<PAGE> 1
SchwabFunds(R)
Schwab California
Municipal Money
Fund - Sweep Shares
[Graphic - Cover: The Schwab Building, San Francisco, California]
Annual Report
December 31, 1996
<PAGE> 2
Dear Shareholder,
It's been an exciting year at SchwabFunds(R). With the support
[Photo of of investors like you, the SchwabFunds Family(R) continues to
Charles R. rank among the largest and fastest-growing mutual fund
Schwab] complexes in the nation. In total, Charles Schwab Investment
Management, Inc. (CSIM) manages over $40 billion in assets for
approximately 2.5 million shareholders. Today CSIM offers
investors 30 funds spanning a spectrum of financial markets
and investing styles.
You'll find in-depth information on the performance of your SchwabFunds
investment in the following pages.
SMART NEW WAYS TO DIVERSIFY YOUR PORTFOLIO
Now more than ever, investors tell us they're looking for new ways to diversify
their portfolios in order to manage risk and enhance return potential. But with
literally thousands of mutual funds to choose from, analyzing and selecting
funds can be an overwhelming task. That's why we've introduced the new Schwab
OneSource Portfolios -- three "funds of funds" that span both U.S. and
international markets. Each OneSource Portfolio is actively managed by an
experienced portfolio manager who invests primarily in a variety of mutual funds
from well-known fund families, monitors their performance and adjusts the
portfolio mix in response to certain changes in the markets. So you can get
diversification among different funds and investing styles.
OPENING NEW CHANNELS OF COMMUNICATION
If you're among the millions of people exploring the Internet, I encourage you
to visit our Web site at WWW.SCHWAB.COM. There you'll find a wealth of online
information about SchwabFunds as well as a wide range of investments and
resources available from Schwab. You can access the latest mutual fund
performance data, request a free fund prospectus, trade funds and more -- all
from the comfort of your home or office, 24 hours a day. It's just one more way
we're harnessing the latest technology to make investing easier and more
convenient.
Thank you for placing your trust in SchwabFunds. In the year ahead, we'll
continue working to provide you with an expanding range of investment
opportunities to meet your needs.
/s/ Charles R. Schwab
---------------------------
Charles R. Schwab
Cover: The Schwab Building, San Francisco, California
<PAGE> 3
KEEP YOUR
MONEY WORKING
HARDER!
----------------------------------
USE THIS ENVELOPE TO EASILY ADD TO
YOUR SCHWAB MONEY FUND.
CHARLES SCHWAB
<PAGE> 4
TAKE ADVANTAGE OF THIS OPPORTUNITY TO ADD TO YOUR SCHWAB MONEY FUND INVESTMENT.
Your Schwab Money Fund earns money market returns and gives you
direct access to many investment opportunities available through
Schwab. By funding your account now, you'll be able to quickly
respond to changing market conditions with just a phone call to your
Schwab representative. And you keep every dollar working for you.
SO DON'T DELAY. USE THIS CONVENIENT SCHWAB MONEYFUNDER TO SEND YOUR CHECK TODAY!
- --------------------------------------------------------------------------------
PLEASE DETACH HERE.
SCHWAB MONEYFUNDER
- ------------------
Please enclose your check and this completed MoneyFunder
slip in the attached postage-paid envelope.
-------------------------
- -------------------------------------- SCHWAB ACCOUNT NUMBER
NAME
$
- --------------------------------------
AMOUNT OF INVESTMENT*
[ ] Check here if you would like more Schwab MoneyFunders for future use.
* MINIMUM INITIAL INVESTMENT $1,000; SUBSEQUENT MINIMUM $100, CUSTODIAN & IRA
ACCOUNTS $1.
An investment constitutes the purchase of shares in the money fund you have
previously chosen as the primary fund for your brokerage account.
----------------------------------------
(LIFT HERE FOR MORE INFORMATION)
----------------------------------------
SMF Member SIPC (C) 1996 Charles Schwab & Co., Inc. 1280-3 (7/96)
Printed on recycled paper.
<PAGE> 5
CHARLESSCHWAB
JUST FOLLOW THESE EASY STEPS TO INVEST IN YOUR SCHWAB MONEY FUND:
1. Fill out the Schwab MoneyFunder slip completely, THIS ENVELOPE MUST
including your name, account number and the amount BE PRECEDED OR
of your check. Please use one slip for each ACCOMPANIED BY A
account. CURRENT SCHWAB MONEY
FUND PROSPECTUS. AN
2. Make your check payable to CHARLES SCHWAB & CO., INVESTMENT IN A FUND IS
INC. and enclose your check with the completed NEITHER INSURED NOR
slip in this postage-paid envelope. GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN
3. Then just drop your Schwab MoneyFunder in the BE NO ASSURANCE THAT A
mail today--and start putting your money to work! FUND WILL BE ABLE TO
If you have any questions, don't hesitate to call MAINTAIN A STABLE NET
1-800-2 NO LOAD. ASSET VALUE OF $1.00
PER SHARE.
<PAGE> 6
Attn: Dept. FP 333-7
--------------
NO POSTAGE
NECESSARY IF
MAILED IN THE
UNITED STATES
--------------
-------------------------------------
BUSINESS REPLY MAIL
FIRST-CLASS MAIL PERMIT NO. 18125 [BAR CODE]
SAN FRANCISCO, CA
-------------------------------------
POSTAGE WILL BE PAID BY ADDRESSEE
CHARLES SCHWAB & CO., INC.
PO BOX 7783
SAN FRANCISCO CA 94120-9330
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
OVERVIEW ........................................................... 1
FUND SUMMARY ....................................................... 2
ECONOMIC HIGHLIGHTS ................................................ 6
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM ......................... 10
GLOSSARY OF TERMS .................................................. 14
PORTFOLIO SUMMARY .................................................. 15
FINANCIAL STATEMENTS AND NOTES ..................................... 16
RESULTS OF SPECIAL SHAREHOLDER MEETING AND PROXY VOTE .............. 46
</TABLE>
OVERVIEW
We're pleased to report on the performance of your investment in the Schwab
California Municipal Money Fund-Sweep Shares for the year ended December 31,
1996. During the year, these shares provided you with competitive current income
exempt from federal regular income tax and California personal income taxes,1
combined with capital stability and ready access to your money.
The Schwab California Municipal Money Fund-Sweep Shares seeks to maintain a
stable $1 share price to protect your principal. As with all money funds,
however, there can be no assurance that the Fund will be able to maintain a $1
net asset value per share. It's also important to understand that your
investment is not insured or guaranteed by the U.S. government.
The Schwab California Municipal Money Fund's name was changed from Schwab
California Tax-Exempt Money Fund on January 2, 1997 to reflect a change in its
investment policy, as explained later in this report.
1 Income may be subject to the federal Alternative Minimum Tax (AMT).
1
<PAGE> 8
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND -
SWEEP SHARES SUMMARY
(FORMERLY SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND -
SWEEP SHARES)
PERFORMANCE REVIEW
The table below presents 7-day average yields at the end of the year. Of course,
money market fund yields fluctuate and past performance is no guarantee of
future results.
================================================================================
<TABLE>
<CAPTION>
7-DAY AVERAGE YIELDS2
(as of 12/31/96)
Simple Compound Compound Taxable Equivalent(3)
- --------------------------------------------------------------------------------
<C> <C> <C>
3.20% 3.25% 5.93%
================================================================================
</TABLE>
THE OPPORTUNITY FOR HIGHER YIELDS, AFTER TAXES
If you're in a high tax bracket, the double tax-exempt* income which may be paid
by the Schwab California Municipal Money Fund-Sweep Shares can provide you with
higher yields than taxable money funds on a taxable equivalent basis. Here's how
the compound taxable equivalent yield of these sweep shares compared with the
average compound yield for First Tier taxable money funds on December 31, 1996
for shareholders in the highest California 1996 tax bracket:
<TABLE>
<S> <C>
Your Sweep Shares' 7-day
compound taxable equivalent yield 2,3 5.93%
Average 7-day compound yield for
fully taxable money funds 4 4.93%
Your yield advantage, after taxes: 1.00%
</TABLE>
*Income may be subject to the federal Alternative Minimum Tax (AMT).
2 A portion of the Fund's fees were waived or reimbursed during the reporting
period. Without the waivers or reimbursements, the Schwab California Municipal
Money Fund-Sweep Shares' 7-day simple yield would have been 2.89%, the 7-day
compound yield would have been 2.93% and the 7-day compound taxable equivalent
yield would have been 5.35% at December 31, 1996.
3 Taxable equivalent yield assumes a 1996 maximum combined federal and
California state income tax rate of 45.22%.
4 Source: IBC Financial Data's average 7-day compound yield for the 270 funds
in the First Tier category of Taxable Money Funds, as of December 31, 1996. Past
performance is no guarantee of future results.
2
<PAGE> 9
The following is a pie chart illustrating the portfolio composition of the
Schwab California Municipal Money Fund as of December 31, 1996.
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
PORTFOLIO COMPOSITION - DECEMBER 31, 1996
[Pie Chart]
<TABLE>
<S> <C>
Variable Rate Obligations 63%
Tax-Exempt Commercial Paper 17%
Tax and Revenue Anticipation Notes 16%
Other 2%
Variable Rate Tender Option Bond Partnerships 2%
</TABLE>
PORTFOLIO COMPOSITION
The chart above illustrates the composition of the Fund's portfolio as of
December 31, 1996. In addition, you'll find a complete listing of the securities
in the Fund's portfolio on December 31, 1996 later in this report.
The Fund invests in high-quality, short-term municipal obligations issued by the
state of California, its agencies and municipalities. To minimize credit risk,
the Fund primarily has invested in securities rated in the top rating category
(known as "First Tier") by the requisite number of nationally recognized rating
organizations (NRSROs), or securities of equivalent credit quality, if unrated.
3
<PAGE> 10
GROWTH IN FUND ASSETS AND SHAREHOLDERS
The table below illustrates the growth in the Schwab California Municipal Money
Fund-Sweep Shares' total net assets and number of shareholders during the
12-month reporting period.
================================================================================
<TABLE>
<CAPTION>
12/31/96 12/31/95 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Net Assets(000s) $1,816,112 $1,577,695 +15%
- --------------------------------------------------------------------------------
Shareholder Accounts 51,676 44,416 +16%
================================================================================
</TABLE>
SELECTING A MONEY FUND
The Schwab sweep money funds can be linked to your Schwab account to keep all of
your money invested and working for you. With this special "sweep" feature, a
balance of $100 or more in your account can be automatically invested, or
"swept" on a regular basis into the Sweep Shares you select, where it will be
available to settle trades and cover other day-to-day transactions. It can be a
smart, convenient way to manage your short-term cash.
The most appropriate sweep money fund for you will depend upon such factors as
your attitudes toward risk and return, your income tax bracket, and how much
money you normally keep in a money fund. We offer both taxable and
tax-advantaged choices to meet your individual needs.
- - The Schwab Money Market Fund invests in high-quality commercial paper,
certificates of deposit and other types of investments.
- - The Schwab Government Money Fund invests exclusively in obligations issued
or guaranteed by the U.S. government, its agencies and instrumentalities.
4
<PAGE> 11
- - The Schwab U.S. Treasury Money Fund invests exclusively in U.S. Treasury
notes, bills, or other direct obligations of the U.S. government, and pays
income free from state and local taxes in the vast majority of states.
- - If you're in a high tax bracket, one of our tax-advantaged municipal money
funds may provide you with higher returns after taxes. The Schwab Municipal
Money Fund-Sweep Shares invests in municipal obligations that generate
income free from federal regular income tax.* And for investors in
California and New York, Schwab offers Sweep Shares which provide
additional state and local tax advantages.* Consult your tax advisor for
specific guidance on your own tax situation before investing.
If you consistently maintain high money fund balances, you may wish to consider
investing your longer-term cash reserves in one of our Value Advantage
Investments(R). These money funds offer potentially higher yields than our sweep
funds, but they do not include sweep features.
* Income may be subject to the federal Alternative Minimum Tax (AMT).
5
<PAGE> 12
The following is a bar graph which illustrates the Quarterly % change in GDP
for each quarter from the first quarter 1990 through the fourth quarter 1996.
ECONOMIC HIGHLIGHTS
1996 GROWTH CONTINUES THE SIXTH YEAR
OF ECONOMIC EXPANSION
REAL GDP GROWTH RATE
(QUARTERLY % CHANGE, ANNUAL RATE)
Real Gross Domestic Product
Chain Weighted
Percent change from preceeding quarter, seasonally adjusted at annual rates
Source: Bloomberg
<TABLE>
<CAPTION>
CHART 9
Real GDP
<S> <C>
Q1 1990 4.1%
Q2 1990 1.3%
Q3 1990 -1.9%
Q4 1990 -4.1%
Q1 1991 -2.2%
Q2 1991 1.7%
Q3 1991 1.0%
Q4 1991 1.0%
Q1 1992 4.7%
Q2 1992 2.5%
Q3 1992 3.0%
Q4 1992 4.3%
Q1 1993 -0.1%
Q2 1993 1.9%
Q3 1993 2.3%
Q4 1993 4.8%
Q1 1994 2.5%
Q2 1994 4.9%
Q3 1994 3.5%
Q4 1994 3.0%
Q1 1995 0.4%
Q2 1995 0.7%
Q3 1995 3.8%
Q4 1995 0.3%
Q1 1996 2.0%
Q2 1996 4.7%
Q3 1996 2.1%
Q4 1996 4.7%
</TABLE>
Source: Bloomberg L.P.
- - The GDP growth rate for 1996 was 3.4%. This growth rate represents a
significant improvement from the relatively weak 1.3% overall rate in 1995
and in particular, the 0.3% fourth quarter 1995 rate, which caused concern
over the possibility of a recession early in 1996.
- - The 1996 second and fourth quarter growth rates of 4.7% resulted in
sentiment focusing on the apparent strength of the economy and its
potential impact on future inflation and Federal Reserve Board (Fed)
policy.
- - At the time of this writing, the economy appears to be on track for
moderate growth, continuing the six year expansion which began in 1991.
6
<PAGE> 13
The following is a line graph which illustrates the monthly unemployment rate
from January 1990 through December 1996.
U.S. UNEMPLOYMENT RATE
<TABLE>
<CAPTION>
Unemployment Rate
<S> <C>
Jan-90 5.3%
Feb-90 5.3%
Mar-90 5.2%
Apr-90 5.4%
May-90 5.3%
Jun-90 5.1%
Jul-90 5.4%
Aug-90 5.6%
Sep-90 5.7%
Oct-90 5.8%
Nov-90 6.0%
Dec-90 6.2%
Jan-91 6.3%
Feb-91 6.5%
Mar-91 6.8%
Apr-91 6.6%
May-91 6.8%
Jun-91 6.8%
Jul-91 6.7%
Aug-91 6.8%
Sep-91 6.8%
Oct-91 6.9%
Nov-91 6.9%
Dec-91 7.1%
Jan-92 7.1%
Feb-92 7.3%
Mar-92 7.3%
Apr-92 7.3%
May-92 7.4%
Jun-92 7.7%
Jul-92 7.6%
Aug-92 7.6%
Sep-92 7.5%
Oct-92 7.4%
Nov-92 7.3%
Dec-92 7.3%
Jan-93 7.1%
Feb-93 7.0%
Mar-93 7.0%
Apr-93 7.0%
May-93 6.9%
Jun-93 6.9%
Jul-93 6.8%
Aug-93 6.7%
Sep-93 6.7%
Oct-93 6.7%
Nov-93 6.5%
Dec-93 6.4%
Jan-94 6.7%
Feb-94 6.6%
Mar-94 6.5%
Apr-94 6.4%
May-94 6.0%
Jun-94 6.0%
Jul-94 6.1%
Aug-94 6.1%
Sep-94 5.9%
Oct-94 5.6%
Nov-94 5.6%
Dec-94 5.4%
Jan-95 5.6%
Feb-95 5.4%
Mar-95 5.8%
Apr-95 5.7%
May-95 5.7%
Jun-95 5.6%
Jul-95 5.7%
Aug-95 5.3%
Sep-95 5.6%
Oct-95 5.5%
Nov-95 5.6%
Dec-95 5.6%
Jan-96 5.8%
Feb-96 5.5%
Mar-96 5.6%
Apr-96 5.4%
May-96 5.6%
Jun-96 5.3%
Jul-96 5.4%
Aug-96 5.1%
Sep-96 5.2%
Oct-96 5.2%
Nov-96 5.3%
Dec-96 5.3%
</TABLE>
Source: Bloomberg L.P.
- - The unemployment rate during 1996 remained near its lows for the decade,
leading many economists to question whether such low levels can continue
without generating inflationary pressures on wages and, ultimately, prices.
- - Job creation slowed during the latter half of 1996, consistent with the
slowing of the economy in the third quarter from the second quarter of
1996.
7
<PAGE> 14
The following is a bar and line graph which illustrates the monthly consumer
price index and the quarterly employment cost index from January 1990 through
December 1996.
MEASURES OF INFLATION
Consumer Price Index - All Items YOY
Employment Cost Index (includes both wages and salaries and benefits components)
- - Quarterly Data Annualized
Source: Bloomberg
CHART 14
<TABLE>
<CAPTION>
Monthly Quarterly
Consumer Employment
Price Cost
Index - Index -
YOY % YOY %
Change Change
<S> <C> <C> <C>
Jan-90 5.2% 5.3%
Feb-90 5.3% 5.3%
Mar-90 5.2% 5.3%
Apr-90 4.7% 5.4%
May-90 4.4% 5.4%
Jun-90 4.7% 5.4%
Jul-90 4.8% 5.1%
Aug-90 5.6% 5.1%
Sep-90 6.2% 5.1%
Oct-90 6.3% 4.8%
Nov-90 6.3% 4.8%
Dec-90 6.1% 4.8%
Jan-91 5.7% 4.6%
Feb-91 5.3% 4.6%
Mar-91 4.9% 4.6%
Apr-91 4.9% 4.5%
May-91 5.0% 4.5%
Jun-91 4.7% 4.5%
Jul-91 4.4% 4.3%
Aug-91 3.8% 4.3%
Sep-91 3.4% 4.3%
Oct-91 2.9% 4.2%
Nov-91 3.0% 4.2%
Dec-91 3.1% 4.2%
Jan-92 2.6% 4.1%
Feb-92 2.8% 4.1%
Mar-92 3.2% 4.1%
Apr-92 3.2% 3.5%
May-92 3.0% 3.5%
Jun-92 3.1% 3.5%
Jul-92 3.2% 3.4%
Aug-92 3.1% 3.4%
Sep-92 3.0% 3.4%
Oct-92 3.2% 3.5%
Nov-92 3.0% 3.5%
Dec-92 2.9% 3.5%
Jan-93 3.3% 3.4%
Feb-93 3.2% 3.4%
Mar-93 3.1% 3.4%
Apr-93 3.2% 3.6%
May-93 3.2% 3.6%
Jun-93 3.0% 3.6%
Jul-93 2.8% 3.6%
Aug-93 2.8% 3.6%
Sep-93 2.7% 3.6%
Oct-93 2.8% 3.4%
Nov-93 2.7% 3.4%
Dec-93 2.7% 3.4%
Jan-94 2.5% 3.2%
Feb-94 2.5% 3.2%
Mar-94 2.5% 3.2%
Apr-94 2.4% 3.1%
May-94 2.3% 3.1%
Jun-94 2.5% 3.1%
Jul-94 2.8% 3.1%
Aug-94 2.9% 3.1%
Sep-94 3.0% 3.1%
Oct-94 2.6% 3.0%
Nov-94 2.7% 3.0%
Dec-94 2.7% 3.0%
Jan-95 2.8% 3.0%
Feb-95 2.9% 3.0%
Mar-95 2.9% 3.0%
Apr-95 3.1% 3.0%
May-95 3.2% 3.0%
Jun-95 3.0% 3.0%
Jul-95 2.8% 2.8%
Aug-95 2.6% 2.8%
Sep-95 2.5% 2.8%
Oct-95 2.8% 2.8%
Nov-95 2.6% 2.8%
Dec-95 2.5% 2.8%
Jan-96 2.7% 2.9%
Feb-96 2.7% 2.9%
Mar-96 2.8% 2.9%
Apr-96 2.9% 2.9%
May-96 2.9% 2.9%
Jun-96 2.8% 2.9%
Jul-96 3.0% 2.9%
Aug-96 2.9% 2.9%
Sep-96 3.0% 2.9%
Oct-96 3.0% 3.0%
Nov-96 3.3% 3.0%
Dec-96 3.3% 3.0%
</TABLE>
- --Quarterly Employment Cost Index ==Monthly Consumer Price Index
Source: Bloomberg L.P.
- - Although trending slightly upward, both employment cost and CPI remained in
check during 1996, reflecting continued low levels of inflation.
- - CPI rose 3.3% in 1996, the highest annual rate since 1990. However, the
core rate (which excludes the more volatile food and energy components)
rose 2.6%, the lowest rate since 1965.
- - The Fed has indicated it will maintain a posture of "heightened
surveillance" and remain diligent in its effort to prevent increases
inflation.
8
<PAGE> 15
The following is a line graph which illustrates the 90 day municipal commercial
paper rates for each week in 1996.
SHORT-TERM MUNICIPAL INTEREST RATES IN 1996
YIELDS
90-Day Municipal Commercial Paper
January 2, 1996 - December 31, 1996
<TABLE>
<CAPTION>
CHART 13
90-Day Municipal Commercial Paper Yield
<S> <C>
1/3/96 3.30%
1/10/96 3.25%
1/17/96 3.20%
1/24/96 3.20%
1/31/96 3.35%
2/7/96 3.15%
2/14/96 3.20%
2/21/96 3.20%
2/28/96 3.20%
3/6/96 3.10%
3/13/96 3.30%
3/20/96 3.30%
3/27/96 3.35%
4/3/96 3.35%
4/10/96 3.50%
4/17/96 3.50%
4/24/96 3.65%
5/1/96 3.60%
5/8/96 3.65%
5/15/96 3.60%
5/22/96 3.55%
5/29/96 3.55%
6/5/96 3.40%
6/12/96 3.40%
6/19/96 3.55%
6/26/96 3.60%
7/3/96 3.35%
7/10/96 2.90%
7/17/96 3.00%
7/24/96 3.54%
7/31/96 3.54%
8/7/96 3.35%
8/14/96 3.42%
8/21/96 3.45%
8/28/96 3.44%
9/4/96 3.45%
9/11/96 3.23%
9/18/96 3.23%
9/25/96 3.59%
10/2/96 3.30%
10/9/96 3.32%
10/16/96 3.56%
10/23/96 3.56%
10/30/96 3.60%
11/6/96 3.32%
11/13/96 3.27%
11/20/96 3.50%
11/27/96 3.50%
12/4/96 3.50%
12/11/96 3.35%
12/18/96 3.46%
12/25/96 3.46%
</TABLE>
==90-Day Municipal Commercial Paper
Source: Lehman Brothers, Inc.
- - Short-term municipal interest rates displayed a moderate decline early in
the year in response to fears of an economic recession, and then increased
moderately during the middle of the year in response to concerns over
excessive growth and its potential impact on future inflation.
- - Short-term municipal rates exhibited moderate volatility, much of which was
a result of the market's reaction to strong employment reports.
- - Short-term municipal rates experienced their typical supply related dip in
June.
9
<PAGE> 16
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM OF CHARLES SCHWAB INVESTMENT
MANAGEMENT, INC.
STEPHEN B. WARD - Senior Vice President of Charles Schwab and Co., Inc. and
Chief Investment officer of Charles Schwab Investment Management, Inc. Mr. Ward
has held this position since 1993. He joined CSIM in 1991 as a Vice President
and Portfolio Manager.
WALTER BEVERIDGE - Portfolio Manager of the Schwab Municipal Money Fund and
Schwab California Municipal Money Fund since 1992 and the Schwab New York
Municipal Money Fund since 1995. Mr. Beveridge joined CSIM as a Portfolio
Manager in 1992.
JACK GAZZOLA - Associate Portfolio Manager. Mr. Gazzola joined the Portfolio
Management Team in 1992.
Q. HOW HAS THE PORTFOLIO MANAGEMENT TEAM ADJUSTED THE FUND'S PORTFOLIO TO
RESPOND TO CHANGES IN INTEREST RATES?
A. During most of the one-year reporting period, interest rates exhibited no
clear trend, amid uncertainty over inflationary pressures and ever-changing
signals from the Fed over the direction of interest rates. The Fed adjusted
interest rates only once during the period by lowering the Federal Funds rate
from 5.50% to 5.25% on February 1, 1996. As a result, the Fund maintained a
relatively neutral maturity policy, avoiding significant deviations from other
funds with similar investment objectives. By employing a neutral maturity
strategy and avoiding a bet on the level of future interest rates by
significantly extending or shortening the portfolio, the portfolio management
team was able to be more responsive to changes in interest rates and maintain
the portfolio's competitive position. The Fund's average maturity at the
beginning of the period was 50 days and 47 days at the end of the reporting
period.
10
<PAGE> 17
Q. WHAT STANDARDS DOES THE PORTFOLIO MANAGEMENT TEAM USE IN SELECTING SECURITIES
FOR THE FUND?
A. Money market funds are required by law to hold high-quality securities in
their portfolios. For the Schwab California Municipal Money Fund, we have
continued to take the additional step of only investing in what are referred to
as First Tier securities. In general, a First Tier security provides certain
maturity limits and carries the highest credit rating from the required number
of nationally recognized statistical rating organizations (NRSROs). If unrated,
a security must be deemed to be of comparable quality to a First Tier security
according to guidelines approved by the Board of Trustees of The Charles Schwab
Family of Funds.
Certain securities owned by the Fund are insured or backed by a Letter of Credit
issued by a First Tier financial institution. These arrangements are frequently
referred to as "credit enhancements" because they provide incremental levels of
creditworthiness in addition to the underlying strength of the primary issuer.
The credit quality of the insurance companies and financial institutions
providing credit enhancements are reviewed by Charles Schwab Investment
Management, Inc. as a regular part of our thorough credit review procedures for
all portfolio securities and issuers.
Q. CAN YOU DESCRIBE THE ECONOMIC CLIMATE IN CALIFORNIA AND ITS IMPACT ON THE
STATE'S MUNICIPAL SECURITIES?
A. During the past two years, California's economic recovery has broadly
reflected the movement and pace of national trends. While the state has regained
the jobs lost during the 1990 recession, the California unemployment rate
continues to exceed the national average. Further, persistent softness of the
real estate market and sluggish figures for new home construction may keep
unemployment levels above the national average in the near future.
11
<PAGE> 18
California has eliminated its accumulated budget deficit of approximately $2
billion and expects to build up a contingency reserve to cover future economic
challenges. Lawmakers continue to struggle with maintaining necessary services
such as education, infrastructure improvements, and public health and safety
with available tax revenues, against a backdrop of budget reductions and federal
welfare reform. The state budget assumes levels of federal assistance and state
economic growth that may not be realized. However, 1995-1996 revenues came in
above budget estimates and California's financial position is expected to
continue to improve over the next twelve months.
We are satisfied with the credit quality of the California securities the Fund
currently owns, and we will continue to monitor the state's economic situation
closely. California's current long-term credit ratings are A1 from Moody's
Investor Service, A+ from Standard & Poor's Corporation, and A+ from Fitch
Investors Services, Inc., three well-known rating agencies.
Q. HOW DID THE RECENT PROXY VOTE AFFECT THE FUND'S INVESTMENT POLICIES AND
STRATEGIES?
A. Prior to the recent proxy vote, the Fund was limited in its ability to invest
in securities which generated income subject to the federal Alternative Minimum
Tax (AMT). The Fund was limited to investing no more than 20% of total assets in
AMT investments. As a result of the affirmative proxy vote, the 20% limitation
is eliminated and the Fund is allowed to increase its holdings of AMT
investments beyond the 20% level. The successful proxy vote also resulted in the
Fund's name change to replace the term "Tax-Exempt" with "Municipal" as of
January 2, 1997.
AMT investments typically offer higher yields than other types of municipal
securities with similar credit quality. Our research indicated that the majority
of investors are not subject to the federal Alternative
12
<PAGE> 19
Minimum Tax and, as a result, are likely to benefit from the potentially higher
yields. Although all shareholders may enjoy higher yields, for shareholders
subject to the federal AMT, the policy change may result in a greater percentage
of their income from the Fund being subject to AMT.
More municipal and tax-free money market funds in the industry are purchasing
AMT investments and the percentage of AMT investments in many other funds has
grown in recent years. In light of these market trends, the Investment Manager
and the Board of Trustees both felt this change was important to help enable the
Fund to remain competitive now and in the future.
Shareholders passed another proxy proposal which eliminated, reclassified or
amended several of the Fund's fundamental policies and investment restrictions.
These changes are intended to allow the Fund to act more quickly and efficiently
to capitalize on future investment opportunities or changes in investment laws
or regulations. The amendments in this final proposal did not result in any
change to the investment objective or reduce the credit quality of the Fund.
For the final tabulation of proxy votes, please refer to page 46.
13
<PAGE> 20
GLOSSARY OF TERMS
ALTERNATIVE MINIMUM TAX (AMT) A federal tax on income in addition to regular
income taxes designed to ensure that very wealthy individuals and corporations
pay at least some income tax each year.
COMMERCIAL PAPER Short-term, interest-paying obligations with maturities ranging
up to 270 days issued by banks, corporations, and other borrowers.
CREDIT ENHANCEMENTS A bank letter of credit, purchase agreement, insurance, or
line of credit that provides an additional level of creditworthiness for debt
securities to supplement the financial strength of the issuer.
DOLLAR-WEIGHTED AVERAGE MATURITY A measure of the average maturity of a mutual
fund's entire portfolio, weighted by the value of its individual holdings.
FEDERAL FUNDS RATE A key interest rate charged by banks when lending money to
other banks overnight.
FEDERAL RESERVE The central bank of the United States that establishes policies
on bank reserves and regulations, determines the discount rate, and tightens or
loosens the availability of credit.
FIRST TIER SECURITY A security that matures within certain recognized limits and
carries the top credit rating from the requisite number of NRSROs, or if
unrated, is of comparable credit quality.
HIGH-QUALITY SECURITY A security ranked in the highest two rating categories by
a nationally recognized statistical rating organization (NRSRO), or if unrated,
is of comparable credit quality.
MATURITY The length of time before which the issuer of a debt security must
repay the principal amount.
NRSRO A nationally recognized statistical rating organization, such as Standard
& Poor's or Moody's Investor Services, which evaluates and rates the credit
quality of securities.
REAL GDP The national Gross Domestic Product (GDP) -- the total value of all
goods and services produced in the U.S. over a specific period of time --
adjusted for the rate of inflation to allow meaningful year-to-year comparisons.
TAXABLE EQUIVALENT YIELD The return you would have to realize on a fully taxable
investment in order to equal a specified tax-exempt yield; this hypothetical
yield varies according to your income tax bracket.
YIELD The rate of return, usually dividend or interest payments, on an
investment, expressed as a percentage of market price.
14
<PAGE> 21
- ------------------------------------------------------------------------------
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
(Formerly Schwab California Tax-Exempt Money Fund)
- ------------------------------------------------------------------------------
PORTFOLIO SUMMARY
ASSET GROWTH
<TABLE>
<CAPTION>
Total Total Percentage
Net Assets Net Assets Growth Over
as of 12/31/96 as of 12/31/95 Reporting
(000s) (000s) Period
- ---------------------------------------------------
<S> <C> <C>
$2,323,598 $1,685,703 38%
- ---------------------------------------------------
</TABLE>
AVERAGE YIELDS FOR THE PERIODS ENDED DECEMBER 31, 1996
SWEEP SHARES
<TABLE>
<CAPTION>
Last Last Last
Seven Days Three Months Twelve Months
- ---------------------------------------------------
<S> <C> <C>
3.20% 2.83% 2.76%
- ---------------------------------------------------
</TABLE>
VALUE ADVANTAGE SHARES
<TABLE>
<CAPTION>
Last Last Last
Seven Days Three Months Twelve Months
- ---------------------------------------------------
<S> <C> <C>
3.40% 3.03% 2.96%
- ---------------------------------------------------
</TABLE>
MATURITY SCHEDULE
PERCENT OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
Maturity Range 3/31/96 6/30/96 9/30/96 12/31/96
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
0 - 15 Days 65.0% 61.2% 74.6% 66.8%
16 - 30 Days 1.6 9.1 1.3 3.9
31 - 60 Days 3.6 9.8 6.8 8.1
61 - 90 Days 6.5 8.1 0.1 4.2
91 - 120 Days 13.3 0.9 0.0 0.2
Over 120 Days 10.0 10.9 17.2 16.8
Weighted Average 41 Days 54 Days 56 Days 47 Days
- ---------------------------------------------------------------------
</TABLE>
15
<PAGE> 22
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
VARIABLE RATE OBLIGATIONS--63.16%(a)
ABAG Finance Authority for Nonprofit Organizations
Certificates of Participation (Lucile Salter Packard
Project)/ (AMBAC Insurance & IBJ SBPA)
3.90%, 01/07/97 $ 6,050 $ 6,050
Alameda County, California Industrial Development
Authority Revenue Bonds (Aitchison Family Project)
Series 1993A/(Wells Fargo Bank LOC)
4.25%, 01/07/97 2,880 2,880
Alameda County, California Industrial Development
Authority Revenue Bonds (Scientific Technology
Project) Series 1994A/(Banque Nationale de Paris
LOC)
4.25%, 01/07/97 3,000 3,000
Alameda-Contra Costa, California School Financial
Authority Certificates of Participation Capital
Improvement Finance Project/(Canadian Imperial Bank
of Commerce LOC)
3.75%, 01/07/97 6,000 6,000
Anaheim, California Certificates of Participation
(Anaheim Memorial Hospital Assoc. Project)/(AMBAC
Insurance & ABN-Amro Bank N.V. SBPA)
3.90%, 01/07/97 5,070 5,070
Anaheim, California Certificates of Participation
(Police Facility Financing Project)/(AMBAC Insurance
& IBJ SBPA)
3.90%, 01/07/97 250 250
Anaheim, California Housing Authority Multi Family
Housing Revenue Bonds (Heritage Village Apartments
Project) Series 1992A/(Multiple Credit Enhancements)
4.35%, 01/07/97 3,385 3,385
Big Bear Lake, California Industrial Development
Revenue Bonds Certificates of Participation
(Southwest Gas Corp. Project) Series A/(Union Bank
of Switzerland LOC)
4.00%, 01/07/97 12,500 12,500
California Health Facilities Financing Authority
Revenue Bonds (Adventist Health System -- Sutter
Health) Series 1991A/(Toronto-Dominion Bank LOC)
3.90%, 01/07/97 1,000 1,000
California Health Facilities Financing Authority
Revenue Bonds (Catholic Health Care) Series
1996B/(MBIA Insurance & Rabobank Nederland N.V.
SBPA)
4.00%, 01/07/97 20,000 20,000
California Health Facilities Financing Authority
Revenue Bonds (Catholic Health Care) Series
1996C/(MBIA Insurance & Rabobank Nederland N.V.
SBPA)
4.00%, 01/07/97 20,000 20,000
</TABLE>
16
<PAGE> 23
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
California Health Facilities Financing Authority
Revenue Bonds (Childrens Hospital Project) Series
1991/(MBIA Insurance & Swiss Bank SBPA)
4.00%, 01/07/97 $ 9,900 $ 9,900
California Health Facilities Financing Authority
Revenue Bonds (Granada Hills Community Center)
Series 1985C/ (Banque Paribas LOC)
4.20%, 01/07/97 3,300 3,300
California Health Facilities Financing Authority
Revenue Bonds (Kaiser Permanente Project) Series
1993A
4.00%, 01/07/97 8,200 8,200
California Health Facilities Financing Authority
Revenue Bonds (Kaiser Permanente Project) Series
1993B
4.00%, 01/07/97 1,600 1,600
California Health Facilities Financing Authority
Revenue Bonds (Pooled Loan Program) Series
1985B/(FGIC Insurance & FGIC SPA)
4.00%, 01/07/97 18,935 18,935
California Health Facilities Financing Authority
Revenue Bonds (Scripps Memorial Hospital) Series
1985B/(MBIA Insurance & Morgan Guaranty Trust SBPA)
4.00%, 01/07/97 15,120 15,120
California Health Facilities Financing Authority
Revenue Bonds (Scripps Memorial Hospital) Series
1991A/(MBIA Insurance & Morgan Guaranty Trust SBPA)
4.00%, 01/07/97 5,600 5,600
California Health Facilities Financing Authority
Revenue Bonds (Scripps Memorial Hospital) Series
1991B/(MBIA Insurance & Swiss Bank SBPA)
3.95%, 01/07/97 13,900 13,900
California Health Facilities Financing Authority
Revenue Bonds (St. Francis Hospital) Series
1995E/(MBIA Insurance & Rabobank Nederland SBPA)
4.00%, 01/07/97 4,900 4,900
California Health Facilities Financing Authority
Revenue Bonds (St. Francis Hospital) Series
1995F/(MBIA Insurance & Rabobank Nederland SBPA)
3.90%, 01/07/97 30,000 30,000
California Pollution Control Financing Authority
Pollution Control Revenue Refunding Bonds (Pacific
Gas & Electric) Series 1996C/(Bank of America LOC)
4.75%, 01/07/97 5,300 5,300
California Pollution Control Financing Authority
Refunding Revenue Bonds (Southern California Edison)
Series 1986A
4.70%, 01/01/97 500 500
California Pollution Control Financing Authority
Refunding Revenue Bonds (Southern California Edison)
Series 1986C
4.70%, 01/01/97 1,380 1,380
</TABLE>
17
<PAGE> 24
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
California Pollution Control Financing Authority
Refunding Revenue Bonds (Southern California Edison)
Series 1986D
4.70%, 01/01/97 $ 600 $ 600
California Pollution Control Financing Authority
Resource Recovery Revenue Bonds (OMS Equity
Stanislaus Project)/(Swiss Bank LOC)
5.05%, 01/01/97 2,000 2,000
California Pollution Control Financing Authority
Revenue Bonds (Burney Forest Products Project)
Series 1988A/ (Fleet Bank N.A. LOC)
4.80%, 01/01/97 1,100 1,100
California Pollution Control Financing Authority
Revenue Bonds (Pacific Gas & Electric) Series
1996B/(Rabobank Nederland LOC)
4.00%, 01/07/97 31,000 31,000
California Pollution Control Financing Authority
Revenue Bonds (Reynolds Metals Co. Project) Series
1985/ (National Westminster Bank PLC LOC)
4.25%, 01/07/97 1,300 1,300
California Pollution Control Financing Authority
Revenue Bonds (Southdown, Inc. Project) Series
B/(Societe Generale LOC)
3.50%, 01/07/97 3,900 3,900
California Pollution Control Financing Authority
Revenue Refunding Bonds (Pacific Gas & Electric)
Series 1996F/ (Banque Nationale de Paris LOC)
4.80%, 01/01/97 2,200 2,200
California Pollution Control Financing Authority Solid
Waste Disposal Revenue Bonds (Athens Disposal Co.
Project) Series 1995A/(Wells Fargo Bank LOC)
4.10%, 01/07/97 10,000 10,000
California Pollution Control Financing Authority Solid
Waste Disposal Revenue Bonds (Burrtec Waste
Industries Project) Series 1995A/(Union Bank of
California LOC)
4.10%, 01/07/97 3,550 3,550
California Pollution Control Financing Authority Solid
Waste Disposal Revenue Bonds (Calsan Inc. Project)
Series 1996A/(Wells Fargo Bank LOC)
4.10%, 01/01/97 12,000 12,000
California Pollution Control Financing Authority Solid
Waste Disposal Revenue Bonds (Colmac Energy Project)
Series 1990A/(Swiss Bank LOC)
4.00%, 01/07/97 12,900 12,900
California Pollution Control Financing Authority Solid
Waste Disposal Revenue Bonds (Colmac Energy Project)
Series 1990B/(Swiss Bank LOC)
4.00%, 01/07/97 8,200 8,200
</TABLE>
18
<PAGE> 25
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
California Pollution Control Financing Authority Solid
Waste Disposal Revenue Bonds (Colmac Energy Project)
Series 1990C/(Swiss Bank LOC)
4.00%, 01/07/97 $ 7,835 $ 7,835
California Pollution Control Financing Authority Solid
Waste Disposal Revenue Bonds (Contra Costa Services)
Series 1995A/(Bank of America LOC)
4.05%, 01/07/97 4,500 4,500
California Pollution Control Financing Authority Solid
Waste Disposal Revenue Bonds (Edco Disposal
Corporation Project) Series 1996A/(Wells Fargo Bank
LOC)
4.10%, 01/01/97 10,000 10,000
California Pollution Control Financing Authority Solid
Waste Disposal Revenue Bonds (Taormina Industries
Project) Series 1994B/(Sanwa Bank LOC)
4.20%, 01/07/97 11,000 11,000
California Pollution Control Financing Authority Solid
Waste Disposal Revenue Bonds (Taormina Industries
Project) Series 1996A/(Sanwa Bank LOC)
4.25%, 01/07/97 4,750 4,750
California Pollution Control Financing Authority Solid
Waste Disposal Revenue Bonds (Various California
Waste Recovery Projects) Series 1996A/(Wells Fargo
Bank LOC)
4.10%, 01/07/97 1,815 1,815
California Pollution Control Financing Authority Solid
Waste Disposal Revenue Bonds (Western Waste
Industrial) Series 1994A/(Union Bank of California
LOC)
4.10%, 01/07/97 6,000 6,000
California State Variable Rate Revenue Anticipation
Notes Series 1996C-1/(Multiple Credit Enhancements)
4.00%, 01/07/97 74,600 74,600
California State Variable Rate Revenue Anticipation
Notes Series 1996C-2/(Multiple Credit Enhancements)
4.05%, 01/07/97 55,000 55,000
California State Variable Rate Revenue Anticipation
Notes Series 1996C-3/(Multiple Credit Enhancements)
4.05%, 01/07/97 5,800 5,800
California Statewide Community Development Authority
Apartment Development Revenue Bonds Series 1995A-3/
(FNMA Collateral Investment Agreement)
3.90%, 01/07/97 21,300 21,300
California Statewide Community Development Authority
Certificates of Participation (California Retired
Officers)/ (Dresdner Bank AG LOC)
5.00%, 01/01/97 10,100 10,100
</TABLE>
19
<PAGE> 26
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
California Statewide Community Development Authority
Industrial Development Revenue Bonds (13th & I
Associates Project)/(Union Bank of California LOC)
4.10%, 01/07/97 $5,435 $5,435
California Statewide Community Development Authority
Industrial Development Revenue Bonds (Aerostar
Properties Project)/(Union Bank of California LOC)
4.05%, 01/07/97 4,895 4,895
California Statewide Community Development Authority
Industrial Development Revenue Bonds (Agricultural
Products, Inc. Project)/(Union Bank of California
LOC)
4.15%, 01/07/97 1,420 1,420
California Statewide Community Development Authority
Industrial Development Revenue Bonds (ARM Inc.
Project) Series 1994A/(Bank of Tokyo-Mitsubishi LOC)
4.10%, 01/07/97 1,200 1,200
California Statewide Community Development Authority
Industrial Development Revenue Bonds (D.V.
Industries) Series 1994A/(Bank of Tokyo-Mitsubishi
LOC)
4.10%, 01/07/97 1,480 1,480
California Statewide Community Development Authority
Industrial Development Revenue Bonds (Flambeau
Airmold Project)/(Norwest Bank of Minnesota LOC)
4.20%, 01/07/97 3,000 3,000
California Statewide Community Development Authority
Industrial Development Revenue Bonds (Industrial
Dynamics, Co. Project)/(Union Bank of California
LOC)
4.15%, 01/07/97 4,920 4,920
California Statewide Community Development Authority
Industrial Development Revenue Bonds (Lorber
Industries of California Project)/(Union Bank of
California LOC)
4.15%, 01/07/97 450 450
California Statewide Community Development Authority
Industrial Development Revenue Bonds (Pacific
Scientific Project) Series 1989/(Union Bank of
California LOC)
4.15%, 01/07/97 5,625 5,625
California Statewide Community Development Authority
Industrial Development Revenue Bonds (Packaging
Innovation Project) Series 1994A/(Bank of Tokyo-
Mitsubishi LOC)
4.10%, 01/07/97 2,950 2,950
California Statewide Community Development Authority
Industrial Development Revenue Bonds (Z-Nix Co.
Project)/(Union Bank of California LOC)
4.15%, 01/07/97 840 840
</TABLE>
20
<PAGE> 27
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
California Statewide Community Development Authority
Refunding Bonds Certificates of Participation (Saint
Joseph Health System)
4.00%, 01/07/97 $ 8,500 $ 8,500
California Statewide Community Development Authority
Revenue Bonds Certificates of Participation (Kaiser
Foundation Hospitals)
4.00%, 01/07/97 10,000 10,000
California Statewide Community Development Corp.
Industrial Development Revenue Bonds (Pacific Handy
Cutter Products, Inc. Project)/(Union Bank of
California LOC)
4.15%, 01/07/97 1,055 1,055
California Statewide Community Development Corp.
Industrial Development Revenue Bonds (The Diamond
Foods Project) Series 1991/(Union Bank of California
LOC)
4.15%, 01/07/97 1,540 1,540
Carlsbad, California Multi Family Housing Revenue
Refunding Bonds Certificates of Participation (La
Costa Apartment Project) Series 1993A/(Bank of
America LOC)
4.10%, 01/07/97 11,720 11,720
Concord, California Multi Family Housing Mortgage
Revenue Bonds (Bel Air Apartments Project) Series
1986A/(Bank of America LOC)
4.15%, 01/07/97 3,000 3,000
Contra Costa County, California Multi Family Housing
Mortgage Revenue Bonds (El Cerrito Project) Series
A/(Bank of America LOC)
4.15%, 01/07/97 980 980
Costa Mesa, California Industrial Development Revenue
Bonds (Center Tower Assoc. Project)/(Chase Manhattan
Bank LOC)
3.60%, 01/07/97 3,775 3,775
Duarte, California Redevelopment Agency Certificates
of Participation (Johnson Duarte Partners Project)
Series 1984B/(Bank of America LOC)
3.95%, 01/07/97 1,600 1,600
Duarte, California Redevelopment Agency Certificates
of Participation (Piken Duarte Partners Project)
Series 1984A/(Bank of America LOC)
3.95%, 01/07/97 4,250 4,250
Eastern Municipal Water District, California Water &
Sewer Revenue Certificates of Participation Series
1993B/(FGIC Insurance & IBJ SBPA)
4.00%, 01/07/97 12,200 12,200
</TABLE>
21
<PAGE> 28
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Encinitas, California Multi Family Housing Revenue
Refunding Bonds (Torrey Pines Project) Series A/
(Bank of America LOC)
4.00%, 01/07/97 $ 8,100 $ 8,100
Foothill Eastern Transportation Corridor Agency,
California Toll Road Revenue Bonds Series
1995B/(Morgan Guaranty Trust LOC)
4.00%, 01/07/97 13,000 13,000
Foothill Eastern Transportation Corridor Agency,
California Toll Road Revenue Bonds Series
1995C/(Credit Suisse LOC)
3.90%, 01/07/97 4,500 4,500
Foothill Eastern Transportation Corridor Agency,
California Toll Road Revenue Bonds Series 1995D/(IBJ
LOC)
4.10%, 01/07/97 17,700 17,700
Fremont, California Multi Family Housing Revenue
Refunding Certificates of Participation (Amber Court
Apartments Project) Series 1990A/(Bank of Tokyo-
Mitsubishi LOC)
4.05%, 01/07/97 10,380 10,380
Fresno, California Multi Family Housing Revenue
Refunding Bonds (Heron Pointe Apartments) Series
1996A/ (Wells Fargo Bank LOC)
4.15%, 01/07/97 5,250 5,250
Glenn, California Industrial Development Authority
Revenue Bonds (Land 'O Lakes Project)/(Sanwa Bank
LOC)
4.55%, 01/07/97 1,900 1,900
Grand Terrace, California Community Redevelopment
Agency Multi Family Housing Revenue Bonds (Mount
Vernon Villas Project) Series 1985A/(IBJ LOC)
4.15%, 01/07/97 2,010 2,010
Independence City, California Lease Finance Authority
Lease Revenue Bonds (Various Pooled Projects) Series
1988/ (National Westminster Bank PLC LOC)
4.00%, 01/07/97 2,490 2,490
Irvine Ranch Water District Capital Improvement
Revenue Bonds Series 1986/(Morgan Guaranty Trust
LOC)
5.00%, 01/01/97 5,400 5,400
Irvine Ranch Water District Certificate of
Participation Revenue Bonds Series 1988A/(Sumitomo
Bank LOC)
4.85%, 01/01/97 2,100 2,100
Irvine Ranch Water District Consolidated Revenue
Refunding Bonds (District Nos. 102,103,105 & 106)/
(Commerzbank AG LOC)
5.00%, 01/01/97 2,390 2,390
</TABLE>
22
<PAGE> 29
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Irvine Ranch Water District Consolidated Revenue
Refunding Bonds (Districts 105,140,240 & 250) Series
1995/(Commerzbank AG LOC)
5.00%, 01/01/97 $4,250 $4,250
Irvine Ranch Water District Consolidated Revenue
Refunding Bonds (Districts 140,240,105 & 250)/
(Bank of America LOC)
5.00%, 01/01/97 900 900
Irvine Ranch Water District Consolidated Revenue
Refunding Bonds Series 1985A/(Sumitomo Bank LOC)
5.00%, 01/01/97 1,350 1,350
Irvine Ranch Water District Consolidated Revenue
Refunding Bonds Series 1985A-2/(Landesbank
Hessen-Thuringen Girozentrale LOC)
5.00%, 01/01/97 1,900 1,900
Irvine Ranch Water District Consolidated Revenue
Refunding Bonds Series 1993A-1/(Landesbank
Hessen-Thuringen Girozentrale LOC)
4.85%, 01/01/97 1,800 1,800
Irvine Ranch Water District Consolidated Revenue
Refunding Bonds Series A/(IBJ LOC)
4.85%, 01/01/97 600 600
Kern County, California Certificates of Participation
(Kern Public Facilities Project) Series 1986C/
(Union Bank of Switzerland LOC)
4.00%, 01/07/97 3,200 3,200
Kern County, California Certificates of Participation
(Kern Public Facilities Project) Series A/(Sanwa
Bank LOC)
4.00%, 01/07/97 200 200
Lancaster, California Redevelopment Agency
Multi-Family Revenue Bonds (Woodcreek Garden
Apartments Project) Series 1985J/(Bank of
Tokyo-Mitsubishi LOC)
3.10%, 01/07/97 8,200 8,200
Livermore, California Multi-Family Housing Revenue
Refunding Bonds (Arbors Apartment Project) Series
1991A/(Bank of Tokyo-Mitsubishi LOC)
4.05%, 01/07/97 9,255 9,255
Livermore, California Multi-Family Housing Revenue
Refunding Bonds (Diablo Vista Apartments Project)
Series 1990A/(Union Bank of California LOC)
4.05%, 01/07/97 6,950 6,950
Los Angeles County, California Certificates of
Participation Adjustable Convertible Extendable
Securities (Los Angeles County Museum of Art
Project) Series 1985A/(Bank of America LOC)
3.10%, 01/07/97 3,600 3,600
</TABLE>
23
<PAGE> 30
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Los Angeles County, California Certificates of
Participation Adjustable Convertible Extendable
Securities (Los Angeles County Museum of Art
Project) Series 1985B/(Bank of America LOC)
3.10%, 01/07/97 $ 3,400 $ 3,400
Los Angeles County, California Housing Authority
Multi-Family Housing Revenue Bonds (Sand Canyon
Villas Project) Series 1989A/(IBJ LOC)
4.15%, 01/07/97 5,300 5,300
Los Angeles County, California Metropolitan
Transportation Authority Proposition C Second Senior
Sales Tax Revenue Refunding Bonds Series A/(MBIA
Insurance & Credit Local de France SBPA)
4.00%, 01/07/97 15,550 15,550
Los Angeles County, California Multi-Family Mortgage
Revenue Refunding Bonds (Casden Community Complex)
Series 1991C/(FHLB LOC)
4.00%, 01/07/97 3,200 3,200
Los Angeles County, California Multi-Family Mortgage
Revenue Refunding Bonds (Valencia Village Project)
Series 1984C/(IBJ LOC)
2.85%, 01/07/97 900 900
Los Angeles County, California Pension Obligation
Refunding Bonds Series 1996C/(Bank of Nova Scotia
LOC)
3.90%, 01/07/97 1,200 1,200
Los Angeles County, California Pension Revenue
Refunding Obligation Bonds Series 1996A/(AMBAC
Insurance & National Westminster Bank PLC SBPA)
3.90%, 01/07/97 16,000 16,000
Los Angeles County, California Transportation
Commission Sales Tax Revenue Refunding Bonds Series
1992A/(FGIC Insurance & Bayerische Landesbank
Girozentrale SBPA)
3.90%, 01/07/97 12,100 12,100
Los Angeles, California Community Redevelopment Agency
Certificates of Participation (Baldwin Hills Public
Parking Project) Series B/(Wells Fargo Bank LOC)
3.70%, 01/07/97 27,300 27,300
Los Angeles, California Community Redevelopment Agency
Certificates of Participation (Broadway Springs
Center Project) Series 1987/(Bank of America LOC)
4.10%, 01/07/97 10,500 10,500
Los Angeles, California Community Redevelopment Agency
Housing Revenue Bonds/(Barclays Bank PLC LOC)
4.05%, 01/07/97 12,000 12,000
Los Angeles, California Multi-Family Housing Revenue
Bonds (Poinsettia Apartments Project) Series
1989A/(Dai-Ichi Kangyo Bank LOC)
4.10%, 01/07/97 9,600 9,600
</TABLE>
24
<PAGE> 31
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Marin County, California Housing Authority
Multi-Family Housing Revenue Bonds (Crest Marin II
Apartments Project) Series 1989A/(Dai-Ichi Kangyo
Bank LOC)
3.35%, 01/07/97 $12,100 $12,100
Modesto, California High School District & Modesto
City School District Certificates of Participation
(Capital Facilities Project) Series 1991/(Bank of
Tokyo-Mitsubishi LOC)
4.00%, 01/07/97 4,995 4,995
Monterey County, California Financing Authority
Revenue Bonds (Reclamation & Distribution Projects)/
(Dai-Ichi Kangyo Bank LOC)
4.25%, 01/07/97 5,000 5,000
Moorpark, California Multi-Family Housing Revenue
Refunding Bonds (Le Club Apartments Project) Series
A/ (Citibank LOC)
4.05%, 01/07/97 6,000 6,000
Northern California Power Agency Public Power
Refunding Revenue Bonds (Geothermal Project
3A)/(AMBAC Insurance & Bank of Nova Scotia LOC)
3.85%, 01/07/97 54,400 54,400
Oakland, California Economic Development Revenue
Refunding Bonds (Leamington Hotel Project) Series
1994/ (Wells Fargo Bank LOC)
4.35%, 01/07/97 4,250 4,250
Ontario, California Redevelopment Agency Multi-Family
Housing Revenue Refunding Bonds Series 1991A/ (FHLB
LOC)
4.00%, 01/07/97 4,417 4,417
Orange County, California Apartment Development
Revenue Bonds (Villa Marguerite Apartments) Series
1993A/ (Union Bank of Switzerland LOC)
4.00%, 01/07/97 4,635 4,635
Orange County, California Apartment Development
Revenue Refunding Bonds (Jess L. Frost Project)
Series 1985B/ (Wells Fargo Bank LOC)
4.25%, 01/07/97 8,200 8,200
Orange County, California Apartment Development
Revenue Refunding Bonds (The Lakes Project #185)
Series 1991A/ (Citibank LOC)
4.15%, 01/07/97 31,250 31,250
Orange County, California Certificates of
Participation (Florence Crittenton Services Project)
Series 1990/ (Swiss Bank LOC)
4.05%, 01/07/97 6,700 6,700
</TABLE>
25
<PAGE> 32
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Orange County, California Sanitation District
Certificates of Participation (Capital Improvement
Program) Series 1990-92A/(National Westminster Bank
PLC LOC)
5.00%, 01/01/97 $ 7,450 $ 7,450
Orange County, California Sanitation District
Certificates of Participation (Capital Improvement
Program) Series 1990-92C/(FGIC Insurance & FGIC
SBPA)
4.85%, 01/01/97 48,400 48,400
Orange County, California Sanitation District
Certificates of Participation (Districts
#1,2,3)/(AMBAC Insurance & Societe Generale SBPA)
5.00%, 01/01/97 2,100 2,100
Orange County, California Sanitation District
Refunding Certificates of Participation Series
1992/(AMBAC Insurance & Barclays Bank PLC SBPA)
4.00%, 01/07/97 54,545 54,545
Orange County, California Water District Certificates
of Participation Series 1990B/(National Westminster
Bank PLC LOC)
4.75%, 01/01/97 1,100 1,100
Orange County, California Water District Improvement
Bond Act 1915 Revenue Bonds (Irvine Coast Assessment
District) Number 88-1/(Kredietbank & Societe
Generale LOC)
4.85%, 01/01/97 6,200 6,200
Panama Buena Vista, California Unified School District
Certificates of Participation (1994 Capital
Improvement Financing Project)/(Union Bank of
California LOC)
4.30%, 01/07/97 4,000 4,000
Pleasant Hill, California Multi-Family Housing Revenue
Bonds (Brookside Apartments Project)/(FNMA SBPA &
FNMA LOC)
4.05%, 01/07/97 5,500 5,500
Riverside County, California Certificates of
Participation (Riverside County Public Facility
Project) Series 1985A/ (Commerzbank AG & National
Westminster Bank PLC LOC)
3.10%, 01/07/97 28,140 28,140
Riverside County, California Certificates of
Participation (Riverside County Public Facility
Project) Series 1985B/ (Commerzbank AG & National
Westminster Bank PLC LOC)
2.85%, 01/07/97 14,075 14,075
Riverside County, California Certificates of
Participation (Riverside County Public Facility
Project) Series 1985C/ (Commerzbank AG & National
Westminster Bank PLC LOC)
2.85%, 01/07/97 8,125 8,125
</TABLE>
26
<PAGE> 33
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Riverside County, California Housing Authority
Multi-Family Housing Revenue Bonds (Briarwood
Apartment Project) Series 1985C/(FHLB LOC)
4.15%, 01/07/97 $ 4,500 $ 4,500
Riverside County, California Industrial Development
Authority Revenue Bonds (Cryogenic Project) Series
1989B-1/(Rabobank Nederland LOC)
4.00%, 01/07/97 4,100 4,100
Riverside County, California Tax & Revenue
Anticipation Notes Series 1996-97/(Toronto-Dominion
Bank LOC)
3.90%, 01/07/97 24,500 24,500
Sacramento County, California Certificates of
Participation (Administration Center & Court House
Project)/ (Union Bank of Switzerland LOC)
3.75%, 01/07/97 27,800 27,800
Salinas, California Apartment Development Multi Family
Housing Revenue Bonds (Mariner Villa Project) Series
1985B/(Bank of America LOC)
4.00%, 01/07/97 2,725 2,725
San Bernardino County, California Certificates of
Participation (Glen Helen Blockbuster Pavilion
Project) Series 1994C/(Bank of Tokyo-Mitsubishi LOC)
4.40%, 01/07/97 7,125 7,125
San Bernardino County, California Multi-Family Housing
Revenue Bonds (Western Properties Project IV) Series
1985/(Bank of America LOC)
4.00%, 01/07/97 1,100 1,100
San Francisco, California City & County Redevelopment
Agency Multi-Family Housing Revenue Bonds (Fillmore
Center Project) Series A-1/(Citibank LOC)
4.15%, 01/07/97 26,500 26,500
San Francisco, California City & County Redevelopment
Agency Multi-Family Housing Revenue Bonds (Fillmore
Center Project) Series A-2/(Citibank LOC)
4.25%, 01/07/97 3,750 3,750
San Francisco, California City & County Redevelopment
Agency Multi-Family Housing Revenue Bonds (Fillmore
Center Project) Series B-2/(Bank of Nova Scotia LOC)
4.15%, 01/07/97 13,100 13,100
San Francisco, California City & County Redevelopment
Agency Multi-Family Housing Revenue Bonds (Rincon
Center Apartments) Series 1985B/(Citibank LOC)
3.00%, 01/07/97 7,050 7,050
San Francisco, California Housing Authority
Multi-Family Housing Revenue Bonds (737 Post
Project) Series 1985D/ (Banque Nationale de Paris
LOC)
4.05%, 01/07/97 16,800 16,800
</TABLE>
27
<PAGE> 34
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
San Jose-Santa Clara, California Water Financing
Authority Sewer Revenue Bonds Series B/(AMBAC
Insurance & Bank of Nova Scotia SBPA)
3.85%, 01/07/97 $ 7,600 $ 7,600
San Jose, California Multi-Family Housing Revenue
Bonds (Sienna at Renaissance) Series 1996A/(Bank
One, Arizona LOC)
4.20%, 01/07/97 10,500 10,500
Santa Clara County, California Hospital Facility
Authority Revenue Bonds (El Camino Hospital
District-Valley Medical Center Project) Series
1985A/ (National Westminster Bank PLC LOC)
2.70%, 01/07/97 7,800 7,800
Santa Clara County, California Hospital Facility
Authority Revenue Bonds (El Camino Hospital
District-Valley Medical Center Project) Series
1985B/ (National Westminster Bank PLC LOC)
2.70%, 01/07/97 8,000 8,000
Santa Clara County, California Multi Family Housing
Refunding Revenue Bonds (Brairwood Apartments)
Series 1996B/(FNMA LOC)
4.10%, 01/07/97 7,800 7,800
Santa Clara, California Electric Revenue Bonds Series
1985A/ (National Westminster Bank PLC LOC)
3.95%, 01/07/97 12,800 12,800
Santa Clara, California Electric Revenue Bonds Series
1985B/ (National Westminster Bank PLC LOC)
3.95%, 01/07/97 11,700 11,700
Santa Clara, California Electric Revenue Bonds Series
1985C/ (National Westminster Bank PLC LOC)
3.95%, 01/07/97 8,500 8,500
Santa Cruz County, California Housing Authority
Multi-Family Housing Revenue Bonds (Paloma del Mar
Apartments Project) Series 1992A/ (Bank of Tokyo-
Mitsubishi LOC)
4.15%, 01/07/97 7,700 7,700
South San Francisco, California Multi-Family Revenue
Bonds (Magnolia Plaza Apartments Project) Series
A/(Wells Fargo Bank LOC)
4.25%, 01/07/97 4,500 4,500
Southern California Metropolitan Water District
Revenue Refunding Bonds Series 1996A/(ABN-Amro Bank
N.V. SPA & AMBAC Insurance)
4.00%, 01/07/97 18,700 18,700
Southern California Public Power Authority Refunding
Revenue Bonds (Palo Verde Project) Series 1996B/
(AMBAC Insurance & Morgan Guaranty Trust LOC)
3.90%, 01/07/97 23,070 23,070
</TABLE>
28
<PAGE> 35
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Southern California Public Power Authority Revenue
Bonds (Southern Transmission Project) Series
1991/(AMBAC Insurance & Swiss Bank LOC)
3.90%, 01/07/97 $ 8,600 $ 8,600
Southern California Public Power Authority
Transmission Project Revenue Refunding Bonds
(Southdown Project) Series 1996B/(FSA Insurance &
Morgan Guaranty Trust SBPA)
4.00%, 01/07/97 32,400 32,400
Turlock, California Irrigation District Certificates
of Participation (Transmission Projects, Municipal
Utilities - Water & Sewer) Series 1996A/(Societe
Generale LOC)
4.00%, 01/07/97 2,200 2,200
Victor Valley, California Community College District
Certificates of Participation (Capital Improvements
Financing and Refunding Project)/(Banque Nationale
de Paris & Dai-Ichi Kangyo Bank LOC)
4.30%, 01/07/97 6,400 6,400
---------
TOTAL VARIABLE RATE OBLIGATIONS (Cost $1,464,431) 1,464,432
---------
TAX-EXEMPT COMMERCIAL PAPER--17.41%(b)
California Pollution Control Financing Authority
Revenue Bonds (Pacific Gas & Electric) Series 1996D/
(Union Bank of Switzerland LOC)
3.40%, 01/28/97 16,500 16,500
California Pollution Control Financing Authority
Revenue Bonds (Southern California Edison) Series
1985A
3.25%, 02/06/97 1,000 1,000
3.30%, 02/25/97 2,300 2,300
3.35%, 03/12/97 12,000 12,000
California Pollution Control Financing Authority
Revenue Bonds (Southern California Edison) Series
1985B
3.25%, 02/06/97 2,000 2,000
3.25%, 02/12/97 2,100 2,100
3.30%, 02/25/97 2,200 2,200
3.35%, 03/12/97 14,000 14,000
California Pollution Control Financing Authority Solid
Waste Disposal Revenue Bonds (Thermal Energy
Development LP) Series 1988A/(National Westminster
Bank PLC LOC)
3.40%, 03/12/97 27,500 27,500
East Bay Municipal Utility District, California
(Wastewater Systems) Tax-Exempt Commercial Paper
Program/ (National Westminster Bank PLC LOC)
3.40%, 03/13/97 10,700 10,700
</TABLE>
29
<PAGE> 36
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Long Beach, California Harbor Revenue Commercial Paper
Notes Series 1994A/(Multiple Credit Enhancements)
3.50%, 02/10/97 $ 4,000 $ 4,000
3.45%, 03/12/97 32,100 32,100
Los Angeles, California Wastewater System Tax-Exempt
Commercial Paper Revenue Notes/(Morgan Guaranty
Trust & Union Bank of Switzerland LOC)
3.50%, 01/24/97 3,000 3,000
3.50%, 02/25/97 34,500 34,500
Metropolitan Water District of Southern California
Tax-Exempt Commercial Paper
3.45%, 02/14/97 10,000 10,000
Orange County, California Local Transportation
Authority Sales Tax & Revenue Commercial Paper
Notes/(IBJ LOC)
3.60%, 02/10/97 50,000 50,000
Sacramento, California Municipal Utility District
Series I/ (Bayerische Landesbank Girozentrale LOC)
3.40%, 01/28/97 16,000 16,000
3.40%, 02/21/97 12,424 12,424
San Diego County, Teeter Obligation Tax-Exempt
Commercial Paper Series B/(IBJ LOC)
3.55%, 01/10/97 7,000 7,000
3.55%, 01/13/97 25,000 25,000
University of California Board of Regents Tax-Exempt
Commercial Paper Notes Series 1996A/(Multiple Credit
Enhancements)
3.45%, 01/17/97 10,000 10,000
3.51%, 01/23/97 10,000 10,000
3.40%, 01/23/97 30,000 30,000
3.50%, 01/24/97 6,000 6,000
3.50%, 02/13/97 20,000 20,000
West & Central Basin Financing Authority, California
West Basin Municipal Water District Tax-Exempt
Commercial Paper/(Toronto-Dominion Bank LOC)
3.30%, 02/11/97 8,500 8,500
3.40%, 02/12/97 16,000 16,000
3.35%, 02/12/97 19,000 19,000
-------
TOTAL TAX-EXEMPT COMMERCIAL PAPER (Cost $403,824) 403,824
-------
TAX AND REVENUE ANTICIPATION NOTES--15.40%(b)
Acalanes, California Unified High School District Tax
& Revenue Anticipation Notes Series 1996-97
3.80%, 07/01/97 5,700 5,716
Berkeley, California Unified School District Tax &
Revenue Anticipation Notes Series 1996-97
3.85%, 07/01/97 9,400 9,424
</TABLE>
30
<PAGE> 37
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
California School Cash Reserve Program Authority
Pooled Tax & Revenue Anticipation Notes Series
1996-97/ (Multiple Credit Enhancements)
3.85%, 07/02/97 $43,970 $44,160
Clovis, California Unified School District Tax &
Revenue Anticipation Notes Series 1996-97
3.80%, 06/30/97 25,400 25,484
Contra Costa County, California Tax & Revenue
Anticipation Notes Series 1996-97
4.50%, 07/03/97 10,000 10,034
Desert Sands, California Unified School District Tax &
Revenue Anticipation Notes Series 1996-97
3.80%, 07/02/97 4,500 4,515
Fontana, California Unified School District Tax &
Revenue Anticipation Notes Series 1996-97
3.95%, 07/11/97 10,000 10,028
Fullerton, California Joint Unified High School
District Tax & Revenue Anticipation Notes Series
1996-97
3.90%, 09/05/97 2,365 2,374
Los Angeles County, California Tax & Revenue
Anticipation Notes Series 1996-97A/(Multiple Credit
Enhancements)
3.93%, 06/30/97 12,700 12,734
3.83%, 06/30/97 7,700 7,724
3.52%, 06/30/97 9,000 9,040
Los Angeles, California Tax & Revenue Anticipation
Notes Series 1996-97
3.85%, 06/19/97 35,000 35,101
3.84%, 06/19/97 27,000 27,082
Los Rios, California City & County Development Tax &
Revenue Anticipation Notes Series 1996-97
3.95%, 09/19/97 12,500 12,547
Oakland, California Unified School District - Alameda
County Tax & Revenue Anticipation Notes
3.60%, 10/14/97 15,000 15,072
Pleasanton, California Unified School District Tax &
Revenue Anticipation Notes Series 1996-97
3.80%, 07/01/97 5,400 5,415
Puerto Rico Commonwealth Tax & Revenue Anticipation
Notes Series 1
3.43%, 07/30/97 15,000 15,048
Sacramento County, California Tax & Revenue
Anticipation Notes Series 1996-97
3.76%, 09/30/97 200 201
San Francisco, California City & County Unified School
District Tax & Revenue Anticipation Notes Series
1996-97
3.98%, 07/24/97 40,000 40,112
</TABLE>
31
<PAGE> 38
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
San Juan, California Unified School District Tax &
Revenue Anticipation Notes Series 1996-97
4.50%, 09/24/97 $30,000 $ 30,116
San Leandro, California Unified School District Tax &
Revenue Anticipation Notes Series 1996-97
3.80%, 07/01/97 5,000 5,014
Sanger, California Unified School District Tax &
Revenue Anticipation Notes Series 1996-97
3.57%, 11/26/97 5,000 5,040
Stockton, California Unified School District Tax &
Revenue Anticipation Notes Series 1996-97
3.54%, 11/26/97 18,000 18,072
Temecula Valley, California Unified School District
Tax & Revenue Anticipation Notes Series 1996-97
3.80%, 07/02/97 7,000 7,024
-------
TOTAL TAX AND REVENUE ANTICIPATION NOTES (Cost
$357,077) 357,077
-------
VARIABLE RATE TENDER OPTION BOND PARTNERSHIPS--2.01%(a) (c)
California State Department of Water Resources Revenue
Bonds (Central Valley Project) Series J3 Tender
Option Bond Partnership (BTP-141)/(Bankers Trust
Tender Option)
4.25%, 01/07/97 5,155 5,155
Los Angeles County, California Transportation
Commission Sales Tax Revenue Tender Option Bond
Partnership (BTP-146)/(Bankers Trust Tender Option &
Escrowed to Maturity with Government Securities)
4.25%, 01/07/97 23,078 23,078
Los Angeles, California Department of Water & Power
Electric Plant Revenue Refunding Bonds Series 1994
Tender Option Bond Partnership (BTP-68)/(Automated
Data Processing, Inc. Tender Option)
4.25%, 01/07/97 5,195 5,195
Metropolitan Water District of Southern California
Revenue Bonds Tender Option Bond Partnership
(JPM-32B)/ (Morgan Guaranty Trust Tender Option)
4.15%, 01/02/97 3,000 3,000
Metropolitan Water District of Southern California
Waterworks General Obligation Revenue Refunding
Bonds Series 1993A-1 & 1993A-2 Tender Option Bond
Partnership (BTP-115)/(Bankers Trust Tender Option)
4.30%, 01/07/97 10,145 10,145
-------
TOTAL VARIABLE RATE TENDER OPTION BOND
PARTNERSHIPS (Cost $46,573) 46,573
-------
</TABLE>
32
<PAGE> 39
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
REVENUE BONDS--1.04%(b)
California Health Facilities Financing Authority
Revenue Bonds (Catholic Health Care) Series 1996A/
(MBIA Insurance)
3.75%, 07/01/97 $ 4,450 $ 4,477
Los Angeles County, California Public Works Finance
Authority Lease Refunding Bonds Series 1996A/ (MBIA
Insurance)
3.88%, 09/01/97 10,060 10,101
Northern California Power Agency Public Power Revenue
Refunding Bonds (Geothermal Project #3) Series
1996B/ (AMBAC Insurance)
3.62%, 07/01/97 6,525 6,567
Sacramento, California Municipal Utility District
Electric Revenue Bonds Series R/(FGIC Insurance &
Escrowed to Maturity with Government Securities)
3.37%, 02/01/97 1,000 1,023
Sacramento, California Municipal Utility District
Electric Revenue Bonds Series S/(FGIC Insurance &
Escrowed to Maturity with Government Securities)
3.37%, 02/01/97 1,970 2,015
---------
TOTAL REVENUE BONDS
(Cost $24,183) 24,183
---------
REVENUE ANTICIPATION NOTES--0.30%(b)
California State Revenue Anticipation Notes Series
1996A
3.52%, 06/30/97 7,000 7,032
---------
TOTAL REVENUE ANTICIPATION NOTES (Cost $7,032) 7,032
---------
MANDATORY PUT BONDS--0.29%(b)
Redlands, California Revenue Refunding Certificates of
Participation (Water Treatment Facilities Project)/
(FGIC Insurance)
4.00%, 01/07/97 6,800 6,800
---------
TOTAL MANDATORY PUT BONDS
(Cost $6,800) 6,800
---------
CERTIFICATES OF PARTICIPATION--0.23%(b)
El Camino, California Hospital Revenue Certificates of
Participation Series 1987A
3.45%, 09/01/97 2,000 2,105
</TABLE>
33
<PAGE> 40
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Par Value
------- ----------
<S> <C> <C>
Sacramento, California Public Finance Authority
Certificates of Participation Series 1987
3.50%, 08/01/97 $3,075 $ 3,229
---------
TOTAL CERTIFICATES OF PARTICIPATION (Cost $5,334) 5,334
---------
GENERAL OBLIGATIONS--0.16%(b)
California State General Obligation Bonds Series 1993/
(AMBAC Insurance)
3.50%, 04/01/97 3,630 3,686
---------
TOTAL GENERAL OBLIGATIONS (Cost $3,687) 3,686
---------
TOTAL INVESTMENTS--100% (Cost $2,318,941) $2,318,941
=========
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
For each security, cost (for financial reporting and federal income tax
purposes) and carrying value are the same.
(a) Variable rate securities. Interest rates vary periodically based on current
market rates. Rates shown are the effective rates as of the report date.
Dates shown represent the latter of the demand date or next interest rate
change date, which is considered the maturity date for financial reporting
purposes. For variable rate securities without demand features, the next
interest reset date is shown.
(b) Interest rates represent effective yield to put or call date at time of
purchase.
(c) Certain securities purchased by the Fund are private placement securities
exempt from registration by Section 4(2) of the Securities Act of 1933.
These securities generally are sold to institutional investors, such as the
Schwab California Municipal Money Fund. Any resale by the Fund must be in an
exempt transaction, normally to a qualified institutional buyer. At December
31, 1996, the aggregate value of private placement securities held by the
Fund was $46,573,000 which represented 2.00% of net assets. All of these
private placement investments were determined by the Investment
34
<PAGE> 41
- ------------------------------------------------------------------------------
Manager to be liquid in accordance with procedures adopted by the Board of
Trustees
<TABLE>
<CAPTION>
Abbreviations
----------------------------------------------------------
<S> <C>
AMBAC AMBAC Indemnity Corporation
FGIC Financial Guaranty Insurance Company
FHLB Federal Home Loan Bank
FNMA Federal National Mortgage Association
FSA Financial Security Assurance
IBJ Industrial Bank of Japan
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance Corporation
SBPA Standby Purchase Agreement
SPA Securities Purchase Agreement
</TABLE>
See accompanying Notes to Financial Statements.
35
<PAGE> 42
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
December 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost: $2,318,941) $2,318,941
Cash 123
Interest receivable 16,039
Receivable for Fund shares sold 3,866
Prepaid expenses 35
----------
Total assets 2,339,004
----------
LIABILITIES
Payable for:
Dividends 8,503
Investments purchased 1,300
Fund shares redeemed 5,065
Investment advisory and administration fee 75
Transfer agency and shareholder service fees 140
Other 323
----------
Total liabilities 15,406
----------
Net assets applicable to outstanding shares $2,323,598
==========
NET ASSETS CONSIST OF:
Paid-in-capital $2,324,330
Accumulated net realized loss on investments sold (732)
----------
$2,323,598
----------
PRICING OF SHARES
$0.00001 par value (unlimited shares authorized)
Outstanding Sweep Shares 1,816,835
Outstanding Value Advantage Shares 507,495
----------
2,324,330
Net asset value, offering and redemption price per
each Sweep and Value Advantage Share $1.00
</TABLE>
See accompanying Notes to Financial Statements.
36
<PAGE> 43
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
Year ended December 31, 1996
<TABLE>
<S> <C>
Interest income $67,219
-------
Expenses:
Investment advisory and administration fee 8,556
Transfer agency and shareholder service fees:
Sweep Shares 7,477
Value Advantage Shares 762
Custodian fees 308
Registration fees 281
Professional fees 59
Shareholder reports 121
Trustees' fees 13
Insurance and other expenses 36
-------
17,613
Less: expenses reduced (see Note 4) (5,441)
-------
Total expenses incurred by Fund 12,172
-------
Net investment income 55,047
Net realized loss on investments sold (68)
-------
Increase in net assets resulting from operations $54,979
=======
</TABLE>
See accompanying Notes to Financial Statements.
37
<PAGE> 44
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Year ended
December 31,
1996 1995*
----------- -----------
<S> <C> <C>
Operations:
Net investment income $ 55,047 $ 45,734
Net realized gain (loss) on investments
sold (68) 8
----------- -----------
Increase in net assets resulting from
operations 54,979 45,742
----------- -----------
Dividends to shareholders from net
investment income:
Sweep Shares (45,951) (45,302)
Value Advantage Shares (9,096) (432)
----------- -----------
Total dividends to shareholders (55,047) (45,734)
----------- -----------
Capital share transactions (at $1.00 per
share):
Proceeds from shares sold 6,230,933 4,383,313
Net asset value of shares issued in
reinvestment of dividends 52,112 43,226
Less payments for shares redeemed (5,645,082) (4,034,727)
----------- -----------
Increase in net assets from capital
share transactions 637,963 391,812
----------- -----------
Total increase in net assets 637,895 391,820
Net assets:
Beginning of period 1,685,703 1,293,883
----------- -----------
End of period $ 2,323,598 $ 1,685,703
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
38
<PAGE> 45
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1996
1. DESCRIPTION OF THE FUND
The Schwab California Municipal Money Fund (the "Fund"), formerly known as the
Schwab California Tax-Exempt Money Fund, is a series of The Charles Schwab
Family of Funds (the "Trust"), a no-load, open-end investment management company
organized as a Massachusetts business trust on October 20, 1989 and registered
under the Investment Company Act of 1940, as amended.
The Fund offers multiple classes of shares -- the Sweep Shares ("Sweep Shares")
and Value Advantage Shares ("Value Advantage Shares"). Both classes represent
interests in the same portfolio of investments of the Fund and are substantially
the same in all respects except that the classes are subject to different
transfer agency and shareholder service fees (see Note 3), investment minimums
and certain other expenses.
In addition to the Fund, the Trust also offers -- the Schwab Money Market Fund,
Schwab Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Municipal
Money Fund, Schwab New York Municipal Money Fund, Schwab Value Advantage Money
Fund(R), Schwab Institutional Advantage Money Fund(R) and Schwab Retirement
Money Fund(R). The assets of each series are segregated and accounted for
separately.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security valuation -- Investments are stated at amortized cost which
approximates market value.
Security transactions, interest income and realized gains (losses) -- Security
transactions are accounted for on a trade date basis (date the order to buy or
sell is executed). Interest income is accrued daily and includes amortization of
premium on investments. Realized gains and losses from
39
<PAGE> 46
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1996
security transactions are determined on an identified cost basis. Income and
realized gains (losses) are allocated daily to each class of shares based on the
value of settled shares outstanding of each respective class.
Dividends to shareholders -- The Fund declares a daily dividend, equal to its
net investment income for that day, payable monthly. Dividends paid by the Fund
with respect to each class of shares are calculated in the same manner, at the
same time, and will be in the same amount except for the effect of expenses that
may be applied differently, as described below.
Expenses -- Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are generally allocated to
each series in proportion to their relative net assets. Expenses attributable to
both classes of shares are allocated daily to each class based on the value of
settled shares outstanding of each respective class. Transfer agency,
shareholder service fees and certain other expenses which are class specific are
calculated daily at the class level.
Federal income taxes -- It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income and realized net capital gains, if
any, to shareholders. Therefore, no federal income tax provision is required.
The Fund is considered a separate entity for tax purposes.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreements -- The Trust has investment
advisory and administration agreements with Charles Schwab Investment
Management, Inc. (the "Investment Manager"). For advisory services and
facilities furnished, the Fund pays an annual fee, payable monthly, of 0.46% of
the first $1 billion of average daily net assets, 0.41% of the next $1 billion,
and 0.40% of such assets in excess of $2 billion. The Investment Manager has
reduced a portion of its fee for the year ended December 31, 1996 (see Note 4).
40
<PAGE> 47
- ------------------------------------------------------------------------------
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of 0.45% and 0.25% of average daily net assets of
the Sweep Shares and Value Advantage Shares, respectively. Schwab has reduced a
portion of its fees for the year ended December 31, 1996 (see Note 4).
Officers and trustees -- Certain officers and trustees of the Trust are also
officers and/or directors of the Investment Manager and/or Schwab. During the
year ended December 31, 1996, the Trust made no direct payments to its officers
or trustees who are "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Fund incurred fees of $13,000 related to
the Trust's unaffiliated trustees.
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees in order to
limit the Fund's ratio of operating expenses to average net assets. For the year
ended December 31, 1996, the total of such fees reduced by the Investment
Manager and Schwab was $4,819,000 and $622,000, respectively (see Note 7).
5. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities during the year ended
December 31, 1996, aggregated (in thousands) $4,771,910 and $4,127,124,
respectively.
41
<PAGE> 48
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1996
6. CAPITAL SHARE TRANSACTIONS
The Fund offers two classes of shares: Sweep Shares and Value Advantage Shares.
Shares of each class represent interests in the same portfolio of investments of
the Fund. Transactions in capital shares (at $1.00 per share) were as follows
(in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995*
----------- -----------
<S> <C> <C>
Proceeds from shares sold:
Sweep Shares $ 5,448,674 $ 4,257,465
Value Advantage Shares 782,259 125,848
----------- -----------
Total 6,230,933 4,383,313
Net asset value of shares issued in
reinvestment of dividends:
Sweep Shares 44,907 43,152
Value Advantage Shares 7,205 74
----------- -----------
Total 52,112 43,226
Less payments for shares redeemed:
Sweep Shares (5,255,105) (4,016,813)
Value Advantage Shares (389,977) (17,914)
----------- -----------
Total (5,645,082) (4,034,727)
Total increase in net assets from
capital share transactions $ 637,963 $ 391,812
=========== ===========
</TABLE>
- ---------------
* The Value Advantage Shares commenced operations on October 3, 1995.
42
<PAGE> 49
- ------------------------------------------------------------------------------
7. FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Sweep Shares
------------------------------------------------------------
Year ended December 31,
1996 1995 1994 1993 1992
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
- ---------------------------------
Net investment income 0.03 0.03 0.02 0.02 0.02
Net realized and unrealized gain
(loss) on investments -- -- -- -- --
---------- ---------- ---------- ---------- --------
Total from investment operations 0.03 0.03 0.02 0.02 0.02
Less distributions
- ------------------
Dividends from net investment
income (0.03) (0.03) (0.02) (0.02) (0.02)
Distributions from realized gain
on investments -- -- -- -- --
---------- ---------- ---------- ---------- --------
Total distributions (0.03) (0.03) (0.02) (0.02) (0.02)
---------- ---------- ---------- ---------- --------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========
Total return 2.80% 3.20% 2.26% 1.91% 2.35%
- ------------
Ratios/Supplemental data
- ------------------------
Net assets, end of period (000s) $1,816,112 $1,577,695 $1,293,883 $1,062,042 $691,176
Ratio of expenses to average net
assets+ 0.65% 0.65% 0.64% 0.63% 0.63%
Ratio of net investment income to
average net assets+ 2.77% 3.15% 2.25% 1.89% 2.31%
</TABLE>
- ---------------
+ The information contained in the above table is based on actual expenses for
the periods, after giving effect to the portion of expenses reduced and
absorbed by the Investment Manager and Schwab. Had these expenses not been
reduced and absorbed, the Fund's expense and net investment income ratios
would have been:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of expenses to average net
assets 0.92% 0.94% 0.94% 0.96% 0.97%
Ratio of net investment income
to average net assets 2.50% 2.86% 1.95% 1.56% 1.97%
</TABLE>
43
<PAGE> 50
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1996
7. FINANCIAL HIGHLIGHTS
(continued)
<TABLE>
<CAPTION>
Value Advantage Shares
-----------------------------
Year ended Period ended
December 31, December 31,
1996 1995 1
------------ ------------
<S> <C> <C>
Net asset value at beginning of period $ 1.00 $ 1.00
Income from investment operations
- --------------------------
Net investment income 0.03 0.01
Net realized and unrealized gain (loss) on investments -- --
-------- --------
Total from investment operations 0.03 0.01
Less distributions
- -------------
Dividends from net investment income (0.03) (0.01)
Distributions from realized gain on investments -- --
-------- --------
Total distributions (0.03) (0.01)
-------- --------
Net asset value at end of period $ 1.00 $ 1.00
======== ========
Total return (not annualized) 3.01% 0.84%
- ---------
Ratios/Supplemental data
- -------------------
Net assets, end of period (000s) $507,486 $108,008
Ratio of expenses to average net assets+ 0.45% 0.45%*
Ratio of net investment income to average net assets+ 2.98% 3.48%*
</TABLE>
- ---------------
+ The information contained in the above table is based on actual expenses for
the periods, after giving effect to the portion of expenses reduced and
absorbed by the Investment Manager and Schwab. Had these expenses not been
reduced and absorbed, the Fund's expense and net investment income ratios
would have been:
<TABLE>
<S> <C> <C>
Ratio of expenses to average net assets 0.77% 1.04%*
Ratio of net investment income to average net assets 2.66% 2.89%*
</TABLE>
1 Period from October 3, 1995 (commencement of operations) to December 31,
1995.
* Annualized
44
<PAGE> 51
- ------------------------------------------------------------------------------
To the Board of Trustees and Shareholders
of the Schwab California Municipal Money Fund
(Formerly Schwab California Tax-Exempt Money Fund)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Schwab California Municipal
Money Fund (one of the series constituting The Charles Schwab Family of Funds,
hereafter referred to as the "Trust") at December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
period presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
January 31, 1997
45
<PAGE> 52
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
(Formerly Schwab California Tax-Exempt Money Fund)
- ------------------------------------------------------------------------------
PROXY VOTING RESULTS
A special meeting of the shareholders of Schwab California Municipal Money Fund
Sweep and Value Advantage Shares was held on December 16, 1996. The results of
votes taken among shareholders on proposals before them are listed below.
PROPOSAL 1
Election of Trustees.
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Voted For Withheld
---------------- ----------------
<S> <C> <C>
Charles R. Schwab 1,117,833,856 24,774,762
Donald F. Dorward 1,115,917,801 26,690,817
Robert G. Holmes 1,117,695,234 24,913,384
William J. Klipp 1,117,376,286 25,232,332
Timothy F. McCarthy 1,118,021,341 24,587,277
Donald R. Stephens 1,116,076,117 26,532,501
Michael W. Wilsey 1,117,525,654 25,082,964
</TABLE>
PROPOSAL 2
To approve amending the Fund's investment policy concerning Alternative Minimum
Tax (AMT) investments.
<TABLE>
<CAPTION>
# of Shares Voted % of Shares Voted
----------------- -----------------
<S> <C> <C>
For 951,118,434 83.64%
Against 115,120,734 10.12%
Abstain 70,985,232 6.24%
------------- -------
TOTAL 1,137,224,400 100.00%
============= =======
</TABLE>
PROPOSAL 3.1
To approve changes to restrictions regarding borrowing and lending.
<TABLE>
<CAPTION>
# of Shares Voted % of Shares Voted
----------------- -----------------
<S> <C> <C>
For 959,573,172 84.38%
Against 113,925,393 10.02%
Abstain 63,725,835 5.60%
------------- -------
TOTAL 1,137,224,400 100.00%
============= ========
</TABLE>
46
<PAGE> 53
- ------------------------------------------------------------------------------
PROPOSAL 3.2
To approve changes to restrictions regarding issuance of senior securities.
<TABLE>
<CAPTION>
# of Shares Voted % of Shares Voted
----------------- -----------------
<S> <C> <C>
For 959,107,955 84.34%
Against 113,986,177 10.02%
Abstain 64,130,268 5.64%
------------- -------
TOTAL 1,137,224,400 100.00%
============= =======
</TABLE>
PROPOSAL 3.3
To approve change in restriction regarding compliance with the diversification
requirements of the 1940 Act.
<TABLE>
<CAPTION>
# of Shares Voted % of Shares Voted
----------------- -----------------
<S> <C> <C>
For 961,380,055 84.54%
Against 112,774,393 9.92%
Abstain 63,069,952 5.54%
------------- -------
TOTAL 1,137,224,400 100.00%
============= =======
</TABLE>
PROPOSAL 3.4
To approve change in restriction regarding investment in Industrial Development
Revenue Bonds issued by "unseasoned issuers".
<TABLE>
<CAPTION>
# of Shares Voted % of Shares Voted
----------------- -----------------
<S> <C> <C>
For 951,593,068 83.68%
Against 122,342,136 10.76%
Abstain 63,289,196 5.56%
------------- -------
TOTAL 1,137,224,400 100.00%
============= =======
</TABLE>
PROPOSAL 3.5
To approve change in restriction regarding investment in "restricted
securities".
<TABLE>
<CAPTION>
# of Shares Voted % of Shares Voted
----------------- -----------------
<S> <C> <C>
For 951,477,529 83.67%
Against 122,266,670 10.75%
Abstain 63,480,201 5.58%
------------- -------
TOTAL 1,137,224,400 100.00%
============= =======
</TABLE>
47
<PAGE> 54
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
- ------------------------------------------------------------------------------
PROXY VOTING RESULTS (continued)
PROPOSAL 3.6
To approve change in restriction regarding investment in shares of other
investment companies.
<TABLE>
<CAPTION>
# of Shares Voted % of Shares Voted
----------------- -----------------
<S> <C> <C>
For 958,478,343 84.28%
Against 115,602,114 10.17%
Abstain 63,143,943 5.55%
--------------- -------------
TOTAL 1,137,224,400 100.00%
=============== =============
</TABLE>
48
<PAGE> 55
SCHWABFUNDS FAMILY(R)
The SchwabFunds Family includes a variety of funds to help meet your investment
needs. You can diversify your portfolio in a single step with our asset
allocation funds. Or you can customize your portfolio with a combination of our
stock funds as well as our taxable and tax-advantaged bond and money funds.
SCHWAB ASSET ALLOCATION FUNDS
Schwab Asset Director(R) -- High Growth Fund
Schwab Asset Director -- Balanced Growth Fund
Schwab Asset Director -- Conservative Growth Fund
Schwab OneSource Portfolios -- Growth Allocation
Schwab OneSource Portfolios -- Balanced Allocation
SCHWAB STOCK FUNDS
Schwab 1000 Fund(R)
Schwab S&P 500 Fund
Schwab Analytics Fund(TM)
Schwab Small-Cap Index Fund(R)
Schwab International Index Fund(R)
Schwab OneSource Portfolios -- International
SCHWAB BOND FUNDS
Schwab Government Bond Funds -- Long-Term
and Short/Intermediate
Schwab Tax-Free Bond Funds -- Long-Term and Short/Intermediate
Schwab California Tax-Free Bond Funds -- Long-Term
and Short/Intermediate
SCHWAB MONEY MARKET FUNDS
Schwab offers an array of money market funds* that seek high current income with
safety and liquidity. Choose from taxable or tax-advantaged alternatives. Many
can be linked to your Schwab account to "sweep" cash balances automatically when
you're between investments. Or, for your larger cash reserves, choose one of our
Value Advantage Investments(R).
Please call 1-800-2 NO-LOAD for a free prospectus and brochure for any of the
SchwabFunds(R).
Each prospectus provides more complete information, including charges and
expenses. Please read it carefully before investing.
This report must be preceded or accompanied by a current prospectus.
* Investments in money market funds are neither insured nor guaranteed by the
U.S. government, and there is no assurance that the funds will be able to
maintain a stable share price of $1.
<PAGE> 56
SCHWABFUNDS ==============
FAMILY [LOGO] (R) BULK RATE
U.S. POSTAGE
101 Montgomery Street PAID
San Francisco, California 94104 CHARLES SCHWAB
==============
INVESTMENT ADVISOR
Charles Schwab Investment Management, Inc.
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR
Charles Schwab & Co., Inc.
101 Montgomery Street, San Francisco, CA 94104
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
(C)1997 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC/NYSE.
TF4501R(2/97) CRS 11011 Printed on recycled paper.
