<PAGE> 1
SCHWABFUNDS (R)
SCHWAB
CALIFORNIA
TAX-FREE
BOND FUNDS
SEMI-ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE> 2
Dear Shareholder,
[Photo of With the support of investors like you, the SchwabFunds
Charles Family(R) continues to be among the largest and
R. Schwab] fastest-growing mutual fund complexes in the nation.
Charles Schwab Investment Management, Inc. (CSIM)
manages over $46 billion in assets for more than 2.5
million shareholders. Today CSIM offers investors 30
funds spanning a spectrum of financial markets and
investing styles. You'll find in-depth information on
the performance of your SchwabFunds(R) investment in
the following pages.
LONG-TERM INVESTMENT STRATEGIES
SchwabFunds' expanding family of quality mutual funds offers investors
time-tested strategies for long-term investing -- Asset Allocation, Indexing,
Tax-Efficiency, Quantitative Models and Fund-of-Funds. Each strategy was
developed to fit specific financial objectives. The SchwabFunds Family was
developed to provide you with smart, cost-efficient solutions and an easy,
convenient way to put your money to work. And we'll continue to explore new
strategies to help meet your financial goals.
EXPANDING CHANNELS OF COMMUNICATION
If you're among the millions of people exploring the Internet, I encourage you
to visit our Web site at www.schwab.com/funds. There you'll find a wealth of
online information about SchwabFunds as well as a wide range of investments and
resources available from Schwab. You can access the latest mutual fund
performance data, request a free fund prospectus, trade funds and more -- all
from the comfort of your home or office, 24 hours a day. It's just one more way
we're harnessing the latest technology to make investing easier and more
convenient.
Thank you for placing your trust in SchwabFunds. In the year ahead, we'll
continue working to provide you with an expanding range of investment
opportunities to meet your growing needs.
/s/ Charles R. Schwab
Charles R. Schwab
<PAGE> 3
KEEP YOUR
MONEY WORKING
HARDER!
----------------------------------
USE THIS ENVELOPE TO EASILY ADD TO
YOUR SCHWAB BOND FUND.
CHARLES SCHWAB
<PAGE> 4
WE'VE MADE IT EASIER FOR YOU! TAKE ADVANTAGE OF THIS OPPORTUNITY TO ADD TO YOUR
SCHWAB BOND FUND INVESTMENT.
Now, you can add to your account by using this convenient Schwab investment
coupon. It's a simple, easy way to increase your investment. You can also have
money transferred to your bond fund directly from your bank account or payroll
check using Schwab's free Automatic Investment Plan (AIP)(1). If you'd like
more information on AIP, just check the appropriate box on the coupon. We'll
send you everything you need to get started.
SO DON'T DELAY. USE THIS CONVENIENT INVESTMENT
ENVELOPE AND SEND YOUR CHECK TODAY!
(1) The Automatic Investment Plan does not ensure profit or protect against
loss in declining markets.
- --------------------------------------------------------------------------------
PLEASE DETACH HERE.
SCHWAB BOND FUND
INVESTMENT COUPON
- ------------------
Please enclose your check and this completed investment coupon
in the attached postage-paid envelope.
[ ][ ][ ][ ]-[ ][ ][ ][ ]
- -------------------------------------- SCHWAB ACCOUNT NUMBER
Name
$
- --------------------------------------
Amount of Investment*
- --------------------------------------
Signature
[ ] Check here if you would like more investment coupons for
future use.
[ ] Check here if you would like more information on Schwab's
Automatic Investment Plan (AIP).
* THIS ENVELOPE MAY NOT BE USED FOR INITIAL INVESTMENTS. SUBSEQUENT INVESTMENT
MINIMUM IS $100.
PLEASE INDICATE TO WHICH SCHWAB BOND FUND YOUR INVESTMENT SHOULD GO:
[ ] Schwab Long-Term Government Bond Fund
[ ] Schwab Short/Intermediate Government Bond Fund
[ ] Schwab California Long-Term Tax-Free Bond Fund
[ ] Schwab California Short/Intermediate Tax-Free Bond Fund
[ ] Schwab Long-Term Tax-Free Fund
[ ] Schwab Short/Intermediate Tax-Free Fund
IF NO FUND IS INDICATED, YOUR INVESTMENT WILL GO INTO THE SWEEP ACCOUNT YOU'VE
DESIGNATED.
----------------------------------------
(LIFT HERE FOR MORE INFORMATION)
----------------------------------------
(C) 1996 Charles Schwab & Co., Inc. All rights reserved. Member SIPC/NYSE.
Printed on recycled paper. TF4269 (10/96) CRS 10552
<PAGE> 5
CharlesSchwab
JUST FOLLOW THESE EASY STEPS TO INVEST IN YOUR SCHWAB BOND FUND:
1. Fill out the Schwab investment coupon completely, This envelope must
including your name, account number, amount of be preceded or
your check and signature. Please use one coupon accompanied by a
for each account. current Schwab Bond
Fund prospectus. The
2. Make your check payable to CHARLES SCHWAB & CO., principal value and
INC., and enclose your check with the completed investment returns will
coupon in this postage-paid envelope. fluctuate so that an
investor's shares, when
3. Then just drop your Schwab Bond Fund investment redeemed, may be worth
envelope in the mail today--and start putting your more or less than their
money to work! If you have any questions, don't original cost.
hesitate to call your local Schwab office or
1-800-2 NO LOAD.
<PAGE> 6
Attn: Dept. AIP 333-4
--------------
NO POSTAGE
NECESSARY IF
MAILED IN THE
UNITED STATES
--------------
-------------------------------------
BUSINESS REPLY MAIL
FIRST-CLASS MAIL PERMIT NO. 18125 [BAR CODE]
SAN FRANCISCO, CA
-------------------------------------
POSTAGE WILL BE PAID BY ADDRESSEE
CHARLES SCHWAB & CO., INC.
PO BOX 7778
SAN FRANCISCO CA 94120-9419
<PAGE> 7
Table of Contents
<TABLE>
<S> <C>
PERFORMANCE ................................................... 2
TAXABLE EQUIVALENT YIELD ...................................... 6
DIVIDEND PAYMENT .............................................. 7
TOP TEN HOLDINGS .............................................. 8
INVESTMENT QUALITY SUMMARY .................................... 10
PORTFOLIO MANAGEMENT TEAM ..................................... 11
MARKET OVERVIEW ............................................... 12
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM .................... 20
FINANCIAL STATEMENTS AND NOTES ................................ 23
</TABLE>
We are pleased to report to you on the performance of the Schwab California
Short/Intermediate Tax-Free Bond Fund and the Schwab California Long-Term
Tax-Free Bond Fund (the "Funds") for the six-month period ended February 28,
1997. During the period, both Funds continued to achieve their primary
objectives by providing a relatively steady stream of monthly income, exempt
from Federal and California personal income taxes and consistent with capital
preservation. 1 Each Fund's individual performance is reviewed in detail in the
following pages.
(1) Income from the Fund may be subject to the Alternative Minimum Tax (AMT).
1
<PAGE> 8
PERFORMANCE
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND
Yield and Total Return as of February 28, 1997
(Fund Inception 4/21/93)
<TABLE>
<CAPTION>
Average Annual
30-Day 6-Month 1-Year Total Return
SEC Yield Total Return Total Return Since Inception
-----------------------------------------------------------------
<S> <C> <C> <C>
4.08% 3.08% 4.21% 4.46%
-----------------------------------------------------------------
</TABLE>
As of 12/31/96, the 30-day SEC yield and 6-month, 1-year and since inception
average annual total returns for the Fund were 4.07%, 3.02%, 3.90%, and 4.42%,
respectively.
TOTAL RETURN ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS, IF ANY. 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
Investment Manager and Schwab waived a portion of their fees during the period
and have guaranteed that maximum total operating expenses will not exceed 0.49%
through at least 12/31/97. Without fee waivers and guarantees, for the period
ended 2/28/97, the Fund's 30-day SEC yield and six-month, one-year and since
inception average annual total returns would have been 3.72%, 2.89%, 3.81% and
4.04%, respectively. For the period ended 12/31/96, the Fund's 30-day SEC yield
and six-month, one-year and since inception average annual total returns,
without fee waivers and guarantees, would have been 3.71%, 2.81%, 3.50% and
4.00%, respectively.
2
<PAGE> 9
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN THE SCHWAB
CALIFORNIA SHORT\INTERMEDIATE TAX-FREE BOND FUND AND THE LEHMAN 3-YEAR MUNICIPAL
BOND INDEX.
AVERAGE ANNUAL TOTAL RETURNS
THROUGH FEBRUARY 28, 1997
ONE YEAR SINCE INCEPTION
4.21% 4.46%
<TABLE>
<CAPTION>
4/21/93 4/30/93 5/31/93 6/30/93 7/31/93 8/31/93 9/30/93 10/31/93
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index $10,000 $9,994 $10,021 $10,085 $10,090 $10,185 $10,229 $10,251
Fund $10,000 $9,990 $10,037 $10,136 $10,157 $10,257 $10,328 $10,328
<CAPTION>
11/30/93 12/31/93 1/31/94 2/28/94 3/31/94 4/30/94 5/31/94 6/30/94
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index $10,237 $10,345 $10,429 $10,332 $10,207 $10,267 $10,315 $10,318
Fund $10,310 $10,444 $10,517 $10,372 $10,188 $10,239 $10,272 $10,253
<CAPTION>
7/31/94 8/31/94 9/30/94 10/31/94 11/30/94 12/31/94 1/31/95 2/28/95
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index $10,404 $10,441 $10,415 $10,390 $10,371 $10,416 $10,502 $10,613
Fund $10,356 $10,390 $10,350 $10,280 $10,167 $10,227 $10,350 $10,503
<CAPTION>
3/31/95 4/30/95 5/31/95 6/30/95 7/31/95 8/31/95 9/30/95 10/31/95
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index $10,708 $10,744 $10,909 $10,935 $11,050 $11,137 $11,168 $11,222
Fund $10,598 $10,614 $10,826 $10,809 $10,925 $11,030 $11,090 $11,174
<CAPTION>
11/30/95 12/31/9 1/31/96 2/29/96 3/31/96 4/30/96 5/31/96 6/30/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index $11,294 $11,341 $11,430 $11,432 $11,404 $11,418 $11,428 $11,497
Fund $11,256 $11,296 $11,366 $11,358 $11,308 $11,325 $11,332 $11,393
<CAPTION>
7/31/96 8/31/96 9/30/96 10/31/96 11/30/96 12/31/96 1/31/97 2/28/97
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index $11,560 $11,577 $11,648 $11,730 $11,839 $11,845 $11,897 $11,955
Fund $11,466 $11,483 $11,557 $11,634 $11,742 $11,737 $11,776 $11,837
</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
California 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, and, unlike the Fund, does
not reflect the payment of advisory fees and other expenses associated with an
investment in the Fund. Investors cannot invest in an index directly. Fund total
return assumes the reinvestment of all dividends and capital gain distributions,
if any. The Investment Manager and Schwab waived a portion of their fees during
the reporting period, and have guaranteed that maximum total operating expenses
will not exceed 0.49% through at least 12/31/97. Without fee waivers and
guarantees, the Fund's total return would have been lower.
3
<PAGE> 10
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND
Yield and Total Return as of February 28, 1997
(Fund Inception 2/24/92)
<TABLE>
<CAPTION>
Average Annual
30-Day 6-Month 1-Year 5-Year Total Return
SEC Yield Total Return Total Return Total Return Since Inception
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5.26% 5.37% 5.59% 7.40% 7.58%
--------------------------------------------------------------------------
</TABLE>
As of 12/31/96, the 30-day SEC yield and 6-month, 1-year and since inception
average annual total returns for the Fund were 5.27%, 5.41%, 4.33% and 7.61%,
respectively. (As of 12/31/96, the Fund did not have a 5-year total return.)
TOTAL RETURN ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS, IF ANY. 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
Investment Manager and Schwab waived a portion of their fees during the period
and have guaranteed that maximum total operating expenses will not exceed 0.49%
through at least 12/31/97. Without fee waivers and guarantees, for the periods
ended 2/28/97, the Fund's 30-day SEC yield and six-month, one-year, five-year
and since inception average annual total returns would have been 4.95%, 5.21%,
5.25%, 7.01% and 7.18%, respectively. For the period ended 12/31/96, the Fund's
30-day SEC yield and six-month, one-year and since inception average annual
total returns, without fee waivers and guarantees, would have been 4.96%, 5.24%,
3.99% and 7.22%, respectively.
4
<PAGE> 11
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL
$10,000 INVESTMENT IN THE SCHWAB CALIFORNIA LONG-TERM
TAX-FREE BOND FUND AND THE LEHMAN
GENERAL MUNICIPAL BOND INDEX
AVERAGE ANNUAL TOTAL RETURNS
THROUGH FEBRUARY 28, 1997
ONE YEAR FIVE YEAR SINCE INCEPTION
5.59% 7.40% 7.58%
<TABLE>
<CAPTION>
2/24/92 3/31/92 4/30/92 5/31/92 6/30/92 7/31/92 8/31/92 9/30/92
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index $10,000 $10,004 $10,093 $10,212 $10,383 $10,694 $10,590 $10,659
Fund $10,000 $10,099 $10,217 $10,410 $10,633 $11,082 $10,786 $10,835
<CAPTION>
10/31/92 11/30/92 12/31/92 1/31/93 2/28/93 3/31/93 4/30/93 5/31/93
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index $10,554 $10,743 $10,853 $10,979 $11,376 $11,256 $11,370 $11,434
Fund $10,474 $10,921 $11,110 $11,256 $11,775 $11,561 $11,674 $11,736
<CAPTION>
6/30/93 7/31/93 8/31/93 9/30/93 10/31/93 11/30/93 12/31/94 1/31/94
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index $11,624 $11,640 $11,882 $12,017 $12,041 $11,934 $12,186 $12,326
Fund $11,969 $11,957 $12,235 $12,371 $12,412 $12,263 $12,541 $12,671
<CAPTION>
2/28/94 3/31/94 4/30/94 5/31/94 6/30/94 7/31/94 8/31/94 9/30/94
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index $12,006 $11,517 $11,615 $11,716 $11,644 $11,864 $11,905 $11,730
Fund $12,304 $11,683 $11,768 $11,867 $11,747 $12,008 $12,026 $11,824
<CAPTION>
10/31/94 11/30/94 12/31/94 1/31/95 2/28/95 3/31/95 4/30/95 5/31/95
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index $11,521 $11,313 $11,562 $11,893 $12,238 $12,379 $12,394 $12,789
Fund $11,508 $11,235 $11,420 $11,901 $12,295 $12,414 $12,407 $12,825
<CAPTION>
6/30/95 7/31/95 8/31/95 9/30/95 10/31/95 11/30/95 12/31/95 1/31/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index $12,677 $12,797 $12,960 $13,041 $13,230 $13,450 $13,579 $13,682
Fund $12,613 $12,685 $12,866 $12,972 $13,228 $13,507 $13,690 $13,785
</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
California 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, and, unlike the Fund, does not
reflect the payment of advisory fees and other expenses associated with an
investment in the Fund. Investors cannot invest in an index directly. Fund total
return assumes the reinvestment of all dividends and capital gain distributions,
if any. The Investment Manager and Schwab waived a portion of their fees during
the reporting period, and have guaranteed that maximum total operating expenses
will not exceed 0.49% through at least 12/31/97. Without fee waivers and
guarantees, the Fund's total return would have been lower.
5
<PAGE> 12
TAXABLE EQUIVALENT YIELD
To evaluate the performance of a tax-free bond fund, you should pay special
attention to the fund's taxable equivalent yield. While hypothetical in nature,
this measure of performance offers you a convenient way to asses the additional
yield which would be required of a taxable bond fund in order for the yield of
that fund to be equivalent to a tax-exempt yield after you pay federal and
California personal income taxes.
<TABLE>
<CAPTION>
California
Tax-Free Yield 34% 35% 37% 42% 45%
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3.50% 5.30% 5.38% 5.56% 6.03% 6.36%
4.00% 6.06% 6.15% 6.35% 6.90% 7.27%
4.50% 6.82% 6.92% 7.14% 7.76% 8.18%
5.00% 7.58% 7.69% 7.94% 8.62% 9.09%
5.50% 8.33% 8.46% 8.73% 9.48% 10.00%
6.00% 9.09% 9.23% 9.52% 10.34% 10.91%
</TABLE>
(1) If your 1996 combined federal and California personal income tax bracket
is...
(2) And you have a tax-free investment yielding...
(3) Here is what you would have to earn from a taxable investment to match the
tax-free yield.
Chart is for illustrative purposes only and does not reflect
the performance of the Schwab California Tax-Free Bond Funds.
6
<PAGE> 13
ANNUAL DIVIDEND PAYMENT AS OF FISCAL YEAR-END
FROM EACH FUND'S INCEPTION DATE
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND
=========================================================================
<TABLE>
<CAPTION>
6-month
1993* 1994 1995 1996 Reporting Period
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Dividends $ 0.13 $ 0.37 $ 0.42 $ 0.43 $ 0.22
- -------------------------------------------------------------------------
Capital Gains -- -- -- -- --
- -------------------------------------------------------------------------
</TABLE>
*Commencement of operations April 21, 1993.
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND
===============================================================================
<TABLE>
<CAPTION>
6-month
1992* 1993 1994 1995 1996 Reporting Period
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income Dividends $ 0.51 $ 0.38 $ 0.56 $ 0.56 $ 0.57 $ 0.29
- -------------------------------------------------------------------------------
Capital Gains -- -- 0.12 -- -- --
- -------------------------------------------------------------------------------
</TABLE>
* Commencement of operations February 24, 1992.
FUND INVESTMENTS
The investment portfolios of both California Tax-Free Bond Funds consist of a
mix of investment-grade municipal bonds from a variety of California issuers.
More detailed information on each Fund's investments, as of February 28, 1997,
can be found in the Schedule of Investments section of this report, which
follows the Question and Answer section. This information is not necessarily
indicative of the Funds' future holdings.
7
<PAGE> 14
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND
TOP 10 HOLDINGS
<TABLE>
<CAPTION>
BOND INVESTMENT % OF TOTAL INVESTMENTS
<S> <C>
Los Angeles, California Unified School District
5.70%, Aaa/AAA, Maturity 12/01/9 6.43%
Orange County, California Municipal Water Facilities
4.60%, Aaa/AAA, Maturity 7/01/01 5.81%
Los Angeles, California Department of Water and Power
Electric 4.50%, Aa3/A+, Maturity 8/15/01 4.39%
Port of Long Beach, California Harbor
7.10%, Aa/AA, Maturity 05/15/97 4.06%
California State Public Works Board (Various University
of California Projects) 5.60%, Aaa/AAA, Maturity 12/01/01 4.05%
California Statewide Community Development Authority
(St. Joseph's Health Systems) 5.30%, Aa3/AA, Maturity 07/01/00 4.03%
California State Public Works Board (California State
University) 4.30%, A/A, Maturity 12/01/99 3.85%
Rancho, California Water District Financing Authority
4.70%, Aa2/AA, Maturity 09/15/01 3.85%
California State Public Works Board (Department of Corrections
State Prisons) 4.70%, Aaa/AAA, Maturity 12/01/00 3.64%
Los Angeles, California Wastewater System
6.60%, NR/A, Maturity 02/01/99 3.56%
</TABLE>
8
<PAGE> 15
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND
TOP 10 HOLDINGS
<TABLE>
<CAPTION>
BOND INVESTMENT % OF TOTAL INVESTMENTS
<S> <C>
San Diego, California Public Facilities Financing Authority
5.25%, (Aaa/AAA), Maturity 5/15/22 5.91%
California Health Facilities Financing Authority (Children's
Hospital) 5.38%, (Aaa/AAA), Maturity 7/1/16 4.18%
San Bernardino County, California Transportation Authority
6.25%, Aaa/AAA, Maturity 03/01/10 3.69%
California Health Facilities Financing Authority (Marshall
Hospital) 6.63%, NR/A+, Maturity 11/01/22 3.49%
San Diego, California Public Facilities Financing Authority
5.00%, Aaa/AAA, Maturity 05/15/25 3.04%
Westminster, California Public Financing Authority
7.00%, NR/A-, Maturity 06/01/19 2.97%
Northern California Power Agency Multiple Capital Facilities
6.50%, Aaa/AAA, Maturity 08/01/12 2.95%
Los Angeles, California Harbor Department
6.50%, Aa/AA, Maturity 08/01/02 2.78%
University of California Revenue Funding Bonds
(Multi Purpose Projects) 5.13%, Aaa/AAA, Maturity 09/01/18 2.69%
California Housing Finance Agency Home Mortgage
7.20%, Aa2/AA, Maturity 08/01/14 2.64%
</TABLE>
9
<PAGE> 16
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND
INVESTMENT QUALITY SUMMARY
[Pie Chart]
A 15%
AA 26%
AAA 44%
BBB 2%
Other 13%
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND
INVESTMENT QUALITY SUMMARY
[Pie Chart]
A 16%
AA 11%
AAA 62%
Other 11%
As of February 28, 1997, these portfolio summaries reflect the published ratings
(for the investments in the portfolios) 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.
*Includes short-term securities.
10
<PAGE> 17
PORTFOLIO MANAGEMENT TEAM
STEPHEN B. WARD - Senior Vice President and Chief Investment Officer, has
overall responsibility for the management of each Fund's portfolio. Steve joined
CSIM as Vice President and Portfolio Manager in April 1991, and was promoted to
his current position in August 1993. Prior to joining CSIM, Steve was Vice
President and Portfolio Manager at Federated Investors.
JOANNE LARKIN - Vice President and Senior Portfolio Manager, has primary
responsibility for the day-to-day management of each Fund's portfolio. Joanne
joined CSIM as Portfolio Manager in February 1992. Prior to joining CSIM, Joanne
was Portfolio Manager for the Shearson Lehman California Municipal Bond Fund and
E.F. Hutton's Municipal Cash Reserve Management.
The following market overviews and answers to questions are provided by the
Portfolio Management Team.
11
<PAGE> 18
MARKET OVERVIEW
REAL GDP GROWTH RATE
[GRAPH]
<TABLE>
<CAPTION>
Real
GDP
------
<S> <C>
Q1 1990 4.1%
Q2 1990 1.3%
Q3 1990 -1.9%
Q4 1990 -4.1%
Q1 1991 -2.2%
Q2 1991 1.7%
Q3 1991 1.0%
Q4 1991 1.0%
Q1 1992 4.7%
Q2 1992 2.5%
Q3 1992 3.0%
Q4 1992 4.3%
Q1 1993 -0.1%
Q2 1993 1.9%
Q3 1993 2.3%
Q4 1993 4.8%
Q1 1994 2.5%
Q2 1994 4.9%
Q3 1994 3.5%
Q4 1994 3.0%
Q1 1995 0.4%
Q2 1995 0.7%
Q3 1995 3.8%
Q4 1995 0.3%
Q1 1996 2.0%
Q2 1996 4.7%
Q3 1996 2.1%
Q4 1996 3.9%
</TABLE>
Source: Bloomberg L.P.
- - The economy continued to expand at a healthy rate during the reporting
period. The GDP growth rate was 2.1% and 3.9% for the third and fourth
quarters, and 3.2% for the full year (1996).
- - The particularly strong second and fourth quarter 1996 growth rates of 4.7%
and 3.9% respectively, resulted in sentiment focusing on the apparent
strength of the economy and its potential impact on future inflation and
Federal Reserve Board (Fed) policy.
- - At the time of this writing, the economy appears to be on track for moderate
growth, continuing the six year expansion which began in 1991.
12
<PAGE> 19
U.S. UNEMPLOYMENT RATE
[GRAPH]
<TABLE>
<CAPTION>
Unemployment
Rate
------------
<S> <C>
Jan-90 5.3%
Feb-90 5.3%
Mar-90 5.2%
Apr-90 5.4%
May-90 5.3%
Jun-90 5.1%
Jul-90 5.4%
Aug-90 5.6%
Sep-90 5.7%
Oct-90 5.8%
Nov-90 6.0%
Dec-90 6.2%
Jan-91 6.3%
Feb-91 6.5%
Mar-91 6.8%
Apr-91 6.6%
May-91 6.8%
Jun-91 6.8%
Jul-91 6.7%
Aug-91 6.8%
Sep-91 6.8%
Oct-91 6.9%
Nov-91 6.9%
Dec-91 7.1%
Jan-92 7.1%
Feb-92 7.3%
Mar-92 7.3%
Apr-92 7.3%
May-92 7.4%
Jun-92 7.7%
Jul-92 7.6%
Aug-92 7.6%
Sep-92 7.5%
Oct-92 7.4%
Nov-92 7.3%
Dec-92 7.3%
Jan-93 7.1%
Feb-93 7.0%
Mar-93 7.0%
Apr-93 7.0%
May-93 6.9%
Jun-93 6.9%
Jul-93 6.8%
Aug-93 6.7%
Sep-93 6.7%
Oct-93 6.7%
Nov-93 6.5%
Dec-93 6.4%
Jan-94 6.7%
Feb-94 6.6%
Mar-94 6.5%
Apr-94 6.4%
May-94 6.0%
Jun-94 6.0%
Jul-94 6.1%
Aug-94 6.1%
Sep-94 5.9%
Oct-94 5.6%
Nov-94 5.6%
Dec-94 5.4%
Jan-95 5.6%
Feb-95 5.4%
Mar-95 5.8%
Apr-95 5.7%
May-95 5.7%
Jun-95 5.6%
Jul-95 5.7%
Aug-95 5.3%
Sep-95 5.6%
Oct-95 5.5%
Nov-95 5.6%
Dec-95 5.6%
Jan-96 5.8%
Feb-96 5.5%
Mar-96 5.6%
Apr-96 5.4%
May-96 5.6%
Jun-96 5.3%
Jul-96 5.4%
Aug-96 5.1%
Sep-96 5.2%
Oct-96 5.2%
Nov-96 5.3%
Dec-96 5.3%
Jan-97 5.4%
Feb-97 5.3%
</TABLE>
Source: Bloomberg L.P.
- - Although trending up during the second half of the year, the unemployment
rate during 1996 remained near its lows for the decade, leading many
economists to question whether such low levels can continue without
generating inflationary pressures on wages and, ultimately, prices.
13
<PAGE> 20
MEASURES OF INFLATION
[GRAPH]
<TABLE>
<CAPTION>
Monthly Quarterly Employment Employment
Consumer Price Employment Cost Cost Index - Cost Index - 4 Employment Cost
Index - YOY% Index - YOY% Quarterly quarter rolling Index % Change Index
Change Change (annualized) average (SA) (1/90=0)
-------------- --------------- ------------ -------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Jan-90 5.2% 5.3% 5.3% 5.1% 1.3% 1.065
Feb-90 5.3% 5.3% 5.3% 5.1% 1.3% 1.065
Mar-90 5.2% 5.3% 5.3% 5.1% 1.3% 1.065
Apr-90 4.7% 5.4% 5.3% 5.3% 1.3% 1.078
May-90 4.4% 5.4% 5.3% 5.3% 1.3% 1.078
Jun-90 4.7% 5.4% 5.3% 5.3% 1.3% 1.078
Jul-90 4.8% 5.1% 4.5% 5.4% 1.1% 1.090
Aug-90 5.6% 5.1% 4.5% 5.4% 1.1% 1.090
Sep-90 6.2% 5.1% 4.5% 5.4% 1.1% 1.090
Oct-90 6.3% 4.8% 4.1% 5.1% 1.0% 1.101
Nov-90 6.3% 4.8% 4.1% 5.1% 1.0% 1.101
Dec-90 6.1% 4.8% 4.1% 5.1% 1.0% 1.101
Jan-91 5.7% 4.6% 4.5% 4.8% 1.1% 1.113
Feb-91 5.3% 4.6% 4.5% 4.8% 1.1% 1.113
Mar-91 4.9% 4.6% 4.5% 4.8% 1.1% 1.113
Apr-91 4.9% 4.5% 4.9% 4.6% 1.2% 1.127
May-91 5.0% 4.5% 4.9% 4.6% 1.2% 1.127
Jun-91 4.7% 4.5% 4.9% 4.6% 1.2% 1.127
Jul-91 4.4% 4.3% 3.6% 4.5% 0.9% 1.137
Aug-91 3.8% 4.3% 3.6% 4.5% 0.9% 1.137
Sep-91 3.4% 4.3% 3.6% 4.5% 0.9% 1.137
Oct-91 2.9% 4.2% 3.6% 4.3% 0.9% 1.147
Nov-91 3.0% 4.2% 3.6% 4.3% 0.9% 1.147
Dec-91 3.1% 4.2% 3.6% 4.3% 0.9% 1.147
Jan-92 2.6% 4.1% 4.1% 4.2% 1.0% 1.159
Feb-92 2.8% 4.1% 4.1% 4.2% 1.0% 1.159
Mar-92 3.2% 4.1% 4.1% 4.2% 1.0% 1.159
Apr-92 3.2% 3.5% 2.8% 4.1% 0.7% 1.167
May-92 3.0% 3.5% 2.8% 4.1% 0.7% 1.167
Jun-92 3.1% 3.5% 2.8% 4.1% 0.7% 1.167
Jul-92 3.2% 3.4% 3.2% 3.5% 0.8% 1.176
Aug-92 3.1% 3.4% 3.2% 3.5% 0.8% 1.176
Sep-92 3.0% 3.4% 3.2% 3.5% 0.8% 1.176
Oct-92 3.2% 3.5% 4.1% 3.4% 1.0% 1.188
Nov-92 3.0% 3.5% 4.1% 3.4% 1.0% 1.188
Dec-92 2.9% 3.5% 4.1% 3.4% 1.0% 1.188
Jan-93 3.3% 3.4% 3.6% 3.5% 0.9% 1.198
Feb-93 3.2% 3.4% 3.6% 3.5% 0.9% 1.198
Mar-93 3.1% 3.4% 3.6% 3.5% 0.9% 1.198
Apr-93 3.2% 3.6% 3.6% 3.4% 0.9% 1.209
May-93 3.2% 3.6% 3.6% 3.4% 0.9% 1.209
Jun-93 3.0% 3.6% 3.6% 3.4% 0.9% 1.209
Jul-93 2.8% 3.6% 3.2% 3.6% 0.8% 1.219
Aug-93 2.8% 3.6% 3.2% 3.6% 0.8% 1.219
Sep-93 2.7% 3.6% 3.2% 3.6% 0.8% 1.219
Oct-93 2.8% 3.4% 3.2% 3.6% 0.8% 1.229
Nov-93 2.7% 3.4% 3.2% 3.6% 0.8% 1.229
Dec-93 2.7% 3.4% 3.2% 3.6% 0.8% 1.229
Jan-94 2.5% 3.2% 2.8% 3.4% 0.7% 1.237
Feb-94 2.5% 3.2% 2.8% 3.4% 0.7% 1.237
Mar-94 2.5% 3.2% 2.8% 3.4% 0.7% 1.237
Apr-94 2.4% 3.1% 3.2% 3.2% 0.8% 1.247
May-94 2.3% 3.1% 3.2% 3.2% 0.8% 1.247
Jun-94 2.5% 3.1% 3.2% 3.2% 0.8% 1.247
Jul-94 2.8% 3.1% 3.2% 3.1% 0.8% 1.257
Aug-94 2.9% 3.1% 3.2% 3.1% 0.8% 1.257
Sep-94 3.0% 3.1% 3.2% 3.1% 0.8% 1.257
Oct-94 2.6% 3.0% 2.8% 3.1% 0.7% 1.266
Nov-94 2.7% 3.0% 2.8% 3.1% 0.7% 1.266
Dec-94 2.7% 3.0% 2.8% 3.1% 0.7% 1.266
Jan-95 2.8% 3.0% 2.8% 3.0% 0.7% 1.275
Feb-95 2.9% 3.0% 2.8% 3.0% 0.7% 1.275
Mar-95 2.9% 3.0% 2.8% 3.0% 0.7% 1.275
Apr-95 3.1% 3.0% 3.2% 3.0% 0.8% 1.285
May-95 3.2% 3.0% 3.2% 3.0% 0.8% 1.285
Jun-95 3.0% 3.0% 3.2% 3.0% 0.8% 1.285
Jul-95 2.8% 2.8% 2.4% 3.0% 0.6% 1.293
Aug-95 2.6% 2.8% 2.4% 3.0% 0.6% 1.293
Sep-95 2.5% 2.8% 2.4% 3.0% 0.6% 1.293
Oct-95 2.8% 2.8% 2.8% 2.8% 0.7% 1.302
Nov-95 2.6% 2.8% 2.8% 2.8% 0.7% 1.302
Dec-95 2.5% 2.8% 2.8% 2.8% 0.7% 1.302
Jan-96 2.7% 2.9% 3.2% 2.8% 0.8% 1.312
Feb-96 2.7% 2.9% 3.2% 2.8% 0.8% 1.312
Mar-96 2.8% 2.9% 3.2% 2.8% 0.8% 1.312
Apr-96 2.9% 2.9% 3.2% 2.9% 0.8% 1.323
May-96 2.9% 2.9% 3.2% 2.9% 0.8% 1.323
Jun-96 2.8% 2.9% 3.2% 2.9% 0.8% 1.323
Jul-96 3.0% 2.9% 2.4% 2.9% 0.6% 1.331
Aug-96 2.9% 2.9% 2.4% 2.9% 0.6% 1.331
Sep-96 3.0% 2.9% 2.4% 2.9% 0.6% 1.331
Oct-96 3.0% 3.0% 3.2% 2.9% 0.8% 1.341
Nov-96 3.3% 3.0% 3.2% 2.9% 0.8% 1.341
Dec-96 3.3% 3.0% 3.2% 2.9% 0.8% 1.341
Jan-97 3.0% 2.2% 0.0% 3.0% 1.341
Feb-97 3.0% 2.2% 0.0% 3.0% 1.341
1.341
</TABLE>
Source: Bloomberg L.P.
- - Although trending slightly upward, both Employment Cost and CPI remained
relatively stable during 1996, reflecting continued low levels of inflation.
- - CPI rose 3.3% in 1996, the highest annual rate since 1990. However, the core
rate (which excludes the more volatile food and energy components) rose just
2.6%, the lowest rate since 1965.
- - The Fed has indicated its belief that the economy remains in the zone where
inflation risks are on the upside and that it is poised to act preemptively
by raising interest rates if necessary. The Fed did take action in March by
increasing the Fed Funds Rate by 0.25%.
14
<PAGE> 21
TOTAL RETURN PERFORMANCE GROWTH OF A DOLLAR INVESTED
[GRAPH]
<TABLE>
<CAPTION>
Monthly Total Return
-----------------------------------------------
Lehman
MF
Schwab Schwab General
Small Cap Int'l US Govt.
S&P 500 Index Index Index
------- --------- ------------- --------
<S> <C> <C> <C> <C>
Sep-96 5.62% 3.68% 2.94% 1.66%
Oct-96 2.76% -1.71% -0.34% 2.20%
Nov-96 7.56% 3.98% 4.64% 1.74%
Dec-96 -1.98% 1.86% 0.88% -1.02%
Jan-97 6.24% 2.36% -3.32% 0.11%
Feb-97 0.79% -2.44% 1.67% 0.14%
</TABLE>
<TABLE>
<CAPTION>
Growth of a $ Investment
-----------------------------------------------
Lehman
MF
Schwab Schwab General
Small Cap Int'l US Govt.
S&P 500 Index Index Index
------- --------- ------------- --------
<S> <C> <C> <C> <C>
$1.000 $1.000 $1.000 $1.000
Sep-96 $1.056 $1.037 $1.029 $1.017
Oct-96 $1.085 $1.019 $1.026 $1.039
Nov-96 $1.167 $1.060 $1.074 $1.057
Dec-96 $1.144 $1.079 $1.064 $1.046
Jan-97 $1.216 $1.105 $1.029 $1.047
Feb-97 $1.225 $1.078 $1.046 $1.049
</TABLE>
TOTAL RETURN ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The
indices are representative returns of specific market sectors during
the Fund's reporting period and do not reflect Fund performance.
Indices are unmanaged and, unlike a fund, do not reflect the payment of
advisory fees and other expenses associated with an investment in a
fund. Investors cannot invest in an index directly.
- - Large cap domestic stocks, as represented by the S&P 500, were clearly the
strongest performing asset class, achieving a 22.5% return during the
six-month reporting period.
- - Although positive, domestic small cap stock (as represented by the Schwab
Small-Cap Index) and international stock total returns (as represented by the
Schwab International Index) both lagged the S&P 500 with six-month returns of
7.8% and 4.6%, respectively.
- - The six-month total return for U.S. Government bonds (as represented by the
Lehman Mutual Fund General U.S. Government Index) was 4.9%.
15
<PAGE> 22
S&P 500 PRICE EARNINGS RATIO
[GRAPH]
<TABLE>
<CAPTION>
S&P 500
Price
Earnings
Ratio
--------
<S> <C>
Jan-90 14.37
Feb-90 14.21
Mar-90 14.77
Apr-90 14.82
May-90 15.84
Jun-90 16.66
Jul-90 16.65
Aug-90 15.57
Sep-90 14.90
Oct-90 14.36
Nov-90 14.59
Dec-90 15.19
Jan-91 14.95
Feb-91 16.82
Mar-91 17.48
Apr-91 17.85
May-91 17.92
Jun-91 17.96
Jul-91 18.07
Aug-91 19.72
Sep-91 19.88
Oct-91 19.92
Nov-91 21.02
Dec-91 21.85
Jan-92 23.35
Feb-92 23.83
Mar-92 25.45
Apr-92 25.51
May-92 25.71
Jun-92 25.08
Jul-92 25.61
Aug-92 25.50
Sep-92 24.37
Oct-92 23.94
Nov-92 24.08
Dec-92 24.01
Jan-93 24.20
Feb-93 24.25
Mar-93 24.22
Apr-93 23.20
May-93 23.21
Jun-93 22.58
Jul-93 22.52
Aug-93 23.02
Sep-93 23.74
Oct-93 23.97
Nov-93 22.55
Dec-93 23.55
Jan-94 22.98
Feb-94 21.17
Mar-94 20.34
Apr-94 20.10
May-94 20.16
Jun-94 19.76
Jul-94 18.64
Aug-94 18.90
Sep-94 18.26
Oct-94 17.55
Nov-94 16.58
Dec-94 16.98
Jan-95 16.23
Feb-95 16.20
Mar-95 16.50
Apr-95 16.02
May-95 16.43
Jun-95 16.82
Jul-95 16.55
Aug-95 16.18
Sep-95 16.86
Oct-95 16.18
Nov-95 17.14
Dec-95 17.41
Jan-96 18.11
Feb-96 18.56
Mar-96 18.94
Apr-96 19.16
May-96 19.48
Jun-96 19.30
Jul-96 18.31
Aug-96 18.62
Sep-96 19.75
Oct-96 19.60
Nov-96 21.05
Dec-96 20.70
Jan-97 20.55
Feb-97 20.98
</TABLE>
Source: Bloomberg L.P.
- - The price earnings ratio for the S&P 500 was 21 at the close of the reporting
period, well above its 30-year mean of 15, but below its 1992 and 1987 highs
of 26 and 22, respectively.
- - Based on other traditional measures such as the price-to-book value ratio or
dividend yield, the U.S. stock market valuation, as measured by the S&P 500,
reached historical highs during the reporting period.
16
<PAGE> 23
30-YEAR AND 5-YEAR TREASURY BOND YIELDS
[GRAPH]
<TABLE>
<CAPTION>
Thirty
Year Five Year
Treasury Treasury
Bond Bond
Yield Yield
-------- ---------
<S> <C> <C>
9/9/96 7.11% 6.70%
9/13/96 6.95% 6.47%
9/20/96 7.04% 6.62%
9/27/96 6.91% 6.44%
10/4/96 6.74% 6.21%
10/11/96 6.85% 6.28%
10/18/96 6.80% 6.25%
10/25/96 6.82% 6.26%
11/1/96 6.68% 6.11%
11/8/96 6.51% 6.03%
11/15/96 6.46% 5.96%
11/22/96 6.44% 5.93%
11/29/96 6.35% 5.83%
12/6/96 6.51% 5.99%
12/13/96 6.57% 6.05%
12/20/96 6.61% 6.14%
12/27/96 6.56% 6.08%
1/3/97 6.73% 6.27%
1/10/97 6.85% 6.38%
1/17/97 6.82% 6.31%
1/24/97 6.89% 6.39%
1/31/97 6.79% 6.25%
2/7/97 6.70% 6.15%
2/14/97 6.52% 6.06%
2/21/97 6.64% 6.16%
2/28/97 6.80% 6.39%
</TABLE>
Source: Bloomberg L.P.
- - Yields remained in a somewhat narrow range during the six-month reporting
period. The first three months were characterized by weaker economic data.
Lower interest rates prompted renewed refinancing activity and consumer
spending, resulting in better employment growth which lead to higher rates
during the second half of the period.
17
<PAGE> 24
30-YEAR AND 5-YEAR AAA GENERAL OBLIGATION MUNICIPAL BOND YIELDS
[GRAPH]
<TABLE>
<CAPTION>
30 year 5 year
AAA GO AAA GO
Muni Muni
Bond Bond
Yields Yields
------ ------
<S> <C> <C>
9/6/96 5.75% 4.58%
9/13/96 5.64% 4.48%
9/20/96 5.69% 4.54%
9/27/96 5.60% 4.45%
10/4/96 5.47% 4.40%
10/11/96 5.55% 4.48%
10/18/96 5.57% 4.49%
10/25/96 5.62% 4.48%
11/1/96 5.55% 4.41%
11/8/96 5.49% 4.35%
11/15/96 5.44% 4.30%
11/22/96 5.41% 4.25%
11/29/96 5.32% 4.18%
12/6/96 5.40% 4.26%
12/13/96 5.42% 4.28%
12/20/96 5.42% 4.28%
12/27/96 5.38% 4.24%
1/3/97 5.44% 4.30%
1/10/97 5.55% 4.41%
1/17/97 5.53% 4.43%
1/24/97 5.54% 4.44%
1/31/97 5.51% 4.41%
2/7/97 5.45% 4.35%
2/14/97 5.33% 4.23%
2/21/97 5.39% 4.29%
2/28/97 5.44% 4.34%
</TABLE>
Source: Bloomberg L.P.
- - Municipal bond yields experienced a pattern similar to Treasury bond yields
and finished the reporting period approximately 0.25% lower than the start of
the period.
18
<PAGE> 25
RATIO OF MUNICIPAL TO TREASURY BOND YIELDS
[GRAPH]
<TABLE>
<CAPTION>
30 Year 5 Year
------- ------
<S> <C> <C>
9/6/96 80.9% 68.4%
9/13/96 81.2% 69.2%
9/20/96 80.8% 68.6%
9/27/96 81.1% 69.2%
10/4/96 81.1% 70.9%
10/11/96 81.1% 71.4%
10/18/96 81.9% 71.8%
10/25/96 82.5% 71.6%
11/1/96 83.1% 72.2%
11/8/96 84.4% 72.2%
11/15/96 84.2% 72.2%
11/22/96 84.1% 71.7%
11/29/96 83.8% 71.7%
12/6/96 82.9% 71.1%
12/13/96 82.5% 70.7%
12/20/96 82.0% 69.7%
12/27/96 82.0% 69.7%
1/3/97 80.8% 68.6%
1/10/97 81.1% 69.1%
1/17/97 81.1% 70.3%
1/24/97 80.4% 69.5%
1/31/97 81.2% 70.6%
2/7/97 81.3% 70.8%
2/14/97 81.7% 69.8%
2/21/97 81.1% 69.6%
2/28/97 80.0% 68.0%
</TABLE>
Source: Bloomberg L.P.
- - An upward slope in these lines indicates that municipal yields are rising
relative to Treasury yields and that municipal bond values are falling (or
not rising as fast) relative to Treasury yields. A downward slope indicates
the reverse. The reason for the yield differential of approximately 10% is
that the holders of long-term tax-exempt bonds demand higher yields to
compensate for the increased credit risk associated with holding any
long-term bond not backed by the U.S. Government.
- - Although impacted by seasonal supply and demand conditions, the relationship
between Treasury and municipal bond yields remained fairly constant during
the reporting period.
19
<PAGE> 26
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM
Q. SINCE THE STOCK MARKET HAS ACHIEVED RECORD HIGHS, IS IT TIME TO THINK ABOUT
CHANGING MY ASSET ALLOCATION PLAN?
A. Whenever there has been a significant divergence in returns between asset
classes, it is often a good time to review your portfolio asset allocation. For
example, for the three year period ended 12/31/96, total returns on large-cap
domestic stocks far exceeded domestic bond returns. The Schwab 1000 Fund(R) and
the Schwab Long-Term Government Bond Fund experienced three year total returns
of 75.4% and 20.2%, respectively. 1 As shown in the hypothetical example below,
if an investor had a portfolio with an asset allocation of 60% stocks and 40%
bonds (investing in just these two funds) at the beginning of the period, and
reinvested all fund distributions, the asset allocation mix would have shifted
to 69% stocks and 31% bonds by the end of the period -- a significant shift from
the investor's intended strategy.
<TABLE>
<CAPTION>
12/31/93 Portfolio Three Year 12/31/96 Portfolio
------------------ ------------------
Value Allocation Growth Value Allocation
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Schwab 1000 Fund $ 6,000 60% $4,524 $10,524 69%
Schwab Long-Term
Government Bond Fund $ 4,000 40% $ 808 $ 4,808 31%
Total Portfolio Value $10,000 100% $5,332 $15,332 100%
</TABLE>
Rather than trying to time markets, we feel that investors should focus on their
own risk profiles and income needs to determine the most appropriate level of
bonds in their portfolios. In addition to providing income, bonds have
performance characteristics which make them an attractive element of a well
diversified investment portfolio. Since bond returns have historically not been
well correlated with stock returns, combining bonds in a portfolio with stocks
can be an effective tool to reduce total portfolio volatility. 2
1 Total return assumes reinvestment of all dividends and capital gain
distributions, if any. 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
Investment Manager and Schwab waived a portion of both Funds' fees during the
period. Without the waiver, each Fund's total return would have been lower.
2 Source: Symphony Asset Management. For the 20 year period ended 12/31/96, the
correlation of large-cap stock returns and government bond returns has been
0.37.
20
<PAGE> 27
Q. HOW WERE THE FUNDS MANAGED DURING THE REPORTING PERIOD? WERE ANY CHANGES MADE
TO THE PORTFOLIO?
A. As shown in the Investment Quality Summary, the investment portfolio
consisted primarily of high quality securities (primarily AAA and AA). We felt
this was an appropriate strategy for the Funds since there was evidence of very
little yield advantage associated with lower rated securities -- it simply did
not appear that investors were being adequately compensated for the higher risk.
In both Funds, we continue to execute a cautious strategy, carefully watching
economic indicators and monitoring Federal Reserve Bank communications regarding
its target level for short term interest rates.
Reflecting our cautious outlook for the market, the California
Short/Intermediate Tax-Free Bond Fund maintained an average weighted maturity
throughout the reporting period in a narrow range from 3.1 to 3.7 years. The
Fund's weighted average maturity at the end of the period was 3.62 years, up
slightly from 3.53 years at the beginning of the period.
The California Long-Term Tax-Free Bond Fund maintained its weighted average
maturity within a range from 17 to 20 years. In early December, we did extend
the Fund from approximately 17.5 years to approximately 18.5 years, reflecting
our assessment that municipal securities were competitively priced. At the close
of the reporting period, it did not appear advisable to extend the Fund's
maturity beyond this range because the yield curve had been very flat beyond 20
years, indicating that there may be very little yield advantage associated with
the longer maturities. We saw no evidence that investors were being adequately
rewarded for the additional risk. The Fund's weighted average maturity at the
end of the period was 18.06 years, down slightly from 18.19 years at the
beginning of the period.
Q. IS MY INVESTMENT GUARANTEED BY THE FEDERAL GOVERNMENT OR THE STATE OF
CALIFORNIA?
A. No. As shown in the Schedule of Investments at the end of this report, each
Fund invests primarily in bonds issued by state and local governments. There is
no explicit or implicit guarantee of repayment by any of these agencies. A
municipal bond fund can help minimize credit risk by diversifying among issuers,
and maintaining adequate portfolio credit quality. As shown on page 10, at the
close of the reporting period, 85% of the California Short/Intermediate Tax-Free
Bond Fund's
21
<PAGE> 28
assets were in investments rated AAA, AA, or A and 89% of the California
Long-Term Tax-Free Bond Fund's assets were invested in AAA, AA, or A rated
securities.
Having said this, tax-free bond funds, like corporate or government bond funds,
are subject to the same type of net asset value fluctuations resulting from
interest rate changes. Rising interest rates will cause bond values to fall, and
funds with longer maturities will experience the most significant declines.
Although tax-free bond funds can reduce credit-related risk exposure by being
well diversified and maintaining credit quality, shareholders have no guarantees
protecting them from either credit or interest rate-related losses.
Q. WHAT IS YOUR VIEW OF THE ECONOMIC CLIMATE IN CALIFORNIA?
A. The general economic recovery in California is in its third year. The State
regained all of the jobs lost in the last recession, and in 1996 the rate of job
growth was its strongest since the late 1980's. These gains reduced the State's
unemployment rate to less than two percentage points above the national average.
Looking forward, it is anticipated that California may see continued moderate
growth across all industry sectors with some, such as real estate, growing at a
much slower pace than that of the pre-recession period. Greater economic
diversification within the State may reduce the impact of a future national
economic downturn should one develop.
The economic improvements of the last several years reduced the accumulated
budget deficit to less than 1% of the total budget. The Governor's 1997 budget
projects a year-end positive budget reserve. However, it appears that
adjustments to the budget may be necessary to prevent current-law spending
requirements from growing faster than revenues. Lawmakers will continue to
address the challenge of balancing mandated spending requirements for education
and public safety against the need for maintaining and upgrading public
infrastructure. Therefore, the State's financial position may not change
significantly over the next twelve months.
We believe that the California securities held by the Fund represent minimal
credit risk and we will continue to monitor the State's economic situation
closely. The State's current ratings are A1 from Moody's Investor Service and A+
from both Standard & Poor's Ratings Group and Fitch Investor Services, Inc.,
three well known rating agencies.
22
<PAGE> 29
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND
- ------------------------------------------------------------------------------
PORTFOLIO SUMMARY
(Unaudited)
ASSET GROWTH
<TABLE>
<CAPTION>
Total Total Percentage
Net Assets Net Assets Growth Over
as of 2/28/97 as of 8/31/96 Reporting
(000s) (000s) Period
- -------------------------------------------------
<S> <C> <C>
$52,617 $45,788 15%
- -------------------------------------------------
</TABLE>
AVERAGE WEIGHTED MATURITY AT FEBRUARY 28, 1997
<TABLE>
<CAPTION>
Value % of % of
Maturity Schedule (000s) Portfolio Portfolio
- --------------------------------------------------------------
(cum.)
<S> <C> <C> <C>
1 - 6 Months $ 2,658 5.1% 5.1%
7 - 36 Months 17,772 34.2 39.3
37 - 60 Months 27,886 53.6 92.9
Over 60 Months 3,670 7.1 100.0%
--------- ---------
$51,986 100.0%
======== ========
</TABLE>
Average Weighted Maturity--3.62 Years
23
<PAGE> 30
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND
- ------------------------------------------------------------------------------
PORTFOLIO SUMMARY
(Unaudited)
ASSET GROWTH
<TABLE>
<CAPTION>
Total Total Percentage
Net Assets Net Assets Growth Over
as of 2/28/97 as of 8/31/96 Reporting
(000s) (000s) Period
- -------------------------------------------------
<S> <C> <C>
$113,558 $101,616 12%
- -------------------------------------------------
</TABLE>
AVERAGE WEIGHTED MATURITY AT FEBRUARY 28, 1997
<TABLE>
<CAPTION>
Value % of % of
Maturity Schedule (000s) Portfolio Portfolio
- --------------------------------------------------------------
(cum.)
<S> <C> <C> <C>
0 - 1 Year $ 3,959 3.3% 3.3%
2 - 10 Years 6,089 5.0 8.3
11 - 20 Years 60,820 50.4 58.7
21 - 30 Years 48,875 40.5 99.2
Over 30 Years 905 0.8 100.0%
-------- -----
$120,648 100.0%
======== =====
</TABLE>
Average Weighted Maturity--18.06 Years
24
<PAGE> 31
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value
------ -------
<S> <C> <C>
MUNICIPAL BONDS--95.1%(a)
California Education Authority Revenue Refunding
Bonds (Stanford University) Series M
(Aaa AAA)(d)
5.25%, 12/01/01 $1,600 $1,672
California Housing Finance Agency Home Mortgage
Revenue Bonds Series G (Aa2 AA-)
5.65%, 02/01/98 500 505
5.65%, 08/01/98 585 593
5.85%, 08/01/99 320 328
6.00%, 08/01/00 410 423
California State Public Works Board Lease Revenue
Refunding Bonds (California Community College
Projects) Series 1993A (A A)
4.70%, 12/01/99 1,000 1,010
California State Public Works Board Lease Revenue
Refunding Bonds (California State University)
Series 1993A (A A)
4.30%, 12/01/99 2,000 2,000
California State Public Works Board Lease Revenue
Refunding Bonds (Department of Corrections State
Prisons) Series A/(AMBAC Insurance) (Aaa AAA)
4.70%, 12/01/00 1,865 1,893
California State Public Works Board Lease Revenue
Refunding Bonds (Department of Corrections-State
Prison-Susanville) Series D (A A)
4.40%, 06/01/00 1,000 1,000
California State Public Works Board Lease Revenue
Refunding Bonds (Various University of
California Projects) Series A/(AMBAC Insurance)
(Aaa AAA)
5.60%, 12/01/01 2,000 2,105
California State Public Works Board Lease Revenue
Refunding Bonds (Various University of
California Projects) Series A1 (A1 A)
4.70%, 06/01/00 1,020 1,030
California Statewide Community Development
Authority Hospital Revenue Bonds Certificates of
Participation (St. Joseph Health Systems)
(Aa3 AA)
5.30%, 07/01/00 2,035 2,096
California Statewide Community Development
Authority Hospital Revenue Refunding Bonds
Certificates of Participation (Cedar-Sinai
Medical Center) (A1 -)
4.40%, 11/01/00 1,235 1,224
Contra Costa County, California Transportation
Authority Sales Tax Revenue Bonds Series A/(FGIC
Insurance) (Aaa AAA)
4.80%, 03/01/01 1,000 1,019
Foothill, California Transit Zone Certificates of
Participation Refunding Bonds Referendum
Series A (Baa1 -)
4.50%, 05/01/97 1,000 1,001
</TABLE>
25
<PAGE> 32
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value
------ -------
<S> <C> <C>
Garden Grove, California Tax Allocation Refunding
Bonds (Community Development Projects) (- BBB+)
4.70%, 10/01/98 $1,060 $1,065
Los Angeles County, California Flood Control
District Revenue Bonds (Aa1 AA-)
4.30%, 03/01/00 1,090 1,095
Los Angeles, California Convention & Exhibition
Center Authority Certificates of Participation
Series A/(Escrowed to Maturity with Government
Securities) (Aaa AAA)
7.38%, 08/15/99 1,000 1,093
Los Angeles, California Department of Water &
Power Electric Plant Revenue Refunding Bonds
(Aa A+)
4.50%, 08/15/01 2,270 2,281
Los Angeles, California State Building Authority
Revenue Refunding Bonds (California Department
of General Services) Series A (A A)
4.50%, 05/01/98 400 402
4.70%, 05/01/99 450 451
Los Angeles, California Unified School District
Certificates of Participation (Multiple
Properties) Series 1994B/(AMBAC Insurance)
(Aaa AAA)
5.70%, 12/01/99 3,215 3,343
Los Angeles, California Wastewater System Revenue
Bonds Series A (- A)
6.60%, 02/01/99 1,775 1,853
Morgan Hill, California Unified School District
Certificates of Participation (A1 -)
4.80%, 08/01/99 510 512
Northern California Power Agency Revenue Bonds
(Geothermal Project No. 3) Series B/(AMBAC
Insurance) (Aaa AAA)
5.00%, 07/01/99 1,360 1,391
Orange County, California Municipal Water
Facilities Certificates of Participation
(Allen-McColloch Pipeline)/(MBIA Insurance)
(Aaa AAA)
4.60%, 07/01/01 3,000 3,019
Port of Long Beach, California Harbor Revenue
Bonds (Aa AA-)
7.10%, 05/15/99 2,000 2,113
Rancho, California Water District Financing
Authority Revenue Bonds/(Toronto-Dominion Bank
LOC) (- A1+)
4.70%, 09/15/01 2,000 2,000
Rim World, California Unified School District
Certificates of Participation (Measure V Capital
Improvement Projects)/(AMBAC Insurance)
(Aaa AAA)
5.90%, 09/01/01 1,490 1,587
</TABLE>
26
<PAGE> 33
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------ -------
<S> <C> <C>
Riverside County, California Public Financing
Authority Special Tax Revenue Bonds Series
A/(MBIA Insurance) (Aaa AAA)
4.40%, 09/01/01 $1,750 $ 1,754
San Francisco, California Port Commission Revenue
Refunding Bonds (A BBB-)
5.00%, 07/01/00 1,500 1,515
San Joaquin, California Area Flood Control Agency
Special Assessment Bonds/(FSA Insurance)
(Aaa AAA)
5.10%, 09/02/03 1,700 1,738
San Ramon Valley, California Unified School
District Certificates of Participation (Measure
A Capital Project) Series A/(Escrowed to
Maturity with Government Securities) (A -)
4.90%, 10/01/99 1,100 1,115
Santa Monica, California Wastewater Enterprise
Revenue Bonds (Hyperion Project) Series A
(Pre-Refunded) (A1 A+)
6.25%, 01/01/02 1,250 1,370
Southern California Public Power Authority Revenue
Bonds (San Juan Power Project Unit 3) Series A/
(MBIA Insurance) (Aaa AAA)
5.00%, 01/01/04 1,600 1,632
Stockton, California Health Facilities Revenue
Bonds (St. Joseph Medical Center) Series A/
(MBIA Insurance) (Aaa AAA)
4.60%, 06/01/00 200 202
--------
TOTAL MUNICIPAL BONDS
(Cost $48,776) 49,430
--------
VARIABLE RATE OBLIGATIONS--4.9%(b)
California Pollution Control Financing Authority
Revenue Bonds (Southern California Edison)
Series 1986A (VMIG1 A-1+)
3.45%, 03/01/97 300 300
California Pollution Control Financing Authority
Revenue Bonds (Southern California Edison)
Series 1986D (P-1 A-1+)
3.45%, 03/01/97 200 200
California Statewide Community Development
Authority Certificates of Participation
(California Retired Officers)/(Dresdner Bank AG
LOC) (VMIG1 -)
3.35%, 03/01/97 300 300
Irvine Ranch Water District Capital Improvement
Revenue Bonds Series 1986/(Toronto-Dominion Bank
LOC) (VMIG1 -)
3.25%, 03/01/97 100 100
</TABLE>
27
<PAGE> 34
SCHWAB CALIFORNIA SHORT/INTERMEDIATE TAX-FREE BOND FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value
------ -------
<S> <C> <C>
Irvine Ranch Water District Consolidated Revenue
Refunding Bonds Series 1985A/(Landesbank
Hessen-Thuringen Girozentrale LOC) (- A-1+)
3.35%, 03/01/97 $ 50 $ 50
Irvine Ranch Water District Consolidated Revenue
Refunding Bonds (District Nos. 140, 240, 105,
250) Series 1985B/(Bank of America LOC)
(VMIG1 A-1+)
3.35%, 03/01/97 400 400
Irvine Ranch Water District Consolidated Revenue
Refunding Bonds Series 1985B-2/(Landesbank
Hessen-Thuringen Girozentrale LOC) (- A-1+)
3.35%, 03/01/97 300 300
Irvine, California Improvement Bond Act 1915
Revenue Bonds (Assessment District No.
89-10)/(National Westminster Bank LOC)
(VMIG1 A-1+)
3.35%, 03/01/97 100 100
Orange County, California Sanitation District
Certificates of Participation (Districts No.
1,2,3)/(AMBAC Insurance & Societe Generale LOC)
(VMIG1 A-1+)
3.35%, 03/01/97 600 600
Orange County, California Sanitation District
Certificates of Participation Series
1990-92A/(National Westminster
Bank LOC) (VMIG1 A-1+)
3.35%, 03/01/97 100 100
Orange County, California Water District
Improvement Bond Act 1915 Revenue Bonds (Irvine
Coast Assessment District) Number
88-1/(Kredietbank & Societe Generale LOC)
(VMIG1 A-1+)
3.40%, 03/01/97 100 100
-------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $2,550) 2,550
-------
SHORT-TERM INVESTMENTS--0.0%(c)
Provident Institutional Funds--California Money
Fund Portfolio
2.86%, 03/07/97 6 6
-------
TOTAL SHORT-TERM INVESTMENTS
(Cost $6) 6
-------
TOTAL INVESTMENTS--100.0%
(Cost $51,332) $51,986
=======
</TABLE>
See accompanying Notes to Schedules of Investments.
28
<PAGE> 35
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------ --------
<S> <C> <C>
MUNICIPAL BONDS--96.7%(a)
Alameda County, California Public Facilities
Corp. Certificates of Participation (Capital
Projects) (A A)
6.25%, 06/01/06 $1,000 $1,060
Alta Loma, California Elementary School District
General Obligation Bonds Series 2/
(AMBAC Insurance) (Aaa AAA)
5.88%, 06/01/08 840 886
5.88%, 06/01/09 860 901
Anaheim, California Public Finance Authority
Lease Revenue Bonds/(FSA LOC) (Aaa AAA)
5.00%, 09/01/27 1,000 905
Antioch Area, California Public Facilities
Financing Agency Special Tax Community
Facilities Revenue Bonds Series 89-1/(FGIC
Insurance) (Aaa AAA)
5.25%, 08/01/07 1,985 2,022
Bakersfield, California Hospital Revenue Bonds
(Bakersfield Memorial Hospital) Series 1992A
(A A-)
6.50%, 01/01/22 1,000 1,025
California Educational Facilities Authority
Revenue Bonds (Loyola Marymount University)
Series 1992B (A1 -)
6.60%, 10/01/22 1,450 1,553
California Educational Facilities Authority
Revenue Bonds (Mills College) Series 1992 (A -)
6.88%, 09/01/22 500 533
California Educational Facilities Authority
Revenue Bonds (St. Mary's College)
Series 1993 (A -)
5.00%, 10/01/12 3,000 2,801
California Educational Facilities Authority
Revenue Refunding Bonds (Stanford University)
Series M (Aaa AAA)
5.25%, 12/01/26 2,320 2,216
California Health Facilities Financing Authority
Revenue Bonds (Assoc. of Retarded Citizens)
Series 1991/(California Mortgage Insurance)
(- A+)
7.00%, 05/01/21 455 485
California Health Facilities Financing Authority
Revenue Bonds (Children's Hospital)/(MBIA
Insurance) (Aaa AAA)
5.38%, 07/01/16 5,180 5,038
California Health Facilities Financing Authority
Revenue Bonds (Marshall Hospital) Series 1992A/
(California Mortgage Insurance) (- A+)
6.63%, 11/01/22 4,000 4,205
California Housing Finance Agency Home Mortgage
Revenue Bonds Series 1994G (Aa2 AA-)
7.20%, 08/01/14 3,000 3,187
</TABLE>
29
<PAGE> 36
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value
------ --------
<S> <C> <C>
California Housing Finance Agency Home Mortgage
Revenue Bonds Series 1995L/(MBIA Insurance)
(Aaa AAA)
5.90%, 08/01/17 $1,000 $1,006
California Housing Finance Agency Multi Unit
Rental Housing Revenue Bonds II Series 1992B
(A1 A+)
6.70%, 08/01/15 1,000 1,049
California State Department of Water Resources
Revenue Bonds (Central Valley Project)
Series O (Aa AA)
5.00%, 12/01/22 2,200 2,005
California State Public Works Board Lease Revenue
Refunding Bonds (Various California State
University Projects)/(AMBAC Insurance)
(Aaa AAA)
5.38%, 10/01/17 200 194
California State Public Works Board Lease Revenue
Refunding Bonds (Various California State
University Projects) Series 1992A (A1 A)
5.50%, 06/01/10 3,000 3,064
California State Public Works Board Lease Revenue
Refunding Bonds (Various California State
University Projects) Series 1992A
(Pre-Refunded) (Aaa A)
6.70%, 10/01/02 1,250 1,414
California Statewide Community Development
Authority Hospital Revenue Bonds Certificates
of Participation (Cedars-Sinai Medical Center)
Series 1992 (A1 -)
6.50%, 08/01/15 1,250 1,303
California Statewide Community Development
Authority Hospital Revenue Bonds Certificates
of Participation (St. Joseph Health Systems)
(Aa3 AA)
6.50%, 07/01/15 2,000 2,135
Chico, California Unified School District General
Obligation Bonds Series C/(MBIA Insurance) (Aaa
AAA)
6.75%, 06/01/17 500 545
Colton, California Public Financing Authority
Revenue Bonds/(FSA LOC) (Aaa AAA)
5.45%, 09/01/19 3,020 2,967
Contra Costa County, California Certificates of
Participation (Merrithew Memorial Hospital
Project)/(MBIA Insurance) (Aaa AAA)
5.38%, 11/01/17 2,180 2,098
Encino, California Financing Joint Powers
Authority Wastewater Revenue Bonds/(AMBAC
Insurance) (Aaa AAA)(d)
5.13%, 08/14/14 3,160 3,026
Fresno, California Health Facility Revenue Bonds
(Holy Cross Health System--St. Agnes Medical
Center) Series 1991 (Aa AA)
6.50%, 06/01/11 550 578
</TABLE>
30
<PAGE> 37
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------ --------
<S> <C> <C>
Los Angeles County, California Public Works
Financing Authority Lease Revenue Multiple
Certificates of Participation (Facilities
Project V) Series 1996A/
(AMBAC Insurance) (Aaa AAA)
5.13%, 06/01/17 $2,000 $1,883
Los Angeles County, California Public Works
Financing Authority Lease Revenue Multiple
Certificates of Participation (Facilities
Project) Series 1997A/
(MBIA Insurance) (Aaa AAA)
5.25%, 09/01/15 1,070 1,033
Los Angeles County, California Public Works
Financing Authority Lease Revenue Refunding
Bonds Series 1996A/(MBIA Insurance) (Aaa AAA)
5.25%, 09/01/13 2,000 1,955
Los Angeles County, California Transportation
Commission Sales Tax Revenue Refunding Bonds
Series 1991B (A1 A+)
6.50%, 07/01/13 555 580
Los Angeles, California Department of Airports
Revenue Refunding Bonds Series 1995A/
(FGIC Insurance) (Aaa AAA)
5.50%, 05/15/10 560 568
Los Angeles, California Department of Water &
Power Electric Plant Revenue Bonds (Aa A+)
6.00%, 01/15/11 865 900
Los Angeles, California Harbor Department Revenue
Bonds Series 1995A (Aa AA)
6.50%, 08/01/02 3,000 3,349
Monterey Bay, California Unified Air Pollution
Control Certificates of Participation
(Administration Building Project)/(AMBAC
Insurance) (Aaa AAA)
5.70%, 12/01/15 875 885
Northern California Power Agency Multiple Capital
Facilities Revenue Bonds Series 1992A/(MBIA
Insurance) (Aaa AAA)
6.50%, 08/01/12 3,300 3,564
Oceanside, California Building Authority
Certificates of Participation Refunding Bonds
Series 1993A (A BBB+)
6.38%, 04/01/12 1,250 1,283
Orange County, California Water District
Certificates of Participation (1989 Project)
(Aa AA)
6.50%, 08/15/11 1,150 1,199
Petaluma, California Consolidated Public
Facilities Lease Certificates of Participation
Series 1993A/(AMBAC Insurance) (Aaa AAA)
5.50%, 08/01/08 750 773
</TABLE>
31
<PAGE> 38
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value
------ --------
<S> <C> <C>
Sacramento, California Regional Transit District
Certificates of Participation Series 1992A (A1 -)
6.38%, 03/01/05 $ 250 $ 266
Sacramento, California Regional Transit District
Refunding Certificates of Participation (Light
Rail Transportation Project) (A A+)
6.75%, 07/01/07 2,000 2,175
San Bernadino County, California Transportation
Authority Tax Revenue Series A/(MBIA
Insurance) (Aaa AAA)
6.25%, 03/01/10 4,000 4,455
San Bernardino County, California Certificates of
Participation (West Valley Detention Center)/
(MBIA Insurance) (Aaa AAA)
6.50%, 11/01/12 420 455
San Diego County, California Regional
Communication System Certificates of
Participation Series 1996/(AMBAC Insurance)
(Aaa AAA)
5.50%, 08/15/18 2,700 2,683
San Diego, California Public Facilities Financing
Authority Sewer Revenue Bonds/(FGIC Insurance)
(Aaa AAA)
5.00%, 05/15/25 4,045 3,671
San Diego, California Public Facilities Financing
Authority Sewer Revenue Bonds/(FGIC Insurance)
(Aaa AAA)(d)
5.25%, 05/15/22 7,500 7,130
San Francisco, California Bay Area Rapid Transit
District Sales Tax Revenue Bonds Series 1995/
(FGIC Insurance) (Aaa AAA)
5.50%, 07/01/15 1,500 1,498
5.50%, 07/01/20 2,000 1,973
San Francisco, California City & County Airports
Revenue Bonds 2nd Series, Issue 11/(FGIC
Insurance) (Aaa AAA)
6.20%, 05/01/19 2,000 2,083
San Francisco, California Downtown Parking Corp.
Revenue Bonds (A -)
6.65%, 04/01/18 500 529
San Francisco, California Port Commission Revenue
Refunding Bonds Series 1994 (A BBB+)
5.90%, 07/01/09 2,500 2,544
San Jose--Santa Clara, California Water Financing
Authority Sewer Revenue Bonds Series A/
(FGIC Insurance) (Aaa AAA)
5.38%, 11/15/20 1,500 1,446
Santa Clara County, California Financing
Authority Lease Revenue Bonds (VMC Facility
Replacement Project) Series 1994A/(AMBAC
Insurance) (Aaa AAA)
7.75%, 11/15/10 1,460 1,829
6.88%, 11/15/14 2,000 2,230
</TABLE>
32
<PAGE> 39
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
------ --------
<S> <C> <C>
Santa Clara, California Redevelopment Agency Tax
Allocation Revenue Refunding Bonds (Bayshore
North Project)/(AMBAC Insurance) (Aaa AAA)
7.00%, 07/01/10 $1,500 $ 1,764
Southern California Public Power Authority
Revenue Bonds (San Juan Power Project Unit 3)
Series 1993A/(MBIA Insurance) (Aaa AAA)
5.38%, 01/01/08 1,000 1,021
5.00%, 01/01/20 2,000 1,818
Temecula, California Community Services District
Certificates of Participation (Community
Recreation Center Project) Series 1992 (- A)
7.13%, 10/01/12 1,000 1,090
Tri City, California Hospital District Revenue
Bonds Series 1996A/(MBIA Insurance) (Aaa AAA)
5.63%, 02/15/17 1,000 1,001
University of California Revenue Refunding Bonds
(Multi Purpose Projects) Series C/
(AMBAC Insurance) (Aaa AAA)
5.13%, 09/01/18 3,500 3,246
Vallejo, California Revenue Refunding Bonds Water
Import Series A/(FSA Insurance) (Aaa AAA)
5.70%, 05/01/16 2,000 2,030
Westminster, California Public Financing
Authority Certificates of Participation (1994
Civic Center & Street Improvement Project)
(- A-)
7.00%, 06/01/19 3,325 3,579
--------
TOTAL MUNICIPAL BONDS
(Cost $112,226) 116,689
--------
VARIABLE RATE OBLIGATIONS--3.3%(b)
California Pollution Control Financing Authority
Revenue Bonds (Burney Forest Products Project)
Series 1988A/(Fleet Bank N.A. LOC) (- AA3)
3.35%, 03/01/97 400 400
California Pollution Control Financing Authority
Revenue Bonds (Southern California Edison)
Series 1986B (VMIG1 A-1+)
3.45%, 03/01/97 100 100
Irvine Ranch Water District Capital Improvement
Revenue Bonds Series 1986/(Toronto-Dominion
Bank LOC) (VMIG1 -)
3.25%, 03/01/97 500 500
</TABLE>
33
<PAGE> 40
SCHWAB CALIFORNIA LONG-TERM TAX-FREE BOND FUND
- ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in thousands)
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value
------ --------
<S> <C> <C>
Irvine Ranch Water District Consolidated Revenue
Refunding Bonds (Districts 105, 140, 240 & 250)
Series 1995/(Commerzbank AG LOC) (VMIG1 A-1+)
3.35%, 03/01/97 $1,345 $ 1,345
Irvine Ranch Water District Consolidated Revenue
Refunding Bonds Series 1985B-2/(Landesbank
Hessen-Thuringen Girozentrale LOC) (- A-1+)
3.25%, 03/01/97 200 200
Irvine Ranch Water District Consolidated Revenue
Refunding Bonds Series 1991/(National
Westminster Bank LOC) (VMIG1 A-1)
3.35%, 03/01/97 100 100
Irvine Ranch Water District Sewer Bonds Series
1988A/(Landesbank Hessen-Thuringen
Girozentrale LOC) (- A-1+)
3.25%, 03/01/97 300 300
Irvine, California Improvement Bond Act 1915
Revenue Bonds (Assessment District No. 95-12)
Series 1996A/(Kredietbank LOC) (VMIG1 A-1+)
3.35%, 03/01/97 500 500
Orange County, California Sanitation District
Certificates of Participation (Districts No.
1,2,3)/(AMBAC Insurance & Societe Generale
LOC) (VMIG1 A-1+)
3.35%, 03/01/97 500 500
--------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $3,945) 3,945
--------
SHORT-TERM INVESTMENTS--0.0%(c)
Provident Institutional Funds--California Money
Fund Portfolio
2.86%, 03/07/97 14 14
--------
TOTAL SHORT-TERM INVESTMENTS
(Cost $14) 14
--------
TOTAL INVESTMENTS--100%
(Cost $116,185) $120,648
========
</TABLE>
34
<PAGE> 41
- ------------------------------------------------------------------------------
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 Ratings Group which were in effect on the report date.
(a) Interest rates represent coupon rate of security.
(b) Variable rate securities. Interest rates vary periodically based on current
market rates. Rates shown are the effective rates on the report date. Dates
shown represent the latter of the demand date or next interest rate change
date, which is considered the maturity date for financial reporting
purposes. For variable rate securities without demand features, the next
interest reset date is shown.
(c) Interest rates represent the yield on the report date.
(d) Security traded on a delayed-delivery basis. Payment and delivery is
scheduled for a future time, generally within two weeks of entering into the
transaction. The transaction is subject to market fluctuation and to the
risk that the value may be more or less than the purchase price when the
transaction was initiated. The Fund has set aside sufficient investment
securities as collateral for securities purchased on a delayed-delivery
basis.
<TABLE>
<CAPTION>
Abbreviations
- -------------
<S> <C>
AMBAC AMBAC Indemnity Corporation
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance
VMIG Variable Moody's Investment Grade
</TABLE>
See accompanying Notes to Financial Statements.
35
<PAGE> 42
- ------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (in thousands)
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
Schwab Schwab
California California
Short/Intermediate Long-Term
Tax-Free Tax-Free
Bond Fund Bond Fund
------------------ ----------
<S> <C> <C>
ASSETS
Investments, at value
(Cost: $51,332 and $116,185, respectively) $51,986 $120,648
Interest receivable 595 1,489
Receivable for investments sold -- 1,735
Receivable for Fund shares sold 132 104
Deferred organization costs 1 3
Prepaid expenses 4 3
------- --------
Total assets 52,718 123,982
------- --------
LIABILITIES
Payable for:
Dividends 19 48
Fund shares redeemed 47 65
Investments purchased -- 10,269
Investment advisory and administration fee 4 9
Other 31 33
------- --------
Total liabilities 101 10,424
------- --------
Net assets applicable to outstanding shares $52,617 $113,558
======= ========
NET ASSETS CONSIST OF:
Paid-in-capital $52,819 $111,259
Overdistributed net investment income (12) (27)
Accumulated net realized loss on
investments sold (844) (2,137)
Net unrealized gain on investments 654 4,463
------- --------
$52,617 $113,558
======= ========
PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) 5,196 10,412
Net asset value, offering and redemption
price per share $10.13 $10.91
</TABLE>
See accompanying Notes to Financial Statements.
36
<PAGE> 43
- ------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (in thousands)
Six months ended February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
Schwab Schwab
California California
Short/Intermediate Long-Term
Tax-Free Tax-Free
Bond Fund Bond Fund
------------------ ----------
<S> <C> <C>
Interest income $1,131 $3,017
------ ------
Expenses:
Investment advisory and administration fee 98 217
Transfer agency and shareholder service
fees 60 132
Custodian fees 17 35
Professional fees 15 17
Shareholder reports 7 13
Trustees' fees 1 2
Registration fees 1 1
Amortization of deferred organization costs 1 1
Insurance and other expenses 4 6
------ ------
204 424
Less expenses reduced (see Note 4) (87) (165)
------ ------
Total expenses incurred by Fund 117 259
------ ------
Net investment income 1,014 2,758
------ ------
Net realized gain on investments sold 4 148
Increase in net unrealized gain on
investments 430 2,530
------ ------
Net gain on investments 434 2,678
------ ------
Increase in net assets resulting from
operations $1,448 $5,436
====== ======
</TABLE>
See accompanying Notes to Financial Statements.
37
<PAGE> 44
- ------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Schwab California Schwab California
Short/Intermediate Long-Term
Tax-Free Bond Fund Tax-Free Bond Fund
------------------------- -------------------------
Six months Six months
ended Year ended Year
February 28, ended February 28, ended
1997 August 31, 1997 August 31,
(Unaudited) 1996 (Unaudited) 1996
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 1,014 $ 1,820 $ 2,758 $ 5,205
Net realized gain (loss) on
investments sold 4 (12) 148 442
Increase (decrease) in net unrealized gain
on investments 430 (102) 2,530 359
-------- -------- ------- --------
Increase in net assets resulting from
operations 1,448 1,706 5,436 6,006
-------- -------- ------- --------
Dividends to shareholders from net
investment income (1,037) (1,820) (2,821) (5,205)
-------- -------- ------- --------
Capital share transactions:
Proceeds from shares sold 12,531 19,657 18,258 31,008
Net asset value of shares issued in
reinvestment of dividends 815 1,443 1,796 3,436
Less payments for shares redeemed (6,928) (15,837) (10,727) (23,674)
-------- -------- ------- --------
Increase in net assets from capital share
transactions 6,418 5,263 9,327 10,770
-------- -------- ------- --------
Total increase in net assets 6,829 5,149 11,942 11,571
Net assets:
Beginning of period 45,788 40,639 101,616 90,045
-------- -------- ------- --------
End of period (including
(over)undistributed net investment income
of ($12), $11, ($27) and $36,
respectively) $52,617 $45,788 $113,558 $101,616
======== ======== ======== ========
Number of Fund shares:
Sold 1,240 1,951 1,678 2,893
Reinvested 80 143 166 321
Redeemed (686) (1,572) (990) (2,210)
-------- -------- ------- --------
Net increase in shares outstanding 634 522 854 1,004
Shares outstanding:
Beginning of period 4,562 4,040 9,558 8,554
-------- -------- ------- --------
End of period 5,196 4,562 10,412 9,558
======== ======== ======= ========
</TABLE>
See accompanying Notes to Financial Statements.
38
<PAGE> 45
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Six months ended February 28, 1997 (Unaudited)
1. DESCRIPTION OF THE FUNDS
The Schwab California Short/Intermediate Tax-Free Bond Fund and Schwab
California Long-Term Tax-Free Bond Fund (the "Funds") are series of Schwab
Investments (the "Trust"), a no-load, 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 Funds, the Trust also offers -- the Schwab 1000 Fund(R),
Schwab Short/Intermediate Government Bond Fund, Schwab Long-Term Government Bond
Fund, Schwab Short/Intermediate Tax-Free Bond Fund and Schwab Long-Term Tax-Free
Bond Fund. The assets of each series are segregated and accounted for
separately.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security valuation -- Bonds and notes are generally valued at prices obtained
from an independent bond-pricing service. These securities are valued at the
mean between the most recent 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 are accounted
for on a trade date basis (date the order to buy or sell is executed). Realized
gains and losses from security transactions are determined on an identified cost
basis. Interest income is accrued on a daily basis and includes amortization of
premium on investments. 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.
39
<PAGE> 46
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- -----------------------------------------
Dividends to shareholders -- Each Fund declares a daily dividend, from its net
investment income for that day, payable monthly. Distributions of net capital
gains, if any, 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 and their initial registration with the Securities and
Exchange Commission 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 generally allocated to
each series in proportion to their relative net assets.
Federal income taxes -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute 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.
At February 28, 1997, (for financial reporting and federal income tax purposes),
net unrealized gain for the Schwab California Short/Intermediate Tax-Free Bond
Fund aggregated $654,000, of which $666,000 related to appreciated securities
and $12,000 related to depreciated securities, and net unrealized gain for the
Schwab California Long-Term Tax-Free Bond Fund aggregated $4,463,000, of which
$4,589,000 related to appreciated securities and $126,000 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 0.41% of each Fund's
average daily net assets. The Investment Manager has reduced a portion of its
fee for the six months ended February 28, 1997 (see Note 4).
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
40
<PAGE> 47
- ------------------------------------------------------------------------------
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of 0.05% of each Fund's average daily net assets
for transfer agency services and 0.20% of such assets for shareholder services.
Schwab has reduced a portion of its fees for the six months ended February 28,
1997 (see Note 4).
Officers and trustees -- Certain officers and trustees of the Trust are also
officers and/or directors of the Investment Manager and/or Schwab. During the
six months ended February 28, 1997, 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 Funds incurred fees aggregating
$3,000 related to the Trust's unaffiliated trustees.
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees in order to
limit each Fund's ratio of operating expenses to average net assets. for the six
months ended February 28, 1997, the total of such fees reduced by the Investment
Manager and Schwab was $27,000 and $60,000 for the Schwab California
Short/Intermediate Tax-Free Bond Fund, respectively, and $53,000 and $112,000
for the Schwab California Long-Term Tax-Free Bond Fund, respectively (see Note
6).
5. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities, other than short-term
obligations, during the six months ended February 28, 1997, were as follows (in
thousands):
<TABLE>
<CAPTION>
Schwab California Schwab California
Short/Intermediate Long-Term
Tax-Free Bond Fund Tax-Free Bond Fund
------------------ ------------------
<S> <C> <C>
Purchases $7,148 $34,004
Proceeds of sales and maturities $2,508 $16,010
</TABLE>
41
<PAGE> 48
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- -----------------------------------------
6. FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Schwab California Short/Intermediate
Tax-Free Bond Fund
---------------------------------------------------------
Six months
ended Period
February 28, ended
1997 Year ended August 31, August 31,
(Unaudited) 1996 1995 1994 1993++
------------ ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 10.04 $ 10.06 $ 9.89 $ 10.13 $ 10.00
Income from investment operations
- ---------------------------------
Net investment income 0.22 0.43 0.42 0.37 0.13
Net realized and unrealized
gain (loss) on investments 0.09 (0.02) 0.17 (0.24) 0.13
------- ------- ------- ------- -------
Total from investment operations 0.31 0.41 0.59 0.13 0.26
Less distributions
- ------------------
Dividends from net investment income (0.22) (0.43) (0.42) (0.37) (0.13)
Distributions from realized
gain on investments -- -- -- -- --
------- ------- ------- ------- -------
Total distributions (0.22) (0.43) (0.42) (0.37) (0.13)
------- ------- ------- ------- -------
Net asset value at end of period $ 10.13 $ 10.04 $ 10.06 $ 9.89 $ 10.13
======= ======= ======= ======= =======
Total return (not annualized) 3.08% 4.11% 6.17% 1.29% 2.57%
- ------------
Ratios/Supplemental data
- ------------------------
Net assets, end of period (000s) $52,617 $45,788 $40,639 $48,649 $44,545
Ratio of expenses to average net
assets+ 0.49%* 0.49% 0.50% 0.48% 0.45%*
Ratio of net investment income to
average net assets+ 4.23%* 4.23% 4.29% 3.69% 3.49%*
Portfolio turnover rate 5% 20% 62% 35% 0%
</TABLE>
- ---------------
+ The information contained in the above table is based on actual expenses for
the periods, after giving effect to the portion of expenses reduced and
absorbed by the Investment Manager and Schwab. Had these expenses not been
reduced and absorbed, the Fund's expense and net investment income ratios
would have been:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of expenses to average
net assets 0.85%* 0.87% 0.84% 0.86% 1.25%*
Ratio of net investment income
to average net assets 3.87%* 3.85% 3.95% 3.31% 2.69%*
</TABLE>
++ For the period April 21, 1993 (commencement of operations) to August 31,
1993.
* Annualized
42
<PAGE> 49
- ------------------------------------------------------------------------------
6. FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
Schwab California Long-Term Tax-Free Bond Fund
--------------------------------------------------------------------
Six months Eight
ended months Period
February 28, ended ended
1997 Year ended August 31, August 31, December 31,
(Unaudited) 1996 1995 1994 1993 1992++
------------ -------- ------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 10.63 $ 10.53 $ 10.40 $ 11.26 $ 10.58 $ 10.00
Income from investment
- ----------------------
operations
----------
Net investment income 0.28 0.57 0.56 0.56 0.38 0.51
Net realized and unrealized
gain (loss) on investments 0.29 0.10 0.13 (0.74) 0.68 0.58
-------- -------- ------- -------- -------- -------
Total from investment
operations 0.57 0.67 0.69 (0.18) 1.06 1.09
Less distributions
- ------------------
Dividends from
net investment income (0.29) (0.57) (0.56) (0.56) (0.38) (0.51)
Distributions from realized
gain on investments -- -- -- (0.12) -- --
-------- -------- ------- -------- -------- -------
Total distributions (0.29) (0.57) (0.56) (0.68) (0.38) (0.51)
-------- -------- ------- -------- -------- -------
Net asset value at end of period $ 10.91 $ 10.63 $ 10.53 $ 10.40 $ 11.26 $ 10.58
======== ======== ======= ======== ======== =======
Total return (not annualized) 5.37% 6.43% 6.98% (1.70)% 10.13% 11.10%
- ------------
Ratios/Supplemental data
- ------------------------
Net assets, end of period
(000s) $113,558 $101,616 $90,045 $106,432 $138,067 $72,969
Ratio of expenses to average
net assets+ 0.49%* 0.49% 0.58% 0.60% 0.60%* 0.45%*
Ratio of net investment income
to average net assets+ 5.21%* 5.30% 5.54% 5.12% 5.18%* 5.72%*
Portfolio turnover rate 15% 36% 46% 48% 47% 124%
</TABLE>
- ---------------
+ The information contained in the above table is based on actual expenses for
the periods, after giving effect to the portion of expenses reduced and
absorbed by the Investment Manager and Schwab. Had these expenses not been
reduced and absorbed, the Fund's expense and net investment income ratios
would have been:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratio of expenses to average
net assets 0.80%* 0.82% 0.81% 0.80% 0.87%* 1.05%*
Ratio of net investment income
to average net assets 4.90%* 4.97% 5.31% 4.92% 4.91%* 5.12%*
</TABLE>
++ For the period February 24, 1992 (commencement of operations) to December
31, 1992.
* Annualized
43
<PAGE> 50
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 51
SCHWABFUNDS FAMILY(R)
The SchwabFunds Family includes a variety of funds to help meet your investment
needs. You can diversify your portfolio in a single step with our asset
allocation funds. Or you can customize your portfolio with a combination of our
stock funds as well as our taxable and tax-advantaged bond and money funds.
SCHWAB ASSET ALLOCATION FUNDS
Schwab Asset Director(R) -- High Growth Fund
Schwab Asset Director -- Balanced Growth Fund
Schwab Asset Director -- Conservative Growth Fund
Schwab OneSource Portfolios -- Growth Allocation
Schwab OneSource Portfolios -- Balanced Allocation
SCHWAB STOCK FUNDS
Schwab 1000 Fund(R)
Schwab S&P 500 Fund
Schwab Analytics Fund(TM)
Schwab Small-Cap Index Fund(R)
Schwab International Index Fund(R)
Schwab OneSource Portfolios -- International
SCHWAB BOND FUNDS
Schwab Government Bond Funds -- Long-Term and Short/Intermediate
Schwab Tax-Free Bond Funds -- Long-Term and Short/Intermediate
Schwab California Tax-Free Bond Funds -- Long-Term and Short/Intermediate
SCHWAB MONEY MARKET FUNDS
Schwab offers an array of money market funds* that seek high current income with
safety and liquidity. Choose from taxable or tax-advantaged alternatives. Many
can be linked to your Schwab account to "sweep" cash balances automatically when
you're between investments. Or, for your larger cash reserves, choose one of our
Value Advantage Investments(R).
Please call 1-800-2 NO-LOAD for a free prospectus and brochure for any of the
SchwabFunds(R).
Each prospectus provides more complete information, including charges and
expenses. Please read it carefully before investing.
This report must be preceded or accompanied by a current prospectus.
*Investments in money market funds are neither insured nor guaranteed by the
U.S. government, and there is no assurance that the funds will be able to
maintain a stable share price of $1.
<PAGE> 52
[SCHWABFUNDS FAMILY(R) LOGO] BULK RATE
U.S. POSTAGE
PAID
CHARLES SCHWAB
101 Montgomery Street
San Francisco, California 94104
INVESTMENT ADVISOR
Charles Schwab Investment Management, Inc.
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR
Charles Schwab & Co., Inc.
101 Montgomery Street, San Francisco, CA 94104
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
(C)1997 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC/NYSE.
TF4631(4/97) CRS 20033 Printed on recycled paper.
