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SCHWAB MONEY MARKET FUND
SCHWAB GOVERNMENT MONEY FUND
SCHWAB U.S. TREASURY MONEY FUND
SCHWAB MUNICIPAL MONEY FUND - SWEEP SHARES
PROSPECTUS APRIL 29, 1996,
AS AMENDED JANUARY 2, 1997
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 MUNICIPAL 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 Municipal Money Fund (known as
the Schwab Tax-Exempt Money Fund prior to January 2, 1997), 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 Municipal 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 January 2, 1997 (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>
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PAGE
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<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.......... 14
Organization and Management
of the Funds....................... 15
Distributions and Taxes.............. 18
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.
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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 Municipal Money Fund
(formerly, the Schwab Tax-Exempt Money Fund) also seeks to produce income for
its shareholders which is exempt from federal regular income taxes. Federal
regular income tax does not include the federal individual alternative minimum
tax or the federal alternative minimum tax for corporations. 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
Municipal 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 Municipal 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 26 mutual funds with over
$42 billion in assets as of December 16, 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 Municipal 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.")
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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.
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES: None
<TABLE>
<CAPTION>
SCHWAB SCHWAB
SCHWAB SCHWAB U.S. MUNICIPAL
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
Municipal 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 Municipal 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 Municipal 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
Municipal Money Fund, see "Investing in Shares of the Funds - How to Buy
Shares."
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(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 Municipal Money Fund.
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 Municipal 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
Municipal 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.
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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
1990(1) 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
1990(1) 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
1991(2) 1.00 0.01 -- 0.01 (0.01) -- (0.01) 1.00
SCHWAB MUNICIPAL 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
1990(1) 1.00 0.05 -- 0.05 (0.05) -- (0.05) 1.00
<CAPTION>
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 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 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 0.68 16,906 0.24* 4.11*
SCHWAB MUNICIPAL 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 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 Municipal 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 Municipal Money Fund
relates to shares which were redesignated as Sweep Shares as of June 6,
1995. Prior to January 2, 1997, the Schwab Municipal Money Fund was known as
the Schwab Tax-Exempt Money Fund.
* Annualized
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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 MUNICIPAL 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 Municipal 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 Municipal Money Fund, income exempt from federal regular income
tax. Federal regular income tax does not include the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
In addition to the Sweep Shares of the Schwab Municipal 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 Municipal 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
*Annualized
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minimum investment and minimum account balance requirements of the Value
Advantage Shares of the Schwab Municipal Money Fund are higher than those
applicable to the 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.
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
7
<PAGE> 8
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.
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
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<PAGE> 9
obligations generally are considered to be among the safest short-term
investments. The 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 MUNICIPAL MONEY FUND
The investment objective of the Schwab Municipal Money Fund is maximum current
income that is exempt from federal regular 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 regular income taxes. Federal regular income tax does not include
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.
MUNICIPAL SECURITIES. Under normal market conditions, the Fund attempts to
invest 100% 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 regular income tax ("Municipal
Securities").
Dividends representing net interest income received by the Schwab Municipal
Money Fund on Municipal Securities generally will be exempt from federal regular
income tax when distributed to the Fund's shareholders. Such dividend income may
be subject to the alternative minimum tax, state and local taxes. (See
"Distributions and Taxes - The Schwab Municipal Money Fund.")
The Schwab Municipal 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
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guaranteed or insured by the U.S. Government as to the payment of principal and
interest; (c) are fully collateralized by an escrow of U.S. Government
securities acceptable to the Fund's Investment Manager; or (d) are unrated by
any NRSRO, if they are determined by the Investment Manager, using guidelines
approved by the Board of Trustees, to be at least equal in quality to one or
more of the above referenced securities.
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.
Pursuant to a fundamental policy, as set forth in the Statement of Additional
Information, 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 regular income taxes.
The investment objective of each Fund and the investment policies set forth
above for the Schwab Money Market Fund, Schwab Government Money Fund and Schwab
U.S. Treasury Money Fund 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 Municipal 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
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<PAGE> 11
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 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. The Fund has the ability to invest all of its
assets in Municipal Securities which generate interest which is a tax preference
item for purposes of the federal alternative minimum tax. Thus, if you are
subject to the federal alternative minimum tax, all or a portion of your income
from the Fund may be subject to the federal alternative minimum tax.
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
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<PAGE> 12
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 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 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 Municipal 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
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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 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 Municipal 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 Municipal 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.
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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 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 matur-
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<PAGE> 15
ity of Variable Rate Securities in accordance with SEC rules.
BORROWING POLICY. 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 Municipal 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 assets, to
secure borrowings. No Fund will borrow for leverage purposes. These borrowing
and pledging policies are fundamental for each Fund except for the Schwab
Municipal Money Fund. The Schwab Municipal Money Fund's borrowing and pledging
policies as set forth in the Statement of Additional Information are
fundamental.
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 26 mutual funds. As of December 16, 1996, the SchwabFunds(R) had
aggregate net assets in excess of $42 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
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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
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
Municipal 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 Municipal 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 Municipal 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 Municipal
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, capital items such as
the cost of the purchase or sale of portfolio securities, including brokerage
fees or commissions, and extraordinary expenses.
For transfer agency services provided to the Schwab Money Market Fund, Schwab
Govern-
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ment 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 Municipal 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 Municipal Money Fund, the Transfer Agent receives
an annual fee of 0.05% of the average daily net assets of that class' shares of
beneficial interest. 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 Municipal 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 Municipal Money Fund will
vote exclusively as a class on any matter relating solely to the Sweep Shares
and
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<PAGE> 18
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 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 Municipal Money Fund which are exempt
from federal regular 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 MUNICIPAL 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 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
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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 "Municipal Securities" in the Statement of
Additional Information.)
Distributions by the Schwab Municipal 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 Municipal
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
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were to occur between the net asset value per share of a Fund (or Sweep Shares
for the Schwab Municipal 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 Municipal 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.
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, effective yield and
total return. In the case of the Sweep Shares of the Schwab Municipal Money Fund
only, the Fund may advertise the yield, effective yield, taxable equivalent
yield, taxable equivalent effective yield and total return of the Sweep Shares.
Performance figures are based upon historical results and are not intended to
indicate future performance. Since money market funds seek to maintain a stable
$1.00 share price, current 7-day yields are the most common illustration of
money market fund performance.
Yield refers to the income generated by a hypothetical investment in a Fund (or,
in the case of the Schwab Municipal 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 Municipal 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 Municipal Money Fund. (See "Yield" in the Statement of Additional
Information.)
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.
Total return is the change in value of an investment in a fund over a given
period, assuming reinvestment of any dividends and capital gains. A cumulative
total return reflects actual performance over a stated period of time. An
average annual total return is a hypothetical rate of return that, if achieved
annually, would have produced the same cumulative total return if performance
had been constant over the entire period. Average annual total returns smooth
out variations in performance; they are not the same as actual year-by-year
results.
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 Municipal
Money Fund may be compared to that of other mutual funds tracked by mutual fund
rating
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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 Municipal 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 Municipal 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 Municipal 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 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;
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- - 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.
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.
Schwab currently imposes no fee for opening a Schwab One(R) account with a
minimum of $5,000 account equity. Schwab One accounts
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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(R), 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 Municipal 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 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 neces-
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sary, 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(R), 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 Municipal 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.
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. 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
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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 Account
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.
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.
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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(R), 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 Municipal 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 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
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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
Municipal 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.
- ------------------------------------------------------
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SCHWAB
MONEY FUNDS-
Sweep Investments(TM)
PROSPECTUS April 29, 1996,
as amended January 2, 1997
[SchwabFunds(R) Logo]
625-17 (1/97) Printed on recycled paper.
[SchwabFunds(R) Logo]
101 Montgomery Street
San Francisco, California 94104
