<PAGE> 1
As filed with the Securities and Exchange Commission on October 16, 1997
File Nos. 33-31894 and 811-5954
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 29 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 31 [X]
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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):
/ / Immediately upon filing pursuant to paragraph (b)
/ X / On October 20, 1997 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 the following 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, 1996 was filed on February 19, 1997.
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CROSS REFERENCE SHEET
PROSPECTUS
Schwab Government Cash Reserves Fund
<TABLE>
<CAPTION>
PART A ITEM PROSPECTUS CAPTION
<S> <C>
1. Cover Page Cover Page
2. Synopsis Key Features; Expenses;
3. Condensed Financial Information Not applicable
4. General Description of Registrant Organization & Management; Investment Objective,
Policies & Risks
5. Management of the Fund Organization & Management
5A. Management's Discussion of Fund Performance Not applicable
6. Capital Stock and Other Securities Organization & Management; Investing in Shares
7. Purchase of Securities Being Offered Investing in Shares
8. Redemption or Repurchase Investing in Shares
9. Pending Legal Proceedings Not applicable
</TABLE>
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TABLE OF CONTENTS
PAGE
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Key Features.................... 2
Expenses........................ 3
Performance..................... 4
Organization & Management...... 5
Investment Objective, Policies &
Risks......................... 6
Investing in Shares............. 8
The Prospectus provides concise information that you should know before
investing. Retain it for future reference.
The Statement of Additional Information (SAI), dated October 20, 1997, contains
additional information and is incorporated by reference into the Prospectus. The
SAI has been filed with the Securities and Exchange Commission (SEC). The SEC
maintains a World Wide Web site (http://www.sec.gov) that contains the SAI,
material incorporated by reference and other information. The SAI is available
without charge by calling 800-435-4000 (800-345-2550 for TDD users) or writing
to 101 Montgomery Street, San Francisco, California 94104.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SCHWAB GOVERNMENT
CASH RESERVES
PROSPECTUS
OCTOBER 20, 1997
SCHWAB GOVERNMENT CASH RESERVES (the Fund) is a money market fund which seeks to
provide current income consistent with liquidity and stability of capital by
investing in U. S. Government securities.
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 PER SHARE (NAV) OF $1.00.
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KEY FEATURES
MATCHING THE FUND TO YOUR INVESTMENT NEEDS: The Fund seeks income while
preserving the value of your investment, and, therefore, may be appropriate for
a variety of investment programs, which can be long-term or short-term in
nature. However, investment in the Fund is not a substitute for building an
investment portfolio tailored to your specific investment needs and risk
tolerance.
SWEEP FEATURE: The Fund provides automatic investment ("sweep") of the cash
balance in your SchwabOne Plus Account. Also, shares of the Fund will be
automatically redeemed to cover any negative cash balance in your SchwabOne Plus
Account. The Fund is suitable for investors who wish to have the cash balance in
their SchwabOne Plus Account invested automatically and in a money market fund
that provides safety by investing in U. S. Government securities.
GOAL: The Fund seeks to provide current income, while maintaining a stable share
price of $1.00. There is no guarantee that the Fund will achieve its goal.
STRATEGY: The Fund invests in U. S. Government securities. U.S. Government
securities, while considered among the safest securities, are subject to risks
associated with interest rate changes, which may affect yield.
MANAGEMENT: Charles Schwab Investment Management, Inc. (the Investment Manager)
currently provides investment management services to the SchwabFunds(R), a
family of 30 mutual funds with over $53 billion in assets as of September 30,
1997.
SHAREHOLDER SERVICE: Charles Schwab & Co., Inc. (Schwab) provides professional
representatives 24 hours a day at 800-435-4000 to service your accounts. Schwab
was established in 1971 and is one of America's largest brokerage firms. Schwab
helps over 4.4 million customers make investment decisions by offering them low
cost brokerage services and providing them with financial products and
information. Visit one of Schwab's 256 branch offices or Schwab's World Wide Web
site (http://www.schwab.com) for information on investment products and
services. Read the "Investing in Shares" section of the prospectus for
information on "How to Buy Shares" and "How to Sell Shares" shares of the Fund.
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EXPENSES
ANNUAL OPERATING EXPENSES are paid by the Fund. These expenses include
management fees paid to the Investment Manager, and other fees for services such
as maintaining shareholder records and furnishing shareholder statements and
financial reports. These expenses are factored into the price of the Fund's
shares and into the dividends paid to shareholders. As a shareholder, you are
not charged any of these fees directly.
The following figures are based on estimated expenses and are stated as a
percentage of average daily net assets of the Fund.
Management fee (after reduction) 0.07%
12b-1 fee NONE
Other expenses (after reduction) 0.88%
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TOTAL OPERATING EXPENSES
(AFTER REDUCTION) 0.95%
EXAMPLE. If the Fund were to provide an annual return of 5%, you would pay the
following expenses on a $1,000 investment, whether you redeemed your shares at
the end of each period or left your shares invested.
1YEAR 3 YEARS
----- -------
$ 10 $ 30
THE EXPENSE TABLE AND EXAMPLE ABOVE ARE SUPPOSED TO HELP YOU UNDERSTAND THE
COSTS OF OWNING SHARES IN THE FUND. ACTUAL EXPENSES MAY BE GREATER OR LESSER
THAN THOSE SHOWN.
The Investment Manager and Schwab have voluntarily agreed to limit, or reimburse
the Fund, if necessary, total operating expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) to 0.95% of the Fund's average
daily net assets. If this guarantee were not in effect, the management fee,
other expenses and total operating expenses would be estimated to be 0.46%,
0.88% and 1.34% of average daily net assets, respectively. Read the
"Organization and Management" section of the prospectus for more information on
expenses.
3
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PERFORMANCE
Typically, money market funds report performance in terms of total return or
yield.
TOTAL RETURN is the actual annual return of an investment assuming both the
reinvestment of any income earned and any change in share price. A cumulative
total return is the actual total return of an investment over a stated period of
time, while an average annual total return is a hypothetical rate of return,
which, if achieved annually would have produced the same cumulative total
return. An average annual total return will smooth out the actual year-to-year
fluctuations of an investment's return.
YIELD is the actual income earned on an investment over a stated period of time
and annualized (assumed to be generated over a year). For example, a seven-day
yield measures the income earned on an investment over a seven-day period,
annualizes it and expresses that income as a percentage of the original
investment.
An effective yield is calculated similarly but income earned is assumed to be
reinvested. As a result of this compounding effect, effective yields are
generally higher. Because money market funds seek to maintain a stable share
price of $1.00, seven-day yields are the most common method of measuring
performance.
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ORGANIZATION & MANAGEMENT
THE FUND IS A DIVERSIFIED MUTUAL FUND. The Fund is a series The Charles Schwab
Family of Funds (the Trust).
THE FUND IS OVERSEEN BY A BOARD OF TRUSTEES. The Board of Trustees meets
regularly to review the Fund's activities, contractual arrangements and
performance. The Board of Trustees is responsible for protecting the interests
of the Fund's shareholders.
THE FUND MAY HOLD SPECIAL MEETINGS. These meetings may be called for purposes
such as electing Trustees, changing fundamental policies and amending management
contracts. Shareholders are entitled to one vote for each share owned and may
vote by proxy or in person. Proxy materials will be mailed to shareholders prior
to any meetings, and will include a voting card and information explaining the
matters to be voted upon.
THE FUND IS MANAGED BY THE INVESTMENT MANAGER. The Investment Manager is
responsible for managing the Fund's day-to-day business affairs, including
picking the Fund's investments; although the Investment Manager is subject to
the overall authority of the Board of Trustees.
For the services performed under its contract with the Fund, the Investment
Manager is entitled to receive a graduated annual fee, payable monthly, of 0.46%
of the Fund's average daily net assets not in excess of $1 billion, 0.41% of
such assets over $1 billion but not in excess of $2 billion and 0.40% of such
assets over $2 billion.
SCHWAB IS THE FUND'S SHAREHOLDER SERVICES AND TRANSFER AGENT. Schwab provides
Fund information to shareholders, including share price, reporting shareholder
ownership and account activities and distributing the Fund's prospectuses,
financial reports and other informational literature about the Fund. Schwab also
maintains the office space, equipment and personnel necessary to provide these
services. Schwab also distributes and markets Schwab Funds and services.
For the services performed as transfer agent under its contract with the Fund,
Schwab is entitled to receive an annual fee from the Fund. The fee is payable
monthly in the amount of 0.25% of the Fund's average daily net assets. For the
services performed as shareholder services agent under its contract with the
Fund, Schwab is entitled to receive an annual fee from the Fund. The fee is
payable monthly in the amount of 0.20% of the average daily net assets of the
Fund.
THE FUND PAYS OTHER EXPENSES. These expenses are typically connected with the
Trust's operations, and include audit and custodian fees, as well as the costs
of accounting and registration of the Fund. Expenses not directly attributable
to a particular Fund will be allocated equitably among the Funds in the Trust.
These expenses also may cover fees paid to entities that provide transaction
services to the Fund, including checking, Automated Clearing House and Automatic
Teller Machine.
The Charles Schwab Corporation is the parent company of the Investment Manager
and Schwab. Charles R. Schwab is the founder, Chairman, Chief Executive Officer
and Director of The Charles Schwab Corporation. As a result of his ownership of
and interests in The Charles Schwab Corporation, Mr. Schwab may be deemed to be
a controlling person of the Investment Manager and Schwab.
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INVESTMENT OBJECTIVE, POLICIES & RISKS
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide current income consistent with
liquidity and stability of capital.
The Fund's investment objective may be changed only by vote of a majority of the
Fund's shareholders. Unless otherwise noted, policies and limitations may be
changed without shareholder approval.
INVESTMENT STRATEGY & RISKS
The Fund intends to achieve its objective by investing exclusively in U.S.
Government securities and repurchase agreements for these securities. The Fund
also may engage in reverse repurchase agreements.
The Fund seeks to maintain a stable share price of $1.00, although there is no
guarantee that the Fund will be able to continue to do so. The Fund follows
regulations set forth by the SEC which dictate the quality, maturity and
diversification of the Fund's investments. These requirements are designed to
help the Fund maintain a stable share price of $1.00. The Fund may purchase only
high-quality, short-term securities which the Investment Manager believes
present minimal credit risk. In general, the longer the maturity, the more
sensitive the security will be to interest rate changes. While these securities,
as well as securities with more credit risk, may provide higher yields, they
also pose more risk for losses to the Fund and possible changes in share price.
The Fund earns income at current money market rates and its yield will fluctuate
from day-to-day. The Fund emphasizes capital preservation, so it will not
provide the higher yield or capital appreciation that a more aggressive mutual
fund or other investment may provide.
Please remember that the Fund is not insured or guaranteed by the U.S.
Government.
PRINCIPLE SECURITIES AND INVESTMENT TECHNIQUES
The different types of securities in which the Fund may invest are described
below.
U.S. GOVERNMENT SECURITIES are securities issued by the U.S. Treasury or
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities. U.S. Treasury securities are backed by the full faith
and credit of the United States. Not all U.S. Government securities are
backed by the full faith and credit of the United States. Some U.S.
Government securities are supported by a line of credit the issuing entity
has with the U.S. Treasury. Others are supported solely by the credit of
the issuing agency or instrumentality. Of course U.S. Government
Securities are among the safest securities, but they are still sensitive
to interest rate changes which will cause their yields to fluctuate.
VARIABLE AND FLOATING RATE SECURITIES pay an interest rate which is adjusted
either at specific intervals or periodically or floats continuously
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according to a formula or benchmark. These structures are intended for
minimizing fluctuations in values that occur when interest rates rise and fall.
STRIPPED SECURITIES are securities whose income and principal components are
detached and sold separately. While the risks associated with stripped
securities are similar to other money market securities, stripped securities are
typically subject to greater changes in value. U.S. Treasury securities that
have been stripped by a Federal Reserve Bank are obligations of the U.S.
Treasury.
REPURCHASE AGREEMENTS involve the Fund buying securities (usually U.S.
Government securities) from a seller and simultaneously agreeing to sell them
back at an agreed-upon price (usually higher) and time. There are risks that
losses will result if the seller does not perform as agreed.
REVERSE REPURCHASE AGREEMENTS involve the Fund selling securities held in its
portfolio and simultaneously agreeing to buy them back at an agreed-upon price
and time. There are risks that the securities will change in value during this
period, which may cause losses to the Fund, and the costs of buying the
securities back could affect the Fund's yield.
PUTS are agreements which allow the buyer to sell a security at a specified
price and time to the seller or "put provider." When the Fund buys a put, losses
could occur as a result of the cost of the put or if the put provider does not
perform as agreed. Losses could result to the Fund (as a put provider), if the
buyer exercises its rights under the put.
ILLIQUID SECURITIES are securities which are not actively traded or are subject
to legal restrictions and therefore, may be difficult to sell quickly or without
losses.
Restriction: The fund will not invest more than 10% of its net assets in
illiquid securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES are securities that are purchased
but are to be delivered to the buyer at a later, specified date, price and
yield. Generally, the purchaser does not pay for these securities or earn
interest on them until they are delivered and, thus, their value could change.
The Fund also employs the policies described below.
DIVERSIFICATION involves investing in a wide range of securities, and thereby,
spreading and reducing the risks of investment.
BORROWING money is a form of leveraging if the Fund continues to make
investments while borrowings remain outstanding. Borrowing subjects the Fund to
interest costs which may exceed the interest received on the securities
purchased with the borrowed funds. The Fund may borrow from banks or engage in
reverse repurchase agreements, and may make additional investments while
borrowings are outstanding.
Restriction: The Fund may borrow up to 33 1/3% of its total assets.
LENDING securities or money may earn the Fund income, but could result in losses
to the Fund, and possibly affect the share price.
7
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INVESTING IN SHARES
BUSINESS DAYS
The Fund is open each day that both the Federal Reserve Bank of New York (New
York Fed) and New York Stock Exchange (NYSE) are open (business days). The
following holiday closings are currently scheduled: New Year's Day, Martin
Luther King's Birthday (observed), President's Day, Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Columbus Day (observed), Veterans Day,
Thanksgiving Day and Christmas Day. On any day that the New York Fed, NYSE or
principal government securities markets closes early, such as days in advance of
holidays, the Fund reserves the right to advance the time by which purchase and
redemption orders must be received on that day.
NET ASSET VALUE
The price of each share of the Fund is its NAV. NAV is determined each business
day, first at 10:00 a.m. Eastern time, then again at the close of the NYSE,
generally 4:00 p.m. Eastern time. NAV is calculated by adding the value of the
Fund's assets, subtracting its liabilities and dividing the result by the number
of outstanding shares.
Investment holdings are valued on the basis of amortized cost, which means that
the Fund's securities are valued at cost plus or minus any premium or discount
that has accrued since purchase. The amortized cost method is designed for money
market funds which seek to maintain a stable share price and most money market
funds use this method to calculate NAV.
MINIMUM INVESTMENTS
The Fund requires a minimum initial investment, subsequent investments and
minimum balance of $1.
HOW TO BUY SHARES
Shares may be purchased only through a SchwabOne Plus Account. The SchwabOne
Plus Account application and agreement contain more information on how the sweep
feature works, but basically it is activated by a negative or positive cash
balance in your SchwabOne Plus Account. If your SchwabOne Plus Account has a
positive cash balance, the sweep feature will automatically purchase shares at
the NAV next determined.
HOW TO SELL SHARES
If your SchwabOne Plus Account has a negative cash balance, the sweep feature
will automatically sell shares at the next NAV determined.
OPENING A SCHWABONE PLUS ACCOUNT
Investors may open a SchwabOne Plus Account by simply completing an application,
although institutional investors should contact Schwab to find out if any
additional forms need to be completed.
Using a SchwabOne Plus Account, investors have access to investments other than
just mutual funds, such as stocks and bonds. The Securities Investor Protection
Corporation (SIPC) provides insurance protection of up to $500,000 for the
securities held in a SchwabOne Plus Account, including shares of the Fund. It is
important to remember that SIPC
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insurance does not protect against losses due to market or economic conditions.
SchwabOne Plus Accounts require a $20,000 minimum investment. A fee of $5 will
be charged to SchwabOne Plus Accounts that fall below this minimum at the end of
the month. The fee, if applicable, will be charged at the end of each month, but
will be waived if there have been at least two commissionable trades within the
previous twelve months.
DEPOSITS TO YOUR SCHWABONE PLUS ACCOUNTS MAY BE MADE BY CHECK, WIRE AND OTHER
FORMS OF ELECTRONIC FUNDS TRANSFER. Securities also may be deposited. All checks
should be made out to Charles Schwab & Co., Inc. Schwab will charge a $15
service fee for any checks returned as a result of insufficient or uncollected
funds or a stop order.
- - BY TELEPHONE. Call 1-800-435-4000, 24 hours a day (1-800-345-2550 for
TDD users).
- - BY MAIL. Write to the Fund at 101 Montgomery Street, San Francisco, CA
94104.
- - ELECTRONICALLY. For more information about StreetSmart(R), The
Equalizer(R) and Telebroker(R), call 1-800-435-4000.
Please provide the following information:
- - your name and SchwabOne Plus Account number;
- - the dollar amount you would like to deposit; and
- - for initial opening only, one of the two distribution choices below.
- AUTOMATIC REINVESTMENT. Dividends will be reinvested in shares
of the Fund. If you do not choose an option, this option will
be assigned to you; or
- CASH OPTION. Dividends will be paid to your SchwabOne Plus
Account and, if requested, mailed to you the next business
day.
Monies received by Schwab before 4:00 p.m. Eastern time will be available for
investment that day. Monies received by Schwab after 4:00 p.m. Eastern time will
be available for investment the next business day.
PLEASE NOTE THE FOLLOWING CONDITIONS:
- - you may request Schwab issue a check on your behalf from your SchwabOne
Plus Account which may be mailed to you at your request;
- - when you deposit a check in your SchwabOne Plus Account, it may take up
to 15 days to clear;
- - the Fund may suspend the right to sell shares or postpone payment for a
sale of shares when trading on the NYSE is restricted, the NYSE is
closed for any reason other than its customary weekend and holiday
closings, emergency circumstances exist as determined by the SEC or as
otherwise permitted by the SEC.
Contact Schwab for instructions and any applicable fees if you would like to
wire money from your Schwab Account.
DIVIDENDS & TAXES
Each business day the Fund's net investment income is determined at the close
of the NYSE as a dividend to shareholders of record as of the previous NAV
calculation. Net investment income is calculated by subtracting its expenses
from the income earned on its investments that day. Dividends are declared each
business day based on the net investment income determined and are paid on the
15th of each month, if it is a business day, except in December when dividends
are paid on the last business day of the month. If
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the 15th is not a business day, dividends are paid on the next business day.
The following is only a brief summary of some of the federal and state income
tax consequences that may affect the Fund and its shareholders. Unless your
investment in the Fund is through a retirement account, you should consider the
tax implications of investing, and consult with your tax adviser.
To the extent the Fund distributes its net investment income and capital gains,
if any, to shareholders each year, the Fund will pay no federal income tax.
However, all distributions received by shareholders are subject to federal
income tax, and may be subject to state and/or local taxes. Note that most
states grant tax-exempt status to distributions paid to shareholders from
interest income derived from U.S. Government securities. Distributions are
taxable when paid, whether they are received in cash or reinvested, although
distributions declared in December, but paid in January, are taxable as if they
were paid on December 31.
Shareholders receive a record of all distributions by the Fund, as well as
purchases and sales made, via their monthly SchwabOne Plus Account statement.
Each year, the Fund notifies shareholders of all distributions made by the Fund
that year, including the percentage of dividends paid that may qualify for
tax-exempt status.
GENERAL INFORMATION
As long as the Fund or Schwab follows reasonable procedures to confirm that your
telephone order is genuine, they will not be liable for any losses an investor
may experience. These procedures may include:
- - requiring a form of personal identification before acting upon any
telephone order;
- - providing written confirmation of telephone orders; and tape recording
all telephone orders.
It may be difficult to place orders by telephone during periods of drastic
economic or market changes because Schwab's phone lines may become very busy
with calls from other investors. Consider other methods for placing an order,
such as writing to the Fund.
Share certificates will not be issued in order to avoid additional
administrative costs, however, share ownership records are maintained by Schwab.
Twice a year, financial reports will be mailed to shareholders describing the
Fund's performance and investment holdings. In order to reduce these mailing
costs, each household will receive one consolidated mailing. If you do not want
to receive consolidated mailings, you may write to the Fund and request that
your mailings not be consolidated.
The Fund, in its sole discretion and without prior notice, reserves the right to
reject orders to purchase shares, change minimum investment requirements or
withdraw or suspend any part of the offering made by this prospectus.
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY STATEMENTS
ABOUT THIS OFFERING OTHER THAN THE INFORMATION CONTAINED IN THIS PROSPECTUS AND
IN OFFICIAL SALES MATERIALS. IF ANYONE GIVES ANY OTHER INFORMATION OR MAKES ANY
OTHER REPRESENTATIONS, DO NOT RELY ON SUCH INFORMATION OR REPRESENTATIONS.
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THIS PROSPECTUS IS NOT AN OFFER IN ANY STATE IN WHICH SUCH AN OFFER MAY NOT
LAWFULLY BE MADE, NOR IS IT AN OFFER TO ANY PERSON TO WHOM SUCH AN OFFER MAY NOT
BE MADE.
11
<PAGE> 14
CROSS REFERENCE SHEET
STATEMENT OF ADDITIONAL INFORMATION
Schwab Government Cash Reserves Fund
PART B STATEMENT OF ADDITIONAL INFORMATION
ITEM CAPTION
- ---- -------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History General Information
13. Investment Objectives and Policies Investment Policies and Restrictions
14. Management of the Fund Management of the Trust
15. Control Persons and Principal
Holders of Securities General Information
16. Investment Advisory and Other
Services Management of the Trust
17. Brokerage Allocation and Other
Practices Portfolio Transactions and Turnover
18. Capital Stock and Other Securities General Information
19. Purchase, Redemption and
Pricing of Securities Being Offered Share Price Calculation; Purchase and
Redemption of Shares
20. Tax Status Distributions and Taxes
21. Underwriters Management of the Trust
22. Calculation of Performance Data How the Fund Reports Performance
23. Financial Statements Not applicable
<PAGE> 15
STATEMENT OF ADDITIONAL INFORMATION
THE CHARLES SCHWAB FAMILY OF FUNDS
101 Montgomery Street, San Francisco, CA 94104
SCHWAB GOVERNMENT CASH RESERVES
OCTOBER 20, 1997
This Statement of Additional Information ("SAI") is not a prospectus. It
should be read in conjunction with the Prospectus dated October 20, 1997 (and as
may be amended from time to time) for Schwab Government Cash Reserves (the
"Fund").
To obtain a copy of the Prospectus, call 800-435-4000 (800-345-2550 for
TDD Users), or write to 101 Montgomery Street, San Francisco, California 94104.
TABLE OF CONTENTS
Page
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INVESTMENT POLICIES AND RESTRICTIONS.........................................2
MANAGEMENT OF THE TRUST......................................................5
PORTFOLIO TRANSACTIONS AND TURNOVER.........................................10
DISTRIBUTIONS AND TAXES.....................................................11
SHARE PRICE CALCULATION.....................................................13
HOW THE FUND REPORTS PERFORMANCE............................................13
GENERAL INFORMATION.........................................................14
PURCHASE AND REDEMPTION OF SHARES...........................................16
OTHER INFORMATION...........................................................16
<PAGE> 16
INVESTMENT POLICIES AND RESTRICTIONS
THE FOLLOWING INVESTMENT POLICIES AND RESTRICTIONS ARE FUNDAMENTAL AND MAY
BE CHANGED ONLY BY APPROVAL OF A MAJORITY OF THE FUND'S SHAREHOLDERS. ALL OTHER
INVESTMENT POLICIES AND RESTRICTIONS CONTAINED IN THE SAI ARE NON-FUNDAMENTAL
AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL OR PRIOR NOTICE.
THE FUND MAY NOT:
(1) purchase securities of any issuer unless consistent with its status as a
diversified investment management company as defined by the Investment
Company Act of 1940 or the rules or regulations thereunder, as such
statute, rules or regulations may be amended from time to time.
(2) lend or borrow money, except as permitted by the Investment Company Act of
1940 or the rules or regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
(3) pledge, mortgage or hypothecate any of its assets, except as permitted by
the Investment Company Act of 1940 or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.
(4) issue senior securities, except as permitted by the Investment Company Act
of 1940 or the rules or regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
(5) underwrite securities, except as permitted by the Investment Company Act
of 1940 or the rules or regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
(6) concentrate investments in a particular industry or group of industries,
or within one state, as concentration is defined under the Investment
Company Act of 1940 or the rules or regulations thereunder, as such
statute, rules or regulations may be amended from time to time.
(7) purchase or sell commodities, commodities contracts, futures contracts, or
real estate, except as permitted by the Investment Company Act of 1940 or
the rules or regulations thereunder, as such statute, rules or regulations
may be amended from time to time.
THE FOLLOWING DESCRIPTIONS OF THE 1940 ACT MAY ASSIST INVESTORS IN
UNDERSTANDING THE ABOVE FUNDAMENTAL POLICIES AND RESTRICTIONS.
Diversification. Under the 1940 Act, a diversified investment management company
may not purchase securities (other than U.S. Government securities or securities
of other investment companies) if, as a result, more than 5% of its total assets
would be invested in the securities of such issuer or it would own more than 10%
of such issuer's outstanding voting securities.
2
<PAGE> 17
Borrowing. The 1940 Act presently restricts an investment management company
from borrowing (including pledging, mortgaging or hypothecating assets) in
excess of 33 1/3% of its total assets (not including temporary borrowings not in
excess of 5% of its total assets).
Lending. Under the 1940 Act, an investment management company may only make
loans if expressly permitted by its investment policies.
Concentration. The 1940 Act presently defines concentration as investing 25% or
more of an investment company's total assets in an industry or group of
industries, with certain exceptions. This means that the Fund currently may not
purchase securities of any issuer, if, as a result, 25% or more (other than
obligations of, or guaranteed by the U.S. Government its agencies or
instrumentalities) of its total assets would be invested in the securities of an
issuer from a single industry or group of industries.
THE FOLLOWING ARE NON-FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS.
THE FUND MAY NOT:
(a) purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. Government securities or securities subject to an
unconditional demand feature by a controlled person) if, as a result, more
than 5% of total assets would be invested in the securities of such
issuer; provided that the Fund may invest up to 25% of its total assets in
the first tier securities of a single issuer for up to three business
days.
(b) purchase securities of any issuer if, as a result, more than the greater
of 1% of its total assets or $1 million would be invested in second tier
securities of such issuer.
(c) purchase securities of any issuer if, as a result, more than 5% of its
total assets would be invested in second tier securities of any issuer.
(d) purchase securities of other investment companies, except as permitted
by the 1940 Act.
(e) borrow money except that the Fund may (i) borrow money from banks and (ii)
engage in reverse repurchase agreements with any party; provided that (i)
and (ii) in combination do not exceed 33 1/3% of its total assets (any
borrowings that come to exceed this amount will be reduced to the extent
necessary to comply with the limitation within three business days).
(f) purchase of any issuer, securities if, as a result, more than 25% (other
than obligations of, or guaranteed by the U.S. Government its agencies or
instrumentalities) of its total assets would be invested in the securities
of an issuer from a single industry or group of industries.
(g) lend any security or make any other loan if, as a result, more than 33-
1/3% of its total assets would be lent to other parties (this restriction
does not apply to purchases of debt securities or repurchase agreements).
3
<PAGE> 18
(h) purchase securities of any issuer if, as a result, more than 10% of its
net assets would be invested in illiquid securities.
(i) sell securities short unless it owns the security or the right to obtain
the security or equivalent securities (transactions in futures contracts
and options are not considered selling securities short).
(j) purchase securities on margin, except that the Fund may obtain short-term
credits that are necessary for the clearance of transactions, and provided
that margin payments in connection with futures contracts and options on
futures contracts shall not constitute purchasing securities on margin.
4
<PAGE> 19
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., the Investment Manager, are as follows:
POSITION WITH
-------------
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
- ------------------ --------- --------------------
CHARLES R. SCHWAB* Chairman and Chairman, Chief Executive
July 29, 1937 Trustee Officer and Director, The
Charles Schwab Corporation;
Chairman and Director, Charles
Schwab & Co., Inc. and Charles
Schwab Investment Management, Inc.;
Chairman and Director, The Charles
Schwab Trust Company; Chairman and
Director (current board positions),
and Chairman (officer position)
until December 1995, Mayer &
Schweitzer, Inc. (a securities
brokerage subsidiary of The Charles
Schwab Corporation); Director, The
Gap, Inc. (a clothing retailer),
Transamerica Corporation (a
financial services organization),
AirTouch Communications (a
telecommunications company) and
Siebel Systems (a software
company).
TIMOTHY F. McCARTHY* President and President and Chief Operating
September 19, 1951 Trustee Officer, Charles Schwab & Co.,
Inc.; Executive Vice President
President, Financial Products and
International Group, the Charles
Schwab Corporation; Chief Executive
Officer, Charles Schwab Investment
Management, Inc.; Vice Chairman and
Chief Operating Officer, Charles
Schwab Limited; Director, Mayer &
Schweitzer. 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.
5
<PAGE> 20
DONALD F. DORWARD Trustee Executive Vice President and
September 23, 1931 Managing Director, Grey
Advertising. From 1990 to 1996,
Mr. Dorward was President and
Chief Executive Officer, Dorward
& Associates. Dorward &
Associates is an advertising and
marketing/consulting firm.
ROBERT G. HOLMES Trustee Chairman, Chief Executive
May 15, 1931 Officer and Director, Semloh
Financial, Inc. Semloh
Financial is an international
financial services and
investment advisory firm.
DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens
June 28, 1938 & Co. (investment banking).
Prior to 1995, Mr. Stephens was
Chairman and Chief Executive
Officer of North American Trust (a
real estate investment trust).
Prior to 1992, Mr. Stephens was
Chairman and Chief Executive
Officer of the Bank of San
Francisco.
MICHAEL W. WILSEY Trustee Chairman, Chief Executive
August 18, 1943 Officer and Director, Wilsey
Bennett, Inc. (truck and air
transportation, real estate
investment and management, and
investments).
TAI-CHIN TUNG Treasurer and Vice President - Finance,
March 7, 1951 Principal Charles Schwab & Co., Inc.;
Financial Officer Controller, Charles Schwab
Investment Management, Inc.
From 1994 to 1996, Ms. Tung was
Controller for Robertson
Stephens Investment Management,
Inc. From 1993 to 1994, she was
Vice President of Fund
Accounting, Capital Research and
Management Co. Prior to 1993,
Ms. Tung was Senior Vice
President of the Sierra Funds
and Chief Operating Officer of
Great Western Financial
Securities.
6
<PAGE> 21
WILLIAM J. KLIPP* Executive Vice Executive Vice President,
December 9, 1955 President, Chief SchwabFunds(R), Charles Schwab &
Operating Co., Inc.; President and Chief
Officer and Operating Officer, Charles
Trustee Schwab Investment Management,
Inc. Prior to 1993, Mr. Klipp
was Treasurer of Charles Schwab
& Co., Inc. and Mayer &
Schweitzer, Inc.
STEPHEN B. WARD Senior Vice Senior Vice President and Chief
April 5, 1955 President and Investment Officer, Charles
Chief Investment Schwab Investment Management,
Officer Inc.
FRANCES COLE Secretary Senior Vice President, Chief
September 9, 1955 Counsel, Chief Compliance
Officer and Assistant Corporate
Secretary, Charles Schwab
Investment Management, Inc.
DAVID H. LUI Assistant Vice President and Senior
October 14, 1960 Secretary Counsel, Charles Schwab
Investment Management, Inc.
From 1991 to 1992, he was
Assistant Secretary for the
Franklin Group of Mutual Funds
and Assistant Corporate Counsel
for Franklin Resources, Inc.
KAREN L. SEAMAN Assistant Corporate Counsel, Charles
February 27, 1968 Secretary Schwab Investment Management,
Inc. From October 1994 to July
1996, she was an Attorney for
Franklin Resources, Inc. Prior
to 1994, Ms. Seaman was an
Attorney for The Benham Group.
MATTHEW O'TOOLE Assistant Corporate Counsel, Charles
September 26, 1964 Secretary Schwab Investment Management,
Inc. From November 1995 to
April 1997, Mr. O'Toole was
Assistant General Counsel for
Chancellor LGT Asset Management,
Inc. Prior thereto, Mr. O'Toole
was Senior Counsel at the U.S.
Securities and Exchange
Commission in Washington, D.C.
Each of the above-referenced Officers and/or Trustees also serves in the same
capacity as described for the Trust for The Charles Schwab Family of Funds,
Schwab Capital Trust and Schwab Annuity Portfolios. The address of each
individual listed above is 101 Montgomery Street, San Francisco, California
94104.
- --------
* This Trustee is an "interested person" of the Trust.
7
<PAGE> 22
COMPENSATION TABLE 1
<TABLE>
<CAPTION>
Pension or
Retirement Estimated Annual
Benefits Accrued Benefits Upon Total
Aggregate as Part of Fund Retirement from Compensation
Name of Person, Compensation Expenses from the the Fund from the Fund
Position from the Trust Fund Complex 2 Complex 2 Complex 2
- -------- -------------- --------------- ---------- ----------
<S> <C> <C> <C> <C>
Charles R. Schwab, 0 N/A N/A 0
Chairman and Trustee
Timothy F. McCarthy, 0 N/A N/A 0
President and Trustee
William J. Klipp, 0 N/A N/A 0
Executive Vice
President, Chief
Operating Officer and
Trustee
Donald F. Dorward, $47,100 N/A N/A $83,950
Trustee
Robert G. Holmes, $47,100 N/A N/A $83,950
Trustee
Donald R. Stephens, $47,100 N/A N/A $83,950
Trustee
Michael W. Wilsey, $47,100 N/A N/A $83,950
Trustee
</TABLE>
1 Figures are for the Trust's fiscal year ended December 31, 1996.
2 "Fund Complex" comprises all 29 funds of the Trust, Schwab
Investments, Schwab Capital Trust and Schwab Annuity Portfolios.
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 SAI, none of the Independent Trustees has elected
to participate in the Fee Deferral Plan. If an Independent Trustee does elect to
participate in the Plan, the Plan would operate as described below.
Under the Plan, deferred Trustee's fees will be credited to a book reserve
account established by the Trust (the "Deferred Fee Account"), as of the date
such fees would have been paid to such Trustee. The value of the Deferred Fee
Account, as of any date, will be equal to the value the Account would have had
as of that date, if the amounts credited to the Account had been invested and
reinvested in the securities of the SchwabFund or SchwabFunds(R) selected by the
participating Trustee (the "Selected SchwabFund Securities"). SchwabFunds
include the series or classes of 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
8
<PAGE> 23
Deferred Fee Accounts of the Independent Trustees. The exemptive relief granted
to the Trust permits the Funds and the Trustees to purchase the Selected
SchwabFund Securities, which transactions would otherwise be limited or
prohibited by the investment policies and/or restrictions of the Funds.
INVESTMENT MANAGER
The Investment Manager, a wholly owned subsidiary of The Charles Schwab
Corporation, serves as the Fund's investment adviser and administrator pursuant
to an Investment Advisory and Administration Agreement (the "Advisory
Agreement") between it and the Trust. The Investment Manager is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, and
currently provides investment management services to the SchwabFunds(R), a
family of 30 mutual funds with over $53 billion in assets as of September 30,
1997. The Investment Manager is an affiliate of Schwab; the Trust's distributor
and the shareholder services and transfer agent.
The Advisory Agreement will continue in effect for one-year terms subject
to annual approval by: (1) the Trust's Board of Trustees or (2) a vote of a
majority of the Fund's shareholders. In either event, the continuance also must
be approved by a majority of the Trust's Board of Trustees who are not parties
to the Agreement or interested persons of any such party by vote cast in person
at a meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated at any time upon 60 days' notice by either party, or
by a majority vote of the Fund's shareholders and will terminate automatically
upon assignment.
Pursuant to the Advisory Agreement, the Investment Manager is entitled to
receive a graduated annual fee, payable monthly, of 0.46% of the Fund's average
daily net assets not in excess of $1 billion, 0.41% of such assets over $1
billion but not in excess of $2 billion and 0.40% of such assets over $2
billion.
The Investment Manager and Schwab have voluntarily agreed to limit, or
reimburse, if necessary, the Fund's total operating expenses to 0.95% of its
average daily net assets.
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 per
share (NAV); 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 Fund's shares. The Fund pays the cost of 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 Agreement.
9
<PAGE> 24
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 audit and report on the annual
financial statements of each series of the Trust and review certain regulatory
reports and the Fund's federal income tax return. It also performs other
professional accounting, auditing, tax and advisory services when the Trust
engages it to do so. Shareholders will be sent audited annual and unaudited
semi-annual financial statements.
PORTFOLIO TRANSACTIONS AND TURNOVER
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to pursue the objective
of the Fund in relation to movements in the general level of interest rates;
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 the Fund, seeks to obtain best price and
execution. Subject to the supervision of the Board of Trustees, the Investment
Manager will generally select brokers and dealers for the Fund primarily on the
basis of the quality and reliability of brokerage services, 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 the Fund are reached independently from those
for other accounts managed by the Investment Manager. Such other accounts may
also make investments in instruments or securities at the same time as a Fund.
When two or more accounts managed by the Investment Manager have funds available
for investment in similar instruments, available instruments are allocated as to
amount in a manner considered equitable to each account. In some cases, this
procedure may
10
<PAGE> 25
affect the size or price of the position obtainable for the Fund. However, it is
the opinion of the Board of Trustees that the benefits conferred by the
Investment Manager outweigh any disadvantages that may arise from exposure to
simultaneous transactions.
PORTFOLIO TURNOVER
Because securities with maturities of less than one year are excluded from
required portfolio turnover rate calculations, the Fund's portfolio turnover
rate for reporting purposes is expected to be zero.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
On each day that the NAV of the Fund is determined ("Business Day"), the
Fund's net investment income will be declared as of the close of trading on the
New York Stock Exchange ("NYSE") (normally 4:00 p.m. Eastern time) as a daily
dividend to shareholders of record as of the last calculation of NAV prior to
the declaration. Shareholders will receive dividends in additional shares unless
they elect to receive cash. Dividends will normally be reinvested monthly in
full shares of the Fund at the NAV on the 15th day of each month, if a Business
Day, otherwise on the next Business Day. If cash payment is requested, checks
will normally be mailed on the Business Day following the reinvestment date. The
Fund will pay shareholders, who redeem all of their shares, all dividends
accrued to the time of the redemption within 7 days.
The Fund calculates its dividends based on its daily net investment
income. For this purpose, the net investment income of the Fund consists of: (1)
accrued interest income, plus or minus amortized discount or premium, minus (2)
accrued expenses allocated to that Fund. If the Fund realizes any capital gains,
they will be distributed at least once during the year as determined by the
Board of Trustees. Any realized capital losses, to the extent not offset by
realized capital gains, will be carried forward. It is not anticipated that the
Fund will realize any long-term capital gains. Expenses of the Trust are accrued
each day. Should the NAV of the Fund deviate significantly from market value,
the Board of Trustees could decide to value the investments at market value and
any unrealized gains and losses could affect the amount of the Fund's
distributions.
FEDERAL INCOME TAXES
It is the Fund's policy to qualify for taxation as a "regulated investment
company" by meeting the requirements of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). By following this policy, the Fund
expects to eliminate or reduce to a nominal amount the federal income tax to
which it is subject.
In order to qualify as a regulated investment company, the Fund must,
among other things, (1) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stocks, securities, foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in stocks, securities or currencies; (2)
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 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,
11
<PAGE> 26
similar or related trades or businesses. These requirements may restrict the
degree to which the Fund may engage in certain hedging transactions and may
limit the range of the Fund's investments. If the Fund qualifies as a regulated
investment company, it will not be subject to federal income tax on the part of
its net investment income and net realized capital gains, if any, which it
distributes to shareholders, provided that the Fund meets certain minimum
distribution requirements. To comply with these requirements, the 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 exception), for its taxable year. The Fund intends to make sufficient
distributions to shareholders to meet these requirements.
If the Fund fails to distribute in a calendar year (regardless of whether
it has a non-calendar taxable year) substantially all of its (i) ordinary income
for such year; and (ii) capital gain net income for the year ending October 31
(or later if the Fund is permitted so to elect and so elects), plus any retained
amount from the prior year, the Fund will be subject to a nondeductible 4%
excise tax on the undistributed amounts. The Fund intends generally to make
distributions sufficient to avoid imposition of this excise tax.
Any distributions declared by the Fund 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 in which they were declared. The Fund may adjust its
schedule for the reinvestment of distributions for the month of December to
assist in complying with the reporting and minimum distribution requirements of
the Code.
The Fund does not expect to realize any significant amount of long-term
capital gain. However, any distributions of long-term capital gain will be
taxable to 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.
The Fund may engage in investment techniques that may alter the timing and
character of the Fund's income. The Fund may be restricted in its use of these
techniques by rules relating to their qualification as regulated investment
companies.
The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of taxable dividends paid to any shareholder who (1) fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) is subject to withholding by the Internal Revenue Service for
failure to properly report all payments of interest or dividends; or (3) fails
to provide a certified statement that he or she is not subject to "backup
withholding." This "backup withholding" is not an additional tax and any amounts
withheld may be credited against the shareholder's ultimate U.S. tax liability.
The 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) are generally 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 other disposition of shares of the
Fund are generally not subject to U.S. taxation, unless the recipient is an
individual who meets the Code's definition of "resident alien." Different tax
consequences may result if the foreign shareholder is engaged in a trade or
business within the United States. In addition, the tax consequences to a
foreign shareholder entitled to claim the benefits of a tax treaty may be
different than those described above. Distributions by the Fund also may be
subject to state, local and foreign taxes, and its treatment under applicable
tax laws may differ from the federal income tax treatment.
12
<PAGE> 27
SHARE PRICE CALCULATION
The 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 the Fund's investments at amortized cost with market
values. Market valuations are obtained by using actual quotations provided by
market makers, estimates of market value or values obtained from yield data
relating to classes of money market instruments published by reputable sources
at the mean between the bid and asked prices for the instruments. The amortized
cost method of valuation seeks to maintain a stable NAV of $1.00, 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 NAV calculated by reference to market values and
the Fund's NAV of $1.00, or if there were any other deviation that the Board of
Trustees of the Trust believed would result in a material dilution to
shareholders or purchasers, the Board of Trustees would promptly consider what
action, if any, should be initiated.
If the Fund's NAV (computed using market values) declined, or were
expected to decline, below $1.00 (computed using amortized cost), the Board of
Trustees might temporarily reduce or suspend dividend payments in an effort to
maintain the NAV. As a result of such reduction or suspension of dividends or
other action by the Board of Trustees, an investor would receive less income
during a given period than if such a reduction or suspension had not taken
place. Such action could result in investors receiving no dividend for the
period during which they hold their shares and receiving, upon redemption, a
price per share lower than that which they paid. On the other hand, if the
Fund's NAV (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 NAV at $1.00.
HOW THE FUND REPORTS PERFORMANCE
The historical performance of the Fund may be shown in the form of total
return, yield and effective yield. These measures of performance are described
below.
TOTAL RETURN
Standardized Total Return. Average annual total return for a period is
determined by calculating the actual dollar amount of investment return on a
$1,000 investment in the Fund made at the beginning of the period, then
calculating the average annual compounded rate of return that would produce the
same investment return on the $1,000 over the same period. In computing average
annual total return, the Fund assumes the reinvestment of all distributions at
NAV on applicable reinvestment dates.
Nonstandardized Total Return. Nonstandardized total return for the Fund
differs from standardized total return in that it relates to periods other than
the period for standardized total return and/or that it represents aggregate
(rather than average) total return.
In addition, an after-tax total return for the Fund may be calculated by
taking the Fund's standardized or non-standardized total return and subtracting
applicable federal taxes from the portions of the Fund's total return
attributable to capital gains distributions and ordinary income. This after-tax
total return may be compared to that of other mutual funds with similar
investment objectives as reported by independent sources.
13
<PAGE> 28
The Fund may also report the percentage of the Fund's standardized or
non-standardized total return that would be paid to taxes annually (at the
applicable federal personal income and capital gains tax rates before redemption
of Fund shares). This proportion may be compared to that of other mutual funds
with similar investment objectives as reported by independent sources.
The Fund may also advertise its cumulative total return since inception.
This number is calculated using the same formula that is used for average annual
total return except that, rather than calculating the total return based on a
one-year period, cumulative total return is calculated from inception to the
date specified.
YIELD
The Fund's yield refers to the net investment income generated by a
hypothetical investment in the Fund over a specific 7-day period. This net
investment income is then annualized, which means that the net investment income
generated during the 7-day period is assumed to be generated in each 7-day
period over an annual period, and is shown as a percentage of the investment.
EFFECTIVE YIELD
A Fund's 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.
GENERAL INFORMATION
The Trust is an open-end investment management company organized as a
Massachusetts business trust on October 20, 1989. Currently, there are ten funds
of the Trust: Schwab Money Market Fund, Schwab Government Money Fund, Schwab
Municipal Money Fund, Schwab U.S. Treasury Money Fund, Schwab Value Advantage
Money Fund, Schwab Institutional Advantage Money Fund, Schwab Retirement Money
Fund, Schwab New York Municipal Money Fund, and Schwab California Municipal
Money Fund and Schwab Government Cash Reserves. The Declaration of Trust permits
the Trustees to create additional funds. There is a remote possibility that one
fund might become liable for a misstatement in the prospectus or SAI about
another fund. The Trust generally is 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)
determination of 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
14
<PAGE> 29
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 ten 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 the Bylaws permits
or requires that (i) holders of any series shall vote as a series, then a
majority of the aggregate number of shares of that series entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
series, or (ii) holders of any class shall vote as a class, then a majority of
the aggregate number of shares of that class entitled to vote shall be necessary
to constitute a quorum for the transaction of business by that class. Any lesser
number shall be sufficient for adjournments. Any adjourned session or sessions
may be held, within a reasonable time after the date set for the original
meeting, without the necessity of further notice. The Declaration of Trust
specifically authorizes the Board of Trustees to terminate the Trust (or any of
its investment portfolios) by notice to the shareholders without shareholder
approval.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for the Trust's
obligations. The Declaration of Trust, however, disclaims shareholder liability
for the Trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or the Trustees. In addition, the Declaration of Trust provides for
indemnification out of the property of an investment portfolio in which a
shareholder owns or owned shares for all losses and expenses of such shareholder
or former shareholder if he or she is held personally liable for the obligations
of the Trust solely by reason of being or having been a shareholder. Moreover,
the Trust will be covered by insurance which the Trustees consider adequate to
cover foreseeable tort claims. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote, because
it is limited to circumstances in which a disclaimer is inoperative and the
Trust itself is unable to meet its obligations.
For further information, please refer to the registration statement and
exhibits for the Trust on file with the SEC in Washington, D.C. and available
upon payment of a copying fee. The statements in the Prospectus and this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
PRINCIPAL HOLDERS OF SECURITIES
As of October 1, 1997, no person owns of record directly or beneficially
5% of the Fund's shares.
In addition, as of October 1, 1997 the officers and Trustees of the Trust,
as a group, owned less than 1% of each Fund's outstanding voting securities.
15
<PAGE> 30
PURCHASE AND REDEMPTION OF SHARES
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 "Share Price Calculation" and a redeeming shareholder would normally incur
brokerage expenses if he or she converted the securities to cash.
OTHER INFORMATION
The Prospectus and SAI do not contain all the information included in the
Registration Statement filed with the SEC under the Securities Act of 1933, as
amended, with respect to the securities offered by the Prospectus.
Certain portions of the Registration Statement have been omitted from the
Prospectus and the SAI pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined at
the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or SAI as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance, reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement of which the Prospectus and SAI form
a part, each such statement being qualified in all respects by such reference.
THIS SAI 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.
16
<PAGE> 31
PART C
OTHER INFORMATION
OCTOBER 20, 1997
THE CHARLES SCHWAB FAMILY OF FUNDS
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
(1) Financial statements and financial highlights included in the
Annual Report for Schwab Money Market Fund, Schwab Government
Money Fund and Schwab U.S. Treasury Money Fund for the fiscal year
ended December 31, 1996, are incorporated by reference into the
SAI, were filed on March 6, 1997, pursuant to Rule 30d-1 under the
Investment Company Act of 1940 ("1940 Act"), and are incorporated
herein by reference.
(2) Financial statements and financial highlights included in the
Annual Report for Schwab Municipal Money Fund - Value Advantage
Shares, Schwab California Municipal Money Fund - Value Advantage
Shares and Schwab New York Municipal Money Fund Value Advantage
Shares for the fiscal year ended December 31, 1996, are
incorporated by reference into the SAI, were filed on March 6,
1997, pursuant to Rule 30d-1 under the 1940 Act, and are
incorporated herein by reference.
(3) Financial statements and financial highlights included in the
Annual Report for Schwab New York Municipal Money Fund - Sweep
Shares for the fiscal year ended December 31, 1996, are
incorporated by reference into the SAI, were filed on March 6,
1997, pursuant to Rule 30d-1 under the 1940 Act, and are
incorporated herein by reference.
(4) Financial statements and financial highlights included in the
Annual Report for Schwab California Municipal Money Fund - Sweep
Shares for the fiscal year ended December 31, 1996, are
incorporated by reference into the SAI, were filed on March 6,
1997, pursuant to Rule 30d-1 under the 1940 Act, and are
incorporated herein by reference.
(5) Financial statements and financial highlights included in the
Annual Report for Schwab Municipal Money Fund - Sweep Shares for
the fiscal year ended December 31, 1996, are incorporated by
reference into the SAI, were filed on March 6, 1997, pursuant to
Rule 30d-1 under the 1940 Act, and are incorporated herein by
reference.
(6) Financial statements and financial highlights included in the
Annual Report for Schwab Value Advantage Money Fund - Investor
Shares (formerly known as Schwab Value Advantage Money Fund) for
the fiscal year ended December 31, 1996, are incorporated by
reference into the SAI, were filed on March 6, 1997, pursuant to
Rule 30d-1 under the 1940 Act, and are incorporated herein by
reference.
(7) Financial statements and financial highlights included in the
Annual Report for Schwab Retirement Money Fund for the fiscal year
ended December 31, 1996, are incorporated by reference into the
SAI, were filed on March 6, 1997, pursuant to Rule 30d-1 under the
1940 Act, and are incorporated herein by reference.
(8) Financial statements and financial highlights included in the
Annual Report for Schwab Institutional Advantage Money Fund for
the fiscal year ended December 31, 1996, are incorporated by
reference into the SAI, were filed on March 6, 1997, pursuant to
Rule 30d-1 under the 1940 Act, and are incorporated herein by
reference.
<PAGE> 32
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
Municipal Money Fund, dated May 1, 1997, is filed herein as
Exhibit 5(a).
(b) Schedule A to the 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 Municipal Money Fund, dated May 1, 1997, was
electronically filed and is incorporated herein by reference
to Exhibit 5(b) to Post-Effective Amendment No. 27.
(c) Schedule B to the 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 Municipal Money Fund, dated May 1, 1997, was
electronically filed and is incorporated herein by reference
to Exhibit 5(c) to Post-Effective Amendment No. 27.
(d) Investment Advisory and Administration Agreement between
Registrant and the Investment Manager with respect to Schwab
California Municipal Money Fund, Schwab U.S. Treasury Money
Fund, Schwab Value Advantage Money Fund, Schwab
Institutional Advantage Money Fund(R), Schwab Retirement
Money Fund(R), Schwab New York Municipal Money Fund and
Schwab Government Cash Reserves Fund, dated June 15, 1994,
was electronically filed and is
<PAGE> 33
incorporated herein by reference to Exhibit (5)(d) to
Post-Effective Amendment No. 27.
(e) Form of Schedule A to the Investment Advisory and
Administration Agreement between Registrant and the
Investment Manager with respect to Schwab California
Municipal Money Fund, Schwab U.S. Treasury Money Fund,
Schwab Value Advantage Money Fund, Schwab Institutional
Advantage Money Fund(R), Schwab Retirement Money Fund(R),
Schwab New York Municipal Money Fund and Schwab Government
Cash Reserves Fund dated June 15, 1994, was electronically
filed herein by reference to Exhibit (5)(e) to
Post-Effective Amendment No. 28.
(f) Schedule B to the Investment Advisory and Administration
Agreement between Registrant and the Investment Manager with
respect to Schwab California Municipal Money Fund, Schwab
U.S. Treasury Money Fund, Schwab Value Advantage Money Fund,
Schwab Institutional Advantage Money Fund(R), Schwab
Retirement Money Fund(R), Schwab New York Municipal Money
Fund and Schwab Government Cash Reserves Fund, dated June
15, 1994, was electronically filed and is incorporated
herein by reference to Exhibit (5)(f) to Post-Effective
Amendment No. 27.
(g) Schedule C to the Investment Advisory and Administration
Agreement between Registrant and the Investment Manager with
respect to Schwab California Municipal Money Fund, Schwab
U.S. Treasury Money Fund, Schwab Value Advantage Money Fund,
Schwab Institutional Advantage Money Fund(R), Schwab
Retirement Money Fund(R), Schwab New York Municipal Money
Fund and Schwab Government Cash Reserves Fund, dated June
15, 1994, was electronically filed and is incorporated
herein by reference to Exhibit (5)(g) to Post-Effective
Amendment No. 27.
(h) Form of Schedule D, amended [ , 1997] to the Investment
Advisory and Administration Agreement between Registrant and
the Investment Manager with respect to Schwab California
Municipal Money Fund, Schwab U.S. Treasury Money Fund,
Schwab Value Advantage Money Fund, Schwab Institutional
Advantage Money Fund(R), Schwab Retirement Money Fund(R),
New York Municipal Money Fund and Schwab Government Cash
Reserves Fund dated June 15, 1994 was electronically filed
and is incorporated herein by reference to Exhibit (5)(h) to
Post-Effective Amendment No. 28.
(6) (a) Distribution Agreement between Registrant and Charles Schwab
& Co., Inc. ("Schwab"), dated June 15, 1994, 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.
(b) Form of Amended Schedule to the Distribution Agreement
between Registrant and Schwab referred to at Exhibit (6)(a)
above was electronically filed and is incorporated herein by
reference to Exhibit (6)(b) to Post-Effective Amendment No.
28.
(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
<PAGE> 34
Amendment No. 5 to Registrant's Registration Statement on
Form N-1A, filed on December 10, 1991.
(b) Form of Amended Schedule B to the Accounting Services
Agreement referred to at Exhibit (8)(a) above was
electronically filed and is incorporated herein by reference
as Exhibit (8)(b) to Post-Effective Amendment No. 28.
(c) Amendment Nos. 1 and 2 to the Accounting Services Agreement
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) Schedule B to the Amended and Restated Transfer Agency
Agreement 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.
(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 Schedule B to the Shareholder Service Agreement
between Registrant and Schwab referred to at Exhibit (8)(f)
is 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) Form of Amended Schedules A and C to the Shareholder Service
Agreement referred to at Exhibit (8)(g) above were
electronically filed and are incorporated herein by
reference as Exhibit (8)(h) to Post-Effective Amendment No.
28.
(i) Custodian Services Agreement between Registrant and PNC
Bank, N.A. (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) Form of Amended Schedule A to the Custodian Services
Agreement referred to at Exhibit (8)(i) above was
electronically filed and incorporated herein by reference as
Exhibit (8)(j) to Post-Effective Amendment No. 28.
(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.
(l) Form of Amended Schedules A and C to the Amended and
Restated Transfer Agency Agreement referred to in Exhibit
8(d) above was electronically filed and is incorporated
herein by reference as Exhibit (8)(l) to Post-Effective
Amendment No. 28.
(9) Inapplicable.
<PAGE> 35
(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 19, 1997.
(11) (a) Consent of Ropes & Gray was electronically filed and is
incorporated herein by reference to Exhibit 11(a) to
Post-Effective Amendment No. 27.
(b) Consent of Price Waterhouse LLP, Independent Accountants,
was electronically filed and is incorporated herein by
reference to Exhibit 11(a) to Post-Effective Amendment No.
27.
(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 Municipal 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 Municipal 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 Municipal 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.
(g) Purchase Agreement between Registrant and Schwab relating to
the Schwab New York Municipal 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.
(h) Form of Purchase Agreement between Registrant and Schwab was
electronically filed and is incorporated herein by reference
as Exhibit (13)(h) to Post-Effective Amendment No. 28.
(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-
<PAGE> 36
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 Municipal Money Fund,
Schwab California Municipal 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 Municipal 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 was
electronically filed and is incorporated herein by reference
to Exhibit 17(a) to Post-Effective Amendment No. 27.
(b) Financial Data Schedule for Schwab Government Money Fund was
electronically filed and is incorporated herein by reference
to Exhibit 17(a) to Post-Effective Amendment No. 27.
(c) Financial Data Schedule for Schwab Municipal Money
Fund-Sweep Shares was electronically filed and is
incorporated herein by reference to Exhibit 17(a) to
Post-Effective Amendment No. 27.
(d) Financial Data Schedule for Schwab Municipal Money
Fund-Value Advantage Shares was electronically filed and is
incorporated herein by reference to Exhibit 17(a) to
Post-Effective Amendment No. 27.
(e) Financial Data Schedule for Schwab California Municipal
Money Fund-Sweep Shares was electronically filed and is
incorporated herein by reference to Exhibit 17(a) to
Post-Effective Amendment No. 27.
(f) Financial Data Schedule for Schwab California Municipal
Money Fund-Value Advantage Shares was electronically filed
and is incorporated herein by reference to Exhibit 17(a) to
Post-Effective Amendment No. 27.
(g) Financial Data Schedule for Schwab U.S. Treasury Money Fund
was electronically filed and is incorporated herein by
reference to Exhibit 17(a) to Post-Effective Amendment No.
27.
(h) Financial Data Schedule for Schwab Value Advantage Money
Fund-
<PAGE> 37
Investor Shares was electronically filed and is incorporated
herein by reference to Exhibit 17(a) to Post-Effective
Amendment No. 27.
(i) Financial Data Schedule for Schwab Institutional Advantage
Money Fund(R) was electronically filed and is incorporated
herein by reference to Exhibit 17(a) to Post-Effective
Amendment No. 27.
(j) Financial Data Schedule for Schwab Retirement Money Fund(R)
was electronically filed and is incorporated herein by
reference to Exhibit 17(a) to Post-Effective Amendment No.
27.
(k) Financial Data Schedule for Schwab New York Municipal Money
Fund-Sweep Shares was electronically filed and is
incorporated herein by reference to Exhibit 17(a) to
Post-Effective Amendment No. 27.
(l) Financial Data Schedule for Schwab New York Municipal Money
Fund-Value Advantage Shares was electronically filed and is
incorporated herein by reference to Exhibit 17(a) to
Post-Effective Amendment No. 27.
(18) Form of Amended and Restated Multiple Class Plan of
Registrant is incorporated by reference to Exhibit (18) to
Post-Effective Amendment No. 25 to Registrant's Registration
Statement on Form N-1A, filed on February 21, 1997.
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.
Item 26. Number of Holders of Securities.
As of October 6, 1997, 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 2,099,145)
Schwab Government Money Fund 1 (for the benefit of 127,330)
Schwab U.S. Treasury Money Fund 1 (for the benefit of 65,490)
Schwab Municipal Money Fund-Sweep Shares 1 (for the benefit of 146,288)
Schwab Municipal Money Fund-Value Advantage Shares 1 (for the benefit of 4,122)
Schwab California Municipal Money Fund-Sweep Shares 1 (for the benefit of 58,031)
Schwab California Municipal Money Fund-Value Advantage 1 (for the benefit of 3,312)
Shares
Schwab Value Advantage Money Fund-Investor Shares 1 (for the benefit of 121,741)
Schwab Retirement Money Fund(R) 1 (for the benefit of 954)
Schwab Value Advantage Money Fund-Sweep Shares 0
Schwab Institutional Advantage Money Fund(R) 1 (for the benefit of 421)
</TABLE>
<PAGE> 38
<TABLE>
<S> <C>
Schwab New York Municipal Money Fund-Sweep Shares 1 (for the benefit of 12,306)
Schwab New York Municipal Money Fund-Value Advantage 1 (for the benefit of 665)
Shares
Schwab Government Cash Reserves Fund 1 (for the benefit of 0)
</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,
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 Municipal Money Fund-Sweep
Shares, Schwab California Municipal Money Fund-Sweep Shares, Schwab New York
Municipal Money Fund-Sweep Shares, Schwab Institutional Advantage Money Fund(R),
Schwab Retirement Money Fund(R) and Schwab Government Cash Reserves Fund
captioned "Management of the Fund(s);" the section of the Prospectuses for
Schwab Value Advantage Money Fund, Schwab Municipal Money Fund-Value Advantage
Shares, Schwab California Municipal Money Fund-Value Advantage Shares, Schwab
New York Municipal Money Fund-Value Advantage Shares and Schwab Government Cash
Reserves Fund 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
<PAGE> 39
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) Each director and/or executive officer of Schwab and /or the
Investment Manager is or has been engaged in no other business, profession,
vocation or employment of a substantial nature during the past two fiscal years
of his or her own account in the capacity of director, employee, partner or
trustee except with the Investment Manager and its affiliates and as listed
below.
<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 Chairman and Director
Management, Inc.
Charles Schwab Limited Chairman, Chief Executive
Officer
The Charles Schwab Trust Company Chairman and Director
Mayer & Schweitzer, Inc. Director and Chairman of
Board of Directors
The Gap, Inc. Director
Transamerica Corporation Director
AirTouch Communications Director
Siebel Systems, Inc. Director
Performance Technologies, Inc. Chairman and Director
TrustMark, Inc. Chairman and Director
Schwab Retirement Plan Services, Chairman and Director
Inc.
Lawrence J. Stupski Charles Schwab & Co., Inc. Director until February 1995
The Charles Schwab Corporation Vice Chairman and Director
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
The Charles Schwab Trust Company Director until December 1996
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. Director
Performance Technologies, Inc. Director
TrustMark, Inc. Director
Schwab Retirement Plan Services, Director
Inc.
Charles Schwab Limited Director
Decibel Director
McKesson Director
Ronald W. Readmond Charles Schwab & Co., Inc. Vice Chairman - Ex Officio;
Vice Chairman and Director
until January 1996
The Charles Schwab Corporation Executive Vice President
until January 1996
Mayer & Schweitzer, Inc. Director until January 1996
Parkash P. Ahuja Charles Schwab & Co., Inc. Senior Vice President
Robert J. Almeida Charles Schwab & Co., Inc. Senior Vice President
Rhet Andrews Charles Schwab & Co., Inc. Senior Vice President
William S. Baughman Charles Schwab & Co., Inc. Senior Vice President until
March 1997
Karen Chang Charles Schwab & Co., Inc. Executive Vice President
Rochelle A. Bays Charles Schwab & Co., Inc. Senior Vice President
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Michelle B. Blieberg Charles Schwab & Co., Inc. Senior Vice President
John P. Coghlan Charles Schwab & Co., Inc. Executive Vice President
The Charles Schwab Corporation Executive Vice President
The Charles Schwab Trust Company Director and Executive Vice
President
TrustMark, Inc. Director
Performance Technologies, Inc. Director
Schwab Retirement Plan Services, Director
Inc.
Reid P. Conklin Charles Schwab & Co., Inc. Senior Vice President
John Danton Charles Schwab & Co., Inc. Senior Vice President
Martha J. Deevy Charles Schwab & Co., Inc. Senior Vice President
Linnet Deily Charles Schwab & Co., Inc. Executive Vice President
Evelyn S. Dilsaver Charles Schwab & Co., Inc. Senior Vice President
Sidney J. Dorr Charles Schwab & Co., Inc. Senior Vice President
Carrie Dwyer Charles Schwab & Co., Inc. Executive Vice President
Wayne W. Fieldsa Charles Schwab & Co., Inc. Senior Vice President
Edward V. Garlich, Jr. Charles Schwab & Co., Inc. Senior Vice President
Lon Gorman Charles Schwab & Co., Inc. Executive Vice President and
President
Mayer & Schweitzer, Inc. Chairman, Chief Executive
Officer and Director
Edward A. Greene Charles Schwab & Co., Inc. Senior Vice President
Therese Haberle Charles Schwab & Co., Inc. Senior Vice President
James M. Hackley Charles Schwab & Co., Inc. Executive Vice President
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Gerry L. Hansen Charles Schwab & Co., Inc. Senior Vice President and
Controller
The Charles Schwab Corporation Senior Vice President and
Controller
Barbara Heinrich Charles Schwab & Co., Inc. Senior Vice President
Jan K. Hier-King Charles Schwab & Co., Inc. Senior Vice President
Colleen M. Hummer Charles Schwab & Co., Inc. Senior Vice President
Daniel J. Keller Charles Schwab & Co., Inc. Senior Vice President
Michael S. Knight Charles Schwab & Co., Inc. Senior Vice President
Gloria J. Lau Charles Schwab & Co., Inc. Senior Vice President
Thomas N. Lawrie Charles Schwab & Co., Inc. Senior Vice President
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 and
Chief Strategy Officer
Charles Schwab & Co., Inc. Executive Vice President
James G. Losi Charles Schwab & Co., Inc. Senior Vice President
Jeffrey M. Lyons Charles Schwab & Co., Inc. Senior Vice President
Susanne D. Lyons Charles Schwab & Co., Inc. Executive Vice President
Elinor MacKinnon Charles Schwab & Co., Inc. Senior Vice President
Frederick E. Matteson Charles Schwab & Co., Inc. Senior Vice President
Timothy F. McCarthy, Charles Schwab Investment Chief Executive Officer
Trustee and President Management, Inc.
Charles Schwab & Co., Inc. President and Chief
Operating Officer
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Charles Schwab. Limited Vice Chairman; Chief
Operating Officer; Director
The Charles Schwab Corporation Executive Vice President
Mayer & Schweitzer Director
John McGonigle Charles Schwab & Co., Inc. Senior Vice President
Peter J. McIntosh Charles Schwab & Co., Inc. Executive Vice President
Roger G. Neaves Charles Schwab & Co., Inc. Senior Vice President
Geoffrey Penney Charles Schwab & Co., Inc. Senior Vice President
Kenneth W. Perlman Charles Schwab & Co., Inc. Senior Vice President
Mayer & Schweitzer, Inc. Senior Vice President and
General Counsel
Earlene Perry Charles Schwab & Co., Inc. Senior Vice President
Hugo W. Quackenbush Charles Schwab & Co., Inc. Senior Vice President
The Charles Schwab Corporation Senior Vice President
Edward M. Rodden Charles Schwab & Co., Inc. Senior Vice President
Kate Rohrbach Charles Schwab & Co., Inc. Senior Vice President and
Chief Communications Officer
Myra Rothfeld Charles Schwab & Co., Inc. Senior Vice President
Louise J. Rothman Charles Schwab & Co., Inc. Senior Vice President
Gideon Sasson Charles Schwab & Co., Inc. Senior Vice President
Elizabeth G. Sawi Charles Schwab & Co., Inc. Executive Vice President
The Charles Schwab Corporation Executive Vice President
Steven L. Scheid Charles Schwab & Co., Inc. Executive Vice President,
Director and Chief Financial
Officer
The Charles Schwab Corporation Executive Vice President and
Chief Financial Officer
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Charles Schwab Investment Director and Chief Financial
Management, Inc. Officer
The Charles Schwab Trust Company Chief Financial Officer
Schwab Retirement Plan Director
Services, Inc.
TrustMark, Inc. Director
Charles Schwab Limited Director and Finance Officer
Performance Technologies, Inc. Director
Mayer & Schweitzer Director
Tom D. Seip Charles Schwab & Co., Inc. Executive Vice President
The Charles Schwab Corporation Executive Vice President
Arthur V. Shaw Charles Schwab & Co., Inc. Senior Vice President
Leonard Short Charles Schwab & Co., Inc. Senior Vice President
Betsy Snow Charles Schwab & Co., Inc. Senior Vice President
Ray Straka Charles Schwab & Co., Inc. Senior Vice President
Michelle Swenson Charles Schwab & Co., Inc. Senior Vice President
John N. Tognino Charles Schwab & Co., Inc. Executive Vice President
The Charles Schwab Corporation Executive Vice President
Mayer & Schweitzer, Inc. Director and Vice Chairman
until February 1996
Richard Tinervin Charles Schwab & Co., Inc. Executive Vice President
Mark Thompson Charles Schwab & Co., Inc. Senior Vice President
Luis E. Valencia Charles Schwab & Co., Inc. Executive Vice President and
Chief Administrative
Officer; Executive Vice
President until October 1996
The Charles Schwab Corporation Executive Vice President and
Chief Administrative Officer
</TABLE>
<PAGE> 45
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Daniel J. Voet Charles Schwab & Co., Inc. Senior Vice President
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
Schwab Retirement Plan Services, Treasurer
Inc.
TrustMark, Inc. Treasurer
Performance Technologies, Inc. Treasurer
William J. Klipp, Charles Schwab & Co., Inc. Executive Vice President
Trustee, Executive Vice
President and Chief
Operating Officer
Charles Schwab Investment President and Chief
Management, Inc. Operating Officer
Stephen B. Ward, Charles Schwab Investment Senior Vice President and
Senior Vice President and Management, Inc. Chief Investment Officer
Chief Investment Officer
The Charles Schwab Trust Company Chief Investment Officer
Charles Schwab & Co., Inc. Senior Vice President and
Chief Investment Officer -
Portfolio Management
Frances Cole, Charles Schwab Investment Senior Vice President, Chief
Secretary Management, Inc. Counsel, Chief Compliance
Officer and Assistant
Corporate Secretary
Tai-Chin Tung, Charles Schwab & Co., Inc. Vice President-Finance
Treasurer and
Principal Financial Officer
Charles Schwab Investment Vice President and Controller
Management, Inc.
Robertson Stephens Investment Controller until 1996
Management, Inc.
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Cynthia K. Holbrook The Charles Schwab Corporation Assistant Corporate Secretary
Charles Schwab & Co., Inc. Vice President and Assistant
Corporate Secretary
Charles Schwab Investment Corporate Secretary
Management, Inc.
The Charles Schwab Trust Assistant Corporate Secretary
Company
Mayer & Schweitzer, Inc. Corporate Secretary
Performance Technologies, Inc. Assistant Corporate Secretary
Schwab Retirement Plan Services, Assistant Corporate Secretary
Inc.
TrustMark, Inc. Assistant Corporate Secretary
Mary B. Templeton Charles Schwab Investment Assistant Corporate Secretary
Management, 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
Mayer & Schweitzer, Inc. Assistant Corporate Secretary
The Charles Schwab Trust Assistant Corporate
Company Secretary until February 1996
TrustMark, Inc. Corporate Secretary
Schwab Retirement Plan Services, Corporate Secretary
Inc.
Performance Technologies Corporate Secretary
David H. Lui Charles Schwab Investment Vice President and Senior
Assistant Secretary Management, Inc. Counsel
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Mathew M. O'Toole Charles Schwab Investment Corporate Counsel
Assistant Secretary Management, Inc.
Karen L. Seaman Charles Schwab Investment Corporate Counsel
Assistant Secretary Management, 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, and 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 sub-investment adviser, Dimensional Fund Advisors Inc., 1299
Ocean Avenue, Suite 1100, Santa Monica, California 90401; 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).
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.
<PAGE> 48
(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.
(c) Registrant undertakes to file a post-effective amendment
using financial statements, which need not be certified, after the Fund's
commencement of operations.
<PAGE> 49
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 of the requirements for effectiveness of
this Post-Effective Amendment No. 29 to Registrant's Registration Statement on
Form N-1A pursuant to Rule 485(b) under the 1933 Act and has duly caused this
Post-Effective Amendment No. 29 to be signed on its behalf by the undersigned,
thereto duly authorized, in the District of Columbia, on this 15th day of
October, 1997.
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. 29 to Registrant's Registration Statement on Form N-1A has been
signed below by the following persons in the capacities indicated this 15th day
of October, 1997.
Signature Title
- --------- -----
Charles R. Schwab* Chairman and Trustee
- -------------------------------
Charles R. Schwab
Timothy F. McCarthy* President and Trustee
- -------------------------------
Timothy F. McCarthy
William J. Klipp* Executive 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
Tai-Chin Tung* Treasurer and Principal Financial Officer
- -------------------------------
Tai-Chin Tung
*By: /s/ Alan G. Priest
-----------------------------------------
Alan G. Priest, Attorney-in-Fact pursuant
to Powers of Attorney filed previously
<PAGE> 50
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT TITLE
5(a) Investment Advisory and Administration Agreement
<PAGE> 1
EXHIBIT 5(a)
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT
(THE SCHWAB MONEY FUNDS)
AGREEMENT made as of May 1, 1997 between THE CHARLES SCHWAB FAMILY OF
FUNDS, a Massachusetts business trust (herein called the "Trust"), and CHARLES
SCHWAB INVESTMENT MANAGEMENT, INC., a Delaware corporation (the "Investment
Adviser").
WHEREAS, the Trust is registered as an open-end diversified, management
investment company under the Investment Company Act of 1940, as amended ("1940
Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory, administrative, and certain accounting and record-keeping
services to three investment portfolios of the Trust: the Schwab Money Market
Fund, the Schwab Government Money Fund and the Schwab Municipal Money Fund
(formerly, the Schwab Tax-Exempt Money Fund) (each a "Money Fund" and
collectively, the "Money Funds"), and the Investment Adviser is willing and
believes that it possesses the legal authority to so furnish such services,
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints the Investment Adviser to act
as investment adviser and administrator to the Money Funds for the period and on
the terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
2. Delivery of Documents. The Trust has furnished the Investment Adviser
with copies properly certified or authenticated of each of the following:
(a) the Trust's Agreement and Declaration of Trust, as filed with
the Secretary of State of The Commonwealth of Massachusetts on October
20, 1989, and all amendments thereto or restatements thereof (such
Agreement and Declaration, as presently in effect and as it shall from
time to time be amended or restated, is herein called the
<PAGE> 2
"Declaration of Trust");
(b) the Trust's By-Laws and amendments thereto;
(c) resolutions of the Trust's Board of Trustees authorizing the
appointment of the Investment Adviser and approving this Agreement;
(d) the Trust's Notification of Registration on Form N-8A under
the 1940 Act, as filed with the Securities and Exchange Commission
("SEC") on November 1, 1989 and all amendments thereto;
(e) the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended ("1933 Act"), (File No. 33-31894) and
under the 1940 Act as filed with the "SEC" and all amendments thereto;
and
(f) the Trust's most recent prospectus and Statement of
Additional Information for the Money Funds (such prospectuses and
Statement of Additional Information, as presently in effect, and all
amendments and supplements thereto are herein collectively called the
"Prospectus").
The Trust will furnish the Investment Adviser from time to time with copies of
all amendments of or supplements to the foregoing.
3. Management. Subject to the direction and control of the Board of
Trustees of the Trust, the Investment Adviser will supervise or perform for the
Money Funds all aspects of the operations of the Money Funds except for those
performed by the custodian for the Money Funds under the Custody Agreement,
provide general economic and financial analysis and advice to the Money Funds,
and provide a continuous investment program for the Money Funds, including
investment research and management as to all securities and investments and cash
equivalents in the Money Funds. More particularly, the Investment Adviser will:
determine from time to time what securities and other investments will be
purchased, retained, or sold by the Money Funds; maintain office facilities
(which may be in the offices of the Investment Adviser or a corporate affiliate
but shall be in such location as the Trust reasonably determines); furnish
statistical and research data, clerical services and stationery and office
supplies; compile data for, prepare for execution by the Money Funds and file
all the Money Funds' federal and state tax returns
<PAGE> 3
and required tax filings other than those required to be made by the Money
Funds' custodian and transfer agent; prepare compliance filings pursuant to
state securities laws with the advice of the Trust's counsel; prepare the
Trust's Annual and Semi-Annual Reports to Shareholders and amendments to its
Registration Statements (on Form N-1A or any replacement therefor); compile data
for, prepare and file timely Notices to the SEC required pursuant to Rule 24f-2
under the 1940 Act; perform at the expense of the Money Funds the daily pricing
of portfolio securities and computation of the net asset value and the net
income of each Money Fund in accordance with the Prospectus and resolutions of
the Trust's Board of Trustees; keep and maintain the financial accounts and
records of the Money Funds and provide the Trust with certain reports, all as
more specifically set forth on Schedule A hereto; and generally assist in all
aspects of the operations of the Money Funds.
Subject to the provisions of the Agreement and Declaration of
Trust and the 1940 Act, the Investment Adviser, at its expense, may select and
contract with investment advisers (the "Sub-Advisers") for one or more of the
Money Funds. So long as any Sub-Adviser serves as Sub-Adviser to a Money Fund,
it must be a party to a Sub-Investment Advisory Agreement in substantially the
form attached hereto as Schedule B (the "Sub-Adviser Agreement") and will be
obligated to (i) furnish continuously an investment program as to those assets
of the Trust and the Money Funds involved allocated by the Investment Adviser,
(ii) in connection therewith, adhere to such guidelines as may be established by
the Investment Adviser from time to time to insure compliance with applicable
investment objectives, policies and restrictions of the Trust and the Money
Funds and (iii) place all orders for the purchase and sale of Investments. The
Investment Adviser may also delegate or subcontract some or all of the
Investment Adviser's other duties enumerated in this Agreement. The Investment
Adviser will be responsible for payment of all compensation to all Sub-Advisers
and other persons and entities to which Investment Adviser delegates any duties
hereunder.
The Investment Adviser further agrees that it:
(a) will use the same skill and care in providing such services
as it would use in providing services to fiduciary accounts if it had
investment responsibilities for such accounts;
(b) will conform with all applicable Rules and Regulations of the
SEC and will in addition conduct its activities under this Agreement in
accordance with any applicable regulations of any
<PAGE> 4
governmental authority pertaining to the investment advisory activities
of the Investment Adviser;
(c) will not make loans to any person to purchase or carry units
of beneficial interest in the Trust or make loans to the Trust;
(d) will place orders pursuant to its investment determinations
for the Money Funds either directly with the issuer or with an
underwriter, market maker, or broker or dealer. In placing orders with
brokers and dealers the Investment Adviser will attempt to obtain prompt
execution of orders in an effective manner at the most favorable price.
Consistent with this obligation, when the execution and price offered by
two or more brokers or dealers are comparable, the Investment Adviser
may, in its discretion, purchase or sell portfolio securities to and
from brokers and dealers who provide the Investment Adviser or any
Sub-Adviser with research advice and other services. In no instance will
portfolio securities be purchased from or sold to the Investment Adviser
or any Sub-Adviser, or any affiliated person of either the Trust, the
Investment Adviser, or any Sub-Adviser, except as may be permitted under
the 1940 Act;
(e) will treat confidentially and as proprietary information of
the Trust all records and other information relative to the Trust, and
will not use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld
where the Investment Adviser may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested
by the Trust; and
(f) will direct its personnel when making investment
recommendations for the Trust, not to inquire or take into consideration
whether the issuers of securities proposed for purchase or sale for the
Trust's accounts are customers of the Investment Adviser or of its
parent or its subsidiaries or affiliates. In dealing with such
customers, the Investment Adviser and its parent, subsidiaries, and
affiliates will not inquire or take into consideration whether
securities of those customers are held by the Trust.
<PAGE> 5
4. Services to Others. The Trust understands that the Investment Adviser
may in the future act as an investment adviser to fiduciary and other managed
accounts, and as investment adviser, sub-investment adviser, and/or
administrator to other investment companies. The Trust has no objection to the
Investment Adviser's acts in such capacities, provided that whenever one of the
Money Funds and one or more other investment companies advised by the Investment
Adviser have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed by
the Investment Adviser to be equitable to each company. The Trust recognizes
that in some cases this procedure may adversely affect the size of the position
that a Money Fund may obtain in a particular security. In addition, the Trust
understands that the persons employed by the Investment Adviser to assist in the
Investment Adviser's duties under this Agreement will not devote their full time
to such service and nothing contained in this Agreement will be deemed to limit
or restrict the right of the Investment Adviser or any of its affiliates to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Investment Adviser hereby agrees that all records it
maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request and
will require the same type of agreement from each Sub-Adviser. The Investment
Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.
6. Expenses. During the term of this Agreement, the Investment Adviser
will pay all expenses incurred by it in providing general economic and financial
analysis and advice to the Money Funds and providing a continuous investment
program for the Money Funds pursuant to Section 3 above and in providing its
activities under this Agreement other than the cost of securities (including
brokerage commissions, if any) purchased for the Trust. The Investment Adviser
will also pay all compensation of any person or person employed by or associated
with the Investment Adviser to assist in the performance of the Investment
Adviser's obligations under this Agreement, whether or not such person is also a
officer or employee of the Trust, and the Investment Adviser will not cause any
obligation to be incurred on behalf of the Trust in respect of any such
compensation. Other expenses to be incurred in the operation of the Money Funds
- -- including without
<PAGE> 6
limitation taxes, interest, brokerage fees and commissions, if any, fees of
Trustees who are not officers, directors, shareholders, or employees of the
Investment Adviser or any Sub-Adviser, SEC fees and state "blue sky"
qualification fees, advisory and administration fees, costs of performing the
pricing of portfolio securities, transfer and dividend disbursing agents' fees,
certain insurance premiums, outside auditing and legal expenses, costs of
maintaining the Trust's existence as a Massachusetts business trust, typesetting
and printing prospectuses for regulatory purposes and for distribution to
current shareholders of the Money Funds, costs of shareholders' and Trustees'
reports and meetings and any extraordinary expenses -- will be borne by the
Money Funds; provided however, that the Money Funds will not bear, directly or
indirectly, the cost of any activity that is primarily intended to result in the
distribution of shares of the Money Funds.
7. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement for each Money Fund, the Trust will pay the
Investment Adviser out of the assets of such Money Fund and the Investment
Adviser will accept as full compensation therefor an annual fee, computed daily
and paid monthly in arrears, equal to the percentages of such Money Fund's
average daily net assets set forth below.
Schwab Money Market Fund
$1 billion or less 0.46%
Over $1 billion through $3 billion 0.45%
Over $3 billion through $10 billion 0.40%
Over $10 billion through $20 billion 0.37%
Over $20 billion 0.34%
Schwab Government Money Fund and the Schwab Municipal Money Fund
$1 billion or less 0.46%
Over $1 billion through $2 billion 0.41%
Over $2 billion 0.40%
If in any fiscal year the aggregate expenses (as defined under
the securities regulations of any state having jurisdiction over the Trust) of a
Money Fund exceed the expense limitations of any such state, the Investment
Adviser will reimburse such Money Fund for a portion of such excess expenses
equal to such excess times the ratio of the fees otherwise payable by such Money
Fund to the Investment Adviser hereunder to the aggregate fees otherwise payable
by such Money Fund to the Investment Adviser hereunder, and to Charles Schwab &
Co., Inc. under the Transfer Agency and Shareholder Servicing Agreement between
it and the Trust. The obligation of the Investment
<PAGE> 7
Adviser to reimburse a Money Fund hereunder is limited in any fiscal year to the
amount of its fee hereunder from such Money Fund for such fiscal year, provided,
however, that notwithstanding the foregoing, the Investment Adviser will
reimburse each Money Fund for such proportion of such excess expenses regardless
of the amount of fees paid to it during such fiscal year to the extent that the
securities regulations of any state having jurisdiction over the Trust so
require. Such expense reimbursement, if any, will be estimated daily and
reconciled and paid on a monthly basis.
8. Limitation of Liability. The Investment Adviser will not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the performance of this Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.
9. Duration and Termination. This Agreement will become effective as to
each Money Fund as of the date first written above, provided that it has been
approved by a vote of a majority of the outstanding voting securities of such
Money Fund, in accordance with the requirements under the 1940 Act.
Thereafter, if not terminated as to a Money Fund, this Agreement
will continue in effect as to such Money Fund for successive periods each ending
on May 30 of each year, provided such continuance is specifically approved at
least annually (a) by the vote of a majority of those members of the Trust's
Board of Trustees who are not parties to this Agreement or interested persons of
the Trust, the Investment Adviser, or any Sub-Adviser, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the
Trust's Board of Trustees or by vote of a majority of the outstanding voting
securities of such Money Fund. Notwithstanding the foregoing, this Agreement may
be terminated at any time on sixty days' written notice, without the payment of
any penalty, by the Trust (by vote of the Trust's Board of Trustees or by vote
of a majority of the outstanding voting securities of such Money Fund) or by the
Investment Adviser. This Agreement will immediately terminate in the event of
its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the same meaning of such terms in the 1940 Act.)
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing
<PAGE> 8
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the laws of the State of California.
The names "The Charles Schwab Family of Funds" and "Trustees of
The Charles Schwab Family of Funds" refer respectively to the Trust created and
the Trustees, as trustees but not individually or personally, acting from time
to time under the Declaration of Trust, to which reference is hereby made and a
copy of which is on file at the office of the Secretary of The Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The Charles Schwab
Family of Funds" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, interest holders or
representatives of the Trust personally, but bind only the assets of the Trust,
and all persons dealing with any series of units of interest of the Trust must
look solely to the assets of the Trust belonging to such series for the
enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
THE CHARLES SCHWAB FAMILY OF FUNDS
By: /s/ Timothy F. McCarthy
--------------------------------
Name: Timothy F. McCarthy
Title: President and Trustee
<PAGE> 9
CHARLES SCHWAB INVESTMENT
MANAGEMENT, INC.
By: /s/ William J. Klipp
--------------------------------
Name: William J. Klipp
Title: President and Chief Operating Officer
<PAGE> 10
SCHEDULE A
The Investment Adviser will keep and maintain the following books and
records of each Money Fund pursuant to Rule 31a-1 under the Investment Company
Act of 1940 (the "Rule"):
a. Journals containing an itemized daily record in detail of all purchases
and sales of securities, all receipts and disbursements of cash, and all other
debits and credits, as required by subsection (b)(1) of the Rule;
b. General and auxiliary ledgers reflecting all asset, liability, reserve,
capital, income and expense accounts, including interest accrued and interest
received, as required by subsection (b)(2)(i) of the Rule;
c. Separate ledger accounts required by subsection (b)(2)(ii) and (iii) of
the Rule; and
d. A monthly trial balance of all ledger accounts (except shareholder
accounts) as required by subsection (b)(8) of the Rule.
In addition to the maintenance of the books and records specified above,
the Investment Adviser will perform the following accounting services daily for
each Money Fund:
a. Calculate the yield;
b. Provide the following reports:
(i) a current security position report;
(ii) a summary report of transactions and pending maturities
(including the principal, cost, and accrued interest on each
portfolio security in maturity date order); and
(iii) a current cash position report (including cash available from
portfolio sales and maturities and sales of a Portfolio's
Shares less cash needed for redemptions and settlement of
portfolio purchases);
c. Such other similar services with respect to a Money Fund as may be
reasonably requested by Trust.
<PAGE> 11
SCHEDULE B
NOT APPLICABLE
