<PAGE> 1
As filed with the Securities and Exchange Commission on April 29, 1996
File Nos. 33-31894 and 811-05954
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 24 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 26 /X/
--------------
THE CHARLES SCHWAB FAMILY OF FUNDS
----------------------------------
(Exact Name of Registrant as Specified in Charter)
101 Montgomery Street, San Francisco, California 94104
------------------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(415) 627-7000
--------------
Timothy F. McCarthy, President
The Charles Schwab Family of Funds
101 Montgomery Street, San Francisco, California 94104
------------------------------------------------------
(Name and Address of Agent for Service)
Copies of communications to:
Martin E. Lybecker, Esq. Frances Cole, Esq.
Ropes & Gray Charles Schwab Investment Management, Inc.
1301 K Street, NW, Suite 800 East 101 Montgomery Street
Washington, D.C. 20005 San Francisco, CA 94104
It is proposed that this filing will become effective (check appropriate box):
/X/ Immediately upon filing pursuant to paragraph (b)
/ / On (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / On (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / On (date) pursuant to paragraph (a)(2) of Rule 485
if appropriate, check appropriate box:
/ / This post-effective amendment designates a new effective date for
a previously filed post-effective amendment
DECLARATION PURSUANT TO RULE 24f-2: Pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended, Registrant has registered an
indefinite number or amount of its shares of beneficial interest under the
Securities Act of 1933, as amended. The Rule 24f-2 Notice for Registrant's
fiscal year ended December 31, 1995 was filed on February 21, 1996.
Total No. of Pages Exhibit Index Appears at
----- -----
<PAGE> 2
PART A
THE CHARLES SCHWAB FAMILY OF FUNDS
The information required by Items 1 through 9 for Schwab Tax-Exempt
Money Fund-Value Advantage Shares, Schwab California Tax-Exempt Money Fund-
Value Advantage Shares, Schwab New York Tax-Exempt Money Fund- Value Advantage
Shares and Schwab Value Advantage Money Money Fund(R), separate portfolios of
Registrant, are hereby incorporated by reference to the Prospectuses for these
Portfolios filed with the Securities and Exchange Commission pursuant to Rule
497(e) on April 1, 1996.
<PAGE> 3
CROSS REFERENCE SHEET
THE CHARLES SCHWAB FAMILY OF FUNDS:
Schwab Money Market Fund
Schwab Government Money Fund
Schwab U.S. Treasury Money Fund
Schwab Tax-Exempt Money Fund-Sweep Shares
<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Key Features of the Funds; Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registrant Cover Page; Matching the Funds to Your Investment Needs;
Investment Objectives and Policies; Organization and
Management of the Funds; Other Important Information
Management of the Fund Organization and Management of the Funds
Management's Discussion of Fund Performance How the Funds Report Performance
Capital Stock and Other Securities Cover Page; Matching the Funds to Your Investment Needs;
Investment Objectives and Policies; Municipal Securities and
Investment Techniques; Distributions and Taxes
Purchase of Securities Being Offered Share Price Calculation; Investing in Shares of the Funds
Redemption or Repurchase Investing in Shares of the Funds
Pending Legal Proceedings Inapplicable
</TABLE>
<PAGE> 4
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> 5
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> 6
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> 7
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> 8
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
<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 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> 9
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> 10
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 some foreign companies and
foreign securities markets are less liquid and at times more volatile than
securities of comparable U.S.
7
<PAGE> 11
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
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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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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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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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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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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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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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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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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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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> 22
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.
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<PAGE> 23
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.)
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<PAGE> 24
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> 25
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.
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
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<PAGE> 26
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
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<PAGE> 27
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.
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)
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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.
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<PAGE> 29
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> 30
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> 31
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> 32
CROSS REFERENCE SHEET
THE CHARLES SCHWAB FAMILY OF FUNDS:
Schwab California Tax-Exempt Money Fund-Sweep Shares
<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Key Features of the Fund; Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registrant Cover Page; Organization and Management of the Fund; Other
Important Information
Management of the Fund Organization and Management of the Fund
Management's Discussion of Fund Performance How the Fund Reports Performance
Capital Stock and Other Securities Cover Page; Matching the Fund to Your Investment Needs;
Investment Objective and Policies; Municipal Securities and
Investment Techniques; Distributions and Taxes
Purchase of Securities Being Offered Share Price Calculation; Investing in Shares of the Fund
Redemption or Repurchase Investing in Shares of the Fund
Pending Legal Proceedings Inapplicable
</TABLE>
<PAGE> 33
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.
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
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................................... 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>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 34
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> 35
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> 36
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
<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>
1995 3.20 $1,577,695 0.65 3.15
1994 2.26 1,293,883 0.64 2.25
1993 1.91 1,062,042 0.63 1.89
1992 2.35 691,176 0.63 2.31
1991 3.77 494,214 0.61 3.70
1990 1 0.77 339,292 0.28* 5.06*
</TABLE>
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> 37
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> 38
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> 39
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.
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 "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> 40
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.
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.
8
<PAGE> 41
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.
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 instrument.
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 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.
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. Generally, the Fund will not pay for such securities or start earning
interest on them until the Fund receives them. Securities purchased on a
when-issued or delayed delivery basis are recorded as an asset. The value of
such securities may change as the general level of interest rates changes.
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> 42
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> 43
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
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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.
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 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
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<PAGE> 45
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.
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.
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<PAGE> 46
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.
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 federal alternative minimum tax liability. Corporate
shareholders must also take all exempt-interest dividends into account in
determining "adjusted current earnings" for purposes of calculating their
alternative minimum tax.
Private activity bonds and industrial development bonds generally are bonds
issued by or on behalf of public authorities to obtain funds to provide 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
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<PAGE> 47
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
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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.
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' 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.
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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:
- - 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 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.
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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.
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 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
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<PAGE> 51
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:
- - 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
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.
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 Trans-
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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.
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. 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.
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.
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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
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.
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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.
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 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.
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.
- --------------------------------------------------------------------------------
22
<PAGE> 55
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 56
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> 57
CROSS REFERENCE SHEET
THE CHARLES SCHWAB FAMILY OF FUNDS:
Schwab New York Tax-Exempt Money Fund-Sweep Shares
<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Key Features of the Fund; Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registrant Cover Page; Organization and Management of the Fund; Other
Important Information
Management of the Fund Organization and Management of the Fund
Management's Discussion of Fund Performance How the Fund Reports Performance
Capital Stock and Other Securities Cover Page; Matching the Fund to Your Investment Needs;
Investment Objective and Policies; Municipal Securities and
Investment Techniques; Distributions and Taxes
Purchase of Securities Being Offered Share Price Calculation; Investing in Shares of the Fund
Redemption or Repurchase Investing in Shares of the Fund
Pending Legal Proceedings Inapplicable
</TABLE>
<PAGE> 58
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>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 59
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.")
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 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> 60
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.
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 $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> 61
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>
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> 62
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 may also be appropriate for long-term investors seeking a low-risk
investment alternative which is designed to provide income which is exempt from
federal income taxes and personal income taxes imposed by New York State and New
York municipalities.
In addition to the Sweep Shares of the Fund, Schwab also offers Value Advantage
Shares of the Fund, pursuant to a multiple class plan (the "Plan") adopted by
the Board of Trustees of the Schwab Fund Family. Under the Plan, Value Advantage
Shares of the Fund, which are not available through automatic ("sweep")
investment programs, are subject to lower transfer agency expenses than the
Sweep Shares of the Fund. In addition, the minimum investment and minimum
account balance requirements of the Value Advantage Shares of the Fund are
higher than those applicable to the Sweep Shares. (See "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 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> 63
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.
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.
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 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.
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,
6
<PAGE> 64
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.
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 "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.
7
<PAGE> 65
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.
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
8
<PAGE> 66
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 instrument.
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 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 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.
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.
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. Generally, the Fund will not pay for such securities or start earning
interest on them until the Fund receives them. Securities purchased on a
when-issued or delayed delivery basis are recorded as an asset. The value of
such securities may change as the general level of interest rates changes.
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> 67
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.
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
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.
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.
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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proceedings on the issuance of Municipal Securities or the bases for such
opinions.
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 it would 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 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.)
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 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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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.
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 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 0.20% 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 0.69% 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.
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
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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.
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 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
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
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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 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.
If the Fund holds certain "private activity bonds" ("industrial development
bonds" under prior law), dividends derived from interest on such obligations
will be classified as an item of tax preference which could subject certain
shareholders to federal alternative minimum tax liability. Corporate
shareholders must also take all exempt-interest dividends into account in
determining "adjusted current earnings" for purposes of calculating their
alternative minimum tax.
Private activity bonds and industrial development bonds generally are bonds
issued by or on behalf of public authorities to obtain funds to provide 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.)
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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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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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.
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' 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.
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 share-
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holder 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 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.
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
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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 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
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 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 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,
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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.
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: 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. 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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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.
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 for 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.
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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- - 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
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.
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.
21
<PAGE> 79
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.
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.
- --------------------------------------------------------------------------------
22
<PAGE> 80
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 81
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> 82
CROSS REFERENCE SHEET
THE CHARLES SCHWAB FAMILY OF FUNDS:
Schwab Institutional Advantage Money Fund(R)
<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Key Features of the Fund; Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registrant Cover Page; Organization and Management of the Fund; Other
Important Information
Management of the Fund Organization and Management of the Fund
Management's Discussion of Fund Performance How the Fund Reports Performance
Capital Stock and Other Securities Cover Page; Investment Objective and Policies; Distributions and
Taxes
Purchase of Securities Being Offered Share Price Calculation; Investing in Shares of the Fund
Redemption or Repurchase Investing in Shares of the Fund
Pending Legal Proceedings Inapplicable
</TABLE>
<PAGE> 83
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>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 84
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.")
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. 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> 85
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> 86
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> 87
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.
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 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 a security
may change as the general level of interest rate changes.
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> 88
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> 89
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.
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 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 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.
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> 90
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.
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,
8
<PAGE> 91
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.
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.
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
9
<PAGE> 92
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.
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. (See "Yield" in the
Statement of Additional Information.)
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.
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:
- - requiring a form of personal identification prior to acting upon instructions
received by telephone;
- - providing written confirmation of such instructions; and
10
<PAGE> 93
- - 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
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.
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.
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
11
<PAGE> 94
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> 95
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> 96
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 97
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 98
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> 99
CROSS REFERENCE SHEET
THE CHARLES SCHWAB FAMILY OF FUNDS:
Schwab Retirement Money Fund(R)
<TABLE>
<CAPTION>
Part A Item Prospectus Caption
- ----------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Key Features of the Fund; Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registrant Cover Page; Organization and Management of the Fund; Other
Important Information
Management of the Fund Organization and Management of the Fund
Management's Discussion of Fund Performance How the Fund Reports Performance
Capital Stock and Other Securities Cover Page; Investment Objective and Policies; Distributions
and Taxes
Purchase of Securities Being Offered Share Price Calculation; Investing in Shares of the Fund
Redemption or Repurchase Investing in Shares of the Fund
Pending Legal Proceedings Inapplicable
</TABLE>
<PAGE> 100
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.
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................. 11
How to Sell Shares..................... 12
Other Important Information.............. 12
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 101
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
("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.")
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. 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 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> 102
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> 103
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 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.
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 subject to the same regulatory requirements as U.S. issuers, including U.S.
banks.
4
<PAGE> 104
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.
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 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> 105
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.
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 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.
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<PAGE> 106
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 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 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.
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<PAGE> 107
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.
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. 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-
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<PAGE> 108
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.
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.
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
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<PAGE> 109
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.
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. (See "Yield" in the
Statement of Additional Information.)
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.
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:
- - 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
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<PAGE> 110
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.
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.
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:
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<PAGE> 111
- - 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 will 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 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.
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.
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- -------------------------------------------------------------------------------
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
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THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 114
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 115
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
<PAGE> 116
PART B
THE CHARLES SCHWAB FAMILY OF FUNDS
The information required by Items 10 through 23 for Schwab Tax-Exempt
Money Fund-Value Advantage Shares, Schwab California Tax-Exempt Money Fund-
Value Advantage Shares, Schwab New York Tax-Exempt Money Fund- Value Advantage
Shares and Schwab Value Advantage Money Money Fund(R), separate portfolios of
Registrant, are hereby incorporated by reference to the joint Statement of
Additional Information for these Portfolios, filed with the SEC pursuant to Rule
497(e) on April 1, 1996.
<PAGE> 117
CROSS REFERENCE SHEET
THE CHARLES SCHWAB FAMILY OF FUNDS:
Schwab Money Market Fund, Schwab Government Money Fund, Schwab U.S. Treasury
Money Fund, Schwab Tax-Exempt Money Fund-Sweep Shares, Schwab California
Tax-Exempt Money Fund-Sweep Shares, Schwab New York Tax-Exempt Money
Fund-Sweep Shares, Schwab Institutional Advantage Money Fund(R)
and Schwab Retirement Money Fund(R)
<TABLE>
<CAPTION>
Statement of Additional
Part B Item Information Caption
- ----------- -------------------
<S> <C>
Cover Page Cover Page
Table of Contents Table of Contents
General Information and History General Information
Investment Objectives and Policies Investment Restrictions
Management of the Fund Management of the Trust
Control Persons and Principal Holders of Securities Management of the Trust
Investment Advisory and Other Services Management of the Trust
Brokerage Allocation and Other Practices Portfolio Transactions and Turnover
Capital Stock and Other Securities General Information
Purchase, Redemption and Pricing of Securities Being Share Price Calculation; Purchase and Redemption of
Offered Shares
Tax Status Distributions and Taxes
Underwriters Management of the Trust
Calculation of Performance Data Yield
Financial Statements Financial Statements
</TABLE>
<PAGE> 118
STATEMENT OF ADDITIONAL INFORMATION
THE CHARLES SCHWAB FAMILY OF FUNDS
101 Montgomery Street, San Francisco, CA 94104
THE SCHWAB MONEY FUNDS:
SCHWAB MONEY MARKET FUND
SCHWAB GOVERNMENT MONEY FUND
SCHWAB U.S. TREASURY MONEY FUND
SCHWAB TAX-EXEMPT MONEY FUND-SWEEP SHARES
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND-SWEEP SHARES
SCHWAB RETIREMENT MONEY FUND(R)
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(R)
SCHWAB NEW YORK TAX-EXEMPT MONEY FUND-SWEEP SHARES
APRIL 29, 1996
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectuses dated April 29, 1996, which may be
amended from time to time, for Schwab Money Market Fund, Schwab Government Money
Fund, Schwab U.S. Treasury Money Fund, Schwab Tax-Exempt Money Fund-Sweep
Shares, Schwab California Tax-Exempt Money Fund-Sweep Shares; Schwab Retirement
Money Fund, Schwab Institutional Advantage Money Fund and Schwab New York
Tax-Exempt Money Fund-Sweep Shares (each a "Fund" and collectively, the
"Funds"), 8 separately managed investment portfolios of The Charles Schwab
Family of Funds (the "Trust"). With respect to Schwab Tax-Exempt Money Fund,
Schwab California Tax-Exempt Money Fund and Schwab New York Tax-Exempt Money
Fund, each of which is offered in two classes of shares, this Statement of
Additional Information relates to the Sweep Shares of each of those Funds. Prior
to June 6, 1995, Schwab Tax-Exempt Money Fund, Schwab California Tax-Exempt
Money Fund and Schwab New York Tax-Exempt Money Fund were not offered in
multiple classes of shares. The existing shares of those Funds are redesignated
as Sweep Shares. The other Funds listed above are not offered in multiple
classes of shares. To obtain a free copy of one or more of the above-referenced
Prospectuses, please contact Charles Schwab & Co., Inc. ("Schwab") at 800-2
NO-LOAD (800-266-5623), 24 hours a day, or 101 Montgomery Street, San Francisco,
CA 94104. TDD users may contact Schwab at 800-345-2550, 24 hours a day. The
Prospectuses may be available electronically by using our Internet address:
http://www.schwab.com.
SCHWABFunds(R)
800-2 NO-LOAD (800-266-5623)
TABLE OF CONTENTS
Page
MUNICIPAL SECURITIES....................................................... 2
INVESTMENT TECHNIQUES...................................................... 8
INVESTMENT RESTRICTIONS.................................................... 9
MANAGEMENT OF THE TRUST.................................................... 17
PORTFOLIO TRANSACTIONS AND TURNOVER........................................ 24
DISTRIBUTIONS AND TAXES.................................................... 25
SHARE PRICE CALCULATION.................................................... 31
YIELD...................................................................... 32
GENERAL INFORMATION........................................................ 35
PURCHASE AND REDEMPTION OF SHARES.......................................... 38
OTHER INFORMATION.......................................................... 38
APPENDIX - RATINGS OF INVESTMENT SECURITIES................................ 40
FINANCIAL STATEMENTS....................................................... F-1
<PAGE> 119
MUNICIPAL SECURITIES
"Municipal Securities" are debt securities issued by a state, its
political subdivisions, agencies, authorities and corporations. Municipal
Securities issued by or on behalf of the State of California, its subdivisions,
agencies or authorities are referred to herein as "California Municipal
Securities." Municipal Securities issued by or on behalf of the State of New
York, its subdivisions, agencies or instrumentalities are referred to herein as
"New York Municipal Securities."
Municipal Securities that Schwab Tax-Exempt Money Fund, Schwab
California Tax-Exempt Money Fund and Schwab New York Tax-Exempt Money Fund may
purchase include, without limitation, debt obligations issued to obtain funds
for various public purposes, including the construction of a wide range of
public facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, public utilities, schools, streets, and water and sewer works.
Other public purposes for which Municipal Securities may be issued include
refunding outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to loan to other public institutions and
facilities.
Municipal Securities include securities issued to finance various
private activities, including certain types of private activity bonds
("industrial development bonds" under prior law). These securities may be issued
by or on behalf of public authorities to obtain funds to provide certain
privately owned or operated facilities. The Schwab Tax-Exempt Money Fund, Schwab
California Tax-Exempt Money Fund and Schwab New York Tax-Exempt Money Fund may
not be desirable investments for "substantial users" of facilities financed by
private activity bonds or industrial development bonds or for "related persons"
of substantial users for whom dividends attributable to interest on such bonds
may not be tax-exempt. Shareholders should consult their own tax advisers
regarding the potential effect on them (if any) of any investment in these
Funds.
Municipal Securities generally are classified as "general obligation"
or "revenue." General obligation bonds are secured by the issuer's pledge of its
full credit and taxing power for the payment of principal and interest. Revenue
bonds are payable only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise or
other specific revenue source. Private activity bonds and industrial development
bonds that are Municipal Securities are in most cases revenue bonds and
generally do not constitute the pledge of the credit of the issuer of such
bonds.
Municipal notes are instruments issued by or on behalf of governments
and political sub-divisions thereof. Examples include: tax anticipation notes
(TANS), which are short-term debt instruments issued by a municipality or state
to finance working capital needs of the issuer in anticipation of receiving
taxes on a future date; revenue anticipation notes (RANS), which are short-term
debt instruments issued by a municipality or state to provide cash prior to
receipt of expected non-tax revenues from a specific source; bond anticipation
notes (BANS), which are short-term debt
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<PAGE> 120
instruments issued by a municipality or state that will be paid off with the
proceeds of an upcoming bond issue; and tax revenue anticipation notes (TRANS),
which are short-term debt instruments issued by a municipality or state to
finance working capital needs in anticipation of receiving taxes or other
revenues. Construction loan notes are instruments insured by the Federal Housing
Administration with permanent financing by "Fannie Mae" (the Federal National
Mortgage Association) or "Ginnie Mae" (the Government National Mortgage
Association) at the end of the project construction period. Pre-refunded
municipal bonds are bonds that are not yet refundable, but for which securities
have been placed in escrow to refund an original municipal bond issue when it
becomes refundable. Tax-free commercial paper is an unsecured promissory
obligation issued or guaranteed by a municipal issuer. The Schwab Tax-Exempt
Money Fund, Schwab California Tax-Exempt Money Fund and Schwab New York
Tax-Exempt Money Fund may purchase other Municipal Securities similar to the
foregoing, which are or may become available, including securities issued to
pre-refund other outstanding obligations of municipal issuers.
Taxable municipal securities are municipal securities the interest on
which is not exempt from federal income tax. Taxable municipal securities may
include "private activity bonds" that are issued by or on behalf of states or
political subdivisions thereof to finance privately-owned or operated facilities
for business and manufacturing, housing, sports, and pollution control and to
finance facilities for charitable institutions. The payment of the principal and
interest on private activity bonds is not backed by a pledge of tax revenues,
and is dependent solely on the ability of the facility's user to meet its
financial obligations. Taxable municipal securities also may include remarketed
certificates of participation.
The federal bankruptcy statutes relating to the adjustments of debts of
political subdivisions and authorities of states of the U.S. provide that, in
certain circumstances, such subdivisions or authorities may be authorized to
initiate bankruptcy proceedings without prior notice to or consent of creditors,
which proceedings could result in material adverse changes in the rights of
holders of obligations issued by such subdivisions or authorities.
RISK FACTORS
Schwab California Tax-Exempt Money Fund and Schwab New York Tax-Exempt
Money Fund's concentration in securities issued by a single state and its
political subdivisions provides a greater level of risk than does a fund that is
diversified across numerous states and municipal entities. The ability of a
single state and its municipalities to meet their obligations will depend on the
availability of tax and other revenues, economic, political, and demographic
conditions within the state, and the underlying fiscal condition of the state
and its municipalities.
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<PAGE> 121
CALIFORNIA MUNICIPAL SECURITIES
In addition to general economic pressures which affect the State of
California's ability to raise revenues to meet its financial obligations,
certain California constitutional amendments, legislative measures, executive
orders, administrative regulations and voter initiatives could also result in
the adverse effects described below. The following information is only a brief
summary, is not a complete description and is based on information drawn from
official statements and prospectuses relating to securities offerings of the
State of California that have come to the attention of the Trust and were
available before the date of this Statement of Additional Information. The Trust
has not independently verified the accuracy and completeness of the information
contained in those statements and prospectuses.
As used in this section, "California Municipal Securities" include
issues that are secured by a direct payment obligation of the State and
obligations of issuers that rely in whole or in part on State revenues for
payment of their obligations. Property tax revenues and part of the State's
General Fund surplus are distributed to counties, cities and their various
taxing entities; whether and to what extent a portion of the State's General
Fund will be distributed in the future to them is unclear.
Overview. From mid-1990 to late 1993, the State suffered a recession
with the worst economic, fiscal and budget conditions since the 1930's.
Construction, manufacturing (especially aerospace), exports and financial
services, among other industries, were severely affected. Job losses were the
worst of any post-war recession.
The recession seriously affected State tax revenues and caused an
increase in expenditures for health and welfare programs. As a result, the State
experienced recurring budget deficits. The State Controller reports that
expenditures exceeded revenues for four of the five fiscal years ending with
1991-92. Revenues and expenditures were essentially equal in 1992-93. The State
General Fund ended the 1993-94 fiscal year with an estimated accumulated deficit
of about $1.8 billion. A further consequence of the large budget imbalances has
been that the State depleted its available cash resources and has had to use a
series of external borrowings to meet its cash needs.
As a result of the deterioration in the State's budget and cash
situation, the State's credit ratings were reduced. Since October 1992, all
three major nationally recognized statistical rating organizations have lowered
the State's general obligation bond rating from the highest ranking of "AAA" to
"A" by S&P, "A1" by Moody's Investors Service ("Moody's") and "A+" by Fitch
Investors Service, Inc. ("Fitch").
Since the start of 1994, California's economy has been on a steady
recovery. Employment grew significantly in 1994 and 1995, especially in
export-related industries, business services, electronics, entertainment and
tourism.
State Appropriations Limit. Subject to certain exceptions, the State is
subject to an annual appropriations limit, imposed by its Constitution, on
"proceeds
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of taxes." Various expenditures, including but not limited to debt service on
certain bonds and appropriations for qualified capital outlay projects, are not
included in the appropriations limit.
1995-96 FISCAL YEAR
Revenues. The 1995-96 Budget Act projected General Fund revenues and
transfers of $44.1 billion, a 3.5% increase from the prior year, and Special
Fund revenues of $12.7 billion.
Expenditures. The 1995-96 Budget Act included General Fund expenditures
of $43.4 billion, and Special Fund expenditures of $13.0 billion. The California
Department of Finance projected that, after repaying the last of the budget
deficit carried over from prior fiscal years, there would be a positive balance
of $28 million in the budget reserve on June 30, 1996.
The Governor's proposed budget for the 1996-97 fiscal year, released on
January 10, 1996, updated the projections for the 1995-96 fiscal year; revenues
and transfers are estimated to be $45 billion and expenditures to be $44.2
billion. As a result, the budget reserve was projected to have a positive
balance of about $50 million on June 30, 1996, with available cash (after
payment of all obligations due) of about $2.2 billion.
1996-97 FISCAL YEAR
The Governors' proposed budget for 1996-97 projected General Fund
revenues and transfers of about $45.6 billion and requested total General Fund
appropriations of about $45.2 billion, which would leave a budget reserve of
about $400 million on June 30, 1997. The Governor's proposed budget renewed a
proposal, which had been rejected by the Legislature in 1995, for a 15% cut in
personal and corporate tax rates, phased in over a three-year period. On the
assumption that the proposed tax rate cut would be enacted, the Governor's
proposed budget shows a reduction in revenues of about $600 million for 1996-97.
The Governor's proposed budget also projects external cash flow borrowing of up
to $3.2 billion to mature by June 30, 1997.
The foregoing discussions of the 1995-96 Budget and the proposed
1996-97 Budget are based upon the Budget Act for 1995-96 and the Governor's
proposed 1996-97 Budget, respectively, and should not be construed as a
statement of fact. The assumptions used to construct a budget, which include
estimates and projections of revenues and expenditures, may be affected by
numerous factors, including future economic conditions in the State and the
nation. There can be no assurances that any estimates will be achieved.
ISSUES AFFECTING LOCAL
GOVERNMENTS AND SPECIAL DISTRICTS
Proposition 13. Certain California Municipal Securities may be
obligations of issuers that rely in whole or in part on ad valorem real property
taxes as a source of revenue. In 1978, California voters approved Proposition
13, which limits ad valorem taxes on real property and restricts the ability of
taxing entities to increase property tax and other revenues.
With certain exceptions, the maximum ad valorem tax on real
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property is limited to 1% of the property's full cash value to be collected by
the counties and apportioned according to law. One exception is for debt service
on bonded indebtedness if approved by two-thirds of the votes cast by voters
voting on the proposition. The full cash value may be: adjusted annually to
reflect inflation at a rate not to exceed 2% per year, or reduction in the
consumer price index or comparable local data; reduced in the event of declining
property value caused by substantial damage, destruction or other factors; or
adjusted when there is a "change in ownership" or "new construction."
The State, in response to the significant reduction in local property
tax revenues as a result of the passage of Proposition 13, enacted legislation
to provide local governments with increased expenditures from the General Fund.
This post-Proposition 13 fiscal relief has ended.
Proposition 62. This initiative, approved by voters in 1986, placed
further restrictions on the ability of local governments to raise taxes and
allocate approved tax receipts. Although some decisions of the California Courts
of Appeal held that parts of Proposition 62 were unconstitutional, the
California Supreme Court recently upheld Proposition 62's requirement that
special taxes be approved by a two-thirds vote of the voters voting in an
election on the issue. This recent decision may invalidate other taxes that have
been imposed by local governments in California and make it more difficult for
them to raise taxes.
Propositions 98 and 111. These initiatives changed the State
appropriations limit and State funding of public education below the university
level by guaranteeing K-14 schools a minimum share of General Fund revenues. The
initiatives require that the State establish a prudent state reserve fund for
public education.
Appropriations Limit. Local governments are also subject to annual
appropriations limits. If a local government's revenues in any year exceed the
amount permitted to be spent, the excess must be returned to the public through
a revision of tax rates or fee schedules over the subsequent two years.
Conclusion. The effect of these constitutional and statutory changes
and budget developments on the ability of California issuers to pay interest and
principal on their obligations remains unclear, and may depend on whether a
particular bond is a general obligation or limited obligation bond (limited
obligation bonds being generally less affected). There is no assurance that any
California issuer will make full or timely payments of principal or interest or
remain solvent; for example, in December 1994, Orange County filed for
bankruptcy. The California Tax-Exempt Money Fund's concentration in California
municipal securities provides a greater level of risk than a fund that is
diversified across numerous states and municipal entities.
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ADDITIONAL ISSUES
Mortgages and Deeds of Trust. The California Tax-Exempt Money Fund may
invest in issues which are secured in whole or in part by a mortgage or deed of
trust on real property. California law limits the remedies of a creditor secured
by a mortgage or deed of trust, which may result in delays in the flow of
revenues to an issuer.
Lease Financings. Some local governments and districts finance certain
activities through lease arrangements. It is uncertain whether such lease
financings are debt that require voter approval.
Seismic Risk. It is impossible to predict the time, magnitude or
location of a major earthquake or its effect on the California economy. In
January 1994, a major earthquake struck Los Angeles, causing significant damage
to structures and facilities in 4 counties. Another earthquake could create a
major dislocation of the California economy.
NEW YORK MUNICIPAL SECURITIES
The State of New York has experienced fiscal problems for several years
as a result of negligible growth, increased human service needs and the
lingering recession that hit the State harder than others. Although the State
enjoyed good growth throughout the early to mid-1980's, unemployment continues
to be a problem. The State's economy is highly developed and diverse, with a
large emphasis in service, trade, financial services and real estate; however,
extensive job losses in each of these areas has placed a burden on the State to
maintain employment, company development and a stable tax base.
The State has a large accumulated deficit, as reflected in its
financial results. The overall wealth of the State's population, as reflected by
its per capita income, offers a positive credit enhancement, and is among the
highest in the nation. The debt per capita, though, is also among the highest
and poses a large burden on State residents.
The importance of New York City to the State's economy is also an
important consideration, since it represents a significant portion of the
overall economy of the State. The City has struggled to maintain fiscal
stability, and any major changes to the financial condition of the City would
ultimately have an effect on the State. The overall financial condition of the
State can be illustrated by the changes of its debt rating during the last
several years of financial difficulties: Moody's downgraded the State's general
obligation long-term debt from A1 to A in 1990 and S&P downgraded it from A to
A- in early 1992. The State has the second lowest long-term debt rating among
those states with outstanding general obligation ratings. The short-term debt
ratings are within the top two rating categories: MIG-2 for Moody's and SP-1 for
S&P. Moody's rating on New York City general obligation bonds is Baa1, while S&P
rates them BBB+.
The Schwab New York Tax-Exempt Money Fund's concentration in securities
issued by the State of New York and its political subdivisions provides a
greater level of risk than a fund which is
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<PAGE> 125
diversified across numerous states and municipal entities. The ability of the
State of New York or its municipalities to meet their obligations will depend on
the availability of tax and other revenues; economic, political and demographic
conditions within the state; and the underlying fiscal condition of the State
and its municipalities.
INVESTMENT TECHNIQUES
EURODOLLAR CERTIFICATES OF DEPOSIT
AND FOREIGN SECURITIES
Before investing in Eurodollar certificates of deposit, a Fund will
consider their marketability, possible restrictions on international currency
transactions, and any regulations imposed by the domicile country of the foreign
issuer. Eurodollar certificates of deposit may not be subject to the same
regulatory requirements as certificates of deposit issued by U.S. banks and
associated income may be subject to the imposition of foreign taxes.
Investments in securities of foreign issuers or securities principally
traded overseas may involve certain special risks due to foreign economic,
political and legal developments, including expropriation of assets or
nationalization, imposition of withholding taxes on dividend or interest
payments, and possible difficulty in obtaining and enforcing judgments against
foreign entities.
SECTION 4(2) PAPER
Commercial Paper and other securities are issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended, and resold to qualified
institutional buyers under Securities Act Rule 144A ("Section 4(2) paper").
Federal securities laws restrict the disposition of Section 4(2) paper. Section
4(2) paper generally is sold to institutional investors such as the Funds who
agree that they are purchasing the paper for investment and not for public
distribution. Any resale by the purchaser must be in an exempt transaction and
may be accomplished in accordance with Rule 144A. Section 4(2) paper normally is
resold to other institutional investors such as the Funds through or with the
assistance of the issuer or investment dealers who make a market in the Section
4(2) paper, thus providing liquidity. Because it is not possible to predict with
assurance exactly how this market for Section 4(2) paper sold and offered under
Rule 144A will continue to develop, Charles Schwab Investment Management, Inc.
(the "Investment Manager"), pursuant to guidelines approved by the Board of
Trustees, will carefully monitor a Fund's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information.
ASSET-BACKED COMMERCIAL PAPER
AND OTHER SECURITIES
The Schwab Money Market Fund, Schwab Retirement Money Fund(R) and
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<PAGE> 126
Schwab Institutional Advantage Money Fund(R) can invest a portion of their
assets in asset-backed commercial paper and other money market fund Eligible
Securities (as that term is hereinafter defined). The credit quality of most
asset-backed commercial paper depends primarily on the credit quality of the
assets underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator (or any other affiliated
entities) and the amount and quality of any credit support provided to the
securities.
Asset-backed commercial paper is often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on these underlying assets to make payments, such
securities may contain elements of credit support.
Such credit support falls into two classes: liquidity protection and
protection against ultimate default on the underlying assets. Liquidity
protection refers to the provision of advances, generally by the entity
administering the pool of assets, to ensure that scheduled payments on the
underlying pool are made in a timely fashion. Protection against ultimate
default ensures payment on at least a portion of the assets in the pool. Such
protection may be provided through guarantees, insurance policies or letters of
credit obtained from third parties, through various means of structuring the
transaction or through a combination of such approaches. The degree of credit
support provided on each issue is based generally on historical information
respecting the level of credit risk associated with such payments. Delinquency
or loss in excess of that anticipated could adversely affect the return on an
investment in an asset-backed security.
Bank notes are notes used to represent debt obligations issued by banks
in large denominations.
Tax-exempt commercial paper is an unsecured short-term obligation
issued by a government or political sub-division thereof.
INVESTMENT RESTRICTIONS
EXCEPT AS OTHERWISE NOTED, THE RESTRICTIONS BELOW ARE FUNDAMENTAL AND CANNOT BE
CHANGED WITHOUT APPROVAL OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING VOTING
SECURITIES (AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED,
HEREINAFTER THE "1940 ACT") OF THE FUND TO WHICH THEY APPLY.
EACH OF THE SCHWAB MONEY MARKET FUND, SCHWAB GOVERNMENT MONEY FUND, SCHWAB
RETIREMENT MONEY FUND(R) AND SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(R) MAY
NOT:
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<PAGE> 127
(1) Purchase securities or make investments other than in accordance
with its investment objectives and policies.
(2) Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. Government, its agencies or instrumentalities)
if, as a result thereof, more than 5% of the value of its assets would
be invested in the securities of such issuer.
(3) Purchase, in the aggregate with all other Schwab Money Funds, more than
10% of any class of securities of any issuer. All debt securities and
all preferred stocks are each considered as one class.
(4) Concentrate 25% or more of the value of its assets in any one industry;
provided, however, that it reserves the freedom of action to invest up
to 100% of its assets in certificates of deposit or bankers'
acceptances issued by domestic branches of U.S. banks and U.S. branches
of foreign banks (which the Fund has determined to be subject to the
same regulation as U.S. banks), or obligations of, or guaranteed by,
the U.S. Government, its agencies or instrumentalities in accordance
its investment objective and policies.
(5) Invest more than 5% of its total net assets in securities of issuers
(other than obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities) that, with their predecessors, have a
record of less than three years of continuous operation.
(6) Enter into repurchase agreements if, as a result thereof, more than 10%
its net assets valued at the time of the transaction would be subject
to repurchase agreements maturing in more than 7-days and invested in
securities restricted as to disposition under the federal securities
laws (except commercial paper issued under Section 4(2) of the
Securities Act of 1933, as amended). Each Fund will invest no more than
10% of its net assets in illiquid securities.
(7) Invest more than 5% of its total assets in securities restricted as to
disposition under the federal securities laws (except commercial paper
issued under Section 4(2) of the Securities Act of 1933, as amended).
(8) Purchase or retain securities of an issuer if any of the officers,
trustees or directors of the Trust or its Investment Manager or the
Sub-Adviser individually own beneficially more than 1/2 of 1% of the
securities of such issuer and together beneficially own more than 5% of
the securities of such issuer.
(9) Invest in commodities or commodity contracts, futures contracts, real
estate or real estate limited partnerships, although it may invest in
securities which are secured by real estate and securities of issuers
which invest or deal in real estate.
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(10) Invest for the purpose of exercising control or management of another
issuer.
(11) Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition
of assets. 1
(12) Make loans to others (except through the purchase of debt obligations
or repurchase agreements in accordance with its investment objectives
and policies), except that Schwab Retirement Money Fund(R) anD Schwab
Institutional Advantage Money Fund(R) may (i) purchase a portion of an
issue of short-term debt securities or similar obligations (including
repurchase agreements) that are publicly distributed or customarily
purchased by institutional investors, and (ii) lend its portfolio
securities.
(13) 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 or purchase securities or make investments while
reverse repurchase agreements or borrowings are outstanding. Any
borrowings by Schwab Money Market Fund or Schwab Government Money Fund
will not be collateralized. If for any reason the current value of the
total net assets of any of the Funds falls below an amount equal to
three times the amount of indebtedness from money borrowed, such Fund
will, within three business days, reduce its indebtedness to the extent
necessary.
(14) Write, purchase or sell puts, calls or combinations thereof.
(15) Make short sales of securities, or purchase any securities on margin,
except to obtain such short-term credits as may be necessary for the
clearance of transactions.
(16) Invest in interests in oil, gas, mineral leases or other mineral
exploration or development programs, although it may invest in the
securities of issuers which invest in or sponsor such programs.
(17) Underwrite securities issued by others except to the extent it may be
deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of securities from its investment
portfolio.
(18) Issue senior securities as defined in the 1940 Act.
- --------------
1 See the description of the Trustees' deferred compensation plan under
"Management of the Trust" in this Statement of Additional Information
for an exception to this investment restriction.
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<PAGE> 129
Except for restrictions (4) and (13), if a percentage restriction is adhered to
at the time of investment, a later increase in percentage resulting from a
change in values or net assets will not be considered a violation.
EACH OF THE SCHWAB TAX-EXEMPT MONEY FUND, SCHWAB CALIFORNIA TAX-EXEMPT MONEY
FUND AND SCHWAB NEW YORK TAX-EXEMPT MONEY FUND MAY NOT:
(1) Purchase securities or make investments other than in accordance with
investment objectives and policies.
(2) Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. Government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of its assets would be
invested in the securities of that issuer, except that, with respect to
Schwab California Tax-Exempt Money Fund and Schwab New York Tax-Exempt
Money Fund, provided no more than 25% of the Fund's total assets would
be invested in the securities of a single issuer, up to 50% of the
value of the Fund's assets may be invested without regard to this 5%
limitation. For purposes of this limitation, the Fund will regard the
entity which has the primary responsibility for the payment of interest
and principal as the issuer.
(3) Purchase securities (other than securities of the U.S. Government, its
agencies or instrumentalities) if as a result of such purchase 25% or
more of its total assets would be invested in any industry (although
securities issued by governments or political subdivisions of
governments are not considered to be securities subject to this
industry concentration restriction) or in any one state (although the
limitation as to investments in a state or its political subdivision
shall not apply to Schwab California Tax-Exempt Money Fund or Schwab
New York Tax-Exempt Money Fund), nor may it enter into a repurchase
agreement if more than 10% of its net assets would be subject to
repurchase agreements maturing in more than 7-days.
(4) Invest more than 5% of its total assets in industrial development bonds
sponsored by companies which, with their predecessors, have less than
three years of continuous operation, although each Fund may invest more
than 25% of its total net assets in industrial development bonds.
(5) Invest more than 5% of its total assets in securities restricted as to
disposition under the federal securities laws, although this limitation
shall be 10% with respect to Schwab California Tax-Exempt Money Fund
and Schwab New York Tax-Exempt Money Fund.
(6) Purchase or retain securities of an issuer if any of the officers,
trustees or directors of the Trust or of its Investment Manager
individually own beneficially more than 1/2
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<PAGE> 130
of 1% of the securities of such issuer and together own more than 5% of
the securities of such issuer.
(7) Invest in commodities or commodity futures contracts or in real estate,
except that each Fund may invest in Municipal Securities secured by
real estate or interests therein.
(8) Invest for the purpose of exercising control or management of another
issuer.
(9) Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition
of assets. 2
(10) Make loans to others (except through the purchase of debt obligations
or repurchase agreements in accordance with its investment objective
and policies).
(11) Borrow money, except from banks for temporary purposes (but not for the
purpose of purchasing investments), and then only in an amount not to
exceed one-third of the value of its total assets (including the amount
borrowed) in order to meet redemption requests which otherwise might
result in the untimely disposition of securities; or pledge its
securities or receivables or transfer or assign or otherwise encumber
them in an amount to exceed 10% of the Fund's net assets to secure
borrowings. Reverse repurchase agreements entered into by the Fund are
permitted within the limitations of this paragraph. No such Fund will
purchase securities or make investments while reverse repurchase
agreements or borrowings are outstanding.
(12) Write, purchase or sell puts, calls or combinations thereof, although
it may purchase Municipal Securities subject to standby commitments,
variable rate demand notes or repurchase agreements in accordance with
its investment objective and policies.
(13) Make short sales of securities or purchase securities on margin, except
to obtain such short-term credits as may be necessary for the clearance
of transactions.
(14) Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in Municipal Securities of
issuers which invest in or sponsor such programs.
- ---------------------------
2 See the description of the Trustees' deferred compensation plan under
"Management of the Trust" in this Statement of Additional Information
for an exception to this investment restriction.
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(15) Underwrite securities issued by others, except to the extent it may be
deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of securities from its investment
portfolio.
(16) Issue senior securities as defined in the 1940 Act.
Except for restrictions (6) and (11), if a percentage restriction is adhered to
at the time of investment, a later increase in percentage resulting from a
change in values or net assets will not be considered a violation. None of the
Funds has a present intention of borrowing during the coming year and, in any
event, each Fund would limit borrowings as required by the restrictions
previously stated.
THE U.S. TREASURY MONEY FUND MAY NOT:
(1) Purchase securities other than obligations issued by the U.S.
Treasury and securities backed by the "full faith and credit"
guarantee of the U.S. Government that mature in 397 days or less.3
(2) Make loans to others (except through the purchase of debt obligations).
(3) Issue senior securities as defined in the 1940 Act.
(4) Underwrite securities issued by others except to the extent it may be
deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of securities from its investment
portfolio.
(5) Invest in commodities or in real estate.
(6) Invest for the purpose of exercising control over management of another
company.
(7) 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 the Fund's total assets in order to meet redemption requests
without immediately selling any portfolio securities; or pledge its
securities or receivables or transfer, or assign or otherwise encumber
them in an amount to exceed 33% of the Fund's net assets to secure
borrowings. The Fund will not borrow for leverage purposes or purchase
securities or make investments while reverse repurchase agreements or
borrowings are outstanding. If for any reason the current value of the
total net assets of the Fund falls below an amount equal to three times
the amount of
- ------------------------------
3 See the description of the Trustees' deferred compensation plan under
"Management of the Trust" in this Statement of Additional Information
for an exception to this investment restriction.
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<PAGE> 132
its indebtedness from money borrowed, the Fund will, within three business days,
reduce its indebtedness to the extent necessary.
The following restrictions are non-fundamental, and may be changed by the Board
of Trustees.
The U.S. Treasury Money Fund may not:
(1) Invest more than 10% of its assets in securities which are not readily
marketable, including securities which are restricted as to
disposition; or
(2) Engage in short sales, except for short sales against the box.
Each Schwab Money Fund will only purchase securities that present minimal credit
risks and (except in the case of Schwab U.S. Treasury Money Fund) which are
First Tier or Second Tier Securities (otherwise referred to as "Eligible
Securities").4 An Eligible Security is:
(1) a security with a remaining maturity of 397 days or less (12 months or
less in the case of Schwab Money Market and Schwab Government Money
Funds): (a) that is rated by the requisite nationally recognized
statistical rating organizations ("NRSROs") designated by the
Securities and Exchange Commission (the "SEC") (currently Moody's, S&P,
Duff and Phelps Credit Rating Co., Fitch, Thomson Bankwatch, and, with
respect to debt issued by banks, bank holding companies, United Kingdom
building societies, broker-dealers and broker-dealers' parent
companies, and bank-supported debt, IBCA Limited and its affiliate,
IBCA, Inc.) in one of the two highest rating categories for short-term
debt obligations (two NRSROs are required but one rating suffices if
only one NRSRO rates the security), or (b) that itself was unrated by
any NRSRO, but was issued by an issuer that has outstanding a class of
short-term debt obligations (or any security within that class) meeting
the requirements of subparagraph 1(a) above that is of comparable
priority and security;
(2) a security that at the time of issuance was a long-term security but
has a remaining maturity of 397 days or less (12 months or less in the
case of Schwab Money Market and Schwab Government Money Funds), and (a)
whose issuer received a rating within one of the two highest rating
categories from the requisite NRSROs for short-term debt obligations
with respect to a class of short-term debt obligations (or any security
within that class) that is now comparable in priority and security with
the
- ------------------------------
4 See the description of the Trustees' deferred compensation plan under
"Management of the Trust" in this Statement of Additional Information
for an exception to this investment restriction.
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<PAGE> 133
subject security; or (b) that has long-term ratings from the
requisite NRSROs that are in one of the two highest categories; or
(3) a security not rated by an NRSRO but deemed by the Investment Manager,
pursuant to guidelines adopted by the Board of Trustees, to be of
comparable quality to securities described in (1) and (2) above and to
represent minimal credit risks.
A First Tier Security is any Eligible Security that carries (or other relevant
securities issued by its issuer carry) top NRSRO ratings from at least two
NRSROs (a single top rating suffices if only one NRSRO rates the security) or
has been determined by the Investment Manager, pursuant to guidelines adopted by
the Board of Trustees, to be of comparable quality to such a security. A Second
Tier Security is any other Eligible Security.
Schwab Money Market Fund, Schwab Government Money Fund, Schwab Retirement Money
Fund(R) and Schwab InstitutionaL Advantage Money Fund(R) will limit their
investments in the First Tier Securities of any one issuer to no more thaN 5% of
their assets. (Repurchase agreements collateralized by non-Government securities
will be taken into account when making this calculation.) Moreover, each Fund's
total holdings of Second Tier Securities will not exceed 5% of its assets, with
investment in the Second Tier Securities of any one issuer being limited to the
greater of 1% of the Fund's assets or $1 million. In addition, the underlying
securities involved in repurchase agreements collateralized by non-Government
securities will be First Tier Securities at the time the repurchase agreements
are executed.
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MANAGEMENT OF THE TRUST
OFFICERS AND TRUSTEES. The officers and trustees of the Trust, their principal
occupations over the past five years and their affiliations, if any, with The
Charles Schwab Corporation, Schwab and Charles Schwab Investment Management,
Inc., are as follows:
<TABLE>
<CAPTION>
POSITION WITH
NAME/BIRTHDAY THE TRUST PRINCIPAL OCCUPATION
- ------------- ------------- --------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman and Trustee Founder, Chairman, Chief Executive Officer and Director, The Charles
July 29, 1937 Schwab Corporation; Founder, Chairman and Director, Charles Schwab &
Co., Inc. and Charles Schwab Investment Management, Inc.; Chairman
and Director, The Charles Schwab Trust Company; Chairman and Director
(board positions), and Chairman (officer position) until December
1995, Mayer & Schweitzer, Inc. (a securities brokerage subsidiary of
The Charles Schwab Corporation); Director, The Gap, Inc. (a clothing
retailer), Transamerica Corporation (a financial services
organization), AirTouch Communications (a telecommunications company)
and Siebel Systems (a software company).
TIMOTHY F. McCARTHY** President and Trustee Executive Vice President - Mutual Funds, Charles Schwab & Co., Inc.
September 19, 1951 and The Charles Schwab Corporation; Chief Executive Officer, Charles
Schwab Investment Management, Inc. From 1994 to 1995, Mr. McCarthy
was Chief Executive Officer, Jardine Fleming Unit Trusts Ltd.;
Executive Director, Jardine Fleming Holdings Ltd.; Chairman, Jardine
Fleming Taiwan Securities Ltd.; and Director of JF India and Fleming
Flagship, Europe. Prior to 1994, he was President of Fidelity
Investments Advisor Group, a division of Fidelity Investments in
Boston.
DONALD F. DORWARD Trustee President and Chief Executive Officer, Dorward & Associates
September 23, 1931 (advertising and marketing/consulting).
</TABLE>
- ---------------------------
*Mr. Schwab is an "interested person" of the Trust.
**Mr. McCarthy is an "interested person" of the Trust.
17
<PAGE> 135
<TABLE>
<CAPTION>
POSITION WITH
NAME/BIRTHDAY THE TRUST PRINCIPAL OCCUPATION
- ------------- ------------- --------------------
<S> <C> <C>
ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and Director, Semloh Financial,
May 15, 1931 Inc. (international financial services); and International Investment
Consultant, Cannon Street, Inc. (private investigative firm).
DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens & Co. (real estate investment).
June 28, 1938 Prior to 1993, Mr. Stephens was Chairman and Chief Executive
Officer of the Bank of San Francisco.
MICHAEL W. WILSEY Trustee Chairman, Chief Executive Officer and Director, Wilsey Bennett,
August 18, 1943 Inc. (truck and air transportation, real estate investment and
management, and investments).
A. JOHN GAMBS Treasurer and Principal Executive Vice President - Finance and Chief Financial Officer, The
November 16, 1945 Financial Officer Charles Schwab Corporation; Executive Vice President, Chief Financial
Officer and Director, Charles Schwab & Co., Inc.; Chief Financial
Officer and Director, Charles Schwab Investment Management, Inc.; and
Chief Financial Officer, The Charles Schwab Trust Company.
WILLIAM J. KLIPP* Senior Vice President, Senior Vice President, Charles Schwab & Co., Inc.; President and
December 9, 1955 Chief Operating Officer Chief Operating Officer, Charles Schwab Investment Management, Inc.
and Trustee Prior to 1993, Mr. Klipp was Treasurer of Charles Schwab & Co., Inc.
and Mayer & Schweitzer, Inc.
STEPHEN B. WARD Senior Vice President & Senior Vice President and Chief Investment Officer, Charles Schwab
April 5, 1955 Chief Investment Investment Management, Inc.
Officer
FRANCES COLE Secretary Vice President, Chief Counsel, Chief Compliance Officer and Assistant
September 9, 1955 Corporate Secretary, Charles Schwab Investment Management, Inc.
</TABLE>
- ------------------
*Mr. Klipp is an "interested person" of the Trust.
18
<PAGE> 136
<TABLE>
<CAPTION>
POSITION WITH
NAME/BIRTHDAY THE TRUST PRINCIPAL OCCUPATION
- ------------- ------------- --------------------
<S> <C> <C>
DAVID H. LUI Assistant Secretary Vice President and Senior Counsel - Charles Schwab
October 14, 1960 Investment Management, Inc. From 1991 to 1992, he was Assistant
Secretary and Assistant Corporate Counsel for the Franklin Group of
Mutual Funds.
CHRISTINA M. PERRINO Assistant Secretary Vice President and Senior Counsel - Charles Schwab Investment
June 16, 1961 Management, Inc. Prior to 1994, she was Counsel and Assistant
Secretary for North American Security Life Insurance Company and
Secretary for North American Funds.
</TABLE>
Each of the above-referenced individuals also serves in the same
capacity as described for the Trust, Schwab Investments, Schwab Capital Trust
and Schwab Annuity Portfolios. The address of each individual listed above is
101 Montgomery Street, San Francisco, California 94104.
COMPENSATION TABLE 1
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated
Accrued as Part Annual Benefits
of Fund Upon Total
Aggregate Expenses from Retirement from Compensation
Name of Person, Compensation the Fund the Fund from the Fund
Position from the Trust Complex 2 Complex 2 Complex 2
- --------------- -------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Charles R. Schwab, 0 N/A N/A 0
Chairman and
Trustee
Elizabeth G. Sawi 3, 0 N/A N/A 0
President and
Trustee
Timothy F.
McCarthy 4, 0 N/A N/A 0
President and
Trustee
William J. Klipp, 0 N/A N/A 0
Sr. Vice President,
Chief Operating
Officer and Trustee
</TABLE>
19
<PAGE> 137
COMPENSATION TABLE 1
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated
Accrued as Part Annual Benefits
of Fund Upon Total
Aggregate Expenses from Retirement from Compensation
Name of Person, Compensation the Fund the Fund from the Fund
Position from the Trust Complex 2 Complex 2 Complex 2
- --------------- -------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Donald F. Dorward, 38,500 N/A N/A 73,000
Trustee
Robert G. Holmes, 38,500 N/A N/A 73,000
Trustee
Donald R. Stephens, 38,500 N/A N/A 73,000
Trustee
Michael W. Wilsey, 38,500 N/A N/A 73,000
Trustee
</TABLE>
1 Figures are for the Trust's fiscal year ended December 31, 1995.
2 "Fund Complex" comprises all 22 funds of the Trust, Schwab
Investments, Schwab Capital Trust and Schwab Annuity Portfolios.
3 Ms. Sawi served as President and Trustee until October 1995.
4 Mr. McCarthy became President and Trustee in October 1995.
- --------------------
TRUSTEE DEFERRED COMPENSATION PLAN
Pursuant to exemptive relief received by the Trust from the SEC, the
Trust may enter into deferred fee arrangements (the "Fee Deferral Plan" or the
"Plan") with the Trust's trustees who are not "interested persons" of any of the
Funds of the Trust (the "Independent Trustees" or the "Trustees").
As of the date of this Statement of Additional Information, none of the
Independent Trustees has elected to participate in the Fee Deferral Plan. In the
event an Independent Trustee does elect to participate in the Plan, the Plan
would operate as described below.
Under the Plan, deferred Trustee's fees will be credited to a book
reserve account established by the Trust (the "Deferred Fee Account"), as of the
date such fees would have been paid to such Trustee. The value of the Deferred
Fee Account as of any date will be equal to the value the Account would have had
as of that date if the amounts credited to the Account had been invested and
reinvested in the securities of the SchwabFund or SchwabFunds(R) selected by the
participating Trustee (the "Selected SchwabFund Securities").
20
<PAGE> 138
"SchwabFunds" include the series or classes of shares of beneficial interest of
the Trust, Schwab Investments and Schwab Capital Trust.
Pursuant to the exemptive relief granted to the Trust, each Fund will
purchase and maintain the Selected SchwabFund Securities in an amount equal to
the deemed investments in that Fund of the Deferred Fee Accounts of the
Independent Trustees. These transactions would otherwise be limited or
prohibited by the investment policies and/or restrictions of the Funds. See
"Investment Restrictions."
INVESTMENT MANAGER
Charles Schwab Investment Management, Inc., a wholly-owned subsidiary
of The Charles Schwab Corporation, serves as the Funds' investment adviser and
administrator pursuant to two separate yet otherwise substantially similar
Investment Advisory and Administration Agreements (the "Advisory Agreements")
between it and the Trust. The Investment Manager is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended, and currently
provides investment management services to the SchwabFunds(R), a family of 22
mutual fundS with over $35 billion in assets as of April 15, 1996. The
Investment Manager is an affiliate of Schwab, the Trust's distributor and
shareholder services and transfer agent.
Each Advisory Agreement will continue in effect for one-year terms for
each Fund to which it relates, subject to annual approval by: (1) the Trust's
Board of Trustees or (2) a vote of the majority (as defined in the 1940 Act) of
the outstanding voting securities of each Fund subject thereto. In either event,
the continuance must also be approved by a majority of the Trust's Board of
Trustees who are not parties to the Agreement, or interested persons (as defined
in the 1940 Act) of any such party, by vote cast in person at a meeting called
for the purpose of voting on such approval. Each Advisory Agreement may be
terminated at any time upon 60 days notice by either party, or by a majority
vote of the outstanding shares of a Fund subject thereto, and will terminate
automatically upon assignment.
Pursuant to an Advisory Agreement dated June 15, 1994, the Investment
Manager is entitled to receive from Schwab Money Market Fund a graduated annual
fee, payable monthly, of 0.46% of such 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 is entitled to receive from Schwab Government Money Fund and Schwab
Tax-Exempt Money Fund a graduated annual fee, payable monthly, of 0.46% of the
average daily net assets of each such Fund's average daily net assets not in
excess of $1 billion, 0.41% of such net assets over $1 billion but not in excess
of $2 billion, and 0.40% of such net assets over $2 billion.
For the fiscal year ended December 31, 1993, the investment advisory
fees paid by Schwab Money Market Fund, Schwab Government Money Fund and Schwab
Tax-Exempt Money Fund were
21
<PAGE> 139
$19,368,000 (fees were reduced by $11,025,000); $4,558,000 (fees were reduced by
$2,863,000); and $3,494,000 (fees were reduced by $5,424,000), respectively.
For the fiscal year ended December 31, 1994, the investment advisory
fees paid by Schwab Money Market Fund, Schwab Government Money Fund and Schwab
Tax-Exempt Money Fund were $28,697,000 (fees were reduced by $13,405,000);
$5,434,000 (fees were reduced by $2,922,000); and $5,421,000 (fees were reduced
by $6,646,000), respectively.
For the fiscal year ended December 31, 1995, the investment advisory
fees paid by Schwab Money Market Fund, Schwab Government Money Fund and Schwab
Tax-Exempt Money Fund were $36,652,000 (fees were reduced by $15,603,000);
$1,901,000 (fees were reduced by $2,777,000); and $6,465,000 (fees were reduced
by $7,229,000), respectively.
Pursuant to a separate Advisory Agreement dated June 15, 1994, as may
be amended from time to time, the Investment Manager is entitled to receive an
annual fee, payable monthly, of 0.46% of each of Schwab California Tax-Exempt
Money Fund, Schwab New York Tax-Exempt Money Fund and Schwab U.S. Treasury Money
Fund's average daily net assets not in excess of $1 billion, 0.41% of such net
assets over $1 billion but not in excess of $2 billion, and 0.40% of such net
assets over $2 billion. In addition, the Investment Manager is entitled to
receive from Schwab Retirement Money Fund(R) and Schwab Institutional Advantage
Money Fund(R) a graduated annual fee, payaBle monthly, of 0.46% of each such
Fund's average daily net assets not in excess of $2 billion, 0.45% of such net
assets over $2 billion but not in excess of $3 billion, and 0.40% of such net
assets over $3 billion.
For the fiscal year ended December 31, 1993, the investment advisory
fees paid by Schwab California Tax-Exempt Money Fund and Schwab U.S. Treasury
Money Fund were $1,437,000 (fees were reduced by $2,450,000) and $483,000 (fees
were reduced by $687,000), respectively. During the fiscal year ended December
31, 1993, no investment advisory fees were paid by the Schwab Institutional
Advantage Money Fund and Schwab Retirement Money Fund.
For the fiscal year ended December 31, 1994, the investment advisory
fees paid by Schwab California Tax-Exempt Money Fund, Schwab U.S. Treasury Money
Fund, Schwab Institutional Advantage Money Fund(R) and SchwaB Retirement Money
Fund(R) were $2,254,000(fees were reduced by $3,274,000); $1,016,000 (fees were
reduced bY $1,442,000); $124,000 (fees were reduced by $96,000); and $75,000
(fees were reduced by $21,000), respectively.
For the fiscal year ended December 31, 1995, the investment advisory
fees paid by Schwab California Tax-Exempt Money Fund, Schwab U.S. Treasury Money
Fund, Schwab Institutional Advantage Money Fund and Schwab Retirement Money Fund
were $2,748,000 (fees were reduced by $3,697,000); $2,748,000 (fees were
reduced by $2,674,000); $202,000 (fees were
22
<PAGE> 140
reduced by $162,000); and $338,000 (fees were reduced by $16,000),
respectively. For the period February 27, 1995 (commencement of operations) to
December 31, 1995, the investment advisory fee paid by Schwab New York Tax-
Exempt Money Fund was $464,000 (fees were reduced by $277,000).
EXPENSES
The Trust pays the expenses of its operations, including: the fees and
expenses of independent accountants, counsel and the custodian; the cost of
reports and notices to shareholders; the cost of calculating net asset value;
registration fees; the fees and expenses of qualifying the Trust and its shares
for distribution under federal and state securities laws; and membership dues
in the Investment Company Institute or any similar organization. The Trust's
expenses generally are allocated among the Funds on the basis of relative net
assets at the time the expense is incurred, except that expenses directly
attributable to a particular Fund or class of a Fund are charged to that Fund
or class, respectively.
DISTRIBUTOR
Pursuant to a Distribution Agreement, Schwab is the principal
underwriter for shares of the Trust and is the Trust's agent for the purpose of
the continuous offering of the Funds' shares. Each Fund pays the cost for the
prospectuses and shareholder reports to be prepared and delivered to existing
shareholders. Schwab pays such costs when the described materials are used in
connection with the offering of shares to prospective investors and for
supplementary sales literature and advertising. Schwab receives no fee under the
Distribution Agreement. Terms of continuation, termination and assignment under
the Distribution Agreement are identical to those described above with respect
to the Advisory Agreements.
CUSTODIAN AND FUND ACCOUNTANT
PNC Bank, National Association, at the Airport Business Center, 200
Stevens Drive, Suite 440, Lester, Pennsylvania 19113, serves as Custodian for
the Trust.
PFPC, Inc., at 400 Bellevue Parkway Wilmington, Delaware 19809, serves
as Fund Accountant for the Trust.
ACCOUNTANTS AND REPORTS
TO SHAREHOLDERS
The Trust's independent accountants, Price Waterhouse LLP, audit and
report on the annual financial statements of each series of the Trust and review
certain regulatory reports and each Fund's federal income tax return. Price
Waterhouse LLP also performs other professional accounting, auditing, tax and
advisory services when engaged to do so by the Trust. Shareholders will be sent
audited annual and unaudited semi-annual financial statements. The address of
Price Waterhouse LLP is 555 California Street, San Francisco, California 94104.
23
<PAGE> 141
LEGAL COUNSEL
Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800
East, Washington, D.C. 20005, is counsel to the Trust.
PORTFOLIO TRANSACTIONS AND TURNOVER
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to: pursue the
objective of each Fund in relation to movements in the general level of interest
rates; invest money obtained from the sale of Fund shares; reinvest proceeds
from maturing portfolio securities; and meet redemptions of Fund shares.
Portfolio transactions may increase or decrease the yield of a Fund depending
upon management's ability to correctly time and execute them.
The Investment Manager, in effecting purchases and sales of portfolio
securities for the account of each Fund, seeks to obtain best price and
execution. Subject to the supervision of the Board of Trustees, the Investment
Manager generally selects broker-dealers for the Funds primarily on the basis of
the quality and reliability of services provided, including execution capability
and financial responsibility.
When the execution and price offered by two or more broker-dealers are
comparable, the Investment Manager may, in its discretion, utilize the services
of broker-dealers that provide it with investment information and other research
resources. Such resources may also be used by the Investment Manager when
providing advisory services to other investment advisory clients, including
mutual funds.
The Trust expects that purchases and sales of portfolio securities will
usually be principal transactions. Securities will normally be purchased
directly from the issuer or from an underwriter or market maker for the
securities.
Purchases from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers serving as
market makers will include the spread between the bid and asked prices.
The investment decisions for each Fund are reached independently from
those for other accounts managed by the Investment Manager. Such other accounts
may also make investments in instruments or securities at the same time as a
Fund. When two or more
24
<PAGE> 142
accounts managed by the Investment Manager have funds available for investment
in similar instruments, available instruments are allocated as to amount in a
manner considered equitable to each account. In some cases this procedure may
affect the size or price of the position obtainable for Fund. However, it is the
opinion of the Board of Trustees that the benefits conferred by the Investment
Manager outweigh any disadvantages that may arise from exposure to simultaneous
transactions.
PORTFOLIO TURNOVER
Because securities with maturities of less than one year are excluded
from required portfolio turnover rate calculations, each Schwab Money Fund's
portfolio turnover rate for reporting purposes is expected to be zero.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
On each day that the net asset value per share of a Fund is determined
("Business Day"), such Fund's net investment income will be declared as of the
close of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern
time) as a daily dividend to shareholders of record as of the last calculation
of net asset value prior to the declaration. In the case of Schwab Institutional
Advantage Money Fund(R), for shareholders satisfyinG certain conditions,
investment income will be declared as a daily dividend to shareholders of record
as of that day's calculation of net asset value. Conditions which must be met in
order to receive a dividend for the day on which the order is received by the
Transfer Agent or its authorized agent are: (1) a minimum investment of
$100,000; (2) receipt by Schwab or the Charles Schwab Trust Company before 1:30
p.m. Eastern time; and (3) payment in immediately available funds. Shareholders
will receive dividends in additional shares unless they elect to receive cash.
For each Fund except Schwab Retirement Money Fund(R) and Schwab Institutional
AdvantagE Money Fund, dividends will normally be reinvested monthly in full
shares of the Fund (for Schwab Tax-Exempt Money Fund, Schwab California
Tax-Exempt Money Fund and Schwab New York Tax-Exempt Money Fund dividends will
normally be reinvested monthly in full Sweep Shares of the Fund) at the net
asset value on the 15th day of each month, if a Business Day, otherwise on the
next Business Day. For Schwab Retirement Money Fund(R) and Schwab InstitutionaL
Advantage Money Fund(R), dividends will normally be reinvested monthly in full
shares of the Fund at the net asseT value on the 15th day of each month, if a
Business Day, otherwise on the next Business Day. If cash payment is requested,
checks will normally be mailed on the Business Day following the
25
<PAGE> 143
reinvestment date. Each Fund will pay shareholders who redeem all of their
shares all dividends accrued to the time of the redemption within 7 days.
Each Fund calculates its dividends based on its daily net investment
income. For this purpose, the net investment income of a Fund (other than Schwab
Tax-Exempt Money Fund, Schwab California Tax-Exempt Money Fund and Schwab New
York Tax-Exempt Money Fund) consists of: (1) accrued interest income, plus or
minus amortized discount or premium, minus (2) accrued expenses allocated to
that Fund. For this purpose, for Schwab Tax-Exempt Money Fund, Schwab California
Tax-Exempt Money Fund and Schwab New York Tax Exempt Money Fund, the net
investment income of the Sweep Shares of each Fund consists of: (1) accrued
interest income plus or minus amortized discount or premium, allocated to the
Sweep Shares of that Fund minus (2) accrued expenses allocated to the Sweep
Shares of that Fund. If a Fund realizes any capital gains, they will be
distributed at least once during the year as determined by the Board of
Trustees. Any realized capital losses to the extent not offset by realized
capital gains will be carried forward. It is not anticipated that a Fund will
realize any long-term capital gains. Expenses of the Trust are accrued each day.
Should the net asset value of a Fund deviate significantly from market value,
the Board of Trustees could decide to value the investments at market value and
any unrealized gains and losses could affect the amount of the Fund's
distributions.
FEDERAL INCOME TAXES
It is the policy of each Fund to qualify for taxation as a "regulated
investment company" by meeting the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). By following this policy, each
Fund expects to eliminate or reduce to a nominal amount the federal income tax
to which it is subject.
In order to qualify as a regulated investment company, each of the
Funds must, among other things, (1) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stocks, securities, foreign currencies or other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in stocks, securities or currencies; (2)
derive less than 30% of its gross income from gains from the sale or other
disposition of certain assets (including stocks and securities) held for less
than three months; and (3) diversify its holdings so that at the end of each
quarter of its taxable year (i) at least 50% of the market value of the Fund's
total assets is represented by cash or cash items, U.S. Government securities,
securities of other regulated investment companies and other securities limited,
in respect of any one issuer, to a value not greater than 5% of the value of the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than
26
<PAGE> 144
U.S. Government securities or securities of any other regulated investment
company) or of two or more issuers that the Fund controls, within the meaning of
the Code, and that are engaged in the same, similar or related trades or
businesses. These requirements may restrict the degree to which a Fund may
engage in short-term trading and certain hedging transactions and may limit the
range of the Fund's investments. If a Fund qualifies as a regulated investment
company, it will not be subject to federal income tax on the part of its net
investment income and net realized capital gains, if any, which it distributes
to shareholders, provided that the Fund meets certain minimum distribution
requirements. To comply with these requirements, a Fund must distribute at least
(a) 90% of its "investment company taxable income" (as that term is defined in
the Code) and (b) 90% of the excess of its (i) tax-exempt interest income over
(ii) certain deductions attributable to that income (with certain exceptions),
for its taxable year. Each Fund intends to make sufficient distributions to
shareholders to meet these requirements.
If a Fund fails to distribute in a calendar year (regardless of whether
it has a non-calendar taxable year) substantially all of its (i) ordinary income
for such year; and (ii) capital gain net income for the year ending October 31
(or later if the Fund is permitted so to elect and so elects), plus any retained
amount from the prior year, the Fund will be subject to a nondeductible 4%
excise tax on the undistributed amounts. Each Fund intends generally to make
distributions sufficient to avoid imposition of this excise tax.
Any distributions declared by the Funds in October, November or
December to shareholders of record during those months and paid during the
following January are treated, for tax purposes, as if they were received by
each shareholder on December 31 of the year declared. A Fund may adjust its
schedule for the reinvestment of distributions for the month of December to
assist in complying with the reporting and minimum distribution requirements of
the Code.
The Funds do not expect to realize any significant amount of long-term
capital gain. However, any distributions of long-term capital gain will be
taxable to the shareholders as long-term capital gain, regardless of how long a
shareholder has held the Fund's shares. If a shareholder disposes of shares at a
loss before holding such shares for longer than six months, the loss will be
treated as a long-term capital loss to the extent the shareholder received a
capital gain dividend on the shares.
A Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of taxable dividends paid to any shareholder (1) who fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) who provides an incorrect taxpayer identification number; (3) who
is subject to withholding by the Internal Revenue Service for failure to
properly report all payments of interest or dividends or (4) who fails to
provide a certified statement that he or she is not subject to "backup
27
<PAGE> 145
withholding." This "backup withholding" is not an additional tax and any amounts
withheld may be credited against the shareholder's ultimate U.S. tax liability.
The Funds may engage in investment techniques that may alter the timing
and character of the Funds' income. The Funds may be restricted in their use of
these techniques by rules relating to their qualification as regulated
investment companies.
The foregoing discussion relates only to federal income tax law as
applicable to U.S. citizens or residents. Foreign shareholders (i.e.,
nonresident alien individuals and foreign corporations, partnerships, trusts and
estates) generally are subject to U.S. withholding tax at the rate of 30% (or a
lower tax treaty rate) on distributions derived from net investment income and
short-term capital gains. Distributions to foreign shareholders of long-term
capital gains and any gains from the sale or disposition of shares of the Funds
generally are not subject to U.S. taxation, unless the recipient is an
individual who meets the Code's definition of "resident alien." Different tax
consequences may result if the foreign shareholder is engaged in a trade or
business within the U.S. In addition, the tax consequences to a foreign
shareholder entitled to claim the benefits of a tax treaty may be different than
those described above. Distributions by a Fund may also be subject to state,
local and foreign taxes, and their treatment under applicable tax laws may
differ from the federal income tax treatment.
SCHWAB TAX-EXEMPT MONEY FUND,
SCHWAB CALIFORNIA TAX-EXEMPT
MONEY FUND AND SCHWAB NEW YORK
TAX-EXEMPT MONEY FUND
The Code permits a regulated investment company that invests at least
50% of its assets at the close of each quarter in Municipal Securities to pass
through to its investors, on a tax-exempt basis, net Municipal Securities
interest income. An exempt-interest dividend is any dividend or part thereof
(other than a capital gain dividend) paid by Schwab Tax-Exempt Money Fund,
Schwab California Tax-Exempt Money Fund or Schwab New York Tax-Exempt Money Fund
and designated as an exempt-interest dividend in a written notice mailed to
shareholders after the close of such Fund's taxable year, but not to exceed in
the aggregate the net Municipal Securities interest income received by each such
Fund during the taxable year. The percentage of the total dividends paid for any
taxable year that qualified as exempt-interest dividends will be the same for
all shareholders receiving dividends from each Fund during such year, regardless
of the period for which the Shares were held. If for any taxable year Schwab
Tax-Exempt Money Fund, Schwab California Tax-Exempt Money Fund or Schwab New
York Tax-Exempt Money Fund does not qualify for the special federal tax
treatment afforded regulated investment companies, all of its taxable income
will be subject to federal tax at regular corporate rates (without any deduction
for distributions to its shareholders) when distributed, and Municipal
Securities interest income,
28
<PAGE> 146
although not taxed to the Funds, would be taxable to shareholders.
A shareholder should consult his or her own tax adviser with respect to
whether exempt-interest dividends would be excludable from gross income if the
shareholder were treated as a "substantial user" of facilities financed by an
obligation held by a Fund or a "related person" to such user under the Code. Any
loss on the sale or exchange of any share held for 6 months or less will be
disallowed to the extent of the amount of the exempt-interest dividend received
with respect to such share. The U.S. Treasury Department is authorized to issue
regulations reducing the period to not less than 31 days for certain regulated
investment companies, but no such regulations have been issued as of the date of
this Statement of Additional Information.
All or part of interest on indebtedness incurred or continued by a
shareholder to purchase or carry shares of a Fund will not be deductible by the
shareholder. The portion of interest that is not deductible is equal to the
total interest paid or accrued on the indebtedness multiplied by the percentage
of that Fund's total distributions (excluding distributions of the excess of net
long-term capital gains over net short-term capital losses) paid to the
shareholder that are exempt-interest dividends. Under rules used by the Internal
Revenue Service, the purchase of shares of a Fund may be considered to have been
made with borrowed funds even though such funds are not directly traceable to
the purchase of the shares.
This discussion of federal income taxation presented above only
summarizes some of the important federal tax considerations generally affecting
purchasers of Fund shares. No attempt has been made to present a detailed
explanation of the federal income tax treatment of a Fund and its shareholders,
and the discussion is not intended as a substitute for careful tax planning.
Accordingly, prospective investors (particularly those not residing or domiciled
in the U.S.) should consult their own tax advisers regarding the consequences of
investing in a Fund.
STATE TAXES
With respect to Schwab California Tax-Exempt Money Fund, if, at the
close of each quarter of its taxable year, at least 50% of the value of the
total assets of the Fund consists of obligations the interest on which is exempt
from California personal income taxation under the Constitution or laws of
California or of the U.S. when held by an individual ("California Exempt
Obligations"), then the Fund will be qualified to pay dividends exempt from
State of California personal income tax to its non-corporate shareholders
(hereinafter referred to as "California exempt-interest dividends"). Schwab
California Tax-Exempt Money Fund intends to qualify under the above requirement
so that it can pay California exempt-interest dividends. If Schwab California
Tax-Exempt Money Fund fails to so qualify, no part of its dividends will be
exempt from State of California personal income tax.
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<PAGE> 147
With respect to Schwab New York Tax-Exempt Money Fund, there is no
analogous requirement, so all dividends representing interest on New York
Municipal Securities that is exempt from New York personal income taxation will
be exempt from New York State and municipal income taxes in the hands of
non-corporate shareholders ("New York exempt-interest dividends").
Not later than 60 days after the close of its taxable year, Schwab
California and New York Tax-Exempt Money Funds will notify each shareholder of
the portion of the dividends paid by it to the shareholder with respect to such
taxable year which is exempt from State of California personal income tax or New
York personal income tax, respectively.
The total amount of California exempt-interest dividends paid by Schwab
California Tax-Exempt Money Fund to all of its shareholders with respect to any
taxable year cannot exceed the amount of interest received by the Fund during
such year on California Exempt Obligations, less any expenses or expenditures
(including any expenditures attributable to the acquisition of additional
securities for Schwab California Tax-Exempt Money Fund) that are allocable from
such interest. Dividends paid by Schwab California Tax-Exempt Money Fund in
excess of this limitation will be treated as ordinary dividends subject to State
of California personal income tax at ordinary rates. For purposes of this
limitation, expenses or other expenditures paid during any year generally will
be allocable with funds attributable to interest received by the Fund from
California Exempt Obligations for such year in the same ratio as such interest
from California Exempt Obligations for such year bears to the total gross income
earned by the Fund for the year. The effect of this accounting convention is
that amounts of interest from California Exempt Obligations received by Schwab
California Tax-Exempt Money Fund that would otherwise be available for
distribution as California exempt-interest dividends will be reduced by the
expenses and expenditures be allocable from such amounts.
To the extent, if any, dividends paid to shareholders by Schwab
California Tax-Exempt Money Fund or New York Tax-Exempt Money Fund are derived
from long-term and short-term capital gains, such dividends will not constitute
California or New York exempt-interest dividends. Rules similar to those
regarding the treatment of such dividends for federal income tax purposes are
also applicable for State of California and New York personal income tax
purposes. Moreover, interest on indebtedness incurred by a shareholder to
purchase or carry shares of Schwab California Tax-Exempt Money Fund or New York
Tax-Exempt Money Fund is not deductible for state personal income tax purposes
if the Fund distributes California or New York exempt-interest dividends to the
shareholder during his or her taxable year.
The foregoing is only a summary of some of the important state personal
income tax considerations generally affecting Schwab California Tax-Exempt and
New York Tax-Exempt Money Funds
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<PAGE> 148
and their shareholders. No attempt is made to present a detailed explanation of
the state personal income tax treatment of Schwab California Tax- Exempt and New
York Tax-Exempt Money Funds or their shareholders, and this discussion is not
intended as a substitute for careful planning. Further, it should be noted that
the portion of Schwab California Tax-Exempt and New York Tax-Exempt Money Funds'
dividends constituting California or New York exempt-interest dividends,
respectively, is excludable from income for State of California or State of New
York personal income tax purposes only.
Any dividends paid to shareholders of the Funds subject to state
franchise or corporate income tax will be taxed as ordinary dividends to such
shareholders, notwithstanding that all or a portion of such dividends is exempt
from state personal income tax. Accordingly, potential investors in the Schwab
California Tax-Exempt or New York Tax-Exempt Money Funds, including, in
particular, corporate investors which may be subject to California or New York
franchise or corporate income tax, should consult their tax advisers with
respect to the application of such tax to the receipt of dividends from the
Funds and as to their own state tax situation, in general.
SHARE PRICE CALCULATION
Each Schwab Money Fund values its portfolio instruments at amortized cost,
which means 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 a Fund's investments at amortized
cost with market values. Market valuations are obtained by using actual
quotations provided by market makers, estimates of market value or values
obtained from yield data relating to classes of money market instruments
published by reputable sources at the mean between the bid and asked prices for
the instruments. The amortized cost method of valuation seeks to maintain a
stable $1.00 per share net asset value even where there are fluctuations in
interest rates that affect the value of portfolio instruments. Accordingly, this
method of valuation can in certain circumstances lead to a dilution of a
shareholder's interest. If a deviation of 1/2 of 1% or more were to occur
between the net asset value per share calculated by reference to market values
and a Schwab Money Fund's $1.00 per share net asset value, or if there were any
other deviation that the Board of Trustees of the Trust believed would result in
a material dilution to shareholders or purchasers, the Board of Trustees would
promptly consider what action, if any, should be initiated. If a Schwab Money
Fund's net asset value per share (computed using market values) declined,
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<PAGE> 149
or were expected to decline, below $1.00 (computed using amortized cost), the
Board of Trustees might temporarily reduce or suspend dividend payments in an
effort to maintain the net asset value at $1.00 per share. As a result of such
reduction or suspension of dividends or other action by the Board of Trustees,
an investor would receive less income during a given period than if such a
reduction or suspension had not taken place. Such action could result in
investors receiving no dividend for the period during which they hold their
shares and receiving, upon redemption, a price per share lower than that which
they paid. On the other hand, if a Schwab Money Fund's net asset value per share
(computed using market values) were to increase, or were anticipated to increase
above $1.00 (computed using amortized cost), the Board of Trustees might
supplement dividends in an effort to maintain the net asset value at $1.00 per
share.
YIELD
The historical performance of a Fund may be shown in the form of
yield, effective yield and, for the Sweep Shares of Schwab Tax-Exempt Money
Fund, Schwab California Tax-Exempt Money Fund and Schwab New York Tax-Exempt
Money Fund, taxable equivalent yield and taxable equivalent effective yield.
These measures of performance are described below.
YIELD
Yield refers to the net investment income generated by a hypothetical
investment in the Fund (or, in the case of Schwab Tax-Exempt Money Fund, Schwab
California Tax-Exempt Money Fund and Schwab New York Tax-Exempt Money Fund, the
Sweep Shares of the Fund) over a specific 7-day period. This net investment
income is then annualized, which means that the net investment income generated
during the 7-day period is assumed to be generated in each 7-day period over an
annual period, and is shown as a percentage of the investment.
EFFECTIVE YIELD
Effective yield is calculated similarly, but the net investment income
earned by the investment is assumed to be compounded weekly when annualized. The
effective yield will be slightly higher than the yield due to this compounding
effect.
TAXABLE EQUIVALENT YIELD AND
TAXABLE EQUIVALENT EFFECTIVE YIELD
The taxable equivalent yield of the Sweep Shares of Schwab Tax-Exempt
Fund is computed by dividing that portion of the yield of the class (computed as
described above) that is tax-exempt by an amount equal to one minus the stated
federal income tax rate (normally assumed to be the maximum applicable marginal
tax bracket rate) and adding the
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<PAGE> 150
result to that portion, if any, of the yield of the class that is not
tax-exempt. The taxable equivalent yield of the Sweep Shares of Schwab
California Tax-Exempt Money Fund is calculated by dividing that portion of the
yield of the class (computed as described above) which is tax-exempt by an
amount equal to one minus the stated combined State of California and federal
income tax rate (normally assumed to be the maximum federal marginal rate of
39.6% and the California marginal rate of 9.3%, although other rates may be used
at times), and adding the result to that portion, if any, of the yield of the
class that is not tax-exempt. The taxable equivalent yield of the Sweep Shares
of Schwab New York Tax-Exempt Money Fund is calculated by dividing that portion
of the yield of the class (computed as described above) which is tax-exempt by
an amount equal to one minus the stated combined New York municipal, State of
New York and federal income tax rate (normally assumed to be the maximum federal
marginal rate of 39.6%, the State of New York marginal rate of 7.125% and the
New York municipal marginal rate of 3.91%, although other rates may be used at
times), and adding the result to that portion, if any, of the yield of the class
that is not tax-exempt.
Taxable equivalent effective yields are computed in the same manner as
taxable equivalent yields, except that effective yield is substituted for yield
in the calculation. In calculating taxable equivalent yields and effective
yields, Schwab Tax-Exempt Money Fund generally assumes an effective tax rate of
39.6%, Schwab California Tax-Exempt Money Fund generally assumes an effective
tax rate (combining the federal 39.6% rate and the California 9.30% rate, and
assuming the taxpayer deducts California state taxes paid) of 45.22%, and Schwab
New York Tax-Exempt Money Fund generally assumes an effective tax rate
(combining the federal 39.6% rate, the New York state 7.125% rate and the New
York municipal 3.91% rate, and assuming the taxpayer deducts New York state and
municipal taxes paid) of 46.27%. Investors in Schwab New York Tax-Exempt Money
Fund should understand that, under legislation enacted in New York State and New
York City, the maximum effective tax rates for 1997 will be 45.79%. The
effective tax rates used in determining such yields do not reflect the tax costs
resulting from the full or partial loss of the benefits of personal exemptions,
itemized deductions and California exemption credits that may result from the
receipt of additional taxable income by taxpayers with adjusted gross incomes
exceeding $117,950 or ($58,975 for married filing separate returns) in 1996.
Actual taxable equivalent yields and taxable equivalent effective yields may be
higher for taxpayers subject to the loss of these benefits than the rates
reported by the Funds.
TAX-EXEMPT VERSUS TAXABLE YIELD
Investors may want to determine which investment--tax exempt or
taxable--will provide a higher after-tax return. To determine the taxable
equivalent yield, or taxable equivalent effective yield, simply divide the yield
or effective yield of Sweep Shares of Schwab Tax-Exempt
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<PAGE> 151
Money Fund, Schwab California Tax-Exempt Money Fund or Schwab New York
Tax-Exempt Money Fund by (1) minus your marginal federal tax rate (or combined
state and federal tax rate in the case of Schwab California Tax-Exempt Money
Fund, or combined municipal, state, and federal tax rate in the case of Schwab
New York Tax-Exempt Money Fund). Note, however, that as discussed above full or
partial loss by certain investors of the described federal tax benefits could
cause the resulting figure to understate the after-tax return produced by the
Sweep Shares of the Fund in question.
Performance information for each of the Funds for the 7-day period
ended December 31, 1995 is presented below. The taxable equivalent yield and
taxable equivalent effective yield figures are based, in the case of Schwab
Tax-Exempt Money Fund, upon an assumed 1995 effective tax rate of 39.6%; in the
case of Schwab California Tax-Exempt Money Fund, upon an assumed effective tax
rate of 45.22%; in the case of Schwab New York Tax-Exempt Money Fund, upon an
assumed effective tax rate of 46.27%. (Based on the maximum rates in effect for
1995. See the discussion above relating to federal, State of California and
State of New York tax rates.)
<TABLE>
<CAPTION>
Taxable
Taxable Equivalent
Yield Effective Yield Equivalent Yield Effective Yield
----- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Schwab Money Market Fund 5.11% 5.24% -- --
Schwab Government Money Fund 4.99% 5.11% -- --
Schwab U.S. Treasury Money Fund 4.89% 5.01% -- --
Schwab Tax-Exempt 3.96% 4.04% 6.56% 6.69%
Money Fund-Sweep Shares
Schwab California Tax-Exempt 3.78% 3.85% 7.03% 7.16%
Money Fund-Sweep Shares
Schwab New York Tax-Exempt 3.83% 3.90% 7.21% 7.35%
Money Fund-Sweep Shares
</TABLE>
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GENERAL INFORMATION
The Trust is generally not required to hold shareholder meetings.
However, as provided in its Agreement and Declaration of Trust and Bylaws,
shareholder meetings will be held in connection with the following matters: (1)
election or removal of trustees if a meeting is requested in writing by a
shareholder or shareholders who beneficially own(s) 10% or more of the Trust's
shares; (2) adoption of any contract for which shareholder approval is required
by the 1940 Act; (3) any termination of the Trust to the extent and as provided
in the Declaration of Trust; (4) any amendment of the Declaration of Trust
(other than amendments changing the name of the Trust or any of its investment
portfolios, supplying any omission, curing any ambiguity or curing, correcting
or supplementing any defective or inconsistent provision thereof); (5)
determining whether a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the shareholders, to the same extent as the stockholders of a Massachusetts
business corporation; and (6) such additional matters as may be required by law,
the Declaration of Trust, the Bylaws or any registration of the Trust with the
SEC or any state or as the Board of Trustees may consider desirable. The
shareholders also would vote upon changes to a Fund's fundamental investment
objective, policies or restrictions.
Each Trustee serves until the next meeting of shareholders, if any,
called for the purpose of electing trustees and until the election and
qualification of his or her successor or until death, resignation, retirement or
removal by a majority vote of the shares entitled to vote (as described below)
or of a majority of the Trustees. In accordance with the 1940 Act (i) the Trust
will hold a shareholder meeting for the election of trustees when less than a
majority of the trustees have been elected by shareholders, and (ii) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled by a
vote of the shareholders.
Upon the written request of 10 or more shareholders who have been such
for at least six months and who hold shares constituting at least 1% of the
Trust's outstanding shares stating that they wish to communicate with the other
shareholders for the purpose of obtaining signatures necessary to demand a
meeting to consider removal of one or more trustees, the Trust has undertaken to
disseminate appropriate materials at the expense of the requesting shareholders.
The Bylaws provide that a majority of shares entitled to vote shall be
a quorum for the transaction of business at a shareholders' meeting, except that
where any provision of law, of the Declaration of Trust or of these Bylaws
permits or requires that (i) holders of any series shall vote as a series, then
a majority of the aggregate number of shares of that series entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that series;
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<PAGE> 153
or (ii) holders of any class shall vote as a class, then a majority of the
aggregate number of shares of that class entitled to vote shall be necessary to
constitute a quorum for the transaction of business by that class. Any lesser
number shall be sufficient for adjournments. Any adjourned session or sessions
may be held, within a reasonable time after the date set for the original
meeting, without the necessity of further notice. The Declaration of Trust
specifically authorizes the Board of Trustees to terminate the Trust (or any of
its investment portfolios) by notice to the shareholders without shareholder
approval.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for the Trust's
obligations. The Declaration of Trust, however, disclaims shareholder liability
for the Trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or the trustees. In addition, the Declaration of Trust provides for
indemnification out of the property of an investment portfolio in which a
shareholder owns or owned shares for all losses and expenses of such shareholder
or former shareholder if he or she is held personally liable for the obligations
of the Trust solely by reason of being or having been a shareholder. Moreover,
the Trust will be covered by insurance which the trustees consider adequate to
cover foreseeable tort claims. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote, because
it is limited to circumstances in which a disclaimer is inoperative and the
Trust itself is unable to meet its obligations.
For further information, please refer to the registration statement and
exhibits for the Trust on file with the SEC in Washington, D.C. and available
upon payment of a copying fee. The statements in the Prospectus and this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
PRINCIPAL HOLDERS OF SECURITIES
As March 31, 1996, The Charles Schwab Trust Company FBO Mutual Fund
FSI2 Trading, One Montgomery Street, 7th Floor, San Francisco, California 94104
directly or beneficially owned 77.35% of Schwab Retirement Money Fund(R).
As March 31, 1996, The Charles Schwab Trust Company TTEE Technology
Financial Assoc. Inc., Retirement Savings Plan, FBO Henry H. Hoffman, One
Montgomery Street, 7th Floor, San Francisco, California 94104 directly or
beneficially owned 77.35% and Queens-Long Island Medical Group-401K Plan, 106
EAB Plaza, 12th Floor, Uniondale, New York 11556 directly or beneficially owned
11.06% of Schwab Institutional Advantage Money Fund(R).
In addition, as of April 16, 1996 the officers and trustees of the
Trust, as a group, owned less than 1% of each Fund's outstanding voting
securities.
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SchwabFunds(R). SchwabFunds offers a variety of series and classes of shares of
beneficial interest to help you with your investment needs.
EQUITY FUNDS
Schwab 1000 Fund(R) 1
Schwab International Index Fund(TM) 2
Schwab Small-Cap Index Fund(R) 2
Schwab Asset Director(R)-High Growth Fund 2
Schwab Asset Director(R)-Balanced Growth Fund 2
Schwab Asset Director(R)-Conservative Growth Fund 2
FIXED INCOME FUNDS 1
Schwab Short/Intermediate Government Bond Fund
Schwab Long-Term Government Bond Fund
Schwab Short/Intermediate Tax-Free Bond Fund
Schwab Long-Term Tax-Free Bond Fund
Schwab California Short/Intermediate Tax-Free Bond Fund 3
Schwab California Long-Term Tax-Free Bond Fund 3
MONEY MARKET FUNDS 4
Schwab Money Market Fund
Schwab Government Money Fund
Schwab U.S. Treasury Money Fund
Schwab Value Advantage Money Fund(R)
Schwab Tax-Exempt Money Fund-Sweep Shares
Schwab Tax-Exempt Money Fund-Value Advantage Shares(TM)
Schwab California Tax-Exempt Money Fund-Sweep Shares 3
Schwab California Tax-Exempt Money Fund-Value Advantage Shares(TM) 3
Schwab Retirement Money Fund(R) 5
Schwab Institutional Advantage Fund(R) 5
Schwab New York Tax-Exempt Money Fund-Sweep Shares 6
Schwab New York Tax-Exempt Money Fund-Value Advantage Shares(TM) 6
1 The Schwab 1000 Fund and all fixed income funds are separate investment
portfolios of Schwab Investments.
2 The Funds are separate investment portfolios of Schwab Capital Trust.
3 Designed for California taxpayers.
4 All listed money market funds are separate investment portfolios of the
Trust.
5 Designed for institutional investors only.
6 Designed for New York taxpayers.
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PURCHASE AND REDEMPTION OF SHARES
With the exception of Schwab Retirement Money Fund(R) and Schwab
Institutional Advantage Money Fund(R), each Fund's minimum initial investment is
$1,000 and subsequent investments of $100 or more may be made. For Schwab
Retirement Money Fund and Schwab Institutional Advantage Money Fund the minimum
initial investment is $1 and $25,000 for each Fund, respectively, and subsequent
investments of $1 or more may be made. These minimum requirements may be changed
at any time and are not applicable to certain types of investors. For all
retirement plan, Schwab One(R) and certain other types of accounts, any account
credit balance in excess of $1.00 and subsequent amounts of $1.00 on any
Business Day will be automatically invested on a daily basis in the Schwab Money
Fund selected (except that this feature is not available for Schwab Retirement
Money Fund or Schwab Institutional Advantage Money Fund). The Trust may waive
the minimums for purchases by trustees, directors, officers or employees of the
Trust, Schwab or the Investment Manager. The Trust has made an election with the
SEC to pay in cash all redemptions requested by any shareholder of record
limited in amount during any 90-day period to the lesser of $250,000 or 1% of
its net assets at the beginning of such period. This election is irrevocable
without the SEC's prior approval. Redemption requests in excess of the stated
limits may be paid, in whole or in part, in investment securities or in cash, as
the Trust's Board of Trustees may deem advisable; however, payment will be made
wholly in cash unless the Board of Trustees believes that economic or market
conditions exist that would make such a practice detrimental to the best
interests of the Fund. If redemption proceeds are paid in investment securities,
such securities will be valued as set forth in the Prospectus of the Fund
affected under "Share Price Calculation" and a redeeming shareholder would
normally incur brokerage expenses if he or she converted the securities to cash.
The Schwab Institutional Advantage Money Fund and Schwab Retirement Money Fund
may also elect to invoke a 7-day period for cash settlement of individual
redemption requests in excess of $250,000 or 1% of each Fund's net assets,
whichever is less.
OTHER INFORMATION
The Prospectuses of the Funds and this Statement of Additional
Information do not contain all the information included in the Registration
Statement filed with the SEC under the Securities Act of 1933, as amended, with
respect to the securities offered by the Prospectuses.
Certain portions of the Registration Statement have been omitted from
the Prospectuses and this Statement of
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<PAGE> 156
Additional Information pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined at
the office of the SEC in Washington, D.C.
Statements contained in the Prospectuses or in this Statement of
Additional Information as to the contents of any contract or other document
referred to are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which the Prospectuses and this Statement of
Additional Information form a part, each such statement being qualified in all
respects by such reference.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN
OFFERING BY THE TRUST, ANY SERIES THEREOF, OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE.
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APPENDIX - RATINGS OF INVESTMENT SECURITIES
COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers (or related supporting institutions) of commercial paper with this
rating are considered to have a superior ability to repay short-term promissory
obligations. Issuers (or related supporting institutions) of securities rated
Prime-2 are viewed as having a strong capacity to repay short-term promissory
obligations. This capacity will normally be evidenced by many of the
characteristics of issuers whose commercial paper is rated Prime-1 but to a
lesser degree.
STANDARD & POOR'S CORPORATION
A S&P A-1 commercial paper rating indicates either an overwhelming or
very strong degree of safety regarding timely payment of principal and interest.
Issues determined to possess overwhelming safety characteristics are denoted
A-1+. Capacity for timely payment on commercial paper rated A-2 is strong, but
the relative degree of safety is not as high as for issues designated A-1.
DUFF & PHELPS CREDIT RATING CO.
Duff-1+ is the highest commercial paper rating assigned by Duff &
Phelps Credit Rating Co. ("Duff"). Three gradations exist within this rating
category: a Duff-1+ rating indicates the highest certainty of timely payment
(issuer short-term liquidity is found to be outstanding and safety is deemed to
be just below that of risk-free short-term U.S. Treasury obligations), a Duff-1
rating signifies a very high certainty of timely payment (issuer liquidity is
determined to be excellent and risk factors are considered minor) and a Duff-1-
rating denotes high certainty of timely payment (issuer liquidity factors are
strong and risk is very small). A Duff-two rating indicates a good certainty of
timely payment; liquidity factors and company fundamentals are sound and risk
factors are small.
FITCH INVESTORS SERVICE, INC.
F-1+ is the highest category, and indicates the strongest degree of
assurance for timely payment. Issues rated F-1 reflect an assurance of timely
payment only slightly less than issues rated F-1+. Issues assigned an F-2 rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues in the first two rating categories.
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SHORT-TERM NOTES AND VARIABLE RATE DEMAND OBLIGATIONS
MOODY'S INVESTORS SERVICE
Short-term notes/variable rate demand obligations bearing the
designations MIG-1/VMIG-1 are considered to be of the best quality, enjoying
strong protection from established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing. Obligations rated
MIG-2/VMIG-2 are of high quality and enjoy ample margins of protection although
not as large as those of the top rated securities.
STANDARD & POOR'S CORPORATION
An S&P SP-1 rating indicates that the subject securities' issuer has a
very strong capacity to pay principal and interest. Issues determined to possess
overwhelming safety characteristics are given a plus (+) designation. S&P's
determination that an issuer has a satisfactory capacity to pay principal and
interest is denoted by an SP-2 rating.
IBCA
Obligations supported by the highest capacity for timely repayment are
rated A1+. An A1 rating indicates that the obligation is supported by a very
strong capacity for timely repayment. Obligations rated A2 are supported by a
strong capacity for timely repayment, although adverse changes in business,
economic, or financial conditions may affect this capacity.
BONDS
MOODY'S INVESTORS SERVICE
Moody's rates the bonds it judges to be of the best quality Aaa. These
bonds carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or extraordinarily
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of these issues. Bonds carrying an Aa
designation are deemed to be of high quality by all standards. Together with Aaa
rated bonds, they comprise what are generally known as high grade bonds. Aa
bonds are rated lower than the best bonds because they may enjoy relatively
lower margins of protections, fluctuations of protective elements may be of
greater amplitude or there may be other factors present which make them appear
to be subject to somewhat greater long-term risks.
STANDARD & POOR'S CORPORATION
AAA is the highest rating assigned by S&P to a bond and indicates the
issuer's extremely strong capacity to pay
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interest and repay principal. An AA rating denotes a bond whose issuer has a
very strong capacity to pay interest and repay principal and differs from an AAA
rating only in small degree.
DUFF & PHELPS CREDIT RATING CO.
Duff confers an AAA designation to bonds of issuers with the highest
credit quality. The risk factors associated with these bonds are negligible,
being only slightly more than for risk-free U.S. Treasury debt. AA rated bonds
are of high credit quality and have strong protection factors. The risks
associated with them are modest but may vary slightly from time to time because
of economic conditions.
COMMERCIAL PAPER, SHORT-TERM OBLIGATIONS AND DEPOSIT
OBLIGATIONS ISSUED BY BANKS
THOMSON BANKWATCH (TBW)
TBW-1 is the highest category and indicates the degree of safety
regarding timely repayment of principal and interest is very strong. TBW-2 is
the second highest category and while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated TBW-1.
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SchwabFunds(R) 1
- --------------------------------------------------------------------------------
SCHWAB MONEY MARKET FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- -----------
<S> <C> <C>
CORPORATE
OBLIGATIONS--55.9%(a)
ASSET BACKED SECURITIES--9.2%
Apreco, Inc.
5.67%, 03/07/96 $20,000 $19,795
Asset Securitization
Cooperative Corp.
5.83%, 02/01/96 25,000 24,875
Beta Finance, Inc.
5.78%, 02/05/96 26,500 26,355
5.60%, 05/24/96 25,000 24,455
Broadway Capital Corp.
5.86%, 01/08/96 80,000 79,910
5.92%, 01/12/96 30,179 30,125
5.97%, 02/20/96 10,000 9,918
CXC Inc.
5.71%, 02/29/96 61,000 60,435
Corporate Asset Funding Corp.
5.77%, 02/05/96 17,000 16,906
Corporate Receivables Corp.
5.74%, 02/23/96 28,100 27,866
ESC Securitization, Inc.
5.79%, 01/24/96 25,000 24,909
5.79%, 01/25/96 15,000 14,943
5.79%, 01/26/96 15,000 14,941
5.77%, 02/08/96 25,000 24,850
5.76%, 02/21/96 16,000 15,871
5.58%, 03/21/96 44,000 43,462
Enterprise Funding Corp.
5.81%, 01/09/96 49,041 48,979
5.83%, 01/22/96 26,067 25,980
5.82%, 01/24/96 18,251 18,184
5.84%, 02/02/96 23,804 23,682
5.78%, 02/14/96 12,681 12,593
5.78%, 02/15/96 20,289 20,144
5.75%, 02/23/96 18,649 18,493
5.70%, 03/14/96 21,518 21,273
5.70%, 03/19/96 25,072 24,767
5.58%, 03/20/96 19,705 19,467
5.74%, 05/16/96 10,295 10,078
Eureka Securitization, Inc.
5.78%, 02/15/96 17,000 16,879
5.62%, 03/13/96 50,000 49,445
5.71%, 03/18/96 25,000 24,699
Falcon Asset
Securitization Corp.
5.77%, 02/06/96 25,750 25,604
First Deposit Master Trust
Series 1993-3
5.71%, 03/06/96 30,000 29,695
5.58%, 03/21/96 10,118 9,994
Preferred Receivables Corp.
5.84%, 02/08/96 36,825 36,600
5.76%, 02/12/96 34,375 34,148
Ranger Funding Corp.
5.84%, 01/08/96 21,000 20,977
5.81%, 01/09/96 20,000 19,975
5.81%, 01/10/96 11,000 10,984
5.78%, 02/13/96 10,000 9,932
5.76%, 02/22/96 15,000 14,877
5.62%, 03/04/96 14,500 14,359
5.62%, 03/15/96 10,000 9,886
5.58%, 03/19/96 10,000 9,881
Receivables Capital Corp.
5.84%, 01/10/96 42,886 42,824
5.81%, 01/26/96 38,463 38,310
5.81%, 02/01/96 40,097 39,899
5.79%, 02/21/96 31,677 31,421
Sheffield Receivables Corp.
5.81%, 01/08/96 16,000 15,982
Special Purpose Accounts
Receivable Cooperative Corp.
5.78%, 02/13/96 18,000 17,877
WCP Funding, Inc.
5.79%, 01/22/96 15,000 14,950
5.76%, 02/16/96 25,000 24,819
5.75%, 02/16/96 10,000 9,928
5.70%, 03/18/96 15,800 15,610
---------
1,292,811
---------
AUTOMOTIVE--3.5%
Ford Credit Europe PLC
5.81%, 02/05/96 25,000 24,861
5.79%, 02/05/96 25,000 24,861
5.76%, 02/14/96 50,000 49,654
5.76%, 02/15/96 41,200 40,908
General Motors
Acceptance Corp.
5.82%, 02/09/96 100,000 99,381
5.82%, 02/14/96 30,000 29,790
5.62%, 03/19/96 9,000 8,892
5.72%, 04/22/96 99,000 97,284
5.72%, 05/01/96 70,000 68,691
Renault Credit International SA
Banque
5.83%, 02/15/96 49,600 49,244
--------
493,566
--------
BANKING--AUSTRALIA--1.2%
ANZ (Delaware), Inc.
5.79%, 02/05/96 28,350 28,193
5.55%, 05/10/96 25,000 24,511
5.56%, 05/13/96 25,000 24,498
Westpac Capital Corp.
5.79%, 05/01/96 50,000 49,054
5.54%, 06/12/96 50,000 48,780
--------
175,036
--------
BANKING--BELGIUM--1.2%
Generale Bank, Inc.
5.67%, 01/10/96 129,000 128,822
5.74%, 03/12/96 20,000 19,780
5.80%, 04/03/96 25,000 24,636
--------
173,238
--------
BANKING--CANADA--4.1%
Bank of Montreal
5.79%, 01/11/96 53,000 52,916
5.81%, 01/29/96 132,000 131,413
Bank of Nova Scotia
5.75%, 01/19/96 65,000 64,817
5.75%, 01/24/96 50,000 49,820
5.81%, 02/01/96 50,000 49,754
5.82%, 02/02/96 90,000 89,542
5.81%, 02/02/96 84,000 83,573
Toronto-Dominion Holdings
5.51%, 07/10/96 60,000 58,303
--------
580,138
--------
</TABLE>
F-1
<PAGE> 161
SchwabFunds(R) 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- -----------
<S> <C> <C>
BANKING--DENMARK--0.2%
Den Danske Corp.
5.80%, 04/10/96 $ 30,000 $ 29,530
-------
BANKING--DOMESTIC BANK
HOLDING COMPANY--2.2%
Bankers Trust New York Corp.
5.77%, 02/12/96 25,000 24,834
NationsBank Corp.
5.80%, 01/22/96 67,000 66,777
5.69%, 01/23/96 75,000 74,744
5.80%, 02/08/96 100,000 99,400
5.80%, 02/09/96 20,000 19,877
5.55%, 05/21/96 30,000 29,364
-------
314,996
-------
BANKING--GERMANY--0.4%
Banco Boavista S.A./
(Bayerische Vereinsbank
AG LOC)
5.81%, 01/19/96 10,000 9,971
Kredietbank N.A.
Finance Corp.
5.78%, 01/08/96 18,500 18,480
5.78%, 01/17/96 30,000 29,925
-------
58,376
-------
BANKING--ITALY--0.5%
Cariplo Finance, Inc.
5.76%, 02/15/96 25,000 24,823
5.77%, 02/20/96 40,000 39,684
-------
64,507
-------
BANKING--JAPAN--0.9%
Bancal Tri-State Corp./
(Mitsubishi Bank
Keepwell Agreement)
5.86%, 02/22/96 25,000 24,792
5.81%, 03/15/96 40,000 39,531
Deerfield Capital Corp./
(Sumitomo Bank Ltd. LOC)
6.15%, 01/05/96 38,800 38,774
Ridge Capital II/(Dai-Ichi
Kangyo Bank Ltd. LOC)
6.15%, 01/05/96 14,550 14,540
Stellar Capital Corp./
(Bank of Tokyo
Liquidity Agreement)
6.01%, 02/26/96 12,873 12,754
-------
130,391
-------
BANKING--UNITED KINGDOM--2.0%
Bank of Scotland
Treasury Services
5.53%, 06/11/96 55,000 53,668
Cheltenham & Gloucester PLC
5.80%, 01/29/96 50,000 49,778
5.79%, 02/01/96 30,000 29,852
5.77%, 02/07/96 40,000 39,766
Yorkshire Building Society
5.81%, 02/05/96 25,000 24,861
5.77%, 02/13/96 30,000 29,796
5.69%, 03/13/96 25,000 24,720
5.60%, 05/29/96 25,000 24,436
-------
276,877
-------
COMPUTER AND OFFICE EQUIPMENT--0.2%
CSC Enterprises
5.80%, 01/19/96 29,000 28,917
-------
FINANCE (COMMERCIAL)--8.8%
CIT Group Holdings, Inc.
5.76%, 02/14/96 63,000 62,563
5.77%, 02/16/96 50,000 49,637
General Electric
Capital Corp.
5.76%, 02/13/96 100,000 99,322
5.69%, 03/28/96 63,000 62,150
5.70%, 04/03/96 43,000 42,379
5.55%, 05/02/96 25,000 24,540
5.59%, 05/06/96 156,000 153,019
5.62%, 05/07/96 64,000 62,763
5.51%, 06/12/96 36,000 35,126
5.52%, 06/14/96 60,000 58,526
5.53%, 07/26/96 50,000 48,465
General Electric
Capital Services
5.76%, 02/12/96 50,000 49,669
5.76%, 02/13/96 50,000 49,661
5.76%, 02/15/96 54,000 53,617
5.74%, 03/06/96 64,000 63,355
5.70%, 04/03/96 50,000 49,278
5.61%, 05/03/96 25,000 24,532
5.59%, 05/07/96 50,000 49,037
5.58%, 05/08/96 23,000 22,554
5.52%, 06/13/96 75,000 73,169
Transamerica Finance Corp.
5.74%, 02/22/96 50,000 49,591
5.74%, 02/23/96 50,000 49,583
---------
1,232,536
---------
FINANCE (CONSUMER)--4.0%
American Express Credit Corp.
5.81%, 03/01/96 47,000 46,556
5.75%, 03/08/96 45,000 44,532
5.60%, 05/09/96 43,000 42,157
5.58%, 05/15/96 28,000 27,428
5.57%, 05/15/96 50,000 48,978
5.50%, 06/06/96 39,000 38,090
5.50%, 06/10/96 40,000 39,043
Associates Corp. of
North America
5.65%, 05/09/96 122,000 119,587
Household Finance Corp.
5.80%, 01/25/96 17,000 16,935
Sears Roebuck
Acceptance Corp.
5.82%, 01/10/96 50,000 49,928
5.82%, 01/11/96 34,000 33,946
5.79%, 02/14/96 30,000 29,791
5.79%, 02/16/96 30,000 29,781
--------
566,752
--------
GOVERNMENT LOCALITY--FOREIGN--0.7%
New South Wales
Treasury Corp.
5.81%, 01/10/96 19,000 18,973
5.80%, 01/30/96 76,000 75,650
--------
94,623
--------
</TABLE>
F-2
<PAGE> 162
SchwabFunds(R) 3
- --------------------------------------------------------------------------------
SCHWAB MONEY MARKET FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- -----------
<S> <C> <C>
MINING AND MINERAL RESOURCES--0.2%
BHP Finance (U.S.A.), Inc.
5.79%, 02/22/96 $ 15,000 $ 14,877
5.76%, 02/23/96 10,000 9,917
-------
24,794
-------
MISCELLANEOUS MANUFACTURING--2.4%
Hanson Finance (U.K.) PLC
5.82%, 01/12/96 32,000 31,944
5.80%, 01/12/96 60,500 60,394
5.81%, 01/19/96 60,000 59,829
5.80%, 01/19/96 32,000 31,909
5.84%, 02/01/96 115,000 114,434
5.75%, 02/29/96 35,000 34,675
5.58%, 03/21/96 10,000 9,878
-------
343,063
-------
MORTGAGE BANKING--0.5%
Fleet Mortgage Group, Inc.
5.86%, 01/26/96 25,000 24,900
5.81%, 02/22/96 23,000 22,810
5.66%, 03/06/96 25,000 24,747
-------
72,457
-------
PERSONAL CARE PRODUCTS--0.4%
Colgate-Palmolive Co.
5.80%, 01/22/96 52,000 51,827
-------
PHARMACEUTICALS--0.5%
Glaxo Wellcome PLC
5.79%, 01/17/96 50,000 49,873
5.79%, 01/18/96 22,000 21,941
-------
71,814
-------
SECURITIES BROKERAGE-DEALER--12.3%
BT Securities Corp.
5.84%, 01/25/96 18,000 17,931
5.77%, 02/16/96 20,000 19,855
Bear Stearns
Companies, Inc.
5.79%, 02/07/96 65,000 64,619
CS First Boston, Inc.
5.79%, 01/08/96 30,000 29,967
5.82%, 02/05/96 30,000 29,833
Dean Witter Discover
5.79%, 01/19/96 30,000 29,915
5.79%, 02/08/96 23,000 22,862
5.79%, 02/16/96 25,000 24,818
Goldman Sachs Group, LP
5.82%, 01/11/96 100,000 99,841
5.83%, 01/17/96 120,000 119,694
5.83%, 01/18/96 50,000 49,865
5.75%, 01/24/96 50,000 49,820
5.80%, 03/08/96 123,000 121,704
5.77%, 03/21/96 24,000 23,700
5.77%, 03/22/96 44,000 43,443
5.72%, 04/08/96 50,000 49,238
5.72%, 04/09/96 100,000 98,460
Lehman Brothers
Holdings, Inc.
5.74%, 03/15/96 25,000 24,710
5.64%, 03/27/96 16,000 15,787
Morgan Stanley Group,
Inc.
5.83%, 01/08/96 30,000 29,966
5.83%, 01/09/96 42,000 41,946
5.83%, 01/10/96 50,000 49,928
5.78%, 02/06/96 183,000 181,957
5.78%, 02/07/96 50,000 49,707
5.79%, 02/08/96 70,000 69,579
5.79%, 02/09/96 15,000 14,907
5.79%, 02/12/96 75,000 74,501
5.89%, 02/13/96 35,000 34,761
Nomura Holdings
America, Inc.
5.92%, 01/03/96 13,000 12,996
5.92%, 01/04/96 39,000 38,981
5.85%, 01/11/96 15,000 14,976
5.88%, 01/12/96 5,000 4,991
5.86%, 01/18/96 20,000 19,946
5.86%, 01/22/96 9,000 8,970
Paine Webber Group, Inc.
5.95%, 01/03/96 15,000 14,995
5.95%, 01/05/96 35,000 34,977
Salomon, Inc.
6.15%, 01/02/96 16,902 16,899
6.02%, 02/14/96 40,000 39,710
6.02%, 02/15/96 40,000 39,704
---------
1,730,459
---------
STUDENT LOANS--0.5%
Student Loan Corp.
5.77%, 02/16/96 25,000 24,819
5.76%, 02/16/96 25,000 24,819
--------
49,638
--------
TOTAL CORPORATE OBLIGATIONS (Cost
$7,856,346) 7,856,346
---------
VARIABLE RATE OBLIGATIONS--6.8%(b)
ASSET BACKED SECURITIES--0.2%
Advanta Credit Card
Master Trust
5.87%, 01/07/96 24,000 24,000
--------
BANKING--DOMESTIC BANK
HOLDING COMPANY--0.5%
Bankers Trust New York Corp.
6.13%, 01/02/96 75,000 75,000
--------
BANKING--DOMESTIC--0.1%
6700 Cherry Avenue
Partners Variable Rate
Demand Bonds Series
1993/
(Wells Fargo Bank LOC)
6.35%, 01/07/96 10,500 10,500
--------
BANKING--FRANCE--1.0%
New Jersey Economic
Development Authority
Taxable Adjustable Rate
Money Market Securities
(GE Aerospace Camden
Development Project)
Series A/(Banque
Nationale de Paris LOC)
5.86%, 01/07/96 28,700 28,700
</TABLE>
F-3
<PAGE> 163
SchwabFunds(R) 4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- -----------
<S> <C> <C>
New Jersey Economic
Development Authority
Taxable Adjustable Rate
Money Market Securities
(GE Aerospace Camden
Development Project)
Series B/(Banque
Nationale de Paris LOC)
5.86%, 01/07/96 $10,000 $ 10,000
The City of New York,
General Obligation
Bonds, Fiscal 1995
Series F-8/
(Societe Generale LOC)
6.00%, 01/07/96 51,000 51,000
The City of New York,
General Obligation
Bonds, Fiscal 1996
Series A-2/
(Societe Generale LOC)
6.00%, 01/07/96 52,500 52,500
-------
142,200
-------
BANKING--GERMANY--0.2%
General Obligation
Refunding Bonds of the
County of Hudson
Variable Rate Demand
Obligations Taxable
Series 1995/ (Landesbank
Hessen-Thuringen
Girozentrale LOC)
6.05%, 01/07/96 22,540 22,540
-------
BANKING--JAPAN--0.1%
Baldwin Park
Redevelopment Agency
1993 Refunding Revenue
Bonds (Baldwin Park
Hotel Project)/
(Sumitomo Bank LOC)
6.07%, 01/09/96 14,700 14,700
Town of Islip Industrial
Development Agency 1992
Taxable Adjustable Rate
Industrial Development
Revenue Bonds (Nussdorf
Associates/Quality King
Distributors, Inc.
Facility)/
(Bank of Tokyo LOC)
5.84%, 01/07/96 6,275 6,275
-------
20,975
-------
BANKING--NETHERLANDS--0.2%
New Jersey Economic
Development Authority
Adjustable Rate Lease
Revenue Taxable Bonds
(Barnes & Noble, Inc.
Distribution and Freight
Consolidation Center
Project) Series 1995A/
(Rabobank Nederland N.V.
LOC)
5.86%, 01/07/96 21,700 21,700
New Jersey Economic
Development Authority
Adjustable Rate Lease
Revenue Taxable Bonds
(Barnes & Noble, Inc.
Distribution and Freight
Consolidation Center
Project) Series 1995B/
(Rabobank Nederland N.V.
LOC)
5.86%, 01/07/96 10,000 10,000
-------
31,700
-------
CITY OR COUNTY
GENERAL OBLIGATIONS--0.3%
Orange County, California
Taxable Notes Series
1994-1995 (d)
5.97%, 06/30/96 41,500 41,500
-------
EDUCATION--0.3%
Development Authority of
Dekalb County Taxable
Variable Rate Revenue
Bonds (Emory University
Project) Series 1995B
6.05%, 01/07/96 36,415 36,415
-------
INSURANCE--0.7%
Commonwealth Life
Insurance Co.
6.03%, 01/01/96 100,000 100,000
-------
MONOLINE INSURANCE--0.3%
Baptist Health Systems of
South Florida, Inc. Taxable
Variable Rate Direct Note
Obligations Series 1995A/
(MBIA Insurance)
6.05%, 01/07/96 13,000 13,000
Baptist Health Systems of
South Florida, Inc. Taxable
Variable Rate Direct Note
Obligations Series 1995B/
(MBIA Insurance)
6.05%, 01/07/96 19,000 19,000
</TABLE>
F-4
<PAGE> 164
SchwabFunds(R) 5
- --------------------------------------------------------------------------------
SCHWAB MONEY MARKET FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- -----------
<S> <C> <C>
New Orleans Aviation
Board Taxable Refunding
Bonds Series 1993A/
(MBIA Insurance)
6.01%, 01/07/96 $ 3,800 $ 3,800
-------
35,800
-------
SECURITIES BROKERAGE-DEALER--2.9%
Bear Stearns
Companies, Inc.
6.03%, 01/04/96 125,000 125,000
5.99%, 01/08/96 50,000 50,000
5.99%, 02/01/96 100,000 100,000
5.91%, 03/21/96 30,000 30,000
Lehman Brothers
Holdings, Inc.
5.90%, 01/30/96 100,000 100,000
-------
405,000
-------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $945,630) 945,630
-------
AGENCY OBLIGATIONS--1.6%
COUPON NOTES--1.6%
Federal National
Mortgage Assoc.
5.50%, 06/12/96 56,000 55,959
5.62%, 07/02/96 72,000 71,956
5.91%, 08/19/96 100,000 100,156
-------
TOTAL AGENCY OBLIGATIONS
(Cost $228,071) 228,071
-------
BANK NOTES--4.0%
BANKING--DOMESTIC--4.0%
Bank of America Illinois
5.80%, 01/09/96 95,000 95,000
FCC National Bank
5.52%, 06/06/96 50,000 50,000
5.52%, 06/07/96 50,000 50,000
First of America--Indiana
5.80%, 01/09/96 21,000 21,000
Mellon Bank N.A.
5.80%, 04/02/96 100,000 100,000
5.80%, 10/17/96 30,000 29,987
NationsBank, N.A.
(Carolinas)
5.54%, 06/04/96 50,000 50,000
5.54%, 06/06/96 50,000 50,000
PNC Bank, N.A.
5.58%, 05/24/96 15,000 15,016
Sea First--Seattle
5.80%, 01/11/96 50,000 50,000
5.80%, 01/12/96 50,000 50,000
-------
TOTAL BANK NOTES
(Cost $561,003) 561,003
-------
CERTIFICATES OF DEPOSIT--29.8%
BANKING--CANADA--3.0%
Bank of Montreal
5.84%, 01/05/96 25,000 25,000
5.79%, 01/11/96 25,000 25,000
5.80%, 01/31/96 50,000 50,000
Canadian Imperial Bank
of Commerce
5.81%, 01/24/96 57,000 57,000
5.81%, 01/26/96 125,000 125,000
5.81%, 01/31/96 140,000 140,000
-------
422,000
-------
BANKING--DOMESTIC--0.5%
MBNA America Bank N.A.
5.75%, 04/10/96 33,000 33,000
5.63%, 04/16/96 10,000 10,000
5.62%, 04/19/96 25,000 25,000
-------
68,000
-------
BANKING--FRANCE--4.5%
Banque Nationale de Paris
5.80%, 02/08/96 10,000 10,010
5.58%, 05/07/96 10,000 10,002
5.55%, 05/10/96 18,750 18,749
5.54%, 06/13/96 20,000 20,001
5.47%, 09/16/96 90,000 90,116
Societe Generale
5.84%, 01/18/96 137,000 137,001
5.80%, 01/25/96 145,000 145,000
5.84%, 03/05/96 60,000 60,004
5.74%, 03/07/96 60,000 60,014
5.84%, 03/14/96 25,000 25,002
5.85%, 03/20/96 20,000 20,000
5.78%, 04/17/96 35,000 35,060
-------
630,959
-------
BANKING--GERMANY--2.3%
Commerzbank AG
5.79%, 01/16/96 25,000 25,000
5.79%, 01/17/96 50,000 50,000
Deutsche Bank
5.79%, 01/23/96 125,000 125,000
5.79%, 01/30/96 125,000 125,000
-------
325,000
-------
BANKING--JAPAN--13.6%
Dai-Ichi Kangyo Bank,
Ltd.
6.12%, 01/12/96 30,000 30,000
6.10%, 01/12/96 40,000 40,000
6.22%, 01/18/96 22,000 22,000
6.22%, 01/19/96 25,000 25,000
6.30%, 01/22/96 18,000 18,000
6.42%, 01/23/96 50,000 49,996
6.42%, 01/24/96 25,000 25,000
6.42%, 01/25/96 25,000 25,000
6.42%, 01/26/96 25,000 25,000
6.02%, 02/09/96 27,000 27,004
6.02%, 02/12/96 20,000 20,003
5.88%, 02/21/96 50,000 49,996
5.86%, 03/20/96 32,000 31,997
</TABLE>
F-5
<PAGE> 165
SchwabFunds(R) 6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- -----------
<S> <C> <C>
Industrial Bank of
Japan, Ltd.
6.25%, 01/02/96 $ 69,000 $ 69,000
6.23%, 01/03/96 70,000 70,000
6.25%, 01/04/96 75,000 75,000
6.15%, 01/04/96 52,000 52,000
6.14%, 01/05/96 33,000 33,000
Mitsubishi Bank, Ltd.
6.15%, 01/02/96 50,000 50,000
6.14%, 01/02/96 25,000 25,000
6.14%, 01/03/96 25,000 25,000
5.82%, 03/01/96 49,000 49,013
5.84%, 03/05/96 25,000 25,001
5.82%, 03/06/96 12,000 12,001
5.88%, 03/08/96 40,000 39,994
5.83%, 03/12/96 39,000 38,998
5.80%, 03/12/96 50,000 50,001
5.83%, 03/14/96 60,000 60,001
5.83%, 03/19/96 60,000 60,000
5.83%, 03/20/96 55,000 55,000
Sanwa Bank, Ltd.
6.02%, 02/05/96 10,000 10,001
6.17%, 02/20/96 39,000 39,000
6.15%, 02/20/96 94,000 94,003
6.22%, 02/21/96 72,000 72,001
5.92%, 02/29/96 50,000 50,004
5.82%, 04/15/96 20,000 19,999
5.81%, 04/23/96 50,000 50,002
Sumitomo Bank, Ltd.
6.26%, 01/02/96 35,000 35,000
6.18%, 01/03/96 25,000 25,000
6.38%, 01/05/96 48,000 48,000
6.18%, 01/09/96 25,000 25,000
6.25%, 01/30/96 50,000 50,000
6.25%, 01/31/96 50,000 50,000
5.80%, 02/27/96 50,000 50,001
5.70%, 03/19/96 55,000 55,001
5.70%, 03/20/96 60,000 60,001
---------
1,911,018
---------
BANKING--NETHERLANDS--1.9%
ABN-AMRO Bank N.V.
5.83%, 02/21/96 37,000 36,995
5.57%, 05/08/96 15,000 14,998
5.75%, 06/04/96 25,000 24,978
5.78%, 06/05/96 17,000 16,983
5.75%, 06/05/96 120,000 119,892
5.58%, 06/05/96 58,000 57,988
--------
271,834
--------
BANKING--SWITZERLAND--0.7%
Union Bank of Switzerland
5.55%, 05/03/96 100,000 100,003
--------
BANKING--UNITED KINGDOM--3.3%
Abbey National PLC
5.80%, 01/16/96 146,000 145,996
5.56%, 05/13/96 25,000 24,997
5.53%, 06/14/96 100,000 100,004
5.58%, 06/21/96 70,000 70,020
Bank of Scotland
5.54%, 06/10/96 25,000 24,996
5.51%, 06/11/96 50,000 50,002
National Westminster Bank
PLC
5.72%, 02/06/96 16,000 16,000
5.70%, 04/09/96 25,000 25,001
--------
457,016
--------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $4,185,830) 4,185,830
---------
REMARKETED CERTIFICATES--0.6%
ASSET BACKED SECURITIES--0.6%
Black & Decker
RECOP Trust
5.73%, 03/13/96 36,592 36,591
5.62%, 03/26/96 15,000 15,000
Circuit City RECOP Trust
5.75%, 03/04/96 27,000 27,000
--------
TOTAL REMARKETED CERTIFICATES
(Cost $78,591) 78,591
--------
<CAPTION>
Maturity
--------
<S> <C> <C>
REPURCHASE AGREEMENT--1.3%(c)
Salomon Brothers, Inc. 5.92%
Issue Date 12/29/95
Due 01/02/96
Collateralized By:
FHLMC: $47,069 Par;
6.00% Due 11/01/98
FNMA: $42,421 Par;
7.00% Due 05/01/08
FNMA: $42,404 Par;
9.00% Due 04/01/25
FNMA: $42,917 Par;
9.00% Due 03/01/25
FHLMC: $11,137 Par;
6.00% Due 09/01/23
FHLMC: $1,280 Par;
11.25% Due 02/15/15
FHLMC: $35,066 Par;
9.00% Due 03/01/25 185,122 185,000
--------
TOTAL REPURCHASE AGREEMENT
(Cost $185,000) 185,000
--------
TOTAL INVESTMENTS--100.0%
(Cost $14,040,471) $14,040,471
===========
</TABLE>
See accompanying Notes to Schedules of Investments.
F-6
<PAGE> 166
SchwabFunds(R) 7
- --------------------------------------------------------------------------------
SCHWAB GOVERNMENT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
VARIABLE RATE OBLIGATIONS--17.6%(b)
Federal Home Loan Bank
5.75%, 02/14/96 $ 20,000 $ 20,000
5.51%, 03/08/96 10,000 9,996
5.47%, 03/08/96 20,000 19,994
Student Loan Marketing
Assoc.
5.50%, 01/02/96 29,010 29,038
5.45%, 01/02/96 9,165 9,185
5.43%, 01/02/96 21,675 21,702
5.40%, 01/02/96 125,330 125,299
5.27%, 01/02/96 25,000 25,002
5.26%, 01/02/96 40,000 40,000
5.23%, 01/02/96 30,000 30,000
-------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $330,216) 330,216
-------
AGENCY OBLIGATIONS--33.1%
COUPON NOTES--21.5%
Federal Farm Credit Bank
5.88%, 09/03/96 25,000 25,004
Federal Home Loan Bank
7.15%, 01/26/96 28,950 28,955
6.91%, 02/21/96 26,000 26,035
6.11%, 05/17/96 25,000 25,027
8.25%, 05/27/96 9,040 9,125
7.81%, 07/17/96 11,240 11,353
Federal National Mortgage
Assoc.
9.20%, 01/10/96 16,155 16,165
6.46%, 03/27/96 45,000 45,071
6.27%, 04/03/96 15,000 15,010
5.59%, 07/01/96 13,085 13,066
5.62%, 07/02/96 25,000 24,984
8.00%, 07/10/96 19,980 20,191
5.91%, 08/19/96 25,000 25,039
5.64%, 09/09/96 30,000 29,980
5.60%, 09/20/96 20,000 19,981
5.50%, 09/23/96 10,000 9,981
5.68%, 10/07/96 40,000 39,988
5.37%, 12/18/96 20,000 19,990
-------
404,945
-------
DISCOUNT NOTES--11.6%
Federal Farm Credit Bank
5.49%, 02/05/96 15,000 14,920
5.75%, 02/06/96 17,425 17,328
Federal Home Loan Bank
5.74%, 02/05/96 12,000 11,935
5.39%, 03/22/96 11,000 10,868
5.39%, 03/27/96 9,600 9,478
Federal Home Loan Mortgage
Corp.
5.56%, 01/05/96 930 929
5.70%, 01/16/96 45,025 44,919
5.89%, 02/01/96 15,000 14,927
5.42%, 03/07/96 15,000 14,853
5.41%, 03/18/96 34,575 34,180
Federal National Mortgage
Assoc.
5.34%, 09/24/96 20,000 19,239
5.38%, 10/30/96 25,000 23,918
-------
217,494
-------
TOTAL AGENCY OBLIGATIONS
(Cost $622,439) 622,439
-------
U.S. TREASURY OBLIGATIONS--1.0%
U.S. Treasury Notes
4.25%, 05/15/96 $20,000 $ 19,888
-------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $19,888) 19,888
-------
<CAPTION>
Maturity
--------
<S> <C> <C>
REPURCHASE AGREEMENTS--48.3%(c)
CS First Boston Corp.
5.72%
Issue Date 12/05/95
Last Put Date 12/31/95
Due 01/07/96
Collateralized By:
FHLMC: $40,765 Par;
6.50% Due 04/15/08
FHLMC: $12,000 Par;
6.50% Due 02/15/24
FNMA: $1,195 Par;
6.00% Due 11/25/97 35,790 35,603
Donaldson, Lufkin &
Jenrette
Securities Corp. 5.70%
Issue Date 12/14/95
Last Put Date 12/31/95
Due 01/07/96
Collateralized By:
FNMA: $29,580 Par;
6.07% Due 10/25/17 26,478 26,378
Donaldson, Lufkin &
Jenrette
Securities Corp. 5.75%
Issue Date 10/02/95
Last Put Date 12/27/95
Due 01/03/96
Collateralized By:
FHLMC: $32,345 Par;
6.58% Due 12/15/23
FHLMC: $24,740 Par;
6.10% Due 12/15/23 50,743 50,000
Donaldson, Lufkin &
Jenrette
Securities Corp. 5.75%
Issue Date 10/04/95
Last Put Date 12/28/95
Due 01/04/96
Collateralized By:
FNMA: $23,795 Par;
6.25% Due 06/25/20
FNMA: $16,600 Par; 6.10%
Due 12/25/13
FHLMC: $22,000 Par; 9.50%
Due 04/15/20
FNMA: $10,000 Par;
6.53% Due 03/25/24 55,000 54,204
</TABLE>
F-7
<PAGE> 167
SchwabFunds(R) 8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity Value
-------- ----------
<S> <C> <C>
Donaldson, Lufkin &
Jenrette
Securities Corp. 5.75%
Issue Date 10/12/95
Last Put Date 12/31/95
Due 01/07/96
Collateralized By:
FNMA: $46,270 Par;
6.50% Due 11/25/17
FNMA: $6,425 Par;
6.50% Due 05/25/21 $41,011 $40,449
Donaldson, Lufkin &
Jenrette
Securities Corp. 5.75%
Issue Date 10/17/95
Last Put Date 12/31/95
Due 01/07/96
Collateralized By:
FHLMC: $21,865 Par;
5.75% Due 07/25/20
FNMA: $14,725 Par;
6.52% Due 03/25/24
FNMA: $390 Par;
6.50% Due 09/25/20 31,018 30,617
Donaldson, Lufkin &
Jenrette
Securities Corp. 5.75%
Issue Date 10/18/95
Last Put Date 12/31/95
Due 01/07/96
Collateralized By:
FNMA: $23,975 Par;
5.75% Due 09/25/16 21,976 21,695
Donaldson, Lufkin &
Jenrette
Securities Corp. 5.75%
Issue Date 10/23/95
Last Put Date 12/31/95
Due 01/07/96
Collateralized By:
FNMA: $23,395 Par;
7.18% Due 02/25/22 22,595 22,324
Donaldson, Lufkin &
Jenrette
Securities Corp. 5.75%
Issue Date 12/15/95
Last Put Date 12/31/95
Due 01/07/96
Collateralized By:
FNMA: $27,500 Par;
6.50% Due 07/25/18
FNMA: $8,885 Par;
6.50% Due 07/25/23 34,725 34,598
Donaldson, Lufkin &
Jenrette
Securities Corp. 5.76%
Issue Date 10/25/95
Last Put Date 12/31/95
Due 01/07/96
Collateralized By:
FHLMC: $21,555 Par;
5.75% Due 07/25/20
FHLMC: $31,425 Par;
7.00% Due 02/15/22 30,043 29,691
Donaldson, Lufkin &
Jenrette
Securities Corp. 5.78%
Issue Date 11/22/95
Last Put Date 12/31/95
Due 01/07/96
Collateralized By:
FHLMC: $22,945 Par;
6.83% Due 02/15/21 22,708 22,542
Donaldson, Lufkin &
Jenrette
Securities Corp. 5.81%
Issue Date 11/16/95
Last Put Date 12/31/95
Due 01/07/96
Collateralized By:
FHLMC: $30,000 Par;
6.50% Due 08/15/08
FNMA: $14,365 Par;
5.00% Due 12/25/12 36,627 36,322
Donaldson, Lufkin &
Jenrette
Securities Corp. 5.81%
Issue Date 12/04/95
Last Put Date 12/31/95
Due 01/07/96
Collateralized By:
FHLMC: $68,455 Par;
6.49% Due 03/15/24 64,258 63,907
Fuji Securities, Inc.
5.75%
Issue Date 11/01/95
Due 01/08/96
Collateralized By:
U.S. Treasury Notes:
$27,370 Par;
9.13% Due 05/15/99
U.S. Treasury Notes: $200
Par;
6.00% Due 06/30/96 30,326 30,000
Lehman Government
Securities, Inc. 5.75%
Issue Date 10/03/95
Last Put Date 12/26/95
Due 01/02/96
Collateralized By:
FHLMC: $29,600 Par;
5.85% Due 10/15/02
FNMA: $24,057 Par;
8.00% Due 06/01/07
FHLMC: $22,200 Par;
5.50% Due 11/01/00
FHLMC: $769 Par;
6.00% Due 05/15/08 57,350 56,528
Lehman Government
Securities, Inc. 5.75%
Issue Date 12/11/95
Last Put Date 12/31/95
Due 01/07/96
Collateralized By:
FHLMC: $13,763 Par;
6.00% Due 08/15/07
FHLMC: $14,794 Par;
5.82% Due 08/15/23
FNMA: $16,570 Par;
6.00% Due 11/25/19
FNMA: $10,000 Par;
6.50% Due 04/25/23
FHLMC: $505 Par;
6.00% Due 05/15/08 44,264 44,074
</TABLE>
F-8
<PAGE> 168
SchwabFunds(R) 9
- --------------------------------------------------------------------------------
SCHWAB GOVERNMENT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity Value
-------- ----------
<S> <C> <C>
Lehman Government
Securities, Inc. 5.76%
Issue Date 10/24/95 Last
Put Date 12/31/95 Due
01/07/96 Collateralized
By:
FHLMC: $18,753 Par;
6.46% Due 09/15/07
FNMA: $9,358 Par;
7.09% Due 10/25/23
FNMA: $18,270 Par;
6.24% Due 08/25/19
FHLMC: $20 Par;
6.50% Due 10/15/08
FHLMC: $938 Par;
6.00% Due 05/15/08 $35,436 $35,016
Lehman Government
Securities, Inc. 5.76%
Issue Date 10/26/95 Last
Put Date 12/31/95 Due
01/07/96 Collateralized
By:
FHLMC: $12,139 Par;
6.25% Due 11/15/08
FHLMC: $9,033 Par;
6.50% Due 01/15/02
FNMA: $13,187 Par;
7.00% Due 11/01/08
FHLMC: $600 Par;
6.00% Due 05/15/08 27,368 27,052
Lehman Government
Securities, Inc. 5.80%
Issue Date 12/08/95 Last
Put Date 12/31/95 Due
01/07/96 Collateralized
By:
FHLMC: $8,777 Par;
7.50% Due 11/15/21
FNMA: $13,332 Par;
6.30% Due 04/25/17
FHLMC: $12,321 Par;
7.50% Due 05/01/09
FNMA: $15,000 Par;
8.50% Due 01/01/08
FHLMC: $9,919 Par;
6.50% Due 10/01/99 44,743 44,528
Lehman Government
Securities, Inc. 5.81%
Issue Date 12/06/95 Last
Put Date 12/31/95 Due
01/07/96 Collateralized
By:
FNMA: $10,341 Par; 6.47%
Due 03/25/24
FHLMC: $4,664 Par;
6.53% Due 11/15/21
FNMA: $21,000 Par;
7.00% Due 08/25/23
FHLMC: $500 Par;
6.00% Due 05/15/08 34,305 34,129
Lehman Government
Securities, Inc. 5.82%
Issue Date 12/13/95 Last
Put Date 12/31/95 Due
01/07/96 Collateralized
By:
FHLMC: $45,760 Par;
6.70% Due 01/15/22
FHLMC: $19,450 Par;
7.00% Due 01/15/23
FNMA: $10,750 Par;
6.24% Due 01/25/24 33,809 33,673
Salomon Brothers, Inc.
5.75%
Issue Date 11/27/95
Last Put Date 12/31/95
Due 01/07/96
Collateralized By:
FNMA: $34,664 Par;
7.00% Due 12/01/99
FHLMC: $4,142 Par;
6.00% Due 11/15/07
U.S. Treasury Notes:
$144 Par;
11.25% Due 02/15/15 22,976 22,827
Salomon Brothers, Inc.
5.80%
Issue Date 11/17/95
Last Put Date 12/31/95
Due 01/07/96
Collateralized By:
FHLMC: $17,100 Par;
5.00% Due 09/15/20
FNMA: $32,900 Par;
7.50% Due 06/01/09
FNMA: $38,485 Par;
8.00% Due 06/01/07 61,075 60,577
Salomon Brothers, Inc.
5.84%
Issue Date 11/30/95
Last Put Date 12/29/95
Due 01/05/96
Collateralized By:
FHLMC: $25,201 Par;
8.00% Due 08/01/25
FNMA: $50,000 Par;
8.00% Due 06/01/07
FNMA: $3,921 Par;
7.00% Due 12/01/99 U.S.
Treasury Notes:
$210 Par;
11.25% Due 02/15/15 50,776 50,481
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $907,215) 907,215
--------
TOTAL INVESTMENTS--100.0%
(Cost $1,879,758) $1,879,758
==========
</TABLE>
See accompanying Notes to Schedules of Investments.
F-9
<PAGE> 169
SchwabFunds(R) 10
- --------------------------------------------------------------------------------
SCHWAB U.S. TREASURY MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- ----------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS--100.0%
U.S. Treasury Bills
5.37%-5.51%, 01/11/96 $ 18,275 $ 18,248
5.34%-5.60%, 01/18/96 12,115 12,084
5.46%, 01/25/96 20,000 19,928
5.58%, 02/01/96 15,000 14,930
5.39%-5.50%, 02/08/96 119,465 118,786
5.38%-5.43%, 02/15/96 5,355 5,319
5.39%-5.42%, 02/22/96 33,670 33,410
5.02%-5.52%, 03/07/96 119,935 118,764
5.49%, 03/14/96 1,525 1,508
5.02%, 03/28/96 11,960 11,817
U.S. Treasury Notes
9.25%, 01/15/96 100,000 100,129
4.00%-7.50%, 01/31/96 78,505 78,462
4.63%-8.88%, 02/15/96 174,250 174,369
4.63%, 02/29/96 108,705 108,543
7.75%, 03/31/96 40,000 40,198
9.38%, 04/15/96 20,000 20,198
5.50%-7.63%, 04/30/96 100,000 100,296
7.38%, 05/15/96 50,000 50,341
5.88%, 05/31/96 54,290 54,385
7.88%, 07/15/96 25,000 25,313
6.13%, 07/31/96 25,000 25,097
6.50%, 09/30/96 23,775 23,980
6.88%, 10/31/96 28,000 28,351
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $1,184,456) 1,184,456
---------
TOTAL INVESTMENTS--100.0%
(Cost $1,184,456) $1,184,456
==========
</TABLE>
NOTES TO SCHEDULES OF INVESTMENTS.
Yields shown are effective yields at the time of purchase, except for
variable rate securities which are described below and Treasury and Agency
notes which reflect the coupon rate of the security. Yields for each type
of security are stated according to the market convention for that security
type. For each security, cost (for financial reporting and federal income
tax purposes) and carrying value are the same.
(a) Certain securities purchased by the Schwab Money Market Fund are
private placement securities exempt from registration by Section 4(2) of
the Securities Act of 1933. These securities generally are issued to
institutional investors, such as the Schwab Money Market Fund. Any
resale by the Fund must be in an exempt transaction, normally to a
qualified institutional buyer. At December 31, 1995, the aggregate value
of private placement securities held by the Schwab Money Market Fund was
$2,002,545,000 which represented 14.29% of net assets. Of this total,
$1,723,954,000 or 12.30% of net assets, was determined by the Investment
Manager to be liquid in accordance with a resolution adopted by the
Board of Trustees relating to Rule 144A, promulgated under the
Securities Act of 1933.
(b) Variable rate securities. Interest rates vary periodically based on
current market rates. Rates shown are the effective rates on December
31, 1995. Dates shown represent the latter of the demand date or next
interest rate change date, which is considered the maturity date for
financial reporting purposes. For variable rate securities without
demand features, the next interest reset date is shown.
(Continued on next page)
F-10
<PAGE> 170
SchwabFunds(R) 11
- --------------------------------------------------------------------------------
SCHWAB MONEY MARKET FUND, SCHWAB GOVERNMENT MONEY FUND
& SCHWAB U.S. TREASURY MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
NOTES TO SCHEDULES OF INVESTMENTS. (CONTINUED)
(c) Due dates shown for repurchase agreements represent either the final
maturity date or put date, which is considered the maturity date for
financial reporting purposes.
(d) With respect to this security, as of December 31, 1995, the Schwab
Money Market Fund was the beneficiary under a $10,375,000 irrevocable
letter of credit issued by Bank of America National Trust and Savings
Association which allows the Fund to make a demand for partial payment
of the security's principal amount under certain conditions upon
maturity or disposition of the security by the Fund. The letter of
credit, which expires on August 1, 1996, does not provide complete
credit support, and therefore, the Fund continues to be exposed to some
risk of loss of principal of the security. The Charles Schwab
Corporation has agreed to reimburse the bank for any payments made by
the bank to the Fund under this letter of credit. See Note 7 to the
Financial Statements for further discussion.
<TABLE>
<CAPTION>
Abbreviations
-------------
<S> <C>
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance Corporation
RECOP Remarketed Certificates of Participation
</TABLE>
See accompanying Notes to Financial Statements.
F-11
<PAGE> 171
SchwabFunds(R) 12
- --------------------------------------------------------------------------------
SCHWAB MONEY MARKET FUND, SCHWAB GOVERNMENT MONEY FUND
& SCHWAB U.S. TREASURY MONEY FUND
STATEMENTS OF ASSETS AND LIABILITIES (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Schwab Schwab Schwab
Money Government U.S. Treasury
Market Money Money
Fund Fund Fund
----------- ---------- -------------
<S> <C> <C> <C>
ASSETS
Investments, at value
(Cost: $14,040,471, $1,879,758
and $1,184,456, respectively) $14,040,471 $1,879,758 $ 1,184,456
Cash -- 24 2
Interest receivable 67,867 18,397 17,149
Deferred organization costs -- -- 11
Prepaid expenses 2,426 80 39
----------- ---------- ----------
Total assets 14,110,764 1,898,259 1,201,657
----------- ---------- ----------
LIABILITIES
Payable for:
Dividends 90,867 12,349 7,248
Investment advisory and
administration fee 3,450 471 188
Transfer agency and shareholder
service fees 4,962 693 387
Other 1,098 177 145
----------- ---------- ----------
Total liabilities 100,377 13,690 7,968
----------- ---------- ----------
Net assets applicable to
outstanding shares $14,010,387 $1,884,569 $ 1,193,689
=========== ========== ==========
NET ASSETS CONSIST OF:
Capital paid in $14,010,737 $1,884,838 $ 1,193,821
Accumulated net realized loss
on investments sold (350) (269) (132)
----------- ---------- ----------
$14,010,387 $1,884,569 $ 1,193,689
=========== ========== ==========
THE PRICING OF SHARES
Outstanding shares,
$0.00001 par value
(unlimited shares
authorized) 14,010,737 1,884,838 1,193,821
Net asset value, offering and
redemption price per share $1.00 $1.00 $1.00
</TABLE>
See accompanying Notes to Financial Statements.
F-12
<PAGE> 172
SchwabFunds(R) 13
- --------------------------------------------------------------------------------
SCHWAB MONEY MARKET FUND, SCHWAB GOVERNMENT MONEY FUND
& SCHWAB U.S. TREASURY MONEY FUND
STATEMENTS OF OPERATIONS (in thousands)
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Schwab Schwab Schwab
Money Government U.S. Treasury
Market Money Money
Fund Fund Fund
-------- ---------- -------------
<S> <C> <C> <C>
Interest income $760,926 $113,106 $57,635
-------- -------- -------
Expenses:
Investment advisory and
administration fee 52,254 8,280 4,575
Transfer agency and
shareholder service fees 56,873 8,540 4,502
Custodian fees 886 262 206
Registration fees 1,185 88 221
Professional fees 359 52 26
Shareholder reports 1,275 205 82
Trustees' fees 78 12 5
Amortization of deferred
organization
costs and other prepaid
expenses 120 3 14
Insurance and other expenses 390 59 22
-------- -------- -------
113,420 17,501 9,653
Less expenses reduced (18,632) (3,268) (3,150)
-------- -------- -------
Total expenses incurred by Fund 94,788 14,233 6,503
-------- -------- -------
Net investment income 666,138 98,873 51,132
Net realized gain (loss) on
investments sold 4 (162) (60)
-------- -------- -------
Increase in net assets resulting
from operations $666,142 $ 98,711 $51,072
======== ======== =======
</TABLE>
See accompanying Notes to Financial Statements.
F-13
<PAGE> 173
SchwabFunds(R) 14
- --------------------------------------------------------------------------------
SCHWAB MONEY MARKET FUND, SCHWAB GOVERNMENT MONEY FUND
& SCHWAB U.S. TREASURY MONEY FUND
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Schwab Money Schwab Government Schwab U.S. Treasury
Market Fund Money Fund Money Fund
--------------------------- ------------------------- -------------------------
\------------------------- For the year ended December 31, -----------------------\
1995 1994 1995 1994 1995 1994
------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 666,138 $ 371,652 $ 98,873 $ 68,248 $ 51,132 $ 19,233
Net realized gain
(loss)
on investments sold 4 (124) (162) (23) (60) (45)
------------ ------------ ----------- ----------- ----------- -----------
Increase in net assets
resulting from
operations 666,142 371,528 98,711 68,225 51,072 19,188
------------ ------------ ----------- ----------- ----------- -----------
Dividends to
shareholders from
net investment income (666,138) (371,652) (98,873) (68,248) (51,132) (19,233)
------------ ------------ ----------- ----------- ----------- -----------
Capital share
transactions (dollar
amounts and
number of shares
are the same):
Proceeds from shares
sold 35,277,474 27,194,342 4,120,476 4,092,811 2,979,266 1,791,760
Net asset value of
shares issued in
reinvestment of
dividends 630,347 323,920 95,940 61,588 46,352 15,433
Less payments for
shares redeemed (33,124,743) (24,455,432) (4,229,013) (4,001,651) (2,635,740) (1,381,420)
------------ ------------ ----------- ----------- ----------- -----------
Increase (decrease)
in net assets from
capital share
transactions 2,783,078 3,062,830 (12,597) 152,748 389,878 425,773
------------ ------------ ----------- ----------- ----------- -----------
Total increase (decrease)
in net assets 2,783,082 3,062,706 (12,759) 152,725 389,818 425,728
------------ ------------ ----------- ----------- ----------- -----------
Net Assets:
Beginning of period 11,227,305 8,164,599 1,897,328 1,744,603 803,871 378,143
------------ ------------ ----------- ----------- ----------- -----------
End of period $ 14,010,387 $ 11,227,305 $ 1,884,569 $ 1,897,328 $ 1,193,689 $ 803,871
============ ============ =========== =========== =========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
F-14
<PAGE> 174
SchwabFunds(R) 15
- --------------------------------------------------------------------------------
SCHWAB MONEY MARKET FUND, SCHWAB GOVERNMENT MONEY FUND
& SCHWAB U.S. TREASURY MONEY FUND
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUNDS
The Schwab Money Market Fund, the Schwab Government Money Fund and the Schwab
U.S. Treasury Money Fund (the "Funds") are series of The Charles Schwab Family
of Funds (the "Trust"), an open-end, management investment company organized as
a Massachusetts business trust on October 20, 1989 and registered under the
Investment Company Act of 1940, as amended.
In addition to the three funds described above, the Trust also offers -- the
Schwab Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab
California Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab
New York Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab
Value Advantage Money Fund(R), the Schwab Institutional Advantage Money
Fund(TM) and the Schwab Retirement Money Fund(R). The assets of each series are
segregated and accounted for separately.
The Schwab Money Market Fund invests primarily in a diversified portfolio of
short-term obligations of major banks and corporations. The Schwab Government
Money Fund invests exclusively in a diversified portfolio of obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements thereon. The Schwab U.S. Treasury Money Fund invests
solely in United States Treasury notes, bills and other direct obligations of
the United States Treasury, backed by the full faith and credit of the United
States Government.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security valuation -- Investments are stated at amortized cost which
approximates market value.
Security transactions and interest income -- Security transactions are accounted
for on a trade date basis (date the order to buy or sell is executed). Interest
income is recorded on the accrual basis and includes amortization of premium and
accretion of discount on investments. Realized gains and losses from security
transactions are determined on an identified cost basis.
Repurchase agreements -- Repurchase agreements are fully collateralized by U.S.
Treasury or government agency securities. All collateral is held by the Funds'
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.
Dividends to shareholders -- Each Fund declares a daily dividend, equal to its
net investment income for that day, payable monthly.
Deferred organization costs -- Costs incurred in connection with the
organization of the Funds and their initial registration with the Securities and
Exchange Commission and with various states are amortized on a straight-line
basis over a five-year period from each Fund's commencement of operations.
F-15
<PAGE> 175
SchwabFunds(R) 16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Expenses -- Expenses arising in connection with a Fund are charged directly to
that Fund. Expenses common to all series of the Trust are allocated to each
series in proportion to their relative net assets.
Federal income taxes -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all net investment income and realized net capital gains, if any, to
shareholders. Therefore, no federal income tax provision is required. Each Fund
is considered a separate entity for tax purposes.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreements -- The Trust has investment
advisory and administration agreements with Charles Schwab Investment
Management, Inc. (the "Investment Manager"). For advisory services and
facilities furnished, the Schwab Money Market Fund pays an annual fee, payable
monthly, of .46% of the first $2 billion of average daily net assets, .45% of
such assets over $2 billion, and .40% of such assets in excess of $3 billion.
For advisory services and facilities furnished, the Schwab Government Money Fund
and the Schwab U.S. Treasury Money Fund each pay an annual fee, payable monthly,
of .46% of the first $1 billion of each Fund's average daily net assets, .41% of
such assets over $1 billion, and .40% of such assets in excess of $2 billion.
Under these agreements, the Schwab Money Market Fund, the Schwab Government
Money Fund and the Schwab U.S. Treasury Money Fund incurred investment advisory
and administration fees of $52,254,000, $8,280,000 and $4,575,000, respectively,
for the year ended December 31, 1995, before the Investment Manager reduced its
fee (see Note 4).
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of .45% of each Fund's average daily net assets.
For the year ended December 31, 1995, the Schwab Money Market Fund, the Schwab
Government Money Fund and the Schwab U.S. Treasury Money Fund incurred transfer
agency and shareholder service fees of $56,873,000, $8,540,000 and $4,502,000,
respectively, before Schwab reduced its fees (see Note 4).
Officers and trustees -- Certain officers and trustees of the Trust are also
officers or directors of the Investment Manager and/or Schwab. During the year
ended December 31, 1995, the Trust made no direct payments to its officers or
trustees who are "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Schwab Money Market Fund, the Schwab
Government Money Fund and the Schwab U.S. Treasury Money Fund incurred fees of
$78,000, $12,000 and $5,000, respectively, related to the Trust's unaffiliated
trustees.
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees in order to
limit the ratio of operating expenses to average net assets for each Fund. For
the year ended December 31, 1995, the total of such fees reduced by the
Investment Manager was $15,603,000, $2,777,000 and $2,674,000 for the Schwab
Money Market Fund, the Schwab Government Money Fund and the Schwab U.S. Treasury
Money Fund, respectively, and the total of such fees reduced by Schwab was
$3,029,000, $491,000 and $476,000 for the Schwab Money Market Fund, the
F-16
<PAGE> 176
SchwabFunds(R) 17
- --------------------------------------------------------------------------------
SCHWAB MONEY MARKET FUND, SCHWAB GOVERNMENT MONEY FUND
& SCHWAB U.S. TREASURY MONEY FUND
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
Schwab Government Money Fund and the Schwab U.S. Treasury Money Fund,
respectively.
5. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities during the year ended
December 31, 1995, were as follows (in thousands):
<TABLE>
<CAPTION>
Schwab
Schwab Money Schwab Government U.S. Treasury
Market Fund Money Fund Money Fund
------------ ----------------- -------------
<S> <C> <C> <C>
Purchases $54,457,921 $10,324,703 $ 4,666,466
Proceeds of sales and maturities $51,703,327 $10,338,043 $ 4,283,007
</TABLE>
6. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period:
<TABLE>
<CAPTION>
Schwab Money Market Fund
----------------------------------------------------------------
\--------------- For the year ended December 31, --------------\
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------
Net asset value at beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations
- ---------------------------------
Net investment income .05 .04 .03 .03 .06
Net realized and unrealized gain
(loss) on investments -- -- -- -- --
----------- ----------- ---------- ---------- ----------
Total from investment operations .05 .04 .03 .03 .06
Less distributions
- ------------------
Dividends from net investment income (.05) (.04) (.03) (.03) (.06)
Distributions from realized gain on
investments -- -- -- -- --
----------- ----------- ---------- ---------- ----------
Total distributions (.05) (.04) (.03) (.03) (.06)
----------- ----------- ---------- ---------- ----------
Net asset value at end of period $1.00 $1.00 $1.00 $1.00 $1.00
=========== =========== ========== ========== ==========
Total return (%) 5.41 3.68 2.67 3.48 5.70
- ----------------
Ratios/Supplemental data
- ------------------------
Net assets, end of period (000s) $14,010,387 $11,227,305 $8,164,599 $6,134,167 $4,866,584
Ratio of expenses to
average net assets (%) .75 .74 .73 .70 .78
Ratio of net investment income to
average net assets (%) 5.27 3.68 2.64 3.40 5.52
</TABLE>
The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses in order to limit each Fund's ratio of operating
expenses to average net assets. Had these fees and expenses not been reduced and
absorbed, the ratio of expenses to average net assets for the Schwab Money
Market Fund for the periods ended December 31, 1995, 1994, 1993, 1992 and 1991
would have been .90%, .90%, .91%, .92% and .94%, respectively, and the ratio of
net investment income to average net assets would have been 5.12%, 3.52%, 2.46%,
3.18% and 5.36%, respectively.
F-17
<PAGE> 177
SchwabFunds(R) 18
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Schwab Government Money Fund
--------------------------------------------------------------
\-------------- For the year ended December 31, -------------\
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------
Net asset value at beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations
- ---------------------------------
Net investment income .05 .04 .03 .03 .05
Net realized and unrealized gain
(loss) on investments -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total from investment operations .05 .04 .03 .03 .05
Less distributions
- ------------------
Dividends from net investment income (.05) (.04) (.03) (.03) (.05)
Distributions from realized gain
on investments -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions (.05) (.04) (.03) (.03) (.05)
---------- ---------- ---------- ---------- ----------
Net asset value at end of period $1.00 $1.00 $1.00 $1.00 $1.00
========== ========== ========== ========== ==========
Total return (%) 5.34 3.62 2.66 3.42 5.53
- ----------------
Ratios/Supplemental data
- ------------------------
Net assets, end of period (000s) $1,884,569 $1,897,328 $1,744,603 $1,592,793 $1,458,705
Ratio of expenses to
average net assets (%) .75 .74 .73 .72 .70
Ratio of net investment income to
average net assets (%) 5.21 3.56 2.63 3.36 5.38
</TABLE>
The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses in order to limit each Fund's ratio of operating
expenses to average net assets. Had these fees and expenses not been reduced and
absorbed, the ratio of expenses to average net assets for the Schwab Government
Money Fund for the periods ended December 31, 1995, 1994, 1993, 1992 and 1991
would have been .92%, .92%, .93%, .94% and .95%, respectively, and the ratio of
net investment income to average net assets would have been 5.04%, 3.38%, 2.43%,
3.14% and 5.13%, respectively.
F-18
<PAGE> 178
SchwabFunds(R) 19
- --------------------------------------------------------------------------------
SCHWAB MONEY MARKET FUND, SCHWAB GOVERNMENT MONEY FUND
& SCHWAB U.S. TREASURY MONEY FUND
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Schwab U.S. Treasury Money Fund
------------------------------------------------------------------
For the period
\------ For the year ended December 31, ------\ ended
December 31,
1995 1994 1993 1992 1991 1
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------
Net asset value at beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations
- ---------------------------------
Net investment income .05 .04 .03 .03 .01
Net realized and unrealized gain
(loss) on investments -- -- -- -- --
---------- -------- -------- -------- -------
Total from investment operations .05 .04 .03 .03 .01
Less distributions
- ------------------
Dividends from net investment income (.05) (.04) (.03) (.03) (.01)
Distributions from realized gain on
investments -- -- -- -- --
---------- -------- -------- -------- -------
Total distributions (.05) (.04) (.03) (.03) (.01)
---------- -------- -------- -------- -------
Net asset value at end of period $1.00 $1.00 $1.00 $1.00 $1.00
========== ======== ======== ======== =======
Total return (%) 5.25 3.52 2.54 3.26 .68
- ----------------
Ratios/Supplemental data
- ------------------------
Net assets, end of period (000s) $1,193,689 $803,871 $378,143 $178,895 $16,906'
Ratio of expenses to
average net assets (%) .65 .65 .65 .59 .24*
Ratio of net investment income to
average net assets (%) 5.11 3.60 2.50 2.91 4.11*
</TABLE>
The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses in order to limit each Fund's ratio of operating
expenses to average net assets. Had these fees and expenses not been reduced and
absorbed, the ratio of expenses to average net assets for the Schwab U.S.
Treasury Money Fund for the periods ended December 31, 1995, 1994, 1993, 1992
and 1991 would have been .96%, 1.00%, 1.05%, 1.15% and 4.11%*, respectively, and
the ratio of net investment income to average net assets would have been 4.80%,
3.25%, 2.10%, 2.35% and .24%*, respectively.
1 For the period November 6, 1991 (commencement of operations) to December 31,
1991.
* Annualized
F-19
<PAGE> 179
SchwabFunds(R) 20
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. COMMITMENTS AND CONTINGENCIES
On December 6, 1994, Orange County, California and the investment pool
maintained by Orange County filed for protection under Chapter 9 of the federal
Bankruptcy Code. At December 31, 1995, the Schwab Money Market Fund had 0.30% of
its net assets, or $41,500,000, in a security issued directly by Orange County.
Prior to this security's original maturity date, the terms of this security were
revised to extend the maturity to June 30, 1996, increase the security's
interest rate and revise the interest payment schedule to require partial
payments of interest prior to June 30, 1996 with a final payment of interest
together with principal on June 30, 1996.
As of December 31, 1995, the Schwab Money Market Fund was the beneficiary under
a $10,375,000 irrevocable letter of credit issued by Bank of America National
Trust and Savings Association which permits the Fund to make a demand for
partial payment under certain conditions upon maturity or disposition of the
Orange County security. This letter of credit does not provide complete credit
support, and therefore, the Fund continues to be exposed to some risk of loss of
principal of the Orange County security. The Charles Schwab Corporation has
agreed to reimburse the bank for any payments made by the bank to the Fund under
this letter of credit. The letter of credit has not been needed to maintain the
Fund's net asset value of $1.00 per share.
F-20
<PAGE> 180
SchwabFunds(R) 21
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To the Board of Trustees
and Shareholders of the Schwab Money Market Fund,
the Schwab Government Money Fund and
the Schwab U.S. Treasury Money Fund
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Schwab Money Market Fund, the
Schwab Government Money Fund and the Schwab U.S. Treasury Money Fund (three
series constituting part of The Charles Schwab Family of Funds, hereafter
referred to as the "Trust") at December 31, 1995, the results of each of their
operations for the year then ended, the changes in each of their net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
San Francisco, California
January 31, 1996
F-21
<PAGE> 181
SchwabFunds(R) 1
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
VARIABLE RATE OBLIGATIONS--57.8%(a)
ALABAMA--2.0%
Alabama Housing Finance
Authority Single Family
Housing Revenue Bonds
Collateralized Home
Mortgage Program Series
1995C-1/ (Bayerische
Landesbank Girozentrale
LOC)
5.05%, 01/07/96 $10,400 $10,400
Citronelle, Alabama
Industrial Development
Board Pollution Control
Revenue Refunding Bonds
(AZKO Chemicals, Inc.
Project)/ (Wachovia Bank
LOC)
5.15%, 01/07/96 1,100 1,100
Jefferson County, Alabama
Sewer Revenue Warrants
Series 1995A/
(Bayerische Landesbank
Girozentrale LOC)
5.20%, 01/07/96 12,500 12,500
Mobile County, Alabama
Industrial Development
Board Revenue Bonds
(Ultraform Co.
Project) Series B/
(Bayerische Landesbank
Girozentrale LOC)
5.00%, 01/07/96 1,000 1,000
Mobile County, Alabama
Industrial Development
Board Pollution Control
Revenue Refunding Bonds
(Ultraform Co. Project)
Series A/ (Bayerische
Landesbank Girozentrale
LOC)
5.00%, 01/07/96 7,480 7,480
Mobile, Alabama
Industrial Development
Board Pollution Control
Revenue Refunding
Bonds (Alabama
Power Co. Project)
Series 1993C
5.15%, 01/07/96 12,000 12,000
Montgomery, Alabama Special
Care Facility Financing
Authority Revenue Bonds
(Baptist Medical Center
VHA) Series 1985C/
(AMBAC Insurance &
FNB Chicago SBPA)
5.00%, 01/07/96 2,000 2,000
Montgomery, Alabama Special
Care Facility Financing
Authority Revenue Bonds
(Baptist Medical Center
VHA) Series 1985F/
(AMBAC Insurance &
FNB Chicago SBPA)
5.00%, 01/07/96 9,000 9,000
Montgomery, Alabama Special
Care Facility Financing
Authority Revenue Bonds
(Baptist Medical Center
VHA) Series 1985G/
(AMBAC Insurance &
FNB Chicago SBPA)
5.00%, 01/07/96 6,390 6,390
Montgomery, Alabama Special
Care Facility Financing
Authority Revenue Bonds
(Baptist Medical Center
VHA) Series 1985H/
(AMBAC Insurance &
FNB Chicago SBPA)
5.00%, 01/07/96 5,295 5,295
Opelika, Alabama Industrial
Development Board Revenue
Bonds (Power Guard
Project) Series
1994/(SouthTrust Bank of
Alabama LOC)
5.35%, 01/07/96 3,100 3,100
------
70,265
------
ALASKA--0.0%
Alaska Industrial
Development Authority
Flexible Demand Revenue
Bonds (Advanced Health
Systems)/(Citibank LOC)
5.35%, 01/07/96 600 600
------
ARIZONA--0.5%
Arizona Educational Loan
Marketing Corp.
Revenue Bonds Series A/
(MBIA Insurance &
Fuji Bank SBPA)
5.45%, 01/07/96 10,000 10,000
Yavapai County, Arizona
Industrial Development
Authority Revenue Bonds
(First Health
Care Corp. Project)/
(Wachovia Bank LOC)
5.15%, 01/07/96 4,230 4,230
</TABLE>
F-22
<PAGE> 182
SchwabFunds(R) 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Yuma, Arizona Industrial
Development Authority
Multi Family Housing
Revenue Bonds
(El Encanto Apartments)
Series A/(Citibank LOC)
5.20%, 01/07/96 $3,000 $ 3,000
Yuma, Arizona Industrial
Development Authority
Multi Family Housing
Revenue Bonds
(El Encanto Apartments)
Series B/(Citibank LOC)
5.50%, 01/07/96 275 275
------
17,505
------
CALIFORNIA--1.4%
California Higher Education
Loan Authority Student
Loan Refunding Bonds
Series E1/(SLMA LOC)
5.25%, 01/07/96 5,000 5,000
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Southern California
Edison) Series 1986B
5.40%, 01/01/96 100 100
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Southern California
Edison) Series 1986C
5.40%, 01/01/96 200 200
California Statewide
Community Development
Corp. Industrial
Development Revenue Bonds
(Packaging Innovation DZ
Industries, Inc.) Series
1994A-2/ (Bank of Tokyo
LOC)
5.35%, 01/07/96 585 585
Irvine Ranch, California
Water District
Consolidated Revenue
Refunding Bonds Series
1985A-2/ (Sumitomo Bank
LOC)
5.90%, 01/01/96 8,900 8,900
Irvine Ranch, California
Water District
Consolidated Revenue
Refunding Bonds Series
A/(Industrial Bank of
Japan LOC)
6.10%, 01/01/96 100 100
Los Angeles County,
California Metropolitan
Transportation Authority
Sales Tax Revenue
Refunding Bonds
Proposition C Second
Senior Series A/
(MBIA Insurance &
Industrial Bank of
Japan SBPA)
5.00%, 01/07/96 300 300
Orange County, California
Various Sanitation
Districts Certificates of
Participation Capital
Improvement Programs
Series 1990-92C/ (FGIC
Insurance)
6.00%, 01/01/96 200 200
Orange County, California
Water District
Certificates of
Participation (Sanitation
Districts #1,2,3)/
(AMBAC Insurance &
Industrial Bank of
Japan SBPA)
5.05%, 01/07/96 19,500 19,500
Simi Valley, California
Multi Family Housing
Certificates of
Participation (Lincoln
Wood Ranch Project)/
(Sumitomo Bank LOC)
5.05%, 01/07/96 5,600 5,600
Southern California Public
Power Authority
Transmission Project
Revenue Bonds (Southern
Transmission Project)
Series 1991/ (AMBAC
Insurance & Swiss Bank
LOC)
4.75%, 01/07/96 9,700 9,700
------
50,185
------
COLORADO--4.2%
Colorado Health Facilities
Authority Revenue Bonds
(Sisters of Charity
Health) Series B/(Multiple
Credit Enhancements)
5.05%, 01/07/96 23,300 23,300
Colorado Student Obligation
Bond Authority Student
Loan Revenue Bonds
(Colorado University)
Series 1990A/ (SLMA LOC)
5.20%, 01/07/96 10,790 10,790
Colorado Student Obligation
Bond Authority Student
Loan Revenue Bonds
(Colorado University)
Series 1993B/ (SLMA LOC)
5.20%, 01/07/96 2,100 2,100
Colorado Student Obligation
Bond Authority Student
Loan Revenue Bonds
(Colorado University)
Series 1993C-2/ (SLMA LOC)
5.05%, 01/07/96 2,200 2,200
Denver, Colorado City and
County Airport System
Revenue Bonds Series
1992D/(Morgan Guaranty
Trust LOC)
5.30%, 01/07/96 48,400 48,400
</TABLE>
F-23
<PAGE> 183
SchwabFunds(R) 3
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Denver, Colorado City and
County Airport System
Revenue Bonds Series
1992E/ (Bank of Tokyo LOC)
5.50%, 01/07/96 $30,000 $ 30,000
Denver, Colorado City and
County Airport System
Revenue Bonds Series
1992F/(Bank
of Montreal LOC)
5.30%, 01/07/96 16,000 16,000
Denver, Colorado City and
County Airport System
Revenue Bonds Series
1992G/(Credit Local de
France LOC)
5.30%, 01/07/96 8,500 8,500
Douglas County, Colorado
Multi Family Housing
Revenue Bonds (Autumn
Chase Project)/ (Citibank
LOC)
5.25%, 01/07/96 9,300 9,300
-------
150,590
-------
CONNECTICUT--1.0%
Connecticut State General
Obligation Economic
Recovery Bonds Series
1991B/(Multiple Credit
Enhancements)
5.10%, 01/07/96 11,700 11,700
Connecticut State Special
Assessment Unemployment
Compensation Advance
Fund Revenue Bonds
Series 1993B/(Multiple
Credit Enhancements)
5.40%, 01/07/96 15,900 15,900
Connecticut State Special Tax
Obligation Bonds (Second
Lien Transportation
Information) Series 1990-1/
(Industrial Bank of Japan LOC)
5.10%, 01/07/96 5,800 5,800
-------
33,400
-------
DISTRICT OF COLUMBIA--0.1%
District of Columbia
Revenue Bonds Adjustable
Convertible Extendable
Securities (Georgetown
University) Series 1988D/
(Sanwa Bank LOC)
5.65%, 01/07/96 4,200 4,200
-------
FLORIDA--1.1%
Brevard County, Florida
Housing Finance Authority
Multi Family Housing
Revenue Bonds
(Palm Place Project)/
(Chemical Bank LOC)
5.05%, 01/07/96 5,000 5,000
Dade County, Florida
Solid Waste Industrial
Development Revenue Bonds
(Montenay-Dade, Ltd.
Project)/(Banque
Paribas LOC)
5.10%, 01/07/96 1,280 1,280
Hillsborough County,
Florida Industrial
Development Authority
Revenue Bonds (Seaboard
Tampa Terminals) Series
1986A/ (Barclays Bank LOC)
5.00%, 01/07/96 5,500 5,500
Indian Trace, Florida
Community Development
District (Water & Sewer
Special Assessment
Basin 1 Water)/
(MBIA Insurance &
Swiss Bank SBPA)
4.90%, 01/07/96 2,500 2,500
Orange County, Florida
Housing Finance Authority
Multi Family Housing
Revenue Bonds
(Rio Vista Project)/
(First Union Bank of
North Carolina LOC)
5.20%, 01/07/96 3,865 3,865
Orange County, Florida
Housing Finance Authority
Multi Family Housing
Revenue Bonds (Smokewood
Project)/ (Citibank LOC)
5.25%, 01/07/96 10,000 10,000
Palm Beach County, Florida
Health Facilities
Authority Revenue
Refunding Bonds
(Joseph L. Morse
Geriatric Center)/
(Sun Bank LOC)
5.20%, 01/07/96 9,800 9,800
Palm Beach County, Florida
Housing Finance Authority
Multi Family Housing
Revenue Bonds
(Crystal II Project)/
(Citibank LOC)
5.15%, 01/07/96 2,850 2,850
------
40,795
------
GEORGIA--3.1%
Burke County, Georgia
Development Authority
Pollution Control Revenue
Bonds (Oglethorpe
Power Corp. Project)
Series 1993A/
(FGIC Insurance &
Industrial Bank of
Japan SBPA)
5.15%, 01/07/96 15,300 15,300
</TABLE>
F-24
<PAGE> 184
SchwabFunds(R) 4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Burke County, Georgia
Development Authority
Pollution Control Revenue
Bonds (Oglethorpe
Power Corp. Project)
Series 1994A/
(FGIC Insurance &
Credit Local de
France SBPA)
5.15%, 01/07/96 $24,000 $24,000
Cobb County, Georgia
Housing Authority
Multi Family Housing
Revenue Bonds
(Walton Green Project)/
(Wachovia Bank LOC)
5.25%, 01/07/96 14,000 14,000
Cobb County, Georgia
Housing Authority Multi
Family Housing Revenue
Bonds (Williamstown
Apartment Project)/
(Wachovia Bank LOC)
5.20%, 01/07/96 2,000 2,000
Dekalb County, Georgia
Development Authority
Industrial Development
Revenue Bonds (Siemens
Energy, Inc. Project)/
(Siemens AG Guaranty)
5.20%, 01/07/96 3,750 3,750
Dekalb County, Georgia
Housing Authority Multi
Family Housing Revenue
Bonds (Wood Hills
Apartment Project)/ (Bank
of Montreal LOC)
5.15%, 01/07/96 5,250 5,250
Douglas County, Georgia
Development Authority
Industrial Development
Revenue Bonds (Mima Inc.
Project)/ (Wachovia Bank
LOC)
5.10%, 01/07/96 4,300 4,300
Laurens County, Georgia
Development Authority
Solid Waste Disposal
Revenue Bonds (Southeast
Paper Co. Project)/
(Wachovia Bank LOC)
5.25%, 01/07/96 25,000 25,000
Richmond County, Georgia
Industrial Development
Authority Revenue Bonds
(Bok Group Project)/
(Wachovia Bank LOC)
5.15%, 01/07/96 5,000 5,000
Rockmart, Georgia
Development Authority
Industrial Development
Revenue Bonds (CW Matthews
Contracting)/ (Wachovia
Bank LOC)
5.25%, 01/07/96 2,500 2,500
Smyrna, Georgia Housing
Authority Multi Family
Housing Revenue Bonds
(Walton Park LP)/
(Wachovia Bank LOC)
5.25%, 01/07/96 8,000 8,000
Villa Rica, Georgia
Industrial Development
Revenue Bonds (Lowes Home
Centers, Inc. Project)/
(Wachovia Bank LOC)
5.15%, 01/07/96 1,200 1,200
-------
110,300
-------
HAWAII--1.6%
Hawaii State Department of
Budget and Finance Special
Purpose Mortgage Revenue
Bonds (Adventist Health
System West)/ (Bank of
California LOC)
5.15%, 01/07/96 3,100 3,100
Hawaii State Housing
Finance & Development
Corp. Multi-Family Housing
Revenue Bonds (Nani Mauna
Loa Project) Series 1995A/
(Citibank LOC)
4.00%, 01/07/96 4,350 4,350
Hawaii State Housing
Finance & Development
Corp. Revenue Bonds
(Rental Housing System)
Series 1990A/
(Industrial Bank of
Japan LOC)
5.20%, 01/07/96 17,100 17,100
Hawaii State Housing
Finance & Development
Corp. Revenue Bonds
(Rental Housing System)
Series 1990B/(Industrial
Bank of Japan LOC)
5.20%, 01/07/96 19,600 19,600
Honolulu, Hawaii City and
County Multi Family
Housing Revenue Bonds
(HaleKa Gardens Project)
Series A/ (Bank of Tokyo
LOC)
5.70%, 01/07/96 5,256 5,256
</TABLE>
F-25
<PAGE> 185
SchwabFunds(R) 5
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Honolulu, Hawaii City and
County Multi Family
Housing Revenue Bonds
(Lolani Regents Project)
Series 1990A/
(Bank of Hawaii LOC)
5.55%, 01/07/96 $ 9,300 $ 9,300
------
58,706
------
ILLINOIS--10.2%
Centralia, Illinois
Industrial Development
Authority Revenue Bonds
(Consolidated Foods
Corp./Hollywood
Brands, Inc. Project)/
(Wachovia Bank LOC)
5.15%, 01/07/96 4,500 4,500
Chicago, Illinois
General Obligation
Bonds Series 1985/
(Sanwa Bank LOC)
5.45%, 01/07/96 14,440 14,440
Chicago, Illinois
General Obligation
Bonds Series 1992B/
(Canadian Imperial Bank of
Commerce LOC)
5.10%, 01/07/96 10,400 10,400
Chicago, Illinois
Industrial Development
Revenue Bonds (Morse
Automotive)/ Series 1995
(American National Bank &
Trust Co. LOC)
5.25%, 01/07/96 3,000 3,000
Chicago, Illinois O'Hare
International Airport
Revenue Bonds (Adjustable
Convertible Extendable
Securities General Airport
Second Lien) Series B-1/
(Sanwa Bank LOC)
5.40%, 01/07/96 10,000 10,000
Chicago, Illinois O'Hare
International Airport
Revenue Bonds
(Adjustable Convertible
Extendable Securities
General Airport Second
Lien) Series B-2/
(Sanwa Bank LOC)
5.40%, 01/07/96 10,000 10,000
Chicago, Illinois O'Hare
International Airport
Revenue Bonds
(General Airport Second
Lien) Series 1994C/
(Societe Generale LOC)
5.15%, 01/07/96 16,100 16,100
Chicago, Illinois O'Hare
International Airport
Revenue Bonds (General
Airport Second Lien)
Series A/(Westpac Banking
Corp. LOC)
5.10%, 01/07/96 13,100 13,100
Illinois Development
Finance Authority Hospital
Revenue Bonds (Palos
Community Hospital) Series
1994/ (Credit Suisse SBPA)
5.20%, 01/07/96 37,700 37,700
Illinois Development
Finance Authority
Industrial Development
Revenue Bonds (Knead Dough
Baking Co.)/
(Bank of America LOC)
5.35%, 01/07/96 8,870 8,870
Illinois Development
Finance Authority
Industrial Development
Revenue Bonds (Marriott
Corp. Deerfield Project)/
(National Westminster Bank
LOC)
5.15%, 01/07/96 1,300 1,300
Illinois Development
Finance Authority
Industrial Development
Revenue Bonds (Rerkin
Paperboard Co. LP) Series
1994/ (Northern Trust LOC)
5.40%, 01/07/96 5,500 5,500
Illinois Development
Finance Authority Revenue
Residential Rental Revenue
Bonds (F.C. Harris
Pavillion Project) Series
1994/(FNMA LOC)
5.15%, 01/07/96 3,000 3,000
Illinois Development
Finance Authority Revenue
Residential Rental Revenue
Bonds (River Oak)/ (Swiss
Bank LOC)
5.20%, 01/07/96 3,790 3,790
Illinois Educational
Facility Authority Revenue
Bonds (Chicago Zoological
Society Brookfield Zoo)
Series B/
(Chemical Bank LOC)
5.25%, 01/07/96 2,000 2,000
Illinois Educational
Facility Authority Revenue
Bonds (Chicago
Historical Society)/
(Mitsubishi Bank LOC)
5.35%, 01/07/96 8,300 8,300
</TABLE>
F-26
<PAGE> 186
SchwabFunds(R) 6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Illinois Educational
Facility Authority
Revenue Bonds
(Illinois Institute of
Technology) Series 1990A/
(Northern Trust LOC)
5.05%, 01/07/96 $11,300 $11,300
Illinois Educational
Facility Authority Revenue
Bonds (Northwestern
University)/ (FNB Chicago
LOC)
5.15%, 01/07/96 22,200 22,200
Illinois Educational
Facility Authority Revenue
Bonds (University Pooled
Financing Program) Series
1985/
(FGIC Insurance &
Sakura Bank SBPA)
5.95%, 01/07/96 17,325 17,325
Illinois Health Facility
Authority Revenue Bonds
(Franciscan Village
Project) Series 1989A/
(Commonwealth Bank of
Australia LOC)
5.20%, 01/07/96 2,000 2,000
Illinois Health Facility
Authority Revenue Bonds
(Hospital Sisters
Services) Series E/(MBIA
Insurance &
Morgan Guaranty SBPA)
5.00%, 01/07/96 4,300 4,300
Illinois Health Facility
Authority Revenue Bonds
(Ingalls Memorial
Hospital) Series
1985C/(LaSalle National
Bank LOC)
5.60%, 01/07/96 1,100 1,100
Illinois Health Facility
Authority Revenue Bonds
(Streeterville Corp.)
Series A/
(FNB Chicago LOC)
5.10%, 01/07/96 14,400 14,400
Illinois Health Facility
Authority Revenue Bonds
(Washington & Jane Smith
Home) Series 1991/
(Comerica Bank LOC)
5.20%, 01/07/96 2,800 2,800
Illinois Health Facility
Authority Revenue Bonds
Revolving Fund Pooled Loan
Series 1985C/ (FNB Chicago
LOC)
5.20%, 01/07/96 6,000 6,000
Illinois Health Facility
Authority Revenue Bonds
Revolving Fund Pooled Loan
Series 1985D/ (FNB Chicago
LOC)
5.20%, 01/07/96 20,000 20,000
Illinois State Toll Highway
Authority Revenue Bonds
Series B/(MBIA Insurance &
Societe Generale SBPA)
5.05%, 01/07/96 63,400 63,400
Kane County, Illinois
Revenue Bonds (Glenwood
School for Boys)/(Harris
Trust & Savings Bank LOC)
5.10%, 01/07/96 9,000 9,000
Lombard, Illinois
Industrial Development
Revenue Refunding Bonds (B
& H Partnership Project)/
(Comerica Bank LOC)
5.38%, 01/07/96 1,500 1,500
McHenry County, Illinois
Industrial Development
Authority Revenue
Refunding Bonds (Dean
Foods Co. Project)/
(Wachovia Bank LOC)
5.15%, 01/07/96 2,675 2,675
Oak Forest, Illinois
Revenue Bonds (Homewood
Pool) Series 1989/
(FNB Chicago LOC)
5.15%, 01/07/96 37,000 37,000
-------
367,000
-------
INDIANA--0.4%
Crawfordsville, Indiana
Industrial Development
Revenue Bonds (National
Service Industries, Inc.
Project)/ (Wachovia Bank
LOC)
5.15%, 01/07/96 2,000 2,000
Hammond, Indiana Adjustable
Rate Economic Development
Revenue Bonds (Lear
Seating Corp. Project)
Series 1994/ (Chemical
Bank LOC)
4.25%, 01/07/96 5,750 5,750
Indiana Health Facility
Financing Authority
Hospital Adjustable
Convertible Extentable
Securities Revenue Bonds
(Methodist Hospital)
Series C/
(Credit Suisse SBPA)
5.15%, 01/07/96 4,100 4,100
Indianapolis, Indiana
Economic Development
Authority Revenue Bonds
(Herff-Jones, Inc. Project)/
(Wachovia Bank LOC)
5.25%, 01/07/96 4,100 4,100
-------
15,950
-------
</TABLE>
F-27
<PAGE> 187
SchwabFunds(R) 7
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
IOWA--0.2%
Iowa Higher Education Loan
Authority Revenue Bonds
Adjustable Convertible
Extendable Securities
Education Loan (Private
College Facility)/
(MBIA Insurance &
Dai-Ichi Kangyo
Bank SBPA)
5.50%, 01/07/96 $ 4,100 $ 4,100
Iowa Housing Finance
Authority Multi Family
Housing Revenue Bonds
(Small Business Loan
Project) Series 1985A/
(FHLB of Des Moines LOC)
5.30%, 01/07/96 2,100 2,100
Iowa State Financing
Authority Solid Waste
Disposal Revenue Bonds
(Cedar River Paper
Project) Series 1995A/
(Swiss Bank LOC)
6.10%, 01/01/96 1,000 1,000
------
7,200
------
KANSAS--0.2%
Kansas City, Kansas
Industrial Revenue Bonds
(Owen Industries, Inc.
Project) Series 1987/
(Sanwa Bank LOC)
5.45%, 01/07/96 2,400 2,400
Wichita, Kansas Airport
Facilities Revenue Bonds
(Flightsafety
International, Inc.)/
(Wachovia Bank LOC)
5.25%, 01/07/96 3,000 3,000
Wichita, Kansas Health
Facilities Revenue
Authority (CSJ Health
System) Series XXV/
(Sumitomo Bank LOC)
5.30%, 01/07/96 1,900 1,900
------
7,300
------
KENTUCKY--0.7%
Lebanon, Kentucky
Industrial Development
Revenue Bonds (Wallace
Computer Services, Inc.)/
(Wachovia Bank LOC)
5.25%, 01/07/96 5,000 5,000
Mason County, Kentucky
Pollution Control
Financing Authority
Pollution Control Revenue
Bonds (East Kentucky Power
Corp.) Series 1984B-1/
(N.R.U.--C.F.C. Guaranty)
4.65%, 01/07/96 10,600 10,600
Murray, Kentucky Industrial
Development Authority
Revenue Bonds
(Dean Foods Co.)/
(Wachovia Bank LOC)
5.15%, 01/07/96 5,000 5,000
Owensboro, Kentucky Limited
Obligation Revenue Bonds
(Dart Polymers, Inc.
Project) Series 1985A/
(National Westminster Bank
LOC)
4.05%, 01/07/96 1,900 1,900
Wilson County, Kentucky
Industrial Development
Board Revenue Bonds
(Perma Pipe I North
Carolina Project)/ (Harris
Trust & Savings Bank LOC)
5.50%, 01/07/96 3,150 3,150
------
25,650
------
LOUISIANA--3.5%
De Soto Parish, Louisiana
Pollution Control
Financing Authority
Pollution Control Revenue
Refunding Bonds (Central
Louisiana
Electric Co.)
Series 1991A/
(Swiss Bank LOC)
5.05%, 01/07/96 400 400
De Soto Parish, Louisiana
Pollution Control
Financing Authority
Pollution Control Revenue
Refunding Bonds (Central
Louisiana
Electric Co.)
Series 1991B/
(Swiss Bank LOC)
5.05%, 01/07/96 15,000 15,000
East Baton Rouge Parish,
Louisiana Pollution
Control Revenue Refunding
Bonds (Exxon Corp.) Series
1989
5.90%, 01/01/96 1,900 1,900
Louisiana Public Facilities
Authority Hospital Revenue
Bonds (Willis Knighton
Medical Project)/ (AMBAC
Insurance & Mellon Bank
SBPA)
5.00%, 01/07/96 15,300 15,300
New Orleans, Louisiana
Aviation Board Revenue
Bonds (Passenger Facility
Charge Projects)/ (Banque
Paribas & Canadian
Imperial Bank of Commerce
LOC)
5.50%, 01/07/96 7,000 7,000
</TABLE>
F-28
<PAGE> 188
SchwabFunds(R) 8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
New Orleans, Louisiana
Aviation Board Revenue
Bonds Series B/
(MBIA Insurance &
Industrial Bank of
Japan SBPA)
4.95%, 01/07/96 $73,020 $ 73,020
New Orleans, Louisiana
Exhibition Hall Authority
Special Tax Revenue Bonds
(Hotel Occupancy Project)
Series B/ (Sanwa Bank LOC)
5.50%, 01/07/96 1,300 1,300
New Orleans, Louisiana
Exhibition Hall Authority
Special Tax Revenue Bonds
Series 1989B/ (Sanwa Bank
LOC)
5.50%, 01/07/96 3,800 3,800
Rapides Parish, Louisiana
Industrial Development
Board Pollution Control
Revenue Refunding Bonds
(Central Louisiana
Electric Co.)
Series 1991/
(Swiss Bank LOC)
5.05%, 01/07/96 8,150 8,150
--------
125,870
--------
MARYLAND--2.5%
Baltimore, Maryland
Industrial Development
Authority Revenue Bonds
(City of Baltimore Capital
Acquisition Program)
Series 1986/(Dai-Ichi
Kangyo Bank LOC)
5.35%, 01/07/96 52,400 52,400
Maryland State Health and
Higher Educational
Facility Authority Pooled
Revenue Bonds (Kennedy
Kreiger) Series 1993D/
(FNB Maryland LOC)
5.10%, 01/07/96 2,000 2,000
Maryland State Health and
Higher Educational Facility
Authority Pooled Revenue
Bonds (Pooled Loan
Program) Series A/
(Dai-Ichi Kangyo Bank LOC &
FNB Chicago SBPA)
5.00%, 01/07/96 9,700 9,700
Montgomery County, Maryland
Housing Opportunity
Commission Housing Revenue
Bonds (Draper Lane) Series
1991I/(FGIC
Insurance &
Sumitomo Bank SBPA)
5.30%, 01/07/96 16,500 16,500
Northeast Maryland Waste
Disposal Authority
Resource Recovery Bonds
(Hartford County)/ (AMBAC
Insurance &
Credit Local de France
LOC)
5.05%, 01/07/96 9,600 9,600
-------
90,200
-------
MICHIGAN--0.1%
Grand Rapids, Michigan
Water Supply Variable Rate
Revenue Bonds/
(FGIC Insurance &
Societe Generale SBPA)
5.90%, 01/07/96 1,000 1,000
Michigan State Strategic
Fund Limited Obligation
Revenue Bonds (Dean Foods
Co. Project)/ (Wachovia
Bank LOC)
5.25%, 01/07/96 3,500 3,500
------
4,500
------
MINNESOTA--0.9%
Bloomington, Minnesota Port
Authority Tax Increment
Revenue Refunding Bonds
(Mall of America)
Series 1995A/
(Credit Local de
France SBPA &
FSA Insurance)
5.20%, 01/07/96 7,000 7,000
St. Paul, Minnesota Housing
Redevelopment Authority
Rental Multi Family
Housing Development Bonds
Multi City Series 1985A/
(FHLB Des Moines LOC)
5.30%, 01/07/96 19,900 19,900
------
26,900
------
MISSISSIPPI--0.4%
Jackson County, Mississippi
Pollution Control Revenue
Bonds (Chevron U.S.A. Inc.
Project)
5.90%, 01/07/96 14,700 14,700
------
MISSOURI--1.0%
Independence, Missouri
Industrial Development
Authority Revenue Bonds
(Resthaven Project)/
(Credit Local de France
LOC)
5.20%, 01/07/96 9,640 9,640
</TABLE>
F-29
<PAGE> 189
SchwabFunds(R) 9
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Industrial Development
Authority of Mexico,
Missouri Revenue Bonds
(ABP Midwest
Manufacturing Co.
Project) Series 1995/
(Royal Bank of Scotland
LOC)
5.25%, 01/07/96 $7,600 $ 7,600
Missouri State Development
Finance Board Industrial
Development Revenue Bonds
(H.R. Williams Mill Supply
Project) Series 1995/
(Union Bank of
Switzerland LOC)
5.30%, 01/07/96 3,100 3,100
Missouri State Health and
Educational Facilities
Authority Health
Facilities Revenue Bonds
(Sisters of Mercy)
Series 1988A/(Multiple
Credit Enhancements)
5.10%, 01/07/96 3,200 3,200
Missouri State Health and
Educational Facilities
Authority Health
Facilities Revenue Bonds
(Sisters of Mercy) Series
1992B/ (Toronto-Dominion
Bank SBPA)
5.10%, 01/07/96 3,400 3,400
Missouri State Health and
Educational Facilities
Authority Health
Facilities
Revenue Bonds (St. Anthony
Medical Center)/
(Mitsubishi Bank SBPA)
5.60%, 01/07/96 900 900
St. Charles, Missouri
Industrial Development
Authority Variable Rate
Demand Revenue Refunding
Bonds (Casalon Apartments
Project)/ (Citibank LOC)
5.25%, 01/07/96 3,100 3,100
Washington, Missouri
Industrial Development
Authority Revenue
Bonds (Pauwels
Transformer Project)/
(Generale Bank LOC)
5.40%, 01/07/96 4,000 4,000
------
34,940
------
MONTANA--0.4%
Forsyth, Montana Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Portland General Electric
Coal Stripping Project)
Series 1983B/ (Swiss Bank
LOC)
5.00%, 01/07/96 6,500 6,500
Montana State Health
Facility Authority Revenue
Bonds (Health Care Pooled
Loan Program) Series
1985A/ (FGIC Insurance &
Norwest Bank of
Minnesota SBPA)
5.15%, 01/07/96 7,195 7,195
------
13,695
------
NEVADA--1.6%
Clark County, Nevada Airport
Improvement Revenue
Refunding Bonds
Series 1993A/
(MBIA Insurance &
Industrial Bank of
Japan SBPA)
5.15%, 01/07/96 55,350 55,350
Clark County, Nevada
Industrial Development
Revenue Bonds
(Cogeneration Project No.
2)/(Swiss Bank LOC)
6.15%, 01/07/96 2,700 2,700
------
58,050
------
NEW HAMPSHIRE--0.2%
New Hampshire Higher
Education and Health
Facilities Authority
Revenue Bonds (VHA New
England, Inc.) Series
1985B/ (AMBAC Insurance &
FNB Chicago SBPA)
5.00%, 01/07/96 1,000 1,000
New Hampshire State Housing
Finance Authority Multi
Family Housing Revenue
Bonds (Fairways Project)
Series 1994-1/ (General
Electric Capital Corp.
LOC)
5.20%, 01/07/96 7,000 7,000
------
8,000
------
NEW JERSEY--0.1%
New Jersey Turnpike
Authority Revenue Bonds
Series 1991D/
(FGIC Insurance &
Societe General LOC)
4.80%, 01/07/96 3,000 3,000
------
</TABLE>
F-30
<PAGE> 190
SchwabFunds(R) 10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
NEW MEXICO--0.1%
Albuquerque, New Mexico
Gross Receipts Lodgers Tax
Revenue Adjustable Rate
Tender Revenue Bonds
Series 1994/ (Canadian
Imperial Bank of Commerce
LOC)
5.15%, 01/07/96 $ 1,300 $ 1,300
Belen, New Mexico
Industrial Development
Revenue Bonds
(Solo Cup, Inc. Project)/
(Wachovia Bank LOC)
5.25%, 01/07/96 3,250 3,250
------
4,550
------
NEW YORK--3.2%
Babylon, New York Variable
Rate General Obligation
Bonds Series B/(Bank of
Nova Scotia SBPA & AMBAC
Insurance)
4.90%, 01/07/96 3,500 3,500
New York City, New York
General Obligation Bonds
Series 1993 Subseries
A-8B/ (Sanwa Bank LOC)
5.95%, 01/07/96 715 715
New York City, New York
General Obligation Bonds
Series 1994B
Subseries B-2/
(MBIA Insurance &
Bank Austria AG SBPA)
5.90%, 01/01/96 400 400
New York City, New York
General Obligation Bonds
Series 1994B
Subseries B-3/
(MBIA Insurance &
Bank of Nova Scotia SBPA)
5.90%, 01/01/96 1,000 1,000
New York City, New York
Housing Development Corp.
Variable Rate Demand
Special Obligation Revenue
Bonds (East 96th Street
Project) Series 1990A/
(Mitsubishi Bank LOC)
5.10%, 01/07/96 11,900 11,900
New York City, New York
Municipal Water Finance
Authority Water & Sewer
System Revenue Bonds
Series 1994G/
(FGIC Insurance &
FGIC SPA)
5.90%, 01/07/96 9,000 9,000
New York City, New York
Trust for Cultural
Resources Revenue Bonds
(Solomon R. Guggenheim
Project) Series 1990B/
(Swiss Bank LOC)
5.90%, 01/01/96 100 100
New York City, New York
Variable Rate General
Obligation Bonds Series
1995B Subseries
B-10/(Union Bank of
Switzerland LOC)
5.00%, 01/07/96 7,500 7,500
New York City, New York
Variable Rate General
Obligation Bonds Series
1995B1 Subseries B-8/
(Mitsubishi Bank LOC)
5.35%, 01/07/96 2,000 2,000
New York Local Government
Assistance Corp. Public
Improvement Revenue Bonds
Series 1993A/ (Multiple
Credit Enhancements)
4.95%, 01/07/96 9,500 9,500
New York Local Government
Assistance Corp. Public
Improvement Revenue Bonds
Series 1994B/ (Credit
Suisse & Swiss Bank LOC)
4.95%, 01/07/96 1,000 1,000
New York Local Government
Assistance Corp. Public
Improvement Revenue
Bonds Series 1995F/
(Toronto-Dominion Bank LOC)
5.05%, 01/07/96 12,700 12,700
New York Municipal Water
Finance Authority Water &
Sewer System Revenue Bonds
Series 1994C/ (FGIC
Insurance & FGIC SPA)
5.90%, 01/01/96 5,500 5,500
New York State Dormitory
Authority Revenue Bonds
(Masonic Hall Asylum)/
(AMBAC Insurance &
Credit Local de
France SBPA)
4.90%, 01/07/96 3,100 3,100
New York State Energy
Research & Development
Authority Electric Facilities
Revenue Bonds (Long
Island Lighting Co.
Project) Series 1993A/
(Toronto-Dominion Bank LOC)
5.00%, 01/07/96 1,000 1,000
</TABLE>
F-31
<PAGE> 191
SchwabFunds(R) 11
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
New York State Energy
Research & Development
Authority Pollution
Control Refunding Revenue
Bonds (Orange & Rockland
Utilities, Inc. Project)
Series 1994A/
(FGIC Insurance &
Societe Generale SBPA)
4.90%, 01/07/96 $10,700 $ 10,700
New York State Energy
Research & Development
Authority Pollution Control
Revenue Bonds (Central
Hudson Gas & Electric
Corp. Project) Series 1985A/
(Morgan Guaranty Trust LOC)
5.00%, 01/07/96 5,700 5,700
New York State Energy
Research & Development
Authority Pollution
Control Revenue Refunding
Bonds Series B/(Union Bank
of Switzerland LOC)
6.00%, 01/01/96 1,400 1,400
New York State Local
Government Assistance
Corp. Variable Rate
Revenue Bonds Series
1995G/(National
Westminster Bank LOC)
4.90%, 01/07/96 14,000 14,000
Triborough Bridge and
Tunnel Authority, New York
Special Obligation Bridge
Revenue Bonds Series 1994/
(FGIC Insurance &
FGIC SPA)
4.90%, 01/07/96 11,000 11,000
Yonkers, New York Industrial
Development Authority
Revenue Bonds
Consumers Union Facility/
(AMBAC Insurance &
Credit Local de France SBPA)
4.95%, 01/07/96 1,400 1,400
-------
113,115
-------
NORTH CAROLINA--1.7%
Charlotte, North Carolina
Airport Revenue Refunding
Bonds Series 1993A/ (MBIA
Insurance & Industrial
Bank of Japan SBPA)
5.15%, 01/07/96 6,400 6,400
Haywood County, North
Carolina Industrial
Development Facilities and
Pollution Control
Financing Authority
Revenue Bonds (Solid
Waste--Champion
International Corp.)/
(Bank Austria AG LOC)
4.95%, 01/07/96 2,200 2,200
North Carolina Medical Care
Community Hospital Revenue
Bonds (Pooled Equipment
Finance Project)/(MBIA
Insurance &
Banque Paribas SBPA)
5.05%, 01/07/96 11,300 11,300
North Carolina Medical Care
Community Hospital Revenue
Bonds Adjustable
Convertible Extendable
Securities (Pooled
Financial Project)/ (MBIA
Insurance & Sakura Bank
SPA)
5.05%, 01/07/96 1,810 1,810
North Carolina Medical Care
Community Hospital Revenue
Pooled Finance
Bonds/(Dai-Ichi
Kangyo Bank LOC)
5.90%, 01/07/96 5,800 5,800
Wake County, North Carolina
Industrial Facility and
Pollution Control
Financing Authority
Revenue Bonds (Carolina
Power & Light)
Series 1985B/
(Sumitomo Bank LOC)
5.50%, 01/07/96 2,900 2,900
Wake County, North Carolina
Industrial Facility and
Pollution Control
Financing Authority
Revenue Bonds (Carolina
Power & Light)
Series 1985C/
(Sumitomo Bank LOC)
5.50%, 01/07/96 29,400 29,400
------
59,810
------
NORTH DAKOTA--0.2%
Mercer County, North Dakota
National Rural Utility
Pollution Control Revenue
Bonds (Basin Electric
Power Cooperative Antelope
Project) Series 1984C/
(N.R.U.--C.F.C. Guaranty)
4.65%, 01/07/96 7,150 7,150
------
OHIO--1.0%
Columbus, Ohio Electric
System Revenue Bonds
Series 1984/(Dai-Ichi
Kangyo Bank LOC)
3.90%, 01/07/96 6,880 6,880
</TABLE>
F-32
<PAGE> 192
SchwabFunds(R) 12
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Columbus, Ohio General
Obligation Bonds Series
1995-1/ (Westdeutsche
Landesbank LOC)
4.90%, 01/07/96 $ 6,000 $ 6,000
Dayton, Ohio Special
Facilities Revenue
Refunding Bonds (Emery Air
Freight) Series 1993F/
(ABN-AMRO Bank LOC)
5.31%, 01/07/96 8,000 8,000
Ohio Air Quality
Development Authority
Revenue Bonds (JMG
Funding, LP) Series 1994A/
(Societe Generale LOC)
5.00%, 01/07/96 12,000 12,000
Ohio Housing Finance Agency
Multi Family Housing
Revenue Bonds (Kenwood
Congregate Retirement
Community) Series
1985/(Morgan Guaranty
Trust LOC)
3.90%, 01/07/96 2,000 2,000
------
34,880
------
OKLAHOMA--0.0%
Tulsa, Oklahoma Industrial
Development Authority
Hospital Revenue Bonds
(Hillcrest Medical Center)
Series 1988/
(Mitsubishi Bank LOC)
5.00%, 01/07/96 685 685
Tulsa, Oklahoma Industrial
Development Authority
Revenue Bonds
(Thomas & Betts Project)
Series 1991/ (Wachovia
Bank LOC)
5.25%, 01/07/96 300 300
------
985
------
OREGON--1.3%
Medford, Oregon Hospital
Facility Authority (Rogue
Valley Manor Project)
Series 1985/
(Banque Paribas LOC)
5.20%, 01/07/96 7,700 7,700
Oregon State Economic
Development Commission
Economic and Industrial
Development Revenue
Bonds/(Wachovia Bank LOC)
5.15%, 01/07/96 4,100 4,100
Oregon State General
Obligation Notes Series
1973F/ (Mitsubishi Bank
LOC)
5.15%, 01/07/96 11,185 11,185
Oregon State General
Obligation Notes Series
1973H/ (Bank of Tokyo LOC)
5.25%, 01/07/96 18,100 18,100
Port of Portland, Oregon
Industrial Development
Revenue Bonds (Schnitzer
Steel Project)/ (Comerica
Bank LOC)
5.30%, 01/07/96 5,000 5,000
------
46,085
------
PENNSYLVANIA--1.4%
Montgomery County,
Pennsylvania Industrial
Development Authority
Revenue Bonds (Seton
Medical Supply Co. Project)/
(Banque Paribas LOC)
5.25%, 01/07/96 5,500 5,500
Pennsylvania Higher
Education Assistance
Agency Student Loan
Revenue Bonds Series
1995A/ (SLMA LOC)
5.25%, 01/07/96 17,000 17,000
Sayre, Pennsylvania Health
Care Facilities Authority
(VHA Capital Finance
Revenue) Series 1985B/
(AMBAC Insurance & FNB
Chicago SBPA)
5.00%, 01/07/96 4,365 4,365
Sayre, Pennsylvania Health
Care Facilities Authority
(VHA Capital Finance
Revenue) Series 1985F/
(AMBAC Insurance & FNB
Chicago SBPA)
5.00%, 01/07/96 4,100 4,100
Sayre, Pennsylvania Health
Care Facilities Authority
(VHA Capital Finance
Revenue) Series 1985J/
(AMBAC Insurance & FNB
Chicago SBPA)
5.00%, 01/07/96 9,800 9,800
Washington County,
Pennsylvania Authority
Revenue Bonds Higher
Education Pooled Equipment
Lease/ (Sanwa Bank LOC)
5.35%, 01/07/96 9,400 9,400
------
50,165
------
RHODE ISLAND--0.1%
Rhode Island State Student
Loan Authority Higher
Education Revenue Bonds
Series 1995-1/(National
Westminster Bank LOC)
5.30%, 01/07/96 2,000 2,000
------
</TABLE>
F-33
<PAGE> 193
SchwabFunds(R) 13
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
SOUTH CAROLINA--0.4%
Greenville County, South
Carolina Industrial
Development Revenue Bonds
(Quality Thermoforming
Project)/ (South Carolina
National Bank LOC)
5.25%, 01/07/96 $1,200 $ 1,200
South Carolina Jobs
Economic Development
Authority Hospital
Facilities Revenue Bonds
(Baptist Health Care
System)/ (Credit Local de
France LOC)
5.05%, 01/07/96 6,900 6,900
South Carolina Jobs
Economic Development
Authority Industrial
Development Revenue Bonds
(Ado Corp. Project)/(South
Carolina National Bank
LOC)
5.25%, 01/07/96 800 800
Spartanburg County, South
Carolina Industrial
Development Authority
Revenue Bonds (Bemis,
Inc.)/(Wachovia
Bank LOC)
5.15%, 01/07/96 4,750 4,750
------
13,650
------
SOUTH DAKOTA--0.3%
Rapid City, South Dakota
Industrial Development
Revenue Corp. (Property
Associates Project)/
(Lloyds Bank LOC)
5.15%, 01/07/96 6,025 6,025
South Dakota State Health &
Educational Facilities
Authority Revenue Bonds
(McKenna Hospital) Series
1994/(MBIA Insurance &
Banque Paribas SBPA)
5.20%, 01/07/96 5,000 5,000
------
11,025
------
TENNESSEE--0.2%
Metropolitan Nashville and
Davidson County, Tennessee
Health and Education
Facility Board Revenue
Bonds Series A/
(FGIC Insurance &
Barclays Bank LOC)
5.00%, 01/07/96 1,300 1,300
Metropolitan Nashville and
Davidson County, Tennessee
Industrial Development
Revenue Bonds
(Multi-Family
Housing--Western)/
(Sumitomo Bank LOC)
5.60%, 01/07/96 7,035 7,035
------
8,335
------
TEXAS--7.9%
Amarillo, Texas Health
Facilities Corp. Hospital
Revenue Bonds (High Plains
Baptist Hospital)
Series 1985/
(Banque Paribas LOC)
5.20%, 01/07/96 9,300 9,300
Bexar County, Texas Health
Facilities Development
Corp. Revenue Bonds
(Chandler Memorial Home
Project) Series 1995/
(Bank One LOC)
5.20%, 01/07/96 5,170 5,170
Capital Industrial
Development Corp., Texas
Industrial Development
Revenue Refunding Bonds
(National Service
Industries, Inc. Project)/
(Wachovia Bank LOC)
5.15%, 01/07/96 3,950 3,950
Euless, Texas Industrial
Development Authority
Revenue Bonds (Ferguson
Enterprises, Inc.)/
(Wachovia Bank LOC)
5.15%, 01/07/96 4,850 4,850
Greater East Texas Higher
Education Authority
Student Loan Revenue Bonds
Series 1988A/ (AMBAC
Insurance & Citibank SBPA)
5.25%, 01/07/96 18,300 18,300
Greater East Texas Higher
Education Authority
Student Loan Revenue Bonds
Series 1992A/ (SLMA LOC)
5.10%, 01/07/96 16,000 16,000
Greater East Texas Higher
Education Authority
Student Loan Revenue Bonds
Series 1993A/ (SLMA LOC)
5.25%, 01/07/96 48,150 48,150
Greater East Texas Higher
Education Authority
Student Loan Revenue Bonds
Series 1993B-1/ (SLMA LOC)
5.25%, 01/07/96 11,000 11,000
</TABLE>
F-34
<PAGE> 194
SchwabFunds(R) 14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Greater East Texas Higher
Education Authority
Student Loan Revenue Bonds
Series 1995B/ (SLMA LOC)
5.00%, 01/07/96 $30,000 $30,000
Hays, Texas Memorial Health
Facilities Development
Corp. Hospital Revenue
Bonds AHS/Sunbelt (Central
Texas Medical Center
Project) Series 1990A/
(Swiss Bank LOC)
5.10%, 01/07/96 9,000 9,000
Hays, Texas Memorial Health
Facilities Development
Corp. Hospital Revenue
Bonds AHS/Sunbelt (Central
Texas Medical Center
Project) Series 1990B/
(Swiss Bank LOC)
5.10%, 01/07/96 16,300 16,300
Lavaca-Navidad River
Authority, Texas Water
Supply System Contract
Revenue Bonds (Formosa
Plastics Corp. Project)/
(Canadian Imperial Bank of
Commerce LOC)
5.30%, 01/07/96 9,900 9,900
Lower Neches Valley
Authority, Texas
Industrial Development
Corp. Pollution Control
Revenue Bonds (Mobil Corp.
Neches River Treatment
Project) Series 1994
5.00%, 01/07/96 12,000 12,000
Midlothian, Texas
Industrial Development
Corp. Pollution Control
Revenue Bonds (Box-Crow
Co. Project)/(Union Bank
of Switzerland LOC)
5.80%, 01/07/96 1,400 1,400
Panhandle Plains, Texas
Higher Education
Authority, Inc. Student
Loan Revenue Bonds Series
1992A/ (SLMA LOC)
5.20%, 01/07/96 2,300 2,300
Panhandle Plains, Texas
Higher Education
Authority, Inc. Student
Loan Revenue Bonds Series
1995A/ (SLMA LOC)
5.20%, 01/07/96 10,400 10,400
Port Authority of Corpus
Christi, Texas Nueces
County Marine Terminal
Revenue Bonds (Reynolds
Metals Co.)/ (Barclays
Bank LOC)
5.25%, 01/07/96 3,100 3,100
Robertson County, Texas
Industrial Development
Corp. Variable Rate
Revenue Bonds (Sanderson
Farms Project) Series
1995/ (Harris Trust &
Savings Bank LOC)
5.20%, 01/07/96 4,300 4,300
Texas Health Facilities
Development Corp.
Adjustable Convertible
Extendable Securities
Revenue Bonds (North Texas
Pooled Health) Series
1985B/ (Banque Paribas
LOC)
5.05%, 01/07/96 11,000 11,000
Texas Small Business
Industrial Development
Corp. Revenue Bonds
(Texas Public
Facility Capital Access)/
(Multiple Credit
Enhancements)
5.20%, 01/07/96 41,795 41,795
Texas State Revenue
Refunding Bonds (Veterans
Housing Assistance Fund)
Series 1995
5.05%, 01/07/96 13,000 13,000
Trinity River Authority,
Texas Pollution Control
Revenue Bonds (Lafarge
Corp. Project)/(Banque
Nationale de Paris LOC)
5.20%, 01/07/96 3,100 3,100
-------
284,315
-------
VERMONT--0.1%
Vermont Education and
Health Buildings Financing
Agency Revenue Bonds (VHA
New England) Series 1985G/
(AMBAC Insurance &
FNB Chicago SBPA)
5.00%, 01/07/96 4,240 4,240
-------
</TABLE>
F-35
<PAGE> 195
SchwabFunds(R) 15
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
VIRGINIA--0.4%
Lynchburg, Virginia
Industrial Development
Authority Hospital
Facility Revenue Bonds
(First Mortgage VHA
Mid-Atlantic States, Inc.)
Series 1985A/ (AMBAC
Insurance & Mellon Bank
SBPA)
5.00%, 01/07/96 $ 500 $ 500
Lynchburg, Virginia
Industrial Development
Authority Hospital
Facility Revenue Bonds
(First Mortgage VHA
Mid-Atlantic States, Inc.)
Series 1985B/ (AMBAC
Insurance & Mellon Bank
SBPA)
5.00%, 01/07/96 400 400
Lynchburg, Virginia
Industrial Development
Authority Hospital
Facility Revenue Bonds
(First Mortgage VHA
Mid-Atlantic States, Inc.)
Series 1985C/ (AMBAC
Insurance & Mellon Bank
SBPA)
5.00%, 01/07/96 600 600
Lynchburg, Virginia
Industrial Development
Authority Hospital
Facility Revenue Bonds
(First Mortgage VHA
Mid-Atlantic States, Inc.)
Series 1985F/ (AMBAC
Insurance & Mellon Bank
SBPA)
5.00%, 01/07/96 5,600 5,600
Lynchburg, Virginia
Industrial Development
Authority Hospital
Facility Revenue Bonds
(First Mortgage VHA
Mid-Atlantic States, Inc.)
Series 1985G/ (AMBAC
Insurance & Mellon Bank
SBPA)
5.00%, 01/07/96 8,100 8,100
------
15,200
------
WASHINGTON--1.0%
Snohomish County,
Washington Public
Utilities District #1
Electric Revenue Bonds
(Generation Systems)/
(MBIA Insurance &
Industrial Bank of Japan
SBPA)
5.15%, 01/07/96 20,000 20,000
Washington State Health
Care Facilities Authority
Revenue Refunding Bonds
(Sisters of St. Joseph of
Peace) Series 1993/ (MBIA
Insurance & U.S. Bank of
Washington SBPA)
5.20%, 01/07/96 12,700 12,700
Washington State Housing
Finance Commission Multi
Family Mortgage Revenue
Bonds (Canyon Lake)
Series 1993A/
(U.S. Bank of
Washington LOC)
5.40%, 01/07/96 4,565 4,565
------
37,265
------
WEST VIRGINIA--0.3%
West Virginia State
Hospital Finance Authority
Hospital Revenue Bonds
(St. Joseph's Hospital
Project) Series 1987/
(Mitsubishi Bank LOC)
5.20%, 01/07/96 2,200 2,200
West Virginia State
Hospital Finance Authority
Hospital Revenue
Bonds (VHA
Mid Atlantic States, Inc.)
Series 1985H/
(AMBAC Insurance &
FNB Chicago SBPA)
5.00%, 01/07/96 8,600 8,600
------
10,800
------
WISCONSIN--0.8%
Chilton, Wisconsin
Industrial Development
Revenue Refunding Bonds
(Kaytee Products, Inc.
Project) Series 1995/(Bank
One Milwaukee LOC)
5.35%, 01/07/96 1,865 1,865
Fairwater, Wisconsin
Industrial Development
Revenue Bonds (Dean Foods
Co. Project) Series 1990/
(Wachovia Bank LOC)
5.15%, 01/07/96 1,450 1,450
Lac Du Flambeau Band of
Lake Superior Chippewa
Indians, Wisconsin Special
Obligation Bonds (Simpson
Electric) Series 1985/
(Barclays Bank LOC)
5.25%, 01/07/96 6,300 6,300
</TABLE>
F-36
<PAGE> 196
SchwabFunds(R) 16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Milwaukee, Wisconsin
Redevelopment Authority
Industrial Development
Revenue Bonds (Field
Container Corp. LP)
Series 1994/
(Northern Trust LOC)
5.40%, 01/07/96 $ 5,000 $ 5,000
Sheboygan, Wisconsin
Pollution Control
Financing Authority
Pollution Control Revenue
Bonds (Wisconsin Power &
Light Co.)
5.25%, 01/07/96 1,000 1,000
Wisconsin State Health and
Education Facilities
Authority Revenue Bonds
(Sinai Samaritan) Series
1994A/(Marshall & Ilsley
Bank LOC)
5.20%, 01/07/96 13,755 13,755
---------
29,370
---------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $2,072,441) 2,072,441
---------
VARIABLE RATE TENDER
OPTION BONDS--2.5%(a)
GEORGIA--0.6%
Georgia State Public
Improvement General
Obligation Tender Option
Bonds Series 1995B
(Citi-157)/
(Citibank Tender Option)
5.25%, 01/07/96 16,000 16,000
Metropolitan Atlanta Rapid
Transit Authority, Georgia
Sales Tax Revenue
Tender Option Bonds
Series M (BT-69)/
(AMBAC Insurance & Bankers
Trust Tender Option)
4.44%, 01/07/96 5,280 5,280
---------
21,280
---------
NEVADA--0.7%
Nevada State General
Obligation Tender Option
Bonds (Colorado River
Community) Series 1994
(Citi-143)/
(Citibank Tender Option)
5.30%, 01/07/96 25,000 25,000
---------
TEXAS--0.3%
Harris County, Texas Toll
Road Sub-Lien Highway
Tender Option Bonds
(Citi-138)/
(Citibank Tender Option)
5.30%, 01/07/96 7,000 7,000
Harris County, Texas Toll
Road Sub-Lien Highway
Tender Option Bonds
(Citi-139)/
(Citibank Tender Option)
5.30%, 01/07/96 5,000 5,000
-------
12,000
-------
WASHINGTON--0.9%
King County, Washington
Limited Tax General
Obligation Water & Sewer
Tender Option Bonds Series
1994A (Citi-136)/
(Citibank Tender Option)
5.30%, 01/07/96 15,570 15,570
King County, Washington
Limited Tax General
Obligation Water & Sewer
Tender Option Bonds Series
1994A (Citi-137)/
(Citibank Tender Option)
5.30%, 01/07/96 10,000 10,000
Washington State Public
Power Supply System
Nuclear Project Number 2
Revenue Tender Option
Bonds Series 1990C
(Citi-145)/
(FGIC Insurance, Escrowed
to Maturity with
Government Securities &
Citibank Tender Option)
5.30%, 01/07/96 5,000 5,000
-------
30,570
-------
TOTAL VARIABLE RATE TENDER OPTION
BONDS (Cost $88,850) 88,850
-------
VARIABLE RATE TENDER
OPTION BOND
PARTNERSHIPS--3.9%(a)(c)
CONNECTICUT--0.2%
Connecticut State General
Obligation General Purpose
Public Improvement Tender
Option Bond Partnership
Series 1991A (BTP-151)/
(Bankers Trust Tender
Option)
5.20%, 01/07/96 7,365 7,365
-------
GEORGIA--0.4%
Georgia State Public
Improvement General
Obligation Tender Option
Bond Partnership Series
1993B & 1993C
(BTP-135)/(Bankers Trust
Tender Option)
5.20%, 01/07/96 3,865 3,865
</TABLE>
F-37
<PAGE> 197
SchwabFunds(R) 17
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Georgia State Public
Improvement General
Obligation Tender Option
Bond Partnership Series
1993B & 1993C
(BTP-140)/(Bankers Trust
Tender Option)
5.20%, 01/07/96 $4,575 $ 4,575
Georgia State Public
Improvement General
Obligation Tender Option
Bond Partnership Series
1994B (BTP-148)/ (Bankers
Trust Tender Option)
5.20%, 01/07/96 7,100 7,100
------
15,540
------
ILLINOIS--0.4%
Chicago, Illinois
Metropolitan Water
Reclamation District
Greater Chicago General
Obligation Tender Option
Bond Partnership
(Cook County) (BTP-71)/
(Automated Data
Processing, Inc. Tender
Option)
4.99%, 01/07/96 9,870 9,870
Chicago, Illinois School
Finance Authority General
Obligation School Finance
Tender Option Bond
Partnership (BTP-70)/
(MBIA Insurance &
Automated Data Processing,
Inc. Tender Option)
4.66%, 01/07/96 5,365 5,365
------
15,235
------
MARYLAND--0.1%
Baltimore County, Maryland
General Obligation
Consolidated Public
Improvement Tender Option
Bond Partnership Series
1991 (BTP-132)/
(Bankers Trust
Tender Option &
Escrowed to Maturity with
Government Securities)
5.20%, 01/07/96 3,621 3,621
------
MINNESOTA--0.1%
Minnesota State Various
Purpose Sports Health Club
Tax Tender Option Bond
Partnership
(BTP-65)/(Automated Data
Processing, Inc. Tender
Option & Escrowed to
Maturity with
Government Securities)
4.28%, 01/07/96 4,455 4,455
------
SOUTH CAROLINA--0.2%
South Carolina State
Capital Improvement
Revenue Refunding Tender
Option Bond Partnership
(BTP-147)/(Bankers Trust
Tender Option)
5.20%, 01/07/96 5,370 5,370
------
TEXAS--1.0%
Regents of the University
of Texas Permanent
University Fund Revenue
Tender Option Bond
Partnership Series 1992A
(BTP-143)/ (Permanent
University
Fund Guaranty,
Bankers Trust
Tender Option &
Escrowed to Maturity with
Government Securities)
5.20%, 01/07/96 10,685 10,685
Texas State General
Obligation General Purpose
Public Improvement Tender
Option Bond Partnership
Series 1993B/(BTP-116)
(Bankers Trust Tender
Option)
4.69%, 01/07/96 10,170 10,170
Texas State Public Finance
Authority General
Obligation Tender Option
Bond Partnership Series
1994 (BTP-127)/ (Bankers
Trust Tender Option)
5.20%, 01/07/96 14,980 14,980
------
35,835
------
VIRGINIA--0.4%
Chesterfield County,
Virginia General
Obligation Public
Improvement and Refunding
Tender Option Bond
Partnership Series 1991
(BTP-136)/ (Bankers Trust
Tender Option)
5.20%, 01/07/96 6,025 6,025
Fairfax County, Virginia
Public Improvement General
Obligation Tender Option
Bond Partnership Series
1991A (BTP-131)/ (Bankers
Trust Tender Option)
5.20%, 01/07/96 7,146 7,146
------
13,171
------
</TABLE>
F-38
<PAGE> 198
SchwabFunds(R) 18
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
WASHINGTON--0.7%
King County, Washington
Unlimited Tax General
Obligation Tender Option
Bond Partnership Series
1993C (BTP-56)/ (Automated
Data Processing, Inc.
Tender Option)
4.15%, 01/07/96 $6,365 $ 6,365
Washington State General
Obligation Tender Option
Bond Partnership Series
1990 (BTP-152)/ (Bankers
Trust Tender Option)
5.20%, 01/07/96 5,655 5,655
Washington State Public
Power Supply System
Nuclear Project Number 2
Revenue Refunding Tender
Option Bond Partnership
Series 1990C (BTP-130)/
(Bankers Trust Tender
Option)
5.25%, 01/07/96 5,740 5,740
Washington State Public
Power Supply System
Nuclear Project Number 2
Revenue Refunding Tender
Option Bond Partnership
Series 1993B (BTP-137)/
(Bankers Trust Tender
Option)
5.25%, 01/07/96 6,685 6,685
-------
24,445
-------
WISCONSIN--0.4%
Wisconsin State Public
Improvement General
Obligation Tender Option
Bond Partnership
(BTP-62)/(Automated Data
Processing, Inc.
Tender Option &
Escrowed to Maturity with
Government Securities)
4.25%, 01/07/96 4,500 4,500
Wisconsin State Public
Improvement General
Obligation Tender Option
Bond Partnership Series
1992A (BTP-142)/
(Bankers Trust
Tender Option &
Escrowed to Maturity with
Government Securities)
5.20%, 01/07/96 9,480 9,480
-------
13,980
-------
TOTAL VARIABLE RATE TENDER OPTION
BOND PARTNERSHIPS (Cost $139,017) 139,017
-------
CERTIFICATES OF PARTICIPATION--2.1%(b)
CALIFORNIA--2.1%
San Jose, California
Certificates of Participation
(Convention Center Project)/
(Escrowed to Maturity with
Government Securities)
3.73%, 09/01/96 72,315 75,662
-------
TOTAL CERTIFICATES OF PARTICIPATION
(Cost $75,662) 75,662
-------
GENERAL OBLIGATIONS--4.5%(b)
ALASKA--0.3%
Anchorage, Alaska Unlimited
General Obligation Bonds
Series 1986/
(FGIC Insurance &
Escrowed to Maturity with
Government Securities)
3.72%, 06/01/96 8,600 8,924
Valdez, Alaska Unlimited
General Obligation Bonds
Series 1990/ (MBIA
Insurance)
3.70%, 01/01/97 1,000 1,028
------
9,952
------
ARKANSAS--0.1%
Arkansas State Unlimited
General Obligation Bonds
(College Savings)
3.32%, 06/01/96 1,975 1,977
------
CONNECTICUT--0.0%
Connecticut State General
Obligation Bonds Series
1992B
5.20%, 05/15/96 1,000 1,004
------
DELAWARE--0.1%
Delaware State General
Obligation Bonds Series
1994A
3.47%, 03/01/96 2,240 2,243
Delaware State General
Obligation Bonds Series B/
(Escrowed to Maturity with
Government Securities)
3.65%, 07/01/96 3,000 3,108
------
5,351
------
FLORIDA--0.2%
Dade County, Florida School
District General
Obligation Bonds/(MBIA
Insurance)
3.70%, 08/01/96 5,450 5,548
Florida State Board of
Education Capital Outlay
General Obligation Bonds
3.65%, 06/01/96 2,000 2,012
------
7,560
------
</TABLE>
F-39
<PAGE> 199
SchwabFunds(R) 19
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
GEORGIA--0.3%
Chatham County, Georgia
School District Unlimited
General Obligation Bonds
Series 1995B/ (FGIC
Insurance)
3.65%, 08/01/96 $ 1,160 $ 1,170
Clayton County, Georgia
School District Unlimited
General Obligation Bonds/
(Escrowed to Maturity with
Government Securities)
3.70%, 10/01/96 1,335 1,370
Gwinnett County, Georgia
School District General
Obligation Bonds Series
1995A
3.78%, 02/01/96 7,035 7,043
------
9,583
------
HAWAII--0.1%
Honolulu, Hawaii City and
County Refunding and
Improvement General
Obligation Bonds Series
1993B
3.65%, 10/01/96 2,000 2,004
------
ILLINOIS--0.0%
Du Page, Illinois Water
Commission General
Obligation Bonds/
(Escrowed to Maturity with
Government Securities)
3.70%, 03/01/96 1,000 1,026
------
KANSAS--0.7%
Wichita, Kansas General
Obligation Bonds Renewal
and Improvement Temporary
Notes Series 186
3.65%, 02/29/96 24,600 24,614
------
MASSACHUSETTS--0.3%
Massachusetts State
Dedicated Income Tax
Unlimited Tax General
Obligation Bonds Series
1990A/ (FGIC Insurance)
4.30%, 06/01/96 5,000 5,059
Massachusetts State General
Obligation Bonds Series
1986/(Escrowed to
Maturity with
Government Securities)
3.72%, 10/01/96 3,170 3,310
Massachusetts State General
Obligation Bonds Series
1990A/ (MBIA Insurance)
3.63%, 06/01/96 3,000 3,044
------
11,413
------
MINNESOTA--0.6%
Minneapolis, Minnesota
Special School District
General Obligation Bonds
3.73%, 02/01/96 5,500 5,506
Minnesota State General
Obligation Bonds/
(Escrowed to Maturity with
Government Securities)
3.89%, 08/01/96 9,500 9,668
Minnesota State General
Obligation Bonds Series
1995
3.70%, 08/01/96 5,400 5,455
Minnesota State Unlimited
General Obligation Bonds
Series 1993
3.70%, 08/01/96 1,000 1,007
------
21,636
------
NEW MEXICO--0.1%
Albuquerque, New Mexico
Municipal School District
Number 12 General
Obligation Bonds
3.60%, 08/01/96 1,700 1,705
New Mexico State Capital
Projects General
Obligation Bonds
3.75%, 08/01/96 2,000 2,000
------
3,705
------
OHIO--0.1%
Columbus, Ohio Limited Tax
General Obligation Bonds
Series 1993A
3.40%, 07/01/96 4,945 4,951
------
SOUTH CAROLINA--0.2%
South Carolina State
Capital Improvement
General Obligation Bonds
Series 1995B-1
3.70%, 08/01/96 6,400 6,474
------
TENNESSEE--0.0%
Tennessee State General
Obligation Bonds Series
1995A
4.25%, 03/01/96 1,000 1,001
------
TEXAS--0.3%
Amarillo, Texas Independent
School District Unlimited
General Obligation Bonds/
(Escrowed to Maturity with
Government Securities)
3.72%, 08/01/96 1,000 1,027
Dallas County, Texas
Hospital District
Refunding General
Obligation Bonds
4.05%, 02/15/96 1,500 1,502
</TABLE>
F-40
<PAGE> 200
SchwabFunds(R) 20
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Dallas, Texas Equipment
Acquisition Contractual
Obligation General
Obligation Bonds
3.73%, 02/15/96 $ 3,405 $ 3,407
Dallas, Texas Limited
General Obligation Bonds
Series 1995
3.75%, 02/15/96 2,750 2,757
Houston, Texas General
Obligation Bonds Series C
3.73%, 04/01/96 1,430 1,436
Tarrant County, Texas
Limited General Obligation
Bonds
3.68%, 07/15/96 1,000 1,029
------
11,158
------
VIRGINIA--0.1%
Fairfax County, Virginia
Unlimited General
Obligation Bonds
Series 1989A/
(Escrowed to Maturity with
Government Securities)
3.50%, 06/01/96 1,000 1,028
Fairfax County, Virginia
Unlimited General
Obligation Bonds
Series 1989B/
(Escrowed to Maturity with
Government Securities)
3.75%, 11/01/96 1,320 1,359
------
2,387
------
WASHINGTON--0.8%
Washington State
General Obligation Bonds
Series 1986D/
(Escrowed to Maturity with
Government Securities)
3.85%, 09/01/96 13,200 13,554
Washington State
General Obligation Bonds
Series 1990A
3.60%, 02/01/96 2,000 2,004
Washington State
General Obligation Bonds
Series R-1992-C
3.70%, 09/01/96 1,850 1,863
Washington State
Motor Vehicles Fuel Tax
Series 1995B
3.68%, 06/01/96 1,495 1,503
Washington State
Motor Vehicles Fuel Tax
Unlimited General
Obligation Bonds Series
1986E/(Escrowed to
Maturity with
Government Securities)
3.65%, 09/01/96 1,000 1,028
Washington State
Unlimited General
Obligation Bonds Series
R-1994-A
3.60%, 08/01/96 4,000 4,002
Washington State
Unlimited General
Obligation Bonds Series
R-1996-B
3.62%, 04/01/96 4,005 4,008
-------
27,962
-------
WISCONSIN--0.2%
Milwaukee, Wisconsin
Metropolitan Sewer
District Unlimited Tax
General Obligation Bonds
Series 1987A
3.70%, 09/01/96 1,000 1,011
Milwaukee, Wisconsin
Public Improvement
Unlimited General
Obligation Bonds Series
1995CA
3.28%, 06/15/96 1,000 1,004
Wisconsin State
General Obligation Bonds
Series 1995A
3.65%, 05/01/96 2,410 2,432
Wisconsin State
Unlimited General
Obligation Bonds Series
1992
3.70%, 05/01/96 3,000 3,012
-------
7,459
-------
TOTAL GENERAL OBLIGATIONS
(Cost $161,217) 161,217
-------
MANDATORY PUT BONDS--3.1%(b)
CALIFORNIA--0.5%
California Higher
Educational
Loan Authority, Inc.
Student Loan Revenue Bonds
Series 1992B/ (SLMA LOC)
3.90%, 07/01/96 5,000 5,000
California Higher
Educational
Loan Authority, Inc.
Student Loan Revenue Bonds
Series 1995E-5/ (SLMA LOC)
4.25%, 06/01/96 11,700 11,700
-------
16,700
-------
FLORIDA--0.1%
Orange County, Florida
Industrial Development
Authority Revenue Bonds
(General Accident
Insurance Co.
of America Project)
4.28%, 06/01/96 3,500 3,500
-------
</TABLE>
F-41
<PAGE> 201
SchwabFunds(R) 21
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
ILLINOIS--0.6%
Chicago, Illinois
General Obligation Tender
Notes
3.65%, 05/01/96 $22,600 $ 22,600
--------
INDIANA--0.2%
Indiana State Housing
Finance Authority Single
Family Mortgage Housing
Revenue Bonds Series 1994C
4.00%, 07/01/96 3,500 3,500
Indiana State Housing
Finance Authority Single
Family Mortgage Housing
Revenue Bonds Series 1994D
3.90%, 07/01/96 4,700 4,700
-------
8,200
-------
KENTUCKY--0.1%
Calvert City, Kentucky
Industrial Development
Revenue Refunding Bonds
(SKW Alloys, Inc. Lease
Rent) Series 87/
(Bayerische Vereinsbank
LOC)
4.00%, 04/01/96 2,220 2,220
-------
OREGON--0.3%
Klamath Falls, Oregon
Electric Revenue Bonds
(Salt Caves Hydro
Electric) Series 1986E/
(Escrowed to Maturity with
Government Securities)
4.40%, 05/01/96 10,000 10,000
-------
TEXAS--0.8%
Greater East Texas
Higher Education Student
Loan Authority Student
Loan Revenue Bonds
Series 1992B/ (SLMA LOC)
3.90%, 07/01/96 14,000 14,000
Greater East Texas
Higher Education Student
Loan Authority Student
Loan Revenue Bonds Series
1993B-2/ (SLMA LOC)
4.10%, 06/01/96 6,500 6,500
Greater East Texas
Higher Education Student
Loan Authority Student
Loan Revenue Bonds Series
1995B/ (SLMA LOC)
3.90%, 07/01/96 10,000 10,000
-------
30,500
-------
VIRGINIA--0.3%
Harrisonburg, Virginia
Redevelopment and Housing
Authority
Multi Family Housing
Revenue Bonds
(Rolling Brook
Village Apts.)
Series 1985A/
(Guardian Savings &
Loan Assoc. LOC)
5.10%, 02/01/96 10,000 10,000
-------
WASHINGTON--0.2%
Washington State Housing
Finance Committee
Adjustable Single Family
Mandatory Put Bonds Series
1995-1A-S
4.10%, 06/01/96 5,785 5,785
-------
TOTAL MANDATORY PUT BONDS (Cost
$109,505) 109,505
-------
OPTIONAL PUT BONDS--2.3%(b)
IDAHO--0.3%
Custer County, Idaho
Pollution Control
Revenue Bonds
(Amoco Project)
Series 1983
3.80%, 04/01/96 11,500 11,500
-------
MISSOURI--1.7%
Missouri State
Environmental
Improvement and Energy
Resources Authority
Pollution Control
Revenue Bonds
(Union Electric Co.)
Series 1985A/ (Swiss Bank
LOC)
4.00%, 06/01/96 31,000 31,000
Missouri State
Environmental
Improvement and Energy
Resources Authority
Pollution Control
Revenue Bonds
(Union Electric Co.)
Series 1985B/
(Union Bank of
Switzerland LOC)
4.00%, 06/01/96 28,500 28,500
-------
59,500
-------
NEW HAMPSHIRE--0.1%
New Hampshire Higher
Education and Health
Facilities Authority
Revenue Bonds (Dartmouth
College) Series 1985A-G
4.10%, 06/01/96 3,000 3,000
-------
</TABLE>
F-42
<PAGE> 202
SchwabFunds(R) 22
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
TEXAS--0.1%
Yoakum County, Texas
Industrial Development
Authority Pollution
Control Revenue Bonds
(Amoco Project)
3.75%, 05/01/96 $ 5,265 $ 5,265
-------
WYOMING--0.1%
Carbon County, Wyoming
Pollution Control Revenue
Bonds (Amoco Project)
Series 1985
3.75%, 05/01/96 4,800 4,800
-------
TOTAL OPTIONAL PUT BONDS (Cost
$84,065) 84,065
-------
REVENUE ANTICIPATION NOTES--0.6%(b)
ILLINOIS--0.4%
Illinois State Revenue
Anticipation Notes Series
1995-April, 1996
3.70%, 04/12/96 15,000 15,033
-------
OHIO--0.1%
Cleveland, Ohio City
School District Special
Obligation Revenue
Anticipation Notes/ (AMBAC
Insurance)
3.60%, 06/01/96 3,000 3,007
-------
WISCONSIN--0.1%
Milwaukee, Wisconsin
Revenue Anticipation
Notes Series A
4.20%, 02/22/96 5,000 5,009
-------
TOTAL REVENUE ANTICIPATION NOTES
(Cost $23,049) 23,049
-------
REVENUE BONDS--4.0%(b)
ALASKA--0.3%
Anchorage, Alaska Electric
Utilities Revenue Bonds
(Secondary Lien) Series
1986A/ (MBIA Insurance &
Escrowed to Maturity with
Government Securities)
3.70%, 06/01/96 8,770 9,083
-------
ARIZONA--0.5%
Arizona State
Transportation
Board Excise Tax Revenue
Bonds (Maricopa County
Regulatory Area) Series A/
(AMBAC Insurance)
3.80%, 07/01/96 12,910 12,953
Arizona State
Transportation
Board Excise Tax Revenue
Bonds (Maricopa County
Regulatory Area) Series B/
(AMBAC Insurance)
3.80%, 07/01/96 2,470 2,478
Arizona State University
Revenue Bonds Series 1988/
(AMBAC Insurance &
Escrowed to Maturity with
Government Securities)
3.80%, 07/01/96 1,795 1,860
-------
17,291
-------
CALIFORNIA--0.2%
Los Angeles County,
California Transportation
Commission Sales Tax
Revenue Refunding Bonds
Series A/(Escrowed to
Maturity with
Government Securities)
3.65%, 07/01/96 1,000 1,039
Southern California Public
Power Authority
Transmission Revenue Bonds
(Southern Transmission
Project)/ (Escrowed to
Maturity with Government
Securities)
3.80%, 07/01/96 5,015 5,262
-------
6,301
-------
FLORIDA--0.1%
Florida State Municipal
Power Agency Revenue
Refunding Bonds (St. Lucie
Project)/ (Escrowed to
Maturity with Government
Securities)
3.65%, 10/01/96 1,000 1,044
Jacksonville, Florida
Electric Authority Revenue
Bonds Series 1988-3A/
(Escrowed to Maturity with
Government Securities)
3.73%, 10/01/96 2,030 2,118
-------
3,162
-------
HAWAII--0.1%
Hawaii State Department
of Budget and Finance
Special Purpose Mortgage
Revenue Bonds (Kapiolani
Medical Center for
Women and Children)/
(Escrowed to Maturity with
Government Securities)
3.73%, 07/01/96 3,900 4,051
-------
</TABLE>
F-43
<PAGE> 203
SchwabFunds(R) 23
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
ILLINOIS--0.2%
Chicago, Illinois
Waterworks Revenue
Refunding Bonds/ (Escrowed
to Maturity with
Government Securities)
3.65%, 11/01/96 $1,000 $ 1,037
Illinois State Sales
Tax Revenue Bonds Series
1986B/(Escrowed to
Maturity with
Government Securities)
4.00%, 06/15/96 5,500 5,698
Illinois State Toll
Highway Authority
Priority Revenue Bonds/
(Escrowed to Maturity with
Government Securities)
4.00%, 01/01/96 1,000 1,020
------
7,755
------
INDIANA--0.1%
Purdue University,
Indiana University Student
Fee Revenue Bonds Series
1993J
3.65%, 07/01/96 4,800 4,812
------
KENTUCKY--0.3%
Kentucky State Turnpike
Authority Economic
Development Road Revenue
Bonds Series 1986A/
(Escrowed to Maturity with
Government Securities)
3.65%, 07/01/96 1,000 1,040
3.70%, 07/01/96 1,350 1,402
3.80%, 07/01/96 8,600 8,923
------
11,365
------
MARYLAND--0.1%
Maryland Department
of Transportation
Consolidated
Transportation Revenue
Refunding Bonds Series
1991
3.80%, 09/01/96 1,200 1,215
Washington, Maryland
Suburban Sanitation
District (Maryland Sewer
Disposal) Revenue Bonds
3.65%, 06/01/96 600 609
------
1,824
------
MINNESOTA--0.1%
Southern Minnesota
Municipal Power Agency
Power Supply System
Revenue Bonds/
(MBIA Insurance &
Escrowed to Maturity with
Government Securities)
3.44%, 01/01/96 1,000 1,020
University of Minnesota
Refunding Revenue Bonds
Series A/
(Escrowed to Maturity with
Government Securities)
3.50%, 02/01/96 3,925 4,017
-----
5,037
-----
NEW MEXICO--0.2%
New Mexico State
Severence Tax Revenue
Bonds Series 1995B
3.80%, 07/01/96 3,110 3,136
New Mexico State
Severence Tax Revenue
Refunding Bonds Series
1992B (d)
3.50%, 07/01/96 1,000 1,008
Santa Fe, New Mexico
Single Family Mortgage
Revenue Bonds (FNMA/GNMA
Mortgage Backed Securities
Project) Series 1995B/
(FGIC Insurance)
4.00%, 11/15/96 3,000 3,000
-----
7,144
-----
NEW YORK--0.2%
Metropolitan Transportation
Authority, New York
Revenue Bonds Series
1986F/(Escrowed to
Maturity with
Government Securities)
3.70%, 07/01/96 8,445 8,799
-----
NORTH DAKOTA--0.0%
Fargo, North Dakota
Sales Tax Revenue
Refunding Bonds/ (AMBAC
Insurance)
3.85%, 07/01/96 710 714
-----
PENNSYLVANIA--0.2%
Pennsylvania State Turnpike
Commission Revenue Bonds
Series 1986A/(Escrowed to
Maturity with
Government Securities)
3.67%, 12/01/96 6,865 7,254
-----
RHODE ISLAND--0.0%
Rhode Island Depositors
Economic Protection Corp.
Special Obligation Revenue
Bonds Series A/
(MBIA Insurance &
Escrowed to Maturity with
Government Securities)
3.90%, 08/01/96 1,400 1,454
-----
</TABLE>
F-44
<PAGE> 204
SchwabFunds(R) 24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
SOUTH CAROLINA--0.1%
South Carolina State
Public Service Authority
Expansion Revenue
Refunding Bonds/ (Escrowed
to Maturity with
Government Securities)
3.80%, 07/01/96 $ 2,695 $ 2,829
-------
TEXAS--1.2%
Harris County, Texas
Hospital District Mortgage
Revenue Bonds/ (Escrowed
to Maturity with
Government Securities)
3.52%, 04/01/96 23,000 23,734
Houston, Texas
Water & Sewer System
Revenue Exchange Prior
Lien Revenue Bonds Series
1986A/(Escrowed to
Maturity with
Government Securities)
3.65%, 12/01/96 300 315
San Antonio, Texas
Electric & Gas Revenue
Refunding Bonds
Series 1986A/
(Escrowed to Maturity with
Government Securities)
4.25%, 02/01/96 2,150 2,190
San Antonio, Texas
Electric & Gas Revenue
Refunding Bonds Series
1985B/(Escrowed to
Maturity with
Government Securities)
3.70%, 02/01/96 10,000 10,198
San Antonio, Texas
Electric & Gas Revenue
Refunding Bonds
Series 1991A
4.25%, 02/01/96 3,000 3,004
Trinity River Authority,
Texas Regional
Wastewater System
Revenue Refunding Bonds
Series A/ (AMBAC
Insurance)
3.80%, 08/01/96 1,500 1,504
University of Texas
Constitutional
Appropriation Revenue
Bonds Series 1995(d)
3.50%, 08/15/96 1,115 1,118
-------
42,063
-------
VIRGINIA--0.0%
Henrico County, Virginia
Water & Sewer Revenue
Refunding Bonds Series
1986/(Escrowed to
Maturity with
Government Securities)
3.70%, 05/01/96 1,055 1,090
WASHINGTON--0.0%
Seattle, Washington
Municipal Metropolitan
Seattle Sewer Revenue
Bonds Series 1988R2/
(Escrowed to Maturity with
Government Securities)
3.70%, 01/01/96 750 765
--------
WISCONSIN--0.1%
Wisconsin State
Clean Water Revenue Bonds
Series 1991-1
3.70%, 06/01/96 1,690 1,704
--------
TOTAL REVENUE BONDS (Cost $144,497)
144,497
--------
TAX ANTICIPATION NOTES--0.8%(b)
NEW YORK--0.2%
New York City, New York
Tax Anticipation Notes
Series 1995-1996A
3.60%, 02/15/96 4,500 4,505
South Huntington, New York
Unified School District
Tax Anticipation Notes
Series 1995-1996
3.64%, 06/28/96 3,850 3,861
--------
8,366
--------
OREGON--0.4%
Lane County, Oregon Tax
Anticipation Notes Series
1995-1996
3.88%, 06/28/96 3,500 3,510
Multnomah County, Oregon
School District Number 1J
Portland Tax Anticipation
Notes
3.65%, 05/30/96 10,500 10,546
--------
14,056
--------
SOUTH CAROLINA--0.2%
Charleston County, South
Carolina School District
Tax Anticipation Notes
Series 1995-1996
3.75%, 04/15/96 8,300 8,317
--------
TOTAL TAX ANTICIPATION NOTES (Cost
$30,739) 30,739
--------
TAX AND REVENUE ANTICIPATION NOTES--6.00%(b)
CALIFORNIA--3.6%
California School Cash
Reserve Program Authority
Pooled Tax and Revenue
Anticipation Notes Series
1995A/ (MBIA Insurance)
3.75%, 07/03/96 56,500 56,774
</TABLE>
F-45
<PAGE> 205
SchwabFunds(R) 25
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Fullerton, California
Joint Unified
High School District
Tax and Revenue
Anticipation Notes
Series 1995-1996
3.80%, 11/14/96 $ 3,725 $ 3,747
Kern County, California
High School District
Tax and Revenue
Anticipation Notes Series
1995-1996
4.05%, 09/19/96 20,000 20,096
Los Angeles County,
California Tax and Revenue
Anticipation Notes Series
1995-96/(Multiple Credit
Enhancements)
3.83%, 07/01/96 1,500 1,505
3.68%, 07/01/96 1,200 1,204
Pleasanton, California
Unified School District
Tax and Revenue
Anticipation Notes Series
1995-1996
4.00%, 07/05/96 4,030 4,045
San Francisco, California
Unified School District
Tax and Revenue
Anticipation Notes Series
1995-96
3.89%, 07/25/96 10,000 10,033
San Joaquin County,
California Tax and Revenue
Anticipation Notes Series
1995-1996
3.97%, 10/15/96 30,000 30,121
-------
127,525
-------
IOWA--0.7%
Iowa School Corp.
Warrant Certificates
Iowa School Cash
Anticipation Program
Series 1995A/(Capital
Guaranty Insurance)
3.85%, 06/28/96 25,000 25,106
-------
TEXAS--1.4%
Texas State Tax and Revenue
Anticipation Notes Series
1995-1996A
4.05%, 08/30/96 24,000 24,107
3.95%, 08/30/96 8,190 8,232
3.94%, 08/30/96 1,000 1,005
3.90%, 08/30/96 3,000 3,016
3.73%, 08/30/96 13,000 13,080
-------
49,440
-------
WISCONSIN--0.3%
Kenosha, Wisconsin
Tax and Revenue
Anticipation Notes
3.78%, 06/28/96 4,500 4,510
Wisconsin State Operating
Tax and Revenue
Anticipation Notes
3.50%, 06/17/96 5,000 5,021
-------
9,531
-------
TOTAL TAX AND REVENUE ANTICIPATION
NOTES
(Cost $211,602) 211,602
-------
TAX-EXEMPT COMMERCIAL PAPER--12.4%(b)
ARIZONA--1.5%
Maricopa County, Arizona
Pollution Control
Financing Authority
Pollution Control Revenue
Bonds (Southern California
Edison Co. Palo Verde
Project) Series 1985B
3.80%, 02/12/96 6,450 6,450
3.85%, 02/26/96 5,000 5,000
Maricopa County, Arizona
Pollution Control
Financing Authority
Pollution Control Revenue
Bonds (Southern California
Edison Co. Palo Verde
Project) Series 1985C
3.85%, 02/08/96 6,250 6,250
3.50%, 02/08/96 5,500 5,500
3.80%, 02/12/96 3,100 3,100
3.75%, 02/14/96 6,450 6,450
Maricopa County, Arizona
Pollution Control
Financing Authority
Pollution Control Revenue
Bonds (Southern California
Edison Co. Palo Verde
Project) Series 1985G
3.85%, 02/26/96 4,000 4,000
Salt River, Arizona
Agricultural Improvement
Program/(Multiple Credit
Enhancements)
3.75%, 01/12/96 15,200 15,200
-------
51,950
-------
COLORADO--1.1%
Denver, Colorado City and
County Airport System
Revenue Bonds (Denver
International Airport)
Series 1990B/ (Sumitomo
Bank LOC)
4.05%, 02/15/96 7,520 7,520
</TABLE>
F-46
<PAGE> 206
SchwabFunds(R) 26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Denver, Colorado City and
County Airport System
Revenue Bonds (Denver
International Airport)
Series 1990C/ (Sumitomo
Bank LOC)
4.00%, 02/08/96 $15,000 $15,000
Platte River, Colorado
Power Authority
Adjustable Tender
Electric Secondary
Lien Bonds Series S-1/
(Morgan Guaranty
Trust LOC)
3.75%, 02/07/96 1,800 1,800
3.75%, 02/08/96 15,000 15,000
------
39,320
------
GEORGIA--1.5%
Burke County, Georgia
Development Authority
Pollution Control
Revenue Bonds
(Oglethorpe Power
Project) 1st Series 1989/
(Credit Suisse LOC)
3.85%, 02/08/96 4,300 4,300
3.80%, 02/08/96 2,700 2,700
3.45%, 02/08/96 1,400 1,400
3.75%, 02/15/96 7,500 7,500
3.75%, 02/26/96 2,000 2,000
3.75%, 02/27/96 11,500 11,500
3.70%, 02/27/96 22,700 22,700
------
52,100
------
KANSAS--0.4%
Burlington, Kansas
Pollution Control
Revenue Refunding Bonds
(Kansas City Power &
Light) Series 1987A/
(Toronto-Dominion Bank LOC)
3.75%, 02/15/96 12,150 12,150
Burlington, Kansas
Pollution Control
Revenue Refunding Bonds
(Kansas City Power &
Light) Series 1987B/
(Deutsche Bank LOC)
3.80%, 02/07/96 2,200 2,200
------
14,350
------
KENTUCKY--0.1%
Pendleton County, Kentucky
Multiple County Lease
Revenue Bonds (Kentucky
Association of Counties
Lease Program) Series
1989/ (Commonwealth Bank
of Australia LOC)
3.70%, 02/08/96 2,300 2,300
------
LOUISIANA--2.0%
Louisiana State Adjustable
Tender General Obligation
Refunding Bonds Series
1991A/(Credit Local de
France & Fuji Bank LOC)
3.85%, 02/08/96 4,275 4,275
3.80%, 02/13/96 2,500 2,500
3.75%, 02/14/96 4,745 4,745
3.80%, 02/26/96 11,000 11,000
Louisiana State Pollution
Control Revenue Refunding
Bonds (St. James
Parish/Texaco Project)
Series 1988B
3.65%, 02/09/96 48,900 48,900
Louisiana State Pollution
Control Revenue Refunding
Bonds (St. James
Parish/Texaco Project)
Series 1988C
3.65%, 02/09/96 1,000 1,000
------
72,420
------
MASSACHUSETTS--0.3%
Massachusetts Water
Resource Authority
Commercial Paper Series
1995/(Morgan Guaranty
Trust LOC)
3.75%, 02/22/96 9,400 9,400
------
MICHIGAN--0.9%
Michigan State Building
Authority Commercial Paper
Notes Series 1/ (Canadian
Imperial Bank of Commerce
LOC)
4.10%, 01/16/96 33,600 33,600
------
MINNESOTA--0.2%
Rochester, Minnesota
Adjustable Tender Health
Care Facility Revenue
Bonds (Mayo Foundation/
Mayo Medical Center)
Series 1988E/
(Credit Suisse SBPA)
3.70%, 02/14/96 3,100 3,100
Rochester, Minnesota
Adjustable Tender Health
Care Facility Revenue
Bonds (Mayo Foundation/
Mayo Medical Center)
Series 1992A
3.75%, 02/15/96 3,000 3,000
Rochester, Minnesota
Adjustable Tender Health
Care Facility Revenue
Bonds (Mayo Foundation/
Mayo Medical Center)
Series 1992C
3.45%, 03/07/96 1,550 1,550
------
7,650
------
</TABLE>
F-47
<PAGE> 207
SchwabFunds(R) 27
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
NEW YORK--0.1%
New York City, New York
Municipal Water Finance
Authority Tax-Exempt
Commercial Paper/ (Credit
Suisse LOC)
3.75%, 02/08/96 $ 5,000 $ 5,000
-------
NORTH CAROLINA--1.7%
North Carolina Eastern
Municipal Power Agency
Power System Revenue Bonds
Series 1988B/ (Union Bank
of Switzerland & Morgan
Guaranty Trust LOC)
3.70%, 02/07/96 20,500 20,500
3.75%, 02/26/96 5,400 5,400
North Carolina Eastern
Municipal Power Agency
Tax-Exempt Commercial
Paper/(Industrial Bank of
Japan LOC)
3.80%, 02/07/96 24,321 24,321
3.60%, 02/08/96 9,824 9,824
3.55%, 02/08/96 2,500 2,500
-------
62,545
-------
TEXAS--2.6%
Lower Colorado River
Authority Tax-Exempt
Commercial Paper Series
B/(Morgan Guaranty Trust
Revolving Credit Agreement
3.80%, 02/14/96 15,800 15,800
Texas Municipal Power
Agency Commercial
Paper/(Bank of America,
Canadian Imperial Bank of
Commerce & Morgan Guaranty
Trust Revolving Credit
Agreement)
3.80%, 01/11/96 49,025 49,025
Texas State Tax-Exempt
Commercial Paper Series
1995
3.35%, 08/12/96 30,000 30,000
----------
94,825
----------
TOTAL TAX-EXEMPT COMMERCIAL PAPER
(Cost $445,460) 445,460
----------
TOTAL INVESTMENTS--100.0%
(Cost $3,586,104) $3,586,104
==========
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS.
For each security, cost (for financial reporting and federal income tax
purposes) and carrying value are the same.
(a) Variable rate securities. Interest rates vary periodically based on
current market rates. Rates shown are the effective rates on December
31, 1995. Dates shown represent the latter of the demand date or next
interest rate change date, which is considered the maturity date for
financial reporting purposes. For variable rate securities without
demand features, the next interest reset date is shown.
(b) Interest rates represent effective yield to put or call date at time
of purchase.
(c) Certain securities purchased by the Fund are private placement
securities exempt from registration by Section 4(2) of the Securities
Act of 1933. These securities generally are issued to institutional
investors, such as the Schwab Tax-Exempt Money Fund. Any resale by the
Fund must be in an exempt transaction, normally to a qualified
institutional buyer. At December 31, 1995, the aggregate value of
private placement securities held by the Fund was $139,017,000 which
represented 3.90% of net assets. All of these private placement
securities were determined by the Investment Manager to be liquid in
accordance with procedures adopted by the Board of Trustees.
F-48
<PAGE> 208
SchwabFunds(R) 28
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(d) Security traded on a delayed-delivery basis. Payment and delivery is
scheduled for a future time, generally within two weeks of entering
into the transaction. The transaction is subject to market fluctuation
and to the risk that the value may be more or less than the purchase
price when the transaction was initiated. The Fund has set aside
sufficient investment securities as collateral for securities
purchased on a delayed-delivery basis.
<TABLE>
<CAPTION>
Abbreviations
---------------
<S> <C>
AMBAC AMBAC Indemnity Corporation
FGIC Financial Guaranty Insurance Company
FHLB Federal Home Loan Bank
FNB First National Bank
FNMA Federal National Mortgage Association
FSA Financial Security Assurance
GNMA Government National Mortgage Association
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance Corporation
N.R.U.-C.F.C. National Rural Utilities Cooperative Financing Corporation
SBPA Standby Purchase Agreement
SLMA Student Loan Marketing Association
SPA Securities Purchase Agreement
</TABLE>
See accompanying Notes to Financial Statements.
F-49
<PAGE> 209
SchwabFunds(R) 29
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost: $3,586,104) $3,586,104
Cash 166
Interest receivable 30,491
Receivable for fund shares sold 2,940
Prepaid expenses 551
----------
Total assets 3,620,252
----------
LIABILITIES
Payable for:
Dividends 15,284
Fund shares redeemed 670
Investments purchased 37,735
Investment advisory and administration fee 603
Transfer agency and shareholder service fees 1,157
Other 284
----------
Total liabilities 55,733
----------
Net assets applicable to outstanding shares $3,564,519
==========
NET ASSETS CONSIST OF:
Capital paid in $3,566,367
Accumulated net realized loss on investments sold (1,848)
----------
$3,564,519
==========
THE PRICING OF SHARES
3,405,684 outstanding Sweep Shares and
160,683 outstanding Value Advantage Shares,
$0.00001 par value (unlimited shares authorized) 3,566,367
Net asset value, offering and redemption price per each
Sweep Share and Value Advantage Share $1.00
</TABLE>
See accompanying Notes to Financial Statements.
F-50
<PAGE> 210
SchwabFunds(R) 30
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
STATEMENT OF OPERATIONS (in thousands)
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Interest income $127,090
--------
Expenses:
Investment advisory and administration fee 13,694
Transfer agency and shareholder service fees:
Sweep Shares 14,432
Value Advantage Shares 103
Custodian fees 380
Registration fees 400
Professional fees 187
Shareholder reports 296
Trustees' fees 21
Amortization of deferred organization costs and
other prepaid expenses 76
Insurance and other expenses 139
--------
29,728
Less expenses reduced and absorbed (8,375)
--------
Total expenses incurred by Fund 21,353
--------
Net investment income 105,737
Net realized loss on investments sold (21)
--------
Increase in net assets resulting from operations $105,716
========
</TABLE>
See accompanying Notes to Financial Statements.
F-51
<PAGE> 211
SchwabFunds(R) 31
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended
December 31,
1995 1994
----------- -----------
<S> <C> <C>
Operations:
Net investment income $ 105,737 $ 65,678
Net realized loss on investments sold (21) (1,586)
----------- -----------
Increase in net assets resulting
from operations 105,716 64,092
----------- -----------
Dividends to shareholders from
net investment income:
Sweep Shares (104,288) (65,678)
Value Advantage Shares (1,449) --
----------- -----------
Total dividends to shareholders (105,737) (65,678)
----------- -----------
Capital share transactions (dollar amounts
and number of shares are the same):
Proceeds from shares sold 10,148,323 8,184,151
Net asset value of shares issued in
reinvestment of dividends 100,567 57,664
Less payments for shares redeemed (9,700,301) (7,647,595)
----------- -----------
Increase in net assets from capital
share transactions 548,589 594,220
----------- -----------
Total increase in net assets 548,568 592,634
Net Assets:
Beginning of period 3,015,951 2,423,317
----------- -----------
End of period $ 3,564,519 $ 3,015,951
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
F-52
<PAGE> 212
SchwabFunds(R) 32
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUND
The Schwab Tax-Exempt Money Fund (the "Fund") is a series of The Charles Schwab
Family of Funds (the "Trust"), an open-end, management investment company
organized as a Massachusetts business trust on October 20, 1989 and registered
under the Investment Company Act of 1940, as amended.
The Board of Trustees of the Trust adopted a multiple class plan for the Fund on
May 9, 1995. Commencing July 7, 1995, the Fund began offering more than one
class of shares. Pursuant to the plan, the existing shares were redesignated as
Sweep Shares ("Sweep Shares"), and a new class of shares was added -- the Value
Advantage Shares ("Value Advantage Shares"). Both classes represent interests in
the same portfolio of investments of the Fund and are substantially the same in
all respects except that the classes are subject to different transfer agency
and shareholder service fees (see Note 3), investment minimums and certain other
expenses.
In addition to the Fund, the Trust also offers -- the Schwab Money Market Fund,
the Schwab Government Money Fund, the Schwab U.S. Treasury Money Fund, the
Schwab California Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the
Schwab New York Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the
Schwab Value Advantage Money Fund(R), the Schwab Institutional Advantage Money
Fund(TM) and the Schwab Retirement Money Fund(R). The assets of each series are
segregated and accounted for separately.
The Schwab Tax-Exempt Money Fund invests in a diversified portfolio of
short-term high quality municipal securities.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security valuation -- Investments are stated at amortized cost which
approximates market value.
Security transactions -- Security transactions are accounted for on a trade date
basis (date the order to buy or sell is executed).
Dividends to shareholders -- The Fund declares a daily dividend, equal to its
net investment income for that day, payable monthly. Dividends paid by the Fund
with respect to each class of shares are calculated in the same manner, at the
same time, and will be in the same amount except for the effect of expenses that
may be applied differently, as described below.
F-53
<PAGE> 213
SchwabFunds(R) 33
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund and its initial registration with the Securities and
Exchange Commission and with various states are amortized on a straight-line
basis over a five-year period from the Fund's commencement of operations.
Expenses -- Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are allocated to each
series in proportion to their relative net assets. Expenses attributable to both
classes of shares are allocated daily to each class based on the value of
settled shares outstanding of each respective class. Transfer agency,
shareholder service fees and certain other expenses which are class specific are
calculated daily at the class level.
Interest income and realized gains (losses) -- Interest income is recorded on
the accrual basis and includes amortization of premium on investments. Realized
gains and losses from security transactions are determined on an identified cost
basis. Income and realized gains (losses) are allocated daily to each class of
shares based on the value of settled shares outstanding of each respective
class.
Federal income taxes -- It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income and realized net capital gains, if
any, to shareholders. Therefore, no federal income tax provision is required.
The Fund is considered a separate entity for tax purposes.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreements -- The Trust has investment
advisory and administration agreements with Charles Schwab Investment
Management, Inc. (the "Investment Manager"). For advisory services and
facilities furnished, the Fund pays an annual fee, payable monthly, of .46% of
the first $1 billion of average daily net assets, .41% of such assets over $1
billion, and .40% of such assets in excess of $2 billion. Under these
agreements, the Fund incurred investment advisory and administration fees of
$13,694,000 for the year ended December 31, 1995, before the Investment Manager
reduced its fee (see Note 4).
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of .45% and .25% of average daily net assets of the
Sweep Shares and Value Advantage Shares, respectively. For the year ended
December 31, 1995, the Fund incurred transfer agency and shareholder service
fees of $14,432,000 and $103,000 for the Sweep Shares and Value Advantage
Shares, respectively, before Schwab reduced its fees (see Note 4).
Officers and trustees -- Certain officers and trustees of the Trust are also
officers or directors of the Investment Manager and/or Schwab. During the year
ended December 31, 1995, the Trust made no direct payments to its officers or
trustees who are "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Fund incurred fees of $21,000 related to
the Trust's unaffiliated trustees.
F-54
<PAGE> 214
SchwabFunds(R) 34
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab 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. For the year ended December 31, 1995, the total of such fees
and expenses reduced and absorbed by the Investment Manager were $7,229,000 and
the total of such fees reduced by Schwab was $1,146,000.
5. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities during the year ended
December 31, 1995, aggregated (in thousands) $6,419,657 and $5,869,911,
respectively.
6. CAPITAL SHARE TRANSACTIONS
The Fund offers two classes of shares: Sweep Shares and Value Advantage Shares.
Shares of each class represent interests in the same portfolio of investments of
the Fund. Transactions in capital shares were as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1995* 1994
----------- -----------
<S> <C> <C>
Proceeds from shares sold:
Sweep Shares $ 9,911,852 $ 8,184,151
Value Advantage Shares 236,471 --
----------- -----------
Total proceeds from shares sold 10,148,323 8,184,151
Net asset value of shares issued in
reinvestment of dividends:
Sweep Shares 99,813 57,664
Value Advantage Shares 754 --
----------- -----------
Total net asset value of shares issued in
reinvestment of dividends 100,567 57,664
Less payments for shares redeemed:
Sweep Shares (9,623,759) (7,647,595)
Value Advantage Shares (76,542) --
----------- -----------
Total payments for shares redeemed (9,700,301) (7,647,595)
Total increase in net assets from
capital share transactions $ 548,589 $ 594,220
=========== ===========
</TABLE>
* The Value Advantage Shares commenced operations on July 7, 1995.
F-55
<PAGE> 215
SchwabFunds(R) 35
- --------------------------------------------------------------------------------
SCHWAB TAX-EXEMPT MONEY FUND
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
7. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period:
<TABLE>
<CAPTION>
Value
Advantage
Shares Sweep Shares
-------------- ----------------------------------------------------------
For the period
ended For the year ended December 31,
December 31, ----------------------------------------------------------
1995 1 1995 1994 1993 1992 1991
---------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment
- ----------------------
operations
----------
Net investment income .02 .03 .02 .02 .03 .04
Net realized and unrealized gain
(loss) on investments -- -- -- -- -- --
-------- ---------- ---------- ---------- ---------- ----------
Total from investment operations .02 .03 .02 .02 .03 .04
Less distributions
- ------------------
Dividends from net investment
income (.02) (.03) (.02) (.02) (.03) (.04)
Distributions from realized gain on
investments -- -- -- -- -- --
-------- ---------- ---------- ---------- ---------- ----------
Total distributions (.02) (.03) (.02) (.02) (.03) (.04)
-------- ---------- ---------- ---------- ---------- ----------
Net asset value at
end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ========== ========== ========== ========== ==========
Total return (%) 1.68 3.30 2.32 1.93 2.49 4.01
- ----------------
Ratios/Supplemental data
- ------------------------
Net assets, end of period (000s) $160,682 $3,403,837 $3,015,951 $2,423,317 $1,744,903 $1,359,121
Ratio of expenses to
average net assets (%) .45* .66 .65 .63 .63 .63
Ratio of net investment income to
average net assets (%) 3.50* 3.25 2.31 1.92 2.45 3.91
</TABLE>
The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses in order to limit the Fund's ratio of operating
expenses to average net assets. Had these fees and expenses not been reduced and
absorbed, with respect to the Value Advantage Shares, the ratio of expenses to
average net assets and the ratio of net investment income to average net assets
for the period ended December 31, 1995, would have been .95%* and 3.00%*,
respectively. With respect to the Sweep Shares, the ratio of expenses to average
net assets for the periods ended December 31, 1995, 1994, 1993, 1992, and 1991
would have been .91%, .91%, .93%, .94% and .95%, respectively, and the ratio of
net investment income to average net assets would have been 3.00%, 2.05%, 1.62%,
2.14%, and 3.59%, respectively.
1 For the period July 7, 1995 (commencement of operations) to December 31,
1995.
* Annualized
F-56
<PAGE> 216
SchwabFunds(R) 36
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To the Board of Trustees
and Shareholders of the Schwab Tax-Exempt Money Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the Schwab Tax-Exempt Money Fund (one of the
series constituting The Charles Schwab Family of Funds, hereafter referred to as
the "Trust") at December 31, 1995, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each period presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1995 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
San Francisco, California
January 31, 1996
F-57
<PAGE> 217
SchwabFunds(R) 1
- --------------------------------------------------------------------------------
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
VARIABLE RATE
OBLIGATIONS--52.2%(a)
ABAG Finance Authority for
Nonprofit Organizations
Certificates of
Participation
(Lucile Salter Packard
Project)/(AMBAC Insurance
& Industrial
Bank of Japan LOC)
5.00%, 01/07/96 $ 4,000 $ 4,000
Alameda County, California
Industrial Development
Authority Industrial
Revenue Bonds (Aitchison
Family Project) Series
1993A/
(Wells Fargo Bank LOC)
5.45%, 01/07/96 2,920 2,920
Alameda County, California
Industrial Development
Authority Industrial
Revenue Bonds (Scientific
Technology Project) Series
1994A/(Banque Nationale de
Paris LOC)
5.45%, 01/07/96 3,000 3,000
Anaheim, California
Certificates of
Participation (Anaheim
Memorial Hospital Assoc.
Project)/ (AMBAC Insurance
& Industrial Bank of
Japan SBPA)
5.30%, 01/07/96 26,820 26,820
Anaheim, California
Certificates of
Participation (Police
Facility Financing
Project)/(AMBAC Insurance
& Industrial
Bank of Japan SBPA)
5.25%, 01/07/96 1,550 1,550
Anaheim, California Housing
Authority Multi Family
Housing Revenue Bonds
(Heritage Village
Apartments Project) Series
1992A/(Multiple Credit
Enhancements)
4.70%, 01/07/96 3,385 3,385
Big Bear Lake, California
Industrial Development
Revenue Certificates of
Participation (Southwest
Gas Corp. Project) Series
A/(Union Bank of
Switzerland LOC)
5.05%, 01/07/96 12,500 12,500
California Educational
Facilities Authority
Revenue
Bonds (California
Institute
of Technology) Series 1994
4.60%, 01/07/96 16,300 16,300
California Health
Facilities Financing
Authority
Revenue Bonds
(Adventist Health System--
Sutter Health)
Series 1991A/
(Toronto-Dominion
Bank LOC)
4.85%, 01/07/96 1,000 1,000
California Health
Facilities Financing
Authority Revenue Bonds
(Childrens Hospital
Project) Series 1991/
(MBIA Insurance &
Swiss Bank SBPA)
4.75%, 01/07/96 9,900 9,900
California Health
Facilities Financing
Authority Revenue Bonds
(Huntington Memorial
Hospital) Series 1985/
(Morgan Guaranty
Trust LOC)
4.90%, 01/07/96 9,600 9,600
California Health
Facilities Financing
Authority Revenue Bonds
(Kaiser Permanente
Project) Series 1993A
4.90%, 01/07/96 8,200 8,200
California Health
Facilities Financing
Authority Revenue Bonds
(Kaiser Permanente
Project) Series 1993B
4.90%, 01/07/96 1,600 1,600
California Health
Facilities Financing
Authority Revenue Bonds
(Saint Joseph's Hospital)
Series 1985B
5.90%, 01/01/96 1,000 1,000
California Health
Facilities Financing
Authority Revenue Bonds
(Scripps Memorial
Hospital) Series 1985B/
(MBIA Insurance &
Morgan Guaranty
Trust SBPA)
4.95%, 01/07/96 15,120 15,120
California Health
Facilities Financing
Authority Revenue Bonds
(Scripps Memorial
Hospital) Series 1991A/
(MBIA Insurance &
Morgan Guaranty
Trust SBPA)
4.95%, 01/07/96 1,100 1,100
California Health
Facilities Financing
Authority Revenue Bonds
(Scripps Memorial
Hospital) Series 1991B/
(MBIA Insurance &
Swiss Bank SBPA)
4.75%, 01/07/96 13,900 13,900
</TABLE>
F-58
<PAGE> 218
SchwabFunds(R) 2
- --------------------------------------------------------------------------------
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
California Health
Facilities Financing
Authority Revenue Bonds
(St. Francis Hospital)
Series 1995F/
(MBIA Insurance &
Rabobank Nederland N.V.
SBPA)
4.85%, 01/07/96 $30,000 $30,000
California Health
Facilities Financing
Authority Revenue Bonds
Pooled Loan Program Series
1985B/(FGIC Insurance &
FGIC SPA)
4.95%, 01/07/96 2,000 2,000
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Burney Forest Products
Project) Series
1988A/(National
Westminster Bank LOC)
5.95%, 01/01/96 1,000 1,000
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Burney Forest Products
Project) Series
1989A/(National
Westminster Bank LOC)
5.95%, 01/01/96 200 200
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Reynolds Metals Co.
Project) Series 1985/
(National Westminster Bank
LOC)
5.10%, 01/07/96 1,300 1,300
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Southdown, Inc. Project)
Series B/(Societe Generale
LOC)
4.20%, 01/08/96 3,900 3,900
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Southern California
Edison) Series 1986A
5.40%, 01/01/96 6,700 6,700
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Southern California
Edison) Series 1986C
5.40%, 01/01/96 100 100
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Southern California
Edison) Series 1986D
5.40%, 01/01/96 1,300 1,300
California Pollution
Control Financing
Authority Resource
Recovery Revenue Bonds
(Sanger Project) Series
1990A/ (Credit Suisse LOC)
5.05%, 01/07/96 9,200 9,200
California Pollution
Control Financing
Authority Solid Waste
Disposal Revenue Bonds
(Athens Disposal Company
Project) Series 1995A/
(Wells Fargo Bank LOC)
5.20%, 01/07/96 10,000 10,000
California Pollution
Control Financing
Authority Solid Waste
Disposal Revenue Bonds
(Burrtec Waste Industries
Project) Series 1995A/
(Union Bank LOC)
5.25%, 01/07/96 4,000 4,000
California Pollution
Control Financing
Authority Solid Waste
Disposal Revenue Bonds
(Colmac Energy Project)
Series 1990A/ (Swiss Bank
LOC)
5.05%, 01/07/96 12,900 12,900
California Pollution
Control Financing
Authority Solid Waste
Disposal Revenue Bonds
(Colmac Energy Project)
Series 1990B/ (Swiss Bank
LOC)
5.05%, 01/07/96 8,900 8,900
California Pollution
Control Financing
Authority Solid Waste
Disposal Revenue Bonds
(Colmac Energy Project)
Series 1990C/ (Swiss Bank
LOC)
5.05%, 01/07/96 10,000 10,000
California Pollution
Control Financing
Authority Solid Waste
Disposal Revenue Bonds
(Contra Costa Services)
Series 1995A/ (Bank of
America LOC)
5.15%, 01/07/96 4,500 4,500
California Pollution
Control Financing
Authority Solid Waste
Disposal Revenue Bonds
(Shell Oil Co. Martinez
Project) Series 1994A
6.05%, 01/01/96 1,000 1,000
California Pollution
Control Financing
Authority Solid Waste
Disposal Revenue Bonds
(Taormina
Industries Project) Series
1994B/(Sanwa Bank LOC)
5.40%, 01/07/96 11,000 11,000
</TABLE>
F-59
<PAGE> 219
SchwabFunds(R) 3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
California Statewide
Community Development
Authority Apartment
Development Revenue Bonds
Series 1995-A3/ (FNMA LOC)
4.90%, 01/07/96 $10,000 $10,000
California Statewide
Community Development
Authority Hospital Revenue
Bonds Certificates of
Participation (Sutter
Health Obligation Group)/
(AMBAC Insurance &
Industrial Bank of
Japan SBPA)
5.90%, 01/01/96 1,100 1,100
California Statewide
Community Development
Authority Revenue
Bonds Certificates of
Participation (Kaiser
Foundation Hospitals)
4.90%, 01/07/96 10,000 10,000
California Statewide
Community Development
Corp. Industrial
Development Revenue
Bonds (13th I
Associates Project)/
(Union Bank LOC)
5.30%, 01/07/96 5,540 5,540
California Statewide
Community Development
Corp. Industrial
Development Revenue
Bonds (ARM Inc. Project)
Series 1994A/
(Bank of Tokyo LOC)
5.35%, 01/07/96 675 675
California Statewide
Community Development
Corp. Industrial
Development Revenue
Bonds (Aerostar
Properties Project)/
(Union Bank LOC)
5.40%, 01/07/96 5,095 5,095
California Statewide
Community Development
Corp. Industrial
Development Revenue Bonds
(Agricultural Products
Inc. Project)/ (Union Bank
LOC)
5.55%, 01/07/96 1,440 1,440
California Statewide
Community Development
Corp. Industrial
Development Revenue Bonds
(Development Industries)
Series 1994A/ (Bank of
Tokyo LOC)
5.35%, 01/07/96 1,640 1,640
California Statewide
Community Development
Corp. Industrial
Development Revenue Bonds
(Industrial Dynamics Co.
Project)/ (Union Bank LOC)
5.55%, 01/07/96 5,190 5,190
California Statewide
Community Development
Corp. Industrial
Development Revenue
Bonds (Lorber Industries
of California Project)/
(Union Bank LOC)
5.55%, 01/07/96 1,050 1,050
California Statewide
Community Development
Corp. Industrial
Development Revenue
Bonds (Pacific
Handy Cutter
Products Project)/
(Union Bank LOC)
5.55%, 01/07/96 1,210 1,210
California Statewide
Community Development
Corp. Industrial
Development Revenue
Bonds (Pacific Scientific
Project) Series 1989/
(Bank of California LOC)
5.25%, 01/07/96 5,125 5,125
California Statewide
Community Development
Corp. Industrial
Development Revenue
Bonds (Packaging
Innovation Project)
Series 1994A/
(Bank of Tokyo LOC)
5.35%, 01/07/96 2,440 2,440
California Statewide
Community Development
Corp. Industrial
Development Revenue
Bonds (The Diamond
Foods Project) Series
1991/(Union Bank LOC)
5.55%, 01/07/96 1,465 1,465
California Statewide
Community Development
Corp. Industrial
Development Revenue
Bonds (Z-Nix Co., Inc.
Project)/(Union Bank LOC)
5.55%, 01/07/96 920 920
California Statewide
Community Development
Corp. Revenue
Bonds (ORA
Real Estate Project)
Series 1995D/
(Union Bank LOC)
5.35%, 01/07/96 3,000 3,000
</TABLE>
F-60
<PAGE> 220
SchwabFunds(R) 4
- --------------------------------------------------------------------------------
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Carlsbad, California Multi
Family Housing Revenue
Refunding Bonds
Certificates of
Participation (La Costa
Apartment Project) Series
1993A/ (Bank of America
LOC)
4.80%, 01/07/96 $ 4,920 $ 4,920
Concord, California Multi
Family Housing Mortgage
Revenue Bonds (Bel Air
Apartments Project) Series
1986A/(Bank of America LOC)
5.00%, 01/07/96 3,000 3,000
Contra Costa, California
Multi Family Housing
Mortgage Revenue Bonds (El
Cerrito Project) Series A/
(Bank of America LOC)
5.00%, 01/07/96 980 980
Contra Costa, California
Transportation Authority
Sales Tax Revenue Bonds
Series 1993A/
(FGIC Insurance &
FGIC SPA)
4.90%, 01/07/96 30,300 30,300
Duarte, California
Redevelopment Agency
Certificates of
Participation (Johnson
Duarte Partners Project)
Series 1984B/ (Bank of
America LOC)
4.90%, 01/07/96 1,600 1,600
Duarte, California
Redevelopment Agency
Certificates of
Participation (Piken
Duarte Partners Project)
Series 1984A/ (Bank of
America LOC)
4.90%, 01/07/96 4,250 4,250
Emeryville, California
Redevelopment Agency Multi
Family Housing Revenue
Bonds (Emery Bay
Apartments II Project)
Series 1991A/
(Bank of America LOC)
4.90%, 01/07/96 6,000 6,000
Encinitas, California Multi
Family Housing Revenue
Refunding Bonds
(Torrey Pines Project)
Series A/
(Bank of America LOC)
4.80%, 01/07/96 8,100 8,100
Foothill Eastern
Transportation Corridor
Agency, California Toll
Road Revenue Bonds Series
1995D/(Industrial Bank of
Japan LOC)
5.00%, 01/07/96 1,000 1,000
Fremont, California Multi
Family Housing Revenue
Refunding Certificates of
Participation (Amber Court
Apartments Project) Series
1990A/(Bank of Tokyo LOC)
5.30%, 01/07/96 10,380 10,380
Fresno, California Multi
Family Mortgage Revenue
Bonds (Oak Cornelia
Apartments Project) Series
1985A/(First Interstate
Bank of California LOC)
5.10%, 01/07/96 25,265 25,265
Glenn, California
Industrial Development
Authority Revenue Bonds
(Land 'O Lakes Project)/
(Sanwa Bank LOC)
5.60%, 01/07/96 1,900 1,900
Grand Terrace, California
Community Redevelopment
Agency Multi Family
Housing Revenue Bonds
(Mount Vernon Villas
Project) Series 1985A/
(Industrial Bank of
Japan LOC)
5.20%, 01/07/96 1,865 1,865
Irvine Ranch, California
Water District
Consolidated District
Numbers 102,103,105,106
Revenue Refunding Bonds/
(Commerzbank AG LOC)
5.90%, 01/01/96 4,300 4,300
Irvine Ranch, California
Water District
Consolidated District
Numbers 105,250,290
Revenue Refunding Bonds
Series 1991/(National
Westminster Bank LOC)
5.90%, 01/01/96 1,200 1,200
Irvine Ranch, California
Water District
Consolidated Revenue
Refunding Bonds Series
1985A-2/ (Sumitomo Bank
LOC)
5.90%, 01/01/96 100 100
Irvine Ranch, California
Water District
Consolidated Revenue
Refunding Bonds Series
1985A-3/ (Sumitomo Bank
LOC)
5.90%, 01/01/96 1,400 1,400
Irvine Ranch, California
Water District
Consolidated Revenue
Refunding Bonds Series
1985B-1/ (Sumitomo Bank
LOC)
6.10%, 01/01/96 100 100
</TABLE>
F-61
<PAGE> 221
SchwabFunds(R) 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Irvine Ranch, California
Water District
Consolidated Revenue
Refunding
Bonds Series 1993A/
(Bank of America LOC)
6.00%, 01/01/96 $1,200 $1,200
Irvine, California
Improvement Bond Act 1915
Revenue Bonds (Special
Assessment District
No. 94-15)/(Dai-Ichi
Kangyo Bank LOC)
5.90%, 01/01/96 500 500
Kern County, California
Certificates of
Participation (Kern Public
Facilities Project) Series
A/(Sanwa Bank LOC)
4.85%, 01/07/96 200 200
Lancaster, California
Redevelopment Agency Multi
Family Revenue Bonds
(Woodcreek Garden
Apartments Project) Series
1985J/ (Bank of Tokyo LOC)
5.10%, 01/07/96 8,400 8,400
Livermore, California Multi
Family Housing Revenue
Refunding Bonds (Arbors
Apartment Project) Series
1991A/(Bank of Tokyo LOC)
5.30%, 01/07/96 9,255 9,255
Livermore, California Multi
Family Housing Revenue
Refunding Bonds
(Diablo Vista
Apartments Project) Series
1990A/(Union Bank LOC)
5.30%, 01/07/96 6,950 6,950
Los Angeles County,
California Certificates of
Participation Adjustable
Convertible Extendable
Securities (Los Angeles
County Museum of
Art Project)
Series 1985A/
(Bank of America LOC)
4.85%, 01/07/96 3,800 3,800
Los Angeles County,
California Certificates of
Participation Adjustable
Convertible Extendable
Securities (Los Angeles
County Museum of
Art Project)
Series 1985B/
(Bank of America LOC)
4.85%, 01/07/96 3,500 3,500
Los Angeles County,
California Metropolitan
Transportation Authority
General Revenue Bonds
(Union Station Project)
Series 1985A/
(FSA Insurance &
Societe Generale SBPA)
4.75%, 01/07/96 33,100 33,100
Los Angeles County,
California Multi Family
Mortgage Revenue Refunding
Bonds (Casden Community
Complex) Series 1991C/
(FHLB LOC)
4.80%, 01/07/96 3,200 3,200
Los Angeles County,
California Multi Family
Mortgage Revenue Refunding
Bonds (Valencia Village
Project) Series 1984C/
(Industrial Bank of Japan
LOC)
5.35%, 01/07/96 900 900
Los Angeles County,
California Transportation
Commission Sales Tax
Revenue Refunding Bonds
Series 1992A/
(FGIC Insurance &
Industrial Bank of
Japan SBPA)
5.10%, 01/07/96 9,700 9,700
Los Angeles, California
Community Redevelopment
Agency Certificates of
Participation (Baldwin
Hills Public Parking
Project) Series B/
(Wells Fargo Bank LOC)
4.85%, 01/07/96 10,700 10,700
Los Angeles, California
Community Redevelopment
Agency Certificates of
Participation (Broadway
Springs Center Project)
Series 1987/
(Bank of America LOC)
4.90%, 01/07/96 10,900 10,900
Los Angeles, California
Multi Family Housing
Revenue Bonds (Poinsettia
Apartments Project) Series
1989A/(Dai-Ichi Kangyo
Bank LOC)
5.35%, 01/07/96 9,600 9,600
Marin County, California
Housing Authority
Multi Family Housing
Revenue Bonds
(Crest Marin II
Apartments Project)
Series 1989A/
(Dai-Ichi Kangyo
Bank LOC)
5.45%, 01/07/96 7,200 7,200
</TABLE>
F-62
<PAGE> 222
SchwabFunds(R) 6
- --------------------------------------------------------------------------------
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Modesto, California
High School District and
Modesto City School
District Certificates of
Participation (Capital
Facilities Project) Series
1991/(Mitsubishi Bank LOC)
5.00%, 01/07/96 $3,700 $3,700
Monterey County, California
Financing Authority
Revenue Bonds (Reclamation
& Distribution Projects)/
(Dai-Ichi Kangyo
Bank LOC)
5.30%, 01/07/96 5,000 5,000
Moorpark, California Multi
Family Housing Revenue
Refunding Bonds (Le Club
Apartments Project) Series
A/(Citibank LOC)
4.80%, 01/07/96 6,000 6,000
Oakland, California
Economic Development
Revenue Refunding Bonds
(Leamington Hotel Project)
Series 1994A/ (First
Interstate Bank of
California LOC)
4.90%, 01/07/96 4,250 4,250
Oakland, California Health
Facilities Revenue Bonds
Certificates of
Participation (Children's
Hospital Project) Series
1988A/ (Banque Nationale
de Paris LOC)
4.95%, 01/07/96 3,300 3,300
Ontario, California
Redevelopment Agency Multi
Family Housing Revenue
Refunding Bonds Series
1991A/(FHLB LOC)
4.80%, 01/07/96 4,492 4,492
Orange County, California
Apartment Development
Revenue Refunding Bonds
(Jess L. Frost Project)
Series 1985B/
(Wells Fargo Bank LOC)
5.40%, 01/07/96 8,200 8,200
Orange County, California
Certificates of
Participation (Florence
Crittenton Services
Project) Series 1990/
(Swiss Bank LOC)
5.00%, 01/07/96 6,900 6,900
Orange County, California
Municipal Water District
Water Facilities Corp.
Certificates of
Participation/
(Barclays Bank &
National Westminster
Bank LOC)
5.20%, 01/07/96 31,225 31,225
Orange County, California
Various Sanitation
Districts Certificates of
Participation (Capital
Improvement Programs)
Series 1990-92C/
(FGIC Insurance &
FGIC SPA)
6.00%, 01/01/96 7,800 7,800
Orange County, California
Various Sanitation
Districts Certificates of
Participation Series
1990-92A/(National Westminster
Bank LOC)
5.90%, 01/01/96 12,500 12,500
Orange County, California
Water District
Certificates of
Participation Sanitation
Districts #1,2,3/
(AMBAC Insurance &
Industrial Bank of
Japan SBPA)
5.05%, 01/07/96 11,600 11,600
Panama Buena Vista,
California Unified School
District Certificates of
Participation (1994
Capital Improvement
Financing Project)/(Bank
of California LOC)
5.45%, 01/07/96 4,000 4,000
Riverside County,
California Certificates of
Participation (Riverside
County Public Facility Project)
Series 1985A/
(Sanwa Bank LOC)
4.80%, 01/07/96 8,800 8,800
Riverside County,
California Certificates of
Participation (Riverside
County Public Facility Project)
Series 1985B/
(Sanwa Bank LOC)
5.00%, 01/07/96 100 100
Riverside County,
California Certificates of
Participation (Riverside
County Public Facility Project)
Series 1985C/
(Sanwa Bank LOC)
5.00%, 01/07/96 5,600 5,600
</TABLE>
F-63
<PAGE> 223
SchwabFunds(R) 7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Riverside County,
California Housing
Authority Multi Family
Housing Revenue Bonds
(Briarwood Apartment
Project) Series 1985C/
(FHLB LOC)
5.15%, 01/07/96 $ 4,500 $ 4,500
Riverside County,
California
Industrial Development
Authority Revenue Bonds
(Cryogenic Project) Series
1989B-1/ (Rabobank
Nederland N.V. LOC)
5.05%, 01/07/96 4,100 4,100
Sacramento County,
California Certificates of
Participation
(Administration
Center & Court House
Project)/(Union Bank of
Switzerland LOC)
4.75%, 01/07/96 28,200 28,200
Salinas, California
Apartment Development
Multi Family Housing
Revenue Bonds (Mariner
Villa Project) Series
1985B/(Bank of America LOC)
4.80%, 01/07/96 2,725 2,725
San Bernardino County,
California Certificates of
Participation (Glen Helen
Blockbuster Project)
Series 1994C/
(Mitsubishi Bank LOC)
5.50%, 01/07/96 7,255 7,255
San Bernardino County,
California Multi Family
Housing Revenue Bonds
(Western Properties
Project IV) Series 1985/
(Bank of America LOC)
4.55%, 01/07/96 1,100 1,100
San Francisco, California
City and County
Redevelopment Agency Multi
Family Revenue Bonds
(Fillmore Center Project)
Series A-1/ (Citibank LOC)
5.30%, 01/07/96 26,500 26,500
San Francisco, California
City and County
Redevelopment Agency Multi
Family Revenue Bonds
(Fillmore Center Project)
Series A-2/ (Citibank LOC)
5.30%, 01/07/96 3,750 3,750
San Francisco, California
City and County
Redevelopment Agency Multi
Family Revenue Bonds
(Fillmore Center Project)
Series B-2/
(Bank of Nova Scotia LOC)
5.15%, 01/07/96 13,100 13,100
San Francisco, California
City and County
Redevelopment Agency Multi
Family Revenue Bonds
(Rincon Center Apartments)
Series 1985B/(Citibank LOC)
5.30%, 01/07/96 5,705 5,705
San Francisco, California
Housing Authority Multi
Family Housing Revenue
Bonds (737 Post Project)
Series 1985D/
(Banque Nationale de
Paris LOC)
4.95%, 01/07/96 16,800 16,800
San Jose/Santa Clara,
California Water Financing
Authority Sewer Revenue
Bonds Series B/
(AMBAC Insurance &
Bank of Nova Scotia LOC)
4.75%, 01/07/96 7,600 7,600
San Mateo County,
California Certificates of
Participation (Capital
Projects) Series 1985B/
(Swiss Bank LOC)
4.75%, 01/07/96 3,145 3,145
Santa Clara County,
California El Camino
Hospital District Hospital
Facility Authority Revenue
Bonds (Valley Medical
Center Project) Series
1985A/(National
Westminster Bank LOC)
4.85%, 01/07/96 7,900 7,900
Santa Clara County,
California El Camino
Hospital District Hospital
Facility Authority Revenue
Bonds (Valley Medical
Center Project) Series
1985B/(National
Westminster Bank LOC)
4.85%, 01/07/96 8,100 8,100
Santa Clara, California
Electric Revenue Bonds
Series 1985A/(National
Westminster Bank LOC)
4.90%, 01/07/96 13,300 13,300
Santa Clara, California
Electric Revenue Bonds
Series 1985B/(National
Westminster Bank LOC)
4.90%, 01/07/96 12,100 12,100
Santa Clara, California
Electric Revenue Bonds
Series 1985C/(National
Westminster Bank LOC)
4.90%, 01/07/96 8,800 8,800
</TABLE>
F-64
<PAGE> 224
SchwabFunds(R) 8
- --------------------------------------------------------------------------------
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Santa Cruz County,
California Housing
Authority Multi Family
Housing Revenue Bonds
(Paloma del Mar Apartments
Project) Series 1992A/
(Bank of Tokyo LOC)
5.20%, 01/07/96 $ 7,700 $ 7,700
Simi Valley, California
Multi Family Housing
Certificates of
Participation
(Lincoln Wood
Ranch Project)/ (Sumitomo
Bank LOC)
5.30%, 01/07/96 5,600 5,600
South San Francisco,
California Multi Family
Revenue Bonds
(Magnolia Plaza Apartments
Project) Series A/
(Wells Fargo Bank LOC)
5.35%, 01/07/96 4,500 4,500
Southern California Public
Power Authority
Transmission Revenue Bonds
(Southern Transmission
Project) Series 1991/
(AMBAC Insurance &
Swiss Bank SBPA)
4.75%, 01/07/96 21,000 21,000
Vallejo, California
Commercial Development
Revenue Bonds
(Vallejo Center
Association Project)
Series 1994A/
(Bank of Tokyo LOC)
5.35%, 01/07/96 900 900
Victor, California
Elementary School District
Certificates of
Participation
(School Construction
Financing Project)/(National
Westminster Bank LOC)
5.30%, 01/07/96 4,000 4,000
Visalia, California
Public Building Authority
Certificates of
Participation
(Convention Center
Expansion Project)
Series 1991/
(Bank of California LOC)
5.35%, 01/07/96 1,000 1,000
-------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $874,397) 874,397
VARIABLE RATE TENDER
OPTION BONDS--0.2%(a)
Southern California Rapid
Transit District,
California Certificates of
Participation Short Mode
Tender Option Bonds
(BT-9)/(MBIA Insurance &
Bankers Trust
Tender Option)
3.00%, 01/07/96 4,200 4,200
-------
TOTAL VARIABLE RATE TENDER
OPTION BONDS (Cost $4,200) 4,200
-------
VARIABLE RATE TENDER
OPTION BOND PARTNERSHIPS--5.4%(a)(c)
California State Department
of Water Resources Revenue
Bonds (Central Valley
Project) Series J3
Tender Option Bond
Partnership (BTP-141)/
(Bankers Trust
Tender Option)
5.15%, 01/07/96 5,155 5,155
California State Revenue
Anticipation Warrants
Series 1994C Tender
Option Bond Partnership
(BTP-150)/(Multiple
Credit Enhancements &
Bankers Trust
Tender Option)
5.30%, 01/07/96 10,000 10,000
California State Revenue
Anticipation Warrants
Series C Tender Option
Bond Partnership
(BTP-96)/(Multiple
Credit Enhancements &
Bankers Trust
Tender Option)
5.30%, 01/07/96 18,465 18,465
Los Angeles County,
California Transportation
Commission Sales Tax
Revenue Tender Option
Bond Partnership
(BTP-146)/(Bankers
Trust Tender Option &
Escrowed to Maturity with
Government Securities)
5.15%, 01/07/96 23,078 23,078
Los Angeles, California
Department of Water &
Power Electric Plant
Revenue Refunding Bonds
Series 1994 Tender Option
Bond Partnership
(BTP-68)/(Automatic
Data Processing, Inc.
Tender Option)
4.37%, 01/07/96 5,195 5,195
</TABLE>
F-65
<PAGE> 225
SchwabFunds(R) 9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Metropolitan Water District
of Southern California
Waterworks General
Obligation Revenue
Refunding Bonds Series
1993A1 and
1993A2 Tender Option
Bond Partnership
(BTP-115)/
(Bankers Trust
Tender Option)
5.15%, 01/07/96 $10,145 $10,145
San Diego County,
California Regional
Transportation Commission
Sales Tax Tender Option
Bonds Partnership
(BTP-135)/
(FGIC Insurance &
Bankers Trust
Tender Option)
3.00%, 01/07/96 2,000 2,000
Southern California Public
Power Authority Power
Project Class A
Tender Option
Bond Partnership (BTP-90)/
(MBIA Insurance &
Bankers Trust
Tender Option)
3.00%, 01/07/96 8,290 8,290
Southern California Rapid
Transit District
Certificates of
Participation (Workers
Compensation Funding
Program) Tender Option
Bond Partnership
(BTP-163)/
(MBIA Insurance &
Bankers Trust
Tender Option)
3.00%, 01/07/96 8,710 8,710
------
TOTAL VARIABLE RATE TENDER OPTION
BOND PARTNERSHIPS
(Cost $91,038) 91,038
------
CERTIFICATES OF PARTICIPATION--2.0%(b)
Desert Sands, California
Unified School District
Certificates of
Participation (Measure O
Project) Series B/
(Escrowed to Maturity with
Government Securities)
2.60%, 03/01/96 10,000 10,257
San Jose, California
Certificates of
Participation
(Convention Center Project)/
(Escrowed to Maturity with
Government Securities)
3.73%, 09/01/96 12,500 13,080
San Mateo, California
Redevelopment Agency
Certificates of
Participation Revenue
Refunding Bonds (Bridge
and Water
Pumping Station)/
(Escrowed to Maturity with
Government Securities)
3.67%, 08/01/96 9,305 9,721
-------
TOTAL CERTIFICATES OF PARTICIPATION
(Cost $33,058) 33,058
------
REVENUE ANTICIPATION WARRANTS--2.2%(b)
California State Revenue
Anticipation Warrants
Series C/(FGIC Insurance)
4.61%, 04/25/96 35,900 36,099
------
TOTAL REVENUE ANTICIPATION WARRANTS
(Cost $36,099) 36,099
------
REVENUE BONDS--0.3%(b)
Santa Clara Valley Water
District, California
Revenue Refunding Bonds/
(Escrowed to Maturity with
Government Securities)
3.55%, 06/01/96 1,000 1,009
Southern California Public
Power Authority Revenue
Bonds (Southern California
Public Power
Transmission Project)/
(Escrowed to Maturity with
Government Securities)
3.50%, 07/01/96 3,575 3,756
------
TOTAL REVENUE BONDS
(Cost $4,765) 4,765
------
SPECIAL TAX BONDS--0.1%(b)
South Poway, California
Community Facility
District No. 1 Special Tax
(Pomerado Business Park)
Series 1985A/
(Escrowed to Maturity with
Government Securities)
3.80%, 03/02/96 1,000 1,039
------
TOTAL SPECIAL TAX BONDS
(Cost $1,039) 1,039
------
</TABLE>
F-66
<PAGE> 226
SchwabFunds(R) 10
- --------------------------------------------------------------------------------
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
TAX AND REVENUE
ANTICIPATION
NOTES--17.3%(b)
Berkeley, California
Tax and Revenue
Anticipation Notes
Series 1995-1996
3.95%, 07/17/96 $10,500 $10,543
California School Cash
Reserve Program Authority
Pooled Tax and Revenue
Anticipation Notes Series
1995A/(MBIA Insurance)
3.95%, 07/03/96 2,800 2,811
3.86%, 07/03/96 25,000 25,102
3.85%, 07/03/96 225 226
3.75%, 07/03/96 40,000 40,194
Desert Sands, California
Unified School District
Tax and Revenue
Anticipation Notes
Series 1995-96
4.00%, 07/05/96 10,000 10,024
East Side Unified High
School District
Santa Clara County
California Tax and Revenue
Anticipation Notes
4.00%, 10/10/96 8,000 8,030
Elk Grove, California
Unified School District
Tax and Revenue
Anticipation Notes
Series 1995-96
4.00%, 07/31/96 10,400 10,429
Fremont, California
Unified School District
Tax and Revenue
Anticipation Notes
Series 1995-96
3.95%, 07/11/96 13,000 13,034
Fresno, California
Tax and Revenue
Anticipation Notes
Series 1995-96
4.00%, 06/28/96 19,900 19,947
Livermore, California
Tax and Revenue
Anticipation Notes
Series 1995-96
4.00%, 07/10/96 4,600 4,612
Los Angeles County,
California Tax and Revenue
Anticipation Notes Series
1995-96/(Multiple Credit
Enhancements)
3.87%, 07/01/96 7,260 7,281
3.82%, 07/01/96 10,000 10,031
3.80%, 07/01/96 1,000 1,003
3.70%, 07/01/96 5,000 5,018
3.68%, 07/01/96 10,000 10,037
Marin County, California
Tax and Revenue
Anticipation Notes
Series 1995-96
3.85%, 07/03/96 37,000 37,161
Mountain View, California
School District
Tax and Revenue
Anticipation Notes
Series 1995-96
4.00%, 07/05/96 2,000 2,005
Mountain View/Los Altos,
California Unified
High School District
Tax and Revenue
Anticipation Notes
Series 1995-96
4.00%, 07/05/96 4,200 4,210
Oxnard, California Unified
High School District
(Ventura County)
Tax and Revenue
Anticipation Notes
Series 1995-96
3.90%, 10/11/96 5,500 5,535
San Diego County,
California Tax and Revenue
Anticipation Notes
3.76%, 09/30/96 2,000 2,011
San Francisco, California
Unified School District
Tax and Revenue
Anticipation Notes
Series 1995-96
3.89%, 07/25/96 40,000 40,131
Santa Rosa, California
High School District
Tax and Revenue
Anticipation Notes
Series 1995-96
3.95%, 09/27/96 10,000 10,057
Sutter County, California
Office of Education
Tax and Revenue
Anticipation Notes
Series 1995-96
4.05%, 09/14/96 10,000 10,030
-------
TOTAL TAX AND REVENUE ANTICIPATION
NOTES
(Cost $289,462) 289,462
-------
TAX-EXEMPT COMMERCIAL PAPER--20.3%(b)
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Pacific Gas & Electric)
Series 1988A/
(Swiss Bank LOC)
3.75%, 01/11/96 6,200 6,200
3.75%, 02/07/96 5,000 5,000
3.65%, 02/08/96 3,975 3,975
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Pacific Gas & Electric)
Series 1988B/
(Sumitomo Bank LOC)
3.65%, 02/08/96 58,700 58,700
3.60%, 03/07/96 17,600 17,600
</TABLE>
F-67
<PAGE> 227
SchwabFunds(R) 11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Pacific Gas & Electric)
Series 1988C/
(Credit Suisse LOC)
3.70%, 01/10/96 $ 5,500 $ 5,500
3.75%, 02/07/96 1,000 1,000
3.70%, 02/07/96 6,800 6,800
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Pacific Gas & Electric)
Series 1988D/
(Bank of Tokyo LOC)
3.95%, 01/10/96 4,350 4,350
3.60%, 02/08/96 3,495 3,495
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Pacific Gas & Electric)
Series 1988F/
(Banque Nationale de Paris
LOC)
4.25%, 01/09/96 10,000 10,000
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Southern California
Edison)
Series 1985A
3.65%, 02/07/96 900 900
3.65%, 02/08/96 12,000 12,000
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Southern California
Edison)
Series 1985B
3.65%, 02/07/96 800 800
3.65%, 02/08/96 14,000 14,000
California Pollution
Control Financing
Authority
Solid Waste Disposal
Revenue Bonds
(Thermal Energy
Development LP) Series
1988A/(National
Westminster Bank LOC)
3.55%, 02/08/96 35,000 35,000
East Bay Municipal Utility
District, California
(Wastewater Systems)
Tax-Exempt Commercial
Paper/(National
Westminster Bank LOC)
3.65%, 01/12/96 10,700 10,700
Long Beach, California
Harbor Revenue Commercial
Paper Notes Series
1994A/(Multiple Credit
Enhancements)
3.50%, 02/06/96 20,000 20,000
3.45%, 02/09/96 4,000 4,000
Los Angeles County,
California Department of
Water and Power Electric
Plant Short Term
Revenue Bonds
3.65%, 01/12/96 7,000 7,000
Los Angeles County,
California Transportation
Commission Second
Subordinate Sales Tax
Revenue Bonds
Series A/(Multiple
Credit Enhancements)
3.75%, 01/11/96 6,100 6,100
Los Angeles, California
Wastewater System Tax-
Exempt Commercial Paper
3.65%, 01/12/96 10,000 10,000
Metropolitan Water District
of Southern California
Tax-Exempt Commercial
Paper
3.75%, 02/21/96 10,000 10,000
Orange County, California
Local Transportation
Authority Sales Tax
Revenue Commercial Paper
Notes/(Industrial Bank of
Japan LOC)
3.75%, 01/11/96 8,000 8,000
3.70%, 01/11/96 3,000 3,000
3.65%, 02/08/96 52,200 52,200
Sacramento, California
Municipal Utility District
Tax-Exempt Commercial
Paper Series I/
(Bank of America &
Morgan Guaranty
Trust LOC)
3.75%, 02/08/96 2,133 2,133
West and Central Basin
Financing Authority
West Basin
Municipal Water District
Tax-Exempt Commercial
Paper Notes/
(Toronto-Dominion Bank LOC)
3.75%, 01/24/96 7,500 7,500
3.50%, 02/09/96 14,000 14,000
----------
TOTAL TAX-EXEMPT COMMERCIAL PAPER
(Cost $339,953) 339,953
----------
TOTAL INVESTMENTS--100.0%
(Cost $1,674,011) $1,674,011
==========
</TABLE>
See accompanying Notes to Schedule of Investments.
F-68
<PAGE> 228
SchwabFunds(R) 12
- --------------------------------------------------------------------------------
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
NOTES TO SCHEDULE OF INVESTMENTS.
For each security, cost (for financial reporting and federal income tax
purposes) and carrying value are the same.
(a) Variable rate securities. Interest rates vary periodically based on
current market rates. Rates shown are the effective rates on December
31, 1995. Dates shown represent the latter of the demand date or next
interest rate change date, which is considered the maturity date for
financial reporting purposes. For variable rate securities without
demand features, the next interest reset date is shown.
(b) Interest rates represent effective yield to put or call date at time of
purchase.
(c) Certain securities purchased by the Fund are private placement
securities exempt from registration by Section 4(2) of the Securities
Act of 1933. These securities generally are issued to institutional
investors, such as the Schwab California Tax-Exempt Money Fund. Any
resale by the Fund must be in an exempt transaction, normally to a
qualified institutional buyer. At December 31, 1995, the aggregate
value of private placement securities held by the Fund was $91,038,000
which represented 5.40% of net assets. All of these private placement
securities were determined by the Investment Manager to be liquid in
accordance with procedures adopted by the Board of Trustees.
<TABLE>
<CAPTION>
Abbreviations
- --------------
<S> <C>
AMBAC AMBAC Indemnity Corporation
FGIC Financial Guaranty Insurance Company
FHLB Federal Home Loan Bank
FNMA Federal National Mortgage Association
FSA Financial Security Assurance
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance Corporation
SBPA Standby Purchase Agreement
SPA Securities Purchase Agreement
</TABLE>
See accompanying Notes to Financial Statements.
F-69
<PAGE> 229
SchwabFunds(R) 13
- --------------------------------------------------------------------------------
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost: $1,674,011) $1,674,011
Cash 38
Interest receivable 14,817
Receivable for fund shares sold 4,914
Prepaid expenses 162
----------
Total assets 1,693,942
----------
LIABILITIES
Payable for:
Dividends 6,832
Fund shares redeemed 485
Investment advisory and administration fee 267
Transfer agency and shareholder service fees 536
Other 119
----------
Total liabilities 8,239
----------
Net assets applicable to outstanding shares $1,685,703
==========
NET ASSETS CONSIST OF:
Capital paid in $1,686,367
Accumulated net realized loss on investments sold (664)
----------
$1,685,703
==========
THE PRICING OF SHARES
1,578,359 outstanding Sweep Shares and
108,008 outstanding Value Advantage Shares,
$0.00001 par value (unlimited shares authorized) 1,686,367
Net asset value, offering and redemption price per each
Sweep Share and Value Advantage Share $1.00
</TABLE>
See accompanying Notes to Financial Statements.
F-70
<PAGE> 230
SchwabFunds(R) 14
- --------------------------------------------------------------------------------
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
STATEMENT OF OPERATIONS (in thousands)
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Interest income $55,134
-------
Expenses:
Investment advisory and administration fee 6,445
Transfer agency and shareholder service fees:
Sweep Shares 6,469
Value Advantage Shares 31
Custodian fees 244
Registration fees 207
Professional fees 103
Shareholder reports 64
Trustees' fees 9
Amortization of deferred organization costs and
other prepaid expenses 50
Insurance and other expenses 75
-------
13,697
Less expenses reduced and absorbed (4,297)
-------
Total expenses incurred by Fund 9,400
-------
Net investment income 45,734
Net realized gain on investments sold 8
-------
Increase in net assets resulting from operations $45,742
=======
</TABLE>
See accompanying Notes to Financial Statements.
F-71
<PAGE> 231
SchwabFunds(R) 15
- --------------------------------------------------------------------------------
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended
December 31,
1995 1994
----------- -----------
<S> <C> <C>
Operations:
Net investment income $ 45,734 $ 27,608
Net realized gain (loss) on
investments sold 8 (600)
----------- -----------
Increase in net assets resulting
from operations 45,742 27,008
----------- -----------
Dividends to shareholders from
net investment income:
Sweep Shares (45,302) (27,608)
Value Advantage Shares (432) --
----------- -----------
Total dividends to shareholders (45,734) (27,608)
----------- -----------
Capital share transactions (dollar amounts
and number of shares are the same):
Proceeds from shares sold 4,383,313 3,435,641
Net asset value of shares issued in
reinvestment of dividends 43,226 24,116
Less payments for shares redeemed (4,034,727) (3,227,316)
----------- -----------
Increase in net assets from capital
share transactions 391,812 232,441
----------- -----------
Total increase in net assets 391,820 231,841
Net Assets:
Beginning of period 1,293,883 1,062,042
----------- -----------
End of period $ 1,685,703 $ 1,293,883
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
F-72
<PAGE> 232
SchwabFunds(R) 16
- --------------------------------------------------------------------------------
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUND
The Schwab California Tax-Exempt Money Fund (the "Fund") is a series of The
Charles Schwab Family of Funds (the "Trust"), an open-end, management investment
company organized as a Massachusetts business trust on October 20, 1989 and
registered under the Investment Company Act of 1940, as amended.
The Board of Trustees of the Trust adopted a multiple class plan for the Fund on
May 9, 1995. Commencing October 3, 1995, the Fund began offering more than one
class of shares. Pursuant to the plan, the existing shares were redesignated as
Sweep Shares ("Sweep Shares"), and a new class of shares was added -- the Value
Advantage Shares ("Value Advantage Shares"). Both classes represent interests in
the same portfolio of investments of the Fund and are substantially the same in
all respects except that the classes are subject to different transfer agency
and shareholder service fees (see Note 3), investment minimums and certain other
expenses.
In addition to the Fund, the Trust also offers -- the Schwab Money Market Fund,
the Schwab Government Money Fund, the Schwab U.S. Treasury Money Fund, the
Schwab Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab New
York Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab Value
Advantage Money Fund(R), the Schwab Institutional Advantage Money Fund(TM) and
the Schwab Retirement Money Fund(R). The assets of each series are segregated
and accounted for separately.
The Schwab California Tax-Exempt Money Fund, which is not "diversified" within
the meaning of the Investment Company Act of 1940, as amended, invests in a
portfolio of debt obligations issued by or on behalf of California and other
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities that
generate interest exempt from federal income tax and State of California
personal income tax.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security valuation -- Investments are stated at amortized cost which
approximates market value.
Security transactions -- Security transactions are accounted for on a trade date
basis (date the order to buy or sell is executed).
Dividends to shareholders -- The Fund declares a daily dividend, equal to its
net investment income for that day, payable monthly. Dividends paid by the Fund
with respect to each class of shares are calculated in the same manner, at the
same time, and will be in the same amount except for the effect of expenses that
may be applied differently, as described below.
F-73
<PAGE> 233
SchwabFunds(R) 17
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund and its initial registration with the Securities and
Exchange Commission and with various states are amortized on a straight-line
basis over a five-year period from the Fund's commencement of operations.
Expenses -- Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are allocated to each
series in proportion to their relative net assets. Expenses attributable to both
classes of shares are allocated daily to each class based on the value of
settled shares outstanding of each respective class. Transfer agency,
shareholder service fees and certain other expenses which are class specific are
calculated daily at the class level.
Interest income and realized gains (losses) -- Interest income is recorded on
the accrual basis and includes amortization of premium on investments. Realized
gains and losses from security transactions are determined on an identified cost
basis. Income and realized gains (losses) are allocated daily to each class of
shares based on the value of settled shares outstanding of each respective
class.
Federal income taxes -- It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income and realized net capital gains, if
any, to shareholders. Therefore, no federal income tax provision is required.
The Fund is considered a separate entity for tax purposes.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreements -- The Trust has investment
advisory and administration agreements with Charles Schwab Investment
Management, Inc. (the "Investment Manager"). For advisory services and
facilities furnished, the Fund pays an annual fee, payable monthly, of .46% of
the first $1 billion of average daily net assets, .41% of such assets over $1
billion, and .40% of such assets in excess of $2 billion. Under these
agreements, the Fund incurred investment advisory and administration fees of
$6,445,000 for the year ended December 31, 1995, before the Investment Manager
reduced its fee (see Note 4).
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of .45% and .25% of average daily net assets of the
Sweep Shares and Value Advantage Shares, respectively. For the year ended
December 31, 1995, the Fund incurred transfer agency and shareholder service
fees of $6,469,000 and $31,000 for the Sweep Shares and Value Advantage Shares,
respectively, before Schwab reduced its fees (see Note 4).
Officers and trustees -- Certain officers and trustees of the Trust are also
officers or directors of the Investment Manager and/or Schwab. During the year
ended December 31, 1995, the Trust made no direct payments to its officers or
trustees who are "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Fund incurred fees of $9,000 related to the
Trust's unaffiliated trustees.
F-74
<PAGE> 234
SchwabFunds(R) 18
- --------------------------------------------------------------------------------
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab 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. For the year ended December 31, 1995, the total of such fees
and expenses reduced and absorbed by the Investment Manager were $3,707,000 and
the total of such fees reduced by Schwab was $590,000.
5. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities during the year ended
December 31, 1995, aggregated (in thousands) $3,297,957 and $2,925,680,
respectively.
6. CAPITAL SHARE TRANSACTIONS
The Fund offers two classes of shares: Sweep Shares and Value Advantage Shares.
Shares of each class represent interests in the same portfolio of investments of
the Fund. Transactions in capital shares were as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1995* 1994
----------- -----------
<S> <C> <C>
Proceeds from shares sold:
Sweep Shares $ 4,257,465 $ 3,435,641
Value Advantage Shares 125,848 --
----------- -----------
Total proceeds from shares sold 4,383,313 3,435,641
Net asset value of shares issued in
reinvestment of dividends:
Sweep Shares 43,152 24,116
Value Advantage Shares 74 --
----------- -----------
Total net assets of shares issued in
reinvestment of dividends 43,226 24,116
Less payments for shares redeemed:
Sweep Shares (4,016,813) (3,227,316)
Value Advantage Shares (17,914) --
----------- -----------
Total payments for shares redeemed (4,034,727) (3,227,316)
Total increase in net assets from
capital share transactions $ 391,812 $ 232,441
=========== ===========
</TABLE>
* The Value Advantage Shares commenced operations on October 3, 1995.
F-75
<PAGE> 235
SchwabFunds(R) 19
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period:
<TABLE>
<CAPTION>
Value
Advantage
Shares
------------- Sweep Shares
For the --------------------------------------------------------------
period
ended \-------------- For the year ended December 31, -------------\
December 31,
1995 1 1995 1994 1993 1992 1991
------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment
- ----------------------
operations
----------
Net investment income .01 .03 .02 .02 .02 .04
Net realized and
unrealized gain (loss)
on investments -- -- -- -- -- --
-------- ---------- ---------- ---------- -------- --------
Total from investment operations .01 .03 .02 .02 .02 .04
Less distributions
- ------------------
Dividends from net
investment income (.01) (.03) (.02) (.02) (.02) (.04)
Distributions from realized gain
on investments -- -- -- -- -- --
-------- ---------- ---------- ---------- -------- --------
Total distributions (.01) (.03) (.02) (.02) (.02) (.04)
-------- ---------- ---------- ---------- -------- --------
Net asset value at
end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ========== ========== ========== ======== ========
Total return (%) .84 3.20 2.26 1.91 2.35 3.77
- ----------------
Ratios/Supplemental data
- ------------------------
Net assets, end of period (000s) $ 108,008 $1,577,695 $1,293,883 $1,062,042 $691,176 $494,214
Ratio of expenses to
average net assets (%) .45* .65 .64 .63 .63 .61
Ratio of net investment income
to average net assets (%) 3.48* 3.15 2.25 1.89 2.31 3.70
</TABLE>
The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses in order to limit the Fund's ratio of operating
expenses to average net assets. Had these fees and expenses not been reduced and
absorbed, with respect to the Value Advantage Shares, the ratio of expenses to
average net assets and the ratio of net investment income to average net assets
for the period ended December 31, 1995 would have been 1.04%* and 2.89%*,
respectively. With respect to the Sweep Shares, the ratio of expenses to average
net assets for the periods ended December 31, 1995, 1994, 1993, 1992, and 1991
would have been .94%, .94%, .96%, .97%, and .98%, respectively, and the ratio of
net investment income to average net assets would have been 2.86%, 1.95%, 1.56%,
1.97%, and 3.33%, respectively.
1 For the period October 3, 1995 (commencement of operations) to December 31,
1995.
* Annualized
F-76
<PAGE> 236
SchwabFunds(R) 20
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To the Board of Trustees
and Shareholders of the Schwab California Tax-Exempt Money Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the Schwab California Tax-Exempt Money Fund
(one of the series constituting The Charles Schwab Family of Funds, hereafter
referred to as the "Trust") at December 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each period presented,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1995 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
San Francisco, California
January 31, 1996
F-77
<PAGE> 237
SchwabFunds(R) 1
- --------------------------------------------------------------------------------
SCHWAB NEW YORK TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------ --------
<S> <C> <C>
VARIABLE RATE
OBLIGATIONS--59.9%(a)
Albany, New York Industrial
Development Agency
Adjustable Revenue Bonds
(Newkirk Products, Inc.)
Series 1995A/
(Fleet Bank of
New York LOC)
5.15%, 01/04/96 $1,000 $1,000
Babylon, New York Variable
Rate General Obligation Bonds
Series B/(Bank of Nova Scotia
SBPA &
AMBAC Insurance)
4.90%, 01/07/96 2,000 2,000
Cortland County, New York
Industrial Development Agency
Revenue Bonds (General Signal
Corp. Project) Series 1983/
(Wachovia Bank LOC)
4.85%, 01/07/96 1,750 1,750
Erie County, New York Water
Authority Revenue Bonds
Series 1993B/
Industrial Bank of
Japan SBPA &
AMBAC Insurance)
5.10%, 01/07/96 1,400 1,400
Franklin County, New York
Industrial Development Agency
Revenue Bonds
(Kes Chateaugay LP
Project) Series A/
(Bank of Tokyo LOC)
5.20%, 01/07/96 3,000 3,000
Geneva, New York
Industrial Development
Agency Civic Facility
Revenue Bonds
(Colleges of The Seneca)
Series 1993A/
(Sumitomo Bank LOC)
5.10%, 01/07/96 2,500 2,500
Monroe County, New York
Industrial Development Agency
Revenue Bonds (ENBI Corp.
Lease Rent Project)
Series 1988/
(ABN-AMRO Bank LOC)
4.95%, 01/07/96 2,000 2,000
New Rochelle, New York
Industrial Development
Authority Revenue Bonds (Chas
Sadek Import Corp.)/ (Bank of
New York LOC)
5.15%, 01/07/96 5,500 5,500
New York City, New York
General Obligation
Bonds Series 1992B/
(FGIC Insurance)
5.00%, 01/01/96 100 100
New York City, New York
General Obligation
Bonds Series 1993
Subseries A-8B/
(Sanwa Bank LOC)
5.95%, 01/01/96 385 385
New York City, New York
General Obligation
Bonds Series 1993
Subseries B-4/(Union
Bank of Switzerland LOC)
5.00%, 01/01/96 1,000 1,000
New York City, New York
General Obligation
Bonds Series 1994
Subseries B-4/(Union
Bank of Switzerland LOC)
5.00%, 01/07/96 700 700
New York City, New York
General Obligation
Bonds Series 1994B
Subseries B-4/
(MBIA Insurance &
National Westminster
Bank SBPA)
5.90%, 01/01/96 100 100
New York City, New York
General Obligation
Bonds Series 1995B
Subseries B-2/
(Bank Austria AG SBPA &
MBIA Insurance)
5.90%, 01/01/96 1,900 1,900
New York City, New York
Housing Development Corp.
Mortgage Revenue Multi Family
Housing Revenue Bonds
(Columbus Gardens Project)
Series 1993A/ (Citibank LOC)
4.75%, 01/07/96 3,500 3,500
New York City, New York
Housing Development Corp.
Variable Rate Demand
Special Obligation Revenue
Bonds (East 96th Street
Project) Series 1990A/
(Mitsubishi Bank LOC)
5.10%, 01/07/96 9,700 9,700
New York City, New York
Industrial Development Agency
Floating Rate
Revenue Bonds
(White Plains Auto)/
(Societe Generale LOC)
5.15%, 01/07/96 300 300
</TABLE>
F-78
<PAGE> 238
SchwabFunds(R) 2
- --------------------------------------------------------------------------------
SCHWAB NEW YORK TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------ --------
<S> <C> <C>
New York City, New York
Municipal Water Finance
Authority Water & Sewer
System Revenue Bonds
Series 1994C/
(FGIC Insurance)
5.90%, 01/01/96 $1,200 $1,200
New York City, New York
Municipal Water Finance
Authority Water & Sewer
System Revenue Bonds
Series 1994G/
(FGIC SPA &
FGIC Insurance)
5.90%, 01/01/96 2,100 2,100
New York City, New York
Municipal Water Finance
Authority Water and Sewer
System Revenue Bonds
Series 1995A/
(FGIC Insurance)
5.50%, 01/01/96 2,000 2,000
New York City, New York
Various Rate General
Obligation Bonds Series
1995B1 Subseries B-8/
(Mitsubishi Bank LOC)
5.35%, 01/07/96 700 700
New York State Dormitory
Authority Revenue Bonds
(Masonic Hall Asylum)/ (AMBAC
Insurance &
Credit Local de
France SBPA)
4.90%, 01/07/96 7,000 7,000
New York State Energy Research
& Development Authority
Electric Facilities
Adjustable Rate Revenue Bonds
(Long Island
Lighting Co. Project)
Series 1993A/
(Toronto-Dominion
Bank LOC)
5.00%, 01/07/96 2,000 2,000
New York State Energy Research
& Development Authority
Electric Facilities
Adjustable Rate Revenue Bonds
(Long Island
Lighting Co. Project)
Series 1993B/
(Toronto-Dominion
Bank LOC)
5.05%, 01/07/96 6,000 6,000
New York State Energy Research
& Development Authority
Pollution Control Refunding
Revenue Bonds (Orange &
Rockland Utilities, Inc.
Project) Series 1994A/ (FGIC
Insurance &
Societe Generale SBPA)
4.90%, 01/07/96 9,100 9,100
New York State Energy Research
& Development Authority
Pollution Control Refunding
Revenue Bonds/ (Union Bank of
Switzerland LOC)
5.30%, 01/07/96 1,900 1,900
New York State Energy Research
& Development Authority
Pollution Control Revenue
Bonds (Central Hudson Gas &
Electric Corp. Project)
Series 1985A/
(J. P. Morgan Delaware LOC)
5.00%, 01/07/96 4,300 4,300
New York State Housing Finance
Agency Revenue Bonds (East
84th Street Project)
Series 1995A/
(Fleet Bank of
New York LOC)
5.10%, 01/07/96 5,000 5,000
New York State Housing Finance
Agency Variable Rate Housing
Revenue Bonds (Hospital
Special Surgery Staff)
Series 1985A/
(Sakura Bank LOC)
4.70%, 01/07/96 6,700 6,700
New York State Housing Finance
Agency Variable Rate Multi
Family Housing Revenue Bonds
(Normandie Court II)
Series 1987A/
(Bankers Trust Co. LOC)
4.95%, 01/07/96 2,900 2,900
New York State Housing Finance
Agency Variable
Rate Revenue Bonds
(Mount Sinai School of
Medicine) Series 1984A/
(Sanwa Bank LOC)
4.70%, 01/07/96 5,900 5,900
New York State Local
Government Assistance
Corp. Revenue Bonds
Series 1994B/
(Credit Suisse &
Swiss Bank LOC)
4.95%, 01/07/96 6,900 6,900
New York State Local
Government Assistance
Corp. Revenue Bonds
Series 1995F/(Toronto-
Dominion Bank LOC)
5.05%, 01/07/96 1,900 1,900
New York State Local
Government Assistance
Corp. Revenue Bonds
Series 1995G/(National
Westminster Bank LOC)
4.90%, 01/07/96 1,100 1,100
</TABLE>
F-79
<PAGE> 239
SchwabFunds(R) 3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------ --------
<S> <C> <C>
Niagara County, New York
Industrial Development Agency
Revenue Bonds (Allegheny
Ludlum Steel Company)
Series 1984/
(PNC Bank LOC)
5.00%, 01/07/96 $3,500 $3,500
Niagara Falls, New York Bridge
Commission Revenue Bonds
Series 1993A/
(FGIC Insurance &
Industrial Bank of
Japan SBPA)
5.10%, 01/07/96 3,400 3,400
Port Authority, New York and
New Jersey Special Obligation
Revenue Bonds Series 1993/
(Deutsche Bank LOC)
5.10%, 01/07/96 4,000 4,000
Puerto Rico--Puerto Rico
Government Development
Bank Revenue
Refunding Bonds
Series 1985/
(Credit Suisse LOC)
4.50%, 01/07/96 5,000 5,000
Schenectady, New York
Industrial Development Agency
Industrial Development
Revenue Bonds (Fortitech
Holding Corp. Project)
Series A/
(Fleet Bank of
New York LOC)
5.15%, 01/07/96 1,500 1,500
St. Lawrence County, New York
Industrial Development Agency
Environmental Improvement
Revenue Bonds
(Reynolds Metals
Project) Series 1995/
(Royal Bank of Canada LOC)
5.00%, 01/07/96 4,000 4,000
Triborough Bridge and Tunnel
Authority, New York Special
Obligation Bridge Revenue
Bonds Series 1994/
(FGIC SPA &
FGIC Insurance)
4.90%, 01/07/96 2,700 2,700
Yonkers, New York Industrial
Development Agency Civic
Facilities Revenue Bonds
(Consumers Union Facility
Project) Series 1989/
(Industrial Bank of
Japan LOC)
5.30%, 01/07/96 1,500 1,500
Yonkers, New York Industrial
Development Agency Civic
Facilities Revenue Bonds
(Consumers Union Facility
Project) Series 1991/
(Industrial Bank of
Japan LOC)
5.30%, 01/07/96 700 700
Yonkers, New York Industrial
Development Agency Civic
Facilities Revenue Bonds
(Consumers Union Facility
Project) Series 1994/ (AMBAC
Insurance &
Credit Local de
France SBPA)
4.95%, 01/07/96 1,100 1,100
-------
TOTAL VARIABLE RATE OBLIGATIONS (Cost
$130,935) 130,935
-------
VARIABLE RATE TENDER
OPTION BONDS--1.9%(a)
New York City, New York
General Obligation Bonds
(Citi-1I)/(AMBAC Insurance,
Escrowed to Maturity with
Government Securities &
Citibank Tender Option)
5.29%, 01/07/96 4,100 4,100
-------
TOTAL VARIABLE RATE TENDER OPTION
BONDS (Cost $4,100) 4,100
-------
VARIABLE RATE TENDER
OPTION BOND
PARTNERSHIPS--2.5%(a)(c)
New York State Dormitory
Authority, New York
University Insured Revenue
Bonds
(BTP-26)/(Automatic
Data Processing, Inc.
Tender Option &
MBIA Insurance)
4.11%, 01/07/96 5,375 5,375
-------
TOTAL VARIABLE RATE TENDER OPTION BOND
PARTNERSHIPS
(Cost $5,375) 5,375
-------
BOND ANTICIPATION
NOTES--8.1%(b)
Broome County, New York
Bond Anticipation Notes
Series 1995-96
4.33%, 04/19/96 3,812 3,819
3.77%, 04/19/96 3,000 3,010
Dutchess County, New York Bond
Anticipation Notes
Series 1995-96
3.75%, 08/02/96 2,825 2,833
Rochester, New York General
Obligation Bond Anticipation
Notes Series 1995I
3.80%, 10/31/96 5,000 5,018
Schenectady, New York General
Obligation Bond Anticipation
Notes Series 1995
4.63%, 02/16/96 3,068 3,070
-------
TOTAL BOND ANTICIPATION NOTES (Cost
$17,750) 17,750
-------
</TABLE>
F-80
<PAGE> 240
SchwabFunds(R) 4
- --------------------------------------------------------------------------------
SCHWAB NEW YORK TAX-EXEMPT MONEY FUND
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------ --------
<S> <C> <C>
GENERAL
OBLIGATIONS--0.8%(b)
Buffalo, New York General
Obligation Revenue Bonds/
(MBIA Insurance)
3.50%, 12/01/96 $1,824 $ 1,832
------
TOTAL GENERAL OBLIGATIONS
(Cost $1,832) 1,832
------
REVENUE BONDS--4.9%(b)
New York State Power Authority
Revenue and General Purpose
Bonds Series 1993C
3.32%, 01/01/97 1,600 1,600
New York State Urban
Development Corp.
Correctional Facilities
Revenue Bonds/
(Escrowed to Maturity with
Government Securities)
4.80%, 01/01/96 7,000 7,140
Triborough Bridge and Tunnel
Authority, New York General
Purpose Revenue Bonds
Series 1986-1/
(Escrowed to Maturity with
Government Securities)
4.07%, 01/01/96 1,000 1,020
Triborough Bridge and Tunnel
Authority, New York General
Purpose Revenue Bonds Series
I/(Escrowed to Maturity
with Government Securities)
4.45%, 01/01/96 1,000 1,020
------
TOTAL REVENUE BONDS
(Cost $10,780) 10,780
------
TAX ANTICIPATION NOTES--15.3%(b)
East Hampton, New York
Unified Free School District
Tax Anticipation Notes
Series 1995-1996
3.76%, 06/28/96 5,000 5,004
Half Hollow Hills Huntington-
Babylon, New York Centralized
School District Suffolk
County Tax and Revenue
Anticipation Notes
3.70%, 06/28/96 5,800 5,815
New York City, New York
Tax Anticipation Notes
Series 1995-1996A
3.80%, 02/15/96 3,000 3,003
3.70%, 02/15/96 5,000 5,005
South Huntington, New York
Unified Free School District
Tax Anticipation Notes
Series 1995-1996
3.78%, 06/28/96 5,000 5,010
3.60%, 06/28/96 2,500 2,508
West Islip, New York Unified
Free School District General
Obligation Tax Anticipation
Notes Series 1995
4.00%, 06/27/96 5,000 5,018
3.40%, 06/27/96 2,000 2,013
-------
TOTAL TAX ANTICIPATION NOTES
(Cost $33,376) 33,376
-------
TAX-EXEMPT COMMERCIAL
PAPER--6.6%(b)
New York City, New York
General Obligation Bonds
Fiscal 1994 Series H-4/
(AMBAC Insurance &
Kredietbank, N.V. SBPA)
3.75%, 02/15/96 1,500 1,500
New York City, New York
Municipal Water
Finance Authority/
(Credit Suisse LOC)
3.75%, 02/08/96 7,000 7,000
New York State Dormitory
Authority Revenue Bonds
(Memorial Sloan Kettering
Project) Series 1989C/
(Chemical Bank LOC)
3.75%, 02/08/96 6,000 6,000
-------
TOTAL TAX-EXEMPT COMMERCIAL PAPER
(Cost $14,500) 14,500
-------
TOTAL INVESTMENTS--100.0%
(Cost $218,648) $218,648
========
</TABLE>
F-81
<PAGE> 241
SchwabFunds(R) 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO SCHEDULE OF INVESTMENTS.
For each security, cost (for financial reporting and federal income tax
purposes) and carrying value are the same.
(a) Variable rate securities. Interest rates vary periodically based on
current market rates. Rates shown are the effective rates on December
31, 1995. Dates shown represent the latter of the demand date or next
interest rate change date, which is considered the maturity date for
financial reporting purposes. For variable rate securities without
demand features, the next interest reset date is shown.
(b) Interest rates represent effective yield to put or call date at time of
purchase.
(c) Certain securities purchased by the Fund are private placement
securities exempt from registration by Section 4(2) of the Securities
Act of 1933. These securities generally are issued to institutional
investors, such as the Schwab New York Tax-Exempt Money Fund. Any
resale by the Fund must be in an exempt transaction, normally to a
qualified institutional buyer. At December 31, 1995, the aggregate
value of private placement securities held by the Fund was $5,375,000
which represented 2.44% of net assets. All of these private placement
securities were determined by the Investment Manager to be liquid in
accordance with procedures adopted by the Board of Trustees.
<TABLE>
<CAPTION>
Abbreviations
-------------------
<S> <C>
AMBAC AMBAC Indemnity Corporation
FGIC Financial Guaranty Insurance Company
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance Corporation
SBPA Standby Purchase Agreement
SPA Securities Purchase Agreement
</TABLE>
See accompanying Notes to Financial Statements.
F-82
<PAGE> 242
SchwabFunds(R) 6
- --------------------------------------------------------------------------------
SCHWAB NEW YORK TAX-EXEMPT MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost: $218,648) $218,648
Cash 39
Interest receivable 2,232
Receivable for fund shares sold 250
Receivable from adviser 4
Deferred organization costs 23
Prepaid expenses 3
--------
Total assets 221,199
--------
LIABILITIES
Payable for:
Dividends 899
Fund shares redeemed 120
Investment advisory and administration fee 37
Transfer agency and shareholder service fees 68
Other 69
--------
Total liabilities 1,193
--------
Net assets applicable to outstanding shares $220,006
========
NET ASSETS CONSIST OF:
Capital paid in $220,012
Accumulated net realized loss on investments sold (6)
--------
$220,006
========
THE PRICING OF SHARES
204,869 outstanding Sweep Shares and
15,143 outstanding Value Advantage Shares,
$0.00001 par value (unlimited shares authorized) 220,012
Net asset value, offering and redemption price per each
Sweep Share and Value Advantage Share $1.00
</TABLE>
See accompanying Notes to Financial Statements.
F-83
<PAGE> 243
SchwabFunds(R) 7
- --------------------------------------------------------------------------------
SCHWAB NEW YORK TAX-EXEMPT MONEY FUND
STATEMENT OF OPERATIONS (in thousands)
For the period February 27, 1995 (commencement of operations) to
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Interest income $6,178
------
Expenses:
Investment advisory and administration fee 741
Transfer agency and shareholder service fees:
Sweep Shares 708
Value Advantage Shares 9
Custodian fees 60
Registration fees 120
Professional fees 26
Shareholder reports 28
Trustees' fees 1
Amortization of deferred organization costs 4
Insurance and other expenses 4
------
1,701
Less expenses reduced and absorbed (690)
------
Total expenses incurred by Fund 1,011
------
Net investment income 5,167
Net realized loss on investments sold (6)
------
Increase in net assets resulting from operations $5,161
======
</TABLE>
See accompanying Notes to Financial Statements.
F-84
<PAGE> 244
SchwabFunds(R) 8
- --------------------------------------------------------------------------------
SCHWAB NEW YORK TAX-EXEMPT MONEY FUND
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
For the period February 27, 1995 (commencement of operations) to
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Operations:
Net investment income $ 5,167
Net realized loss on investments sold (6)
---------
Increase in net assets resulting from operations 5,161
---------
Dividends to shareholders from net investment income:
Sweep Shares (5,046)
Value Advantage Shares (121)
---------
Total dividends to shareholders (5,167)
---------
Capital share transactions (dollar amounts and
number of shares are the same):
Proceeds from shares sold 692,976
Net asset value of shares issued in reinvestment of
dividends 4,181
Less payments for shares redeemed (477,145)
---------
Increase in net assets from capital share transactions 220,012
---------
Total increase in net assets 220,006
Net Assets:
Beginning of period --
---------
End of period $ 220,006
=========
</TABLE>
See accompanying Notes to Financial Statements.
F-85
<PAGE> 245
SchwabFunds(R) 9
- --------------------------------------------------------------------------------
SCHWAB NEW YORK TAX-EXEMPT MONEY FUND
NOTES TO FINANCIAL STATEMENTS
For the period February 27, 1995 (commencement of operations) to
December 31, 1995
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUND
The Schwab New York Tax-Exempt Money Fund (the "Fund") is a series of The
Charles Schwab Family of Funds (the "Trust"), an open-end, management investment
company organized as a Massachusetts business trust on October 20, 1989 and
registered under the Investment Company Act of 1940, as amended. The Fund
commenced operations on February 27, 1995.
The Board of Trustees of the Trust adopted a multiple class plan for the Fund on
May 9, 1995. Commencing July 7, 1995, the Fund began offering more than one
class of shares. Pursuant to the plan, the existing shares were redesignated as
Sweep Shares ("Sweep Shares"), and a new class of shares was added -- the Value
Advantage Shares ("Value Advantage Shares"). Both classes represent interests in
the same portfolio of investments of the Fund and are substantially the same in
all respects except that the classes are subject to different transfer agency
and shareholder service fees (see Note 3), investment minimums and certain other
expenses.
In addition to the Fund, the Trust also offers -- the Schwab Money Market Fund,
the Schwab Government Money Fund, the Schwab U.S. Treasury Money Fund, the
Schwab Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab
California Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab
Value Advantage Money Fund(R), the Schwab Institutional Advantage Money Fund(TM)
and the Schwab Retirement Money Fund(R). The assets of each series are
segregated and accounted for separately.
The Schwab New York Tax-Exempt Money Fund, which is not "diversified" within the
meaning of the Investment Company Act of 1940, as amended, invests in a
portfolio of debt obligations issued by or on behalf of New York and other
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities that
generate interest exempt from federal income tax and State of New York and New
York municipal personal income tax.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security valuation -- Investments are stated at amortized cost which
approximates market value.
Security transactions -- Security transactions are accounted for on a trade date
basis (date the order to buy or sell is executed).
F-86
<PAGE> 246
SchwabFunds(R) 10
- --------------------------------------------------------------------------------
SCHWAB NEW YORK TAX-EXEMPT MONEY FUND
NOTES TO FINANCIAL STATEMENTS
For the period February 27, 1995 (commencement of operations) to
December 31, 1995
- --------------------------------------------------------------------------------
Dividends to shareholders -- The Fund declares a daily dividend, equal to its
net investment income for that day, payable monthly. Dividends paid by the Fund
with respect to each class of shares are calculated in the same manner, at the
same time, and will be in the same amount except for the effect of expenses that
may be applied differently, as described below.
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund and its initial registration with the Securities and
Exchange Commission and with various states are amortized on a straight-line
basis over a five-year period from the Fund's commencement of operations.
Expenses -- Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are allocated to each
series in proportion to their relative net assets. Expenses attributable to both
classes of shares are allocated daily to each class based on the value of
settled shares outstanding of each respective class. Transfer agency,
shareholder service fees and certain other expenses which are class specific are
calculated daily at the class level.
Interest income and realized gains (losses) -- Interest income is recorded on
the accrual basis and includes amortization of premium on investments. Realized
gains and losses from security transactions are determined on an identified cost
basis. Income and realized gains (losses) are allocated daily to each class of
shares based on the value of settled shares outstanding of each respective
class.
Federal income taxes -- It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income and realized net capital gains, if
any, to shareholders. Therefore, no federal income tax provision is required.
The Fund is considered a separate entity for tax purposes.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreements -- The Trust has investment
advisory and administration agreements with Charles Schwab Investment
Management, Inc. (the "Investment Manager"). For advisory services and
facilities furnished, the Fund pays an annual fee, payable monthly, of .46% of
the first $1 billion of average daily net assets, .41% of such assets over $1
billion, and .40% of such assets in excess of $2 billion. Under these
agreements, the Fund incurred investment advisory and administration fees of
$741,000 for the period ended December 31, 1995, before the Investment Manager
reduced its fee (see Note 4).
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of .45% and .25% of average daily net assets of the
Sweep Shares and Value Advantage Shares, respectively. For the period ended
December 31, 1995, the Fund incurred transfer agency and shareholder service
fees of $708,000 and $9,000 for the Sweep Shares and Value Advantage Shares,
respectively, before Schwab reduced its fees (see Note 4).
F-87
<PAGE> 247
SchwabFunds(R) 11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Officers and trustees -- Certain officers and trustees of the Trust are also
officers or directors of the Investment Manager and/or Schwab. During the period
ended December 31, 1995, the Trust made no direct payments to its officers or
trustees who are "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Fund incurred fees of $1,000 related to the
Trust's unaffiliated trustees.
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab 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. For the period ended December 31, 1995, the total of such
fees and expenses reduced and absorbed by the Investment Manager were $302,000
and the total of such fees reduced by Schwab was $388,000.
5. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities during the period from
February 27, 1995 to December 31, 1995, aggregated (in thousands) $527,752 and
$308,751, respectively.
6. CAPITAL SHARE TRANSACTIONS
The Fund offers two classes of shares: Sweep Shares and Value Advantage Shares.
Shares of each class represent interests in the same portfolio of investments
of the Fund. Transactions in capital shares for the period from February 27,
1995 (commencement of operations) to December 31, 1995*, were as follows (in
thousands):
<TABLE>
<S> <C>
Proceeds from shares sold:
Sweep Shares $ 671,692
Value Advantage Shares 21,284
---------
Total proceeds from shares sold 692,976
Net asset value of shares issued in
reinvestment of dividends:
Sweep Shares 4,126
Value Advantage Shares 55
---------
Total net asset value of shares issued in
reinvestment of dividends 4,181
Less payments for shares redeemed:
Sweep Shares (470,949)
Value Advantage Shares (6,196)
---------
Total payments for shares redeemed (477,145)
Total increase in net assets from
capital share transactions $ 220,012
=========
</TABLE>
* The Value Advantage Shares commenced operations on July 7, 1995.
F-88
<PAGE> 248
SchwabFunds(R) 12
- --------------------------------------------------------------------------------
SCHWAB NEW YORK TAX-EXEMPT MONEY FUND
NOTES TO FINANCIAL STATEMENTS
For the period February 27, 1995 (commencement of operations) to
December 31, 1995
- --------------------------------------------------------------------------------
7. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period:
<TABLE>
<CAPTION>
Value Advantage
Shares Sweep Shares
------------------- -------------------
For the period For the period
ended ended
December 31, December 31,
1995(1) 1995(2)
------------------- -------------------
<S> <C> <C>
Net asset value at beginning of period $1.00 $1.00
Income from investment operations
- ---------------------------------
Net investment income .02 .03
Net realized and unrealized gain (loss) on investments -- --
------- --------
Total from investment operations .02 .03
Less distributions
- ------------------
Dividends from net investment income (.02) (.03)
Distributions from realized gain on investments -- --
------- --------
Total distributions (.02) (.03)
------- --------
Net asset value at end of period $1.00 $1.00
======= ========
Total return (%) 1.62 2.75
- ----------------
Ratios/Supplemental data
- ------------------------
Net assets, end of period (000s) $15,143 $204,863
Ratio of expenses to average net assets (%) .45* .63*
Ratio of net investment income to average net assets (%) 3.42* 3.20*
</TABLE>
The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses in order to limit the Fund's ratio of operating
expenses to average net assets. Had these fees and expenses not been reduced and
absorbed, with respect to the Value Advantage Shares, the ratio of expenses to
average net assets and the ratio of net investment income to average net assets
for the period ended December 31, 1995 would have been 1.81%* and 2.06%*,
respectively. With respect to the Sweep Shares, the ratio of expenses to average
net assets and the ratio of net investment income to average net assets for the
period ended December 31, 1995 would have been 1.04%* and 2.79%*, respectively.
(1) For the period July 7, 1995 (commencement of operations) to December 31,
1995.
(2) For the period February 27, 1995 (commencement of operations) to December
31, 1995.
* Annualized
F-89
<PAGE> 249
SchwabFunds(R) 13
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To the Board of Trustees
and Shareholders of the Schwab New York Tax-Exempt Money Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the Schwab New York Tax-Exempt Money Fund
(one of the series constituting The Charles Schwab Family of Funds, hereafter
referred to as the "Trust") at December 31, 1995, and the results of its
operations, the changes in its net assets and the financial highlights for the
period presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 1995 by correspondence with the custodian, provides a reasonable basis for
the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
San Francisco, California
January 31, 1996
F-90
<PAGE> 250
SchwabFunds(R) 1
- -------------------------------------------------------------------------------
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(TM)
Schedule of Investments (in thousands)
December 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
--- -----
<S> <C> <C>
CORPORATE OBLIGATIONS--81.8%(a)
ASSET BACKED SECURITIES--5.6%
Alamo Funding, LP
5.86%, 01/19/96 $3,500 $3,490
Apreco, Inc.
5.80%, 01/22/96 1,000 997
------
4,487
------
AUTOMOTIVE--3.7%
General Motors Acceptance Corp.
5.82%, 02/14/96 3,000 2,979
------
BANKING--AUSTRALIA--9.7%
ANZ (Delaware), Inc.
5.58%, 05/14/96 3,000 2,939
Westpac Capital Corp.
5.79%, 05/01/96 5,000 4,905
------
7,844
------
BANKING--DOMESTIC BANK HOLDING COMPANY--4.9%
Bankers Trust New York Corp.
5.81%, 01/29/96 3,000 2,987
NationsBank Corp.
5.61%, O5/28/96 1,000 978
------
3,965
------
BANKING--FRANCE--1.9%
Societe Generale, N.A.
5.80%, 03/08/96 1,574 1,557
------
BANKING--GERMANY--4.8%
Commerzbank, U.S. Finance Inc.
5.65%, 02/21/96 377 374
Kredietbank N.A. Finance Corp.
5.80%, 02/13/96 1,000 993
</TABLE>
F-91
<PAGE> 251
SchwabFunds(R) 2
- ------------------------------------------------------------------------------
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(TM)
Schedule of Investments (in thousands)
December 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
--- -----
<S> <C> <C>
CORPORATE OBLIGATIONS (CONTINUED)
KREDIETBANK N.A. FINANCE CORP.
5.83%, 03/01/96 $2,550 $2,526
------
3,893
------
BANKING--ITALY--2.5%
Cariplo Finance, Inc.
5.77%, 02/20/96 2,000 1,984
------
BANKING--JAPAN--2.2%
Bridgestone/Firestone, Inc. / (Dai-Ichi Kangyo
Bank Ltd. LOC)
6.05%, 02/01/96 1,746 1,737
------
BANKING--UNITED KINGDOM--6.2%
Abbey National N.A. Corp.
5.80%, 01/31/96 5,000 4,976
------
FINANCE (COMMERCIAL)--3.9%
General Electric Capital Corp.
5.74%, 03/06/96 1,000 990
USL Capital Corp.
5.81%, 01/09/96 2,130 2,127
------
3,117
------
FINANCE (CONSUMER)--4.9%
American Express Credit Corp.
5.81%, 03/01/96 3,000 2,972
Sears Roebuck Acceptance Corp.
5.82%, 01/11/96 1,000 998
------
3,970
------
MINING AND MINERAL RESOURCES--1.8%
BHP Finance (U.S.A.), Inc.
5.79%, 01/11/96 1,465 1,463
------
</TABLE>
F-92
<PAGE> 252
SchwabFunds(R) 3
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
--- -----
<S> <C> <C>
CORPORATE OBLIGATIONS (CONTINUED)
MORTGAGE BANKING-3.7%
Fleet Mortgage Group, Inc.
5.82%, 02/22/96 $3,000 $ 2,975
-------
SECURITIES BROKERAGE-DEALER--26.0%
BT Securities Corp.
5.84%, 01/25/96 2,000 1,992
5.83%, 01/30/96 2,000 1,991
5.80%, 02/05/96 1,000 994
CS First Boston, Inc.
5.81%, 01/11/96 4,000 3,994
Dean Witter Discover
5.79%, 02/08/96 2,000 1,988
Lehman Brothers Holdings, Inc.
5.85%, 01/25/96 2,000 1,992
5.83%, 01/26/96 2,000 1,992
Morgan Stanley Group, Inc.
5.83%, 01/08/96 3,000 2,997
5.80%, 01/23/96 1,000 997
Nomura Holdings America, Inc.
5.86%, 01/22/96 1,000 997
Salomon, Inc.
6.02%, 02/15/96 1,000 991
-------
20,925
-------
TOTAL CORPORATE OBLIGATIONS
(Cost $65,872) 65,872
-------
AGENCY OBLIGATIONS--3.7%
COUPON NOTES--3.7%
Federal National Mortgage Assoc.
5.91%, 08/19/96 3,000 3,005
-------
TOTAL AGENCY OBLIGATIONS
(Cost $3,005) 3,005
-------
</TABLE>
F-93
<PAGE> 253
SchwabFunds(R) 4
- ------------------------------------------------------------------------------
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(TM)
Schedule of Investments (in thousands)
December 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
--- -----
<S> <C> <C>
CERTIFICATES OF DEPOSIT--11.2%
BANKING--JAPAN--7.5%
Dai-Ichi Kangyo Bank, Ltd.
6.14%, 01/12/96 $2,000 $ 2,000
Mitsubishi Bank, Ltd.
5.83%, 03/19/96 1,000 1,000
Sanwa Bank, Ltd.
6.17%, 02/20/96 1,000 1,000
Sumitomo Bank, Ltd.
6.38%, 01/05/96 2,000 2,000
-------
6,000
-------
BANKING--NETHERLANDS--3.7%
ABN-AMRO Bank N.V.
5.83%, 02/21/96 3,000 3,000
-------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $9,000) 9,000
-------
Maturity
--------
REPURCHASE AGREEMENT--3.3%
Donaldson, Lufkin & Jenrette
Securities Corp. 5.80%.
Issue Date 12/29/9S
Due 01/02/96
Collateralized By:
FHLMC: $2,675 Par;
7.00% Due 06/15/19 2,643 2,641
-------
TOTAL REPURCHASE AGREEMENT
(Cost $2,641) 2,641
-------
TOTAL INVESTMENTS--100.0%
(Cost $80,518) $80,518
=======
</TABLE>
F-94
<PAGE> 254
SchwabFunds(R) 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO SCHEDULE OF INVESTMENTS.
Yields shown are effective yields at the time of purchase except for agency
obligations which reflect the coupon rate of the security. Yields for each type
of security are stated according to the market conventions for that security
type. For each security, cost (for financial reporting and federal income tax
purposes) and carrying value are the same.
(a) Certain securities purchased by the Fund are private placement securities
exempt from registration by Section 4(2) of the Securities Act of 1933.
These securities generally are issued to institutional investors, such as
the Schwab Institutional Advantage Money Fund. Any resale by the Fund
must be in an exempt transaction, normally to a qualified institutional
buyer. At December 31, 1995, the aggregate value of private placement
securities held by the Fund was $3,490,000 which represented 4.32% of net
assets. All of these private placement securities were determined by the
Investment Manager to be liquid in accordance with a resolution adopted
by the Board of Trustees relating to Rule 144A, promulgated under the
Securities Act of 1933.
ABBREVIATIONS
FHLMC Federal Home Loan Mortgage Corporation
LOC Letter of Credit
See accompanying Notes to Financial Statements.
F-95
<PAGE> 255
SchwabFunds(R) 6
- --------------------------------------------------------------------------------
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(TM)
Statement of Assets and Liabilities (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost: $80,518) $ 80,518
Cash 1
Interest receivable 187
Receivable for fund shares sold 677
Deferred organization costs 34
Prepaid expenses 32
--------
Total assets 81,449
--------
LIABILITIES
Payable for:
Dividends 634
Fund shares redeemed 23
Investment advisory and administration fee 15
Transfer agency and shareholder service fees 0
Total liabilities 703
--------
Net assets applicable to outstanding shares $ 80,746
========
NET ASSETS CONSIST OF:
Capital paid in $ 80,747
Accumulated net realized loss on investments sold (1)
--------
$ 80,746
========
THE PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) 80,747
Net asset value, offering and redemption price per share $ 1.00
</TABLE>
See accompanying Notes to Financial Statements.
F-96
<PAGE> 256
SchwabFunds(R) 7
- --------------------------------------------------------------------------------
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(TM)
Statement of Operations (in thousands)
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Interest income $ 4,774
-------
Expenses:
Investment advisory and administration fee 364
Transfer agency and shareholder service fees 198
Custodian fees 61
Registration fees 33
Professional fees 13
Shareholder reports 23
Amortization of deferred organization costs 12
Insurance and other expenses 6
-------
710
Less expenses reduced (290)
-------
Total expenses incurred by Fund 420
-------
Net investment income 4,354
Net realized loss on investments sold (1)
-------
Increase in net assets resulting from operations $ 4,353
=======
</TABLE>
See accompanying Notes to Financial Statements.
F-97
<PAGE> 257
SchwabFunds(R) 8
- --------------------------------------------------------------------------------
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(TM)
Statement of Changes in Net Assets (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year For the period
ended ended
December 31, December 31,
1995 1994 *
------------ --------------
<S> <C> <C>
Operations:
Net investment income $ 4,354 $ 1,928
Net realized loss on investments sold (1) --
--------- ---------
Increase in net assets resulting
from operations 4,353 1,928
--------- ---------
Dividends to shareholders from
net investment income (4,354) (1,928)
--------- ---------
Capital share transactions (dollar amounts
and number of shares are the same):
Proceeds from shares sold 281,164 240,455
Net asset value of shares issued in
reinvestment of dividends 1,784 397
Less payments for shares redeemed (262,289) (180,764)
--------- ---------
Increase in net assets from
capital share transactions 20,659 60,088
--------- ---------
Total increase in net assets 20,658 60,088
Net Assets:
Beginning of period 60,088 --
--------- ---------
End of period $ 80,746 $ 60,088
========= =========
</TABLE>
* For the period January 4, 1994 (commencement of operations) to December 31,
1994.
See accompanying Notes to Financial Statements.
F-98
<PAGE> 258
SchwabFunds(R) 9
- --------------------------------------------------------------------------------
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(TM)
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUND
The Schwab Institutional Advantage Money Fund (the "Fund") is a series of The
Charles Schwab Family of Funds (the "Trust"), an open-end, management investment
company organized as a Massachusetts business trust on October 20, 1989 and
registered under the Investment Company Act of 1940, as amended.
In addition to the Fund, the Trust also offers -- the Schwab Money Market Fund,
the Schwab Government Money Fund, the Schwab U.S. Treasury Money Fund, the
Schwab Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab
California Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab
New York Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab
Value Advantage Money Fund(R) and the Schwab Retirement Money Fund(R). The
assets of each series are segregated and accounted for separately.
The Schwab Institutional Advantage Money Fund invests primarily in a diversified
portfolio of short-term obligations of major banks and corporations.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security valuation - Investments are stated at amortized cost which approximates
market value.
Security transactions and interest income - Security transactions are accounted
for on a trade date basis (date the order to buy or sell is executed). Interest
income is recorded on the accrual basis and includes amortization of premium and
accretion of discount on investments. Realized gains and losses from security
transactions are determined on an identified cost basis.
F-99
<PAGE> 259
SchwabFunds(R) 10
- --------------------------------------------------------------------------------
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(TM)
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
Repurchase agreements - Repurchase agreements are fully collateralized by U.S.
Treasury or government agency securities. All collateral is held by the Fund's
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.
Dividends to shareholders - The Fund declares a daily dividend, equal to its net
investment income for that day, payable monthly.
Deferred organization costs - Costs incurred in connection with the organization
of the Fund and its initial registration with the Securities and Exchange
Commission and with various states are amortized on a straight-line basis over a
five-year period from the Fund's commencement of operations.
Expenses - Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are allocated to each
series in proportion to their relative net assets.
Federal income taxes - It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income and realized net capital gains, if
any, to shareholders. Therefore, no federal income tax provision is required.
The Fund is considered a separate entity for tax purposes.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreements - The Trust has investment
advisory and administration agreements with Charles Schwab Investment
Management, Inc. (the "Investment Manager"). For advisory services and
facilities furnished, the Fund pays an annual fee, payable monthly, of .46% of
the first $2 billion of average daily net assets, .45% of such assets over $2
billion, and .40% of such assets in excess of $3 billion. Under these
agreements, the Fund incurred investment advisory and administration fees of
$364,000 for the year ended December 31, 1995, before the Investment Manager
reduced its fee (see Note 4).
Transfer agency and shareholder service agreements - The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of .25% of average daily net assets. For the year
ended December 31, 1995, the Fund incurred transfer agency and shareholder
service fees of $198,000, before Schwab reduced its fees (see Note 4).
F-100
<PAGE> 260
SchwabFunds(R) 11
- --------------------------------------------------------------------------------
Officers and trustees - Certain officers and trustees of the Trust are also
officers or directors of the Investment Manager and/or Schwab. During the year
ended December 31, 1995, the Trust made no direct payments to its officers or
trustees who are "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Fund did not incur fees related to the
Trust's unaffiliated trustees.
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees in order to
limit the Fund's ratio of operating expenses to average net assets. For the year
ended December 31, 1995, the total of such fees reduced by the Investment
Manager and Schwab was $162,000 and $128,000, respectively.
5. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities for the year ended
December 31, 1995, aggregated (in thousands) $1,777,962 and $1,758,519,
respectively.
F-101
<PAGE> 261
SchwabFunds(R) 12
- --------------------------------------------------------------------------------
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(TM)
NOTES TO FINANCIAL STATEMENTS
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
6. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period:
<TABLE>
<CAPTION>
For the year For the period
ended ended
December 31, December 31,
1995 1994(1)
------------ --------------
<S> <C> <C>
Net asset value at beginning of period $ 1.00 $ 1.00
Income from investment operations
Net investment income .06 .04
Net realized and unrealized gain (loss) investments -- --
-------- -------
Total from investment operations .06 .04
Less distributions
Dividends from net investment income (.06) (.04)
Distributions from realized gain on investments -- --
-------- -------
Total distributions (.06) (.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(%) .53 .55*
Ratio of net investment income to average net assets(%) 5.50 4.04*
</TABLE>
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 .90% and .92%*,
respectively, and the ratio of net investment income to average net assets would
have been 5.13% and 3.67%*, respectively.
(1) For the period January 4, 1994 (commencement of operations) to December 31,
1994.
* Annualized
F-102
<PAGE> 262
SchwabFunds(R) 13
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To the Board of Trustees
and Shareholders of the Schwab Institutional Advantage Money Fund(TM)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the Schwab Institutional Advantage Money
Fund (one of the series constituting The Charles Schwab Family of Funds,
hereafter referred to as the "Trust") at December 31, 1995, the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
San Francisco, California
January 31, 1996
F-103
<PAGE> 263
SchwabFunds(R) 1
- --------------------------------------------------------------------------------
SCHWAB RETIREMENT MONEY FUND(R)
Schedule of Investments (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
--- -----
<S> <C> <C>
CORPORATE OBLIGATIONS--69.4%(a)
ASSET BACKED SECURITIES--11.5%
Alamo Funding, LP
5.86%, 01/19/96 $1,000 $ 997
Apreco, Inc.
5.80%, 01/22/96 4,000 3,987
Asset Securitization Cooperative Corp.
5.83%, 02/01/96 2,000 1,990
Broadway Capital Corp.
5.95%, 01/03/96 1,523 1,523
Preferred Receivables Funding Corp.
5.79%, 01/11/96 2,000 1,997
Sheffield Receivables Corp.
5.80%, 01/30/96 1,000 995
-------
11,489
-------
AUTOMOTIVE--5.5%
General Motors Acceptance Corp.
5.79%, 02/05/96 1,500 1,492
5.82%, 02/14/96 3,000 2,979
Renault Credit International SA Banque
5.88%, 01/25/96 1,000 996
-------
5,467
-------
BANKING--AUSTRALIA-1.0%
National Australia Funding (Delaware), Inc.
5.53%, 06/12/96 1,000 976
-------
BANKING--BELGIUM--2.9%
Generale Bank, Inc.
5.81%, 04/04/96 3,000 2,956
-------
BANKING--CANADA--1.0%
Toronto-Dominion Holdings
5.51%, 07/10/96 1,000 972
-------
BANKING--DOMESTIC BANK HOLDING COMPANY--3.9%
Bankers Trust New York Corp.
5.81%, 01/29/96 2,000 1,991
</TABLE>
F-104
<PAGE> 264
SchwabFunds(R) 2
- --------------------------------------------------------------------------------
SCHWAB RETIREMENT MONEY FUND(R)
Schedule of Investments (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
--- -----
<S> <C> <C>
CORPORATE OBLIGATIONS (CONTINUED)
NationsBank Corp.
5.55%, 05/21/96 $1,000 $ 979
5.61%, 05/28/96 1,000 978
-------
3,948
-------
BANKING--FRANCE--1.0%
Societe Generale, N.A.
5.80%, 03/08/96 1,000 989
-------
BANKING--GERMANY--4.3%
Kredietbank N.A. Finance Corp.
5.78%, 01/11/96 3,000 2,995
5.83%, 03/01/96 1,300 1,288
-------
4,283
-------
BANKING--ITALY--1.0%
Cariplo Finance, Inc.
5.76%, 02/22/96 1,000 992
-------
FINANCE (COMMERCIAL)--2.9%
General Electric Capital Corp.
5.74%, 03/06/96 1,000 990
5.63%, 03/25/96 1,000 987
5.62%, 05/07/96 1,000 981
-------
2,958
-------
FINANCE (CONSUMER)--2.0%
Associates Corp. of North America
5.65%, 05/09/96 2,000 1,960
-------
GOVERNMENT LOCALITY--FOREIGN--4.0%
New South Wales Treasury Corp.
5.81%, 01/10/96 4,000 3,994
-------
MINING AND MINERAL RESOURCES--2.0%
BHP Finance (U.S.A.), Inc.
5.70%, 02/21/96 1,000 992
</TABLE>
F-105
<PAGE> 265
SchwabFunds(R) 3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
--- -----
<S> <C> <C>
CORPORATE OBLIGATIONS (CONTINUED)
BHP Finance (U.S.A.), Inc.
5.76%, 03/05/96 $ 1,000 $ 990
-------
1,982
-------
MORTGAGE BANKING--4.0%
Fleet Mortgage Group, Inc.
5.85%, 01/26/96 3,000 2,988
5.80%, 02/23/96 1,000 992
-------
3,980
-------
SECURITIES BROKERAGE-DEALER--19.4%
BT Securities Corp.
5.80%, 01/03/96 3,000 2,999
5.83%, 01/30/96 1,000 995
Bear Stearns Companies, Inc.
5.80%, 01/12/96 2,500 2,496
Goldman Sachs Group, LP
5.82%, 01/12/96 1,000 998
5.77%, 03/22/96 3,000 2,962
Lehman Brothers Holdings, Inc.
5.85%, 01/23/96 4,000 3,986
Morgan Stanley Group, Inc.
5.83%, 01/08/96 1,000 999
5.78%, 02/08/96 1,000 994
Nomura Holdings America, Inc.
5.92%, 01/04/96 1,000 1,000
5.83%, 03/13/96 1,000 989
Paine Webber Group, Inc.
5.96%, 01/09/96 1,000 999
-------
19,417
-------
</TABLE>
F-106
<PAGE> 266
SchwabFunds(R) 4
- --------------------------------------------------------------------------------
SCHWAB RETIREMENT MONEY FUND(R)
Schedule of Investments (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
--- -----
<S> <C> <C>
CORPORATE OBLIGATIONS (CONTINUED)
STUDENT LOANS--3.0%
Student Loan Corp.
5.80%, 01/12/96 $ 3,000 $ 2,995
-------
TOTAL CORPORATE OBLIGATIONS
(Cost $69,358) 69,358
-------
AGENCY OBLIGATIONS--3.0%
COUPON NOTES--3.0%
Federal National Mortgage Assoc.
5.91%, 08/19/96 3,000 3,005
-------
TOTAL AGENCY OBLIGATIONS
(Cost $3,005) 3,005
-------
CERTIFICATES OF DEPOSIT--24.0%
BANKING--CANADA--4.0%
Canadian Imperial Bank of Commerce
5.81%, 01/24/96 4,000 4,000
-------
BANKING--DOMESTIC--4.0%
MBNA America Bank N.A.
5.63%, 04/16/96 4,000 4,000
-------
BANKING--FRANCE--2.0%
Societe Generale
5.80%, 01/25/96 2,000 2,000
-------
BANKING--JAPAN--8.0%
Dai-Ichi Kangyo Bank, Ltd.
6.20%, 01/12/96 1,000 1,000
6.14%, 01/12/96 1,000 1,000
6.09%, 01/12/96 1,000 1,000
Industrial Bank of Japan, Ltd.
6.25%, 01/02/96 2,000 2,000
Mitsubishi Bank, Ltd.
5.83%, 03/19/96 1,000 1,000
Sanwa Bank, Ltd.
6.22%, 02/21/96 1,000 1,000
</TABLE>
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SchwabFunds(R) 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
--- -----
<S> <C> <C>
CERTIFICATES OF DEPOSIT (CONTINUED)
Sumitomo Bank, Ltd.
6.15%, 01/17/96 $ 1,000 $ 1,000
-------
8,000
-------
BANKING--NETHERLANDS--2.0%
ABN-AMRO Bank N.V.
5.58%, 06/05/96 2,000 2,000
-------
BANKING--UNITED KINGDOM--4.0%
Abbey National PLC
5.80%, 01/16/96 4,000 3,996
-------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $23,996) 23,996
-------
MATURITY
--------
REPURCHASE AGREEMENT--3.6%
Donaldson, Lufkin & Jenrette
Securities Corp. 5.80%
Issue Date 12/29/95
Due 01/02/96
Collateralized By:
FNMA: $13,435 Par;
7.04% Due 04/25/23 3,554 3,552
-------
TOTAL REPURCHASE AGREEMENT
(Cost $3,552) 3,552
-------
TOTAL INVESTMENTS--100.0%
(cost $99,911) $99,911
=======
</TABLE>
See accompanying Notes to Schedule of Investments.
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SchwabFunds(R) 6
- --------------------------------------------------------------------------------
SCHWAB RETIREMENT MONEY FUND(R)
Schedule of Investments (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
NOTES TO SCHEDULE OF INVESTMENTS.
Yields shown are effective yields at the time of purchase except for agency
obligations which reflect the coupon rate of the security. Yields for each type
of security are stated according to the market convention for that security
type. For each security, cost (for financial reporting and federal income tax
purposes) and carrying value are the same.
(a) Certain securities purchased by the Fund are private placement securities
exempt from registration by Section 4(2) of the Securities Act of 1933.
These securities generally are issued to institutional investors, such as
the Schwab Retirement Money Fund. Any resale by the Fund must be in an
exempt transaction, normally to a qualified institutional buyer. At
December 31, 1995, the aggregate value of private placement securities
held by Fund was $4,508,000 which represented 4.6% of net assets. All of
these private placement securities were determined by the Investment
Manager to be liquid in accordance with a resolution adopted by the Board
of Trustees relating to Rule 144A, promulgated under the Securities Act of
1933.
Abbreviations
FNMA Federal National Mortgage Association
See accompanying Notes to Financial Statements.
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SchwabFunds(R) 7
- --------------------------------------------------------------------------------
SCHWAB RETIREMENT MONEY FUND(R)
Statement of Assets and Liabilities (in thousands)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
ASSETS
<S> <C>
Investments, at value (Cost: $99,911) $ 99,911
Interest receivable 396
Receivable for fund shares sold 177
Deferred organization costs 36
Prepaid expenses 23
--------
Total assets 100,543
--------
LIABILITIES
Payable for:
Dividends 639
Fund shares redeemed 829
Investment advisory and administration fee 37
Transfer agency and shareholder service fees 13
Other 33
--------
Total liabilities 1,551
--------
Net assets applicable to outstanding shares $ 98,992
========
NET ASSETS CONSIST OF:
Capital paid in $ 98,992
Accumulated net realized gain (loss)
on investments sold ---
--------
$ 98,992
========
THE PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) 98,992
Net asset value, offering and redemption
price per share $1.00
</TABLE>
See accompanying Notes to Financial Statements.
F-110
<PAGE> 270
SchwabFunds(R) 8
- --------------------------------------------------------------------------------
SCHWAB RETIREMENT MONEY FUND(R)
Statement of Operations (in thousands)
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Interest income $4,616
------
Expenses:
Investment advisory and administration fee 354
Transfer agency and shareholder service fees 192
Custodian fees 60
Registration fees 50
Professional fees 13
Shareholder reports 18
Amortization of deferred organization costs 12
Insurance and other expenses 6
------
705
Less expenses reduced (144)
------
Total expenses incurred by Fund 561
------
Net investment income 4,055
Net realized gain (loss) on investments sold ---
------
Increase in net assets resulting from operations $4,055
======
</TABLE>
See accompanying Notes to Financial Statements.
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<PAGE> 271
SchwabFunds(R) 9
- --------------------------------------------------------------------------------
SCHWAB RETIREMENT MONEY FUND(R)
Statement of Changes in Net Assets (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year For the period
ended ended
December 31, December 31,
1995 1994 *
------------- --------------
<S> <C> <C>
Operations:
Net investment income $ 4,055 $ 842
Net realized gain (loss) on investments sold --- ---
--------- --------
Increase in net assets resulting
from operations 4,055 842
--------- --------
Dividends to shareholders from
net investment income (4,055) (842)
--------- --------
Capital share transactions (dollar amounts
and number of shares are the same):
Proceeds from shares sold 173,890 84,340
Net asset value of shares issued in
reinvestment of dividends 3,564 661
Less payments for shares redeemed (109,877) (53,586)
--------- --------
Increase in net assets from
capital share transactions 67,577 31,415
--------- --------
Total increase in net assets 67,577 31,415
Net Assets:
Beginning of period 31,415 ---
--------- --------
End of period $ 98,992 $ 31,415
========= ========
</TABLE>
* For the period March 2, 1994 (commencement of operations)
to December 31, 1994.
See accompanying Notes to Financial Statements.
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<PAGE> 272
SchwabFunds(R) 10
- --------------------------------------------------------------------------------
SCHWAB RETIREMENT MONEY FUND(R)
Notes to Financial Statements
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUND
The Schwab Retirement Money Fund (the "Fund") is a series of The Charles Schwab
Family of Funds (the "Trust"), an open-end, management investment company
organized as a Massachusetts business trust on October 20, 1989 and registered
under the Investment Company Act of 1940, as amended.
In addition to the Fund, the Trust also offers -- the Schwab Money Market Fund,
the Schwab Government Money Fund, the Schwab U.S. Treasury Money Fund, the
Schwab Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab
California Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab
New York Tax-Exempt Money Fund (Sweep and Value Advantage Shares), the Schwab
Value Advantage Money Fund(R) and the Schwab Institutional Advantage Money
Fund(TM). The assets of each series are segregated and accounted for separately.
The Schwab Retirement Money Fund invests primarily in a diversified portfolio of
short-term obligations of major banks and corporations.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security valuation - Investments are stated at amortized cost which approximates
market value.
Security transactions and interest income - Security transactions are accounted
for on a trade date basis (date the order to buy or sell is executed). Interest
income is recorded on the accrual basis and includes amortization of premium and
accretion of discount on investments. Realized gains and losses from security
transactions are determined on an identified cost basis.
Repurchase agreements - Repurchase agreements are fully collateralized by U.S.
Treasury or government agency securities. All collateral is held by the Fund's
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.
Dividends to shareholders - The Fund declares a daily dividend, equal to its net
investment income for that day, payable monthly.
F-113
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SchwabFunds(R) 11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Deferred organization costs - Costs incurred in connection with the organization
of the Fund and its initial registration with the Securities and Exchange
Commission and with various states are amortized on a straight-line basis over a
five year period from the Fund's commencement of operations.
Expenses - Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are allocated to each
series in proportion to their relative net assets.
Federal income taxes - It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income and realized net capital gains, if
any, to shareholders. Therefore, no federal income tax provision is required.
The Fund is considered a separate entity for tax purposes.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreements - The Trust has investment
advisory and administration agreements with Charles Schwab Investment
Management, Inc. (the "Investment Manager"). For advisory services and
facilities furnished, the Fund pays an annual fee, payable monthly, of .46% of
the first $2 billion of average daily net assets, .45% of such assets over $2
billion, and .40% of such assets in excess of $3 billion. Under these
agreements, the Fund incurred investment advisory and administration fees of
$354,000 for the year ended December 31, 1995, before the Investment Manager
reduced its fee (see Note 4).
Transfer agency and shareholder service agreements - The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of .25% of average daily net assets. For the year
ended December 31, 1995, the Fund incurred transfer agency and shareholder
service fees of $192,000, before Schwab reduced its fees (see Note 4).
Officers and trustees - Certain officers and trustees of the Trust are also
officers or directors of the Investment Manager and/or Schwab. During the year
ended December 31, 1995, the Trust made no direct payments to its officers or
trustees who are "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Fund did not incur fees related to the
Trust's unaffiliated trustees.
F-114
<PAGE> 274
SchwabFunds(R) 12
- --------------------------------------------------------------------------------
SCHWAB RETIREMENT MONEY FUND(R)
Notes to Financial Statements
For the year ended December 31, 1995
- --------------------------------------------------------------------------------
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees in order to
limit the Fund's ratio of operating expenses to average net assets. For the year
ended December 31, 1995, the total of such fees reduced by the Investment
Manager and Schwab was $16,000 and $128,000, respectively.
5. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities for the year ended
December 31, 1995, aggregated (in thousands) $1,753,661 and $1,685,786,
respectively.
F-115
<PAGE> 275
SchwabFunds(R) 13
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period:
<TABLE>
<CAPTION>
For the year For the period
ended ended
December 31, December 31,
1995 1994(1)
------------ --------------
<S> <C> <C>
Net asset value at beginning of period $ 1.00 $ 1.00
Income from investment operations
Net investment income .05 .03
Net realized and unrealized gain (loss)
on investments --- ---
------- -------
Total from investment operations .05 .03
Less distributions
Dividends from net investment income (.05) (.03)
Distributions from realized gain
on investments --- ---
------- -------
Total distributions (.05) (.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(%) .73 .73*
Ratio of net investment income to
average net assets (%) 5.28 4.04*
</TABLE>
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 .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.
(1) For the period March 2, 1994 (commencement of operations) to
December 31, 1994.
* Annualized
F-116
<PAGE> 276
SchwabFunds(R) 14
- --------------------------------------------------------------------------------
To the Board of Trustees
and Shareholders of the Schwab Retirement Money Fund(R)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the Schwab Retirement Money Fund (one of the
series constituting The Charles Schwab Family of Funds, hereafter referred to as
the "Trust") at December 31, 1995, the results of its operations for the year
then ended, and the changes in its net assets and the financial highlights for
the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
San Francisco, California
January 31, 1996
F-117
<PAGE> 277
PART C
OTHER INFORMATION
THE CHARLES SCHWAB FAMILY OF FUNDS
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
-- Financial Highlights--Included in Part B, Statement of Additional
Information:
Incorporated by reference to the joint Statement of Additional
Information for Schwab Money Market Fund, Schwab Government Money
Fund, Schwab U.S. Treasury Money Fund, Schwab Tax-Exempt Money
Fund-Sweep Shares, Schwab California Tax-Exempt Money Fund-Sweep
Shares, Schwab New York Tax-Exempt Money Fund-Sweep Shares, Schwab
Institutional Advantage Money Fund(R) and Schwab Retirement Money
Fund(R), separate portfolios of Registrant, filed herewith.
-- Schwab Money Market Fund Schedule of Investments dated December
31, 1995 (Audited)
-- Schwab Government Money Fund Schedule of Investments dated
December 31, 1995 (Audited)
-- Schwab U.S. Treasury Money Fund Schedule of Investments dated
December 31, 1995 (Audited)
-- Schwab Money Market Fund, Schwab Government Money Fund and Schwab
U.S. Treasury Money Fund Statements of Assets and Liabilities
dated December 31, 1995 (Audited)
-- Schwab Money Market Fund, Schwab Government Money Fund and Schwab
U.S. Treasury Money Fund Statements of Operations for the year
ended December 31, 1995 (Audited)
-- Schwab Money Market Fund, Schwab Government Money Fund and Schwab
U.S. Treasury Money Fund Statements of Changes in Net Assets for
the years ended December 31, 1994 and 1995 (Audited)
-- Schwab Money Market Fund, Schwab Government Money Fund and Schwab
U.S. Treasury Money Fund Notes to Financial Statements for the
year ended December 31, 1995 (Audited)
-- Report of Independent Accountants for the Schwab Money Market
Fund, Schwab Government Money Fund and Schwab U.S. Treasury Money
Fund dated January
C-1
<PAGE> 278
31, 1996
-- Schwab Tax-Exempt Money Fund Schedule of Investments dated
December 31, 1995 (Audited)
-- Schwab Tax-Exempt Money Fund Statement of Assets and Liabilities
dated December 31, 1995 (Audited)
-- Schwab Tax-Exempt Money Fund Statement of Operations for the year
ended December 31, 1995 (Audited)
-- Schwab Tax-Exempt Money Fund Statement of Changes in Net Assets
for the years ended December 31, 1994 and 1995 (Audited)
-- Schwab Tax-Exempt Money Fund Notes to Financial Statements for
the year ended December 31, 1995 (Audited)
-- Report of Independent Accountants for the Schwab Tax-Exempt
Money Fund dated January 31, 1996
-- Schwab California Tax-Exempt Money Fund Schedule of Investments
dated December 31, 1995 (Audited)
-- Schwab California Tax-Exempt Money Fund Statement of Assets and
Liabilities dated December 31, 1995 (Audited)
-- Schwab California Tax-Exempt Money Fund Statement of Operations
for the year ended December 31, 1995 (Audited)
-- Schwab California Tax-Exempt Money Fund Statement of Changes in
Net Assets dated December 31, 1995 (Audited)
-- Schwab California Tax-Exempt Money Fund Notes to Financial
Statements for the year ended December 31, 1995 (Audited)
-- Report of Independent Accountants for the Schwab California
Tax-Exempt Money Fund dated January 31, 1996
-- Schwab New York Tax-Exempt Money Fund Schedule of Investments
dated December 31, 1995 (Audited)
-- Schwab New York Tax-Exempt Money Fund Statement of Assets and
Liabilities dated December 31, 1995 (Audited)
-- Schwab New York Tax-Exempt Money Fund Statement of Operations for
the period February 27, 1995 (commencement of operations) to
December 31, 1995 (Audited)
-- Schwab New York Tax-Exempt Money Fund Statement of Changes in Net
Assets
C-2
<PAGE> 279
for the period February 27, 1995 (commencement of operations) to
December 31, 1995 (Audited)
-- Schwab New York Tax-Exempt Money Fund Notes to Financial
Statements for the period February 27, 1995 (commencement of
operations) to December 31, 1995 (Audited)
-- Report of Independent Accountants for the Schwab New York
Tax-Exempt Money Fund dated January 31, 1996
-- Schwab Institutional Advantage Money Fund(R) Schedule of
Investments dated December 31, 1995 (Audited)
-- Schwab Institutional Advantage Money Fund Statement of Assets and
Liabilities dated December 31, 1995 (Audited)
-- Schwab Institutional Advantage Money Fund Statement of Operations
for the year ended December 31, 1995 (Audited)
-- Schwab Institutional Advantage Money Fund Statement of Changes in
Net Assets for the period ended December 31, 1994 and the year
ended December 31, 1995 (Audited)
-- Schwab Institutional Advantage Money Fund Notes to Financial
Statements for the year ended December 31, 1995 (Audited)
-- Report of Independent Accountants for the Schwab Institutional
Advantage Money Fund dated January 31, 1996
-- Schwab Retirement Money Fund(R) Schedule of Investments dated
December 31, 1995 (Audited)
-- Schwab Retirement Money Fund Statement of Assets and Liabilities
dated December 31, 1995 (Audited)
-- Schwab Retirement Money Fund Statement of Operations for the year
ended December 31, 1995 (Audited)
-- Schwab Retirement Money Fund Statement of Changes in Net Assets
for the period ended December 31, 1994 and the year ended
December 31, 1995 (Audited)
-- Schwab Retirement Money Fund Notes to Financial Statements for
the year ended December 31, 1995 (Audited)
-- Report of Independent Accountants for the Schwab Retirement Money
Fund dated January 31, 1996
-- Incorporated by reference to the Statement of Additional Information
of Schwab Value Advantage Money Fund filed with the Securities and
Exchange Commission pursuant to Rule
C-3
<PAGE> 280
497(e) on April 1, 1996.
-- Schwab Value Advantage Money Fund Schedule of Investments dated
December 31, 1995 (Audited)
-- Schwab Value Advantage Money Fund Statement of Assets and
Liabilities dated December 31, 1995 (Audited)
-- Schwab Value Advantage Money Fund Statement of Operations for the
year ended December 31, 1995 (Audited)
-- Schwab Value Advantage Money Fund Statement of Changes in Net
Assets dated December 31, 1995 (Audited)
-- Schwab Value Advantage Money Fund Notes to Financial Statements
for the year ended December 31, 1995 (Audited)
-- Report of the Independent Accountants for the Schwab Value
Advantage Money Fund dated January 31, 1996
C-4
<PAGE> 281
for the year ended December 31, 1995 (Audited)
-- Report of the Independent Accountants for Schwab Tax-Exempt Money
Fund, Schwab California Tax-Exempt Money Fund and Schwab New York
Tax-Exempt Money Fund dated January 31, 1996
(b) Exhibits:
(1) Amended and Restated Agreement and Declaration of Trust is
incorporated by reference to Exhibit (1) to Post-Effective
Amendment No. 19 to Registrant's Registration Statement on Form
N-1A, filed on June 6, 1995
(2) Amended and Restated By-Laws are incorporated by reference to
Exhibit (2) to Post-Effective Amendment No. 23 to Registrant's
Registration Statement on Form N-1A, filed on March 29, 1996
(3) Inapplicable
(4) (a) Article III, Sections 4 and 5; Article IV, Section 1;
Article V; Article VI, Section 2; Article VIII, Section 4;
and Article IX, Sections 1, 4 and 7 of the Agreement and
Declaration of Trust are incorporated by reference to
Exhibit (1) to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A, filed on
June 6, 1995
(b) Article 9 and Article 11 of the By-Laws are incorporated by
reference to Exhibit (2) to Post-Effective Amendment No. 23
to Registrant's Registration Statement on Form N-1A, filed
on March 29, 1996
(5) (a) Investment Advisory and Administration Agreement between
Registrant and Charles Schwab Investment Management, Inc.
(the "Investment Manager") with respect to Schwab Money
Market Fund, Schwab Government Money Fund and Schwab
Tax-Exempt Money Fund, dated June 15, 1995, is incorporated
by reference to Exhibit (5)(a) to Post-Effective Amendment
No. 13 to Registrant's Registration Statement on Form N-1A,
filed on June 29, 1995
(b) Investment Advisory and Administration Agreement between
C-5
<PAGE> 282
Registrant and the Investment Manager with respect to Schwab
California Tax-Exempt Money Fund, Schwab U.S. Treasury Money
Fund, Schwab Value Advantage Money Fund, Schwab
Institutional Advantage Money Fund(R), Schwab Retirement
Money Fund(R) and New York Tax-Exempt Money Fund, dated June
15, 1995, is incorporated by reference to Exhibit (5)(b) to
Post-Effective Amendment No. 13 to Registrant's Registration
Statement on Form N-1A, filed on June 29, 1995
(c) Amended Schedules to the Investment Advisory and
Administration Agreement between Registrant and the
Investment Manager referred to at Exhibit (5)(b) above are
incorporated by reference to Exhibit (5)(c) to
Post-Effective Amendment No. 16 to Registrant's Registration
Statement on Form N-1A, filed on February 28, 1995
(d) Amended Schedule to the Investment Advisory and
Administration Agreement between Registrant and the
Investment Manager referred to at Exhibit (5)(b) above is
filed herewith
(6) (a) Distribution Agreement between Registrant and Charles
Schwab & Co., Inc. ("Schwab"), dated June 15, 1995, is
incorporated by reference to Exhibit (6)(a) to
Post-Effective Amendment No. 13 to Registrant's Registration
Statement on Form N-1A, filed on June 29, 1995
[/R]
(b) Amended Schedule to the Distribution Agreement between
Registrant and Schwab referred to at Exhibit (6)(a) above is
incorporated by reference to Exhibit (6)(b) to
Post-Effective Amendment No. 16 to Registrant's Registration
Statement on Form N-1A, filed on February 28, 1995
(7) Inapplicable
(8) (a) Accounting Services Agreement between Registrant and PFPC
Inc. (formerly, Provident Financial Processing Corporation)
dated April 8, 1991 is incorporated by reference to Exhibit
(8)(c) to Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A, filed on December 10,
1991
(b) Amended Schedule to the Accounting Services Agreement
referred to at Exhibit (8)(a) above is incorporated by
reference to Exhibit (8)(b) to Post-Effective Amendment No.
16 to Registrant's Registration Statement on Form N-1A,
filed on February 28, 1995
(c) Amendment Nos. 1 and 2 to the Accounting Services Agreement
C-6
<PAGE> 283
referred to at Exhibit (8)(a) above are incorporated by
reference to Exhibit (8)(c) to Post-Effective Amendment No.
23 to Registrant's Registration Statement on Form N-1A,
filed on March 29, 1996
(d) Amended and Restated Transfer Agency Agreement between
Registrant and Schwab dated June 5, 1995 is incorporated by
reference to Exhibit (8)(c) to Post-Effective Amendment No.
19 to Registrant's Registration Statement on Form N-1A,
filed on June 6, 1995
(e) Amended Schedule to the Amended and Restated
Transfer Agency Agreement referred to at Exhibit (6)(d)
above is filed herewith
(f) Shareholder Service Agreement between Registrant and Schwab
dated May 1, 1993 is incorporated by reference to Exhibit
(8)(f) to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A, filed on September 28,
1993
(g) Amended Schedules to the Shareholder Service Agreement
between Registrant and Schwab referred to at Exhibit (8)(f)
above are incorporated by reference to Exhibit (8)(f) to
Post-Effective Amendment No. 16 to Registrant's Registration
Statement on Form N-1A, filed on February 28, 1995
(h) Amended Schedule to the Shareholder Service
Agreement referred to at Exhibit (6)(f) above is filed
herewith
(i) Custodian Services Agreement between Registrant and
PNC Bank, National Association (formerly, Provident
National Bank) dated April 8, 1991 is incorporated by
reference to Exhibit (8)(b) to Post-Effective Amendment
No. 5 to Registrant's Registration Statement on Form N-1A,
filed on December 10, 1991
(j) Amended Schedule to the Custodian Services Agreement
referred to at Exhibit (8)(i) above is incorporated by
reference to Exhibit (8)(h) to Post-Effective Amendment No.
16 to Registrant's Registration Statement on Form N-1A,
filed on February 28, 1995
(k) Amendment Nos. 1 and 2 to the Custodian Services Agreement
referred to at Exhibit (8)(i) above are incorporated by
reference to Exhibit (8)(i) to Post-Effective Amendment No.
23 to Registrant's Registration Statement on Form N-1A,
filed on March 29, 1996
(9) Inapplicable
C-7
<PAGE> 284
(10) Opinion and Consent of Ropes & Gray as to legality of the
securities being registered is incorporated by reference to
Registrant's Rule 24f-2 Notice, filed on February 21, 1996
(11) (a) Consent of Ropes & Gray is filed herewith
(b) Consent of Price Waterhouse LLP, Independent Accountants, is
filed herewith
(12) Inapplicable
(13) (a) Purchase Agreement between Registrant and Schwab relating to
the Schwab U.S. Treasury Money Fund is incorporated by
reference to Exhibit (13)(a) to Post-Effective Amendment No.
5 to Registrant's Registration Statement on Form N-1A, filed
on December 10, 1992
(b) Purchase Agreement between Registrant and Schwab relating to
the Schwab Value Advantage Money Fund is incorporated by
reference to Exhibit (13)(b) to Post-Effective Amendment No.
6 to Registrant's Registration Statement on Form N-1A, filed
on March 3, 1992
(c) Purchase Agreement between Registrant and Schwab relating to
the Schwab Retirement Money Fund(R) and the Schwab
Institutional Advantage Money Fund(R) is incorporated by
reference to Exhibit (13)(c) to Post-Effective Amendment No.
11 to Registrant's Registration Statement on Form N-1A,
filed on December 1, 1993
(d) Purchase Agreement between Registrant and Schwab relating to
the Schwab New York Tax-Exempt Money Fund is incorporated by
reference to Exhibit (13)(d) to Post-Effective Amendment No.
16 to Registrant's Registration Statement on Form N-1A,
filed on February 28, 1995
(e) Purchase Agreement between Registrant and Schwab relating to
the Schwab Tax-Exempt Money Fund-Value Advantage Shares is
incorporated by reference to Exhibit (13)(e) to
Post-Effective Amendment No. 19 to Registrant's Registration
Statement on Form N-1A, filed on June 6, 1995
(f) Purchase Agreement between Registrant and Schwab relating to
the Schwab California Tax-Exempt Money Fund-Value Advantage
Shares is incorporated by reference to Exhibit (13)(f) to
Post-Effective Amendment No. 19 to Registrant's Registration
Statement on Form N-1A, filed on June 6, 1995
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(g) Purchase Agreement between Registrant and Schwab relating to
the Schwab New York Tax-Exempt Money Fund-Value Advantage
Shares is incorporated by reference to Exhibit (13)(g) to
Post-Effective Amendment No. 19 to Registrant's Registration
Statement on Form N-1A, filed on June 6, 1995
(14) (a) Model Charles Schwab & Co., Inc. Individual Retirement Plan
is incorporated by reference to Exhibit (14)(a) to
Post-Effective Amendment No. 14 to Registrant's Registration
Statement on Form N-1A, filed on August 25, 1995
(b) Model Charles Schwab & Co., Inc. KEOGH Plan is incorporated
by reference to Exhibit (14)(b) to Post-Effective Amendment
No. 14 to Registrant's Registration Statement on Form N-1A,
filed on August 25, 1995
(15) Inapplicable
(16) (a) Performance Calculations for Schwab Money Market Fund,
Schwab Government Money Fund, Schwab Tax-Exempt Money Fund,
Schwab California Tax-Exempt Money Fund and Schwab U.S.
Treasury Money Fund are incorporated by reference to Exhibit
(16) to Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A, filed on March 3, 1992
(b) Performance Calculations for Schwab Value Advantage Money
Fund are incorporated by reference to Exhibit (16) to
Post-Effective Amendment No. 7 to Registrant's Registration
Statement on Form N-1A, filed on August 7, 1992
(c) Performance Calculations for Schwab Institutional Advantage
Money Fund(R) and Schwab Retirement Money Fund(R) are
incorporated by reference to Exhibit (16) to Post-Effective
Amendment No. 17 to Registrant's Registration Statement on
Form N-1A, filed on April 6, 1995
(d) Performance Calculations for Schwab New York Tax-Exempt
Money Fund-Sweep Shares are incorporated by reference to
Exhibit (16)(d) to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A, filed on
August 25, 1995
(17) (a) Financial Data Schedule for Schwab Money Market Fund is
filed herewith
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(b) Financial Data Schedule for Schwab Government Money Fund is
filed herewith
(c) Financial Data Schedule for Schwab Tax-Exempt Money
Fund-Sweep Shares is filed herewith
(d) Financial Data Schedule for Schwab Tax-Exempt Money
Fund-Value Advantage Shares is filed herewith
(e) Financial Data Schedule for Schwab California Tax-Exempt
Money Fund-Sweep Shares is filed herewith
(f) Financial Data Schedule for Schwab California Tax-Exempt
Money Fund-Value Advantage Shares is filed herewith
(g) Financial Data Schedule for Schwab U.S. Treasury Money Fund
is filed herewith
(h) Financial Data Schedule for Schwab Value Advantage Money
Fund is filed herewith
(i) Financial Data Schedule for Schwab Institutional Advantage
Money Fund(R) is filed herewith
(j) Financial Data Schedule for Schwab Retirement Money Fund(R)
is filed herewith
(k) Financial Data Schedule for Schwab New York Tax-Exempt Money
Fund-Sweep Shares is filed herewith
(l) Financial Data Schedule for Schwab New York Tax-Exempt Money
Fund-Value Advantage Shares is filed herewith
(18) Multiple Class Plan of Registrant is incorporated by
reference to Exhibit (18) to Post-Effective Amendment No. 19
to Registrant's Registration Statement on Form N-1A, filed
on June 6, 1995
Item 25. Persons Controlled by or under Common Control with Registrant.
Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios
each are Massachusetts business trusts registered under the Investment Company
Act of 1940, as amended (the "1940 Act"); are advised by the Investment Manager;
and employ Schwab as their principal underwriter, transfer agent and shareholder
services agent. As a result, Schwab Investments, Schwab Capital Trust and Schwab
Annuity Portfolios may be deemed to be under common control with Registrant.
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Item 26. Number of Holders of Securities.
As of March 31, 1996, the number of record holders of shares of
beneficial interest for the series of Registrant was:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
- -------------- ------------------------
<S> <C>
Schwab Money Market Fund 1 (for the benefit of 1,493,583 accounts)
Schwab Government Money Fund 1 (for the benefit of 130,557 accounts)
Schwab U.S. Treasury Money Fund 1 (for the benefit of 52,874 accounts)
Schwab Tax-Exempt Money Fund-Sweep Shares 1 (for the benefit of 126,943 accounts)
Schwab Tax-Exempt Money Fund-Value Advantage Shares 1 (for the benefit of 1,324 accounts)
Schwab California Tax-Exempt Money Fund-Sweep Shares 1 (for the benefit of 46,256 accounts)
Schwab California Tax-Exempt Money Fund-Value Advantage Shares 1 (for the benefit of 785 accounts)
Schwab Value Advantage Money Fund 1 (for the benefit of 74,789 accounts)
Schwab Retirement Money Fund(R) 1 (for the benefit of 608 accounts)
Schwab Institutional Advantage Money Fund(R) 1 (for the benefit of 198 accounts)
Schwab New York Tax-Exempt Money Fund-Sweep Shares 1 (for the benefit of 7,832 accounts)
Schwab New York Tax-Exempt Money Fund-Value Advantage Shares 1 (for the benefit of 135 accounts)
</TABLE>
Item 27. Indemnification.
Article VIII of Registrant's Amended and Restated Agreement and
Declaration of Trust (Exhibit (1) hereto, which is incorporated herein by
reference) provides in effect that Registrant will indemnify its officers and
trustees against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise, or as fines and
penalties, and counsel fees reasonably incurred by any such officer or trustee
in connection with the defense or disposition of any action, suit, or other
proceeding. However, in accordance with Section 17(h) and 17(i) of the 1940 Act
and its own terms, said Agreement and Declaration of Trust does not protect any
person against any liability to Registrant or its shareholders to which he or
she would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office. In any event, Registrant will comply with 1940 Act Releases
Nos. 7221 and 11330 respecting the permissible boundaries of indemnification by
an investment company of its officers and trustees.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to trustees, officers
and controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, Registrant has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore,
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unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a trustee, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
Item 28. Business and Other Connections of Investment Manager.
(a) Information pertaining to business and other connections of
Registrant's Investment Manager is hereby incorporated by reference to the
section of the Prospectuses for Schwab Money Market Fund, Schwab Government
Money Fund, Schwab U.S. Treasury Money Fund, Schwab Tax-Exempt Money Fund-Sweep
Shares, Schwab California Tax-Exempt Money Fund-Sweep Shares, Schwab New York
Tax-Exempt Money Fund-Sweep Shares, Schwab Institutional Advantage Money Fund(R)
and Schwab Retirement Money Fund(R) captioned "Management of the Fund(s);" the
section of the Prospectuses for Schwab Value Advantage Money Fund, Schwab
Tax-Exempt Money Fund-Value Advantage Shares, Schwab California Tax-Exempt Money
Fund-Value Advantage Shares and Schwab New York Tax-Exempt Money Fund-Value
Advantage Shares captioned "Organization and Management of the Fund(s);" and the
section of the Statements of Additional Information captioned "Management of the
Trust."
Registrant's Investment Manager, Charles Schwab Investment Management,
Inc., a Delaware corporation, organized in October 1989 to serve as Investment
Manager to Registrant, also serves as the Investment Manager to Schwab
Investments, Schwab Capital Trust and Schwab Annuity Portfolios, each an
open-end, management investment company. The principal place of business of
the Investment Manager is 101 Montgomery Street, San Francisco, California
94104. The only business in which the Investment Manager engages is that of
investment manager and administrator to Registrant, Schwab Investments,
Schwab Capital Trust, Schwab Annuity Portfolios and any other investment
companies that Schwab may sponsor in the future.
(b) The business, profession, vocation or employment of a substantial
nature in which each director and/or executive officer of Schwab and/or the
Investment Manager is or has been engaged during the past two fiscal years for
his or her own account in the capacity of director, officer, employee, partner
or trustee is as follows:
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<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Charles R. Schwab, Charles Schwab & Co., Inc. Chairman and Director
Chairman and Trustee
The Charles Schwab Corporation Chairman, Chief Executive Officer
and Director
Charles Schwab Investment Management, Chairman and Director
Inc.
The Charles Schwab Trust Chairman and Director
Company
Mayer & Schweitzer, Inc. Chairman and Director
The Gap, Inc. Director
Transamerica Corporation Director
AirTouch Communications Director
Siebel Systems Director
Lawrence J. Stupski Charles Schwab & Co., Inc. Director until February 1995; Vice
Chairman until August 1994
The Charles Schwab Corporation Vice Chairman and Director; Chief
Operating Officer until March 1994
Mayer & Schweitzer, Inc. Director until February 1995
The Charles Schwab Trust Director
Company
David S. Pottruck Charles Schwab & Co., Inc. President, Chief Executive Officer
and Director
The Charles Schwab Corporation President, Chief Operating Officer
and Director
Charles Schwab Investment Director
Management, Inc.
Mayer & Schweitzer, Inc. Chairman, Chief Executive Officer
and Director
</TABLE>
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<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Ronald W. Readmond Charles Schwab & Co., Inc. Vice Chairman and Director until
January 1996; Senior Executive Vice
President and Chief Operating
Officer until January 1995
The Charles Schwab Corporation Executive Vice President until
January 1996; Senior Executive Vice
President until January 1995
Mayer & Schweitzer, Inc. Director until January 1996
John P. Coghlan Charles Schwab & Co., Inc. Executive Vice President - Schwab
Institutional
The Charles Schwab Corporation Executive Vice President - Schwab
Institutional
The Charles Schwab Trust Company Director and Executive Vice President
A. John Gambs, Charles Schwab & Co., Inc. Executive Vice President, Chief
Treasurer and Principal Financial Financial Officer and Director
Officer
The Charles Schwab Corporation Executive Vice President and Chief
Financial Officer
Charles Schwab Investment Management, Chief Financial Officer and Director
Inc.
The Charles Schwab Trust Chief Financial Officer
Company
Mayer & Schweitzer, Inc. Director
Dawn G. Lepore Charles Schwab & Co., Inc. Executive Vice President and Chief
Information Officer
The Charles Schwab Corporation Executive Vice President and Chief
Information Officer
Daniel O. Leemon The Charles Schwab Corporation Executive Vice President - Business
Strategy
Charles Schwab & Co., Inc. Executive Vice President - Business
Strategy
</TABLE>
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<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
Timothy F. McCarthy, Charles Schwab Investment Management, Chief Executive Officer
Trustee and President Inc.
Charles Schwab & Co., Inc. Executive Vice President - Mutual
Funds
The Charles Schwab Corporation Executive Vice President - Mutual
Funds
Jardine Fleming Unit Trusts Ltd. Chief Executive Officer until
October 1995
Fidelity Investment Advisor Group President until 1994
Elizabeth G. Sawi Charles Schwab & Co., Inc. Executive Vice President -
Electronic Brokerage
The Charles Schwab Corporation Executive Vice President -
Electronic Brokerage
Tom D. Seip Charles Schwab & Co., Inc. Executive Vice President - Retail
Brokerage
The Charles Schwab Corporation Executive Vice President - Retail
Brokerage
Charles Schwab Investment Management, President and Chief Operating
Inc. Officer until 1994
John N. Tognino Charles Schwab & Co., Inc. Executive Vice President - Capital
Markets and Trading until February
1996
The Charles Schwab Corporation Executive Vice President - Capital
Markets and Trading until February
1996
Mayer & Schweitzer, Inc. Director and Vice Chairman until
February 1996
Luis E. Valencia Charles Schwab & Co., Inc. Executive Vice President - Human
Resources and Corporate Support
The Charles Schwab Corporation Executive Vice President and Chief
Administrative Officer
</TABLE>
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<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Commercial Credit Corporation Managing Director until February 1994
Christopher V. Dodds Charles Schwab & Co., Inc. Treasurer and Senior Vice President
The Charles Schwab Corporation Treasurer and Senior Vice President
Mayer & Schweitzer, Inc. Treasurer
William J. Klipp, Charles Schwab & Co., Inc. Senior Vice President - SchwabFunds
Trustee, Senior Vice President
and Chief Operating Officer
Charles Schwab Investment Management, President and Chief Operating Officer
Inc.
Stephen B. Ward, Charles Schwab Investment Management, Senior Vice President and Chief
Senior Vice President and Chief Inc. Investment Officer
Investment Officer
Frances Cole, Charles Schwab Investment Management, Vice President, Chief Counsel, Chief
Secretary Inc. Compliance Officer and Assistant
Corporate Secretary
Cynthia K. Holbrook The Charles Schwab Corporation Assistant Corporate Secretary
Charles Schwab & Co., Inc. Assistant Corporate Secretary
Charles Schwab Investment Management, Corporate Secretary
Inc.
The Charles Schwab Trust Assistant Corporate Secretary
Company
David J. Neuman The Charles Schwab Trust Corporate Secretary
Company
Mary B. Templeton Charles Schwab Investment Management, Assistant Corporate Secretary
Inc.
The Charles Schwab Corporation Senior Vice President, General
Counsel and Corporate Secretary
Charles Schwab & Co., Inc. Senior Vice President, General
Counsel and Corporate Secretary
</TABLE>
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<PAGE> 293
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Mayer & Schweitzer Assistant Corporate Secretary
The Charles Schwab Trust Assistant Corporate Secretary until
Company February 1996
David H. Lui Charles Schwab Investment Management, Vice President and Senior Counsel
Assistant Secretary Inc.
Christina M. Perrino Charles Schwab Investment Management, Vice President and Senior Counsel
Assistant Secretary Inc.
</TABLE>
Item 29. Principal Underwriters.
(a) Schwab acts as principal underwriter and distributor of
Registrant's shares. Schwab currently also acts as principal underwriter for
Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, and intends
to act as such for any other investment company which Schwab may sponsor in the
future.
(b) See Item 28(b) for information on the officers and directors of
Schwab. The principal business address of Schwab is 101 Montgomery Street, San
Francisco, California 94104.
(c) Not applicable.
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained
pursuant to Section 31(a) of the 1940 Act and the Rules thereunder are
maintained at the offices of: Registrant (transfer agency and shareholder
records); Registrant's investment manager and administrator, Charles Schwab
Investment Management, Inc., 101 Montgomery Street, San Francisco, California
94104; Registrant's principal underwriter, Charles Schwab & Co., Inc., 101
Montgomery Street, San Francisco, California 94104; Registrant's Custodian,
PNC Bank, National Association, Broad and Market Streets, Philadelphia,
Pennsylvania 19104 (ledgers, receipts and brokerage orders); Registrant's fund
accountants, PFPC, Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809; or
Ropes & Gray, counsel to Registrant, 1301 K Street, N.W., Suite 800 East,
Washington, D.C. 20005 (minute books, bylaws and declaration of trust).
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Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Registrant undertakes to call a meeting of Shareholders, at the
request of at least 10% of registrant's outstanding shares, for the purpose of
voting upon the question of removal of a trustee or trustees and to assist in
communications with other Shareholders as required by Section (16) of the 1940
Act.
(b) Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of Registrant's latest Annual Report to
Shareholders upon request and without charge.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
(the "1933 Act"), and the Investment Company Act of 1940, as amended, Registrant
certifies that it meets all the requirements for effectiveness of this
Post-Effective Amendment No. 24 to the Registrant's Registration Statement on
Form N-1A pursuant to Rule 485(b) of the 1933 Act and has duly caused this
Post-Effective Amendment No. 24 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Francisco, State of California, on
the 26th day of April, 1996.
THE CHARLES SCHWAB FAMILY OF FUNDS
Registrant
Charles R. Schwab*
----------------------------
Charles R. Schwab, Chairman
Pursuant to the requirements of the 1933 Act, this Post-Effective
Amendment No. 24 to Registrant's Registration Statement on Form N-1A has been
signed below by the following persons in the capacities indicated this 26th day
of April, 1996.
<TABLE>
Signature Title
- --------- -----
<S> <C>
Charles R. Schwab* Chairman and Trustee
- ------------------------
Charles R. Schwab
Timothy F. McCarthy* President and Trustee
- ------------------------
Timothy F. McCarthy
William J. Klipp* Senior Vice President, Chief
- ------------------------ Operating Officer and Trustee
William J. Klipp
Donald F. Dorward* Trustee
- ------------------------
Donald F. Dorward
Robert G. Holmes* Trustee
- ------------------------
Robert G. Holmes
Donald R. Stephens* Trustee
- ------------------------
Donald R. Stephens
Michael W. Wilsey* Trustee
- ------------------------
Michael W. Wilsey
A. John Gambs* Treasurer and Principal Financial Officer
- ------------------------
A. John Gambs
*By: /s/ Alan G. Priest
-----------------------------------------
Alan G. Priest, Attorney-in-Fact pursuant
to Powers of Attorney previously filed
</TABLE>
<PAGE> 296
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO
- ----------
<S> <C>
5. (d) Amended Schedule to the Investment Advisory Agreement
8. (e) Amended Schedule to the Transfer Agency Agreement
8. (h) Amended Schedule to the Shareholder Services Agreement
11. (a) Consent of Ropes & Gray
11. (b) Consent of Price Waterhouse LLP
17. (a) Financial Data Schedule for Schwab Money Market Fund
17. (b) Financial Data Schedule for Schwab Government Money Fund
17. (c) Financial Data Schedule for Schwab Tax-Exempt Money Fund-Sweep
Shares
17. (d) Financial Data Schedule for Schwab Tax-Exempt Money Fund-Value
Advantage Shares
17. (e) Financial Data Schedule for Schwab California Tax-Exempt Money
Fund-Sweep Shares
17. (f) Financial Data Schedule for Schwab California Tax-Exempt Money
Fund-Value Advantage Shares
17. (g) Financial Data Schedule for Schwab U.S. Treasury Money Fund
17. (h) Financial Data Schedule for Schwab Value Advantage Money Fund
17. (i) Financial Data Schedule for Schwab Institutional Advantage Money
Fund(R)
17. (j) Financial Data Schedule for Schwab Retirement Money Fund(R)
17. (k) Financial Data Schedule for Schwab New York Tax-Exempt
</TABLE>
<PAGE> 297
<TABLE>
<S> <C>
Money Fund-Sweep Shares
17. (l) Financial Data Schedule for Schwab New York Tax-Exempt Money
Fund-Value Advantage Shares
</TABLE>
<PAGE> 1
Exhibit 5 (d)
AMENDED SCHEDULE D - ADVISORY FEE SCHEDULE
THE FEES LISTED BELOW ARE FOR SERVICES PROVIDED UNDER THIS
AGREEMENT AND ARE TO BE ACCRUED DAILY AND PAID MONTHLY IN ARREARS:
FUND DATE
SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND NOVEMBER 5, 1990
Forty-six one-hundredths of one percent (.46%) of the
Schwab California Tax-Exempt Money Fund's average daily
net assets not in excess of $1 billion; forty-one
one-hundredths of one percent (.41%) of such net assets
over $1 billion but not in excess of $2 billion; and
forty one-hundredths of one percent (.40%) of such net
assets over $2 billion.
SCHWAB U.S. TREASURY MONEY FUND NOVEMBER 5, 1991
Forty-six one-hundredths of one percent (.46%) of the
Schwab U.S. Treasury Money Fund's average daily net
assets not in excess of $1 billion; forty-one
one-hundredths of one percent (.41%) of such net assets
over $1 billion but not in excess of $2 billion; and
forty one-hundredths of one percent (.40%) of such net
assets over $2 billion.
SCHWAB VALUE ADVANTAGE MONEY FUND FEBRUARY 7, 1992
Forty-six one-hundredths of one percent (.46%) of the
Schwab Value Advantage Money Fund's average daily net
assets not in excess of $2 billion; forty-five
one-hundredths of one percent (.45%) of such net assets
over $2 billion but not in excess of $3 billion; and
forty one-hundredths of one percent (.40%) of such net
assets over $3 billion.
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND NOVEMBER 26, 1993
Forty-six one-hundredths of one percent (.46%) of the
Schwab Institutional Advantage Money Fund's average
daily net assets not in excess of $2 billion;
forty-five one-hundredths of one percent (.45%) of such
net assets over $2 billion but not in excess of $3
billion; and forty one-hundredths of one percent (.40%)
of such net assets over $3 billion.
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<PAGE> 2
FUND DATE
SCHWAB RETIREMENT MONEY FUND NOVEMBER 26, 1993
Forty-six one-hundredths of one percent (.46%) of the
Schwab Retirement Money Fund's average daily net assets
not in excess of $2 billion; forty-five one-hundredths
of one percent (.45%) of such net assets over $2
billion but not in excess of $3 billion; and forty
one-hundredths of one percent (.40%) of such net assets
over $3 billion.
SCHWAB NEW YORK TAX-EXEMPT MONEY FUND NOVEMBER 10, 1994
Forty-six one-hundredths of one percent (.46%) of the
Schwab New York Tax-Exempt Money Fund's average daily
net assets not in excess of $1 billion; forty-one
one-hundredths of one percent (.41%) of such net assets
over $1 billion but not in excess of $2 billion; and
forty one-hundredths of one percent (.40%) of such net
assets over $2 billion.
THE CHARLES SCHWAB FAMILY OF FUNDS
By: /s/ Timothy F. McCarthy
-------------------------------------
Name: Timothy F. McCarthy
Title: President and Trustee
CHARLES SCHWAB INVESTMENT
MANAGEMENT, INC.
By: /s/ William J. Klipp
-------------------------------------
Name: William J. Klipp
Title: President and Chief Operating Officer
-13-
<PAGE> 1
EXHIBIT 8(e)
AMENDED SCHEDULE C
FEES
THE FEES LISTED BELOW ARE FOR SERVICES PROVIDED UNDER THIS
AGREEMENT AND ARE TO BE ACCRUED DAILY AND PAID MONTHLY IN
ARREARS:
Name of Fund Fee
Schwab Money Market Fund An annual fee, payable monthly, of
twenty-five one-hundredths of one
percent (.25%) of the Fund's average
daily net assets
Schwab Government Money Fund An annual fee, payable monthly, of
twenty-five one-hundredths of one
percent (.25%) of the Fund's average
daily net assets
Schwab Tax-Exempt Money Fund An annual fee, payable monthly, of
-- Sweep Class twenty- five one-hundredths of one
percent (.25%) of the Fund's average
daily net assets
Schwab Tax-Exempt Money Fund An annual fee, payable monthly, of five
-- Value Advantage Class one-hundredths of one percent (.05%) of
the Fund's average daily net assets
Schwab California Tax-Exempt Money An annual fee, payable monthly, of
Fund -- Sweep Class twenty-five one-hundredths of one
percent (.25%) of the Fund's average
daily net assets
Schwab California Tax-Exempt Money An annual fee, payable monthly, of five
Value Advantage Fund Fund -- one-hundredths of one percent
(.05%) of the Fund's average daily net
assets
Schwab U.S. Treasury Money Fund An annual fee, payable monthly, of
twenty-five one-hundredths of one
percent (.25%) of the Fund's average
daily net assets
Schwab New York Tax-Exempt Money An annual fee, payable monthly, of
Fund -- Sweep Class twenty-five one-hundredths of one
percent (.25%) of the Fund's average
daily net assets
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Name of Fund Fee
Schwab New York Tax-Exempt Money An annual fee, payable monthly, of five
Fund -- Value Advantage Class one-hundredths of one percent (.05%) of
the Fund's average daily net assets
Schwab Value Advantage Money Fund An annual fee, payable monthly, of five
one-hundredths of one percent (.05%) of
the Fund's average daily net assets
Schwab Institutional Advantage Money An annual fee, payable monthly, of five
Fund one-hundredths of one percent (.05%) of
the Fund's average daily net assets
Schwab Retirement Money Fund An annual fee, payable monthly, of five
one-hundredths of one percent (.05%) of
the Fund's average daily net assets
THE CHARLES SCHWAB FAMILY OF FUNDS
By: /s/ William J. Klipp
--------------------------------------
Name: William J. Klipp
Title: Senior Vice President, Chief Operating
Officer and Trustee
CHARLES SCHWAB & CO., INC.
By: /s/ Colleen M. Hummer
--------------------------------------
Name: Colleen M. Hummer
Title: Senior Vice President
Dated: April 26, 1996
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Exhibit 8 (h)
AMENDED SCHEDULE C
THE FEES LISTED BELOW ARE FOR SERVICES
PROVIDED UNDER THIS AGREEMENT AND ARE TO
BE ACCRUED DAILY AND PAID MONTHLY IN
ARREARS:
FUND FEE
A. Sweep Funds:
Schwab Money Market Fund An annual fee, payable monthly, of
twenty one-hundredths of one percent
(.20%) of the Fund's average daily
net assets
Schwab Government Money Fund An annual fee, payable monthly, of
twenty one-hundredths of one percent
(.20%) of the Fund's average daily
net assets
Schwab Tax-Exempt Money Fund An annual fee, payable monthly, of
twenty one-hundredths of one percent
(.20%) of the Fund's average daily
net assets
Schwab California Tax-Exempt An annual fee, payable monthly, of
Money Fund twenty one-hundredths of one percent
(.20%) of the Fund's average daily
net assets
Schwab U.S. Treasury An annual fee, payable monthly, of
Money Fund twenty one-hundredths of one percent
(.20%) of the Fund's average daily
net assets
Schwab New York Tax-Exempt An annual fee, payable monthly, of
Money Fund twenty one-hundredths of one percent
(.20%) of the Fund's average daily
net assets
B. Other Funds:
Schwab Value Advantage An annual fee, payable monthly, of
Money Fund twenty one-hundredths of one percent
(.20%) of the Fund's average daily
net assets
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FUND FEE
Schwab Institutional Advantage An annual fee, payable monthly, of
Money Fund twenty one-hundredths of one percent
(.20%) of the Fund's average daily
net assets
Schwab Retirement Money Fund An annual fee, payable monthly, of
twenty one-hundredths of one percent
(.20%) of the Fund's average daily
net assets
THE CHARLES SCHWAB FAMILY OF FUNDS
By: /s/ William J. Klipp
-----------------------------
Name: William J. Klipp
Title: Senior Vice President, Chief
Operating Officer and Trustee
CHARLES SCHWAB & CO., INC.
By: /s/ Colleen M. Hummer
-----------------------------
Name: Colleen M. Hummer
Title: Senior Vice President
Dated: April 26, 1996
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<PAGE> 1
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
firm under the caption "Legal Counsel" included in or made a part of
Post-Effective Amendment No. 24 to the Registration Statement of The Charles
Schwab Family of Funds on Form N-1A (Nos. 33-31894 and 811-05954) under the
Securities Act of 1933, as amended.
/s/ ROPES & GRAY
----------------
ROPES & GRAY
Washington, D.C.
April 23, 1996
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information for the
Schwab Money Market Fund, Schwab Government Money Fund, Schwab U.S. Treasury
Money Fund, Schwab Tax-Exempt Money Fund, Schwab California Tax-Exempt Money
Fund, Schwab Retirement Money Fund, Schwab Institutional Advantage Money Fund,
and Schwab New York Tax-Exempt Money Fund (hereinafter referred to as the
"Funds"), constituting part of this Post-Effective Amendment No. 24 to the
registration statement on Form N-1A of The Charles Schwab Family of Funds (the
"Registration Statement") of our reports dated January 31, 1996, relating to the
financial statements and financial highlights of the Funds, which appear in such
Statement of Additional Information, and to the incorporation by reference of
our reports into the Prospectuses which constitute part of this Registration
Statement. We also consent to the references to us under the heading
"Accountants and Reports to Shareholders" in such Statement of Additional
Information and to the references to us under the headings "Financial
Highlights" and "Accountants" in such Prospectuses.
We further consent to the use in the Prospectus and Statement of Additional
Information of Schwab Value Advantage Money Fund, which are incorporated by
reference into the Registration Statement, of our report dated January 31,
1996, relating to the financial statements and financial highlights appearing
in the December 31, 1995 Annual Report of Schwab Value Advantage Money Fund. We
also consent to the references to us under the heading "Accountants and Reports
to Shareholders" in such Statement of Additional Information and to the
references to us under the headings "Financial Highlights" and "Accountants" in
such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
San Francisco, California
April 23, 1996
<PAGE> 1
[ARTICLE] 6
[SERIES]
[NUMBER] 1
[NAME] SCHWAB MONEY MARKET FUND
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 14040471
[INVESTMENTS-AT-VALUE] 14040471
[RECEIVABLES] 67867
[ASSETS-OTHER] 2426
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 14110764
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 100377
[TOTAL-LIABILITIES] 100377
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 14010737
[SHARES-COMMON-STOCK] 14070737
[SHARES-COMMON-PRIOR] 11227659
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (350)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 14010387
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 760926
[OTHER-INCOME] 0
[EXPENSES-NET] 94788
[NET-INVESTMENT-INCOME] 666138
[REALIZED-GAINS-CURRENT] 4
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 666142
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 666138
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 35277474
[NUMBER-OF-SHARES-REDEEMED] 33124743
[SHARES-REINVESTED] 630347
[NET-CHANGE-IN-ASSETS] 2783082
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (354)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 52254
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 113420
[AVERAGE-NET-ASSETS] 12638433
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .05
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] .05
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[SERIES]
[NUMBER] 2
[NAME] SCHWAB GOVERNMENT MONEY FUND
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 1879758
[INVESTMENTS-AT-VALUE] 1879758
[RECEIVABLES] 18397
[ASSETS-OTHER] 104
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1898259
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 13690
[TOTAL-LIABILITIES] 13690
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1884838
[SHARES-COMMON-STOCK] 1884838
[SHARES-COMMON-PRIOR] 1897435
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (269)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 1884569
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 113106
[OTHER-INCOME] 0
[EXPENSES-NET] 14233
[NET-INVESTMENT-INCOME] 98873
[REALIZED-GAINS-CURRENT] (162)
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 98711
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 98873
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 4120476
[NUMBER-OF-SHARES-REDEEMED] 4229013
[SHARES-REINVESTED] 95940
[NET-CHANGE-IN-ASSETS] (12759)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (107)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 8280
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 17501
[AVERAGE-NET-ASSETS] 1897685
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .05
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] .05
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[SERIES]
[NUMBER] 3
[NAME] SCHWAB TAX-EXEMPT MONEY FUND - SWEEP SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 3586104
[INVESTMENTS-AT-VALUE] 3586104
[RECEIVABLES] 33431
[ASSETS-OTHER] 717
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 3620252
[PAYABLE-FOR-SECURITIES] 37735
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 17998
[TOTAL-LIABILITIES] 55733
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 3405684
[SHARES-COMMON-STOCK] 3405684
[SHARES-COMMON-PRIOR] 3017778
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (1847)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 3403837
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 125455
[OTHER-INCOME] 0
[EXPENSES-NET] 21167
[NET-INVESTMENT-INCOME] 104288
[REALIZED-GAINS-CURRENT] (20)
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 104268
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 104288
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 9911852
[NUMBER-OF-SHARES-REDEEMED] 9623759
[SHARES-REINVESTED] 99813
[NET-CHANGE-IN-ASSETS] 387886
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (1827)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 13504
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 29309
[AVERAGE-NET-ASSETS] 3207145
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .03
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] .03
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .66
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[SERIES]
[NUMBER] 4
[NAME] SCHWAB TAX-EXEMPT MONEY FUND - VALUE ADVANTAGE SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 3586104
[INVESTMENTS-AT-VALUE] 3586104
[RECEIVABLES] 33431
[ASSETS-OTHER] 717
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 3620252
[PAYABLE-FOR-SECURITIES] 37735
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 17998
[TOTAL-LIABILITIES] 55733
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 160683
[SHARES-COMMON-STOCK] 160683
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (1)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 160682
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 1635
[OTHER-INCOME] 0
[EXPENSES-NET] 186
[NET-INVESTMENT-INCOME] 1449
[REALIZED-GAINS-CURRENT] (1)
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 1448
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 1449
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 236471
[NUMBER-OF-SHARES-REDEEMED] 76542
[SHARES-REINVESTED] 754
[NET-CHANGE-IN-ASSETS] 160682
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 190
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 419
[AVERAGE-NET-ASSETS] 84933
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .02
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] .02
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .45
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[SERIES]
[NUMBER] 5
[NAME] SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - SWEEP SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 1674011
[INVESTMENTS-AT-VALUE] 1674011
[RECEIVABLES] 19731
[ASSETS-OTHER] 200
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1693942
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8239
[TOTAL-LIABILITIES] 8239
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1578359
[SHARES-COMMON-STOCK] 1578359
[SHARES-COMMON-PRIOR] 1294555
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (664)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 1577695
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 54646
[OTHER-INCOME] 0
[EXPENSES-NET] 9344
[NET-INVESTMENT-INCOME] 45302
[REALIZED-GAINS-CURRENT] 8
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 45310
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 45302
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 4257465
[NUMBER-OF-SHARES-REDEEMED] 4016813
[SHARES-REINVESTED] 43152
[NET-CHANGE-IN-ASSETS] 283812
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (672)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 6388
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 13561
[AVERAGE-NET-ASSETS] 1437526
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .03
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] .03
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .65
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[SERIES]
[NUMBER] 6
[NAME] SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - VALUE ADVANTAGE
SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 1674011
[INVESTMENTS-AT-VALUE] 1674011
[RECEIVABLES] 19731
[ASSETS-OTHER] 200
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1693942
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8239
[TOTAL-LIABILITIES] 8239
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 108008
[SHARES-COMMON-STOCK] 108008
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 108008
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 488
[OTHER-INCOME] 0
[EXPENSES-NET] 56
[NET-INVESTMENT-INCOME] 432
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 432
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 432
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 125848
[NUMBER-OF-SHARES-REDEEMED] 17914
[SHARES-REINVESTED] 74
[NET-CHANGE-IN-ASSETS] 108008
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 57
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 136
[AVERAGE-NET-ASSETS] 50342
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .01
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] .01
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .45
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[SERIES]
[NUMBER] 7
[NAME] SCHWAB U.S. TREASURY MONEY FUND
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 1184456
[INVESTMENTS-AT-VALUE] 1184456
[RECEIVABLES] 17149
[ASSETS-OTHER] 52
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1201657
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 7968
[TOTAL-LIABILITIES] 7968
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1193821
[SHARES-COMMON-STOCK] 1193821
[SHARES-COMMON-PRIOR] 803943
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (132)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 1193689
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 57635
[OTHER-INCOME] 0
[EXPENSES-NET] 6503
[NET-INVESTMENT-INCOME] 51132
[REALIZED-GAINS-CURRENT] (60)
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 51072
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 51132
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2979266
[NUMBER-OF-SHARES-REDEEMED] 2635740
[SHARES-REINVESTED] 46352
[NET-CHANGE-IN-ASSETS] 389818
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (72)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 4575
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 9653
[AVERAGE-NET-ASSETS] 1000438
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .05
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] .05
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .65
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[SERIES]
[NUMBER] 8
[CIK]
[NAME] SCHWAB VALUE ADVANTAGE MONEY FUND
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 6956238
[INVESTMENTS-AT-VALUE] 6956238
[RECEIVABLES] 65417
[ASSETS-OTHER] 800
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 7022455
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 98565
[TOTAL-LIABILITIES] 98565
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 6924021
[SHARES-COMMON-STOCK] 6924021
[SHARES-COMMON-PRIOR] 3731755
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (131)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 6923890
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 333064
[OTHER-INCOME] 0
[EXPENSES-NET] 22099
[NET-INVESTMENT-INCOME] 310965
[REALIZED-GAINS-CURRENT] (5)
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 310960
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 310965
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10404416
[NUMBER-OF-SHARES-REDEEMED] 7474576
[SHARES-REINVESTED] 262426
[NET-CHANGE-IN-ASSETS] 3192261
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (126)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 23799
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 39853
[AVERAGE-NET-ASSETS] 5524637
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .06
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] .06
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .40
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[SERIES]
[NUMBER] 9
[NAME] SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 80518
[INVESTMENTS-AT-VALUE] 80518
[RECEIVABLES] 864
[ASSETS-OTHER] 67
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 81449
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 703
[TOTAL-LIABILITIES] 703
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 80747
[SHARES-COMMON-STOCK] 80747
[SHARES-COMMON-PRIOR] 60088
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (1)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 80746
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 4774
[OTHER-INCOME] 0
[EXPENSES-NET] 420
[NET-INVESTMENT-INCOME] 4354
[REALIZED-GAINS-CURRENT] (1)
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 4353
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 4354
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 281164
[NUMBER-OF-SHARES-REDEEMED] 262289
[SHARES-REINVESTED] 1784
[NET-CHANGE-IN-ASSETS] 18874
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 364
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 710
[AVERAGE-NET-ASSETS] 79107
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .06
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] .06
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .53
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[SERIES]
[NUMBER] 10
[NAME] SCHWAB RETIREMENT MONEY FUND
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 99911
[INVESTMENTS-AT-VALUE] 99911
[RECEIVABLES] 573
[ASSETS-OTHER] 59
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 100543
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1551
[TOTAL-LIABILITIES] 1551
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 98992
[SHARES-COMMON-STOCK] 98992
[SHARES-COMMON-PRIOR] 31415
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 98992
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 4616
[OTHER-INCOME] 0
[EXPENSES-NET] 561
[NET-INVESTMENT-INCOME] 4055
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 4055
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 4055
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 173890
[NUMBER-OF-SHARES-REDEEMED] 109877
[SHARES-REINVESTED] 3564
[NET-CHANGE-IN-ASSETS] 67577
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 354
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 705
[AVERAGE-NET-ASSETS] 76879
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .05
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] .05
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .73
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[SERIES]
[NUMBER] 11
[NAME] SCHWAB NEW YORK TAX-EXEMPT MONEY FUND - SWEEP SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 218648
[INVESTMENTS-AT-VALUE] 218648
[RECEIVABLES] 2486
[ASSETS-OTHER] 65
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 221199
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1193
[TOTAL-LIABILITIES] 1193
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 204869
[SHARES-COMMON-STOCK] 204869
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (6)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 220006
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 6041
[OTHER-INCOME] 0
[EXPENSES-NET] 995
[NET-INVESTMENT-INCOME] 5046
[REALIZED-GAINS-CURRENT] (6)
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 5040
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 5046
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 671692
[NUMBER-OF-SHARES-REDEEMED] 470949
[SHARES-REINVESTED] 4126
[NET-CHANGE-IN-ASSETS] 204863
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 724
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1637
[AVERAGE-NET-ASSETS] 186583
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .03
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] .03
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .63
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[SERIES]
[NUMBER] 12
[NAME] SCHWAB NEW YORK TAX-EXEMPT MONEY FUND - VALUE ADVANTAGE SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 218648
[INVESTMENTS-AT-VALUE] 218648
[RECEIVABLES] 2486
[ASSETS-OTHER] 65
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 221199
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1193
[TOTAL-LIABILITIES] 1193
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 15143
[SHARES-COMMON-STOCK] 15143
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 220006
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 137
[OTHER-INCOME] 0
[EXPENSES-NET] 16
[NET-INVESTMENT-INCOME] 121
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 121
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 121
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 21284
[NUMBER-OF-SHARES-REDEEMED] 6196
[SHARES-REINVESTED] 55
[NET-CHANGE-IN-ASSETS] 15143
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 17
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 64
[AVERAGE-NET-ASSETS] 7262
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .02
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] .02
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .45
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
