<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION
14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
The Charles Schwab Family of Funds
101 Montgomery Street
San Francisco, CA 94104
---------------------------
(Name of Registrant as Specified in its Charter)
David H. Lui, Esq.
The Charles Schwab Family of Funds
101 Montgomery Street
San Francisco, CA 94104
---------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a(i)(4) and 0-11.
[ ] $125 per Item 22(a)(2) of Exchange Act Schedule 14A.
1) Title of each class of securities to which transaction applies: N/A
2) Aggregate number of securities to which transaction applies: N/A
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11;* N/A
4) Proposed maximum aggregate value of transaction: N/A
* Set forth the amount on which the filing is calculated and state how
it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
Notes:
<PAGE> 2
IMPORTANT INFORMATION
REGARDING YOUR INVESTMENT IN
THE SCHWABFUNDS(R)
Dear Shareholder,
I am writing to inform you of the upcoming special
[photo of Charles meeting of shareholders of THE SCHWAB TAX-EXEMPT MONEY
R. Schwab] FUNDS, and to request that you take a few minutes to
read the enclosed material and mail back the proxy
voting card.
You are being asked to vote on important proposals affecting your Fund. The
Board of Trustees, including myself, unanimously believes that these changes are
in your Fund's and your best interest. The changes proposed will give your Fund
the additional flexibility needed to take advantage of opportunities in today's
market environment. Also, the Board and I believe your approval of these
proposals is important to enable your Fund to remain competitive.
Regardless of the number of shares you own, it is important that you take the
time to read the enclosed proxy, and COMPLETE AND MAIL YOUR VOTING CARD AS SOON
AS YOU CAN. A postage paid envelope is enclosed. If Fund shareholders don't
return their proxies, your Fund may have to incur the expense of follow-up
solicitations. All shareholders benefit from the speedy return of proxies.
The Board of Trustees has approved these proposals and unanimously recommends a
vote "For" each proposal. If you have any questions regarding the enclosed
proxy or need any assistance in voting your shares, please contact our proxy
solicitor, D.F. King & Co., Inc. at 1-800-859-8511.
I appreciate the time and consideration that you can give to this important
matter. At Schwab, we realize that we earn your trust day-by-day. We value your
confidence in our efforts and will continue to work hard to offer you
investment opportunities to help you achieve your financial goals.
Sincerely,
/s/ Charles R. Schwab
- ----------------------------------
Charles R. Schwab
Chairman
The Charles Schwab Family of Funds
[SCHWABFUNDS(R) Logo]
<PAGE> 3
IMPORTANT VOTING INFORMATION FOR SHAREHOLDERS
OF THE SCHWAB TAX-EXEMPT MONEY FUNDS.
Please read the full text of this proxy statement.
Below is a brief overview of the matters to be voted upon.
YOUR VOTE IS IMPORTANT. Please return your vote in a timely fashion.
If Fund shareholders don't return their proxies, your Fund
incurs the expense of follow-up solicitations.
Q. WHAT PROPOSALS AM I BEING ASKED TO VOTE ON?
A. The proposals you are being asked to vote on are the following:
- To consider electing seven Trustees.
- To consider eliminating the restriction that currently limits your
Fund's investment to a maximum of 20% of its total assets in AMT
investments. An AMT investment is a security which generates interest
income which is subject to the federal Alternative Minimum Tax (AMT).
This change would require changing the name of your Fund by replacing
"Tax-Exempt" with "Municipal".
- To consider amending each of the fundamental investment restrictions
for your Funds.
- To transact such other business as may properly come before the
Meeting.
Q. WHY DOES THE INVESTMENT MANAGER WANT THE OPTION OF INVESTING MORE THAN
20% OF EACH FUND'S TOTAL ASSETS IN AMT INVESTMENTS?
A. The Board of Trustees believes that this is in the best interest of each
Fund and its shareholders. AMT investments typically offer greater
yields than other types of municipal securities with similar credit
quality. As a result, more municipal and tax-free money market funds in
the industry are purchasing AMT investments. Also, the percentage of AMT
investments in other funds has grown in recent years.
In light of these market trends, the Board of Trustees believes approval
of this proposal is important to help enable your Fund to remain
competitive. While there can be no guarantee, the Investment Manager
anticipates that it will be able to achieve higher Fund yields with this
enhanced flexibility. Please note, this change will in no way reduce the
credit quality of each Fund's investments.
Q. HOW WILL THE CHANGE IN THE FUNDS' POLICY REGARDING AMT INVESTMENTS
IMPACT THE TAX-EXEMPT INCOME OFFERED BY THESE FUNDS?
A. Shareholders will benefit from the potentially higher yields which will
still be exempt from regular federal income taxes (in addition to
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<PAGE> 4
California personal income tax for the California Fund, and New York
state and local personal income taxes for the New York Fund). Although
all shareholders will benefit from a potential yield increase, for the
small percentage of shareholders subject to the federal AMT, the policy
change may result in a greater percentage of their income from the Funds
being subject to the federal AMT. While the percentage of the Funds'
shareholders who pay the federal AMT may be slightly different, well
under 1% of all U.S. taxpayers pay the federal AMT, according to IRS
data.
Q. WHY WILL PART OF MY FUND'S NAME HAVE TO BE
CHANGED TO "MUNICIPAL"?
A. Securities regulations require that mutual funds which use the word
"tax-exempt" in their name either (a) limit the amount of AMT
investments in their portfolios to 20% of total assets; or (b) have no
more than 20% of their income subject to AMT. Many of the mutual funds
currently offered in the market today are called "municipal" funds,
reflecting that they are not required to restrict their AMT investments
to 20% of their total assets. This proposed amendment in your Fund's
investment policy, resulting in the name change, will enable your Fund
to purchase additional AMT investments which will help your Fund remain
competitive with the industry.
Q. WITH RESPECT TO MANAGEMENT'S PROPOSAL TO AMEND EACH FUNDAMENTAL
INVESTMENT RESTRICTION, ARE THESE CHANGES IN MY BEST INTEREST?
A. The Board of Trustees believes that overall these changes are
in your and each Fund's best interest. The changes in each
fundamental investment restriction are intended to allow each Fund
to act more quickly and efficiently to capitalize on future
investment opportunities or changes in investment laws or regulations.
These proposals will not result in any changes to the investment
philosophy of your Fund nor reduce the credit quality of each
Fund's investment.
Q. HAS MY FUND'S BOARD OF TRUSTEES APPROVED THE PROPOSALS?
A. Yes. The Board of Trustees of each Fund unanimously has approved the
proposals and recommends that the shareholders vote "For" all the
proposals.
Q. HOW DO I VOTE MY SHARES?
A. You can vote your shares by completing, signing, dating and mailing
the enclosed proxy card in the postage paid envelope. If you have any
questions regarding the enclosed proxy or need any assistance in
voting your shares, please call our proxy solicitor, D.F. King & Co.
at 1-800-859-8511.
3
<PAGE> 5
THE CHARLES SCHWAB FAMILY OF FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94104
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF THE CHARLES SCHWAB FAMILY OF FUNDS
TO BE HELD ON DECEMBER 16, 1996
To Shareholders of
The Charles Schwab Family of Funds:
Notice is hereby given that a Special Meeting (the "Meeting") of Shareholders of
the "Sweep Shares" class and "Value Advantage Shares" class of Schwab Tax-Exempt
Money Fund, Schwab California Tax-Exempt Money Fund, and Schwab New York
Tax-Exempt Money Fund (each a "Fund" and collectively, the "Funds"), each a
series of The Charles Schwab Family of Funds, will be held at 101 Market Street,
San Francisco, California 94105 on December 16, 1996, at 10:00 a.m., Pacific
time, for the following purposes:
1. To elect seven Trustees to hold office until their successors are duly
elected and qualified;
2. To consider amending each Fund's fundamental investment policy restricting
each Fund from investing more than 20% of its total assets in investments,
the interest from which is subject to the federal Alternative Minimum Tax;
3. To consider eliminating, reclassifying or amending each Fund's fundamental
investment restrictions; and
4. To transact such other business as may properly come before the Meeting or
any adjournment(s) thereof.
If Proposal 2 is approved by a majority of a Fund's shareholders, that Fund's
name will be changed by replacing the words "Tax-Exempt" with "Municipal." These
Proposals are discussed in greater detail in the accompanying Proxy Statement.
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The close of business on September 25, 1996 was fixed as the record date for the
determination of shareholders entitled to notice of, and to vote at, the Meeting
and any adjournment(s) thereof.
By Order of the Trustees,
David H. Lui
Assistant Secretary
October 21, 1996
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING! WHETHER OR NOT
YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE COMPLETE, SIGN, AND DATE THE
ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE, WHICH NEEDS
NO POSTAGE IF MAILED IN THE UNITED STATES. YOU CAN HELP THE FUNDS AVOID THE
NECESSITY AND ADDITIONAL EXPENSE OF FURTHER SOLICITATIONS TO ENSURE A QUORUM BY
PROMPTLY RETURNING THE ENCLOSED PROXY CARD. IF YOU DESIRE TO VOTE IN PERSON, YOU
MAY REVOKE YOUR PROXY PRIOR TO THE MEETING.
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THE CHARLES SCHWAB FAMILY OF FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94104
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS OF
THE CHARLES SCHWAB FAMILY OF FUNDS
TO BE HELD ON DECEMBER 16, 1996
This Proxy Statement is being furnished to the shareholders of both the "Sweep
Shares" class and "Value Advantage Shares" class of Schwab Tax-Exempt Money
Fund, Schwab California Tax-Exempt Money Fund, and Schwab New York Tax-Exempt
Money Fund (each a "Fund"), each a series of The Charles Schwab Family of Funds,
a Massachusetts business trust (the "Trust"), in connection with the
solicitation of proxies by and on behalf of the Board of Trustees for use at a
Special Meeting of Shareholders of the Funds (the "Meeting") to be held at 101
Market Street, San Francisco, California 94105, on December 16, 1996, at 10:00
a.m., Pacific time, and at any adjournment(s) of the Meeting. This Proxy
Statement is first being mailed to shareholders on or about October 21, 1996.
The Board of Trustees has fixed the close of business on September 25, 1996 as
the record date (the "Record Date") for determining Fund shareholders entitled
to notice of, and to vote at, the Meeting and any adjournment(s) thereof. Only
holders of record of shares of a Fund at the close of business on the Record
Date are entitled to notice of, and to vote at, the Meeting and at any
adjournment(s) thereof. The number of full shares of each Fund issued and
outstanding and entitled to vote at the Meeting at the close of business on the
Record Date is set forth in Exhibit A.
The holder of each full share of a Fund outstanding as of the close of business
on the Record Date is entitled to one vote for each share held of record upon
each matter properly submitted to the Meeting or any adjournment(s) thereof,
with a proportionate vote for each fractional share. The "Sweep Shares" class
shareholders and "Value Advantage Shares" class shareholders of each Fund will
vote in the aggregate on each of the Proposals at the Meeting. Shareholders of
each Fund will vote on such other business as may properly come before the
Meeting by class or in the aggregate as required by the Investment Company Act
of 1940, as amended, and the rules and regulations thereunder (together, the
"1940 Act").
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<PAGE> 8
Shareholders of each Fund are requested to complete, date, sign, and promptly
return the accompanying proxy card in the enclosed envelope. If the enclosed
proxy is properly executed and returned in time to be voted at the Meeting, the
shares represented thereby will be voted in accordance with the instructions
marked on the proxy, unless such proxy previously has been revoked. Unless
instructions to the contrary are marked on the proxy, the proxy will be voted
FOR the Proposals described in this Proxy Statement and in the discretion of the
persons named as proxies in connection with any other matter that may properly
come before the Meeting or any adjournment(s) thereof. The Board of Trustees
does not know of any matter to be considered at the Meeting other than the
matters referred to in the Notice of Special Meeting accompanying this Proxy
Statement.
Any shareholder who has given a proxy has the right to revoke it at any time
prior to its exercise by attending the Meeting and voting his or her shares in
person or by submitting, prior to the date of the Meeting, a written notice of
revocation or a subsequently dated proxy to the following: The Charles Schwab
Family of Funds, 101 Montgomery Street, San Francisco, California 94104,
Attention: Secretary.
In the event a quorum is not present at the Meeting or sufficient votes to
approve the Proposals are not received, the persons named as proxies may propose
one or more adjournment(s) of such Meeting to permit further solicitation of
proxies. A shareholder vote may be taken on any other matter to properly come
before the Meeting prior to such adjournment(s) if sufficient votes to approve
such matters have been received and such vote is otherwise appropriate. Any
adjournment(s) of the Meeting will require the affirmative vote of a majority of
those shares present at the Meeting or represented by proxy and voting.
Abstentions and broker "non-votes" (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owner or other person entitled to vote shares on a particular matter with
respect to which the brokers or nominees do not have discretionary power) will
be counted as shares that are present to determine the presence of a quorum and
will have the effect of a vote against the Proposals set forth in this Proxy
Statement.
In addition to the solicitation of proxies by mail, officers of the Trust,
officers and regular employees of Charles Schwab Investment Management, Inc.
(the "Investment Manager"), the Funds' investment adviser and administrator, and
Charles Schwab & Co., Inc. ("Schwab"), the Funds' distributor, transfer agent
and shareholder servicing agent, may also solicit proxies electronically, by
telephone,
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<PAGE> 9
by telegraph or in person. The address of the Investment Manager and Schwab is
101 Montgomery Street, San Francisco, California 94104. The Trust has retained a
proxy solicitation firm in connection with proxy solicitation for the Meeting.
The cost of retaining such a firm will depend upon the amount and types of
services rendered. The costs of solicitation and expenses incurred in connection
with preparing this Proxy Statement and its enclosures, including any cost of
retaining a proxy solicitation firm, will be borne pro rata by each Fund. The
Funds will reimburse firms and others for their expenses in forwarding
solicitation materials to the beneficial owners of shares of the Funds.
As explained more fully below, the Investment Manager and Schwab have guaranteed
through April 30, 1997 that the total operating expenses of both classes of each
Fund will not exceed a certain percentage of that Fund's average daily net
assets. The expenses related to this proxy solicitation will be excluded from
the calculations of each Fund's total operating expenses for purposes of the
Investment Manager's and Schwab's guarantee.
PROPOSAL 1
ELECTION OF TRUSTEES
It is proposed that seven Trustees be elected, each Trustee to hold office until
a successor is elected and qualified. It is the intention of the persons named
in the accompanying form of proxy to vote such proxy for the election of the
persons listed below unless shareholders specifically indicate in their proxies
their desire to withhold authority to vote for elections to office. The Board of
Trustees does not contemplate that any nominee will be unable to serve as a
Trustee for any reason, but if that should occur prior to the Meeting, the proxy
holders reserve the right to substitute another person or persons of their
choice as nominee or nominees.
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Each person listed below has consented to being named in this Proxy Statement
and has agreed to serve as a Trustee if elected.
<TABLE>
<CAPTION>
TRUSTEE
NAME/BIRTHDAY SINCE PRINCIPAL OCCUPATION
- ----------------------- ------- -----------------------------
<S> <C> <C>
CHARLES R. SCHWAB(1) 1989 Chairman, Chief Executive
July 29, 1937 Officer and Director, The
Charles Schwab Corporation;
Chairman and Director of
Schwab and the Investment
Manager; Chairman and
Director, The Charles Schwab
Trust Company; Chairman and
Director, Mayer & Schweitzer,
Inc. (a securities brokerage
subsidiary of The Charles
Schwab Corporation);
Director, The Gap, Inc. (a
clothing retailer),
Transamerica Corporation (a
financial services
organization), AirTouch
Communications (a
telecommunications company)
and Siebel Systems (a
software company).
TIMOTHY F. McCARTHY(1) 1995 Executive Vice
September 19, 1951 President - Mutual Funds of
Schwab and The Charles Schwab
Corporation; Chief Executive
Officer of the Investment
Manager and President of the
Trust. From 1994 to 1995, Mr.
McCarthy was Chief Executive
Officer, Jardine Fleming Unit
Trusts Ltd.; Executive
Director, Jardine Fleming
Holdings Ltd.; Chairman,
Jardine Fleming Taiwan
Securities Ltd.; and Director
of JF India and Fleming
Flagship, Europe. Prior to
1994, he was President of
Fidelity Investments Advisor
Group, a division of Fidelity
Investments in Boston.
DONALD F. DORWARD 1989 President and Chief Executive
September 23, 1931 Officer, Dorward & Associates
(advertising and
marketing/consulting).
ROBERT G. HOLMES 1989 Chairman, Chief Executive
May 15, 1931 Officer and Director, Semloh
Financial, Inc. Semloh
Financial, Inc. is an
international financial
services and investment
advisory firm.
- ---------------
(1) An "interested person" of the Trust as defined in the 1940
Act.
</TABLE>
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<TABLE>
<CAPTION>
TRUSTEE
NAME/BIRTHDAY SINCE PRINCIPAL OCCUPATION
- ----------------------- ------- -----------------------------
<S> <C> <C>
DONALD R. STEPHENS 1989 Managing Partner, D.R.
June 28, 1938 Stephens & Co. (investment
banking). Since 1985, Mr.
Stephens has been Chairman
and Chief Executive Officer
of North American Trust (a
real estate investment
trust). Prior to 1992, Mr.
Stephens was Chairman and
Chief Executive Officer of
the Bank of San Francisco.
MICHAEL W. WILSEY 1989 Chairman, Chief Executive
August 18, 1943 Officer and Director, Wilsey
Bennett, Inc. (truck and air
transportation, real estate
investment and management,
and investments).
WILLIAM J. KLIPP(1) 1995 Executive Vice President -
December 9, 1955 SchwabFunds(R) of Schwab;
President and Chief Operating
Officer of the Investment
Manager and Senior Vice
President and Chief Operating
Officer of the Trust. Prior
to 1993, Mr. Klipp was
Treasurer of Schwab and Mayer
& Schweitzer, Inc.
</TABLE>
- ---------------
(1) An "interested person" of the Trust as defined in the 1940 Act.
Each of the above-referenced individuals is also a Trustee for Schwab
Investments, Schwab Capital Trust and Schwab Annuity Portfolios, each of which
is an investment company affiliated with the Trust and managed by the Investment
Manager (collectively, the "Affiliated Trusts"). The address of each individual
listed above is 101 Montgomery Street, San Francisco, California 94104.
In addition to Messrs. McCarthy and Klipp, the following individuals are
executive officers of the Trust:
Tai-Chin Tung, born March 7, 1951, is Treasurer and Principal Financial Officer
of the Trust. She is Controller of the Investment Manager and Vice
President - Finance of Schwab. From 1994 to 1996, Ms. Tung was Controller for
Robertson Stephens Investment Management, Inc. From 1993 to 1994, she was Vice
President of Fund Accounting, Capital Research and Management Co. Prior to 1993,
Ms. Tung was Senior Vice President of the Sierra Funds and Chief Operating
Officer of Great Western Financial Securities.
Stephen B. Ward, born April 5, 1955, is Senior Vice President & Chief Investment
Officer of the Trust. Mr. Ward is Senior Vice President and Chief Investment
Officer of the Investment Manager and is Senior Vice President of The Charles
Schwab Corporation and has been an employee of the Investment Manager and The
Charles Schwab Corporation since October and April 1993, respectively.
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Prior to April 1993, Mr. Ward was a Vice President and Portfolio Manager for
Schwab.
Frances Cole, born September 9, 1955, is Secretary of the Trust. Ms. Cole is
Vice President, Chief Counsel, Chief Compliance Officer and Assistant Corporate
Secretary of the Investment Manager and has been an employee of the Investment
Manager since 1991.
David H. Lui, born October 14, 1960, is Assistant Secretary of the Trust. Mr.
Lui is Vice President and Senior Counsel of the Investment Manager. Prior to
1992, he was Assistant Secretary of the Franklin Group of Mutual Funds and
Assistant Corporate Counsel of Franklin Resources, Inc.
Christina M. Perrino, born June 16, 1961, is Assistant Secretary of the Trust.
Ms. Perrino is Vice President and Senior Counsel of the Investment Manager.
Prior to 1994, she was Counsel and Assistant Secretary for North American
Security Life Insurance Company and Secretary for North American Funds.
Each of the above-referenced officers and Messrs. McCarthy and Klipp are also
officers of each Affiliated Trust. All Trustees, nominees and executive officers
as a group beneficially owned less than 1% of each Fund's outstanding shares on
September 16, 1996.
The Trust has an Audit/Portfolio Compliance Committee comprised of all of the
Trustees who are not "interested persons" of the Trust (the "Independent
Trustees"), which quarterly (and, as necessary, more frequently) reviews
financial statements and other audit-related matters for each series of the
Trust. The Trust has no standing nominating or compensation committee or any
committee performing similar functions.
REMUNERATION OF TRUSTEES, OFFICERS AND OTHERS
Trustees and officers of the Funds who are also directors, officers,
stockholders or employees of the Investment Manager or any of its affiliates
receive no remuneration from the Trust. Each other Trustee receives a quarterly
retainer fee of $8,000 and an additional $1,500 for each regular Board of
Trustees and Audit Committee meeting attended and is reimbursed for reasonable
out-of-pocket expenses. Five Board meetings were held during the last fiscal
year. The Trustees as a group received fees and expenses from the Trust totaling
$154,000. Each Trustee, except Mr. McCarthy, who joined the Board in October
1995, and Mr. Schwab, attended at least 75% of the meetings of the Board. Each
Fund has no bonus, pension, profit-
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sharing or retirement plan, although each Fund has adopted a compensation plan
for its Trustees, as described below.
The compensation each Trustee receives from the Trust, as shown in the table
below, is for services rendered to all nine series of the Trust, including the
three Funds. In addition, the compensation that the Trustees receive from the
complex (also shown on the table below) is for their services to the SchwabFunds
Family(R), a family of 24 mutual funds with assets of over $39 billion as of
August 20, 1996.
COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ESTIMATED
PENSION OR ANNUAL
RETIREMENTS BENEFITS
BENEFITS ACCRUED UPON TOTAL
AGGREGATE AS PART OF FUND RETIREMENT COMPENSATION
COMPENSATION EXPENSES FROM FROM THE FROM THE
NAME OF PERSON, FROM THE THE FUND FUND FUND
POSITION TRUST COMPLEX(2) COMPLEX(2) COMPLEX(2)
- -------------------- ------------ ---------------- ---------- ------------
<S> <C> <C> <C> <C>
Charles R. Schwab, 0 N/A N/A 0
Chairman and Trustee
Elizabeth G. 0 N/A N/A 0
Sawi(3),
President and
Trustee
Timothy F. 0 N/A N/A 0
McCarthy(4),
President and
Trustee
William J. Klipp, 0 N/A N/A 0
Sr. Vice President,
Chief Operating
Officer and Trustee
Donald F. Dorward, 38,500 N/A N/A 73,000
Trustee
Robert G. Holmes, 38,500 N/A N/A 73,000
Trustee
Donald R. Stephens, 38,500 N/A N/A 73,000
Trustee
Michael W. Wilsey, 38,500 N/A N/A 73,000
Trustee
</TABLE>
- ---------------
(1) Figures are for the Trust's fiscal year ended December 31, 1995.
(2) "Fund Complex" comprises all 24 funds of the Trust, Schwab Investments,
Schwab Capital Trust and Schwab Annuity Portfolios.
(3) Ms. Sawi served as President and Trustee until October 1995.
(4) Mr. McCarthy became President and Trustee in October 1995.
DEFERRED COMPENSATION PLAN
Pursuant to exemptive relief the Trust received from the SEC, the Trust may
enter into a deferred compensation plan (the "Plan") with the Independent
Trustees. As of the date of this Proxy Statement, none of the Independent
Trustees has elected to participate in the Plan. If an Independent Trustee does
elect to participate in the Plan, the Plan
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<PAGE> 14
would operate as described herein. Under the Plan, deferred Trustee's fees will
be credited to a book reserve account established by the Trust (the "Deferred
Fee Account") as of the date such fees would have been paid to such Trustee. The
value of the Deferred Fee Account as of any date will be equal to the value the
Account would have had as of that date if the amount credited to the Account had
been invested and reinvested in the securities of the SchwabFund or
SchwabFunds(R) selected by the participating Trustee (the "Selected SchwabFund
Securities"). "SchwabFunds" include the series or classes of shares of
beneficial interest of the Trust, Schwab Investments, and Schwab Capital Trust.
Pursuant to the exemptive relief granted to the Trust, each Fund will purchase
and maintain the Selected SchwabFund Securities in an amount equal to the deemed
investments in that Fund of the Deferred Fee Accounts of the Independent
Trustees.
INFORMATION PERTAINING TO CERTAIN INTERESTS IN MATTERS OF THE FUNDS
The Investment Manager (who also serves as the Funds' administrator), located at
101 Montgomery Street, San Francisco, California 94104, serves as investment
adviser to the Funds pursuant to two separate yet otherwise substantially
similar Investment Advisory and Administration Agreements (the "Advisory
Agreements") dated June 15, 1994 between it and the Trust. The Board of
Trustees, including a majority of the Trustees who are not "interested persons,"
last voted to approve the Advisory Agreements on February 23, 1996.
The Investment Manager was formed in 1989, as a wholly-owned subsidiary of The
Charles Schwab Corporation, and has served as the investment adviser to each
series of the Trust, including the Funds, as well as each series of the
Affiliated Trusts. The Chairman of the Board of Directors of the Investment
Manager is Charles R. Schwab. As a result of his beneficial ownership interests
and other relationships with The Charles Schwab Corporation and its affiliates,
Mr. Schwab may be deemed to be a controlling person of Schwab and the Investment
Manager.
Each Advisory Agreement will continue in effect for successive one-year terms
for each Fund to which it relates, subject to annual approval by: (1) the Board
of Trustees or (2) a vote of the majority (as defined in the 1940 Act) of the
outstanding voting securities of each Fund subject thereto. In either event, the
continuance must also be approved by a majority of the Independent Trustees, by
vote cast in person at a meeting called for the purpose of voting on such
approval. Each Advisory Agreement may be terminated at any time upon 60 days
notice by either party, or by a majority vote of the outstanding shares of a
Fund subject thereto, and will terminate automatically upon assignment.
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<PAGE> 15
Pursuant to an Advisory Agreement, as may be amended from time to time, the
Investment Manager is entitled to receive from Schwab Tax-Exempt Money Fund a
graduated annual fee, payable monthly, of 0.46% of the average daily net assets
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. For the fiscal year ended December 31, 1995,
the investment advisory fees paid by Schwab Tax-Exempt Money Fund were
$6,482,000 (fees were reduced by $7,212,000).
Pursuant to a separate Advisory Agreement, as may be amended from time to time,
the Investment Manager is entitled to receive a graduated annual fee, payable
monthly, of 0.46% of each of Schwab California Tax-Exempt Money Fund's and
Schwab New York Tax-Exempt Money 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. For the fiscal year ended
December 31, 1995, the investment advisory fees paid by Schwab California
Tax-Exempt Money Fund and Schwab New York Tax-Exempt Money Fund were $2,748,000
(fees were reduced by $3,697,000) and $741,000 (fees were reduced by $277,000),
respectively.
The Investment Manager has guaranteed that the management fee paid by each class
of each Fund will not exceed the following percentages of each Fund's average
daily net assets through the date set forth below. The Investment Manager and
Schwab have guaranteed that the total operating expenses of each class of the
Funds will not exceed the following percentages of each Fund's average daily net
assets through the date set forth below.
<TABLE>
<CAPTION>
MANAGEMENT TOTAL OPERATING
GUARANTEED FEE WILL NOT EXPENSES WILL
FUND - CLASS THROUGH EXCEED NOT EXCEED
- ---------------------------- --------------- ------------ ---------------
<S> <C> <C> <C>
Schwab Tax-Exempt Money April 30, 1997 0.20% 0.66%
Fund-Sweep Shares
Schwab California Tax-Exempt April 30, 1997 0.19% 0.65%
Money Fund-Sweep Shares
Schwab New York Tax-Exempt April 30, 1997 0.20% 0.69%
Money Fund-Sweep Shares
Schwab Tax-Exempt Money April 30, 1997 0.20% 0.45%
Fund-Value Advantage
Shares(TM)
Schwab California Tax-Exempt April 30, 1997 0.19% 0.45%
Money Fund-Value Advantage
Shares(TM)
Schwab New York Tax-Exempt April 30, 1997 0.20% 0.45%
Money Fund-Value Advantage
Shares(TM)
</TABLE>
14
<PAGE> 16
The Trust pays the expenses of its operations, including: the fees and expenses
of independent accountants, counsel and the custodian of its assets; the cost of
maintaining books and records of account; taxes; registration fees; 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 expenses among individual series of the Trust, including the
Funds, on the basis of relative net assets at the time the expense is incurred,
except that expenses directly attributable to a particular series or class of a
series are charged to that series or class, respectively.
REQUIRED VOTE AND BOARD OF TRUSTEES' RECOMMENDATION
Approval of this Proposal requires the affirmative vote of the holders of a
majority of each Fund's outstanding voting securities which, as used in this
Proxy Statement, means the vote of the lesser of (a) more than 50% of the
outstanding shares of a Fund, or (b) 67% of the shares of the Fund present at
the Meeting, if the holders of more than 50% of the outstanding shares of the
Fund are present or represented by proxy at the Meeting.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" EACH NOMINATED TRUSTEE.
PROPOSAL 2
AMENDING EACH FUND'S FUNDAMENTAL INVESTMENT POLICY RESTRICTING THE FUND FROM
INVESTING MORE THAN 20% OF ITS TOTAL ASSETS IN INVESTMENTS
THE INTEREST FROM WHICH IS SUBJECT TO THE
FEDERAL ALTERNATIVE MINIMUM TAX
The Board of Trustees has proposed amending each Fund's fundamental investment
policy restricting each Fund from investing more than 20% of its total assets in
investments the interest from which is subject to the federal Alternative
Minimum Tax.
Each Fund's fundamental investment policies currently limit to 20% the amount of
the Fund's total assets that may be invested in Municipal Obligations, the
interest from which gives rise to a preference item for purposes of the
Alternative Minimum Tax ("AMT Municipal Obligations"). In the current market
environment, the Investment Manager believes that limiting each Fund's
investment in AMT Municipal Obligations to no more than 20% of its total assets
15
<PAGE> 17
places each Fund in a potentially uncompetitive situation. The Investment
Manager desires to eliminate restrictions on the amount of AMT Municipal
Obligations each Fund may purchase, provided such investment is consistent with
the Fund's investment objective. Accordingly, this Proposal to amend each Fund's
investment restriction regarding AMT Municipal Obligations is being submitted at
this time to each Fund's shareholders.
If this Proposal is approved with respect to a Fund, that Fund will be permitted
to invest without limit in AMT Municipal Obligations. This policy change is
designed to result in greater investment opportunities because a Fund will no
longer be required to restrict investment in AMT Municipal Obligations to 20% of
total assets. The Investment Manager believes that, under current market
conditions, AMT Municipal Obligations may provide higher yields than non-AMT
Municipal Obligations. Should these market conditions continue, a Fund would
have the ability to invest without limit in such higher-yielding obligations,
provided that such obligations otherwise meet the credit quality and other
criteria of a Fund (as described in its prospectus). As a result, investment
returns may be enhanced over time.
Industry trends also tend to support the Investment Manager's recommendation for
this change. A substantial number of municipal and tax-free money market funds
are purchasing AMT Municipal Obligations. In addition, the percentage of AMT
Municipal Obligations in these portfolios has also grown in recent years. In
light of these market trends, the Board of Trustees believes approval of this
Proposal is important to enable our Funds to remain competitive.
Shareholders may benefit from the potentially higher yields which are designed
to be exempt from regular federal income taxes (in addition to California
personal income tax for the Schwab California Tax-Exempt Money Fund, and New
York state and local personal income taxes for the Schwab New York Tax-Exempt
Money Fund). Although all shareholders will benefit from the potential for
increased yield, for shareholders subject to the federal Alternative Minimum
Tax, the policy change may result in a greater percentage of their income from
each Fund being subject to that tax.
Under the 1940 Act, if a Fund's policy on investing in AMT Municipal Obligations
is eliminated, then the words "Tax-Exempt" must be removed from the Fund's name.
Accordingly, if Proposal 2 is approved for a Fund, the Board of Trustees will
change the Fund's name by replacing the words "Tax-Exempt" with "Municipal"
(e.g., from "Schwab Tax-Exempt Money Fund-Sweep Shares" to "Schwab Municipal
Money Fund-Sweep Shares").
16
<PAGE> 18
REQUIRED VOTE AND BOARD OF TRUSTEES' RECOMMENDATION
Approval of this Proposal requires the affirmative vote of the holders of a
majority of a Fund's outstanding voting securities.
The Board of Trustees has considered the relevant factors and believes that this
Proposal will increase investment opportunities for, and is in the best interest
of, each Fund and its shareholders. If the Proposal is not approved with respect
to a Fund, that Fund's current fundamental investment policy will remain in
effect and another shareholder vote will be required before the Fund can engage
in activities prohibited by the current policy.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" AMENDING THEIR FUND'S FUNDAMENTAL INVESTMENT POLICY AS
DESCRIBED ABOVE.
PROPOSAL 3
ELIMINATING, RECLASSIFYING OR AMENDING EACH FUND'S FUNDAMENTAL POLICIES AND
INVESTMENT RESTRICTIONS
In addition to the fundamental investment policy described above in Proposal 2,
each Fund has other fundamental investment policies and investment restrictions.
The 1940 Act requires each Fund to have certain investment restrictions which
can be changed only by a shareholder vote. A mutual fund may also self-designate
other restrictions which may be changed only by a shareholder vote. These
restrictions are referred to as "fundamental" investment restrictions. With the
passage of time, the Investment Manager has noted and reported to the Board of
Trustees that certain restrictions self-designated by each Fund as fundamental
reflect certain regulatory, business or industry conditions which are no longer
up to date (each a "current self-designated restriction").
Accordingly, the Board of Trustees authorized a comprehensive review and
revision of the Funds' current self-designated restrictions to: (1) simplify and
modernize those restrictions which are required to be fundamental; (2) eliminate
any fundamental restrictions which are no longer required to be fundamental
under state securities laws or the positions of the staff of the Securities and
Exchange Commission (the "SEC") in interpreting the 1940 Act; and (3) allow the
Investment Manager more flexibility in selecting appropriate investments for
each Fund in a changing regulatory and investment environment. A Fund's other
investment restrictions, which also
17
<PAGE> 19
govern a Fund's investment activities, are "nonfundamental restrictions."
Nonfundamental restrictions may be changed only by a majority vote of the Board
of Trustees.
By reducing to a minimum and simplifying those restrictions which can be changed
only by shareholder vote, each Fund may be able to avoid the costs and delays
associated with a future shareholder meeting. The Board of Trustees believes
that this change would enhance the Investment Manager's ability to manage the
Funds' portfolios in a changing regulatory or investment environment.
Accordingly, your Fund's investment management opportunities may be increased.
For example, until the SEC amended its rules in 1991, a money market fund, such
as your Fund, could not purchase securities (other than certain government
securities) with a deemed maturity of greater than one year. In 1991, the SEC
extended the maturity limitation to approximately 13 months. Unfortunately, if a
money market fund had self-designated as fundamental an investment policy
specifically limiting its investments to those with a deemed maturity of one
year or less, that fund was faced with the difficult dilemma of either bearing
the expense of a shareholders' meeting to change its fundamental investment
policy or foregoing the investment opportunities afforded by the SEC's change in
the maturity limitations (and foregoing the higher yields typically associated
with longer maturities). The proposed revision of each Fund's current
self-designated restrictions is designed to avoid this type of dilemma.
In addition, many of the proposed changes, as individually described below,
reflect each Fund's desire to eliminate requirements imposed by certain
administrators of state securities laws. Earlier this month, Federal legislation
was enacted which preempts the state securities laws that substantively regulate
investment companies.
Each proposed change to each Fund's current self-designated restrictions
recommended by the Board of Trustees is discussed in detail below. The proposed
changes take three forms: (i) the adoption of a required fundamental restriction
in a more flexible form and reclassification of the current self-designated
restriction as nonfundamental; (ii) the reclassification of the current
self-designated restriction as a nonfundamental restriction; and (iii) the
elimination of certain current self-designated restrictions. The Board of
Trustees has determined that it is not necessary to change all of the current
self-designated restrictions of each Fund. Therefore, certain self-designated
restrictions will be retained in their current form as
18
<PAGE> 20
fundamental restrictions. A full list of the current self-designated
restrictions is set forth in Exhibit B.
In the first case, a new fundamental investment restriction is proposed by the
Board of Trustees ("proposed restriction"). The proposed restriction, which will
amend or replace the current self-designated restriction, is designed to meet
all of the requirements of the 1940 Act and to provide the Investment Manager
with the flexibility described above. To the extent that a restriction
reclassified as nonfundamental is more restrictive than the proposed
restriction, the more restrictive provision will govern the investment
activities of each Fund. A nonfundamental restriction, even if it includes a
more restrictive nonfundamental restriction, may be changed by the Board of
Trustees at any time.
With respect to the other two forms of the proposed changes, the current
self-designated restrictions being reclassified or eliminated are not required
by the 1940 Act to be fundamental. The Board of Trustees believes that
reclassifying or eliminating the current self-designated restriction will offer
each Fund more flexibility and notes that shareholders will continue to be
protected by the requirements of the 1940 Act. In the case of reclassified
restrictions, the Board of Trustees and the Investment Manager presently believe
that each Fund should continue to operate under the restriction. However, by
reclassifying the restriction, the goal of flexibility described above is
achieved. The Board of Trustees has no present intention of eliminating any of
the current self-designated restrictions which have been reclassified as
nonfundamental, however, the Board of Trustees, by a majority vote, has the
ability to change or remove nonfundamental investment restrictions, including
the reclassified restrictions, without obtaining shareholder approval. If the
Board of Trustees were to decide in the future to change or eliminate a
reclassified nonfundamental restriction, such a change would be disclosed in the
Fund's Prospectus or Statement of Additional Information.
For each proposed change or element of this Proposal the relevant current
self-designated restriction is described. The effect of a "FOR" vote on each
element of Proposal 3 is detailed, i.e., whether the current self-designated
restriction will be: (i) reclassified as nonfundamental with an amended form
adopted as fundamental; (ii) simply reclassified as nonfundamental; or (iii)
eliminated entirely. If a proposed restriction will replace or amend the current
self-designated restriction, then such proposed replacement or amendment is also
described in detail. The current requirements, limitations and prohibitions of
the 1940 Act upon the types of investments or
19
<PAGE> 21
portfolio management techniques subject to the Funds' investment restriction are
described. Any anticipated effects on the operations of each Fund are also set
forth below. The Board of Trustees believes that by examining each of the
current self-designated restrictions, the proposed restrictions, and any
presently anticipated effects of the proposed changes, that you will vote "FOR"
each element of Proposal 3.
The entire slate of proposed restrictions is provided here for your reference
when deciding whether to vote on the proposed changes as a group or
individually. Each proposed fundamental restriction also is specifically
discussed below where appropriate. Each Fund's current self-designated
restrictions, which are found in its Statement of Additional Information, are
also set forth in Exhibit B hereto. The proposed new fundamental investment
restrictions for each Fund are:
1. The Fund may lend or borrow money to the extent permitted by the Investment
Company Act of 1940 or the rules or regulations thereunder, as such statute,
rules or regulations may be amended from time to time.
2. The Fund may pledge, mortgage or hypothecate any of its assets to the extent
permitted by the Investment Company Act of 1940 or the rules or regulations
thereunder, as such statute, rules or regulations may be amended from time to
time.
3. The Fund may issue senior securities to the extent permitted by the
Investment Company Act of 1940 or the rules or regulations thereunder, as
such statute, rules or regulations may be amended from time to time.
4. The Fund may purchase securities of any issuer only when consistent with the
maintenance of its respective status as a diversified company (in the case of
Schwab Tax-Exempt Money Fund) or non-diversified company (in the case of
Schwab California Tax-Exempt Money Fund and Schwab New York Tax-Exempt Money
Fund) under the Investment Company Act of 1940 or the rules or regulations
thereunder, as such statute, rules or regulations may be amended from time to
time.
Each Fund may adopt additional or supplemental fundamental investment
restrictions if required by federal or state regulators or if determined by the
Board of Trustees to be necessary or desirable.
The proposed restrictions above meet all of the requirements of the 1940 Act. No
other fundamental investment restrictions beside those set forth above and in
Exhibit C are presently required by the 1940 Act.
20
<PAGE> 22
VOTING PROCEDURES AND BOARD OF TRUSTEES' RECOMMENDATION
Each element of Proposal 3, as discussed below and presented on the proxy card,
may be voted on either (i) as a group or (ii) by each element (not both). If the
entire slate of Proposal 3 is approved, each Fund will have no fundamental
investment policies or investment restrictions except those set forth above and
those current fundamental investment policies and restrictions that the Board of
Trustees has decided to retain as fundamental. Set forth in Exhibit C is a full
list of what each Fund's fundamental investment policies and restrictions will
be if the entire slate of Proposal 3 is approved. If each element of Proposal 3
is disapproved, each Fund's current restrictions, as set forth in Exhibit B,
will remain in effect.
If shareholders of a Fund approve some, but not all, of the proposed
modifications, a Fund will have a combination of certain current self-designated
restrictions and certain proposed restrictions. In that event, each Fund would
have as its only fundamental restrictions the combination of (i) current
self-designated restrictions not voted on, (ii) approved proposed restrictions,
and (iii) current self-designated restrictions which were retained by
shareholder vote.
In addition to the fundamental investment policies and restrictions set forth in
each Fund's Statement of Additional Information, the Prospectus of each class of
each Fund describes certain of each Fund's fundamental investment policies and
restrictions. In the event that all of Proposal 3 or some portion of Proposal 3
is approved, the Prospectus and Statement of Additional Information of each
class of each Fund will be revised to reflect that each Fund's only fundamental
investment policies and restrictions will be as discussed immediately above.
A vote on the entire group of proposed modifications will be counted as if it
were a vote on each separate proposed modification. For example, a vote "FOR"
the entire group of proposed modifications on the proxy card will be counted as
a vote "FOR" each proposed modification. In the event that a proxy card is
returned with a vote on the entire slate and a vote on a specific element of
Proposal 3, the vote on the entire slate of proposed changes will be considered
determinative of, and counted as, the shareholder's intended vote.
The Board of Trustees believes that submitting each element of Proposal 3 to
each Fund's shareholders at this time is in the shareholders' and each Fund's
best interest because it takes advantage of the opportunity afforded by the need
to submit Proposal 2 above to each Fund's shareholders. This will potentially
spare each
21
<PAGE> 23
Fund the extra cost and time delay of having a subsequent shareholder meeting to
consider changes to each Fund's current self-designated restrictions.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" ELIMINATING, RECLASSIFYING OR AMENDING EACH FUND'S
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS IN THEIR ENTIRETY.
DISCUSSION OF EACH PROPOSED CHANGE IN
FUNDAMENTAL RESTRICTION
1. PROPOSED CHANGES TO RESTRICTIONS REGARDING BORROWING AND LENDING
Current Restrictions:
Each Fund may not:
(10) Make loans to others (except through the purchase of debt obligations or
repurchase agreements in accordance with its investment objective and
policies).
(11) Borrow money, except from banks for temporary purposes (but not for the
purpose of purchasing investments), and then only in an amount not to
exceed one-third of the value of its total assets (including the amount
borrowed) in order to meet redemption requests which otherwise might result
in the untimely disposition of securities; or pledge its securities or
receivables or transfer or assign or otherwise encumber them in an amount
to exceed 10% of the Fund's net assets to secure borrowings. Reverse
repurchase agreements entered into by the Fund are permitted within the
limitations of this paragraph. No such Fund will purchase securities or
make investments while reverse repurchase agreements or borrowings are
outstanding.
Proposed Restrictions:
The Fund may lend or borrow money to the extent permitted by the Investment
Company Act of 1940 or the rules or regulations thereunder, as such statute,
rules or regulations may be amended from time to time.
The Fund may pledge, mortgage or hypothecate any of its assets to the extent
permitted by the Investment Company Act of 1940 or the rules or regulations
thereunder, as such statute, rules or regulations may be amended from time to
time.
22
<PAGE> 24
ANALYSIS OF PROPOSED CHANGE
Under the current self-designated restrictions, each Fund may only borrow
(including entering into reverse repurchase agreements) up to one-third of the
value of its total assets for temporary purposes, may not make any loans except
to purchase debt obligations or enter into repurchase agreements, and may only
pledge, mortgage, and hypothecate up to 10% of its net assets. Under the
Proposal, these current self-designated restrictions will be replaced by two
proposed restrictions. The proposed restrictions would simply permit any
lending, borrowing, and pledging, mortgaging and hypothecating of assets only to
the extent permitted by the 1940 Act.
The 1940 Act presently limits a Fund's ability to borrow more than one third of
the value of its total assets. The positions of the SEC staff on the ability of
a mutual fund to borrow have evolved in recent years with the development of new
investment practices, such as reverse repurchase agreements. While the current
self-designated restriction on borrowing specifically identifies reverse
repurchase agreements as a practice subject to the limitations of this policy,
if new investment practices arise in the future that may be considered a form of
borrowing, it would not be entirely clear whether such new practices would be
within the scope of the current restriction. Therefore, the proposed restriction
on borrowing would revise the current restriction to allow each Fund the ability
to consider engaging in new investment practices to the extent permitted by the
1940 Act, as interpretations of the 1940 Act are further developed.
Borrowing by a Fund is a form of leveraging of its portfolio which will expose
it to certain risks. Leveraging will exaggerate the effect of any increase or
decrease in the value of portfolio securities on a Fund's net asset value, and
money borrowed will be subject to interest costs (which may include commitment
fees and/or the cost of maintaining minimum average balances) which may or may
not exceed the interest received from the securities purchased with borrowed
funds.
The 1940 Act also restricts the ability of any mutual fund to lend. Under the
1940 Act, a Fund may only make loans if expressly permitted to do so by the
Fund's investment policies; and may not make loans to persons who control or are
under common control with the Fund. Thus, the 1940 Act effectively prohibits a
Fund from making loans to certain persons when conflicts of interest or undue
influence are most likely present. As the proposed restrictions would prohibit
lending made impermissible by the 1940 Act, the Funds would be prohibited from
making such loans. However, if in the future a Fund were to decide that it would
be advantageous to make
23
<PAGE> 25
loans within the restrictions of the 1940 Act, under the proposed restriction
the Funds would be positioned to make such a loan. Under the current
self-designated restriction, each Fund could only make such a loan if the loan
were to purchase debt obligations or enter into repurchase agreements. If for
any other purpose, presently the Fund could not take advantage of the
opportunity.
The 1940 Act, and in particular certain liquidity restrictions, limits a Fund's
ability to pledge, mortgage or hypothecate its assets. To the extent that
pledged assets are encumbered for more than 7-days such assets would be
considered illiquid and, therefore, each Fund's use of such techniques would be
limited to 10% of net assets. Additionally, under the 1940 Act, each Fund is
limited to pledging, mortgaging or hypothecating no more than one-third of its
assets. Each Fund desires to have the ability to consider using portfolio
management techniques involving pledging, mortgaging or hypothecating assets to
the full extent presently permitted by the 1940 Act. Each Fund also desires the
flexibility to adapt to new conditions if present limitations on pledging,
mortgaging or hypothecating of assets are modified.
If approved, each Fund will adopt the proposed restrictions, as fundamental and
the current self-designated restrictions will be reclassified as nonfundamental
restrictions. The Funds will continue to operate under these nonfundamental
restrictions until such time as the Board of Trustees decides to eliminate the
nonfundamental restrictions. The Board of Trustees has no such present
intention.
REQUIRED VOTE AND BOARD OF TRUSTEES' RECOMMENDATION
With respect to each Fund, approval of this element of Proposal 3 requires the
affirmative vote of the holders of a majority of that Fund's outstanding voting
securities. If this element or the entire slate of Proposal 3 is disapproved
with respect to a Fund, the current self-designated restrictions addressed by
this element will remain fundamental. The Board of Trustees has considered the
relevant factors and believes that this element of Proposal 3 will increase
investment management flexibility and is in the best interests of each Fund and
its shareholders.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THIS ELEMENT OF PROPOSAL 3, AS DESCRIBED ABOVE.
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<PAGE> 26
2. PROPOSED CHANGES TO RESTRICTIONS REGARDING THE ISSUANCE OF SENIOR SECURITIES
Current Self-Designated Restrictions:
Each Fund may not:
(12) Write, purchase or sell puts, calls or combinations thereof, although it
may purchase Municipal Securities subject to standby commitments, variable
rate demand notes or repurchase agreements in accordance with its
investment objective and policies.
(13) Make short sales of securities or purchase securities on margin, except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
(16) Issue senior securities as defined in the 1940 Act.
Proposed Restriction:
The Fund may issue senior securities to the extent permitted by the Investment
Company Act of 1940 or the rules or regulations thereunder, as such statute,
rules or regulations may be amended from time to time.
ANALYSIS OF PROPOSED CHANGE
Each Fund's current self-designated restrictions prohibit the issuance of any
senior securities. The current self-designated restrictions also prohibit the
purchase of securities on margin and the making of certain short sales and the
writing or purchasing (except for the purchase of certain put instruments) puts
and calls. The SEC staff considers the purchasing of securities on margin, the
making of certain short sales, and the writing of puts and calls to involve the
creation of senior securities. A put is an option granted on a security to the
holder of the put that allows the holder to sell ("put") the security to the
writer of the put. A call option allows the holder of the call option to buy
("call") the security from the writer of the call.
Under the Proposal, each of these current self-designated restrictions will be
replaced by a more flexible proposed restriction. The proposed restriction would
allow the issuance of senior securities to the extent permitted by the 1940 Act
as it may be amended from time to time.
The ability of a mutual fund to issue senior securities, which has evolved
somewhat in recent years, is severely circumscribed by complex regulatory
constraints under the 1940 Act, restricting, for
25
<PAGE> 27
instance, the amount, timing, and form of senior securities that may be issued.
In addition, portfolio management techniques involving the issuance of senior
securities, such as the purchase of securities on margin, short sales, or
writing puts on portfolio securities, are all techniques that involve the
leveraging of a portfolio and would not be consistent with the current SEC rules
governing money market funds. However, each Fund desires to have the ability to
consider use of new portfolio management techniques consistent with the 1940 Act
as interpretations of the 1940 Act and the investment markets develop further.
The proposed restriction would give each Fund this flexibility.
If approved, each Fund will adopt the proposed restriction as fundamental and
the current self-designated restrictions will be reclassified as nonfundamental
restrictions. The Funds presently intend to continue to operate under these
nonfundamental restrictions until such time as the Board of Trustees decides to
eliminate the nonfundamental restrictions. The Board of Trustees has no such
present intention.
REQUIRED VOTE AND BOARD OF TRUSTEES' RECOMMENDATION
With respect to each Fund, approval of this element of Proposal 3 requires the
affirmative vote of the holders of a majority of that Fund's outstanding voting
securities. If this element or the entire slate of Proposal 3 is disapproved
with respect to a Fund, the current self-designated restrictions addressed by
this element will remain fundamental. The Board of Trustees has considered the
relevant factors and believes that this element of Proposal 3 will increase
investment management flexibility and is in the best interests of each Fund and
its shareholders.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THIS ELEMENT OF PROPOSAL 3, AS DESCRIBED ABOVE.
3. PROPOSED CHANGE IN RESTRICTION REGARDING COMPLIANCE WITH THE DIVERSIFICATION
REQUIREMENTS OF THE 1940 ACT
Current Self-Designated Restriction:
Each Fund may not:
(2) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities) if, as a result,
more than 5% of the value of its assets would be invested in the securities
of that issuer, except that,
26
<PAGE> 28
with respect to Schwab California Tax-Exempt Money Fund and Schwab New York
Tax-Exempt Money Fund, provided no more than 25% of the Fund's total assets
would be invested in the securities of a single issuer, up to 50% of the
value of the Fund's assets may be invested without regard to this 5%
limitation. For purposes of this limitation, the Fund will regard the entity
which has the primary responsibility for the payment of interest and
principal as the issuer.
Proposed Restriction:
The Fund may purchase securities of any issuer only when consistent with the
maintenance of its respective status as a diversified company (in the case of
Schwab Tax-Exempt Money Fund) or non-diversified company (in the case of Schwab
California Tax-Exempt Money Fund and Schwab New York Tax-Exempt Money Fund)
under the Investment Company Act of 1940 or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.
ANALYSIS OF PROPOSED CHANGES
The current self-designated restriction limits the Schwab Tax-Exempt Money
Fund's investments in a specific issuer to the specific amounts presently set
forth in Section 5(b) of the 1940 Act and restricts Schwab California Tax-Exempt
Money Fund's and Schwab New York Tax-Exempt Money Fund's investments in a single
issuer to those set forth in Subchapter M of the Internal Revenue Code of 1986
("Tax Code"). Under the Proposal, this current self-designated restriction will
be replaced by a more flexible proposed restriction. The proposed restriction
would limit investments by the Schwab Tax-Exempt Money Fund to those compatible
with the requirements of the 1940 Act for the maintenance of that Fund's status
as a "diversified company." The proposed restriction would remove all
fundamental "per issuer" limits on the Schwab California Tax-Exempt Money Fund's
and Schwab New York Tax-Exempt Money Fund's investments, as consistent with the
status of those Funds as non-diversified investment companies.
Under Section 5(b) of the 1940 Act, an investment company is diversified if, as
to 75% of its total assets, no more than 5% of the value of its total assets is
invested in the securities of a single issuer and no more than 10% of the
issuer's voting securities is held by the investment company. As non-diversified
Funds, Schwab California Tax-Exempt Money Fund and Schwab New York Tax-Exempt
Money Fund are not subject to this diversification requirement. However, each of
the Funds, including Schwab California Tax-Exempt Money
27
<PAGE> 29
Fund and Schwab New York Tax-Exempt Money Fund, is subject to the "per issuer"
diversification requirements of the Tax Code. Under the Tax Code, the 5% "per
issuer" limit is applied only to 50% of a Fund's total assets (not 75% of total
assets as under the 1940 Act). Therefore, if the Proposal is approved, in order
to maintain its status under the Tax Code, each Fund must continue to operate
within the Tax Code's requirements.
In addition, the SEC has announced plans to place more stringent diversification
requirements upon a tax-free money market fund's operations. The announced
changes would apply the 5% per issuer restriction to 100% of a national tax-free
fund's assets rather than 75% of its assets. Each of Schwab California
Tax-Exempt Money Fund and Schwab New York Tax-Exempt Money Fund is a state
specific tax-free money market fund and thus will not be subject to these more
stringent diversification requirements, when and if those requirements become
effective. There is no guarantee that these changes will be enacted in the form
announced.
The proposed restriction is more flexible in its construction than the current
self-designated restriction because it would allow a Fund to invest in a
specific issuer consistent with the diversification requirements of the 1940
Act. Unless and until the restrictions in the 1940 Act change, the limitations
imposed by the proposed restriction will continue to be the same as the Funds'
current self-designated restriction. Thus, the operations of the Funds would not
be affected immediately by replacing the current self-designated restriction
with the proposed restriction. If this Proposal is approved, a Fund would be
able to immediately adapt to such change in the 1940 Act's diversification
requirements while the current self-designated restriction would lock a Fund
into a then obsolete diversification restriction. Such a result may unduly limit
a Fund's ability to remain competitive, and does not currently appear to provide
any significant advantage to shareholders.
If approved, each Fund will adopt the proposed restriction as fundamental, and
the current self-designated restriction will be reclassified as a nonfundamental
restriction. The Funds presently intend to continue to operate under the
nonfundamental restriction until such time as the Board of Trustees decides to
eliminate the nonfundamental restriction. The Board of Trustees has no such
present intention.
28
<PAGE> 30
REQUIRED VOTE AND BOARD OF TRUSTEES' RECOMMENDATION
With respect to each Fund, approval of this element of Proposal 3 requires the
affirmative vote of the holders of a majority of that Fund's outstanding voting
securities. If this element or the entire slate of Proposal 3 is disapproved
with respect to a Fund, the current self-designated restrictions addressed by
this element will remain fundamental. The Board of Trustees has considered the
relevant factors and believes that this element of Proposal 3 will increase
investment management flexibility and is in the best interest of each Fund and
its shareholders.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THIS ELEMENT OF PROPOSAL 3, AS DESCRIBED ABOVE.
4. PROPOSED CHANGE IN RESTRICTION REGARDING INVESTMENT IN
INDUSTRIAL DEVELOPMENT BONDS ISSUED BY "UNSEASONED ISSUERS"
Current Self-designated Restriction:
Each Fund may not:
(4) Invest more than 5% of its total assets in industrial development bonds
sponsored by companies which, with their predecessors, have less than three
years of continuous operation, although each Fund may invest more than 25%
of its total net assets in industrial development bonds.
ANALYSIS OF PROPOSED CHANGE
The current self-designated restriction limits a Fund's ability to purchase
industrial development bonds issued by "unseasoned issuers" (issuers with less
than three years of operations) to 5% of total assets. Under the Proposal the
current self-designated restriction will be eliminated.
The current self-designated restriction is based on a position once advanced by
the administrators of state securities laws, which has been modified in many
states, and has been preempted by Federal law under recent Federal legislation.
The current self-designated restriction is not required to be fundamental by the
1940 Act. By eliminating this current self-designated restriction, a Fund would
be able to purchase a greater amount of industrial development bonds issued by
"unseasoned issuers" and, to the extent a Fund so invests, shareholders would
have a greater exposure to the risks associated with such investments. However,
shareholders are already potentially exposed to such risks because a Fund may
purchase such investments
29
<PAGE> 31
up to 5% of assets and any such investments, like all investments made by a
Fund, must comply with the credit, quality and maturity restrictions of SEC
rules applicable to money market funds. The Board of Trustees believes that each
Fund will benefit from the potential opportunities offered by eliminating the
current self-designated restriction.
REQUIRED VOTE AND BOARD OF TRUSTEES' RECOMMENDATION
With respect to each Fund, approval of this element of Proposal 3 requires the
affirmative vote of the holders of a majority of that Fund's outstanding voting
securities. If this element or the entire slate of Proposal 3 is disapproved
with respect to a Fund, the current self-designated restriction addressed by
this element will remain fundamental. The Board of Trustees has considered the
relevant factors and believes that this element of Proposal 3 will increase
investment management flexibility and is in the best interests of each Fund and
its shareholders.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THIS ELEMENT OF PROPOSAL 3, AS DESCRIBED ABOVE.
5. PROPOSED CHANGE IN RESTRICTION REGARDING INVESTMENT IN "RESTRICTED
SECURITIES"
Current Self-Designated Restriction:
Each Fund may not:
(5) Invest more than 5% of its total assets in securities restricted as to
disposition under the federal securities laws, although this limitation
shall be 10% with respect to Schwab California Tax-Exempt Money Fund and
Schwab New York Tax-Exempt Money Fund.
ANALYSIS OF PROPOSED CHANGE
The current self-designated restriction limits investments in "restricted
securities" (securities that are restricted as to disposition) to 5% of the
Schwab Tax-Exempt Money Fund's total assets and to 10% of the Schwab California
Tax-Exempt Money Fund's and Schwab New York Tax-Exempt Money Fund's total
assets. Under the Proposal, the current self-designated restriction will be
eliminated.
The current self-designated restriction is based on requirements of certain
administrators of state securities laws that have been preempted by Federal law
under recent Federal legislation, and is not required to be fundamental by the
1940 Act. Each Fund presently
30
<PAGE> 32
intends to continue to operate under the current self-designated restriction as
a nonfundamental restriction. Even though present operations would continue
unchanged, this proposed change would allow each Fund the flexibility described
above. If the reclassified nonfundamental restriction were removed by the Board
of Trustees, shareholders would be potentially exposed to any risks associated
with increased investment in "restricted securities." "Restricted securities"
may be sold only in privately negotiated transactions or in a public offering
with respect to which a registration statement is in effect under the Securities
Act of 1933. Where registration is required, a Fund may be obligated to pay all
or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund may be permitted
to sell a security under an effective registration statement. If during such a
period, adverse market conditions were to develop, a Fund might obtain a less
favorable price than prevailed when it decided to sell. However, shareholders
are already potentially exposed to this type of risk because a Fund may purchase
such investments up to 5% or 10% of total assets, and any such investments, like
all investments made by a Fund, must comply with the credit, quality and
maturity requirements of the 1940 Act applicable to money market funds. In
addition, to the extent that "restricted securities" are also considered
"illiquid" under the 1940 Act, such investments would be limited to 10% of each
Fund's assets.
REQUIRED VOTE AND BOARD OF TRUSTEES' RECOMMENDATION
With respect to each Fund, approval of this element of Proposal 3 requires the
affirmative vote of the holders of a majority of that Fund's outstanding voting
securities. If this element or the entire slate of Proposal 3 is disapproved
with respect to a Fund, the current self-designated restriction addressed by
this element will remain fundamental. The Board of Trustees has considered the
relevant factors and believes that this element of Proposal 3 will increase
investment management flexibility and is in the best interests of each Fund and
its shareholders.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THIS ELEMENT OF PROPOSAL 3, AS DESCRIBED ABOVE.
31
<PAGE> 33
6. PROPOSED CHANGE IN RESTRICTION REGARDING INVESTMENT IN SHARES OF OTHER
INVESTMENT COMPANIES
Current Self-Designated Restriction:
Each Fund may not:
(9) Purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets.
ANALYSIS OF PROPOSED CHANGE
The current self-designated restriction prohibits each Fund from purchasing
securities of another open-end investment company except in certain
circumstances. Under the Proposal the current self-designated restriction will
be reclassified as nonfundamental.
Investment in shares of other investment companies is carefully regulated by the
1940 Act and is subject to specific SEC rules applicable to money market funds.
Specifically, depending on the type and affiliation of the investment companies,
the 1940 Act places certain percentage limitations on the amount of the
acquiring Fund's net assets that may be invested in shares of other investment
companies. The 1940 Act prohibits each Fund in the aggregate (with each other
and with all other mutual funds in the SchwabFunds Family(R)) from: (i) owning
more than 3% of the total outstanding voting stock of a single other investment
company; (ii) investing more than 5% of its total assets in the securities of a
single other investment company; and (iii) investing more than 10% of its total
assets in securities of all other investment companies.
The SEC rules applicable to money market funds also govern and place certain
quality restrictions on these investments. For instance, such rules limit money
market fund investments to high quality instruments with minimal credit risk and
most non-money market funds are not likely to qualify as such. Securities of
other money market funds are considered eligible investments for a money market
fund to purchase. To the extent a Fund invests in shares of other investment
companies, shareholders will directly bear the expenses of the Fund, and will
indirectly bear the expenses of the investment company in which it invested.
Such expenses would be taken into account by the Investment Manager prior to
deciding that any such investment is suitable for a Fund and its shareholders.
The Funds have no present intent of investing in shares of any other investment
companies. Should a Fund make the decision to invest in shares of other
investment companies, that Fund's Prospectus will be amended
32
<PAGE> 34
to provide investors with additional information required with respect to such
investments.
If approved, each Fund will reclassify the current self-designated restriction
as nonfundamental. The Funds presently intend to continue to operate under the
nonfundamental restriction until such time as the Board of Trustees decides to
eliminate the nonfundamental restriction. The Board of Trustees has no such
present intention.
REQUIRED VOTE AND BOARD OF TRUSTEES' RECOMMENDATION
With respect to each Fund, approval of this element of Proposal 3 requires the
affirmative vote of the holders of a majority of that Fund's outstanding voting
securities. If this element or the entire slate of Proposal 3 is disapproved
with respect to a Fund, the current self-designated restriction addressed by
this element will remain fundamental. The Board of Trustees has considered the
relevant factors and believes that this element of Proposal 3 will increase
investment management flexibility and is in the best interests of each Fund and
its shareholders.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THIS ELEMENT OF PROPOSAL 3, AS DESCRIBED ABOVE.
OTHER MATTERS
The Board of Trustees is not aware of any other matter which may come before the
Meeting. However, should any such matters properly come before the Meeting, the
persons named in the accompanying form of proxy intend to vote the proxy in
accordance with their judgment on such matters.
The Trust is not required to hold annual shareholders' meetings and does not
intend to do so. It will, however, hold special meetings, such as the Meeting,
as required or deemed desirable by the Board of Trustees for such purposes as
changing fundamental policies, electing or removing Trustees, or approving or
amending an investment advisory agreement. In addition, a Trustee may be 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. As
of September 25, 1996, the only shareholder owning in excess of 5% of any class
of a Fund was Norman and Cathy Yohay who, with 1,992,862 Value Advantage Shares
of the Schwab New York Tax-Exempt Money Fund, owned 5.89% of that class'
33
<PAGE> 35
outstanding voting securities. Their address, in care of The Charles Schwab
Family of Funds, is 101 Montgomery Street, San Francisco, California 94104.
Shareholders wishing to submit Proposals for inclusion in a proxy statement for
a subsequent shareholders' meeting should send their written submissions to the
principal executive offices of the Fund at The Charles Schwab Family of Funds,
101 Montgomery Street, San Francisco, California 94104, Attention: Secretary.
Proposals must be received a reasonable time in advance of a proxy solicitation
to be included. The mere submission of a proposal does not guarantee inclusion
in the proxy statement because the proposal must comply with certain federal
securities regulations.
Each Fund will furnish, without charge, a copy of its most recent Annual Report
and Semi-Annual Report succeeding the Annual Report (if any) to any shareholder
upon request. Shareholders desiring to obtain a copy of such reports should
direct all written requests to: Frances Cole, Secretary, The Charles Schwab
Family of Funds, 101 Montgomery Street, San Francisco, California 94104, or
should call Schwab Shareholder Services at 1-800-2 NO-LOAD.
NOTICE TO BANKS, BROKER/DEALERS AND VOTING
TRUSTEES AND THEIR NOMINEES
Please advise a Fund, in care of The Charles Schwab Family of Funds, 101
Montgomery Street, San Francisco, California 94104, Attention: Secretary,
whether other persons are the beneficial owners of the shares for which proxies
are being solicited, and if so, the number of copies of the Proxy Statement,
other soliciting material, and Annual Report (or Semi-Annual Report) you wish to
receive in order to supply copies to the beneficial owners of shares.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY, THEREFORE, SHAREHOLDERS WHO
DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO COMPLETE, DATE, SIGN
AND RETURN THE PROXY CARD IN THE ENCLOSED STAMPED ENVELOPE.
SCHWABFUNDS(R)
Thank you for mailing your proxy card promptly!
We appreciate your placing your trust in SchwabFunds and look forward to helping
you achieve your financial goals.
34
<PAGE> 36
EXHIBIT A
NUMBER OF EACH FUND'S OUTSTANDING SHARES
AS OF SEPTEMBER 25, 1996
<TABLE>
<CAPTION>
NUMBER
FUND - CLASS OF SHARES
- -------------------------------------------------------- -------------
<S> <C>
Schwab Tax-Exempt Money Fund
- - Sweep Shares 3,661,044,648
- - Value Advantage Shares(TM) 492,712,497
Schwab California Tax-Exempt Money Fund
- - Sweep Shares 1,684,989,690
- - Value Advantage Shares(TM) 369,580,554
Schwab New York Tax-Exempt Money Fund
- - Sweep Shares 238,378,466
- - Value Advantage Shares(TM) 40,139,232
</TABLE>
EXHIBIT B
CURRENT FUNDAMENTAL INVESTMENT
RESTRICTIONS OF THE FUNDS
Under the currently-existing fundamental investment restriction of each Fund,
each Fund may NOT:
(1) Purchase securities or make investments other than in accordance with
investment objectives and policies.
(2) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of its assets would be invested in the
securities of that issuer, except that, with respect to Schwab California
Tax-Exempt Money Fund and Schwab New York Tax-Exempt Money Fund, provided
no more than 25% of the Fund's total assets would be invested in the
securities of a single issuer, up to 50% of the value of the Fund's assets
may be invested without regard to this 5% limitation. For purposes of this
limitation, the Fund will regard the entity which has the primary
responsibility for the payment of interest and principal as the issuer.
(3) Purchase securities (other than securities of the U.S. Government, its
agencies or instrumentalities) if as a result of such purchase 25% or more
of its total assets would be invested in any industry (although securities
issued by governments or political subdivisions of governments are not
considered to be securities subject to this industry concentration
restriction) or in
35
<PAGE> 37
any one state (although the limitation as to investments in a state or its
political subdivision shall not apply to Schwab California Tax-Exempt Money
Fund or Schwab New York Tax-Exempt Money Fund), nor may it enter into a
repurchase agreement if more than 10% of its net assets would be subject to
repurchase agreements maturing in more than 7-days.
(4) Invest more than 5% of its total assets in industrial development bonds
sponsored by companies which, with their predecessors, have less than three
years of continuous operation, although each Fund may invest more than 25%
of its total net assets in industrial development bonds.
(5) Invest more than 5% of its total assets in securities restricted as to
disposition under the federal securities laws, although this limitation
shall be 10% with respect to Schwab California Tax-Exempt Money Fund and
Schwab New York Tax-Exempt Money Fund.
(6) Purchase or retain securities of an issuer if any of the officers, trustees
or directors of the Trust or its Investment Manager individually, own
beneficially more than 1/2 of 1% of the securities of such issuer and
together own more than 5% of the securities of such issuer.
(7) Invest in commodities or commodity futures contracts or in real estate,
except that each Fund may invest in Municipal Securities secured by real
estate or interests therein.
(8) Invest for the purpose of exercising control or management of another
issuer.
(9) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.(1)
- ---------------
(1) See the description of the Trustees' deferred compensation plan under
"Management of the Trust" in each Fund's Statement of Additional Information
for an exception to this investment restriction.
36
<PAGE> 38
(10) Make loans to others (except through the purchase of debt obligations or
repurchase agreements in accordance with its investment objective and
policies).
(11) Borrow money, except from banks for temporary purposes (but not for the
purpose of purchasing investments), and then only in an amount not to
exceed one-third of the value of its total assets (including the amount
borrowed) in order to meet redemption requests which otherwise might result
in the untimely disposition of securities; or pledge its securities or
receivables or transfer or assign or otherwise encumber them in an amount
to exceed 10% of the Fund's net assets to secure borrowings. Reverse
repurchase agreements entered into by the Fund are permitted within the
limitations of this paragraph. No such Fund will purchase securities or
make investments while reverse repurchase agreements or borrowings are
outstanding.
(12) Write, purchase or sell puts, calls or combinations thereof, although it
may purchase Municipal Securities subject to standby commitments, variable
rate demand notes or repurchase agreements in accordance with its
investment objective and policies.
(13) Make short sales of securities or purchase securities on margin, except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
(14) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in Municipal Securities of issuers which
invest in or sponsor such programs.
(15) Underwrite securities issued by others, except to the extent it may be
deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of securities from its investment
portfolio.
(16) Issue senior securities as defined in the 1940 Act.
EXHIBIT C
PROPOSED FUNDAMENTAL INVESTMENT
POLICIES AND RESTRICTIONS OF THE FUNDS
If Proposal 2 is approved, the investment objective of each Fund (as will be set
forth in its then-current prospectus) will be maximum current income that is
exempt from regular Federal income taxes (in addition to California personal
income tax for the Schwab California
37
<PAGE> 39
Tax-Exempt Money Fund, and New York state and local income taxes for the Schwab
New York Tax-Exempt Money Fund) consistent with stability of capital. In
addition, if the entire slate of Proposal 3 is approved, the following
fundamental investment policies and restrictions will be the only fundamental
investment policies and restrictions of each Fund:
(1) The Fund may not purchase securities or make investments other than in
accordance with investment objectives and policies.
(2) The Fund may not purchase securities (other than securities of the U.S.
Government, its agencies or instrumentalities) if as a result of such
purchase 25% or more of its total assets would be invested in any industry
(although securities issued by governments or political subdivisions of
governments are not considered to be securities subject to this industry
concentration restriction) or in any one state (although the limitation as
to investments in a state or its political subdivision shall not apply to
Schwab California Tax-Exempt Money Fund or Schwab New York Tax-Exempt Money
Fund), nor may it enter into a repurchase agreement if more than 10% of its
net assets would be subject to repurchase agreements maturing in more than
7-days.
(3) The Fund may not purchase or retain securities of an issuer if any of the
officers, trustees or directors of the Trust or its Investment Manager
individually own beneficially more than 1/2 of 1% of the securities of such
issuer and together own more than 5% of the securities of such issuer.
(4) The Fund may not invest in commodities or commodity futures contracts or in
real estate, except that each Fund may invest in Municipal Securities
secured by real estate or interests therein.
(5) The Fund may not invest for the purpose of exercising control or management
of another issuer.
(6) The Fund may not invest in interests in oil, gas or other mineral
exploration or development programs, although it may invest in Municipal
Securities of issuers which invest in or sponsor such programs.
(7) The Fund may not underwrite securities issued by others, except to the
extent it may be deemed to be an underwriter, under the federal securities
laws, in connection with the disposition of securities from its investment
portfolio.
(8) The Fund may lend or borrow money to the extent permitted by the Investment
Company Act of 1940 or the rules or regulations
38
<PAGE> 40
thereunder, as such statute, rules or regulations may be amended from time
to time.
(9) The Fund may pledge, mortgage or hypothecate any of its assets to the
extent permitted by the Investment Company Act of 1940 or the rules or
regulations thereunder, as such statute, rules or regulations may be
amended from time to time.
(10) The Fund may issue senior securities to the extent permitted by the
Investment Company Act of 1940 or the rules or regulations thereunder, as
such statute, rules or regulations may be amended from time to time.
(11) The Fund may purchase securities of any issuer only when consistent with
the maintenance of its respective status as a diversified company (in the
case of Schwab Tax-Exempt Money Fund) or non-diversified company (in the
case of Schwab California Tax-Exempt Money Fund and Schwab New York
Tax-Exempt Money Fund) under the Investment Company Act of 1940 or the
rules or regulations thereunder, as such statute, rules or regulations may
be amended from time to time.
39
<PAGE> 41
SCHWABFUNDS(R)
PROXY SERVICES
P.O. BOX 9163
FARMINGDALE, NY 11735
SHAREHOLDER NAME
OR SURVIVING DEPENDANTS
ADDRESS
CITY, STATE ZIP CODE
IMPORTANT INFORMATION ENCLOSED
PROMPT REPLY REQUESTED
SCHWAB TAX-EXEMPT MONEY FUND
(A SERIES OF THE CHARLES SCHWAB FAMILY OF FUNDS)
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF TRUSTEES OF
THE CHARLES SCHWAB FAMILY OF FUNDS
KNOW ALL BY THESE PRESENTS: That the undersigned, revoking previous proxies for
such shares, hereby appoints William J. Klipp, Christina M. Perrino and David H.
Lui, or any of them, attorneys of the undersigned with full power of
substitution, to vote all shares of the above-referenced fund (the Fund) which
the undersigned is entitled to vote at the Special Meeting of Shareholders of
the Fund (the Meeting) to be held on December 16, 1996 at 101 Market Street, San
Francisco, California 94105, commencing at 10:00 a.m., Pacific time, and at any
and all adjournment(s) thereof. Receipt of the Notice of and Proxy Statement for
said Meeting is acknowledged.
ACCOUNT NUMBER: 000000000000000
SHARES: 00,000.00
CONTROL NO: 000000000000
- --------------------------------------------------------------------------------
PLEASE COMPLETE, SIGN, DATE, FOLD AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED BUSINESS REPLY ENVELOPE
- --------------------------------------------------------------------------------
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: /X/ TEMF
- --------------------------------------------------------------------------------
PAGE 1 OF 1 SCHWAB TAX-EXEMPT MONEY FUND
0000000000 000000 0 TEMF1
The shares represented by this proxy will be voted as specified below by the
undersigned. Note: This proxy must be returned in order for your shares to be
voted for you at the Meeting.
The Board of Trustees recommends a vote FOR the following matters and FOR the
election of the proposed Trustees. IF NO SPECIFICATION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL SUCH MATTERS AND FOR THE ELECTION OF THE PROPOSED TRUSTEES.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
ELECTION OF TRUSTEES
1. Nominees for the Board of Trustees: Charles R. Schwab, Donald F. Dorward,
Robert G. Holmes, William J. Klipp, Timothy G. McCarthy, Donald R.
Stephens and Michael W. Wilsey.
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
/ / / / / /
To withhold your vote for one or more nominees, mark "For All Except" and
write the nominee's name on this line.
- --------------------------------------------------------------------------------
2. To approve amending the Fund's investment policy concerning AMT
investments as described in Proposal 2 of the Proxy Statement:
For Against Abstain
/ / / / / /
3. To approve eliminating, reclassifying or amending the Fund's fundamental
investment restrictions as described in Proposal 3 of the Proxy Statement:
For Against Abstain
/ / / / / /
To vote on the entire slate of Proposal 3 in the aggregate:
STOP HERE UNLESS YOU WOULD LIKE TO VOTE THE ELEMENTS OF PROSPOSAL 3
INDIVIDUALLY.
To vote on each change separately:
3.1 Proposed Changes to Restrictions Regarding Borrowing and Lending:
For Against Abstain
/ / / / / /
3.2 Proposed Changes to Restrictions Regarding the Issuance of Senior
Securities:
For Against Abstain
/ / / / / /
3.3 Proposed Change in Restriction Regarding Compliance with the
Diversification Requirements of the 1940 Act:
For Against Abstain
/ / / / / /
3.4 Proposed Change in Restriction Regarding Investment in Industrial
Development Bonds Issued by "Unseasoned Issuers":
For Against Abstain
/ / / / / /
3.5 Proposed Change in Restriction Regarding Investment in "Restricted
Securities":
For Against Abstain
/ / / / / /
3.6 Proposed Change in Restriction Regarding Investment in Shares of
Other Investment Companies:
For Against Abstain
/ / / / / /
As to any other matter, said attorneys shall vote in accordance with their
judgment.
PLEASE SIGN EXACTLY AS YOUR NAME OR NAME(S) APPEAR ABOVE. IF SIGNING IS BY
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE.
- ------------------------ -------------------------- ------------------
SIGNATURE SIGNATURE (JOINT OWNERS) DATE
<PAGE> 42
SCHWABFUNDS(R)
PROXY SERVICES
P.O. BOX 9163
FARMINGDALE, NY 11735
SHAREHOLDER NAME
OR SURVIVING DEPENDANTS
ADDRESS
CITY, STATE ZIP CODE
IMPORTANT INFORMATION ENCLOSED
PROMPT REPLY REQUESTED
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
(A SERIES OF THE CHARLES SCHWAB FAMILY OF FUNDS)
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF TRUSTEES OF
THE CHARLES SCHWAB FAMILY OF FUNDS
KNOW ALL BY THESE PRESENTS: That the undersigned, revoking previous proxies for
such shares, hereby appoints William J. Klipp, Christina M. Perrino and David H.
Lui, or any of them, attorneys of the undersigned with full power of
substitution, to vote all shares of the above-referenced fund (the Fund) which
the undersigned is entitled to vote at the Special Meeting of Shareholders of
the Fund (the Meeting) to be held on December 16, 1996 at 101 Market Street, San
Francisco, California 94105, commencing at 10:00 a.m., Pacific time, and at any
and all adjournment(s) thereof. Receipt of the Notice of and Proxy Statement for
said Meeting is acknowledged.
ACCOUNT NUMBER: 000000000000000
SHARES: 00,000.00
CONTROL NO: 000000000000
- --------------------------------------------------------------------------------
PLEASE COMPLETE, SIGN, DATE, FOLD AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED BUSINESS REPLY ENVELOPE
- --------------------------------------------------------------------------------
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: /X/ TEMF
- --------------------------------------------------------------------------------
PAGE 1 OF 1 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
0000000000 000000 0 TEMF1
The shares represented by this proxy will be voted as specified below by the
undersigned. Note: This proxy must be returned in order for your shares to be
voted for you at the Meeting.
The Board of Trustees recommends a vote FOR the following matters and FOR the
election of the proposed Trustees. IF NO SPECIFICATION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL SUCH MATTERS AND FOR THE ELECTION OF THE PROPOSED TRUSTEES.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
ELECTION OF TRUSTEES
1. Nominees for the Board of Trustees: Charles R. Schwab, Donald F. Dorward,
Robert G. Holmes, William J. Klipp, Timothy G. McCarthy, Donald R.
Stephens and Michael W. Wilsey.
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
/ / / / / /
To withhold your vote for one or more nominees, mark "For All Except" and
write the nominee's name on this line.
- --------------------------------------------------------------------------------
2. To approve amending the Fund's investment policy concerning AMT
investments as described in Proposal 2 of the Proxy Statement:
For Against Abstain
/ / / / / /
3. To approve eliminating, reclassifying or amending the Fund's fundamental
investment restrictions as described in Proposal 3 of the Proxy Statement:
For Against Abstain
/ / / / / /
To vote on the entire slate of Proposal 3 in the aggregate:
STOP HERE UNLESS YOU WOULD LIKE TO VOTE THE ELEMENTS OF PROSPOSAL 3
INDIVIDUALLY.
To vote on each change separately:
3.1 Proposed Changes to Restrictions Regarding Borrowing and Lending:
For Against Abstain
/ / / / / /
3.2 Proposed Changes to Restrictions Regarding the Issuance of Senior
Securities:
For Against Abstain
/ / / / / /
3.3 Proposed Change in Restriction Regarding Compliance with the
Diversification Requirements of the 1940 Act:
For Against Abstain
/ / / / / /
3.4 Proposed Change in Restriction Regarding Investment in Industrial
Development Bonds Issued by "Unseasoned Issuers":
For Against Abstain
/ / / / / /
3.5 Proposed Change in Restriction Regarding Investment in "Restricted
Securities":
For Against Abstain
/ / / / / /
3.6 Proposed Change in Restriction Regarding Investment in Shares of
Other Investment Companies:
For Against Abstain
/ / / / / /
As to any other matter, said attorneys shall vote in accordance with their
judgment.
PLEASE SIGN EXACTLY AS YOUR NAME OR NAME(S) APPEAR ABOVE. IF SIGNING IS BY
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE.
- ------------------------ -------------------------- ------------------
SIGNATURE SIGNATURE (JOINT OWNERS) DATE
<PAGE> 43
SCHWABFUNDS(R)
PROXY SERVICES
P.O. BOX 9163
FARMINGDALE, NY 11735
SHAREHOLDER NAME
OR SURVIVING DEPENDANTS
ADDRESS
CITY, STATE ZIP CODE
IMPORTANT INFORMATION ENCLOSED
PROMPT REPLY REQUESTED
SCHWAB NEW YORK TAX-EXEMPT MONEY FUND
(A SERIES OF THE CHARLES SCHWAB FAMILY OF FUNDS)
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF TRUSTEES OF
THE CHARLES SCHWAB FAMILY OF FUNDS
KNOW ALL BY THESE PRESENTS: That the undersigned, revoking previous proxies for
such shares, hereby appoints William J. Klipp, Christina M. Perrino and David H.
Lui, or any of them, attorneys of the undersigned with full power of
substitution, to vote all shares of the above-referenced fund (the Fund) which
the undersigned is entitled to vote at the Special Meeting of Shareholders of
the Fund (the Meeting) to be held on December 16, 1996 at 101 Market Street, San
Francisco, California 94105, commencing at 10:00 a.m., Pacific time, and at any
and all adjournment(s) thereof. Receipt of the Notice of and Proxy Statement for
said Meeting is acknowledged.
ACCOUNT NUMBER: 000000000000000
SHARES: 00,000.00
CONTROL NO: 000000000000
- --------------------------------------------------------------------------------
PLEASE COMPLETE, SIGN, DATE, FOLD AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED BUSINESS REPLY ENVELOPE
- --------------------------------------------------------------------------------
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: /X/ TEMF
- --------------------------------------------------------------------------------
PAGE 1 OF 1 SCHWAB NEW YORK TAX-EXEMPT MONEY FUND
0000000000 000000 0 TEMF1
The shares represented by this proxy will be voted as specified below by the
undersigned. Note: This proxy must be returned in order for your shares to be
voted for you at the Meeting.
The Board of Trustees recommends a vote FOR the following matters and FOR the
election of the proposed Trustees. IF NO SPECIFICATION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL SUCH MATTERS AND FOR THE ELECTION OF THE PROPOSED TRUSTEES.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
ELECTION OF TRUSTEES
1. Nominees for the Board of Trustees: Charles R. Schwab, Donald F. Dorward,
Robert G. Holmes, William J. Klipp, Timothy G. McCarthy, Donald R.
Stephens and Michael W. Wilsey.
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
/ / / / / /
To withhold your vote for one or more nominees, mark "For All Except" and
write the nominee's name on this line.
- --------------------------------------------------------------------------------
2. To approve amending the Fund's investment policy concerning AMT
investments as described in Proposal 2 of the Proxy Statement:
For Against Abstain
/ / / / / /
3. To approve eliminating, reclassifying or amending the Fund's fundamental
investment restrictions as described in Proposal 3 of the Proxy Statement:
For Against Abstain
/ / / / / /
To vote on the entire slate of Proposal 3 in the aggregate:
STOP HERE UNLESS YOU WOULD LIKE TO VOTE THE ELEMENTS OF PROSPOSAL 3
INDIVIDUALLY.
To vote on each change separately:
3.1 Proposed Changes to Restrictions Regarding Borrowing and Lending:
For Against Abstain
/ / / / / /
3.2 Proposed Changes to Restrictions Regarding the Issuance of Senior
Securities:
For Against Abstain
/ / / / / /
3.3 Proposed Change in Restriction Regarding Compliance with the
Diversification Requirements of the 1940 Act:
For Against Abstain
/ / / / / /
3.4 Proposed Change in Restriction Regarding Investment in Industrial
Development Bonds Issued by "Unseasoned Issuers":
For Against Abstain
/ / / / / /
3.5 Proposed Change in Restriction Regarding Investment in "Restricted
Securities":
For Against Abstain
/ / / / / /
3.6 Proposed Change in Restriction Regarding Investment in Shares of
Other Investment Companies:
For Against Abstain
/ / / / / /
As to any other matter, said attorneys shall vote in accordance with their
judgment.
PLEASE SIGN EXACTLY AS YOUR NAME OR NAME(S) APPEAR ABOVE. IF SIGNING IS BY
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE.
- ------------------------ -------------------------- ------------------
SIGNATURE SIGNATURE (JOINT OWNERS) DATE
<PAGE> 44
THANK YOU FOR MAILING IN YOUR PROXY CARD PROMPTLY!
We appreciate you placing your trust in
SchwabFunds(R) and look forward to helping you achieve
your financial goals.
SCHWAB TAX-EXEMPT MONEY FUND
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
SCHWAB NEW YORK TAX-EXEMPT MONEY FUND
[SCHWABFUNDS(R) LOGO]
TF4321 (10/96) Printed on Recycled Paper
