<PAGE> 1
SCHWAB FUNDS(R)
[LOGO]
SCHWAB
TAX-FREE
BOND FUNDS
ANNUAL REPORT
AUGUST 31, 1995
[Photo of the Schwab Building, San Francisco, California]
<PAGE> 2
Dear Shareholder,
This year, the SchwabFunds Family(R) celebrates its fifth
[Photo anniversary as a mutual fund complex. This celebration follows an
of exciting 1994 when the organization experienced tremendous
Charles growth--the third largest asset growth of all mutual fund
R. Schwab] companies. By placing your trust in SchwabFunds(R), you've helped
total assets under management reach over $29 billion, ranking
SchwabFunds in the top 6% of all mutual fund complexes.
We believe much of this success can be traced to the Schwab commitment to serve
the needs of the Fund shareholders, a commitment demonstrated by the entire
SchwabFunds staff and, in particular, by our experienced team of portfolio
managers.
The 20 professionals that make up our growing portfolio management team are
devoted to monitoring the financial markets for you. Through careful and
disciplined selection of securities, they strive to construct optimal portfolios
that provide shareholders with competitive returns that meet their investment
goals. And shareholders continue to signal their trust in the 175 years of
combined experience behind our SchwabFunds portfolio management by keeping their
money invested in SchwabFunds. In fact, a large number of the 1.5 million
shareholders have been investing in the SchwabFunds Family since its first year
of operation.
We believe an important part of serving your needs is keeping you informed about
your investments. For example, last year we added the question and answer
section of this report, developed by our portfolio managers to address what they
feel were the most pressing questions we've heard from shareholders over the
period. It is one way we hope to keep communication open between you and the
people managing your investments.
During its first five years, the SchwabFunds Family has grown to include a solid
selection of funds that meet the "core" needs of investors. The 19 funds
available to retail investors, including the new Schwab Asset Director(R)
Funds*, offer effective diversification of the U.S. and international equity
markets, both taxable and tax-free bonds, and a variety of different money
market investments.
With this added level of diversification, you may use the SchwabFunds to create
an efficient, well-rounded portfolio. Or, they can serve as building blocks to
an overall investment program that includes more specialized investments.
I invite you to learn more about the SchwabFunds Family. To receive a brochure
and prospectus for the SchwabFunds, please call our toll-free number, 1-800-2
NO-LOAD, or visit any one of our more than 200 Schwab offices. A Schwab
representative will be happy to provide you with a prospectus that includes more
complete information on the Funds, including charges and expenses. Please read
it carefully before investing. If you normally invest in SchwabFunds with the
help of an investment manager, he or she can give you more information on the
other SchwabFunds.
I'd like to extend my personal gratitude for your trust in the SchwabFunds
Family as it continues to grow. You should feel confident that the outstanding
efforts of all those who are part of the SchwabFunds organization will continue
going forward. And, we expect these efforts to help us to meet even higher
standards of excellence in the years ahead.
/s/Charles R. Schwab
Charles R. Schwab
Chairman
* In subscription until November 17, 1995 at an introductory price of $10 per
share. After that date, the share price will fluctuate unless subscription
period is extended.
Cover: The Schwab Building, San Francisco, California
<PAGE> 3
COMMENTS FROM THE INVESTMENT ADVISER
We are pleased to report to you the performance of the Schwab Short/Intermediate
Tax-Free Bond Fund and the Schwab Long-Term Tax-Free Bond Fund for the fiscal
year ended August 31, 1995. During this period, the Schwab Tax-Free Bond Funds
continued to provide a relatively steady stream of monthly income, exempt from
federal personal income taxes, to help you achieve your income goals.
While there was some instability in bond market conditions during the first half
of the Funds' fiscal year, conditions in the latter half of the Funds' fiscal
year stabilized, as the Federal Reserve (the "Fed") discontinued its year-long
campaign of raising interest rates to head off inflation. With interest rates
stabilizing and inflation effectively held at bay, bonds rallied. The
performance of the Schwab Tax-Free Bond Funds reflected this ongoing recovery.
To help explain the Funds' performance, the portfolio management team discusses
economic trends and the Funds' investment strategies in the section "Questions
to the Portfolio Management Team," following this letter.
The Schwab Short/Intermediate Tax-Free Bond Fund experienced new share purchases
totaling $17.3 million and the Schwab Long-Term Tax-Free Bond Fund had new share
purchases totaling $21.4 million during fiscal year 1995. However, both Funds
experienced a net decline in total assets over the reporting period.
ADVANTAGES OFFERED BY THE SCHWAB TAX-FREE BOND FUNDS
The Schwab Tax-Free Bond Funds offer you several important advantages over
investing in individual bonds, including professional management, liquidity and
a relatively steady stream of monthly income. Our experienced portfolio managers
and research staff closely monitor the financial markets and select a portfolio
of investment grade securities which they believe have advantageous
characteristics in light of the current interest rate environment. Each Fund's
portfolio primarily contains a strategic mix of investment grade municipal bonds
from a variety of issuers around the country. A complete listing of each Fund's
portfolio holdings at fiscal year end is provided in the "Schedule of
Investments" section of this report.
<PAGE> 4
PERFORMANCE REVIEW--
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND
The Schwab Short/Intermediate Tax-Free Bond Fund was primarily comprised of
investment grade municipal bonds issued by state and municipal governments and
their agencies as of August 31, 1995. The Fund's average dollar-weighted
maturity was 3.41 years.
The Schwab Short/Intermediate Tax-Free Bond Fund paid shareholders monthly cash
dividends, free from federal personal income taxes, totaling 40 cents per share
for the 12-month period ended August 31, 1995. The Fund's net asset value
("NAV") increased from $9.92 on August 31, 1994 to $10.12 at the end of the
period, in spite of unusual fluctuations in the bond market and rising interest
rates during the first half of the period. On August 31, 1995, the Fund's 30-day
SEC yield was 3.94%, which is a taxable equivalent yield of 6.52% for those
investors subject to the maximum federal tax rate of 39.6%. 1
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN THE SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND AND
THE LEHMAN 3-YEAR MUNICIPAL BOND INDEX
Average Annual Total Returns
Through August 31, 1995
----------------------------
One Year Since Inception
6.23% 4.43%
[Line graph comparing Schwab Short/Intermediate Tax-Free Bond Fund and the
Lehman 3-Year Municipal Bond Index.]
<TABLE>
<CAPTION>
LABEL INDEX FUND
- ----- ------ ----
<S> <C> <C>
05/01/93 9,993 10,000
05/31/93 10,020 10,038
06/30/93 10,085 10,129
07/31/93 10,090 10,151
08/31/93 10,184 10,283
09/30/93 10,228 10,344
10/31/93 10,250 10,366
11/30/93 10,237 10,326
12/31/93 10,344 10,462
01/31/94 10,428 10,567
02/28/94 10,331 10,412
03/31/94 10,206 10,218
04/30/94 10,267 10,280
05/31/94 10,315 10,323
06/30/94 10,318 10,312
07/31/94 10,403 10,407
08/31/94 10,440 10,429
09/30/94 10,414 10,377
10/31/94 10,389 10,317
11/30/94 10,370 10,245
12/31/94 10,415 10,346
01/31/95 10,501 10,445
02/28/95 10,612 10,563
03/31/95 10,707 10,655
04/28/95 10,743 10,691
05/31/95 10,908 10,881
06/30/95 10,934 10,884
07/31/95 11,050 10,987
08/31/95 11,136 11,079
</TABLE>
Past performance is no guarantee of future results. Principal value and
investment returns will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
The performance graph compares a hypothetical $10,000 investment in the
Schwab Short/Intermediate Tax-Free Bond Fund since inception with a
hypothetical investment in the Lehman 3-Year Municipal Bond Index. The Index
is unmanaged and assumes reinvestment of all dividends, but, unlike the
Fund, does not reflect the payment of advisory fees and other expenses
associated with an investment in the Fund. Fund total return assumes the
reinvestment of all dividends and capital gain distributions.
1 Income may be subject to state and local taxes and the Alternative Minimum
Tax (AMT). Capital appreciation of discounted bonds may be subject to federal
and state income tax. Total return assumes reinvestment of all dividend and
capital gain distributions. A portion of the Fund's fees were waived or
reimbursed during the reporting period. Without the waivers or reimbursement,
the 30-day SEC yield would have been 3.70%, the one year total return would have
been 5.81%, and the average annual total return since inception would have been
3.93%.
<PAGE> 5
At fiscal year end, the Fund's one year total return was 6.23%, and its average
annual total return since inception was 4.43% 1. As the chart at left
illustrates, the Fund's total return during the period is consistent with the
broader municipal bond market, as measured by the Lehman 3-Year Municipal Bond
Index, the Fund's recognized industry benchmark.
PERFORMANCE REVIEW--
SCHWAB LONG-TERM TAX-FREE BOND FUND
The Schwab Long-Term Tax-Free Bond Fund was primarily comprised of investment
grade municipal bonds issued by state and municipal governments and their
agencies as of August 31, 1995. The portfolio's average dollar-weighted maturity
was 17.21 years.
The Schwab Long-Term Tax-Free Bond Fund paid shareholders monthly cash
dividends, free from federal personal income taxes, totaling 53 cents per share
for the 12-month reporting period ended August 31, 1995. The Fund's NAV
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN THE SCHWAB LONG-TERM TAX-FREE BOND FUND AND
THE LEHMAN GENERAL MUNICIPAL BOND INDEX
Average Annual Total Returns
Through August 31, 1995
----------------------------
One Year Since Inception
7.76% 6.24%
[Line graph comparing Schwab Long-Term Tax-Free Bond Fund and Lehman General
Municipal Bond Index.]
<TABLE>
<CAPTION>
DATE INDEX FUND
---- ----- ----
<S> <C> <C>
10/01/92 9,923 10,000
10/31/92 9,826 9,515
11/30/92 10,002 9,912
12/31/92 10,104 10,092
01/31/93 10,221 10,242
02/28/93 10,591 10,683
03/31/93 10,479 10,484
04/30/93 10,585 10,632
05/31/93 10,644 10,691
06/30/93 10,822 10,883
07/31/93 10,836 10,879
08/31/93 11,062 11,157
09/30/93 11,188 11,298
10/31/93 11,209 11,315
11/30/93 11,111 11,200
12/31/93 11,345 11,465
01/31/94 11,475 11,588
02/28/94 11,177 11,274
03/31/94 10,722 10,791
04/30/94 10,813 10,858
05/31/94 10,907 10,970
06/30/94 10,840 10,870
07/31/94 11,044 11,085
08/31/94 11,083 11,109
09/30/94 10,920 10,921
10/31/94 10,726 10,657
11/30/94 10,532 10,381
12/31/94 10,764 10,658
01/31/95 11,072 11,050
02/28/95 11,394 11,381
03/31/95 11,524 11,514
04/28/95 11,538 11,438
05/31/95 11,906 11,918
06/30/95 11,802 11,735
07/31/95 11,914 11,836
08/31/95 12,065 11,971
</TABLE>
Past performance is no guarantee of future results. Principal value and
investment returns will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
The performance graph compares a hypothetical $10,000 investment in the
Schwab Long-Term Tax-Free Bond Fund since inception with a hypothetical
investment in the Lehman General Municipal Bond Index. The Index is
unmanaged and assumes reinvestment of all dividends, but, unlike the Fund,
does not reflect the payment of advisory fees and other expenses associated
with an investment in the Fund. Fund total return assumes the reinvestment
of all dividends and capital gain distributions.
<PAGE> 6
increased from $9.95 on August 31, 1994 to $10.16 at the end of the reporting
period, reflecting a rebound in the bond market during the latter half of the
reporting period. On August 31, 1995 the Fund's 30-day SEC yield was 5.43%,
which is a taxable equivalent yield of 8.99% for those investors subject to the
maximum federal tax rate of 39.6%. 2
At fiscal year end, the Fund's one year total return was 7.76%, and its average
annual total return since inception was 6.24%. 2 As the chart on the previous
page illustrates, the Fund's total return during the period is consistent with
the broader municipal bond market, as measured by the Lehman General Municipal
Bond Index, the Fund's recognized industry benchmark.
LOWER FUND EXPENSES
To enhance your return potential, the maximum operating expense ratio of the
Schwab Long-Term Tax-Free Fund was lowered, effective July 1, 1995. Lower Fund
expenses can make a real difference in the returns you realize from your mutual
fund investment. Generally speaking, lower fees translate into higher
returns--the less you pay in fees and expenses, the greater the portion of a
fund's potential return you may receive.
The expense ratio of the Schwab Long-Term Tax-Free Bond Fund was lowered from
0.55% to 0.49%--significantly below the industry average of 1.01%. 3 While the
reduction occurred too late in the period for its full impact to be felt in the
Fund's 1995 fiscal year, we believe the new, lower expense ratio will
potentially help you earn higher returns going forward. The Schwab
Short/Intermediate Tax-Free Bond Fund maintains a low 0.49% expense ratio,
compared to the industry average of 0.64%. 3
BALANCING YOUR INCOME PORTFOLIO
To position your portfolio to respond to fluctuating interest rates or to create
a balanced combination of maturities, you may want to consider investing in both
Schwab Tax-Free Bond Funds. Generally, short/intermediate bond funds
historically have offered greater price stability in exchange for lower yields,
while funds with longer weighted average maturities historically have paid
higher yields with
2 Income may be subject to state and local taxes and the Alternative Minimum
Tax (AMT). Capital appreciation of discounted bonds may be subject to federal
and state income tax. Total return assumes reinvestment of all dividend and
capital gain distributions. A portion of the Fund's fees were waived or
reimbursed during the reporting period. Without the waivers or reimbursement,
the 30-day SEC yield would have been 5.19%, the one year total return would have
been 7.34%, and the average annual total return since inception would have been
5.63%.
3 Excess operating expenses will be waived or reimbursed through at
least April 30, 1996. Please see Note 4 in "Notes to Financial Statements" for
additional information on expenses. Source for industry averages: Lipper
Analytical Services, Inc. Average operating expense of 194 long-term tax-free
bond funds and 38 short/intermediate tax-free bond funds as of 9/30/95.
<PAGE> 7
correspondingly greater price volatility. Additionally, funds with longer
weighted average maturities historically have offered a more stable income
stream, because they can lock in rates on individual bonds for longer periods of
time. By investing in both Schwab Tax-Free Bond Funds, you may have the
opportunity to earn a higher level of income than you would receive from a
short/intermediate fund alone, while potentially reducing swings in the value of
your portfolio due to changing interest rates.
LOOKING FORWARD
Regardless of the course of the economy and the direction of interest rates in
the year ahead, the Schwab Tax-Free Bond Funds will continue to strive to
provide a relatively reliable stream of monthly income exempt from federal
personal income taxes. With their competitive tax equivalent yields, the Funds
may offer you an effective way to achieve your tax-free investing goals.
Thank you for placing your confidence in SchwabFunds(R). We recognize that we
earn your trust day-by-day, and we look forward to continuing to serve your
investment needs.
CHARLES SCHWAB INVESTMENT MANAGEMENT, INC.
<PAGE> 8
- --------------------------------------------------------------------------------
TAXABLE EQUIVALENT YIELD: A YARDSTICK FOR
MEASURING FUND PERFORMANCE
To evaluate the performance of a tax-free bond fund, pay special attention to
its taxable equivalent yield. While hypothetical in nature, this measure of
performance offers you a convenient way to see what yield level would be
required of a taxable bond fund in order for it to be equivalent after you pay
federal income taxes.
A tax-free yield of 6%, for example, is the equivalent of a 9.93% taxable yield
after you pay federal personal income taxes--assuming you are in the top federal
income tax bracket of 39.6%. In other words, you would have to earn at least a
9.93% yield from a fully taxable investment to get the same amount of after-tax
income. Of course, if you are in a lower tax bracket, the after-tax yield
advantage you realize from a tax-free investment would be lower.
1 If your 1995 federal personal income tax
bracket is...
<TABLE>
<CAPTION>
FEDERAL INCOME TAX BRACKET
28.00% 31.00% 36.00% 39.60%
------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
4.50% 6.25% 6.52% 7.03% 7.45%
5.00% 6.94% 7.25% 7.81% 8.28%
TAX-FREE 5.50% 7.64% 7.97% 8.59% 9.11%
YIELD 6.00% 8.33% 8.70% 9.38% 9.93%
6.50% 9.03% 9.42% 10.16% 10.76%
7.00% 9.72% 10.14% 10.94% 11.59%
</TABLE>
(Up arrow) (Up arrow)
2 And you have 3 Here is what you would have to earn from a
a tax-free taxable investment to match the tax-free yield
investment
yielding
Chart is for illustrative purposes only and does not reflect the performance
of either Schwab Tax-Free Bond Fund.
- --------------------------------------------------------------------------------
<PAGE> 9
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM OF
CHARLES SCHWAB INVESTMENT MANAGEMENT, INC.
Stephen B. Ward - Senior Vice President and Chief Investment Officer
Joanne Keighley - Portfolio Manager
Q. WHAT HAS BEEN THE ECONOMIC CLIMATE DURING THE FUNDS' FISCAL YEAR?
A. Following an impressive 4.1% growth rate of the Gross Domestic Product
("GDP") during 1994, the highest annual growth rate in ten years, economic
activity showed persistent signs of slowing during the first half of 1995.
Recent evidence of this trend includes slowdowns in auto sales, consumer
spending and retail sales, home building and home sales, and a significant
slowdown in the labor markets. The GDP growth rate for the first quarter of 1995
was 2.7%, and 1.1% for the second quarter, versus 5.1% for the fourth quarter of
1994.
The primary reason for the slowdown in GDP growth has been a series of increases
in the federal funds rate (the rate paid on overnight funds between banks) by
the Fed throughout 1994 and into 1995. With the high growth rate in 1994 and a
falling unemployment rate, the potential for inflation emerged as a major
concern at the Fed. As a result, the Fed initiated a series of increases in the
federal funds rate from 3.0% in January 1994 to 6.0% in February 1995. The Fed
appears to be signaling that these increases have accomplished their desired
effect of slowing the rate of economic growth to more moderate levels and
reducing the likelihood of increases in the rate of inflation. This was
evidenced by the Fed's 0.25% reduction in the federal funds rate in July 1995.
Q. HOW HAVE THE ECONOMIC EVENTS OF THE FISCAL YEAR IMPACTED INTEREST RATES?
A. In an effort to curb the inflationary impact of a strong economy, the Fed
raised short-term interest rates seven times during 1994 and early 1995. The
economy began to show signs of strain due to the higher interest rates in the
fourth quarter of 1994. Decreases in retail and auto sales, as well as a
slowdown in mortgage lending provided evidence that the Fed's policy actions
were being felt throughout the economy. 30-year Treasury Bond rates peaked in
November at
<PAGE> 10
8.20% and 2-year Treasury rates reached a high of 7.70% in December. By year
end, most market participants were anticipating higher interest rates, as
inflation was still a concern.
As we moved into 1995 it was clear the economy had begun to slow. Additionally,
concerns regarding inflation began to subside as the Producer Price Index &
Consumer Price Index posted modest gains of 1.3% and 2.6%, respectively, during
the 12-month reporting period.
A combination of factors led to a rally in the bond market through the latter
half of the reporting period. As a result, 30-year Treasury Bond rates fell to
6.50% from a peak of 8.20%, and 2-year Treasury Note rates fell to 5.35% from a
peak of 7.70%. The primary factors responsible for the rally were:
- - The slowdown in the economy made it unnecessary for the Fed to continue
raising interest rates. In fact, the Fed actually lowered the federal funds
rate by 0.25% in July 1995.
- - Inflation fears subsided as the Fed's policy actions were successful in
slowing the economy. This gave investors confidence that inflation was under
control.
The chart below illustrates 30-year and 5-year Treasury Bond Yields during the
reporting period.
30-YEAR TREASURY BOND YIELD VS. 5-YEAR TREASURY BOND YIELD
[Line graph comparing 30-Year Treasury Bond Yield vs. 5-Year Treasury Bond
Yield.]
<TABLE>
<CAPTION>
DATE 5-YEAR 30-YEAR
---- ------ -------
<S> <C> <C>
09/02/94 6.807 7.49
09/09/94 7.044 7.703
09/16/94 7.117 7.772
09/23/94 7.198 7.793
09/30/94 7.28 7.817
10/07/94 7.333 7.909
10/14/94 7.249 7.829
10/21/94 7.442 7.978
10/28/94 7.469 7.958
11/04/94 7.71 8.159
11/11/94 7.695 8.149
11/18/94 7.784 8.131
11/25/94 7.643 7.931
12/02/94 7.707 7.906
12/09/94 7.741 7.859
12/16/94 7.752 7.854
12/23/94 7.831 7.828
12/30/94 7.827 7.881
01/06/95 7.865 7.86
01/13/95 7.626 7.792
01/20/95 7.783 7.891
01/27/95 7.544 7.73
02/03/95 7.407 7.626
02/10/95 7.538 7.669
02/17/95 7.334 7.586
02/24/95 7.144 7.528
03/03/95 7.177 7.541
03/10/95 7.056 7.463
03/17/95 6.953 7.368
03/24/95 6.91 7.364
03/31/95 7.071 7.431
04/07/95 6.931 7.39
04/14/95 6.81 7.35
04/21/95 6.752 7.333
04/28/95 6.881 7.337
05/05/95 6.441 7.019
05/12/95 6.447 6.989
05/19/95 6.442 6.917
05/26/95 6.173 6.748
06/02/95 5.822 6.529
06/09/95 6.205 6.727
06/16/95 5.943 6.616
06/23/95 5.809 6.501
06/30/95 5.966 6.618
07/07/95 5.75 6.524
07/14/95 5.9 6.604
07/21/95 6.262 6.962
07/28/95 6.213 6.901
08/04/95 6.202 6.909
08/11/95 6.374 6.99
08/18/95 6.351 6.897
08/25/95 6.107 6.704
</TABLE>
<PAGE> 11
- - The Congress which was elected in November 1994 brought renewed attention to
reducing the budget deficit. This attention, along with a stated commitment to
reducing the deficit, put additional downward pressure on long-term interest
rates.
- - The Fed and several foreign central banks acted in concert to support the U.S.
dollar during its slide in the first half of 1995. This resulted in the
increased purchase of U.S. dollar-denominated assets, such as U.S. Treasury
securities. The purchases increased demand for these securities, adding
momentum to price appreciation and falling yields, which helped reduce
interest rates.
Although municipal interest rates followed the same general trends as taxable
interest rates during the reporting period, there were several developments
which had particular impact on the municipal securities market and municipal
interest rates. These developments will be addressed in the following questions.
Q. THERE HAS BEEN A LOT OF TALK ABOUT "FLAT TAX" PROPOSALS. CAN YOU DISCUSS
THESE PROPOSALS?
A. The flat tax proposals currently being debated in Washington represent the
latest effort to respond to the public's frustration with what many consider to
be an overly complex and inefficient system of taxation. These reform proposals
are referred to as "flat tax" proposals because, in the purest form, they would
eliminate the current multiple tax rates in favor of one "flat tax" rate. Even
though some of the proposals call for more than just one tax rate, these tax
simplification proposals are, as a group, referred to as flat tax proposals.
The basic concept which most of these proposals have in common is eliminating
the current vast array of deductions and credits and, as a result, taxing a
substantially greater base of income. Since the amount of income which would be
subject to income tax would be significantly increased, the government could
collect the same level of revenues using a lower tax rate.
Most of the flat tax proposals have the following common elements:
- - A reduction in the number of tax brackets. Currently there are five tax
brackets, which range from 15% to 39.6%. A pure flat tax proposal would
include just one rate.
<PAGE> 12
- - The elimination of most income tax deductions and credits, such as those for
home mortgage interest, state and local taxes and charitable contributions.
- - Investment income, such as interest, dividends and capital gains would not be
taxed. Only "earned income," such as income from wages would be taxed. This
would eliminate the double taxation of corporate dividends.
Most proposals also share the following objectives:
- - Simplification of the tax code and tax calculation process.
- - Encouraging savings as a result of the elimination of taxation on investment
income and capital gains.
- - Eliminating the number of tax-motivated incentives of the current system.
Currently, interest income on municipal bonds enjoys a special exemption from
income tax. Exempting investment income on all investments from income tax could
have a negative impact on municipal bond owners by, in effect, taking away their
special tax treatment. As discussed further below, many observers feel that the
municipal securities market has already responded to some of the uncertainty
surrounding these flat tax proposals. Although we will continue to monitor the
status of these proposals, it is important to point out that there is currently
no way of predicting whether a flat tax proposal will ever be enacted; and, if
enacted, what provisions may be incorporated to ease the burdens on current
owners of municipal securities.
Q. WOULD YOU DISCUSS SOME OF THE CHANGES THAT TOOK PLACE IN THE MUNICIPAL BOND
MARKET DURING THE REPORTING PERIOD AND HOW THESE MAY HAVE AFFECTED THE
PERFORMANCE OF THE FUNDS?
A. As we have previously noted, the 12-month reporting period was one of unusual
and relatively volatile movements in interest rates. Municipal rates were
affected by several factors unique to municipal securities. As shown in the
graph at right, the impact of these factors can be seen by comparing the
relationship between 30-year municipal and 30-year Treasury bond yields. Over
the past four years, the yields on AAA 30-year municipal bonds has averaged
approximately 82% of the yield on 30-year Treasury bonds. During the
<PAGE> 13
reporting period, this ratio ranged from a low of 79% (representing relative
strength in the municipal bond market) to a high of 89% (representing relative
weakness in the municipal bond market). Some of the factors responsible for
these swings are described below.
THE RATIO BETWEEN YIELDS ON 30-YEAR AAA MUNICIPAL BONDS
AND 30-YEAR TREASURY BONDS
[Line graph indicating ratio between yields on 30-Year AAA Municipal Bonds and
30-Year Treasury Bonds.]
<TABLE>
<CAPTION>
DATE DIFFERENCE
- ---- ----------
<S> <C>
09/02/94 0.79973298
09/09/94 0.78800467
09/16/94 0.79001544
09/23/94 0.79558578
09/30/94 0.79685301
10/07/94 0.79643444
10/14/94 0.79179972
10/21/94 0.78829281
10/28/94 0.80409651
11/04/94 0.81370266
11/11/94 0.8369125
11/18/95 0.85352355
11/25/94 0.87378641
12/02/94 0.83733873
12/09/94 0.85252577
12/16/94 0.84542908
12/23/95 0.83673991
12/30/95 0.8260373
01/06/95 0.82824427
01/13/95 0.8226386
01/20/95 0.80724876
01/27/95 0.81241915
02/03/95 0.8025177
02/10/95 0.78889034
02/17/95 0.78961244
02/24/95 0.78639745
03/03/95 0.78504177
03/10/95 0.79458663
03/17/95 0.79261672
03/24/95 0.79576317
03/31/95 0.78993406
04/07/95 0.78484438
04/14/95 0.78527607
04/21/95 0.78276285
04/28/95 0.80550634
05/05/95 0.83630147
05/12/95 0.8284447
05/19/95 0.83128524
05/26/95 0.84765857
06/02/95 0.85005361
06/09/95 0.83097963
06/16/95 0.87666264
06/23/95 0.88140286
06/30/95 0.88697492
07/07/95 0.88136113
07/14/95 0.8646275
07/21/95 0.85033036
07/28/95 0.85060136
08/04/95 0.86264293
08/11/95 0.85693848
08/18/95 0.87574308
08/25/95 0.89051313
09/01/95
</TABLE>
Late in 1994, municipal bond 0.88408644re underperforming Treasury Bond returns
for two reasons. First, toward the end of the year, there was a significant
amount of tax-motivated selling by owners of municipal securities in an effort
to realize losses prior to year end. Second, the investment losses and
bankruptcy declarations by Orange County and the Orange County Investment Pool
had a negative impact on the municipal securities market.
Early in 1995, as the initial reaction to the Orange County situation faded,
municipal securities began trading at yield levels which were in line with
historical averages when compared to Treasury securities. One significant factor
which has had the effect of bolstering municipal securities prices was the
relatively low supply of municipal securities. Local governments and
municipalities are generally
<PAGE> 14
funding fewer new projects, and are pre-refunding far fewer existing bond issues
since interest rates reached their low levels in late 1993. During the second
quarter of 1995, municipal securities yields again began to climb relative to
Treasury yields. As discussed earlier, some market analysts attribute this
latest move to concerns over proposed flat tax proposals.
Both Funds maintained relatively stable weighted average maturities throughout
the reporting period. The Funds' weighted average maturities were reduced
moderately in the first half of the reporting period. Later in the reporting
period, maturities were moderately extended as municipal bond yields increased
relative to Treasury bond yields, making municipal bonds relatively more
attractive. The Funds continued to maintain a strong credit quality posture as
evidenced by the percentage of their portfolios invested in securities rated A
or higher--92% for the Schwab Short/Intermediate Tax-Free Bond Fund, and 100%
for the Schwab Long-Term Tax-Free Bond Fund.
<PAGE> 15
SchwabFunds(R)
- --------------------------------------------------------------------------------
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND
PORTFOLIO SUMMARY
- --------------------------------------------------------------------------------
ASSET CHANGE
<TABLE>
<CAPTION>
Total Total Percentage
Net Assets Net Assets Change Over
as of 8/31/95 as of 8/31/94 Reporting
(000s) (000s) Period
- -----------------------------------------------------------------
<S> <C> <C>
$52,504 $63,889 (18%)
- -----------------------------------------------------------------
</TABLE>
AVERAGE WEIGHTED MATURITY AT AUGUST 31, 1995
<TABLE>
<CAPTION>
Value
Maturity Schedule (000s) % of Portfolio % of Portfolio
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
(cum.)
1 - 6 Months $ 2,914 5.6% 5.6%
7 - 36 Months 14,509 28.1 33.7
37 - 60 Months 25,574 49.4 83.1
Over 60 Months 8,724 16.9 100.0%
------- -----
$51,721 100.0%
======= =====
</TABLE>
Average Weighted Maturity -- 3.41 Years
PORTFOLIO QUALITY SUMMARY
(as of August 31, 1995)
[Pie chart indicating summary of published ratings]
This summary reflects the published ratings (for the investments in the
portfolio) of Standard & Poor's Ratings Group and/or Moody's Investor Service,
which are recognized rating services. Categories reflect the higher published
ratings for securities rated differently by the two agencies and percentages
are dollar-weighted.
<TABLE>
<S> <C>
A 23%
AA 35%
AAA 34%
Other 8%*
</TABLE>
*Includes short-term securities.
<PAGE> 16
SchwabFunds(R)
- --------------------------------------------------------------------------------
SCHWAB LONG-TERM TAX-FREE BOND FUND
PORTFOLIO SUMMARY
- --------------------------------------------------------------------------------
ASSET CHANGE
<TABLE>
<CAPTION>
Total Total Percentage
Net Assets Net Assets Change Over
as of 8/31/95 as of 8/31/94 Reporting
(000s) (000s) Period
- --------------------------------------------------------------------
<S> <C> <C>
$41,413 $43,975 (6%)
- --------------------------------------------------------------------
</TABLE>
AVERAGE WEIGHTED MATURITY AT AUGUST 31, 1995
<TABLE>
<CAPTION>
Value
Maturity Schedule (000s) % of Portfolio % of Portfolio
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
(cum.)
0 - 1 Years $ 3,017 7.4% 7.4%
2 - 10 Years 0 0.0 7.4
11 - 20 Years 26,131 64.1 71.5
21 - 30 Years 10,161 24.9 96.4
Over 30 Years 1,466 3.6 100.0%
------- -----
$40,775 100.0%
======= =====
</TABLE>
Average Weighted Maturity -- 17.21 Years
PORTFOLIO QUALITY SUMMARY
(as of August 31, 1995)
[Pie chart indicating summary of published ratings]
This summary reflects the published ratings (for the investments in the
portfolio) of Standard & Poor's Ratings Group and/or Moody's Investor Service,
which are recognized rating services. Categories reflect the higher published
ratings for securities rated differently by the two agencies and percentages
are dollar-weighted.
<TABLE>
<S> <C>
A 17%
AA 34%
AAA 49%
</TABLE>
<PAGE> 17
SchwabFunds(R) 1
- --------------------------------------------------------------------------------
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND
SCHEDULE OF INVESTMENTS (in thousands)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------ -------
<S> <C> <C>
VARIABLE RATE OBLIGATIONS--3.3%(a)
CALIFORNIA--1.4%
Irvine Ranch, California Water
District Consolidated General
Obligation Improvement Bonds
Series 1989 Various Districts/
(Industrial Bank of Japan LOC)
(VMIG1 A-1)
3.60%, 09/01/95 $ 100 $ 100
Irvine Ranch, California Water
District Consolidated Revenue
Refunding Bonds Series
1985B-2/(Sumitomo Bank LOC)
(- A-1)
3.60%, 09/01/95 600 600
-------
700
-------
WYOMING--1.9%
Lincoln County, Wyoming
Pollution Control Revenue
Bonds (Exxon Project) Series A
(P-1 A-1+)
3.35%, 09/01/95 1,000 1,000
-------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $1,700) 1,700
-------
MUNICIPAL BONDS--92.6%(B)
ALASKA--2.3%
Anchorage, Alaska Refunding
Schedule Series A/(MBIA
Insurance) (Aaa AAA)
5.10%, 08/01/99 1,145 1,175
-------
ARIZONA--4.0%
Phoenix, Arizona Civic
Improvement Corp. Wastewater
Systems Lease Revenue Bonds
(A1 A)
5.10%, 07/01/99 1,005 1,031
Phoenix, Arizona Street and
Highway Revenue User Refunding
Bonds (A1 AA)
5.95%, 07/01/00 1,000 1,063
-------
2,094
-------
ILLINOIS--2.2%
Illinois Health Facilities
Authority Revenue Bonds (OSF
Healthcare System) (A1 A+)
5.125%, 11/15/00 1,145 1,144
-------
INDIANA--1.5%
Indiana University Revenue
Bonds (Student Fee) Series J
(Aa AA-)
4.00%, 08/01/97 800 799
-------
IOWA--7.4%
Black Hawk County, Iowa
Hospital Facilities Revenue
Bonds (Allen Memorial
Hospital)/(AMBAC Insurance)
(Aaa AAA)
7.375%, 02/01/01 2,000 2,315
Le Claire, Iowa Electric
Revenue Bonds Series B
(- SP-1+)
4.125%, 09/01/96 1,495 1,499
-------
3,814
-------
KENTUCKY--5.2%
Kentucky Housing Corporation
Housing Revenue Bonds
Series B/ (Multiple
Credit Enhancements)
(Aaa AAA)
4.45%, 07/01/00 $1,000 $ 994
Kentucky State Property and
Buildings Commission Revenue
Refunding Bonds (Project 55)
(A A+)
4.15%, 09/01/99 1,735 1,713
-------
2,707
-------
MARYLAND--11.4%
Maryland State Department of
Transportation Second Issue
Series 1990 (Aa AA)
6.375%, 11/01/98 2,500 2,669
Washington, Maryland
Suburban Sanitation District
General Obligation Bonds
(Aa1 AA)
6.00%, 11/01/99 3,000 3,206
-------
5,875
-------
MASSACHUSETTS--12.0%
Massachusetts Municipal
Wholesale Electric Company
Power Supply Systems Revenue
Bonds Series E/ (AMBAC
Insurance) (Aaa AAA)
5.50%, 07/01/00 2,000 2,085
Massachusetts State
Conservation Loan General
Obligation Bonds Series A (A1
A+)
4.40%, 11/01/98 1,625 1,639
Massachusetts State Health
and Educational Facilities
Authority Revenue Bonds
(Brigham and Womens
Hospital) Series E
(A1 A+)
4.40%, 07/01/00 1,000 978
Massachusetts State Housing
Finance Agency Bonds (Housing
Project) Series A (A1 A+)
4.60%, 04/01/97 1,500 1,502
-------
6,204
-------
MINNESOTA--2.1%
Minneapolis, Minnesota
Community Development Agency
Tax Increment Revenue
Bonds/(MBIA Insurance)
(Aaa AAA)
7.00%, 09/01/00 1,000 1,111
-------
MISSISSIPPI--4.0%
Mississippi Hospital Equipment
& Facilities Authority Revenue
Refunding Bond (Mississippi
Baptist Medical Center)/
(MBIA Insurance)
(Aaa AAA)
5.25%, 05/01/01 2,000 2,058
-------
</TABLE>
<PAGE> 18
SchwabFunds(R) 2
- --------------------------------------------------------------------------------
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND
SCHEDULE OF INVESTMENTS (in thousands)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------ -------
<S> <C> <C>
MISSOURI--1.0%
Missouri State Environmental
Improvement & Energy Resources
Authority Water Pollution
Control Revenue Bonds Series A
(Aa -)
5.80%, 07/01/99 $ 500 $ 529
-------
NEW JERSEY--3.0%
Passaic Valley, New Jersey
Sewer Commissioners Revenue
Refunding Bonds (Sewer System)
Series D/(AMBAC Insurance)
(Aaa AAA)
5.70%, 12/01/97 1,520 1,575
-------
NORTH CAROLINA--2.2%
North Carolina Municipal Power
Agency Revenue Refunding Bonds
(Catawba Electric) (A A-)
4.50%, 01/01/96 1,115 1,115
-------
OHIO--4.0%
Ohio State Water Development
Authority Revenue Refunding
Bonds (Safe Water)/(MBIA
Insurance) (Aaa AAA)
4.95%, 12/01/98 2,000 2,055
-------
PENNSYLVANIA--2.9%
Pennsylvania State General
Purpose Public Improvement
Refunding Second Series
General Obligation Bonds (A1
AA-)
4.75%, 06/15/97 1,500 1,523
-------
SOUTH CAROLINA--6.6%
Charleston, South Carolina
Certificates of Participation
Public Improvement Project/
(AMBAC Insurance) (Aaa AAA)
4.30%, 09/01/00 1,085 1,061
Greenville Hospital System,
South Carolina Hospital
Facilities Revenue Refunding
Bonds Series C (- AA-)
5.00%, 05/01/00 1,090 1,090
South Carolina State Public
Service Authority
Power/Electric Revenue
Refunding Bonds Series A (A1
A+)
5.60%, 07/01/00 1,200 1,256
-------
3,407
-------
TEXAS--14.0%
Houston, Texas General
Obligation Bonds Series A
(Aa AA-)
5.20%, 03/01/00 1,000 1,035
5.30%, 03/01/01 1,000 1,035
Houston, Texas Water Conveyance
System Contract Certificates
of Participation Series
E/(AMBAC Insurance) (Aaa AAA)
5.50%, 12/15/97 $1,000 $1,033
Tarrant County, Texas Water
Control Improvement District
No.1 Water Revenue Refunding
Bonds Series 1992 (A1 AA)
5.40%, 03/01/99 2,000 2,068
Tarrant County, Texas Water
Control Improvement District
No.1 Water Revenue Refunding
Bonds Series 1993 (A1 AA)
4.25%, 03/01/00 1,000 988
Texas Municipal Power Agency
Revenue Refunding Bonds/ (MBIA
Insurance) (Aaa AAA)
6.25%, 09/01/97 1,000 1,061
-------
7,220
-------
WASHINGTON--6.8%
Washington State Certificates
of Participation (State
Equipment) Series B (A A)
4.125%, 04/01/97 1,500 1,493
Washington State Public Power
Supply System Revenue
Refunding Bonds (Nuclear
Project #2) Series A (Aa AA)
4.625%, 07/01/98 2,000 2,005
-------
3,498
-------
TOTAL MUNICIPAL BONDS
(Cost $47,364)
47,903
-------
REVENUE ANTICIPATION WARRANTS--3.9%(b)
CALIFORNIA--3.9%
California State Revenue
Anticipation Warrants Series
C/ (Multiple Credit
Enhancements) (MIG1 SP-1)
5.75%, 04/25/96 2,000 2,019
-------
TOTAL REVENUE ANTICIPATION WARRANTS
(Cost $2,027) 2,019
-------
<CAPTION>
Shares
------
<S> <C> <C>
SHORT-TERM INVESTMENTS--0.2%(c)
Provident Institutional Funds -
MuniFund
3.16%, 09/07/95 99 99
-------
TOTAL SHORT-TERM INVESTMENTS
(Cost $99)
99
-------
TOTAL INVESTMENTS--100.0%
(Cost $51,190) $51,721
=======
</TABLE>
See accompanying Notes to Schedules of Investments.
<PAGE> 19
SchwabFunds(R) 3
- --------------------------------------------------------------------------------
SCHWAB LONG-TERM TAX-FREE BOND FUND
SCHEDULE OF INVESTMENTS (in thousands)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- --------
<S> <C> <C>
VARIABLE RATE OBLIGATIONS--7.4%(a)
CALIFORNIA--5.4%
California Pollution
Control Financing
Authority Pollution
Control Revenue Bonds
(Southern California
Edison) Series 1986D
(VMIG1 A-1+)
3.45%, 09/01/95 $ 200 $ 200
Irvine Ranch, California
Water District
Consolidated Revenue
Refunding Bonds Series
1985B-2/(Sumitomo Bank
LOC) (- A-1)
3.60%, 09/01/95 100 100
Irvine Ranch, California
Water District Improvement
District No. 282 Series
1988A/(Sumitomo Bank LOC)
(- A-1)
3.60%, 09/01/95 1,900 1,900
--------
2,200
--------
LOUISIANA--0.8%
Louisiana Public Facilities
Authority Revenue Bonds
Industrial Development
(Kenner Hotel, Ltd.)/
(Swiss Bank LOC) (P-1 -)
3.50%, 09/01/95 300 300
--------
WYOMING--1.2%
Lincoln County, Wyoming
Pollution Control Revenue
Bonds (Exxon Corp.) Series
1984C (P-1 A-1+)
3.35%, 09/01/95 500 500
--------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $3,000) 3,000
--------
MUNICIPAL BONDS--92.6%(b)
ALASKA--10.6%
Kodiak Island Borough,
Alaska General Obligations
Series 1994A/(AMBAC
Insurance) (Aaa AAA)
5.40%, 02/15/10 2,500 2,425
Valdez, Alaska Marine
Terminal Revenue Refunding
Bonds (BP Pipelines, Inc.
Project) Series A (A1 AA-)
5.85%, 08/01/25 2,000 1,898
--------
4,323
--------
ARIZONA--5.4%
Maricopa County, Arizona--
Alhambra Elementary School
District 68 Series
1994A/(AMBAC Insurance)
(Aaa AAA)
6.80%, 07/01/12 2,000 2,205
--------
CALIFORNIA--12.6%
Madera County, California
Certificates of
Participation (Valley
Children's Hospital)/(MBIA
Insurance) (Aaa AAA)
6.125%, 03/15/23 $2,000 $2,008
San Bernardino County,
California Certificates of
Participation (Medical
Center Financing Project)
Series A/(MBIA Insurance)
(Aaa AAA)
5.50%, 08/01/22 500 462
San Francisco, California
Downtown Parking Corp.
Parking Revenue Bonds
(A -)
6.65%, 04/01/18 500 511
Santa Clara County,
California Financing
Authority Lease Revenue
Bonds (VMC Facility
Replacement Project)
Series A/(AMBAC Insurance)
(Aaa AAA)
7.75%, 11/15/10 1,000 1,220
University of California
Certificates of
Participation (UCLA
Central Chiller
Cogeneration Facilities)
(Aa -)
5.30%, 11/01/08 1,000 954
--------
5,155
--------
CONNECTICUT--2.4%
Connecticut State Housing
Finance Authority (Housing
Mortgage Finance Program)
Series B1 Subseries B1
(Aa AA)
7.55%, 11/15/08 925 993
--------
FLORIDA--5.9%
Jacksonville, Florida
Electric Authority Revenue
Refunding Bonds
(St. John River)
Issue 2 Series 10
(Aa1 AA)
5.30%, 10/01/08 2,400 2,394
--------
ILLINOIS--4.1%
Illinois State Dedicated
Tax Revenue Bonds
(Civic Center)/
(AMBAC Insurance)
(Aaa AAA)
6.25%, 12/15/20 500 524
Illinois State Toll Highway
Authority Priority Revenue
Bonds Series A (A1 A+)
6.375%, 01/01/15 1,100 1,129
--------
1,653
--------
</TABLE>
<PAGE> 20
SchwabFunds(R) 4
- --------------------------------------------------------------------------------
SCHWAB LONG-TERM TAX-FREE BOND FUND
SCHEDULE OF INVESTMENTS (in thousands)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- --------
<S> <C> <C>
IOWA--2.7%
Ames, Iowa Hospital Revenue
Bonds (Mary Greeley
Medical Center Project)
Series 1993/(AMBAC
Insurance) (Aaa AAA)
5.70%, 08/15/12 $ 500 $ 495
Cedar Rapids, Iowa Hospital
Facilities Revenue Bonds
(St. Luke's Methodist
Project) Series 1993/
(FGIC Insurance) (Aaa AAA)
6.125%, 08/15/13 600 602
--------
1,097
--------
MASSACHUSETTS--7.7%
Massachusetts Bay
Transportation Authority
(General Transportation
System) Series A (A1 A+)
5.75%, 03/01/18 1,400 1,369
Massachusetts State Health
and Educational Facilities
Authority Revenue Bonds
(Brigham and Womens
Hospital) Series E (A1 A+)
5.10%, 07/01/07 1,000 959
Massachusetts State Housing
Finance Agency Multi
Family Residential Housing
Revenue Bonds (FHA Section
8) Series A (A A+)
7.80%, 08/01/22 800 831
--------
3,159
--------
MISSISSIPPI--5.3%
Mississippi Hospital
Equipment & Facilities
Authority (Mississippi
Baptist Medical Center)/
(MBIA Insurance) (Aaa AAA)
6.00%, 05/01/13 2,150 2,169
--------
MISSOURI--4.8%
Kansas City, Missouri
School District Building
(Elementary School
Project) Series 1993D/
(FGIC Insurance) (Aaa AAA)
5.15%, 02/01/08 1,000 984
Kansas City, Missouri
School District Building
Corp. (Capital Improvement
Project) Series 1993/
(FGIC Insurance) (Aaa AAA)
5.15%, 02/01/08 1,000 984
--------
1,968
--------
NEW HAMPSHIRE--1.8%
New Hampshire Higher
Educational & Health
Facilities Authority
Revenue Bonds (Mary
Hitchcock Memorial
Hospital) Series A/(FGIC
Insurance) (Aaa AAA)
5.25%, 08/15/08 $ 750 $ 736
--------
PENNSYLVANIA--6.2%
Lehigh County, Pennsylvania
Industrial Development
Authority Pollution
Control Revenue Bonds
Series A/ (MBIA Insurance)
(Aaa AAA)
6.40%, 11/01/21 1,500 1,553
Philadelphia, Pennsylvania
Hospitals and Higher
Education Facilities
Authority Revenue
Refunding Bonds (Childrens
Hospital) (Aa AA)
5.25%, 02/15/08 1,000 963
--------
2,516
--------
RHODE ISLAND--2.5%
Rhode Island Housing and
Mortgage Financing
Corporation Series 10A
(Aa AA+)
6.50%, 10/01/22 1,000 1,005
--------
SOUTH CAROLINA--3.7%
Piedmont Municipal Power
Agency, South Carolina
Electric Revenue Refunding
Bonds/(MBIA Insurance)
(Aaa AAA)
6.20%, 01/01/08 1,400 1,523
--------
TEXAS--11.2%
Copperas Cove, Texas Health
Facilities Development
Corp. (Adventist Health
Systems)/(MBIA Insurance)
(Aaa AAA)
5.875%, 11/15/25 1,500 1,466
San Antonio, Texas Electric
and Gas Refunding Bonds
Series 1992 (Aa1 AA)
5.75%, 02/01/11 1,000 993
Texas State Public
Financing Authority
General Obligation Bonds
Series B (Aa AA)
5.75%, 10/01/14 1,025 1,016
University of Texas Revenue
Refunding Bonds Series B
(Aa1 AA)
6.75%, 08/15/13 1,000 1,073
--------
4,548
--------
</TABLE>
See accompanying Notes to Schedules of Investments.
<PAGE> 21
\
SchwabFunds(R) 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
-------- --------
<S> <C> <C>
WASHINGTON--5.7%
Seattle, Washington
Municipal Light and Power
Revenue Refunding Bonds
(Aa AA)
5.40%, 05/01/08 $2,300 $ 2,314
-------
TOTAL MUNICIPAL BONDS
(Cost $36,831)
37,758
-------
SHORT-TERM INVESTMENTS--0.0%(c)
Provident Institutional Funds -
MuniFund
3.16%, 09/07/95 17 17
-------
TOTAL SHORT-TERM INVESTMENTS
(Cost $17) 17
-------
TOTAL INVESTMENTS--100.0%
(Cost $39,848) $40,775
=======
</TABLE>
NOTES TO SCHEDULES OF INVESTMENTS.
Parenthetical disclosures which follow each security represent
independent bond ratings, where available, as provided by Moody
Investor Services, Inc. and Standard & Poor's Corporation, which were
in effect at August 31, 1995. These ratings are unaudited.
(a) Variable rate securities. Interest rates vary periodically based on
current market rates. Rates shown are the effective rates on August 31,
1995. Dates shown represent the latter of the demand date or next
interest rate change date, which is considered the maturity date for
financial reporting purposes. For variable rate securities without
demand features and which mature in less than one year the next
interest reset date is shown.
(b) Interest rates represent coupon rate of security.
(c) Interest rates represent the yield on August 31, 1995.
<TABLE>
<Caption)
Abbreviations
-------------
<S> <C>
AMBAC AMBAC Indemnity Corporation
FGIC Financial Guaranty Insurance Company
MBIA Municipal Bond Investors Assurance Corporation
VMIG Variable Moody's Investment Guide
SBPA Stand-By Purchase Agreement
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 22
SchwabFunds(R) 6
- --------------------------------------------------------------------------------
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND &
SCHWAB LONG-TERM TAX-FREE BOND FUND
STATEMENTS OF ASSETS AND LIABILITIES (in thousands)
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Schwab Schwab
Short/Intermediate Long-Term
Tax-Free Tax-Free
Bond Fund Bond Fund
------------------ ----------
<S> <C> <C>
ASSETS
Investments, at value
(Cost: $51,190 and $39,848, respectively) $51,721 $40,775
Interest receivable 768 590
Receivable for fund shares sold 111 88
Deferred organization costs 46 33
Prepaid expenses 7 3
------- -------
Total assets 52,653 41,489
------- -------
LIABILITIES
Payable for:
Dividends 34 34
Fund shares redeemed 54 --
Deferred organization costs -- 4
Investment advisory and administration
fee 14 11
Transfer agency and
shareholder service fees 3 5
Other 44 22
------- -------
Total liabilities 149 76
------- -------
Net assets applicable to outstanding shares $52,504 $41,413
======= =======
NET ASSETS CONSIST OF:
Capital paid in $52,647 $41,282
Accumulated undistributed
net investment income 13 15
Accumulated net realized loss
on investments sold (687) (813)
Net unrealized appreciation
on investments 531 929
------- -------
$52,504 $41,413
======= =======
THE PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) 5,188 4,076
Net asset value, offering and
redemption price per share $10.12 $10.16
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 23
SchwabFunds(R) 7
- --------------------------------------------------------------------------------
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND &
SCHWAB LONG-TERM TAX-FREE BOND FUND
STATEMENTS OF OPERATIONS (in thousands)
For the year ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Schwab Schwab
Short/Intermediate Long-Term
Tax-Free Tax-Free
Bond Fund Bond Fund
------------------ ----------
<S> <C> <C>
Interest income $ 2,533 $ 2,462
-------- --------
Expenses:
Investment advisory and administration
fee 227 169
Transfer agency and
shareholder service fees 139 103
Custodian fees 39 31
Registration fees 30 24
Professional fees 13 11
Shareholder reports 17 13
Trustees' fees 4 3
Amortization of deferred organization
costs 15 17
Insurance and other expenses 13 13
-------- --------
497 384
Less expenses reduced (225) (160)
-------- --------
Total expenses incurred by Fund 272 224
-------- --------
Net investment income 2,261 2,238
-------- --------
Net realized gain (loss) on investments:
Proceeds from sales of investments 77,877 78,910
Cost of investments sold (78,325) (79,716)
-------- --------
Net realized loss on investments sold (448) (806)
-------- --------
Change in net unrealized appreciation
(depreciation) on investments:
Beginning of period (841) (671)
End of period 531 929
-------- --------
Increase in net unrealized
appreciation on investments 1,372 1,600
-------- --------
Increase in net assets resulting from
operations $ 3,185 $ 3,032
======== ========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 24
SchwabFunds(R) 8
- --------------------------------------------------------------------------------
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND &
SCHWAB LONG-TERM TAX-FREE BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Schwab Schwab
Short/Intermediate Long-Term
Tax-Free Tax-Free
Bond Fund Bond Fund
----------------- -----------------
For the year ended August 31,
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 2,261 $ 2,488 $ 2,238 $ 2,408
Net realized gain (loss) on
investments sold (448) (265) (806) 286
Increase (decrease) in net unrealized
appreciation (depreciation) on
investments 1,372 (1,522) 1,600 (2,951)
------- ------- ------- -------
Increase (decrease) in net assets
resulting from operations 3,185 701 3,032 (257)
------- ------- ------- -------
Distributions to shareholders from:
Net investment income (2,255) (2,485) (2,232) (2,404)
Capital gains -- -- -- (371)
------- ------- ------- -------
Total distributions to shareholders (2,255) (2,485) (2,232) (2,775)
------- ------- ------- -------
Capital Share Transactions:
Proceeds from shares sold 17,344 50,244 21,437 28,434
Net asset value of shares issued
in reinvestment of dividends 1,746 1,957 1,626 2,069
Less payments for shares redeemed (31,405) (40,978) (26,425) (33,909)
------- ------- ------- -------
Increase (decrease) in net assets from
capital share transactions (12,315) 11,223 (3,362) (3,406)
------- ------- ------- -------
Total increase (decrease) in net assets (11,385) 9,439 (2,562) (6,438)
Net Assets:
Beginning of period 63,889 54,450 43,975 50,413
------- ------- ------- -------
End of period (including undistributed net
investment income of $13, $7, $15
and $9, respectively) $52,504 $63,889 $41,413 $43,975
======= ======= ======= =======
Number of Fund Shares:
Sold 1,754 4,963 2,196 2,769
Reinvested 176 195 166 200
Redeemed (3,185) (4,079) (2,707) (3,311)
------- ------- ------- -------
Net increase (decrease) in
shares outstanding (1,255) 1,079 (345) (342)
Shares Outstanding:
Beginning of period 6,443 5,364 4,421 4,763
------- ------- ------- -------
End of period 5,188 6,443 4,076 4,421
======= ======= ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 25
SchwabFunds(R) 9
- --------------------------------------------------------------------------------
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND &
SCHWAB LONG-TERM TAX-FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
For the year ended August 31, 1995
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUNDS
The Schwab Short/Intermediate Tax-Free Bond Fund and the Schwab Long-Term
Tax-Free Bond Fund (the "Funds"), are series of Schwab Investments (the
"Trust"), an open-end, management investment company organized as a
Massachusetts business trust on October 26, 1990 and registered under the
Investment Company Act of 1940, as amended.
In addition to the two funds described above, the Trust also offers -- the
Schwab 1000 Fund(R), the Schwab Short/Intermediate Government Bond Fund, the
Schwab Long-Term Government Bond Fund, the Schwab California Short/Intermediate
Tax-Free Bond Fund and the Schwab California Long-Term Tax-Free Bond Fund. The
assets of each series are segregated and accounted for separately.
The investment objective of the Funds is to seek to provide a high level of
current income that is exempt from federal income tax, consistent with
preservation of capital. The Funds, which are not "diversified" within the
meaning of the Investment Company Act of 1940, as amended, each invest primarily
in debt obligations issued by or on behalf of states, territories and
possessions of the United States Government, its agencies or instrumentalities,
the interest of which is not subject to federal income tax.
2. SIGNIFICANT ACCOUNTING POLICIES
Security valuation -- Bonds and notes are generally valued at prices obtained
from an independent bond-pricing service. These securities are valued at the
mean between the representative quoted bid and asked prices, or if such prices
are not available, at prices for securities of comparable maturity, quality and
type. Short term securities within 60 days or less of maturity are stated at
amortized cost which approximates market value.
Security transactions and interest income -- Security transactions, in the
accompanying financial statements, are accounted for on a trade date basis (date
the order to buy or sell is executed). Interest income is recorded on the
accrual basis and includes amortization of premium on investments. Realized
gains and losses from security transactions are determined on an identified cost
basis. For callable bonds purchased at a premium, the excess of the purchase
price over the call value is amortized against interest income through the call
date. If the call provision is not exercised, any remaining premium is amortized
through the final maturity date.
Dividends to shareholders -- Each Fund declares a daily dividend, from net
investment income for that day, payable monthly. Distributions of net capital
gains are recorded on ex-dividend date, payable annually on a calendar year
basis.
Deferred organization costs -- Costs incurred in connection with the
organization of the Funds, their initial registration with the Securities and
Exchange Commission and with various states are amortized on a straight-line
basis over a five year period from each Fund's commencement of operations.
Expenses -- Expenses arising in connection with a Fund are charged directly to
that Fund. Expenses common to all series of the Trust are allocated to each
series in proportion to their relative net assets.
<PAGE> 26
SchwabFunds(R) 10
- --------------------------------------------------------------------------------
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND &
SCHWAB LONG-TERM TAX-FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
For the year ended August 31, 1995
- --------------------------------------------------------------------------------
Federal income taxes -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all net investment income and realized net capital
gains, if any, to shareholders. Therefore, no federal income tax provision is
required. Each Fund is considered a separate entity for tax purposes.
All distributions paid by the Schwab Short/Intermediate Tax-Free Bond Fund and
the Schwab Long-Term Tax-Free Bond Fund during the year ended August 31, 1995
qualify as exempt-interest dividends for federal tax purposes.
At August 31, 1995, (for financial reporting and federal income tax purposes),
net unrealized appreciation for the Schwab Short/Intermediate Tax-Free Bond Fund
aggregated $531,000, of which $614,000 related to appreciated securities and
$83,000 related to depreciated securities, and net unrealized appreciation for
the Schwab Long-Term Tax-Free Bond Fund aggregated $929,000, of which $1,097,000
related to appreciated securities and $168,000 related to depreciated
securities.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreement -- The Trust has an investment
advisory and administration agreement with Charles Schwab Investment Management,
Inc. (the "Investment Manager"). For advisory services and facilities furnished,
the Funds each pay an annual fee, payable monthly, of .41% of each Fund's
average daily net assets. Under this agreement, the Schwab Short/Intermediate
Tax-Free Bond Fund and the Schwab Long-Term Tax-Free Bond Fund incurred
investment advisory and administration fees of $227,000 and $169,000,
respectively, during the year ended August 31, 1995, before the Investment
Manager reduced its fee (see Note 4).
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of .05% of average daily net assets of each Fund
for transfer agency services and .20% of such assets for shareholder services.
For the year ended August 31, 1995, the Schwab Short/Intermediate Tax-Free Bond
Fund and the Schwab Long-Term Tax-Free Bond Fund incurred transfer agency and
shareholder service fees of $139,000 and $103,000, respectively, before Schwab
reduced its fees (see Note 4).
Officers and trustees -- Certain officers and trustees of the Trust are also
officers or directors of the Investment Manager and Schwab. During the year
ended August 31, 1995, the Trust made no direct payments to its officers or
trustees who are "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Schwab Short/Intermediate Tax-Free Bond
Fund and the Schwab Long-Term Tax-Free Bond Fund incurred fees aggregating
$7,000 related to the Trust's unaffiliated trustees.
<PAGE> 27
SchwabFunds(R) 11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
During the year ended August 31, 1995, the Investment Manager and Schwab reduced
a portion of their fees in order to limit each Fund's ratio of operating
expenses to average net assets. The total of such fee reductions by the
Investment Manager were $130,000 and $80,000 for the Schwab Short/Intermediate
Tax-Free Bond Fund and the Schwab Long-Term Tax-Free Bond Fund, respectively,
and the total of such fee reductions by Schwab were $95,000 and $80,000 for the
Schwab Short/Intermediate Tax-Free Bond Fund and the Schwab Long-Term Tax-Free
Bond Fund, respectively.
5. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities, other than short-term
obligations, during the year ended August 31, 1995, were as follows (in
thousands):
<TABLE>
<CAPTION>
Schwab Schwab
Short/Intermediate Long-Term
Tax-Free Bond Fund Tax-Free Bond Fund
------------------ ------------------
<S> <C> <C>
Purchases $18,603 $27,889
Proceeds of sales and maturities $32,986 $29,264
</TABLE>
<PAGE> 28
SchwabFunds(R) 12
- --------------------------------------------------------------------------------
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND &
SCHWAB LONG-TERM TAX-FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
For the year ended August 31, 1995
- --------------------------------------------------------------------------------
6. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period:
<TABLE>
<CAPTION>
Schwab Short/Intermediate
Tax-Free Bond Fund
-------------------------------------------------
For the period
April 21, 1993
(commencement
For the year ended of operations) to
August 31, August 31,
1995 1994 1993
------------ ------------ -----------------
<S> <C> <C> <C>
Net asset value at beginning of period $ 9.92 $ 10.15 $ 10.00
Income from Investment Operations
- ---------------------------------
Net investment income .40 .37 .13
Net realized and unrealized gain (loss) on investments .20 (.23) .15
------- ------- -------
Total from investment operations .60 .14 .28
Less Distributions
- ------------------
Dividends from net investment income (.40) (.37) (.13)
Distributions from realized gain on investments -- -- --
------- ------- -------
Total distributions (.40) (.37) (.13)
------- ------- -------
Net asset value at end of period $ 10.12 $ 9.92 $ 10.15
======= ======= =======
Total return (%) 6.23 1.42 2.83
- ----------------
Ratios/Supplemental Data
- ------------------------
Net assets, end of period (000s) $52,504 $63,889 $54,450
Ratio of expenses to average net assets (%) .49 .48 .45*
Ratio of net investment income to average net assets
(%) 4.06 3.71 3.63*
Portfolio turnover rate (%) 35 19 11
</TABLE>
The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses in order to limit each Fund's ratio of operating
expenses to average net assets. Had these fees and expenses not been reduced and
absorbed, the ratio of expenses to average net assets for the Schwab
Short/Intermediate Tax-Free Bond Fund for the periods ended August 31, 1995,
1994 and 1993 would have been .89%, .91% and 1.26%*, respectively, and the ratio
of net investment income to average net assets would have been 3.66%, 3.28% and
2.82%*, respectively.
* Annualized
<PAGE> 29
SchwabFunds(R) 13
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Schwab Long-Term
Tax-Free Bond Fund
-------------------------------------------------------
For the period
For the September 11, 1992
eight (commencement
For the year ended months ended of operations) to
August 31, August 31, December 31,
1995 1994 1993 1992
-------- -------- ------------ ------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 9.95 $ 10.59 $ 9.92 $ 10.00
Income from Investment Operations
- ---------------------------------
Net investment income .53 .52 .36 .17
Net realized and unrealized gain (loss)
on investments .21 (.56) .67 (.08)
------- ------- ------- -------
Total from investment operations .74 (.04) 1.03 .09
Less Distributions
- ------------------
Dividends from net investment income (.53) (.52) (.36) (.17)
Distributions from realized gain on investments -- (.08) -- --
------- ------- ------- -------
Total distributions (.53) (.60) (.36) (.17)
------- ------- ------- -------
Net asset value at end of period $ 10.16 $ 9.95 $ 10.59 $ 9.92
======= ======= ======= =======
Total return (%) 7.76 (.42) 10.56 .92
- ----------------
Ratios/Supplemental Data
- ------------------------
Net assets, end of period (000s) $41,413 $43,975 $50,413 $28,034
Ratio of expenses to average net assets (%) .54 .51 .45* .45*
Ratio of net investment income
to average net assets (%) 5.40 5.05 5.30* 5.61*
Portfolio turnover rate (%) 70 62 91 54
</TABLE>
The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses in order to limit each Fund's ratio of operating
expenses to average net assets. Had these fees and expenses not been reduced and
absorbed, the ratio of expenses to average net assets for the Schwab Long-Term
Tax-Free Bond Fund for the periods ended August 31, 1995, 1994, 1993 and
December 31, 1992 would have been .93%, .99%, 1.18%* and 1.53%*, respectively,
and the ratio of net investment income to average net assets would have been
5.01%, 4.57%, 4.57%* and 4.53%*, respectively.
* Annualized
<PAGE> 30
SchwabFunds(R) 14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To the Trustees
and Shareholders of the Schwab Short/Intermediate Tax-Free Bond Fund and
the Schwab Long-Term Tax-Free Bond Fund
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets present fairly, in all material respects, the financial
position of the Schwab Short/Intermediate Tax-Free Bond Fund and the Schwab
Long-Term Tax-Free Bond Fund (two series constituting part of Schwab
Investments, hereafter referred to as the "Trust") at August 31, 1995, and the
results of their operations and the changes in their net assets for the periods
presented, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 1995 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
September 29, 1995
<PAGE> 31
THE SCHWABFUNDS FAMILY(R)
The SchwabFunds Family includes a variety of funds to meet your investment
needs. You can diversify into several different equity markets with our three
equity index funds, choose from different maturities with our bond fund
selection, and take advantage of an array of money market fund choices.
[Figure 1] SCHWAB 1000 FUND(R) is designed to allow investors to participate
in the overall price and dividend performance of the U.S. stock
market as represented by the Schwab 1000 Index(R). This index
reflects the performance of the 1,000 largest publicly traded U.S.
companies based on market capitalization. 1
[Figure 2] SCHWAB SMALL-CAP INDEX FUND(R) is designed to replicate the Schwab
Small-Cap Index(TM) which tracks the performance of smaller
capitalization companies. The Schwab Small-Cap Index represents the
second 1,000 largest publicly traded U.S. companies based on market
capitalization. 1
[Figure 3] SCHWAB INTERNATIONAL INDEX FUND(TM) gives investors the opportunity
to participate in the price and dividend performance of some of the
world's largest companies. This Fund makes it simple to effectively
invest in 350 of the largest publicly traded companies (based on
market capitalization) from countries around the world, as
represented by the Schwab International Index(TM). 2
[Figure 4] SCHWAB GOVERNMENT BOND FUNDS include two different Funds designed
to offer high current yields with the credit safety of high-quality
U.S. Government securities. The level of income you're seeking and
your tolerance for fluctuation in share price should determine your
selection of either our Short/Intermediate Fund or the Long-Term
Fund. 3
[Figure 5] SCHWAB TAX-FREE BOND FUNDS help investors take advantage of one of
the last remaining tax breaks: tax-free municipal bonds. We offer a
Short/Intermediate Fund and a Long-Term Fund, both of which pay
monthly income free from federal personal income tax. 4, 5
[Figure 6] SCHWAB CALIFORNIA TAX-FREE BOND FUNDS give California residents two
different opportunities to earn double tax-free income--free from
both federal and California state personal income taxes. Choose
from the Short/Intermediate Fund or the Long-Term Fund. 5
[Figure 7] SCHWAB MONEY FUNDS include seven different money market funds that
seek high current income with safety and liquidity. Most can be
linked to your Schwab account to "sweep" cash balances
automatically when you're in between other investments. These Funds
are managed to maintain a stable $1 share price. Keep in mind,
however, that investments in money market funds are neither insured
nor guaranteed by the U.S. Government, and there is no assurance
that the Funds will be able to maintain a stable share price of $1.
Schwab will be happy to provide you with a free prospectus and brochure on any
of the SchwabFunds(R). The prospectus provides more complete information
including charges and expenses. Please read it carefully before investing. Also
keep in mind that the principal value and investment returns of your investment
in the SchwabFunds (except Schwab Money Funds) will fluctuate with market
conditions, and Fund shares, when redeemed, may be worth more or less than their
original cost.
1-800-2 NO-LOAD
1-800-266-5623
1 The Schwab 1000 Fund and the Schwab Small-Cap Index Fund do not include
privately held companies, investment companies and companies incorporated
outside the United States.
2 Companies in the Schwab International Index Fund must be from countries with
developed securities markets. The Fund is currently invested in 15 countries
and excludes investment companies and companies from the United States.
3 Investors in the Schwab Government Bond Funds may experience a decline in
share price due to pre-payment of obligations held by the Funds.
4 Income may be subject to state and local taxes.
5 Income may be subject to the Alternative Minimum Tax (AMT) and capital
appreciation from discounted bonds may be subject to state and federal income
tax.
<PAGE> 32
--------------
BULK RATE
U.S. POSTAGE
PAID
CHARLES SCHWAB
--------------
[SCHWABFUNDS FAMILY(R) LOGO]
101 Montgomery Street,
San Francisco, CA 94104
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc.
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR
Charles Schwab & Co., Inc.
101 Montgomery Street, San Francisco, CA 94104
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
TF3747R (10/95) CRS 6721 Printed on recycled paper.
