SCHWAB CHARLES FAMILY OF FUNDS, 497, 1996-04-29

SCHWAB CHARLES FAMILY OF FUNDS
497, 1996-04-29

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<PAGE> 1

SCHWAB MONEY MARKET FUND
SCHWAB GOVERNMENT MONEY FUND
SCHWAB U.S. TREASURY MONEY FUND
SCHWAB TAX-EXEMPT MONEY FUND - SWEEP
SHARES
PROSPECTUS APRIL 29, 1996

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

ABOUT THIS PROSPECTUS: THIS PROSPECTUS CONCISELY PRESENTS IMPORTANT INFORMATION
YOU SHOULD KNOW BEFORE INVESTING IN THE FUNDS. PLEASE READ IT CAREFULLY AND
RETAIN IT FOR FUTURE REFERENCE. You can find more detailed information about the
Funds in the Statement of Additional Information dated April 29, 1996 (as
amended from time to time). The Statement of Additional Information has been
filed with the Securities and Exchange Commission ("SEC") and is incorporated by
reference into this Prospectus. This Prospectus may also be available
electronically by using our Internet address: http://www.schwab.com. To receive
a free paper copy of this Prospectus or the Statement of Additional Information,
call Schwab at 800-2 NO-LOAD, 24 hours a day, or write the Funds at 101
Montgomery Street, San Francisco, California 94104. TDD users may contact Schwab
at 800-345-2550, 24 hours a day.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Key Features of the Funds............ 2
Summary of Expenses.................. 3
Financial Highlights................. 5
Matching the Funds to Your
Investment Needs................... 6
Investment Objectives and Policies... 7
Municipal Securities and Investment
Techniques......................... 10
Other Investment Techniques.......... 13
Organization and Management
of the Funds....................... 15
Distributions and Taxes.............. 17
Share Price Calculation.............. 19
How the Funds Report Performance..... 20
Tax-Advantaged Retirement Plans...... 21
Investing in Shares of the Funds..... 21
Other Important Information.......... 26
</TABLE>

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

AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 2

KEY FEATURES OF THE FUNDS

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

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

LIQUIDITY. You can conveniently sell your shares of any of the Funds at any
time. (See "Investing in Shares of the Funds - How to Sell or Exchange Shares.")

LOW COST INVESTING. The Funds impose no sales or transaction fees on purchases
or redemptions of shares of the Funds. In addition, the total fund operating
expenses of the Schwab Money Market Fund, Schwab Government Money Fund, Schwab
U.S. Treasury Money Fund and Sweep Shares of the Schwab Tax-Exempt Money Fund
will not exceed 0.75%, 0.75%, 0.65% and 0.66%, respectively, through at least
April 30, 1997, as guaranteed by Charles Schwab Investment Management, Inc. (the
"Investment Manager") and Schwab. (See "Matching the Funds to Your Investment
Needs" and "Organization and Management of the Funds.")

PROFESSIONAL MANAGEMENT. The Investment Manager currently provides investment
management services to the SchwabFunds(R), a family of 22 mutual funds with over
$35 billion in assets as of April 15, 1996. (See "Organization and Management of
the Funds.")

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

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

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

NATIONWIDE NETWORK OF SCHWAB OFFICES. Schwab has over 225 offices throughout the
U.S. where customers can place purchase and redemption orders.

2
<PAGE> 3

SUMMARY OF EXPENSES

SHAREHOLDER TRANSACTION EXPENSES: None

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

1 These amounts reflect reductions by the Investment Manager, which are
guaranteed through at least April 30, 1997. If there were no such reductions,
the maximum management fee for the Schwab Money Market Fund, Schwab Government
Money Fund, Schwab U.S. Treasury Money Fund and Schwab Tax-Exempt Money Fund
would have been 0.41%, 0.44%, 0.46% and 0.42%, respectively, for the fiscal
year ended December 31, 1995. (See "Organization and Management of the
Funds - Operating Fees and Expenses.")

2 These amounts reflect the guarantee by the Investment Manager and Schwab that,
through at least April 30, 1997, the total fund operating expenses of the
Schwab Money Market Fund, Schwab Government Money Fund, Schwab U.S. Treasury
Money Fund and the Schwab Tax-Exempt Money Fund - Sweep Shares will not exceed
0.75%, 0.75%, 0.65% and 0.66%, respectively, of each Fund's average daily net
assets. Without these guarantees, which were in effect during the fiscal year
ended December 31, 1995, the other expenses of the Schwab Money Market Fund,
Schwab Government Money Fund, Schwab U.S. Treasury Money Fund and Schwab
Tax-Exempt Money Fund - Sweep Shares would have been 0.49%, 0.48%, 0.50% and
0.49% and total fund operating expenses would have been 0.90%, 0.92%, 0.96%
and 0.91% of the average daily net assets of each such series or class,
respectively.

3 A fee may be charged if applicable minimum balances are not maintained in your
Schwab brokerage account or Schwab One(R) account. (See "Investing in Shares
of the Funds.") Schwab Individual Retirement Accounts with balances of $10,000
or more by September 15, 1996 will not be charged Schwab's $29 annual IRA
account fee for the life of the account. Schwab Keogh plans are currently
charged an annual fee of $45. (See "Tax-Advantaged Retirement Plans.") For
information regarding the differing minimum balance and minimum investment
requirements of the multiple classes of shares of the Schwab Tax-Exempt Money
Fund, see "Investing in Shares of the Funds - How to Buy Shares."

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

3
<PAGE> 4

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

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

THE PURPOSE OF THE PRECEDING TABLE IS TO ASSIST INVESTORS IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN ANY OF THE FUNDS WILL BEAR
DIRECTLY OR INDIRECTLY. This example reflects the guarantee by the Investment
Manager and Schwab that, through at least April 30, 1997, the total fund
operating expenses of the Schwab Money Market Fund, Schwab Government Money
Fund, Schwab U.S. Treasury Money Fund and the Sweep Shares of the Schwab
Tax-Exempt Money Fund will not exceed 0.75%, 0.75%, 0.65% and 0.66%,
respectively. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
example assumes a 5% annual rate of return pursuant to requirements of the SEC.
THIS HYPOTHETICAL RATE OF RETURN IS NOT INTENDED TO BE REPRESENTATIVE OF PAST OR
FUTURE PERFORMANCE.

4
<PAGE> 5

FINANCIAL HIGHLIGHTS

The following information with respect to each Fund has been audited by Price
Waterhouse LLP, independent accountants, whose unqualified report is included in
the Statement of Additional Information, which contains additional financial
data and related notes. A free copy of this statement may be obtained by calling
the telephone number or writing to the address on the first page of this
Prospectus.
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------ ----------------------------
NET DISTRIBUTIONS
REALIZED & TOTAL FROM NET
FISCAL NET ASSET NET UNREALIZED FROM DIVIDENDS REALIZED ASSET
PERIOD VALUE INVEST- GAINS INVEST- FROM NET GAIN ON VALUE
ENDED BEGINNING MENT (LOSSES) ON MENT INVESTMENT INVEST- TOTAL END OF
DEC. 31 OF YEAR INCOME INVESTMENT OPERATION INCOME MENT DISTRIBUTIONS YEAR
- ------- --------- ------ ----------- --------- ---------- ------------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SCHWAB MONEY MARKET FUND
1995 $1.00 $0.05 -- $0.05 $(0.05) -- $ (0.05) $ 1.00
1994 1.00 0.04 -- 0.04 (0.04) -- (0.04) 1.00
1993 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
1992 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
1991 1.00 0.06 -- 0.06 (0.06) -- (0.06) 1.00
19901 1.00 0.07 -- 0.07 (0.07) -- (0.07) 1.00
SCHWAB GOVERNMENT MONEY FUND
1995 1.00 0.05 -- 0.05 (0.05) -- (0.05) 1.00
1994 1.00 0.04 -- 0.04 (0.04) -- (0.04) 1.00
1993 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
1992 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
1991 1.00 0.05 -- 0.05 (0.05) -- (0.05) 1.00
19901 1.00 0.07 -- 0.07 (0.07) -- (0.07) 1.00
SCHWAB U.S. TREASURY MONEY FUND

1995 1.00 0.05 -- 0.05 (0.05) -- (0.05) 1.00
1994 1.00 0.04 -- 0.04 (0.04) -- (0.04) 1.00
1993 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
1992 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
19912 1.00 0.01 -- 0.01 (0.01) -- (0.01) 1.00
SCHWAB TAX-EXEMPT MONEY FUND-SWEEP SHARES 3
1995 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
1994 1.00 0.02 -- 0.02 (0.02) -- (0.02) 1.00
1993 1.00 0.02 -- 0.02 (0.02) -- (0.02) 1.00
1992 1.00 0.03 -- 0.03 (0.03) -- (0.03) 1.00
1991 1.00 0.04 -- 0.04 (0.04) -- (0.04) 1.00
19901 1.00 0.05 -- 0.05 (0.05) -- (0.05) 1.00

RATIOS/SUPPLEMENTAL DATA RATIO OF
------------------------------------- NET
RATIO OF INVESTMENT
FISCAL EXPENSES INCOME
PERIOD TOTAL NET ASSETS TO AVERAGE TO AVERAGE
ENDED RETURN END OF YEAR NET ASSETS NET ASSETS
DEC. 31 (%) (000'S) (%) (%)
- ------- ------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
SCHWAB MONEY MARKET FUND
1995 5.41 $14,010,387 0.75 5.27
1994 3.68 11,227,305 0.74 3.68
1993 2.67 8,164,599 0.73 2.64
1992 3.48 6,134,167 0.70 3.40
1991 5.70 4,866,584 0.78 5.52
1990 1 7.23 4,058,408 0.82* 7.51*
SCHWAB GOVERNMENT MONEY FUND
1995 5.34 1,884,569 0.75 5.21
1994 3.62 1,897,328 0.74 3.56
1993 2.66 1,744,603 0.73 2.63
1992 3.42 1,592,793 0.72 3.36
1991 5.53 1,458,705 0.70 5.38
1990 1 7.23 1,424,377 0.70* 7.51*
SCHWAB U.S. TREASURY MONEY FUND
1995 5.25 1,193,689 0.65 5.11
1994 3.52 803,871 0.65 3.60
1993 2.54 378,143 0.65 2.50
1992 3.26 178,895 0.59 2.91
1991 2 0.68 16,906 0.24* 4.11*
SCHWAB TAX-EXEMPT MONEY FUND-SWEEP SHARES 3
1995 3.30 3,403,837 0.66 3.25
1994 2.32 3,015,951 0.65 2.31
1993 1.93 2,423,317 0.63 1.92
1992 2.49 1,744,903 0.63 2.45
1991 4.01 1,359,121 0.63 3.91
1990 1 5.08 1,185,974 0.63* 5.33*
</TABLE>

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

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

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

*Annualized

5
<PAGE> 6

Note: The Investment Manager and Schwab reduced a portion of their fees and
absorbed certain expenses in order to limit each Fund's ratio of operating
expenses to average net assets. The table below illustrates what the ratio
of expenses to average net assets ("Ratio of Expenses") and the ratio of
net investment income to average net assets ("Ratio of Income") would have
been for the periods indicated below had these fees and expenses not been
reduced and absorbed:

<TABLE>
<CAPTION>
SCHWAB SCHWAB SCHWAB SCHWAB
MONEY GOVERNMENT U.S. TREASURY TAX-EXEMPT MONEY
MARKET FUND MONEY FUND FUND FUND - SWEEP SHARES
(WITHOUT REDUCTION) (WITHOUT REDUCTION) (WITHOUT REDUCTION) (WITHOUT REDUCTION)
----------------------- ----------------------- ----------------------- -----------------------
FISCAL PERIOD RATIO OF RATIO OF RATIO OF RATIO OF RATIO OF RATIO OF RATIO OF RATIO OF
ENDED 12/31 EXPENSES INCOME EXPENSES INCOME EXPENSES INCOME EXPENSES INCOME
- -------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 0.90% 5.12% 0.92% 5.04% 0.96% 4.80% 0.91% 3.00%
1994 0.90% 3.52% 0.92% 3.38% 1.00% 3.25% 0.91% 2.05%
1993 0.91% 2.46% 0.93% 2.43% 1.05% 2.10% 0.93% 1.62%
1992 0.92% 3.18% 0.94% 3.14% 1.15% 2.35% 0.94% 2.14%
1991 0.94% 5.36% 0.95% 5.13% 4.11%* 0.24%* 0.95% 3.59%
1990 0.95%* 7.38%* 0.96%* 7.25%* n/a n/a 0.95%* 5.01%*
</TABLE>

MATCHING THE FUNDS TO YOUR
INVESTMENT NEEDS

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

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

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

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

*Annualized

6
<PAGE> 7

Sweep Shares. (See "Organization and Management of the Funds - Operating Fees
and Expenses" and "Investing in Shares of the Funds - How to Buy Shares.")

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

INVESTMENT OBJECTIVES AND
POLICIES

THE SCHWAB MONEY MARKET FUND

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

- - Certificates of deposit, time deposits, notes and bankers' acceptances of
domestic banks (including their foreign branches), Canadian chartered banks,
U.S. branches of foreign banks and foreign branches of foreign banks having
capital, surplus and undivided profits in excess of $100 million.

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

- - Obligations of, or guaranteed by, the U.S. or Canadian governments, their
agencies or instrumentalities.

- - Repurchase agreements involving obligations that are suitable for investment
under the categories listed above.

EURODOLLAR CERTIFICATES OF DEPOSIT AND FOREIGN SECURITIES. To the extent the
Schwab Money Market Fund purchases Eurodollar certificates of deposit and other
similar obligations, consideration will be given to the fact that these issuers
may not be subject to the same regulatory requirements as U.S. issuers,
including U.S. banks.

7
<PAGE> 8

companies and U.S. securities markets. Foreign brokerage commissions and other
fees are also generally higher than in the United States. There are also special
tax considerations which apply to securities of foreign issuers and securities
principally traded overseas.

CONCENTRATION. The Fund will not invest 25% or more of the value of its total
assets in the securities of issuers conducting their principal business
activities in the same industry. However, this limitation will not apply to
certificates of deposit or bankers' acceptances issued by domestic branches of
U.S. banks and U.S. branches of certain foreign banks or obligations of or
guaranteed by the U.S. Government or its agencies or instrumentalities. See
"Investment Policies and Restrictions" in the Statement of Additional
Information.

PRIVATE PLACEMENTS. The Schwab Money Market Fund may invest in commercial paper
and other securities that are exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933 ("Section 4(2) paper"). Federal securities laws
restrict the disposition of Section 4(2) paper. The Schwab Money Market Fund
will not invest more than 10% of its assets in Section 4(2) paper and other
illiquid securities unless the Investment Manager determines, by continuous
reference to the appropriate trading markets and pursuant to guidelines approved
by the Board of Trustees, that any Section 4(2) paper held by the Fund in excess
of this level is liquid.

The Fund's ownership of Section 4(2) paper could have the effect of reducing the
Fund's liquidity to the extent that qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.

ASSET-BACKED COMMERCIAL PAPER. The Fund may invest in asset-backed commercial
paper. Repayment of this type of commercial paper is intended to be obtained
from an identified pool of assets, including automobile receivables, credit-card
receivables and other types of assets. Asset-backed commercial paper is issued
by a special purpose vehicle (usually a corporation) that has been established
for the purpose of issuing the commercial paper and purchasing the underlying
pool of assets. The issuer of commercial paper bears the direct risk of
prepayment on the receivables constituting the underlying pool of assets. Credit
support for asset-backed securities may be based on the underlying assets or
provided by a third party. Credit enhancement techniques include letters of
credit, insurance bonds, limited guarantees and over-collateralization.

For more information regarding the Fund's investments, see "Share Price
Calculation."

THE SCHWAB GOVERNMENT MONEY FUND

The Schwab Government Money Fund seeks maximum current income consistent with
stability of capital. The Fund pursues its objective by investing exclusively
in: (1) U.S. Treasury bills, notes, bonds and other obligations of the U.S.
Treasury that are backed by the "full faith and credit" of the U.S. Government;
and (2) other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements covering such
obligations. All securities purchased are deemed to mature within 12 months or
less under federal securities regulations. Some securities issued by U.S.
Government agencies or instrumentalities are supported only by the credit of the
agency or instrumentality, while others have an additional line of credit with
the U.S. Treasury. Short-term U.S. Government obligations generally are
considered to be among the safest short-term investments. The

8
<PAGE> 9

Government guarantee of certain securities owned by the Schwab Government Money
Fund, however, does not guarantee the net asset value of the Fund's shares,
which the Fund seeks to maintain at $1.00 per share. (See "Share Price
Calculation.") With respect to securities supported only by the credit of the
issuing agency or instrumentality or by an additional line of credit with the
U.S. Treasury, there is no guarantee that the U.S. Government will provide
support to such agencies or instrumentalities. Accordingly, such securities may
involve risk of loss of principal and interest.

THE SCHWAB U.S. TREASURY MONEY FUND

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

THE SCHWAB TAX-EXEMPT MONEY FUND

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

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

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

The Schwab Tax-Exempt Money Fund will invest only in Municipal Securities which
at the time of purchase: (a) are rated in one of the two highest rating
categories for municipal commercial paper or short-term municipal securities
assigned by any NRSRO; (b) are guaranteed or insured by the U.S. Government as
to the payment of principal and interest; (c) are fully collateralized by an
escrow of U.S. Government securities acceptable to the Fund's Investment
Manager; or (d) are

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unrated by any NRSRO, if they are determined by the Investment Manager, using
guidelines approved by the Board of Trustees, to be at least equal in quality to
one or more of the above referenced securities.

The Fund may continue to hold a Municipal Security that, after its purchase by
the Fund, ceases to have a rating, or is downgraded, causing its rating to fall
below that required for purchase by the Fund. Neither event would necessarily
require the Fund to sell the security. However, the Fund will keep such a
security in its portfolio only if the Board of Trustees or its properly
authorized delegate determines that keeping the security is in the best
interests of the Fund.

As a matter of fundamental policy, the Fund will not invest 25% or more of the
value of its total assets in the securities of issuers conducting their
principal business activities in the same industry. However, this limitation
shall not apply to Municipal Securities issued by governmental entities.

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

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

MUNICIPAL SECURITIES AND
INVESTMENT TECHNIQUES

Municipal Securities in which the Schwab Tax-Exempt Money Fund may invest are
generally classified in one of two categories: "general obligation" securities
and "revenue" securities. General obligation securities are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue securities are secured only by the revenues
derived from: (1) a particular facility or class of facilities; (2) a specific
revenue source such as a special excise tax; or (3) another specific revenue
source, such as the user of the facility being financed.

Revenue securities may include private activity bonds and industrial development
bonds. Such bonds may be issued by or on behalf of public authorities to finance
various privately operated facilities, and they are not payable from the
unrestricted revenues of the issuer. As a result, the credit quality of private
activity bonds is frequently related directly to the credit standing of private
corporations or other entities. From time to time, the Fund may invest more than
25% of its total assets in

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<PAGE> 11

industrial development and private activity bonds.

Among other types of instruments, the Fund may purchase tax-exempt commercial
paper and short-term municipal notes such as tax anticipation notes, bond
anticipation notes, revenue anticipation notes, construction loan notes and
other forms of short-term loans. Such notes are issued with a short-term
maturity in anticipation of the receipt of tax payments, the proceeds of bond
placements, or other revenues.

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

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

SYNTHETIC VARIABLE OR FLOATING-RATE MUNICIPAL SECURITIES. The Fund also may
invest up to 25% of its assets in synthetic variable or floating-rate municipal
securities. These securities generally comprise the following elements in a
trust: (i) a fixed-rate municipal bond (of any duration); (ii) a right to put
the bond at par value on 7-days notice or after a specific interval of time
depending on the terms of the synthetic security; and (iii) a contractual
agreement pursuant to which the investing Fund and a remarketing agent determine
the lowest rate that would permit the bond to be remarketed at par, taking into
account the put right. The trustee of the trust is generally a bank trust
department.

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

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<PAGE> 12

may be deemed to be restricted securities for purposes of the Fund's investment
limitations.

VARIABLE RATE DEMAND INSTRUMENTS. The Fund may invest in variable rate demand
instruments issued by industrial development authorities and other government
entities. In the event a variable rate demand instrument to be purchased by the
Fund is not rated by credit rating agencies, the Investment Manager, using
guidelines approved by the Board of Trustees, must determine that such
instrument is of comparable quality at the time of purchase to a rated
instrument that would be eligible for purchase by the Fund. In some cases, the
Fund may require that the issuer's obligation to pay the principal of the note
be backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend.

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

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

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

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

The Fund will purchase a participation interest only if: (a) the instrument
subject to the participation interest matures in one year or less, or the
instrument includes a right to demand payment, usually within 7-days, from the
seller; (b) the instrument meets the Fund's previously described quality
standards for Municipal Securities; and (c) the instrument is issued with an
opinion of counsel or is the subject of a ruling of the Internal Revenue
Service, stating that the interest earned on the participation interest is
exempt from federal income tax.

STAND-BY COMMITMENTS. The Schwab Tax-Exempt Money Fund also may acquire "stand-
by commitments" for Municipal Securities held in its portfolio. Under a stand-by
commitment, a dealer agrees to purchase at the Fund's option specified Municipal
Securities at a price equal to their amortized cost value plus accrued interest.
The Fund will acquire stand-by commitments solely to improve portfolio
liquidity. The Fund does not intend to exercise its stand-by rights solely for
trading purposes.

GOVERNMENT SECURITIES. The Fund may invest in government securities, including
U.S. Treasury notes, bills, and bonds, which are backed by the full faith and
credit of the U.S. Government. Some securities issued by U.S. Government
agencies or instrumentalities are supported by the credit of the agency or
instrumentality, while others have an additional line of credit with the U.S.
Treasury. However, there is no guarantee that the

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<PAGE> 13

U.S. Government will provide support to such agencies or instrumentalities.
Accordingly, such securities may involve risk of loss of principal and interest.

LEGAL OPINIONS. Bond counsel will render opinions on the validity of Municipal
Securities. Bond counsel will also render opinions on whether the interest paid
on Municipal Securities is exempt from federal income tax. Bond counsel will
render such opinions to the issuers of Municipal Securities at the time the
securities are issued. The Fund and the Investment Manager will not review the
proceedings on the issuance of Municipal Securities or the bases for such
opinions.

MATURITY. The Fund will purchase only securities that are deemed to mature in
397 days or less in accordance with federal securities regulations or securities
that have a variable rate of interest that is readjusted no less frequently than
every 397 days.

SECURITIES SUBJECT TO A PUT FEATURE. A "put" feature permits the Fund to sell a
security at a fixed price prior to maturity to the put issuer. Because of this
feature, Municipal Securities subject to a put generally may be sold to third
parties at market rates. Generally, a premium is paid for a security subject to
a put feature. Investments in Municipal Securities subject to puts are limited
by federal securities laws and expose the Fund to a credit risk associated with
the put provider.

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

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

OTHER INVESTMENT TECHNIQUES

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

Each Fund will not invest more than 25% of its assets in when-issued or delayed
delivery securities. The Funds will not purchase such securities for speculative
purposes and will

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<PAGE> 14

expect to actually acquire the securities when purchased. However, each Fund
reserves the right to sell any such securities before their settlement dates if
the Investment Manager deems such a sale advisable.

REPURCHASE TRANSACTIONS. Each Fund (except the Schwab U.S. Treasury Money Fund)
may engage in repurchase agreements, which are instruments under which a Fund
acquires ownership of a security from a broker-dealer or bank that agrees to
repurchase the security at a mutually agreed upon time and price (which price is
higher than the purchase price), thereby determining the yield during the Fund's
holding period. Maturity of the securities subject to repurchase may exceed one
year.

If the seller of a repurchase agreement becomes bankrupt or otherwise defaults,
a Fund might incur expenses in enforcing its rights, and could experience
losses, including a decline in the value of the underlying securities and loss
of income. The Fund will enter into repurchase agreements only with banks and
other recognized financial institutions that the Investment Manager deems
creditworthy.

ILLIQUID SECURITIES. A Fund will not purchase illiquid securities, including
time deposits and repurchase agreements maturing in more than 7-days, if, as a
result thereof, more than 10% of the Fund's net assets valued at the time of the
transaction are invested in such securities. The investment policy, as set forth
in the Statement of Additional Information, on the purchase of illiquid
securities is fundamental for the Schwab Money Market Fund and the Schwab
Government Money Fund.

VARIABLE RATE SECURITIES. Each Fund may invest in instruments having rates of
interest that are adjusted periodically, or which "float" continuously according
to formulas intended to minimize any fluctuation in the values of the
instruments ("Variable Rate Securities"). The interest rate of Variable Rate
Securities ordinarily is determined by reference to, or is a percentage of, an
objective standard such as a bank's prime rate, the 90-day U.S. Treasury Bill
rate or the rate of return on commercial paper or bank certificates of deposit.
As interest rates decrease or increase, Variable Rate Securities experience less
appreciation or depreciation than fixed rate obligations.

Some Variable Rate Securities ("Variable Rate Demand Securities") have a demand
feature entitling the purchaser to resell the securities at an amount
approximately equal to amortized cost, or the principal amount thereof plus
accrued interest. As is the case for other Variable Rate Securities, the
interest rate on Variable Rate Demand Securities varies according to some
objective standard intended to minimize fluctuation in the values of the
instruments. Each Fund determines the maturity of Variable Rate Securities in
accordance with SEC rules.

BORROWING POLICY. Pursuant to a fundamental policy as set forth in the Statement
of Additional Information, none of the Funds may borrow money except as a
temporary measure for extraordinary or emergency purposes, and then only in an
amount up to one-third of the value of its total assets in order to meet
redemption requests. Any borrowings under this provision will not be
collateralized, except that the Schwab Tax-Exempt Money Fund may pledge up to
10% of its net assets, and the Schwab U.S. Treasury Money Fund may pledge up to
33% of its net

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<PAGE> 15

assets, to secure borrowings. No Fund will borrow for leverage purposes.

ADDITIONAL INFORMATION. Please see the Statement of Additional Information for
further information regarding foreign securities, Section 4(2) paper, the
investment rating categories employed by various NRSROs, and other investment
techniques used by the Funds.

ORGANIZATION AND
MANAGEMENT OF THE FUNDS

GENERAL OVERSIGHT. The Board of Trustees and officers of the Schwab Fund Family
meet regularly to review investments, performance, expenses and other business
affairs.

THE INVESTMENT MANAGER. Professional investment management for each Fund is
provided by the Investment Manager, Charles Schwab Investment Management, Inc.,
101 Montgomery Street, San Francisco, California 94104. The Investment Manager
provides a continuous investment program, including general investment and
economic advice regarding each Fund's investment strategies; manages each Fund's
investment portfolio and performs expense management, accounting and
recordkeeping; and provides other services necessary to the operation of each
Fund and the Schwab Fund Family. The Investment Manager, formed in 1989, is a
wholly-owned subsidiary of The Charles Schwab Corporation and is the investment
adviser and administrator of the mutual funds in the SchwabFunds Family(R), a
family of 22 mutual funds. As of April 15, 1996, the SchwabFunds(R) had
aggregate net assets in excess of $35 billion.

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

Schwab was established in 1971 and is one of America's largest discount brokers.
The firm provides low-cost securities brokerage and related financial services
to over 3.3 million active customer accounts and has over 225 branch offices.
Schwab also offers convenient access to financial information services and
provides products and services that help investors make investment decisions.
Schwab is a wholly-owned subsidiary of The Charles Schwab Corporation. Charles
R. Schwab is the founder, Chairman, Chief Executive Officer and a Director of
The Charles Schwab Corporation. As a result of his beneficial ownership
interests in 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.

OPERATING FEES AND EXPENSES

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

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<PAGE> 16

graduated annual fee, payable monthly, of 0.46% of the Fund's average daily net
assets not in excess of $2 billion, 0.45% of such net assets over $2 billion but
not in excess of $3 billion, and 0.40% of such net assets over $3 billion; the
Investment Manager receives from the Schwab Government Money Fund and the Schwab
Tax-Exempt Money Fund a graduated annual fee, payable monthly, of 0.46% of each
Fund's average daily net assets not in excess of $1 billion, 0.41% of such net
assets over $1 billion but not in excess of $2 billion and 0.40% of such net
assets over $2 billion. Pursuant to a separate but substantially similar
Investment Advisory and Administration Agreement with the Schwab Fund Family,
the Investment Manager receives from the Schwab U.S. Treasury Money Fund a
graduated annual fee, payable monthly, of 0.46% of the Fund's average daily net
assets not in excess of $1 billion, 0.41% of such net assets over $1 billion but
not in excess of $2 billion, and 0.40% of such net assets over $2 billion. At
least through April 30, 1997, the Investment Manager has guaranteed that the
management fee of the Schwab Money Market Fund, Schwab Government Money Fund,
Schwab U.S. Treasury Money Fund and Schwab Tax-Exempt Money Fund will not exceed
0.29%, 0.29%, 0.19% and 0.20%, respectively, of each such Fund's average daily
net assets.

In addition, the Investment Manager and Schwab have guaranteed that, at least
through April 30, 1997, total fund operating expenses of the Schwab Money Market
Fund, Schwab Government Money Fund, Schwab U.S. Treasury Money Fund and the
Sweep Shares of the Schwab Tax-Exempt Money Fund will not exceed 0.75%, 0.75%,
0.65% and 0.66%, respectively, of the average daily net assets of each such
investment portfolio (a "Series") of the Schwab Fund Family or each class of
shares. The effect of these guarantees is to maintain or lower the expenses and
thus maintain or increase such Fund's total return to shareholders. For the
fiscal year ended December 31, 1995, the Schwab Money Market Fund, Schwab
Government Money Fund, Schwab U.S. Treasury Money Fund and Schwab Tax-Exempt
Money Fund paid management fees of 0.29%, 0.29%, 0.19% and 0.20%, respectively,
of each such Fund's average daily net assets and paid total fund operating
expenses of 0.75%, 0.75%, 0.65% and 0.66%, respectively, of the average daily
net assets of each such Series or class of shares (after waivers and
reimbursements). The following expenses are not included as "operating expenses"
for purposes of this guarantee: interest expenses, taxes and capital items such
as the cost of the purchase or sale of portfolio securities, including brokerage
fees or commissions.

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

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<PAGE> 17

Agent receives an annual fee of 0.05% of the average daily net assets of that
class' shares of beneficial interest. The Funds' Custodian is PNC Bank, N.A.

OTHER EXPENSES. The Schwab Fund Family pays the expenses of its operations,
including: the fees and expenses for independent accountants, legal counsel and
the custodian of its assets; the cost of maintaining books and records of
account; registration fees; the fees and expenses of qualifying the Schwab Fund
Family and its shares for distribution under federal and state securities laws;
and industry association membership dues. These expenses generally are allocated
among each Series, or class of shares within these Series, in proportion to
their relative net assets at the time the expense is incurred. However, expenses
directly attributable to a particular Series or class of a Series will be
charged to that Series or class, respectively. The differing expenses applicable
to the Sweep Shares of the Schwab Tax-Exempt Money Fund and the Value Advantage
Shares will cause the performance of these two classes of shares to differ.

OTHER INFORMATION

The Schwab Fund Family was organized as a business trust under the laws of
Massachusetts on October 20, 1989 and may issue an unlimited number of shares of
beneficial interest or classes of shares in one or more Series. Currently, the
Schwab Fund Family offers shares of 9 Series which may be organized into one or
more classes of shares of beneficial interest. The Board of Trustees may
authorize the issuance of shares of additional Series or classes if it deems it
desirable. Shares within each Series or class have equal, noncumulative voting
rights and equal rights as to distributions, assets, and liquidation of such
Series, except to the extent such voting rights or rights as to distributions,
assets, and liquidation vary among classes of a Series.

SHAREHOLDER MEETINGS AND VOTING RIGHTS. The Schwab Fund Family is not required
to hold annual shareholders' meetings and does not intend to do so. It will,
however, hold special meetings 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 Schwab Fund Family.

Shareholders will vote by Series and not in the aggregate (for example, when
voting to approve the investment advisory agreement), except when voting in the
aggregate is permitted under the 1940 Act, such as for the election of Trustees.
In addition, holders of the Sweep Shares of the Schwab Tax-Exempt Money Fund
will vote exclusively as a class on any matter relating solely to the Sweep
Shares and on any matter in which the interests of holders of the Sweep Shares
differ from the interests of the holders of the Value Advantage Shares of the
Fund.

DISTRIBUTIONS AND TAXES

DIVIDENDS AND OTHER DISTRIBUTIONS. On each day that the net asset value per
share of a Fund is determined (a "Business Day"), the Fund's net investment
income is declared as of the close of trading on the New York Stock Exchange
(the "Exchange") (generally 4:00 p.m. Eastern time) as a dividend to
shareholders of record at that time. Dividends

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<PAGE> 18

are normally paid (and, where applicable, reinvested) on the 15th of each month,
if a Business Day, otherwise on the next Business Day, with the exception of the
dividend paid in December, which is scheduled to be paid on the last Business
Day in December.

FEDERAL INCOME TAX INFORMATION. Each Fund has elected to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), qualified as such and intends to continue to so qualify. In order
to so qualify, each Fund will distribute on a current basis substantially all of
its investment company taxable income, its net exempt-interest income (if any),
and its net capital gains (if any) and will meet certain other requirements.
Such qualification relieves a Fund of liability for federal income taxes to the
extent the Fund's earnings are distributed.

Generally, all distributions are taxable to shareholders as ordinary income,
except for distributions for the Schwab Tax-Exempt Money Fund which are exempt
from federal income tax.

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

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

THE SCHWAB TAX-EXEMPT MONEY FUND. Dividends derived from exempt-interest income
(known as "exempt-interest dividends") will be treated by the Fund's
shareholders as items of interest excludable from their federal gross income. To
the extent dividends paid to shareholders are derived from taxable income or
from capital gains, such dividends will be subject to federal income tax,
whether received in cash or reinvested.

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

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

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

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<PAGE> 19

pal Securities" in the Statement of Additional Information.)

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

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

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

SHARE PRICE CALCULATION

The price of a share on any given day is its "net asset value" or "NAV." For the
Schwab Money Market Fund, Schwab Government Money Fund and Schwab U.S. Treasury
Money Fund, this figure is computed by taking total Fund assets, subtracting any
liabilities of the Fund and dividing the resulting amount by the number of
shares of the Fund outstanding. For the Sweep Shares of the Schwab Tax-Exempt
Money Fund, this figure is computed by taking total Fund assets allocable to
that class, subtracting any liabilities allocable to the class and dividing the
resulting amount by the number of Sweep Shares of the Fund outstanding. The net
asset value per share of a Fund is determined on each day both the Federal
Reserve Bank of New York and the Exchange are open for business, first at 10:00
a.m. (Eastern time), then again as of the close of normal trading on the
Exchange (generally 4:00 p.m. Eastern time). Purchase or redemption orders and
exchange requests will be executed at the net asset value next determined after
receipt by the Transfer Agent or its authorized agent. While each Fund attempts
to maintain its net asset value at a constant $1.00 per share, Fund shares are
not insured against a reduction in net asset value.

Each Fund values its portfolio securities at amortized cost, which means that
they are valued at their acquisition cost (as adjusted for amortization of
premium or discount) rather than at current market value. Calculations are made
to compare the value of the Fund's investments using the amortized cost method
with market values. Except as described below, market valuations are obtained by
using: (1) actual quotations provided by third-party pricing services or market
makers; (2) estimates of market value; or (3) values obtained from yield data
relating to comparable classes of money market instruments published by
reputable sources at the mean between the bid and asked prices for the
instruments. If a deviation of 1/2 of 1% or more were to occur between the net
asset value per share of a Fund (or Sweep Shares for the Schwab Tax-Exempt Money
Fund) calculated by reference to market values and the $1.00 per share amortized
cost value of a Fund (or Sweep Shares for the Schwab Tax-Exempt Money Fund), or
if there were any other deviation which the Board of Trustees believed would
result in a material dilution to shareholders or purchasers, the Board of
Trustees would promptly consider what action, if any, should be initiated.

19
<PAGE> 20

The Schwab Money Market Fund has entered into a transaction with Bank of America
National Trust and Savings Association ("Bank of America") pursuant to which the
Fund is the beneficiary of an irrevocable Letter of Credit (the "Letter of
Credit") issued by Bank of America. The Letter of Credit provides a degree of
credit support for an obligation of Orange County, California held by the Fund
(the "Covered Security"). Orange County filed for protection under Chapter 9 of
the federal Bankruptcy Code in December 1994. The Fund is not obligated to
reimburse Bank of America for any amount drawn under the Letter of Credit.
However, the Letter of Credit does not ensure that the Fund will receive a
payment equal to the full value of the Covered Security. Accordingly, although
the Board of Trustees has determined that it is not in the best interests of the
Fund to dispose of the Covered Security, the Fund could incur losses as a result
of its ownership of the Covered Security.

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

HOW THE FUNDS REPORT
PERFORMANCE

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

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

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

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

20
<PAGE> 21

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

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

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

Additional performance information about the Schwab Money Market Fund, Schwab
Government Money Fund, Schwab U.S. Treasury Money Fund and the Sweep Shares of
the Schwab Tax-Exempt Money Fund is available in the Funds' Annual Reports,
which are sent to all shareholders. To request a free copy, call your local
Schwab office or 800-2 NO-LOAD.

TAX-ADVANTAGED RETIREMENT PLANS

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

SCHWAB IRA. A retirement plan with a wide choice of investments offering people
with earned income the opportunity to compound earnings on a tax-deferred basis.
Schwab IRAs with a balance of $10,000 or more by September 15, 1996 will not be
charged Schwab's $29 annual IRA account fee for the life of the account.

SCHWAB KEOGH. A tax-advantaged plan for self-employed individuals and their
employees that permits the employer to make annual tax-deductible contributions
of up to $30,000. Schwab Keogh plans are currently charged an annual fee of $45.

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

INVESTING IN
SHARES OF THE FUNDS

SHAREHOLDER SERVICE. You may place Fund purchase orders and orders to sell
shares as well as exchange requests at any one of over 225 Schwab offices
nationwide or by calling 800-2 NO-LOAD, where trained representatives are
available to answer questions about the Funds and your account. The right to
initiate transactions by telephone is automatically available through your
Schwab account. TDD users may contact Schwab at 800-345-2550, 24 hours a day.

Each Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If each Fund follows telephone orders
that it reasonably believes to

21
<PAGE> 22

be genuine, it will not be liable for any losses a shareholder may experience.
If each Fund does not follow reasonable procedures to confirm that a telephone
order is genuine, each Fund may be liable for any losses a shareholder may
suffer from unauthorized or fraudulent orders. These procedures may include:

- - requiring a form of personal identification prior to acting upon instructions
received by telephone;
- - providing written confirmation of such instructions; and
- - tape recording telephone transactions.

Investors should remember that it may be difficult to complete transactions by
telephone during periods of drastic economic or market changes, when our phone
lines may become very busy with calls from other investors. If you want to buy,
sell or exchange shares but have trouble reaching a Fund by telephone, you may
want to use one of the other ways offered for completing the transactions
discussed below, even though these procedures may mean that completing your
transaction may take longer.

To assist in minimizing administrative costs, share certificates will not be
issued. Records regarding share ownership are maintained by the Transfer Agent.

Telephone purchase or redemption orders or exchange requests received prior to
8:00 p.m. (Eastern time) on any Business Day, once they have been verified as to
the caller's identity and account ownership, will be deemed to be received by
the Transfer Agent, or its authorized agent, prior to the next net asset value
determination. Subsequent telephone orders received prior to the first net asset
value determination on the following day will be deemed received prior to that
day's second net asset value determination.

HOW TO BUY SHARES

OPENING A SCHWAB ACCOUNT. You may buy shares of the Funds through an account
maintained with Schwab, and payment for shares must be made directly to Schwab.
If you do not presently maintain a Schwab account and wish to establish one,
simply complete a Schwab Account Application (available by calling 800-2
NO-LOAD, 24 hours a day, or by contacting your local Schwab office) and deliver
it, by mail or in person, to your local Schwab office. You may also mail the
application to Schwab at 101 Montgomery Street, San Francisco, California 94104.
Corporations and other organizations should contact their local Schwab office to
determine which additional forms may be necessary to open a Schwab account. With
your Schwab account, you have access to other investments available at Schwab,
such as stocks, bonds and other mutual funds.

The Securities Investor Protection Corporation ("SIPC") will provide account
protection, in an amount up to $500,000, for securities, including Fund shares,
which you hold in a Schwab account. Of course, SIPC account protection does not
protect shareholders from share price fluctuations. If you already have a Schwab
account, you may buy shares of each Fund as described below and need not open a
new account.

22
<PAGE> 23

minimum for three consecutive months in any quarter. This fee, if applicable,
will be charged at the end of each quarter and will be waived if there has been
at least one commissionable trade within the last 6 months, or if the
shareholder's combined account balances at Schwab total $10,000 or more.

Schwab currently imposes no fee for opening a Schwab One(R) account with a
minimum of $5,000 account equity. Schwab One accounts containing less than
$5,000 account equity are subject to a fee of $5 per month imposed by Schwab if
there have been fewer than two commissionable trades within the last 12 months.

DEPOSITING FUNDS. You may deposit funds into your Schwab account by check, wire
or many other forms of electronic funds transfer. Securities also may be
deposited. You may also buy SchwabFunds(R) shares using electronic products such
as StreetSmart(TM), The Equalizer(R) and TeleBroker(R). All deposit checks
should be made payable to Charles Schwab & Co., Inc. If you would like to wire
funds into your existing Schwab account, please contact your local Schwab office
for instructions.

WHEN YOU CAN BUY SHARES. You must have funds in your Schwab account in order to
buy Fund shares. If funds (including those transmitted by wire) are received by
Schwab before the time of each Fund's last daily net asset value calculation
(normally 4:00 p.m. Eastern time), they will be available for investment on that
day. If funds arrive after that time, they will be available for investment the
next Business Day.

METHODS OF BUYING SHARES

AUTOMATIC INVESTMENT: When opening a Schwab brokerage account, an investor will
be asked to select a SchwabFunds class or series with sweep privileges as a
"primary fund." If the Fund is selected as a primary fund, free credit balances
in the investor's brokerage account will be invested automatically in shares of
the Fund according to the procedures described in the account agreement with the
investor. Depending on the type of account, the automatic investment of free
credit balances will be effected daily, weekly or at other times and may be
subject to minimum investment and other requirements.

An investor with an existing Schwab account may add the automatic investment
feature to his or her account by completing the appropriate section of the
Schwab Account Application available at any Schwab office. A shareholder may
change primary funds by calling or writing his or her local Schwab office or
writing Schwab at the address referenced on the cover of this Prospectus. Note
that the automatic investment feature is not available for Value Advantage
Shares.

DIRECT PURCHASE: A Schwab account holder may buy shares of a Fund (if it is not
his or her primary fund) in several ways. The minimum initial investment for
such a purchase is $1,000, and subsequent investments must be at least $100. For
the Value Advantage Shares of the Schwab Tax-Exempt Money Fund, the minimum
initial investment is $25,000, the minimum subsequent investment is $5,000 and
the minimum account balance is $20,000.

BY TELEPHONE
You may use existing funds in your Schwab account to make initial and subsequent
share purchases. To place your order, call your local Schwab office during
regular business hours or 800-2 NO-LOAD, 24 hours a day. TDD users

23
<PAGE> 24

may contact Schwab at 800-345-2550, 24 hours a day.

BY MAIL
You may direct that funds already in your Schwab account be used to make initial
and subsequent share purchases. Alternatively, your purchase instructions may be
accompanied by a check made payable to Charles Schwab & Co., Inc., which will be
deposited into your Schwab account and used, as necessary, to cover all or part
of your purchase order.

Written purchase orders (along with any checks) should be mailed to Schwab at
101 Montgomery Street, San Francisco, California 94104 or to your local Schwab
office and should:

- - reference your Schwab account number (inapplicable if a Schwab Account
Application is also enclosed);
- - specify the name of the Fund and class, if applicable, and the dollar amount
of shares you would like to buy; and
- - for initial share purchases only, select one of the distribution options
listed below.

Once mailed, a purchase request is irrevocable and may not be modified or
cancelled.

ELECTRONICALLY
For more information regarding how to buy shares electronically using
StreetSmart(TM), The Equalizer(R) and TeleBroker(R), call 800-2 NO-LOAD.

IN PERSON AT A SCHWAB OFFICE
Visit your local Schwab office, where a representative will be happy to assist
you.

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

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

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

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

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

24
<PAGE> 25

and Schwab custodial accounts, may be invested automatically irrespective of
amount. Each Fund may also waive the required minimums for purchases by
trustees, directors, officers or employees of the Fund, Schwab or the Investment
Manager. Each Fund reserves the right, in its sole discretion and without prior
notice to shareholders, to withdraw or suspend all or any part of the offering
made by this Prospectus, to reject purchase orders or to change the minimum
investment requirements. All orders to buy shares of a Fund are subject to
acceptance by the Fund and are not binding until confirmed or accepted in
writing. Schwab will charge a $15 service fee against an investor's Schwab
account should his or her check be returned because of insufficient or
uncollected funds or a stop payment order.

HOW TO SELL OR
EXCHANGE SHARES

The exchange privilege allows you to exchange your SchwabFunds(R) shares for
shares of another SchwabFunds Series or class available to investors in your
state, provided you meet the initial and subsequent investment requirements and
any other requirements relating to the Series or class of shares you wish to
buy. Thus, you can conveniently modify your investments if your goals or market
conditions change. For federal income tax and certain other purposes, an
exchange of shares between funds will be treated as a sale of shares in one fund
and the purchase of shares in another fund. An exchange of shares between
classes of the same fund should not be treated as a sale of shares. Each Fund
reserves the right to modify, limit or terminate the exchange privilege upon 60
days' written notice.

AUTOMATIC REDEMPTION. A sale of Fund shares will be automatically effected to
satisfy debit balances in an investor's Schwab account, to provide necessary
cash collateral for an investor's margin obligation to Schwab and to settle
securities transactions in the account. All such sales will be effected in
accordance with the procedures described in the investor's Schwab Acccount
Agreement.

DIRECT REDEMPTION. You can sell or exchange your shares at any time by
telephone, by mail, electronically or in person, subject to the following terms
and conditions:

- - if you bought your shares by check, we will send you your money as soon as
your check clears your bank, which may take up to 15 days;
- - depending on the type of Schwab account you have, your money may earn interest
during any holding period;
- - you will receive the dividends declared for the day on which you sell your
shares;
- - we will have a check for your shares at your local Schwab office on the
Business Day after the Transfer Agent, or its authorized agent, receives
proper instructions to sell your shares;
- - a check normally will be mailed to you on the Business Day following the sale
of your shares if you specifically request that it be mailed; and
- - we may suspend the right to sell shares or postpone payment for a sale of
shares when trading on the Exchange is restricted; the Exchange is closed for
any reason other than its normal weekend or holiday closings, emergency
circumstances as determined by the SEC; or any other circumstances as the SEC
may permit.

25
<PAGE> 26

METHODS OF SELLING OR
EXCHANGING SHARES

BY TELEPHONE
You can sell or exchange your shares by telephone by calling your local Schwab
office during regular business hours, or by calling 800-2 NO-LOAD, 24 hours a
day. TDD users may contact Schwab at 800-345-2550, 24 hours a day.

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

- - your Schwab account number and your name for verification;
- - the number of shares you want to sell or exchange;
- - the name of the Fund and class, if applicable, from which you are selling or
exchanging shares;
- - the name of the Fund and class into which shares are to be exchanged, if
applicable; and
- - the distribution option you select, if you are exchanging shares.

BY MAIL
You can also sell or exchange shares by writing to your local Schwab office or
to the address on the cover of this Prospectus.
We need the following information in order to process your mail sale or exchange
request:
- - your Schwab account number;
- - the number of shares you want to sell or exchange;
- - the name of the Fund and class, if applicable, from which you are selling or
exchanging shares;
- - the name of the Fund and class into which shares are to be exchanged, if
applicable;
- - the distribution option you select, if you are exchanging shares; and
- - the signature of at least one of the registered Schwab account holders in the
exact form specified in the account.

Once mailed, a sale or exchange request is irrevocable and may not be modified
or cancelled.

ELECTRONICALLY
For more information regarding how to sell or exchange shares electronically
using StreetSmart(TM), The Equalizer(R) and TeleBroker(R), call 800-2 NO-LOAD.

IN PERSON AT A SCHWAB OFFICE
You can also request a sale or exchange of shares in person at your local Schwab
office.

OTHER IMPORTANT INFORMATION

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

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

26
<PAGE> 27

record will receive a single package during each shareholder mailing. If you do
not wish this consolidation to apply to your account(s), please write to
SchwabFunds(R) at 101 Montgomery Street, San Francisco, California 94104 to that
effect.

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

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

READING THIS PROSPECTUS. References to "you" and "your" in this Prospectus refer
to prospective investors and/or current shareholders, while references to "we",
"us", "our" or "our Funds" refer to the Funds generally.
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR.
- --------------------------------------------------------------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE.
- --------------------------------------------------------------------------------

27
<PAGE> 28
SCHWAB
MONEY FUNDS-
Sweep Investments(TM)

PROSPECTUS April 29, 1996

[SchwabFunds Logo]

625-15 (8/95) CRS 6701 Printed on recycled paper

[SchwabFunds Logo]
101 Montgomery Street
San Francisco, California 94104
<PAGE> 29

SCHWAB CALIFORNIA TAX-EXEMPT MONEY
FUND - SWEEP SHARES

PROSPECTUS APRIL 29, 1996

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

THE SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND (the "Fund") is designed for
investors who seek maximum current income that is exempt from federal income and
State of California personal income taxes to the extent consistent with
liquidity and stability of capital. The Fund is a non-diversified investment
portfolio of The Charles Schwab Family of Funds (the "Schwab Fund Family"), a
no-load, open-end, management investment company. This Prospectus describes the
Sweep Shares of the Fund (the "Sweep Shares"), one of the two classes of shares
of the Fund offered by Schwab. For a prospectus describing the other class of
shares of the Fund (the "Value Advantage Shares"), call your local Schwab office
or 800-2 NO-LOAD.

This Prospectus may be available electronically by using our Internet address:
http://www.schwab.com. To receive a free paper copy of this Prospectus or the
Statement of Additional Information, call Schwab at 800-2 NO-LOAD, 24 hours a
day, or write to the Fund at 101 Montgomery Street, San Francisco, California
94104. TDD users may contact Schwab at 800-345-2550, 24 hours a day.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Key Features of the Fund................. 2
Summary of Expenses...................... 3
Financial Highlights..................... 4
Matching the Fund to Your Investment
Needs.................................. 5
Investment Objective and Policies........ 5
Municipal Securities and Investment
Techniques............................. 7
Organization and Management of the
Fund................................... 12
Distributions and Taxes.................. 14
Share Price Calculation.................. 16
How the Fund Reports Performance......... 17
Investing in Shares of the Fund.......... 17
How to Buy Shares...................... 18
How to Sell or Exchange Shares......... 21
Other Important Information.............. 22
</TABLE>

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

KEY FEATURES OF THE FUND

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

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

LIQUIDITY. You can conveniently sell your shares of the Fund at any time. (See
"Investing in Shares of the Fund -- How to Sell or Exchange Shares.")

LOW COST INVESTING. The Fund imposes no sales or transaction fees on purchases
or redemptions of shares of the Fund. (See "Summary of Expenses.") In addition,
the Sweep Shares' total fund operating expenses will not exceed 0.65% of the
Sweep Shares' average daily net assets, at least through April 30, 1997, as
guaranteed by Charles Schwab Investment Management, Inc. (the "Investment
Manager") and Schwab. (See "Matching the Fund to Your Investment Needs" and
"Organization and Management of the Fund.")

PROFESSIONAL MANAGEMENT. The "Investment Manager" currently provides investment
management services to the SchwabFunds(R), a family of 22 mutual funds with over
$35 billion in assets as of April 15, 1996. (See "Organization and Management of
the Fund.")

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

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

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

NATIONWIDE NETWORK OF SCHWAB OFFICES. Schwab has over 225 offices throughout the
U.S. where customers can place purchase and orders to sell shares.

2
<PAGE> 31

SUMMARY OF EXPENSES

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

1 This amount reflects a reduction by the Investment Manager, which is
guaranteed at least through April 30, 1997. If there were no such reduction,
the maximum management fee for the Fund would have been 0.45% of the Fund's
average daily net assets for the fiscal year ended December 31, 1995. (See
"Organization and Management of the Fund - Operating Fees and Expenses.")

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

3 This amount reflects the guarantee by the Investment Manager and Schwab that,
at least through April 30, 1997, the total operating expenses of the Sweep
Shares of the Fund will not exceed 0.65%. Without this guarantee, which was in
effect during the fiscal year ended December 31, 1995, other expenses and
total operating expenses would have been 0.49% and 0.94%, respectively, of the
Sweep Shares' average daily net assets.

4 A fee may be charged if applicable minimum balances are not maintained in your
Schwab brokerage account or Schwab One(R) account. (See "Investing in Shares
of the Fund.") For information regarding the differing minimum balance and
minimum investment requirements of the multiple classes of shares of the Fund,
see "Investing in Shares of the Fund - How to Buy Shares."

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

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

THE PURPOSE OF THE PRECEDING TABLE IS TO ASSIST INVESTORS IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE SWEEP SHARES OF THE FUND WILL
BEAR DIRECTLY OR INDIRECTLY. This example reflects the guarantee by the
Investment Manager and Schwab that, at least through April 30, 1997, the total
fund operating expenses for the Sweep Shares of the Fund will not exceed 0.65%.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The example assumes a
5% annual rate of return pursuant to requirements of the SEC. THIS HYPOTHETICAL
RATE OF RETURN IS NOT INTENDED TO BE REPRESENTATIVE OF PAST OR FUTURE
PERFORMANCE.

3
<PAGE> 32

FINANCIAL HIGHLIGHTS

The following information for the Sweep Shares has been audited by Price
Waterhouse LLP, independent accountants, whose unqualified report is included in
the Statement of Additional Information, which contains additional financial
data and related notes. A free copy of this statement may be obtained by calling
the telephone number or writing to the address on the first page of this
Prospectus.
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------ ----------------------------
NET DISTRIBUTIONS
REALIZED & TOTAL FROM NET
FISCAL NET ASSET NET UNREALIZED FROM DIVIDENDS REALIZED ASSET
PERIOD VALUE INVEST- GAINS INVEST- FROM NET GAIN ON VALUE
ENDED BEGINNING MENT (LOSSES) ON MENT INVESTMENT INVEST- TOTAL END OF
DEC. 31 OF YEAR INCOME INVESTMENT OPERATION INCOME MENT DISTRIBUTIONS YEAR
- ------- --------- ------ ----------- --------- ---------- ------------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.03 -- $0.03 $(0.03) -- $(0.03) $1.00
1994 1.00 0.02 -- 0.02 (0.02) -- (0.02) 1.00
1993 1.00 0.02 -- 0.02 (0.02) -- (0.02) 1.00
1992 1.00 0.02 -- 0.02 (0.02) -- (0.02) 1.00
1991 1.00 0.04 -- 0.04 (0.04) -- (0.04) 1.00
1990 1 1.00 0.01 -- 0.01 (0.01) -- (0.01) 1.00

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

Note: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. The table below illustrates what the ratio
of expenses to average net assets and the ratio of net investment income to
average net assets would have been for the periods indicated below had
these fees and expenses not been reduced and absorbed:

<TABLE>
<CAPTION>
RATIO OF EXPENSES TO RATIO OF NET INVESTMENT INCOME
FISCAL PERIOD ENDED AVERAGE NET ASSETS TO AVERAGE NET ASSETS
DECEMBER 31 (BEFORE REDUCTION) (BEFORE REDUCTION)
- -------------------- -------------------- ------------------------------
<S> <C> <C>
1995 0.94% 2.86%
1994 0.94% 1.95%
1993 0.96% 1.56%
1992 0.97% 1.97%
1991 0.98% 3.33%
1990 1.17%* 4.17%*
</TABLE>

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

*Annualized

4
<PAGE> 33

MATCHING THE FUND TO YOUR
INVESTMENT NEEDS

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

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

The Fund also may be appropriate for long-term investors seeking a low-risk
investment alternative which is designed to provide double tax-free income which
is exempt from federal income and State of California personal income taxes.

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

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

INVESTMENT OBJECTIVE
AND POLICIES

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

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

5
<PAGE> 34

exempt from State of California personal income tax ("California Municipal
Securities").

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

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

The Fund may continue to hold a Municipal Security that, after its purchase by
the Fund, ceases to have a rating or is downgraded, causing its rating to fall
below that required for purchase by the Fund. Neither event would necessarily
require the Fund to sell the security. However, the Fund will keep such a
security in its portfolio only if the Board of Trustees or its properly
authorized delegate determines that keeping the security is in the best
interests of the Fund.

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

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

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

Except as otherwise noted, the investment policies set forth above are
fundamental. They, along with certain investment restrictions adopted by the
Fund (see "Investment Restrictions" in the Statement of Additional Information),
cannot be changed without

6
<PAGE> 35

approval by holders of a majority of the Fund's outstanding voting shares, as
defined in the 1940 Act.

MUNICIPAL SECURITIES AND
INVESTMENT TECHNIQUES

Municipal Securities in which the Fund may invest are generally classified in
one of two categories: "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are secured only by the revenues derived from: (1) a
particular facility or class of facilities; (2) a specific revenue source such
as a special excise tax; or (3) another specific revenue source, such as the
user of the facility being financed.

Revenue securities may include private activity bonds and industrial development
bonds. Such bonds may be issued by or on behalf of public authorities to finance
various privately operated facilities, and are not payable from the unrestricted
revenues of the issuer. As a result, the credit quality of private activity
bonds is frequently related directly to the credit standing of private
corporations or other entities. From time to time, the Fund may invest more than
25% of its total assets in industrial development and private activity bonds.

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

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

SYNTHETIC VARIABLE OR FLOATING-RATE MUNICIPAL SECURITIES. The Fund also may
invest up to

7
<PAGE> 36

25% of its assets in synthetic variable or floating-rate municipal securities.
These securities generally comprise the following elements in a trust: (i) a
fixed-rate municipal bond (of any duration); (ii) a right to put the bond at par
value on 7-days notice or after a specific interval of time depending on the
terms of the synthetic security; and (iii) a contractual agreement pursuant to
which the investing Fund and a remarketing agent determine the lowest rate that
would permit the bond to be remarketed at par, taking into account the put
right. The trustee of the trust is generally a bank trust department.

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

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

8
<PAGE> 37

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

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

ILLIQUID SECURITIES. The Fund will not purchase illiquid securities, including
repurchase agreements maturing in more than 7-days, if, as a result thereof,
more than 10% of the Fund's net assets valued at the time of the transaction are
invested in such securities.

GOVERNMENT SECURITIES. The Fund may invest in government securities, including
U.S. Treasury notes, bills and bonds, which are backed by the full faith and
credit of the U.S. Government. Some securities issued by U.S. Government
agencies or instrumentalities are supported by the credit of the agency or
instrumentality, while others have an additional line of credit with the U.S.
Treasury. However, there is no guarantee that the U.S. Government will provide
support to such agencies or instrumentalities. Accordingly, such securities may
involve risk of loss of principal and interest.

MATURITY. The Fund will purchase only securities that are deemed to mature in
397 days or less in accordance with federal securities regulations or securities
which have a variable rate of interest that is readjusted no less frequently
than every 397 days.

The Fund will not invest more than 25% of its assets in when-issued or delayed
delivery securities. The Fund will not purchase such securities for speculative
purposes and will expect to actually acquire the securities when it purchases
them. However, the Fund

9
<PAGE> 38

reserves the right to sell any such securities before their settlement dates if
the Investment Manager deems such a sale advisable.

REPURCHASE AGREEMENTS. The Fund may engage in "repurchase agreements." In
entering into a repurchase agreement, the Fund acquires ownership of a security
from a broker-dealer or bank that agrees to repurchase the security at a
mutually agreed upon time and price (which price is higher than the purchase
price), thereby determining the yield during the Fund's holding period. Maturity
of the securities subject to repurchase may exceed one year.

If the seller of a repurchase agreement becomes bankrupt or otherwise defaults,
the Fund might incur expenses in enforcing its rights and could experience
losses, including a decline in the value of the underlying securities and a loss
of income. The Fund will enter into repurchase agreements only with banks and
other recognized financial institutions that the Investment Manager deems
creditworthy.

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

SECURITIES SUBJECT TO A PUT FEATURE. A "put" feature permits a fund to sell a
security at a fixed price prior to maturity to the put issuer. Because of this
feature, Municipal Securities subject to a put generally may be sold to third
parties at market rates. Generally, a premium is paid for a security subject to
put feature. Investments in Municipal Securities subject to puts are limited by
federal securities laws and expose the Fund to a credit risk associated with the
put provider.

BORROWING POLICY. Pursuant to a fundamental policy as set forth in the Statement
of Additional Information, the Fund may not borrow money except for temporary
purposes to meet redemption requests that could not otherwise be met without
immediately selling portfolio securities. The Fund may borrow an amount up to
one-third of the value of its total assets and may pledge up to 10% of the
Fund's net assets to secure borrowings. The Fund may not borrow for leverage
purposes.

LEGAL OPINIONS. Bond counsel will render opinions on the validity of Municipal
Securities. Bond counsel will also render opinions on whether the interest paid
on Municipal Securities is exempt from federal income tax, and whether the
interest paid on California Municipal Securities is exempt from California State
personal income taxes. Bond counsel will render such opinions to the issuers of
Municipal Securities at the time the securities are issued. The Fund and the
Investment Manager will not review the proceedings on the issuance of Municipal
Securities or the bases for such opinions.

10
<PAGE> 39

SPECIAL RISK CONSIDERATIONS. The Fund is a non-diversified portfolio of the
Schwab Fund Family. The investment return on a non-diversified portfolio
typically is dependent upon the performance of a smaller number of issuers
relative to the number of issuers held in a diversified portfolio. In the event
of changes in the financial condition or in the market's assessment of certain
issuers, the Fund's policy of acquiring large positions in the obligations of a
relatively small number of issuers may affect the value of the Fund's portfolio
to a greater extent than that of a diversified portfolio.

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

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

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

ORGANIZATION AND
MANAGEMENT OF THE FUND

GENERAL OVERSIGHT. The Board of Trustees and officers of the Schwab Fund Family
meet regularly to review investments, performance, expenses and other business
affairs.

THE INVESTMENT MANAGER. Professional investment management for the Fund is
provided by

11
<PAGE> 40

the Investment Manager, Charles Schwab Investment Management, Inc., 101
Montgomery Street, San Francisco, California 94104. The Investment Manager
provides a continuous investment program, including general investment and
economic advice regarding the Fund's investment strategies; manages the Fund's
investment portfolio; performs expense management, accounting and recordkeeping;
and provides other services necessary to the operation of the Fund and the
Schwab Fund Family. The Investment Manager, formed in 1989, is a wholly owned
subsidiary of The Charles Schwab Corporation and is the investment adviser and
administrator of the mutual funds in the SchwabFunds Family(R), a family of 22
mutual funds. As of April 15, 1996, the SchwabFunds(R) had aggregate net assets
in excess of $35 billion.

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

OPERATING FEES AND EXPENSES

Pursuant to its Investment Advisory and Administration Agreement with the Schwab
Fund Family, the Investment Manager receives from the Fund a graduated annual
fee, payable monthly, of 0.46% of the Fund's average daily net assets not in
excess of $1 billion, 0.41% of such net assets over $1 billion but not in excess
of $2 billion and 0.40% of such net assets over $2 billion. At least through
April 30, 1997, the Investment Manager has guaranteed that the Fund's management
fee will not exceed 0.19% of the Fund's average daily net assets.

In addition, the Investment Manager and Schwab have guaranteed that, at least
through April 30, 1997, total fund operating expenses will not exceed 0.65% of
the average daily net assets of the Sweep Shares. The effect of these guarantees
is to maintain or lower the expenses of the Sweep Shares of the Fund and thus
maintain or increase total return to shareholders. For the fiscal year ended

12
<PAGE> 41

December 31, 1995, the Fund paid a management fee of 0.19% of its average daily
net assets and paid total fund operating expenses of 0.65% of the Sweep Shares'
average daily net assets (after waivers and reimbursements). The following
expenses are not included as "operating expenses" for purposes of this
guarantee: interest expenses, taxes and capital items such as the cost of the
purchase or sale of portfolio securities, including brokerage fees or
commissions.

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

OTHER EXPENSES. The Schwab Fund Family pays the expenses of its operations,
including: the fees and expenses for independent accountants, legal counsel and
the custodian of its assets; the cost of maintaining books and records of
account; registration fees; the fees and expenses of qualifying the Schwab Fund
Family and its shares for distribution under federal and state securities laws;
and industry association membership dues. These expenses generally are allocated
among the Schwab Fund Family's investment portfolios ("Series"), or classes of
shares within these Series, in proportion to their relative net assets at the
time the expense is incurred. However, expenses directly attributable to a
particular Series or class of a Series will be charged to that Series or class,
respectively. The differing expenses applicable to the Sweep Shares and the
Value Advantage Shares will cause the performance of these two classes of shares
to differ.

OTHER INFORMATION

The Schwab Fund Family was organized as a business trust under the laws of
Massachusetts on October 20, 1989 and may issue an unlimited number of shares of
beneficial interest or classes of shares in one or more Series. Currently, the
Schwab Fund Family offers shares of 9 Series which may be organized into one or
more classes of shares of beneficial interest. The Board of Trustees may
authorize the issuance of shares of additional Series or classes if it deems it
desirable. Shares within each Series or class have equal, noncumulative voting
rights, and equal rights as to distributions, assets, and liquidation of such
Series, except to the extent such voting rights or rights as to distributions,
assets and liquidation vary among classes of a Series. The Schwab California
Tax-Exempt Money Fund was formerly known as the Schwab California Tax-Free Money
Fund.

13
<PAGE> 42

Shareholders will vote by Series and not in the aggregate (for example, when
voting to approve the investment advisory agreement), except when voting in the
aggregate is permitted under the 1940 Act, such as for the election of Trustees.
In addition, holders of the Sweep Shares will vote exclusively as a class on any
matter relating solely to the Sweep Shares and on any matter in which the
interests of the holders of the Sweep Shares differ from the interests of the
holders of Value Advantage Shares.

DISTRIBUTIONS AND TAXES

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

TAX INFORMATION. The Fund has elected to be treated as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"),
qualified as such, and intends to continue to so qualify. In order to so
qualify, the Fund will distribute on a current basis substantially all of its
investment company taxable income, its net exempt-interest income and its net
capital gains (if any), and will meet certain other requirements. Such
qualification relieves the Fund of liability for federal and California income
taxes to the extent the Fund's earnings are distributed.

FEDERAL INCOME TAXES: Dividends derived from exempt-interest income (known as
"exempt-interest dividends") may be treated by the Fund's shareholders as items
of interest excludable from their federal gross income. To the extent dividends
paid to shareholders are derived from taxable interest or capital gains, such
dividends will be subject to federal income tax, whether received in cash or
reinvested.

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

14
<PAGE> 43

class of facilities, or, in some cases, from some other specific revenue source.
(See "Municipal Securities" in the Statement of Additional Information.)

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

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

Except as noted with respect to State of California personal income tax,
distributions of net investment income may be taxable to investors under state
or local law as dividend income even though all or a portion of such
distributions may be derived from interest on obligations which, if realized
directly, would be exempt from such income taxes. In addition, to the extent, if
any, that dividends paid to shareholders are derived from taxable interest,
market discount or capital gains, such dividends will not be exempt from State
of California personal income tax whether received in cash or reinvested. For
California personal income tax purposes, interest (including exempt-interest
dividends) that is exempt from California personal income tax is not taken into
account in determining the taxability of Social Security benefits or Railroad
Retirement Act benefits.

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

Interest on private activity bonds is not subject to the California alternative
minimum tax. In addition, California does not impose its personal income tax on
Social Security or Railroad Retirement Act benefits.

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

SHARE PRICE CALCULATION

The price of a Sweep Share of the Fund on any given day is its "net asset value"
or "NAV." This figure is computed by taking total Fund assets allocable to the
Sweep Shares, subtracting any liabilities allocable to that class, and dividing
the resulting amount by the number of Sweep Shares outstanding. The net asset
value per share of the Sweep Shares of the Fund is determined on each day both
the

15
<PAGE> 44

Federal Reserve Bank of New York and the Exchange are open for business, first
at 10:00 a.m. (Eastern time), then again as of the close of normal trading on
the Exchange (generally 4:00 p.m. Eastern time). Purchase or redemption orders
and exchange requests will be executed at the net asset value next determined
after receipt by the Transfer Agent or its authorized agent. While the Fund
attempts to maintain a net asset value at a constant $1.00 per share, Fund
shares are not insured against a reduction in net asset value.

The Fund values its portfolio securities at amortized cost, which means that
they are valued at their acquisition cost (as adjusted for amortization of
premium or discount) rather than at current market value. Calculations are made
to compare the value of the Fund's investments using the amortized cost method
with market values. Except as described below, market valuations are obtained by
using: (1) actual quotations provided by third-party pricing services or market
makers; (2) estimates of market value; or (3) or values obtained from yield data
relating to comparable classes of money market instruments published by
reputable sources at the mean between the bid and asked prices for the
instruments. If a deviation of 1/2 of 1% or more were to occur between the net
asset value per share of the Sweep Shares of the Fund calculated by reference to
market values and the $1.00 per share amortized cost value of the Sweep Shares
of the Fund, or if there were any other deviation which the Board of Trustees
believed would result in a material dilution to shareholders or purchasers, the
Board of Trustees would promptly consider what action, if any, should be
initiated.

HOW THE FUND REPORTS
PERFORMANCE

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

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

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

Taxable equivalent effective yield is computed in the same manner as is taxable
equivalent yield, except that effective yield is substituted for yield in the
calculation.

16
<PAGE> 45

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

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

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

INVESTING IN SHARES OF THE FUND

SHAREHOLDER SERVICE. You may place Fund purchase orders and orders to sell
shares as well as exchange requests at any one of over 225 Schwab offices
nationwide or by calling 800-2 NO-LOAD, where trained representatives are
available to answer questions about the Fund and your account. The right to
initiate transactions by telephone is automatically available through your
Schwab account. TDD users may contact Schwab at 800-345-2550, 24 hours a day.

The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If the Fund follows telephone orders that
it reasonably believes to be genuine, it will not be liable for any losses a
shareholder may experience. If the Fund does not follow reasonable procedures to
confirm that a telephone order is genuine, the Fund may be liable for any losses
the shareholder may suffer from unauthorized or fraudulent orders. These
procedures may include:

Investors should remember that it may be difficult to complete transactions by
telephone during periods of drastic economic or market changes, when our phone
lines may become very busy with calls from other investors. If you want to buy,
sell or exchange shares but have trouble reaching the Fund by telephone, you may
want to use one of the other ways offered for completing the transactions
discussed below, even though these procedures may mean that completing your
transaction may take longer.

To assist in minimizing administrative costs, share certificates will not be
issued. Records regarding share ownership are maintained by the Transfer Agent.

Telephone purchase or redemption orders and exchange requests received prior to
8:00 p.m. (Eastern time) on any Business Day, once they have been verified as to
the caller's identity and account ownership, will be deemed to be received by
the Transfer Agent, or its authorized agent, prior to the next net asset value
determination. Subsequent telephone orders received prior to the first net asset
value determination on the following day will be deemed received prior to that
day's second net asset value determination.

17
<PAGE> 46

HOW TO BUY SHARES

OPENING A SCHWAB ACCOUNT. You may buy shares of the Fund through an account
maintained with Schwab, and payment for shares must be made directly to Schwab.
If you do not presently maintain a Schwab account and wish to establish one,
simply complete a Schwab Account Application (available by calling 800-2
NO-LOAD, 24 hours a day, or by contacting your local Schwab office) and deliver
it, by mail or in person, to your local Schwab office. You may also mail the
application to Schwab at 101 Montgomery Street, San Francisco, California 94104.
Corporations and other organizations should contact their local Schwab office to
determine which additional forms may be necessary to open a Schwab account. With
your Schwab account, you have access to other investments available at Schwab,
such as stocks, bonds and other mutual funds.

The Securities Investor Protection Corporation ("SIPC") will provide account
protection, in an amount up to $500,000, for securities, including Fund shares,
which you hold in a Schwab account. Of course, SIPC account protection does not
protect shareholders from share price fluctuations. If you already have a Schwab
account, you may buy shares in the Fund as described below and need not open a
new account.

SCHWAB ACCOUNT MINIMUMS AND ASSOCIATED FEES. Schwab requires a $1,000 deposit
and account balance minimum to maintain a Schwab brokerage account ($500 for
custodial accounts). A fee of $7.50 will be charged to Schwab brokerage accounts
that fall below this minimum for three consecutive months in any quarter. This
fee, if applicable, will be charged at the end of each quarter and will be
waived if there has been at least one commissionable trade within the last 6
months, or if the shareholder's combined account balances at Schwab total
$10,000 or more.

DEPOSITING FUNDS. You may deposit funds into your Schwab account by check, wire
or many other forms of electronic funds transfer. Securities may also be
deposited. You may also buy SchwabFunds(R) shares using electronic products such
as StreetSmart(TM), The Equalizer(R) and TeleBroker(R). All checks should be
made payable to Charles Schwab & Co., Inc. If you would like to wire funds into
your existing Schwab account, please contact your local Schwab office for
instructions.

WHEN YOU CAN BUY SHARES. You must have funds in your Schwab account in order to
buy Fund shares. If funds (including those transmitted by wire) are received by
Schwab before the time of the Fund's last daily net asset value calculation
(normally 4:00 p.m. Eastern time), they will be available for investment on that
day. If funds arrive after that time, they will be available for investment the
next Business Day.

METHODS OF BUYING SHARES

AUTOMATIC INVESTMENT. When opening a Schwab brokerage account, an investor will
be asked to select a SchwabFunds class or series with sweep privileges as a
"primary fund." If the Fund is selected as a primary fund, free credit balances
in the investor's brokerage

18
<PAGE> 47

account will be invested automatically in shares of the Fund according to the
procedures described in the account agreement with the investor. Depending on
the type of account, the automatic investment of free credit balances will be
effected daily, weekly or at other times and may be subject to minimum
investment and other requirements.

An investor with an existing Schwab brokerage account may add the automatic
investment feature to his or her account by completing the appropriate section
of the Schwab Account Application available at any Schwab office. A shareholder
may change primary funds by calling or writing his or her local Schwab office or
writing Schwab at the address referenced on the cover of this Prospectus. Note
that the automatic investment feature is not available for Value Advantage
Shares.

DIRECT PURCHASE. A Schwab account holder may buy shares of the Fund (if it is
not his or her primary fund) in several ways. The minimum initial investment for
such a purchase is $1,000, and subsequent investments must be at least $100. For
the Value Advantage Shares, the minimum initial investment is $25,000, the
minimum subsequent investment is $5,000, and the minimum account balance is
$20,000.

BY TELEPHONE

You may use existing funds in your Schwab account to make initial and subsequent
share purchases. To place your order, call your local Schwab office during
regular business hours or 800-2 NO-LOAD, 24 hours a day. TDD users may contact
Schwab at 800-345-2550, 24 hours a day.

BY MAIL

You may direct that funds already in your Schwab account be used to make initial
and subsequent share purchases. Alternatively, your purchase instructions may be
accompanied by a check made payable to Charles Schwab & Co., Inc., which will be
deposited into your Schwab account and used, as necessary, to cover all or part
of your purchase order.

Written purchase orders (along with any checks) should be mailed to Schwab at
101 Montgomery Street, San Francisco, California 94104 or to your local Schwab
office and should:

Once mailed, a purchase request is irrevocable and may not be modified or
canceled.

ELECTRONICALLY

For more information regarding how to buy shares electronically using
StreetSmart(TM), the Equalizer(R) and TeleBroker(R), call 800-2 NO-LOAD.

IN PERSON AT A SCHWAB OFFICE

Visit your local Schwab office, where a representative will be happy to assist
you.

19
<PAGE> 48

fer Agent, or its authorized agent, has received instructions that distributions
be mailed to you as they are paid. Please contact your local Schwab office if
you already have a Schwab account and wish to change your account standing
instructions.

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

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

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

OTHER PURCHASE INFORMATION. The minimum amounts required for automatic
investment or direct purchase may be reduced or waived on certain occasions. For
example, free credit balances in accounts of certain categories of investors,
such as holders of Schwab One(R) and Schwab custodial accounts, may be invested
automatically irrespective of amount. The Fund may also waive the required
minimums for purchases by trustees, directors, officers or employees of Schwab,
the Investment Manager or the Fund. The Fund reserves the right, in its sole
discretion and without prior notice to shareholders, to withdraw or suspend all
or any part of the offering made by this Prospectus, to reject purchase orders
or to change the minimum investment requirements. All orders to buy shares of
the Fund are subject to acceptance by the Fund and are not binding until
confirmed or accepted in writing. Schwab will charge a $15 service fee against
an investor's Schwab account should his or her check be returned because of
insufficient or uncollected funds or a stop payment order.

HOW TO SELL OR
EXCHANGE SHARES

The exchange privilege allows you to exchange your SchwabFunds(R) shares for
shares of another SchwabFunds Series or classes available to investors in your
state, provided you meet the initial and subsequent investment requirements and
any other requirements relating to the Series or class of shares you wish to
buy. Thus, you can conveniently modify your investments if your goals or market
conditions change. For federal income tax and certain other purposes, an
exchange of shares between funds will be treated as a sale of shares in one fund
and the purchase of shares in another fund. An exchange of shares between
classes of the same fund should not be treated as a sale of shares. The Fund
reserves the right to modify, limit or terminate the exchange privilege upon 60
days' written notice.

20
<PAGE> 49

DIRECT REDEMPTION. You can sell or exchange your shares at any time by
telephone, by mail, electronically or in person, subject to the following terms
and conditions:

- - if you bought your shares by check, we will send you your money as soon as
your check clears your bank, which may take up to 15 days;
- - depending on the type of Schwab account you have, your money may earn interest
during any holding period;
- - you will receive the dividends declared for the day on which you sell your
shares;
- - we will have a check for your shares at your local Schwab office on the
Business Day after the Transfer Agent, or its authorized agent, receives
proper instructions to sell your shares;
- - a check normally will be mailed to you on the Business Day following the sale
of your shares if you specifically request that it be mailed; and
- - we may suspend the right to sell shares or postpone payment for a sale of
shares when trading on the Exchange is restricted; the Exchange is closed for
any reason other than its normal weekend or holiday closings; emergency
circumstances as determined by the SEC; or for any other circumstances as the
SEC may permit.

METHODS OF SELLING OR
EXCHANGING SHARES

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

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

We need the following information in order to process your mail sale or exchange
request:

- - your Schwab account number;
- - the number of shares you want to sell or exchange;
- - the name of the Fund and class, if applicable, from which you are selling or
exchanging shares;
- - the name of the Fund and class into which shares are to be exchanged, if
applicable;
- - the distribution option you select, if you are exchanging shares; and
- - the signature of at least one of the registered Schwab account holders in the
exact form specified in the account.

Once mailed, a sale or exchange request is irrevocable and may not be modified
or cancelled.

21
<PAGE> 50

ELECTRONICALLY
For more information regarding how to sell or exchange shares electronically
using StreetSmart(TM), The Equalizer(R) and TeleBroker(R), call 800-2 NO-LOAD.

IN PERSON AT A SCHWAB OFFICE
You can also request a sale or exchange of shares in person at your local Schwab
office.

OTHER IMPORTANT INFORMATION

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

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

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

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

- --------------------------------------------------------------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE.
- --------------------------------------------------------------------------------

22
<PAGE> 51

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 52

SCHWAB CALIFORNIA
TAX-EXEMPT
MONEY FUND-
Sweep Shares

PROSPECTUS April 29, 1996

[SchwabFunds Logo]

725-5 (6/95) CRS 6703 Printed on recycled paper

[SchwabFunds Logo]

101 Montgomery Street
San Francisco, California 94104
<PAGE> 53

SCHWAB NEW YORK TAX-EXEMPT MONEY
FUND - SWEEP SHARES

PROSPECTUS APRIL 29, 1996

TO PLACE ORDERS AND FOR ACCOUNT INFORMATION: Contact your local Charles Schwab &
Co., Inc. ("Schwab") office, or call 800-2 NO-LOAD.
THE SCHWAB NEW YORK TAX-EXEMPT MONEY FUND (the "Fund") is designed for investors
who seek maximum current income that is exempt from federal income taxes and
personal income taxes imposed by New York State and New York municipalities to
the extent consistent with liquidity and stability of capital. The Fund is a
non-diversified investment portfolio of The Charles Schwab Family of Funds (the
"Schwab Fund Family"), a no-load, open-end, management investment company. This
Prospectus describes the Sweep Shares of the Fund, one of the two classes of
shares of the Fund offered by Schwab ("Sweep Shares"). For a prospectus
describing the other class of shares of the Fund (the "Value Advantage Shares"),
call your local Schwab office or 800-2 NO-LOAD.

ABOUT THIS PROSPECTUS: THIS PROSPECTUS CONCISELY PRESENTS IMPORTANT INFORMATION
YOU SHOULD KNOW BEFORE INVESTING IN THE FUND. PLEASE READ IT CAREFULLY AND
RETAIN IT FOR FUTURE REFERENCE. You can find more detailed information about
this Fund in the Statement of Additional Information, dated April 29, 1996 (as
may be amended from time to time). The Statement of Additional Information has
been filed with the Securities and Exchange Commission ("SEC") and is
incorporated by reference into this Prospectus. This Prospectus may be available
electronically by using our Internet address: http://www.schwab.com. To receive
a free paper copy of this Prospectus or the Statement of Additional Information,
call Schwab at 800-2 NO-LOAD, 24 hours a day, or write to the Fund at 101
Montgomery Street, San Francisco, California 94104. TDD users may contact Schwab
at 800-345-2550, 24 hours a day.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Key Features of the Fund................. 2
Summary of Expenses...................... 3
Financial Highlights..................... 4
Matching the Fund to Your Investment
Needs.................................. 5
Investment Objective and Policies........ 5
Municipal Securities and Investment
Techniques............................. 7
Organization and Management
of the Fund............................ 11
Distributions and Taxes.................. 13
Share Price Calculation.................. 15
How the Fund Reports Performance......... 16
Investing in Shares of the Fund.......... 16
How to Buy Shares...................... 17
How to Sell or Exchange Shares......... 20
Other Important Information.............. 21
</TABLE>

KEY FEATURES OF THE FUND

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

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

LIQUIDITY. You can conveniently sell your shares of the Fund at any time. (See
"Investing in Shares of the Fund -- How to Sell or Exchange Shares.")

LOW COST INVESTING. The Fund imposes no sales or transaction fees on purchases
or redemptions of shares of the Fund. (See "Summary of Expenses.") In addition,
the total fund operating expenses of the Sweep Shares of the Fund will not
exceed 0.69% at least through April 30, 1997, as guaranteed by Charles Schwab
Investment Management, Inc. (the "Investment Manager") and Schwab. (See
"Matching the Fund to Your Investment Needs" and "Organization and Management of
the Fund.")

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

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

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

NATIONWIDE NETWORK OF SCHWAB OFFICES. Schwab has over 225 offices throughout the
U.S. where customers can place purchase and sale orders.

2
<PAGE> 55

SUMMARY OF EXPENSES

SHAREHOLDER TRANSACTION EXPENSES: None

<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS):
Management Fee
(after fee reduction) 1........ 0.20%
12b-1 Fees........................ None
Other Expenses (after fee
reduction and/or expense
reimbursement) 2,3............. 0.49%
------
TOTAL FUND OPERATING
EXPENSES 2,3,4.................... 0.69%
</TABLE>

1 This amount has been restated to reflect a reduction by the Investment
Manager, which is guaranteed through at least April 30, 1997. If there were no
such reduction, the maximum management fee for the Fund would have been 0.46%
of the Fund's average daily net assets for the fiscal period ended December
31, 1995. (See "Organization and Management of the Fund - Operating Fees and
Expenses.")

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

3 This amount has been restated to reflect the guarantee by the Investment
Manager and Schwab that, through at least April 30, 1997, the total operating
expenses of the Sweep Shares of the Fund will not exceed 0.69% of the Sweep
Shares' average daily net assets. Without this or a similar guarantee, which
was in effect during the fiscal period ended December 31, 1995, other expenses
and total operating expenses would have been 0.58% and 1.04%, respectively, of
the Sweep Shares' average daily net assets.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$7 $22 $38 $86
</TABLE>

THE PURPOSE OF THE PRECEDING TABLE IS TO ASSIST INVESTORS IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE SWEEP SHARES OF THE FUND WILL
BEAR DIRECTLY OR INDIRECTLY. This example reflects the guarantee by Schwab and
the Investment Manager that, at least through April 30, 1997, the total
operating expenses of the Sweep Shares of the Fund will not exceed 0.69%. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The example assumes a 5%
annual rate of return pursuant to requirements of the SEC. THIS HYPOTHETICAL
RATE OF RETURN IS NOT INTENDED TO BE REPRESENTATIVE OF PAST OR FUTURE
PERFORMANCE.

3
<PAGE> 56

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 27, 1995
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31, 1995
------------------
<S> <C>
Net asset value at beginning of period $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03
Net realized and unrealized gain (loss) on investments --
--------
Total from investment operations 0.03
LESS DISTRIBUTIONS
Dividends from net investment income (0.03)
Distributions from realized gain on investments --
--------
Total distributions (0.03)
--------
Net asset value at end of period $ 1.00
========
Total return 2.75%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $204,863
Ratio of expenses to average net assets 0.63%*
Ratio of net investment income to average net assets 3.20%*
</TABLE>

Note: The Investment Manager and Schwab have reduced a portion of their fees in
order to limit the Fund's ratio of operating expenses to average net
assets. Had these fees not been reduced, the ratio of expenses to average
net assets for the period ended December 31, 1995 would have been 1.04%,
and the ratio of net investment income to average net assets would have
been 2.79%*.

*Annualized

4
<PAGE> 57

MATCHING THE FUND TO YOUR
INVESTMENT NEEDS

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

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

INVESTMENT OBJECTIVE AND
POLICIES

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

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

5
<PAGE> 58

total assets in such obligations which also generate interest which, in the
opinion of bond counsel, is exempt from New York State and New York municipal
personal income tax ("New York Municipal Securities"). Under normal market
conditions, the Fund is authorized to invest up to 20% of its total assets in
"private activity bonds." (See "Distributions and Taxes - Federal Income
Taxes.") The Fund's investment in private activity bonds will not be included in
the amount deemed to be invested in New York Municipal Securities.

Provided that certain minimum conditions are met, dividends paid to New York
residents consisting of interest income received on New York Municipal
Securities will be exempt from State of New York personal income taxes and
personal income taxes imposed by New York City and other municipalities. See the
Statement of Additional Information for more information.

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

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

Except as otherwise noted, the investment policies set forth above are
fundamental. They,

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<PAGE> 59

along with certain investment restrictions adopted by the Fund (see "Investment
Restrictions" in the Statement of Additional Information), cannot be changed
without approval by holders of a majority of the Fund's outstanding voting
shares, as defined in the 1940 Act.

MUNICIPAL SECURITIES
AND INVESTMENT TECHNIQUES
Municipal Securities in which the Fund may invest are generally classified in
one of two categories: "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are secured only by the revenues derived from: (1) a
particular facility or class of facilities; (2) a specific revenue source such
as a special excise tax; or (3) another specific revenue source such as the user
of the facility being financed.

Revenue securities may include private activity bonds and industrial development
bonds. Such bonds may be issued by or on behalf of public authorities to finance
various privately operated facilities, and are not payable from the unrestricted
revenues of the issuer. As a result, the credit quality of private activity
bonds is frequently related directly to the credit standing of private
corporations or other entities. From time to time, the Fund may invest more than
25% of its total assets in industrial development and private activity bonds.

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

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

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<PAGE> 60

SYNTHETIC VARIABLE OR FLOATING-RATE MUNICIPAL SECURITIES. The Fund may also
invest up to 25% of its assets in synthetic variable or floating-rate municipal
securities. These securities generally comprise the following elements in a
trust: (i) a fixed-rate municipal bond (of any duration); (ii) a right to put
the bond at par value on 7-days notice or after a specific interval of time
depending on the terms of the synthetic security; and (iii) a contractual
agreement pursuant to which the investing Fund and a remarketing agent determine
the lowest rate that would permit the bond to be remarketed at par, taking into
account the put right. The trustee of the trust is generally a bank trust
department.

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

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

VARIABLE RATE DEMAND INSTRUMENTS. The Fund may invest in variable rate demand
instruments issued by industrial development authorities and other government
entities. In the event that a variable rate demand instrument to be purchased by
the Fund is not rated by credit rating agencies, the Investment Manager, using
guidelines approved by the Board of Trustees, must determine that such
instrument is of comparable quality at the time of purchase to a rated
instrument that would be eligible for purchase by the Fund. In some cases, the
Fund may require that the issuer's obligation to pay the principal of the note
be backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend.

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<PAGE> 61

its demand rights at certain times, or for other reasons.

ILLIQUID SECURITIES. The Fund may purchase illiquid securities, including
repurchase agreements maturing in more than 7-days, provided that no more than
10% of the Fund's net assets valued at the time of the transaction are invested
in such securities.

The Fund will not invest more than 25% of its assets in when-issued or delayed
delivery securities. The Fund will not purchase such securities for speculative
purposes and the

9
<PAGE> 62

Fund will expect to actually acquire the securities when it purchases them.
However, the Fund reserves the right to sell any such securities before their
settlement dates, if the Investment Manager deems such a sale advisable.

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

BORROWING POLICY. Pursuant to a fundamental policy as set forth in the Statement
of Additional Information, the Fund may not borrow money except for temporary
purposes to meet redemption requests that could not otherwise be met without
immediately selling portfolio securities. The Fund may borrow an amount up to
one-third of the value of its total assets and may pledge up to 10% of its total
assets to secure borrowings. The Fund may not borrow for leverage purposes.

LEGAL OPINIONS. Bond counsel will render opinions on the validity of Municipal
Securities. Bond counsel will also render opinions on whether the interest paid
on Municipal Securities is exempt from federal income tax, and whether the
interest paid on New York Municipal Securities is exempt from New York State and
New York municipal personal income taxes. Bond counsel will render such opinions
to the issuers of Municipal Securities at the time the securities are issued.
The Fund and the Investment Manager will not review the

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<PAGE> 63

proceedings on the issuance of Municipal Securities or the bases for such
opinions.

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

ORGANIZATION AND
MANAGEMENT OF THE FUND
GENERAL OVERSIGHT. The Board of Trustees and officers of the Schwab Fund Family
meet regularly to review investments, performance, expenses and other business
affairs.

THE INVESTMENT MANAGER. Professional investment management for the Fund is
provided by the Investment Manager, Charles Schwab Investment Management, Inc.,
101 Montgomery Street, San Francisco, California 94104. The Investment Manager
provides a continuous investment program, including general investment and
economic advice regarding the Fund's investment strategies; manages the Fund's
investment portfolio and performs expense management, accounting and record
keeping; and provides other services necessary to the operation of the Fund and
the Schwab Fund Family. The Investment Manager, formed in 1989, is a
wholly-owned subsidiary of The Charles Schwab Corporation and is the investment
adviser and administrator of the mutual funds in the SchwabFunds Family(R), a
family of 22 mutual funds. As of April 15, 1996, the SchwabFunds(R) had
aggregate net assets in excess of $35 billion.

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<PAGE> 64

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

OPERATING FEES AND EXPENSES

In addition, the Investment Manager and Schwab have guaranteed that, at least
through April 30, 1997, total fund operating expenses will not exceed 0.69% of
the average daily net assets of the Sweep Shares. The effect of these guarantees
is to maintain or lower the expenses of the Sweep Shares and thus maintain or
increase the total return to shareholders. For the fiscal period ended December
31, 1995 the Fund paid a management fee of 0.29%, and the Sweep Shares paid
total fund operating expenses of 0.63% of the Sweep Shares' average daily net
assets (after waivers and reimbursements). The following expenses are not
included as "operating expenses" for purposes of this guarantee: interest
expenses, taxes and capital items such as the cost of the purchase or sale of
portfolio securities, including brokerage fees or commissions.

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<PAGE> 65

Sweep Shares. For the Value Advantage Shares, the Transfer Agent receives an
annual fee of 0.05% of the average daily net assets of that class' shares of
beneficial interest. The Fund's Custodian is PNC Bank, N.A.

OTHER EXPENSES. The Schwab Fund Family pays the expenses of its operations,
including: the fees and expenses for independent accountants, legal counsel and
the custodian of its assets; the cost of maintaining books and records of
account; registration fees; the fees and expenses of qualifying the Schwab Fund
Family and its shares for distribution under federal and state securities laws;
and industry association membership dues. These expenses generally are allocated
among the Schwab Fund Family's investment portfolios ("Series"), or classes of
shares within these Series, in proportion to their relative net assets at the
time the expense is incurred. However, expenses directly attributable to a
particular Series or class of a Series will be charged to that Series or class,
respectively. The differing expenses applicable to the Sweep Shares and the
Value Advantage Shares will cause the performance of these two classes of shares
to differ.

OTHER INFORMATION

The Schwab Fund Family was organized as a business trust under the laws of
Massachusetts on October 20, 1989 and may issue an unlimited number of shares of
beneficial interest or classes of shares in one or more Series. Currently, the
Schwab Fund Family offers shares of 9 Series which may be organized into one or
more classes of shares of beneficial interest. The Board of Trustees may
authorize the issuance of shares of additional Series or classes if it deems it
desirable. Shares within each class or Series have equal noncumulative voting
rights and equal rights as to distributions, assets and liquidation of such
Series, except to the extent such voting rights or rights as to distributions,
assets and liquidation vary among classes of a Series.

Shareholders will vote by Series and not in the aggregate (for example, when
voting to approve the investment advisory agreement), except when voting in the
aggregate is permitted under the 1940 Act, such as for the election of Trustees.
In addition, holders of the Sweep Shares will vote exclusively as a class on any
matter relating solely to the Sweep Shares and on any matter in which the
interests of the holders of the Sweep Share differ from the interests of the
holders of Value Advantage Shares.

DISTRIBUTIONS AND TAXES

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<PAGE> 66

TAX INFORMATION. The Fund has elected to be treated as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"),
qualified as such, and intends to continue to so qualify. In order to so
qualify, the Fund will distribute on a current basis substantially all of its
investment company taxable income, its net exempt-interest income and its net
capital gains (if any), and will meet certain other requirements. Such
qualification relieves the Fund of liability for federal and New York income
taxes to the extent the Fund's earnings are distributed.

FEDERAL INCOME TAXES. Dividends derived from exempt-interest income (known as
"exempt-interest dividends") may be treated by the Fund's shareholders as items
of interest excludable from their federal gross income. To the extent dividends
paid to shareholders are derived from taxable interest or capital gains, such
dividends will be subject to federal income tax, whether received in cash or
reinvested.

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

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

NEW YORK INCOME TAXES: Dividends paid by the Fund to non-corporate shareholders
and derived from interest on New York Municipal Securities or federal
obligations are also exempt from State of New York, New York City and other
municipalities' personal income taxes. For this purpose, federal obligations are
obligations the interest on which would be excludable from gross income for New
York personal income tax purposes if the obligations were owned by an
individual. However, dividends paid to shareholders that are corporations
subject to New York franchise tax or income tax will be taxed as ordinary income
to

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<PAGE> 67

such shareholders, notwithstanding that all or a portion of such dividends are
exempt from State of New York personal income tax. Moreover, to the extent that
the Fund's dividends are derived from sources other than New York Municipal
Securities or federal obligations, such dividends will be subject to State of
New York, New York City and other municipalities' personal income taxes, even
though such dividends may be exempt for federal income tax purposes.

To the extent, if any, that dividends paid to shareholders are derived from
taxable interest or from capital gains, such dividends will not be exempt from
State of New York, New York City and other municipalities' personal income taxes
whether received in cash or reinvested.

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

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

SHARE PRICE CALCULATION

The price of a Sweep Share of the Fund is its "net asset value" per share or
"NAV." This figure is computed by taking total Fund assets allocable to that
class, subtracting any liabilities allocable to the class, and dividing the
resulting amount by the number of shares of the class outstanding. The net asset
value per share of the Sweep Shares of the Fund is determined on each day both
the Federal Reserve Bank of New York and the Exchange are open for business,
first at 10:00 a.m. (Eastern time), then again as of the close of normal trading
on the Exchange (generally 4:00 p.m. Eastern time). Purchase or redemption
orders and exchange requests will be executed at the net asset value next
determined after receipt by the Transfer Agent or its authorized agent. While
the Fund attempts to maintain its net asset value at a constant $1.00 per share,
Fund shares are not insured against reduction in net asset value.

The Fund values its portfolio securities at amortized cost, which means that
they are valued at their acquisition cost (as adjusted for amortization of
premium or discount) rather than at current market value. Calculations are made
to compare the value of the Fund's investments using the amortized cost method
with market values. Market valuations are obtained by using (1) actual
quotations provided by third-party pricing services or market makers; (2)
estimates of market value; or (3) values obtained from yield data relating to
comparable classes of money market instruments published by reputable sources at
the mean between the bid and asked prices for the instruments. If a deviation of
1/2 of 1% or more were to occur between the net asset value per share of the
Sweep Shares of the Fund calculated by reference to market values and the $1.00
per share amortized cost value of the Sweep Shares of the Fund, or if there were
any other deviation which the Board of Trustees believed would result in a
material dilution to shareholders or purchasers, the Board of Trustees would
promptly consider what action, if any, should be initiated.

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<PAGE> 68

HOW THE FUND REPORTS
PERFORMANCE

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

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

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

Taxable equivalent effective yield is computed in the same manner as is taxable
equivalent yield, except that effective yield is substituted for yield in the
calculation.

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

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

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

INVESTING IN SHARES OF THE FUND

SHAREHOLDER SERVICE. You may place Fund purchase orders and orders to sell
shares as well as exchange requests at any one of over 225 Schwab offices
nationwide or by calling 800-2 NO-LOAD, where trained representatives are
available to answer questions about the Fund and your account. The right to
initiate transactions by telephone is automatically available through your
Schwab account. TDD users may contact Schwab at 800-345-2550, 24 hours a day.

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<PAGE> 69

holder may suffer from unauthorized or fraudulent orders. These procedures may
include:

Investors should remember that it may be difficult to complete transactions by
telephone during periods of drastic economic or market changes, when our phone
lines may become very busy with calls from other investors. If you want to buy,
sell or exchange shares but have trouble reaching the Fund by telephone, you may
want to use one of the other ways offered for completing the transactions
discussed below, even though these procedures may mean that completing your
transaction may take longer.

To assist in minimizing administrative costs, share certificates will not be
issued. Records regarding share ownership are maintained by the Transfer Agent.

HOW TO BUY SHARES

The Securities Investor Protection Corporation ("SIPC") will provide account
protection, in an amount up to $500,000, for securities, including Fund shares,
which you hold in a Schwab account. Of course, SIPC account protection does not
protect shareholders from share price fluctuations. If you already have a Schwab
account, you may buy shares in the Fund as described below and need not open a
new account.

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<PAGE> 70

trade within the last 6 months, or if the shareholder's combined account
balances at Schwab total $10,000 or more.

DEPOSITING FUNDS. You may deposit funds into your Schwab account by check, wire
or many other forms of electronic funds transfer. Securities may also be
deposited. You may also buy SchwabFunds(R) shares using electronic products such
as StreetSmart(TM), The Equalizer(R) and TeleBroker(R). All deposit checks
should be made payable to Charles Schwab & Co., Inc. If you would like to wire
funds into your existing Schwab account, please contact your local Schwab office
for instructions.

WHEN YOU CAN BUY SHARES. You must have funds in your Schwab account in order to
buy Fund shares. If funds (including those transmitted by wire) are received by
Schwab before the time of the Fund's last daily net asset value calculation
(normally 4:00 p.m. Eastern time), they will be available for investment on that
day. If funds arrive after that time, they will be available for investment the
next Business Day.

METHODS OF BUYING SHARES

An investor with an existing Schwab brokerage account may add the automatic
investment feature to his or her account by completing the appropriate section
of the Schwab Account Application available at any Schwab office. A shareholder
may change primary funds by calling or writing his or her local Schwab office or
writing Schwab at the address referenced on the cover of this Prospectus. Note
that the automatic reinvestment feature is not available for Value Advantage
Shares.

DIRECT PURCHASE: A Schwab account holder may buy shares of the Fund (if it is
not his or her primary fund) in several ways. The minimum initial investment for
such a purchase is $1,000, and subsequent investments must be at least $100. For
the Value Advantage Shares, the minimum initial investment is $25,000, the
minimum subsequent investment is $5,000 and the minimum account balance is
$20,000.

BY MAIL
You may direct that funds already in your Schwab account be used to make initial
and subsequent share purchases. Alternatively,

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<PAGE> 71

your purchase instructions may be accompanied by a check made payable to Charles
Schwab & Co., Inc., which will be deposited into your Schwab account and used,
as necessary, to cover all or part of your purchase order.

Written purchase orders (along with any checks) should be mailed to Schwab at
101 Montgomery Street, San Francisco, California 94104 or to your local Schwab
office and should:

- - reference your Schwab account number (inapplicable if a Schwab Account
Application is also enclosed);
- - specify the name of the Fund and class, and the dollar amount of shares you
would like to buy; and
- - for initial share purchases only, select one of the distribution options
listed below.

Once mailed, a purchase request is irrevocable and may not be modified or
cancelled.

ELECTRONICALLY
For more information regarding how to buy shares electronically using
StreetSmart(TM), The Equalizer(R) and TeleBroker(R), call 800-2 NO-LOAD.

IN PERSON AT A SCHWAB OFFICE
Visit your local Schwab office, where a representative will be happy to assist
you.

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

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

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

OTHER PURCHASE INFORMATION. The minimum amounts required for automatic
investment or direct purchase may be reduced or waived on certain occasions. For
example, free credit balances in accounts of certain categories of investors,
such as holders of Schwab One(R) and Schwab custodial accounts, may be invested
automatically irrespective of amount. The Fund may also waive the minimums for
purchases by trustees, directors, officers or employees of the Fund, Schwab or
the Investment Manager. The Fund reserves the right, in its sole discretion and
without prior notice to shareholders, to withdraw or suspend all or any part of
the offering made by this Prospectus, to reject purchase orders or to change the
minimum investment requirements. All orders to buy shares of the Fund are
subject to acceptance by the Fund and are not binding until confirmed or
accepted in writing. Schwab

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<PAGE> 72

will charge a $15 service fee against an investor's Schwab account should his or
her check be returned because of insufficient or uncollected funds or a stop
payment order.

HOW TO SELL OR
EXCHANGE SHARES
The exchange privilege allows you to exchange your SchwabFunds(R) shares for
shares of another SchwabFunds Series or class available to investors in your
state, provided you meet the initial and subsequent investment requirements and
any other requirements relating to the Series or class of shares you wish to
buy. Thus, you can conveniently modify your investments if your goals or market
conditions change. For federal income tax and certain other purposes, an
exchange of shares between funds will be treated as a sale of shares in one fund
and a purchase of shares in another fund. An exchange of shares between classes
of the same fund should not be treated as a sale of shares. The Fund reserves
the right to modify, limit or terminate the exchange privilege upon 60 days'
written notice.

DIRECT REDEMPTION. You can sell or exchange your shares at any time by
telephone, by mail, electronically or in person, subject to the following terms
and conditions:

METHODS OF SELLING OR EXCHANGING SHARES

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

- - your Schwab account number and your name for verification;

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<PAGE> 73

- - the number of shares you want to sell or exchange;
- - the name of the Fund and class, if applicable, from which you are selling or
exchanging shares;
- - the name of the Fund and class into which shares are to be exchanged, if
applicable; and
- - the distribution option you select, if you are exchanging shares.

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

We need the following information in order to process your mail sale or exchange
request:

- - your Schwab account number;
- - the number of shares you want to sell or exchange;
- - the name of the fund and class, if applicable, from which you are selling or
exchanging shares;
- - the name of the Fund and class into which shares are to be exchanged, if
applicable;
- - the distribution option you select, if you are exchanging shares; and
- - the signature of at least one of the registered Schwab account holders in the
exact form specified in the account.

Once mailed, a sale or exchange request is irrevocable and may not be modified
or cancelled.

ELECTRONICALLY
For more information regarding how to sell or exchange shares electronically
using StreetSmart(TM), The Equalizer(R) and TeleBroker(R), call 800-2 NO-LOAD.

IN PERSON AT A SCHWAB OFFICE
You can also request a sale or exchange of shares in person at your local Schwab
office.

OTHER IMPORTANT INFORMATION

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<PAGE> 74

READING THIS PROSPECTUS. References to "you" and "your" in this Prospectus refer
to prospective investors and/or current shareholders, while references to "we",
"us", "our" or "our Fund" refer to the Fund generally.
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR.
- --------------------------------------------------------------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE.
- --------------------------------------------------------------------------------

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<PAGE> 75

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 76

SCHWAB NEW YORK
TAX-EXEMPT MONEY FUND - SWEEP SHARES

SCHWABFUNDS(R)
101 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94104

PROSPECTUS April 29, 1996

2239-2 (8/95) CRS 6704 Printed on recycled paper.
<PAGE> 77

SCHWAB INSTITUTIONAL ADVANTAGE
MONEY FUND(R)
PROSPECTUS APRIL 29, 1996

THE SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND (the "Fund") is designed for
retirement plans, plan participants and other institutional investors who seek
maximum current income consistent with liquidity and stability of capital, for
investment of their own funds or funds for which they act in a fiduciary, agency
or custodial capacity. The Fund is a diversified investment portfolio of The
Charles Schwab Family of Funds (the "Schwab Fund Family"), a no-load, open-end,
management investment company.

ABOUT THIS PROSPECTUS: THIS PROSPECTUS CONCISELY PRESENTS IMPORTANT INFORMATION
YOU SHOULD KNOW BEFORE INVESTING IN THE FUND. PLEASE READ IT CAREFULLY AND
RETAIN IT FOR FUTURE REFERENCE. You can find more detailed information about the
Fund in the Fund's Statement of Additional Information dated April 29, 1996 (as
amended from time to time). The Statement of Additional Information has been
filed with the Securities and Exchange Commission ("SEC") and is incorporated by
reference into this Prospectus. This Prospectus may be available electronically
by using our Internet address: http://www.schwab.com. To receive a free paper
copy of this Prospectus or the Statement of Additional Information, call the
Fund at 800-2 NO LOAD, 24 hours a day, or write to the Fund at 101 Montgomery
Street, San Francisco, California 94104. TDD users may contact Schwab at
800-345-2550, 24 hours a day.
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Key Features of the Fund.............. 2
Summary of Expenses................... 2
Financial Highlights.................. 3
Investment Objective and Policies..... 4
Organization and Management
of the Fund......................... 7
Distributions and Taxes............... 9
Share Price Calculation............... 9
How the Fund Reports Performance...... 10
Investing in Shares of the Fund....... 10
How to Buy Shares................... 11
How to Exchange Shares.............. 12
How to Sell Shares.................. 12
Other Important Information........... 13
</TABLE>

KEY FEATURES OF THE FUND

MAXIMUM CURRENT INCOME AND SAFETY. The Fund is designed for retirement plans,
plan participants and other institutional investors who seek maximum current
income consistent with liquidity and stability of capital, for investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity. The Fund invests in high-quality, short-term debt securities. (See
"Investment Objective and Policies.")

STABILITY OF PRINCIPAL. The Fund seeks to maintain a stable net asset value of
$1.00 per share.

LIQUIDITY. You can conveniently sell your shares of the Fund at any time. (See
"Investing in Shares of the Fund - How to Sell Shares.")

LOW COST INVESTING. The Fund imposes no sales or transaction fees on purchases
of Fund shares. (See "Summary of Expenses.") In addition, the total fund
operating expenses will not exceed 0.50% of the Fund's average daily net assets,
at least through April 30, 1997, as guaranteed by Charles Schwab Investment
Management, Inc. (the "Investment Manager") and Schwab. (See "Organization and
Management of the Fund.")

SHAREHOLDER SERVICE. A representative of Schwab and/or of The Charles Schwab
Trust Company ("Schwab Representative") is available toll-free to receive your
Fund orders. (See "Investing in Shares of the Fund - How to Buy Shares,"
"Investing in Shares of the Fund - How to Exchange Shares" and "Investing in
Shares of the Fund - How to Sell Shares.")

CONVENIENT RECORD KEEPING. Individual investors receive one consolidated account
statement of all their account activity including records of all Fund
transactions.

SUMMARY OF EXPENSES

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES: None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS):
Management Fees
(after fee reduction) 1........ 0.26%
12b-1 Fees........................ None
Other Expenses (after fee
reduction and/or expense
reimbursement) 2............... 0.24%
------
TOTAL FUND OPERATING EXPENSES 2..... 0.50%
</TABLE>

1 This amount reflects a reduction by the Investment Manager, which is
guaranteed at least through April 30, 1997. If there were no such reduction,
the maximum management fee for the Fund would have been 0.46% of the Fund's
average daily net assets for the fiscal year ended December 31, 1995.

2 This amount has been restated to reflect the guarantee by the Investment
Manager and Schwab that, at least through April 30, 1997, the total fund
operating expenses will not exceed 0.50% of the Fund's average daily net
assets. Without a similar guarantee, which was in effect for the fiscal year
ended December 31, 1995, the Fund's other expenses and total fund operating
expenses would have been 0.44% and 0.90%, respectively, of the Fund's average
daily net assets.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$5 $16 $28 $63
</TABLE>

2
<PAGE> 79

THE PURPOSE OF THE PRECEDING TABLE IS TO ASSIST INVESTORS IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE FUND WILL BEAR DIRECTLY OR
INDIRECTLY. This example reflects the guarantee by the Investment Manager and
Schwab that, through at least April 30, 1997, the total fund operating expenses
will not exceed 0.50% of the Fund's average daily net assets. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The example assumes a 5% annual rate of
return pursuant to requirements of the SEC. THIS HYPOTHETICAL RATE OF RETURN IS
NOT INTENDED TO BE REPRESENTATIVE OF PAST OR FUTURE PERFORMANCE.

FINANCIAL HIGHLIGHTS

The following information for the Fund has been audited by Price Waterhouse LLP,
independent accountants, whose unqualified report is included in the Statement
of Additional Information, which contains additional financial data and related
notes. A free copy of this statement may be obtained by calling the telephone
number or writing to the address on the first page of this Prospectus.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 1
------------------ --------------------
<S> <C> <C>
Net asset value at beginning of period............... $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income.............................. 0.06 0.04
Net realized and unrealized gain (loss) on
investments..................................... -- --
-------- -------
Total from investment operations................... 0.06 0.04
LESS DISTRIBUTIONS
Dividends from net investment income............... (0.06) (0.04)
Distributions from realized gain on investments.... -- --
-------- -------
Total distributions................................ (0.06) (0.04)
-------- -------
Net asset value at end of period..................... $ 1.00 $ 1.00
======== =======
Total Return......................................... 5.65% 3.86%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s)................... $80,746 $60,088
Ratio of expenses to average net assets............ 0.53% 0.55%*
Ratio of net investment income to average
net assets...................................... 5.50% 4.04%*
</TABLE>

1 For the period January 4, 1994 (commencement of operations) to December 31,
1994.

Note: The Investment Manager and Schwab have reduced a portion of their fees in
order to limit the Fund's ratio of operating expenses to average net
assets. Had these fees not been reduced, the ratio of expenses to average
net assets for the fiscal periods ended December 31, 1995 and 1994 would
have been 0.90% and 0.92%*, respectively, and the ratio of net investment
income to average net assets would have been 5.13% and 3.67%*,
respectively. (See "Organization and Management of the Fund - Operating
Fees and Expenses.")

*Annualized

3
<PAGE> 80

INVESTMENT OBJECTIVE AND
POLICIES

The Fund's investment objective is maximum current income consistent with
liquidity and stability of capital. This investment objective is fundamental,
and cannot be changed without approval by holders of a majority of its
outstanding voting shares, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund will only purchase securities that are deemed
to mature in 397 days or less in accordance with federal securities regulations,
or which have a variable rate of interest readjusted no less frequently than
every 397 days. The Fund pursues its objective by investing in the following
types of U.S. dollar-denominated debt instruments which are determined by the
Investment Manager to present minimal credit risk:

- - Certificates of deposit, time deposits, notes and bankers' acceptances of
domestic banks (including their foreign branches), U.S. branches of foreign
banks and foreign branches of foreign banks having capital, surplus and
undivided profits in excess of $100 million.

- - Commercial paper, including asset-backed commercial paper, rated in one of the
two highest rating categories by any nationally recognized statistical rating
organization ("NRSRO"), including Moody's Investors Service, Standard & Poor's
Corporation, Duff & Phelps, Inc., Fitch Investor Services, Inc., or commercial
paper or notes of issuers with an unsecured debt issue outstanding currently
rated in one of the two rating categories of any NRSRO, where the obligation
is on the same or a higher level of priority and collateralized to the same
extent as the rated issue. The Fund may also invest in commercial paper or
other corporate obligations such as publicly traded bonds, debentures and
notes rated in one of the two highest rating categories by any NRSRO and other
similar securities which, if unrated by any NRSRO, are determined by the
Investment Manager, using guidelines approved by the Board of Trustees, to be
at least equal in quality to one or more of the above referenced securities.
Notwithstanding the foregoing, the Fund may invest no more than 5% of its
total assets in securities that are given the second highest rating by any
NRSRO.

- - Obligations of, or guaranteed by, the U.S. or Canadian governments, their
agencies or instrumentalities.

- - Repurchase agreements involving obligations that are suitable for investment
under the categories listed above.

INVESTMENT TECHNIQUES. U.S. Treasury notes, bills and bonds are backed by the
full faith and credit of the U.S. Government. Some securities issued by U.S.
Government agencies or instrumentalities are supported only by the credit of the
agency or instrumentality, while others have an additional line of credit with
the U.S. Treasury. With respect to securities supported only by the credit of
the issuing agency or instrumentality or by an additional line of credit with
the U.S. Treasury, there is no guarantee that the U.S. Government will provide
support to such agencies or instrumentalities. Accordingly, such securities may
involve risk of loss of principal and interest.

EURODOLLAR CERTIFICATES OF DEPOSIT AND FOREIGN SECURITIES. To the extent that
the Fund purchases Eurodollar certificates of deposit and other similar
obligations, consideration will be given to the fact that these issuers may not
be

4
<PAGE> 81

subject to the same regulatory requirements as U.S. issuers, including U.S.
banks.

Investments in securities of foreign issuers or securities principally traded
overseas may involve certain special risks due to foreign economic, political
and legal developments. Furthermore, issuers of foreign securities are subject
to different, often less comprehensive, accounting, reporting and disclosure
requirements than domestic issuers. The securities of some foreign companies and
foreign securities markets are less liquid and at times more volatile than
securities of comparable U.S. companies and U.S. securities markets. Foreign
brokerage commissions and other fees are also generally higher than in the
United States. There are also special tax considerations which apply to
securities of foreign issuers and securities principally traded overseas.

PRIVATE PLACEMENTS. The Fund may invest in commercial paper and other securities
that are exempt from registration pursuant to Section 4(2) of the Securities Act
of 1933 ("Section 4(2) paper"). Federal securities laws restrict the disposition
of Section 4(2) paper. The Fund will not invest more than 10% of its assets in
Section 4(2) paper and other illiquid securities unless the Investment Manager
determines, by continuous reference to the appropriate trading markets and
pursuant to guidelines approved by the Board of Trustees, that any Section 4(2)
paper held by the Fund in excess of this level is liquid. The Fund will invest
no more than 15% of its assets in restricted securities.

ASSET-BACKED COMMERCIAL PAPER. The Fund may invest in asset-backed commercial
paper. Repayment of this type of commercial paper is intended to be obtained
from an identified pool of assets, including automobile receivables, credit card
receivables and other types of assets. Asset-backed commercial paper is issued
by a special purpose vehicle (usually a corporation) that has been established
for the purpose of issuing commercial paper and purchasing the underlying pool
of assets. The issuer of the commercial paper bears the direct risk of
prepayment on the receivables constituting the underlying pool of assets. Credit
support for asset-backed securities may be based on the underlying assets or it
may be provided by a third party. Credit enhancement techniques include letters
of credit, insurance bonds, limited guarantees and over-collateralization.

The Fund will not invest more than 25% of it assets in when-issued or delayed
delivery securities. The Fund will not purchase such securities for speculative
purposes and will expect to actually acquire the securities when purchased.
However, the Fund reserves the right to sell any such securities before their

5
<PAGE> 82

settlement dates if the Investment Manager deems such a sale advisable.

REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreements, which are
instruments under which the Fund acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the Fund's holding period. Maturity of the
securities subject to repurchase may exceed one year.

If the seller of a repurchase agreement becomes bankrupt or otherwise defaults,
the Fund might incur expenses in enforcing its rights and could experience
losses, including a decline in the value of the underlying securities and loss
of income. The Fund will enter into repurchase agreements only with banks and
other recognized financial institutions that the Investment Manager deems
creditworthy.

ILLIQUID SECURITIES. Pursuant to a fundamental policy as set forth in the
Statement of Additional Information, the Fund will not purchase illiquid
securities, including time deposits and repurchase agreements maturing in more
than 7-days, if, as a result thereof, more than 10% of the Fund's net assets
valued at the time of the transaction are invested in such securities.

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

Some Variable Rate Securities ("Variable Rate Demand Securities") have a demand
feature entitling the purchaser to resell the securities at an amount
approximately equal to amortized cost or the principal amount thereof plus
accrued interest. As is the case for other Variable Rate Securities, the
interest rate on Variable Rate Demand Securities varies according to some
objective standard intended to minimize fluctuation in the values of the
instruments. The Fund determines the maturity of Variable Rate Securities in
accordance with SEC rules. As interest rates decrease or increase, Variable Rate
Securities experience less appreciation or depreciation than fixed-rate
obligations.

SECURITIES LENDING. To increase its income, the Fund may lend its portfolio
securities to brokers, dealers and other financial institutions that borrow
securities. No more than one-third of the Fund's total assets may be represented
by loaned securities. The Fund's loans of portfolio securities will be fully
collateralized by cash, letters of credit or U.S. Government securities equal at
all times to at least 100% of the loaned securities' market value plus accrued
interest. As with other extensions of credit, there are risks of delay in
recovery or even losses of rights in the securities loaned should the borrower
of the securities fail financially. However, such loans will be made only to
firms deemed by the Investment Manager to be of good standing and when, in the
judgment of the Investment Manager, the income which can be earned currently
from such loans justifies the attendant risk.

BORROWING POLICY. Pursuant to a fundamental policy as set forth in the Statement
of Addi-

6
<PAGE> 83

tional Information, the Fund may not borrow money except as a temporary measure
for extraordinary or emergency purposes, and then only in an amount up to
one-third of the value of its total assets, in order to meet redemption requests
without immediately selling any portfolio securities. The Fund will not borrow
for leverage purposes.

ORGANIZATION AND

GENERAL OVERSIGHT. The Board of Trustees and officers of the Schwab Fund Family
meet regularly to review investments, performance, expenses and other business
affairs.

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

Schwab was established in 1971 and is one of America's largest discount brokers.
The firm provides low-cost securities brokerage and related financial services
to over 3.3 million active customer accounts and has over 225 branch offices.
Schwab is a wholly-owned subsidiary of The Charles Schwab Corporation. Charles
R. Schwab is the founder, Chairman, Chief Executive Officer and a Director of
The Charles Schwab Corporation. As a result of his beneficial ownership
interests in 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.

OPERATING FEES AND EXPENSES

Pursuant to its Investment Advisory and Administration Agreement with the Schwab
Fund Family, the Investment Manager receives

7
<PAGE> 84

from the Fund 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 assets over
$2 billion but not in excess of $3 billion, and 0.40% of such net assets over $3
billion. The Investment Manager has guaranteed that, at least through April 30,
1997, this fee will not exceed 0.26% of the Fund's average daily net assets.

In addition, at least through April 30, 1997, the Investment Manager and Schwab
have guaranteed that the Fund's total fund operating expenses will not exceed
0.50% of the Fund's average daily net assets. The effect of these guarantees is
to maintain or increase the Fund's total return to shareholders. For the fiscal
year ended December 31, 1995, the Fund paid a management fee of 0.26% and total
fund operating expenses of 0.53% of the Fund's average daily net assets (after
waivers and reimbursements). The following expenses are not included as
"operating expenses" for purposes of this guarantee: interest expenses, taxes
and capital items such as the cost of the purchase or sale of portfolio
securities, including brokerage fees or commissions.

For transfer agency services provided to the Fund, Schwab receives an annual
fee, payable monthly, of 0.05% of the Fund's average daily net assets. In
addition, for shareholder services provided, Schwab receives an annual fee,
payable monthly, of 0.20% of the Fund's average daily net assets. The Fund's
custodian is PNC Bank, N.A.

OTHER EXPENSES. The Schwab Fund Family pays the expenses of its operations,
including: the fees and expenses for independent accountants, legal counsel and
the custodian of its assets; the cost of maintaining books and records of
account; registration fees; the fees and expenses of qualifying the Schwab Fund
Family and its shares for distribution under federal and state securities laws;
and industry association membership dues. These expenses generally are allocated
among the Schwab Fund Family's investment portfolios ("Series"), or classes of
shares within these Series, in proportion to their relative net assets at the
time the expense is incurred. However, expenses directly attributable to a
particular Series or class of a Series will be charged to that Series or class,
respectively.

OTHER INFORMATION

The Schwab Fund Family was organized as a business trust under the laws of
Massachusetts on October 20, 1989 and may issue an unlimited number of shares of
beneficial interest in one or more Series. Currently, the Schwab Fund Family
offers shares of 9 Series which may be organized into one or more classes of
shares of beneficial interest. The Board of Trustees may authorize the issuance
of shares of additional Series if it deems it desirable. Shares within each
Series or class have equal, noncumulative voting rights or rights and equal
rights as to distributions, assets, and liquidation of such Series, except to
the extent such voting rights as to distributions, assets and liquidation vary
among classes of a Series.

8
<PAGE> 85

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 Schwab Fund Family.

DISTRIBUTIONS AND TAXES

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

FEDERAL INCOME TAX INFORMATION. The Fund has elected to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), qualified as such and intends to continue to so qualify. In order
to so qualify, the Fund will distribute on a current basis substantially all of
its investment company taxable income, net capital gains and will meet certain
other requirements. Such qualification relieves the Fund of liability for
federal income taxes to the extent the Fund's earnings are distributed.
Generally, distributions are taxable to shareholders as ordinary income.

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

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

SHARE PRICE CALCULATION

The price of a share on any given day is its "net asset value" or "NAV." This
figure is computed by taking total Fund assets, subtracting any liabilities and
dividing the resulting amount by the number of Fund shares outstanding. The net
asset value per share of the Fund is determined on each day both the Federal
Reserve Bank of New York and the Exchange are open for business (generally as of
4:00 p.m. Eastern time). Purchase or redemption orders and exchange requests
will be executed at the net asset value next determined after receipt by the
Transfer Agent, or its authorized agent. While the Fund attempts to maintain its
net asset value at a constant $1.00 per share, Fund shares are not insured
against a reduction in net asset value.

9
<PAGE> 86

with market values. Market valuations are obtained by using: (1) actual
quotations provided by third-party pricing services or market makers; (2)
estimates of market value; or (3) values obtained from yield data relating to
comparable classes of money market instruments published by reputable sources at
the mean between the bid and asked prices for the instruments. If a deviation of
1/2 of 1% or more were to occur between the Fund's net asset value per share
calculated by reference to market values and the Fund's $1.00 per share
amortized cost value, or if there were any other deviation which the Board of
Trustees believed would result in a material dilution to shareholders or
purchasers, the Board of Trustees would promptly consider what action, if any,
should be initiated.

HOW THE FUND REPORTS
PERFORMANCE

From time to time the Fund may advertise its yield and effective yield.
Performance figures are based upon historical results and are not intended to
indicate future performance.

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

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

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

INVESTING IN SHARES OF THE FUND

SHAREHOLDER SERVICE. You may place Fund purchase orders and orders to sell
shares as well as exchange requests by calling, writing or visiting your Schwab
Representative, who is available to answer questions about the Fund and your
account. The right to initiate transactions by telephone is automatically
available through your Schwab account. TDD users may contact Schwab at
800-345-2550, 24 hours a day.

- - requiring a form of personal identification prior to acting upon instructions
received by telephone;
- - providing written confirmation of such instructions; and

10
<PAGE> 87

- - tape recording telephone transactions.

Investors should remember that it may be difficult to complete transactions by
telephone during periods of drastic economic or market changes, when our phone
lines may become very busy with calls from other investors. If you want to buy,
sell or exchange Fund shares but have trouble reaching the Fund by telephone,
you may want to use one of the other ways offered for completing the
transactions discussed below, even though these procedures may mean that
completing your transaction may take longer.

To assist in minimizing administrative costs, share certificates will not be
issued. Records regarding share ownership are maintained by the Transfer Agent.

HOW TO BUY SHARES

DEPOSITING FUNDS AND MEETING THE FUND'S INVESTMENT MINIMUMS. The minimum initial
investment is $25,000, and subsequent investments must be at least $1. Due to
the relatively high cost of maintaining smaller holdings, the Fund reserves the
right to redeem a shareholder's shares if, as a result of redemptions, their
aggregate value drops below the Fund's $25,000 minimum balance requirement. The
Fund will notify shareholders in writing 30 days before taking such action to
allow them to increase their holding to at least the minimum level.

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

WHEN SHARES WILL BE BOUGHT. You must have funds in your account maintained with
Schwab or the Trust Company in order to buy Fund shares. If funds (including
those transmitted by wire) are received by Schwab or the Trust Company before
4:00 p.m. (Eastern time), they will be available for investment on the day of
receipt and will generally begin earning dividends the next Business Day. If
funds arrive after that time, they will be available for investment the next
Business Day.

Customers with $100,000 or more to invest may, upon special request, be invested
in the Fund and receive a distribution for the day on which the order is
received by the Transfer Agent or its authorized agent. This request must be
received by Schwab or the Trust Company before 1:30 p.m. Eastern time and must
be accompanied by payment in immediately available funds.

AUTOMATIC REINVESTMENT. Distributions will be reinvested in additional full and
fractional shares of the Fund at the net asset value next determined on their
payable date.

11
<PAGE> 88

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

HOW TO EXCHANGE SHARES

The exchange privilege allows you to exchange your SchwabFunds(R) shares for
shares of another SchwabFunds Series or class available to investors in your
state, provided you meet the initial and subsequent investment requirements and
any other requirements relating to the Series or class of shares you wish to
buy. Thus, you can conveniently modify your investments if your goals or market
conditions change. For federal income tax and certain other purposes, an
exchange will be treated as a sale of Fund shares and the purchase of shares of
another fund. The Fund reserves the right to modify, limit or terminate the
exchange privilege upon 60 days' written notice.

METHODS OF EXCHANGING SHARES

BY TELEPHONE
To exchange between funds by telephone, please call your Schwab representative
during regular business hours.

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

- - your Schwab account number and your name for verification;
- - the number of shares you want to exchange;
- - the name of the fund and class, if applicable, into which shares are to be
exchanged; and
- - the distribution option you select.

BY MAIL
You may also exchange shares by writing Schwab at the address listed on the
Prospectus cover page.

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

- - your Schwab account number;
- - the number of shares you want to exchange;
- - the name of the fund and class, if applicable, into which shares are to be
exchanged;
- - the distribution option you select; and
- - the signature of at least one of the registered Schwab account holders, in the
exact form specified in the account.

Once mailed, an exchange request is irrevocable and may not be modified or
cancelled.

HOW TO SELL SHARES

THE PRICE AT WHICH SHARES WILL BE SOLD. Shares will be sold at the net asset
value per share next determined after receipt by the Transfer Agent, or its
authorized agent, of proper redemption instructions, as set forth below.
Investors will receive dividends declared for the day on which orders to sell
shares are executed.

The Fund may suspend a shareholder's rights to sell shares or postpone payments
at times when trading on the Exchange is restricted, the Exchange is closed for
any reason other than its customary weekend or holiday closings, emergency
circumstances as determined by the SEC exist, or for such other circumstances as
the SEC may permit. The Fund may also elect to invoke a 7-day period for cash
settlement of redemption requests in excess of $250,000 or 1% of the Fund's net
assets, whichever is less.

12
<PAGE> 89

OTHER IMPORTANT INFORMATION

CONSOLIDATED MAILINGS. In an effort to reduce the Fund's mailing costs, the Fund
consolidates shareholder mailings by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a single package during each shareholder mailing. If you do not wish
this consolidation to apply to your account(s), please write to Schwab (at the
address listed on the Prospectus cover page) to that effect.

WIRE TRANSFERS TO YOUR BANK. If you so instruct your Schwab Representative,
funds can be wired from your account maintained with Schwab or the Trust Company
to your bank account. Call your Schwab Representative for additional
information. A $15 service fee will be charged against your account for each
such wire sent.

READING THIS PROSPECTUS. References to "you" and "your" in this Prospectus refer
to prospective investors and/or current shareholders, while references to "we",
"us", "our" or "our Fund" refer to the Fund generally.
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR.
- -------------------------------------------------------------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE.
- -------------------------------------------------------------------------------

13
<PAGE> 90

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 91

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 92
SCHWAB
INSTITUTIONAL
ADVANTAGE
MONEY FUND(R)

PROSPECTUS April 29, 1996

[SchwabFunds Logo]

2025-2 (8/95) CRS 3830 Printed on recycled paper

[SchwabFunds Logo]
101 Montgomery Street
San Francisco, California 94104
<PAGE> 93

SCHWAB RETIREMENT MONEY FUND(R)

PROSPECTUS APRIL 29, 1996

THE SCHWAB RETIREMENT MONEY FUND (the "Fund") is designed for retirement plans,
plan participants and other institutional investors who seek maximum current
income consistent with liquidity and stability of capital, for investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity. The Fund is a diversified investment portfolio of The Charles Schwab
Family of Funds (the "Schwab Fund Family"), a no-load, open-end, management
investment company.

This Prospectus may be available electronically by using our Internet address:
http://www.schwab.com. To receive a free paper copy of this Prospectus or the
Statement of Additional Information, call the Fund at 800-2 NO-LOAD, 24 hours a
day, or write to the Fund at 101 Montgomery Street, San Francisco, California
94104. TDD users may contact Schwab at 800-345-2550, 24 hours a day.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Key Features of the Fund................. 2
Summary of Expenses...................... 2
Financial Highlights..................... 3
Investment Objective and Policies........ 4
Organization and Management
of the Fund............................ 7
Distributions and Taxes.................. 9
Share Price Calculation.................. 9
How the Fund Reports Performance......... 10
Investing in Shares of the Fund.......... 10
How to Buy Shares...................... 11
How to Exchange Shares................. 11
How to Sell Shares..................... 12
Other Important Information.............. 12
</TABLE>

KEY FEATURES OF THE FUND

STABILITY OF PRINCIPAL. The Fund seeks to maintain a stable net asset value
("NAV") of $1.00 per share.

LIQUIDITY. You can conveniently sell your shares of the Fund at any time. (See
"Investing in Shares of the Fund - How to Sell Shares.")

LOW COST INVESTING. The Fund imposes no sales or transaction fees on purchases
of Fund shares. (See "Summary of Expenses.") In addition, total fund operating
expenses will not exceed 0.73% of the Fund's average daily net assets through at
least April 30, 1997, as guaranteed by Charles Schwab Investment Management,
Inc. (the "Investment Manager") and Schwab. (See "Organization and Management of
the Fund.")

CONVENIENT RECORD KEEPING. Individual investors receive one consolidated account
statement for all their account activity including records of all Fund
transactions.

SUMMARY OF EXPENSES

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES: None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS):
Management Fees
(after fee reduction) 1........ 0.44%
12b-1 Fee......................... None
Other Expenses (after fee
reduction and/or expense
reimbursement) 2............... 0.29%
------
TOTAL FUND OPERATING EXPENSES 2..... 0.73%
</TABLE>

1 This amount reflects a reduction by the Investment Manager, which is
guaranteed at least through April 30, 1997. If there were no such reduction,
the maximum management fee for the Fund would have been 0.46% of the Fund's
average daily net assets for the fiscal year ended December 31, 1995.

2 This amount reflects the guarantee by the Investment Manager and Schwab that,
at least through April 30, 1997, the total fund operating expenses will not
exceed 0.73% of the Fund's average daily net assets. Without this guarantee,
which was in effect during the year ended December 31, 1995, the Fund's other
expenses and total operating expenses would have been 0.46% and 0.92%,
respectively, of the Fund's average daily net assets.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$7 $23 $41 $91
</TABLE>

2
<PAGE> 95

THE PURPOSE OF THE PRECEDING TABLE IS TO ASSIST INVESTORS IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE FUND WILL BEAR DIRECTLY OR
INDIRECTLY. This example reflects the guarantee by the Investment Manager and
Schwab that, at least through April 30, 1997, the total fund operating expenses
will not exceed 0.73% of the Fund's average daily net assets. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The example assumes a 5% annual rate of
return pursuant to requirements of the SEC. THIS HYPOTHETICAL RATE OF RETURN IS
NOT INTENDED TO BE REPRESENTATIVE OF PAST OR FUTURE PERFORMANCE.

FINANCIAL HIGHLIGHTS
The following information for the Fund has been audited by Price Waterhouse LLP,
independent accountants, whose unqualified report is included in the Statement
of Additional Information, which contains additional financial data and related
notes. A free copy of this statement may be obtained by calling the telephone
number or writing to the address on the first page of this Prospectus.

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD
ENDED ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 1
------------------- --------------------
<S> <C> <C>
Net asset value at beginning of period.................... $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income................................... 0.05 0.03
Net realized and unrealized gain (loss) on
investments.......................................... -- --
------- -------
Total from investment operations........................ 0.05 0.03
LESS DISTRIBUTIONS
Dividends from net investment income.................... (0.05) (0.03)
Distributions from realized gain on investments......... -- --
------- -------
Total distributions..................................... (0.05) (0.03)
------- -------
Net asset value at end of period.......................... $ 1.00 $ 1.00
======= =======
Total return.............................................. 5.43% 3.29%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000s)........................ $98,992 $31,415
Ratio of expenses to average net assets................. 0.73% 0.73%*
Ratio of net investment income to average net assets.... 5.28% 4.04%*
</TABLE>

1 For the period March 2, 1994 (commencement of operations) to December 31,
1994.

Note: The Investment Manager and Schwab have reduced a portion of their fees in
order to limit the Fund's ratio of operating expenses to average net
assets. Had these fees not been reduced the ratio of expenses to average
net assets for the periods ended December 31, 1995 and 1994 would have
been 0.92%, and 1.05%*, respectively, and the ratio of net investment
income to average net assets would have been 5.09% and 3.72%*,
respectively.

*Annualized

3
<PAGE> 96

INVESTMENT OBJECTIVE AND
POLICIES

- - Commercial paper, including asset-backed commercial paper, rated in one of the
two highest rating categories by any nationally recognized statistical rating
organization ("NRSRO"), including Moody's Investors Service, Standard & Poor's
Corporation, Duff & Phelps, Inc., Fitch Investor Services, Inc., or commercial
paper or notes of issuers with an unsecured debt issue outstanding currently
rated in one of the two highest rating categories of any NRSRO, where the
obligation is on the same or a higher level of priority and collateralized to
the same extent as the rated issue. The Fund may also invest in other
corporate obligations such as publicly traded bonds, debentures and notes
rated in one of the two highest rating categories of any NRSRO and other
similar securities which, if unrated by any NRSRO, are determined by the
Investment Manager, using guidelines approved by the Board of Trustees, to be
at least equal in quality to one or more of the above referenced securities.
Notwithstanding the foregoing, the Fund may invest no more than 5% of its
total assets in securities that are given the second highest rating by any
NRSRO.

- - Obligations of, or guaranteed by, the U.S. or Canadian governments, their
agencies or instrumentalities.

- - Repurchase agreements involving obligations that are suitable for investment
under the categories listed above.

4
<PAGE> 97

ASSET-BACKED COMMERCIAL PAPER. The Fund may invest in asset-backed commercial
paper. Repayment of this type of commercial paper is intended to be obtained
from an identified pool of assets, including automobile receivables, credit card
receivables and other types of assets. Asset-backed commercial paper is issued
by a special purpose vehicle (usually a corporation) that has been established
for the purpose of issuing commercial paper and purchasing the underlying pool
of assets. The issuer of the commercial paper bears the direct risk of
prepayment on the receivables constituting the underlying pool of assets. Credit
support for asset-backed securities may be based on the underlying assets or it
may be provided by a third party. Credit enhancement techniques include letters
of credit, insurance bonds, limited guarantees and over-collateralization.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase securities on
a "when-issued" or "delayed delivery" basis. When-issued or delayed delivery
securities are securities purchased for future delivery at a stated price and
yield. The Fund generally will not pay for such securities or start earning
interest on them until they are received. Securities purchased on a when-issued
or delayed delivery basis are recorded as an asset. The value of such securities
may change as the general level of interest rate changes. The Fund will not
invest more than 25% of its assets in when-issued or delayed delivery
securities. The Fund will not purchase such securities for speculative purposes
and will expect to actually acquire the securities when purchased. However, the
Fund reserves the right to sell any such securities before their settlement
dates if the Investment Manager deems such a sale advisable.

REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreements, which are
instruments under which the Fund acquires

5
<PAGE> 98

ownership of a security from a broker-dealer or bank that agrees to repurchase
the security at a mutually agreed upon time and price (which price is higher
than the purchase price), thereby determining the yield during the Fund's
holding period. Maturity of the securities subject to repurchase may exceed one
year.

If the seller of a repurchase agreement becomes bankrupt or otherwise defaults,
the Fund might incur expenses in enforcing its rights, and could experience
losses, including a decline in the value of the underlying securities and loss
of income. The Fund will enter into repurchase agreements only with banks and
other recognized financial institutions that the Investment Manager deems
creditworthy.

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

Some Variable Rate Securities ("Variable Rate Demand Securities") have a demand
feature entitling the purchaser to resell the securities at an amount
approximately equal to amortized cost or the principal amount thereof plus
accrued interest. As is the case for other Variable Rate Securities, the
interest rate on Variable Rate Demand Securities varies according to some
objective standard intended to minimize fluctuation in the values of the
instruments. The Fund determines the maturity of Variable Rate Securities in
accordance with SEC rules.

BORROWING POLICY. Pursuant to a fundamental policy as set forth in the Statement
of Additional Information, the Fund may not borrow money except as a temporary
measure for extraordinary or emergency purposes, and then only in an amount up
to one-third of the value of its total assets, in order to meet redemption
requests without immediately selling any portfolio securities. The Fund will not
borrow for leverage purposes.

6
<PAGE> 99

THE INVESTMENT MANAGER. Professional investment management for the Fund is
provided by the Investment Manager, Charles Schwab Investment Management, Inc.,
101 Montgomery Street, San Francisco, California 94104. The Investment Manager
provides a continuous investment program, including general investment and
economic advice regarding the Fund's investment strategies; manages the Fund's
investment portfolio; performs expense management, accounting and record
keeping; and provides other services necessary to the operation of the Fund and
the Schwab Fund Family. The Investment Manager, formed in 1989, is a
wholly-owned subsidiary of The Charles Schwab Corporation and is the investment
adviser and administrator of the mutual funds in the SchwabFunds Family(R), a
family of 22 mutual funds. As of April 15, 1996, the SchwabFunds had aggregate
net assets in excess of $35 billion.

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

Schwab was established in 1971 and is one of America's largest discount brokers.
The firm provides low-cost securities brokerage and related financial services
to over 3.3 million active customer accounts and has over 225 branch offices.
Schwab is a wholly-owned subsidiary of The Charles Schwab Corporation. Charles
R. Schwab is the founder, Chairman, Chief Executive Officer and a Director of
The Charles Schwab Corporation. As a result of his beneficial ownership
interests in 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.

OPERATING FEES AND EXPENSES

Pursuant to its Investment Advisory and Administration Agreement with the Schwab
Fund Family, the Investment Manager receives from the Fund a graduated annual
fee, payable monthly, of 0.46% of the Fund's average daily net assets not in
excess of $2 billion, 0.45% of such assets over $2 billion but not in excess of
$3 billion, and 0.40% of such net assets over $3 billion. At least through April
30, 1997, the Investment Manager has guaranteed that the Fund's management fee
will not exceed 0.44% of the Fund's average daily net assets.

7
<PAGE> 100

In addition, the Investment Manager and Schwab have guaranteed that, at least
through April 30, 1997, total fund operating expenses will not exceed 0.73% of
the Fund's average daily net assets. The effect of these guarantees is to
maintain or increase the Fund's total return to shareholders. For the fiscal
year ended December 31, 1995, the Fund paid a management fee of 0.44% of the
Fund's average daily net assets and paid total fund operating expenses of 0.73%
of the Fund's average daily net assets (after waivers and reimbursements). The
following expenses are not included as "operating expenses" for purposes of this
guarantee: interest expenses, taxes and capital items such as the cost of the
purchase or sale of portfolio securities, including brokerage fees or
commissions.

OTHER EXPENSES. The Schwab Fund Family pays the expenses of its operations,
including: the fees and expenses for independent accountants, legal counsel and
the custodian of its assets; the cost of maintaining books and records of
account; registration fees; the fees and expenses of qualifying the Schwab Fund
Family and its shares for distribution under federal and state securities laws;
and industry association membership dues. The expenses generally are allocated
among the Schwab Fund Family's investment portfolios ("Series") or classes of
shares within these Series, in proportion to their relative net assets at the
time the expense is incurred. However, expenses directly attributable to a
particular Series or class of a Series will be charged to that Series or class,
respectively.

OTHER INFORMATION

The Schwab Fund Family was organized as a business trust under the laws of
Massachusetts on October 20, 1989 and may issue an unlimited number of shares of
beneficial interest in one or more Series. Currently, the Schwab Fund Family
offers shares of 9 Series which may be organized into one or more classes of
shares of beneficial interest. The Board of Trustees may authorize the issuance
of shares of additional Series or classes if it deems it desirable. Shares
within each Series or class have equal, noncumulative voting rights and equal
rights as to distributions, assets and liquidation of such Series, except to the
extent such voting rights or rights as to distributions, assets and liquidation
vary among classes of a Series.

SHAREHOLDER MEETINGS AND VOTING RIGHTS. The Schwab Fund Family is not required
to hold annual shareholders' meetings and does not intend to do so. It will,
however, hold special meetings 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 Schwab Fund Family.

Shareholders will vote by Series and not in the aggregate (for example, when
voting to approve the investment advisory agreement), except when voting in the
aggregate is permit-

8
<PAGE> 101

ted under the 1940 Act, such as for the election of Trustees.

DISTRIBUTIONS AND TAXES

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

FEDERAL INCOME TAX INFORMATION. The Fund has elected to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), qualified as such and intends to continue to so qualify. In order
to so qualify, the Fund will distribute on a current basis substantially all of
its investment company taxable income and net capital gains and will meet
certain other requirements. Such qualification relieves the Fund of liability
for federal income taxes to the extent the Fund's earnings are distributed.
Generally, distributions are taxable to shareholders as ordinary income.

SHARE PRICE CALCULATION

The price of a share on any given day is its "net asset value" or "NAV." This
figure is computed by taking total Fund assets, subtracting any liabilities, and
dividing the resulting amount by the number of Fund shares outstanding. The net
asset value per share of the Fund is determined on each day both the Federal
Reserve Bank of New York and the Exchange are open for business (generally as of
4:00 p.m. Eastern time). Purchase or redemption orders and exchange requests
will be executed at the net asset value next determined after receipt by the
Transfer Agent or its authorized agent. While the Fund attempts to maintain its
net asset value at a constant $1.00 per share, Fund shares are not insured
against a reduction in net asset value.

9
<PAGE> 102

more were to occur between the Fund's net asset value per share calculated by
reference to market values and the Fund's $1.00 per share amortized cost value,
or if there were any other deviation which the Board of Trustees believed would
result in a material dilution to shareholders or purchasers, the Board of
Trustees would promptly consider what action, if any, should be initiated.

HOW THE FUND REPORTS
PERFORMANCE

From time to time the Fund may advertise its yield and effective yield.
Performance figures are based upon historical results and are not intended to
indicate future performance.

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

INVESTING IN SHARES OF THE FUND

- - requiring a form of personal identification prior to acting upon instructions
received by telephone;

- - providing written confirmation of such instructions; and

- - tape recording telephone transactions.

Investors should remember that it may be difficult to complete transactions by
telephone during periods of drastic economic or market changes, when our phone
lines may become very busy with calls from other investors. If you want to buy,
sell or exchange shares but have trouble reaching the Fund by telephone, you may
want to use one of the other ways offered for completing the transactions
discussed below, even though these procedures

10
<PAGE> 103

may mean that completing your transaction may take longer.

To assist in minimizing administrative costs, share certificates will not be
issued. Records regarding share ownership are maintained by the Transfer Agent.

HOW TO BUY SHARES

OPENING A SCHWAB ACCOUNT. You may buy shares of the Fund through an account
maintained with Schwab or The Charles Schwab Trust Company (the "Trust
Company"), and payment for shares must be made directly to Schwab or the Trust
Company. A $1,000 minimum deposit of cash and/or securities is required to open
an account maintained with Schwab or the Trust Company.

DEPOSITING FUNDS AND MEETING THE FUND'S INVESTMENT MINIMUMS. The minimum initial
investment is $1, and subsequent investments must be at least $1.

AUTOMATIC REINVESTMENT. Distributions will be reinvested in additional full and
fractional shares of the Fund at the net asset value next determined on their
payable date.

OTHER PURCHASE INFORMATION. The Fund reserves the right, in its sole discretion
and without prior notice to shareholders, to withdraw or suspend all or any part
of the offering made by this Prospectus, to reject purchase orders or to change
the minimum investment requirements. All orders to buy shares of the Fund are
subject to acceptance by the Fund and are not binding until confirmed or
accepted in writing. Schwab will charge a $15 service fee against an investor's
Schwab account should his or her check be returned because of insufficient or
uncollected funds or a stop payment order.

HOW TO EXCHANGE SHARES

The exchange privilege allows you to exchange your SchwabFunds(R) shares for
shares of another SchwabFunds Series or class available to investors in your
state, provided you meet the initial and subsequent investment requirements and
any other requirements relating to the Series or class of shares you wish to
buy. Thus, you can conveniently modify your investments if your goals or market
conditions change. For federal income tax and certain other purposes, an
exchange will be treated as a sale of Fund shares and the purchase of shares of
another fund. The Fund reserves the right to modify, limit or terminate the
exchange privilege upon 60 days' written notice.

METHODS OF EXCHANGING SHARES

BY TELEPHONE:
To exchange between funds by telephone, please call your Schwab Representative
during regular business hours.

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

11
<PAGE> 104

BY MAIL:

You may also exchange shares by writing Schwab at the address listed on the
Prospectus cover page.

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

Once mailed, an exchange request is irrevocable and may not be modified or
cancelled.

HOW TO SELL SHARES

The Fund may suspend a shareholder's rights to sell shares or postpone payments
at times when trading on the Exchange is restricted, the Exchange is closed for
any reason other than its customary weekend or holiday closings, emergency
circumstances as determined by the SEC exist, or for such other circumstances as
the SEC may permit. The Fund may also elect to invoke a 7-day period for cash
settlement of requests to sell shares in excess of $250,000 or 1% of the Fund's
net assets, whichever is less.

OTHER IMPORTANT INFORMATION

CONSOLIDATED MAILINGS. In an effort to reduce the Fund's mailing costs, the Fund
consolidates shareholder mailings by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a single package during each shareholder mailing. If you do not wish
this consolidation to apply to your account(s), please write to Schwab (at the
address listed on the Prospectus cover page) to that effect.

12
<PAGE> 105

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

13
<PAGE> 106

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 107

THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 108
SCHWAB
RETIREMENT
MONEY FUND(R)

PROSPECTUS April 29, 1996

[SchwabFunds Logo]

2026-2 (8/95) CRS 3830 Printed on recycled paper

[SchwabFunds Logo]
101 Montgomery Street
San Francisco, California 94104