<PAGE> 1
As filed with the Securities and Exchange Commission on April 30, 1999
File Nos. 33-31894 and 811-5954
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 36 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 38 [X]
THE CHARLES SCHWAB FAMILY OF FUNDS
(Exact Name of Registrant as Specified in Charter)
101 Montgomery Street, San Francisco, California 94104
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(415) 627-7000
Steven L. Scheid, President
The Charles Schwab Family of Funds
101 Montgomery Street, San Francisco, California 94104
(Name and Address of Agent for Service)
Copies of communications to:
John H. Grady, Jr. Esq. Martin E. Lybecker Frances Cole, Esq.
Morgan Lewis & Bockius LLP Ropes & Gray Charles Schwab Investment
1701 Market Street One Franklin Square Management, Inc.
Philadelphia, PA 19103 1301 Franklin, NW, Suite 101 Montgomery Street
800 East 120K-14-109
Washington, DC 20005 San Francisco, CA 94104
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] On April 30, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On (date) pursuant to paragraph (a)(2) of Rule 485
if appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
1
<PAGE> 2
PROSPECTUS
APRIL 30, 1999
SCHWAB
MONEY FUNDS
SWEEP INVESTMENTS(TM)
=======================================
SCHWAB MONEY MARKET FUND
SCHWAB GOVERNMENT MONEY FUND
SCHWAB U.S. TREASURY MONEY FUND
As with all mutual funds, the Securities
and Exchange Commission (SEC) has not
approved these securities or passed on
whether the information in this
prospectus is adequate and accurate.
Anyone who indicates otherwise is
committing a federal crime. SCHWABFUNDS(TM)
<PAGE> 3
ABOUT THE FUNDS
Schwab Money Funds -- Sweep Investments(TM)
<TABLE>
<S> <C>
ABOUT THE FUNDS
4 Schwab Money Market Fund
8 Schwab Government Money Fund
12 Schwab U.S. Treasury Money Fund
16 Fund Management
INVESTING IN THE FUNDS
18 Buying Shares
19 Selling/Exchanging Shares
20 Transaction Policies
21 Dividends and Taxes
</TABLE>
<PAGE> 4
The Schwab Money Funds seek to provide HIGH CURRENT YIELDS while offering the
LIQUIDITY, STABILITY AND CONVENIENCE traditionally associated with money market
mutual funds.
All of the funds invest exclusively in money market investments. The order of
the funds in this prospectus reflects an increasing emphasis on safety over
anticipated yields.
The funds are designed primarily for use as "sweep account investments" in
conjunction with a Schwab brokerage account. Customers with such an account can
designate one of these funds as their account's primary sweep fund.
As with all mutual funds, the performance of these funds will fluctuate over
time, and future performance may differ from past performance.
<PAGE> 5
SCHWAB MONEY MARKET FUND
TICKER SYMBOL: SWMXX
GOAL
THE FUND SEEKS THE HIGHEST CURRENT INCOME THAT IS CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN HIGH-QUALITY SHORT-TERM MONEY MARKET
INVESTMENTS ISSUED BY U.S. AND FOREIGN ISSUERS, SUCH AS:
- - commercial paper
- - certificates of deposit
- - banker's acceptances
- - U.S. Treasury bills, notes and bonds
- - other obligations that are issued or guaranteed by the U.S. government, its
agencies or instrumentalities
- - repurchase agreements
All of these investments must be denominated in U.S. dollars, including those
that are issued by foreign issuers.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit and maturity policies. Some of these
policies may be stricter than the federal regulations that apply to all money
funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality securities
(generally those that are in the top two tiers of credit quality).
- - Diversification: requirements for diversification limit the fund's exposure to
any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no more
than 90 days, and cannot invest in any security whose effective maturity is
longer than 397 days (approximately 13 months).
4 MONEY MARKET FUND
<PAGE> 6
This fund may appeal to investors interested in high money market returns.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity. While the fund
historically has maintained its stable $1 share price, there is no guarantee
that it always will be able to do so. If its share price were to change, you
could lose money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Although the
risk of default generally is considered unlikely (even among foreign
investments, which carry additional risks), any default on the part of a
portfolio investment could cause the fund's share price or yield to fall. The
additional risks of foreign investments are due to reasons ranging from a lack
of issuer information to the risk of political uncertainties.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
5 MONEY MARKET FUND
<PAGE> 7
PERFORMANCE
Below is a chart showing the fund's performance. The chart assumes that all
distributions were reinvested. Keep in mind that future performance may differ
from past performance.
ANNUAL TOTAL RETURNS (%) AS OF 12/31
<TABLE>
<CAPTION>
91 92 93 94 95 96 97 98
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
</TABLE>
BEST QUARTER: 0.00% Q0 199X
WORST QUARTER: 0.00% Q0 199X
YEAR-TO-DATE PERFORMANCE AS OF 3/31/99: 0.00%
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/98
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION 1
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Schwab Money Market Fund 000 000 000
</TABLE>
1 Inception: 1/26/90.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
<TABLE>
<CAPTION>
FEE TABLE (%)
- --------------------------------------------------------------
<S> <C>
SHAREHOLDER FEES
None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES (% of average net assets)
- --------------------------------------------------------------
<S> <C>
Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
----
Total annual operating expenses 0.00
EXPENSE REDUCTION 0.00
----
NET OPERATING EXPENSES* 0.00
====
</TABLE>
* Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
To obtain a current seven-day yield for the fund, call toll-free 800-435-4000.
6 MONEY MARKET FUND
<PAGE> 8
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED 12/31 1998 1997 1996 1995 1994
PER SHARE DATA ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period 00.00 00.00 00.00 00.00 00.00
--------------------------------------------------------------
Income from investment operations:
Net investment income 00.00 00.00 00.00 00.00 00.00
Less distributions:
Dividends from net investment income (00.00) (00.00) (00.00) (00.00) (00.00)
--------------------------------------------------------------
NET ASSET VALUE AT END OF PERIOD 00.00 00.00 00.00 00.00 00.00
==============================================================
Total return (%) 00.00 00.00 00.00 00.00 00.00
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratio of net operating expenses to average net assets 00.00 00.00 00.00 00.00 00.00
Expense reductions reflected in above ratio 00.00 00.00 00.00 00.00 00.00
Ratio of net investment income to average net assets 00.00 00.00 00.00 00.00 00.00
Net assets, end of period ($ x 1,000,000) 00,000 00,000 00,000 00,000 00,000
</TABLE>
MONEY MARKET FUND 7
<PAGE> 9
SCHWAB GOVERNMENT
MONEY FUND
TICKER SYMBOL: SWGXX
GOAL
THE FUND SEEKS THE HIGHEST CURRENT INCOME THAT IS CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN U.S. GOVERNMENT SECURITIES, such as:
- - U.S. Treasury bills, notes and bonds
- - other obligations that are issued or guaranteed by the U.S. government, its
agencies or instrumentalities
- - repurchase agreements
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit, maturity and issuer standards. Some of
these policies may be stricter than the federal regulations that apply to all
money funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality securities
(generally those that are in the top two tiers of credit quality).
- - Diversification: requirements for diversification limit the fund's exposure to
any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no more
than 90 days, and cannot invest in any security whose effective maturity is
longer than 397 days (approximately 13 months).
8 GOVERNMENT MONEY FUND
<PAGE> 10
This fund may appeal to investors looking for high money market returns along
with the added margin of safety provided by a portfolio of U.S. government
securities.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity, and any government
guarantees on securities the fund owns do not extend to shares of the fund
itself. While the fund historically has maintained its stable $1 share price,
there is no guarantee that it always will be able to do so. If its share price
were to change, you could lose money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Although the
risk of default with U.S. government securities is considered unlikely, any
default on the part of a portfolio investment could cause the fund's share price
or yield to fall.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
GOVERNMENT MONEY FUND 9
<PAGE> 11
PERFORMANCE
Below is a chart showing the fund's performance. The chart assumes that all
distributions were reinvested. Keep in mind that future performance may differ
from past performance.
ANNUAL TOTAL RETURNS (%) AS OF 12/31
<TABLE>
<CAPTION>
91 92 93 94 95 96 97 98
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
</TABLE>
BEST QUARTER: 0.00% Q0 199X
WORST QUARTER: 0.00% Q0 199X
YEAR-TO-DATE PERFORMANCE AS OF 3/31/99: 0.00%
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/98
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION 1
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Schwab Government
Money Fund 000 000 000
</TABLE>
1 Inception: 1/26/90.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
<TABLE>
<CAPTION>
FEE TABLE (%)
<S> <C>
SHAREHOLDER FEES
None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES (% of average net assets)
<S> <C>
Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
----
Total annual operating expenses 0.00
Expense reduction 0.00
----
Net operating expenses* 0.00
====
</TABLE>
* Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
To obtain a current seven-day yield for the fund, call toll-free 800-435-4000.
10 GOVERNMENT MONEY FUND
<PAGE> 12
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED 12/31 1998 1997 1996 1995 1994
PER SHARE DATA ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period 00.00 00.00 00.00 00.00 00.00
--------------------------------------------------------------
Income from investment operations:
Net investment income 00.00 00.00 00.00 00.00 00.00
Net realized and unrealized gain on investments 00.00 00.00 00.00 00.00 00.00
---------------------------------------------------------------
Total income from investment operations 00.00 00.00 00.00 00.00 00.00
Less distributions:
Dividends from net investment income (00.00) (00.00) (00.00) (00.00) (00.00)
--------------------------------------------------------------
NET ASSET VALUE AT END OF PERIOD 00.00 00.00 00.00 00.00 00.00
==============================================================
Total return (%) 00.00 00.00 00.00 00.00 00.00
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratio of net operating expenses to average net assets 00.00 00.00 00.00 00.00 00.00
Expense reductions reflected in above ratio 00.00 00.00 00.00 00.00 00.00
Ratio of net investment income to average net assets 00.00 00.00 00.00 00.00 00.00
Net assets, end of period ($ x 1,000,000) 00,000 00,000 00,000 00,000 00,000
</TABLE>
GOVERNMENT MONEY FUND 11
<PAGE> 13
SCHWAB U.S. TREASURY MONEY FUND
TICKER SYMBOL: SWUXX
GOAL
THE FUND SEEKS CURRENT INCOME CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS EXCLUSIVELY IN SECURITIES BACKED BY THE
FULL FAITH AND CREDIT OF THE U.S. GOVERNMENT. Typically, the fund's assets will
be invested in U.S. Treasury notes, bills and bonds. The full faith and credit
backing is the strongest backing offered by the U.S. government, and
traditionally is considered by investors to be the highest degree of safety.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit, maturity and issuer policies. By
limiting its portfolio to full faith and credit U.S. government investments, the
fund seeks to provide maximum safety as to its assets. The fund is distinct from
certain other types of government money funds in that, for tax and credit
quality reasons, it does not invest in repurchase agreements. The managers may
adjust the fund's average maturity based on current and anticipated changes in
interest rates. To preserve its investors' capital, the fund seeks to maintain a
stable $1 share price.
Because the income from U.S. Treasury securities is exempt from state and local
income taxes, the fund generally expects that the dividends it pays will be
exempt from those taxes as well. (Dividends still will be subject to federal
income tax.)
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality securities
(generally those that are in the top two tiers of credit quality).
- - Diversification: requirements for diversification limit the fund's exposure to
any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no more
than 90 days, and cannot invest in any security whose effective maturity is
longer than 397 days (approximately 13 months).
12 U.S. TREASURY MONEY FUND
<PAGE> 14
With its portfolio of securities backed by the full faith and credit of the U.S.
government, this fund is designed to provide investors with the highest degree
of safety of all the Schwab Money Funds, as well as current money market
returns.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity, and any government
guarantees on securities the fund owns do not extend to shares of the fund
itself. While the fund historically has maintained its stable $1 share price,
there is no guarantee that it always will be able to do so. If its share price
were to change, you could lose money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Although the
risk of default with U.S. Treasury securities is considered extremely unlikely,
any default on the part of a portfolio investment could cause the fund's share
price or yield to fall.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
U.S. TREASURY MONEY FUND 13
<PAGE> 15
PERFORMANCE
Below is a chart showing the fund's performance. The chart assumes that all
distributions were reinvested. Keep in mind that future performance may differ
from past performance.
ANNUAL TOTAL RETURNS (%) AS OF 12/31
<TABLE>
<CAPTION>
92 93 94 95 96 97 98
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
00.00 00.00 00.00 00.00 00.00 00.00 00.00
</TABLE>
BEST QUARTER: 0.00% Q0 199X
WORST QUARTER: 0.00% Q0 199X
YEAR-TO-DATE PERFORMANCE AS OF 3/31/99: 0.00%
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/98
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION 1
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Schwab U.S. Treasury
Money Fund 000 000 000
</TABLE>
1 Inception: 11/6/91.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
<TABLE>
<CAPTION>
FEE TABLE (%)
SHAREHOLDER FEES
<S> <C>
None
ANNUAL OPERATING EXPENSES (% of average net assets)
Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
----
Total annual operating expenses 0.00
Expense reduction 0.00
----
Net operating expenses* 0.00
====
</TABLE>
* Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
To obtain a current seven-day yield for the fund, call toll-free 800-435-4000.
14 U.S. TREASURY MONEY FUND
<PAGE> 16
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED 12/31 1998 1997 1996 1995 1994
PER SHARE DATA ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period 00.00 00.00 00.00 00.00 00.00
--------------------------------------------------------------
Income from investment operations:
Net investment income 00.00 00.00 00.00 00.00 00.00
Net realized and unrealized gain on investments 00.00 00.00 00.00 00.00 00.00
-------------------------------------------------------------
Total income from investment operations 00.00 00.00 00.00 00.00 00.00
Less distributions:
Dividends from net investment income (00.00) (00.00) (00.00) (00.00) (00.00)
--------------------------------------------------------------
NET ASSET VALUE AT END OF PERIOD 00.00 00.00 00.00 00.00 00.00
==============================================================
Total return (%) 00.00 00.00 00.00 00.00 00.00
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratio of net operating expenses to average net assets 00.00 00.00 00.00 00.00 00.00
Expense reductions reflected in above ratio 00.00 00.00 00.00 00.00 00.00
Ratio of net investment income to average net assets 00.00 00.00 00.00 00.00 00.00
Net assets, end of period ($ x 1,000,000) 00,000 00,000 00,000 00,000 00,000
</TABLE>
U.S. TREASURY MONEY FUND 15
<PAGE> 17
FUND MANAGEMENT
THE FUNDS' INVESTMENT ADVISER, Charles Schwab Investment Management, Inc., has
more than $00 billion under management.
The investment adviser for the Schwab Money Funds is Charles Schwab Investment
Management, Inc., 101 Montgomery Street, San Francisco, CA 94104. Founded in
1989, the firm today serves as investment adviser for all of the SchwabFunds.(R)
The firm manages assets for more than XX million shareholder accounts. (All
figures on this page are as of [DATE].
As the investment adviser, the firm oversees the asset management and
administration of the Schwab Money Funds. As compensation for these services,
the firm receives a management fee from each fund. For the 12 months ended
12/31/98, these fees were 0.00% for the Schwab Money Market Fund, 0.00% for the
Schwab Government Money Fund and 0.00% for the Schwab U.S. Treasury Money Fund.
These figures, which are expressed as a percentage of each fund's average daily
net assets, represent the actual amounts paid, including the effects of
reductions.
YEAR 2000 ISSUES
One issue with the potential to disrupt fund operations and affect performance
is the inability of some computers to recognize the year 2000.
The investment adviser is taking steps to enable its systems to handle this
issue. The investment adviser also is seeking assurances that its service
providers and business partners are taking similar steps as well. However, it is
impossible to know in advance exactly how this issue will affect fund
administration, fund performance or securities markets in general.
16 FUND MANAGEMENT
<PAGE> 18
INVESTING IN THE FUNDS
As a SchwabFunds(R) investor, you have a number of WAYS TO DO BUSINESS with us.
On the following pages, you will find information on buying, selling and
exchanging shares using the method that is most convenient for you. You also
will see how to choose a distribution option for your investment. Helpful
information on taxes is included as well.
INVESTING IN THE FUNDS 17
<PAGE> 19
BUYING SHARES
The information on these pages outlines how Schwab brokerage account investors
can place "good orders" to buy, sell and exchange shares of the funds.
These funds are designed for use in conjunction with a Schwab brokerage account.
Different types of Schwab brokerage accounts are available, with varying account
opening and balance requirements.
When you designate one of these funds as the "primary fund" on your Schwab
brokerage account, your uninvested cash balances will be invested automatically
in that fund, according to the terms and conditions of your account agreement.
Similarly, when you use your account to purchase other investments or make
payments, shares of your primary fund will be sold automatically to cover these
transactions.
For more information on Schwab brokerage accounts, call 800-435-4000 or visit
the Schwab web site at www.schwab.com.
Buying shares through direct orders
In addition to automatic sweep purchases, it is possible to buy shares of a fund
by placing a direct order, as you would with any other Schwab mutual fund.
Each fund's minimum for initial direct investments is $1,000 ($500 for
retirement and custodial accounts). The minimum additional direct investment is
$100.
For initial direct purchases, you'll need to choose whether you want your
dividends reinvested or paid to you. If you don't indicate a choice, your
dividends will be reinvested.
Place direct orders using any of the methods described at right.
18 INVESTING IN THE FUNDS
<PAGE> 20
SELLING/EXCHANGING SHARES
When selling or exchanging shares, please be aware of the following policies:
- - A fund may take up to seven days to pay sale proceeds.
- - If you are selling shares that were recently purchased by check, the proceeds
may be delayed until the check for purchase clears; this may take up to 15
days from the date of purchase.
- - Exchange orders must meet the minimum investment and other requirements for
the fund and share class into which you are exchanging.
- - You will need to obtain and read the prospectus for the fund into which you
are exchanging prior to placing your order.
- - You will need to keep at least $100 in any fund.
You may place direct orders to sell shares using any of the methods described
below. For automatic sweep sales, see your account materials.
METHODS FOR PLACING DIRECT ORDERS
PHONE
Call 800-435-4000, day or night (for TDD service, call
800-345-2550).
SCHWABLINK
Investment professionals should follow the transaction instructions in the
SchwabLink manual; for technical assistance, call 800-367-5198.
MAIL
Write to SchwabFunds(R) at:
101 Montgomery Street, San Francisco, CA 94104
When selling or exchanging shares, be sure to include the signature of at least
one of the persons whose name is on the account.
IN PERSON
Visit the nearest Charles Schwab branch office.
WHEN PLACING ORDERS
With every direct order to buy, sell or exchange shares you will need to
include the following information:
- - Your name
- - Your account number (for SchwabLink transactions, include the master account
and subaccount numbers)
- - The name and share class of the fund whose shares you want to buy or sell
- - The dollar amount you would like to buy, sell or exchange
- - For exchanges, the name and share class of the fund into which you want to
exchange and the distribution option you prefer
- - When selling shares, how you would like to receive the proceeds
Please note that orders to buy, sell or exchange become irrevocable at the
time you mail them.
INVESTING IN THE FUNDS 19
<PAGE> 21
TRANSACTION POLICIES
THE FUNDS ARE OPEN FOR BUSINESS EACH DAY THAT BOTH THE NEW YORK STOCK EXCHANGE
(NYSE) AND THE FEDERAL RESERVE BANK OF NEW YORK ARE OPEN. The funds calculate
their share prices twice each business day, first at 10 a.m. Eastern time and
again after the close of the NYSE (generally 4 p.m. Eastern time). A fund's
share price is its net asset value per share, or NAV, which is the fund's net
assets divided by the number of its shares outstanding. The funds seek to
maintain a stable NAV of $1.
Orders that are accepted in good order are processed at the next NAV to be
calculated. However, phone orders accepted after 8 p.m. Eastern time will be
processed at the next day's closing NAV, not at the morning NAV. Orders to buy
shares that are accepted prior to the morning NAV calculation generally receive
that day's dividend. Orders to buy that are accepted after the morning NAV but
prior to the closing NAV generally will receive the next day's dividend. Shares
sold or exchanged at the morning NAV generally don't receive that day's
dividend, but those sold or exchanged at the closing NAV generally do.
The funds value their investment holdings on the basis of amortized cost (cost
plus any discount, or minus any premium, accrued since purchase). Most money
market funds use this method to calculate NAV.
THE FUNDS AND SCHWAB RESERVE CERTAIN RIGHTS, including the following:
- - To automatically redeem your shares if the account they are held in is closed
for any reason or your balance falls below the minimum for the fund as a
result of selling or exchanging your shares
- - To modify or terminate the exchange privilege upon 60 days' written notice to
shareholders
- - To refuse any purchase or exchange order
- - To change or waive a fund's investment minimums
- - To suspend the right to sell shares back to the fund, and delay sending
proceeds, during times when trading on the NYSE is restricted or halted, or
otherwise as permitted by the SEC
- - To withdraw or suspend any part of the offering made by this prospectus
20 INVESTING IN THE FUNDS
<PAGE> 22
DIVIDENDS AND TAXES
ANY INVESTMENT IN THE FUND TYPICALLY INVOLVES SEVERAL TAX CONSIDERATIONS. The
information below is meant as a general summary for U.S. citizens and residents.
Because each person's tax situation is different, you should consult your tax
advisor about the tax implications of your investment in the fund. You also can
visit the Internal Revenue Service web site at www.irs.ustreas.gov.
AS A SHAREHOLDER, YOU ARE ENTITLED TO YOUR SHARE OF THE DIVIDENDS YOUR FUND
EARNS. Each fund distributes to its shareholders substantially all of its net
investment income. Each fund declares a dividend every business day, based on
its determination of its net investment income. The funds pay their dividends on
the 15th of every month (or next business day, if the 15th is not a business
day), except that in December dividends are paid on the last business day of the
month. The funds do not expect to pay any capital gain distributions.
UNLESS YOU ARE INVESTING THROUGH A TAX-DEFERRED OR ROTH RETIREMENT ACCOUNT, YOUR
FUND DIVIDENDS GENERALLY HAVE TAX CONSEQUENCES. Each fund's net investment
income is distributed as dividends and is taxable as ordinary income. Dividends
paid by the U.S. Treasury Money Fund are subject to federal income tax but
typically are free from any state and local personal income taxes. Income
dividends generally are taxable in the tax year in which they are declared,
whether you reinvest them or take them in cash.
AT THE BEGINNING OF EVERY YEAR, THE FUNDS PROVIDE SHAREHOLDERS WITH INFORMATION
DETAILING THE TAX STATUS OF ANY DIVIDENDS the fund paid during the previous
calendar year. Schwab brokerage account customers also receive information on
dividends and transactions in their monthly account statements.
INVESTING IN THE FUNDS 21
<PAGE> 23
NOTES
22 NOTES
<PAGE> 24
NOTES 23
<PAGE> 25
SCHWAB
MONEY FUNDS
SWEEP INVESTMENTS(TM)
TO LEARN MORE
This prospectus contains important information on the funds and should be read
and kept for reference. You also can obtain more information from the following
sources.
SHAREHOLDER REPORTS, which are mailed to current fund investors, discuss recent
performance and portfolio holdings.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) includes a more detailed
discussion of investment policies and the risks associated with various
investments. The SAI is incorporated by reference into the prospectus, making it
legally part of the prospectus.
You can obtain copies of these documents by contacting SchwabFunds(R) or the
SEC. All materials from SchwabFunds are free; the SEC charges a duplicating fee.
You can also review these materials in person at the SEC's Public Reference
Room.
SchwabFunds
101 Montgomery Street
San Francisco, CA 94104
800-435-4000
www.schwab.com/schwabfunds
Securities and Exchange Commission
Washington, D.C. 20549-6009
800-SEC-0330 (Public Reference Section)
www.sec.gov
SEC FILE NUMBER
Schwab Money Funds --
Sweep Investments(TM) 811-5954
PROSPECTUS
April 30, 1999
SCHWABFUNDS(TM)
mkt3850
<PAGE> 26
PROSPECTUS
APRIL 30, 1999
SCHWAB
MUNICIPAL MONEY FUNDS
SWEEP INVESTMENTS(TM)
Schwab Municipal Money Fund
Schwab California Municipal Money Fund
Schwab New York Municipal Money Fund
Schwab New Jersey Municipal Money Fund
Schwab Pennsylvania Municipal Money Fund
Schwab Florida Municipal Money Fund
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved these securities or passed on whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
SCHWABFUNDS(R)
<PAGE> 27
ABOUT THE FUNDS
Schwab Municipal
Money Funds --
Sweep Investments(TM)
ABOUT THE FUNDS
4 Schwab Municipal Money Fund
8 Schwab California Municipal Money Fund
12 Schwab New York Municipal Money Fund
16 Schwab New Jersey Municipal
Money Fund
20 Schwab Pennsylvania Municipal
Money Fund
24 Schwab Florida Municipal Money Fund
28 Fund Management
INVESTING IN THE FUNDS
30 Buying Shares
31 Selling/Exchanging Shares
32 Transaction Policies
33 Dividends and Taxes
<PAGE> 28
The Schwab Municipal Money Funds seek to provide HIGH CURRENT YIELDS while
offering the LIQUIDITY, STABILITY AND CONVENIENCE traditionally associated with
money market mutual funds.
Because these funds invest in municipal money market investments, their
dividends generally are free from federal income tax. Dividends from the
state-specific funds generally are free from state income tax as well.
The funds are designed primarily for use as "sweep account investments," in
conjunction with a Schwab brokerage account. Customers with such an account can
designate one of these funds as their account's primary fund.
As with all mutual funds, the performance of these funds will fluctuate over
time, and future performance may differ from past performance.
<PAGE> 29
SCHWAB MUNICIPAL
MONEY FUND
TICKER SYMBOL SWEEP SHARES: SWXXX
GOAL
THE FUND SEEKS THE HIGHEST CURRENT INCOME THAT IS CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY, AND IS EXEMPT FROM FEDERAL INCOME TAX.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN MUNICIPAL MONEY MARKET SECURITIES, from
issuers around the country and from certain agencies, U.S. territories and
possessions. These may include:
- - general obligation issues, which typically are backed by the issuer's ability
to levy taxes
- - revenue issues, which typically are backed by a stream of revenue from a
given source, such as a toll highway or a public water system
- - municipal notes
- - municipal leases
The fund also may buy investments that represent interests in municipal
securities and are designed to meet the requirements for being considered money
market instruments.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit, maturity and issuer standards. Some of
these policies may be stricter than the federal regulations that apply to all
money funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
During unusual market conditions, the fund may invest in taxable money market
securities as a defensive measure. In this case, the fund would not be pursuing
its goal.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality
securities (generally those that are in the top two tiers of credit quality).
- - Diversification: requirements for diversification limit the fund's exposure
to any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no more
than 90 days, and cannot invest in any security whose effective maturity is
longer than 397 days (approximately 13 months).
4 MUNICIPAL MONEY FUND
<PAGE> 30
This fund is designed for individuals in higher tax brackets who are seeking
tax-exempt income.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity. While the fund has
historically maintained its stable $1 share price, there is no guarantee that it
will always be able to do so. If its share price were to change, you could lose
money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Some of the
fund's investments, in particular those that represent interests in municipal
securities, may have greater risks than securities in non-municipal money funds.
Although the risk of default generally is considered unlikely, any default on
the part of a portfolio investment could cause the fund's share price or yield
to fall.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
SOME OF THE FUND'S INCOME COULD BE TAXABLE. If certain types of investments the
fund buys as tax-exempt are later ruled to be taxable, a portion of the fund's
income could be taxable. This risk, although generally considered low, is
somewhat higher for investments that represent interests in municipal securities
than for many types of municipal securities themselves. Any defensive
investments in taxable securities also could generate taxable income.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
MUNICIPAL MONEY FUND 5
<PAGE> 31
PERFORMANCE
Below is a chart showing the fund's performance. The chart assumes that all
distributions were reinvested. Keep in mind that future performance may differ
from past performance.
ANNUAL TOTAL RETURNS (%) AS OF 12/31
<TABLE>
<S> <C>
91 00.00
92 00.00
93 00.00
94 00.00
95 00.00
96 00.00
97 00.00
98 00.00
</TABLE>
BEST QUARTER: 0.00% Q0 199X
WORST QUARTER: 0.00% Q0 199X
YEAR-TO-DATE PERFORMANCE AS OF 3/31/99: 0.00%
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/98
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION 1
------ -----------
<S> <C> <C>
Schwab Municipal Money Fund 000 000
</TABLE>
1 Inception: 1/26/90.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
Fee table (%)
<TABLE>
<S> <C>
SHAREHOLDER FEES
- -----------------------------------------------------------
None
ANNUAL OPERATING EXPENSES (% of average net assets)
- -----------------------------------------------------------
Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
-----
Total annual operating expenses 0.00
Expense reduction 0.00
-----
Net operating expenses* 0.00
=====
</TABLE>
* Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
To obtain a current seven-day yield for the fund, call toll-free 800-435-4000.
6 MUNICIPAL MONEY FUND
<PAGE> 32
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED 12/31 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
- --------------------------------------------------------------------------------------------------
Net asset value at beginning of period 00.00 00.00 00.00 00.00 00.00
-------------------------------------------
Income from investment operations:
Net investment income 00.00 00.00 00.00 00.00 00.00
Net realized and unrealized gain on investments 00.00 00.00 00.00 00.00 00.00
-------------------------------------------
Total income from investment operations 00.00 00.00 00.00 00.00 00.00
Less distributions:
Dividends from net investment income (00.00) (00.00) (00.00) (00.00) (00.00)
-------------------------------------------
NET ASSET VALUE AT END OF PERIOD 00.00 00.00 00.00 00.00 00.00
===========================================
Total return (%) 00.00 00.00 00.00 00.00 00.00
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------------------------
Ratio of net operating expenses to average net assets 00.00 00.00 00.00 00.00 00.00
Expense reductions reflected in above ratio 00.00 00.00 00.00 00.00 00.00
Ratio of net investment income to average net assets 00.00 00.00 00.00 00.00 00.00
Net assets, end of period ($ x 1,000,000) 00 00 00 00 00
</TABLE>
MUNICIPAL MONEY FUND 7
<PAGE> 33
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
TICKER SYMBOL SWEEP SHARES: SWCXX
GOAL
THE FUND SEEKS THE HIGHEST CURRENT INCOME THAT IS CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY, AND IS EXEMPT FROM FEDERAL AND CALIFORNIA PERSONAL INCOME
TAX.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN MUNICIPAL MONEY MARKET SECURITIES FROM
CALIFORNIA ISSUERS and from certain agencies, U.S. territories and possessions.
These may include:
- - general obligation issues, which typically are backed by the issuer's ability
to levy taxes
- - revenue issues, which typically are backed by a stream of revenue from a
given source, such as a toll highway or a public water system
- - municipal notes
- - municipal leases
The fund also may buy investments that represent interests in municipal
securities and are designed to meet the requirements for being considered money
market instruments.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit, maturity and issuer standards. Some of
these policies may be stricter than the federal regulations that apply to all
money funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
During unusual market conditions, the fund may invest in taxable money market
securities as a defensive measure. In this case, the fund would not be pursuing
its goal.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality
securities (generally those that are in the top two tiers of credit quality).
- - Diversification: requirements for diversification limit the fund's exposure
to any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no more
than 90 days, and cannot invest in any security whose effective maturity is
longer than 397 days (approximately 13 months).
8 CALIFORNIA MUNICIPAL MONEY FUND
<PAGE> 34
For California residents, especially those in higher tax brackets who are
seeking double tax-exempt income, this fund may be an appropriate investment.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity. While the fund has
historically maintained its stable $1 share price, there is no guarantee that it
will always be able to do so. If its share price were to change, you could lose
money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Some of the
fund's investments, in particular those that represent interests in municipal
securities, may have greater risks than securities in non-municipal money funds.
Although the risk of default generally is considered unlikely, any default on
the part of a portfolio investment could cause the fund's share price or yield
to fall.
Because the fund invests primarily in the securities of a single state, its
performance also could be affected by local, state and regional factors,
including erosion of the tax base and changes in the economic climate. Local,
state, or national governmental actions also could affect performance.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
SOME OF THE FUND'S INCOME COULD BE TAXABLE. If certain types of investments the
fund buys as tax-exempt are later ruled to be taxable, a portion of the fund's
income could be taxable. This risk, although generally considered low, is
somewhat higher for investments that represent interests in municipal securities
than for many types of municipal securities themselves. Any defensive
investments in taxable securities also could generate taxable income.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
CALIFORNIA MUNICIPAL MONEY FUND 9
<PAGE> 35
PERFORMANCE
Below is a chart showing the fund's performance. The chart assumes that all
distributions were reinvested. Keep in mind that future performance may differ
from past performance.
ANNUAL TOTAL RETURNS (%) AS OF 12/31
<TABLE>
<S> <C>
91 00.00
92 00.00
93 00.00
94 00.00
95 00.00
96 00.00
97 00.00
98 00.00
</TABLE>
BEST QUARTER: 0.00% Q0 199X
WORST QUARTER: 0.00% Q0 199X
YEAR-TO-DATE PERFORMANCE AS OF 3/31/99: 0.00%
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/98
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION 1
------ -----------
<S> <C> <C>
Schwab California Municipal
Money Fund 000 000
</TABLE>
1 Inception: 11/6/90.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
FEE TABLE (%)
<TABLE>
<S> <C>
SHAREHOLDER FEES
- -----------------------------------------------------------
None
ANNUAL OPERATING EXPENSES (% of average net assets)
- -----------------------------------------------------------
Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
-----
Total annual operating expenses 0.00
Expense reduction 0.00
-----
Net operating expenses* 0.00
=====
</TABLE>
* Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
To obtain a current seven-day yield for the fund, call toll-free 800-435-4000.
10 CALIFORNIA MUNICIPAL MONEY FUND
<PAGE> 36
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED 12/31 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
- --------------------------------------------------------------------------------------------------
Net asset value at beginning of period 00.00 00.00 00.00 00.00 00.00
-------------------------------------------
Income from investment operations:
Net investment income 00.00 00.00 00.00 00.00 00.00
Net realized and unrealized gain on investments 00.00 00.00 00.00 00.00 00.00
-------------------------------------------
Total income from investment operations 00.00 00.00 00.00 00.00 00.00
Less distributions:
Dividends from net investment income (00.00) (00.00) (00.00) (00.00) (00.00)
-------------------------------------------
NET ASSET VALUE AT END OF PERIOD 00.00 00.00 00.00 00.00 00.00
===========================================
Total return (%) 00.00 00.00 00.00 00.00 00.00
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------------------------
Ratio of net operating expenses to average net assets 00.00 00.00 00.00 00.00 00.00
Expense reductions reflected in above ratio 00.00 00.00 00.00 00.00 00.00
Ratio of net investment income to average net assets 00.00 00.00 00.00 00.00 00.00
Net assets, end of period ($ x 1,000,000) 00 00 00 00 00
</TABLE>
CALIFORNIA MUNICIPAL MONEY FUND 11
<PAGE> 37
SCHWAB NEW YORK MUNICIPAL MONEY FUND
TICKER SYMBOL SWEEP SHARES: SWNXX
GOAL
THE FUND SEEKS THE HIGHEST CURRENT INCOME THAT IS CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY, AND IS EXEMPT FROM FEDERAL AND NEW YORK STATE AND LOCAL
PERSONAL INCOME TAX.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN MUNICIPAL MONEY MARKET SECURITIES FROM
NEW YORK ISSUERS and from certain agencies, U.S. territories and possessions.
These may include:
- - general obligation issues, which typically are backed by the issuer's ability
to levy taxes
- - revenue issues, which typically are backed by a stream of revenue from a
given source, such as a toll highway or a public water system
- - municipal notes
- - municipal leases
The fund also may buy investments that represent interests in municipal
securities and are designed to meet the requirements for being considered money
market instruments.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit, maturity and issuer standards. Some of
these policies may be stricter than the federal regulations that apply to all
money funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
During unusual market conditions, the fund may invest in taxable money market
securities as a defensive measure. In this case, the fund would not be pursuing
its goal.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality
securities (generally those that are in the top two tiers of credit quality).
- - Diversification: requirements for diversification limit the fund's exposure
to any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no more
than 90 days, and cannot invest in any security whose effective maturity is
longer than 397 days (approximately 13 months).
12 NEW YORK MUNICIPAL MONEY FUND
<PAGE> 38
For New York residents, especially those in higher tax brackets who are seeking
triple tax-exempt income, this fund may be an appropriate investment.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity. While the fund has
historically maintained its stable $1 share price, there is no guarantee that it
will always be able to do so. If its share price were to change, you could lose
money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Some of the
fund's investments, in particular those that represent interests in municipal
securities, may have greater risks than securities in non-municipal money funds.
Although the risk of default generally is considered unlikely, any default on
the part of a portfolio investment could cause the fund's share price or yield
to fall.
Because the fund invests primarily in the securities of a single state, its
performance also could be affected by local, state and regional factors,
including erosion of the tax base and changes in the economic climate. Local,
state, or national governmental actions also could affect performance.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
SOME OF THE FUND'S INCOME COULD BE TAXABLE. If certain types of investments the
fund buys as tax-exempt are later ruled to be taxable, a portion of the fund's
income could be taxable. This risk, although generally considered low, is
somewhat higher for investments that represent interests in municipal securities
than for many types of municipal securities themselves. Any defensive
investments in taxable securities also could generate taxable income.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
NEW YORK MUNICIPAL MONEY FUND 13
<PAGE> 39
PERFORMANCE
Below is a chart showing the fund's performance. The chart assumes that all
distributions were reinvested. Keep in mind that future performance may differ
from past performance.
ANNUAL TOTAL RETURNS (%) AS OF 12/31
<TABLE>
<S> <C>
96 00.00
97 00.00
98 00.00
</TABLE>
BEST QUARTER: 0.00% Q0 199X
WORST QUARTER: 0.00% Q0 199X
YEAR-TO-DATE PERFORMANCE AS OF 3/31/99: 0.00%
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/98
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION 1
<S> <C> <C>
Schwab New York Municipal
Money Fund 000 000
</TABLE>
1 Inception: 2/27/95.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
FEE TABLE (%)
<TABLE>
<S> <C>
SHAREHOLDER FEES
- -----------------------------------------------------------
None
ANNUAL OPERATING EXPENSES (% of average net assets)
- -----------------------------------------------------------
Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
-----
Total annual operating expenses 0.00
Expense reduction 0.00
-----
Net operating expenses* 0.00
=====
</TABLE>
* Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
To obtain a current seven-day yield for the fund, call toll-free 800-435-4000.
14 NEW YORK MUNICIPAL MONEY FUND
<PAGE> 40
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
1/1/98 - 1/1/97 - 1/1/96 - 2/27/95 -
12/31/98 12/31/97 12/31/96 12/31/95
<S> <C> <C> <C> <C>
PER SHARE DATA ($)
- -------------------------------------------------------------------------------------------------
Net asset value at beginning of period 00.00 00.00 00.00 00.00
-----------------------------------------
Income from investment operations:
Net investment income 00.00 00.00 00.00 00.00
Net realized and unrealized gain on investments 00.00 00.00 00.00 00.00
-----------------------------------------
Total income from investment operations 00.00 00.00 00.00 00.00
Less distributions:
Dividends from net investment income (00.00) (00.00) (00.00) (00.00)
-----------------------------------------
NET ASSET VALUE AT END OF PERIOD 00.00 00.00 00.00 00.00
=========================================
Total return (%) 00.00 00.00 00.00 00.00
RATIOS/SUPPLEMENTAL DATA (%)
- -------------------------------------------------------------------------------------------------
Ratio of net operating expenses to average net assets 00.00 00.00 00.00 00.00 1
Expense reductions reflected in above ratio 00.00 00.00 00.00 00.00
Ratio of net investment income to average net assets 00.00 00.00 00.00 00.00 1
Net assets, end of period ($ x 1,000,000) 00 00 00 00
</TABLE>
1 Annualized.
NEW YORK MUNICIPAL MONEY FUND 15
<PAGE> 41
SCHWAB NEW JERSEY MUNICIPAL MONEY FUND
TICKER SYMBOL SWEEP SHARES: SWJXX
GOAL
THE FUND SEEKS THE HIGHEST CURRENT INCOME THAT IS CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY, AND IS EXEMPT FROM FEDERAL AND NEW JERSEY PERSONAL INCOME
TAX.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN MUNICIPAL MONEY MARKET SECURITIES FROM
NEW JERSEY ISSUERS and from certain agencies, U.S. territories and possessions.
These may include:
- - general obligation issues, which typically are backed by the issuer's ability
to levy taxes
- - revenue issues, which typically are backed by a stream of revenue from a
given source, such as a toll highway or a public water system
- - municipal notes
- - municipal leases
The fund also may buy investments that represent interests in municipal
securities and are designed to meet the requirements for being considered money
market instruments.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit, maturity and issuer standards. Some of
these policies may be stricter than the federal regulations that apply to all
money funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
During unusual market conditions, the fund may invest in taxable money market
securities as a defensive measure. In this case, the fund would not be pursuing
its goal.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality
securities (generally those that are in the top two tiers of credit quality).
- - Diversification: requirements for diversification limit the fund's exposure
to any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no more
than 90 days, and cannot invest in any security whose effective maturity is
longer than 397 days (approximately 13 months).
16 NEW JERSEY MUNICIPAL MONEY FUND
<PAGE> 42
For New Jersey residents, especially those in higher tax brackets who are
seeking double tax-exempt income, this fund may be an appropriate investment.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity. While the fund has
historically maintained its stable $1 share price, there is no guarantee that it
will always be able to do so. If its share price were to change, you could lose
money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Some of the
fund's investments, in particular those that represent interests in municipal
securities, may have greater risks than securities in non-municipal money funds.
Although the risk of default generally is considered unlikely, any default on
the part of a portfolio investment could cause the fund's share price or yield
to fall.
Because the fund invests primarily in the securities of a single state, its
performance also could be affected by local, state and regional factors,
including erosion of the tax base and changes in the economic climate. Local,
state, or national governmental actions also could affect performance.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
SOME OF THE FUND'S INCOME COULD BE TAXABLE. If certain types of investments the
fund buys as tax-exempt are later ruled to be taxable, a portion of the fund's
income could be taxable. This risk, although generally considered low, is
somewhat higher for investments that represent interests in municipal securities
than for many types of municipal securities themselves. Any defensive
investments in taxable securities also could generate taxable income.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
NEW JERSEY MUNICIPAL MONEY FUND 17
<PAGE> 43
PERFORMANCE
Because this is a new fund, no performance figures are given. Information will
appear in a future version of the fund's prospectus.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
Fee table (%)
<TABLE>
<S> <C>
SHAREHOLDER FEES
- -----------------------------------------------------------
None
ANNUAL OPERATING EXPENSES (% of average net assets)
- -----------------------------------------------------------
Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
-----
Total annual operating expenses 0.00
Expense reduction 0.00
-----
Net operating expenses* 0.00
=====
</TABLE>
* Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
To obtain a current seven-day yield for the fund, call toll-free 800-435-4000.
18 NEW JERSEY MUNICIPAL MONEY FUND
<PAGE> 44
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
1/20/98 -
12/31/98
<S> <C>
PER SHARE DATA ($)
- --------------------------------------------------------------------------------
Net asset value at beginning of period 00.00
-----------
Income from investment operations:
Net investment income 00.00
Net realized and unrealized gain on investments 00.00
-----------
Total income from investment operations 00.00
Less distributions:
Dividends from net investment income (00.00)
-----------
NET ASSET VALUE AT END OF PERIOD 00.00
===========
Total return (%) 00.00
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------
Ratio of net operating expenses to average net assets 00.00 1
Expense reductions reflected in above ratio 00.00
Ratio of net investment income to average net assets 00.00 1
Net assets, end of period ($ x 1,000,000) 00
</TABLE>
1 Annualized.
NEW JERSEY MUNICIPAL MONEY FUND 19
<PAGE> 45
SCHWAB PENNSYLVANIA MUNICIPAL MONEY FUND
TICKER SYMBOL SWEEP SHARES: SWEXX
GOAL
THE FUND SEEKS THE HIGHEST CURRENT INCOME THAT IS CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY, AND IS EXEMPT FROM FEDERAL AND PENNSYLVANIA PERSONAL
INCOME TAX.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN MUNICIPAL MONEY MARKET SECURITIES FROM
PENNSYLVANIA ISSUERS and from certain agencies, U.S. territories and
possessions. These may include:
- - general obligation issues, which typically are backed by the issuer's ability
to levy taxes
- - revenue issues, which typically are backed by a stream of revenue from a
given source, such as a toll highway or a public water system
- - municipal notes
- - municipal leases
The fund also may buy investments that represent interests in municipal
securities and are designed to meet the requirements for being considered money
market instruments.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit, maturity and issuer standards. Some of
these policies may be stricter than the federal regulations that apply to all
money funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
During unusual market conditions, the fund may invest in taxable money market
securities as a defensive measure. In this case, the fund would not be pursuing
its goal.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality
securities (generally those that are in the top two tiers of credit quality).
- - Diversification: requirements for diversification limit the fund's exposure
to any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no more
than 90 days, and cannot invest in any security whose effective maturity is
longer than 397 days (approximately 13 months).
20 PENNSYLVANIA MUNICIPAL MONEY FUND
<PAGE> 46
For Pennsylvania residents, especially those in higher tax brackets who are
seeking double tax-exempt income, this fund may be an appropriate investment.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity. While the fund has
historically maintained its stable $1 share price, there is no guarantee that it
will always be able to do so. If its share price were to change, you could lose
money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Some of the
fund's investments, in particular those that represent interests in municipal
securities, may have greater risks than securities in non-municipal money funds.
Although the risk of default generally is considered unlikely, any default on
the part of a portfolio investment could cause the fund's share price or yield
to fall.
Because the fund invests primarily in the securities of a single state, its
performance also could be affected by local, state and regional factors,
including erosion of the tax base and changes in the economic climate. Local,
state, or national governmental actions also could affect performance.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
SOME OF THE FUND'S INCOME COULD BE TAXABLE. If certain types of investments the
fund buys as tax-exempt are later ruled to be taxable, a portion of the fund's
income could be taxable. This risk, although generally considered low, is
somewhat higher for investments that represent interests in municipal securities
than for many types of municipal securities themselves. Any defensive
investments in taxable securities also could generate taxable income.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
PENNSYLVANIA MUNICIPAL MONEY FUND 21
<PAGE> 47
PERFORMANCE
Because this is a new fund, no performance figures are given. Information will
appear in a future version of the fund's prospectus.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
FEE TABLE (%)
<TABLE>
<S> <C>
SHAREHOLDER FEES
- -----------------------------------------------------------
None
ANNUAL OPERATING EXPENSES (% of average net assets)
- -----------------------------------------------------------
Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
-----
Total Annual Operating Expenses 0.00
Expense reduction 0.00
-----
Net operating expenses* 0.00
=====
</TABLE>
* Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
To obtain a current seven-day yield for the fund, call toll-free 800-435-4000.
22 PENNSYLVANIA MUNICIPAL MONEY FUND
<PAGE> 48
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
1/20/98 -
12/31/98
<S> <C>
PER SHARE DATA ($)
- --------------------------------------------------------------------------------
Net asset value at beginning of period 00.00
-----------
Income from investment operations:
Net investment income 00.00
Net realized and unrealized gain on investments 00.00
-----------
Total income from investment operations 00.00
Less distributions:
Dividends from net investment income (00.00)
-----------
NET ASSET VALUE AT END OF PERIOD 00.00
===========
Total return (%) 00.00
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------
Ratio of net operating expenses to average net assets 00.00 1
Expense reductions reflected in above ratio 00.00
Ratio of net investment income to average net assets 00.00 1
Net assets, end of period ($ x 1,000,000) 00
</TABLE>
1 Annualized.
PENNSYLVANIA MUNICIPAL MONEY FUND 23
<PAGE> 49
SCHWAB FLORIDA MUNICIPAL MONEY FUND
TICKER SYMBOL SWEEP SHARES: SWFXX
GOAL
THE FUND SEEKS THE HIGHEST CURRENT INCOME THAT IS CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY, AND ALSO SEEKS TO HAVE ITS SHARES BE EXEMPT FROM THE
FLORIDA INTANGIBLE TAX.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN MUNICIPAL MONEY MARKET SECURITIES FROM
FLORIDA ISSUERS and from certain agencies, U.S. territories and possessions.
These may include:
- - general obligation issues, which typically are backed by the issuer's ability
to levy taxes
- - revenue issues, which typically are backed by a stream of revenue from a
given source, such as a toll highway or a public water system
- - municipal notes
- - municipal leases
The fund also may buy investments that represent interests in municipal
securities and are designed to meet the requirements for being considered money
market instruments.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit, maturity and issuer standards. Some of
these policies may be stricter than the federal regulations that apply to all
money funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
During unusual market conditions, the fund may invest in taxable money market
securities as a defensive measure. In this case, the fund would not be pursuing
its goal.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality
securities (generally those that are in the top two tiers of credit quality).
- - Diversification: requirements for diversification limit the fund's exposure
to any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no more
than 90 days, and cannot invest in any security whose effective maturity is
longer than 397 days (approximately 13 months).
24 FLORIDA MUNICIPAL MONEY FUND
<PAGE> 50
For Florida residents, especially those in higher tax brackets who are seeking
tax-exempt income, this fund may be an appropriate investment.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity. While the fund has
historically maintained its stable $1 share price, there is no guarantee that it
will always be able to do so. If its share price were to change, you could lose
money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Some of the
fund's investments, in particular those that represent interests in municipal
securities, may have greater risks than securities in non-municipal money funds.
Although the risk of default generally is considered unlikely, any default on
the part of a portfolio investment could cause the fund's share price or yield
to fall.
Because the fund invests primarily in the securities of a single state, its
performance also could be affected by local, state and regional factors,
including erosion of the tax base and changes in the economic climate. Local,
state, or national governmental actions also could affect performance.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
Some of the fund's income could be taxable. If certain types of investments the
fund buys as tax-exempt are later ruled to be taxable, a portion of the fund's
income could be taxable. This risk, although generally considered low, is
somewhat higher for investments that represent interests in municipal securities
than for many types of municipal securities themselves. Any defensive
investments in taxable securities also could generate taxable income.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
FLORIDA MUNICIPAL MONEY FUND 25
<PAGE> 51
PERFORMANCE
Because this is a new fund, no performance figures are given. Information will
appear in a future version of the fund's prospectus.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
FEE TABLE (%)
<TABLE>
<S> <C>
SHAREHOLDER FEES
- -----------------------------------------------------------
None
ANNUAL OPERATING EXPENSES (% of average net assets)
- -----------------------------------------------------------
Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
-----
Total annual operating expenses 0.00
Expense reduction 0.00
-----
Net operating expenses* 0.00
=====
</TABLE>
* Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
To obtain a current seven-day yield for the fund, call toll-free 800-435-4000.
26 FLORIDA MUNICIPAL MONEY FUND
<PAGE> 52
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
2/16/98 -
12/31/98
PER SHARE DATA ($)
- --------------------------------------------------------------------------------
<S> <C>
Net asset value at beginning of period 00.00
-----------
Income from investment operations:
Net investment income 00.00
Net realized and unrealized gain on investments 00.00
-----------
Total income from investment operations 00.00
Less distributions:
Dividends from net investment income (00.00)
-----------
NET ASSET VALUE AT END OF PERIOD 00.00
===========
Total return (%) 00.00
RATIOS/SUPPLEMENTAL DATA (%)
- --------------------------------------------------------------------------------
Ratio of net operating expenses to average net assets 00.00 1
Expense reductions reflected in above ratio 00.00
Ratio of net investment income to average net assets 00.00 1
Net assets, end of period ($ x 1,000,000) 00
</TABLE>
1 Annualized.
FLORIDA MUNICIPAL MONEY FUND 27
<PAGE> 53
FUND MANAGEMENT
THE FUNDS' INVESTMENT ADVISER, Charles Schwab Investment Management, Inc., has
more than $00 billion under management.
The investment adviser for the Schwab Municipal Money Funds is Charles Schwab
Investment Management, Inc., 101 Montgomery Street, San Francisco, CA 94104.
Founded in 1989, the firm today serves as investment adviser for all of the
SchwabFunds(R). The firm manages assets for more than XX million shareholder
accounts. (All figures on this page are as of [DATE]).
As the investment adviser, the firm oversees the asset management and
administration of the Schwab Municipal Money Funds. As compensation for these
services, the firm receives a management fee from each fund. For the 12 months
ended 12/31/98, these fees were 0.00% for the Schwab Municipal Money Fund, 0.00%
for the Schwab California Municipal Money Fund and 0.00% for the Schwab New York
Municipal Money Fund. For the Schwab New Jersey Municipal Money Fund, the Schwab
Pennsylvania Municipal Money Fund and the Schwab Florida Municipal Money Fund,
each fund's fee is calculated as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEE (% of average daily net assets)
- -----------------------------------------------------------
<S> <C>
First $1 billion of assets 0.46%
Second $1 billion of assets 0.41%
Assets above $2 billion 0.40%
</TABLE>
YEAR 2000 ISSUES
One issue with the potential to disrupt fund operations and affect performance
is the inability of some computers to recognize the year 2000.
The investment adviser is taking steps to enable its systems to handle this
issue. The investment adviser also is seeking assurances that its service
providers and business partners are taking similar steps as well. However, it is
impossible to know in advance exactly how this issue will affect fund
administration, fund performance or securities markets in general.
28 FUND MANAGEMENT
<PAGE> 54
INVESTING IN THE FUNDS
As a SchwabFunds(R) investor, you have a number of WAYS TO DO BUSINESS with us.
On the following pages, you will find information on buying, selling and
exchanging shares using the method that is most convenient for you. You also
will see how to choose a distribution option for your investment. Helpful
information on taxes is included as well.
INVESTING IN THE FUNDS 29
<PAGE> 55
BUYING SHARES
The information on these pages outlines how Schwab brokerage account investors
can place "good orders" to buy, sell and exchange shares of the funds.
These funds are designed for use in conjunction with a Schwab brokerage account.
Different types of Schwab brokerage accounts are available, with varying account
opening and balance requirements.
When you designate one of these funds as the "primary fund" on your Schwab
brokerage account, your uninvested cash balances will be invested automatically
in that fund, according to the terms and conditions of your account agreement.
Similarly, when you use your account to purchase other investments or make
payments, shares of your primary fund will be sold automatically to cover these
transactions.
For more information on Schwab brokerage accounts, call 800-435-4000 or visit
the Schwab web site at www.schwab.com.
BUYING SHARES THROUGH DIRECT ORDERS
In addition to automatic sweep purchases, it is possible to buy shares of a fund
by placing a direct order, as you would with any other Schwab mutual fund.
Each fund's minimum for initial direct investments is $1,000 ($500 for
retirement and custodial accounts). The minimum additional direct investment is
$100.
For initial direct purchases, you'll need to choose whether you want your
dividends reinvested or paid to you. If you don't indicate a choice, your
dividends will be reinvested.
Place direct orders using any of the methods described at right.
30 INVESTING IN THE FUNDS
<PAGE> 56
SELLING/EXCHANGING SHARES
When selling or exchanging shares, please be aware of the following policies:
- - A fund may take up to seven days to pay sale proceeds.
- - If you are selling shares that were recently purchased by check, the proceeds
may be delayed until the check for purchase clears; this may take up to 15
days from the date of purchase.
- - Exchange orders must meet the minimum investment and other requirements for
the fund and share class into which you are exchanging.
- - You will need to obtain and read the prospectus for the fund into which you
are exchanging prior to placing your order.
- - You will need to keep at least $100 in any fund account you are not closing.
You may place direct orders to sell shares using any of the methods described
below. For automatic sweep sales, see your account materials.
METHODS FOR PLACING DIRECT ORDERS
PHONE
Call 800-435-4000, day or night (for TDD service, call 800-345-2550).
SCHWABLINK
Investment professionals should follow the transaction instructions in the
SchwabLink manual; for technical assistance, call 800-367-5198.
MAIL
Write to SchwabFunds(R) at:
101 Montgomery Street, San Francisco, CA 94104
When selling or exchanging shares, be sure to include the signature of at least
one of the persons whose name is on the account.
IN PERSON
Visit the nearest Charles Schwab branch office.
WHEN PLACING ORDERS
With every direct order to buy, sell or exchange shares you will need to include
the following information:
- - Your name
- - Your account number (for SchwabLink transactions, include the master account
and subaccount numbers)
- - The name and share class of the fund whose shares you want to buy or sell
- - The dollar amount you would like to buy, sell or exchange
- - For exchanges, the name and share class of the fund into which you want to
exchange and the distribution option you prefer
- - When selling shares, how you would like to receive the proceeds
Please note that orders to buy, sell or exchange become irrevocable at the time
you mail them.
INVESTING IN THE FUNDS 31
<PAGE> 57
TRANSACTION POLICIES
THE FUNDS ARE OPEN FOR BUSINESS EACH DAY THAT BOTH THE NEW YORK STOCK EXCHANGE
(NYSE) AND THE FEDERAL RESERVE BANK OF NEW YORK ARE OPEN. The funds calculate
their share prices twice each business day, first at 10 a.m. Eastern time and
again after the close of the NYSE (generally 4 p.m. Eastern time). A fund's
share price is its net asset value per share, or NAV, which is the fund's net
assets divided by the number of its shares outstanding. The funds seek to
maintain a stable NAV of $1.
Orders that are accepted in good order are processed at the next NAV to be
calculated. However, phone orders accepted after 8 p.m. Eastern time will be
processed at the next day's closing NAV, not at the morning NAV. Orders to buy
shares that are accepted prior to the morning NAV calculation generally receive
that day's dividend. Orders to buy that are accepted after the morning NAV but
prior to the closing NAV generally will receive the next day's dividend. Shares
sold or exchanged at the morning NAV generally don't receive that day's
dividend, but those sold or exchanged at the closing NAV generally do.
The funds value their investment holdings on the basis of amortized cost (cost
plus any discount, or minus any premium, accrued since purchase). Most money
market funds use this method to calculate NAV.
THE FUNDS AND SCHWAB RESERVE CERTAIN RIGHTS, including the following:
- - To automatically redeem your shares if the account they are held in is closed
for any reason or your balance falls below the minimum for the fund as a
result of selling or exchanging your shares
- - To modify or terminate the exchange privilege upon 60 days' written notice to
shareholders
- - To refuse any purchase or exchange order
- - To change or waive a fund's investment minimums
- - To suspend the right to sell shares back to the fund, and delay sending
proceeds, during times when trading on the NYSE is restricted or halted, or
otherwise as permitted by the SEC
- - To withdraw or suspend any part of the offering made by this prospectus
32 INVESTING IN THE FUNDS
<PAGE> 58
DIVIDENDS AND TAXES
ANY INVESTMENT IN THE FUND TYPICALLY INVOLVES SEVERAL TAX CONSIDERATIONS. The
information below is meant as a general summary for U.S. citizens and residents.
Because each person's tax situation is different, you should consult your tax
advisor about the tax implications of your investment in the fund. You also can
visit the Internal Revenue Service web site at www.irs.ustreas.gov.
AS A SHAREHOLDER, YOU ARE ENTITLED TO YOUR SHARE OF THE DIVIDENDS YOUR FUND
EARNS. Each fund distributes to its shareholders substantially all of its net
investment income. Each fund declares a dividend every business day, based on
its determination of its net investment income. The funds pay their dividends on
the 15th of every month (or next business day, if the 15th is not a business
day), except that in December dividends are paid on the last business day of the
month. The funds do not expect to pay any capital gain distributions.
SOME FUNDS MAY HAVE TAX CONSEQUENCES. Municipal Money Fund's dividends typically
are free from federal income tax, but are subject to any state and local
personal income taxes. Dividends from state-specific funds typically are free
from federal, state and local personal income taxes. Shares of the Florida
Municipal Money Fund are intended to be exempt from the Florida intangible tax.
Taxable income dividends generally are taxable in the tax year in which they are
declared, whether you reinvest them or take them in cash.
While interest from municipal securities generally is free from federal income
tax, some types of securities produce income that is subject to the federal
alternative minimum tax (AMT). To the extent that a fund invests in these
securities, shareholders who are subject to the AMT may have to pay this tax on
some or all dividends received from that fund.
AT THE BEGINNING OF EVERY YEAR, THE FUNDS PROVIDE SHAREHOLDERS WITH INFORMATION
DETAILING THE TAX STATUS OF ANY DIVIDENDS the fund paid during the previous
calendar year. Schwab brokerage account customers also receive information on
dividends and transactions in their monthly account statements.
INVESTING IN THE FUNDS 33
<PAGE> 59
NOTES
34 NOTES
<PAGE> 60
NOTES 35
<PAGE> 61
SCHWAB
MUNICIPAL MONEY FUNDS
SWEEP INVESTMENTS(TM)
TO LEARN MORE
This prospectus contains important information on the funds and should be read
and kept for reference. You also can obtain more information from the following
sources.
SHAREHOLDER REPORTS, which are mailed to current fund investors, discuss recent
performance and portfolio holdings.
The STATEMENT OF ADDITIONAL INFORMATION (SAI) includes a more detailed
discussion of investment policies and the risks associated with various
investments. The SAI is incorporated by reference into the prospectus, making it
legally part of the prospectus.
You can obtain copies of these documents by contacting SchwabFunds(R) or the
SEC. All materials from SchwabFunds are free; the SEC charges a duplicating fee.
You can also review these materials in person at the SEC's Public Reference
Room.
SchwabFunds
101 Montgomery Street
San Francisco, CA 94104
800-435-4000
WWW.SCHWAB.COM/SCHWABFUNDS
Securities and Exchange Commission
Washington, D.C. 20549-6009
800-SEC-0330 (Public Reference Section)
www.sec.gov
SEC FILE NUMBERS
Schwab Municipal Money Funds --
Sweep Investments(TM) 811-5954
PROSPECTUS
April 30, 1999
SCHWABFUNDS(R)
MKT3851
<PAGE> 62
PROSPECTUS
APRIL 30, 1999
SCHWAB VALUE ADVANTAGE INVESTMENTS(R)
Schwab Value Advantage Money Fund(R)
Schwab Municipal Money Fund
Schwab California Municipal Money Fund
Schwab New York Municipal Money Fund
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved these securities or passed on whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
SCHWABFUNDS(R)
<PAGE> 63
ABOUT THE FUNDS
Schwab Value Advantage Investments(R)
ABOUT THE FUNDS
4 Schwab Value Advantage Money Fund(R)
8 Schwab Municipal Money Fund
12 Schwab California Municipal Money Fund
16 Schwab New York Municipal Money Fund
20 Fund Management
INVESTING IN THE FUNDS
22 Buying Shares
23 Selling/Exchanging Shares
24 Transaction Policies
25 Dividends and Taxes
<PAGE> 64
The Schwab Value Advantage Investments seek to provide HIGHER CURRENT YIELDS
while offering the LIQUIDITY AND STABILITY traditionally associated with money
market mutual funds.
The Schwab Value Advantage Investments are designed to provide higher yields
than "sweep account" investments. In exchange for less frequent access and
larger minimum investments, they offer potentially lower fund operating
expenses. Three of the funds offer income that is free from federal income tax,
and two of these funds also offer income that is tax-free for residents of
California or New York.
As with all mutual funds, the performance of these funds will fluctuate over
time, and future performance may differ from past performance.
<PAGE> 65
Schwab Value Advantage Money Fund(R)
TICKER SYMBOL INVESTOR SHARES: SWVXX
GOAL
THE FUND SEEKS THE HIGHEST CURRENT INCOME THAT IS CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN HIGH-QUALITY SHORT-TERM MONEY MARKET
INVESTMENTS issued by U.S. and foreign issuers, such as:
- - commercial paper
- - certificates of deposit
- - banker's acceptances
- - U.S. Treasury bills, notes and bonds
- - other obligations that are issued or guaranteed by the U.S. government,
its agencies or instrumentalities
- - repurchase agreements
All of these investments must be denominated in U.S. dollars, including those
that are issued by foreign issuers.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit and maturity policies. Some of these
policies may be stricter than the federal regulations that apply to all money
funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality
securities (generally those that are in the top two tiers of credit
quality).
- - Diversification: requirements for diversification limit the fund's
exposure to any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no
more than 90 days, and cannot invest in any security whose effective
maturity is longer than 397 days (approximately 13 months).
4 VALUE ADVANTAGE MONEY FUND
<PAGE> 66
This fund may appeal to investors interested in high money market returns.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity. While the fund
historically has maintained its stable $1 share price, there is no guarantee
that it always will be able to do so. If its share price were to change, you
could lose money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Although the
risk of default generally is considered unlikely (even among foreign
investments, which carry additional risks), any default on the part of a
portfolio investment could cause the fund's share price or yield to fall. The
additional risks of foreign investments are due to reasons ranging from a lack
of issuer information to the risk of political uncertainties.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
VALUE ADVANTAGE MONEY FUND 5
<PAGE> 67
PERFORMANCE
Below is a chart showing the fund's performance. The chart assumes that all
distributions were reinvested. Keep in mind that future performance may differ
from past performance.
ANNUAL TOTAL RETURNS (%) AS OF 12/31
<TABLE>
<S> <C>
93 00.00
94 00.00
95 00.00
96 00.00
97 00.00
98 00.00
</TABLE>
BEST QUARTER: 0.00% Q0 199X
WORST QUARTER: 0.00% Q0 199X
YEAR-TO-DATE PERFORMANCE AS OF 3/31/99: 0.00%
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/98
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION 1
- ------------------------------------------------------------
<S> <C> <C> <C>
SCHWAB VALUE ADVANTAGE
MONEY FUND 000 000 000
</TABLE>
1 Inception: 4/30/92.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
FEE TABLE (%)
SHAREHOLDER FEES
- -----------------------------------------------------
None
ANNUAL OPERATING EXPENSES (% of average net assets)
- ----------------------------------------------------
<TABLE>
<S> <C>
Management fees 0.00
Distribution (12b-1) fees NONE
Other expenses 0.00
----
Total annual operating expenses 0.00
Expense reduction 0.00
----
Net operating expenses* 0.00
====
</TABLE>
*Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions
as all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
TO OBTAIN A CURRENT SEVEN-DAY YIELD FOR THE FUND, CALL TOLL-FREE 800-435-4000.
6 VALUE ADVANTAGE MONEY FUND
<PAGE> 68
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED 12/31 1998 1997 1996 1995 1994
PER SHARE DATA ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period 00.00 00.00 00.00 00.00 00.00
-----------------------------------------------------
Income from investment operations:
Net investment income 00.00 00.00 00.00 00.00 00.00
Less distributions:
Dividends from net investment income (00.00) (00.00) (00.00) (00.00) (00.00)
-----------------------------------------------------
NET ASSET VALUE AT END OF PERIOD 00.00 00.00 00.00 00.00 00.00
=====================================================
Total return (%) 00.00 00.00 00.00 00.00 00.00
RATIOS/SUPPLEMENTAL DATA (%)
- -----------------------------------------------------------------------------------------------------------------
Ratio of net operating expenses to average net assets 00.00 00.00 00.00 00.00 00.00
Expense reductions reflected in above ratio 00.00 00.00 00.00 00.00 00.00
Ratio of net investment income to average net assets 00.00 00.00 00.00 00.00 00.00
Net assets, end of period ($ x 1,000,000) 00 00 00 00 00
</TABLE>
VALUE ADVANTAGE MONEY FUND 7
<PAGE> 69
SCHWAB MUNICIPAL MONEY FUND
TICKER SYMBOL VALUE ADVANTAGE SHARES: SWTXX
GOAL
THE FUND SEEKS THE HIGHEST CURRENT INCOME THAT IS CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY, AND IS EXEMPT FROM FEDERAL INCOME TAX.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN MUNICIPAL MONEY MARKET SECURITIES, from
issuers around the country and from certain agencies, U.S. territories and
possessions. These may include:
- - general obligation issues, which typically are backed by the issuer's
ability to levy taxes
- - revenue issues, which typically are backed by a stream of revenue from a
given source, such as a toll highway or a public water system
- - municipal notes
- - municipal leases
The fund also may buy investments that represent interests in municipal
securities and are designed to meet the requirements for being considered money
market instruments.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit, maturity and issuer standards. Some of
these policies may be stricter than the federal regulations that apply to all
money funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
During unusual market conditions, the fund may invest in taxable money market
securities as a defensive measure. In this case, the fund would not be pursuing
its goal.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality
securities (generally those that are in the top two tiers of credit
quality).
- - Diversification: requirements for diversification limit the fund's
exposure to any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no
more than 90 days, and cannot invest in any security whose effective
maturity is longer than 397 days (approximately 13 months).
8 MUNICIPAL MONEY FUND
<PAGE> 70
This fund is designed for individuals in higher tax brackets who are seeking
tax-exempt income.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity. While the fund has
historically maintained its stable $1 share price, there is no guarantee that it
will always be able to do so. If its share price were to change, you could lose
money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Some of the
fund's investments, in particular those that represent interests in municipal
securities, may have greater risks than securities in non-municipal money funds.
Although the risk of default generally is considered unlikely, any default on
the part of a portfolio investment could cause the fund's share price or yield
to fall.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
SOME OF THE FUND'S INCOME COULD BE TAXABLE. If certain types of investments the
fund buys as tax-exempt are later ruled to be taxable, a portion of the fund's
income could be taxable. This risk, although generally considered low, is
somewhat higher for investments that represent interests in municipal securities
than for many types of municipal securities themselves. Any defensive
investments in taxable securities also could generate taxable income.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
MUNICIPAL MONEY FUND 9
<PAGE> 71
PERFORMANCE
Below is a chart showing the fund's performance. The chart assumes that all
distributions were reinvested. Keep in mind that future performance may differ
from past performance.
ANNUAL TOTAL RETURNS (%) AS OF 12/31
- ------------------------------------------
[Bar Graph]
<TABLE>
<S> <C>
96 00.00
97 00.00
98 00.00
</TABLE>
BEST QUARTER: 0.00% Q0 199X
WORST QUARTER: 0.00% Q0 199X
YEAR-TO-DATE PERFORMANCE AS OF 3/31/99: 0.00%
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/98
- ----------------------------------------------------------
<TABLE>
SINCE
1 YEAR INCEPTION 1
- ----------------------------------------------------------
<S> <C> <C>
SCHWAB MUNICIPAL MONEY FUND 000 000
</TABLE>
1 Inception: 7/7/95.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
FEE TABLE (%)
- ----------------------------------------------------------------------------
SHAREHOLDER FEES
- ----------------------------------------------------------------------------
None
ANNUAL OPERATING EXPENSES (% of average net assets)
- ----------------------------------------------------------------------------
<TABLE>
<S> <C>
Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
----
Total annual operating expenses 0.00
Expense reduction 0.00
----
Net operating expenses* 0.00
----
</TABLE>
* Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
- -----------------------------------
Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
To obtain a current seven-day yield for the fund, call toll-free 800-435-4000.
10 MUNICIPAL MONEY FUND
<PAGE> 72
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
1/1/98- 1/1/97- 1/1/96- 7/7/95-
12/31/98 12/31/97 12/31/96 12/31/95
- -------------------------------------------------------------------------------------------------------
PER SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period 00.00 00.00 00.00 00.00
------------------------------------------
Income from investment operations:
Net investment income 00.00 00.00 00.00 00.00
Net realized and unrealized gain on investments 00.00 00.00 00.00 00.00
------------------------------------------
Total income from investment operations 00.00 00.00 00.00 00.00
Less distributions:
Dividends from net investment income (00.00) (00.00) (00.00) (00.00)
------------------------------------------
NET ASSET VALUE AT END OF PERIOD 00.00 00.00 00.00 00.00
==========================================
Total return (%) 00.00 00.00 00.00 00.00
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------
Ratio of net operating expenses to average net assets 00.00 00.00 00.00 00.00 1
Expense reductions reflected in above ratio 00.00 00.00 00.00 00.00
Ratio of net investment income to average net assets 00.00 00.00 00.00 00.00 1
Net assets, end of period ($ x 1,000,000) 00 00 00 00
</TABLE>
1 Annualized.
MUNICIPAL MONEY FUND 11
<PAGE> 73
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
TICKER SYMBOL VALUE ADVANTAGE SHARES: SWKXX
GOAL
THE FUND SEEKS THE HIGHEST CURRENT INCOME THAT IS CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY, AND IS EXEMPT FROM FEDERAL AND CALIFORNIA PERSONAL INCOME
TAX.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN MUNICIPAL MONEY MARKET SECURITIES FROM
CALIFORNIA ISSUERS and from certain agencies, U.S. territories and possessions.
These may include:
- - general obligation issues, which typically are backed by the issuer's
ability to levy taxes
- - revenue issues, which typically are backed by a stream of revenue from a
given source, such as a toll highway or a public water system
- - municipal notes
- - municipal leases
The fund also may buy investments that represent interests in municipal
securities and are designed to meet the requirements for being considered money
market instruments.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit, maturity and issuer standards. Some of
these policies may be stricter than the federal regulations that apply to all
money funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
During unusual market conditions, the fund may invest in taxable money market
securities as a defensive measure. In this case, the fund would not be pursuing
its goal.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality
securities (generally those that are in the top two tiers of credit
quality).
- - Diversification: requirements for diversification limit the fund's
exposure to any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no
more than 90 days, and cannot invest in any security whose effective
maturity is longer than 397 days (approximately 13 months).
12 CALIFORNIA MUNICIPAL MONEY FUND
<PAGE> 74
For California residents, especially those in higher tax brackets who are
seeking double tax-exempt income, this fund may be an appropriate investment.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity. While the fund has
historically maintained its stable $1 share price, there is no guarantee that it
will always be able to do so. If its share price were to change, you could lose
money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Some of the
fund's investments, in particular those that represent interests in municipal
securities, may have greater risks than securities in non-municipal money funds.
Although the risk of default generally is considered unlikely, any default on
the part of a portfolio investment could cause the fund's share price or yield
to fall.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
SOME OF THE FUND'S INCOME COULD BE TAXABLE. If certain types of investments the
fund buys as tax-exempt are later ruled to be taxable, a portion of the fund's
income could be taxable. This risk, although generally considered low, is
somewhat higher for investments that represent interests in municipal securities
than for many types of municipal securities themselves. Any defensive
investments in taxable securities also could generate taxable income.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
CALIFORNIA MUNICIPAL MONEY FUND 13
<PAGE> 75
PERFORMANCE
Below is a chart showing the fund's performance. The chart assumes that all
distributions were reinvested. Keep in mind that future performance may differ
from past performance.
ANNUAL TOTAL RETURNS (%) AS OF 12/31
- ---------------------------------------------------------------------
[BAR GRAPH]
<TABLE>
<S> <C>
96 00.00
97 00.00
98 00.00
</TABLE>
BEST QUARTER: 0.00% Q0 199X
WORST QUARTER: 0.00% Q0 199X
YEAR-TO-DATE PERFORMANCE AS OF 3/31/99: 0.00%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/98
- -----------------------------------------------------------------------
SINCE
1 YEAR INCEPTION 1
<S> <C> <C>
SCHWAB CALIFORNIA MUNICIPAL
MONEY FUND 000 000
</TABLE>
1 Inception: 10/3/95.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
FEE TABLE (%)
- -----------------------------------------------------------------------
SHAREHOLDER FEES
- -----------------------------------------------------------------------
None
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES (% OF AVERAGE NET ASSETS)
- -----------------------------------------------------------------------
<S> <C>
Management Fees 0.00
Distribution (12b-1) Fees None
Other Expenses 0.00
----
Total annual operating expenses 0.00
Expense reduction 0.00
----
Net operating expenses* 0.00
====
</TABLE>
* Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
- -------------------------------------------------------------------------
Designed to help you compare expenses, this example uses the same assumptions
as all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
TO OBTAIN A CURRENT SEVEN-DAY YIELD FOR THE FUND, CALL TOLL-FREE 800-435-4000.
14 CALIFORNIA MUNICIPAL MONEY FUND
<PAGE> 76
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
1/1/98- 1/1/97- 1/1/96- 10/3/95-
12/31/98 12/31/97 12/31/96 12/31/95
- -------------------------------------------------------------------------------------------------------
PER SHARE DATA ($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period 00.00 00.00 00.00 00.00
-----------------------------------------
Income from investment operations:
Net investment income 00.00 00.00 00.00 00.00
Net realized and unrealized gain on investments 00.00 00.00 00.00 00.00
-----------------------------------------
Total income from investment operations 00.00 00.00 00.00 00.00
Less distributions:
Dividends from net investment income (00.00) (00.00) (00.00) (00.00)
-----------------------------------------
NET ASSET VALUE AT END OF PERIOD 00.00 00.00 00.00 00.00
=========================================
Total return (%) 00.00 00.00 00.00 00.00
RATIOS/SUPPLEMENTAL DATA (%)
- -------------------------------------------------------------------------------------------------------
Ratio of net operating expenses to average net assets 00.00 00.00 00.00 00.00 1
Expense reductions reflected in above ratio 00.00 00.00 00.00 00.00
Ratio of net investment income to average net assets 00.00 00.00 00.00 00.00 1
Net assets, end of period ($ x 1,000,000) 00 00 00 00
</TABLE>
1 Annualized.
CALIFORNIA MUNICIPAL MONEY FUND 15
<PAGE> 77
SCHWAB NEW YORK MUNICIPAL MONEY FUND
TICKER SYMBOL VALUE ADVANTAGE SHARES: SWYXX
GOAL
THE FUND SEEKS THE HIGHEST CURRENT INCOME THAT IS CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY, AND IS EXEMPT FROM FEDERAL AND NEW YORK STATE AND LOCAL
PERSONAL INCOME TAX.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN MUNICIPAL MONEY MARKET SECURITIES FROM
NEW YORK ISSUERS and from certain agencies, U.S. territories and possessions.
These may include:
- - general obligation issues, which typically are backed by the issuer's
ability to levy taxes
- - revenue issues, which typically are backed by a stream of revenue from a
given source, such as a toll highway or a public water system
- - municipal notes
- - municipal leases
The fund also may buy investments that represent interests in municipal
securities and are designed to meet the requirements for being considered money
market instruments.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit, maturity and issuer standards. Some of
these policies may be stricter than the federal regulations that apply to all
money funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
During unusual market conditions, the fund may invest in taxable money market
securities as a defensive measure. In this case, the fund would not be pursuing
its goal.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality
securities (generally those that are in the top two tiers of credit
quality).
- - Diversification: requirements for diversification limit the fund's
exposure to any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no
more than 90 days, and cannot invest in any security whose effective
maturity is longer than 397 days (approximately 13 months).
16 NEW YORK MUNICIPAL MONEY FUND
<PAGE> 78
For New York residents, especially those in higher tax brackets who are seeking
triple tax-exempt income, this fund may be an appropriate investment.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity. While the fund has
historically maintained its stable $1 share price, there is no guarantee that it
will always be able to do so. If its share price were to change, you could lose
money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Some of the
fund's investments, in particular those that represent interests in municipal
securities, may have greater risks than securities in non-municipal money funds.
Although the risk of default generally is considered unlikely, any default on
the part of a portfolio investment could cause the fund's share price or yield
to fall.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
SOME OF THE FUND'S INCOME COULD BE TAXABLE. If certain types of investments the
fund buys as tax-exempt are later ruled to be taxable, a portion of the fund's
income could be taxable. This risk, although generally considered low, is
somewhat higher for investments that represent interests in municipal securities
than for many types of municipal securities themselves. Any defensive
investments in taxable securities also could generate taxable income.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
NEW YORK MUNICIPAL MONEY FUND 17
<PAGE> 79
PERFORMANCE
Below is a chart showing the fund's performance. The chart assumes that all
distributions were reinvested. Keep in mind that future performance may differ
from past performance.
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS (%) AS OF 12/31
- -----------------------------------------------------
[BAR CHART]
<S> <C>
96 00.00
97 00.00
98 00.00
</TABLE>
BEST QUARTER: 0.00% Q0 199X
WORST QUARTER: 0.00% Q0 199X
YEAR-TO-DATE PERFORMANCE AS OF 3/31/99: 0.00%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/98
- -------------------------------------------------------------
SINCE
1 YEAR INCEPTION 1
<S> <C> <C>
SCHWAB NEW YORK MUNICIPAL
MONEY FUND 000 000
</TABLE>
1 Inception: 7/7/95.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
FEE TABLE (%)
- ----------------------------------------------------------------
SHAREHOLDER FEES
- ----------------------------------------------------------------
None
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES (% OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------
<S> <C>
MANAGEMENT FEES 0.00
DISTRIBUTION (12b-1) FEES NONE
OTHER EXPENSES 0.00
----
Total annual operating expenses 0.00
EXPENSE REDUCTION 0.00
====
NET OPERATING EXPENSES* 0.00
====
</TABLE>
* Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
- -------------------------------------------------------------------
Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
TO OBTAIN A CURRENT SEVEN-DAY YIELD FOR THE FUND, CALL TOLL-FREE 800-435-4000.
18 NEW YORK MUNICIPAL MONEY FUND
<PAGE> 80
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
7/7/95-
1998 1997 1996 12/31/95
PER SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period 00.00 00.00 00.00 00.00
-----------------------------------------
Income from investment operations:
Net investment income 00.00 00.00 00.00 00.00
Net realized and unrealized gain on investments 00.00 00.00 00.00 00.00
-----------------------------------------
Total income from investment operations 00.00 00.00 00.00 00.00
Less distributions:
Dividends from net investment income (00.00) (00.00) (00.00) (00.00)
-----------------------------------------
NET ASSET VALUE AT END OF PERIOD 00.00 00.00 00.00 00.00
=========================================
Total return (%) 00.00 00.00 00.00 00.00
RATIOS/SUPPLEMENTAL DATA (%)
Ratio of net operating expenses to average net assets 00.00 00.00 00.00 00.00 1
Expense reductions reflected in above ratio 00.00 00.00 00.00 00.00
Ratio of net investment income to average net assets 00.00 00.00 00.00 00.00 1
Net assets, end of period ($ x 1,000,000) 00 00 00 00
</TABLE>
1 Annualized.
NEW YORK MUNICIPAL MONEY FUND 19
<PAGE> 81
FUND MANAGEMENT
The funds' investment adviser, Charles Schwab Investment Management, Inc., has
more than $00 billion under management.
THE INVESTMENT ADVISER for the Schwab Value Advantage Investments is Charles
Schwab Investment Management, Inc., 101 Montgomery Street, San Francisco, CA
94104. Founded in 1989, the firm today serves as investment adviser for all of
the SchwabFunds.(R) The firm manages assets for more than XX million shareholder
accounts. (All figures on this page are as of [DATE].
As the investment adviser, the firm oversees the asset management and
administration of the Schwab Value Advantage Investments. As compensation for
these services, the firm receives a management fee from each fund. For the 12
months ended 12/31/98, these fees were 0.00% for the Schwab Value Advantage
Money Fund, 0.00% for the Schwab Municipal Money Fund, 0.00% for the Schwab
California Municipal Money Fund and 0.00% for the Schwab New York Municipal
Money Fund. These figures, which are expressed as a percentage of each fund's
average daily net assets, represent the actual amounts paid, including the
effects of reductions.
YEAR 2000 ISSUES
One issue with the potential to disrupt fund operations and affect performance
is the inability of some computers to recognize the year 2000.
The investment adviser is taking steps to enable its systems to handle this
issue. The investment adviser also is seeking assurances that its service
providers and business partners are taking similar steps as well. However, it is
impossible to know in advance exactly how this issue will affect fund
administration, fund performance or securities markets in general.
20 FUND MANAGEMENT
<PAGE> 82
INVESTING IN THE FUNDS
As a SchwabFunds(R) investor, you have a number of WAYS TO DO BUSINESS with us.
On the following pages, you will find information on buying, selling and
exchanging shares using the method that is most convenient for you. You also
will see how to choose a distribution option for your investment.
Helpful information on taxes is included as well.
INVESTING IN THE FUNDS 21
<PAGE> 83
BUYING SHARES
Shares of the funds may be purchased through a Schwab brokerage account or
through certain third-party investment providers, such as other financial
institutions, investment professionals and workplace retirement plans.
The information on these pages outlines how Schwab brokerage account investors
can place "good orders" to buy, sell and exchange shares of the funds. If you
are investing through a third-party investment provider, some of the
instructions, minimums and policies may be different. Some investment providers
may charge transaction or other fees. Contact your investment provider for more
information.
STEP 1
- -------------------------------------------------------------------------------
Decide how much you want to invest.
<TABLE>
<CAPTION>
MINIMUM INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENTS MINIMUM BALANCE
- -------------------------------------------------------------------------------------
<S> <C> <C>
$25,000 $5,000 $20,000
($15,000 for retirement and ($2,000 for retirement and ($15,000 for retirement and
custodial accounts) custodial accounts) custodial accounts)
</TABLE>
STEP 2
- -------------------------------------------------------------------------------
Choose an option for dividends. The two options are described below. If you
don't indicate a choice, you will receive the first option.
OPTION FEATURES
- -------------------------------------------------------------------------------
Reinvestment All dividends are invested automatically in shares of your fund.
Cash You receive payment for all dividends.
STEP 3
- -------------------------------------------------------------------------------
Place your order using any of the methods described at right.
SCHWAB ACCOUNTS
Different types of Schwab brokerage accounts are available, with varying account
opening and balance requirements. Some Schwab brokerage account features can
work in tandem with features offered by the funds.
For example, when you sell shares in a fund, the proceeds automatically are paid
to your Schwab brokerage account. From your account, you can use features such
as MoneyLink(TM) which lets you move money between your brokerage accounts and
bank accounts, and Automatic Investment Plan (AIP), which lets you set up
periodic investments.
For more information on Schwab brokerage accounts, call 800-435-4000 or visit
the Schwab web site at www.schwab.com.
22 INVESTING IN THE FUNDS
<PAGE> 84
SELLING/EXCHANGING SHARES
Use any of the methods described below to sell shares of a fund.
When selling or exchanging shares, please be aware of the following policies:
- - A fund may take up to seven days to pay sale proceeds.
- - If you are selling shares that were recently purchased by check, the
proceeds may be delayed until the check for purchase clears; this may
take up to 15 days from the date of purchase.
- - Exchange orders must meet the minimum investment and other requirements
for the fund and share class into which you are exchanging.
- - You will need to obtain and read the prospectus for the fund into which
you are exchanging prior to placing your order.
- - You may be charged a $5 fee if you sell or exchange less than $5,000
worth of shares ($2,000 for retirement and custodial accounts) or fail to
maintain the required minimum balance.
WHEN PLACING ORDERS
With every order to buy, sell or exchange shares you will need to include the
following information:
- - Your name
- - Your account number (for SchwabLink transactions, include the master
account and subaccount numbers)
- - The name and share class of the fund whose shares you want to buy or sell
- - The dollar amount you would like to buy, sell or exchange
- - For exchanges, the name and share class of the fund into which you want
to exchange and the distribution option you prefer
- - When selling shares, how you would like to receive the proceeds
Please note that orders to buy, sell or exchange become irrevocable at the time
you mail them.
METHODS FOR PLACING ORDERS
PHONE
Call 800-435-4000, day or night (for TDD service, call 800-345-2550).
INTERNET
www.schwab.com/schwabfunds
SCHWABLINK
Investment professionals should follow the transaction instructions in the
SchwabLink manual; for technical assistance, call 800-367-5198.
MAIL
Write to SchwabFunds(R) at:
101 Montgomery Street, San Francisco, CA 94104
When selling or exchanging shares, be sure to include the signature of at least
one of the persons whose name is on the account.
IN PERSON
Visit the nearest Charles Schwab branch office.
INVESTING IN THE FUNDS 23
<PAGE> 85
TRANSACTION POLICIES
THE FUNDS ARE OPEN FOR BUSINESS EACH DAY THAT THE NEW YORK STOCK EXCHANGE (NYSE)
AND THE FEDERAL RESERVE BANK OF NEW YORK ARE OPEN. The funds calculate their
share prices each business day, after the close of the NYSE (generally 4 p.m.
Eastern time). A fund's share price is its net asset value per share, or NAV,
which is the fund's net assets divided by the number of its shares outstanding.
The funds seek to maintain a stable NAV of $1.
Orders that are accepted in good order are processed at the next NAV to be
calculated. Orders to buy shares that are accepted prior to the close of the
fund generally will receive the next day's dividend. Orders to sell or exchange
shares that are accepted and executed prior to the close of the fund on a given
day generally will receive that day's dividend.
The funds value their investment holdings on the basis of amortized cost (cost
plus any discount, or minus any premium, accrued since purchase). Most money
market funds use this method to calculate NAV.
THE FUNDS AND SCHWAB RESERVE CERTAIN RIGHTS, including the following:
- - To automatically redeem your shares if the account they are held in is
closed for any reason or your balance falls below the minimum for your
share class as a result of selling or exchanging your shares
- - To modify or terminate the exchange privilege upon 60 days' written
notice to shareholders
- - To refuse any purchase or exchange order, including those that appear
to be associated with short-term trading activities
- - To change or waive a fund's investment minimums
- - To suspend the right to sell shares back to the fund, and delay sending
proceeds, during times when trading on the NYSE is restricted or halted,
or otherwise as permitted by the SEC
- - To withdraw or suspend any part of the offering made by this prospectus
SPECIAL CONSIDERATIONS FOR SCHWAB ACCOUNTS
If your Schwab account contains no cash or Sweep Shares of a fund, Schwab may
redeem Value Advantage Shares or Investor Shares of a fund without prior
notification to you to cover the following items:
- - negative balances in your Schwab account as a result of any securities
transactions, including electronic funds transactions
- - payment of your Schwab account checks or Visa debit card charges
- - purchases you have made under an Automatic Investment Plan
Schwab may charge you a fee each time it must redeem shares of a fund under any
of these circumstances.
Schwab will redeem shares from the fund with the highest balance first, unless
the sum of your investments in the funds will not satisfy the total amount due.
In that case, none of your shares in the funds will be redeemed.
24 INVESTING IN THE FUNDS
<PAGE> 86
DIVIDENDS AND TAXES
ANY INVESTMENT IN THE FUND TYPICALLY INVOLVES SEVERAL TAX CONSIDERATIONS. The
information below is meant as a general summary for U.S. citizens and residents.
Because each person's tax situation is different, you should consult your tax
advisor about the tax implications of your investment in the fund. You also can
visit the Internal Revenue Service web site at www.irs.ustreas.gov.
AS A SHAREHOLDER, YOU ARE ENTITLED TO YOUR SHARE OF THE DIVIDENDS YOUR FUND
EARNS. Each fund distributes to its shareholders substantially all of its net
investment income. Each fund declares a dividend every business day, based on
its determination of its net investment income. The funds pay their dividends on
the 15th of every month (or next business day, if the 15th is not a business
day), except that in December dividends are paid on the last business day of the
month. The funds do not expect to pay any capital gain distributions.
UNLESS YOU ARE INVESTING THROUGH A TAX-DEFERRED OR ROTH RETIREMENT ACCOUNT, FUND
DIVIDENDS FROM VALUE ADVANTAGE MONEY FUND AND MUNICIPAL MONEY FUND GENERALLY
HAVE TAX CONSEQUENCES. Each fund's net investment income is distributed as
dividends. Value Advantage Money Fund dividends are taxable as ordinary income.
Municipal Money Fund's dividends typically are free from federal income tax, but
are subject to any state and local personal income taxes. Dividends from the
state-specific funds typically are free from federal, state and local personal
income taxes. Taxable income dividends generally are taxable in the tax year in
which they are declared, whether you reinvest them or take them in cash.
While interest from municipal securities generally is free from federal income
tax, some types of securities produce income that is subject to the federal
alternative minimum tax (AMT). To the extent that a fund invests in these
securities, shareholders who are subject to the AMT may have to pay this tax on
some or all dividends received from that fund.
AT THE BEGINNING OF EVERY YEAR, THE FUNDS PROVIDE SHAREHOLDERS WITH INFORMATION
DETAILING THE TAX STATUS OF ANY DIVIDENDS the fund paid during the previous
calendar year. Schwab brokerage account customers also receive information on
dividends and transactions in their monthly account statements.
INVESTING IN THE FUNDS 25
<PAGE> 87
NOTES
26
<PAGE> 88
NOTES 27
<PAGE> 89
SCHWAB VALUE ADVANTAGE INVESTMENTS
TO LEARN MORE
This prospectus contains important information on the funds and should be read
and kept for reference. You also can obtain more information from the following
sources.
SHAREHOLDER REPORTS, which are mailed to current fund investors, discuss recent
performance and portfolio holdings.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) includes a more detailed
discussion of investment policies and the risks associated with various
investments. The SAI is incorporated by reference into the prospectus, making it
legally part of the prospectus.
You can obtain copies of these documents by contacting SchwabFunds(R) or the
SEC. All materials from SchwabFunds are free; the SEC charges a duplicating fee.
You can also review these materials in person at the SEC's Public Reference
Room.
SCHWABFUNDS
101 Montgomery Street
San Francisco, CA 94104
800-435-4000
www.schwab.com/schwabfunds
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-6009
800-SEC-0330 (Public Reference Section)
www.sec.gov
SEC FILE NUMBER
Schwab Value Advantage
Investments(R) 811-5954
PROSPECTUS
APRIL 30, 1999
SCHWABFUNDS(R)
<PAGE> 90
PROSPECTUS
April 30, 1999
SCHWAB
GOVERNMENT
CASH RESERVES
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved these securities or passed on whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
SCHWABFUNDS(R)
<PAGE> 91
ABOUT THE FUND
Schwab Government
Cash Reserves
ABOUT THE FUND
4 Strategy
5 Main Risks
6 Performance
6 Fund Fees and Expenses
7 Financial Highlights
8 Portfolio Management
INVESTING IN THE FUND
10 Buying Shares
11 Selling Shares
12 Transaction Policies
13 Distributions and Taxes
<PAGE> 92
Schwab Government Cash Reserves seeks to provide ATTRACTIVE CURRENT YIELDS while
offering the LIQUIDITY, STABILITY AND CONVENIENCE traditionally associated with
money market mutual funds.
The fund invests exclusively in money market investments. With its focus on U.S.
government securities, it seeks a higher degree of safety in exchange for more
modest yield expectations.
The fund is designed for use as a "sweep account investment" in conjunction
with a Schwab Access(TM) Account. For customers with such an account, this fund
serves as a primary sweep fund.
As with all mutual funds, the performance of this fund will fluctuate over time,
and future performance may differ from past performance.
<PAGE> 93
SCHWAB GOVERNMENT
CASH RESERVES
TICKER SYMBOL: SWGXX
GOAL
THE FUND SEEKS CURRENT INCOME CONSISTENT WITH STABILITY OF CAPITAL AND
LIQUIDITY.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN U.S. GOVERNMENT SECURITIES, such as:
- - U.S. Treasury bills, notes and bonds
- - other obligations that are issued or guaranteed by the U.S. government, its
agencies or instrumentalities
- - repurchase agreements
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit, maturity and issuer policies. Many of
these policies are stricter than the federal regulations that apply to all money
funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality
securities (generally those that are in the top two tiers of credit quality).
- - Diversification: requirements for diversification limit the fund's exposure
to any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no more
than 90 days, and cannot invest in any security whose effective maturity is
longer than 397 days (approximately 13 months).
4 GOVERNMENT CASH RESERVES
<PAGE> 94
This fund may appeal to investors looking for a convenient sweep investment that
seeks high money market returns along with the added margin of safety provided
by a portfolio of U.S. government securities.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity, and any government
guarantees on securities the fund owns do not extend to shares of the fund
itself. While the fund historically has maintained its stable $1 share price,
there is no guarantee that it always will be able to do so. If its share price
were to change, you could lose money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Although the
risk of default with U.S. government securities is considered unlikely, any
default on the part of a portfolio investment could cause the fund's share price
or yield to fall.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
GOVERNMENT CASH RESERVES 5
<PAGE> 95
PERFORMANCE
Because this is a new fund, no performance figures are given. Information will
appear in a future version of the fund's prospectus.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
FEE TABLE (%)
<TABLE>
<S> <C>
SHAREHOLDER FEES
--------------------------------------------------------------------
None
ANNUAL OPERATING EXPENSES (% of average net assets)
--------------------------------------------------------------------
MANAGEMENT FEES 0.00
DISTRIBUTION (12b-1) FEES NONE
OTHER EXPENSES 0.00
----
Total annual operating expenses* 0.00
* Schwab and the investment adviser have voluntarily reduced
the fund's expenses as follows:.
EXPENSE REDUCTION 0.00
----
NET OPERATING EXPENSES 0.00
====
</TABLE>
EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions
as all mutual fund prospectuses: a $10,000 investment and 5% return each year.
The expenses would be the same whether you stayed in the fund or sold your
shares at the end of each period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
To obtain a current seven-day yield for the fund, call toll-free 800-435-4000.
6 GOVERNMENT CASH RESERVES
<PAGE> 96
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
4/1/98 -
12/31/98
<S> <C>
PER SHARE DATA ($)
------------------------------------------------------------------
Net asset value at beginning of period 00.00
---------
Income from investment operations:
Net investment income 00.00
Less distributions:
Dividends from net investment income (00.00)
---------
NET ASSET VALUE AT END OF PERIOD 00.00
=========
Total return (%) 00.00
RATIOS/SUPPLEMENTAL DATA (%)
------------------------------------------------------------------
Ratio of net operating expenses to average net assets 00.00 1
Expense reductions reflected in above ratio 00.00
Ratio of net investment income to average net assets 00.00 1
Net assets, end of period ($ x 1,000,000) 00
</TABLE>
1 Annualized.
GOVERNMENT CASH RESERVES 7
<PAGE> 97
FUND MANAGEMENT
THE FUNDS' INVESTMENT ADVISER, Charles Schwab Investment Management, Inc., has
more than $00 billion under management.
The investment adviser for the Schwab Government Cash Reserves is Charles Schwab
Investment Management, Inc., 101 Montgomery Street, San Francisco, CA 94104.
Founded in 1989, the firm today serves as investment adviser for all of the
SchwabFunds (R). The firm manages assets for more than XX million shareholder
accounts. (All figures on this page are as of [DATE]).
As the investment adviser, the firm oversees the asset management and
administration of the Schwab Government Cash Reserves. As compensation for these
services, the firm receives a management fee from the fund. This fee is
calculated as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEE (% of average daily net assets)
------------------------------------------------------
<S> <C>
First $1 billion of assets 0.46%
Second $1 billion of assets 0.41%
Assets above $2 billion 0.40%
</TABLE>
YEAR 2000 ISSUES
One issue with the potential to disrupt fund operations and affect performance
is the inability of some computers to recognize the year 2000.
The investment adviser is taking steps to enable its systems to handle this
issue. The investment adviser also is seeking assurances that its service
providers and business partners are taking similar steps as well. However, it is
impossible to know in advance exactly how this issue will affect fund
administration, fund performance or securities markets in general.
8 FUND MANAGEMENT
<PAGE> 98
INVESTING IN THE FUND
As a SchwabFunds(R) investor, you have a number of WAYS TO DO BUSINESS with us.
On the following pages, you will find information on buying and selling shares
using the method that is most convenient for you. You also will see how to
choose a distribution option for your investment. Helpful information on taxes
is included as well.
INVESTING IN THE FUND 9
<PAGE> 99
BUYING SHARES
The information on these pages outlines how Schwab Access(TM) Account investors
can place "good orders" to buy and sell shares of the fund.
This fund is designed for use in conjunction with a Schwab Access Account. When
you designate this fund as the "primary fund" on your Schwab Access Account,
your uninvested cash balances will be invested automatically in the fund,
according to the terms and conditions of your account agreement. Similarly, when
you use your account to make payments, shares of the fund will be sold
automatically to cover these transactions.
For information on other types of Schwab accounts, call 800-435-4000 or visit
the Schwab web site at www.schwab.com.
BUYING SHARES THROUGH DIRECT ORDERS
In addition to automatic sweep purchases, it is possible to buy shares of the
fund by placing a direct order, as you would with any other Schwab mutual fund.
The fund's minimum for initial investments is $1,000 ($500 for retirement and
custodial accounts). The minimum additional direct investment is $100.
For initial direct purchases, you'll need to choose whether you want your
dividends reinvested or paid to you. If you don't indicate a choice, your
dividends will be reinvested.
Place direct orders using any of the methods described at right.
10 INVESTING IN THE FUND
<PAGE> 100
SELLING SHARES
When selling shares, please be aware of the following policies:
- - The fund may take up to seven days to pay sale proceeds.
- - If you are selling shares that were recently purchased by check, the proceeds
may be delayed until the check for purchase clears; this may take up to 15
days from the date of purchase.
- - You will need to keep at least $1 in the fund.
You may place direct orders to sell shares using any of the methods described
below. For automatic sweep sales, see your account materials.
METHODS FOR PLACING DIRECT ORDERS
PHONE
Call 800-435-4000, day or night (for TDD service, call 800-345-2550).
MAIL
Write to SchwabFunds(R) at:
101 Montgomery Street, San Francisco, CA 94104
When selling shares, be sure to include the signature of at least one of the
persons whose name is on the account.
IN PERSON
Visit the nearest Charles Schwab branch office.
WHEN PLACING ORDERS
With every direct order to buy or sell shares you will need to include the
following information:
- - Your name
- - Your account number
- - The name of the fund whose shares you want to buy or sell
- - The dollar amount you would like to buy or sell
- - When selling shares, how you would like to receive the proceeds
Please note that orders to buy or sell become irrevocable at the time you
mail them.
INVESTING IN THE FUND 11
<PAGE> 101
TRANSACTION POLICIES
THE FUND IS OPEN FOR BUSINESS EACH DAY THAT BOTH THE NEW YORK STOCK EXCHANGE
(NYSE) AND THE FEDERAL RESERVE BANK OF NEW YORK ARE OPEN. The fund calculates
its share price twice each business day, first at 10 a.m. Eastern time and again
after the close of the NYSE (generally 4 p.m. Eastern time). A fund's share
price is its net asset value per share, or NAV, which is the fund's net assets
divided by the number of its shares outstanding. The fund seeks to maintain a
stable NAV of $1.
Orders that are accepted in good order are processed at the next NAV to be
calculated. However, phone orders accepted after 8 p.m. Eastern time will be
processed at the next day's closing NAV, not at the morning NAV. Orders to buy
shares that are accepted prior to the morning NAV calculation generally receive
that day's dividend. Orders to buy that are accepted after the morning NAV but
prior to the closing NAV generally will receive the next day's dividend. Shares
sold or exchanged at the morning NAV generally don't receive that day's
dividend, but those sold or exchanged at the closing NAV generally do.
The fund values its investment holdings on the basis of amortized cost (cost
plus any discount, or minus any premium, accrued since purchase). Most money
market funds use this method to calculate NAV.
THE FUND AND SCHWAB RESERVE CERTAIN RIGHTS, including the following:
- - To automatically redeem your shares if the account they are held in is closed
for any reason or your balance falls below the minimum for the fund as a
result of selling your shares
- - To refuse any purchase order
- - To change or waive a fund's investment minimums
- - To suspend the right to sell shares back to the fund, and delay sending
proceeds, during times when trading on the NYSE is restricted or halted, or
otherwise as permitted by the SEC
- - To withdraw or suspend any part of the offering made by this prospectus
12 INVESTING IN THE FUND
<PAGE> 102
DIVIDENDS AND TAXES
ANY INVESTMENT IN THE FUND TYPICALLY INVOLVES SEVERAL TAX CONSIDERATIONS. The
information below is meant as a general summary for U.S. citizens and residents.
Because each person's tax situation is different, you should consult your tax
advisor about the tax implications of your investment in the fund. You also can
visit the Internal Revenue Service web site at www.irs.ustreas.gov.
AS A SHAREHOLDER, YOU ARE ENTITLED TO YOUR SHARE OF THE DIVIDENDS THE FUND
EARNS. The fund distributes to its shareholders substantially all of its net
investment income. The fund declares a dividend every business day, based on its
determination of its net investment income. The fund pays its dividends on the
15th of every month (or next business day, if the 15th is not a business day),
except that in December dividends are paid on the last business day of the
month. The fund does not expect to pay any capital gain distributions.
UNLESS YOU ARE INVESTING THROUGH A TAX-DEFERRED OR ROTH RETIREMENT ACCOUNT, YOUR
FUND DIVIDENDS GENERALLY HAVE TAX CONSEQUENCES. The fund's net investment income
is distributed as dividends and is taxable as ordinary income. Income dividends
generally are taxable in the tax year in which they are declared, whether you
reinvest them or take them in cash.
AT THE BEGINNING OF EVERY YEAR, THE FUND PROVIDES SHAREHOLDERS WITH INFORMATION
DETAILING THE TAX STATUS OF ANY DIVIDENDS the fund paid during the previous
calendar year. Schwab Access Account customers also receive information on
dividends and transactions in their monthly account statements.
INVESTING IN THE FUND 13
<PAGE> 103
14 NOTES
<PAGE> 104
NOTES 15
<PAGE> 105
SCHWAB GOVERNMENT
CASH RESERVES
TO LEARN MORE
This prospectus contains important information on the fund and should be read
and kept for reference. You also can obtain more information from the following
sources.
SHAREHOLDER REPORTS, which are mailed to current fund investors, discuss recent
performance and portfolio holdings.
The STATEMENT OF ADDITIONAL INFORMATION (SAI) includes a more detailed
discussion of investment policies and the risks associated with various
investments. The SAI is incorporated by reference into the prospectus, making it
legally part of the prospectus.
You can obtain copies of these documents by contacting SchwabFunds(R) or the
SEC. All materials from SchwabFunds are free; the SEC charges a duplicating fee.
You can also review these materials in person at the SEC's Public Reference
Room.
SCHWABFUNDS
101 Montgomery Street
San Francisco, CA 94104
800-435-4000
WWW.SCHWAB.COM/SCHWABFUNDS
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-6009
800-SEC-0330 (Public Reference Section)
www.sec.gov
SEC FILE NUMBER
Schwab Government
Cash Reserves 811-5954
PROSPECTUS
April 30, 1999
SCHWABFUNDS(R)
MKT3853
<PAGE> 106
PROSPECTUS
April 30, 1999
SCHWAB
Institutional Advantage Money Fund(R)
SCHWAB
Retirement Money Fund(R)
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved these securities or passed on whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
SCHWABFUNDS(R)
<PAGE> 107
ABOUT THE FUNDS
ABOUT THE FUNDS
4 Schwab Institutional Advantage
Money Fund(R)
8 Schwab Retirement Money Fund(R)
12 Fund Management
INVESTING IN THE FUNDS
14 Buying Shares
15 Selling/Exchanging Shares
16 Transaction Policies
17 Dividends and Taxes
<PAGE> 108
The Schwab Institutional Advantage Money Fund(R) and Schwab Retirement Money
Fund(R) seek to provide HIGH CURRENT YIELDS while offering the LIQUIDITY AND
STABILITY traditionally associated with money market mutual funds.
These funds were created for retirement plans, plan participants and other
institutional investors investing on their own behalf or as a fiduciary, agent
or custodian.
As with all mutual funds, the performance of these funds will fluctuate over
time, and future performance may differ from past performance.
<PAGE> 109
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND(R)
TICKER SYMBOL: SWIXX
GOAL
THE FUND SEEKS THE HIGHEST CURRENT INCOME THAT IS CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN HIGH-QUALITY SHORT-TERM MONEY MARKET
INVESTMENTS issued by u.s. and foreign issuers, such as:
- - commercial paper
- - certificates of deposit
- - banker's acceptances
- - U.S. Treasury bills, notes and bonds
- - other obligations that are issued or guaranteed by the U.S. government,
its agencies or instrumentalities
- - repurchase agreements
All of these investments must be denominated in U.S. dollars, including those
that are issued by foreign issuers.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit and maturity policies. Some of these
policies may be stricter than the federal regulations that apply to all money
funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality
securities (generally those that are in the top two tiers of credit
quality).
- - Diversification: requirements for diversification limit the fund's
exposure to any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no
more than 90 days, and cannot invest in any security whose effective
maturity is longer than 397 days (approximately 13 months).
4 INSTITUTIONAL ADVANTAGE MONEY FUND
<PAGE> 110
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity. While the fund
historically has maintained its stable $1 share price, there is no guarantee
that it always will be able to do so. If its share price were to change, you
could lose money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Although the
risk of default generally is considered unlikely (even among foreign
investments, which carry additional risks), any default on the part of a
portfolio investment could cause the fund's share price or yield to fall. The
additional risks of foreign investments are due to reasons ranging from a lack
of issuer information to the risk of political uncertainties.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
INSTITUTIONAL ADVANTAGE MONEY FUND 5
<PAGE> 111
PERFORMANCE
Below is a chart showing the fund's performance. The chart assumes that all
distributions were reinvested. Keep in mind that future performance may differ
from past performance.
ANNUAL TOTAL RETURNS (%) AS OF 12/31
<TABLE>
<S> <C>
95 00.00
96 00.00
97 00.00
98 00.00
</TABLE>
BEST QUARTER: 0.00% Q0 199X
WORST QUARTER: 0.00% Q0 199X
YEAR-TO-DATE PERFORMANCE AS OF 3/31/99: 0.00%
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/98
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION 1
<S> <C> <C>
Schwab Institutional
Advantage Money Fund 000 000
</TABLE>
1 Inception: 1/4/94.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
FEE TABLE (%)
<TABLE>
<S> <C>
SHAREHOLDER FEES
- -----------------------------------------------------------
None
ANNUAL OPERATING EXPENSES (% of average net assets)
- -----------------------------------------------------------
Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
-----
Total annual operating expenses 0.00
EXPENSE REDUCTION 0.00
-----
NET OPERATING EXPENSES* 0.00
=====
</TABLE>
* Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
To obtain a current seven-day yield for the fund, call toll-free 800-435-4000.
6 INSTITUTIONAL ADVANTAGE MONEY FUND
<PAGE> 112
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
1/1/98 - 1/1/97 - 1/1/96 - 1/1/95 - 1/4/94 -
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
PER SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period 00.00 00.00 00.00 00.00 00.00
---------------------------------------------------
Income from investment operations:
Net investment income 00.00 00.00 00.00 00.00 00.00
Less distributions:
Dividends from net investment income (00.00) (00.00) (00.00) (00.00) (00.00)
---------------------------------------------------
NET ASSET VALUE AT END OF PERIOD 00.00 00.00 00.00 00.00 00.00
===================================================
Total return (%) 00.00 00.00 00.00 00.00 00.00
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------
Ratio of net operating expenses to average net assets 00.00 00.00 00.00 00.00 00.00 1
Expense reductions reflected in above ratio 00.00 00.00 00.00 00.00 00.00
Ratio of net investment income to average net assets 00.00 00.00 00.00 00.00 00.00 1
Net assets, end of period ($ x 1,000,000) 00,000 00,000 00,000 00,000 00,000
</TABLE>
1 Annualized.
INSTITUTIONAL ADVANTAGE MONEY FUND 7
<PAGE> 113
SCHWAB RETIREMENT
MONEY FUND
TICKER SYMBOL: SWRXX
GOAL
THE FUND SEEKS THE HIGHEST CURRENT INCOME THAT IS CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN HIGH-QUALITY SHORT-TERM MONEY MARKET
INVESTMENTS issued by U.S. and foreign issuers, such as:
- - commercial paper
- - certificates of deposit
- - banker's acceptances
- - U.S. Treasury bills, notes and bonds
- - other obligations that are issued or guaranteed by the U.S. government,
its agencies or instrumentalities
- - repurchase agreements
All of these investments must be denominated in U.S. dollars, including those
that are issued by foreign issuers.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit and maturity policies. Some of these
policies may be stricter than the federal regulations that apply to all money
funds.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average maturity based on actual or anticipated
changes in interest rates or credit quality. To preserve its investors' capital,
the fund seeks to maintain a stable $1 share price.
MONEY FUND REGULATIONS
Money market funds in the United States are subject to special rules that are
designed to help them maintain a stable share price:
- - Credit quality: money funds must invest exclusively in high-quality
securities (generally those that are in the top two tiers of credit
quality).
- - Diversification: requirements for diversification limit the fund's
exposure to any given issuer.
- - Maturity: money funds must maintain an average portfolio maturity of no
more than 90 days, and cannot invest in any security whose effective
maturity is longer than 397 days (approximately 13 months).
8 RETIREMENT MONEY FUND
<PAGE> 114
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
will be low.
YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity. While the fund
historically has maintained its stable $1 share price, there is no guarantee
that it always will be able to do so. If its share price were to change, you
could lose money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Although the
risk of default generally is considered unlikely (even among foreign
investments, which carry additional risks), any default on the part of a
portfolio investment could cause the fund's share price or yield to fall. The
additional risks of foreign investments are due to reasons ranging from a lack
of issuer information to the risk of political uncertainties.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S YIELD, and in
unusual circumstances potentially could affect its share price. To the extent
that the manager anticipates interest rate trends imprecisely, the fund's yields
at times could lag those of other money market funds. The fund's emphasis on
quality and stability also could cause it to underperform other money funds,
particularly those that take greater maturity and credit risks.
THE FUND IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for their
emphasis on stability and liquidity, money market investments may offer lower
long-term performance than stock or bond investments.
RETIREMENT MONEY FUND 9
<PAGE> 115
PERFORMANCE
Below is a chart showing the fund's performance. The chart assumes that all
distributions were reinvested. Keep in mind that future performance may differ
from past performance.
ANNUAL TOTAL RETURNS (%) AS OF 12/31
<TABLE>
<S> <C>
95 00.00
96 00.00
97 00.00
98 00.00
</TABLE>
BEST QUARTER: 0.00% Q0 199X
WORST QUARTER: 0.00% Q0 199X
YEAR-TO-DATE PERFORMANCE AS OF 3/31/99: 0.00%
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/98
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION 1
<S> <C> <C>
Schwab Retirement Money Fund 000 000
</TABLE>
1 Inception: 3/2/94.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in total return.
FEE TABLE (%)
<TABLE>
<S> <C>
SHAREHOLDER FEES
- -----------------------------------------------------------
None
ANNUAL OPERATING EXPENSES (% of average net assets)
- -----------------------------------------------------------
Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
-----
Total annual operating expenses 0.00
EXPENSE REDUCTION 0.00
-----
NET OPERATING EXPENSES* 0.00
=====
</TABLE>
* Guaranteed by Schwab and the investment adviser through xx/xx/00.
EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$00 $000 $000 $000
</TABLE>
To obtain a current seven-day yield for the fund, call toll-free 800-435-4000.
10 RETIREMENT MONEY FUND
<PAGE> 116
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, [NAME], audited these figures.
Their full report is included in the fund's annual report (see back cover).
<TABLE>
<CAPTION>
1/1/98 - 1/1/97 - 1/1/96 - 1/1/95 - 3/2/94 -
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
- -----------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 00.00 00.00 00.00 00.00 00.00
----------------------------------------------------
Income from investment operations:
Net investment income 00.00 00.00 00.00 00.00 00.00
Less distributions:
Dividends from net investment income (00.00) (00.00) (00.00) (00.00) (00.00)
----------------------------------------------------
NET ASSET VALUE AT END OF PERIOD 00.00 00.00 00.00 00.00 00.00
====================================================
Total return (%) 00.00 00.00 00.00 00.00 00.00
RATIOS/SUPPLEMENTAL DATA (%)
- -----------------------------------------------------------------------------------------------------------
Ratio of net operating expenses to average net assets 00.00 00.00 00.00 00.00 00.00 1
Expense reductions reflected in above ratio 00.00 00.00 00.00 00.00 00.00
Ratio of net investment income to average net assets 00.00 00.00 00.00 00.00 00.00 1
Net assets, end of period ($ x 1,000,000) 00,000 00,000 00,000 00,000 00,000
</TABLE>
1 Annualized.
RETIREMENT MONEY FUND 11
<PAGE> 117
FUND MANAGEMENT
THE FUNDS' INVESTMENT ADVISER, Charles Schwab Investment Management, Inc., has
more than $00 billion under management.
THE INVESTMENT ADVISER for the Schwab Money Funds is Charles Schwab Investment
Management, Inc., 101 Montgomery Street, San Francisco, CA 94104. Founded in
1989, the firm today serves as investment adviser for all of the SchwabFunds.(R)
The firm manages assets for more than XX million shareholder accounts. (All
figures on this page are as of [DATE].
As the investment adviser, the firm oversees the asset management and
administration of the Schwab Institutional Advantage Money Fund and Schwab
Retirement Money Fund. As compensation for these services, the firm receives a
management fee from each fund. For the 12 months ended 12/31/98, these fees were
0.00% for the Schwab Institutional Advantage Money Fund and 0.00% for the Schwab
Retirement Money Fund. These figures, which are expressed as a percentage of
each fund's average daily net assets, represent the actual amounts paid,
including the effects of reductions.
YEAR 2000 ISSUES
One issue with the potential to disrupt fund operations and affect performance
is the inability of some computers to recognize the year 2000.
The investment adviser is taking steps to enable its systems to handle this
issue. The investment adviser also is seeking assurances that its service
providers and business partners are taking similar steps as well. However, it is
impossible to know in advance exactly how this issue will affect fund
administration, fund performance or securities markets in general.
12 FUND MANAGEMENT
<PAGE> 118
INVESTING IN THE FUNDS
As a SchwabFunds(R) investor, you have a number of WAYS TO DO BUSINESS with us.
On the following pages, you will find information on buying, selling and
exchanging shares using the method that is most convenient for you. You also
will see how to choose a distribution option for your investment. Helpful
information on taxes is included as well.
INVESTING IN THE FUNDS 13
<PAGE> 119
BUYING SHARES
Shares of the funds may be purchased through a Schwab brokerage account or
through certain third-party investment providers, such as other financial
institutions, investment professionals and workplace retirement plans.
The information on these pages outlines how Schwab brokerage account investors
can place "good orders" to buy, sell and exchange shares of the funds. If you
are investing through a third-party investment provider, some of the
instructions, minimums and policies may be different. Some investment providers
may charge transaction or other fees. Contact your investment provider for more
information.
STEP 1
DECIDE HOW MUCH YOU WANT TO INVEST.
<TABLE>
<CAPTION>
MINIMUM INITIAL MINIMUM ADDITIONAL MINIMUM
INVESTMENT INVESTMENTS BALANCE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Advantage Money Fund $25,000 $1 $25,000
Retirement Money Fund $1 $1 $1
</TABLE>
STEP 2
CHOOSE AN OPTION FOR DIVIDENDS. The two options are described below. If you
don't indicate a choice, you will receive the first option.
OPTION FEATURES
- --------------------------------------------------------------------------------
Reinvestment All dividends are invested automatically in shares of your fund.
Cash You receive payment for all dividends.
STEP 3
PLACE YOUR ORDER USING ANY OF THE METHODS DESCRIBED AT RIGHT.
14 INVESTING IN THE FUNDS
<PAGE> 120
SELLING/EXCHANGING SHARES
Use any of the methods described below to sell shares of a fund.
When selling or exchanging shares, please be aware of the following policies:
- - A fund may take up to seven days to pay sale proceeds.
- - If you are selling shares that were recently purchased by check, the
proceeds may be delayed until the check for purchase clears; this may take
up to 15 days from the date of purchase.
- - Exchange orders must meet the minimum investment and other requirements
for the fund and share class into which you are exchanging.
- - You will need to obtain and read the prospectus for the fund into which
you are exchanging prior to placing your order.
METHODS FOR PLACING ORDERS
PHONE
Call 800-435-4000, day or night (for TDD service, call 800-345-2550).
INTERNET
www.schwab.com/schwabfunds
SCHWABLINK
Investment professionals should follow the transaction instructions in the
SchwabLink manual; for technical assistance, call 800-367-5198.
MAIL
Write to SchwabFunds(R) at: 101 Montgomery Street, San Francisco, CA 94104
When selling or exchanging shares, be sure to include the signature of at least
one of the persons whose name is on the account.
IN PERSON
Visit the nearest Charles Schwab branch office.
WHEN PLACING ORDERS
With every order to buy, sell or exchange shares you will need to include the
following information:
- - Your name
- - Your account number (for SchwabLink transactions, include the master
account and subaccount numbers)
- - The name and share class of the fund whose shares you want to buy or sell
- - The dollar amount you would like to buy, sell or exchange
- - For exchanges, the name and share class of the fund into which you want to
exchange and the distribution option you prefer
- - When selling shares, how you would like to receive the proceeds
Please note that orders to buy, sell or exchange become irrevocable at the time
you mail them.
INVESTING IN THE FUNDS 15
<PAGE> 121
TRANSACTION POLICIES
THE FUNDS ARE OPEN FOR BUSINESS EACH DAY THAT THE NEW YORK STOCK EXCHANGE (NYSE)
AND THE FEDERAL RESERVE BANK OF NEW YORK ARE OPEN. The funds calculate their
share prices each business day, after the close of the NYSE (generally 4 p.m.
Eastern time). A fund's share price is its net asset value per share, or NAV,
which is the fund's net assets divided by the number of its shares outstanding.
The funds seek to maintain a stable NAV of $1.
Orders that are accepted in good order are processed at the next NAV to be
calculated. Orders to buy shares that are accepted prior to the close of the
fund generally will receive the next day's dividend. On special request, orders
to invest $100,000 or more in shares of the Schwab Institutional Advantage Money
Fund(R) that are accepted by Schwab (including Charles Schwab Trust Company) by
1:30 p.m. Eastern time may receive that day's dividend. Orders to sell or
exchange shares that are accepted and executed prior to the close of the fund on
a given day generally will receive that day's dividend.
The funds value their investment holdings on the basis of amortized cost (cost
plus any discount, or minus any premium, accrued since purchase). Most money
market funds use this method to calculate NAV.
THE FUNDS AND SCHWAB RESERVE CERTAIN RIGHTS, including the following:
- - To automatically redeem your shares if the account they are held in is
closed for any reason or your balance falls below the minimum for your
share class as a result of selling or exchanging your shares
- - To modify or terminate the exchange privilege upon 60 days' written notice
to shareholders
- - To refuse any purchase or exchange order, including those that appear to
be associated with short-term trading activities
- - To change or waive a fund's investment minimums
- - To suspend the right to sell shares back to the fund, and delay sending
proceeds, during times when trading on the NYSE is restricted or halted,
or otherwise as permitted by the SEC
- - To withdraw or suspend any part of the offering made by this prospectus
16 INVESTING IN THE FUNDS
<PAGE> 122
DIVIDENDS AND TAXES
ANY INVESTMENT IN THE FUND TYPICALLY INVOLVES SEVERAL TAX CONSIDERATIONS. The
information below is meant as a general summary for U.S. citizens and residents.
Because each person's tax situation is different, you should consult your tax
advisor about the tax implications of your investment in the fund. You also can
visit the Internal Revenue Service web site at www.irs.ustreas.gov.
AS A SHAREHOLDER, YOU ARE ENTITLED TO YOUR SHARE OF THE DIVIDENDS YOUR FUND
EARNS. Each fund distributes to its shareholders substantially all of its net
investment income. Each fund declares a dividend every business day, based on
its determination of its net investment income. The funds pay their dividends on
the 15th of every month (or next business day, if the 15th is not a business
day), except that in December dividends are paid on the last business day of the
month. The funds do not expect to pay any capital gain distributions.
AS LONG AS YOU ARE INVESTING THROUGH A TAX-DEFERRED OR ROTH RETIREMENT ACCOUNT,
FUND DIVIDENDS GENERALLY DO NOT HAVE TAX CONSEQUENCES. Each fund's net
investment income is distributed as dividends. If you are investing in a taxable
account, the funds' dividends are taxable as ordinary income. Taxable income
dividends generally are taxable in the tax year in which they are declared,
whether you reinvest them or take them in cash.
AT THE BEGINNING OF EVERY YEAR, THE FUNDS PROVIDE SHAREHOLDERS WITH INFORMATION
DETAILING THE TAX STATUS OF ANY DIVIDENDS the fund paid during the previous
calendar year. Schwab brokerage account customers also receive information on
dividends and transactions in their monthly account statements.
INVESTING IN THE FUNDS 17
<PAGE> 123
18 NOTES
<PAGE> 124
NOTES 19
<PAGE> 125
SCHWAB
Institutional Advantage Money Fund(R)
SCHWAB
Retirement Money Fund(R)
TO LEARN MORE
This prospectus contains important information on the funds and should be read
and kept for reference. You also can obtain more information from the following
sources.
SHAREHOLDER REPORTS, which are mailed to current fund investors, discuss recent
performance and portfolio holdings.
The STATEMENT OF ADDITIONAL INFORMATION (SAI) includes a more detailed
discussion of investment policies and the risks associated with various
investments. The SAI is incorporated by reference into the prospectus, making it
legally part of the prospectus.
You can obtain copies of these documents by contacting SchwabFunds(R) or the
SEC. All materials from SchwabFunds are free; the SEC charges a duplicating fee.
You can also review these materials in person at the SEC's Public Reference
Room.
SCHWABFUNDS
101 Montgomery Street
San Francisco, CA 94104
800-435-4000
WWW.SCHWAB.COM/SCHWABFUNDS
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-6009
800-SEC-0330 (Public Reference Section)
www.sec.gov
SEC FILE NUMBERS
Schwab Institutional Advantage
Money Fund(R) 811-5954
Schwab Retirement Money Fund(R) 811-5954
PROSPECTUS
April 30, 1999
MKT3854
<PAGE> 126
STATEMENT OF ADDITIONAL INFORMATION
SCHWAB MONEY FUNDS - SWEEP INVESTMENTS(TM)
SCHWAB MONEY MARKET FUND
SCHWAB GOVERNMENT MONEY FUND
SCHWAB U.S. TREASURY MONEY FUND
APRIL 30, 1999
The Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the funds' prospectus dated April 30, 1999 (as amended
from time to time).
To obtain a copy of the prospectus, please contact SchwabFunds(R) at
800-435-4000, 24 hours a day, or write to the funds at 101 Montgomery Street,
San Francisco, California 94104. For TDD service call 800-345-2550, 24 hours a
day. The prospectus also may be available on the Internet at:
http://www.schwab.com/schwabfunds.
The funds' most recent annual report is a separate document supplied with the
SAI and includes the funds' audited financial statements, which are incorporated
by reference into this SAI.
The funds are a series of The Charles Schwab Family of Funds (the trust).
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES, STRATEGIES, SECURITIES,
RISKS AND LIMITATIONS........................................................................... x
MANAGEMENT OF THE FUNDS......................................................................... x
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............................................. x
INVESTMENT ADVISORY AND OTHER SERVICES.......................................................... x
BROKERAGE ALLOCATION AND OTHER PRACTICES........................................................ x
DESCRIPTION OF THE TRUST........................................................................ x
PURCHASE, REDEMPTION AND PRICING OF SHARES...................................................... x
TAXATION........................................................................................ x
CALCULATION OF PERFORMANCE DATA................................................................. x
APPENDIX - RATINGS OF INVESTMENT SECURITIES..................................................... x
</TABLE>
1
<PAGE> 127
INVESTMENT OBJECTIVES, STRATEGIES, SECURITIES, RISKS AND LIMITATIONS
INVESTMENT OBJECTIVES
Schwab Money Market Fund seeks maximum current income consistent with stability
of capital.
Schwab Government Money Fund seeks maximum current income consistent with
stability of capital.
Schwab U.S. Treasury Money Fund seeks high current income consistent with
liquidity and stability of capital.
Each fund's investment objective may be changed only by vote of a majority of
its shareholders.
The following investment strategies, securities, risks and limitations
supplement those set forth in the prospectus and may be changed without
shareholder approval unless otherwise noted. Also, policies and limitations that
state a maximum percentage of assets that may be invested in a security or other
asset, or that set forth a quality standard, shall be measured immediately after
and as a result of a fund's acquisition of such security or asset unless
otherwise noted. Any subsequent change in values, net assets or other
circumstances will not be considered when determining whether the investment
complies with a fund's investment policies and limitations. Additionally, for
purposes of calculating any restriction, an issuer shall be the entity deemed to
be ultimately responsible for payments of interest and principal on the security
pursuant to Rule 2a-7, unless otherwise noted. Not all investment securities or
techniques discussed below are eligible investments for each fund. A fund will
invest in securities or engage in techniques that are intended to help achieve
its investment objective.
INVESTMENT STRATEGIES
Schwab Money Market Fund seeks to achieve its objective by investing exclusively
in high-quality, U.S. dollar-denominated money market securities, which mature
in twelve months or less, including U.S. government securities and repurchase
agreements for these securities.
Schwab Government Money Fund seeks to achieve its objective by investing
exclusively in U.S. government securities, which mature in twelve months or
less, and repurchase agreements for these securities.
Schwab U.S. Treasury Money Fund seeks to achieve its objective by investing
exclusively in U.S. Treasury securities and other obligations that are backed by
the full faith and credit of the U.S. government.
Each fund's investment strategy is a policy that may be changed only by vote of
a majority of its shareholders.
INVESTMENT SECURITIES AND RISKS
ASSET-BACKED SECURITIES are securities that are backed by the loans or accounts
receivables of an entity, such as a bank or credit card company. These
securities are obligations which the issuer intends to repay using the assets
backing them (once collected). Therefore, repayment depends
2
<PAGE> 128
largely on the cash flows generated by the assets backing the securities. The
rate of principal payments on asset-backed securities generally depends on the
rate of principal payments received on the underlying assets, which in turn may
be affected by a variety of economic and other factors. As a result, the yield
on any asset-backed security is difficult to predict with precision, and actual
yield to maturity may be more or less than the anticipated yield to maturity.
Sometimes the credit quality of these securities is limited to the support
provided by the underlying assets, but, in other cases, additional credit
support also may be provided by a third party via a letter of credit or
insurance guarantee. Such credit support falls into two classes: liquidity
protection and protection against ultimate default on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that scheduled payments on
the underlying pool are made in a timely fashion. Protection against ultimate
default ensures payment on at least a portion of the assets in the pool. Such
protection may be provided through guarantees, insurance policies or letters of
credit obtained from third parties, through various means of structuring the
transaction or through a combination of such approaches.
The degree of credit support provided on each issue is based generally on
historical information respecting the level of credit risk associated with such
payments. Delinquency or loss in excess of that anticipated could adversely
affect the return on an investment in an asset-backed security.
Based on the primary characteristics of the various types of asset-backed
securities, for purposes of a fund's concentration policy, the following
asset-backed securities industries have been selected: credit card receivables,
automobile receivables, trade receivables and diversified financial assets. A
fund will limit its investments in each such industry to less than 25% of its
total assets.
BANKERS' ACCEPTANCES or notes are credit instruments evidencing a bank's
obligation to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the full amount of the
instrument upon maturity. A fund will invest only in bankers' acceptances of
banks that have capital, surplus and undivided profits in excess of $100
million.
BORROWING may subject a fund to interest costs, which may exceed the interest
received on the securities purchased with the borrowed funds. A fund normally
may borrow at times to meet redemption requests rather than sell portfolio
securities to raise the necessary cash. Borrowing can involve leveraging when
securities are purchased with the borrowed money. To avoid this, each fund will
not purchase securities while borrowings are outstanding.
CERTIFICATES OF DEPOSIT or time deposits are issued against funds deposited in a
banking institution for a specified period of time at a specified interest rate.
A fund will invest only in certificates of deposit of banks that have capital,
surplus and undivided profits in excess of $100 million.
COMMERCIAL PAPER consists of short-term, promissory notes issued by banks,
corporations and other institutions to finance short-term credit needs. These
securities generally are discounted but sometimes may be interest bearing.
Commercial paper, which also may be unsecured, is subject to credit risk.
CONCENTRATION means that substantial amounts of assets are invested in a
particular industry or group of industries. Concentration increases investment
exposure to industry risk. For example, the automobile industry may have a
greater exposure to a single factor, such as an increase in the
3
<PAGE> 129
price of oil, which may adversely affect the sale of automobiles and, as a
result, the value of the industry's securities. Based on the primary
characteristics of non-U.S. (foreign) banks, the funds have identified each
foreign country as a separate bank industry for purposes of a fund's
concentration policy. A fund will limit its investments in securities issued by
foreign banks in each country to less than 25% of its total assets.
CREDIT AND LIQUIDITY SUPPORTS may be employed by issuers to reduce the credit
risk of their securities. Credit supports include letters of credit, insurance
and guarantees provided by foreign and domestic entities. Liquidity supports
include puts, demand features, and lines of credit. Most of these arrangements
move the credit risk of an investment from the issuer of the security to the
support provider. Changes in the credit quality of a support provider could
cause losses to a fund.
DEBT SECURITIES are obligations issued by domestic and foreign entities,
including governments and corporations, in order to raise money. They are
basically "IOUs," but are commonly referred to as bonds or money market
securities. These securities normally require the issuer to pay a fixed,
variable or floating rate of interest on the amount of money borrowed (the
"principal") until it is paid back upon maturity.
Debt securities experience price changes when interest rates change. For
example, when interest rates fall, the prices of debt securities generally rise.
Issuers tend to pre-pay their outstanding debts and issue new ones paying lower
interest rates. Conversely, in a rising interest rate environment, prepayment on
outstanding debt securities generally will not occur. This is known as extension
risk and may cause the value of debt securities to depreciate as a result of the
higher market interest rates. Typically, longer-maturity securities react to
interest rate changes more severely than shorter-term securities (all things
being equal), but generally offer greater rate of interest. Debt securities also
are subject to the risk that the issuers will not make timely interest and/or
principal payments or fail to make them at all.
DELAYED-DELIVERY TRANSACTIONS include purchasing and selling securities on a
delayed-delivery or when-issued basis. These transactions involve a commitment
to buy or sell specific securities at a predetermined price or yield, with
payment and delivery taking place after the customary settlement period for that
type of security. When purchasing securities on a delayed-delivery basis, a fund
assumes the rights and risks of ownership, including the risk of price and yield
fluctuations. Typically, no interest will accrue to a fund until the security is
delivered. A fund will segregate appropriate liquid assets to cover its
delayed-delivery purchase obligations. When a fund sells a security on a
delayed-delivery basis, the fund does not participate in further gains or losses
with respect to that security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could suffer
losses.
DIVERSIFICATION involves investing in a wide range of securities and thereby
spreading and reducing the risks of investment. Each fund is a series of an
open-end investment management company. Each fund is a diversified mutual fund.
Each fund also follows the regulations set forth by the SEC that dictate the
diversification requirements for money market mutual funds. These requirements
prohibit a taxable money fund from purchasing a security if more that 5% of its
total assets would be invested in the securities of a single issuer, although a
fund may invest up to 25% of its total assets in the first tier securities of a
single issuer for up to three business days. U.S. government and certain other
securities are not subject to this particular regulation.
FOREIGN SECURITIES involve additional risks, because they are issued by foreign
entities, including foreign governments, banks, corporations or because they are
traded principally overseas. Foreign entities are not subject to uniform
accounting, auditing and financial reporting standards,
4
<PAGE> 130
practices and requirements comparable to those applicable to U.S. corporations.
In addition, there may be less publicly available information about foreign
entities. Foreign economic, political and legal developments could have more
dramatic effects on the value of foreign securities.
In addition to the risks discussed above, it is unforeseeable what risk, if any,
may exist to investments as a result of the conversion of the 11 of the 15
Economic Union Member States from their respective local currency to the
official currency of the Economic and Monetary Union (EMU). After January 3,
1999, the euro will be the official currency of the EMU, the rate of exchange
will have been set between the euro and the currency of each converting country
and the European Central Bank, all national central banks and all stock
exchanges and depositories will price, trade and settle in euro even if the
securities traded are not denominated in euro. Each securities transaction that
requires converting to euro may involve rounding that could affect the value of
the security converted. In addition, issuers of securities that require
converting may experience increased costs as a result of the conversion, which
may affect the value of their securities. It is possible that uncertainties
related to the conversion will affect investor expectations and cause
investments to shift away from European countries, thereby making the European
market less liquid. All of these factors could affect the value of a fund's
investments and/or increase its expenses. While the investment adviser is taking
steps to minimize the impact of the conversion on the funds, it is not possible
to know precisely what impact the conversion will have on the funds, if any, nor
is it possible to eliminate the risks completely.
ILLIQUID SECURITIES generally are any securities that cannot be disposed of
promptly and in the ordinary course of business at approximately the amount at
which the fund has valued the instruments. The liquidity of a fund's investments
is monitored under the supervision and direction of the board of trustees.
Investments currently not considered liquid include repurchase agreements not
maturing within seven days and certain restricted securities.
MATURITY OF INVESTMENTS. Each fund follows the regulations set forth by the SEC
that dictate the maturity requirements for money market mutual funds. These
requirements prohibit a fund from purchasing a security with a remaining
maturity of more than 397 days or maintaining a dollar-weighted average
portfolio maturity that exceeds 90 days. Pursuant to policies that may be
changed only by vote of a majority of its shareholders, each of the Schwab Money
Market Fund and Schwab U.S. Government Money Fund may not purchase securities
deemed to mature in more than 365 days. For purposes of this policy only, Schwab
Money Market Fund and Schwab U.S. Government Money Fund will calculate maturity
from the security's settlement date.
MONEY MARKET SECURITIES are high-quality, short-term debt securities that may be
issued by entities such as the U.S. government, corporations and financial
institutions (like banks). Money market securities include commercial paper,
certificates of deposit, banker's acceptances, notes and time deposits.
Money market securities pay fixed, variable or floating rates of interest and
are generally subject to credit and interest rate risks. The maturity date or
price of and financial assets collateralizing a security may be structured in
order to make it qualify as or act like a money market security. These
securities may be subject to greater credit and interest rate risks than other
money market securities because of their structure. Money market securities may
be issued with puts or these can be sold separately.
PROMISSORY NOTES are written agreements committing the maker or issuer to pay
the payee a specified amount either on demand or at a fixed date in the future,
with or without interest. These
5
<PAGE> 131
are sometimes called negotiable notes or instruments and are subject to credit
risk. Bank notes are notes used to represent obligations issued by banks in
large denominations.
PUTS are sometimes called demand features or guarantees, and are agreements that
allow the buyer to sell a security at a specified price and time to the seller
or "put provider." When a fund buys a security with a put feature, losses could
occur if the put provider does not perform as agreed. Standby commitments are
types of puts.
QUALITY OF INVESTMENTS. The funds follow regulations set forth by the SEC that
dictate the quality requirements for money market mutual funds. These require
the funds to invest exclusively in high-quality securities. Generally,
high-quality securities are securities that present minimal credit risks and are
rated in one of the two highest rating categories by two nationally recognized
statistical rating organizations (NRSROs), or by one if only one NRSRO has rated
the securities, or, if unrated, determined to be of comparable quality by the
investment adviser pursuant to guidelines adopted by the board of trustees.
High-quality securities may be "first tier" or "second tier" securities. First
tier securities may be rated within the highest category or determined to be of
comparable quality by the investment manager. Money market fund shares and U.S.
government securities also are first tier securities. Second tier securities
generally are rated within the second-highest category. Each fund's holdings of
second tier securities will not exceed 5% of its assets, and investments in
second tier securities of any one issuer will be limited to the greater of 1% of
the fund's assets or $1 million.
Should a security's high-quality rating change after purchase by a fund, the
investment adviser would take such action, including no action, as determined to
be in the best interest of the fund by the board of trustees. For more
information about the ratings assigned by some NRSROs, refer to the Appendix
section of the SAI.
REPURCHASE AGREEMENTS. Repurchase agreements involve a fund buying securities
(usually U.S. government securities) from a seller and simultaneously agreeing
to sell them back at an agreed-upon price (usually higher) and time. There are
risks that losses will result if the seller does not perform as agreed.
Repurchase agreements will be collateralized by first tier securities. In
addition, repurchase agreements collateralized entirely by U.S. government
securities may be deemed to be collateralized fully pursuant to Rule 2a-7.
RESTRICTED SECURITIES are securities that are subject to legal restrictions on
their sale. For example, commercial paper and other promissory notes may be
issued under Section 4(2) of the Securities Act of 1933 and may be sold only to
qualified institutional buyers, such as the funds, under Securities Act Rule
144A.
Restricted securities may be deemed liquid or illiquid. In order to be deemed
liquid, the fund must be able to dispose of the security in the ordinary course
of business at approximately the amount the fund has valued the security. In
addition, the investment adviser must determine that an institutional or other
market exists for these securities. In making this determination, the investment
adviser may take into account any liquidity support associated with the
security. It is not possible to predict with assurance whether the market for
any restricted security will continue. Therefore, the investment adviser
monitors a fund's investments in these securities, focusing on factors, such as
valuation, liquidity and availability of information. To the extent a fund
invests in restricted securities that are deemed liquid, the general level of
illiquidity in the fund's portfolio may increase if buyers in that market become
unwilling to purchase the securities.
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STRIPPED SECURITIES are securities whose income and principal components are
detached and sold separately. While the risks associated with stripped
securities are similar to other money market securities, stripped securities are
typically subject to greater changes in value. U.S. Treasury securities that
have been stripped by a Federal Reserve Bank are obligations of the U.S.
Treasury.
U.S. GOVERNMENT SECURITIES are issued by the U.S. Treasury or issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities.
Not all U.S. government securities are backed by the full faith and credit of
the United States. Some U.S. government securities are supported by a line of
credit the issuing entity has with the U.S. Treasury. Others are supported
solely by the credit of the issuing agency or instrumentality. There can be no
assurance that the U.S. government will provide financial support to U.S.
government securities of its agencies and instrumentalities if it is not
obligated to do so under law. Of course U.S. government securities, including
U.S. Treasury securities, are among the safest securities, however, not unlike
other debt securities, they are still sensitive to interest rate changes, which
will cause their yields to fluctuate.
U.S. TREASURY SECURITIES are obligations of the U.S. Treasury and include bills,
notes and bonds. U.S. Treasury securities are backed by the full faith and
credit of the United States Government.
VARIABLE AND FLOATING RATE DEBT SECURITIES pay an interest rate, which is
adjusted either periodically or at specific intervals or which floats
continuously according to a formula or benchmark. Although these structures
generally are intended to minimize the fluctuations in value that occur when
interest rates rise and fall, some structures may be linked to a benchmark in
such a way as to cause greater volatility to the security's value.
Some variable rate securities may be combined with a put or demand feature
(variable rate demand securities) that entitles the holder to the right to
demand repayment in full or to resell at a specific price and/or time. While the
demand feature is intended to reduce credit risks, it is not always
unconditional, and may make the securities more difficult to sell quickly
without losses. There are risks involved with these securities because there may
be no active secondary market for a particular variable rate demand security
purchased by a fund. In addition, a fund may exercise only its demand rights at
certain times. A fund could suffer losses in the event that the issuer defaults
on its obligation.
INVESTMENT RESTRICTIONS
The following investment limitations may be changed only by vote of a majority
of each fund's shareholders.
SCHWAB MONEY MARKET FUND AND SCHWAB GOVERNMENT MONEY FUND MAY NOT:
(1) Purchase securities or make investments other than in accordance with
its investment objectives and policies.
(2) Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. government, its agencies or instrumentalities)
if, as a result thereof, more than 5% of the value of its assets would
be invested in the securities of such issuer.
(3) Purchase, in the aggregate with all other Schwab Money Funds, more than
10% of any class of securities of any issuer. All debt securities and
all preferred stocks are each considered as one class. (For purposes of
this limitation, the following funds constitute the Schwab Money Funds:
Schwab Money Market Fund, Schwab Government Money Fund, Schwab
Retirement Money Fund and Schwab Institutional Money Fund.)
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(4) Concentrate 25% or more of the value of its assets in any one industry;
provided, however, that it reserves the freedom of action to invest up
to 100% of its assets in certificates of deposit or bankers'
acceptances issued by domestic branches of U.S. banks and U.S. branches
of foreign banks (which the fund has determined to be subject to the
same regulation as U.S. banks), or obligations of, or guaranteed by,
the U.S. government, its agencies or instrumentalities in accordance
its investment objective and policies.
(5) Invest more than 5% of its total assets in securities of issuers (other
than obligations of, or guaranteed by, the U.S. government, its
agencies or instrumentalities) that, with their predecessors, have a
record of less than three years of continuous operation.
(6) Enter into repurchase agreements if, as a result thereof, more than 10%
its net assets valued at the time of the transaction would be subject
to repurchase agreements maturing in more than 7-days and invested in
securities restricted as to disposition under the federal securities
laws (except commercial paper issued under Section 4(2) of the
Securities Act of 1933, as amended). Each fund will invest no more than
10% of its net assets in illiquid securities.
(7) Invest more than 5% of its total assets in securities restricted as to
disposition under the federal securities laws (except commercial paper
issued under Section 4(2) of the Securities Act of 1933, as amended).
(8) Purchase or retain securities of an issuer if any of the officers,
trustees or directors of the Trust or its investment adviser or the
Sub-Adviser individually own beneficially more than 1/2 of 1% of the
securities of such issuer and together beneficially own more than 5% of
the securities of such issuer.
(9) Invest in commodities or commodity contracts, futures contracts, real
estate or real estate limited partnerships, although it may invest in
securities which are secured by real estate and securities of issuers
which invest or deal in real estate.
(10) Invest for the purpose of exercising control or management of another
issuer.
(11) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of
assets. 1
(12) Make loans to others (except through the purchase of debt obligations
or repurchase agreements in accordance with its investment objectives
and policies).
(13) Borrow money, except as a temporary measure for extraordinary or
emergency purposes, and then only in an amount up to one-third of the
value of its total assets in order to meet redemption requests without
immediately selling any portfolio securities. The funds will not borrow
for leverage purposes or purchase securities or make investments while
reverse repurchase agreements or borrowings are outstanding. Any
borrowings will not be collateralized. If for any reason the current
value of the total net assets of any fund falls below an amount equal
to three times the amount of indebtedness from money borrowed, such
fund will, within three business days, reduce its indebtedness to the
extent necessary.
(14) Write, purchase or sell puts, calls or combinations thereof.
(15) Make short sales of securities, or purchase any securities on margin,
except to obtain such short-term credits as may be necessary for the
clearance of transactions.
(16) Invest in interests in oil, gas, mineral leases or other mineral
exploration or development programs, although it may invest in the
securities of issuers which invest in or sponsor such programs.
_______________
1 See the description of the trustees' deferred compensation plan in the
"Management of the Funds" section of the SAI for an exception to this investment
restriction.
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(17) Underwrite securities issued by others except to the extent it may be
deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of securities from its investment
portfolio.
(18) Issue senior securities as defined in the 1940 Act.
SCHWAB U.S. TREASURY MONEY FUND MAY NOT:
(1) Purchase securities other than obligations issued by the U.S. Treasury
and securities backed by the "full faith and credit" guarantee of the
U.S. government that mature in 397 days or less. 1
(2) Make loans to others (except through the purchase of debt obligations).
(3) Issue senior securities as defined in the 1940 Act.
(4) Underwrite securities issued by others, except to the extent it may be
deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of securities from its investment
portfolio.
(5) Invest in commodities or in real estate.
(6) Invest for the purpose of exercising control over management of another
company.
(7) Borrow money, except as a temporary measure for extraordinary or
emergency purposes, and then only in an amount up to one-third of the
value of the Fund's total assets in order to meet redemption requests
without immediately selling any portfolio securities; or pledge its
securities or receivables or transfer or assign or otherwise encumber
them in an amount to exceed 33% of the Fund's net assets to secure
borrowings. The Fund will not borrow for leverage purposes or purchase
securities or make investments while reverse repurchase agreements or
borrowings are outstanding. If for any reason the current value of the
total net assets of the Fund falls below an amount equal to three times
the amount of its indebtedness from money borrowed, the Fund will,
within three business days, reduce its indebtedness to the extent
necessary.
The following restrictions are non-fundamental, and may be changed by the board
of trustees.
SCHWAB U.S. TREASURY MONEY FUND MAY NOT:
(1) Invest more than 10% of its net assets in securities which are not
readily marketable, including securities which are restricted as to
disposition; or
(2) Engage in short sales, except for short sales against the box.
Except with respect to borrowings, concentration of investments and investments
in illiquid securities, later changes in values or net assets do not require a
fund to sell an investment even if it could not then make the same investment.
MANAGEMENT OF THE FUNDS
The officers and trustees, their principal occupations during the past five
years and their affiliations, if any, with The Charles Schwab Corporation,
Charles Schwab & Co., Inc. (Schwab) and Charles Schwab Investment Management,
Inc. (CSIM or the investment adviser), are as follows:
_________________
1 See the description of the trustees' deferred compensation plan under
"Management of the Trust" for an exception to this investment restriction.
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<TABLE>
<CAPTION>
POSITION(S) WITH PRINCIPAL OCCUPATIONS & AFFILIATIONS
NAME/DATE OF BIRTH THE TRUST
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman and Trustee Chairman, Co-Chief Executive Officer and Director, The Charles Schwab
July 29, 1937 Corporation; Chairman, Chief Executive Officer and Director, Charles Schwab
Holdings, Inc.; Chairman and Director, Charles Schwab & Co., Inc., Charles
Schwab Investment Management, Inc., The Charles Schwab Trust Company and Schwab
Retirement Plan Services, Inc.; Chairman and Director (current board positions),
and Chairman (officer position) until December 1995, Mayer & Schweitzer, Inc. (a
securities brokerage subsidiary of The Charles Schwab Corporation); Director,
The Gap, Inc. (a clothing retailer), Transamerica Corporation (a financial
services organization), AirTouch Communications (a telecommunications company)
and Siebel Systems (a software company).
STEVEN L. SCHEID* President and Trustee Executive Vice President and Chief Financial Officer, The Charles Schwab
June 28, 1953 Corporation; Enterprise President - Financial Products and Services and Chief
Financial Officer, Charles Schwab & Co., Inc.; Chief Executive Officer, Chief
Financial Officer and Director, Charles Schwab Investment Management, Inc. From
1994 to 1996, Mr. Scheid was Executive Vice President of Finance for First
Interstate Bancorp and Principal Financial Officer from 1995 to 1996. Prior to
1994, Mr. Scheid was Chief Financial Officer, First Interstate Bank of Texas.
DONALD F. DORWARD Trustee Executive Vice President and Managing Director, Grey Advertising. From 1990 to
September 23, 1931 1996, Mr. Dorward was President and Chief Executive Officer, Dorward & Associates
</TABLE>
___________________
* This trustee is an "interested person" of the trusts.
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<PAGE> 136
<TABLE>
<S> <C> <C>
(advertising and marketing/consulting firm).
ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and Director, Semloh Financial, Inc.
May 15, 1931 (international financial services and investment advisory firm).
DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens & Company (Investments) and Chairman and Chief
June 28, 1938 Executive Officer of North American Trust (real estate investment trust).
MICHAEL W. WILSEY Trustee Chairman, Chief Executive Officer and Director, Wilsey Bennett, Inc. (truck and
August 18, 1943 air transportation, real estate investment, management, and investments).
TAI-CHIN TUNG Treasurer and Principal Vice President, Treasurer and Controller, Charles Schwab Investment Management,
March 7, 1951 Financial Officer Inc. From 1994 to 1996, Ms. Tung was Controller for Robertson Stephens
Investment Management, Inc. From 1993 to 1994, she was Vice President of Fund
Accounting, Capital Research and Management Co.
WILLIAM J. KLIPP* Executive Vice Executive Vice President, SchwabFunds(R), Charles Schwab & Co., Inc.; President
December 9, 1955 President, Chief and Chief Operating Officer, Charles Schwab Investment Management, Inc.
Operating Officer and
Trustee
STEPHEN B. WARD Senior Vice President Senior Vice President and Chief Investment Officer, Charles Schwab Investment
April 5, 1955 and Chief Investment Management, Inc.
Officer
FRANCES COLE Secretary Senior Vice President, Chief Counsel and Assistant Corporate Secretary, Charles
September 9, 1955 Schwab Investment Management, Inc.
</TABLE>
Each fund is overseen by a board of trustees. The board of trustees meets
regularly to review each fund's activities, contractual arrangements and
performance. The board of trustees is responsible
________________
* This trustee is an "interested person" of the trust.
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<PAGE> 137
for protecting the interests of a fund's shareholders. The following table
provides information as of the fiscal year ended December 31, 1998, concerning
compensation of the trustees. Unless otherwise stated, information is for the
fund complex, which included 38 funds as of December 31, 1998.
<TABLE>
<CAPTION>
Pension or ($)
($) Retirement Total
Name of Trustee Aggregate Compensation Benefits Accrued Compensation from
from the as Part of Fund Fund Complex
Trust Expenses
--------------------------------------
Money Government U.S.
Market Fund Money Fund Treasury Fund
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Charles R. Schwab 0 0 0 N/A 0
Steven L. Scheid 1 0 0 0 N/A 0
Tom D. Seip 1 0 0 0 N/A 0
William J. Klipp, 0 0 0 N/A 0
Donald F. Dorward N/A
Robert G. Holmes N/A
Donald R. Stephens N/A
Michael W. Wilsey N/A
</TABLE>
DEFERRED COMPENSATION PLAN
Trustees who are not "interested persons" of a trust ("independent trustees")
may enter into a fee deferral plan. Under this plan, deferred fees will be
credited to an account established by the trust as of the date that such fees
would have been paid to the trustee. The value of this account will equal the
value that the account would be if the fees credited to the account had been
invested in the shares of SchwabFunds selected by the trustee. Currently, none
of the independent trustees have elected to participate in this plan.
Pursuant to the exemptive relief granted to the trust, each fund will purchase
and maintain the selected SchwabFund securities in an amount equal to the deemed
investments in that fund of the Deferred Fee Accounts of the independent
trustees. The exemptive relief granted to the trust
_______________
1 Effective August 18, 1998, Mr. Scheid was elected as President and trustee.
Mr. Seip served as President and trustee until May 15, 1998.
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<PAGE> 138
permits the funds and the trustees to purchase the selected SchwabFund
securities, which transactions would otherwise be limited or prohibited by the
investment policies and/or restrictions of the funds.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 1, 1999, [VAR: QLEGAL: name of person or entity and the jurisdiction
under the laws of which it is organized and all parent companies] control the
[VAR: Fund Name] through ownership of [VAR: QLEGAL: x.x%] securities or other
basis of control.]
As of April 1, 1999 [VAR: QLEGAL: month end or 1st of month date no more than 30
days prior to effective date], the officers and trustees of the trust(s), as a
group owned of record or beneficially [VAR: QLEGAL: x.x% / less than 1%] of the
outstanding voting securities of each fund.
As of April 1, 1999, the [VAR: QLEGAL: name of entity or person] directly or
beneficially owned, [VAR: QLEGAL: x.xx%] of shares of the [VAR: Fund Name /
Class Name].
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc. (CSIM or the investment adviser), a
wholly owned subsidiary of The Charles Schwab Corporation, 101 Montgomery
Street, San Francisco CA 94104, serves as the funds' investment adviser and
administrator pursuant to an Investment Advisory and Administration Agreement
(Advisory Agreement), between it and the trust. Charles Schwab & Co., Inc.
(Schwab) is an affiliate of the investment adviser and is the trust's
distributor, shareholder services agent and transfer agent. Charles R. Schwab is
the founder, Chairman, Co-Chief Executive Officer and Director of The Charles
Schwab Corporation. As a result of his ownership of and interests in The Charles
Schwab Corporation, Mr. Schwab may be deemed to be a controlling person of the
investment adviser and Schwab.
Year 2000 presents uncertainties and possible risks to the smooth operations of
the funds and the provision of services to shareholders. Many computer programs
use only two digits to identify a specific year and therefore may not accurately
recognize the upcoming change in the next century. If not corrected, many
computer applications could fail or create erroneous results by or at year 2000.
Due to the funds' and their service providers' dependence on computer technology
to operate, the nature and impact of year 2000 processing failures on the funds
could be material. The funds' investment adviser is taking steps to minimize the
risks of year 2000 for the funds, including seeking assurances from the funds'
service providers that they are analyzing their systems, testing them for
potential problems and remediating them to the extent possible. There can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
funds, however, minimizing year 2000 risk for the funds is a priority of the
investment advisor.
For its advisory and administrative services to the Schwab Money Market Fund,
the investment adviser it entitled to receive a graduated annual fee, payable
monthly, of 0.46% of each fund's average daily net assets of the first $1
billion, 0.45% of the next $1 billion but not in excess of $3 billion, 0.40% of
net assets over $3 billion but not in excess of $10 billion, 0.37% of such
assets over $10 billion but not in excess of $20 billion and 0.34% of such
assets over $20 billion.
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For the fiscal years ended December 31, 1996, 1997 and 1998, the fund paid
investment and advisory fees of $46,270,000 (fees were reduced $19,250,000),
$55,434,000 (fees were reduced by $23,541,000) and $____________ (fees were
reduced by $____________).
For its advisory and administrative services to the Schwab Government Money
Fund, the investment advisor it entitled to receive a graduated annual fee,
payable monthly, of 0.46% of the fund's average daily net assets of the first $1
billion, 0.41% of the next $1 billion not in excess of $2 billion, and 0.40% of
net assets over $2 billion.
For the fiscal years ended December 31, 1996, 1997 and 1998, Schwab Government
Money Fund paid investment and advisory fees of $5,671,000 (fees were reduced
$2,847,000), $5,471,000 (fees were reduced by $3,208,000) and $____________
(fees were reduced by $____________).
For its advisory and administrative services to Schwab U.S. Treasury Money Fund,
the investment advisor is entitled to receive a graduated annual fee, payable
monthly, of 0.46% of the fund's average daily net assets of the first $1
billion, 0.41% of the next $1 billion, and 0.40% of net assets over $2 billion.
For the fiscal years ended December 31, 1996, 1997 and 1998, U.S. Treasury Money
Fund paid investment and advisory fees of $2,420,000 (fees were reduced
$3,302,000), $2,674,000 (fees were reduced by $4,184,000) and $____________
(fees were reduced by $____________).
The investment advisor and Schwab have voluntarily guaranteed that, through at
LEAST [APRIL 30, 1999], the total operating expenses (excluding interest, taxes
and extraordinary expenses) of the Schwab Money Market Fund, Schwab Government
Money Fund, and Schwab U.S. Treasury Money Fund will not exceed [0.75%, 0.75%
AND 0.65%] respectively, of the average daily net assets, respectively.
DISTRIBUTOR
Pursuant to an agreement, Schwab is the principal underwriter for shares of the
funds and is the trust's agent for the purpose of the continuous offering of the
funds' shares. Each fund pays the cost of the prospectuses and shareholder
reports to be prepared and delivered to existing shareholders. Schwab pays such
costs when the described materials are used in connection with the offering of
shares to prospective investors and for supplementary sales literature and
advertising. Schwab receives no fee under the agreement. Terms of continuation,
termination and assignment under the agreement are identical to those described
above with respect to the Advisory Agreement.
The funds pay other expenses that typically are connected with the trust's
operations, and include legal, audit and custodian fees, as well as the costs of
accounting and registration of the funds. Expenses not directly attributable to
a particular fund will generally be allocated among the funds in the trust on
the basis of each fund's relative net assets at the time the expense is
incurred.
SHAREHOLDER SERVICES AND TRANSFER AGENT
Schwab provides fund information to shareholders, including share price,
reporting shareholder ownership and account activities and distributing the
funds' prospectuses, financial reports and other informational literature about
the funds. Schwab maintains the office space, equipment and personnel necessary
to provide these services. Schwab also distributes and markets SchwabFunds(R)
and provides other services.
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<PAGE> 140
CUSTODIAN AND FUND ACCOUNTANT
PNC Bank, National Association, Airport Business Center, 200 Stevens Drive, Suit
440, Lester Pennsylvania, 19113, serves as custodian for the funds and PFPC,
Inc., 103 Bellevue Parkway, Wilmington DE 19809, serves as fund accountant.
The custodian is responsible for the daily safekeeping of securities and cash
held or sold by the funds. The accountant maintains all books and records
related to each fund's transactions.
INDEPENDENT ACCOUNTANT
The funds' independent accountant, ______________, audits and reports on the
annual financial statements of the funds and reviews certain regulatory reports
and each funds' federal income tax return. It also performs other professional
accounting, auditing, tax and advisory services when the trust engages it to do
so. Their address is _________. The funds' audited financial statements for the
fiscal year ended December 31, 1998, are included in the funds' annual report,
which is a separate report supplied with the SAI.
BROKERAGE ALLOCATION AND OTHER PRACTICES
PORTFOLIO TURNOVER
Because securities with maturities of less than one year are excluded from
required portfolio turnover rate calculations, the funds' portfolio turnover
rate for reporting purposes is expected to be zero.
PORTFOLIO TRANSACTIONS
In effecting securities transactions for a fund, the investment adviser seeks to
obtain best price and execution. Subject to the supervision of the board of
trustees, the investment adviser will generally select brokers and dealers for
the funds primarily on the basis of the quality and reliability of brokerage
services, including execution capability and financial responsibility.
When the execution capability and price offered by two or more broker-dealers
are comparable, the investment adviser may, in its discretion utilize the
services of broker-dealers that provide it with investment information and other
research resources. Such resources also may be used by the investment adviser
when providing advisory services to other investment advisory clients, including
mutual funds.
The funds expect that purchases and sales of portfolio securities will usually
be principal transactions. Securities will normally be purchased directly from
the issuer or from an underwriter or market maker for the securities. Purchases
from underwriters will include a commission or concession paid be the issuer to
the underwriter, and purchases from dealers serving as market makers will
include the spread between the bid and asked prices
The investment decisions for each fund are reached independently from those for
other accounts managed by the investment adviser. Such other accounts also may
make investments in instruments or securities at the same time as a fund. When
two or more accounts managed by the investment adviser have funds available for
investment in similar instruments, available instruments are allocated as to
amount in a manner considered equitable to each account. In some cases, this
procedure may affect the size or price of the position obtainable for a fund.
However, it is the opinion of the board of trustees that the benefits conferred
by the investment manager
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<PAGE> 141
outweigh any disadvantages that may arise from exposure to simultaneous
transactions.
DESCRIPTION OF THE TRUST
Each fund, is a series of the Charles Schwab Family of Funds, an open-end
investment management company organized as a Massachusetts business trust on
October 20, 1989.
Each Declaration of Trust provides that shares may be automatically redeemed if
held by a shareholder in an amount less than the minimum required by each fund
or share class. Each fund's or class's initial and subsequent minimum investment
and balance requirements are set forth in the prospectus. These minimums may be
waived for certain investors, including trustees, officers and employees of
Schwab, or changed without prior notice.
The funds may hold special meetings. These meetings may be called for purposes
such as electing trustees, changing fundamental policies and amending management
contracts. Shareholders are entitled to one vote for each share owned and may
vote by proxy or in person. Proxy materials will be mailed to shareholders prior
to any meetings, and will include a voting card and information explaining the
matters to be voted upon.
The bylaws of the trust provide that a majority of shares entitled to vote shall
be a quorum for the transaction of business at a shareholders' meeting, except
that where any provision of law, or of the Declaration of Trust or of the bylaws
permits or requires that (1) holders of any series shall vote as a series, then
a majority of the aggregate number of shares of that series entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that series, or (2) holders of any class shall vote as a class, then a majority
of the aggregate number of shares of that class entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that class.
Any lesser number shall be sufficient for adjournments. Any adjourned session or
sessions may be held, within a reasonable time after the date set for the
original meeting, without the necessity of further notice. The Declaration of
Trust specifically authorizes the board of trustees to terminate the trust (or
any of its investment portfolios) by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for the trust's
obligations. The Declaration of Trust, however, disclaims shareholder liability
for the trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the trust or the trustees. In addition, the Declaration of Trust provides for
indemnification out of the property of an investment portfolio in which a
shareholder owns or owned shares for all losses and expenses of such shareholder
or former shareholder if he or she is held personally liable for the obligations
of the trust solely by reason of being or having been a shareholder. Moreover,
the trust will be covered by insurance which the trustees consider adequate to
cover foreseeable tort claims. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote, because
it is limited to circumstances in which a disclaimer is inoperative and the
trust itself is unable to meet its obligations. There is a remote possibility
that a fund could become liable for a misstatement in the prospectus or SAI
about another fund.
As more fully described in each Declaration of Trust, the trustees may each
year, or more frequently, distribute to the shareholders of each series accrued
income less accrued expenses and any net realized capital gains less accrued
expenses. Distributions of each year's income of each series shall be
distributed pro rata to shareholders in proportion to the number of shares of
each series held by each of them. Distributions will be paid in cash or shares
or a combination thereof
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<PAGE> 142
as determined by the trustees. Distributions paid in shares will be paid at net
asset value per share as determined in accordance with the bylaws.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASING AND REDEEMING SHARES OF THE FUNDS
The funds are open each day that both the Federal Reserve Bank of New York (New
York Fed) and New York Stock Exchange (NYSE) are open (business days). The
following holiday closings are currently scheduled for 1999: New Year's Day,
Martin Luther King's Birthday (observed), President's Day, Good Friday, Memorial
Day (observed), Independence Day (observed), Labor Day, Columbus Day (observed),
Veterans Day, Thanksgiving Day and Christmas Day. On any day that the New York
Fed, NYSE or principal government securities markets close early, such as days
in advance of holidays, the funds reserve the right to advance the time by which
purchase, redemption and exchanges orders must be received on that day.
As long as the funds or Schwab follow reasonable procedures to confirm that your
telephone order is genuine, they will not be liable for any losses an investor
may experience due to unauthorized or fraudulent instructions. These procedures
may include requiring a form of personal identification before acting upon any
telephone order, providing written confirmation of telephone orders and tape
recording all telephone orders.
Share certificates will not be issued in order to avoid additional
administrative costs, however, share ownership records are maintained by Schwab.
Twice a year, financial reports will be mailed to shareholders describing the
funds' performance and investment holdings. In order to reduce these mailing
costs, each household will receive one consolidated mailing. If you would like
additional copies, you may call or write your fund at the telephone number or
address on the cover of this SAI.
The funds have made an election with the SEC to pay in cash all redemptions
requested by any shareholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of its net assets at the beginning of
such period. This election is irrevocable without the SEC's prior approval.
Redemption requests in excess of these limits may be paid, in whole or in part,
in investment securities or in cash, as the board of trustees may deem
advisable. Payment will be made wholly in cash unless the board of trustees
believes that economic or market conditions exist that would make such payment a
detriment to the best interests of a fund. If redemption proceeds are paid in
investment securities, such securities will be valued as set forth in "Pricing
of Shares". A redeeming shareholder would normally incur brokerage expenses if
he or she were to convert the securities to cash.
PRICING OF SHARES
Each fund values its portfolio instruments at amortized cost, which means they
are valued at their acquisition cost, as adjusted for amortization of premium or
discount, rather than at current market value. Calculations are made to compare
the value of a fund's investments at amortized cost with market values. When
determining market values for portfolio securities, the funds use market quotes
if they are readily available. In cases where quotes are not readily available,
a fund may value securities based on fair values developed using methods
approved by the fund's board of trustees. Fair values may be determined by using
actual quotations or estimates of market value, including pricing service
estimates of market values or values obtained from yield data relating to
classes of portfolio securities.
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The amortized cost method of valuation seeks to maintain a stable net asset
value per share (NAV) of $1.00, even where there are fluctuations in interest
rates that affect the value of portfolio instruments. Accordingly, this method
of valuation can in certain circumstances lead to a dilution of a shareholder's
interest.
If a deviation of 1/2 of 1% or more were to occur between the NAV calculated
using market values and a fund's $1.00 NAV calculated using amortized cost or if
there were any other deviation that the board of trustees believed would result
in a material dilution to shareholders or purchasers, the board of trustees
would promptly consider what action, if any, should be initiated.
If a fund's NAV calculated using market values declined, or were expected to
decline, below the fund's $1.00 NAV calculated using amortized cost, the board
of trustees might temporarily reduce or suspend dividend payments in an effort
to maintain the fund's $1.00 NAV. As a result of such reduction or suspension of
dividends or other action by the board of trustees, an investor would receive
less income during a given period than if such a reduction or suspension had not
taken place. Such action could result in investors receiving no dividend for the
period during which they hold their shares and receiving, upon redemption, a
price per share lower than that which they paid. On the other hand, if a fund's
NAV calculated using market values were to increase, or were anticipated to
increase above the fund's $1.00 NAV calculated using amortized cost, the board
of trustees might supplement dividends in an effort to maintain the fund's $1.00
NAV.
TAXATION
FEDERAL TAX INFORMATION FOR THE FUNDS
It is each fund's policy to qualify for taxation as a "regulated investment
company" (RIC) by meeting the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By qualifying as a RIC, each fund
expects to eliminate or reduce to a nominal amount the federal income tax to
which it is subject. If a fund does not qualify as a RIC under the Code, it will
be subject to federal income tax on its net investment income and any net
realized capital gains.
The Code imposes a non-deductible excise tax on RICs that do not distribute in a
calendar year (regardless of whether they otherwise have a non-calendar taxable
year) an amount equal to 98% of their "ordinary income" (as defined in the Code)
for the calendar year plus 98% of their net capital gain for the one-year period
ending on October 31 of such calendar year, plus any undistributed amounts from
prior years. The non-deductible excise tax is equal to 4% of the deficiency. For
the foregoing purposes, a fund is treated as having distributed any amount on
which it is subject to income tax for any taxable year ending in such calendar
year.
FEDERAL INCOME TAX INFORMATION FOR SHAREHOLDERS
The discussion of federal income taxation presented below supplements the
discussion in the funds' prospectus and only summarizes some of the important
federal tax considerations generally affecting shareholders of the funds.
Accordingly, prospective investors (particularly those not residing or domiciled
in the United States) should consult their own tax advisers regarding the
consequences of investing in a fund.
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On each business day that the NAV of a fund is determined, such fund's net
investment income will be declared after the close of trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern time) as a daily dividend to
shareholders of record. For each fund, dividends will normally be reinvested
monthly in shares of the fund at the NAV on the 15th day of each month, if a
business day, otherwise on the next business day, except in December when
dividends are reinvested on the last business of December. If cash payment is
requested, checks will normally be mailed on the business day following the
reinvestment date. Each fund will pay shareholders, who redeem all of their
shares, all dividends accrued to the time of the redemption within 7 days.
Each fund calculates its dividends based on its daily net investment income. For
this purpose, the net investment income of a fund consists of: (1) accrued
interest income, plus or minus amortized discount or premium, minus (2) accrued
expenses allocated to that fund. If a fund realizes any capital gains, they will
be distributed at least once during the year as determined by the board of
trustees. Any realized capital losses, to the extent not offset by realized
capital gains, will be carried forward.
Any dividends declared by a fund in October, November or December and paid the
following January are treated, for tax purposes, as if they were received by
shareholders on December 31 of the year in which they were declared. A fund may
adjust its schedule for the reinvestment of distributions for the month of
December to assist in complying with the reporting and minimum distribution
requirements of the Code.
The funds do not expect to realize any long-term capital gains. However,
long-term capital gains distributions are taxable as long-term capital gains,
regardless of how long you have held your shares. If you receive a long-term
capital gains distribution with respect to fund shares held for six months or
less, any loss on the sale or exchange of those shares shall, to the extent of
the long-term capital gains distribution, be treated as a long-term capital
loss.
Distributions by a fund also may be subject to state, local and foreign taxes,
and its treatment under applicable tax laws may differ from the federal income
tax treatment. Note that most states grant tax-exempt status to distributions
paid to shareholders from U.S. government securities.
A fund may engage in techniques that may alter the timing and character of its
income. A fund may be restricted in its use of these techniques by rules
relating to its qualification as a regulated investment company.
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder who (1) fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) is subject to withholding by the Internal Revenue Service for
failure to properly report all payments of interest or dividends; or (3) fails
to provide a certified statement that he or she is not subject to "backup
withholding." Backup withholding is not an additional tax and any amounts
withheld may be credited against the shareholder's ultimate U.S. tax liability.
Foreign shareholders (i.e., nonresident alien individuals and foreign
corporations, partnerships, trusts and estates) are generally subject to U.S.
withholding tax at the rate of 30% (or a lower tax treaty rate) on distributions
derived from net investment income and short-term capital gains. Distributions
to foreign shareholders of long-term capital gains and any gains from the sale
or other disposition of shares of the funds generally are not subject to U.S.
taxation, unless the recipient is an individual who meets the Code's definition
of "resident alien." Different tax consequences may result if the foreign
shareholder is engaged in a trade or business within the
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United States. In addition, the tax consequences to a foreign shareholder
entitled to claim the benefits of a tax treaty may be different than those
described above.
CALCULATION OF PERFORMANCE DATA
The funds' current 7-day yields based on the seven days ended December 31, 1998
are stated below and were calculated by determining the net change, exclusive of
capital changes and income other than investment income, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting yield figure
carried to at least the nearest hundredth of one percent.
7-day Current Yield as of December 31, 1998
Schwab Money Market Fund %
Schwab Government Money Fund %
Schwab Treasury Money Fund %
The funds' effective yields based on the seven days ended December 31, 1998 are
stated below and were calculated by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, with the resulting yield figure carried to at least the
nearest one hundredth of one percent.
7-day Effective Yield as of December 31, 1998
Schwab Money Market Fund %
Schwab Government Money Fund %
Schwab Treasury Money Fund %
A fund also may advertise its average annual total return and cumulative total
return. Average annual total return is a standardized measure of performance
calculated using methods prescribed by SEC rules. It is calculated by
determining the ending value of a hypothetical initial investment of $1,000 made
at the beginning a specified period. The ending value is then divided by the
initial investment, which is annualized and expressed as a percentage. It is
reported for periods of one, five and 10 years or since commencement of
operations for periods not falling on those intervals. In computing average
annual total return, a fund assumes reinvestment of all distributions at net
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asset value on applicable reinvestment dates. Cumulative total return is
calculated using the same formula that is used for average annual total return
except that, rather than calculating the total return based on a one-year
period, cumulative total return is calculated from commencement of operations to
the fiscal year ended December 31, 1998.
The performance of the funds may be compared with the performance of other
mutual funds by comparing the ratings of mutual fund rating services, various
indices, U.S. government obligations, bank certificates of deposit, the consumer
price index and other investments for which reliable data is available. An
index's performance data assumes the reinvestment of dividends but does not
reflect deductions for administrative, management and trading expenses. The
funds will be subject to these costs and expenses, while an index does not have
these expenses. In addition, various factors, such as holding a cash balance,
may cause the funds' performance to be higher or lower than that of an index.
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APPENDIX - RATINGS OF INVESTMENT SECURITIES
COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers (or
related supporting institutions) of commercial paper with this rating are
considered to have a superior ability to repay short-term promissory
obligations. Issuers (or related supporting institutions) of securities rated
Prime-2 are viewed as having a strong capacity to repay short-term promissory
obligations. This capacity will normally be evidenced by many of the
characteristics of issuers whose commercial paper is rated Prime-1 but to a
lesser degree.
STANDARD & POOR'S CORPORATION
An S&P A-1 commercial paper rating indicated a strong degree of safety regarding
timely payment of principal and interest. Issues determined to possess
overwhelming safety characteristics are denoted A-1+. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
DUFF & PHELPS CREDIT RATING CO.
Duff-1 is the highest commercial paper rating assigned by Duff & Phelps Credit
Rating Co. ("Duff"). Three gradations exist within this rating category: a
Duff-1+ rating indicates the highest certainty of timely payment (issuer
short-term liquidity is found to be outstanding and safety is deemed to be just
below that of risk-free short-term U.S. Treasury obligations), a Duff-1 rating
signifies a very high certainty of timely payment (issuer liquidity is
determined to be excellent and risk factors are considered minor) and a Duff-1-
rating denotes high certainty of timely payment (issuer liquidity factors are
strong and risk is very small). A Duff-two rating indicates a good certainty of
timely payment; liquidity factors and company fundamentals are sound and risk
factors are small.
IBCA
F1+ is the highest category, and indicates the strongest degree of assurance for
timely payment. Issues rated F1 reflect an assurance of timely payment only
slightly less than issues rated F1+. Issues assigned an F2 rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues in the first two rating categories.
SHORT-TERM NOTES AND VARIABLE RATE DEMAND OBLIGATIONS
MOODY'S INVESTORS SERVICE
Short-term notes/variable rate demand obligations bearing the designations
MIG-1/VMIG-1 are considered to be of the best quality, enjoying strong
protection from established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing. Obligations rated
MIG-2/VMIG-2 are of high quality and enjoy ample margins of protection although
not as large as those of the top rated securities.
STANDARD & POOR'S CORPORATION
An S&P SP-1 rating indicates that the subject securities' issuer has a very
strong capacity to pay principal and interest. Issues determined to possess very
strong safety characteristics are given a plus (+) designation. S&P's
determination that an issuer has a strong capacity to pay principal and interest
is denoted by an SP-2 rating.
COMMERCIAL PAPER, SHORT-TERM OBLIGATIONS AND DEPOSIT
OBLIGATIONS ISSUED BY BANKS
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THOMSON BANKWATCH (TBW)
TBW-1 is the highest category and indicates the degree of safety regarding
timely repayment of principal and interest is very high. TBW-2 is the second
highest category and while the degree of safety regarding timely repayment of
principal and interest is strong, the relative degree of safety is not as high
as for issues rated TBW-1.
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STATEMENT OF ADDITIONAL INFORMATION
SCHWAB MUNICIPAL MONEY FUNDS - SWEEP SHARES
SCHWAB MUNICIPAL MONEY FUND
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
SCHWAB NEW YORK MUNICIPAL MONEY FUND
SCHWAB NEW JERSEY MUNICIPAL MONEY FUND
SCHWAB PENNSYLVANIA MUNICIPAL MONEY FUND
SCHWAB FLORIDA MUNICIPAL MONEY FUND
APRIL 30, 1999
The Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the funds' prospectus dated April 30, 1999 (as amended
from time to time).
To obtain a copy of the prospectus, please contact SchwabFunds(R) at
800-435-4000, 24 hours a day, or write to the funds at 101 Montgomery Street,
San Francisco, California 94104. For TDD service call 800-345-2550, 24 hours a
day. The prospectus also may be available on the Internet at:
http://www.schwab.com/schwabfunds.
The funds' most recent annual report is a separate document supplied with the
SAI and includes the funds' audited financial statements, which are incorporated
by reference into this SAI.
The funds are a series of The Charles Schwab Family of Funds (the trust).
TABLE OF CONTENTS
Page
----
INVESTMENT OBJECTIVES, STRATEGIES,
SECURITIES, RISKS AND LIMITATIONS.............................. x
MANAGEMENT OF THE FUNDS........................................ x
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............ x
INVESTMENT ADVISORY AND OTHER SERVICES......................... x
BROKERAGE ALLOCATION AND OTHER PRACTICES....................... x
DESCRIPTION OF THE TRUST....................................... x
PURCHASE, REDEMPTION AND PRICING OF SHARES..................... x
TAXATION....................................................... x
CALCULATION OF PERFORMANCE DATA................................ x
APPENDIX - Ratings of Investment Securities ................... x
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INVESTMENT OBJECTIVES, STRATEGIES, SECURITIES, RISKS AND LIMITATIONS
INVESTMENT OBJECTIVES
Schwab Municipal Money Fund seeks maximum current income exempt from federal
income tax consistent with liquidity and stability of capital.
Schwab California Municipal Money Fund seeks maximum current income exempt from
federal and California state personal income taxes, consistent with liquidity
and stability of capital.
Schwab New York Municipal Money Fund seeks to provide maximum current income
exempt from federal and New York state and local personal income taxes,
consistent with stability of capital.
Schwab New Jersey Municipal Money Fund seeks to provide maximum current income
exempt from federal and New Jersey state personal income taxes, consistent with
liquidity and stability of capital.
Schwab Pennsylvania Municipal Money Fund seeks to provide maximum current income
exempt from federal and Pennsylvania state personal income taxes, consistent
with liquidity and stability of capital.
Schwab Florida Municipal Money Fund seeks to provide maximum current income
exempt from federal income taxes, consistent with liquidity and stability of
capital, and also seeks to have its shares exempt from the Florida intangible
tax.
INVESTMENT STRATEGIES
The following investment strategies, securities, risks and limitations
supplement those set forth in the prospectus and may be changed without
shareholder approval unless otherwise noted. Also, policies and limitations that
state a maximum percentage of assets that may be invested in a security or other
asset, or that set forth a quality standard, shall be measured immediately after
and as a result of a fund's acquisition of such security or asset unless
otherwise noted. Any subsequent change in values, net assets or other
circumstances will not be considered when determining whether the investment
complies with the fund's investment policies and limitations. Additionally, for
purposes of calculating any restriction, an issuer shall be the entity deemed to
be ultimately responsible for payments of interest and principal on the security
pursuant to Rule 2a-7, unless otherwise noted. Not all investment securities or
techniques discussed below are eligible investments for each fund. A fund will
invest in securities or engage in techniques that are intended to help achieve
its investment objective.
Schwab Municipal Money Fund seeks to achieve its investment objective by
investing in municipal money market securities. The fund will normally invest
100% of its total assets in municipal money market securities. In addition, the
fund may invest more than 25% of its total assets in municipal securities
financing similar projects.
Schwab California Municipal Money Fund seeks to achieve its investment objective
by investing in California municipal money market securities. The fund will
normally invest 100% of its total assets in municipal money market securities.
In addition, the fund may invest more than 25% of its
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total assets in municipal securities financing similar projects. The fund will
normally invest at least 65% of its total assets in municipal money market
securities of California issuers.
Schwab New York Municipal Money Fund seeks to achieve its investment objective
by investing in New York municipal money market securities. The fund will
normally invest 100% of its total assets in municipal money market securities.
In addition, the fund may invest more than 25% of its total assets in municipal
securities financing similar projects. The fund will normally invest at least
65% of its total assets in municipal money market securities of New York
issuers.
Schwab New Jersey Municipal Money Fund seeks to achieve its investment objective
by investing in New Jersey municipal money market securities. The fund will
normally invest at least 80% of its total assets in municipal money market
securities. In addition, the fund may invest more than 25% in municipal
securities financing similar projects. The fund will normally invest at least
65% of its total assets in municipal money market securities of New Jersey
issuers.
Schwab Pennsylvania Municipal Money Fund seeks to achieve its investment
objective by investing in Pennsylvania municipal money market securities. The
fund will normally invest at least 80% of its total assets in municipal money
market securities. In addition, the fund may invest more than 25% in municipal
securities financing similar projects. The fund will normally invest at least
65% of its total assets in municipal money market securities of Pennsylvania
issuers.
Schwab Florida Municipal Money Fund seeks to achieve its investment objective by
investing in Florida municipal money market securities. The fund will normally
invest at least 80% of its total assets in municipal money market securities. In
addition, the fund may invest more than 25% in municipal securities financing
similar projects. The fund will normally invest at least 65% of its total assets
in municipal money market securities of Florida issuers.
The funds are not suitable for investors who would not benefit from the
tax-exempt character of each fund's investments, such as holders of IRAs,
qualified retirement plans or other tax-exempt entities.
Each fund's investment objective may be changed only by vote of a majority of
its shareholders.
INVESTMENT SECURITIES, RISKS AND LIMITATIONS
BORROWING may subject a fund to interest costs, which may exceed the interest
received on the securities purchased with the borrowed funds. A fund normally
may borrow at times to meet redemption requests rather than sell portfolio
securities to raise the necessary cash. Borrowing can involve leveraging when
securities are purchased with the borrowed money. To avoid this, each fund will
not purchase securities while borrowings are outstanding.
CALIFORNIA/NEW YORK/NEW JERSEY/PENNSYLVANIA/FLORIDA MUNICIPAL MONEY MARKET
SECURITIES are municipal money market securities issued by or on behalf of
either the state of California, the state of New York, the state of New Jersey,
the state of Pennsylvania or the State of Florida, or these state's counties,
municipalities, authorities or other subdivisions.
These securities are subject to the same general risks associated with other
municipal money market securities, although their values will be particularly
affected by economic, political, geographic and demographic conditions and
developments within these states. Additionally, like
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all securities, the value of municipal money market securities, including those
of these issuers, may be affected by any change in the perceived ability of
issuers to meet their obligations. A fund's concentration in securities issued
by a single state and its political subdivisions provides a greater level of
risk than a fund that is diversified across numerous states and municipal
entities. The ability of the state or its municipalities to meet their
obligations will depend on the availability of tax and other revenues; economic,
political and demographic conditions within the state; and the underlying fiscal
condition of the state and its municipalities.
COMMERCIAL PAPER consist of short-term, promissory notes issued by banks,
corporations and other institutions to finance short-term credit needs. These
securities generally are discounted but sometimes may be interest bearing.
Commercial paper, which also may be unsecured, is subject to credit risk.
CONCENTRATION means that substantial amounts of assets are invested in a
particular industry or group of industries. Concentration increases investment
exposure to industry risk. For example, the automobile industry may have a
greater exposure to a single factor, such as an increase in the price of oil,
which may adversely affect the sale of automobiles and, as a result, the value
of the industry's securities.
CREDIT AND LIQUIDITY SUPPORTS may be employed by issuers to reduce the credit
risk of their securities. Credit supports include letters of credit, insurance
and guarantees provided by foreign and domestic entities, as well as moral
obligations, which are sometimes issued with municipal securities. Liquidity
supports include puts, demand features, and lines of credit. Most of these
arrangements move the credit risk of an investment from the issuer of the
security to the support provider. Changes in the credit quality of a support
provider could cause losses to a fund.
DEBT SECURITIES are obligations issued by domestic and foreign entities,
including governments and corporations, in order to raise money. They are
basically "IOUs," but are commonly referred to as bonds or money market
securities. These securities normally require the issuer to pay a fixed,
variable or floating rate of interest on the amount of money borrowed (the
"principal") until it is paid back upon maturity.
Debt securities experience price changes when interest rates change. For
example, when interest rates fall, the prices of debt securities generally rise.
Issuers tend to pre-pay their outstanding debts and issue new ones paying lower
interest rates. Conversely, in a rising interest rate environment, prepayment on
outstanding debt securities generally will not occur. This is known as extension
risk and may cause the value of debt securities to depreciate as a result of the
higher market interest rates. Typically, longer-maturity securities react to
interest rate changes more severely than shorter-term securities (all things
being equal), but generally offer greater rate of interest. Debt securities also
are subject to the risk that the issuers will not make timely interest and/or
principal payments or fail to make them at all.
DELAYED-DELIVERY TRANSACTIONS include purchasing and selling securities on a
delayed-delivery or when-issued basis. These transactions involve a commitment
to buy or sell specific securities at a predetermined price or yield, with
payment and delivery taking place after the customary settlement period for that
type of security. When purchasing securities on a delayed-delivery basis, a fund
assumes the rights and risks of ownership, including the risk of price and yield
fluctuations. Typically, no interest will accrue to a fund until the security is
delivered. A fund will segregate appropriate liquid assets to cover its
delayed-delivery purchase obligations. When a fund sells a security on a
delayed-delivery basis, the fund does not participate in further gains or losses
with
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respect to that security. If the other party to a delayed-delivery transaction
fails to deliver or pay for the securities, the fund could suffer losses.
DIVERSIFICATION involves investing in a wide range of securities and thereby
spreading and reducing the risks of investment. Each fund is a series of an
open-end investment management company. Each fund, except the Schwab Municipal
Money Market Fund, is a non-diversified mutual fund. Each fund follows the
regulations set forth by the SEC that dictate the diversification requirements
for money market mutual funds. These requirements prohibit national municipal
money funds from purchasing a security if more that 5% of a fund's total assets
would be invested in the securities of a single issuer. State-specific municipal
money funds are subject to the same prohibition, with respect to 75% of a fund's
total assets. The regulation also allows funds to invest up to 25% of the fund's
total assets in the first tier securities of a single issuer for up to three
business days. U.S. government and certain other securities are not subject to
this particular regulation.
FOREIGN SECURITIES involve additional risks, because they are issued by foreign
entities, including foreign governments, banks, corporations or because they are
traded principally overseas. Credit and liquidity supports also may be provided
by foreign entities. Foreign entities are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. corporations. In addition, there may be
less publicly available information about foreign entities. Foreign economic,
political and legal developments could have more dramatic effects on the value
of foreign securities.
In addition to the risks discussed above, it is unforeseeable what risk, if any,
may exist to investments as a result of the conversion of the 11 of the 15
Economic Union Member States from their respective local currency to the
official currency of the Economic and Monetary Union (EMU). After January 3,
1999, the euro will be the official currency of the EMU, the rate of exchange
will have been set between the euro and the currency of each converting country
and the European Central Bank, all national central banks and all stock
exchanges and depositories will price, trade and settle in euro even if the
securities traded are not denominated in euro. Each securities transaction that
requires converting to euro may involve rounding that could affect the value of
the security converted. In addition, issuers of securities that require
converting may experience increased costs as a result of the conversion, which
may affect the value of their securities. It is possible that uncertainties
related to the conversion will affect investor expectations and cause
investments to shift away from European countries, thereby making the European
market less liquid. All of these factors could affect the value of a fund's
investments and/or increase its expenses. While the investment adviser is taking
steps to minimize the impact of the conversion on the funds, it is not possible
to know precisely what impact the conversion will have on the funds, if any, nor
is it possible to eliminate the risks completely.
ILLIQUID SECURITIES generally are any securities that cannot be disposed of
promptly and in the ordinary course of business at approximately the amount at
which the fund has valued the instruments. The liquidity of a fund's investments
is monitored under the supervision and direction of the board of trustees.
Investments currently not considered liquid include repurchase agreements not
maturing within seven days and certain restricted securities.
MATURITY OF INVESTMENTS. Each fund follows the regulations set forth by the SEC
that dictate the maturity requirements for money market mutual funds. These
requirements prohibit a fund from purchasing a security with a remaining
maturity of more than 397 days or maintaining a dollar-weighted average
portfolio maturity that exceeds 90 days.
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MONEY MARKET SECURITIES are high-quality, short-term debt securities that may be
issued by entities such as the U.S. government, corporations and financial
institutions (like banks). Money market securities include commercial paper,
certificates of deposit, banker's acceptances, notes and time deposits.
Money market securities pay fixed, variable or floating rates of interest and
are generally subject to credit and interest rate risks. The maturity date or
price of and financial assets collateralizing a security may be structured in
order to make it qualify as or act like a money market security. These
securities may be subject to greater credit and interest rate risks than other
money market securities because of their structure. Money market securities may
be issued with puts or these can be sold separately.
MUNICIPAL SECURITIES are debt securities issued by a state, its counties,
municipalities, authorities and other subdivisions, or the territories and
possessions of the United States and the District of Columbia, including their
subdivisions, agencies and instrumentalities and corporations. These securities
may be issued to obtain money for various public purposes, including the
construction of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, public utilities, schools,
streets, and water and sewer works. Other public purposes include refunding
outstanding obligations, obtaining funds for general operating expenses and
obtaining funds to loan to other public institutions and facilities.
Municipal securities also may be issued to finance various private activities,
including certain types of private activity bonds ("industrial development
bonds" under prior law). These securities may be issued by or on behalf of
public authorities to obtain funds to provide certain privately owned or
operated facilities. The funds may not be desirable investments for "substantial
users" of facilities financed by private activity bonds or industrial
development bonds or for "related persons" of substantial users because
distributions from the funds attributable to interest on such bonds may not be
tax exempt. Shareholders should consult their own tax advisors regarding the
potential effect on them (if any) of any investment in these funds.
Municipal securities may be owned directly or through participation interests,
and include general obligation or revenue securities, tax-exempt commercial
paper, notes and leases. The maturity date or price of and financial assets
collateralizing a municipal money market security may be structured in order to
make it qualify as or act like a municipal money market security. These
securities may be subject to greater credit and interest rate risks than other
municipal money market securities because of their structure.
Municipal securities generally are classified as "general obligation" or
"revenue" and may be purchased directly or through participation interests.
General obligation securities typically are secured by the issuer's pledge of
its full faith and credit and taxing power for the payment of principal and
interest. Revenue securities typically are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special tax or other specific revenue source. Private
activity bonds and industrial development bonds are, in most cases, revenue
bonds and generally do not constitute the pledge of the credit of the issuer of
such bonds. The credit quality of private activity bonds is frequently related
to the credit standing of private corporations or other entities.
Examples of municipal securities that are issued with original maturities of 397
days or less are short-term tax anticipation notes, bond anticipation notes,
revenue anticipation notes, construction loan notes, pre-refunded municipal
bonds and tax-free commercial paper. Tax anticipation notes typically are sold
to finance working capital needs of municipalities in anticipation of the
receipt
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<PAGE> 155
of property taxes on a future date. Bond anticipation notes are sold on an
interim basis in anticipation of a municipality's issuance of a longer-term bond
in the future. Revenue anticipation notes are issued in expectation of the
receipt of other types of revenue, such as that available under the Federal
Revenue Sharing Program. Construction loan notes are instruments insured by the
Federal Housing Administration with permanent financing by "Fannie Mae" (the
Federal National Mortgage Association) or "Ginnie Mae" (the Government National
Mortgage Association) at the end of the project construction period.
Pre-refunded municipal bonds are bonds that are not yet refundable, but for
which securities have been placed in escrow to refund an original municipal bond
issue when it becomes refundable. Tax-free commercial paper is an unsecured
promissory obligation issued or guaranteed by a municipal issuer. The funds may
purchase other municipal securities similar to the foregoing that are or may
become available, including securities issued to pre-refund other outstanding
obligations of municipal issuers.
The funds also may invest in moral obligation securities, which are normally
issued by special purpose public authorities. If the issuer of a moral
obligation security is unable to meet its obligation from current revenues, it
may draw on a reserve fund. The state or municipality that created the entity
has only a moral commitment, not a legal obligation, to restore the reserve
fund.
The value of municipal securities may be affected by uncertainties with respect
to the rights of holders of municipal securities in the event of bankruptcy or
the taxation of municipal securities as a result of legislation or litigation.
For example, under federal law, certain issuers of municipal securities may be
authorized in certain circumstances to initiate bankruptcy proceedings without
prior notice to or the consent of creditors. Such action could result in
material adverse changes in the rights of holders of the securities. In
addition, litigation challenging the validity under the state constitutions of
present systems of financing public education has been initiated or adjudicated
in a number of states, and legislation has been introduced to effect changes in
public school finances in some states. In other instances, there has been
litigation challenging the issuance of pollution control revenue bonds or the
validity of their issuance under state or federal law, which ultimately could
affect the validity of those municipal securities or the tax-free nature of the
interest thereon.
Municipal securities pay fixed, variable or floating rates of interest, which is
meant to be exempt from federal income tax, and, typically personal income tax
of a state or locality.
The investment adviser relies on the opinion of the issuer's counsel, which is
rendered at the time the security is issued, to determine whether the security
is fit, with respect to its validity and tax status, to be purchased by a fund.
MUNICIPAL LEASES are obligations issued to finance the construction or
acquisition of equipment or facilities. These obligations may take the form of a
lease, an installment purchase contract, a conditional sales contract or a
participation interest in any of these obligations. Municipal leases may be
considered illiquid investments. Additionally, municipal leases are subject to
"nonappropriation risk," which is the risk that the municipality may terminate
the lease because funds have not been allocated to make the necessary lease
payments. The lessor would then be entitled to repossess the property, but the
value of the property may be less to private sector entities than it would be to
the municipality.
PUTS are sometimes called demand features or guarantees, and are agreements that
allow the buyer to sell a security at a specified price and time to the seller
or "put provider." When a fund buys a security with a put feature, losses could
occur if the put provider does not perform as agreed. Standby commitments are
types of puts.
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<PAGE> 156
QUALITY OF INVESTMENTS. The funds follow regulations set forth by the SEC that
dictate the quality requirements for money market mutual funds. These require
the funds to invest exclusively in high-quality securities. Generally
high-quality securities are securities that present minimal credit risks and are
rated in one of the two highest rating categories by two nationally recognized
statistical rating organizations (NRSROs), or by one if only one NRSRO has rated
the securities, or, if unrated, determined to be of comparable quality by the
investment adviser pursuant to guidelines adopted by the board of trustees.
High-quality securities may be "first tier" or "second tier" securities. First
tier securities may be rated within the highest category or determined to be of
comparable quality by the investment manager. Money market fund shares and U.S.
government securities also are first tier securities. Second tier securities
generally are rated within the second-highest category. Each fund's holdings of
second tier securities will not exceed 5% of its assets, and investments in
second tier securities of any one issuer will be limited to the greater of 1% of
the fund's assets or $1 million.
Should a security's high-quality rating change after purchase by a fund, the
investment adviser would take such action, including no action, as determined to
be in the best interest of the fund by the board of trustees. For more
information about the ratings assigned by some NRSROs, refer to the Appendix
section of the SAI.
RESTRICTED SECURITIES are securities that are subject to legal restrictions on
their sale. For example, tender option bonds may be purchased by a fund in an
exempt transaction because the securities are not offered to the public.
Restricted securities may be deemed liquid or illiquid. In order to be deemed
liquid, the fund must be able to dispose of the security in the ordinary course
of business at approximately the amount the fund has valued the security. In
addition, the investment adviser must determine that an institutional or other
market exists for these securities. In making this determination, the investment
adviser may take into account any liquidity support associated with the
security. It is not possible to predict with assurance whether the market for
any restricted security will continue. Therefore, the investment adviser
monitors a fund's investments in these securities, focusing on factors, such as
valuation, liquidity and availability of information. To the extent a fund
invests in restricted securities that are deemed liquid, the general level of
illiquidity in the fund's portfolio may increase if buyers in that market become
unwilling to purchase the securities.
SECURITIES OF OTHER INVESTMENT COMPANIES may be purchased and sold by a fund
including those managed by its investment adviser. Because other investment
companies employ investment advisers and other service providers, investments by
a fund may cause shareholders to pay duplicative fees. The funds intend to
purchase securities of other investment companies in compliance with the
requirements of section 12(d)(1)(F) of the 1940 Act or any applicable exemptive
relief received from the SEC. Under that section, a fund is prohibited from
purchasing the securities of other investment companies if, as a result, the
fund together with its affiliates would own more than 3% of the total
outstanding securities of those investment companies. In addition, a fund will
vote proxies in accordance with the instructions received or vote proxies in the
same proportion as the vote of all other shareholders of the Investment Company.
If exemptive relief is received from the SEC, a fund may purchase more than 3%
of certain securities of other investment companies and will only hold such
securities in conformity with any applicable order from the SEC.
TAXABLE SECURITIES. Under normal conditions, the funds do not intend to invest
in securities in which interest is subject to federal income and/or state and
local personal income taxes. However, from time to time, as a defensive measure
or under abnormal market conditions, the funds may
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<PAGE> 157
make temporary investments in securities, the interest on which is subject to
federal income and/or state and local personal income taxes.
VARIABLE AND FLOATING RATE DEBT SECURITIES pay an interest rate, which is
adjusted either periodically or at specific intervals or which floats
continuously according to a formula or benchmark. Although these structures
generally are intended to minimize the fluctuations in value that occur when
interest rates rise and fall, some structures may be linked to a benchmark in
such a way as to cause greater volatility to the security's value.
Some variable rate securities may be combined with a put or demand feature
(variable rate demand securities) that entitles the holder to the right to
demand repayment in full or to resell at a specific price and/or time. While the
demand feature is intended to reduce credit risks, it is not always
unconditional, and may make the securities more difficult to sell quickly
without losses. There are risks involved with these securities because there may
be no active secondary market for a particular variable rate demand security
purchased by a fund. In addition, a fund may exercise only its demand rights at
certain times. A fund could suffer losses in the event that the issuer defaults
on its obligation. Synthetic variable or floating rate securities include tender
option bond receipts.
Tender option bond receipts are derived from fixed-rate municipal bonds that are
placed in a trust from which two classes of trust receipts are issued. These
receipts represent proportionate interest in the underlying bonds. Interest
payments are made on the bonds based upon a predetermined rate. Under certain
circumstances, the holder of a trust receipt also may participate in any gain or
loss on the sale of such bonds. Tender option bond trust receipts generally are
structured as private placements and, accordingly, may be deemed to be
restricted securities for purposes of a fund's investment limitations.
INVESTMENT LIMITATIONS
The following investment limitations may be changed only by vote of a majority
of each fund's shareholders
EACH OF SCHWAB MUNICIPAL MONEY FUND, SCHWAB CALIFORNIA MONEY FUND AND SCHWAB NEW
YORK MONEY FUND MAY NOT:
(1) Purchase securities or make investments other than in accordance with
investment objectives and policies.
(2) Purchase securities (other than securities of the U.S. government, its
agencies or instrumentalities) if, as a result of such purchase, 25% or
more of its total assets would be invested in any industry (although
securities issued by governments or political subdivisions of governments
are not considered to be securities subject to this industry concentration
restriction) or in any one state (although the limitation as to investments
in a state or its political subdivision shall not apply to Schwab
California Municipal Money Fund or Schwab New York Municipal Money Fund),
nor may it enter into a repurchase agreement if more than 10% of its net
assets would be subject to repurchase agreements maturing in more than
7-days.).
(3) Purchase or retain securities of an issuer if any of the officers, trustees
or directors of the trust or its investment adviser individually own
beneficially more than 1/2 of 1% of the securities of such issuer and
together own more than 5% of the securities of such issuer.
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(4) Invest in commodities or commodity futures contracts or in real estate,
except that each fund may invest in municipal securities secured by real
estate or interests therein.
(5) Invest for the purpose of exercising control or management of another
issuer.
(6) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in municipal securities of issuers which
invest in or sponsor such programs.
(7) Underwrite securities issued by others, except to the extent as permitted
by the Investment Company Act of 1940 or the rules or regulations
thereunder, as such statute, rules or regulations may be amended from time
to time.
(8) Lend or borrow money, except to the extent permitted by the Investment
Company Act of 1940 or the rules or regulations thereunder, as such
statute, rules or regulations may be amended from time to time.
(9) Pledge, mortgage or hypothecate any of its assets, except to the extent as
permitted by the Investment Company Act of 1940 or the rules or regulations
thereunder, as such statute, rules or regulations may be amended from time
to time.
(10) Issue senior securities, except to the extent as permitted by the
Investment Company Act of 1940 or the rules or regulations thereunder, as
such statute, rules or regulations may be amended from time to time.
(11) Purchase securities of any issuer unless consistent with the maintenance of
its respective status as a diversified company (in the case of Schwab
Municipal Money Fund) or non-diversified company (in the case of Schwab
California Municipal Money Fund and Schwab New York Municipal Money Fund)
under the Investment Company Act of 1940 or the rules or regulations
thereunder, as such statute, rules or regulations may be amended from time
to time.
EACH OF SCHWAB NEW JERSEY MUNICIPAL MONEY FUND, SCHWAB PENNSYLVANIA MUNICIPAL
MONEY FUND AND SCHWAB FLORIDA MUNICIPAL MONEY FUND MAY NOT:
(1) Lend or borrow money, except as permitted by the Investment Company Act of
1940 or the rules or regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
(2) Pledge, mortgage or hypothecate any of its assets, except as permitted by
the Investment Company Act of 1940 or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.
(3) Issue senior securities, except as permitted by the Investment Company Act
of 1940 or the rules or regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
(4) Underwrite securities, except as permitted by the Investment Company Act of
1940 or the rules or regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
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(5) Concentrate investments in a particular industry or group of industries, as
concentration is defined under the Investment Company Act of 1940 or the
rules or regulations thereunder, as such statute, rules or regulations may
be amended from time to time.
(6) Purchase or sell commodities, commodities contracts, futures contracts, or
real estate, except as permitted by the Investment Company Act of 1940 or
the rules or regulations thereunder, as such statute, rules or regulations
may be amended from time to time.
THE FOLLOWING DESCRIPTIONS OF THE 1940 ACT MAY ASSIST INVESTORS IN UNDERSTANDING
THE ABOVE POLICIES AND RESTRICTIONS.
Borrowing. The 1940 Act presently restricts a fund from borrowing (including
pledging, mortgaging or hypothecating assets) in excess of 33 1/3% of its total
assets (not including temporary borrowings not in excess of 5% of its total
assets).
Lending. Under the 1940 Act, a fund may only make loans if expressly permitted
by its investment policies.
Concentration. Concentration is currently determined as investing 25% or more of
a fund's total assets in an industry or group of industries, with certain
exceptions. This means that each fund currently may not purchase securities of
any issuer (other than U.S. government securities) if, as a result, 25% or more
of its total assets would be invested in the securities of an issuer from a
single industry or group of industries. Municipal securities are not deemed to
be issued by an issuer from a single industry or group of industries.
The following are non-fundamental investment policies and restrictions.
EACH OF THE SCHWAB MUNICIPAL MONEY FUND, SCHWAB CALIFORNIA MUNICIPAL MONEY FUND
AND SCHWAB NEW YORK MONEY FUND MAY NOT:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of its assets would be invested in the
securities of that issuer, except that, with respect to Schwab California
Municipal Money Fund and Schwab New York Municipal Money Fund, provided no
more than 25% of the fund's total assets would be invested in the
securities of a single issuer, up to 50% of the value of the fund's assets
may be invested without regard to this 5% limitation. For purposes of this
limitation, the fund will regard the entity which has the primary
responsibility for the payment of interest and principal as the issuer.
(2) Invest more than 5% of its total assets in securities restricted as to
disposition under the federal securities laws, although this limitation
shall be 10% with respect to Schwab California Municipal Money Fund and
Schwab New York Municipal Money Fund.
(3) Purchase securities of other investment companies, except as permitted by
the 1940 Act.
(4) Make loans to others (except through the purchase of debt obligations or
repurchase agreements in accordance with its investment objective and
policies).
(5) Borrow money, except from banks for temporary purposes (but not for the
purpose of purchasing investments), and then only in an amount not to
exceed one-third of the value of its total assets (including the amount
borrowed) in order to meet redemption requests which otherwise might result
in the untimely disposition of securities; or pledge its securities or
receivables or transfer or assign or otherwise encumber them in an amount
to exceed 10% of
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the fund's net assets to secure borrowings. Reverse repurchase agreements
entered into by the fund are permitted within the limitations of this
paragraph. No such fund will purchase securities or make investments while
reverse repurchase agreements or borrowings are outstanding.
(6) Write, purchase or sell puts, calls or combinations thereof, although it
may purchase Municipal Securities subject to standby commitments, variable
rate demand notes or repurchase agreements in accordance with its
investment objective and policies.
(7) Make short sales of securities or purchase securities on margin, except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
(8) Issue senior securities as defined in the 1940 Act.
SCHWAB FLORIDA MUNICIPAL MONEY FUND, SCHWAB NEW JERSEY MUNICIPAL MONEY FUND AND
SCHWAB PENNSYLVANIA MUNICIPAL MONEY FUND MAY NOT:
(1) With respect to 75% of its total assets, purchase securities of any issuer
(other than U.S. government securities or securities subject to a guarantee
issued by a person not controlled by the issuer) if, as a result, more than
5% of total assets would be invested in the securities of such issuer;
provided that the Fund may not invest more than 5% of its total assets in
securities of a single issuer unless such securities are first tier
securities.
(2) Purchase second tier conduit securities of any issuer (other than
securities subject to a guarantee issued by a person not controlled by the
issuer) if, as a result, more than the greater of 1% of its total assets or
$1 million would be invested in second tier conduit securities of such
issuer.
(3) Purchase securities of other investment companies, except as permitted by
the 1940 Act.
(4) Borrow money for temporary or emergency purposes except that the Fund may
(i) borrow money from banks and (ii) engage in reverse repurchase
agreements with any party; provided that (i) and (ii) in combination do not
exceed 33 1/3% of its total assets (any borrowings that come to exceed this
amount will be reduced to the extent necessary to comply with the
limitation within three business days) and the Fund will not purchase
securities while borrowings represent more than 5% of its total assets.
(5) Purchase securities of any issuer (other than obligations of, or guaranteed
by the U.S. government its agencies or instrumentalities), if, as a result,
25% or more of its total assets would be invested in the securities of an
issuer from a single industry or group of industries.
(6) Lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties (this restriction does
not apply to purchases of securities or repurchase agreements).
(7) Purchase securities of any issuer if, as a result, more than 10% of its net
assets would be invested in illiquid securities.
(8) Sell securities short unless it owns the security or the right to obtain
the security or equivalent securities (transactions in futures contracts
and options are not considered selling securities short).
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<PAGE> 161
(9) purchase securities on margin, except that the Fund may obtain short-term
credits that are necessary for the clearance of transactions, and provided
that margin payments in connection with futures contracts and options on
futures contracts shall not constitute purchasing securities on margin.
Except with respect to borrowings, concentration of investments and investments
in illiquid securities, later changes in values or net assets do not require a
fund to sell an investment even if it could not then make the same investment.
MANAGEMENT OF THE FUNDS
The officers and trustees, their principal occupations during the past five
years and their affiliations, if any, with The Charles Schwab Corporation,
Charles Schwab & Co., Inc. (Schwab) and Charles Schwab Investment Management,
Inc. (CSIM or the investment manager), are as follows:
<TABLE>
<CAPTION>
POSITION(S) WITH PRINCIPAL OCCUPATIONS &
NAME/DATE OF BIRTH THE TRUST AFFILIATIONS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman and Chairman, Co-Chief Executive Officer
July 29, 1937 Trustee and Director, The Charles Schwab
Corporation; Chairman, Chief Executive
Officer and Director, Charles Schwab
Holdings, Inc.; Chairman and Director,
Charles Schwab & Co., Inc., Charles
Schwab Investment Management, Inc.,
The Charles Schwab Trust Company and
Schwab Retirement Plan Services, Inc.;
Chairman and Director (current board
positions), and Chairman (officer
position) until December 1995, Mayer &
Schweitzer, Inc. (a securities
brokerage subsidiary of The Charles
Schwab Corporation); Director, The
Gap, Inc. (a clothing retailer),
Transamerica Corporation (a financial
services organization), AirTouch
Communications (a telecommunications
company) and Siebel Systems (a
software company).
STEVEN L. SCHEID* President and Trustee Executive Vice President and
June 28, 1953 Chief Financial Officer,
The Charles Schwab Corporation;
Enterprise President - Financial
Products and Services and Chief
Financial Officer, Charles Schwab &
Co., Inc.; Chief Executive Officer,
Chief Financial Officer and Director,
Charles Schwab Investment Management,
Inc. From 1994 to 1996, Mr. Scheid was
</TABLE>
- ---------------
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<PAGE> 162
<TABLE>
<S> <C> <C>
Executive Vice President of Finance
for First Interstate Bancorp and
Principal Financial Officer from 1995
to 1996. Prior to 1994, Mr. Scheid was
Chief Financial Officer, First
Interstate Bank of Texas.
DONALD F. DORWARD Trustee Executive Vice President and Managing
September 23, 1931 Director, Grey Advertising. From 1990
to 1996, Mr. Dorward was President and
Chief Executive Officer, Dorward &
Associates (advertising and
marketing/consulting firm).
ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and
May 15, 1931 Director, Semloh Financial, Inc.
(international financial services and
investment advisory firm).
DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens &
June 28, 1938 Company (Investments) and Chairman and
Chief Executive Officer of North
American Trust (real estate investment
trust).
MICHAEL W. WILSEY Trustee Chairman, Chief Executive Officer and Director,
August 18, 1943 Wilsey Bennett, Inc. (truck and air
transportation, real estate investment,
management, and investments).
TAI-CHIN TUNG Treasurer and Principal Vice President, Treasurer and
March 7, 1951 Financial Officer Controller, Charles Schwab Investment
Management, Inc. From 1994 to 1996,
Ms. Tung was Controller for Robertson
Stephens Investment Management, Inc.
From 1993 to 1994, she was Vice
President of Fund Accounting, Capital
Research and Management Co.
WILLIAM J. KLIPP* Executive Vice Executive Vice President, SchwabFunds(R),
December 9, 1955 President, Chief Charles Schwab & Co., Inc.; President and Chief
Operating Officer and Operating Officer, Charles Schwab Investment
Trustee Management, Inc.
</TABLE>
- -----------------
* This trustee is an "interested person" of the Trust.
14
<PAGE> 163
<TABLE>
<S> <C> <C>
STEPHEN B. WARD Senior Vice President Senior Vice President and Chief Investment
April 5, 1955 and Chief Investment Officer, Charles Schwab Investment Management,
Officer Inc.
FRANCES COLE Secretary Senior Vice President, Chief Counsel and
September 9, 1955 Assistant Corporate Secretary, Charles Schwab
Investment Management, Inc.
</TABLE>
Each fund is overseen by a board of trustees. The board of trustees meets
regularly to review each fund's activities, contractual arrangements and
performance. The board of trustees is responsible for protecting the interests
of a fund's shareholders. The following table provides information as of fiscal
year ended December 31, 1998, concerning compensation of the trustees. Unless
otherwise stated, information is for the fund complex, which included 38 funds
as of December 31, 1998.
<TABLE>
<CAPTION>
Pension or ($)
Retirement Total
Name of Trustee Benefits Accrued Compensation
as Part of Fund from Fund Complex
Expenses
- ------------------------------------------------------------------
<S> <C> <C>
Charles R. Schwab 0 N/A 0
Steven L. Scheid 1 0 N/A 0
Tom D. Seip 2 0 N/A 0
William J. Klipp, 0 N/A 0
Donald F. Dorward N/A
Robert G. Holmes N/A
Donald R. Stephens N/A
Michael W. Wilsey N/A
</TABLE>
DEFERRED COMPENSATION PLAN
- -----------------
1 Effective August 18, 1998, Mr. Scheid was elected as President and trustee.
Mr. Seip served as President and trustee until May 15, 1998.
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<PAGE> 164
Trustees who are not "interested persons" of a trust ("independent trustees")
may enter into a fee deferral plan. Under this plan, deferred fees will be
credited to an account established by the trust as of the date that such fees
would have been paid to the trustee. The value of this account will equal the
value that the account would be if the fees credited to the account had been
invested in the shares of SchwabFunds selected by the trustee. Currently, none
of the independent trustees have elected to participate in this plan.
Pursuant to the exemptive relief granted to the trust, each fund will purchase
and maintain the Selected SchwabFund Securities in an amount equal to the deemed
investments in that fund of the Deferred Fee Accounts of the Independent
Trustees. The exemptive relief granted to the Trust permits the funds and the
trustees to purchase the Selected SchwabFund Securities, which transactions
would otherwise be limited or prohibited by the investment policies and/or
restrictions of the funds.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 1, 1999, [VAR: QLEGAL: name of person or entity and the jurisdiction
under the laws of which it is organized and all parent companies] control the
[VAR: Fund Name] through ownership of [VAR: QLEGAL: x.x%] securities or other
basis of control.]
As of April 1, 1999 [VAR: QLEGAL: month end or 1st of month date no more than 30
days prior to effective date], the officers and trustees of the trust(s), as a
group owned of record or beneficially [VAR: QLEGAL: x.x% / less than 1%] of the
outstanding voting securities of each fund.
As of April 1, 1999, the [VAR: QLEGAL: name of entity or person] directly or
beneficially owned, [VAR: QLEGAL: x.xx%] of shares of the [VAR: Fund Name /
Class Name].
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc. (CSIM or the investment adviser), a
wholly owned subsidiary of The Charles Schwab Corporation, 101 Montgomery
Street, San Francisco CA 94104, serves as the funds' investment adviser and
administrator pursuant to an Investment Advisory and Administration Agreement
(Advisory Agreement) between it and the trust. Charles Schwab & Co., Inc.
(Schwab) is an affiliate of the investment adviser and is the trust's
distributor, shareholder services agent and transfer agent. Charles R. Schwab is
the founder, Chairman, Co-Chief Executive Officer and Director of The Charles
Schwab Corporation. As a result of his ownership of and interests in The Charles
Schwab Corporation, Mr. Schwab may be deemed to be a controlling person of the
investment adviser and Schwab.
Year 2000 presents uncertainties and possible risks to the smooth operations of
the funds and the provision of services to shareholders. Many computer programs
use only two digits to identify a specific year and therefore may not accurately
recognize the upcoming change in the next century. If not corrected, many
computer applications could fail or create erroneous results by or at year 2000.
Due to the funds' and their service providers' dependence on computer technology
to operate, the nature and impact of year 2000 processing failures on the funds
could be material. The funds' investment adviser is taking steps to minimize the
risks of year 2000 for the funds, including seeking assurances from the funds'
service providers that they are analyzing their systems, testing them for
potential problems and remediating them to the extent possible. There can be no
assurance
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<PAGE> 165
that these steps will be sufficient to avoid any adverse impact on the funds,
however, minimizing year 2000 risk for the funds is a priority of the investment
adviser.
For its advisory and administrative services to each of the funds, the
investment adviser is entitled to receive a graduated annual fee, payable
monthly, of 0.46% of the fund's average daily net assets of the first $1
billion, 0.41% of the next $1 billion, and 0.40% of net assets over $2 billion.
For the fiscal years ended December 31, 1996, 1997 and 1998, Schwab Municipal
Money Fund paid investment and advisory fees of $8,034,000 (fees were reduced
$8,734,000), $9331,000 (fees were reduced by $10,977,000) and $____________
(fees were reduced by $________________).
For the fiscal years ended December 31, 1996, 1997 and 1998, Schwab California
Municipal Money fund paid investment and advisory fees of $3,737,000 (fees were
reduced $4,819,000), $4,824,000 (fees were reduced by $6,548,000) and
$____________ (fees were reduced by $____________).
For the fiscal years ended December 31, 1996, 1997 and 1998, Schwab New York
Municipal Money Fund paid investment and advisory fees of $535,000 (fees were
reduced $696,000), $675,000 (fees were reduced by $1,192,000) and $____________
(fees were reduced by $________________).
For the period of February 2, 1998 (commencement of operations) to December 31,
1998, Schwab New Jersey Municipal Fund paid investment and advisory fees of
$_________ (fees were reduced $________).
For the period of February 2, 1998 (commencement of operations) to December 31,
1998, Schwab Pennsylvania Municipal Fund paid investment and advisory fees of
$_________ (fees were reduced $________).
For the period of March 18, 1998 (commencement of operations) to December 31,
1998, Schwab Florida Municipal Fund paid investment and advisory fees of
$_________ (fees were reduced $________).
The investment adviser and Schwab have voluntarily guaranteed that through at
least [April 30, 1999] total operating expenses (excluding interest, taxes and
extraordinary expenses) of Sweep Shares of each fund will not exceed, as a
percentage of average daily net assets, 0.66% for Schwab Municipal Money Fund,
0.65% for Schwab California Municipal Money Fund, Schwab New Jersey Municipal
Money Fund and Schwab Pennsylvania Municipal Money Fund, 0.69% for Schwab New
York Municipal Money Fund and 0.59% for Schwab Florida Municipal Money Fund.
DISTRIBUTOR
Pursuant to an agreement, Schwab is the principal underwriter for shares of the
funds and is the trust's agent for the purpose of the continuous offering of the
funds' shares. Each fund pays the cost of the prospectuses and shareholder
reports to be prepared and delivered to existing shareholders. Schwab pays such
costs when the described materials are used in connection with the offering of
shares to prospective investors and for supplementary sales literature and
advertising. Schwab receives no fee under the agreement. Terms of continuation,
termination and assignment under the agreement are identical to those described
above with respect to the Advisory Agreement.
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The funds pay other expenses that are typically connected with the trust's
operations, and include legal, audit and custodian fees, as well as the costs of
accounting and registration of the funds. Expenses not directly attributable to
a particular fund will generally be allocated among the funds in the trust on
the basis of each fund's relative net assets at the time the expense is
incurred.
SHAREHOLDER SERVICES AND TRANSFER AGENT
Schwab provides fund information to shareholders, including share price,
reporting shareholder ownership and account activities and distributing the
funds' prospectuses, financial reports and other informational literature about
the funds. Schwab maintains the office space, equipment and personnel necessary
to provide these services. Schwab also distributes and markets SchwabFunds(R)
and provides other services.
CUSTODIAN AND FUND ACCOUNTANT
PNC Bank, National Association, Airport Business Center, 200 Stevens Drive, Suit
440, Lester Pennsylvania, 19113, serves as custodian for the funds and PFPC,
Inc., 103 Bellevue Parkway, Wilmington DE 19809, serves as fund accountant.
The custodian is responsible for the daily safekeeping of securities and cash
held or sold by the funds. The accountant maintains all books and records
related to each fund's transactions.
INDEPENDENT ACCOUNTANT
The funds' independent accountant, ______________, audits and reports on the
annual financial statements of the funds and review certain regulatory reports
and each funds' federal income tax return. It also performs other professional
accounting, auditing, tax and advisory services when the trust engages it to do
so. Their address is _________________. Each fund's audited financial statements
for the fiscal year ended December 31, 1998, are included in the funds' annual
report, which is a separate report supplied with the SAI.
BROKERAGE ALLOCATION AND OTHER PRACTICES
PORTFOLIO TURNOVER
Because securities with maturities of less than one year are excluded from
required portfolio turnover rate calculations, the funds' portfolio turnover
rate for reporting purposes is expected to be zero.
PORTFOLIO TRANSACTIONS
In effecting securities transactions for a fund, the investment adviser seeks to
obtain best price and execution. Subject to the supervision of the board of
trustees, the investment adviser will generally select brokers and dealers for
the funds primarily on the basis of the quality and reliability of brokerage
services, including execution capability and financial responsibility.
When the execution capability and price offered by two or more broker-dealers
are comparable, the investment adviser may, in its discretion utilize the
services of broker-dealers that provide it with investment information and other
research resources. Such resources also may be used by the investment adviser
when providing advisory services to other investment advisory clients, including
mutual funds.
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The funds expects that purchases and sales of portfolio securities will usually
be principal transactions. Securities will normally be purchased directly from
the issuer or from an underwriter or market maker for the securities. Purchases
from underwriters will include a commission or concession paid be the issuer to
the underwriter, and purchases from dealers serving as market makers will
include the spread between the bid and asked prices.
The investment decisions for each fund are reached independently from those for
other accounts managed by the investment adviser. Such other accounts also may
make investments in instruments or securities at the same time as a fund. When
two or more accounts managed by the investment adviser have funds available for
investment in similar instruments, available instruments are allocated as to
amount in a manner considered equitable to each account. In some cases, this
procedure may affect the size or price of the position obtainable for a fund.
However, it is the opinion of the board of trustees that the benefits conferred
by the investment manager outweigh any disadvantages that may arise from
exposure to simultaneous transactions.
DESCRIPTION OF THE TRUST
Each fund, is a series of the Charles Schwab Family of Funds, an open-end
investment management company organized as a Massachusetts business trust on
October 20, 1989.
Each Declaration of Trust provides that shares may be automatically redeemed if
held by a shareholder in an amount less than the minimum required by each fund
or share class. Each fund's or class's initial and subsequent minimum investment
and balance requirements are set forth in the prospectus. These minimums may be
waived for certain investors, including trustees, officers and employees of
Schwab, or changed without prior notice.
The funds may hold special meetings. These meetings may be called for purposes
such as electing trustees, changing fundamental policies and amending management
contracts. Shareholders are entitled to one vote for each share owned and may
vote by proxy or in person. Proxy materials will be mailed to shareholders prior
to any meetings, and will include a voting card and information explaining the
matters to be voted upon.
The bylaws of the trust provide that a majority of shares entitled to vote shall
be a quorum for the transaction of business at a shareholders' meeting, except
that where any provision of law, or of the Declaration of Trust or of the bylaws
permits or requires that (1) holders of any series shall vote as a series, then
a majority of the aggregate number of shares of that series entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that series, or (2) holders of any class shall vote as a class, then a majority
of the aggregate number of shares of that class entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that class.
Any lesser number shall be sufficient for adjournments. Any adjourned session or
sessions may be held, within a reasonable time after the date set for the
original meeting, without the necessity of further notice. The Declaration of
Trust specifically authorizes the board of trustees to terminate the trust (or
any of its investment portfolios) by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for the trust's
obligations. The Declaration of Trust, however, disclaims shareholder liability
for the trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the trust or the trustees. In addition, the Declaration of Trust provides for
indemnification out of the property of an investment portfolio in which a
shareholder owns or owned shares for all losses and expenses of such shareholder
or former shareholder if he or she is held personally liable for the
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obligations of the trust solely by reason of being or having been a shareholder.
Moreover, the trust will be covered by insurance which the trustees consider
adequate to cover foreseeable tort claims. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote, because it is limited to circumstances in which a disclaimer is
inoperative and the trust itself is unable to meet its obligations. There is a
remote possibility that a fund could become liable for a misstatement in the
prospectus or SAI about another fund.
As more fully described in each Declaration of Trust, the trustees may each
year, or more frequently, distribute to the shareholders of each series accrued
income less accrued expenses and any net realized capital gains. Distributions
of each year's income of each series shall be distributed pro rata to
shareholders in proportion to the number of shares of each series held by each
of them. Distributions will be paid in cash or shares or a combination thereof
as determined by the trustees. Distributions paid in shares will be paid at net
asset value per share as determined in accordance with the bylaws.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASING AND REDEEMING SHARES OF THE FUNDS
The funds are open each day that both the Federal Reserve Bank of New York (New
York Fed) and New York Stock Exchange (NYSE) are open (business days). The
following holiday closings are currently scheduled for 1999: New Year's Day,
Martin Luther King's Birthday (observed), President's Day, Good Friday, Memorial
Day (observed), Independence Day (observed), Labor Day, Columbus Day (observed),
Veterans Day, Thanksgiving Day and Christmas Day. On any day that the New York
Fed, NYSE or principal government securities markets close early, such as days
in advance of holidays, the funds reserve the right to advance the time by which
purchase, redemption and exchanges orders must be received on that day.
As long as the funds or Schwab follow reasonable procedures to confirm that your
telephone order is genuine, they will not be liable for any losses an investor
may experience due to unauthorized or fraudulent instructions. These procedures
may include requiring a form of personal identification before acting upon any
telephone order, providing written confirmation of telephone orders and tape
recording all telephone orders.
Share certificates will not be issued in order to avoid additional
administrative costs, however, share ownership records are maintained by Schwab.
Twice a year, financial reports will be mailed to shareholders describing the
funds' performance and investment holdings. In order to reduce these mailing
costs, each household will receive one consolidated mailing. If you would like
additional copies, you may call or write you fund at the telephone number or
address on the cover of this SAI.
The funds have made an election with the SEC to pay in cash all redemptions
requested by any shareholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of its net assets at the beginning of
such period. This election is irrevocable without the SEC's prior approval.
Redemption requests in excess of these limits may be paid, in whole or in part,
in investment securities or in cash, as the board of trustees may deem
advisable. Payment will be made wholly in cash unless the board of trustees
believes that economic or market conditions exist that would make such payment a
detriment to the best interests of a fund. If redemption proceeds are paid in
investment securities, such securities will be valued as set forth in "Pricing
of Shares". A redeeming shareholder would normally incur brokerage expenses if
he or she were to convert the securities to cash.
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Each of Schwab Municipal Money Fund, Schwab California Municipal Money Fund and
Schwab New York Municipal Money Fund is composed of two classes of shares, which
share a common investment portfolio and objective. The Sweep Shares are designed
to provide convenience through automatic investment of uninvested cash balances
in your Schwab account, although shares also may be purchased directly. The
Value Advantage Shares, which are not offered through this SAI, do not have a
sweep feature, but rather must be purchased directly.
PRICING OF SHARES
Each fund values its portfolio instruments at amortized cost, which means they
are valued at their acquisition cost, as adjusted for amortization of premium or
discount, rather than at current market value. Calculations are made to compare
the value of a fund's investments at amortized cost with market values. When
determining market values for portfolio securities, the funds use market quotes
if they are readily available. In cases where quotes are not readily available,
a fund may value securities based on fair values developed using methods
approved by the fund's board of trustees. Fair values may be determined by using
actual quotations or estimates of market value, including pricing service
estimates of market values or values obtained from yield data relating to
classes of portfolio securities.
The amortized cost method of valuation seeks to maintain a stable net asset
value per share (NAV) of $1.00, even where there are fluctuations in interest
rates that affect the value of portfolio instruments. Accordingly, this method
of valuation can in certain circumstances lead to a dilution of a shareholder's
interest.
If a deviation of 1/2 of 1% or more were to occur between the NAV calculated
using market values and a fund's $1.00 NAV calculated using amortized cost or if
there were any other deviation that the board of trustees believed would result
in a material dilution to shareholders or purchasers, the board of trustees
would promptly consider what action, if any, should be initiated.
If a fund's NAV calculated using market values declined, or were expected to
decline, below the fund's $1.00 NAV calculated using amortized cost, the board
of trustees might temporarily reduce or suspend dividend payments in an effort
to maintain the fund's $1.00 NAV. As a result of such reduction or suspension of
dividends or other action by the board of trustees, an investor would receive
less income during a given period than if such a reduction or suspension had not
taken place. Such action could result in investors receiving no dividend for the
period during which they hold their shares and receiving, upon redemption, a
price per share lower than that which they paid. On the other hand, if a fund's
NAV (calculated using market values) were to increase, or were anticipated to
increase above the fund's $1.00 (calculated using amortized cost), the board of
trustees might supplement dividends in an effort to maintain the fund's $1.00
NAV.
TAXATION
FEDERAL TAX INFORMATION FOR THE FUNDS
It is each fund's policy to qualify for taxation as a "regulated investment
company" (RIC) by meeting the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By qualifying as a RIC, each fund
expects to eliminate or reduce to a nominal amount the federal income tax to
which it is subject. If a fund does not qualify as a RIC under the Code, it will
be subject to federal income tax on its net investment income and any net
realized capital gains.
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The Code imposes a non-deductible excise tax on RICs that do not distribute in a
calendar year (regardless of whether they otherwise have a non-calendar taxable
year) an amount equal to 98% of their "ordinary income" (as defined in the Code)
for the calendar year plus 98% of their net capital gain for the one-year period
ending on October 31 of such calendar year, plus any undistributed amounts from
prior years. The non-deductible excise tax is equal to 4% of the deficiency. For
the foregoing purposes, a fund is treated as having distributed any amount on
which it is subject to income tax for any taxable year ending in such calendar
year.
FEDERAL INCOME TAX INFORMATION FOR SHAREHOLDERS
The discussion of federal income taxation presented below supplements the
discussion in the funds' prospectus and only summarizes some of the important
federal tax considerations generally affecting shareholders of the funds.
Accordingly, prospective investors (particularly those not residing or domiciled
in the United States) should consult their own tax advisers regarding the
consequences of investing in a fund.
On each business day that the NAV of a fund is determined, such fund's net
investment income will be declared after the close of trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern time) as a daily dividend to
shareholders of record. For each fund, dividends will normally be reinvested
monthly in shares of the fund at the NAV on the 15th day of each month, if a
business day, otherwise on the next business day, except in December when
dividends are reinvested on the last business of December. If cash payment is
requested, checks will normally be mailed on the business day following the
reinvestment date. Each fund will pay shareholders, who redeem all of their
shares, all dividends accrued to the time of the redemption within 7 days.
Each fund calculates its dividends based on its daily net investment income. For
this purpose, the net investment income of a fund consists of: (1) accrued
interest income, plus or minus amortized discount or premium, minus (2) accrued
expenses allocated to that fund. If a fund realizes any capital gains, they will
be distributed at least once during the year as determined by the board of
trustees.
Any dividends declared by a fund in October, November or December and paid the
following January are treated, for tax purposes, as if they were received by
shareholders on December 31 of the year in which they were declared. A fund may
adjust its schedule for the reinvestment of distributions for the month of
December to assist in complying with the reporting and minimum distribution
requirements of the Code.
The funds do not expect to realize any long-term capital gains. However,
long-term capital gains distributions are taxable as long-term capital gains,
regardless of how long you have held your shares. If you receive a long-term
capital gains distribution with respect to fund shares held for six months or
less, any loss on the sale or exchange of those shares shall, to the extent of
the long-term capital gains distribution, be treated as a long-term capital
loss. Distributions by a fund also may be subject to state, local and foreign
taxes, and its treatment under applicable tax laws may differ from the federal
income tax treatment.
Each fund may engage in investment techniques that may alter the timing and
character of its income. Each fund may be restricted in its use of these
techniques by rules relating to its qualifications as regulated investment
companies.
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A fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder who (1) fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) is subject to withholding by the Internal Revenue Service for
failure to properly report all payments of interest or dividends; or (3) fails
to provide a certified statement that he or she is not subject to "backup
withholding." Backup withholding is not an additional tax and any amounts
withheld may be credited against the shareholder's ultimate U.S. tax liability.
Foreign shareholders (i.e., nonresident alien individuals and foreign
corporations, partnerships, trusts and estates) are generally subject to U.S.
withholding tax at the rate of 30% (or a lower tax treaty rate) on distributions
derived from net investment income and short-term capital gains. Distributions
to foreign shareholders of long-term capital gains and any gains from the sale
or other disposition of shares of the funds generally are not subject to U.S.
taxation, unless the recipient is an individual who meets the Code's definition
of "resident alien." Different tax consequences may result if the foreign
shareholder is engaged in a trade or business within the United States. In
addition, the tax consequences to a foreign shareholder entitled to claim the
benefits of a tax treaty may be different than those described above.
If, at the close of each quarter of its taxable year, at least 50% of the value
of a fund's assets consist of obligations the interest on which is excludable
from gross income, the fund may pay "exempt-interest dividends" to its
Shareholders. Those dividends constitute the portion of the aggregate dividends
as designated by the fund, equal to the excess of the excludable interest over
certain amounts disallowed as deductions. Exempt-interest dividends are
excludable from a shareholder's gross income for federal income tax purposes.
Exempt-interest dividends may nevertheless be subject to the federal alternative
minimum tax (AMT) imposed by Section 55 of the Code. The AMT is imposed at rates
of 26% and 28%, in the case of non-corporate taxpayers, and at the rate of 20%,
in the case of corporate taxpayers, to the extent it exceeds the taxpayer's
federal income tax liability. The AMT and the environmental tax may be imposed
in the following two circumstances. First, exempt-interest dividends derived
from certain private activity bonds issued after August 7, 1986, will generally
be an item of tax preference (and, therefore, potentially subject to AMT) for
both corporate and non-corporate taxpayers. Second, in the case of
exempt-interest dividends received by corporate shareholders, all
exempt-interest dividends, regardless of when the bonds from which they are
derived were issued or whether they are derived from private activity bonds,
will be included in the corporation's "adjusted current earnings," as defined in
Section 56(g) of the Code, in calculating the corporations' alternative minimum
taxable income for purposes of determining the AMT.
Current federal law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest that may have an effect on the ability
of a fund to purchase sufficient amounts of tax-exempt securities to satisfy the
Code's requirements for the payment of "exempt-interest dividends."
Interest on indebtedness incurred or continued by a shareholder in order to
purchase or carry shares of the funds is not deductible for federal income tax
purposes. Furthermore, these funds may not be an appropriate investment for
persons (including corporations and other business entities) who are
"substantial users" (or persons related to "substantial users") or facilities
financed by industrial development private activity bonds. Such persons should
consult their tax advisors before purchasing shares. A "substantial user" is
defined generally to include "certain persons" who regularly use in their trade
or business a part of a facilities financed from the proceeds of such bonds.
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NEW JERSEY TAX CONSIDERATIONS
Under current law, investors in the fund will not be subject to the New Jersey
Gross Income Tax on distributions from the fund attributable to interest income
from (and net gain, if any, from the disposition of) New Jersey Municipal
Securities or obligations of the United States, its territories and possessions
and certain of its agencies and instrumentalities ("Federal Securities") held by
the fund, either when received by the fund or when credited or distributed to
the investors, provided that the fund meets the requirements for a qualified
investment fund by: 1) maintaining its registration as a registered investment
company with the SEC; 2) investing at least 80% of the aggregate principal
amount of the fund's investments, excluding financial options, futures, forward
contracts, or other similar financial instruments relating to interest-bearing
obligations, obligations issued at a discount or bond indexes related thereto to
the extent such instruments are authorized under the regulated investment
company rules under the Code, cash and cash items, which cash items shall
include receivables, in New Jersey municipal securities or federal securities at
the close of each quarter of the tax year; 3) investing 100% of its assets in
interest-bearing obligations, discount obligations, cash and cash items,
including receivables, financial options, futures forward contracts, or other
similar financial instruments relating to interest-bearing obligations, discount
obligations or bond indexes related thereto; and 4) complying with certain
continuing reporting requirements.
However, in Colonial Trust III and Investment Company Institute v. Director,
Division of Taxation, DKT No. 009777-93 (NJ Tax Court, Feb. 21, 1997) the New
Jersey Tax Court nullified the New Jersey threshold requirements stated above.
The court ruled that New Jersey could not impose its gross income tax on
shareholder distributions attributable to interest paid on obligations of the
United States government from a mutual fund that did not meet the requirements
to be a qualified investment fund.
For New Jersey Gross Income Tax purposes, net income or gains and distributions
derived from investments in other than New Jersey municipal securities and
federal securities, and distributions from net realized capital gains in respect
of such investments, will be taxable.
Gain on the disposition of shares is not subject to New Jersey Gross Income Tax,
provided that the fund meets the requirements for qualified investment fund set
forth above.
PENNSYLVANIA TAX CONSIDERATIONS
For purposes of the Pennsylvania Personal Income Tax and Philadelphia School
District Investment Net Income Tax, distributions which are attributable to
interest received by the fund from its investments in Pennsylvania Municipal
Securities or federal securities are not taxable. Distributions by the fund to a
Pennsylvania resident that are attributable to most other sources may be subject
to the Pennsylvania Personal Income Tax and (for residents of Philadelphia) to
the Philadelphia School District Investment Net Income Tax.
Distributions paid by the fund, which are excludable as exempted income for
federal tax purposes, are not subject to the Pennsylvania corporate net income
tax. An additional deduction from Pennsylvania taxable income is permitted for
the amount of distributions paid by the fund attributable to interest received
by the fund from its investments in Pennsylvania municipal securities and
federal securities to the extent included in federal taxable income, but such a
deduction is reduced by any interest on indebtedness incurred to carry the
securities and other expenses incurred in the production of such interest
income, including expenses deducted on the federal income tax return that would
not have been allowed under the Code if the interest were
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exempt from federal income tax. Distributions by the fund attributable to most
other sources may be subject to the Pennsylvania corporate net income tax. It is
the current position of the Pennsylvania Department of Revenue that fund shares
are considered exempt assets (with a pro rata exclusion based on the value of
the fund attributable to its investments in Pennsylvania municipal securities
and federal securities) for purposes of determining a corporation's stock value
subject to the Commonwealth's capital stock or franchise tax.
The fund intends to invest primarily in obligations which produce interest
exempt from federal and Pennsylvania taxes. If the fund invests in obligations
that are not exempt for Pennsylvania purposes but are exempt for federal
purposes, a portion of the fund's distributions will be subject to Pennsylvania
personal income tax.
FLORIDA INTANGIBLE TAX
Florida does not currently impose an income tax on individuals therefore
distributions made by the fund to Florida residents will not be subject to any
state income taxes. Distribution made to shareholders which are Florida
corporations may be subject to Florida's corporate income tax.
Florida imposes an intangible personal property tax of 0.20% on all intangible
personal property owned by Florida residents on January 1st of each year,
including stocks and other securities. Certain types of property are exempt from
the intangibles tax such as, securities issued by the United States government
or its agencies and obligations issued by the State of Florida or its
municipalities or counties. The Florida Department of Revenue has released
several Technical Assistance Advisements which state that a fund will be exempt
from Florida's intangibles tax for any given year, if as of the close of
business on December 31st of the previous year, the fund's portfolio consists
solely of exempt securities.
Therefore, in order for the fund and its shareholders to benefit from the
exemption, the fund will have to sell any non-exempt securities which it holds
in its portfolio prior to the close of business on December 31st of each year.
This may cause the fund to liquidate certain of its investments when it would be
disadvantageous to do so in order to qualify for the exemption thereby reducing
the fund's aggregate investment return.
CALCULATION OF PERFORMANCE DATA
The funds' current 7-day yields based on the seven days ended December 31, 1998
are stated below and were calculated by determining the net change, exclusive of
capital changes and income other than investment income, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and the
multiplying the base period return by (365/7), with the resulting yield figure
carried to at least the nearest hundredth of one percent.
Municipal Money Fund %
California Municipal Money Fund %
New York Municipal Money Fund %
New Jersey Municipal Money Fund %
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Pennsylvania Municipal Money Fund %
Florida Municipal Money Fund %
The funds' effective 7-day yields based on the seven days ended December 31,
1998 are stated below and were calculated by determining the net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, with the resulting yield
figure carried to at least the nearest one hundredth of one percent.
Municipal Money Fund %
California Municipal Money Fund %
New York Municipal Money Fund %
New Jersey Municipal Money Fund %
Pennsylvania Municipal Money Fund %
Florida Municipal Money Fund %
The fund also calculates its tax-equivalent current 7-day yield by dividing that
portion of the fund's current 7-day yield (as described above) that is
tax-exempt by 1 minus a stated income tax rate and adding the quotient to that
portion, if any, of the fund's yield that is not tax-exempt.
Tax-Equivalent 7-Day Yield as of December 31, 1998
Municipal Money Fund %
California Municipal Money Fund %
New York Municipal Money Fund %
New Jersey Municipal Money Fund %
Pennsylvania Municipal Money Fund %
Florida Municipal Money Fund %
The fund calculates its tax equivalent effective 7-day yield by dividing that
portion of the fund's effective yield (as described above) that is tax-exempt by
1 minus a stated income tax rate and adding the quotient to that portion, if
any, of the funds' effective yield that is not tax-exempt.
Tax-Equivalent Effective 7-Day Yield as of December 31, 1998
Municipal Money Fund %
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California Municipal Money Fund %
New York Municipal Money Fund %
New Jersey Municipal Money Fund %
Pennsylvania Municipal Money Fund %
Florida Municipal Money Fund %
A fund also may advertise its average annual total return and cumulative total
return. Average annual total return is a standardized measure of performance
calculated using methods prescribed by SEC rules. It is calculated by
determining the ending value of a hypothetical initial investment of $1,000 made
at the beginning a specified period. The ending value is then divided by the
initial investment, which is annualized and expressed as a percentage. It is
reported for periods of one, five and 10 years or since commencement of
operations for periods not falling on those intervals. In computing average
annual total return, a fund assumes reinvestment of all distributions at net
asset value on applicable reinvestment dates. Cumulative total return is
calculated using the same formula that is used for average annual total return
except that, rather than calculating the total return based on a one-year
period, cumulative total return is calculated from commencement of operations to
the fiscal year ended December 31, 1998.
The performance of the funds may be compared with the performance of other
mutual funds by comparing the ratings of mutual fund rating services, various
indices, U.S. government obligations, bank certificates of deposit, the consumer
price index and other investments for which reliable data is available. An
index's performance data assumes the reinvestment of dividends but does not
reflect deductions for administrative, management and trading expenses. The
funds will be subject to these costs and expenses, while an index does not have
these expenses. In addition, various factors, such as holding a cash balance,
may cause the funds' performance to be higher or lower than that of an index.
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APPENDIX - RATINGS OF INVESTMENT SECURITIES
COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers (or
related supporting institutions) of commercial paper with this rating are
considered to have a superior ability to repay short-term promissory
obligations. Issuers (or related supporting institutions) of securities rated
Prime-2 are viewed as having a strong capacity to repay short-term promissory
obligations. This capacity will normally be evidenced by many of the
characteristics of issuers whose commercial paper is rated Prime-1 but to a
lesser degree.
STANDARD & POOR'S CORPORATION
An S&P A-1 commercial paper rating indicated a strong degree of safety regarding
timely payment of principal and interest. Issues determined to possess
overwhelming safety characteristics are denoted A-1+. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
DUFF & PHELPS CREDIT RATING CO.
Duff-1 is the highest commercial paper rating assigned by Duff & Phelps Credit
Rating Co. ("Duff"). Three gradations exist within this rating category: a
Duff-1+ rating indicates the highest certainty of timely payment (issuer
short-term liquidity is found to be outstanding and safety is deemed to be just
below that of risk-free short-term U.S. Treasury obligations), a Duff-1 rating
signifies a very high certainty of timely payment (issuer liquidity is
determined to be excellent and risk factors are considered minor) and a Duff-1-
rating denotes high certainty of timely payment (issuer liquidity factors are
strong and risk is very small). A Duff-two rating indicates a good certainty of
timely payment; liquidity factors and company fundamentals are sound and risk
factors are small.
IBCA
F1+ is the highest category, and indicates the strongest degree of assurance for
timely payment. Issues rated F1 reflect an assurance of timely payment only
slightly less than issues rated F1+. Issues assigned an F2 rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues in the first two rating categories.
SHORT-TERM NOTES AND VARIABLE RATE DEMAND OBLIGATIONS
MOODY'S INVESTORS SERVICE
Short-term notes/variable rate demand obligations bearing the designations
MIG-1/VMIG-1 are considered to be of the best quality, enjoying strong
protection from established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing. Obligations rated
MIG-2/VMIG-2 are of high quality and enjoy ample margins of protection although
not as large as those of the top rated securities.
STANDARD & POOR'S CORPORATION
An S&P SP-1 rating indicates that the subject securities' issuer has a very
strong capacity to pay principal and interest. Issues determined to possess very
strong safety characteristics are given a plus (+) designation. S&P's
determination that an issuer has a strong capacity to pay principal and interest
is denoted by an SP-2 rating.
COMMERCIAL PAPER, SHORT-TERM OBLIGATIONS AND DEPOSIT
OBLIGATIONS ISSUED BY BANKS
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THOMSON BANKWATCH (TBW)
TBW-1 is the highest category and indicates the degree of safety regarding
timely repayment of principal and interest is very high. TBW-2 is the second
highest category and while the degree of safety regarding timely repayment of
principal and interest is strong, the relative degree of safety is not as high
as for issues rated TBW-1.
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STATEMENT OF ADDITIONAL INFORMATION
VALUE ADVANTAGE INVESTMENTS(R)
SCHWAB MUNICIPAL MONEY FUND - VALUE ADVANTAGE SHARES(TM)
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND - VALUE ADVANTAGE SHARES(TM)
SCHWAB NEW YORK MUNICIPAL MONEY FUND - VALUE ADVANTAGE SHARES(TM)
SCHWAB VALUE ADVANTAGE MONEY FUND(R) - INVESTOR SHARES
APRIL 30, 1999
The Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the funds' prospectus dated April 30, 1999 (as amended
from time to time).
To obtain a copy of the prospectus, please contact SchwabFunds(R) at
800-435-4000, 24 hours a day, or write to the funds at 101 Montgomery Street,
San Francisco, California 94104. For TDD service call 800-345-2550, 24 hours a
day. The prospectus also may be available on the Internet at:
http://www.schwab.com/schwabfunds.
The funds' most recent annual report is a separate document supplied with the
SAI and includes the funds' audited financial statements, which are incorporated
by reference into this SAI.
The funds are a series of The Charles Schwab Family of Funds (the trust).
TABLE OF CONTENTS
Page
----
INVESTMENT OBJECTIVES, STRATEGIES, SECURITIES,
RISKS AND LIMITATIONS................................................... x
MANAGEMENT OF THE FUNDS................................................. x
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..................... x
INVESTMENT ADVISORY AND OTHER SERVICES.................................. x
BROKERAGE ALLOCATION AND OTHER PRACTICES................................ x
DESCRIPTION OF THE TRUST................................................ x
PURCHASE, REDEMPTION AND PRICING OF SHARES.............................. x
TAXATION................................................................ x
CALCULATION OF PERFORMANCE DATA......................................... x
APPENDIX - Ratings On Investment Securities ............................ x
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INVESTMENT OBJECTIVES, STRATEGIES, SECURITIES, RISKS AND LIMITATIONS
INVESTMENT OBJECTIVES
Schwab Municipal Money Fund seeks maximum current income exempt from federal
income tax consistent with liquidity and stability of capital.
Schwab California Municipal Money Fund seeks maximum current income exempt from
federal and California state personal income taxes consistent with liquidity and
stability of capital.
Schwab New York Municipal Money Fund seeks to provide maximum current income
exempt from federal and New York state and local personal income taxes
consistent with liquidity and stability of capital.
Schwab Value Advantage Money Fund seeks maximum current income consistent with
liquidity and stability of capital.
The following investment strategies, securities, risks and limitations
supplement those set forth in the prospectus and may be changed without
shareholder approval unless otherwise noted. Also, policies and limitations that
state a maximum percentage of assets that may be invested in a security or other
asset, or that set forth a quality standard, shall be measured immediately after
and as a result of a fund's acquisition of such security or asset unless
otherwise noted. Any subsequent change in values, net assets or other
circumstances will not be considered when determining whether the investment
complies with the fund's investment policies and limitations. Additionally, for
purposes of calculating any restriction, an issuer shall be the entity deemed to
be ultimately responsible for payments of interest and principal on the security
pursuant to Rule 2a-7, unless otherwise noted. Not all investment securities or
techniques discussed below are eligible investments for each fund. A fund will
invest in securities or engage in techniques that are intended to help achieve
its investment objective.
Schwab Municipal Money Fund seeks to achieve its investment objective by
investing in municipal money market securities. The fund will normally invest
100% of its total assets in municipal money market securities. In addition, the
fund may invest more than 25% of its total assets in municipal securities
financing similar projects.
Schwab California Municipal Money Fund seeks to achieve its investment objective
by investing in California municipal money market securities. The fund will
normally invest 100% of its total assets in municipal money market securities.
In addition, the fund may invest more than 25% of its total assets in municipal
securities financing similar projects. The fund will normally invest at least
65% of its total assets in municipal money market securities of California
issuers.
Schwab New York Municipal Money Fund seeks to achieve its investment objective
by investing in New York municipal money market securities. The fund will
normally invest 100% of its total assets in municipal money market securities.
In addition, the fund may invest more than 25% of its total assets in municipal
securities financing similar projects. The fund will normally invest at least
65% of its total assets in municipal money market securities of New York
issuers.
Schwab Value Advantage Money Fund seeks to achieve its investment objective by
investing in high-quality, U.S. dollar-denominated money market securities,
including U.S. government securities and repurchase agreements for these
securities.
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Each fund's investment objective may be changed only by vote of a majority of
its shareholders.
INVESTMENT SECURITIES, RISKS AND LIMITATIONS
ASSET-BACKED SECURITIES are securities that are backed by the loans or accounts
receivables of an entity, such as a bank or credit card company. These
securities are obligations which the issuer intends to repay using the assets
backing them (once collected). Therefore, repayment depends largely on the cash
flows generated by the assets backing the securities. The rate of principal
payments on asset-backed securities generally depends on the rate of principal
payments received on the underlying assets, which in turn may be affected by a
variety of economic and other factors. As a result, the yield on any
asset-backed security is difficult to predict with precision, and actual yield
to maturity may be more or less than the anticipated yield to maturity.
Sometimes the credit quality of these securities is limited to the support
provided by the underlying assets, but, in other cases, additional credit
support also may be provided by a third party via a letter of credit or
insurance guarantee. Such credit support falls into two classes: liquidity
protection and protection against ultimate default on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that scheduled payments on
the underlying pool are made in a timely fashion. Protection against ultimate
default ensures payment on at least a portion of the assets in the pool. Such
protection may be provided through guarantees, insurance policies or letters of
credit obtained from third parties, through various means of structuring the
transaction or through a combination of such approaches.
The degree of credit support provided on each issue is based generally on
historical information respecting the level of credit risk associated with such
payments. Delinquency or loss in excess of that anticipated could adversely
affect the return on an investment in an asset-backed security.
Based on the primary characteristics of the various types of asset-backed
securities, for purposes of a fund's concentration policy, the following
asset-backed securities industries have been selected: credit card receivables,
automobile receivables, trade receivables and diversified financial assets. A
fund will limit its investments in each such industry to less than 25% of its
total assets.
BANKERS' ACCEPTANCES are credit instruments evidencing a bank's obligation to
pay a draft drawn on it by a customer. These instruments reflect the obligation
both of the bank and of the drawer to pay the full amount of the instrument upon
maturity. A fund will invest only in bankers' acceptances of banks that have
capital, surplus and undivided profits in excess of $100 million.
BORROWING may subject a fund to interest costs, which may exceed the interest
received on the securities purchased with the borrowed funds. A fund normally
may borrow at times to meet redemption requests rather than sell portfolio
securities to raise the necessary cash. Borrowing can involve leveraging when
securities are purchased with the borrowed money. To avoid this, each fund will
not purchase securities while borrowings are outstanding.
CALIFORNIA/NEW YORK MUNICIPAL MONEY MARKET SECURITIES are municipal money market
securities issued by or on behalf of either the state of California and the
state of New York or these state's counties, municipalities, authorities or
other subdivisions.
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These securities are subject to the same general risks associated with other
municipal money market securities, although their values will be particularly
affected by economic, political, geographic and demographic conditions and
developments within these states. Additionally, like all securities, the value
of municipal money market securities, including those of these issuers, may be
affected by any change in the perceived ability of issuers to meet their
obligations. A fund's concentration in securities issued by a single state and
its political subdivisions provides a greater level of risk than a fund that is
diversified across numerous states and municipal entities. The ability of the
state or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political and demographic
conditions within the state; and the underlying fiscal condition of the state
and its municipalities.
CERTIFICATES OF DEPOSIT or time deposits are issued against funds deposited in a
banking institution for a specified period of time at a specified interest rate.
A fund will invest only in certificates of deposit of banks that have capital,
surplus and undivided profits in excess of $100 million.
COMMERCIAL PAPER consist of short-term, promissory notes issued by banks,
corporations and other institutions to finance short-term credit needs. These
securities generally are discounted but sometimes may be interest bearing.
Commercial paper, which also may be unsecured, is subject to credit risk.
CONCENTRATION means that substantial amounts of assets are invested in a
particular industry or group of industries. Concentration increases investment
exposure to industry risk. For example, the automobile industry may have a
greater exposure to a single factor, such as an increase in the price of oil,
which may adversely affect the sale of automobiles and, as a result, the value
of the industry's securities. Based on the primary characteristics of non-U.S.
(foreign) banks, the funds have identified each foreign country as a separate
bank industry for purposes of a fund's concentration policy. A fund will limit
its investments in securities issued by foreign banks in each country to less
than 25% of its total assets.
CREDIT AND LIQUIDITY SUPPORTS may be employed by issuers to reduce the credit
risk of their securities. Credit supports include letters of credit, insurance
and guarantees provided by foreign and domestic entities, as well as moral
obligations, which are sometimes issued with municipal securities. Liquidity
supports include puts, demand features, and lines of credit. Most of these
arrangements move the credit risk of an investment from the issuer of the
security to the support provider. Changes in the credit quality of a support
provider could cause losses to a fund.
DEBT SECURITIES are obligations issued by domestic and foreign entities,
including governments and corporations, in order to raise money. They are
basically "IOUs," but are commonly referred to as bonds or money market
securities. These securities normally require the issuer to pay a fixed,
variable or floating rate of interest on the amount of money borrowed (the
"principal") until it is paid back upon maturity.
Debt securities experience price changes when interest rates change. For
example, when interest rates fall, the prices of debt securities generally rise.
Issuers tend to pre-pay their outstanding debts and issue new ones paying lower
interest rates. Conversely, in a rising interest rate environment, prepayment on
outstanding debt securities generally will not occur. This is known as extension
risk and may cause the value of debt securities to depreciate as a result of the
higher market interest rates. Typically, longer-maturity securities react to
interest rate changes more
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severely than shorter-term securities (all things being equal), but generally
offer greater rate of interest. Debt securities also are subject to the risk
that the issuers will not make timely interest and/or principal payments or fail
to make them at all.
DELAYED-DELIVERY TRANSACTIONS include purchasing and selling securities on a
delayed-delivery or when-issued basis. These transactions involve a commitment
to buy or sell specific securities at a predetermined price or yield, with
payment and delivery taking place after the customary settlement period for that
type of security. When purchasing securities on a delayed-delivery basis, a fund
assumes the rights and risks of ownership, including the risk of price and yield
fluctuations. Typically, no interest will accrue to a fund until the security is
delivered. A fund will segregate appropriate liquid assets to cover its
delayed-delivery purchase obligations. When a fund sells a security on a
delayed-delivery basis, the fund does not participate in further gains or losses
with respect to that security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could suffer
losses.
DIVERSIFICATION involves investing in a wide range of securities and thereby
spreading and reducing the risks of investment. Each fund is a series of an
open-end investment management company. Each of Schwab Municipal Money Fund and
Schwab Value Advantage Money Fund is a diversified mutual fund. Each of Schwab
California Municipal Money Fund and Schwab New York Municipal Money Fund is a
non-diversified mutual fund. Each fund also follows the regulations set forth by
the SEC that dictate the diversification requirements for money market mutual
funds. These requirements prohibit taxable and national municipal money funds
from purchasing a security if more that 5% of the fund's total assets would be
invested in the securities of a single issuer, State-specific municipal money
funds are subject to the same prohibition with respect to 75% of a fund's total
assets. The regulation also allows funds to invest up to 25% of the fund's total
assets in the first tier securities of a single issuer for up to three business
days. U.S. government and certain other securities are not subject to this
particular regulation.
FOREIGN SECURITIES involve additional risks, because they are issued by foreign
entities, including foreign governments, banks, corporations or because they are
traded principally overseas. Credit and liquidity supports also may be provided
by foreign entities. Foreign entities are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. corporations. In addition, there may be
less publicly available information about foreign entities. Foreign economic,
political and legal developments could have more dramatic effects on the value
of foreign securities.
In addition to the risks discussed above, it is unforeseeable what risk, if any,
may exist to investments as a result of the conversion of the 11 of the 15
Economic Union Member States from their respective local currency to the
official currency of the Economic and Monetary Union (EMU). After January 3,
1999, the euro will be the official currency of the EMU, the rate of exchange
will have been set between the euro and the currency of each converting country
and the European Central Bank, all national central banks and all stock
exchanges and depositories will price, trade and settle in euro even if the
securities traded are not denominated in euro. Each securities transaction that
requires converting to euro may involve rounding that could affect the value of
the security converted. In addition, issuers of securities that require
converting may experience increased costs as a result of the conversion, which
may affect the value of their securities. It is possible that uncertainties
related to the conversion will affect investor expectations and cause
investments to shift away from European countries, thereby making the European
market less liquid. All of these factors could affect the value of a fund's
investments and/or increase its expenses. While the investment adviser is taking
steps to minimize the impact
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of the conversion on the funds, it is not possible to know precisely what impact
the conversion will have on the funds, if any, nor is it possible to eliminate
the risks completely.
ILLIQUID SECURITIES generally are any securities that cannot be disposed of
promptly and in the ordinary course of business at approximately the amount at
which the fund has valued the instruments. The liquidity of a fund's investments
is monitored under the supervision and direction of the board of trustees.
Investments currently not considered liquid include repurchase agreements not
maturing within seven days and certain restricted securities.
MATURITY OF INVESTMENTS. Each fund follows the regulations set forth by the SEC
that dictate the maturity requirements for money market mutual funds. These
requirements prohibit a fund from purchasing a security with a remaining
maturity of more than 397 days or maintaining a dollar-weighted average
portfolio maturity that exceeds 90 days.
MONEY MARKET SECURITIES are high-quality, short-term debt securities that may be
issued by entities such as the U.S. government, corporations and financial
institutions (like banks). Money market securities include commercial paper,
certificates of deposit, banker's acceptances, notes and time deposits.
Money market securities pay fixed, variable or floating rates of interest and
are generally subject to credit and interest rate risks. The maturity date or
price of and financial assets collateralizing a security may be structured in
order to make it qualify as or act like a money market security. These
securities may be subject to greater credit and interest rate risks than other
money market securities because of their structure. Money market securities may
be issued with puts or these can be sold separately.
MUNICIPAL SECURITIES are debt securities issued by a state, its counties,
municipalities, authorities and other subdivisions, or the territories and
possessions of the United States and the District of Columbia, including their
subdivisions, agencies and instrumentalities and corporations. These securities
may be issued to obtain money for various public purposes, including the
construction of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, public utilities, schools,
streets, and water and sewer works. Other public purposes include refunding
outstanding obligations, obtaining funds for general operating expenses and
obtaining funds to loan to other public institutions and facilities.
Municipal securities also may be issued to finance various private activities,
including certain types of private activity bonds ("industrial development
bonds" under prior law). These securities may be issued by or on behalf of
public authorities to obtain funds to provide certain privately owned or
operated facilities. The funds may not be desirable investments for "substantial
users" of facilities financed by private activity bonds or industrial
development bonds or for "related persons" of substantial users because
distributions from the funds attributable to interest on such bonds may not be
tax exempt. Shareholders should consult their own tax advisors regarding the
potential effect on them (if any) of any investment in these funds.
Municipal securities may be owned directly or through participation interests,
and include general obligation or revenue securities, tax-exempt commercial
paper, notes and leases. The maturity date or price of and financial assets
collateralizing a municipal money market security may be structured in order to
make it qualify as or act like a municipal money market security. These
securities may be subject to greater credit and interest rate risks than other
municipal money market securities because of their structure.
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Municipal securities generally are classified as "general obligation" or
"revenue" and may be purchased directly or through participation interests.
General obligation securities typically are secured by the issuer's pledge of
its full faith and credit and taxing power for the payment of principal and
interest. Revenue securities typically are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special tax or other specific revenue source. Private
activity bonds and industrial development bonds are, in most cases, revenue
bonds and generally do not constitute the pledge of the credit of the issuer of
such bonds. The credit quality of private activity bonds is frequently related
to the credit standing of private corporations or other entities.
Examples of municipal securities that are issued with original maturities of 397
days or less are short-term tax anticipation notes, bond anticipation notes,
revenue anticipation notes, construction loan notes, pre-refunded municipal
bonds and tax-free commercial paper. Tax anticipation notes typically are sold
to finance working capital needs of municipalities in anticipation of the
receipt of property taxes on a future date. Bond anticipation notes are sold on
an interim basis in anticipation of a municipality's issuance of a longer-term
bond in the future. Revenue anticipation notes are issued in expectation of the
receipt of other types of revenue, such as that available under the Federal
Revenue Sharing Program. Construction loan notes are instruments insured by the
Federal Housing Administration with permanent financing by "Fannie Mae" (the
Federal National Mortgage Association) or "Ginnie Mae" (the Government National
Mortgage Association) at the end of the project construction period.
Pre-refunded municipal bonds are bonds that are not yet refundable, but for
which securities have been placed in escrow to refund an original municipal bond
issue when it becomes refundable. Tax-free commercial paper is an unsecured
promissory obligation issued or guaranteed by a municipal issuer. The funds may
purchase other municipal securities similar to the foregoing that are or may
become available, including securities issued to pre-refund other outstanding
obligations of municipal issuers.
The funds also may invest in moral obligation securities, which are normally
issued by special purpose public authorities. If the issuer of a moral
obligation security is unable to meet its obligation from current revenues, it
may draw on a reserve fund. The state or municipality that created the entity
has only a moral commitment, not a legal obligation, to restore the reserve
fund.
The value of municipal securities may be affected by uncertainties with respect
to the rights of holders of municipal securities in the event of bankruptcy or
the taxation of municipal securities as a result of legislation or litigation.
For example, under federal law, certain issuers of municipal securities may be
authorized in certain circumstances to initiate bankruptcy proceedings without
prior notice to or the consent of creditors. Such action could result in
material adverse changes in the rights of holders of the securities. In
addition, litigation challenging the validity under the state constitutions of
present systems of financing public education has been initiated or adjudicated
in a number of states, and legislation has been introduced to effect changes in
public school finances in some states. In other instances, there has been
litigation challenging the issuance of pollution control revenue bonds or the
validity of their issuance under state or federal law, which ultimately could
affect the validity of those municipal securities or the tax-free nature of the
interest thereon.
Municipal securities pay fixed, variable or floating rates of interest, which is
meant to be exempt from federal income tax, and, typically personal income tax
of a state or locality.
The investment adviser relies on the opinion of the issuer's counsel, which is
rendered at the time the security is issued, to determine whether the security
is fit, with respect to its validity and tax status, to be purchased by a fund.
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MUNICIPAL LEASES are obligations issued to finance the construction or
acquisition of equipment or facilities. These obligations may take the form of a
lease, an installment purchase contract, a conditional sales contract or a
participation interest in any of these obligations. Municipal leases may be
considered illiquid investments. Additionally, municipal leases are subject to
"nonappropriation risk," which is the risk that the municipality may terminate
the lease because funds have not been allocated to make the necessary lease
payments. The lessor would then be entitled to repossess the property, but the
value of the property may be less to private sector entities than it would be to
the municipality.
PROMISSORY NOTES are written agreements committing the maker or issuer to pay
the payee a specified amount either on demand or at a fixed date in the future,
with or without interest. These are sometimes called negotiable notes or
instruments and are subject to credit risk. Bank notes are notes used to
represent obligations issued by banks in large denominations.
PUTS are sometimes called demand features or guarantees, and are agreements that
allow the buyer to sell a security at a specified price and time to the seller
or "put provider." When a fund buys a security with a put feature, losses could
occur if the put provider does not perform as agreed. Standby commitments are
types of puts.
QUALITY OF INVESTMENTS. The funds follow regulations set forth by the SEC that
dictate the quality requirements for money market mutual funds. These require
the funds to invest exclusively in high-quality securities. Generally,
high-quality securities are securities that present minimal credit risks and are
rated in one of the two highest rating categories by two nationally recognized
statistical rating organizations (NRSROs), or by one if only one NRSRO has rated
the securities, or, if unrated, determined to be of comparable quality by the
investment adviser pursuant to guidelines adopted by the board of trustees.
High-quality securities may be "first tier" or "second tier" securities. First
tier securities may be rated within the highest category or determined to be of
comparable quality by the investment adviser. Money market fund shares and U.S.
government securities also are first tier securities. Second tier securities
generally are rated within the second-highest category. Each fund's holdings of
second tier securities will not exceed 5% of its assets, and investments in
second tier securities of any one issuer will be limited to the greater of 1% of
the fund's assets or $1 million.
Should a security's high-quality rating change after purchase by a fund, the
investment adviser would take such action, including no action, as determined to
be in the best interest of the fund by the board of trustees. For more
information about the ratings assigned by some NRSROs, refer to the Appendix
section of the SAI.
REPURCHASE AGREEMENTS. Repurchase agreements involve a fund buying securities
(usually U.S. government securities) from a seller and simultaneously agreeing
to sell them back at an agreed-upon price (usually higher) and time. There are
risks that losses will result if the seller does not perform as agreed.
Repurchase agreements will be collateralized by first tier securities. In
addition, repurchase agreements collateralized entirely by U.S. government
securities may be deemed to be collateralized fully pursuant to Rule 2a-7.
RESTRICTED SECURITIES are securities that are subject to legal restrictions on
their sale. For example, commercial paper and other promissory notes may be
issued under Section 4(2) of the Securities Act of 1933 and may be sold only to
qualified institutional buyers, such as the funds, under Securities Act Rule
144A. Tender option bonds may be purchased by a fund in an exempt transaction
because the securities are not offered to the public.
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Restricted securities may be deemed liquid or illiquid. In order to be deemed
liquid, the fund must be able to dispose of the security in the ordinary course
of business at approximately the amount the fund has valued the security. In
addition, the investment adviser must determine that an institutional or other
market exists for these securities. In making this determination, the investment
adviser may take into account any liquidity support associated with the
security. It is not possible to predict with assurance whether the market for
any restricted security will continue. Therefore, the investment adviser
monitors a fund's investments in these securities, focusing on factors, such as
valuation, liquidity and availability of information. To the extent a fund
invests in restricted securities that are deemed liquid, the general level of
illiquidity in the fund's portfolio may increase if buyers in that market become
unwilling to purchase the securities.
SECURITIES OF OTHER INVESTMENT COMPANIES may be purchased and sold by a fund
including those managed by its investment adviser. Because other investment
companies employ investment advisers and other service providers, investments by
a fund may cause shareholders to pay duplicative fees. The funds intend to
purchase securities of other investment companies in compliance with the
requirements of section 12(d)(1)(F) of the 1940 Act or any applicable exemptive
relief received from the SEC. Under that section, a fund is prohibited from
purchasing the securities of other investment companies if, as a result, the
fund together with its affiliates would own more than 3% of the total
outstanding securities of those investment companies. In addition, a fund will
vote proxies in accordance with the instructions received or vote proxies in the
same proportion as the vote of all other shareholders of the Investment Company.
If exemptive relief is received from the SEC, a fund may purchase more than 3%
of certain securities of other investment companies and will only hold such
securities in conformity with any applicable order from the SEC.
STRIPPED SECURITIES are securities whose income and principal components are
detached and sold separately. While the risks associated with stripped
securities are similar to other money market securities, stripped securities are
typically subject to greater changes in value. U.S. Treasury securities that
have been stripped by a Federal Reserve Bank are obligations of the U.S.
Treasury.
TAXABLE SECURITIES. Under normal conditions, the municipal funds do not intend
to invest in securities in which interest is subject to federal income and/or
state and local personal income taxes. However, from time to time, as a
defensive measure or under abnormal market conditions, the municipal funds may
make temporary investments in securities, the interest on which is subject to
federal income and/or state and local personal income taxes.
U.S. GOVERNMENT SECURITIES are issued by the U.S. Treasury or issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities.
U.S. Treasury securities, include bills, notes and bonds, and are backed by the
full faith and credit of the United States. Not all U.S. government securities
are backed by the full faith and credit of the United States. Some U.S.
government securities are supported by a line of credit the issuing entity has
with the U.S. Treasury. Others are supported solely by the credit of the issuing
agency or instrumentality. There can be no assurance that the U.S. government
will provide financial support to U.S. government securities of its agencies and
instrumentalities if it is not obligated to do so under law. Of course U.S.
government securities, including U.S. Treasury securities, are among the safest
securities, however, not unlike other fixed-income securities, they are still
sensitive to interest rate changes, which will cause their yields to fluctuate.
VARIABLE AND FLOATING RATE DEBT SECURITIES pay an interest rate, which is
adjusted either periodically or at specific intervals or which floats
continuously according to a formula or benchmark. Although these structures
generally are intended to minimize the fluctuations in
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value that occur when interest rates rise and fall, some structures may be
linked to a benchmark in such a way as to cause greater volatility to the
security's value.
Some variable rate securities may be combined with a put or demand feature
(variable rate demand securities) that entitles the holder to the right to
demand repayment in full or to resell at a specific price and/or time. While the
demand feature is intended to reduce credit risks, it is not always
unconditional, and may make the securities more difficult to sell quickly
without losses. There are risks involved with these securities because there may
be no active secondary market for a particular variable rate demand security
purchased by a fund. In addition, a fund may exercise only its demand rights at
certain times. A fund could suffer losses in the event that the issuer defaults
on its obligation. Synthetic variable or floating rate securities include tender
option bond receipts.
Tender option bond receipts are derived from fixed-rate municipal bonds that are
placed in a trust from which two classes of trust receipts are issued. These
receipts represent proportionate interest in the underlying bonds. Interest
payments are made on the bonds based upon a predetermined rate. Under certain
circumstances, the holder of a trust receipt also may participate in any gain or
loss on the sale of such bonds. Tender option bond trust receipts generally are
structured as private placements and, accordingly, may be deemed to be
restricted securities for purposes of a fund's investment limitations.
INVESTMENT LIMITATIONS
The following investment limitations may be changed only by vote of a majority
of each fund's shareholders.
EACH MUNICIPAL FUND MAY NOT:
(1) Purchase securities or make investments other than in accordance with
investment objectives and policies.
(2) Purchase securities (other than securities of the U.S. government, its
agencies or instrumentalities) if, as a result of such purchase, 25% or
more of its total assets would be invested in any industry (although
securities issued by governments or political subdivisions of governments
are not considered to be securities subject to this industry concentration
restriction) or in any one state (although the limitation as to investments
in a state or its political subdivision shall not apply to Schwab
California Municipal Money Fund or Schwab New York Municipal Money Fund),
or enter into a repurchase agreement if more than 10% of its net assets
would be subject to repurchase agreements maturing in more than 7-days.).
(3) Purchase or retain securities of an issuer if any of the officers, trustees
or directors of the Trust or its investment adviser individually own
beneficially more than 1/2 of 1% of the securities of such issuer and
together own more than 5% of the securities of such issuer.
(4) Invest in commodities or commodity futures contracts or in real estate,
except that each fund may invest in municipal securities secured by real
estate or interests therein.
(5) Invest for the purpose of exercising control or management of another
issuer.
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(6) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in municipal securities of issuers which
invest in or sponsor such programs.
(7) Underwrite securities issued by others, except to the extent as permitted
by the Investment Company Act of 1940 or the rules or regulations
thereunder, as such statute, rules or regulations may be amended from time
to time.
(8) Lend or borrow money, except to the extent permitted by the Investment
Company Act of 1940 or the rules or regulations thereunder, as such
statute, rules or regulations may be amended from time to time.
(9) Pledge, mortgage or hypothecate any of its assets, except to the extent as
permitted by the Investment Company Act of 1940 or the rules or regulations
thereunder, as such statute, rules or regulations may be amended from time
to time.
(10) Issue senior securities, except to the extent as permitted by the
Investment Company Act of 1940 or the rules or regulations thereunder, as
such statute, rules or regulations may be amended from time to time.
(11) Purchase securities of any issuer unless consistent with the maintenance of
its respective status as a diversified company (in the case of Schwab
Municipal Money Fund) or non-diversified company (in the case of Schwab
California Municipal Money Fund and Schwab New York Municipal Money Fund)
under the Investment Company Act of 1940 or the rules or regulations
thereunder, as such statute, rules or regulations may be amended from time
to time.
SCHWAB VALUE ADVANTAGE MONEY FUND(R) MAY NOT:
(1) Underwrite securities issued by others, except to the extent it may be
deemed to be an underwriter under the federal securities laws in connection
with the disposition of securities from its investment portfolio.
(2) Invest in commodities or commodity contracts, including futures contracts,
or in real estate, although it may invest in securities that are secured by
real estate and securities of issuers that invest or deal in real estate.
(3) Concentrate 25% or more of the value of its assets in any one industry;
provided, however, that the fund reserves freedom of action to invest up to
100% of its assets in certificates of deposit or banker's acceptances
issued by U.S. banks and U.S. branches of those foreign banks that the
investment adviser has determined to be subject to the same regulation as
U.S. banks, or obligations of or guaranteed by the U.S. government, its
agencies or instrumentalities.
(4) Make loans to others (except through the purchase of debt obligations or
repurchase agreements in accordance with its investment objective and
policies).
(5) Issue senior securities as defined in the 1940 Act.
(6) Purchase securities of any issuer unless only when consistent with the
maintenance of its respective status as a diversified company under the
Investment Company Act of 1940 or
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the rules or regulations thereunder, as such statute, rules or regulations
may be amended from time to time.
(7) Borrow money, except to the extent permitted by the Investment Company Act
of 1940 or the rules or regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
THE FOLLOWING DESCRIPTIONS OF THE 1940 ACT MAY ASSIST INVESTORS IN UNDERSTANDING
THE ABOVE POLICIES AND RESTRICTIONS.
Borrowing. The 1940 Act presently restricts a fund from borrowing (including
pledging, mortgaging or hypothecating assets) in excess of 33 1/3% of its total
assets (not including temporary borrowings not in excess of 5% of its total
assets).
Lending. Under the 1940 Act, a fund may only make loans if expressly permitted
by its investment policies.
Concentration. Concentration is currently determined as investing 25% or more of
a fund's total assets in an industry or group of industries, with certain
exceptions. This means that each fund currently may not purchase securities of
any issuer (other than U.S. government securities) if, as a result, 25% or more
of its total assets would be invested in the securities of an issuer from a
single industry or group of industries. Municipal securities are not deemed to
be issued by an issuer from a single industry or group of industries.
THE FOLLOWING ARE NON-FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS.
EACH MUNICIPAL FUND MAY NOT:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of its assets would be invested in the
securities of that issuer, except that, with respect to Schwab California
Municipal Money Fund and Schwab New York Municipal Money Fund, provided no
more than 25% of the fund's total assets would be invested in the
securities of a single issuer, up to 50% of the value of the fund's assets
may be invested without regard to this 5% limitation. For purposes of this
limitation, the fund will regard the entity which has the primary
responsibility for the payment of interest and principal as the issuer.
(2) Purchase securities of other investment companies, except as permitted by
the 1940 Act.
(3) Make loans to others (except through the purchase of debt obligations or
repurchase agreements in accordance with its investment objective and
policies).
(4) Borrow money, except from banks for temporary purposes (but not for the
purpose of purchasing investments), and then only in an amount not to
exceed one-third of the value of its total assets (including the amount
borrowed) in order to meet redemption requests which otherwise might result
in the untimely disposition of securities; or pledge its securities or
receivables or transfer or assign or otherwise encumber them in an amount
to exceed 10% of the fund's net assets to secure borrowings. Reverse
repurchase agreements entered into by the fund are permitted within the
limitations of this paragraph. No such fund will purchase securities or
make investments while reverse repurchase agreements or borrowings are
outstanding.
(5) Write, purchase or sell puts, calls or combinations thereof, although it
may purchase Municipal Securities subject to standby commitments, variable
rate demand notes or repurchase agreements in accordance with its
investment objective and policies.
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<PAGE> 190
(6) Make short sales of securities or purchase securities on margin, except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
(7) Issue senior securities as defined in the 1940 Act.
SCHWAB VALUE ADVANTAGE MONEY FUND MAY NOT:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of its assets would be invested in
securities of that issuer.
(2) Invest more than 10% of its net assets in illiquid securities, including
repurchase agreements maturing in more than seven days.
(3) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Schwab Fund Family or the investment adviser
beneficially own more than 1/2 of 1% of the securities of such issuer, and
together beneficially own more than 5% of the securities of such issuer.
(4) Invest for the purpose of exercising control or management of another
issuer.
(5) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.1
(6) Write, purchase or sell puts, calls or combinations thereof.
(7) Make short sales of securities or purchase any securities on margin, except
to obtain such short-term credits as may be necessary for the clearance of
transactions.
(8) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest
in or sponsor such programs. Except as otherwise noted, if a percentage
restriction is adhered to at the time of investment, a later increase in
percentage beyond the specified limit resulting from a change in values or
net assets will not be considered a violation.
Except with respect to borrowings, investment in illiquid securities and for
Schwab Value Advantage Money Fund concentration of investments, a later increase
in percentage resulting from a change in values or net assets do not require a
fund to sell an investment if it could not then make the same investment.
MANAGEMENT OF THE FUNDS
The officers and trustees, their principal occupations during the past five
years and their affiliations, if any, with The Charles Schwab Corporation,
Charles Schwab & Co., Inc. (Schwab) and Charles Schwab Investment Management,
Inc. (CSIM or the investment adviser), are as follows:
- --------------
1 See the description of the Trustees' deferred compensation plan under
"Management of the Trust" for an exception to this investment restriction.
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<PAGE> 191
<TABLE>
<CAPTION>
POSITION(S) WITH PRINCIPAL OCCUPATIONS & AFFILIATIONS
NAME/DATE OF BIRTH THE TRUST
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman and Chairman, Co-Chief Executive Officer
July 29, 1937 Trustee and Director, The Charles Schwab
Corporation; Chairman, Chief Executive
Officer and Director, Charles Schwab
Holdings, Inc.; Chairman and Director,
Charles Schwab & Co., Inc., Charles
Schwab Investment Management, Inc.,
The Charles Schwab Trust Company and
Schwab Retirement Plan Services, Inc.;
Chairman and Director (current board
positions), and Chairman (officer
position) until December 1995, Mayer &
Schweitzer, Inc. (a securities
brokerage subsidiary of The Charles
Schwab Corporation); Director, The
Gap, Inc. (a clothing retailer),
Transamerica Corporation (a financial
services organization), AirTouch
Communications (a telecommunications
company) and Siebel Systems (a
software company).
STEVEN L. SCHEID* President and Trustee Executive Vice President and Chief
June 28, 1953 Financial Officer, The Charles Schwab
Corporation; Enterprise President -
Financial Products and Services and
Chief Financial Officer, Charles
Schwab & Co., Inc.; Chief Executive
Officer, Chief Financial Officer and
Director, Charles Schwab Investment
Management, Inc. From 1994 to 1996,
Mr. Scheid was Executive Vice
President of Finance for First
Interstate Bancorp and Principal
Financial Officer from 1995 to 1996.
Prior to 1994, Mr. Scheid was Chief
Financial Officer, First Interstate
Bank of Texas.
</TABLE>
- -----------------------
* This trustee is an "interested person" of the trusts.
14
<PAGE> 192
<TABLE>
<S> <C> <C>
DONALD F. DORWARD Trustee Executive Vice President and Managing
September 23, 1931 Director, Grey Advertising. From 1990
to 1996, Mr. Dorward was President and
Chief Executive Officer, Dorward &
Associates (advertising and
marketing/consulting firm).
ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and
May 15, 1931 Director, Semloh Financial, Inc.
(international financial services and
investment advisory firm).
DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens &
June 28, 1938 Company (Investments) and Chairman and
Chief Executive Officer of North
American Trust (real estate investment
trust).
MICHAEL W. WILSEY Trustee Chairman, Chief Executive Officer and Director,
August 18, 1943 Wilsey Bennett, Inc. (truck and air
transportation, real estate investment,
management, and investments).
TAI-CHIN TUNG Treasurer and Principal Vice President, Treasurer and
March 7, 1951 Financial Officer Controller, Charles Schwab Investment
Management, Inc. From 1994 to 1996,
Ms. Tung was Controller for Robertson
Stephens Investment Management, Inc.
From 1993 to 1994, she was Vice
President of Fund Accounting, Capital
Research and Management Co.
WILLIAM J. KLIPP* Executive Vice Executive Vice President, SchwabFunds(R),
December 9, 1955 President, Chief Charles Schwab & Co., Inc.; President and Chief
Operating Officer and Operating Officer, Charles Schwab Investment
Trustee Management, Inc.
STEPHEN B. WARD Senior Vice President Senior Vice President and Chief Investment
April 5, 1955 and Chief Investment Officer, Charles Schwab Investment Management,
Officer Inc.
FRANCES COLE Secretary Senior Vice President, Chief Counsel and
September 9, 1955 Assistant Corporate Secretary, Charles Schwab
Investment Management, Inc.
</TABLE>
- -------------------
* This Trustee is an "interested person" of the Trust.
1
<PAGE> 193
Each fund is overseen by a board of trustees. The board of trustees meets
regularly to review each fund's activities, contractual arrangements and
performance. The board of trustees is responsible for protecting the interests
of a fund's shareholders. The following table provides information as of the
fiscal year ended December 31, 1998, concerning compensation of the trustees.
Unless otherwise stated, information is for the fund complex, which included 38
funds as of December 31, 1998.
<TABLE>
<CAPTION>
Pension or ($)
Retirement Total
Name of Trustee Benefits Accrued Compensation
as Part of Fund from Fund Complex
Expenses
- -----------------------------------------------------------------
<S> <C> <C>
Charles R. Schwab 0 N/A 0
Steven L. Scheid 1 0 N/A 0
Tom D. Seip 2 0 N/A 0
William J. Klipp, 0 N/A 0
Donald F. Dorward N/A
Robert G. Holmes N/A
Donald R. Stephens N/A
Michael W. Wilsey N/A
</TABLE>
DEFERRED COMPENSATION PLAN
Trustees who are not "interested persons" of a trust ("independent trustees")
may enter into a fee deferral plan. Under this plan, deferred fees will be
credited to an account established by the trust as of the date that such fees
would have been paid to the trustee. The value of this account will equal the
value that the account would be if the fees credited to the account had been
invested in the shares of SchwabFunds selected by the trustee. Currently, none
of the independent trustees have elected to participate in this plan.
Pursuant to the exemptive relief granted to the trust, each fund will purchase
and maintain the
- ----------------
1 Effective August 18, 1998, Mr. Scheid was elected President and trustee. Mr.
Seip served as President and trustee until May 15, 1998.
2
<PAGE> 194
selected SchwabFund securities in an amount equal to the deemed investments in
that fund of the Deferred Fee Accounts of the Independent Trustees. The
exemptive relief granted to the trust permits the funds and the trustees to
purchase the selected SchwabFund securities, which transactions would otherwise
be limited or prohibited by the investment policies and/or restrictions of the
funds.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 1, 1999, [VAR: QLEGAL: name of person or entity and the jurisdiction
under the laws of which it is organized and all parent companies] control the
[VAR: Fund Name] through ownership of [VAR: QLEGAL: x.x%] securities or other
basis of control.]
As of April 1, 1999 [VAR: QLEGAL: month end or 1st of month date no more than 30
days prior to effective date], the officers and trustees of the trust(s), as a
group owned of record or beneficially [VAR: QLEGAL: x.x% / less than 1%] of the
outstanding voting securities of each fund.
As of April 1, 1999, the [VAR: QLEGAL: name of entity or person] directly or
beneficially owned, [VAR: QLEGAL: x.xx%] of shares of the [VAR: Fund Name /
Class Name].
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc. (CSIM or the investment adviser), a
wholly owned subsidiary of The Charles Schwab Corporation, 101 Montgomery
Street, San Francisco CA 94104, serves as the funds' investment adviser and
administrator pursuant to an Investment Advisory and Administration Agreement
(Advisory Agreement) between it and the trust. Charles Schwab & Co., Inc.
(Schwab) is an affiliate of the investment adviser and is the trust's
distributor, shareholder services agent and transfer agent. Charles R. Schwab is
the founder, Chairman, Co-Chief Executive Officer and Director of The Charles
Schwab Corporation. As a result of his ownership of and interests in The Charles
Schwab Corporation, Mr. Schwab may be deemed to be a controlling person of the
investment adviser and Schwab.
Year 2000 presents uncertainties and possible risks to the smooth operations of
the funds and the provision of services to shareholders. Many computer programs
use only two digits to identify a specific year and therefore may not accurately
recognize the upcoming change in the next century. If not corrected, many
computer applications could fail or create erroneous results by or at year 2000.
Due to the funds' and their service providers' dependence on computer technology
to operate, the nature and impact of year 2000 processing failures on the funds
could be material. The funds' investment adviser is taking steps to minimize the
risks of year 2000 for the funds, including seeking assurances from the funds'
service providers that they are analyzing their systems, testing them for
potential problems and remediating them to the extent possible. There can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
funds, however, minimizing year 2000 risk for the funds is a priority of the
investment adviser.
For its advisory and administrative services to each of the municipal funds, the
investment adviser is entitled to receive a graduated annual fee, payable
monthly, of 0.46% of the fund's average daily net assets of the first $1
billion, 0.41% of the next $1 billion, and 0.40% of net assets over $2 billion.
3
<PAGE> 195
For the fiscal years ended December 31, 1996, 1997 and 1998, Schwab Municipal
Money Fund paid investment and advisory fees of $8,034,000 (fees were reduced
$8,734,000), $9,331,000 (fees were reduced by $10,977,000) and $____________
(fees were reduced by $________________).
For the fiscal years ended December 31, 1996, 1997 and 1998, Schwab California
Municipal Money fund paid investment and advisory fees of $3,737,000 (fees were
reduced $4,819,000), $4,824,000 (fees were reduced by $6,548,000) and
$____________ (fees were reduced by $________________).
For the fiscal years ended December 31, 1996, 1997 and 1998, Schwab New York
Municipal Money Fund paid investment and advisory fees of $535,000 (fees were
reduced $696,000), $675,000 (fees were reduced by $1,192,000) and $____________
(fees were reduced by $________________).
For its advisory and administrative services to Schwab Value Advantage Money
Fund, the investment adviser is entitled to receive a graduated annual fee,
payable monthly, of 0.46% of the fund's average daily net assets of the first
$1 billion,).45% of net assets over $1 billion but not in excess of $3 billion,
0.40% of net assets over $3 billion but not in excess of $10 billion, 0.37% of
net assets over $10 billion but not in excess of $20 billion and 0.34% of net
assets over $20 billion.
For the fiscal years ended December 31, 1996, 1997 and 1998, Schwab Value
Advantage Money Fund paid investment and advisory fees of $30,667,000 (fees were
reduced $6,081,000), $23,972,000 (fees were reduced by $27,753,000) and
$____________ (fees were reduced by $________________).
The Investment adviser and Schwab have voluntarily agreed to limit, or
reimburse, if necessary, a Fund's total operating expenses to 0.45%, 0.45% and
0.40% for the Value Advantage Investment Municipal Money Fund, California
Municipal Money Fund and Value Advantage Money Fund, respectively.
DISTRIBUTOR
Pursuant to an agreement, Schwab is the principal underwriter for shares of the
funds and is the trust's agent for the purpose of the continuous offering of the
funds' shares. Each fund pays the cost of the prospectuses and shareholder
reports to be prepared and delivered to existing shareholders. Schwab pays such
costs when the described materials are used in connection with the offering of
shares to prospective investors and for supplementary sales literature and
advertising. Schwab receives no fee under the agreement. Terms of continuation,
termination and assignment under the agreement are identical to those described
above with respect to the Advisory Agreement.
The funds pay other expenses that are typically connected with the trust's
operations, and include legal, audit and custodian fees, as well as the costs of
accounting and registration of the funds. Expenses not directly attributable to
a particular fund will generally be allocated among the funds in the trust on
the basis of each fund's relative net assets at the time the expense is
incurred.
SHAREHOLDER SERVICES AND TRANSFER AGENT
Schwab provides fund information to shareholders, including share price,
reporting shareholder ownership and account activities and distributing the
funds' prospectuses, financial reports and
4
<PAGE> 196
other informational literature about the funds. Schwab maintains the office
space, equipment and personnel necessary to provide these services. Schwab also
distributes and markets SchwabFunds(R) and provides other services.
CUSTODIAN AND FUND ACCOUNTANT
PNC Bank, National Association, Airport Business Center, 200 Stevens Drive, Suit
440, Lester Pennsylvania, 19113, serves as custodian for the funds and PFPC,
Inc., 103 Bellevue Parkway, Wilmington DE 19809, serves as fund accountant.
The custodians are responsible for the daily safekeeping of securities and cash
held or sold by the funds. The accountants maintain all books and records
related to each fund's transactions.
INDEPENDENT ACCOUNTANT
The funds' independent accountant, ______________, audits and reports on the
annual financial statements of the funds and review certain regulatory reports
and each funds' federal income tax return. It also performs other professional
accounting, auditing, tax and advisory services when the trust engages it to do
so. Their address is ___________________. Each fund's audited financial
statements for the fiscal year ended December 31, 1998, are included in the
funds' annual report, which is a separate report supplied with the SAI.
BROKERAGE ALLOCATION AND OTHER PRACTICES
PORTFOLIO TURNOVER
Because securities with maturities of less than one year are excluded from
required portfolio turnover rate calculations, the funds' portfolio turnover
rate for reporting purposes is expected to be zero.
PORTFOLIO TRANSACTIONS
In effecting securities transactions for a fund, the investment adviser seeks to
obtain best price and execution. Subject to the supervision of the board of
trustees, the investment adviser will generally select brokers and dealers for
the funds primarily on the basis of the quality and reliability of brokerage
services, including execution capability and financial responsibility.
When the execution capability and price offered by two or more broker-dealers
are comparable, the investment adviser may, in its discretion utilize the
services of broker-dealers that provide it with investment information and other
research resources. Such resources also may be used by the investment adviser
when providing advisory services to other investment advisory clients, including
mutual funds.
The funds expects that purchases and sales of portfolio securities will usually
be principal transactions. Securities will normally be purchased directly from
the issuer or from an underwriter or market maker for the securities.
Purchases from underwriters will include a commission or concession paid be the
issuer to the underwriter, and purchases from dealers serving as market makers
will include the spread between the bid and asked prices.
5
<PAGE> 197
The investment decisions for each fund are reached independently from those for
other accounts managed by the investment adviser. Such other accounts also may
make investments in instruments or securities at the same time as a fund. When
two or more accounts managed by the investment adviser have funds available for
investment in similar instruments, available instruments are allocated as to
amount in a manner considered equitable to each account. In some cases, this
procedure may affect the size or price of the position obtainable for a fund.
However, it is the opinion of the board of trustees that the benefits conferred
by the investment adviser outweigh any disadvantages that may arise from
exposure to simultaneous transactions.
DESCRIPTION OF THE TRUST
Each fund, is a series of the Charles Schwab Family of Funds, an open-end
investment management company organized as a Massachusetts business trust on
October 20, 1989.
Each Declaration of Trust provides that shares may be automatically redeemed if
held by a shareholder in an amount less than the minimum required by each fund
or share class. Each fund's or class's initial and subsequent minimum investment
and balance requirements are set forth in the prospectus. These minimums may be
waived for certain investors, including trustees, officers and employees of
Schwab, or changed without prior notice.
The funds may hold special meetings. These meetings may be called for purposes
such as electing trustees, changing fundamental policies and amending management
contracts. Shareholders are entitled to one vote for each share owned and may
vote by proxy or in person. Proxy materials will be mailed to shareholders prior
to any meetings, and will include a voting card and information explaining the
matters to be voted upon.
The bylaws of the trust provide that a majority of shares entitled to vote shall
be a quorum for the transaction of business at a shareholders' meeting, except
that where any provision of law, or of the Declaration of Trust or of the bylaws
permits or requires that (1) holders of any series shall vote as a series, then
a majority of the aggregate number of shares of that series entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that series, or (2) holders of any class shall vote as a class, then a majority
of the aggregate number of shares of that class entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that class.
Any lesser number shall be sufficient for adjournments. Any adjourned session or
sessions may be held, within a reasonable time after the date set for the
original meeting, without the necessity of further notice. The Declaration of
Trust specifically authorizes the board of trustees to terminate the trust (or
any of its investment portfolios) by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for the trust's
obligations. The Declaration of Trust, however, disclaims shareholder liability
for the trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the trust or the trustees. In addition, the Declaration of Trust provides for
indemnification out of the property of an investment portfolio in which a
shareholder owns or owned shares for all losses and expenses of such shareholder
or former shareholder if he or she is held personally liable for the obligations
of the trust solely by reason of being or having been a shareholder. Moreover,
the trust will be covered by insurance which the trustees consider adequate to
cover foreseeable tort claims. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote, because
it is limited to circumstances in which a disclaimer is inoperative and the
trust itself is unable to meet its obligations. There is a remote possibility
that a fund could become liable for a misstatement in the prospectus or SAI
about another fund.
6
<PAGE> 198
As more fully described in each Declaration of Trust, the trustees may each
year, or more frequently, distribute to the shareholders of each series accrued
income less accrued expenses and any net realized capital gains. Distributions
of each year's income of each series shall be distributed pro rata to
shareholders in proportion to the number of shares of each series held by each
of them. Distributions will be paid in cash or shares or a combination thereof
as determined by the trustees. Distributions paid in shares will be paid at the
net asset value per share as determined in accordance with the bylaws.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASING AND REDEEMING SHARES OF THE FUNDS
The funds are open each day that both the Federal Reserve Bank of New York (New
York Fed) and New York Stock Exchange (NYSE) are open (business days). The
following holiday closings are currently scheduled for 1999: New Year's Day,
Martin Luther King's Birthday (observed), President's Day, Good Friday, Memorial
Day (observed), Independence Day (observed), Labor Day, Columbus Day (observed),
Veterans Day, Thanksgiving Day and Christmas Day. On any day that the New York
Fed, NYSE or principal government securities markets close early, such as days
in advance of holidays, the funds reserve the right to advance the time by which
purchase, redemption and exchanges orders must be received on that day.
As long as the funds or Schwab follow reasonable procedures to confirm that your
telephone order is genuine, they will not be liable for any losses an investor
may experience due to unauthorized or fraudulent instructions. These procedures
may include requiring a form of personal identification before acting upon any
telephone order, providing written confirmation of telephone orders and tape
recording all telephone orders.
Share certificates will not be issued in order to avoid additional
administrative costs, however, share ownership records are maintained by Schwab.
Twice a year, financial reports will be mailed to shareholders describing the
funds' performance and investment holdings. In order to reduce these mailing
costs, each household will receive one consolidated mailing. If you would like
additional copies, you may call or write you fund at the telephone number or
address on the cover of this SAI.
The funds have made an election with the SEC to pay in cash all redemptions
requested by any shareholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of its net assets at the beginning of
such period. This election is irrevocable without the SEC's prior approval.
Redemption requests in excess of these limits may be paid, in whole or in part,
in investment securities or in cash, as the board of trustees may deem
advisable. Payment will be made wholly in cash unless the board of trustees
believes that economic or market conditions exist that would make such payment a
detriment to the best interests of a fund. If redemption proceeds are paid in
investment securities, such securities will be valued as set forth in "Pricing
of Shares". A redeeming shareholder would normally incur brokerage expenses if
he or she were to convert the securities to cash.
Each of Schwab Municipal Money Fund, Schwab California Municipal Money Fund and
Schwab New York Municipal Money Fund is composed of two classes of shares, which
share a common investment portfolio and objective. The Sweep Shares, which are
not offered through this SAI, are designed to provide convenience through
automatic investment of uninvested cash balances in your Schwab account,
although shares also may be purchased directly. The Value Advantage
7
<PAGE> 199
Shares do not have a sweep feature, but rather must be purchased directly.
PRICING OF SHARES
Each fund values its portfolio instruments at amortized cost, which means they
are valued at their acquisition cost, as adjusted for amortization of premium or
discount, rather than at current market value. Calculations are made to compare
the value of a fund's investments at amortized cost with market values. When
determining market values for portfolio securities, the funds use market quotes
if they are readily available. In cases where quotes are not readily available,
a fund may value securities based on fair values developed using methods
approved by the fund's board of trustees. Fair values may be determined by using
actual quotations or estimates of market value, including pricing service
estimates of market values or values obtained from yield data relating to
classes of portfolio securities.
The amortized cost method of valuation seeks to maintain a stable net asset
value per share (NAV) of $1.00, even where there are fluctuations in interest
rates that affect the value of portfolio instruments. Accordingly, this method
of valuation can in certain circumstances lead to a dilution of a shareholder's
interest.
If a deviation of 1/2 of 1% or more were to occur between the NAV calculated
using market values and a fund's $1.00 NAV calculated using amortized cost or if
there were any other deviation that the board of trustees believed would result
in a material dilution to shareholders or purchasers, the board of trustees
would promptly consider what action, if any, should be initiated.
If a fund's NAV calculated using market values declined, or were expected to
decline, below the fund's $1.00 NAV calculated using amortized cost, the board
of trustees might temporarily reduce or suspend dividend payments in an effort
to maintain the fund's $1.00 NAV. As a result of such reduction or suspension of
dividends or other action by the board of trustees, an investor would receive
less income during a given period than if such a reduction or suspension had not
taken place. Such action could result in investors receiving no dividend for the
period during which they hold their shares and receiving, upon redemption, a
price per share lower than that which they paid. On the other hand, if a fund's
NAV (calculated using market values) were to increase, or were anticipated to
increase above the fund's $1.00 (calculated using amortized cost), the board of
trustees might supplement dividends in an effort to maintain the fund's $1.00
NAV.
TAXATION
FEDERAL TAX INFORMATION FOR THE FUNDS
It is each fund's policy to qualify for taxation as a "regulated investment
company" (RIC) by meeting the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By qualifying as a RIC, each fund
expects to eliminate or reduce to a nominal amount the federal income tax to
which it is subject. If a fund does not qualify as a RIC under the Code, it will
be subject to federal income tax on its net investment income and any net
realized capital gains.
The Code imposes a non-deductible excise tax on RICs that do not distribute in a
calendar year (regardless of whether they otherwise have a non-calendar taxable
year) an amount equal to 98% of their "ordinary income" (as defined in the Code)
for the calendar year plus 98% of their net capital gain for the one-year period
ending on October 31 of such calendar year, plus any undistributed amounts from
prior years. The non-deductible excise tax is equal to 4% of the
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deficiency. For the foregoing purposes, a fund is treated as having distributed
any amount on which it is subject to income tax for any taxable year ending in
such calendar year.
FEDERAL INCOME TAX INFORMATION FOR SHAREHOLDERS
The discussion of federal income taxation presented below supplements the
discussion in the funds' prospectus and only summarizes some of the important
federal tax considerations generally affecting shareholders of the funds.
Accordingly, prospective investors (particularly those not residing or domiciled
in the United States) should consult their own tax advisers regarding the
consequences of investing in a fund.
On each business day that the NAV of a fund is determined, such fund's net
investment income will be declared after the close of trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern time) as a daily dividend to
shareholders of record. For each fund, dividends will normally be reinvested
monthly in shares of the fund at the NAV on the 15th day of each month, if a
business day, otherwise on the next business day, except in December when
dividends are reinvested on the last business of December. If cash payment is
requested, checks will normally be mailed on the business day following the
reinvestment date. Each fund will pay shareholders, who redeem all of their
shares, all dividends accrued to the time of the redemption within 7 days.
Each fund calculates its dividends based on its daily net investment income. For
this purpose, the net investment income of a fund consists of: (1) accrued
interest income, plus or minus amortized discount or premium, minus (2) accrued
expenses allocated to that fund. If a fund realizes any capital gains, they will
be distributed at least once during the year as determined by the board of
trustees.
Any dividends declared by a fund in October, November or December and paid the
following January are treated, for tax purposes, as if they were received by
shareholders on December 31 of the year in which they were declared. A fund may
adjust its schedule for the reinvestment of distributions for the month of
December to assist in complying with the reporting and minimum distribution
requirements of the Code.
The funds do not expect to realize any long-term capital gains. However,
long-term capital gains distributions are taxable as long-term capital gains,
regardless of how long you have held your shares. If you receive a long-term
capital gains distribution with respect to fund shares held for six months or
less, any loss on the sale or exchange of those shares shall, to the extent of
the long-term capital gains distribution, be treated as a long-term capital
loss. Distributions by a fund also may be subject to state, local and foreign
taxes, and its treatment under applicable tax laws may differ from the federal
income tax treatment.
Each fund may engage in investment techniques that may alter the timing and
character of its income. Each fund may be restricted in its use of these
techniques by rules relating to its qualifications as regulated investment
companies.
A fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder who (1) fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) is subject to withholding by the Internal Revenue Service for
failure to properly report all payments of interest or dividends; or (3) fails
to provide a certified statement that he or she is not subject to "backup
withholding." Backup withholding is not an additional tax and any amounts
withheld may be credited against the shareholder's ultimate U.S. tax liability.
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Foreign shareholders (i.e., nonresident alien individuals and foreign
corporations, partnerships, trusts and estates) are generally subject to U.S.
withholding tax at the rate of 30% (or a lower tax treaty rate) on distributions
derived from net investment income and short-term capital gains. Distributions
to foreign shareholders of long-term capital gains and any gains from the sale
or other disposition of shares of the funds generally are not subject to U.S.
taxation, unless the recipient is an individual who meets the Code's definition
of "resident alien." Different tax consequences may result if the foreign
shareholder is engaged in a trade or business within the United States. In
addition, the tax consequences to a foreign shareholder entitled to claim the
benefits of a tax treaty may be different than those described above.
ADDITIONAL CONSIDERATIONS FOR MUNICIPAL FUNDS
If, at the close of each quarter of its taxable year, at least 50% of the value
of a fund's assets consist of obligations the interest on which is excludable
from gross income, the fund may pay "exempt-interest dividends" to its
Shareholders. Those dividends constitute the portion of the aggregate dividends
as designated by the fund, equal to the excess of the excludable interest over
certain amounts disallowed as deductions. Exempt-interest dividends are
excludable from a shareholder's gross income for federal income tax purposes.
Exempt-interest dividends may nevertheless be subject to the federal alternative
minimum tax (AMT) imposed by Section 55 of the Code. The AMT is imposed at rates
of 26% and 28%, in the case of non-corporate taxpayers, and at the rate of 20%,
in the case of corporate taxpayers, to the extent it exceeds the taxpayer's
federal income tax liability. The AMT and the environmental tax may be imposed
in the following two circumstances. First, exempt-interest dividends derived
from certain private activity bonds issued after August 7, 1986, will generally
be an item of tax preference (and, therefore, potentially subject to AMT) for
both corporate and non-corporate taxpayers. Second, in the case of
exempt-interest dividends received by corporate shareholders, all
exempt-interest dividends, regardless of when the bonds from which they are
derived were issued or whether they are derived from private activity bonds,
will be included in the corporation's "adjusted current earnings," as defined in
Section 56(g) of the Code, in calculating the corporations' alternative minimum
taxable income for purposes of determining the AMT.
Current federal law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest that may have an effect on the ability
of a fund to purchase sufficient amounts of tax-exempt securities to satisfy the
Code's requirements for the payment of "exempt-interest dividends."
Interest on indebtedness incurred or continued by a shareholder in order to
purchase or carry shares of the funds is not deductible for federal income tax
purposes. Furthermore, these funds may not be an appropriate investment for
persons (including corporations and other business entities) who are
"substantial users" (or persons related to "substantial users") or facilities
financed by industrial development private activity bonds. Such persons should
consult their tax advisors before purchasing shares. A "substantial user" is
defined generally to include "certain persons" who regularly use in their trade
or business a part of a facilities financed from the proceeds of such bonds.
CALCULATION OF PERFORMANCE DATA
The funds' current 7-day yields based on the seven days ended December 31, 1998
are stated below and were calculated by determining the net change, exclusive of
capital changes and
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income other than investment income, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and the
multiplying the base period return by (365/7), with the resulting yield figure
carried to at least the nearest hundredth of one percent.
7-Day Current Yield as of December 31, 1998
Schwab Municipal Money Fund %
Schwab California Municipal Money Fund %
Schwab New York Municipal Money Fund %
The funds' effective 7-day yields based on the seven days ended December 31,
1998 are stated below and were calculated by determining the net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula with the resulting yield figure carried to at least the
nearest one hundredth of one percent.
7-Day Effective Yield as of December 31, 1998
Schwab Municipal Money Fund %
Schwab California Municipal Money Fund %
Schwab New York Municipal Money Fund %
The municipal funds also calculate their tax-equivalent current 7-day yield by
dividing that portion of the fund's 7-day yield (as described above) that is
tax-exempt by 1 minus a stated income tax rate and adding the quotient to that
portion, if any, of the fund's yield that is not tax-exempt.
Tax-Equivalent 7-Day Current Yield as of December 31, 1998
Schwab Municipal Money Fund %
Schwab California Municipal Money Fund %
Schwab New York Municipal Money Fund %
The fund calculates its tax equivalent effective yield by dividing that portion
of the fund's effective yield (as described above) that is tax-exempt by 1 minus
a stated income tax rate and adding the quotient to that portion, if any, of the
funds' effective yield that is not tax-exempt.
A fund also may advertise its average annual total return and cumulative total
return. Average annual total return is a standardized measure of performance
calculated using methods prescribed by SEC rules. It is calculated by
determining the ending value of a hypothetical initial investment of $1,000 made
at the beginning a specified period. The ending value is then divided by the
initial investment, which is annualized and expressed as a percentage. It is
reported for periods of one, five and 10 years or since commencement of
operations for periods not falling on those intervals. In computing average
annual total return, a fund assumes reinvestment of all distributions at net
asset value on applicable reinvestment dates. Cumulative total return is
calculated using the same formula that is used for average annual total return
except that, rather than calculating the total return based on a one-year
period, cumulative total return is calculated from commencement of operations to
the fiscal year ended December 31, 1998.
The performance of the funds may be compared with the performance of other
mutual funds by comparing the ratings of mutual fund rating services, various
indices, U.S. government obligations, bank certificates of deposit, the consumer
price index and other investments for
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which reliable data is available. An index's performance data assumes the
reinvestment of dividends but does not reflect deductions for administrative,
management and trading expenses. The funds will be subject to these costs and
expenses, while an index does not have these expenses. In addition, various
factors, such as holding a cash balance, may cause the funds' performance to be
higher or lower than that of an index.
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APPENDIX - RATINGS OF INVESTMENT SECURITIES
COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers (or
related supporting institutions) of commercial paper with this rating are
considered to have a superior ability to repay short-term promissory
obligations. Issuers (or related supporting institutions) of securities rated
Prime-2 are viewed as having a strong capacity to repay short-term promissory
obligations. This capacity will normally be evidenced by many of the
characteristics of issuers whose commercial paper is rated Prime-1 but to a
lesser degree.
STANDARD & POOR'S CORPORATION
An S&P A-1 commercial paper rating indicated a strong degree of safety regarding
timely payment of principal and interest. Issues determined to possess
overwhelming safety characteristics are denoted A-1+. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
DUFF & PHELPS CREDIT RATING CO.
Duff-1 is the highest commercial paper rating assigned by Duff & Phelps Credit
Rating Co. ("Duff"). Three gradations exist within this rating category: a
Duff-1+ rating indicates the highest certainty of timely payment (issuer
short-term liquidity is found to be outstanding and safety is deemed to be just
below that of risk-free short-term U.S. Treasury obligations), a Duff-1 rating
signifies a very high certainty of timely payment (issuer liquidity is
determined to be excellent and risk factors are considered minor) and a Duff-1-
rating denotes high certainty of timely payment (issuer liquidity factors are
strong and risk is very small). A Duff-two rating indicates a good certainty of
timely payment; liquidity factors and company fundamentals are sound and risk
factors are small.
IBCA
F1+ is the highest category, and indicates the strongest degree of assurance for
timely payment. Issues rated F1 reflect an assurance of timely payment only
slightly less than issues rated F1+. Issues assigned an F2 rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues in the first two rating categories.
SHORT-TERM NOTES AND VARIABLE RATE DEMAND OBLIGATIONS
MOODY'S INVESTORS SERVICE
Short-term notes/variable rate demand obligations bearing the designations
MIG-1/VMIG-1 are considered to be of the best quality, enjoying strong
protection from established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing. Obligations rated
MIG-2/VMIG-2 are of high quality and enjoy ample margins of protection although
not as large as those of the top rated securities.
STANDARD & POOR'S CORPORATION
An S&P SP-1 rating indicates that the subject securities' issuer has a very
strong capacity to pay principal and interest. Issues determined to possess very
strong safety characteristics are given a plus (+) designation. S&P's
determination that an issuer has a strong capacity to pay principal and interest
is denoted by an SP-2 rating.
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COMMERCIAL PAPER, SHORT-TERM OBLIGATIONS AND DEPOSIT
OBLIGATIONS ISSUED BY BANKS
THOMSON BANKWATCH (TBW)
TBW-1 is the highest category and indicates the degree of safety regarding
timely repayment of principal and interest is very high. TBW-2 is the second
highest category and while the degree of safety regarding timely repayment of
principal and interest is strong, the relative degree of safety is not as high
as for issues rated TBW-1.
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STATEMENT OF ADDITIONAL INFORMATION
SCHWAB GOVERNMENT CASH RESERVES FUND
APRIL 30, 1999
The Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the fund's prospectus dated April 30, 1999 (as amended
from time to time).
To obtain a copy of the prospectus, please contact SchwabFunds(R) at
800-435-4000, 24 hours a day, or write to the fund at 101 Montgomery Street, San
Francisco, California 94104. For TDD service call 800-345-2550, 24 hours a day.
The prospectus also may be available on the Internet at:
http://www.schwab.com/schwabfunds.
The fund's most recent annual report is a separate document supplied with the
SAI and includes the fund's audited financial statements, which are incorporated
by reference into this SAI.
The fund is a series of The Charles Schwab Family of Funds (the trust).
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES, SECURITIES,
RISKS AND LIMITATIONS........................................................................... x
MANAGEMENT OF THE FUND.......................................................................... x
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............................................. x
INVESTMENT ADVISORY AND OTHER SERVICES.......................................................... x
BROKERAGE ALLOCATION AND OTHER PRACTICES........................................................ x
DESCRIPTION OF THE TRUST........................................................................ x
PURCHASE, REDEMPTION AND PRICING OF SHARES...................................................... x
TAXATION........................................................................................ x
CALCULATION OF PERFORMANCE DATA................................................................. x
</TABLE>
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INVESTMENT OBJECTIVES, SECURITIES, RISKS AND LIMITATIONS
INVESTMENT OBJECTIVES
The fund's investment objective is to provide current income consistent with
liquidity and stability of capital. The fund's investment objective may be
changed only by vote of a majority of its shareholders.
INVESTMENT SECURITIES AND RISKS
The following investment securities, risks and limitations supplement those set
forth in the prospectus and may be changed without shareholder approval unless
otherwise noted. Also, policies and limitations that state a maximum percentage
of assets that may be invested in a security or other asset, or that set forth a
quality standard, shall be measured immediately after and as a result of the
fund's acquisition of such security or asset unless otherwise noted. Any
subsequent change in values, net assets or other circumstances will not be
considered when determining whether the investment complies with the fund's
investment policies and limitations. Additionally, for purposes of calculating
any restriction, an issuer shall be the entity deemed to be ultimately
responsible for payments of interest and principal on the security pursuant to
Rule 2a-7, unless otherwise noted. The fund will invest in securities or engage
in techniques that are intended to help achieve its investment objective.
BORROWING may subject the fund to interest costs, which may exceed the interest
received on the securities purchased with the borrowed funds. The fund normally
may borrow at times to meet redemption requests rather than sell portfolio
securities to raise the necessary cash. Borrowing can involve leveraging when
securities are purchased with the borrowed money. To avoid this, the fund will
not purchase securities while borrowings represent more than 5% of its total
assets.
DEBT SECURITIES are obligations issued by domestic and foreign entities,
including governments and corporations, in order to raise money. They are
basically "IOUs," but are commonly referred to as bonds or money market
securities. These securities normally require the issuer to pay a fixed,
variable or floating rate of interest on the amount of money borrowed (the
"principal") until it is paid back upon maturity.
Debt securities experience price changes when interest rates change. For
example, when interest rates fall, the prices of debt securities generally rise.
Issuers tend to pre-pay their outstanding debts and issue new ones paying lower
interest rates. Conversely, in a rising interest rate environment, prepayment on
outstanding debt securities generally will not occur. This is known as extension
risk and may cause the value of debt securities to depreciate as a result of the
higher market interest rates. Typically, longer-maturity securities react to
interest rate changes more severely than shorter-term securities (all things
being equal), but generally offer greater rate of interest. Debt securities also
are subject to the risk that the issuers will not make timely interest and/or
principal payments or fail to make them at all.
DELAYED-DELIVERY TRANSACTIONS include purchasing and selling securities on a
delayed-delivery or when-issued basis. These transactions involve a commitment
to buy or sell specific securities at a predetermined price or yield, with
payment and delivery taking place after the customary settlement period for that
type of security. When purchasing securities on a delayed-delivery basis, the
fund assumes the rights and risks of ownership, including the risk of price and
yield fluctuations. Typically, no interest will accrue to the fund until the
security is delivered. The fund will segregate appropriate liquid assets to
cover its delayed-delivery purchase obligations. When
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the fund sells a security on a delayed-delivery basis, the fund does not
participate in further gains or losses with respect to that security. If the
other party to a delayed-delivery transaction fails to deliver or pay for the
securities, the fund could suffer losses.
DIVERSIFICATION involves investing in a wide range of securities and thereby
spreading and reducing the risks of investment. The fund is a series of an
open-end investment management company. The fund is a diversified mutual fund.
The fund also follows the regulations set forth by the SEC that dictate the
diversification requirements for money market mutual funds. These requirements
prohibit the fund from purchasing a security if more that 5% of its total assets
would be invested in the securities of a single issuer, although the fund may
invest up to 25% of its total assets in the first tier securities of a single
issuer for up to three business days. U.S. government and certain other
securities are not subject to this particular regulation.
ILLIQUID SECURITIES generally are any securities that cannot be disposed of
promptly and in the ordinary course of business at approximately the amount at
which the fund has valued the instruments. The liquidity of the fund's
investments is monitored under the supervision and direction of the board of
trustees. Investments currently not considered liquid include repurchase
agreements not maturing within seven days and certain restricted securities.
LENDING of portfolio securities is a common practice in the securities industry.
The fund will engage in security lending arrangements with the primary objective
of increasing its income through investment of the cash collateral in
short-term, interest-bearing obligations, but will do so only to the extent that
it will not lose the tax treatment available to regulated investment companies.
Lending portfolio securities involve risks that the borrower may fail to return
the securities or provide additional collateral. The fund may loan portfolio
securities to qualified broker-dealers or other institutional investors
provided: (i) the loan is secured continuously by collateral consisting of U.S.
government securities, letters of credit, cash or cash equivalents maintained on
a daily marked-to-market basis in an amount at least equal to the current market
value of the securities loaned; (ii) the fund may at any time call the loan and
obtain the return of the securities loaned; (iii) the fund will receive any
interest or dividends paid on the loaned securities; and (iv) the aggregate
market value of securities loaned will not at any time exceed one-third of the
total assets of the fund.
MATURITY OF INVESTMENTS. The fund follows the regulations set forth by the SEC
that dictate the maturity requirements for money market mutual funds. These
requirements prohibit a fund from purchasing a security with a remaining
maturity or more than 397 days or maintaining a dollar-weighted average
portfolio maturity that exceeds 90 days.
MONEY MARKET SECURITIES are high-quality, short-term debt securities that may be
issued by entities such as the U.S. government, corporations and financial
institutions (like banks). Money market securities include commercial paper,
certificates of deposit, banker's acceptances, notes and time deposits.
Money market securities pay fixed, variable or floating rates of interest and
are generally subject to credit and interest rate risks. The maturity date or
price of and financial assets collateralizing a security may be structured in
order to make it qualify as or act like a money market security. These
securities may be subject to greater credit and interest rate risks than other
money market securities because of their structure. Money market securities may
be issued with puts or these can be sold separately.
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PUTS are sometimes called demand features or guarantees, and are agreements that
allow the buyer to sell a security at a specified price and time to the seller
or "put provider." When the fund buys a security with a put feature, losses
could occur if the put provider does not perform as agreed. Standby commitments
are types of puts.
QUALITY OF INVESTMENTS. The fund follows regulations set forth by the SEC that
dictate the quality requirements for money market mutual funds. These require
the fund to invest exclusively in high-quality securities. Generally,
high-quality securities are securities that present minimal credit risks and are
rated in one of the two highest rating categories by two nationally recognized
statistical rating organizations (NRSROs), or by one if only one NRSRO has rated
the securities, or, if unrated, determined to be of comparable quality by the
investment adviser pursuant to guidelines adopted by the board of trustees.
High-quality securities may be "first tier" or "second tier" securities. First
tier securities may be rated within the highest category or determined to be of
comparable quality by the investment manager. Money market fund shares and U.S.
government securities also are first tier securities.
REPURCHASE AGREEMENTS. Repurchase agreements involve the fund buying securities
(usually U.S. government securities) from a seller and simultaneously agreeing
to sell them back at an agreed-upon price (usually higher) and time. There are
risks that losses will result if the seller does not perform as agreed.
Repurchase agreements will be collateralized by first tier securities. In
addition, repurchase agreements collateralized entirely by U.S. government
securities may be deemed to be collateralized fully pursuant to Rule 2a-7.
SECURITIES OF OTHER INVESTMENT COMPANIES may be purchased and sold by the fund
including those managed by its investment manager. Because other investment
companies employ investment advisers and other service providers, investments by
the fund may cause shareholders to pay duplicative fees.
STRIPPED SECURITIES are securities whose income and principal components are
detached and sold separately. While the risks associated with stripped
securities are similar to other money market securities, stripped securities are
typically subject to greater changes in value. U.S. Treasury securities that
have been stripped by a Federal Reserve Bank are obligations of the U.S.
Treasury.
U.S. GOVERNMENT SECURITIES are issued by the U.S. Treasury or issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities.
U.S. Treasury securities, include bills, notes and bonds, and are backed by the
full faith and credit of the United States. Not all U.S. government securities
are backed by the full faith and credit of the United States. Some U.S.
government securities are supported by a line of credit the issuing entity has
with the U.S. Treasury. Others are supported solely by the credit of the issuing
agency or instrumentality. There can be no assurance that the U.S. government
will provide financial support to U.S. government securities of its agencies and
instrumentalities if it is not obligated to do so under law. Of course U.S.
government securities, including U.S. Treasury securities, are among the safest
securities, however, not unlike other debt securities, they are still sensitive
to interest rate changes, which will cause their yields to fluctuate.
VARIABLE AND FLOATING RATE DEBT SECURITIES pay an interest rate, which is
adjusted either periodically or at specific intervals or which floats
continuously according to a formula or benchmark. Although these structures
generally are intended to minimize the fluctuations in value that occur when
interest rates rise and fall, some structures may be linked to a benchmark in
such a way as to cause greater volatility to the security's value.
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Some variable rate securities may be combined with a put or demand feature
(variable rate demand securities) that entitles the holder to the right to
demand repayment in full or to resell at a specific price and/or time. While the
demand feature is intended to reduce credit risks, it is not always
unconditional, and may make the securities more difficult to sell quickly
without losses. There are risks involved with these securities because there may
be no active secondary market for a particular variable rate demand security
purchased by the fund. In addition, the fund may exercise only its demand rights
at certain times. The fund could suffer losses in the event that the issuer
defaults on its obligation.
INVESTMENT LIMITATIONS
The following investment limitations may be changed only by vote of a majority
of the fund's shareholders.
THE FUND MAY NOT:
(1) purchase securities of any issuer unless consistent with its status as
a diversified investment management company as defined by the
Investment Company Act of 1940 or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.
(2) lend or borrow money, except as permitted by the Investment Company Act
of 1940 or the rules or regulations thereunder, as such statute, rules
or regulations may be amended from time to time.
(3) pledge, mortgage or hypothecate any of its assets, except as permitted
by the Investment Company Act of 1940 or the rules or regulations
thereunder, as such statute, rules or regulations may be amended from
time to time.
(4) issue senior securities, except as permitted by the Investment Company
Act of 1940 or the rules or regulations thereunder, as such statute,
rules or regulations may be amended from time to time.
(5) underwrite securities, except as permitted by the Investment Company
Act of 1940 or the rules or regulations thereunder, as such statute,
rules or regulations may be amended from time to time.
(6) concentrate investments in a particular industry or group of
industries, or within one state, as concentration is defined under the
Investment Company Act of 1940 or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.
(7) purchase or sell commodities, commodities contracts, futures contracts,
or real estate, except as permitted by the Investment Company Act of
1940 or the rules or regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
The following descriptions of the 1940 Act may assist investors in understanding
the above fundamental policies and restrictions.
Diversification. Under the 1940 Act, a diversified investment management
company, with respect to 75% of its total assets, may not purchase securities
(other than U.S. government securities or securities of other investment
companies) if, as a result, more than 5% of its total assets would be
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invested in the securities of such issuer or it would own more than 10% of such
issuer's outstanding voting securities.
Borrowing. The 1940 Act presently restricts an investment management company
from borrowing (including pledging, mortgaging or hypothecating assets) in
excess of 33 1/3% of its total assets (not including temporary borrowings not in
excess of 5% of its total assets).
Lending. Under the 1940 Act, an investment management company may make loans
only if expressly permitted by its investment policies.
Concentration. The 1940 Act presently defines concentration as investing 25% or
more of an investment company's total assets in an industry or group of
industries, with certain exceptions.
The following are non-fundamental investment policies and restrictions.
THE FUND MAY NOT:
(1) purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. government securities or securities subject to
a guarantee issued by a person not controlled by the issuer) if, as a
result, more than 5% of total assets would be invested in the
securities of such issuer; provided that the fund may invest up to 25%
of its total assets in the first tier securities of a single issuer for
up to three business days.
(2) purchase securities of any issuer (other than securities subject to a
guarantee issued by a person not controlled by the issuer) if, as a
result, more than the greater of 1% of its total assets or $1 million
would be invested in second tier securities of such issuer.
(3) with respect to 75% of total assets, purchase a guarantee or securities
subject to a guarantee of any issuer if, as a result, more than 10% of
its total assets would be invested in securities issued by or subject
to a guarantee of such issuer (except with respect to guarantees and
securities subject to guarantees issued by a non-controlled person).
(4) purchase a second tier guarantee or second tier security subject to a
guarantee of any issuer if, as a result, more than 5% of its total
assets would be invested in securities issued by or subject to a
guarantee of such issuer.
(5) purchase securities of other investment companies, except as permitted
by the 1940 Act.
(6) borrow money except that the fund may (i) borrow money from banks and
(ii) engage in reverse repurchase agreements with any party; provided
that (i) and (ii) in combination do not exceed 33 1/3% of its total
assets (any borrowings that come to exceed this amount will be reduced
to the extent necessary to comply with the limitation within three
business days) and provided that the fund will not purchase securities
while borrowings represent more than 5% of total assets.
(7) purchase securities of any issuer (other than obligations of, or
guaranteed by the U.S. government its agencies or instrumentalities)
if, as a result, 25% or more of its total assets would be invested in
the securities of an issuer from a single industry or group of
industries.
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<PAGE> 212
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties (this
restriction does not apply to purchases of debt securities or
repurchase agreements).
(9) purchase securities of any issuer if, as a result, more than 10% of its
net assets would be invested in illiquid securities.
(10) sell securities short unless it owns the security or the right to
obtain the security or equivalent securities (transactions in futures
contracts and options are not considered selling securities short).
(11) purchase securities on margin, except that the fund may obtain
short-term credits that are necessary for the clearance of
transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.
MANAGEMENT OF THE FUND
The officers and trustees, their principal occupations during the past five
years and their affiliations, if any, with The Charles Schwab Corporation,
Charles Schwab & Co., Inc. (Schwab) and Charles Schwab Investment Management,
Inc. (CSIM or the investment adviser), are as follows:
<TABLE>
<CAPTION>
POSITION(S) WITH PRINCIPAL OCCUPATIONS &
NAME/DATE OF BIRTH THE TRUST AFFILIATIONS
- -------------------------------------- ------------------------ --------------------------------------------------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman and Trustee Chairman, Co-Chief Executive Officer and Director, The Charles
July 29, 1937 Schwab Corporation; Chairman, Chief Executive Officer and
Director, Charles Schwab Holdings, Inc.; Chairman and
Director, Charles Schwab & Co., Inc., Charles Schwab
Investment Management, Inc., The Charles Schwab Trust Company
and Schwab Retirement Plan Services, Inc.; Chairman and
Director (current board positions), and Chairman (officer
position) until December 1995, Mayer & Schweitzer, Inc. (a
securities brokerage subsidiary of The Charles Schwab
Corporation); Director, The Gap, Inc. (a clothing retailer),
Transamerica Corporation (a financial services organization),
AirTouch Communications (a telecommunications company) and
Siebel Systems (a software company).
</TABLE>
_______________
* This trustee is an "interested person" of the trusts.
7
<PAGE> 213
<TABLE>
<CAPTION>
<S> <C> <C>
STEVEN L. SCHEID* President and Trustee Executive Vice President and Chief Financial Officer, The
June 28, 1953 Charles Schwab Corporation; Enterprise President--Financial
Products and Services and Chief Financial Officer, Charles
Schwab & Co., Inc.; Chief Executive Officer, Chief Financial
Officer and Director, Charles Schwab Investment Management,
Inc. From 1994 to 1996, Mr. Scheid was Executive Vice
President of Finance for First Interstate Bancorp and
Principal Financial Officer from 1995 to 1996. Prior to 1994,
Mr. Scheid was Chief Financial Officer, First Interstate Bank
of Texas.
DONALD F. DORWARD Trustee Executive Vice President and Managing Director, Grey
September 23, 1931 Advertising. From 1990 to 1996, Mr. Dorward was President and
Chief Executive Officer, Dorward & Associates (advertising and
marketing/consulting firm).
ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and Director, Semloh Financial,
May 15, 1931 Inc. (international financial services and investment advisory
firm).
DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens & Company
June 28, 1938 (Investments) and Chairman and Chief Executive
Officer of North American Trust (real estate investment trust).
MICHAEL W. WILSEY Trustee Chairman, Chief Executive Officer and Director,
August 18, 1943 Wilsey Bennett, Inc. (truck and air transportation, real estate
investment, management, and investments).
TAI-CHIN TUNG Treasurer and Principal Vice President, Treasurer and Controller,
March 7, 1951 Financial Officer Charles Schwab Investment Management, Inc. From
1994 to 1996, Ms. Tung was Controller for Robertson
Stephens Investment Management, Inc. From 1993 to 1994, she
was Vice President of Fund Accounting, Capital Research and
Management Co.
</TABLE>
_________________
* This trustee is an "interested person" of the Trust.
8
<PAGE> 214
<TABLE>
<CAPTION>
<S> <C> <C>
WILLIAM J. KLIPP* Executive Vice Executive Vice President, SchwabFunds(R), Charles
December 9, 1955 President, Chief Schwab & Co., Inc.; President and Chief
Operating Officer and Operating Officer, Charles Schwab Investment
Trustee Management, Inc.
STEPHEN B. WARD Senior Vice President Senior Vice President and Chief Investment
April 5, 1955 and Chief Investment Officer, Charles Schwab Investment Management,
Officer Inc.
FRANCES COLE Secretary Senior Vice President, Chief Counsel and
September 9, 1955 Assistant Corporate Secretary, Charles Schwab
Investment Management, Inc.
</TABLE>
The fund is overseen by a board of trustees. The board of trustees meets
regularly to review the fund's activities, contractual arrangements and
performance. The board of trustees is responsible for protecting the interests
of the fund's shareholders. The following table provides information as of the
fiscal year ended December 31, 1998, concerning compensation of the trustees.
Unless otherwise stated, information is for the fund complex, which included 38
funds as of December 31, 1998.
<TABLE>
<CAPTION>
Pension or
Retirement ($)
Benefits Accrued Total
as Part of Fund Compensation
Name of Trustee Expenses from Fund Complex
- --------------------- ---------------- -----------------
<S> <C> <C>
Charles R. Schwab 0 N/A 0
Steven L. Scheid 1 0 N/A 0
Tom D. Seip 0 N/A 0
William J. Klipp, 0 N/A 0
Donald F. Dorward N/A
Robert G. Holmes N/A
Donald R. Stephens N/A
Michael W. Wilsey N/A
</TABLE>
1 Effective August 18, 1998, Mr. Scheid was elected as President and
trustee. Mr. Seip served as President and trustee until May 15, 1998.
9
<PAGE> 215
DEFERRED COMPENSATION PLAN
Trustees who are not "interested persons" of a trust ("independent trustees")
may enter into a fee deferral plan. Under this plan, deferred fees will be
credited to an account established by the trust as of the date that such fees
would have been paid to the trustee. The value of this account will equal the
value that the account would be if the fees credited to the account had been
invested in the shares of SchwabFunds selected by the trustee. Currently, none
of the independent trustees have elected to participate in this plan.
Pursuant to the exemptive relief granted to the trust, the fund will purchase
and maintain the selected SchwabFund securities in an amount equal to the deemed
investments in that fund of the Deferred Fee Accounts of the Independent
Trustees. The exemptive relief granted to the trust permits the fund and the
trustees to purchase the selected SchwabFund securities, which transactions
would otherwise be limited or prohibited by the investment policies and/or
restrictions of the fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 1, 1999, [VAR: QLEGAL: name of person or entity and the jurisdiction
under the laws of which it is organized and all parent companies] control the
[VAR: Fund Name] through ownership of [VAR: QLEGAL: x.x%] securities or other
basis of control.]
As of April 1, 1999 [VAR: QLEGAL: month end or 1st of month date no more than 30
days prior to effective date], the officers and trustees of the trust(s), as a
group owned of record or beneficially [VAR: QLEGAL: x.x% / less than 1%] of the
outstanding voting securities of the fund.
As of April 1, 1999, the [VAR: QLEGAL: name of entity or person] directly or
beneficially owned, [VAR: QLEGAL: x.xx%] of shares of the [VAR: Fund Name /
Class Name].
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc. (CSIM or the investment adviser), a
wholly owned subsidiary of The Charles Schwab Corporation, 101 Montgomery
Street, San Francisco CA 94104, serves as the fund's investment adviser and
administrator pursuant to an Investment Advisory and Administration Agreement
(Advisory Agreement) between it and the trust. Charles Schwab & Co., Inc.
(Schwab) is an affiliate of the investment adviser and is the trust's
distributor, shareholder services agent and transfer agent. Charles R. Schwab is
the founder, Chairman, Co-Chief
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<PAGE> 216
Executive Officer and Director of The Charles Schwab Corporation. As a result of
his ownership of and interests in The Charles Schwab Corporation, Mr. Schwab may
be deemed to be a controlling person of the investment adviser and Schwab.
Year 2000 presents uncertainties and possible risks to the smooth operations of
the fund and the provision of services to shareholders. Many computer programs
use only two digits to identify a specific year and therefore may not accurately
recognize the upcoming change in the next century. If not corrected, many
computer applications could fail or create erroneous results by or at year 2000.
Due to the fund's and their service providers' dependence on computer technology
to operate, the nature and impact of year 2000 processing failures on the fund
could be material. The fund's investment adviser is taking steps to minimize the
risks of year 2000 for the fund, including seeking assurances from the fund's
service providers that they are analyzing their systems, testing them for
potential problems and remediating them to the extent possible. There can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
fund, however, minimizing year 2000 risk for the fund is a priority of the
investment adviser.
For its advisory and administrative services to the fund, the investment adviser
is entitled to receive a graduated annual fee, payable monthly, of 0.46% of the
fund's average daily net assets of the first $1 billion, 0.41% of the next $1
billion, and 0.40% of net assets over $2 billion.
For the period from April 1, 1998 (commencement of operations) to December 31,
1998, the fund paid investment and advisory fees of $_________ (fees were
reduced $__________).
The investment adviser and Schwab have voluntarily agreed to reduce the fund's
total operating expenses to 0.95% of its average daily net assets.
DISTRIBUTOR
Pursuant to an agreement, Schwab is the principal underwriter for shares of the
fund and is the trust's agent for the purpose of the continuous offering of the
fund's shares. The fund pays the cost of the prospectuses and shareholder
reports to be prepared and delivered to existing shareholders. Schwab pays such
costs when the described materials are used in connection with the offering of
shares to prospective investors and for supplementary sales literature and
advertising. Schwab receives no fee under the agreement. Terms of continuation,
termination and assignment under the agreement are identical to those described
above with respect to the Advisory Agreement.
The fund pays other expenses that typically are connected with the trust's
operations, and include legal, audit and custodian fees, as well as the costs of
accounting and registration of the fund. Expenses not directly attributable to a
particular fund will be allocated among the funds in the trust on the basis of
each fund's relative net assets at the time the expense is incurred. The fund
also may have other expenses that provide transaction services to the fund,
including checking, Automated Clearing House and Automatic Teller Machine.
SHAREHOLDER SERVICES AND TRANSFER AGENT
Schwab provides fund information to shareholders, including share price,
reporting shareholder ownership and account activities and distributing the
fund's prospectuses, financial reports and other informational literature about
the fund. Schwab maintains the office space, equipment and personnel necessary
to provide these services. Schwab also distributes and markets SchwabFunds(R)
and provides other services.
11
<PAGE> 217
CUSTODIAN AND FUND ACCOUNTANT
PNC Bank, National Association, Airport Business Center, 200 Stevens Drive, Suit
440, Lester Pennsylvania, 19113, serves as custodian for the fund and PFPC,
Inc., 103 Bellevue Parkway, Wilmington DE 19809 serves as fund accountant.
The custodian is responsible for the daily safekeeping of securities and cash
held or sold by the fund. The accountant maintains all books and records related
to the fund's transactions.
INDEPENDENT ACCOUNTANT
The fund's independent accountant, ______________, audits and reports on the
annual financial statements of the fund and review certain regulatory reports
and the fund's federal income tax return. It also performs other professional
accounting, auditing, tax and advisory services when the trusts engage it to do
so. Their address is _________________________. The fund's audited financial
statements for the fiscal year ended December 31, 1998, are included in the
fund's annual report, which is a separate report supplied with the SAI.
BROKERAGE ALLOCATION AND OTHER PRACTICES
PORTFOLIO TURNOVER
Because securities with maturities of less than one year are excluded from
required portfolio turnover rate calculations, the fund's portfolio turnover
rate for reporting purposes is expected to be zero.
PORTFOLIO TRANSACTIONS
In effecting securities transactions for a fund, the investment adviser seeks to
obtain best price and execution. Subject to the supervision of the board of
trustees, the investment adviser will generally select brokers and dealers for
the fund primarily on the basis of the quality and reliability of brokerage
services, including execution capability and financial responsibility.
When the execution capability and price offered by two or more broker-dealers
are comparable, the investment adviser may, in its discretion utilize the
services of broker-dealers that provide it with investment information and other
research resources. Such resources also may be used by the investment adviser
when providing advisory services to other investment advisory clients, including
mutual funds. The fund expects that purchases and sales of portfolio securities
will usually be principal transactions. Securities will normally be purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters will include a commission or concession
paid be the issuer to the underwriter, and purchases from dealers serving as
market makers will include the spread between the bid and asked prices.
The investment decisions for the fund are reached independently from those for
other accounts managed by the investment adviser. Such other accounts also may
make investments in instruments or securities at the same time as a fund. When
two or more accounts managed by the investment adviser have funds available for
investment in similar instruments, available instruments are allocated as to
amount in a manner considered equitable to each account. In some cases, this
procedure may affect the size or price of the position obtainable for a fund.
However, it is the opinion of the board of trustees that the benefits conferred
by the investment manager outweigh any disadvantages that may arise from
exposure to simultaneous transactions.
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<PAGE> 218
DESCRIPTION OF THE TRUST
The fund, is a series of the Charles Schwab Family of Funds, an open-end
investment management company organized as a Massachusetts business trust on
October 20, 1989.
Each Declaration of Trust provides that shares may be automatically redeemed if
held by a shareholder in an amount less than the minimum required by the fund or
share class. The fund's or class's initial and subsequent minimum investment and
balance requirements are set forth in the prospectus. These minimums may be
waived for certain investors, including trustees, officers and employees of
Schwab, or changed without prior notice.
The fund may hold special meetings. These meetings may be called for purposes
such as electing trustees, changing fundamental policies and amending management
contracts. Shareholders are entitled to one vote for each share owned and may
vote by proxy or in person. Proxy materials will be mailed to shareholders prior
to any meetings, and will include a voting card and information explaining the
matters to be voted upon.
The bylaws of the trust provide that a majority of shares entitled to vote shall
be a quorum for the transaction of business at a shareholders' meeting, except
that where any provision of law, or of the Declaration of Trust or of the bylaws
permits or requires that (1) holders of any series shall vote as a series, then
a majority of the aggregate number of shares of that series entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that series, or (2) holders of any class shall vote as a class, then a majority
of the aggregate number of shares of that class entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that class.
Any lesser number shall be sufficient for adjournments. Any adjourned session or
sessions may be held, within a reasonable time after the date set for the
original meeting, without the necessity of further notice. The Declaration of
Trust specifically authorizes the board of trustees to terminate the trust (or
any of its investment portfolios) by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for the trust's
obligations. The Declaration of Trust, however, disclaims shareholder liability
for the trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the trust or the trustees. In addition, the Declaration of Trust provides for
indemnification out of the property of an investment portfolio in which a
shareholder owns or owned shares for all losses and expenses of such shareholder
or former shareholder if he or she is held personally liable for the obligations
of the trust solely by reason of being or having been a shareholder. Moreover,
the trust will be covered by insurance which the trustees consider adequate to
cover foreseeable tort claims. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote, because
it is limited to circumstances in which a disclaimer is inoperative and the
trust itself is unable to meet its obligations. There is a remote possibility
that the fund could become liable for a misstatement in the prospectus or SAI
about another fund.
As more fully described in each Declaration of Trust, the trustees may each
year, or more frequently, distribute to the shareholders of each series accrued
income less accrued expenses and any net realized capital gains less accrued
expenses. Distributions of each year's income of each series shall be
distributed pro rata to shareholders in proportion to the number of shares of
each series held by each of them. Distributions will be paid in cash or shares
or a combination thereof as determined by the trustees. Distributions paid in
shares will be paid at net asset value per share as determined in accordance
with the bylaws.
13
<PAGE> 219
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASING AND REDEEMING SHARES OF THE FUND
The fund is open each day that both the Federal Reserve Bank of New York (New
York Fed) and New York Stock Exchange (NYSE) are open (business days). The
following holiday closings are currently scheduled for 1999: New Year's Day,
Martin Luther King's Birthday (observed), President's Day, Good Friday, Memorial
Day (observed), Independence Day (observed), Labor Day, Columbus Day (observed),
Veterans Day, Thanksgiving Day and Christmas Day. On any day that the New York
Fed, NYSE or principal government securities markets close early, such as days
in advance of holidays, the fund reserves the right to advance the time by which
purchase, redemption and exchanges orders must be received on that day.
As long as the fund or Schwab follow reasonable procedures to confirm that your
telephone order is genuine, they will not be liable for any losses an investor
may experience due to unauthorized or fraudulent instructions. These procedures
may include requiring a form of personal identification before acting upon any
telephone order, providing written confirmation of telephone orders and tape
recording all telephone orders.
Share certificates will not be issued in order to avoid additional
administrative costs, however, share ownership records are maintained by Schwab.
Twice a year, financial reports will be mailed to shareholders describing the
fund's performance and investment holdings. In order to reduce these mailing
costs, each household will receive one consolidated mailing. If you would like
additional copies, you may call or write the fund at the telephone number or
address on the cover of this SAI.
The fund has made an election with the SEC to pay in cash all redemptions
requested by any shareholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of its net assets at the beginning of
such period. This election is irrevocable without the SEC's prior approval.
Redemption requests in excess of these limits may be paid, in whole or in part,
in investment securities or in cash, as the board of trustees may deem
advisable. Payment will be made wholly in cash unless the board of trustees
believes that economic or market conditions exist that would make such payment a
detriment to the best interests of a fund. If redemption proceeds are paid in
investment securities, such securities will be valued as set forth in "Pricing
of Shares". A redeeming shareholder would normally incur brokerage expenses if
he or she were to convert the securities to cash.
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<PAGE> 220
PRICING OF SHARES
The fund values its portfolio instruments at amortized cost, which means they
are valued at their acquisition cost, as adjusted for amortization of premium or
discount, rather than at current market value. Calculations are made to compare
the value of the fund's investments at amortized cost with market values. When
determining market values for portfolio securities, the fund uses market quotes
if they are readily available. In cases where quotes are not readily available,
the fund may value securities based on fair values developed using methods
approved by the board of trustees. Fair values may be determined by using actual
quotations or estimates of market value, including pricing service estimates of
market values or values obtained from yield data relating to classes of
portfolio securities.
The amortized cost method of valuation seeks to maintain a stable net asset
value per share (NAV) of $1.00, even where there are fluctuations in interest
rates that affect the value of portfolio instruments. Accordingly, this method
of valuation can in certain circumstances lead to a dilution of a shareholder's
interest.
If a deviation of 1/2 of 1% or more were to occur between the NAV calculated
using market values and a fund's $1.00 NAV calculated using amortized cost, or
if there were any other deviation that the board of trustees believed would
result in a material dilution to shareholders or purchasers, the board of
trustees would promptly consider what action, if any, should be initiated.
If a fund's NAV calculated using market values declined, or were expected to
decline, below the fund's $1.00 NAV calculated using amortized cost, the board
of trustees might temporarily reduce or suspend dividend payments in an effort
to maintain the fund's $1.00 NAV. As a result of such reduction or suspension of
dividends or other action by the board of trustees, an investor would receive
less income during a given period than if such a reduction or suspension had not
taken place. Such action could result in investors receiving no dividend for the
period during which they hold their shares and receiving, upon redemption, a
price per share lower than that which they paid. On the other hand, if a fund's
NAV calculated using market values were to increase, or were anticipated to
increase above the fund's $1.00 NAV calculated using amortized cost, the board
of trustees might supplement dividends in an effort to maintain the fund's $1.00
NAV.
TAXATION
FEDERAL TAX INFORMATION FOR THE FUND
It is the fund's policy to qualify for taxation as a "regulated investment
company" (RIC) by meeting the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By qualifying as a RIC, the fund
expects to eliminate or reduce to a nominal amount the federal income tax to
which it is subject. If the fund does not qualify as a RIC under the Code, it
will be subject to federal income tax on its net investment income and any net
realized capital gains.
The Code imposes a non-deductible excise tax on RICs that do not distribute in a
calendar year (regardless of whether they otherwise have a non-calendar taxable
year) an amount equal to 98% of their "ordinary income" (as defined in the Code)
for the calendar year plus 98% of their net capital gain for the one-year period
ending on October 31 of such calendar year, plus any undistributed amounts from
prior years. The non-deductible excise tax is equal to 4% of the
15
<PAGE> 221
deficiency. For the foregoing purposes, the fund is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
FEDERAL INCOME TAX INFORMATION FOR SHAREHOLDERS
The discussion of federal income taxation presented below supplements the
discussion in the fund's prospectus and only summarizes some of the important
federal tax considerations generally affecting shareholders of the fund.
Accordingly, prospective investors (particularly those not residing or domiciled
in the United States) should consult their own tax advisers regarding the
consequences of investing in the fund.
On each business day that the NAV of the fund is determined, the fund's net
investment income will be declared after the close of trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern time) as a daily dividend to
shareholders of record. For the fund, dividends will normally be reinvested
monthly in shares of the fund at the NAV on the 15th day of each month, if a
business day, otherwise on the next business day, except in December when
dividends are reinvested on the last business of December. If cash payment is
requested, checks will normally be mailed on the business day following the
reinvestment date. The fund will pay shareholders, who redeem all of their
shares, all dividends accrued to the time of the redemption within 7 days.
The fund calculates its dividends based on its daily net investment income. For
this purpose, the net investment income of the fund consists of: (1) accrued
interest income, plus or minus amortized discount or premium, minus (2) accrued
expenses allocated to that fund. If the fund realizes any capital gains, they
will be distributed at least once during the year as determined by the board of
trustees. Any realized capital losses, to the extent not offset by realized
capital gains, will be carried forward.
Any dividends declared by the fund in October, November or December and paid the
following January are treated, for tax purposes, as if they were received by
shareholders on December 31 of the year in which they were declared. A fund may
adjust its schedule for the reinvestment of distributions for the month of
December to assist in complying with the reporting and minimum distribution
requirements of the Code.
The fund does not expect to realize any long-term capital gains. However,
long-term capital gains distributions are taxable as long-term capital gains,
regardless of how long you have held your shares. If you receive a long-term
capital gains distribution with respect to fund shares held for six months or
less, any loss on the sale or exchange of those shares shall, to the extent of
the long-term capital gains distribution, be treated as a long-term capital
loss.
Distributions by a fund also may be subject to state, local and foreign taxes,
and its treatment under applicable tax laws may differ from the federal income
tax treatment. Note that most states grant tax-exempt status to distributions
paid to shareholders from U.S. government securities.
A fund may engage in techniques that may alter the timing and character of its
income. A fund may be restricted in its use of these techniques by rules
relating to its qualification as a regulated investment company.
The fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder who (1) fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) is subject to withholding by the Internal Revenue Service for
failure to properly report all payments of interest or dividends; or
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<PAGE> 222
(3) fails to provide a certified statement that he or she is not subject to
"backup withholding." Backup withholding is not an additional tax and any
amounts withheld may be credited against the shareholder's ultimate U.S. tax
liability.
Foreign shareholders (i.e., nonresident alien individuals and foreign
corporations, partnerships, trusts and estates) are generally subject to U.S.
withholding tax at the rate of 30% (or a lower tax treaty rate) on distributions
derived from net investment income and short-term capital gains. Distributions
to foreign shareholders of long-term capital gains and any gains from the sale
or other disposition of shares of the fund generally are not subject to U.S.
taxation, unless the recipient is an individual who meets the Code's definition
of "resident alien. "Different tax consequences may result if the foreign
shareholder is engaged in a trade or business within the United States. In
addition, the tax consequences to a foreign shareholder entitled to claim the
benefits of a tax treaty may be different than those described above.
CALCULATION OF PERFORMANCE DATA
The fund's current 7-day yield based on the seven days ended December 31, 1998
is stated below and was calculated by determining the net change, exclusive of
capital changes and income other than investment income, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting yield figure
carried to at least the nearest hundredth of one percent.
Schwab Government Cash Reserves %
The fund's effective yields based on the seven days ended December 31, 1998 is
stated below and was calculated by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, with the resulting yield figure carried to at least the
nearest one hundredth of one percent.
Schwab Government Cash Reserves %
The fund also may advertise its average annual total return and cumulative total
return. Average annual total return is a standardized measure of performance
calculated using methods prescribed by SEC rules. It is calculated by
determining the ending value of a hypothetical initial investment of $1,000 made
at the beginning a specified period. The ending value is then divided by the
initial investment, which is annualized and expressed as a percentage. It is
reported for periods of one, five and 10 years or since commencement of
operations for periods not falling on those intervals. In computing average
annual total return, a fund assumes reinvestment of all distributions at net
asset value on applicable reinvestment dates. Cumulative total return is
calculated using the same formula that is used for average annual total return
except that, rather than calculating the total return based on a one-year
period, cumulative total return is calculated from commencement of operations to
the fiscal year ended December 31, 1998.
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The performance of the fund may be compared with the performance of other mutual
funds by comparing the ratings of mutual fund rating services, various indices,
U.S. government obligations, bank certificates of deposit, the consumer price
index and other investments for which reliable data is available. An index's
performance data assumes the reinvestment of dividends but does not reflect
deductions for administrative, management and trading expenses. The fund will be
subject to these costs and expenses, while an index does not have these
expenses. In addition, various factors, such as holding a cash balance, may
cause the fund's performance to be higher or lower than that of an index.
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STATEMENT OF ADDITIONAL INFORMATION
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND
SCHWAB RETIREMENT MONEY FUND
APRIL 30, 1999
The Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the funds' prospectus dated April 30, 1999 (as amended
from time to time).
To obtain a copy of the prospectus, please contact SchwabFunds(R) at
800-435-4000, 24 hours a day, or write to the funds at 101 Montgomery Street,
San Francisco, California 94104. For TDD service call 800-345-2550, 24 hours a
day. The prospectus also may be available on the Internet at:
http://www.schwab.com/schwabfunds.
The funds' most recent annual reports are separate documents supplied with the
SAI and includes the funds' audited financial statements, which are incorporated
by reference into this SAI.
The funds are a series of The Charles Schwab Family of Funds (the trust).
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES, SECURITIES,
RISKS AND LIMITATIONS........................................................................... x
MANAGEMENT OF THE FUNDS......................................................................... x
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............................................. x
INVESTMENT ADVISORY AND OTHER SERVICES.......................................................... x
BROKERAGE ALLOCATION AND OTHER PRACTICES........................................................ x
DESCRIPTION OF THE TRUST........................................................................ x
PURCHASE, REDEMPTION AND PRICING OF SHARES...................................................... x
TAXATION........................................................................................ x
CALCULATION OF PERFORMANCE DATA................................................................. x
APPENDIX - RATINGS OF INVESTMENT SECURITIES..................................................... x
</TABLE>
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INVESTMENT OBJECTIVES, SECURITIES, RISKS AND LIMITATIONS
INVESTMENT OBJECTIVES
Each fund's investment objective is to seek maximum current income consistent
with liquidity and stability of capital. Each fund's investment objective may be
changed only by vote of a majority of its shareholders.
INVESTMENT SECURITIES AND RISKS
The following investment securities, risks and limitations supplement those set
forth in the prospectus and may be changed without shareholder approval unless
otherwise noted. Also, policies and limitations that state a maximum percentage
of assets that may be invested in a security or other asset, or that set forth a
quality standard, shall be measured immediately after and as a result of a
fund's acquisition of such security or asset unless otherwise noted. Any
subsequent change in values, net assets or other circumstances will not be
considered when determining whether the investment complies with a fund's
investment policies and limitations. Additionally, for purposes of calculating
any restriction, an issuer shall be the entity deemed to be ultimately
responsible for payments of interest and principal on the security pursuant to
Rule 2a-7, unless otherwise noted. Not all investment securities or techniques
discussed below are eligible investments for each fund. A fund will invest in
securities or engage in techniques that are intended to help achieve its
investment objective.
ASSET-BACKED SECURITIES are securities that are backed by the loans or accounts
receivables of an entity, such as a bank or credit card company. These
securities are obligations which the issuer intends to repay using the assets
backing them (once collected). Therefore, repayment depends largely on the cash
flows generated by the assets backing the securities. The rate of principal
payments on asset-backed securities generally depends on the rate of principal
payments received on the underlying assets, which in turn may be affected by a
variety of economic and other factors. As a result, the yield on any
asset-backed security is difficult to predict with precision, and actual yield
to maturity may be more or less than the anticipated yield to maturity.
Sometimes the credit quality of these securities is limited to the support
provided by the underlying assets, but, in other cases, additional credit
support also may be provided by a third party via a letter of credit or
insurance guarantee. Such credit support falls into two classes: liquidity
protection and protection against ultimate default on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that scheduled payments on
the underlying pool are made in a timely fashion. Protection against ultimate
default ensures payment on at least a portion of the assets in the pool. Such
protection may be provided through guarantees, insurance policies or letters of
credit obtained from third parties, through various means of structuring the
transaction or through a combination of such approaches.
The degree of credit support provided on each issue is based generally on
historical information respecting the level of credit risk associated with such
payments. Delinquency or loss in excess of that anticipated could adversely
affect the return on an investment in an asset-backed security.
Based on the primary characteristics of the various types of asset-backed
securities, for purposes of a fund's concentration policy, the following
asset-backed securities industries have been selected:
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credit card receivables, automobile receivables, trade receivables and
diversified financial assets. A fund will limit its investments in each such
industry to less than 25% of its total assets.
BANKERS' ACCEPTANCES or notes are credit instruments evidencing a bank's
obligation to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the full amount of the
instrument upon maturity. A fund will invest only in bankers' acceptances of
banks that have capital, surplus and undivided profits in excess of $100
million.
BORROWING may subject a fund to interest costs, which may exceed the interest
received on the securities purchased with the borrowed funds. A fund normally
may borrow at times to meet redemption requests rather than sell portfolio
securities to raise the necessary cash. Borrowing can involve leveraging when
securities are purchased with the borrowed money. To avoid this, each fund will
not purchase securities while borrowings are outstanding.
CERTIFICATES OF DEPOSIT or time deposits are issued against funds deposited in a
banking institution for a specified period of time at a specified interest rate.
A fund will invest only in certificates of deposit of banks that have capital,
surplus and undivided profits in excess of $100 million.
COMMERCIAL PAPER consists of short-term, promissory notes issued by banks,
corporations and other institutions to finance short-term credit needs. These
securities generally are discounted but sometimes may be interest bearing.
Commercial paper, which also may be unsecured, is subject to credit risk.
CONCENTRATION means that substantial amounts of assets are invested in a
particular industry or group of industries. Concentration increases investment
exposure to industry risk. For example, the automobile industry may have a
greater exposure to a single factor, such as an increase in the price of oil,
which may adversely affect the sale of automobiles and, as a result, the value
of the industry's securities. Based on the primary characteristics of non-U.S.
(foreign) banks, the funds have identified each foreign country as a separate
bank industry for purposes of a fund's concentration policy. A fund will limit
its investments in securities issued by foreign banks in each country to less
than 25% of its total assets.
CREDIT AND LIQUIDITY SUPPORTS may be employed by issuers to reduce the credit
risk of their securities. Credit supports include letters of credit, insurance
and guarantees provided by foreign and domestic entities. Liquidity supports
include puts, demand features, and lines of credit. Most of these arrangements
move the credit risk of an investment from the issuer of the security to the
support provider. Changes in the credit quality of a support provider could
cause losses to a fund.
DEBT SECURITIES are obligations issued by domestic and foreign entities,
including governments and corporations, in order to raise money. They are
basically "IOUs," but are commonly referred to as bonds or money market
securities. These securities normally require the issuer to pay a fixed,
variable or floating rate of interest on the amount of money borrowed (the
"principal") until it is paid back upon maturity.
Debt securities experience price changes when interest rates change. For
example, when interest rates fall, the prices of debt securities generally rise.
Issuers tend to pre-pay their outstanding debts and issue new ones paying lower
interest rates. Conversely, in a rising interest rate environment, prepayment on
outstanding debt securities generally will not occur. This is known as extension
risk and may cause the value of debt securities to depreciate as a result of the
higher
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market interest rates. Typically, longer-maturity securities react to
interest rate changes more severely than shorter-term securities (all things
being equal), but generally offer greater rate of interest. Debt securities also
are subject to the risk that the issuers will not make timely interest and/or
principal payments or fail to make them at all.
DELAYED-DELIVERY TRANSACTIONS include purchasing and selling securities on a
delayed-delivery or when-issued basis. These transactions involve a commitment
to buy or sell specific securities at a predetermined price or yield, with
payment and delivery taking place after the customary settlement period for that
type of security. When purchasing securities on a delayed-delivery basis, a fund
assumes the rights and risks of ownership, including the risk of price and yield
fluctuations. Typically, no interest will accrue to a fund until the security is
delivered. A fund will segregate appropriate liquid assets to cover its
delayed-delivery purchase obligations. When a fund sells a security on a
delayed-delivery basis, the fund does not participate in further gains or losses
with respect to that security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could suffer
losses.
DIVERSIFICATION involves investing in a wide range of securities and thereby
spreading and reducing the risks of investment. Each fund is a series of an
open-end investment management company. Each fund is a diversified mutual fund.
Each fund also follows the regulations set forth by the SEC that dictate the
diversification requirements for money market mutual funds. These requirements
prohibit a taxable money fund from purchasing a security if more that 5% of its
total assets would be invested in the securities of a single issuer, although a
fund may invest up to 25% of its total assets in the first tier securities of a
single issuer for up to three business days. U.S. government and certain other
securities are not subject to this particular regulation.
FOREIGN SECURITIES involve additional risks, because they are issued by foreign
entities, including foreign governments, banks, corporations or because they are
traded principally overseas. Foreign entities are not subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to U.S. corporations. In addition,
there may be less publicly available information about foreign entities. Foreign
economic, political and legal developments could have more dramatic effects on
the value of foreign securities.
In addition to the risks discussed above, it is unforeseeable what risk, if any,
may exist to investments as a result of the conversion of the 11 of the 15
Economic Union Member States from their respective local currency to the
official currency of the Economic and Monetary Union (EMU). After January 3,
1999, the euro will be the official currency of the EMU, the rate of exchange
will have been set between the euro and the currency of each converting country
and the European Central Bank, all national central banks and all stock
exchanges and depositories will price, trade and settle in euro even if the
securities traded are not denominated in euro. Each securities transaction that
requires converting to euro may involve rounding that could affect the value of
the security converted. In addition, issuers of securities that require
converting may experience increased costs as a result of the conversion, which
may affect the value of their securities. It is possible that uncertainties
related to the conversion will affect investor expectations and cause
investments to shift away from European countries, thereby making the European
market less liquid. All of these factors could affect the value of a fund's
investments and/or increase its expenses. While the investment adviser is taking
steps to minimize the impact of the conversion on the funds, it is not possible
to know precisely what impact the conversion will have on the funds, if any, nor
is it possible to eliminate the risks completely.
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ILLIQUID SECURITIES generally are any securities that cannot be disposed of
promptly and in the ordinary course of business at approximately the amount at
which the fund has valued the instruments. The liquidity of a fund's investments
is monitored under the supervision and direction of the board of trustees.
Investments currently not considered liquid include repurchase agreements not
maturing within seven days and certain restricted securities.
LENDING of portfolio securities is a common practice in the securities industry.
A fund will engage in security lending arrangements with the primary objective
of increasing its income through investment of the cash collateral in
short-term, interest-bearing obligations, but will do so only to the extent that
it will not lose the tax treatment available to regulated investment companies.
Lending portfolio securities involve risks that the borrower may fail to return
the securities or provide additional collateral. A fund may loan portfolio
securities to qualified broker-dealers or other institutional investors
provided: (i) the loan is secured continuously by collateral consisting of U.S.
government securities, letters of credit, cash or cash equivalents maintained on
a daily marked-to-market basis in an amount at least equal to the current market
value of the securities loaned; (ii) the fund may at any time call the loan and
obtain the return of the securities loaned; (iii) the fund will receive any
interest or dividends paid on the loaned securities; and (iv) the aggregate
market value of securities loaned will not at any time exceed one-third of the
total assets of the fund.
MATURITY OF INVESTMENTS. Each fund follows the regulations set forth by the SEC
that dictate the maturity requirements for money market mutual funds. These
requirements prohibit a fund from purchasing a security with a remaining
maturity of more than 397 days or maintaining a dollar-weighted average
portfolio maturity that exceeds 90 days.
MONEY MARKET SECURITIES are high-quality, short-term debt securities that may be
issued by entities such as the U.S. government, corporations and financial
institutions (like banks). Money market securities include commercial paper,
certificates of deposit, banker's acceptances, notes and time deposits.
Money market securities pay fixed, variable or floating rates of interest and
are generally subject to credit and interest rate risks. The maturity date or
price of and financial assets collateralizing a security may be structured in
order to make it qualify as or act like a money market security. These
securities may be subject to greater credit and interest rate risks than other
money market securities because of their structure. Money market securities may
be issued with puts or these can be sold separately.
PROMISSORY NOTES are written agreements committing the maker or issuer to pay
the payee a specified amount either on demand or at a fixed date in the future,
with or without interest. These are sometimes called negotiable notes or
instruments and are subject to credit risk. Bank notes are notes used to
represent obligations issued by banks in large denominations.
PUTS are sometimes called demand features or guarantees, and are agreements that
allow the buyer to sell a security at a specified price and time to the seller
or "put provider." When a fund buys a security with a put feature, losses could
occur if the put provider does not perform as agreed. Standby commitments are
types of puts.
QUALITY OF INVESTMENTS. The funds follow regulations set forth by the SEC that
dictate the quality requirements for money market mutual funds. These require
the funds to invest exclusively in high-quality securities. Generally,
high-quality securities are securities that present minimal credit risks and are
rated in one of the two highest rating categories by two nationally
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recognized statistical rating organizations (NRSROs), or by one if only one
NRSRO has rated the securities, or, if unrated, determined to be of comparable
quality by the investment adviser pursuant to guidelines adopted by the board of
trustees. High-quality securities may be "first tier" or "second tier"
securities. First tier securities may be rated within the highest category or
determined to be of comparable quality by the investment manager. Money market
fund shares and U.S. government securities also are first tier securities.
Second tier securities generally are rated within the second-highest category.
Each fund's holdings of second tier securities will not exceed 5% of its assets,
and investments in second tier securities of any one issuer will be limited to
the greater of 1% of the fund's assets or $1 million.
Should a security's high-quality rating change after purchase by a fund, the
investment adviser would take such action, including no action, as determined to
be in the best interest of the fund by the board of trustees. For more
information about the ratings assigned by some NRSROs, refer to the Appendix
section of the SAI.
REPURCHASE AGREEMENTS. Repurchase agreements involve a fund buying securities
(usually U.S. government securities) from a seller and simultaneously agreeing
to sell them back at an agreed-upon price (usually higher) and time. There are
risks that losses will result if the seller does not perform as agreed.
Repurchase agreements will be collateralized by first tier securities. In
addition, repurchase agreements collateralized entirely by U.S. government
securities may be deemed to be collateralized fully pursuant to Rule 2a-7.
RESTRICTED SECURITIES are securities that are subject to legal restrictions on
their sale. For example, commercial paper and other promissory notes may be
issued under Section 4(2) of the Securities Act of 1933 and may be sold only to
qualified institutional buyers, such as the funds, under Securities Act Rule
144A.
Restricted securities may be deemed liquid or illiquid. In order to be deemed
liquid, the fund must be able to dispose of the security in the ordinary course
of business at approximately the amount the fund has valued the security. In
addition, the investment adviser must determine that an institutional or other
market exists for these securities. In making this determination, the investment
adviser may take into account any liquidity support associated with the
security. It is not possible to predict with assurance whether the market for
any restricted security will continue. Therefore, the investment adviser
monitors a fund's investments in these securities, focusing on factors, such as
valuation, liquidity and availability of information. To the extent a fund
invests in restricted securities that are deemed liquid, the general level of
illiquidity in the fund's portfolio may increase if buyers in that market become
unwilling to purchase the securities.
STRIPPED SECURITIES are securities whose income and principal components are
detached and sold separately. While the risks associated with stripped
securities are similar to other money market securities, stripped securities are
typically subject to greater changes in value. U.S. Treasury securities that
have been stripped by a Federal Reserve Bank are obligations of the U.S.
Treasury.
U.S. GOVERNMENT SECURITIES are issued by the U.S. Treasury or issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities.
U.S. Treasury securities, include bills, notes and bonds, and are backed by the
full faith and credit of the United States. Not all U.S. government securities
are backed by the full faith and credit of the United States. Some U.S.
government securities are supported by a line of credit the issuing entity has
with the U.S. Treasury. Others are supported solely by the credit of the issuing
agency or instrumentality. There can be no assurance that the U.S. government
will provide financial support to U.S. government securities of its agencies and
instrumentalities if it is not obligated to do so under
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law. Of course U.S. government securities, including U.S. Treasury securities,
are among the safest securities, however, not unlike other debt securities, they
are still sensitive to interest rate changes, which will cause their yields to
fluctuate.
VARIABLE AND FLOATING RATE DEBT SECURITIES pay an interest rate, which is
adjusted either periodically or at specific intervals or which floats
continuously according to a formula or benchmark. Although these structures
generally are intended to minimize the fluctuations in value that occur when
interest rates rise and fall, some structures may be linked to a benchmark in
such a way as to cause greater volatility to the security's value.
Some variable rate securities may be combined with a put or demand feature
(variable rate demand securities) that entitles the holder to the right to
demand repayment in full or to resell at a specific price and/or time. While the
demand feature is intended to reduce credit risks, it is not always
unconditional, and may make the securities more difficult to sell quickly
without losses. There are risks involved with these securities because there may
be no active secondary market for a particular variable rate demand security
purchased by a fund. In addition, a fund may exercise only its demand rights at
certain times. A fund could suffer losses in the event that the issuer defaults
on its obligation.
INVESTMENT RESTRICTIONS
The following investment limitations may be changed only by a vote of a majority
of each fund's shareholders.
EACH FUND MAY NOT:
(1) Purchase securities or make investments other than in accordance with
its investment objectives and policies.
(2) Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. government, its agencies or instrumentalities)
if, as a result thereof, more than 5% of the value of its assets would
be invested in the securities of such issuer.
(3) Purchase, in the aggregate with all other Schwab Money Funds, more than
10% of any class of securities of any issuer. All debt securities and
all preferred stocks are each considered as one class. (For purposes of
this limitation, the following funds constitute the Schwab Money Funds:
Schwab Money Market Fund, Schwab Government Money Fund, Schwab
Retirement Money Fund and Schwab Institutional Money Fund.)
(4) Concentrate 25% or more of the value of its assets in any one industry;
provided, however, that it reserves the freedom of action to invest up
to 100% of its assets in certificates of deposit or bankers'
acceptances issued by domestic branches of U.S. banks and U.S. branches
of foreign banks (which the fund has determined to be subject to the
same regulation as U.S. banks), or obligations of, or guaranteed by,
the U.S. government, its agencies or instrumentalities in accordance
its investment objective and policies.
(5) Invest more than 5% of its total assets in securities of issuers (other
than obligations of, or guaranteed by, the U.S. government, its
agencies or instrumentalities) that, with their predecessors, have a
record of less than three years of continuous operation.
(6) Enter into repurchase agreements if, as a result thereof, more than 10%
its net assets valued at the time of the transaction would be subject
to repurchase agreements maturing in more than 7-days and invested in
securities restricted as to disposition under the federal securities
laws (except commercial paper issued under Section 4(2) of the
Securities Act of 1933, as amended). Each fund will invest no more than
10% of its net assets in illiquid securities.
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(7) Invest more than 5% of its total assets in securities restricted as to
disposition under the federal securities laws (except commercial paper
issued under Section 4(2) of the Securities Act of 1933, as amended).
(8) Purchase or retain securities of an issuer if any of the officers,
trustees or directors of the Trust or its investment adviser or the
Sub-Adviser individually own beneficially more than 1/2 of 1% of the
securities of such issuer and together beneficially own more than 5% of
the securities of such issuer.
(9) Invest in commodities or commodity contracts, futures contracts, real
estate or real estate limited partnerships, although it may invest in
securities which are secured by real estate and securities of issuers
which invest or deal in real estate.
(10) Invest for the purpose of exercising control or management of another
issuer.
(11) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of
assets. 1
(12) Make loans to others (except through the purchase of debt obligations
or repurchase agreements in accordance with its investment objectives
and policies), except each fund may (1) purchase a portion of an issue
of short-term debt securities or similar obligations (including
repurchase agreements) that are publicly distributed or customarily
purchased by institutional investors; and (2) lend its portfolio
securities.
(13) Borrow money, except as a temporary measure for extraordinary or
emergency purposes, and then only in an amount up to one-third of the
value of its total assets in order to meet redemption requests without
immediately selling any portfolio securities. The funds will not borrow
for leverage purposes or purchase securities or make investments while
reverse repurchase agreements or borrowings are outstanding. If for any
reason the current value of the total net assets of any fund falls
below an amount equal to three times the amount of indebtedness from
money borrowed, such fund will, within three business days, reduce its
indebtedness to the extent necessary.
(14) Write, purchase or sell puts, calls or combinations thereof.
(15) Make short sales of securities, or purchase any securities on margin,
except to obtain such short-term credits as may be necessary for the
clearance of transactions.
(16) Invest in interests in oil, gas, mineral leases or other mineral
exploration or development programs, although it may invest in the
securities of issuers which invest in or sponsor such programs.
(17) Underwrite securities issued by others except to the extent it may be
deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of securities from its investment
portfolio.
(18) Issue senior securities as defined in the 1940 Act.
Except with respect to borrowings, concentration of investments and investments
in illiquid securities, later changes in values or net assets do not require a
fund to sell an investment even if it could not then make the same investment.
MANAGEMENT OF THE FUNDS
- --------------
1 See the description of the trustees' deferred compensation plan under
"Management of the Funds" for an exception to this investment restriction.
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The officers and trustees, their principal occupations during the past five
years and their affiliations, if any, with The Charles Schwab Corporation,
Charles Schwab & Co., Inc. (Schwab) and Charles Schwab Investment Management,
Inc. (CSIM or the investment adviser), are as follows:
<TABLE>
<CAPTION>
POSITION(S) WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATIONS & AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman and Trustee Chairman, Co-Chief Executive Officer and Director, The Charles Schwab
July 29, 1937 Corporation; Chairman, Chief Executive Officer and Director, Charles Schwab
Holdings, Inc.; Chairman and Director, Charles Schwab & Co., Inc., Charles
Schwab Investment Management, Inc., The Charles Schwab Trust Company and Schwab
Retirement Plan Services, Inc.; Chairman and Director (current board positions),
and Chairman (officer position) until December 1995, Mayer & Schweitzer, Inc. (a
securities brokerage subsidiary of The Charles Schwab Corporation); Director,
The Gap, Inc. (a clothing retailer), Transamerica Corporation (a financial
services organization), AirTouch Communications (a telecommunications company)
and Siebel Systems (a software company).
STEVEN L. SCHEID* President and Trustee Executive Vice President and Chief Financial Officer, The Charles Schwab
June 28, 1953 Corporation; Enterprise President--Financial Products and Services and Chief
Financial Officer, Charles Schwab & Co., Inc.; Chief Executive Officer, Chief
Financial Officer and Director, Charles Schwab Investment Management, Inc. From
1994 to 1996, Mr. Scheid was Executive Vice President of Finance for First
Interstate Bancorp and Principal Financial Officer from 1995 to 1996. Prior to
1994, Mr. Scheid was Chief Financial Officer, First Interstate Bank of Texas.
DONALD F. DORWARD Trustee Executive Vice President and Managing Director, Grey Advertising. From 1990 to
September 23, 1931 1996, Mr. Dorward was President and Chief Executive Officer, Dorward &
Associates
</TABLE>
- ------------------
*This Trustee is an "interested person" of the trusts.
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<TABLE>
<CAPTION>
<S> <C> <C>
(advertising and marketing/consulting firm).
ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and Director, Semloh Financial, Inc.
May 15, 1931 (international financial services and investment advisory firm).
DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens & Company (Investments) and Chairman and Chief
June 28, 1938 Executive Officer of North American Trust (real estate investment trust).
MICHAEL W. WILSEY Trustee Chairman, Chief Executive Officer and Director, Wilsey Bennett, Inc. (truck and
August 18, 1943 air transportation, real estate investment, management, and investments).
TAI-CHIN TUNG Treasurer and Principal Vice President, Treasurer and Controller, Charles Schwab Investment Management,
March 7, 1951 Financial Officer Inc. From 1994 to 1996, Ms. Tung was Controller for Robertson Stephens
Investment Management, Inc. From 1993 to 1994, she was Vice President of Fund
Accounting, Capital Research and Management Co.
WILLIAM J. KLIPP* Executive Vice Executive Vice President, SchwabFunds(R), Charles Schwab & Co., Inc.; President
December 9, 1955 President, Chief and Chief Operating Officer, Charles Schwab Investment Management, Inc.
Operating Officer and
Trustee
STEPHEN B. WARD Senior Vice President Senior Vice President and Chief Investment Officer, Charles Schwab Investment
April 5, 1955 and Chief Investment Management, Inc.
Officer
FRANCES COLE Secretary Senior Vice President, Chief Counsel and Assistant Corporate Secretary, Charles
September 9, 1955 Schwab Investment Management, Inc.
</TABLE>
Each fund is overseen by a board of trustees. The board of trustees meets
regularly to review each fund's activities, contractual arrangements and
performance. The board of trustees is responsible
- -------------------
*This Trustee is an "interested person" of the Trust.
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for protecting the interests of a fund's shareholders. The following table
provides information as of the fiscal year ended December 31, 1998, concerning
compensation of the trustees. Unless otherwise stated, information is for the
fund complex, which included 38 funds as of December 31, 1998.
<TABLE>
<CAPTION>
Pension or ($)
($) Retirement Total
Name of Trustee Aggregate Compensation Benefits Accrued Compensation
from the as Part of Fund from Fund Complex
Trust Expenses
--------------------------------
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles R. Schwab 0 N/A 0
Steven L. Scheid 1 0 N/A 0
Tom D. Seip 0 N/A 0
William J. Klipp 0 N/A 0
Donald F. Dorward 0 N/A
Robert G. Holmes 0 N/A
Donald R. Stephens 0 N/A
Michael W. Wilsey 0 N/A
</TABLE>
DEFERRED COMPENSATION PLAN
Trustees who are not "interested persons" of a trust ("independent trustees")
may enter into a fee deferral plan. Under this plan, deferred fees will be
credited to an account established by the trust as of the date that such fees
would have been paid to the trustee. The value of this account will equal the
value that the account would be if the fees credited to the account had been
invested in the shares of SchwabFunds selected by the trustee. Currently, none
of the independent trustees have elected to participate in this plan.
Pursuant to the exemptive relief granted to the trust, each fund will purchase
and maintain the selected SchwabFund securities in an amount equal to the deemed
investments in that fund of the Deferred Fee Accounts of the independent
trustees. The exemptive relief granted to the trust permits the funds and the
trustees to purchase the selected SchwabFund securities, which transactions
would otherwise be limited or prohibited by the investment policies and/or
restrictions of the funds.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 1, 1999, [VAR: QLEGAL: name of person or entity and the jurisdiction
under the laws of which it is organized and all parent companies] control the
[VAR: Fund Name] through ownership of [VAR: QLEGAL: x.x%] securities or other
basis of control.]
____________________
1 Effective August 18, 1998, Mr. Scheid was elected President and trustee. Mr.
Seip served as President and trustee until May 15, 1998.
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As of April 1, 1999 [VAR: QLEGAL: month end or 1st of month date no more than 30
days prior to effective date], the officers and trustees of the trust(s), as a
group owned of record or beneficially [VAR: QLEGAL: x.x% / less than 1%] of the
outstanding voting securities of each fund.
As of April 1, 1999, the [VAR: QLEGAL: name of entity or person] directly or
beneficially owned, [VAR: QLEGAL: x.xx%] of shares of the [VAR: Fund Name /
Class Name].
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc. (CSIM or the investment adviser), a
wholly owned subsidiary of The Charles Schwab Corporation, 101 Montgomery
Street, San Francisco CA 94104, serves as the funds' investment adviser and
administrator pursuant to an Investment Advisory and Administration Agreement
(Advisory Agreement) between it and the trust. Charles Schwab & Co., Inc.
(Schwab) is an affiliate of the investment adviser and is the trust's
distributor, shareholder services agent and transfer agent. Charles R. Schwab is
the founder, Chairman, Co-Chief Executive Officer and Director of The Charles
Schwab Corporation. As a result of his ownership of and interests in The Charles
Schwab Corporation, Mr. Schwab may be deemed to be a controlling person of the
investment adviser and Schwab.
Year 2000 presents uncertainties and possible risks to the smooth operations of
the funds and the provision of services to shareholders. Many computer programs
use only two digits to identify a specific year and therefore may not accurately
recognize the upcoming change in the next century. If not corrected, many
computer applications could fail or create erroneous results by or at year 2000.
Due to the funds' and their service providers' dependence on computer technology
to operate, the nature and impact of year 2000 processing failures on the funds
could be material. The funds' investment adviser is taking steps to minimize the
risks of year 2000 for the funds, including seeking assurances from the funds'
service providers that they are analyzing their systems, testing them for
potential problems and remediating them to the extent possible. There can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
funds, however, minimizing year 2000 risk for the funds is a priority of the
investment adviser.
For its advisory and administrative services to the fund, the investment adviser
is entitled to receive a graduated annual fee, payable monthly, of 0.46% of each
fund's average daily net assets of the first $1 billion, 0.45% of the next $1
billion but not in excess of $3 billion, 0.40% of net assets over $3 billion but
not in excess of $10 billion, 0.37% of such assets over $10 billion but not in
excess of $20 billion and 0.34% of such assets over $20 billion.
For the fiscal years ended December 31, 1996, 1997 and 1998, Schwab
Institutional Advantage Fund paid investment and advisory fees of $292,000 (fees
were reduced $225,000), $388,000 (fees were reduced by $768,000) and
$____________ (fees were reduced by $____________).
For the fiscal years ended December 31, 1996, 1997 and 1998, Schwab Retirement
Fund paid investment and advisory fees of $494,000 (fees were reduced $22,000),
$557,000 (fees were reduced by $114,000) and $____________ (fees were reduced by
$____________).
The investment adviser and Schwab have voluntarily guaranteed that, through at
least [APRIL 30, 1999], the total operating expenses (excluding interest, taxes
and extraordinary expenses) of the
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fund will not exceed [0.50%] for the Schwab Institutional Advantage Money Fund
and [0.73%] for the Schwab Retirement Money Fund of the average daily net
assets, respectively.
DISTRIBUTOR
Pursuant to an agreement, Schwab is the principal underwriter for shares of the
funds and is the trust's agent for the purpose of the continuous offering of the
funds' shares. Each fund pays the cost of the prospectuses and shareholder
reports to be prepared and delivered to existing shareholders. Schwab pays such
costs when the described materials are used in connection with the offering of
shares to prospective investors and for supplementary sales literature and
advertising. Schwab receives no fee under the agreement. Terms of continuation,
termination and assignment under the agreement are identical to those described
above with respect to the Advisory Agreement.
The funds pay other expenses that typically are connected with the trust's
operations, and include legal, audit and custodian fees, as well as the costs of
accounting and registration of the funds. Expenses not directly attributable to
a particular fund will generally be allocated among the funds in the trust on
the basis of each fund's relative net assets at the time the expense is
incurred.
SHAREHOLDER SERVICES AND TRANSFER AGENT
Schwab provides fund information to shareholders, including share price,
reporting shareholder ownership and account activities and distributing the
funds' prospectuses, financial reports and other informational literature about
the funds. Schwab maintains the office space, equipment and personnel necessary
to provide these services. Schwab also distributes and markets SchwabFunds(R)
and provides other services.
CUSTODIAN AND FUND ACCOUNTANT
PNC Bank, National Association, Airport Business Center, 200 Stevens Drive, Suit
440, Lester Pennsylvania, 19113, serves as custodian for the funds and PFPC,
Inc., 103 Bellevue Parkway, Wilmington DE 19809, serves as fund accountant.
The custodian is responsible for the daily safekeeping of securities and cash
held or sold by the funds. The accountant maintains all books and records
related to each fund's transactions.
INDEPENDENT ACCOUNTANT
The funds' independent accountant, ______________, audits and reports on the
annual financial statements of the funds and reviews certain regulatory reports
and each funds' federal income tax return. It also performs other professional
accounting, auditing, tax and advisory services when the trust engages it to do
so. Their address is __________. The funds' audited financial statements for the
fiscal year ended December 31, 1998, are included in the funds' annual report,
which is a separate report supplied with the SAI.
BROKERAGE ALLOCATION AND OTHER PRACTICES
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PORTFOLIO TURNOVER
Because securities with maturities of less than one year are excluded from
required portfolio turnover rate calculations, the funds' portfolio turnover
rate for reporting purposes is expected to be zero.
PORTFOLIO TRANSACTIONS
In effecting securities transactions for a fund, the investment adviser seeks to
obtain best price and execution. Subject to the supervision of the board of
trustees, the investment adviser will generally select brokers and dealers for
the funds primarily on the basis of the quality and reliability of brokerage
services, including execution capability and financial responsibility.
When the execution capability and price offered by two or more broker-dealers
are comparable, the investment adviser may, in its discretion utilize the
services of broker-dealers that provide it with investment information and other
research resources. Such resources also may be used by the investment adviser
when providing advisory services to other investment advisory clients, including
mutual funds.
The funds expect that purchases and sales of portfolio securities will usually
be principal transactions. Securities will normally be purchased directly from
the issuer or from an underwriter or market maker for the securities. Purchases
from underwriters will include a commission or concession paid be the issuer to
the underwriter, and purchases from dealers serving as market makers will
include the spread between the bid and asked prices
The investment decisions for each fund are reached independently from those for
other accounts managed by the investment adviser. Such other accounts also may
make investments in instruments or securities at the same time as a fund. When
two or more accounts managed by the investment adviser have funds available for
investment in similar instruments, available instruments are allocated as to
amount in a manner considered equitable to each account. In some cases, this
procedure may affect the size or price of the position obtainable for a fund.
However, it is the opinion of the board of trustees that the benefits conferred
by the investment manager outweigh any disadvantages that may arise from
exposure to simultaneous transactions.
DESCRIPTION OF THE TRUST
Each fund, is a series of the Charles Schwab Family of Funds, an open-end
investment management company organized as a Massachusetts business trust on
October 20, 1989.
Each Declaration of Trust provides that shares may be automatically redeemed if
held by a shareholder in an amount less than the minimum required by each fund
or share class. Each fund's or class's initial and subsequent minimum investment
and balance requirements are set forth in the prospectus. These minimums may be
waived for certain investors, including trustees, officers and employees of
Schwab, or changed without prior notice.
The funds may hold special meetings. These meetings may be called for purposes
such as electing trustees, changing fundamental policies and amending management
contracts. Shareholders are entitled to one vote for each share owned and may
vote by proxy or in person. Proxy materials will be mailed to shareholders prior
to any meetings, and will include a voting card and information explaining the
matters to be voted upon.
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The bylaws of the trust provide that a majority of shares entitled to vote shall
be a quorum for the transaction of business at a shareholders' meeting, except
that where any provision of law, or of the Declaration of Trust or of the bylaws
permits or requires that (1) holders of any series shall vote as a series, then
a majority of the aggregate number of shares of that series entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that series, or (2) holders of any class shall vote as a class, then a majority
of the aggregate number of shares of that class entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that class.
Any lesser number shall be sufficient for adjournments. Any adjourned session or
sessions may be held, within a reasonable time after the date set for the
original meeting, without the necessity of further notice. The Declaration of
Trust specifically authorizes the board of trustees to terminate the trust (or
any of its investment portfolios) by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for the trust's
obligations. The Declaration of Trust, however, disclaims shareholder liability
for the trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the trust or the trustees. In addition, the Declaration of Trust provides for
indemnification out of the property of an investment portfolio in which a
shareholder owns or owned shares for all losses and expenses of such shareholder
or former shareholder if he or she is held personally liable for the obligations
of the trust solely by reason of being or having been a shareholder. Moreover,
the trust will be covered by insurance which the trustees consider adequate to
cover foreseeable tort claims. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote, because
it is limited to circumstances in which a disclaimer is inoperative and the
trust itself is unable to meet its obligations. There is a remote possibility
that a fund could become liable for a misstatement in the prospectus or SAI
about another fund.
As more fully described in each Declaration of Trust, the trustees may each
year, or more frequently, distribute to the shareholders of each series accrued
income less accrued expenses and any net realized capital gains less accrued
expenses. Distributions of each year's income of each series shall be
distributed pro rata to shareholders in proportion to the number of shares of
each series held by each of them. Distributions will be paid in cash or shares
or a combination thereof as determined by the trustees. Distributions paid in
shares will be paid at the net asset value per share as determined in accordance
with the bylaws.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASING AND REDEEMING SHARES OF THE FUNDS
The funds are open each day that both the Federal Reserve Bank of New York (New
York Fed) and New York Stock Exchange (NYSE) are open (business days). The
following holiday closings are currently scheduled for 1999: New Year's Day,
Martin Luther King's Birthday (observed), President's Day, Good Friday, Memorial
Day (observed), Independence Day (observed), Labor Day, Columbus Day (observed),
Veterans Day, Thanksgiving Day and Christmas Day. On any day that the New York
Fed, NYSE or principal government securities markets close early, such as days
in advance of holidays, the funds reserve the right to advance the time by which
purchase, redemption and exchanges orders must be received on that day.
As long as the funds or Schwab follow reasonable procedures to confirm that your
telephone order is genuine, they will not be liable for any losses an investor
may experience due to unauthorized or fraudulent instructions. These procedures
may include requiring a form of
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personal identification before acting upon any telephone order, providing
written confirmation of telephone orders and tape recording all telephone
orders.
Share certificates will not be issued in order to avoid additional
administrative costs, however, share ownership records are maintained by Schwab.
Twice a year, financial reports will be mailed to shareholders describing the
funds' performance and investment holdings. In order to reduce these mailing
costs, each household will receive one consolidated mailing. If you would like
additional copies, you may call or write your fund at the telephone number or
address on the cover of this SAI.
The funds have made an election with the SEC to pay in cash all redemptions
requested by any shareholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of its net assets at the beginning of
such period. This election is irrevocable without the SEC's prior approval.
Redemption requests in excess of these limits may be paid, in whole or in part,
in investment securities or in cash, as the board of trustees may deem
advisable. Payment will be made wholly in cash unless the board of trustees
believes that economic or market conditions exist that would make such payment a
detriment to the best interests of a fund. If redemption proceeds are paid in
investment securities, such securities will be valued as set forth in "Pricing
of Shares". A redeeming shareholder would normally incur brokerage expenses if
he or she were to convert the securities to cash.
PRICING OF SHARES
Each fund values its portfolio instruments at amortized cost, which means they
are valued at their acquisition cost, as adjusted for amortization of premium or
discount, rather than at current market value. Calculations are made to compare
the value of a fund's investments at amortized cost with market values. When
determining market values for portfolio securities, the funds use market quotes
if they are readily available. In cases where quotes are not readily available,
a fund may value securities based on fair values developed using methods
approved by the fund's board of trustees. Fair values may be determined by using
actual quotations or estimates of market value, including pricing service
estimates of market values, or values obtained from yield data relating to
classes of portfolio securities.
The amortized cost method of valuation seeks to maintain a stable net asset
value per share (NAV) of $1.00, even where there are fluctuations in interest
rates that affect the value of portfolio instruments. Accordingly, this method
of valuation can in certain circumstances lead to a dilution of a shareholder's
interest.
If a deviation of 1/2 of 1% or more were to occur between the NAV calculated
using market values and a fund's $1.00 NAV calculated using amortized cost or if
there were any other deviation that the board of trustees believed would result
in a material dilution to shareholders or purchasers, the board of trustees
would promptly consider what action, if any, should be initiated.
If a fund's NAV calculated using market values declined, or were expected to
decline, below the fund's $1.00 NAV calculated using amortized cost, the board
of trustees might temporarily reduce or suspend dividend payments in an effort
to maintain the fund's $1.00 NAV. As a result of such reduction or suspension of
dividends or other action by the board of trustees, an investor would receive
less income during a given period than if such a reduction or suspension had not
taken place. Such action could result in investors receiving no dividend for the
period during which they hold their shares and receiving, upon redemption, a
price per share lower than that which they paid. On the other hand, if a fund's
NAV calculated using market values were to
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increase, or were anticipated to increase above the fund's $1.00 NAV calculated
using amortized cost, the board of trustees might supplement dividends in an
effort to maintain the fund's $1.00 NAV.
TAXATION
FEDERAL TAX INFORMATION FOR THE FUNDS
It is each fund's policy to qualify for taxation as a "regulated investment
company" (RIC) by meeting the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By qualifying as a RIC, each fund
expects to eliminate or reduce to a nominal amount the federal income tax to
which it is subject. If a fund does not qualify as a RIC under the Code, it will
be subject to federal income tax on its net investment income and any net
realized capital gains.
The Code imposes a non-deductible excise tax on RICs that do not distribute in a
calendar year (regardless of whether they otherwise have a non-calendar taxable
year) an amount equal to 98% of their "ordinary income" (as defined in the Code)
for the calendar year plus 98% of their net capital gain for the one-year period
ending on October 31 of such calendar year, plus any undistributed amounts from
prior years. The non-deductible excise tax is equal to 4% of the deficiency. For
the foregoing purposes, a fund is treated as having distributed any amount on
which it is subject to income tax for any taxable year ending in such calendar
year.
FEDERAL INCOME TAX INFORMATION FOR SHAREHOLDERS
The discussion of federal income taxation presented below supplements the
discussion in the funds' prospectus and only summarizes some of the important
federal tax considerations generally affecting shareholders of the funds.
Accordingly, prospective investors (particularly those not residing or domiciled
in the United States) should consult their own tax advisers regarding the
consequences of investing in a fund.
On each business day that the NAV of a fund is determined, such fund's net
investment income will be declared after the close of trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern time) as a daily dividend to
shareholders of record. For each fund, dividends will normally be reinvested
monthly in shares of the fund at the NAV on the 15th day of each month, if a
business day, otherwise on the next business day, except in December when
dividends are reinvested on the last business of December. If cash payment is
requested, checks will normally be mailed on the business day following the
reinvestment date. Each fund will pay shareholders, who redeem all of their
shares, all dividends accrued to the time of the redemption within 7 days.
Each fund calculates its dividends based on its daily net investment income. For
this purpose, the net investment income of a fund consists of: (1) accrued
interest income, plus or minus amortized discount or premium, minus (2) accrued
expenses allocated to that fund. If a fund realizes any capital gains, they will
be distributed at least once during the year as determined by the board of
trustees. Any realized capital losses, to the extent not offset by realized
capital gains, will be carried forward.
Any dividends declared by a fund in October, November or December and paid the
following January are treated, for tax purposes, as if they were received by
shareholders on December 31 of the year in which they were declared. A fund may
adjust its schedule for the reinvestment of
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distributions for the month of December to assist in complying with the
reporting and minimum distribution requirements of the Code.
The funds do not expect to realize any long-term capital gains. However
long-term capital gains distributions are taxable as long-term capital gains,
regardless of how long you have held your shares. If you receive a long-term
capital gains distribution with respect to fund shares held for six months or
less, any loss on the sale or exchange of those shares shall, to the extent of
the long-term capital gains distribution, be treated as a long-term capital
loss. Distributions by a fund also may be subject to state, local and foreign
taxes, and its treatment under applicable tax laws may differ from the federal
income tax treatment.
A fund may engage in techniques that may alter the timing and character of its
income. A fund may be restricted in its use of these techniques by rules
relating to its qualification as a regulated investment company.
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder who (1) fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) is subject to withholding by the Internal Revenue Service for
failure to properly report all payments of interest or dividends; or (3) fails
to provide a certified statement that he or she is not subject to "backup
withholding." Backup withholding is not an additional tax and any amounts
withheld may be credited against the shareholder's ultimate U.S. tax liability.
Foreign shareholders (i.e., nonresident alien individuals and foreign
corporations, partnerships, trusts and estates) are generally subject to U.S.
withholding tax at the rate of 30% (or a lower tax treaty rate) on distributions
derived from net investment income and short-term capital gains. Distributions
to foreign shareholders of long-term capital gains and any gains from the sale
or other disposition of shares of the funds generally are not subject to U.S.
taxation, unless the recipient is an individual who meets the Code's definition
of "resident alien." Different tax consequences may result if the foreign
shareholder is engaged in a trade or business within the United States. In
addition, the tax consequences to a foreign shareholder entitled to claim the
benefits of a tax treaty may be different than those described above.
CALCULATION OF PERFORMANCE DATA
The funds' current 7-day yields based on the seven days ended December 31, 1998
are stated below and were calculated by determining the net change, exclusive of
capital changes and income other than investment income, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting yield figure
carried to at least the nearest hundredth of one percent.
Schwab Institutional Advantage %
Money Fund
Schwab Retirement Money Fund %
The funds' effective yields based on the seven days ended December 31, 1998 are
stated below and were calculated by determining the net change, exclusive of
capital changes, in the value of a
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hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, with the resulting yield
figure carried to at least the nearest one hundredth of one percent.
Schwab Institutional Advantage %
Money Fund
Schwab Retirement Money Fund %
A fund also may advertise its average annual total return and cumulative total
return. Average annual total return is a standardized measure of performance
calculated using methods prescribed by SEC rules. It is calculated by
determining the ending value of a hypothetical initial investment of $1,000 made
at the beginning a specified period. The ending value is then divided by the
initial investment, which is annualized and expressed as a percentage. It is
reported for periods of one, five and 10 years or since commencement of
operations for periods not falling on those intervals. In computing average
annual total return, a fund assumes reinvestment of all distributions at net
asset value on applicable reinvestment dates. Cumulative total return is
calculated using the same formula that is used for average annual total return
except that, rather than calculating the total return based on a one-year
period, cumulative total return is calculated from commencement of operations to
the fiscal year ended December 31, 1998.
The performance of the funds may be compared with the performance of other
mutual funds by comparing the ratings of mutual fund rating services, various
indices, U.S. government obligations, bank certificates of deposit, the consumer
price index and other investments for which reliable data is available. An
index's performance data assumes the reinvestment of dividends but does not
reflect deductions for administrative, management and trading expenses. The
funds will be subject to these costs and expenses, while an index does not have
these expenses. In addition, various factors, such as holding a cash balance,
may cause the funds' performance to be higher or lower than that of an index.
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APPENDIX - RATINGS OF INVESTMENT SECURITIES
COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers (or
related supporting institutions) of commercial paper with this rating are
considered to have a superior ability to repay short-term promissory
obligations. Issuers (or related supporting institutions) of securities rated
Prime-2 are viewed as having a strong capacity to repay short-term promissory
obligations. This capacity will normally be evidenced by many of the
characteristics of issuers whose commercial paper is rated Prime-1 but to a
lesser degree.
STANDARD & POOR'S CORPORATION
An S&P A-1 commercial paper rating indicated a strong degree of safety regarding
timely payment of principal and interest. Issues determined to possess
overwhelming safety characteristics are denoted A-1+. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
DUFF & PHELPS CREDIT RATING CO.
Duff-1 is the highest commercial paper rating assigned by Duff & Phelps Credit
Rating Co. ("Duff"). Three gradations exist within this rating category: a
Duff-1+ rating indicates the highest certainty of timely payment (issuer
short-term liquidity is found to be outstanding and safety is deemed to be just
below that of risk-free short-term U.S. Treasury obligations), a Duff-1 rating
signifies a very high certainty of timely payment (issuer liquidity is
determined to be excellent and risk factors are considered minor) and a Duff-1-
rating denotes high certainty of timely payment (issuer liquidity factors are
strong and risk is very small). A Duff-two rating indicates a good certainty of
timely payment; liquidity factors and company fundamentals are sound and risk
factors are small.
IBCA
F1+ is the highest category, and indicates the strongest degree of assurance for
timely payment. Issues rated F1 reflect an assurance of timely payment only
slightly less than issues rated F1+. Issues assigned an F2 rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues in the first two rating categories.
SHORT-TERM NOTES AND VARIABLE RATE DEMAND OBLIGATIONS
MOODY'S INVESTORS SERVICE
Short-term notes/variable rate demand obligations bearing the designations
MIG-1/VMIG-1 are considered to be of the best quality, enjoying strong
protection from established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing. Obligations rated
MIG-2/VMIG-2 are of high quality and enjoy ample margins of protection although
not as large as those of the top rated securities.
STANDARD & POOR'S CORPORATION
An S&P SP-1 rating indicates that the subject securities' issuer has a very
strong capacity to pay principal and interest. Issues determined to possess very
strong safety characteristics are given a plus (+) designation. S&P's
determination that an issuer has a strong capacity to pay principal and interest
is denoted by an SP-2 rating.
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COMMERCIAL PAPER, SHORT-TERM OBLIGATIONS AND DEPOSIT
OBLIGATIONS ISSUED BY BANKS
THOMSON BANKWATCH (TBW)
TBW-1 is the highest category and indicates the degree of safety regarding
timely repayment of principal and interest is very high. TBW-2 is the second
highest category and while the degree of safety regarding timely repayment of
principal and interest is strong, the relative degree of safety is not as high
as for issues rated TBW-1.
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PART C
OTHER INFORMATION
THE CHARLES SCHWAB FAMILY OF FUNDS
Item 23. Financial Statements and Exhibits.
(b) Exhibits
(a) Articles of Amended and Restated Agreement and Declaration of
Incorporation Trust to Registrant's Registration Statement on
Form N-1A,dated May 9, 1995, was electronically
filed and is incorporated by reference to
Exhibit (1) to Post-Effective Amendment No. 33.
(b) By-laws Amended and Restated By-Laws are
incorporated by reference to Exhibit (2) to
Post-Effective Amendment No. 23 to Registrant's
Registration Statement on Form N-1A,
electronically filed on March 29, 1996.
(c) Instruments (i) Article III, Sections 4 and 5; Article IV,
Defining Section 1; Article V; Article VI, Section 2;
Rights of Article VIII, Section 4; and Article IX,
Shareholders Sections 1, 4 and 7 of the Agreement and
Declaration of Trust are incorporated by
reference to Exhibit (1) above.
(ii) Article 9 and Article 11 of the By-Laws are
incorporated by reference to Exhibit (2)
above.
(d) Investment (i) Investment Advisory and Administration
Advisory Agreement between Registrant and Charles
Contracts Schwab Investment Management, Inc. (the
"Investment Manager") with respect to Schwab
Money Market Fund, Schwab Government Money
Fund and Schwab Municipal Money Fund, dated
May 1, 1997, was electronically filed and is
incorporated herein by reference to Exhibit
5(a) to Post-Effective Amendment No. 29.
(ii) Schedule A to the Investment Advisory and
Administration Agreement between Registrant
and Charles Schwab Investment Management,
Inc. (the "Investment Manager") with respect
to Schwab Money Market Fund, Schwab
Government Money Fund and Schwab Municipal
Money Fund was electronically filed and is
incorporated herein by reference to Exhibit
5(b) to Post-Effective Amendment No. 27.
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(iii) Schedule B to the Investment Advisory
and Administration Agreement between
Registrant and Charles Schwab Investment
Management, Inc. (the "Investment
Manager") with respect to Schwab Money
Market Fund, Schwab Government Money
Fund and Schwab Municipal Money Fund was
electronically filed and is incorporated
herein by reference to Exhibit 5(c) to
Post-Effective Amendment No. 27.
(iv) Investment Advisory and Administration
Agreement between Registrant and the
Investment Manager, dated June 15, 1994,
was electronically filed and is
incorporated herein by reference to
Exhibit (5)(d) to Post-Effective
Amendment No. 27.
(v) Schedule A to the Investment Advisory
and Administration Agreement between
Registrant and the Investment Manager
with respect to Schwab California
Municipal Money Fund, Schwab U.S.
Treasury Money Fund, Schwab Value
Advantage Money Fund, Schwab
Institutional Advantage Money Fund(R),
Schwab Retirement Money Fund(R), Schwab
New York Municipal Money Fund, Schwab
Government Cash Reserves Fund, Schwab
New Jersey Municipal Money Fund, Schwab
Pennsylvania Municipal Money Fund and
Schwab Florida Municipal Money Fund, is
electronically filed herewith as
Exhibit (d)(v).
(vi) Schedule B to the Investment Advisory
and Administration Agreement between
Registrant and the Investment Manager,
dated June 15, 1994, was electronically
filed and is incorporated herein by
reference to Exhibit (5)(f) to
Post-Effective Amendment No. 27.
(vii) Schedule C to the Investment Advisory
and Administration Agreement between
Registrant and the Investment Manager
with respect to Schwab California
Municipal Money Fund, Schwab U.S.
Treasury Money Fund, Schwab Value
Advantage Money Fund, Schwab
Institutional Advantage Money Fund(R),
Schwab Retirement Money Fund(R), and
Schwab New York Municipal Money Fund,
dated June 15, 1994, was electronically
filed and is incorporated herein by
reference to Exhibit (5)(g) to
Post-Effective Amendment No. 27.
3
<PAGE> 247
(viii) Schedule D to the Investment Advisory
and Administration Agreement between
Registrant and the Investment Manager
with respect to Schwab California
Municipal Money Fund, Schwab U.S.
Treasury Money Fund, Schwab Value
Advantage Money Fund, Schwab
Institutional Advantage Money Fund(R),
Schwab Retirement Money Fund(R), Schwab
New York Municipal Money Fund, Schwab
Government Cash Reserves Fund, Schwab
New Jersey Municipal Money Fund, Schwab
Pennsylvania Municipal Money Fund and
Schwab Florida Municipal Money Fund,
dated June 15, 1994, is electronically
filed herewith as Exhibit (d)(viii).
(e) Underwriting (i) Distribution Agreement between
Contracts Registrant and Charles Schwab & Co.,
Inc. ("Schwab"), dated June 15, 1994, to
Registrant's Registration Statement on
Form N-1A, was electronically filed and
is incorporated by reference to Exhibit
(6)(a) to Post-Effective Amendment No.
33.
(ii) Schedule A to the Distribution Agreement
between Registrant and Schwab was
electronically filed and is incorporated
by reference to Exhibit (6)(b) to
Post-Effective Amendment No. 35.
(f) Bonus or Inapplicable.
Profit Sharing
Contracts
(g) Custodian (i) Custodian Services Agreement between
Agreements Registrant and PNC Bank, N.A. (formerly,
Provident National Bank) dated April 8,
1991 to Registrant's Registration
Statement on Form N-1A, was
electronically filed and is incorporated
by reference to Exhibit (8)(k) to
Post-Effective Amendment No. 33.
(ii) Schedule A to the Custodian Services
Agreement was electronically filed and
is incorporated by reference to Exhibit
(8)(l) to Post-Effective Amendment No.
35.
(iii) Amendment Nos. 1 and 2 to the Custodian
Services Agreement referred to at
Exhibit (8)(k) above was electronically
filed and is incorporated by reference
to Exhibit (8)(n) to Post-Effective
Amendment No. 33.
(iv) Accounting Services Agreement between
Registrant and PFPC Inc. (formerly,
Provident Financial Processing
Corporation) dated April 8, 1991 to
Registrant's Registration Statement on
Form N-1A, was electronically filed and
is incorporated by reference to Exhibit
(8)(a) to Post-Effective Amendment No.
33.
4
<PAGE> 248
(v) Schedule B to the Accounting Services
Agreement referred to at Exhibit (8)(a)
was electronically filed and is
incorporated by reference to Exhibit
(8)(b) to Post-Effective Amendment No.
35.
(vi) Amendment Nos. 1 and 2 to the Accounting
Services Agreement referred to at
Exhibit (8)(a) above was electronically
filed and is incorporated by reference
to Exhibit (8)(d) to Post-Effective
Amendment No. 33.
(vii) Amended and Restated Transfer Agency
Agreement and Schedule B between
Registrant and Schwab dated June 5, 1995
to Registrant's Registration Statement
on Form N-1A, was electronically filed
and is incorporated by reference to
Exhibit (8)(e) to Post-Effective
Amendment No. 33.
(viii) Schedule A and Schedule C to the Amended
and Restated Transfer Agency Agreement
was electronically filed and is
incorporated by reference to Exhibit
(8)(e) to Post-Effective Amendment No.
35.
(ix) Shareholder Service Agreement between
Registrant and Schwab dated May 1, 1993
to Registrant's Registration Statement
on Form N-1A, was electronically filed
and is incorporated by reference to
Exhibit (8)(h) to Post-Effective
Amendment No. 33.
(x) Schedules A, B, and C to the Shareholder
Service Agreement between Registrant and
Schwab referred to at Exhibit (8)(h)
above to Registrant's Registration
Statement on Form N-1A, was
electronically filed and is incorporated
by reference to Exhibit (8)(I) to
Post-Effective Amendment No. 33.
(xi) Schedules A and C to the Shareholder
Service Agreement were electronically
filed and are incorporated by reference
to Exhibit (8)(j) to Post-Effective
Amendment No. 35.
(h) Other Material Inapplicable.
Contracts
(i) Legal Opinion To be filed by subsequent amendment.
(j) Other Opinion To be filed by subsequent amendment.
5
<PAGE> 249
(k) Omitted Inapplicable.
Financial
Statements
(l) Initial Capital (i) Purchase Agreement between Registrant
Agreements and Schwab relating to the Schwab U.S.
Treasury Money Fund to Registrant's
Registration Statement on Form N-1A, was
electronically filed and is incorporated
by reference to Exhibit (13)(a) to
Post-Effective Amendment No. 33.
(ii) Purchase Agreement between Registrant
and Schwab relating to the Schwab Value
Advantage Money Fund to Registrant's
Registration Statement on Form N-1A, was
electronically filed and is incorporated
by reference to Exhibit (13)(b) to
Post-Effective Amendment No. 33.
(iii) Purchase Agreement between Registrant
and Schwab relating to the Schwab
Retirement Money Fund(R) and the Schwab
Institutional Advantage Money Fund(R) to
Registrant's Registration Statement on
Form N-1A, was electronically filed and
is incorporated by reference to Exhibit
(13)(c) to Post-Effective Amendment No.
33.
(iv) Purchase Agreement between Registrant
and Schwab relating to the Schwab New
York Municipal Money Fund to
Registrant's Registration Statement on
Form N-1A, was electronically filed and
is incorporated by reference to Exhibit
(13)(d) to Post-Effective Amendment No.
33.
(v) Purchase Agreement between Registrant
and Schwab relating to the Schwab
Municipal Money Fund-Value Advantage
Shares to Registrant's Registration
Statement on Form N-1A, was
electronically filed and is incorporated
by reference to Exhibit (13)(e) to
Post-Effective Amendment No. 33.
(vi) Purchase Agreement between Registrant
and Schwab relating to the Schwab
California Municipal Money Fund-Value
Advantage Shares to Registrant's
Registration Statement on Form N-1A, was
electronically filed and is incorporated
by reference to Exhibit (13)(f) to
Post-Effective Amendment No. 33.
(vii) Purchase Agreement between Registrant
and Schwab relating to the Schwab New
York Municipal Money Fund-Value
Advantage Shares to Registrant's
Registration Statement on Form N-1A, was
electronically filed and is incorporated
by reference to Exhibit (13)(g) to
Post-Effective Amendment No. 33.
6
<PAGE> 250
(viii) Purchase Agreement between Registrant
and Schwab relating to the Schwab
Government Cash Reserves Fund was
electronically filed and is incorporated
by reference to Exhibit (13)(h) to
Post-Effective Amendment No. 36.
(ix) Purchase Agreement between Registrant
and Schwab relating to the Schwab New
Jersey Municipal Money Fund was
electronically filed and is incorporated
by reference to Exhibit (13)(i) to
Post-Effective Amendment No. 33.
(x) Purchase Agreement between Registrant
and Schwab relating to the Schwab
Pennsylvania Municipal Money Fund was
electronically filed and is incorporated
by reference to Exhibit (13)(j) to
Post-Effective Amendment No. 33.
(xi) Purchase Agreement between Registrant
and Schwab relating to the Schwab
Florida Municipal Money Fund was
electronically filed and is incorporated
by reference to Exhibit (13)(k) to
Post-Effective Amendment No. 36.
(m) Rule 12-b1 Plan Inapplicable
(o) Rule 18f-3 Plan (i) Form of Amended and Restated Multiple
Class Plan of Registrant and Schedule A
are incorporated by reference to Exhibit
(18) to Post-Effective Amendment No. 25
to Registrant's Registration Statement
on Form N-1A, filed on February 21,
1997.
7
<PAGE> 251
Item 24. Persons Controlled by or under Common Control with Registrant.
Schwab Investments, Schwab Capital Trust, and Schwab Annuity Portfolios each are
Massachusetts business trusts registered under the Investment Company Act of
1940, as amended (the "1940 Act"); are advised by the Investment Manager; and
employ Schwab as their principal underwriter, transfer agent and shareholder
services agent. As a result, Schwab Investments, Schwab Capital Trust, and
Schwab Annuity Portfolios may be deemed to be under common control with
Registrant.
Item 25. Indemnification.
Article VIII of Registrant's Amended and Restated Agreement and Declaration of
Trust (Exhibit (1) hereto, which is incorporated herein by reference) provides
in effect that Registrant will indemnify its officers and trustees against all
liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgments, in compromise, or as fines and penalties, and counsel
fees reasonably incurred by any such officer or trustee in connection with the
defense or disposition of any action, suit, or other proceeding. However, in
accordance with Section 17(h) and 17(i) of the 1940 Act and its own terms, said
Agreement and Declaration of Trust does not protect any person against any
liability to Registrant or its shareholders to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
In any event, Registrant will comply with 1940 Act Releases Nos. 7221 and 11330
respecting the permissible boundaries of indemnification by an investment
company of its officers and trustees.
Insofar as indemnification for liability arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of Investment Manager.
(a) Information pertaining to business and other connections of Registrant's
Investment Manager is hereby incorporated by reference to the section of the
Prospectuses for Schwab Money Market Fund, Schwab Government Money Fund, Schwab
U.S. Treasury Money Fund, Schwab Municipal Money Fund-Sweep Shares, Schwab
California Municipal Money Fund-Sweep Shares, Schwab New York Municipal Money
Fund-Sweep Shares, Schwab Institutional Advantage Money Fund(R) and Schwab
Retirement Money Fund(R) captioned "Management of the Fund(s);" the section of
the Prospectuses for Schwab Value Advantage Money Fund, Schwab Municipal Money
Fund-Value Advantage Shares, Schwab California Municipal Money Fund-Value
Advantage Shares and Schwab New York Municipal Money Fund-Value Advantage Shares
captioned "Organization and Management of the Fund(s);" and the section of the
Statements of Additional Information captioned "Management of the Trust."
Registrant's Investment Manager, Charles Schwab Investment Management, Inc., a
Delaware corporation, organized in October 1989 to serve as Investment Manager
to Registrant, also serves as the Investment Manager to Schwab Investments,
Schwab Capital Trust, and Schwab Annuity Portfolios, each an open-end,
management investment company. The principal place of business of the Investment
Manager is 101
8
<PAGE> 252
Montgomery Street, San Francisco, California 94104. The only business in which
the Investment Manager engages is that of investment manager and administrator
to Registrant, Schwab Investments, Schwab Capital Trust, Schwab Annuity
Portfolios and any other investment companies that Schwab may sponsor in the
future.
(b) The business, profession, vocation or employment of a substantial nature in
which each director and/or executive officer of Schwab and/or the Investment
Manager is or has been engaged during the past two fiscal years for his or her
own account in the capacity of director, officer, employee, partner or trustee
is as follows:
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles R. Schwab, Charles Schwab & Co., Inc. Chairman and Director
Chairman and Trustee
The Charles Schwab Corporation Chairman, Co-Chief Executive
Officer and Director
Schwab Holdings, Inc. Chairman, Chief Executive
Officer and Director
Charles Schwab Investment Management, Inc. Chairman and Director
The Charles Schwab Trust Company Chairman and Director
Mayer & Schweitzer, Inc. Chairman and Director
Schwab Retirement Plan Services, Inc. Chairman and Director
Charles Schwab Limited Chairman, Chief Executive
Officer and Director
Performance Technologies, Inc. Chairman and Director
TrustMark, Inc. Chairman and Director
Schwab (SIS) Holdings, Inc. I Chairman, Chief Executive
Officer and Director
Schwab International Holdings, Inc. Chairman, Chief Executive
Officer and Director
The Gap, Inc. Director
Transamerica Corporation Director
AirTouch Communications Director
Siebel Systems Director
</TABLE>
9
<PAGE> 253
<TABLE>
Name and Position
with Registrant Name of Company Capacity
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
David S. Pottruck Charles Schwab & Co., Inc. Chief Executive Officer and
Director
The Charles Schwab Corporation President, Co-Chief Executive
Officer and Director
Schwab Holdings, Inc. Director
Schwab Retirement Plan Services, Inc. Director
Charles Schwab Limited Director
Charles Schwab Investment Management, Inc. Director
Mayer & Schweitzer, Inc. Director
Performance Technologies, Inc. Director
Schwab (SIS) Holdings, Inc. I President, Chief Operating
Officer and Director
Schwab International Holdings, Inc. President, Chief Operating
Officer and Director
TrustMark, Inc. Director
Steven L. Scheid Charles Schwab & Co., Inc. Enterprise President - Financial
Products and Services and Chief
Financial Officer
The Charles Schwab Corporation Executive Vice President and
Chief Financial Officer
Schwab Holdings, Inc. Executive Vice President, Chief
Financial Officer and Director
Charles Schwab Investment Management, Inc. Chief Executive Officer, Chief
Financial Officer and Director
The Charles Schwab Trust Company Director
Charles Schwab Limited Finance Officer and Director
</TABLE>
10
<PAGE> 254
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Schwab Retirement Plan Services, Inc. Director
Performance Technologies, Inc. Director
Mayer & Schweitzer, Inc. Director
Schwab (SIS) Holdings, Inc. I Chief Financial Officer and
Director
Schwab International Holdings, Inc. Chief Financial Officer and
Director
Karen W. Chang Charles Schwab & Co., Inc. Enterprise President - General
Investor Services
The Charles Schwab Corporation Executive Vice President
John P. Coghlan Charles Schwab & Co., Inc. Enterprise President - Retirement
Plan Services and Services to
Investment Managers
The Charles Schwab Corporation Executive Vice President
The Charles Schwab Trust Company President, Chief Executive Officer
and Director
Schwab Retirement Plan Services, Inc. Director
Frances Cole, Charles Schwab Investment Management, Inc. Senior Vice President, Chief
Secretary Counsel and Assistant Corporate
Secretary
Linnet F. Deily Charles Schwab & Co., Inc. President - Schwab Retail Group
The Charles Schwab Corporation Executive Vice President
Christopher V. Dodds Charles Schwab & Co., Inc. Senior Vice President and
Controller
The Charles Schwab Corporation Senior Vice President and
Controller
</TABLE>
11
<PAGE> 255
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carrie Dwyer Charles Schwab & Co., Inc. Executive Vice President -
Corporate Oversight, General
Counsel and Corporate Secretary
Wayne W. Fieldsa Charles Schwab & Co., Inc. Enterprise President - Brokerage
Operations
Lon Gorman Charles Schwab & Co., Inc. Enterprise President - Capital
Markets and Trading
The Charles Schwab Corporation Executive Vice President
James M. Hackley Charles Schwab & Co., Inc. Executive Vice President and Head
of Branches
Cynthia K. Holbrook The Charles Schwab Corporation Assistant Corporate Secretary
Charles Schwab & Co., Inc. Assistant Corporate Secretary
Charles Schwab Investment Management, Inc. Corporate Secretary
The Charles Schwab Trust Company Assistant Corporate Secretary
Mayer & Schweitzer Secretary
Colleen M. Hummer Charles Schwab & Co., Inc. Senior Vice President - Mutual
Fund Operations
William J. Klipp, Charles Schwab & Co., Inc. Executive Vice President -
Trustee, Executive Vice SchwabFunds
President and Chief
Operating Officer
Charles Schwab Investment Management, Inc. President and Chief Operating
Officer
Daniel O. Leemon The Charles Schwab Corporation Executive Vice President and Chief
Strategy Officer
Charles Schwab & Co., Inc. Executive Vice President and Chief
Strategy Officer
Dawn G. Lepore Charles Schwab & Co., Inc. Executive Vice President and Chief
Information Officer
</TABLE>
12
<PAGE> 256
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Charles Schwab Corporation Executive Vice President and Chief
Information Officer
Susanne D. Lyons Charles Schwab & Co., Inc. Enterprise President - Retail
Investor Specialized Services
The Charles Schwab Corporation Executive Vice President
Gideon Sasson Charles Schwab & Co., Inc. Enterprise President - Brokerage
Operations
The Charles Schwab Corporation Executive Vice President
Leonard Short Charles Schwab & Co., Inc. Executive Vice President - CRS
Advertising and Branch Management
Lawrence J. Stupski Charles Schwab & Co., Inc. Director until February 1995; Vice
Chairman until August 1994
The Charles Schwab Corporation Vice Chairman and Director until
May 1998; Chief Operating Officer
until March 1994
Mayer & Schweitzer, Inc. Director until February 1995
The Charles Schwab Trust Company Director until December 1996
Luis E. Valencia Charles Schwab & Co., Inc. Executive Vice President -
International and Chief
Administrative Officer
The Charles Schwab Corporation Executive Vice President and Chief
Administrative Officer
Commercial Credit Corporation Managing Director until February
1994
Stephen B. Ward, Charles Schwab Investment Management, Inc. Senior Vice President and Chief
Senior Vice President and Investment Officer
Chief Investment Officer
</TABLE>
Item 27. Principal Underwriters.
13
<PAGE> 257
(a) Schwab acts as principal underwriter and distributor of Registrant's shares.
Schwab currently also acts as principal underwriter for Schwab Investments,
Schwab Capital Trust, Schwab Annuity Portfolios and intends to act as such for
any other investment company which Schwab may sponsor in the future.
(b) See Item 28(b) for information on the officers and directors of Schwab. The
principal business address of Schwab is 101 Montgomery Street, San Francisco,
California 94104.
(c) Not applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained pursuant to
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of: Registrant (transfer agency and shareholder records); Registrant's
investment manager and administrator, Charles Schwab Investment Management,
Inc., 101 Montgomery Street, San Francisco, California 94104; Registrant's
sub-investment adviser, Dimensional Fund Advisors Inc., 1299 Ocean Avenue, Suite
1100, Santa Monica, California 90401; Registrant's principal underwriter,
Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, California
94104; Registrant's Custodian, PNC Bank, National Association, Broad and Market
Streets, Philadelphia, Pennsylvania 19104 (ledgers, receipts and brokerage
orders); Registrant's fund accountants, PFPC, Inc., 400 Bellevue Parkway,
Wilmington, Delaware 19809; or Ropes & Gray, counsel to Registrant, 1301 K
Street, N.W., Suite 800 East, Washington, D.C. 20005 (minute books, bylaws and
declaration of trust).
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
14
<PAGE> 258
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, as amended
(the "1933 Act"), and the Investment Company Act of 1940, as amended, Registrant
has duly caused this Post Effective Amendment No. 36 to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Washington, District
of Columbia, on this 9th day of February, 1999.
CHARLES SCHWAB FAMILY OF FUNDS
Registrant
Charles R. Schwab*
------------------
Charles R. Schwab, Chairman
Pursuant to the requirements of the 1933 Act, this Post-Effective
Amendment No. 36 to Registrant's Registration Statement on Form N-1A has been
signed below by the following persons in the capacities indicated this 9th day
of February, 1999.
Signature Title
Charles R. Schwab* Chairman and Trustee
- --------------------
Charles R. Schwab
Steven L. Scheid* President and Trustee
- --------------------
Steven L. Scheid
William J. Klipp* Executive Vice President,
- -------------------- Chief Operating Officer and Trustee
William J. Klipp
Donald F. Dorward* Trustee
- --------------------
Donald F. Dorward
Robert G. Holmes* Trustee
- --------------------
Robert G. Holmes
Donald R. Stephens* Trustee
- --------------------
Donald R. Stephens
Michael W. Wilsey* Trustee
- --------------------
Michael W. Wilsey
Tai-Chin Tung* Treasurer and Principal Financial Officer
- --------------------
Tai-Chin Tung
*By_______________________________
Martin L. Lybecker, Attorney-In-Fact pursuant to Powers of Attorney filed
previously.
<PAGE> 259
EXHIBIT INDEX
Exhibit No. Document
b(d)(v) Schedule A to the Investment Advisory Agreement
dated June 15, 1994
b(o)(i) Schedule D to the Investment Advisory Agreement
15
<PAGE> 1
EXHIBIT b(d)(v)
SCHEDULE A
INVESTMENT ADVISORY AGREEMENT
FUND FUND EFFECTIVE DATE
- ---- -------------------
Schwab California Municipal Money Fund November 5, 1990
(formerly Schwab California Tax-Exempt Money Fund)
Schwab U.S. Treasury Money Fund November 5, 1991
Schwab Value Advantage Money Fund February 7, 1992
Schwab Institutional Advantage Money Fund November 26, 1993
Schwab Retirement Money Fund November 26, 1993
Schwab New York Municipal Money Fund November 10, 1994
(formerly Schwab New York Tax-Exempt Money Fund)
Schwab Government Cash Reserves Fund October 20, 1997
Schwab New Jersey Municipal Money Fund January 20, 1998
Schwab Pennsylvania Municipal Money Fund January 20, 1998
Schwab Florida Municipal Money Fund February 16, 1998
THE CHARLES SCHWAB FAMILY OF FUNDS
By: /s/ Frances Cole
------------------
Name: Frances Cole
Title: Secretary
CHARLES SCHWAB INVESTMENT MANAGEMENT, INC.
By: /s/ William J. Klipp
--------------------
Name: William J. Klipp
Title: Executive Vice President and Chief
Operating Officer
<PAGE> 1
EXHIBIT b(d)(viii)
SCHEDULE D
INVESTMENT ADVISORY AGREEMENT FEES
THE FEES LISTED BELOW ARE FOR SERVICES PROVIDED UNDER THIS AGREEMENT AND ARE TO
BE ACCRUED DAILY AND PAID MONTHLY IN ARREARS:
<TABLE>
<CAPTION>
FUND DATE
- ---- ----
<S> <C>
SCHWAB CALIFORNIA MUNICIPAL MONEY FUND November 5, 1990
Forty-six one-hundredths of one percent (.46%) of the Schwab California
Municipal Money Fund's average daily net assets not in excess of $1 billion;
forty-one one-hundredths of one percent (.41%) of such net assets over $1
billion but not in excess of $2 billion; and forty one-hundredths of one percent
(.40%) of such net assets over $2 billion.
SCHWAB U.S. TREASURY MONEY FUND November 5, 1991
Forty-six one-hundredths of one percent (.46%) of the Schwab U.S. Treasury Money
Fund's average daily net assets not in excess of $1 billion; forty-one
one-hundredths of one percent (.41%) of such net assets over $1 billion but not
in excess of $2 billion; and forty one-hundredths of one percent (.40%) of such
net assets over $2 billion.
SCHWAB VALUE ADVANTAGE MONEY FUND February 7, 1992
Forty-six one-hundredths of one percent (.46%) of the Schwab Value Advantage
Money Fund's average daily net assets not in excess of $1 billion; forty-five
one-hundredths of one percent (.45%) of such net assets over $1 billion but not
in excess of $3 billion; forty one-hundredths of one percent (.40%) of such net
assets over $3 billion but not in excess of $10 billion; thirty-seven
one-hundredths of one percent (.37%) of such net assets over $10 billion but not
in excess of $20 billion; and thirty-four one-hundredths of one percent (.34%)
of such net assets over $20 billion.
SCHWAB INSTITUTIONAL ADVANTAGE MONEY FUND November 26, 1993
Forty-six one-hundredths of one percent (.46%) of the Schwab Institutional
Advantage Money Fund's average daily net assets not in excess of $1 billion;
forty-five one-hundredths of one percent (.45%) of such net assets over $1
billion but not in excess of $3 billion; forty one-hundredths of one percent
(.40%) of such net assets over $3 billion but not in excess of $10 billion;
thirty-seven one-hundredths of one percent (.37%) of such net assets over $10
billion but not in excess of $20 billion; and thirty-four one-hundredths of one
percent (.34%) of such net assets over $20 billion.
SCHWAB RETIREMENT MONEY FUND November 26, 1993
Forty-six one-hundredths of one percent (.46%) of the Schwab Retirement
</TABLE>
<PAGE> 2
Exhibit b(d)(viii)
<TABLE>
<S> <C>
Money Fund's average daily net assets not in excess of $1 billion; forty-five
one-hundredths of one percent (.45%) of such net assets over $1 billion but not
in excess of $3 billion; forty one-hundredths of one percent (.40%) of such net
assets over $3 billion but not in excess of $10 billion; thirty-seven
one-hundredths of one percent (.37%) of such net assets over $10 billion but not
in excess of $20 billion; and thirty-four one-hundredths of one percent (.34%)
of such net assets over $20 billion.
SCHWAB NEW YORK MUNICIPAL MONEY FUND November 10, 1994
Forty-six one-hundredths of one percent (.46%) of the Schwab New York Municipal
Money Fund's average daily net assets not in excess of $1 billion; forty-one
one-hundredths of one percent (.41%) of such net assets over $1 billion but not
in excess of $2 billion; and forty one-hundredths of one percent (.40%) of such
net assets over $2 billion.
SCHWAB GOVERNMENT CASH RESERVES FUND October 20, 1997
Forty-six one-hundredths of one percent (.46%) of the Schwab Government Cash
Reserves Fund's average daily net assets not in excess of $1 billion; forty-one
one-hundredths of one percent (.41%) of such net assets over $1 billion but not
in excess of $2 billion; and forty one-hundredths of one percent (.40%) of such
net assets over $2 billion.
SCHWAB NEW JERSEY MUNICIPAL MONEY FUND
January 20, 1998
Forty-six one-hundredths of one percent (.46%) of the Schwab New Jersey
Municipal Money Fund's average daily net assets not in excess of $1 billion;
forty-one one-hundredths of one percent (.41%) of such net assets over $1
billion but not in excess of $2 billion; and forty one-hundredths of one percent
(.40%) of such net assets over $2 billion.
SCHWAB PENNSYLVANIA MUNICIPAL MONEY FUND January 20, 1998
Forty-six one-hundredths of one percent (.46%) of the Schwab Pennsylvania
Municipal Money Fund's average daily net assets not in excess of $1 billion;
forty-one one-hundredths of one percent (.41%) of such net assets over $1
billion but not in excess of $2 billion; and forty one-hundredths of one percent
(.40%) of such net assets over $2 billion.
SCHWAB FLORIDA MUNICIPAL MONEY FUND January 20, 1998
Forty-six one-hundredths of one percent (.46%) of the Schwab Florida Municipal
Money Fund's average daily net assets not in excess of $1 billion; forty-one
one-hundredths of one percent (.41%) of such net assets over $1 billion but not
in excess of $2 billion; and forty one-hundredths of one percent (.40%) of such
net assets over $2 billion.
</TABLE>
<PAGE> 3
Exhibit b(d)(viii)
THE CHARLES SCHWAB FAMILY OF FUNDS
By: /s/ Frances Cole
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Name: Frances Cole
Title: Secretary
CHARLES SCHWAB & CO., INC.
By: /s/ William J. Klipp
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Name: William J. Klipp
Title: President and Chief Operating Officer