<PAGE> 1
STATEMENT OF ADDITIONAL INFORMATION
THE CHARLES SCHWAB FAMILY OF FUNDS
101 Montgomery Street, San Francisco, CA 94104
SCHWAB VALUE ADVANTAGE MONEY FUND(R)
APRIL 1, 1996, AS AMENDED NOVEMBER 26, 1996
This Statement of Additional Information is not a prospectus. It
should be read in conjunction with the Prospectus dated April 1, 1996, as
amended November 26, 1996 (and as may be further amended from time to time) for
the Schwab Value Advantage Money Fund (the "Fund"), a separately managed
investment portfolio of The Charles Schwab Family of Funds (the "Schwab Fund
Family" or the "Trust"). To obtain a copy of the Prospectus, please contact
Charles Schwab & Co., Inc. ("Schwab") at 800-2 NO-LOAD, 24 hours a day, or 101
Montgomery Street, San Francisco, CA 94104. TDD users may contact Schwab at
800-345-2550, 24 hours a day. The Prospectus may be available electronically by
using our World Wide Web address: http://www.schwab.com.
SCHWABFunds(R)
800-2 NO-LOAD
(800-266-5623)
TABLE OF CONTENTS
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INVESTMENT RESTRICTIONS ................................................ 2
INVESTMENT SECURITIES .................................................. 3
MANAGEMENT OF THE TRUST ................................................ 6
PORTFOLIO TRANSACTIONS AND TURNOVER .................................... 13
DISTRIBUTIONS AND TAXES ................................................ 14
SHARE PRICE CALCULATION ................................................ 17
HOW THE FUND REPORTS PERFORMANCE ....................................... 18
GENERAL INFORMATION .................................................... 19
PURCHASE AND REDEMPTION OF SHARES ...................................... 23
OTHER INFORMATION ...................................................... 23
APPENDIX - RATINGS OF INVESTMENT SECURITIES ............................ 25
FINANCIAL STATEMENTS ................................................... F-1
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INVESTMENT RESTRICTIONS
The restrictions set forth below are fundamental and cannot be
changed without approval of the holders of a majority of the outstanding voting
securities (as defined in the Investment Company Act of 1940, as amended,
hereinafter the "1940 Act") of the Fund.
THE FUND MAY NOT:
(1) 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.
(2) Invest in commodities or commodity contracts, including futures
contracts, or in real estate, although it may invest in securities
which are secured by real estate and securities of issuers which
invest or deal in real estate.
(3) Concentrate 25% or more of the value of its assets in any one
industry; provided, however, that the Fund reserves freedom of
action to invest up to 100% of its assets in certificates of deposit
or bankers' acceptances issued by U.S. banks and U.S. branches of
those foreign banks which the Investment Manager has determined to
be subject to the same regulation as U. S. banks, or obligations of
or guaranteed by the U.S. Government, its agencies or
instrumentalities.
(4) Make loans to others (except through the purchase of debt
obligations or repurchase agreements in accordance with its
investment objective and policies).
(5) Issue senior securities as defined in the 1940 Act.
The following restrictions are non-fundamental and may be changed by
the Board of Trustees.
THE FUND MAY NOT:
(6) Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States Government, its agencies or
instrumentalities) if, as a result, more than 5% of the value of its
assets would be invested in securities of that issuer.
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(7) Invest more than 10% of its net assets in illiquid securities,
including repurchase agreements maturing in more than 7-days.
(8) Purchase or retain the securities of any issuer if any of the
officers, trustees or directors of the Schwab Fund Family or the
Investment Manager beneficially own more than 1/2 of 1% of the
securities of such issuer, and together beneficially own more than
5% of the securities of such issuer.
(9) Invest for the purpose of exercising control or management of
another issuer.
(10) Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or
acquisition of assets.1
(11) Write, purchase or sell puts, calls or combinations thereof.
(12) Make short sales of securities, or purchase any securities on margin
except to obtain such short-term credits as may be necessary for the
clearance of transactions.
(13) Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the securities of
issuers which invest in or sponsor such programs. Except as
otherwise noted, if a percentage restriction is adhered to at the
time of investment, a later increase in percentage beyond the
specified limit resulting from a change in values or net assets will
not be considered a violation.
INVESTMENT SECURITIES
The Fund will only purchase securities that present minimal credit
risks and which are First Tier or Second Tier Securities (otherwise referred to
"Eligible Securities"). An Eligible Security is:
(1) a security with a remaining maturity of 397 days or less: (a) that
is rated by the requisite nationally recognized statistical rating
organizations ("NRSROs") designated by the Securities and Exchange
Commission (the "SEC") (currently Moody's Investors Service,
Standard & Poor's Corporation, Duff and Phelps Credit Inc., Fitch
Investors Services, Inc., Thomson Bankwatch; and, IBCA Limited and
its affiliate, IBCA, Inc. with respect to debt issued by banks, bank
holding companies, United Kingdom building societies, broker-dealers
and broker-dealers' parent
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1 See the description of the Trustees' deferred compensation plan
under "Management of the Trust" in this Statement of Additional
Information for an exception to this investment restriction.
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companies, and bank-supported debt) in one of the two highest rating
categories for short-term debt obligations (the requisite NRSROs
being any two or, if rated by one, that one NRSRO), or (b) that
itself was unrated by an NRSRO, but was issued by an issuer that has
outstanding a class of short-term debt obligations (or any security
within that class) meeting the requirements of subparagraph 1(a)
above that is of comparable priority and security;
(2) a security that at the time of issuance was a long-term security but
has a remaining maturity of 397 days or less and (a) whose issuer
received a rating within one of the two highest rating categories
from the requisite NRSROs for short-term debt obligations with
respect to a class of short-term debt obligations (or any security
within that class) that is now comparable in priority and security
with the subject security; or (b) that has long-term ratings from
the requisite NRSROs that are in one of the two highest categories;
or
(3) a security not rated by an NRSRO but deemed by the Investment
Manager, pursuant to guidelines adopted by the Board of Trustees, to
be of comparable quality to securities described in (1) and (2)
above and to represent minimal credit risks.
A First Tier Security is any Eligible Security which carries (or
other relevant securities issued by its issuer carry) top NRSRO ratings from at
least two NRSROs (a single top rating is sufficient if only one NRSRO rates the
security), or has been determined by the Investment Manager, pursuant to
guidelines adopted by the Board of Trustees, to be of comparable quality to such
a security. A Second Tier Security is any other Eligible Security.
The Fund will limit its investments in the First Tier Securities of
any one issuer to no more than five percent of its assets. (Repurchase
agreements collateralized by non-Government securities will be taken into
account when making this calculation.) Moreover, the Fund's total holdings of
Second Tier Securities will not exceed 5% of its assets, with investment in the
Second Tier Securities of any one issuer being limited to the greater of 1% of
the Fund's assets or $1 million. In addition, the underlying securities involved
in repurchase agreements collateralized by non-Government securities will be
First Tier Securities at the time the repurchase agreements are executed.
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ASSET-BACKED COMMERCIAL PAPER AND OTHER SECURITIES
The Schwab Value Advantage Money Fund(R) can invest a portion of its
assets in asset-backed commercial paper and other money market fund Eligible
Securities (as that term is hereinafter defined). The credit quality of most
asset-backed commercial paper depends primarily on the credit quality of the
assets underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator (or any other affiliated
entities), and the amount and quality of any credit support provided to the
securities.
Asset-backed commercial paper is often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on these underlying assets to make payments, such
securities may contain elements of credit support. Such credit support falls
into two classes: liquidity protection and protection against ultimate default
on the underlying assets. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets, to ensure
that scheduled payments on the underlying pool are made in a timely fashion.
Protection against ultimate default ensures payment on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained from third parties, through
various means of structuring the transaction, or through a combination of such
approaches. The degree of credit support provided on each issue is based
generally on historical information respecting the level of credit risk
associated with such payments. Delinquency or loss in excess of that anticipated
could adversely affect the return on an investment in an asset-backed security.
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MANAGEMENT OF THE TRUST
OFFICERS AND TRUSTEES. The officers and Trustees of the Trust, their
principal occupations over the past five years and their affiliations, if any,
with The Charles Schwab Corporation, Schwab and the Investment Manager, are as
follows:
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POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
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CHARLES R. SCHWAB* Chairman and Chairman, Chief Executive Officer and Director, The Charles Schwab
July 29, 1937 Trustee Corporation; Chairman and Director, Charles Schwab & Co., Inc. and
Charles Schwab Investment Management, Inc.; Chairman and Director, The
Charles Schwab Trust Company; Chairman and Director (current board
positions), and Chairman (officer position) until December 1995, 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** President and Executive Vice President - Mutual Funds, Charles Schwab & Co., Inc.;
September 19, 1951 Trustee Executive Vice President, President - Financial Products and International
Group, The Charles Schwab Corporation; Chief Executive Officer, Charles
Schwab Investment Management, Inc.; Director, Mayer & Schweitzer. From 1994
to 1995,
</TABLE>
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*Mr. Schwab is an "interested person" of the Trust.
**Mr. McCarthy is an "interested person" of the Trust.
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POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
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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 Trustee President and Chief Executive Officer, Dorward & Associates
September 23, 1931 (advertising and marketing/consulting).
ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and Director, Semloh Financial,
May 15, 1931 Inc. Semloh Financial is an international financial services and
investment advisory firm.
DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens & Co. (investment banking). Since
June 28, 1938 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.
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POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
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MICHAEL W. WILSEY Trustee Chairman, Chief Executive Officer and Director, Wilsey Bennett,
August 18, 1943 Inc. (truck and air transportation, real estate investment and
management, and investments).
TAI-CHIN TUNG Treasurer and Vice President - Finance, Charles Schwab & Co., Inc.; Controller,
March 7, 1951 Principal Charles Schwab Investment Management, Inc. From 1994 to 1996, Ms. Tung
Financial Officer 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.
WILLIAM J. KLIPP* Executive Vice Executive Vice President-SchwabFunds, Charles Schwab & Co., Inc.;
December 9, 1955 President, Chief President and Chief Operating Officer, Charles Schwab Investment
Operating Officer Management, Inc. Prior to 1993, Mr. Klipp was Treasurer of Charles
and Trustee Schwab & Co., Inc. and Mayer & Schweitzer, Inc.
STEPHEN B. WARD Senior Vice Senior Vice President and Chief Investment Officer, Charles Schwab
April 5, 1955 President and Chief Investment Management, Inc.
Investment
Officer
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*Mr. Klipp is an "interested person" of the Trust.
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<TABLE>
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POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
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FRANCES COLE Secretary Vice President, Chief Counsel, Chief Compliance Officer and
September 9, 1955 Assistant Corporate Secretary, Charles Schwab Investment
Management, Inc.
DAVID H. LUI Assistant Secretary Vice President and Senior Counsel - Charles Schwab Investment
October 14, 1960 Management, Inc. Prior to 1992, he was Assistant Secretary
for the Franklin Group of Mutual Funds and Assistant Corporate
Counsel of Franklin Resources, Inc.
CHRISTINA M. PERRINO Assistant Secretary Vice President and Senior Counsel - Charles Schwab Investment
June 16, 1961 Management, Inc. Prior to 1994, she was Counsel and Assistant
Secretary for North American Security Life Insurance Company and
Secretary for North American Funds.
KAREN L. SEAMAN Assistant Secretary Corporate Counsel - Charles Schwab Investment Management, Inc.
February 27, 1968 From October 1994 to July 1996, Ms. Seaman was an attorney for
Franklin Resources, Inc. Prior to 1994, Ms. Seaman was an
attorney for The Benham Group.
</TABLE>
Each of the above-referenced individuals also serves in the same
capacity as described for the Trust, Schwab Investments, Schwab Capital Trust,
Schwab Annuity Portfolios, and Schwab Advantage Trust (which has not commenced
operations). The address of each individual listed above is 101 Montgomery
Street, San Francisco, California 94104.
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COMPENSATION TABLE(1)
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Pension or
Retirement
Benefits Estimated
Accrued as Annual
Part of Fund Benefits Upon Total
Aggregate Expenses from Retirement Compensation
Name of Person, Compensation the Fund from the Fund from the Fund
Position from the Trust Complex(2) Complex(2) Complex(2)
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Charles R. Schwab, 0 N/A N/A 0
Chairman and
Trustee
Elizabeth G. Sawi(3), 0 N/A N/A 0
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
Executive 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
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(1) Figures are for the Trust's fiscal year ended December 31, 1995.
(2) "Fund Complex" comprises all 22 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.
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TRUSTEE DEFERRED COMPENSATION PLAN
Pursuant to exemptive relief received by the Trust from the SEC, the
Trust may enter into deferred fee arrangements (the "Fee Deferral Plan" or the
"Plan") with the Trust's trustees who are not "interested persons" of any of the
Funds of the Trust (the "Independent Trustees" or the "Trustees").
As of the date of this Statement of Additional Information, none of
the Independent Trustees has elected to participate in the Fee Deferral Plan. In
the event an Independent Trustee does elect to participate in the Plan, the Plan
would operate as described below.
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 amounts 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, Schwab Capital Trust, and Schwab Advantage Trust (which has
not commenced operations).
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. These transactions would otherwise be limited or
prohibited by the investment policies and/or restrictions of the Funds. See
"Investment Restrictions."
INVESTMENT MANAGER
Charles Schwab Investment Management, Inc. (the "Investment
Manager"), a wholly-owned subsidiary of The Charles Schwab Corporation, serves
as the Fund's investment adviser and administrator pursuant to an Investment
Advisory and Administration Agreement (the "Advisory Agreement") between it and
the Trust. The Investment Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended and currently provides
investment management services to the SchwabFunds(R), a family of 26 mutual
funds with over $40 billion in assets as of November 1, 1996. The Investment
Manager is an affiliate of Schwab, the Trust's distributor and shareholder
services and transfer agent.
The Advisory Agreement will continue in effect for one-year terms
for each Fund to which it relates, subject to annual approval by: (1) the
Trust's 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 Trust's
Board of Trustees
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who are not parties to the Agreement, or interested persons (as defined in the
1940 Act) of any such party, by vote cast in person at a meeting called for the
purpose of voting on such approval. The 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.
Pursuant to the Advisory Agreement, the Investment Manager is
entitled to receive a graduated annual fee, payable monthly, of 0.46% of the
Fund's average daily net assets not in excess of $2 billion, 0.45% of such net
assets over $2 billion but not in excess of $3 billion, and 0.40% of such net
assets over $3 billion.
For the fiscal years ended December 31, 1993, 1994, and 1995, the
investment advisory and administration fees paid by the Fund were $592,000 (fees
were reduced by $1,882,000), $2,144,000 (fees were reduced by $6,741,000), and
$15,877,000 (fees were reduced by $7,922,000), respectively.
Expenses. The Trust pays the expenses of its operations, including
the fees and expenses of independent accountants, counsel, custodian and the
cost of reports and notices to shareholders, costs of calculating net asset
value, brokerage commissions or transaction costs, taxes, registration fees, the
fees and expenses of qualifying the Trust and its shares for distribution under
federal and state securities laws and membership dues in the Investment Company
Institute or any similar organization. The Trust's expenses generally are
allocated among the Funds on the basis of relative net assets at the time the
expense is incurred, except that expenses directly attributable to a particular
Fund or class of shares are charged to that Fund or class, respectively.
DISTRIBUTOR
Pursuant to a Distribution Agreement, Schwab is the principal
underwriter for shares of the Trust and is the Trust's agent for the purpose of
the continuous offering of the Funds' shares. Each Fund pays the cost for its
prospectus and shareholder reports to be prepared and delivered to existing
shareholders. Schwab pays such costs when the described materials are used in
connection with the offering of shares to prospective investors and for
supplementary sales literature and advertising. Schwab receives no fee under the
Distribution Agreement. Terms of continuation, termination and assignment under
the Distribution Agreement are identical to those described above with respect
to the Advisory Agreements.
CUSTODIAN AND FUND ACCOUNTANT
PNC Bank, National Association, at the Airport Business Center, 200
Stevens Drive, Suite 440, Lester, Pennsylvania 19113, serves as Custodian for
the Trust.
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PFPC, Inc., at 400 Bellevue Parkway Wilmington, Delaware 19809,
serves as Fund Accountant for the Trust.
ACCOUNTANTS AND REPORTS TO SHAREHOLDERS
The Trust's independent accountants, Price Waterhouse LLP, audit and
report on the annual financial statements of each series of the Trust and review
certain regulatory reports and each Fund's federal income tax return. Price
Waterhouse LLP also performs other professional accounting, auditing, tax and
advisory services when engaged to do so by the Trust. Shareholders will be sent
audited annual and unaudited semi-annual financial statements. The address of
Price Waterhouse LLP is 555 California Street, San Francisco, California 94104.
LEGAL COUNSEL
Ropes & Gray, 1301 K Street, N.W., Suite 800 East, Washington, D.C.
20005, is counsel to the Trust.
PORTFOLIO TRANSACTIONS AND TURNOVER
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to pursue the
objective of the Fund in relation to movements in the general level of interest
rates, to invest money obtained from the sale of Fund shares, to reinvest
proceeds from maturing portfolio securities and to meet redemptions of Fund
shares. Portfolio transactions may increase or decrease the yield of the Fund,
depending upon management's ability to correctly time and execute them.
The Investment Manager, in effecting purchases and sales of
portfolio securities for the account of the Fund, seeks to obtain best price and
execution. Subject to the supervision of the Board of Trustees, the Investment
Manager generally selects broker-dealers primarily on the basis of the quality
and reliability of services provided, including execution capability and
financial responsibility.
When the execution and price offered by two or more broker-dealers
are comparable, the Investment Manager may, in its discretion, utilize the
services of broker-dealers that provide it with investment information and other
research resources. Such resources may also be used by the Investment Manager
when providing advisory services to other investment advisory clients, including
mutual funds.
The Trust expects that purchases and sales of portfolio securities
will usually be principal transactions. Securities will normally be purchased
directly from the issuer or from an underwriter or market maker for the
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securities. Purchases from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers serving as
market makers will include the spread between the bid and asked prices.
The investment decisions for the Fund are reached independently from
those for other accounts managed by the Investment Manager. Such other accounts
may also make investments in instruments or securities at the same time as the
Fund. When two or more accounts managed by the Investment Manager have funds
available for investment in similar instruments, available instruments are
allocated as to amount in a manner considered equitable to each account. In some
cases this procedure may affect the size or price of the position obtainable for
the Fund. However, it is the opinion of the Board of Trustees that the benefits
conferred by the Investment Manager outweigh any disadvantages that may arise
from exposure to simultaneous transactions.
PORTFOLIO TURNOVER
Because securities with maturities of less than one year are
excluded from required portfolio turnover rate calculations, the Fund's
portfolio turnover rate for reporting purposes is expected to be zero.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
On each day that the net asset value per share of the Fund is
determined ("Business Day"), the Fund's net investment income will be declared
as of the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern time) as a daily dividend to shareholders of record as of the last
calculation of net asset value prior to the declaration. Shareholders will
receive dividends in additional shares unless they elect to receive cash.
Dividends will normally be reinvested monthly in full and fractional shares of
the Fund at the net asset value on the 15th day of each month if a Business Day,
otherwise on the next Business Day. If cash payment is requested, checks will
normally be mailed on the Business Day following the reinvestment date. The Fund
will pay shareholders who redeem all of their shares all dividends accrued to
the time of the redemption within 7 days.
The Fund calculates its dividends based on its daily net investment
income. For this purpose, the net investment income of the Fund consists of: (1)
accrued interest income, plus or minus amortized discount or premium, minus (2)
accrued expenses allocated to the Fund. If the Fund realizes any capital gains,
they will be distributed at least once during the year as determined by the
Board of Trustees. Any realized capital losses to the extent not offset by
realized capital gains will be carried forward. It is not anticipated that the
Fund will realize any long-term capital
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gains. Expenses of the Trust are accrued each day. Should the net asset value of
the Fund deviate significantly from market value, the Board of Trustees could
decide to value the investments at market value and any unrealized gains and
losses could affect the amount of distributions.
FEDERAL INCOME TAXES
It is the policy of the Fund to qualify for taxation as a "regulated
investment company" by meeting the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). By following this policy, the
Fund expects to eliminate or reduce to a nominal amount the federal income tax
to which it is subject.
In order to qualify as a regulated investment company, the Fund
must, among other things, (1) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stocks, securities, foreign currencies or other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in stocks, securities or currencies; (2)
derive less than 30% of its gross income from gains from the sale or other
disposition of certain assets (including stocks and securities) held for less
than three months; and (3) diversify its holdings so that at the end of each
quarter of its taxable year (i) at least 50% of the market value of the Fund's
total assets is represented by cash or cash items, United States Government
securities, securities of other regulated investment companies and other
securities limited, in respect of any one issuer, to a value not greater than 5%
of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than United States
Government securities or securities of any other regulated investment company)
or of two or more issuers that the Fund controls, within the meaning of the
Code, and that are engaged in the same, similar or related trades or businesses.
These requirements may restrict the degree to which a Fund may engage in
short-term trading and certain hedging transactions and may limit the range of
the Fund's investments. If the Fund qualifies as a regulated investment company,
it will not be subject to federal income tax on the part of its net investment
income and net realized capital gains, if any, which it distributes to
shareholders, provided that the Fund distributes during its taxable year at
least 90% of its "investment company taxable income" (as defined in the Code).
The Fund intends to make sufficient distributions to shareholders to meet this
requirement.
If the Fund fails to distribute in a calendar year (regardless of
whether it has a non-calendar taxable year) substantially all of its (i)
ordinary income for such year and (ii) capital gain net income for the year
ending October 31 (or later if the Fund is permitted so to elect and so elects),
plus any retained amount from the prior year, the Fund will be subject to a
nondeductible 4% excise tax on the undistributed amounts. The Fund intends
generally to make distributions sufficient to avoid imposition of this excise
tax.
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Any distribution declared in October, November or December to
shareholders of record during those months and paid during the following January
is treated, for tax purposes, as if it were received by each shareholder on
December 31 of the year declared . The Fund may adjust its schedule for the
reinvestment of distributions for the month of December to assist in complying
with the reporting and minimum distribution requirements of the Code.
The Fund does not expect to realize any significant amount of
long-term capital gain. However, any distributions of long-term capital gain
will be taxable to shareholders as long-term capital gain, regardless of how
long a shareholder has held the Fund's shares. If a shareholder disposes of
shares at a loss before holding such shares for longer than six months, the loss
will be treated as a long-term capital loss to the extent the shareholder
received a capital gain dividend on the shares.
The Fund will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends paid to any shareholder (1)
who fails to provide a correct taxpayer identification number certified under
penalty of perjury; (2) who provides an incorrect taxpayer identification
number; (3) who is subject to withholding by the Internal Revenue Service for
failure to properly report all payments of interest or dividends; or (4) who
fails to provide a certified statement that he or she is not subject to "backup
withholding." This "backup withholding" is not an additional tax and any amounts
withheld may be credited against the shareholder's ultimate U.S. tax liability.
The Fund may engage in investment techniques that may alter the
timing and character of the Fund's income. The Fund may be restricted in its use
of these techniques by rules relating to its qualification as a regulated
investment company.
The foregoing discussion relates only to federal income tax law as
applicable to U.S. citizens or residents. Foreign shareholders (i.e.,
nonresident alien individuals and foreign corporations, partnerships, trusts and
estates) generally are subject to U.S. withholding tax at the rate of 30% (or a
lower tax treaty rate) on distributions derived from net investment income and
short-term capital gains. Distributions to foreign shareholders of long-term
capital gains and any gains from the sale or disposition of shares of the Fund
generally are not subject to U.S. taxation, unless the recipient is an
individual who meets the Code's definition of "resident alien." Different tax
consequences may result if the foreign shareholder is engaged in a trade or
business within the United States. In addition, the tax consequences to a
foreign shareholder entitled to claim the benefits of a tax treaty may be
different than those described above. Distributions by the Fund may also be
subject to state, local and foreign taxes, and their treatment under applicable
tax laws may differ from the federal income tax treatment.
The discussion of federal income taxation presented above only
summarizes some of the important federal tax
- --------------------------------------------------------------------------------
16
<PAGE> 17
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considerations generally affecting purchasers of shares of the Fund. No attempt
has been made to present a detailed explanation of the federal income tax
treatment of the Fund and its shareholders, and the discussion is not intended
as a substitute for careful tax planning. Accordingly, prospective investors
(particularly those not residing or domiciled in the United States) should
consult their own tax advisers regarding the consequences of investing in the
Fund.
SHARE PRICE CALCULATION
The Fund values its portfolio instruments at amortized cost, which
means that they are valued at their acquisition cost, as adjusted for
amortization of premium or discount, rather than at current market value.
Calculations are made to compare the value of the Fund's investments at
amortized cost with market values. Market valuations are obtained by using
actual quotations provided by market makers, estimates of market value, or
values obtained from yield data relating to classes of money market instruments
published by reputable sources at the mean between the bid and asked prices for
the instruments. The amortized cost method of valuation seeks to maintain a
stable $1.00 per share net asset value even where there are fluctuations in
interest rates that affect the value of portfolio instruments. Accordingly, this
method of valuation can in certain circumstances lead to a dilution of a
shareholder's interest. If a deviation of 1/2 of 1% or more were to occur
between the net asset value per share calculated by reference to market values
and the Fund's $1.00 per share net asset value, or if there were any other
deviation that the Board of Trustees of the Trust believed would result in a
material dilution to shareholders or purchasers, the Board of Trustees would
promptly consider what action, if any, should be initiated. If the Fund's net
asset value per share (computed using market values) declined, or were expected
to decline, below $1.00 (computed using amortized cost), the Board of Trustees
might temporarily reduce or suspend dividend payments in an effort to maintain
the net asset value at $1.00 per share. As a result of such reduction or
suspension of dividends or other action by the Board of Trustees, an investor
would receive less income during a given period than if such a reduction or
suspension had not taken place. Such action could result in investors receiving
no dividend for the period during which they hold their shares and receiving,
upon redemption, a price per share lower than that which they paid. On the other
hand, if the Fund's net asset value per share (computed using market values)
were to increase, or were anticipated to increase above $1.00 (computed using
amortized cost), the Board of Trustees might supplement dividends in an effort
to maintain the net asset value at $1.00 per share.
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HOW THE FUND REPORTS PERFORMANCE
The historical performance of the Fund may be shown in the form of
total return, yield and effective yield. These measures of performance are
described below.
STANDARDIZED TOTAL RETURN
Average annual total return for a period is determined by
calculating the actual dollar amount of investment return on a $1,000 investment
in the Fund made at the beginning of the period, then calculating the average
annual compounded rate of return that would produce the same investment return
on the $1,000 over the same period. In computing average annual total return,
the Fund assumes the reinvestment of all distributions at net asset value on
applicable reinvestment dates.
NONSTANDARDIZED TOTAL RETURN
Nonstandardized total return for the Fund differs from standardized
total return in that it relates to periods other than the period for
standardized total return and/or that it represents aggregate (rather than
average) total return.
In addition, an after-tax total return for the Fund may be
calculated by taking the Fund's standardized or non-standardized total return
and subtracting applicable federal taxes from the portions of the Fund's total
return attributable to capital gains distributions and ordinary income. This
after-tax total return may be compared to that of other mutual funds with
similar investment objectives as reported by independent sources.
The Fund may also advertise its cumulative total return since
inception. This number is calculated using the same formula that is used for
average annual total return except that, rather than calculating the total
return based on a one-year period, cumulative total return is calculated from
inception to the date specified.
YIELD
Yield refers to the net investment income generated by a
hypothetical investment in the Fund over a specific 7-day period. This net
investment income is then annualized, which means that the net investment income
generated during the 7-day period is assumed to be generated in each 7-day
period over an annual period, and is shown as a percentage of the investment.
The Fund's 7-day yield for the period ended December 31, 1995 was 5.47%.
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EFFECTIVE YIELD
Effective yield is calculated similarly, but the net investment
income earned by the investment is assumed to be compounded weekly when
annualized. The effective yield will be slightly higher than the yield due to
this compounding effect. The Fund's 7-day effective yield for the period ended
December 31, 1995 was 5.62%.
GENERAL INFORMATION
The Trust is generally not required to hold shareholder meetings.
However, as provided in its Agreement and Declaration of Trust and Bylaws,
shareholder meetings will be held in connection with the following matters: (1)
election or removal of trustees if a meeting is requested in writing by a
shareholder or shareholders who beneficially own(s) 10% or more of the Trust's
shares; (2) adoption of any contract for which shareholder approval is required
by the 1940 Act; (3) any termination of the Trust to the extent and as provided
in the Declaration of Trust; (4) any amendment of the Declaration of Trust
(other than amendments changing the name of the Trust or any of its investment
portfolios, supplying any omission, curing any ambiguity or curing, correcting
or supplementing any defective or inconsistent provision thereof); (5)
determining whether a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the shareholders, to the same extent as the stockholders of a Massachusetts
business corporation; and (6) such additional matters as may be required by law,
the Declaration of Trust, the Bylaws or any registration of the Trust with the
SEC or any state or as the Board of Trustees may consider desirable. The
shareholders also would vote upon changes to the Fund's fundamental investment
objective, policies or restrictions.
Each Trustee serves until the next meeting of shareholders, if any,
called for the purpose of electing trustees and until the election and
qualification of his or her successor or until death, resignation, retirement or
removal by a majority vote of the shares entitled to vote (as described below)
or of a majority of the Trustees. In accordance with the 1940 Act (i) the Trust
will hold a shareholder meeting for the election of trustees when less than a
majority of the trustees have been elected by shareholders, and (ii) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled by a
vote of the shareholders.
Upon the written request of 10 or more shareholders who have been
such for at least six months and who hold shares constituting at least 1% of the
Trust's outstanding shares stating that they wish to communicate with the other
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19
<PAGE> 20
- --------------------------------------------------------------------------------
shareholders for the purpose of obtaining signatures necessary to demand a
meeting to consider removal of one or more trustees, the Trust has undertaken to
disseminate appropriate materials at the expense of the requesting shareholders.
The Bylaws provide that a majority of shares entitled to vote shall
be a quorum for the transaction of business at a shareholders' meeting, except
that where any provision of law, of the Declaration of Trust or of these Bylaws
permits or requires that (i) holders of any series shall vote as a series, then
a majority of the aggregate number of shares of that series entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that series; or (ii) holders of any class shall vote as a class, then a majority
of the aggregate number of shares of that class entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that class.
Any lesser number shall be sufficient for adjournments. Any adjourned session or
sessions may be held, within a reasonable time after the date set for the
original meeting, without the necessity of further notice. The Declaration of
Trust specifically authorizes the Board of Trustees to terminate the Trust (or
any of its investment portfolios) by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business
trust could, under certain circumstances, be held personally liable for the
Trust's obligations. The Declaration of Trust, however, disclaims shareholder
liability for the Trust's acts or obligations and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Trust or the trustees. In addition, the Declaration of Trust
provides for indemnification out of the property of an investment portfolio in
which a shareholder owns or owned shares for all losses and expenses of such
shareholder or former shareholder if he or she is held personally liable for the
obligations of the Trust solely by reason of being or having been a shareholder.
Moreover, the Trust will be covered by insurance which the trustees consider
adequate to cover foreseeable tort claims. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote, because it is limited to circumstances in which a disclaimer is
inoperative and the Trust itself is unable to meet its obligations.
For further information, please refer to the registration statement
and exhibits for the Trust on file with the SEC in Washington, D.C. and
available upon payment of a copying fee. The statements in the Prospectus and
this Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
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PRINCIPAL HOLDERS OF SECURITIES
As of March 22, 1996, the officers and trustees of the Trust, as a
group, owned of record or beneficially less than 1% of the outstanding voting
securities of the remaining series of the Trust.
ACCESS TO SCHWAB'S MUTUAL
FUND ONESOURCE(R) SERVICE
With Schwab's Mutual Fund OneSource service ("OneSource"), a
shareholder can invest in over 575 mutual funds from many fund companies,
subject to the following. Schwab's standard transaction fee will be charged on
each redemption of fund shares held for 90 days or less to discourage short-term
trading. Mutual fund shares held for more than 90 days are exempt from the
short-term redemption policy and may be sold without penalty. Up to 15
short-term redemption of fund shares per calendar year are permitted. If this
number is exceeded, a shareholder will no longer be able to buy or sell fund
shares without paying a transaction fee. As a courtesy, we will notify
shareholders in advance if short-term redemptions are nearing the point where
all future trades will be subject to transaction fees. Schwab reserves the right
to modify OneSource's terms and conditions at any time. For more information, a
shareholder should contact his or her Schwab office during its regular business
hours or call 800-2 NO-LOAD, 24 hours a day.
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SCHWABFUNDS(R)
--------------
SchwabFunds offers a variety of series and classes of shares of beneficial
interest to help you with your investment needs.
EQUITY FUNDS
Schwab 1000 Fund(R)(1)
Schwab International Index Fund(R)(2)
Schwab Small-Cap Index Fund(R)(2)
Schwab Asset Director(R)-High Growth Fund(2)
Schwab Asset Director(R)-Balanced Growth Fund(2)
Schwab Asset Director(R)-Conservative Growth Fund(2)
Schwab S&P 500 Fund-Investor Shares(2)
Schwab S&P 500 Fund-e.Shares(TM)(2),(3)
Schwab Analytics Fund(TM)(2)
Schwab OneSource Portfolios-International
Schwab OneSource Portfolios-Growth Allocation
Schwab OneSource Portfolios-Balanced Allocation
FIXED INCOME FUNDS(1)
Schwab Short/Intermediate Government Bond Fund
Schwab Long-Term Government Bond Fund
Schwab Short/Intermediate Tax-Free Bond Fund
Schwab Long-Term Tax-Free Bond Fund
Schwab California Short/Intermediate Tax-Free Bond Fund(4)
Schwab California Long-Term Tax-Free Bond Fund(4)
MONEY MARKET FUNDS(5)
Schwab Money Market Fund
Schwab Government Money Fund
Schwab U.S. Treasury Money Fund
Schwab Value Advantage Money Fund(R)
Schwab Tax-Exempt Money Fund-Sweep Shares
Schwab Tax-Exempt Money Fund-Value Advantage Shares(TM)
Schwab California Tax-Exempt Money Fund-Sweep Shares
Schwab California Tax-Exempt Money Fund-Value Advantage Shares(TM)
Schwab Retirement Money Fund(R)(6)
Schwab Institutional Advantage Money Fund(R)(6)
Schwab New York Tax-Exempt Money Fund-Sweep Shares
Schwab New York Tax-Exempt Money Fund-Value Advantage Shares(TM)
(1) The Schwab 1000 Fund and all fixed income funds are separate
investment portfolios of Schwab Investments.
(2) The Funds are separate investment portfolios or classes of shares of
Schwab Capital Trust.
(3) Available only through SchwabLink(TM).
(4) Available only to California residents and residents of selected
other states.
(5) All listed money market funds are separate investment portfolios of
the Trust.
(6) Designed for institutional investors only.
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PURCHASE AND REDEMPTION OF SHARES
The minimum initial investment for the Schwab Value Advantage Money
Fund(R) is $25,000 ($15,000 for IRAs and other retirement plans) and subsequent
investments of $5,000 ($2,000 for IRAs and other retirement plans) or more may
be made. These minimum requirements may be changed at any time.
A Fund shareholder may request that the Trust waive the minimum
initial and subsequent investment requirements, as well as the minimum balance
requirement and the minimum redemption amount described in the Fund's
Prospectus, if (a) that shareholder owns Fund shares equaling an aggregate of $5
million or more; or (b) that shareholder is the customer of a financial adviser
whose assets under management include a current aggregate balance of $5 million
or more invested in Fund shares and an average balance of at least $20,000 per
customer account. In addition, the Trust may waive the minimums for purchases by
trustees, directors, officers or employees of the Trust, Schwab or the
Investment Manager.
The Trust has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90 day period to the lesser of $250,000 or 1% of its net assets at the beginning
of such period. This election is irrevocable without the SEC's prior approval.
Redemption requests in excess of the stated limits may be paid, in whole or in
part, in investment securities or in cash, as the Trust's Board of Trustees may
deem advisable; however, payment will be made wholly in cash unless the Board of
Trustees believes that economic or market conditions exist that would make such
a practice detrimental to the best interests of the Fund. If redemption proceeds
are paid in investment securities, such securities will be valued as set forth
in the Prospectus of the Fund affected under "Share Price Calculation" and a
redeeming shareholder would normally incur brokerage expenses if he or she
converted the securities to cash.
OTHER INFORMATION
The Prospectus of the Fund and this Statement of Additional
Information do not contain all the information included in the Registration
Statement filed with the SEC under the Securities Act of 1933, as amended, with
respect to the securities offered by the Prospectus. Certain portions of the
Registration Statement have been omitted from the Prospectus and this Statement
of Additional Information pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined at
the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Statement of
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23
<PAGE> 24
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Additional Information as to the contents of any contract or other document
referred to are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which the Prospectus and this Statement of Additional
Information form a part, each such statement being qualified in all respects by
such reference.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN
OFFERING BY THE TRUST, ANY SERIES THEREOF, OR BY THE DISTRIBUTOR, IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE.
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APPENDIX - RATINGS OF INVESTMENT SECURITIES
COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Prime-1 is the highest commercial paper rating assigned by Moody's
Investors Service ("Moody's"). Issuers (or related supporting institutions) of
commercial paper with this rating are considered to have a superior ability to
repay short-term promissory obligations. Issuers (or related supporting
institutions) of securities rated Prime-2 are viewed as having a strong capacity
to repay short-term promissory obligations. This capacity will normally be
evidenced by many of the characteristics of issuers whose commercial paper is
rated Prime-1 but to a lesser degree.
STANDARD & POOR'S CORPORATION
A Standard & Poor's Corporation ("S&P") A-1 commercial paper rating
indicates either an overwhelming or very strong degree of safety regarding
timely payment of principal and interest. Issues determined to possess
overwhelming safety characteristics are denoted A-1+. Capacity for timely
payment on commercial paper rated A-2 is strong, but the relative degree of
safety is not as high as for issues designated A-1.
DUFF & PHELPS CREDIT RATING CO.
Duff-1 is the highest commercial paper rating assigned by Duff &
Phelps Credit Rating Co. ("Duff"). Three gradations exist within this rating
category: a Duff-1+ rating indicates the highest certainty of timely payment
(issuer short-term liquidity is found to be outstanding and safety is deemed to
be just below that of risk-free short-term United States Treasury obligations),
a Duff-1 rating signifies a very high certainty of timely payment (issuer
liquidity is determined to be excellent and risk factors are considered minor)
and a Duff-1 rating denotes high certainty of timely payment (issuer liquidity
factors are strong and risk is very small). A Duff-2 rating indicates a good
certainty of timely payment; liquidity factors and company fundamentals are
sound and risk factors are small.
FITCH INVESTORS SERVICE, INC.
Fitch Investors Service, Inc.'s ("Fitch") F-1+ is the highest
category, and indicates the strongest degree of assurance for timely payment.
Issues rated F-1 reflect an assurance of timely payment only slightly less than
issues rated F-1+. Issues assigned an F-2 rating have a satisfactory degree of
assurance for timely payment, but the margin of safety is not as great as for
issues in the first two rating categories.
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25
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SHORT-TERM NOTES AND VARIABLE RATE DEMAND OBLIGATIONS
MOODY'S INVESTORS SERVICE
Short-term notes/variable rate demand obligations bearing the
designations MIG-1/VMIG-1 are considered to be of the best quality, enjoying
strong protection from established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing. Obligations rated
MIG-2/VMIG-2 are of high quality and enjoy ample margins of protection although
not as large as those of the top rated securities.
STANDARD & POOR'S CORPORATION
An S&P SP-1 rating indicates that the subject securities' issuer has
a very strong capacity to pay principal and interest. Issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
S&P's determination that an issuer has a satisfactory capacity to pay principal
and interest is denoted by an SP-2 rating.
IBCA
Obligations supported by the highest capacity for timely repayment
are rated A1+. An A1 rating indicates that the obligation is supported by a very
strong capacity for timely repayment. Obligations rated A2 are supported by a
strong capacity for timely repayment, although adverse changes in business,
economic, or financial conditions may affect this capacity.
BONDS
MOODY'S INVESTORS SERVICE
Moody's rates the bonds it judges to be of the best quality Aaa.
These bonds carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
extraordinarily stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of these issues. Bonds
carrying an Aa designation are deemed to be of high quality by all standards.
Together with Aaa rated bonds, they comprise what are generally known as high
grade bonds. Aa bonds are rated lower than the best bonds because they may enjoy
relatively lower margins of protections, fluctuations of protective elements may
be of greater amplitude or there may be other factors present which make them
appear to be subject to somewhat greater long-term risks.
STANDARD & POOR'S CORPORATION
AAA is the highest rating assigned by S&P to a bond and indicates
the issuer's extremely strong capacity to pay interest and repay principal. An
AA rating denotes a bond whose issuer has a very strong capacity to pay interest
and repay principal
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26
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and differs from an AAA rating only in small degree.
DUFF & PHELPS CREDIT RATING CO.
Duff confers an AAA designation to bonds of issuers with the highest
credit quality. The risk factors associated with these bonds are negligible,
being only slightly more than for risk-free United States Treasury debt. AA
rated bonds are of high credit quality and have strong protection factors. The
risks associated with them are modest but may vary slightly from time to time
because of economic conditions.
COMMERCIAL PAPER, SHORT-TERM OBLIGATIONS AND DEPOSIT OBLIGATIONS
ISSUED BY BANKS
THOMSON BANKWATCH (TBW)
TBW-1 is the highest category and indicates the degree of safety
regarding timely repayment of principal and interest is very strong. TBW-2 is
the second highest category and while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated TBW-1.
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SchwabFunds(R) 1
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SCHWAB VALUE ADVANTAGE MONEY FUND(R)
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
CORPORATE
OBLIGATIONS--62.4%(a)
ASSET BACKED SECURITIES--13.2%
Alpha Finance Corp.
5.57%, 03/15/96 $ 5,000 $ 4,943
Alpine Securitization Corp.
5.83%, 01/09/96 15,224 15,205
Apreco, Inc.
5.80%, 01/29/96 32,200 32,057
5.75%, 02/23/96 7,000 6,942
Beta Finance, Inc.
5.71%, 01/22/96 12,000 11,961
5.87%, 02/16/96 13,000 12,905
5.79%, 03/25/96 12,000 11,842
5.65%, 04/10/96 5,000 4,923
Briarcliff Capital Corp.
5.78%, 02/05/96 20,000 19,889
Broadway Capital Corp.
5.91%, 01/03/96 7,616 7,614
5.91%, 01/05/96 25,000 24,984
5.87%, 01/05/96 10,000 9,994
5.86%, 01/09/96 40,941 40,888
5.86%, 01/10/96 40,000 39,942
5.86%, 01/11/96 15,748 15,723
5.99%, 01/16/96 25,365 25,303
5.88%, 01/19/96 18,000 17,948
5.99%, 01/22/96 50,753 50,578
6.05%, 02/05/96 5,000 4,971
6.05%, 02/12/96 18,000 17,875
Corporate Asset Funding Corp.
5.77%, 02/05/96 45,600 45,348
Corporate Receivables Corp.
5.80%, 01/25/96 20,000 19,924
5.76%, 02/02/96 21,375 21,267
5.76%, 02/16/96 31,400 31,172
ESC Securitization, Inc.
5.81%, 01/11/96 30,000 29,952
5.79%, 01/26/96 22,000 21,913
5.76%, 02/01/96 10,000 9,951
5.58%, 03/21/96 26,000 25,682
Enterprise Funding Corp.
5.82%, 01/09/96 5,073 5,067
5.80%, 01/10/96 8,111 8,099
5.83%, 01/18/96 5,886 5,870
5.83%, 01/19/96 5,074 5,059
5.83%, 01/23/96 4,384 4,369
5.78%, 02/02/96 11,155 11,098
5.77%, 02/23/96 7,986 7,919
5.76%, 03/08/96 6,096 6,032
5.58%, 03/20/96 6,083 6,010
5.54%, 06/12/96 10,281 10,030
Eureka Securitization, Inc.
5.78%, 02/12/96 16,000 15,894
5.79%, 02/13/96 53,000 52,639
First Deposit Master Trust
Series 1993-3
5.81%, 02/27/96 28,349 28,091
Ranger Funding Corp.
5.84%, 01/08/96 6,000 5,993
5.82%, 01/11/96 15,206 15,182
5.83%, 01/24/96 8,000 7,971
5.83%, 01/25/96 10,000 9,962
5.83%, 02/13/96 5,075 5,040
5.76%, 02/20/96 6,000 5,953
5.76%, 02/21/96 8,000 7,936
5.71%, 03/18/96 20,000 19,759
Riverwoods Funding Corp.
5.79%, 02/15/96 40,000 39,715
Special Purpose Accounts
Receivable Cooperative Corp.
5.76%, 02/07/96 7,000 6,959
5.78%, 02/14/96 20,000 19,861
WCP Funding, Inc.
5.74%, 02/23/96 25,000 24,792
-------
916,996
-------
AUTOMOTIVE--5.0%
Ford Credit Europe PLC
5.76%, 02/14/96 20,000 19,861
5.77%, 02/16/96 50,000 49,637
General Motors
Acceptance Corp.
5.81%, 02/01/96 4,000 3,980
5.76%, 02/02/96 25,000 24,873
5.81%, 02/13/96 24,000 23,836
5.82%, 02/14/96 50,000 49,650
5.62%, 03/19/96 13,000 12,844
5.72%, 04/26/96 50,000 49,103
5.72%, 05/01/96 30,000 29,439
Renault Credit
International SA Banque
5.84%, 01/08/96 52,300 52,242
5.87%, 01/24/96 18,700 18,631
5.88%, 01/25/96 15,000 14,942
-------
349,038
-------
BANKING--AUSTRALIA--1.7%
ANZ (Delaware), Inc.
5.80%, 02/01/96 40,000 39,803
5.58%, 05/14/96 22,000 21,554
National Australia Funding
(Delaware), Inc.
5.55%, 05/29/96 10,000 9,777
5.53%, 06/12/96 29,000 28,294
Westpac Capital Corp.
5.80%, 05/02/96 20,000 19,618
-------
119,046
-------
BANKING--BELGIUM--0.4%
Generale Bank, Inc.
5.74%, 03/12/96 5,000 4,945
5.81%, 04/04/96 22,000 21,676
-------
26,621
-------
BANKING--CANADA--2.0%
Bank of Montreal
5.81%, 01/29/96 23,000 22,898
</TABLE>
F-1
<PAGE> 29
SchwabFunds(R) 2
- --------------------------------------------------------------------------------
SCHWAB VALUE ADVANTAGE MONEY FUND(R)
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
Bank of Nova Scotia
5.75%, 01/19/96 $10,000 $ 9,972
5.75%, 01/24/96 50,000 49,820
5.81%, 02/02/96 16,000 15,919
Toronto-Dominion Holdings
5.51%, 07/10/96 39,000 37,897
-------
136,506
-------
BANKING--DENMARK--0.5%
Den Danske Corp.
5.80%, 04/10/96 37,000 36,421
-------
BANKING--DOMESTIC BANK HOLDING COMPANY--2.0%
Bankers Trust New York Corp.
5.77%, 02/12/96 57,000 56,622
5.77%, 02/20/96 47,000 46,629
NationsBank Corp.
5.55%, 05/21/96 10,000 9,788
5.61%, 05/28/96 25,000 24,439
-------
137,478
-------
BANKING--DOMESTIC--0.2%
Vehicle Services of
America/
(NationsBank of Texas
LOC)
5.80%, 02/08/96 16,700 16,599
-------
BANKING--GERMANY--0.6%
Banco Boavista S.A./
(Bayerische Vereinsbank
AG LOC)
5.80%, 03/11/96 9,000 8,901
5.80%, 04/08/96 10,000 9,846
Kredietbank N.A. Finance
Corp.
5.78%, 01/11/96 20,500 20,468
-------
39,215
-------
BANKING--ITALY--0.8%
Cariplo Finance, Inc.
5.76%, 02/20/96 10,000 9,921
5.76%, 02/22/96 40,000 39,672
5.74%, 02/22/96 9,000 8,926
-------
58,519
-------
BANKING--JAPAN--0.5%
Bancal Tri-State Corp./
(Mitsubishi Bank Keepwell
Agreement)
5.81%, 03/15/96 10,000 9,883
Ridge Capital II/(Dai-Ichi
Kangyo Bank Ltd. LOC)
6.26%, 01/04/96 6,000 5,997
Stellar Capital Corp./
(Bank of Tokyo
Liquidity Agreement)
6.00%, 02/20/96 15,155 15,031
-------
30,911
-------
BANKING--SPAIN--0.6%
BEX America Finance, Inc.
5.79%, 01/16/96 10,000 9,976
5.76%, 02/26/96 30,000 29,735
-------
39,711
-------
BANKING--UNITED KINGDOM--2.1%
Abbey National N.A. Corp.
5.79%, 01/17/96 75,000 74,810
Cheltenham & Gloucester PLC
5.80%, 02/02/96 50,000 49,746
Yorkshire Building Society
5.53%, 06/07/96 25,000 24,410
-------
148,966
-------
COMPUTER AND OFFICE EQUIPMENT--0.2%
CSC Enterprises
5.74%, 02/12/96 15,000 14,900
-------
ELECTRICAL AND ELECTRONICS--0.1%
Panasonic Finance, Inc.
5.75%, 02/09/96 5,000 4,969
-------
FINANCE (COMMERCIAL)--7.1%
CIT Group Holdings, Inc.
5.76%, 02/15/96 30,000 29,787
General Electric
Capital Corp.
5.80%, 03/01/96 25,000 24,764
5.74%, 03/06/96 31,000 30,688
5.70%, 04/03/96 42,000 41,393
5.55%, 05/02/96 13,338 13,093
5.62%, 05/08/96 9,000 8,825
5.61%, 05/08/96 30,000 29,415
5.52%, 06/13/96 60,000 58,535
5.52%, 06/14/96 41,000 39,993
General Electric Capital
Services
5.76%, 02/14/96 46,000 45,681
5.74%, 03/07/96 36,000 35,632
5.59%, 05/06/96 50,000 49,045
5.62%, 05/07/96 40,000 39,227
5.58%, 05/10/96 50,000 49,016
-------
495,094
-------
FINANCE (CONSUMER)--2.3%
American Express Credit Corp.
5.50%, 06/05/96 30,000 29,305
5.50%, 06/06/96 35,000 34,183
Associates Corp. of North
America
5.65%, 05/09/96 53,000 51,952
Sears Roebuck Acceptance
Corp.
5.82%, 01/11/96 15,000 14,976
5.79%, 02/15/96 28,000 27,800
-------
158,216
-------
</TABLE>
F-2
<PAGE> 30
SchwabFunds(R) 3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
GOVERNMENT LOCALITY--FOREIGN--0.3%
New South Wales Treasury
Corp.
5.80%, 01/30/96 $23,000 $ 22,894
-------
MINING AND MINERAL RESOURCES--0.5%
BHP Finance (U.S.A.), Inc.
5.75%, 02/22/96 15,000 14,877
5.76%, 03/05/96 17,000 16,829
-------
31,706
-------
MISCELLANEOUS MANUFACTURING--3.7%
Hanson Finance (U.K.) PLC
5.75%, 01/12/96 20,000 19,965
5.80%, 01/18/96 10,000 9,973
5.80%, 01/19/96 72,500 72,293
5.79%, 01/23/96 30,000 29,896
5.80%, 01/31/96 30,000 29,858
5.80%, 02/07/96 50,000 49,708
5.82%, 02/09/96 39,000 38,759
5.75%, 02/29/96 5,000 4,954
-------
255,406
-------
MORTGAGE BANKING--1.6%
Fleet Mortgage Group, Inc.
5.83%, 01/26/96 22,000 21,912
5.82%, 02/21/96 54,000 53,560
5.79%, 02/22/96 9,000 8,926
5.80%, 02/23/96 27,000 26,772
-------
111,170
-------
PERSONAL CARE PRODUCTS--0.9%
Colgate-Palmolive Company
5.79%, 01/22/96 31,000 30,897
5.79%, 01/24/96 31,200 31,086
-------
61,983
-------
PHARMACEUTICALS--0.1%
Glaxo Wellcome PLC
5.79%, 01/18/96 8,000 7,978
-------
SECURITIES BROKERAGE-DEALER--15.7%
BT Securities Corp.
5.85%, 01/18/96 15,000 14,959
5.84%, 01/25/96 30,000 29,885
5.82%, 01/29/96 18,000 17,920
5.83%, 01/30/96 29,000 28,866
5.77%, 02/16/96 10,000 9,927
Bear Stearns
Companies, Inc.
5.80%, 01/29/96 13,000 12,942
5.78%, 02/05/96 25,000 24,861
5.79%, 02/08/96 35,000 34,789
5.72%, 02/29/96 35,000 34,676
CS First Boston, Inc.
5.82%, 02/01/96 45,000 44,778
Goldman Sachs Group, LP
5.83%, 01/17/96 30,000 29,924
5.80%, 03/07/96 77,000 76,201
5.77%, 03/19/96 55,000 54,329
5.77%, 03/21/96 56,000 55,299
5.77%, 03/22/96 53,000 52,329
5.72%, 04/09/96 58,000 57,107
Lehman Brothers
Holdings, Inc.
5.83%, 01/26/96 10,000 9,960
5.94%, 02/01/96 10,000 9,949
5.82%, 02/06/96 33,000 32,811
5.80%, 02/12/96 32,000 31,787
5.81%, 02/13/96 35,000 34,760
Morgan Stanley Group, Inc.
5.83%, 01/08/96 40,000 39,955
5.83%, 01/09/96 8,000 7,990
5.78%, 02/06/96 36,000 35,795
5.78%, 02/07/96 20,000 19,883
5.82%, 02/08/96 20,000 19,879
5.79%, 02/08/96 42,000 41,747
5.79%, 02/09/96 55,000 54,660
5.79%, 02/12/96 17,000 16,887
5.89%, 02/13/96 10,000 9,932
Nomura Holdings
America, Inc.
5.92%, 01/03/96 8,000 7,997
5.91%, 01/09/96 10,000 9,987
5.88%, 01/12/96 15,000 14,973
5.86%, 01/18/96 5,000 4,986
Paine Webber Group, Inc.
5.86%, 01/02/96 20,000 19,997
5.89%, 01/04/96 24,000 23,988
5.84%, 02/01/96 18,000 17,910
Salomon, Inc.
6.15%, 01/02/96 454 454
6.02%, 02/15/96 20,000 19,852
6.02%, 02/16/96 30,000 29,773
---------
1,094,704
---------
STUDENT LOANS--0.3%
Student Loan Corp.
5.80%, 01/12/96 22,000 21,962
---------
TOTAL CORPORATE OBLIGATIONS (Cost
$4,337,009) 4,337,009
---------
VARIABLE RATE OBLIGATIONS--8.6%(b)
ASSET BACKED SECURITIES--1.6%
Advanta Credit Card
Master Trust
5.87%, 01/07/96 21,200 21,200
Beta Finance, Inc.
5.91%, 01/16/96 50,000 49,989
Corporate Asset
Funding Corp.
5.84%, 01/29/96 40,000 39,988
--------
111,177
--------
BANKING--DOMESTIC BANK HOLDING COMPANY--1.1%
Bankers Trust New York
Corp.
6.14%, 01/02/96 50,000 50,000
6.13%, 01/02/96 25,000 25,000
--------
75,000
--------
</TABLE>
F-3
<PAGE> 31
SchwabFunds(R) 4
- --------------------------------------------------------------------------------
SCHWAB VALUE ADVANTAGE MONEY FUND(R)
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
BANKING--DOMESTIC--0.3%
Huntington National Bank
5.87%, 01/02/96 $20,000 $20,000
Keystone Health Resources
Corp. Variable Rate
Taxable Demand Notes
Series 1993/ (PNC Bank
LOC)
6.00%, 01/07/96 3,400 3,400
------
23,400
------
BANKING--FRANCE--0.8%
New York City, General
Obligation Bonds
Fiscal 1995 Series F-8/
(Societe Generale LOC)
6.00%, 01/07/96 19,500 19,500
New York City, General
Obligation Bonds
Fiscal 1996 Series A-2/
(Societe Generale LOC)
6.00%, 01/07/96 36,000 36,000
------
55,500
------
BANKING--GERMANY--0.1%
Hudson County, New Jersey
General Obligation
Refunding Bonds
Variable Rate Demand
Obligations Taxable
Series 1995/
(Landesbank
Hessen-Thuringen
Girozentrale LOC)
6.05%, 01/07/96 10,000 10,000
------
BANKING--JAPAN--0.5%
Missouri Economic
Development Export &
Infrastructure Board
Adjustable Rate Taxable
Securities (Biocraft
Laboratories, Inc.
Project) Series 1989/
(Bank of Tokyo LOC)
6.30%, 01/07/96 22,000 22,000
New York City Industrial
Development Agency
Industrial Development
Revenue Bonds (G.A.F.
Seelig Inc. Project)
Series 1993/ (IBJ
Schroder Bank & Trust
LOC)
6.25%, 01/07/96 2,225 2,225
Riverside County,
California 1990 Taxable
Variable Rate
Certificates of
Participation (Monterey
Avenue Project)/ (Sanwa
Bank Ltd. LOC)
6.15%, 01/07/96 8,100 8,100
Town of Islip Industrial
Development Agency 1992
Taxable Adjustable Rate
Industrial Development
Revenue Bonds (Nussdorf
Associates/Quality King
Distributors, Inc.
Facility)/
(Bank of Tokyo LOC)
5.84%, 01/07/96 1,560 1,560
-------
33,885
-------
BANKING--UNITED KINGDOM--0.4%
New Jersey Economic
Development Authority
Variable Rate Title IX Loan
Portfolio Securitization
Bonds/(National
Westminister Bank LOC)
5.86%, 01/01/96 28,300 28,300
-------
INSURANCE--0.1%
Commonwealth Life
Insurance Co.
6.03%, 01/01/96 10,000 10,000
-------
MONOLINE INSURANCE--0.2%
Baptist Health Systems of
South Florida, Inc.
Taxable Variable Rate
Direct Note Obligations
Series 1995A/
(MBIA Insurance)
6.05%, 01/07/96 6,600 6,600
Baptist Health Systems of
South Florida, Inc.
Taxable Variable Rate
Direct Note Obligations
Series 1995B/
(MBIA Insurance)
6.05%, 01/07/96 4,500 4,500
New Orleans Aviation Board
Taxable Refunding Bonds
Series 1993A/ (MBIA
Insurance)
6.01%, 01/07/96 700 700
-------
11,800
-------
SECURITIES BROKERAGE-DEALER--3.5%
Bear Stearns Companies,
Inc.
6.03%, 01/04/96 75,000 75,000
5.99%, 01/08/96 50,000 50,000
5.99%, 02/01/96 50,000 50,000
5.91%, 03/21/96 45,000 45,000
Lehman Brothers Holdings,
Inc.
5.90%, 01/30/96 20,000 20,000
-------
240,000
-------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $599,062) 599,062
-------
</TABLE>
F-4
<PAGE> 32
SchwabFunds(R) 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
AGENCY OBLIGATIONS--1.1%
COUPON NOTES--1.1%
Federal National Mortgage
Assoc.
5.50%, 06/12/96 $24,000 $ 23,983
5.62%, 07/02/96 24,000 23,985
5.91%, 08/19/96 30,000 30,047
-------
TOTAL AGENCY OBLIGATIONS (Cost
$78,015) 78,015
-------
BANKER'S
ACCEPTANCES--0.4%
BANKING--DOMESTIC--0.4%
Mellon Bank N.A.
5.86%, 02/26/96 9,000 8,920
5.58%, 05/06/96 5,000 4,904
5.55%, 06/07/96 15,000 14,645
-------
TOTAL BANKER'S ACCEPTANCES (Cost
$28,469) 28,469
-------
BANK NOTES--2.1%
BANKING--DOMESTIC--2.1%
NationsBank of Texas, N.A.
5.74%, 03/08/96 50,000 50,000
NationsBank, N.A.
(Carolinas)
5.54%, 06/04/96 30,000 30,000
PNC Bank, N.A.
5.62%, 05/24/96 15,000 15,014
Sea First--Seattle
5.80%, 01/12/96 50,000 50,000
-------
TOTAL BANK NOTES
(Cost $145,014) 145,014
-------
CERTIFICATES OF DEPOSIT--24.5%
BANKING--CANADA--2.2%
Bank of Montreal
5.84%, 01/05/96 25,000 25,000
5.80%, 01/30/96 40,000 40,000
Canadian Imperial Bank of
Commerce
5.81%, 01/26/96 25,000 25,000
5.81%, 01/31/96 60,000 60,000
-------
150,000
-------
BANKING--DOMESTIC--1.1%
MBNA America Bank N.A.
5.75%, 04/10/96 42,000 42,000
5.63%, 04/16/96 36,000 36,000
-------
78,000
-------
BANKING--FRANCE--2.9%
Banque Nationale de Paris
5.80%, 04/03/96 17,000 17,001
Societe Generale
5.84%, 01/18/96 33,000 33,000
5.80%, 01/25/96 54,000 54,000
5.84%, 03/14/96 25,000 25,002
5.85%, 03/20/96 58,000 58,001
5.61%, 04/12/96 13,000 13,032
-------
200,036
-------
BANKING--GERMANY--3.4%
Bayerische Vereinsbank AG
5.80%, 01/10/96 34,000 34,000
Deutsche Bank
5.79%, 01/23/96 75,000 75,000
5.79%, 01/29/96 30,000 30,000
5.79%, 01/30/96 45,000 45,000
Dresdner Bank AG
5.58%, 06/07/96 10,000 10,010
5.75%, 07/05/96 15,000 15,002
Westdeutsche Landesbank
5.71%, 01/16/96 30,000 29,998
-------
239,010
-------
BANKING--ITALY--0.2%
Cariplo SPA
5.70%, 03/04/96 10,000 10,001
-------
BANKING--JAPAN--10.2%
Dai-Ichi Kangyo Bank, Ltd.
6.10%, 01/12/96 30,000 30,000
6.13%, 01/16/96 19,000 19,000
6.12%, 01/16/96 6,000 6,000
6.22%, 01/18/96 28,000 28,000
6.42%, 01/26/96 42,000 42,000
6.14%, 02/02/96 17,000 17,002
5.88%, 02/21/96 12,000 11,999
5.86%, 03/20/96 18,000 17,998
Industrial Bank of Japan,
Ltd.
6.25%, 01/02/96 6,000 6,000
6.25%, 01/03/96 25,000 25,000
6.23%, 01/04/96 29,000 29,000
6.14%, 01/05/96 17,000 17,000
5.94%, 02/07/96 19,000 19,000
Mitsubishi Bank, Ltd.
6.14%, 01/02/96 50,000 50,000
6.06%, 01/04/96 25,000 25,000
5.82%, 03/08/96 30,000 30,000
5.83%, 03/12/96 31,000 30,999
5.83%, 03/14/96 40,000 40,000
5.83%, 03/19/96 30,000 30,000
Sanwa Bank, Ltd.
6.12%, 01/17/96 8,000 7,998
5.95%, 01/22/96 6,000 6,000
6.02%, 02/09/96 11,000 11,000
6.15%, 02/20/96 31,000 31,001
5.81%, 04/23/96 35,000 35,001
Sumitomo Bank, Ltd.
6.18%, 01/03/96 25,000 25,000
6.05%, 01/05/96 18,000 18,000
6.18%, 01/09/96 18,000 18,000
6.15%, 01/17/96 29,000 29,000
6.25%, 01/31/96 31,000 31,000
5.98%, 02/20/96 25,000 25,001
-------
710,999
-------
BANKING--NETHERLANDS--1.1%
ABN-AMRO Bank N.V.
5.80%, 01/16/96 40,000 39,998
5.58%, 06/05/96 10,000 9,998
Rabobank Nederland N.V.
5.95%, 07/25/96 25,000 25,001
-------
74,997
-------
</TABLE>
F-5
<PAGE> 33
SchwabFunds(R) 6
- --------------------------------------------------------------------------------
SCHWAB VALUE ADVANTAGE MONEY FUND(R)
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
BANKING--SWITZERLAND--1.4%
Union Bank of Switzerland
5.55%, 05/03/96 $100,000 $ 100,003
--------
BANKING--UNITED KINGDOM--2.0%
Abbey National PLC
5.61%, 04/01/96 20,000 20,042
5.53%, 06/14/96 50,000 50,002
5.58%, 06/21/96 30,000 30,009
Lloyds Bank PLC
5.80%, 04/22/96 10,000 10,013
National Westminster Bank
PLC
5.79%, 02/06/96 14,000 13,999
5.72%, 02/06/96 7,000 7,000
5.75%, 06/10/96 10,000 9,996
--------
141,061
--------
TOTAL CERTIFICATES OF DEPOSIT (Cost
$1,704,107) 1,704,107
---------
REMARKETED CERTIFICATES--0.8%
ASSET BACKED SECURITIES--0.8%
Black & Decker
RECOP Trust
5.80%, 02/06/96 17,000 17,000
5.80%, 02/15/96 18,311 18,311
Circuit City RECOP Trust
5.75%, 03/04/96 23,000 23,000
--------
TOTAL REMARKETED CERTIFICATES (Cost
$58,311) 58,311
--------
TAXABLE BONDS--0.1%
BANKING--JAPAN--0.1%
Oklahoma Industrial
Finance Authority Taxable
General Obligation
Industrial Finance Bonds
Series P/ (Mitsubishi
Bank LOC)
6.00%, 02/01/96 6,250 6,251
---------
TOTAL TAXABLE BONDS
(Cost $6,251) 6,251
---------
TOTAL INVESTMENTS--100.0%
(Cost $6,956,238) $6,956,238
=========
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS.
Yields shown are effective yields at the time of purchase, except for
variable rate securities which are described below. Yields for each type of
security are stated according to the market convention for that security
type. For each security, cost (for financial reporting and federal income
tax purposes) and carrying value are the same.
(a) Certain securities purchased by the Fund are private placement
securities exempt from registration by Section 4(2) of the Securities
Act of 1933. These securities generally are issued to institutional
investors, such as the Schwab Value Advantage Money Fund. Any resale by
the Fund must be in an exempt transaction, normally to a qualified
institutional buyer. At December 31, 1995, the aggregate value of
private placement securities held by the Fund was $1,106,106,000 which
represented 15.98% of net assets. Of this total, $1,017,795,000 or
14.70% of net assets, was determined by the Investment Manager to be
liquid in accordance with a resolution adopted by the Board of Trustees
relating to Rule 144A, promulgated under the Securities Act of 1933.
(b) Variable rate securities. Interest rates vary periodically based on
current market rates. Rates shown are the effective rates on December
31, 1995. Dates shown represent the latter of the demand date or next
interest rate change date, which is considered the maturity date for
financial reporting purposes. For variable rate securities without
demand features, the next interest reset date is shown.
<TABLE>
<CAPTION>
Abbreviations
-------------
<S> <C>
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance Corporation
RECOP Remarketed Certificates of Participation
</TABLE>
See accompanying Notes to Financial Statements.
F-6
<PAGE> 34
SchwabFunds(R) 7
- --------------------------------------------------------------------------------
SCHWAB VALUE ADVANTAGE MONEY FUND(R)
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost: $6,956,238) $6,956,238
Interest receivable 28,312
Receivable for fund shares sold 37,105
Deferred organization costs 29
Prepaid expenses 771
----------
Total assets 7,022,455
----------
LIABILITIES
Payable for:
Dividends 48,255
Fund shares redeemed 47,728
Investment advisory and administration fee 2,084
Transfer agency and shareholder service fees 133
Other 365
----------
Total liabilities 98,565
----------
Net assets applicable to outstanding shares $6,923,890
==========
NET ASSETS CONSIST OF:
Capital paid in $6,924,021
Accumulated net realized loss on investments sold (131)
----------
$6,923,890
==========
THE PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) 6,924,021
Net asset value, offering and redemption price per share $1.00
</TABLE>
See accompanying Notes to Financial Statements.
F-7
<PAGE> 35
SchwabFunds(R) 8
- --------------------------------------------------------------------------------
SCHWAB VALUE ADVANTAGE MONEY FUND(R)
STATEMENT OF OPERATIONS (in thousands)
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Interest income $333,064
--------
Expenses:
Investment advisory and administration fee 23,799
Transfer agency and shareholder service fees 13,812
Custodian fees 483
Registration fees 1,251
Professional fees 130
Shareholder reports 262
Trustees' fees 27
Amortization of deferred organization costs 22
Insurance and other expenses 67
--------
39,853
Less expenses reduced (17,754)
--------
Total expenses incurred by Fund 22,099
--------
Net investment income 310,965
Net realized loss on investments sold (5)
--------
Increase in net assets resulting from operations $310,960
========
</TABLE>
See accompanying Notes to Financial Statements.
F-8
<PAGE> 36
SchwabFunds(R) 9
- --------------------------------------------------------------------------------
SCHWAB VALUE ADVANTAGE MONEY FUND(R)
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended
December 31,
1995 1994
----------- -----------
<S> <C> <C>
Operations:
Net investment income $ 310,965 $ 85,792
Net realized loss on investments sold (5) (124)
----------- -----------
Increase in net assets resulting
from operations 310,960 85,668
----------- -----------
Dividends to shareholders from
net investment income (310,965) (85,792)
----------- -----------
Capital share transactions (dollar amounts
and number of shares are the same):
Proceeds from shares sold 10,404,416 6,042,841
Net asset value of shares issued in
reinvestment of dividends 262,426 63,079
Less payments for shares redeemed (7,474,576) (3,103,523)
----------- -----------
Increase in net assets from capital
share transactions 3,192,266 3,002,397
----------- -----------
Total increase in net assets 3,192,261 3,002,273
Net Assets:
Beginning of period 3,731,629 729,356
----------- -----------
End of period $ 6,923,890 $ 3,731,629
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
F-9
<PAGE> 37
SchwabFunds(R) 10
- --------------------------------------------------------------------------------
SCHWAB VALUE ADVANTAGE MONEY FUND(R)
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUND
The Schwab Value Advantage Money Fund (the "Fund") is a series of The Charles
Schwab Family of Funds (the "Trust"), an open-end, management investment company
organized as a Massachusetts business trust on October 20, 1989 and registered
under the Investment Company Act of 1940, as amended.
In addition to the Fund, the Trust also offers -- the Schwab Money Market Fund,
the Schwab Government Money Fund, the Schwab U.S. Treasury Money Fund, the
Schwab Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab
California Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab
New York Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab
Institutional Advantage Money FundTM and the Schwab Retirement Money Fund(R).
The assets of each series are segregated and accounted for separately.
The Schwab Value Advantage Money Fund invests primarily in a diversified
portfolio of short-term obligations of major banks and corporations.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security valuation -- Investments are stated at amortized cost which
approximates market value.
Security transactions and interest income -- Security transactions are accounted
for on a trade date basis (date the order to buy or sell is executed). Interest
income is recorded on the accrual basis and includes amortization of premium and
accretion of discount on investments. Realized gains and losses from security
transactions are determined on an identified cost basis.
Repurchase agreements -- Repurchase agreements are fully collateralized by U.S.
Treasury or government agency securities. All collateral is held by the Fund's
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.
Dividends to shareholders -- The Fund declares a daily dividend, equal to its
net investment income for that day, payable monthly.
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund and its initial registration with the Securities and
Exchange Commission and with various states are amortized on a straight-line
basis over a five-year period from the Fund's commencement of operations.
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<PAGE> 38
SchwabFunds(R) 11
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- --------------------------------------------------------------------------------
Expenses -- Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are allocated to each
series in proportion to their relative net assets.
Federal income taxes -- It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income and realized net capital gains, if
any, to shareholders. Therefore, no federal income tax provision is required.
The Fund is considered a separate entity for tax purposes.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreements -- The Trust has investment
advisory and administration agreements with Charles Schwab Investment
Management, Inc. (the "Investment Manager"). For advisory services and
facilities furnished, the Fund pays an annual fee, payable monthly, of .46% of
the first $2 billion of average daily net assets, .45% of such assets over $2
billion, and .40% of such assets in excess of $3 billion. Under these
agreements, the Fund incurred investment advisory and administration fees of
$23,799,000 for the year ended December 31, 1995, before the Investment Manager
reduced its fee (see Note 4).
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of .25% of average daily net assets. In addition,
Schwab receives a fee of $5.00 for redemptions in amounts less than $5,000 and
may impose a $5.00 fee for monthly balances below the minimum required. For the
year ended December 31, 1995, the Fund incurred transfer agency and shareholder
service fees of $13,812,000 before Schwab reduced its fees (see Note 4).
Officers and trustees -- Certain officers and trustees of the Trust are also
officers or directors of the Investment Manager and/or Schwab. During the year
ended December 31, 1995, the Trust made no direct payments to its officers or
trustees who are "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Fund incurred fees of $27,000 related to
the Trust's unaffiliated trustees.
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees in order to
limit the Fund's ratio of operating expenses to average net assets. For the year
ended December 31, 1995, the total of such fees reduced by the Investment
Manager and Schwab was $7,922,000 and $9,832,000, respectively.
5. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities for the year ended
December 31, 1995, aggregated (in thousands) $24,387,423 and $21,192,127,
respectively.
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SchwabFunds(R) 12
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SCHWAB VALUE ADVANTAGE MONEY FUND(R)
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
6. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period:
<TABLE>
<CAPTION>
For the period
ended
\----For the year ended December 31,-----\ December 31,
1995 1994 1993 1992 1
<S> <C> <C> <C> <C>
-----------------------------------------------------------
Net asset value at beginning of period $1.00 $1.00 $1.00 $1.00
Income from investment operations
- ---------------------------------
Net investment income .06 .04 .03 .02
Net realized and unrealized gain
(loss) on investments -- -- -- --
---------- ---------- -------- --------
Total from investment operations .06 .04 .03 .02
Less distributions
- ------------------
Dividends from net investment income (.06) (.04) (.03) (.02)
Distributions from realized gains
on investments -- -- -- --
---------- ---------- -------- --------
Total distributions (.06) (.04) (.03) (.02)
---------- ---------- -------- --------
Net asset value at end of period $1.00 $1.00 $1.00 $1.00
========== ========== ======== ========
Total return (%) 5.80 4.09 3.02 2.33
- ----------------
Ratios/Supplemental data
- ------------------------
Net assets, end of period (000s) $6,923,890 $3,731,629 $729,356 $319,024
Ratio of expenses to
average net assets (%) .40 .40 .39 .29*
Ratio of net investment income to
average net assets (%) 5.63 4.40 2.97 3.27*
</TABLE>
The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses in order to limit the Fund's ratio of operating
expenses to average net assets. Had these fees and expenses not been reduced and
absorbed, the ratio of expenses to average net assets for the periods ended
December 31, 1995, 1994, 1993 and 1992 would have been .72%, .79%, .82% and
.94%*, respectively, and the ratio of net investment income to average net
assets would have been 5.31%, 4.01%, 2.54% and 2.62%*, respectively.
1 For the period April 30, 1992 (commencement of operations) to December 31,
1992.
* Annualized
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<PAGE> 40
SchwabFunds(R) 13
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To the Board of Trustees
and Shareholders of the Schwab Value Advantage Money Fund(R)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the Schwab Value Advantage Money Fund (one
of the series constituting The Charles Schwab Family of Funds, hereafter
referred to as the "Trust") at December 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each period presented,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
withfp
generally accepted auditing standards which require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1995 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
/S/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Francisco, California
January 31, 1996
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