<PAGE> 1
PROSPECTUS
November 15, 1999
As amended July 14, 2000
SCHWAB
TAX-FREE BOND FUNDS
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND
SCHWAB LONG-TERM TAX-FREE BOND FUND
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved these securities or passed on whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
SCHWABFUNDS(R)
<PAGE> 2
ABOUT THE FUNDS
Schwab Tax-Free Bond Funds
ABOUT THE FUNDS
4 Schwab Short/Intermediate
Tax-Free Bond Fund
8 Schwab Long-Term Tax-Free
Bond Fund
12 Fund Management
INVESTING IN THE FUNDS
14 Buying Shares
15 Selling/Exchanging Shares
16 Transaction Policies
17 Distributions and Taxes
<PAGE> 3
The Schwab Tax-Free Bond Funds seek to provide HIGH CURRENT INCOME free from
federal income tax. Each fund has the same investment goal, but uses a DIFFERENT
STRATEGY.
Because these funds invest in municipal bonds, their dividends generally are
free from federal income tax. Each fund also seeks to lower risk by investing
across different sectors of the investment-grade municipal bond market.
The funds are designed for long-term investing. Their performance will fluctuate
over time and, as with all investments, future performance may differ from past
performance.
<PAGE> 4
SCHWAB SHORT/INTERMEDIATE TAX-FREE BOND FUND
TICKER SYMBOL: SWITX
GOAL
THE FUND SEEKS HIGH CURRENT INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX,
CONSISTENT WITH CAPITAL PRESERVATION.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN INVESTMENT-GRADE MUNICIPAL SECURITIES --
THOSE IN THE FOUR HIGHEST CREDIT RATING CATEGORIES (AAA-BBB-). The fund normally
invests at least 80% of total assets in these securities, and typically far
more. Interest from these securities is free from federal income tax and federal
alternative minimum tax. To help preserve investors' capital, the fund seeks to
keep the average maturity of its overall portfolio between two and five years.
The fund may invest in fixed-, variable- or floating-rate securities from state
issuers around the country and from municipal agencies, U.S. territories and
possessions. These may include general obligation issues, which typically are
backed by the issuer's ability to levy taxes, and revenue issues, which
typically are backed by a stream of revenue from a given source, such as an
electric utility or a public water system. The fund may invest more than 25% of
total assets in municipal securities financing similar projects, and may also
invest in municipal notes. Many of the fund's securities carry credit
enhancements (such as bond insurance) or liquidity enhancements (such as a
letter of credit), which are designed to provide incremental levels of
creditworthiness or liquidity.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit and average maturity standards. The
investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. If a portfolio security
falls below investment-grade, the fund may continue to hold it if the investment
adviser believes it would benefit the fund. The manager may adjust the fund's
holdings or its average maturity based on actual or anticipated changes in
interest rates or credit quality.
During unusual market conditions, the fund may invest in taxable securities as a
temporary defensive measure. In this case, the fund would not be pursuing its
goal.
SHORTER MATURITIES
As a bond approaches maturity, its market value typically moves closer to its
par value (the amount of the bond's principal value, which a bondholder receives
when the bond matures).
Investing in short- and intermediate-term bonds is a common strategy for
reducing price volatility and other risks. In exchange for these lower risks,
short- and intermediate-term bonds typically (though not always) offer lower
yields than longer term bonds.
4 SHORT/INTERMEDIATE TAX-FREE BOND FUND
<PAGE> 5
Individuals in higher tax brackets who are seeking tax-free income along with
the potential for lower volatility may want to consider this fund.
MAIN RISKS
BOND MARKETS RISE AND FALL DAILY. As with any investment whose performance is
tied to these markets, the value of your investment in the fund will fluctuate,
which means that you could lose money.
WHEN INTEREST RATES RISE, BOND PRICES USUALLY FALL, and with them the fund's
share price. The fund's short-to-intermediate maturity is designed to reduce
this risk, but will not eliminate it. A fall in interest rates could hurt the
fund as well, by lowering its yield. This is because issuers tend to pay off
their bonds when interest rates fall, often forcing the fund to reinvest in
lower-yielding securities.
STATE AND REGIONAL FACTORS COULD AFFECT THE FUND'S PERFORMANCE. To the extent
that the fund invests in securities from a given state or geographic region, its
share price and performance could be affected by local, state and regional
factors, including erosion of the tax base and changes in the economic climate.
National governmental actions also could affect performance. Because the fund is
non-diversified, it may divide its assets among fewer issuers than a diversified
fund. This means that the fund could increase its exposure to the risks of a
given issuer.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Although the
risk of default generally is considered unlikely with investment-grade municipal
securities, any default on the part of a portfolio investment could cause the
fund's share price or yield to fall. The fund's emphasis on quality and
preservation of capital also could cause it to underperform certain other types
of bond investments, particularly those that take greater maturity and credit
risks. At the same time, some of the fund's investments may have greater risks
than securities in taxable bond funds.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S PERFORMANCE. To the
extent that the manager anticipates interest rate trends imprecisely, the fund
could miss yield opportunities or its share price could fall.
IF CERTAIN TYPES OF INVESTMENTS THE FUND BUYS AS TAX EXEMPT ARE LATER RULED TO
BE TAXABLE, A PORTION OF THE FUND'S INCOME COULD BE TAXABLE. Any defensive
investments in taxable securities could generate taxable income. Also, some
types of municipal securities produce income that is subject to the federal
alternative minimum tax (AMT).
THE FUND IS NOT DESIGNED TO OFFER SUBSTANTIAL CAPITAL APPRECIATION. In exchange
for its goal of capital preservation, the fund may offer lower long-term
performance than stock investments or certain other types of bond investments.
SHORT/INTERMEDIATE TAX-FREE BOND FUND 5
<PAGE> 6
PERFORMANCE
Below is a chart and a table showing the fund's performance, as well as data on
an unmanaged market index. These figures assume that all distributions were
reinvested. Keep in mind that future performance may differ from past
performance, and that the index does not include any costs of investment.
ANNUAL TOTAL RETURNS (%) AS OF 12/31
--------------------------------------------------------------------------------
[BAR CHART]
94 (1.12)
95 9.28
96 3.54
97 5.27
98 4.78
BEST QUARTER: 3.00% Q1 1995
WORST QUARTER: -2.33% Q1 1994
YEAR-TO-DATE PERFORMANCE AS OF 9/30/1999: 0.53%
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Fund 4.78 4.28 4.57 1
Lehman Brothers Three-
Year Municipal Bond Index 5.20 4.91 4.92 2
</TABLE>
1 Inception: 4/21/1993.
2 From: 4/21/1993.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder fees" are one-time expenses charged to you directly by the fund.
"Annual operating expenses" are paid out of fund assets, so their effect is
included in the fund's total return.
FEE TABLE (%)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
--------------------------------------------------------------------------------
None
ANNUAL OPERATING EXPENSES (% of average net assets)
--------------------------------------------------------------------------------
Management fees 0.30
Distribution (12b-1) fees None
Other expenses 0.40
--------------------------------------------------------------------------------
Total annual operating expenses 0.70
EXPENSE REDUCTION (0.21)
--------------------------------------------------------------------------------
NET OPERATING EXPENSES* 0.49
--------------------------------------------------------------------------------
</TABLE>
* Guaranteed by Schwab and the investment adviser through 10/31/2000 (excluding
interest, taxes and certain non-routine expenses).
EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions as
other mutual fund prospectuses: a $10,000 investment and 5% return each year.
The expenses would be the same whether you stayed in the fund or sold your
shares at the end of each period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$72 $224 $390 $871
</TABLE>
The performance information above shows you how the fund's performance compares
to its index, which varies over time.
6 SHORT/INTERMEDIATE TAX-FREE BOND FUND
<PAGE> 7
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's financial history. "Total
return" shows the percentage that an investor in the fund would have earned or
lost during a given period, assuming all distributions were reinvested. The
fund's independent accountants, PricewaterhouseCoopers LLP, audited these
figures. Their full report is included in the fund's annual report (see back
cover).
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED 8/31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
----------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 10.26 10.16 10.04 10.12 9.92
--------------------------------------------------
Income from investment operations:
Net investment income 0.40 0.42 0.41 0.41 0.40
Net realized and unrealized gain (loss) on investments (0.21) 0.10 0.12 (0.08) 0.20
--------------------------------------------------
Total income from investment operations 0.19 0.52 0.53 0.33 0.60
Less distributions:
Dividends from net investment income (0.40) (0.42) (0.41) (0.41) (0.40)
--------------------------------------------------
NET ASSET VALUE AT END OF PERIOD 10.05 10.26 10.16 10.04 10.12
==================================================
Total return (%) 1.86 5.17 5.40 3.32 6.23
RATIOS/SUPPLEMENTAL DATA (%)
----------------------------------------------------------------------------------------------------------------------
Ratio of actual operating expenses to average net assets 0.49 0.49 0.49 0.49 0.49
Expense reductions reflected in above ratio 0.32 0.36 0.47 0.41 0.40
Ratio of net investment income to average net assets 3.87 3.99 4.08 4.06 4.06
Portfolio turnover rate 8 22 20 44 35
Net assets, end of period ($ x 1,000,000) 87 68 54 54 53
</TABLE>
SHORT/INTERMEDIATE TAX-FREE BOND FUND 7
<PAGE> 8
SCHWAB LONG-TERM TAX-FREE BOND FUND
TICKER SYMBOL: SWNTX
GOAL
THE FUND SEEKS HIGH CURRENT INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX,
CONSISTENT WITH CAPITAL PRESERVATION.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN INVESTMENT-GRADE MUNICIPAL SECURITIES --
THOSE IN THE FOUR HIGHEST CREDIT RATING CATEGORIES (AAA-BBB-). The fund normally
invests at least 80% of total assets in these securities, and typically far
more. Interest from these securities is free from federal income tax and federal
alternative minimum tax. The fund seeks to maintain an average maturity in its
overall portfolio of at least ten years.
The fund may invest in fixed-, variable- or floating-rate securities from state
issuers around the country and from municipal agencies, U.S. territories and
possessions. These may include general obligation issues, which typically are
backed by the issuer's ability to levy taxes, and revenue issues, which
typically are backed by a stream of revenue from a given source, such as an
electric utility or a public water system. The fund may invest more than 25% of
total assets in municipal securities financing similar projects, and may also
invest in municipal notes. Many of the fund's securities carry credit
enhancements (such as bond insurance) or liquidity enhancements (such as a
letter of credit), which are designed to provide incremental levels of
creditworthiness or liquidity.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit and average maturity standards. The
investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. If a portfolio security
falls below investment-grade, the fund may continue to hold it if the investment
adviser believes it would benefit the fund. The manager may adjust the fund's
holdings or its average maturity based on actual or anticipated changes in
interest rates or credit quality.
During unusual market conditions, the fund may invest in taxable securities as a
temporary defensive measure. In this case, the fund would not be pursuing its
goal.
MATURITY AND YIELD
Bond yields typically are higher the longer the bond's maturity. By investing in
longer term bonds, the fund seeks to earn higher yields over time than the
Schwab Short/Intermediate Tax-Free Bond Fund.
Maintaining a longer average maturity does carry certain risks, and investors
should expect this fund's share price to fluctuate more than that of the Schwab
Short/Intermediate Tax-Free Bond Fund.
8 LONG-TERM TAX-FREE BOND FUND
<PAGE> 9
This fund is designed for individuals in higher tax brackets who are interested
in high current tax-free income and can accept a higher degree of risk to their
investment.
MAIN RISKS
BOND MARKETS RISE AND FALL DAILY. As with any investment whose performance is
tied to these markets, the value of your investment in the fund will fluctuate,
which means that you could lose money.
WHEN INTEREST RATES RISE, BOND PRICES USUALLY FALL, and with them the fund's
share price. The fund's comparatively long maturity will tend to make it more
sensitive to this risk than funds with shorter average maturities.
STATE AND REGIONAL FACTORS COULD AFFECT THE FUND'S PERFORMANCE. To the extent
that the fund invests in securities from a given state or geographic region, its
share price and performance could be affected by local, state and regional
factors, including erosion of the tax base and changes in the economic climate.
National governmental actions also could affect performance. Because the fund is
non-diversified, it may divide its assets among fewer issuers than a diversified
fund. This means that the fund could increase its exposure to the risks of a
given issuer.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Although the
risk of default generally is considered unlikely with investment-grade municipal
securities, any default on the part of a portfolio investment could cause the
fund's share price or yield to fall. The fund's emphasis on quality and
preservation of capital also could cause it to underperform certain other types
of bond investments, particularly those that take greater maturity and credit
risks. At the same time, some of the fund's investments may have greater risks
than securities in taxable bond funds.
THE MANAGER'S MATURITY DECISIONS ALSO WILL AFFECT THE FUND'S PERFORMANCE. To the
extent that the manager anticipates interest rate trends imprecisely, the fund
could miss yield opportunities or its share price could fall.
IF CERTAIN TYPES OF INVESTMENTS THE FUND BUYS AS TAX EXEMPT ARE LATER RULED TO
BE TAXABLE, A PORTION OF THE FUND'S INCOME COULD BE TAXABLE. Any defensive
investments in taxable securities could generate taxable income. Also, some
types of municipal securities produce income that is subject to the federal
alternative minimum tax (AMT).
THE FUND IS NOT DESIGNED TO OFFER SUBSTANTIAL CAPITAL APPRECIATION. In exchange
for its goal of capital preservation, the fund may offer lower long-term
performance than stock investments or certain other types of bond investments.
LONG-TERM TAX-FREE BOND FUND 9
<PAGE> 10
PERFORMANCE
Below is a chart and a table showing the fund's performance, as well as data on
an unmanaged market index. These figures assume that all distributions were
reinvested. Keep in mind that future performance may differ from past
performance, and that the index does not include any costs of investment.
ANNUAL TOTAL RETURNS (%) AS OF 12/31
--------------------------------------------------------------------------------
[BAR CHART]
93 13.61
94 (7.04)
95 18.14
96 4.18
97 9.83
98 6.14
BEST QUARTER: 8.03% Q1 1995
WORST QUARTER: -5.88% Q1 1994
YEAR-TO-DATE PERFORMANCE AS OF 9/30/1999: -5.21%
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Fund 6.14 5.93 6.97 1
Lehman Brothers
General Municipal
Bond Index 6.48 6.24 7.04 2
</TABLE>
1 Inception: 9/11/1992.
2 From: 9/11/1992.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder fees" are one-time expenses charged to you directly by the fund.
"Annual operating expenses" are paid out of fund assets, so their effect is
included in the fund's total return.
FEE TABLE (%)
<TABLE>
<S> <C>
SHAREHOLDER FEES
--------------------------------------------------------------------------------
None
ANNUAL OPERATING EXPENSES (% of average net assets)
--------------------------------------------------------------------------------
Management fees 0.30
Distribution (12b-1) fees None
Other expenses 0.39
----
Total annual operating expenses 0.69
EXPENSE REDUCTION (0.20)
----
NET OPERATING EXPENSES* 0.49
----
</TABLE>
* Guaranteed by Schwab and the investment adviser through 10/31/2000 (excluding
interest, taxes and certain non-routine expenses).
EXPENSES ON A $10,000 INVESTMENT
--------------------------------------------------------------------------------
Designed to help you compare expenses, this example uses the same assumptions
as all mutual fund prospectuses: a $10,000 investment and 5% return each year.
The expenses would be the same whether you stayed in the fund or sold your
shares at the end of each period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$70 $221 $384 $859
</TABLE>
The performance information above shows you how the fund's performance compares
to its index, which varies over time.
10 LONG-TERM TAX-FREE BOND FUND
<PAGE> 11
FINANCIAL HIGHLIGHTS
This section provides further details about the fund's financial history. "Total
return" shows the percentage that an investor in the fund would have earned or
lost during a given period, assuming all distributions were reinvested. The
fund's independent accountants, PricewaterhouseCoopers LLP, audited these
figures. Their full report is included in the fund's annual report (see back
cover).
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED 8/31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 11.01 10.53 10.13 10.16 9.95
-----------------------------------------------------
Income from investment operations:
Net investment income 0.50 0.53 0.53 0.52 0.53
Net realized and unrealized gain (loss) on investments (0.85) 0.48 0.40 (0.03) 0.21
-----------------------------------------------------
Total income from investment operations (0.35) 1.01 0.93 0.49 0.74
Less distributions:
Dividends from net investment income (0.50) (0.53) (0.53) (0.52) (0.53)
Distributions from realized gain on investments (0.05) -- -- -- --
-----------------------------------------------------
Total Distributions (0.55) (0.53) (0.53) (0.52) (0.53)
NET ASSET VALUE AT END OF PERIOD 10.11 11.01 10.53 10.13 10.16
=====================================================
Total return (%) (3.34) 9.81 9.36 4.87 7.76
RATIOS/SUPPLEMENTAL DATA (%)
-----------------------------------------------------------------------------------------------------------------------------
Ratio of actual operating expenses to average net assets 0.49 0.49 0.49 0.49 0.54
Expense reductions reflected in above ratio 0.32 0.37 0.53 0.45 0.39
Ratio of net investment income to average net assets 4.59 4.76 5.09 5.06 5.40
Portfolio turnover rate 35 39 61 50 70
Net assets, end of period ($ x 1,000,000) 90 70 47 44 41
</TABLE>
LONG-TERM TAX-FREE BOND FUND 11
<PAGE> 12
FUND MANAGEMENT
THE INVESTMENT ADVISER for the Schwab Tax-Free Bond Funds is Charles Schwab
Investment Management, Inc., 101 Montgomery Street, San Francisco, CA 94104.
Founded in 1989, the firm today serves as investment adviser for all of the
SchwabFunds.(R) The firm manages assets for more than 4 million accounts. (All
figures on this page are as of 8/31/1999.)
The fund's investment adviser, Charles Schwab Investment Management, Inc., has
more than $99 billion under management.
As the investment adviser, the firm oversees the asset management and
administration of the Schwab Tax-Free Bond Funds. As compensation for these
services, the firm receives a management fee from each fund. For the 12 months
ended 8/31/1999, these fees were 0.09% for the Schwab Short/Intermediate
Tax-Free Bond Fund and 0.09% for the Schwab Long-Term Tax-Free Bond Fund. These
figures, which are expressed as a percentage of each fund's average daily net
assets, represent the actual amounts paid, including the effects of reductions.
JOANNE LARKIN, a vice president of the investment adviser, has had overall
responsibility for management of each fund since its inception. Prior to joining
the firm in February 1992, she worked for more than eight years in research and
asset management at another firm.
12 FUND MANAGEMENT
<PAGE> 13
INVESTING IN THE FUNDS
As a SchwabFunds(R) investor, you have a number of WAYS TO DO BUSINESS with us.
On the following pages, you will find information on buying, selling and
exchanging shares using the method that is most convenient for you. You also
will see how to choose a distribution option for your investment. Helpful
information on taxes is included as well.
INVESTING IN THE FUNDS 13
<PAGE> 14
BUYING SHARES
Shares of the funds may be purchased through a Schwab brokerage account or
through certain third-party investment providers, such as other financial
institutions, investment professionals and workplace retirement plans.
The information on these pages outlines how Schwab brokerage account investors
can place "good orders" to buy, sell and exchange shares of the funds. If you
are investing through a third-party investment provider, some of the
instructions, minimums and policies may be different. Some investment providers
may charge transaction or other fees. Contact your investment provider for more
information.
SCHWAB ACCOUNTS
Different types of Schwab brokerage accounts are available, with varying account
opening and balance requirements. Some Schwab brokerage account features can
work in tandem with features offered by the funds.
For example, when you sell shares in a fund, the proceeds automatically are paid
to your Schwab brokerage account. From your account, you can use features such
as MoneyLink(R), which lets you move money between your brokerage accounts and
bank accounts, and Automatic Investment Plan (AIP), which lets you set up
periodic investments.
For more information on Schwab brokerage accounts, call 800-435-4000 or visit
the Schwab web site at www.schwab.com.
STEP 1
--------------------------------------------------------------------------------
CHOOSE A FUND, then decide how much you want to invest.
<TABLE>
<CAPTION>
MINIMUM INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENTS MINIMUM BALANCE
---------------------------------------------------------------------------------------------------
<S> <C> <C>
$2,500 $500 $1,000
($1,000 for custodial ($100 for Automatic ($500 for custodial
accounts) Investment Plan) accounts)
</TABLE>
STEP 2
--------------------------------------------------------------------------------
CHOOSE AN OPTION FOR FUND DISTRIBUTIONS. The three options are described below.
If you don't indicate a choice, you will receive the first option.
OPTION FEATURES
--------------------------------------------------------------------------------
Reinvestment All dividends and capital gain distributions are invested
automatically in shares of your fund.
--------------------------------------------------------------------------------
Cash/reinvestment You receive payment for dividends, while any capital gain
mix distributions are invested in shares of your fund.
--------------------------------------------------------------------------------
Cash You receive payment for all dividends and capital gain
distributions.
--------------------------------------------------------------------------------
STEP 3
--------------------------------------------------------------------------------
PLACE YOUR ORDER. Use any of the methods described at right. Make checks
payable to Charles Schwab & Co., Inc.
14 INVESTING IN THE FUNDS
<PAGE> 15
SELLING/EXCHANGING SHARES
Use any of the methods described below to sell shares of a fund.
When selling or exchanging shares, please be aware of the following policies:
- A fund may take up to seven days to pay sale proceeds.
- If you are selling shares that were recently purchased by check, the
proceeds may be delayed until the check for purchase clears; this may take
up to 15 days from the date of purchase.
- These funds reserve the right to honor redemptions in portfolio securities
instead of cash when your redemptions over a 90-day period exceed $250,000
or 1% of a fund's assets.
- Exchange orders must meet the minimum investment and other requirements for
the fund and share class into which you are exchanging.
- You must obtain and read the prospectus for the fund into which you are
exchanging prior to placing your order.
WHEN PLACING ORDERS
With every order to buy, sell or exchange shares, you will need to include
the following information:
- Your name
- Your account number (for SchwabLink transactions, include the master account
and subaccount numbers)
- The name and share class of the fund whose shares you want to buy or sell
- The dollar amount or number of shares you would like to buy, sell or
exchange
- For exchanges, the name and share class of the fund into which you want to
exchange and the distribution option you prefer
- When selling shares, how you would like to receive the proceeds
Please note that orders to buy, sell or exchange become irrevocable at the
time you mail them.
METHODS FOR PLACING ORDERS
PHONE
Call 800-435-4000, day or night (for TDD service, call 800-345-2550).
INTERNET
www.schwab.com/schwabfunds
SCHWABLINK
Investment professionals should follow the transaction instructions in the
SchwabLink manual; for technical assistance, call 800-367-5198.
MAIL
Write to SchwabFunds(R) at:
P.O. Box 7575, San Francisco, CA 94120-7575
When selling or exchanging shares, be sure to include the signature of at least
one of the persons whose name is on the account.
IN PERSON
Visit the nearest Charles Schwab branch office.
INVESTING IN THE FUNDS 15
<PAGE> 16
TRANSACTION POLICIES
THE FUNDS ARE OPEN FOR BUSINESS EACH DAY THAT THE NEW YORK STOCK EXCHANGE (NYSE)
IS OPEN. The funds calculate their share prices each business day after the
close of the NYSE (generally 4 p.m. Eastern time). A fund's share price is its
net asset value per share, or NAV, which is the fund's net assets divided by the
number of its shares outstanding.
Orders that are received in good order are executed at the next NAV to be
calculated. Orders to buy shares that are accepted prior to the close of the
fund generally will receive the next day's dividend. Orders to sell or exchange
shares that are accepted and executed prior to the close of the fund on a given
day generally will receive that day's dividend.
In valuing their securities, the funds use market quotes if they are readily
available. In cases where quotes are not readily available, a fund may value
securities based on fair values developed using methods approved by the fund's
Board of Trustees.
THE FUNDS AND SCHWAB RESERVE CERTAIN RIGHTS, including the following:
- To automatically redeem your shares if the account they are held in is
closed for any reason or your balance falls below the minimum as a result of
selling or exchanging your shares
- To modify or terminate the exchange privilege upon 60 days' written notice
to shareholders
- To refuse any purchase or exchange order, including those that appear to be
associated with short-term trading activities
- To change or waive a fund's investment minimums
- To suspend the right to sell shares back to the fund, and delay sending
proceeds, during times when trading on the NYSE is restricted or halted, or
otherwise as permitted by the SEC
- To withdraw or suspend any part of the offering made by this prospectus
16 INVESTING IN THE FUNDS
<PAGE> 17
DISTRIBUTIONS AND TAXES
ANY INVESTMENT IN THE FUNDS TYPICALLY INVOLVES SEVERAL TAX CONSIDERATIONS. The
information below is meant as a general summary for U.S. citizens and residents.
Because each person's tax situation is different, you should consult your tax
advisor about the tax implications of your investment in a fund. You also can
visit the Internal Revenue Service (IRS) web site at www.irs.ustreas.gov.
AS A SHAREHOLDER, YOU ARE ENTITLED TO YOUR SHARE OF THE DIVIDENDS AND GAINS YOUR
FUND EARNS. Each fund distributes to its shareholders substantially all of its
net investment income and net capital gains, if any. Each fund declares a
dividend every business day, based on its determination of its net investment
income. Each fund pays its dividends on the 25th of every month (or next
business day, if the 25th is not a business day), except that in December
dividends are paid on the last business day of the month. The funds expect to
pay any capital gain distributions every year, typically in December, to all
shareholders of record.
THE FUNDS' DISTRIBUTIONS MAY HAVE TAX CONSEQUENCES. Each fund's dividends
typically are free from federal income tax, but are subject to any state and
local personal income taxes. A portion of each fund's dividends may be free from
state or local income taxes, depending on the extent to which a fund invests in
bonds that are tax-exempt in your state. Each fund's capital gain distributions
generally are taxable in the tax year in which they are declared, whether you
reinvest them or take them in cash.
While interest from municipal securities generally is free from federal income
tax, some types of securities produce income that is subject to the federal
alternative minimum tax (AMT). To the extent that a fund invests in these
securities, shareholders who are subject to the AMT may have to pay this tax on
some or all dividends received from that fund.
GENERALLY, ANY SALE OF YOUR SHARES IS A TAXABLE EVENT. A sale may result in a
capital gain or loss for you. The gain or loss generally will be treated as
short-term if you held the shares for 12 months or less, long-term if you held
the shares longer.
AT THE BEGINNING OF EVERY YEAR, THE FUNDS PROVIDE SHAREHOLDERS WITH INFORMATION
DETAILING THE TAX STATUS OF ANY DISTRIBUTIONS the fund paid during the previous
calendar year, including a breakdown of the fund's income from each state.
Schwab brokerage account customers also receive information on distributions and
transactions in their monthly account statements.
SCHWAB BROKERAGE ACCOUNT CUSTOMERS WHO SELL FUND SHARES typically will receive a
report that calculates their gain or loss using the "average cost"
single-category method. This information is not reported to the IRS, and you
still have the option of calculating gains or losses using any other methods
permitted by the IRS.
INVESTING IN THE FUNDS 17
<PAGE> 18
NOTES
18 NOTES
<PAGE> 19
NOTES 19
<PAGE> 20
SCHWAB
TAX-FREE BOND FUNDS
TO LEARN MORE
This prospectus contains important information on the funds and should be read
and kept for reference. You also can obtain more information from the following
sources.
SHAREHOLDER REPORTS, which are mailed to current fund investors, discuss recent
performance and portfolio holdings.
The STATEMENT OF ADDITIONAL INFORMATION (SAI) includes a more detailed
discussion of investment policies and the risks associated with various
investments. The SAI is incorporated by reference into the prospectus, making it
legally part of the prospectus.
You can obtain copies of these documents by contacting SchwabFunds(R) or the
SEC. All materials from SchwabFunds are free; the SEC charges a duplicating fee.
You can also review these materials in person at the SEC's Public Reference
Room.
SCHWABFUNDS
P.O. Box 7575
San Francisco, CA 94120-7575
800-435-4000
www.schwab.com/schwabfunds
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-6009
800-SEC-0330 (Public Reference Section)
www.sec.gov
SEC FILE NUMBER
Schwab Tax-Free Bond Funds 811-6200
PROSPECTUS
November 15, 1999
As Amended July 14, 2000
SCHWABFUNDS(R)
MKT4272FLT-1
