and no officer removed shall have any right to any
compensation for any period following his or her resignation or removal, or any
right to damages on account of such removal.

ARTICLE IV.
Committees

A. Quorum; Voting. A majority of the members of any
Committee of the Trustees shall constitute a quorum for the transaction of
business, and any action of such a Committee may be taken at a meeting by a
vote of a majority of the members present (a quorum being present) or evidenced
by one or more writings signed by such a majority. Members of a Committee may
participate in a meeting of such Committee by means of a conference telephone
or other communications equipment by means of which all persons participating
in the meeting can hear each other at the same time and participation by such
means shall constitute presence in person at a meeting.

ARTICLE V.
Reports

A. General. The Trustees and officers shall render
reports at the time and in the manner required by the Declaration of Trust or
any applicable law. Officers

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<PAGE> 5
and Committees shall render such additional reports as they may deem desirable
or as may from time to time be required by the Trustees.

ARTICLE VI.
Fiscal Year

A. General. Except as from time to time otherwise
provided by the Trustees, the initial fiscal year of the Trust shall end on
such date as is determined in advance or in arrears by the Treasurer, and
subsequent fiscal years shall end on such date in subsequent years.

ARTICLE VII.
Seal

A. General. At the discretion of the Trustees, the
Trust may have a seal. The seal, if any, of the Trust shall consist of a
flat-faced die with the words "Massachusetts," together with the name of the
Trust and the year of its organization cut or engraved thereon but, unless
otherwise required by the Trustees, the seal shall not be necessary to be
placed on, and its absence shall not impair the validity of, any document,
instrument or other paper executed and delivered by or on behalf of the Trust.

ARTICLE VIII.
Execution of Papers

A. General. Except as the Trustees may generally or in
particular cases authorize the execution thereof in some other manner, all
deeds, leases, contracts, notes and other obligations made by the Trustees
shall be signed by the President, by any Vice President, by the Treasurer or by
the Secretary and need not bear the seal of the Trust.

ARTICLE IX.
Issuance of Share Certificates

A. Share Certificates. In lieu of issuing certificates
for Shares, the Trustees or the transfer agent may either issue receipts
therefor or may keep accounts upon the books of the Trust for the record
holders of such Shares, who shall in either case be deemed, for all purposes
hereunder, to be the holders of certificates for such

4
<PAGE> 6
Shares as if they had accepted such certificates and shall be held to have
expressly assented and agreed to the terms hereof.

The Trustees may at any time authorize the issuance of Share
certificates. In that event, each Shareholder shall be entitled to a
certificate stating the number of Shares owned by him or her, in such form as
shall be prescribed from time to time by the Trustees. Such certificates shall
be signed by the Chairman of the Trustees, the President or any Vice President
and by the Treasurer or Assistant Treasurer. Such signatures may be facsimile
if the certificate is signed by a transfer agent, or by a registrar, other than
a Trustee, officer or employee of the Trust. In case any officer who has
signed or whose facsimile signature has been placed on such certificate shall
cease to be such officer before such certificate is issued, it may be issued by
the Trust with the same effect as if he were such officer at the time of its
issue.

B. Loss of Certificates. In case of the alleged loss or
destruction or the mutilation of a Share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees shall
prescribe.

C. Issuance of New Certificates to Pledgee. A pledgee
of Shares transferred as collateral security shall be entitled to a new
certificate if the instrument of transfer substantially describes the debt or
duty that is intended to be secured thereby. Such new certificates shall
express on its face that it is held as collateral security, and the name of the
pledgor shall be stated thereon, who alone shall be liable as a Shareholder and
entitled to vote thereon.

D. Discontinuance of Issuance of Certificates. The
Trustees may at any time discontinue the issuance of Share certificates and
may, by written notice to each Shareholder, require the surrender of Share
certificates to the Trust for cancellation. Such surrender and cancellation
shall not affect the ownership of Shares in the Trust.

ARTICLE X.
Shareholders' Voting Powers and Meetings

A. Voting Powers. The Shareholders shall have power to
vote only (i) for the election of Trustees as provided in Article IV, Section 1
of the Declaration of Trust, provided, however, that no meeting of Shareholders
is required to be called for the purpose of electing Trustees unless and until
such time as less than a majority of the Trustees have been elected by the
Shareholders, (ii) with respect to any Manager or Sub-Adviser as provided in
Article IV, Section 6 of the Declaration of Trust to the extent required by the
1940 Act, (iii) with respect to any termination of this Trust to the

5
<PAGE> 7
extent and as provided in Article IX, Section 4 of the Declaration of Trust,
(iv) with respect to any amendment of the Declaration of Trust to the extent
and as provided in Article IX, Section 7 of the Declaration of Trust, (v) to
the same extent as the stockholders of a Massachusetts business corporation as
to whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders, and (vi) with respect to such additional matters relating
to the Trust as may be required by law, the Declaration of Trust, these Bylaws
or any registration of the Trust with the Commission (or any successor agency)
or any state, or as the Trustees may consider necessary or desirable. Each
whole Share shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional Share shall be entitled to a proportionate
fractional vote. The Shareholders of any particular series shall not be
entitled to vote on any matters as to which such series is not affected. The
Shareholders of any particular class shall not be entitled to vote on any
matters as to which such class is not affected. Except with respect to matters
as to which the Trustees have determined that only the interests of one or more
particular series or one or more classes are affected or as required by law,
all of the Shares of each series shall, on matters as to which it is entitled
to vote, vote with other series so entitled in the aggregate. Notwithstanding
the foregoing, with respect to matters which would otherwise be voted on by two
or more series in the aggregate, the Trustees may, in their sole discretion,
submit such matters to the Shareholders of any or all such series, separately.
There shall be no cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. A proxy with respect to Shares held in the name
of two or more persons shall be valid if executed by any one of them unless at
or prior to exercise of the proxy the Trust receives a specific written notice
to the contrary from any one of them. A proxy purporting to be executed by or
on behalf of a Shareholder shall be deemed valid unless challenged at or prior
to its exercise and the burden of proving invalidity shall rest on the
challenger. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, the Declaration of Trust
or these Bylaws to be taken by Shareholders.

B. Voting Power and Meetings. Meetings of the
Shareholders may be called by the Trustees for the purpose of electing Trustees
as provided in Article IV, Section 1 of the Declaration of Trust and for such
other purposes as may be prescribed by law, by the Declaration of Trust or by
these Bylaws. Meetings of the Shareholders may also be called by the Trustees
from time to time for the purpose of taking action upon any other matter deemed
by the Trustees to be necessary or desirable. A meeting of Shareholders may be
held at any place designated by the Trustees. Written notice of any meeting of
Shareholders shall be given or caused to be given by the Trustees by mailing
such notice at least seven days before such meeting, postage prepaid, stating
the time and place of the meeting, to each Shareholder at the Shareholder's
address as it appears on the records of the Trust. Whenever notice of a
meeting is required to be given to a Shareholder under the Declaration of Trust
or these Bylaws, a written waiver

6
<PAGE> 8
thereof, executed before or after the meeting by such Shareholder or his
attorney thereunto authorized and filed with the records of the meeting, shall
be deemed equivalent to such notice.

C. Quorum and Required Vote. A majority of Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, except that where any provision of law or of the
Declaration of Trust or these Bylaws permits or requires that (i) holders of
any series shall vote as a series, then a majority of the aggregate number of
Shares of that series entitled to vote shall be necessary to constitute a
quorum for the transaction of business by that series; or (ii) holders of any
class shall vote as a class, then a majority of the aggregate number of Shares
of that class entitled to vote shall be necessary to constitute a quorum for
the transaction of business by that class. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may be held,
within a reasonable time after the date set for the original meeting, without
the necessity of further notice. Except when a larger vote is required by any
provision of law or the Declaration of Trust or these Bylaws, a majority of the
Shares voted shall decide any questions and a plurality shall elect a Trustee,
provided that where any provision of law or of the Declaration of Trust or
these Bylaws permits or requires that the holders of any series or class shall
vote as a series or class, then a majority of the Shares of that series or
class, as the case may be, voted on the matter (or a plurality with respect to
the election of a Trustee) shall decide that matter insofar as that series or
class is concerned.

D. Action by Written Consent. Any action taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of law or the Declaration of Trust or these
Bylaws) consent to the action of writing and such written consents are filed
with the records of the meetings of Shareholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of Shareholders.

E. Record Dates. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to receive payment of any dividend or of any other
distribution, the Trustees may from time to time fix a time, which shall be not
more than 90 days before the date of any meeting of Shareholders or the date
for the payment of any dividend or of any other distribution, as the record
date for determining the Shareholders having the right to notice of and to vote
at such meeting and any adjournment thereof or the right to receive such
dividend or distribution, and in such case only Shareholders of record on such
record date shall have such right notwithstanding any transfer of Shares on the
books of the Trust after the record date; or without fixing such record date
the Trustees may for any of such purpose close the register or transfer books
for all or any part of such period.

7
<PAGE> 9
ARTICLE XI.
Amendments to the Bylaws

A. General. These Bylaws may be amended or repealed, in
whole or in part, by a majority of the Trustees then in office at any meeting
of the Trustees, or by one or more writings signed by such a majority.

Adopted as of May 9, 1995.

<PAGE> 1

AMENDED AND RESTATED TRANSFER AGENCY AGREEMENT
EXHIBIT 8(C)

<PAGE> 2

AMENDED AND RESTATED
TRANSFER AGENCY AGREEMENT

AGREEMENT made this 5th day of June 1995, between The Charles Schwab
Family of Funds (the "Trust"), a Massachusetts business trust having its
principal place of business at 101 Montgomery Street, San Francisco, California
94104, and CHARLES SCHWAB & CO., INC. ("Schwab"), a corporation organized under
the laws of the State of California which is a Securities and Exchange
Commission licensed transfer agent and which has its principal place of business
at 101 Montgomery Street, San Francisco, California 94104. WHEREAS, the Trust
desires that Schwab perform certain services for the Trust, and for its series
denominated as "Funds" and whose shares of beneficial interest comprise the
shares of the Trust identified on Schedule A hereto (individually referred to
herein as a "Fund" and collectively as the "Funds"); and

WHEREAS, Schwab is willing to perform such services on the terms and
conditions set forth in this Agreement;

NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:

1. SERVICES; USE OF SUBTRANSFER AGENTS. Schwab will perform for
the Trust the services set forth in Schedule B hereto, including services as
Transfer Agent.

Schwab also agrees to perform for the Trust such special services
incidental to the performance of the services enumerated herein as agreed to by
the parties from time to time. Schwab will perform such additional services as
are provided on an amendment to Schedule B hereof, in consideration of such
fees as the parties hereto may agree.

Schwab may, in its discretion, appoint in writing other parties
qualified to perform transfer agency and shareholder services (individually, a
"Subtransfer Agent") to carry out some or all of its responsibilities under
this Agreement with respect to a Fund; provided, however, that the Subtransfer
Agent will be the agent of Schwab and not the agent of the Trust or such Fund,
and that Schwab will be fully responsible for the acts of such Subtransfer
Agent and shall not be relieved of any of its responsibilities hereunder by the
appointment of such Subtransfer Agent.

<PAGE> 3

2. FEES. The Trust will pay Schwab for the services to be
provided by Schwab under this Agreement in accordance with, and in the manner
set forth in, Schedule C hereto. Schwab will not change the fees it charges
pursuant to the fee schedule until the expiration of one year from the
Effective Date of this Agreement (as defined below), unless the Trust otherwise
agrees to such change in writing; thereafter, Schwab may change its fees only
upon the written consent of the Trust. Fees for any additional services to be
provided by Schwab pursuant to an amendment to Schedule B hereto shall be
subject to mutual agreement at the time such amendment to Schedule B is
proposed.

3. REIMBURSEMENT OF EXPENSES. In addition to paying Schwab the
fees described in Section 2 hereof, the Trust agrees to reimburse Schwab for
Schwab's out-of-pocket expenses in providing services hereunder, including
without limitation the following:

A. All freight and other delivery and bonding charges
incurred by Schwab in delivering materials to and
from the Trust and in delivery of all materials to
shareholders;

B. All direct telephone, telephone transmission and
telecopy or other electronic transmission expenses
incurred by Schwab in communication with the Trust,
the Trust's investment adviser, sub-investment
advisers or custodian, dealers, shareholders or
others as required for Schwab to perform the services
to be provided hereunder;

C. Costs of postage, couriers, stock computer paper,
statements, labels, envelopes, checks, reports,
letters, tax forms, proxies, notices or other forms
of printed material which shall be required by Schwab
for the performance of the services to be provided
hereunder;

D. The cost of microfilm or microfiche of records or
other materials; and

E. Any expenses Schwab may incur at the written
direction of an officer of the Trust thereunto duly
authorized.

4. EFFECTIVE DATE. This Agreement will become effective with
respect to each Fund as of the date set forth across from its name on Schedule
A, such date for each Fund to be referred to herein as the "Effective Date."

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<PAGE> 4

5. TERM AND TERMINATION. This Agreement will continue in effect
with respect to the Trust and to each Fund, unless earlier terminated as to a
Fund by either party hereto as provided hereunder, for an initial term of one
year from the Effective Date. Thereafter, this Agreement will continue in
effect unless either party hereto terminates this Agreement with respect to a
Fund by giving 90 days' written notice to the other party, whereupon this
Agreement with respect to that Fund will terminate automatically upon the
expiration of said 90 days; provided, however, that after such termination, for
so long as Schwab, with the written consent of the Trust, in fact continues to
perform any one or more of the services contemplated by this Agreement or any
Schedule or exhibit hereto, the provisions of this Agreement, including without
limitation the provisions dealing with indemnification, shall continue in full
force and effect. Fees and out-of-pocket expenses incurred by Schwab but unpaid
by the Trust upon such termination shall be immediately due and payable upon and
notwithstanding such termination. Schwab will be entitled to collect from the
Trust, in addition to the fees and disbursements provided by Paragraphs 2 and 3
hereof, the amount of all of Schwab's cash disbursements and a reasonable fee
(which fee shall be not less than the actual costs incurred by Schwab in
performing such service) for services in connection with Schwab's activities in
effecting such termination, including without limitation, the delivery to the
Trust and/or its distributors or investment advisers and/or other parties, of
the Trust's property, records, instruments and documents, or any copies thereof.

6. SCHWAB'S RELIANCE ON RECORDS AND INSTRUCTIONS. Schwab may
rely on any written records or instructions provided to it by the Trust or any
investment adviser and on any written records provided by any prior transfer
agent or custodian thereof, and each Fund agrees to indemnify Schwab and hold
it, its employees, officers, directors and agents harmless from and against any
and all claims, demands, actions, suits, judgments, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature arising
out of or in any way relating to any actions taken by Schwab with respect to
such Fund in reasonable reliance upon such records or instructions.

7. UNCONTROLLABLE EVENTS. Schwab assumes no responsibility
hereunder, and will not be liable, for any damage, loss of data, delay or any
other loss whatsoever caused by events beyond its reasonable control.

8. STANDARD OF CARE. Schwab will use its best efforts to insure
the accuracy of all services performed under this Agreement, but will not be
liable to the Trust for any action taken or omitted by Schwab in the absence of
bad faith, willful misconduct or gross negligence.

-3-

<PAGE> 5

9. LEGAL ADVICE. Schwab will notify the Trust at any time Schwab
believes that it is in need of the advice of counsel (other than counsel in the
regular employ of Schwab or any affiliated companies) with regard to Schwab's
responsibilities and duties pursuant to this Agreement; and after so notifying
the Trust, Schwab, at its discretion, will be entitled to seek, receive and act
upon advice of legal counsel of its choosing, such advice to be at the expense
of the Trust or the Fund involved unless such advice relates to a matter
involving Schwab's bad faith, willful misconduct or gross negligence with
respect to Schwab's responsibilities and duties hereunder, and Schwab in no
event be liable to the Trust or the Fund involved or any shareholder or
beneficial owner of the Trust or such Fund for any action reasonably taken
pursuant to such advice.

10. INSTRUCTIONS. Whenever Schwab is requested or authorized to
take action hereunder pursuant to instructions from a shareholder concerning an
account in the Trust, Schwab will be entitled to rely upon any certificate,
letter or other instrument or communication, whether in writing or by electronic
or telephone transmission, believed by Schwab to be genuine and to have been
properly made, signed or authorized by an officer or other authorized agent of
the Trust or by the shareholder, as the case may be, and shall be entitled to
receive as conclusive proof of any fact or matter required to be ascertained by
it hereunder a certificate signed by an officer of the Trust or any other person
authorized by the Trust's Board of Trustees or by the shareholder, as the case
may be.

As to the services to be provided hereunder, Schwab may rely
conclusively upon the terms of the Prospectus of a Fund and the Statement of
Additional Information of the Trust to the extent that such services are
described therein unless Schwab receives written instructions to the contrary
in a timely manner from the Trust.

11. INDEMNIFICATION. Each Fund agrees to indemnify and hold
harmless Schwab and Schwab's employees, agents, directors, officers and nominees
from and against any and all claims, demands, actions and suits, whether
groundless or otherwise, and from and against any and all judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character arising out of or in any way relating to Schwab's
actions taken or non-actions with respect to the performance of services under
this Agreement with respect to such Fund or based, if applicable, upon
information, instructions or requests with respect to such Fund given or made to
Schwab by an officer of the Trust thereunto duly authorized; provided that this
indemnification shall not apply to actions or omissions of Schwab in cases of
its own bad faith, willful misconduct or gross negligence, and further provided
that prior to confessing any claim against it which may be the subject of

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<PAGE> 6

this indemnification, Schwab shall give the Trust written notice of and
reasonable opportunity to defend against said claim in its own name or in the
name of Schwab.

12. RECORD RETENTION AND CONFIDENTIALITY. Schwab will keep and
maintain on behalf of the Trust all records which the Trust or Schwab is, or may
be, required to keep and maintain pursuant to any applicable statutes, rules and
regulations, including without limitation Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940, relating to the maintenance of records in
connection with the services to be provided hereunder. Schwab agrees to make
such records available for inspection by the Trust or by the Securities and
Exchange Commission at reasonable times and otherwise to keep confidential all
records and other information relative to the Trust and its shareholders, except
when requested to divulge such information by duly-constituted authorities or
court process, or requested by a shareholder with respect to information
concerning an account as to which such shareholder has either a legal or
beneficial interest or when requested by the Trust, the shareholder, or the
dealer of record as to such account.

13. REPORTS. Schwab will furnish to the Trust and to the Trust's
properly-authorized auditors, investment advisers, examiners, distributors,
dealers, underwriters, salesmen, insurance companies and others designated by
the Trust in writing, such reports at such times as are prescribed in Schedule D
attached hereto, or as subsequently agreed upon by the parties pursuant to an
amendment to Schedule D. The Trust agrees to examine each such report or copy
promptly and will report or cause to be reported any errors or discrepancies
therein no later than three business days from the receipt thereof. In the
event that errors or discrepancies, except such errors and discrepancies as may
not reasonably be expected to be discovered by the recipient within three days
after conducting a diligent examination, are not so reported within the
aforesaid period of time, a report will for all purposes be accepted by and
binding upon the Trust and any other recipient, and Schwab shall have no
liability for errors or discrepancies therein and shall have no further
responsibility with respect to such report except to perform reasonable
corrections of such errors and discrepancies within a reasonable time after
requested to do so by the Trust.

14. RIGHTS OF OWNERSHIP. All computer programs and procedures
developed to perform services required to be provided by Schwab under this
Agreement are the property of Schwab. All records and other data except such
computer programs and procedures are the exclusive property of the Trust and
all such other records and data will be furnished to the Trust in appropriate
form as soon as practicable after termination of this Agreement for any reason.

-5-

<PAGE> 7

15. RETURN OF RECORDS. Schwab may at its option at any time, and
shall promptly upon the Trust's demand, turn over to the Trust and cease to
retain Schwab's files, records and documents created and maintained by Schwab
pursuant to this Agreement which are no longer needed by Schwab in the
performance of its services or for its legal protection. If not so turned over
to the Trust, such documents and records will be retained by Schwab for six
years from the year of creation. At the end of such six-year period, such
records and documents will be turned over to the Trust unless the Trust
authorizes in writing the destruction of such records and documents.

16. BANK ACCOUNTS. The Trust and a Fund shall establish and
maintain such bank accounts with such bank or banks as are selected by the
Trust, as are necessary in order that Schwab may perform the services required
to be performed hereunder. To the extent that the performance of such services
shall require Schwab directly to disburse amounts for payment of dividends,
redemption proceeds or other purposes, the Trust and a Fund will provide such
bank or banks with all instructions and authorizations necessary for the Fund
to effect such disbursements.

17. PURCHASE AND REDEMPTION OF SHARES. Schwab will process
instructions from the Shareholders of the Trust to purchase and redeem shares
of the Trust as the agent for the Trust.

With respect to those funds identified on Schedule A hereto as "Sweep
Funds" (if any), Schwab will perform such daily, weekly or other periodic
monitoring as is necessary to carry out the automatic investment and redemption
features associated with each individual shareholder's account.

18. REPRESENTATIONS OF THE TRUST. The Trust certifies to Schwab
that: (1) as of the close of business on the Effective Date, each Fund has
authorized unlimited shares and (2) by virtue of its Declaration of Trust,
shares of each Fund which are redeemed by the Trust may be sold by the Trust
from its treasury and (3) this Agreement has been duly authorized by the Trust
and, when executed and delivered by the Trust, will constitute a legal, valid
and binding obligation of the Trust, enforceable against the Trust in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.

19. REPRESENTATIONS OF SCHWAB. Schwab represents and warrants
that the various procedures and systems which Schwab has implemented with
regard to safeguarding from loss or damage attributable to fire, theft, or any
other cause of the blank checks, records,

-6-

<PAGE> 8

and other data of the Trust and Schwab's records, data, equipment facilities
and other property used in the performance of its obligations hereunder are
adequate and that it will make such changes therein from time to time as are
required for the secure performance of its obligations hereunder.

20. INSURANCE. Schwab will use reasonable efforts to obtain
insurance covering the services to be performed by it under this Agreement and
shall notify the Trust in the event it is unable to do so within 90 days after
the Effective Date of this Agreement. Thereafter, Schwab will notify the Trust
should any of its insurance coverage be changed for any reason. Such
notification shall include the date of change and the reasons therefor. Schwab
will notify the Trust of any material claims against it with respect to
services performed under this Agreement, whether or not they may be covered by
insurance, and shall notify the Trust from time to time as may be appropriate
of the total outstanding claims made by Schwab under its insurance coverage.

21. INFORMATION TO BE FURNISHED BY THE TRUST. The Trust has
furnished to Schwab the following:

A. Copies of the Declaration of Trust of the Trust and
of any amendments thereto, certified by the proper
official of the state in which such Declaration has
been filed.

B. Copies of the following documents:

1. The Trust's Bylaws and any amendments thereto.

2. Certified copies of resolutions of the Board
of Trustees covering the following matters:

a. Approval of this Agreement,
authorization of an officer of the
Trust to execute and deliver this
Agreement and authorization for
officers of the Trust to instruct
Schwab hereunder; and

b. Authorization of Schwab to act as
Registrar, Transfer Agent and
Dividend Disbursing Agent for the
Trust.

-7-

<PAGE> 9
C. A list of all the officers of the Trust, together
with specimen signatures of those officers who are
authorized to instruct Schwab in all matters.

D. Two copies of the following (if such documents are
employed by the Trust):

1. Prospectuses for each Fund and the Statement
of Additional Information of the Trust;

2. Distribution Agreement;

3. Investment Advisory and Administration
Agreement(s); and

4. All other forms commonly used by the Trust or
its Distributor with regard to their
relationships and transactions with
shareholders of the Trust.

E. A certified statement as to shares of beneficial
interest of the Trust authorized, issued, and
outstanding as of the Effective Date of Schwab's
appointment as Transfer Agent (or as of the date on
which Schwab's services are commenced, whichever is
the later date) and as to receipt of full
consideration by the Trust for all shares
outstanding, such statement to be certified by the
Treasurer of the Trust;

22. INFORMATION FURNISHED BY SCHWAB. Schwab has furnished to the
Trust the following:

A. Schwab's Articles of Incorporation.

B. Schwab's By-Laws and any amendments thereto.

C. Certified copies of actions of Schwab covering the
following matters:

1. Approval of this Agreement, and authorization
of an officer of Schwab to execute and
deliver this Agreement; and

2. Authorization of Schwab to act as Transfer
Agent for the Trust.

-8-

<PAGE> 10

23. AMENDMENTS TO DOCUMENTS. The Trust shall furnish Schwab
written copies of any amendments to, and changes in, any of the items referred
to in Section 21 hereof forthwith upon such amendments and changes becoming
effective. In addition, the Trust agrees that no amendments will be made to
the Prospectus of a Fund or the Statement of Additional Information of the
Trust which might have the effect of changing the procedures employed by Schwab
in providing the services agreed to hereunder or which amendment might affect
the duties of Schwab hereunder unless the Trust first obtains Schwab's approval
of such amendments or changes.

24. RELIANCE ON AMENDMENTS. Schwab may rely on any amendments to
or changes in any of the documents and other items to be provided by the Trust
pursuant to Sections 21 and 23 of this Agreement and a Fund will indemnify and
hold harmless Schwab from and against any and all claims, demands, actions,
suits, judgments, liabilities, losses, damages, actions, suits, judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses
of every nature and character which may result from actions or omissions on the
part of Schwab with respect to such Fund in reliance upon such amendments
and/or changes. Although Schwab is authorized to rely on the above-mentioned
amendments to and changes in the documents and other items to be provided
pursuant to Sections 21 and 23 hereof, Schwab will be under no duty to comply
with or take any action as a result of any of such amendments or changes unless
the Trust first obtains Schwab's written consent to and approval of such
amendments or changes.

25. COMPLIANCE WITH LAW. Except for the obligations of Schwab set
forth in Section 12 hereof, the Trust assumes full responsibility for the
preparation, contents and distribution of each Prospectus of the Trust, as to
compliance with all applicable requirements of the Securities Act of 1933, as
amended, the Investment Company Act of 1940, as amended, and any other laws,
rules and regulations of governmental authorities having jurisdiction. Schwab
will have no obligation to take cognizance of any laws relating to the sale of
the Trust's shares.

26. NOTICES. Any notice provided hereunder shall be sufficient
given when sent by registered or certified mail to the party required to be
served with such notice, at the following address: 101 Montgomery Street, San
Francisco, California 94104 or at such other address as such party may from
time to time specify in writing to the other party pursuant to this Section.

27. HEADINGS. Paragraph headings in this Agreement are included
for convenience only and are not to be used to construe or interpret this
Agreement.

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<PAGE> 11

28. ASSIGNMENT. This Agreement and the rights and duties
hereunder shall not be assignable with respect to a Fund by either of the
parties hereto except by the specific written consent of the other party. This
Section 28 shall not limit or in any way affect Schwab's right to appoint a
Subtransfer Agent pursuant to Section 1 hereof.

29. GOVERNING LAW. This Agreement shall be governed by and
provisions shall be construed in accordance with the laws of the State of
California.

30. LIMITATION OF LIABILITY. A copy of the Declaration of Trust
of the Trust is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed on
behalf of the Trustees of the Trust as Trustees and not individually and that
the obligations of this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets and property of
the Trust.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed all as of the day and year first above written.

THE CHARLES SCHWAB FAMILY OF FUNDS

By: /s/ William J. Klipp
--------------------------------
Name: William J. Klipp
Title: Senior Vice President, Chief
Operating Officer and Trustee

CHARLES SCHWAB & CO., INC.

By: /s/ Colleen M. Hummer
--------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President

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<PAGE> 12
SCHEDULE A

<TABLE>
<CAPTION>
Name of Fund Effective Date
------------ --------------
<S> <C>
Schwab Money Market Fund May 1, 1993

Schwab Government Money Fund May 1, 1993

Schwab Tax-Exempt Money Fund May 1, 1993
-- Sweep Class

Schwab Tax-Exempt Money Fund June 6, 1995
-- Value Advantage Class

Schwab California Tax-Exempt Money Fund May 1, 1993
-- Sweep Class

Schwab California Tax-Exempt Money Fund June 6, 1995
-- Value Advantage Class

Schwab U.S. Treasury Money Fund May 1, 1993

Schwab New York Tax-Exempt Money Fund November 10, 1994
-- Sweep Class

Schwab New York Tax-Exempt money Fund June 6, 1995
-- Value Advantage Class
</TABLE>

A-1

<PAGE> 13

<TABLE>
<CAPTION>
Name of Fund Effective Date
------------ --------------
<S> <C>
Schwab Value Advantage Money Fund May 1, 1993

Schwab Institutional Advantage Money Fund November 26, 1993

Schwab Retirement Money Fund November 26, 1993
</TABLE>

THE CHARLES SCHWAB FAMILY OF FUNDS

By: /s/ William J. Klipp
--------------------------------
Name: William J. Klipp
Title: Senior Vice President, Chief
Operating Officer and Trustee

CHARLES SCHWAB & CO., INC.

By: /s/ Colleen M. Hummer
--------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President

Dated: June 5, 1995

<PAGE> 14

SCHEDULE B

TRANSFER AGENCY SERVICES

I. Record Maintenance.

Schwab will provide full maintenance of all shareholder records for
each account in the Trust. Such records will include:

A. Share balance;

B. Account transaction history, including dividends paid and the
date and price for all transactions;

C. Name and address of the record shareholder (including zip
codes and tax identification numbers but will not include
responsibility for obtaining certified tax identification
numbers or impending back-up withholding);

D. Records of distributions and dividend payments;

E. Transfer records; and

F. Overall control records.

II. Regular Daily Operations.

A. Schwab will perform the following functions for the Trust,
including all classes of shares of the Trust:

1. Process new accounts on the shareholder file by
processing directly from the Trust's distributor
or dealer;

2. Process additional purchases to the records of
accounts already on the shareholder file. In such
instances, on the distributor's or dealer's
instructions, allocate investor payments among the
Funds;

3. Transfer shares upon the receipt of proper
instructions from distributor or dealer; and

B-1

<PAGE> 15

4. Process changes of dealer/representative on accounts.

B. Schwab will perform the following function only for the Funds
of the Trust that are not offered in multiple classes and for the Sweep Shares
of each Fund of the Trust that is offered in multiple classes:

1. Process purchases and redemptions to accounts already
on the shareholder file in accordance with the terms
of all automatic purchase and redemption provisions
set forth in shareholders' account relationship with
the Trust's distributor.

III. Periodic Operations.

A. Upon receipt of instructions as to payment of dividends and
distributions, which may be standing instructions, compute
distributions and inform the Trust of the amount to be
reinvested in additional shares.

B. Process redemptions as instructed by distributor or dealer.

C. Mail semi-annual and annual Trust and/or Fund reports and
prospectuses.

D. Produce transcripts of account history as requested by the
Trust or by the distributor or dealer.

E. Prepare and file Form 1099's with Internal Revenue Service.

IV. Controls.

A. Maintain all balance controls daily and produce monthly
summaries expressed in:

1. shares; and

2. dollar amounts.

B-2

<PAGE> 16
V. Special Services Included.

A. Prepare envelopes/labels (from address data supplied by
distributor or dealer as to transmission accounts) and mail
proxy statements; tabulate and certify votes from returned
ballots.

THE CHARLES SCHWAB FAMILY OF FUNDS

By: /s/ William J. Klipp
--------------------------------
Name: William J. Klipp
Title: Senior Vice President, Chief
Operating Officer and Trustee

CHARLES SCHWAB & CO., INC.

By: /s/ Colleen M. Hummer
--------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President

B-3
<PAGE> 17
SCHEDULE C

FEES

<TABLE>
<CAPTION>
Name of Fund Fee
- ------------ ---
<S> <C>
Schwab Money Market Fund An annual fee, payable monthly, of twenty-five
one-hundredths of one percent (.25%) of the Fund's
average daily net assets

Schwab Government Money Fund An annual fee, payable monthly, of twenty-five
one-hundredths of one percent (.25%) of the Fund's
average daily net assets

Schwab Tax-Exempt Money Fund An annual fee, payable monthly, of twenty-
-- Sweep Class five one-hundredths of one percent (.25%) of the
Fund's average daily net assets

Schwab Tax-Exempt Money Fund An annual fee, payable monthly, of five
-- Value Advantage Class one-hundredths of one percent (.05%) of the Fund's
average daily net assets

Schwab California Tax-Exempt Money An annual fee, payable monthly, of twenty-five
Fund -- Sweep Class one-hundredths of one percent (.25%) of the Fund's
average daily net assets

Schwab California Tax-Exempt Money An annual fee, payable monthly, of five
Fund -- Value Advantage Fund one-hundredths of one percent (.05%) of the Fund's
average daily net assets

Schwab U.S. Treasury Money Fund An annual fee, payable monthly, of twenty-five
one-hundredths of one percent (.25%) of the
Fund's average daily net assets

Schwab New York Tax-Exempt Money An annual fee, payable monthly, of twenty-five
Fund -- Sweep Class one-hundredths of one percent (.25%) of the Fund's
average daily net assets
</TABLE>

C-1
<PAGE> 18

Schwab New York Tax-Exempt Money An annual fee, payable monthly, of five
Fund -- Sweep Class one-hundredths of one percent (.05%) of the Fund's
average daily net assets

Schwab Value Advantage Money Fund An annual fee, payable monthly, of five one-
hundredths of one percent (.05%) of the Fund's
average daily net assets

Schwab Institutional Advantage Money An annual fee, payable monthly, of five one-
Fund hundredths of one percent (.05%) of the Fund's
average daily net assets

Schwab Retirement Money Fund An annual fee, payable monthly, of five one-
hundredths of one percent (.05%) of the Fund's
average daily net assets
</TABLE>

THE CHARLES SCHWAB FAMILY OF FUNDS

By: /s/ William J. Klipp
-------------------------------
Name: William J. Klipp
Title: Senior Vice President, Chief
Operating Officer and Trustee

CHARLES SCHWAB & CO., INC.

By: /s/ Colleen M. Hummer
--------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President

Dated: June 5, 1995

C-2
<PAGE> 19
SCHEDULE D

REPORTS

I. Daily Activity Report (liquidations processed that day)

II. Daily Share Summary Report (by Fund)

A. Beginning balance

B. Liquidations

C. Payments

D. Exchanges

E. Adjustments

F. Ending Balance

G. Sales by each State and jurisdiction

III. Daily Proof Sheet Summary and Transaction Register

IV. Daily Share Reconciliation Report (reconciling Share Summary Report to
Daily Proof Summary Sheet)

V. Weekly Position Reports (showing all account balances)

VI. Monthly Dividend Reports

D-1
<PAGE> 20
VII. Report by independent public accountants concerning Schwab's
accounting system and internal accounting controls, at such times, as
the Trust may reasonably require. These reports shall be of
sufficient detail and scope to provide reasonable accuracy that any
material inadequacies would be disclosed by such examination, and, if
there are no such inadequacies, shall state.

THE CHARLES SCHWAB FAMILY OF FUNDS

By: /s/ William J. Klipp
-------------------------------
Name: William J. Klipp
Title: Senior Vice President, Chief
Operating Officer and Trustee

CHARLES SCHWAB & CO., INC.

By: /s/ Colleen M. Hummer
--------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President

D-2

<PAGE> 1

CONSENT OF ROPES & GRAY
EXHIBIT 11(A)
<PAGE> 2

CONSENT OF COUNSEL

We hereby consent to the use of our name and to the reference to our
firm under the caption "Legal Counsel" included in or made a part of
Post-Effective Amendment No. 18 to the Registration Statement of The Charles
Schwab Family of Funds on Form N-1A (Nos. 33-31894 and 811-05954) under the
Securities Act of 1933, as amended.

/s/ Ropes & Gray

ROPES & GRAY

Washington, D.C.
April 7, 1995

<PAGE> 1

CONSENT OF PRICE WATERHOUSE LLP
EXHIBIT 11(B)
<PAGE> 2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this Post-Effective
Amendment No. 19 to the registration statement of The Charles Schwab Family of
Funds on Form N-1A (the "Registration Statement") of our reports dated January
31, 1995, relating to the financial statements of the Schwab Money Market Fund,
the Schwab Government Money Fund, the Schwab U.S. Treasury Money Fund, the
Schwab Tax-Exempt Money Fund, the Schwab California Tax-Exempt Money Fund, the
Schwab New York Tax-Exempt Money Fund, the Schwab Institutional Advantage Money
Fund, the Schwab Retirement Money Fund and the Schwab Value Advantage Fund,
which are also incorporated by reference into the Registration Statement. We
also consent to the references to us under the heading "Accountants and Reports
to Shareholders" in such Statements of Additional Information and to the
references to us under the heading "Financial Highlights" and "Accountants" in
such Prospectuses.

/s/ Price Waterhouse LLP
- ----------------------------
Price Waterhouse LLP
San Francisco, California
June 2, 1995

<PAGE> 1

PURCHASE AGREEMENT FOR
SCHWAB TAX-EXEMPT MONEY FUND--VALUE ADVANTAGE SHARES
EXHIBIT 13(E)
<PAGE> 2

PURCHASE AGREEMENT

The Charles Schwab Family of Funds (the "Trust"), a Massachusetts
business trust, and Charles Schwab & Co., Inc. ("Schwab"), a California
corporation, hereby agree as follows:

1. The Trust hereby offers and Schwab hereby purchases 1,000
units of beneficial interest of the Value Advantage Shares of the series of
shares known as the Schwab Tax-Exempt Money Fund (such 1,000 units of
beneficial interest being hereafter collectively known as "Shares") at a price
of $1.00 per Share. Schwab hereby acknowledges purchase of the Shares and the
Trust hereby acknowledges receipt from Schwab of funds in the amount of $1,000
for the Shares of the Trust in full payment for the Shares. It is further
agreed that no certificate for the Shares will be issued by the Trust.

2. Schwab represents and warrants to the Trust that the Shares
are being acquired for investment purposes and not with a view of the
distribution thereof.

3. The names "The Charles Schwab Family of Funds" and "Trustees
of The Charles Schwab Family of Funds" refer, respectively, to the Trust
created and the Trustees as Trustees but not individually or personally, acting
from time to time under an Agreement and Declaration of Trust dated as of
October 20, 1989, as amended and restated on May 9, 1995, to which reference is
hereby made and a copy of which is on file at the Office of the Secretary of
State of the Commonwealth of Massachusetts and elsewhere as required by law,
and to any and all amendments thereto so filed or hereafter filed. The
obligations of "The Charles Schwab Family of Funds" entered into in the name or
on behalf thereof by any of the Trustees, representatives or agents are not
made individually, but only in such capacities, and are not binding upon any of
the Trustees, Shareholders or representatives of the Trust personally, but bind
only the assets of the Trust, and all persons dealing with any series of Shares
of the Trust must look solely to the assets of the Trust belonging to such
series for the enforcement of any claims against the Trust.

<PAGE> 3

IN WITNESS WHEREOF, the parties hereto have executed the Agreement as
of the 5th day of June 1995.

THE CHARLES SCHWAB FAMILY OF FUNDS

By: /s/ William J. Klipp
---------------------------------
Name: William J. Klipp
Title: Senior Vice President, Chief
Operating Officer and Trustee

CHARLES SCHWAB & CO., INC.

By: /s/ Elizabeth G. Sawi
---------------------------------
Name: Elizabeth G. Sawi
Title: Executive Vice President

-2-

<PAGE> 1

PURCHASE AGREEMENT FOR
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND--VALUE ADVANTAGE SHARES
EXHIBIT 13(F)
<PAGE> 2

PURCHASE AGREEMENT

The Charles Schwab Family of Funds (the "Trust"), a Massachusetts
business trust, and Charles Schwab & Co., Inc. ("Schwab"), a California
corporation, hereby agree as follows:

1. The Trust hereby offers and Schwab hereby purchases 1,000
units of beneficial interest of the Value Advantage Shares of the series of
shares known as the Schwab California Tax-Exempt Money Fund (such 1,000 units
of beneficial interest being hereafter collectively known as "Shares") at a
price of $1.00 per Share. Schwab hereby acknowledges purchase of the Shares
and the Trust hereby acknowledges receipt from Schwab of funds in the amount of
$1,000 for the Shares of the Trust in full payment for the Shares. It is
further agreed that no certificate for the Shares will be issued by the Trust.

2. Schwab represents and warrants to the Trust that the Shares
are being acquired for investment purposes and not with a view of the
distribution thereof.

3. The names "The Charles Schwab Family of Funds" and "Trustees
of The Charles Schwab Family of Funds" refer, respectively, to the Trust
created and the Trustees as Trustees but not individually or personally, acting
from time to time under an Agreement and Declaration of Trust dated as of
October 20, 1989, as amended and restated on May 9, 1995, to which reference is
hereby made and a copy of which is no file at the Office of the Secretary of
State of the Commonwealth of Massachusetts and elsewhere as required by law,
and to any and all amendments thereto so filed or hereafter filed. The
obligations of "The Charles Schwab Family of Funds" entered into in the name or
on behalf thereof by any of the Trustees, representatives or agents are not
made individually, but only in such capacities, and are not binding upon any of
the Trustees, Shareholders or representatives of the Trust personally, but bind
only the assets of the Trust, and all persons dealing with any series of Shares
of the Trust must look solely to the assets of the Trust belonging to such
series for the enforcement of any claims against the Trust.

<PAGE> 3

IN WITNESS WHEREOF, the parties hereto have executed the Agreement as
of the 5th day of June 1995.

THE CHARLES SCHWAB FAMILY OF FUNDS

By: /s/ William J. Klipp
--------------------------------------
Name: William J. Klipp
Title: Senior Vice President, Chief Operating
Officer and Trustee

CHARLES SCHWAB & CO., INC.

By: /s/ Elizabeth G. Sawi
--------------------------------------
Name: Elizabeth G. Sawi
Title: Executive Vice President

-2-

<PAGE> 1

PURCHASE AGREEMENT FOR
SCHWAB NEW YORK TAX-EXEMPT MONEY FUND--VALUE ADVANTAGE SHARES
EXHIBIT 13(G)
<PAGE> 2

PURCHASE AGREEMENT

The Charles Schwab Family of Funds (the "Trust"), a Massachusetts
business trust, and Charles Schwab & Co., Inc. ("Schwab"), a California
corporation, hereby agree as follows:

1. The Trust hereby offers and Schwab hereby purchases 1,000
units of beneficial interest of the Value Advantage Shares of the series of
shares known as the Schwab New York Tax-Exempt Money Fund (such 1,000 units of
beneficial interest being hereafter collectively known as "Shares") at a price
of $1.00 per Share. Schwab hereby acknowledges purchase of the Shares and the
Trust hereby acknowledges receipt from Schwab of funds in the amount of $1,000
for the Shares of the Trust in full payment for the Shares. It is further
agreed that no certificate for the Shares will be issued by the Trust.

2. Schwab represents and warrants to the Trust that the Shares
are being acquired for investment purposes and not with a view of the
distribution thereof.

<PAGE> 3

IN WITNESS WHEREOF, the parties hereto have executed the Agreement as
of the 5th day of June 1995.

THE CHARLES SCHWAB FAMILY OF FUNDS

By: /s/ William J. Klipp
------------------------------------------
Name: William J. Klipp
Title: Senior Vice President, Chief Operating
Officer and Trustee

CHARLES SCHWAB & CO., INC.

By: /s/ Elizabeth G. Sawi
------------------------------------------
Name: Elizabeth G. Sawi
Title: Executive Vice President

-2-

<PAGE> 1

MULTIPLE CLASS PLAN
EXHIBIT 18
<PAGE> 2

THE CHARLES SCHWAB FAMILY OF FUNDS

MULTIPLE CLASS PLAN

This constitutes a MULTIPLE CLASS PLAN (the "Plan") of THE CHARLES
SCHWAB FAMILY OF FUNDS, a Massachusetts business trust (the "Trust"), adopted
pursuant to Rule 18f-3(d) under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Plan is applicable to each of the Trust's investment
portfolios identified on Schedule A hereto, as such Schedule may be amended
from time to time (each a "Fund" and collectively the "Funds").

WHEREAS, it is desirable to enable the Trust to have flexibility in
meeting the investment and shareholder servicing needs of its current and
future investors; and

WHEREAS, the Board of Trustees of the Trust (the "Board of Trustees"),
including a majority of the Trustees who are not "interested persons" of the
Trust, as such term is defined by the 1940 Act, mindful of the requirements
imposed by Rule 18f-3(d) under the 1940 Act, has determined to adopt this Plan
to enable the Funds to provide appropriate services to certain designated
classes of shareholders of the Funds;

NOW, THEREFORE, the Trust designates the Plan as follows:

1. Designation of Classes. Each Fund shall offer its units of
beneficial interest ("Shares") in two classes: Sweep Shares and Value
Advantage Shares.

2. Redesignation of Existing Shares. The currently outstanding
Shares of each Fund shall be redesignated as Sweep Shares.

3. Shareholder Services Specific to Each Class. Transfer agency
services providing for the automatic purchases and redemptions of Shares of the
Funds shall be offered only with respect to Sweep Shares, and not Value
Advantage Shares. Accordingly, the transfer agency fee charged to Sweep Shares
shall be higher than that charged to Value Advantage Shares, as set forth on
Schedule A hereto and in the Transfer Agency Agreement, as may be amended from
time to time, between the Funds and Charles Schwab & Co., Inc. (the "Transfer
Agent") dated June 5, 1995.

4. Minimum Transaction Requirements. The minimum initial investment,
subsequent investment, and Fund balance requirements applicable to Value
Advantage Shares shall be higher than those applicable to Sweep Shares, as
determined from time to time by Charles Schwab Investment Management, Inc.
("CSIM"), subject to the ratification by the Board of Trustees (the "Board of
Trustees") of the Trust.

5. Exchange Privilege. Value Advantage Shares and Sweep Shares shall
be

1
<PAGE> 3

exchangeable for shares of any Fund of the Trust or of Schwab Investments, and
Schwab Capital Trust, including all classes of shares of such Funds, provided
that the minimum investment, and any other requirements of the Fund or class
for which the shares are exchanged are satisfied.

6. Allocation of Expenses. Fund expenses shall be allocated to each
class on the basis of such class' relative net assets (settled shares). Expenses
attributable to a particular class shall be borne entirely by that class.

7. Voting. Shareholders of a class of shares shall vote exclusively
as a class on any matter relating solely to the arrangement of such class as a
class and on any matter in which the interests of that class differ from the
interests of another class.

8. Termination and Amendment. This Plan may be terminated or
materially amended at any time by vote of a majority of the Board of Trustees,
including a majority of the Trustees who are not interested persons of the
Trust, as such term is defined by the 1940 Act. Any non-material amendment of
this Plan may be made by CSIM.

9. The names "The Charles Schwab Family of Funds" and "Board of
Trustees" refer respectively to the Trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under a Declaration
of Trust, to which reference is hereby made and a copy of which is on file at
the office of the Secretary of the Commonwealth of Massachusetts and elsewhere
as required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The Charles Schwab Family of Funds" entered into in
the name or on behalf thereof by any of the Trustees, representatives or agents
are made not individually, but in such capacities, and are not binding upon any
of the Trustees, Shareholders or representatives of the Trust personally, but
bind only the assets of the Trust, and all persons dealing with any series
and/or class of Shares of the Trust must look solely to the assets of the Trust
belonging to such series and/or class for the enforcement of any claims against
the Trust.

THE CHARLES SCHWAB FAMILY OF FUNDS

By: /s/ William J. Klipp
--------------------------------------
Title: Senior Vice President, Chief Operating
Officer and Trustee
Date: June 5, 1995

<PAGE> 4

SCHEDULE A TO THE
MULTIPLE CLASS PLAN OF
THE CHARLES SCHWAB FAMILY OF FUNDS

<TABLE>
<CAPTION>
Transfer Agency Fee (as a
percentage of the average
daily net assets of the Fund
Name of Fund and Class Class)
- ---------------------- ----------------------------
<S> <C>
Schwab Tax-Exempt Money Fund - Sweep Shares .20%

Schwab Tax-Exempt Money Fund - Value Advantage Shares .05%

Schwab California Tax-Exempt Money Fund - Sweep Shares .20%

Schwab California Tax-Exempt Money Fund - Value Advantage Shares .05%

Schwab New York Tax-Exempt Money Fund - Sweep Shares .20%

Schwab New York Tax-Exempt Money Fund - Value Advantage Shares .05%
</TABLE>

THE CHARLES SCHWAB FAMILY OF FUNDS

By: /s/ William J. Klipp
--------------------------------------
Title: Senior Vice President, Chief Operating
Officer and Trustee
Date: June 5, 1995

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> SCHWAB MONEY MARKET FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 11,278,752
<INVESTMENTS-AT-VALUE> 11,278,752
<RECEIVABLES> 25,024
<ASSETS-OTHER> 251
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,304,027
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 76,722
<TOTAL-LIABILITIES> 76,722
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,227,659
<SHARES-COMMON-STOCK> 11,227,659
<SHARES-COMMON-PRIOR> 8,164,829
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (354)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 11,227,308
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 446,812
<OTHER-INCOME> 0
<EXPENSES-NET> 75,160
<NET-INVESTMENT-INCOME> 371,652
<REALIZED-GAINS-CURRENT> (124)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 371,652
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 371,652
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,194,342
<NUMBER-OF-SHARES-REDEEMED> 24,455,432
<SHARES-REINVESTED> 323,920
<NET-CHANGE-IN-ASSETS> 3,062,706
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (230)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 42,102
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 91,187
<AVERAGE-NET-ASSETS> 10,100,576
<PER-SHARE-NAV-BEGIN> $1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> $1.00
<EXPENSE-RATIO> .007
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> SCHWAB GOVERNMENT MONEY FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,903,273
<INVESTMENTS-AT-VALUE> 1,903,273
<RECEIVABLES> 6,729
<ASSETS-OTHER> 75
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,910,077
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,749
<TOTAL-LIABILITIES> 12,749
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,897,435
<SHARES-COMMON-STOCK> 1,897,435
<SHARES-COMMON-PRIOR> 1,744,687
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (107)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,897,328
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 82,497
<OTHER-INCOME> 0
<EXPENSES-NET> 14,249
<NET-INVESTMENT-INCOME> 68,248
<REALIZED-GAINS-CURRENT> (23)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 68,225
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 68,248
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,092,811
<NUMBER-OF-SHARES-REDEEMED> 4,001,651
<SHARES-REINVESTED> 61,588
<NET-CHANGE-IN-ASSETS> 152,725
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (84)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,356
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 17,694
<AVERAGE-NET-ASSETS> 1,916,406
<PER-SHARE-NAV-BEGIN> $1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> $1.00
<EXPENSE-RATIO> .007
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> SCHWAB U.S. TREASURY MONEY FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 802,980
<INVESTMENTS-AT-VALUE> 802,980
<RECEIVABLES> 80,327
<ASSETS-OTHER> 76
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 883,383
<PAYABLE-FOR-SECURITIES> 74,820
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,692
<TOTAL-LIABILITIES> 79,512
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 803,943
<SHARES-COMMON-STOCK> 803,943
<SHARES-COMMON-PRIOR> 378,170
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (72)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 803,871
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,705
<OTHER-INCOME> 0
<EXPENSES-NET> 3,472
<NET-INVESTMENT-INCOME> 19,233
<REALIZED-GAINS-CURRENT> (45)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 19,188
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19,233
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,791,760
<NUMBER-OF-SHARES-REDEEMED> 1,381,420
<SHARES-REINVESTED> 15,433
<NET-CHANGE-IN-ASSETS> 425,728
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (27)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,458
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,348
<AVERAGE-NET-ASSETS> 534,278
<PER-SHARE-NAV-BEGIN> $1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> $1.00
<EXPENSE-RATIO> .006
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> SCHWAB TAX-EXEMPT MONEY FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 3,037,584
<INVESTMENTS-AT-VALUE> 3,037,584
<RECEIVABLES> 33,311
<ASSETS-OTHER> 262
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,071,157
<PAYABLE-FOR-SECURITIES> 40,702
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,504
<TOTAL-LIABILITIES> 55,206
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,017,778
<SHARES-COMMON-STOCK> 3,017,778
<SHARES-COMMON-PRIOR> 2,423,558
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,827)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,015,951
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 84,171
<OTHER-INCOME> 0
<EXPENSES-NET> 18,493
<NET-INVESTMENT-INCOME> 65,678
<REALIZED-GAINS-CURRENT> (1,586)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 64,092
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 65,678
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,184,151
<NUMBER-OF-SHARES-REDEEMED> 7,647,595
<SHARES-REINVESTED> 57,664
<NET-CHANGE-IN-ASSETS> 592,634
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (241)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12,067
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 25,957
<AVERAGE-NET-ASSETS> 2,841,779
<PER-SHARE-NAV-BEGIN> $1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> $1.00
<EXPENSE-RATIO> .006
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,302,601
<INVESTMENTS-AT-VALUE> 1,302,601
<RECEIVABLES> 7,667
<ASSETS-OTHER> 127
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,310,395
<PAYABLE-FOR-SECURITIES> 10,311
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,201
<TOTAL-LIABILITIES> 16,512
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,294,555
<SHARES-COMMON-STOCK> 1,294,555
<SHARES-COMMON-PRIOR> 1,062,114
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (672)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,293,883
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 35,503
<OTHER-INCOME> 0
<EXPENSES-NET> 7,895
<NET-INVESTMENT-INCOME> 27,608
<REALIZED-GAINS-CURRENT> (600)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 27,008
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 27,608
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,435,641
<NUMBER-OF-SHARES-REDEEMED> 3,227,316
<SHARES-REINVESTED> 24,116
<NET-CHANGE-IN-ASSETS> 231,841
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (72)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,528
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11,509
<AVERAGE-NET-ASSETS> 1,226,313
<PER-SHARE-NAV-BEGIN> $1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> $1.00
<EXPENSE-RATIO> .006
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> SCHWAB RETIREMENT MONEY FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> MAR-02-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 31,572
<INVESTMENTS-AT-VALUE> 31,572
<RECEIVABLES> 99
<ASSETS-OTHER> 62
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 31,733
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 318
<TOTAL-LIABILITIES> 318
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,415
<SHARES-COMMON-STOCK> 31,415
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 31,415
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 994
<OTHER-INCOME> 0
<EXPENSES-NET> 152
<NET-INVESTMENT-INCOME> 842
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 842
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 842
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 84,340
<NUMBER-OF-SHARES-REDEEMED> 53,586
<SHARES-REINVESTED> 661
<NET-CHANGE-IN-ASSETS> 31,415
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 96
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 219
<AVERAGE-NET-ASSETS> 24,945
<PER-SHARE-NAV-BEGIN> $1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> $1.00
<EXPENSE-RATIO> .007
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-04-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 60,807
<INVESTMENTS-AT-VALUE> 60,807
<RECEIVABLES> 150
<ASSETS-OTHER> 60
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 61,017
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 929
<TOTAL-LIABILITIES> 929
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 60,088
<SHARES-COMMON-STOCK> 60,088
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 60,088
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,191
<OTHER-INCOME> 0
<EXPENSES-NET> 263
<NET-INVESTMENT-INCOME> 1,928
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,928
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,928
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 240,455
<NUMBER-OF-SHARES-REDEEMED> 180,764
<SHARES-REINVESTED> 397
<NET-CHANGE-IN-ASSETS> 60,088
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 220
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 441
<AVERAGE-NET-ASSETS> 48,143
<PER-SHARE-NAV-BEGIN> $1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> $1.00
<EXPENSE-RATIO> .005
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> SCHWAB NEW YORK TAX-EXEMPT MONEY FUND
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 11,260
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,260
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,260
<TOTAL-LIABILITIES> 10,260
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,000
<SHARES-COMMON-STOCK> 1,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1,000
<PER-SHARE-NAV-BEGIN> $1.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> $1.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> SCHWAB VALUE ADVANTAGE MONEY FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 3,744,969
<INVESTMENTS-AT-VALUE> 3,744,969
<RECEIVABLES> 45,174
<ASSETS-OTHER> 111
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,790,254
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 58,625
<TOTAL-LIABILITIES> 58,625
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,731,755
<SHARES-COMMON-STOCK> 3,731,755
<SHARES-COMMON-PRIOR> 729,358
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (126)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,731,629
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 93,588
<OTHER-INCOME> 0
<EXPENSES-NET> 7,796
<NET-INVESTMENT-INCOME> 85,792
<REALIZED-GAINS-CURRENT> (124)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 85,668
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 85,792
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,042,841
<NUMBER-OF-SHARES-REDEEMED> 3,103,523
<SHARES-REINVESTED> 63,079
<NET-CHANGE-IN-ASSETS> 3,002,273
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,885
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,442
<AVERAGE-NET-ASSETS> 1,949,009
<PER-SHARE-NAV-BEGIN> $1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> $1.00
<EXPENSE-RATIO> .004
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>