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PROSPECTUS
July 21, 1999
As Amended June 15, 2000
SCHWAB
YIELDPLUS FUND(TM)
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)
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[INSIDE FRONT COVER]
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SCHWAB YIELDPLUS FUND(TM)
ABOUT THE FUND
4 Strategy
5 Main Risks
6 Performance
6 Fees and Expenses
7 Fund Management
INVESTING IN THE FUND
9 Schwab Accounts
10 Buying Shares
11 Selling/Exchanging Shares
12 Transaction Policies
13 Distributions and Taxes
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SCHWAB YIELDPLUS FUND(TM)
TICKER SYMBOLS INVESTOR SHARES: SWYPX SELECT SHARES: SWYSX
GOAL
THE FUND SEEKS HIGH CURRENT INCOME WITH MINIMAL CHANGES IN SHARE PRICE.
STRATEGY
TO PURSUE ITS GOAL, THE FUND INVESTS IN INVESTMENT-GRADE (HIGH AND CERTAIN
MEDIUM QUALITY) BONDS. These may include fixed-, variable- or floating-rate
corporate, mortgage-backed and asset-backed debt securities from U.S. and
foreign issuers.
In choosing securities, the fund's manager seeks to maximize current income
within the limits of the fund's credit and maturity policies. To help maintain a
very high degree of share price stability and preserve investors' capital, the
fund seeks to keep the average effective maturity of its overall portfolio at
one year or less. However, in seeking to enhance its potential yields, the fund
may invest in bonds with effective or final maturities of any length and may
invest up to 25% of assets in lower quality bonds (sometimes called junk bonds)
that are rated as low as BB or Ba by at least one nationally recognized rating
service or are the unrated equivalent.
The investment adviser's credit research department analyzes and monitors the
securities that the fund owns or is considering buying. The manager may adjust
the fund's holdings or its average effective maturity based on actual or
anticipated changes in interest rates or credit quality. In the event a
portfolio security was downgraded below B, the manager would promptly sell the
security. The manager also may use risk management techniques, including futures
contracts, swap agreements and other derivatives, in seeking to reduce share
price volatility, increase income and otherwise manage the fund's exposure to
investment risks.
The fund's investment strategy is designed to offer the potential for somewhat
higher yields than a money market fund, although unlike a money market fund, its
share price will fluctuate. In exchange for seeking minimal fluctuation in share
price, the fund may offer lower long-term performance than stock investments or
certain other bond investments.
RISK MANAGEMENT
The fund may use a variety of techniques to manage risk and increase income.
Certain types of derivatives (investments whose value is based on one or more
securities, rates or indices) can be cost-effective risk management tools.
For example, the fund may buy and sell futures contracts to manage interest rate
changes. By doing this, the fund has the potential to reduce the share price
volatility that tends to be a characteristic of bond funds.
These investments, such as swap agreements also may produce additional income
for the fund.
4 YIELDPLUS FUND(TM)
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Investors with investment horizons of one year or more who are seeking an
alternative to a money fund or other fixed-income fund may want to consider this
fund.
MAIN RISKS
INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the fund's yield will change over time. During
periods when interest rates are low, the fund's yield (and total return) also
may be low. Changes in interest rates also may affect the fund's share price: a
sharp rise in interest rates could cause the fund's share price to fall. This
risk is greater when the fund holds bonds with longer maturities.
THE FUND IS NOT A MONEY MARKET FUND OR A BANK DEPOSIT. Its shares are not
insured or guaranteed. Because the fund's share price may move up and down, the
value of your investment in the fund will fluctuate, which means you could lose
money.
THE FUND COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Although the
risk of default is generally considered unlikely, any default on the part of a
portfolio investment could cause the fund's share price or yield to fall. This
risk is greater with lower-quality bonds.
SOME INVESTMENTS CARRY ADDITIONAL RISKS. To the extent that the manager decides
to invest in foreign or lower quality bonds, the fund takes on a greater
exposure to certain risks. Prices of foreign bonds may be more volatile than
those of comparable bonds from U.S. issuers, for reasons ranging from lack of
reliable issuer information to the risk of political upheaval. Prices of
lower-quality bonds tend to be more volatile than those of investment-grade
bonds, and may fall based on bad news about an issuer, an industry or the
overall economy. With certain mortgage- and asset-backed bonds, a primary risk
is the possibility that the bonds may be paid off earlier or later than
expected. Either situation could cause the fund to hold securities paying lower
than market rates of interest, which could hurt the fund's yield or share price.
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.
OTHER MAIN RISK FACTORS
While the fund intends to use techniques to manage risk and increase income,
they could hurt the fund's performance if they don't perform as expected.
For example, if the fund uses a technique involving a derivative, such as a
futures contract, for the purpose of offsetting price changes in the fund's
portfolio, but the technique does not precisely offset the price changes, the
fund's share price could fall. The fund's performance also could be hurt if the
counterparty to a derivative did not honor its contractual obligations to the
fund.
The cost of derivatives may have the effect of increasing fund expenses. While
the decision to use or not use a given risk management technique depends on
market conditions, these costs could at times outweigh the benefits the fund
realizes from these techniques.
5 YIELDPLUS FUND(TM)
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PERFORMANCE
Because this is a new fund, no performance figures or financial highlights are
given. Information will appear in a future version of the fund's prospectus.
FUND FEES AND EXPENSES
The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are one-time expenses charged to you directly by the fund.
"Annual Operating Expenses" are paid out of fund assets, so their effect is
included in the total return for each share class.
The fund has two share classes, which have different minimum investments and
different costs. For information on choosing a class, see page 10.
FEE TABLE (%)
<TABLE>
<CAPTION>
INVESTOR SELECT
SHARES SHARES
--------------------------------------------------------------------------------
SHAREHOLDER FEES (% of transaction amount)
--------------------------------------------------------------------------------
<S> <C> <C>
Redemption fee, charged only on
shares you sell within 90 days of buying them 0.25 0.25
ANNUAL OPERATING EXPENSES (% of average net assets)
--------------------------------------------------------------------------------
Management fees 0.35 0.35
Distribution (12b-1) fees None None
Other expenses* 0.39 0.24
========================
Total annual operating expenses 0.74 0.59
EXPENSE REDUCTION 0.19 0.19
------------------------
NET OPERATING EXPENSES** 0.55 0.40
========================
</TABLE>
* Based on estimated expenses for the current fiscal year.
** Guaranteed by Schwab and the investment adviser through 10/31/2000.
ESTIMATED EXPENSES ON A $10,000 INVESTMENT
Designed to help you compare expenses, this example uses the same assumptions
as all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
--------------------------------------------------------------------------------
<S> <C> <C>
Investor Shares $59 $221
Select Shares $44 $173
</TABLE>
6 YIELDPLUS FUND(TM)
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FUND MANAGEMENT
THE FUND'S INVESTMENT ADVISER, CHARLES SCHWAB INVESTMENT MANAGEMENT, INC., HAS
MORE THAN $92 BILLION UNDER MANAGEMENT.
THE INVESTMENT ADVISER for the Schwab YieldPlus Fund(TM) 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 6/23/1999).
As the investment adviser, the firm oversees the asset management and
administration of the Schwab YieldPlus Fund(TM) Fund. As compensation for these
services, the firm receives a management fee from the fund. This fee is
calculated as follows: 0.35% of the fund's assets up to $500 million, and 0.30%
of the fund's assets over $500 million.
KIMON DAIFOTIS, CFA, a vice president of the investment adviser, has overall
responsibility for fund management. Prior to joining the firm in October 1997,
he worked for more than 17 years in research and asset management.
FUND MANAGEMENT 7
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INVESTING IN THE FUND
As a SchwabFunds(R) investor, you have a number of WAYS TO DO BUSINESS with us.
On the following pages, you will find information on buying, selling and
exchanging shares using the method that is most convenient for you. You also
will see how to choose a share class and a distribution option for your
investment. Helpful information on taxes is included as well.
8 INVESTING IN THE FUND
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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 fund.
For example, when you sell shares in the fund, the proceeds automatically are
paid to your Schwab brokerage account. From your account, you can use features
such as MoneyLink(TM), which lets you move money between your brokerage accounts
and bank accounts, and Automatic Investment Plan (AIP), which lets you set up
periodic investments.
For more information on Schwab brokerage accounts, call 800-435-4000 or visit
the Schwab web site at www.schwab.com.
INVESTING IN THE FUND 9
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BUYING SHARES
Shares of the fund may be purchased through a Schwab brokerage account or
through certain third-party investment providers, such as other financial
institutions, investment professionals and workplace retirement plans.
The information on these pages outlines how Schwab brokerage account investors
can place "good orders" to buy, sell and exchange shares of the funds. If you
are investing through a third-party investment provider, some of the
instructions, minimums and policies may be different. Some investment providers
may charge transaction or other fees. Contact your investment provider for more
information.
STEP 1
CHOOSE A SHARE CLASS. Your choice may depend on the amount of your investment.
The minimums shown below are for each share class.
<TABLE>
<CAPTION>
MINIMUM INITIAL MINIMUM ADDITIONAL
SHARE CLASS INVESTMENT INVESTMENTS MINIMUM BALANCE
<S> <C> <C> <C>
Investor Shares $2,500 ($1,000 for $500 ($100 for $1,000 ($500 for
retirement and Automatic Investment retirement and
custodial accounts) Plan) custodial accounts)
Select Shares(TM) $50,000 $1,000 $40,000
</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.
<TABLE>
<CAPTION>
OPTION FEATURES
<S> <C>
Reinvestment All dividends and capital gain distributions are invested
automatically in shares of your share class.
Cash/reinvestment You receive payment for dividends, while any capital gain
mix distributions are invested in shares of your share class.
Cash You receive payment for all dividends and capital gain
distributions.
</TABLE>
STEP 3
PLACE YOUR ORDER using any of the methods described at right. Make checks
payable to Charles Schwab & Co., Inc.
10 INVESTING IN THE FUND
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SELLING/EXCHANGING SHARES
Use any of the methods described below to sell shares of the fund. When selling
or exchanging shares, please be aware of the following policies:
- The fund may take up to seven days to pay sale proceeds.
- If you are selling shares that were recently purchased by check, the
proceeds may be delayed until the check for purchase clears; this may take
up to 15 days from the date of purchase.
- The fund reserves the right to honor redemptions in portfolio securities
instead of cash if they exceed 1% of the fund's assets or $250,000 in any
90 day period.
- As indicated in the fund's fee table, the fund charges a redemption fee,
payable to the fund, on the sale or exchange of any shares that have been
held for less than 90 days; in attempting to minimize this fee, the fund
will first sell any shares in your account that aren't subject to the fee
(including shares acquired through reinvestment or exchange).
- There is no redemption fee when you exchange between share classes within
this fund.
- 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.
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.
WHEN PLACING ORDERS
With every order to buy, sell or exchange shares, you will need to include
the following information:
- Your name
- Your account number (for SchwabLink transactions, include the master
account and subaccount numbers)
- The name and share class of the fund whose shares you want to buy or sell
- The dollar amount you would like to buy, sell or exchange
- For exchanges, the name and share class of the fund into which you want to
exchange and the distribution option you prefer
- When selling shares, how you would like to receive the proceeds
Please note that orders to buy, sell or exchange become irrevocable at the
time you mail them.
INVESTING IN THE FUND 11
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TRANSACTION POLICIES
THE FUND IS OPEN FOR BUSINESS EACH DAY THAT THE NEW YORK STOCK EXCHANGE (NYSE)
IS OPEN. The fund calculates its share price each business day, for each share
class, after the close of the NYSE (generally 4 p.m. Eastern time). The 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 its securities, the fund uses market quotes if they are readily
available. In cases where quotes are not readily available, the fund may value
securities based on fair values developed using methods approved by the fund's
Board of Trustees.
Because foreign markets are often open on weekends and other days when the fund
is closed, the value of the fund's portfolio may change on days when it is not
possible to buy or sell shares of the fund.
THE FUND AND SCHWAB RESERVE CERTAIN RIGHTS, including the following:
- To automatically redeem your shares if the account they are held in is
closed for any reason or your balance falls below the minimum for your
share class as a result of selling or exchanging your shares
- To modify or terminate the exchange privilege upon 60 days' written notice
to shareholders
- To refuse any purchase or exchange order, including those that appear to be
associated with short-term trading activities
- To change or waive a fund's investment minimums
- To suspend the right to sell shares back to the fund, and delay sending
proceeds, during times when trading on the NYSE is restricted or halted, or
otherwise as permitted by the SEC
- To withdraw or suspend any part of the offering made by this prospectus
12 INVESTING IN THE FUND
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DISTRIBUTIONS AND TAXES
ANY INVESTMENT IN THE FUND TYPICALLY INVOLVES SEVERAL TAX CONSIDERATIONS. The
information below is meant as a general summary for U.S. citizens and residents.
Because each person's tax situation is different, you should consult your tax
advisor about the tax implications of your investment in the fund. You also can
visit the Internal Revenue Service (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. The fund distributes to its shareholders substantially all of its
net investment income and net capital gains, if any. The fund declares a
dividend every business day, based on its determination of its net investment
income. The 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 fund expects to pay any capital
gain distributions every year, typically in December, to all shareholders of
record.
UNLESS YOU ARE INVESTING THROUGH A TAX-DEFERRED OR ROTH RETIREMENT ACCOUNT, YOUR
FUND DISTRIBUTIONS GENERALLY HAVE TAX CONSEQUENCES. The fund's net investment
income and short-term capital gains are distributed as dividends and are taxable
as ordinary income. Other capital gain distributions are taxable as long-term
capital gains, regardless of how long you have held your shares in the fund.
Distributions generally are taxable in the tax year in which they are declared,
whether you reinvest them or take them in cash.
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.
FOR TAX PURPOSES, AN EXCHANGE BETWEEN FUNDS IS DIFFERENT FROM AN EXCHANGE
BETWEEN CLASSES. An exchange between funds is considered a sale. An exchange
between classes within a fund is not reported as a taxable sale.
AT THE BEGINNING OF EVERY YEAR, THE FUND PROVIDES SHAREHOLDERS WITH INFORMATION
DETAILING THE TAX STATUS OF ANY DISTRIBUTIONS the fund declared during the
previous calendar year. 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 FUND 13
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NOTES
14 NOTES
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NOTES 15
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TO LEARN MORE
This prospectus contains important information on the fund and should be read
and kept for reference. You also can obtain more information from the following
sources.
SHAREHOLDER REPORTS, which are mailed to current fund investors, discuss recent
performance and portfolio holdings.
The STATEMENT OF ADDITIONAL INFORMATION (SAI) includes a more detailed
discussion of investment policies and the risks associated with various
investments. The SAI is incorporated by reference into the prospectus, making it
legally part of the prospectus.
You can obtain copies of these documents by contacting SchwabFunds(R) or the
SEC. All materials from SchwabFunds are free; the SEC charges a duplicating fee.
You can also review these materials in person at the SEC's Public Reference
Room.
SCHWABFUNDS
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 Yield Plus Fund 811-6200
SCHWAB
YIELDPLUS FUND(TM)
Prospectus
July 21, 1999
As Amended June 15, 2000
SCHWABFUNDS(R)
MKT4087FLT-1
