-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MFgkHC3S1+4wSaxrFa3PKNPSUZ3j0I646OaW5Zy2Qb8JpWrX/qzhBzx6jqWY1z6l kQz4ylX0wcENHvUCDEBhdA== 0000950149-96-001374.txt : 19960904 0000950149-96-001374.hdr.sgml : 19960904 ACCESSION NUMBER: 0000950149-96-001374 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960903 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHWAB CHARLES FAMILY OF FUNDS CENTRAL INDEX KEY: 0000857156 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05954 FILM NUMBER: 96625160 BUSINESS ADDRESS: STREET 1: 101 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4156277000 MAIL ADDRESS: STREET 1: 101 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 N-30D 1 SCHWAB CA TAX-EXEMPT MONEY FUND - SWEEP SHARES 1 SCHWABFUNDS(R) [LOGO] SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND- SWEEP SHARES SEMI-ANNUAL REPORT JUNE 30, 1996 [Photo of the Schwab Building, San Francisco, California] 2 Dear Shareholder, [Photo of I'd like to take this opportunity to share some thoughts on Charles mutual fund investing and tell you how we're working to expand R. Schwab] our services to keep pace with your changing needs. First, however, I want to extend a personal welcome to the many thousands of new shareholders who've joined the SchwabFunds Family(R) in the past six months. With your support, we've become one of the largest and fastest-growing organizations in the mutual fund industry. Today, Charles Schwab Investment Management, Inc. serves over 1.8 million shareholders with total assets under management in excess of $38 billion. In six years, SchwabFunds(R) has grown from just a few funds to a mutual fund complex offering retail investors 21 funds covering a broad range of financial markets and investing approaches. NEW INVESTING STRATEGIES. Over the past year, we've introduced five new funds, each built on specific, time-tested strategies. The Schwab Asset Director(R) Funds help you diversify your portfolio through asset allocation, the Schwab S&P 500 Fund seeks to track U.S. stock market performance through indexing, and the Schwab Analytics Fund(TM) uses advanced quantitative methods to identify attractive investment opportunities. Along with our other offerings, these new funds give you powerful tools you can use to help construct a custom investment portfolio that matches your individual goals. And, of course, they also allow you to tap into the combined investing expertise of our highly experienced team of professional portfolio managers. TIME-TESTED INVESTING STRATEGIES THAT OFFER YOU AN EXPANDING RANGE OF OPPORTUNITIES ENHANCING SHAREHOLDER COMMUNICATIONS. Our commitment to shareholders goes beyond simply offering you new investment opportunities. We also want to help you become a more-informed mutual fund investor by providing the in-depth information you need to help manage your portfolio more effectively. Toward that end, we've changed the format of this report to make it more accessible and informative. If you'd like more information on any of the funds in the SchwabFunds Family, call 1-800-2 NO-LOAD (1-800-266-5623). Our representatives will be happy to provide you with a free prospectus, which contains more complete information on fund risks, charges and expenses. Please read it carefully before investing. Thank you for placing your trust in us. We value your confidence in our efforts to date, and we'll continue working hard to offer you an even broader range of strategic investment opportunities in the future. /s/ Charles R. Schwab Charles R. Schwab Cover: The Schwab Building, San Francisco, California 3 [The following is the outside of the envelope.] Attn: Dept. FP 333-7 ------------- NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES ------------- ------------------------------------------------------- BUSINESS REPLY MAIL FIRST-CLASS MAIL PERMIT NO. 18125 SAN FRANCISCO, CA ------------------------------------------------------- POSTAGE WILL BE PAID BY ADDRESSEE CHARLES SCHWAB & CO., INC. P O BOX 7783 SAN FRANCISCO CA 94120-9330 4 [The following is the inside flap of the envelope.] SCHWAB MONEYFUNDER TAKE ADVANTAGE OF THIS OPPORTUNITY TO ADD TO YOUR SCHWAB MONEY FUND INVESTMENT. Your Schwab Money Fund earns money market returns and gives you direct access to many investment opportunities available through Schwab. By funding your account now, you'll be able to quickly respond to changing market conditions with just a phone call to your Schwab representative. And you keep every dollar working for you. SO DON'T DELAY. USE THIS CONVENIENT SCHWAB MONEYFUNDER TO SEND YOUR CHECK TODAY! PLEASE DETACH HERE SCHWAB MONEYFUNDER - ------------------ PLEASE ENCLOSE YOUR CHECK AND THIS COMPLETED MONEYFUNDER SLIP IN THE ATTACHED POSTAGE-PAID ENVELOPE. - --------------------------------------------- ------------------------- NAME [ ][ ][ ][ ]-[ ][ ][ ][ ] SCHWAB ACCOUNT NUMBER $ - ---------------------------------------------- AMOUNT OF INVESTMENT* [ ] CHECK HERE IF YOU WOULD LIKE MORE SCHWAB MONEYFUNDERS FOR FUTURE USE. *MINIMUM INITIAL INVESTMENT $1,000, SUBSEQUENT MINIMUM $100, CUSTODIAN & IRA ACCOUNTS $1. AS INVESTMENT CONSTITUTES THE PURCHASE OF SHARES IN THE MONEY FUND YOU HAVE PREVIOUSLY CHOSEN AS THE PRIMARY FUND FOR YOUR BROKERAGE ACCOUNT. SMF MEMBER SIPC (C) 1996 CHARLES SCHWAB & CO., INC. 1280-3 (7/96) PRINTED ON RECYCLED PAPER. (LIFT HERE FOR MORE INFORMATION) 5 [The following is the inside of the envelope.] CHARLES SCHWAB JUST FOLLOW THESE EASY STEPS TO INVEST IN YOUR SCHWAB MONEY FUND: 1. Fill out the Schwab MoneyFunder slip completely, including your name, account number and the amount of your check. Please use one slip for each account. 2. Make your check payable to CHARLES SCHWAB & CO., INC., and enclose your check with the completed slip in this postage-paid envelope. 3. Then just drop your Schwab MoneyFunder in the mail today-and start putting your money to work! If you have any questions, don't hesitate to call your local Schwab office or 1-800-2 NO LOAD. THIS ENVELOPE MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT SCHWAB MONEY FUND PROSPECTUS. AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. 6 [The following is the outside flap of the envelope.] SCHWAB MONEYFUNDER KEEP YOUR MONEY WORKING HARDER! Use this envelope to easily add to your Schwab Money Fund. CHARLES SCHWAB 7
TABLE OF CONTENTS OVERVIEW .............................................................. 1 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND- SWEEP SHARES SUMMARY .................................................. 2 QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM ............................ 5 GLOSSARY OF TERMS ..................................................... 10 PORTFOLIO SUMMARY ..................................................... 11 FINANCIAL STATEMENTS AND NOTES ........................................ 12
OVERVIEW We're pleased to report on the performance of your investment in the Schwab California Tax-Exempt Money Fund-Sweep Shares for the six-month reporting period ended June 30, 1996. During the reporting period, these shares provided you with competitive current income exempt from federal income and California personal income taxes, 1 combined with capital stability and ready access to your money. The Schwab California Tax-Exempt Money Fund-Sweep Shares seeks to maintain a stable $1 share price to protect your principal. As with all money funds, however, there can be no assurance that the Fund will be able to maintain a $1 net asset value per share. It is also important to understand that your investment is not insured or guaranteed by the U.S. Government. 1 Income may be subject to local taxes and the federal Alternative Minimum Tax (AMT). 8 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - SWEEP SHARES SUMMARY PERFORMANCE REVIEW The table below presents the Schwab California Tax-Exempt Money Fund-Sweep Shares' 7-day average yields at the end of the reporting period. Of course, money market yields fluctuate, and past performance is no guarantee of future results.
================================================================================ 7-DAY AVERAGE YIELDS 2 (as of 6/30/96) Simple Compound Compound Taxable Equivalent 3 - -------------------------------------------------------------------------------- 2.71% 2.75% 5.02% - --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION The chart at right illustrates the composition of the Fund's portfolio as of the June 30, 1996 report date. In addition, you'll find a complete listing of the securities in the Fund's portfolio on June 30, 1996 later in this report. The Schwab California Tax-Exempt Money Fund-Sweep Shares primarily invests in high-quality municipal obligations issued by the state of California, its agencies, and municipalities. To minimize credit risk, the Fund primarily has invested in securities rated in the top rating category (known as First Tier) by the requisite number of Nationally Recognized Statistical Rating Organizations (NRSROs), or securities of equivalent credit quality, if unrated. 2 A portion of the Fund's fees were waived or reimbursed during the reporting period. Without the waivers or reimbursements, the Schwab California Tax-Exempt Money Fund-Sweep Shares' 7-day simple yield would have been 2.44%, the 7-day compound yield would have been 2.47%, and the 7-day compound taxable equivalent yield would have been 4.51% at June 30, 1996. 3 Taxable equivalent yield assumes a 1996 maximum combined federal and California state income tax rate of 45.22%. 2 9 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND PORTFOLIO COMPOSITION - JUNE 30, 1996 [The following is a pie-chart showing the Schwab California Tax-Exempt Money Fund Portfolio Composition as of June 30, 1996.] Tax-Exempt Commercial Paper 19% Variable Rate Obligations 55% Tax and Revenue Anticipation Notes 17% Variable Rate Tender Option Bonds/Partnerships 2% Other 7%
THE OPPORTUNITY FOR HIGHER YIELDS, AFTER TAXES If you are in a high tax bracket, the double tax-exempt income which may be paid by the Schwab California Tax-Exempt Money Fund-Sweep Shares can provide you with higher yields than taxable money funds on a taxable equivalent basis. On June 25, 1996, these Sweep Shares' average 7-day simple yield was 2.75% and average 7-day compound yield was 2.79%. 4 Here's how the compound taxable equivalent yield compared with First Tier taxable money funds on June 25, 1996 for shareholders in the highest 1996 tax bracket: - -------------------------------------------------------------------------------- Your Sweep Shares' 7-day compound taxable equivalent yield: 5 5.09% Average 7-day compound yield for fully taxable money funds: 6 4.82% ---- YOUR YIELD ADVANTAGE, AFTER TAXES: 0.27% - --------------------------------------------------------------------------------
4 A portion of the Fund's fees were waived or reimbursed during the reporting period. Without the waivers or reimbursements, the Schwab California Tax-Exempt Money Fund-Sweep Shares' 7-day simple yield would have been 2.49%, the 7-day compound yield would have been 2.52%, and the 7-day compound taxable equivalent yield would have been 4.60% at June 25, 1996. 5 Taxable equivalent yield assumes a 1996 maximum combined federal income tax and California state personal income tax rate of 45.22%. 6 Source: IBC Financial Data's average 7-day simple and compound yields for the 272 funds in the First Tier category of Taxable Money Funds, as of June 25, 1996. Past performance is no guarantee of future results. 3 10 GROWTH IN FUND ASSETS AND SHAREHOLDERS The table below illustrates changes in the Schwab California Tax-Exempt Money Fund-Sweep Shares' total net assets and number of shareholders during the six-month reporting period.
6/30/96 12/31/95 Change - -------------------------------------------------------------------------------- Total Net Assets (000s) $1,589,380 $1,577,695 +1% - -------------------------------------------------------------------------------- Shareholder Accounts 48,036 44,416 +8% ================================================================================
- -------------------------------------------------------------------------------- KEEP YOUR MONEY WORKING The Schwab California Tax-Exempt Money Fund-Sweep Shares can be linked to your Schwab account to keep all of your money invested and working for you. With this special "sweep" feature, a balance of $100 or more in your account can be automatically invested, or "swept," on a regular basis into the Sweep Shares you select, where it will be available to settle trades and cover other day-to-day transactions. - -------------------------------------------------------------------------------- 4 11 QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM OF CHARLES SCHWAB INVESTMENT MANAGEMENT, INC. Stephen B. Ward: Senior Vice President and Chief Investment Officer Walter Beveridge: Portfolio Manager Q. WHAT HAS BEEN THE ECONOMIC CLIMATE DURING THE FIRST SIX MONTHS OF 1996? A. At the beginning of the reporting period, market participants were primarily concerned about the likelihood of an economic recession. However, as the six-month reporting period progressed, the economic climate changed, and by June 30, 1996, concern was focused on excessive growth and its potential impact on future inflation. Following the first quarter of 1996, many economic observers were surprised by both the size of the increase in the Real Gross Domestic Product (GDP) growth rate and the strength of the labor market. The Real GDP growth rate was 2.0% for the first quarter in 1996 and 4.2% for the second quarter, based on the advance estimate. The average monthly increase in payroll employment jumped from 185,000 in 1995 to 232,000 during the first six months of 1996. The June hourly wage increase was the largest recorded in history. These developments have led most market observers to anticipate that the Federal Reserve (the Fed) may increase the federal funds rate in the near term. The economy continues to exhibit signs of strong economic growth as evidenced by strong growth in jobs, retail sales, auto sales, and strong construction spending despite higher mortgage rates. Although inflation has remained relatively low, as evidenced by the 2.8% Consumer Price Index (CPI) increase on a year-over-year basis as of June 1996, there remains a concern that the economy is performing at or near its employment and manufacturing capacity. As a result, the Fed is expected to remain diligent in its effort to prevent future increases in inflation. 5 12 Q. HOW HAVE THIS YEAR'S ECONOMIC EVENTS AFFECTED SHORT-TERM TAXABLE INTEREST RATES? A. Short-term interest rates continued their year long decline during the first six weeks of 1996. The 90-day commercial paper rate fell from 5.50% on January 2 to 5.12% on February 16. This short-lived decline in interest rates reflected continuing doubts about the strength of the economy, as well as the Fed's announcement of a 0.25% reduction in the federal funds rate following its Open Market Committee meeting in late January. Since mid-February, evidence of increased productivity and strength in the labor market has led to an upward trend in short-term interest rates. By June 28, the last business day of the period, the 90-day commercial paper rate was 5.52%. Many economists believe that sustained GDP growth and potential inflationary pressures will lead the Fed to increase the federal funds rate, and current market rates incorporate this expectation. Q. HOW HAVE SHORT-TERM TAX-EXEMPT INTEREST RATES RESPONDED TO MOVEMENTS IN TAXABLE INTEREST RATES DURING THE SIX-MONTH REPORTING PERIOD? A. In general, differences between interest rate movements for tax-exempt and taxable securities exist due to differences in supply and demand conditions in these markets. The supply of tax-exempt securities is more irregular than the supply of taxable securities since tax-exempt issuers offer securities for substantially different reasons from those motivating taxable issuers. Specifically, tax-exempt issuers are usually motivated by budgetary, tax, and legal considerations. Demand can also be affected by buyers who are sensitive to changes in interest rates and who enter and exit the tax-exempt market primarily to earn trading profits by capitalizing on changes in the size of the spread between taxable and tax-exempt interest rates. During the first half of 1996, short-term tax-exempt interest rates loosely tracked taxable interest rates, with variations in the spread between taxable and tax-exempt interest rates reflecting supply and demand factors in the municipal market. Specifically, through much of January, low 6 13 inventories of municipal securities drove tax-exempt interest rates lower relative to taxable interest rates. In February, as dealer inventories of municipal securities increased to more typical levels, the spread between municipal and taxable yields narrowed, returning to a more normal relationship. This situation, combined with market conditions, resulted in increased Fund yields later in the period. This upward trend in supply and dealer inventories continued as the reporting period closed -- issuance activity in the municipal market increased during the busy June "note season" -- and municipal rates again began to rise, narrowing the spread between municipal and taxable yields. These movements in tax-exempt interest rates during the six-month reporting period are illustrated in the chart below. SHORT-TERM MUNICIPAL INTEREST RATES IN THE FIRST HALF OF 1996 [The following is a line graph showing the Short-Term Municipal Interest Rates in the First Half of 1996 Yields for 90-Day Municipal Commercial Paper from the period January 2, 1996 to June 30, 1996.]
YIELDS 90-Day Municipal Commercial Paper January 2, 1996 - June 28, 1996 1/2/96 3.25% 1/3/96 3.30 1/4/96 3.30 1/5/96 3.15 1/8/96 3.25 1/9/96 3.25 1/10/96 3.25 1/11/96 3.30 1/12/96 3.25 1/15/96 3.25 1/17/96 3.20 1/18/96 3.20 1/19/96 3.15 1/22/96 3.15 1/23/96 3.20 1/24/96 3.20 1/25/96 3.30 1/26/96 3.40 1/29/96 3.40 1/30/96 3.35 1/31/96 3.35 2/1/96 3.30 2/2/96 3.00 2/5/96 3.00 2/6/96 3.00 2/7/96 3.15 2/8/96 3.15 2/9/96 3.20 2/12/96 3.20 2/13/96 3.20 2/14/96 3.20 2/15/96 3.20 2/16/96 3.20 2/20/96 3.20 2/21/96 3.20 2/22/96 3.20 2/23/96 3.20 2/26/96 3.20 2/27/96 3.20 2/28/96 3.20 2/29/96 3.20 3/1/96 3.25 3/4/96 3.25 3/5/96 3.20 3/6/96 3.10 3/7/96 3.15 3/8/96 3.25 3/11/96 3.30 3/12/96 3.30 3/13/96 3.30 3/14/96 3.30 3/15/96 3.30 3/18/96 3.30 3/19/96 3.30 3/20/96 3.30 3/21/96 3.30 3/22/96 3.30 3/25/96 3.30 3/26/96 3.36 3/27/96 3.35 3/28/96 3.40 3/29/96 3.40 4/1/96 3.40 4/2/96 3.35 4/3/96 3.35 4/4/96 3.35 4/5/96 3.40 4/8/96 3.45 4/9/96 3.50 4/10/96 3.50 4/11/96 3.50 4/12/96 3.50 4/15/96 3.50 4/16/96 3.50 4/17/96 3.50 4/18/96 3.50 4/19/96 3.50 4/22/96 3.50 4/23/96 3.60 4/24/96 3.65 4/25/96 3.65 4/26/96 3.65 4/29/96 3.65 4/30/96 3.65 5/1/96 3.60 5/2/96 3.60 5/3/96 3.65 5/6/96 3.65 5/7/96 3.65 5/8/96 3.65 5/9/96 3.60 5/10/96 3.60 5/13/96 3.55 5/14/96 3.60 5/15/96 3.60 5/16/96 3.60 5/17/96 3.60 5/20/96 3.55 5/21/96 3.55 5/22/96 3.55 5/23/96 3.55 5/24/96 3.55 5/28/96 3.55 5/29/96 3.55 5/30/96 3.55 5/31/96 3.55 6/3/96 3.50 6/4/96 3.45 6/5/96 3.40 6/6/96 3.40 6/7/96 3.40 6/10/96 3.40 6/11/96 3.40 6/12/96 3.40 6/13/96 3.50 6/14/96 3.50 6/17/96 3.55 6/18/96 3.55 6/19/96 3.55 6/20/96 3.55 6/21/96 3.60 6/24/96 3.60 6/25/96 3.60 6/26/96 3.60 6/27/96 3.60 6/28/96 3.60
Source: Lehman Brothers, Inc. 7 14 Q. HOW HAS THE PORTFOLIO MANAGEMENT TEAM ADJUSTED THE FUND'S PORTFOLIO TO RESPOND TO CHANGES IN THE INTEREST RATE ENVIRONMENT? A. As the issuance of new municipal money market instruments increased during the early part of the year, the Fund's dollar-weighted average maturity was extended from approximately 42 days to 57 days. This action allowed the Fund to lock in the higher yields then available in the market for a longer period of time, improving the Fund's performance. By mid-February, both the yields and supply of securities began to decrease, and the Fund's portfolio managers moved to gradually shorten the average maturity to a low of 28 days by the end of May. Shortening the Fund's dollar-weighted average maturity prevents the Fund from being locked into lower rates and allows the flexibility to buy higher-yielding securities as interest rates rise. By June, supply began to increase, and the Fund's average maturity was increased to 54 days at the close of the reporting period in order to take advantage of the higher yields which were once again available in the market. Q. WHAT STANDARDS DOES THE PORTFOLIO MANAGEMENT TEAM USE IN SELECTING SECURITIES FOR THE PORTFOLIO? A. Money market funds are required by law to hold high-quality securities in their portfolios. For the Schwab California Tax-Exempt Money Fund, we have continued to take the additional step of only investing in what are referred to as First Tier securities. In general, a First Tier security is a security that provides certain maturity limits and carries the highest credit rating from the required number of Nationally Recognized Statistical Rating Organizations (NRSROs); if unrated, it must be deemed to be of comparable quality according to guidelines approved by the Board of Trustees of The Charles Schwab Family of Funds. Certain securities owned by the Fund are insured or are backed by a letter of credit issued by a First Tier financial institution. These arrangements are frequently referred to as "credit enhancements" because they provide incremental levels of creditworthiness in addition 8 15 to the underlying strength of the primary issuer. Insurance companies and financial institutions providing credit enhancements are reviewed by Charles Schwab Investment Management as a regular part of our thorough credit review procedures for all portfolio securities and issuers. Q. WHAT CHANGES HAVE OCCURRED IN CALIFORNIA'S ECONOMIC CLIMATE DURING THE SIX-MONTH REPORTING PERIOD? A. During the past two years, California's economic recovery has broadly reflected the movement and pace of national trends. While the state has regained the jobs lost during the last recession, the California unemployment rate continues to exceed the national average. Further, a persistent softness of the real estate market, and sluggish figures for new home construction, may keep unemployment levels above the national average in the near future. California has eliminated its accumulated budget deficit of approximately $2 billion and expects to build up a contingency reserve to cover future economic challenges. Lawmakers continue to struggle with maintaining necessary services - -- such as education; road, sewer and other infrastructure improvements; and public health, welfare, and safety services -- with available tax revenues against a backdrop of budget reductions. The recently approved state budget assumes levels of federal assistance and state economic growth that may not be realized. However, 1995-1996 revenues came in above budget estimates and California's financial position is expected to continue to improve over the next twelve months. We are satisfied with the credit quality of the California securities the Fund currently owns, and we will continue to monitor the state's economic situation closely. California's current long-term credit ratings are A1 from Moody's Investor Service, A from Standard & Poor's Corporation, and A+ from Fitch Investors Services, Inc., three well- known rating agencies. 9 16 GLOSSARY OF TERMS COMMERCIAL PAPER Short-term, interest-paying obligations with maturities ranging up to 270 days, issued by banks, corporations, and other borrowers. CREDIT ENHANCEMENTS A bank letter of credit, purchase agreement, insurance, or line of credit that provides an additional level of creditworthiness for debt securities to supplement the financial strength of the issuer. DOLLAR-WEIGHTED AVERAGE MATURITY A measure of the average maturity of a mutual fund's entire portfolio, weighted by the value of its individual holdings. FEDERAL FUNDS RATE A key interest rate charged by banks when lending money to other banks overnight. FEDERAL RESERVE The central bank of the United States that establishes policies on bank reserves and regulations, determines the discount rate, and tightens or loosens the availability of credit. FIRST TIER SECURITY A security that matures within certain recognized limits and carries the top credit rating from the requisite number of NRSROs, or if unrated, is of equivalent credit quality. HIGH-QUALITY SECURITY A security ranked in the highest two rating categories by an NRSRO, or if unrated, is of equivalent credit quality. MATURITY The length of time before which the issuer of a debt security must repay the principal amount. NRSRO A Nationally Recognized Statistical Rating Organization, such as Standard & Poor's or Moody's Investor Services, which evaluates and rates the credit quality of securities. TAXABLE EQUIVALENT YIELD The return you would have to realize on a fully taxable investment in order to equal a specified tax-exempt yield; this hypothetical yield varies according to your income tax bracket. YIELD The rate of return, usually dividend or interest payments, on an investment, expressed as a percentage of market price. 10 17 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - ------------------------------------------------------------------------------ PORTFOLIO SUMMARY (Unaudited) ASSET GROWTH
Total Total Percentage Net Assets Net Assets Growth Over as of 6/30/96 as of 12/31/95 Reporting (000s) (000s) Period - -------------------------------------------------- $ 1,869,622 $1,685,703 11% - --------------------------------------------------
AVERAGE YIELDS FOR THE PERIODS ENDED JUNE 30, 1996 SWEEP SHARES
Last Last Last Seven Days Three Months Twelve Months - -------------------------------------------------- 2.71% 2.81% 2.92% - --------------------------------------------------
VALUE ADVANTAGE SHARES
Last Last Last Seven Days Three Months Twelve Months - -------------------------------------------------- 2.91% 3.01% N/A - --------------------------------------------------
MATURITY SCHEDULE PERCENT OF TOTAL INVESTMENTS
Maturity Range 9/30/95 12/31/95 3/31/96 6/30/96 - ----------------------------------------------------------------- 0 - 15 Days 75.7% 62.2% 65.0% 61.2% 16 - 30 Days 3.6 0.4 1.6 9.1 31 - 60 Days 2.9 14.6 3.6 9.8 61 - 90 Days 0.4 1.7 6.5 8.1 91 - 120 Days 0.0 2.2 13.3 0.9 Over 120 Days 17.4 18.9 10.0 10.9 Weighted Average 55 Days 51 Days 41 Days 54 Days - -----------------------------------------------------------------
11 18 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1996 (Unaudited)
Par Value ------- ---------- VARIABLE RATE OBLIGATIONS--54.64%(a) ABAG Finance Authority for Nonprofit Organizations Certificates of Participation (Lucile Salter Packard Project)/(AMBAC Insurance & Industrial Bank of Japan SBPA) 3.25%, 07/07/96 $ 6,050 $ 6,050 Alameda County, California Industrial Development Authority Revenue Bonds (Aitchison Family Project) Series 1993A/(Wells Fargo Bank LOC) 3.30%, 07/07/96 2,920 2,920 Alameda County, California Industrial Development Authority Revenue Bonds (Scientific Technology Project) Series 1994A/(Banque Nationale de Paris LOC) 3.30%, 07/07/96 3,000 3,000 Anaheim, California Certificates of Participation (Anaheim Memorial Hospital Assoc. Project)/(AMBAC Insurance & ABN-AMRO Bank SBPA) 3.10%, 07/07/96 8,370 8,370 Anaheim, California Certificates of Participation (Police Facility Financing Project)/(AMBAC Insurance & Industrial Bank of Japan SPA) 3.30%, 07/07/96 250 250 Anaheim, California Housing Authority Multi Family Housing Revenue Bonds (Heritage Village Apartments Project) Series 1992A/(Multiple Credit Enhancements) 3.25%, 07/07/96 3,385 3,385 Big Bear Lake, California Industrial Development Revenue Certificates of Participation (Southwest Gas Corp. Project) Series A/(Union Bank of Switzerland LOC) 3.30%, 07/07/96 12,500 12,500 California Educational Facilities Authority Revenue Bonds (California Institute of Technology) Series 1994 3.10%, 07/07/96 17,300 17,300 California Health Facilities Financing Authority Revenue Bonds (Catholic Health Care) Series 1996B/ (MBIA Insurance & Rabobank Nederland SBPA) 3.00%, 07/07/96 20,000 20,000 California Health Facilities Financing Authority Revenue Bonds (Catholic Health Care) Series 1996C/ (MBIA Insurance & Rabobank Nederland SBPA) 3.00%, 07/07/96 20,000 20,000 California Health Facilities Financing Authority Revenue Bonds (Catholic Health Care) Series 1996D/ (MBIA Insurance & Rabobank Nederland SBPA) 3.00%, 07/07/96 13,600 13,600
12 19 - ------------------------------------------------------------------------------
Par Value ------- ---------- California Health Facilities Financing Authority Revenue Bonds (Adventist Health System--Sutter Health) Series 1991A/(Toronto-Dominion Bank LOC) 3.10%, 07/07/96 $ 1,000 $ 1,000 California Health Facilities Financing Authority Revenue Bonds (Childrens Hospital Project) Series 1991/(MBIA Insurance & Swiss Bank SBPA) 3.00%, 07/07/96 9,900 9,900 California Health Facilities Financing Authority Revenue Bonds (Granada Hills Community Center) Series 1985C/(Banque Paribas LOC) 3.00%, 07/07/96 3,400 3,400 California Health Facilities Financing Authority Revenue Bonds (Huntington Memorial Hospital) Series 1985/(Morgan Guaranty Trust LOC) 3.15%, 07/07/96 15,515 15,515 California Health Facilities Financing Authority Revenue Bonds (Kaiser Permanente Project) Series 1993A 3.00%, 07/07/96 8,200 8,200 California Health Facilities Financing Authority Revenue Bonds (Kaiser Permanente Project) Series 1993B 3.00%, 07/07/96 1,600 1,600 California Health Facilities Financing Authority Revenue Bonds (Pooled Loan Program) Series 1985B/ (FGIC Insurance & FGIC SPA) 2.80%, 07/07/96 2,000 2,000 California Health Facilities Financing Authority Revenue Bonds (Scripps Memorial Hospital) Series 1985B/(MBIA Insurance & Morgan Guaranty Trust SBPA) 2.80%, 07/07/96 15,120 15,120 California Health Facilities Financing Authority Revenue Bonds (Scripps Memorial Hospital) Series 1991A/(MBIA Insurance & Morgan Guaranty Trust SBPA) 2.80%, 07/07/96 1,100 1,100 California Health Facilities Financing Authority Revenue Bonds (Scripps Memorial Hospital) Series 1991B/(MBIA Insurance & Swiss Bank SBPA) 3.05%, 07/07/96 13,900 13,900 California Health Facilities Financing Authority Revenue Bonds (St. Francis Hospital) Series 1995E/ (MBIA Insurance & Rabobank Nederland SBPA) 3.00%, 07/07/96 5,000 5,000 California Health Facilities Financing Authority Revenue Bonds (St. Francis Hospital) Series 1995F/ (MBIA Insurance & Rabobank Nederland SBPA) 3.00%, 07/07/96 30,000 30,000 California Pollution Control Financing Authority Refunding Revenue Bonds (Southern California Edison) Series 1986A 3.45%, 07/01/96 8,200 8,200
13 20 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1996 (Unaudited)
Par Value ------- ---------- California Pollution Control Financing Authority Refunding Revenue Bonds (Southern California Edison) Series 1986C 3.45%, 07/01/96 $ 520 $ 520 California Pollution Control Financing Authority Refunding Revenue Bonds (Southern California Edison) Series 1986D 3.45%, 07/01/96 6,735 6,735 California Pollution Control Financing Authority Revenue Bonds (Burney Forest Products Project) Series 1988A/(National Westminster Bank LOC) 3.65%, 07/01/96 1,000 1,000 California Pollution Control Financing Authority Revenue Bonds (Reynolds Metals Co. Project) Series 1985/(National Westminster Bank LOC) 3.15%, 07/07/96 1,300 1,300 California Pollution Control Financing Authority Revenue Bonds (Southdown, Inc. Project) Series B/ (Societe Generale LOC) 3.40%, 07/07/96 3,900 3,900 California Pollution Control Financing Authority Solid Waste Disposal Revenue Bonds (Athens Disposal Co. Project) Series 1995A/(Wells Fargo Bank LOC) 3.40%, 07/07/96 10,000 10,000 California Pollution Control Financing Authority Solid Waste Disposal Revenue Bonds (Burrtec Waste Industries Project) Series 1995A/(Union Bank of California LOC) 3.45%, 07/07/96 4,000 4,000 California Pollution Control Financing Authority Solid Waste Disposal Revenue Bonds (Colmac Energy Project) Series 1990A/(Swiss Bank LOC) 3.30%, 07/07/96 12,900 12,900 California Pollution Control Financing Authority Solid Waste Disposal Revenue Bonds (Colmac Energy Project) Series 1990B/(Swiss Bank LOC) 3.30%, 07/07/96 2,900 2,900 California Pollution Control Financing Authority Solid Waste Disposal Revenue Bonds (Colmac Energy Project) Series 1990C/(Swiss Bank LOC) 3.30%, 07/07/96 10,000 10,000 California Pollution Control Financing Authority Solid Waste Disposal Revenue Bonds (Contra Costa Services) Series 1995A/(Bank of America LOC) 3.40%, 07/07/96 4,500 4,500 California Pollution Control Financing Authority Solid Waste Disposal Revenue Bonds (Taormina Industries Project) Series 1994B/(Sanwa Bank LOC) 3.65%, 07/07/96 11,000 11,000
14 21 - ------------------------------------------------------------------------------
Par Value ------- ---------- California Pollution Control Financing Authority Solid Waste Disposal Revenue Bonds (Western Waste Industries) Series 1994A/(Union Bank of California LOC) 3.10%, 07/07/96 $ 4,000 $ 4,000 California Statewide Community Development Corp. Apartment Development Revenue Bonds Series 1995-A3/ (FNMA LOC) 3.15%, 07/07/96 10,000 10,000 California Statewide Community Development Corp. Hospital Revenue Bonds Certificates of Participation (Sutter Health Group)/(AMBAC Insurance & Industrial Bank of Japan SBPA) 3.10%, 07/01/96 6,050 6,050 California Statewide Community Development Corp. Industrial Development Revenue Bonds (13th I Associates Project)/(Union Bank of California LOC) 3.30%, 07/07/96 5,435 5,435 California Statewide Community Development Corp. Industrial Development Revenue Bonds (ARM Inc. Project) Series 1994A/(Bank of Tokyo-Mitsubishi LOC) 3.40%, 07/07/96 600 600 California Statewide Community Development Corp. Industrial Development Revenue Bonds (Aerostar Properties Project)/(Union Bank of California LOC) 3.25%, 07/07/96 5,095 5,095 California Statewide Community Development Corp. Industrial Development Revenue Bonds (Agricultural Products, Inc. Project)/(Union Bank of California LOC) 3.40%, 07/07/96 1,440 1,440 California Statewide Community Development Corp. Industrial Development Revenue Bonds (D.V. Industries) Series 1994A/(Bank of Tokyo-Mitsubishi LOC) 3.40%, 07/07/96 1,640 1,640 California Statewide Community Development Corp. Industrial Development Revenue Bonds (Flambeau Airmold Project)/(Norwest Bank of Minnesota LOC) 3.45%, 07/07/96 3,000 3,000 California Statewide Community Development Corp. Industrial Development Revenue Bonds (Industrial Dynamics, Co. Project)/(Union Bank of California LOC) 3.40%, 07/07/96 4,920 4,920 California Statewide Community Development Corp. Industrial Development Revenue Bonds (Lorber Industries of California Project)/(Union Bank of California LOC) 3.40%, 07/07/96 1,050 1,050 California Statewide Community Development Corp. Industrial Development Revenue Bonds (ORA Real Estate Project) Series 1995D/(Union Bank of California LOC) 3.40%, 07/07/96 3,000 3,000
15 22 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1996 (Unaudited)
Par Value ------- ---------- California Statewide Community Development Corp. Industrial Development Revenue Bonds (Pacific Handy Cutter Products Project)/(Union Bank of California LOC) 3.40%, 07/07/96 $ 1,210 $ 1,210 California Statewide Community Development Corp. Industrial Development Revenue Bonds (Pacific Scientific Project) Series 1989/(Union Bank of California LOC) 3.45%, 07/07/96 5,125 5,125 California Statewide Community Development Corp. Industrial Development Revenue Bonds (Packaging Innovation Project) Series 1994A/ (Bank of Tokyo-Mitsubishi LOC) 3.40%, 07/07/96 2,950 2,950 California Statewide Community Development Corp. Industrial Development Revenue Bonds (The Diamond Foods Project) Series 1991/(Union Bank of California LOC) 3.40%, 07/07/96 1,465 1,465 California Statewide Community Development Corp. Industrial Development Revenue Bonds (Z-Nix Co. Inc. Project)/(Union Bank of California LOC) 3.40%, 07/07/96 920 920 California Statewide Community Development Corp. Revenue Bonds Certificates of Participation (Kaiser Foundation Hospitals) 3.00%, 07/07/96 10,000 10,000 Carlsbad, California Multi Family Housing Revenue Refunding Bonds Certificates of Participation (La Costa Apartment Project) Series 1993A/(Bank of America LOC) 3.20%, 07/07/96 4,920 4,920 Concord, California Multi Family Housing Mortgage Revenue Bonds (Bel Air Apartments Project) Series 1986A/(Bank of America LOC) 3.20%, 07/07/96 3,000 3,000 Contra Costa, California Multi Family Housing Mortgage Revenue Bonds (El Cerrito Project) Series A/ (Bank of America LOC) 3.40%, 07/07/96 980 980 Duarte, California Redevelopment Agency Certificates of Participation (Johnson Duarte Partners Project) Series 1984B/(Bank of America LOC) 3.20%, 07/07/96 1,600 1,600 Duarte, California Redevelopment Agency Certificates of Participation (Piken Duarte Partners Project) Series 1984A/(Bank of America LOC) 3.20%, 07/07/96 4,250 4,250
16 23 - ------------------------------------------------------------------------------
Par Value ------- ---------- Eastern Municipal Water District, California Water & Sewer Revenue Certificates of Participation Series 1993B/(FGIC Insurance & Industrial Bank of Japan LOC) 3.00%, 07/07/96 $12,200 $12,200 Encinitas, California Multi Family Housing Revenue Refunding Bonds (Torrey Pines Project) Series A/ (Bank of America LOC) 2.90%, 07/07/96 8,100 8,100 Foothill Eastern Transportation Corridor Agency, California Toll Road Revenue Bonds Series 1995B/ (Morgan Guaranty Trust LOC) 3.00%, 07/07/96 12,000 12,000 Foothill Eastern Transportation Corridor Agency, California Toll Road Revenue Bonds Series 1995C/ (Credit Suisse LOC) 3.10%, 07/07/96 4,500 4,500 Foothill Eastern Transportation Corridor Agency, California Toll Road Revenue Bonds Series 1995D/ (Industrial Bank of Japan LOC) 3.15%, 07/07/96 41,800 41,800 Fremont, California Multi Family Housing Revenue Refunding Certificates of Participation (Amber Court Apartments Project) Series 1990A/ (Bank of Tokyo-Mitsubishi LOC) 3.45%, 07/07/96 10,380 10,380 Fresno, California Multi Family Housing Revenue Refunding Bonds (Heron Pointe Apartments) Series 1996A/(First Interstate Bank of California LOC) 3.20%, 07/07/96 5,250 5,250 Glenn, California Industrial Development Authority Industrial Development Revenue Bonds (Land 'O Lakes Project)/(Sanwa Bank LOC) 4.15%, 07/07/96 1,900 1,900 Grand Terrace, California Community Redevelopment Agency Multi Family Housing Revenue Bonds (Mount Vernon Villas Project) Series 1985A/ (Industrial Bank of Japan LOC) 3.40%, 07/07/96 1,865 1,865 Independent City, California Lease Finance Authority Lease Revenue Bonds (Various Pooled Projects) Series 1988/(National Westminster Bank LOC) 3.20%, 07/07/96 2,490 2,490 Irvine Ranch, California Water District Consolidated Revenue Bonds (Districts 105,140,240,250) Series 1985/(Commerzbank LOC) 3.30%, 07/01/96 3,640 3,640
17 24 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1996 (Unaudited)
Par Value ------- ---------- Irvine Ranch, California Water District Consolidated Revenue Bonds (Districts 105,250,290) Series 1991/ (National Westminster Bank LOC) 3.30%, 07/01/96 $1,100 $1,100 Irvine Ranch, California Water District Consolidated Revenue Bonds Series 1985A-1/(Landesbank Hessen-Thuringen Girozentrale LOC) 3.30%, 07/01/96 3,300 3,300 Irvine Ranch, California Water District Consolidated Revenue Bonds Series 1985A-2/(Landesbank Hessen-Thuringen Girozentrale LOC) 3.30%, 07/01/96 400 400 Irvine Ranch, California Water District Consolidated Revenue Bonds Series 1985B-1/(Sumitomo Bank LOC) 3.45%, 07/01/96 3,300 3,300 Irvine Ranch, California Water District Consolidated Revenue Bonds Series 1985B-2/(Sumitomo Bank LOC) 3.45%, 07/01/96 300 300 Irvine, California Improvement Bond Act 1915 Revenue Bonds (Assessment District No. 89-10)/ (National Westminster Bank LOC) 3.30%, 07/01/96 1,000 1,000 Irvine, California Improvement Bond Act 1915 Revenue Bonds (Assessment District No. 95-12) Series 1996A/ (Kredietbank LOC) 3.30%, 07/01/96 5,100 5,100 Irvine, California Improvement Bond Act 1915 Revenue Bonds (Special Assessment District No. 94-15)/ (Dai-Ichi Kangyo Bank LOC) 3.50%, 07/01/96 2,100 2,100 Kern County, California Certificates of Participation (Kern Public Facilities Project) Series A/(Sanwa Bank LOC) 3.00%, 07/07/96 200 200 Lancaster, California Redevelopment Agency Multi Family Revenue Bonds (Woodcreek Garden Apartments Project) Series 1985J/(Bank of Tokyo-Mitsubishi LOC) 3.20%, 07/07/96 8,400 8,400 Livermore, California Multi Family Housing Revenue Refunding Bonds (Arbors Apartment Project) Series 1991A/(Bank of Tokyo-Mitsubishi LOC) 3.45%, 07/07/96 9,255 9,255 Livermore, California Multi Family Housing Revenue Refunding Bonds (Diablo Vista Apartments Project) Series 1990A/(Union Bank of California LOC) 3.45%, 07/07/96 6,950 6,950
18 25 - ------------------------------------------------------------------------------
Par Value ------- ---------- Los Angeles County, California Certificates of Participation Adjustable Convertible Extendable Securities (Los Angeles County Museum of Art Project) Series 1985A/(Bank of America LOC) 3.40%, 07/07/96 $ 3,800 $ 3,800 Los Angeles County, California Certificates of Participation Adjustable Convertible Extendable Securities (Los Angeles County Museum of Art Project) Series 1985B/(Bank of America LOC) 3.40%, 07/07/96 3,500 3,500 Los Angeles County, California Metropolitan Transportation Authority General Revenue Bonds (Union Station Project) Series 1985A/(FSA Insurance & Societe Generale SBPA) 3.15%, 07/07/96 33,100 33,100 Los Angeles County, California Metropolitan Transportation Authority Proposition C Second Senior Sales Tax Revenue Refunding Bonds Series A/(MBIA Insurance & Industrial Bank of Japan SBPA) 3.00%, 07/07/96 24,000 24,000 Los Angeles County, California Multi Family Mortgage Revenue Refunding Bonds (Casden Community Complex) Series 1991C/(FHLB LOC) 2.90%, 07/07/96 3,200 3,200 Los Angeles County, California Multi Family Mortgage Revenue Refunding Bonds (Valencia Village Project) Series 1984C/(Industrial Bank of Japan LOC) 3.50%, 07/07/96 900 900 Los Angeles County, California Transportation Commission Sales Tax Revenue Refunding Bonds Series 1992A/(FGIC Insurance & Industrial Bank of Japan SBPA) 3.10%, 07/07/96 12,100 12,100 Los Angeles, California Community Redevelopment Agency Certificates of Participation (Baldwin Hills Public Parking Project) Series B/(Wells Fargo Bank LOC) 3.25%, 07/07/96 13,200 13,200 Los Angeles, California Community Redevelopment Agency Certificates of Participation (Broadway Springs Center Project) Series 1987/(Bank of America LOC) 3.20%, 07/07/96 10,900 10,900 Los Angeles, California Multi Family Housing Revenue Bonds (Poinsettia Apartments Project) Series 1989A/ (Dai-Ichi Kangyo Bank LOC) 3.20%, 07/07/96 9,600 9,600 Marin County, California Housing Authority Multi Family Housing Revenue Bonds (Crest Marin II Apartments Project) Series 1989A/(Dai-Ichi Kangyo Bank LOC) 3.40%, 07/07/96 7,100 7,100
19 26 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1996 (Unaudited)
Par Value ------- ---------- Modesto, California High School District & Modesto City School District Certificates of Participation (Capital Facilities Project) Series 1991/ (Bank of Tokyo-Mitsubishi LOC) 3.05%, 07/07/96 $ 5,200 $ 5,200 Monterey County, California Financing Authority Revenue Bonds (Reclamation & Distribution Projects)/ (Dai-Ichi Kangyo Bank LOC) 3.35%, 07/07/96 5,000 5,000 Moorpark, California Multi Family Housing Revenue Refunding Bonds (Le Club Apartments Project) Series A/(Citibank LOC) 3.05%, 07/07/96 6,000 6,000 Northern California Power Agency Public Power Refunding Revenue Bonds (Geothermal Project 3A)/ (AMBAC Insurance & Bank of Nova Scotia LOC) 3.15%, 07/07/96 42,000 42,000 Oakland, California Economic Development Revenue Refunding Bonds (Leamington Hotel Project) Series 1994A/(First Interstate Bank of California LOC) 3.15%, 07/07/96 4,250 4,250 Ontario, California Redevelopment Agency Multi Family Housing Revenue Refunding Bonds Series 1991A/(FHLB LOC) 2.90%, 07/07/96 4,492 4,492 Orange County, California Apartment Development Revenue Refunding Bonds (Jess L. Frost Project) Series 1985B/(Wells Fargo Bank LOC) 3.25%, 07/07/96 8,200 8,200 Orange County, California Apartment Development Revenue Refunding Bonds (The Lakes Project #185) Series 1991A/(Citibank LOC) 3.15%, 07/07/96 20,000 20,000 Orange County, California Certificates of Participation (Florence Crittenton Services Project) Series 1990/(Swiss Bank LOC) 3.30%, 07/07/96 6,700 6,700 Orange County, California Sanitation District Certificates of Participation (Sanitation Districts 1,2,3)/(AMBAC Insurance) 3.30%, 07/01/96 3,700 3,700 Orange County, California Sanitation District Certificates of Participation Series 1990-92A/ (National Westminster Bank LOC) 3.30%, 07/01/96 14,600 14,600
20 27 - ------------------------------------------------------------------------------
Par Value ------- ---------- Orange County, California Various Sanitation Districts Certificates of Participation (Capital Improvement Programs) Series 1990-92C/(FGIC Insurance & FGIC SPA) 3.40%, 07/01/96 $13,800 $13,800 Orange County, California Water District Certificates of Participation (Sanitation Districts #1,2,3)/ (AMBAC Insurance & Industrial Bank of Japan SBPA) 3.00%, 07/07/96 66,545 66,545 Orange County, California Water District Certificates of Participation Series 1990B/ (National Westminster Bank LOC) 3.45%, 07/01/96 5,500 5,500 Panama Buena Vista, California Unified School District Certificates of Participation (1994 Capital Improvement Financing Project)/(Union Bank of California LOC) 3.25%, 07/07/96 4,000 4,000 Pleasant Hill, California Multi Family Housing Revenue Bonds (Brookside Apartments Project)/(FNMA LOC) 3.10%, 07/07/96 5,500 5,500 Riverside County, California Certificates of Participation (Riverside County Public Facility Project) Series 1985A/(Sanwa Bank LOC) 2.90%, 07/07/96 14,000 14,000 Riverside County, California Certificates of Participation (Riverside County Public Facility Project) Series 1985B/(Sanwa Bank LOC) 2.95%, 07/07/96 3,100 3,100 Riverside County, California Certificates of Participation (Riverside County Public Facility Project) Series 1985C/(Sanwa Bank LOC) 2.95%, 07/07/96 5,600 5,600 Riverside County, California Housing Authority Multi Family Housing Revenue Bonds (Briarwood Apartment Project) Series 1985C/(FHLB LOC) 3.05%, 07/07/96 4,500 4,500 Riverside County, California Industrial Development Authority Revenue Bonds (Cryogenic Project) Series 1989B-1/(Rabobank Nederland LOC) 3.30%, 07/07/96 4,100 4,100 Riverside County, California Variable Rate Tax & Revenue Anticipation Notes Series 1996-1997/ (Toronto-Dominion Bank LOC) 3.00%, 07/07/96 16,300 16,300 Sacramento County, California Certificates of Participation (Administration Center & Court House Project)/(Union Bank of Switzerland LOC) 3.10%, 07/07/96 27,800 27,800
21 28 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1996 (Unaudited)
Par Value ------- ---------- Salinas, California Apartment Development Multi Family Housing Revenue Bonds (Mariner Villa Project) Series 1985B/(Bank of America LOC) 2.90%, 07/07/96 $ 2,725 $ 2,725 San Bernardino County, California Certificates of Participation (Glen Helen Blockbuster Pavilion Project) Series 1994C/(Bank of Tokyo-Mitsubishi LOC) 3.70%, 07/07/96 7,125 7,125 San Bernardino County, California Multi Family Housing Revenue Bonds (Western Properties Project IV) Series 1985/(Bank of America LOC) 3.10%, 07/07/96 1,100 1,100 San Francisco, California City & County Redevelopment Agency Multi Family Housing Revenue Bonds (Fillmore Center Project) Series A-1/(Citibank LOC) 3.00%, 07/07/96 26,500 26,500 San Francisco, California City & County Redevelopment Agency Multi Family Housing Revenue Bonds (Fillmore Center Project) Series A-2/(Citibank LOC) 3.15%, 07/07/96 3,750 3,750 San Francisco, California City & County Redevelopment Agency Multi Family Housing Revenue Bonds (Fillmore Center Project) Series B-2/(Bank of Nova Scotia LOC) 3.05%, 07/07/96 13,100 13,100 San Francisco, California City & County Redevelopment Agency Multi Family Housing Revenue Bonds (Rincon Center Apartments) Series 1985B/(Citibank LOC) 3.00%, 07/07/96 5,705 5,705 San Francisco, California Housing Authority Multi Family Housing Revenue Bonds (737 Post Project) Series 1985D/(Banque Nationale de Paris LOC) 3.25%, 07/07/96 16,800 16,800 San Jose--Santa Clara, California Water Financing Authority Sewer Revenue Bonds Series B/(AMBAC Insurance & Bank of Nova Scotia LOC) 3.15%, 07/07/96 7,600 7,600 San Mateo County, California Certificates of Participation (Capital Projects) Series 1985B/(Swiss Bank LOC) 3.30%, 07/07/96 3,145 3,145 Santa Clara County, California Hospital Facility Authority Revenue Bonds (El Camino Hospital District-Valley Medical Center Project) Series 1985A/(National Westminster Bank LOC) 3.10%, 07/07/96 7,900 7,900 Santa Clara County, California Hospital Facility Authority Revenue Bonds (El Camino Hospital District-Valley Medical Center Project) Series 1985B/(National Westminster Bank LOC) 3.10%, 07/07/96 8,100 8,100
22 29 - ------------------------------------------------------------------------------
Par Value ------- ---------- Santa Clara, California Electric Revenue Bonds Series 1985A/(National Westminster Bank LOC) 3.20%, 07/07/96 $13,000 $ 13,000 Santa Clara, California Electric Revenue Bonds Series 1985B/(National Westminster Bank LOC) 3.20%, 07/07/96 11,900 11,900 Santa Clara, California Electric Revenue Bonds Series 1985C/(National Westminster Bank LOC) 3.20%, 07/07/96 8,600 8,600 Santa Cruz County, California Housing Authority Multi Family Housing Revenue Bonds (Paloma del Mar Apartments Project) Series 1992A/ (Bank of Tokyo-Mitsubishi LOC) 3.25%, 07/07/96 7,700 7,700 South San Francisco, California Multi Family Revenue Bonds (Magnolia Plaza Apartments Project) Series A/ (Wells Fargo Bank LOC) 3.20%, 07/07/96 4,500 4,500 Southern California Metropolitan Water District Revenue Refunding Bonds Series 1996A/(ABN-AMRO Bank LOC) 2.95%, 07/07/96 18,700 18,700 Southern California Public Power Authority Refunding Revenue Bonds (Palos Verdes Project) Series 1996B/ (Morgan Guaranty Trust LOC) 3.10%, 07/07/96 8,270 8,270 Southern California Public Power Authority Revenue Bonds (Southern Transmission Project) Series 1991/ (AMBAC Insurance & Swiss Bank LOC) 3.10%, 07/07/96 10,300 10,300 Turlock, California Irrigation District Certificates of Participation (Transmission Project, Municipal Utilities--Water & Sewer) Series 1996A/ (Societe Generale LOC) 3.10%, 07/07/96 2,200 2,200 Vallejo, California Commercial Development Revenue Bonds (Vallejo Center Association Project) Series 1994A/(Bank of Tokyo-Mitsubishi LOC) 3.85%, 07/07/96 900 900 Visalia, California Public Building Authority Certificates of Participation (Convention Center Expansion Project) Series 1991/(Union Bank of California LOC) 3.50%, 07/07/96 1,000 1,000 --------- TOTAL VARIABLE RATE OBLIGATIONS (Cost $1,122,152) 1,122,152 ---------
23 30 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1996 (Unaudited)
Par Value ------- ---------- VARIABLE RATE TENDER OPTION BOND PARTNERSHIPS--2.12%(a)(c) California State Department of Water Resources Revenue Bonds (Central Valley Project) Series J3 Tender Option Bond Partnership (BTP-141)/(Bankers Trust Tender Option) 3.40%, 07/07/96 $ 5,155 $ 5,155 Los Angeles County, California Transportation Commission Sales Tax Revenue Tender Option Bond Partnership (BTP-146)/(Bankers Trust Tender Option & Escrowed to Maturity with Government Securities) 3.40%, 07/07/96 23,078 23,078 Los Angeles, California Department of Water & Power Electric Plant Revenue Refunding Bonds Series 1994 Tender Option Bond Partnership (BTP-68)/ (Automated Data Processing, Inc. Tender Option) 3.45%, 07/07/96 5,195 5,195 Metropolitan Water District of Southern California Waterworks General Obligation Revenue Refunding Bonds Series 1993A1 & 1993A2 Tender Option Bond Partnership (BTP-115)/(Bankers Trust Tender Option) 3.45%, 07/07/96 10,145 10,145 ------ TOTAL VARIABLE RATE TENDER OPTION BOND PARTNERSHIPS (Cost $43,573) 43,573 ------ CERTIFICATES OF PARTICIPATION--4.70%(b) San Jose, California Financing Authority Certificates of Participation (Convention Center Project)/ (Escrowed to Maturity with Government Securities) 3.45%, 09/01/96 84,815 87,103 San Mateo, California Redevelopment Agency Certificates of Participation Revenue Refunding Bonds (Bridge & Water Pumping Station)/(Escrowed to Maturity with Government Securities) 3.67%, 08/01/96 9,305 9,525 ------ TOTAL CERTIFICATES OF PARTICIPATION (Cost $96,628) 96,628 ------ MANDATORY PUT BONDS--1.37%(b) California Housing Finance Agency Home Mortgage Revenue Bonds Series 1995E 3.50%, 02/01/97 12,500 12,500
24 31 - ------------------------------------------------------------------------------
Par Value ------- ---------- California Housing Finance Agency Home Mortgage Revenue Bonds Series 1996D/(FGIC Insurance) 3.54%, 04/01/97 $11,500 $11,500 Redlands, California Revenue Refunding Certificates of Participation (Water Treatment Facilities Project)/ (FGIC Insurance) 3.60%, 11/01/96 4,000 4,011 ------ TOTAL MANDATORY PUT BONDS (Cost $28,011) 28,011 ------ REVENUE BONDS--0.88%(b) California Health Facilities Financing Authority Revenue Bonds (Catholic Health Care) Series 1996A/ (MBIA Insurance) 3.75%, 07/01/97 4,450 4,504 Northern California Power Agency Public Power Revenue Refunding Bonds (Geothermal Project #3) Series 1996B/(AMBAC Insurance) 3.62%, 07/01/97 6,525 6,611 Northern California Power Agency Public Power Revenue Refunding Bonds (Hydroelectric Project #1) Series 1986A/(Escrowed to Maturity with Government Securities) 3.40%, 07/01/96 1,800 1,836 Sacramento, California Municipal Utility District Electric Revenue Bonds Series R/(Escrowed to Maturity with Government Securities & FGIC Insurance) 3.37%, 02/01/97 1,000 1,041 Sacramento, California Municipal Utility District Electric Revenue Bonds Series S/(Escrowed to Maturity with Government Securities & FGIC Insurance) 3.37%, 02/01/97 1,970 2,051 University of California Unified School District Revenue Bonds (Medical Center Satellite Medical Facilities)/(Escrowed to Maturity with Government Securities) 2.14%, 12/01/96 2,050 2,089 ------ TOTAL REVENUE BONDS (Cost $18,132) 18,132 ------ TAX ALLOCATION BONDS--0.07%(b) Brea, California Redevelopment Agency Tax Allocation Bonds (Redevelopment Project Area AB)/ (Escrowed to Maturity with Government Securities) 3.45%, 09/15/96 1,350 1,397 ------ TOTAL TAX ALLOCATION BONDS (Cost $1,397) 1,397 ------
25 32 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1996 (Unaudited)
Par Value ------- ---------- TAX AND REVENUE ANTICIPATION NOTES--16.95%(b) Acalanes, California Unified High School District Tax & Revenue Anticipation Notes Series 1996-97(d) 3.80%, 07/01/97 $ 5,700 $ 5,731 Berkeley, California Tax & Revenue Anticipation Notes Series 1995-96 3.95%, 07/17/96 10,500 10,503 Berkeley, California Unified School District Tax & Revenue Anticipation Notes Series 1996-97(d) 3.85%, 07/01/97 9,400 9,447 California School Cash Reserve Program Authority Pooled Tax & Revenue Anticipation Notes Series 1996-97/(MBIA Insurance)(d) 3.85%, 07/02/97 70,000 70,605 Desert Sands, California Unified School District Tax & Revenue Anticipation Notes Series 1995-96 4.00%, 07/05/96 10,000 10,001 Desert Sands, California Unified School District Tax & Revenue Anticipation Notes Series 1996-97(d) 3.80%, 07/02/97 4,500 4,530 East Side Unified High School District, Santa Clara County California Tax & Revenue Anticipation Notes 4.00%, 10/10/96 8,000 8,011 Elk Grove, California Unified School District Tax & Revenue Anticipation Notes Series 1995-96 4.00%, 07/31/96 10,400 10,404 Fontana, California Unified School District Tax & Revenue Anticipation Notes Series 1996-97(d) 3.95%, 07/11/97 10,000 10,053 Fremont, California Unified School District Tax & Revenue Anticipation Notes Series 1995-96 3.95%, 07/11/96 13,000 13,002 Livermore, California Tax & Revenue Anticipation Notes Series 1995-96 4.00%, 07/10/96 4,600 4,601 Los Angeles, California Tax & Revenue Anticipation Notes Series 1996-97(d) 3.85%, 06/19/97 35,000 35,207 3.84%, 06/19/97 27,000 27,167 Marin County, California Tax & Revenue Anticipation Notes Series 1995-96 3.85%, 07/03/96 37,000 37,002 Mountain View, California School District Tax & Revenue Anticipation Notes Series 1995-96 4.00%, 07/05/96 2,000 2,000
26 33 - ------------------------------------------------------------------------------
Par Value ------- ---------- Mountain View/Los Altos, California Unified High School District Tax & Revenue Anticipation Notes Series 1995-96 4.00%, 07/05/96 $ 4,200 $ 4,200 Oxnard, California Unified High School District (Ventura County) Tax & Revenue Anticipation Notes Series 1995-96 3.90%, 10/11/96 5,500 5,513 Pleasanton, California Unified School District Tax & Revenue Anticipation Notes Series 1996-97(d) 3.80%, 07/01/97 5,400 5,430 San Diego County, California Tax & Revenue Anticipation Notes 3.50%, 09/30/96 2,600 2,605 San Francisco, California Unified School District Tax & Revenue Anticipation Notes Series 1995-96 3.89%, 07/25/96 40,000 40,015 San Leandro, California Unified School District Tax & Revenue Anticipation Notes Series 1996-97(d) 3.80%, 07/01/97 5,000 5,028 Santa Rosa, California High School District Tax & Revenue Anticipation Notes Series 1995-96 3.95%, 09/27/96 10,000 10,018 Sutter County, California Office of Education Tax & Revenue Anticipation Notes Series 1995-96 4.05%, 09/14/96 10,000 10,009 Temecula Valley, California Unified School District Tax & Revenue Anticipation Notes Series 1996-97(d) 3.80%, 07/02/97 7,000 7,046 ------- TOTAL TAX AND REVENUE ANTICIPATION NOTES (Cost $348,128) 348,128 ------- TAX-EXEMPT COMMERCIAL PAPER--19.17%(b) California Pollution Control Financing Authority Pollution Control Revenue Bonds (Pacific Gas & Electric) Series 1988A/(Swiss Bank LOC) 3.45%, 07/25/96 5,000 5,000 3.35%, 07/25/96 3,975 3,975 3.40%, 08/01/96 7,000 7,000 3.35%, 08/01/96 5,000 5,000 3.40%, 08/08/96 6,200 6,200 California Pollution Control Financing Authority Pollution Control Revenue Bonds (Pacific Gas & Electric) Series 1988B/(Sumitomo Bank LOC) 3.90%, 07/25/96 83,400 83,400
27 34 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS (in thousands) June 30, 1996 (Unaudited)
Par Value ------- ---------- California Pollution Control Financing Authority Pollution Control Revenue Bonds (Pacific Gas & Electric) Series 1988C/(Credit Suisse LOC) 3.40%, 07/25/96 $10,505 $10,505 3.25%, 07/25/96 13,380 13,380 3.20%, 07/25/96 5,500 5,500 3.30%, 08/01/96 2,000 2,000 3.25%, 08/01/96 2,000 2,000 California Pollution Control Financing Authority Pollution Control Revenue Bonds (Pacific Gas & Electric) Series 1988D/(Bank of Tokyo-Mitsubishi LOC) 3.35%, 07/25/96 4,550 4,550 California Pollution Control Financing Authority Pollution Control Revenue Bonds (Pacific Gas & Electric) Series 1988F/(Banque Nationale de Paris LOC) 3.45%, 07/25/96 10,000 10,000 California Pollution Control Financing Authority Pollution Control Revenue Bonds (Southern California Edison) Series 1985A 3.35%, 08/08/96 1,000 1,000 3.35%, 08/19/96 12,000 12,000 3.20%, 08/28/96 2,300 2,300 California Pollution Control Financing Authority Pollution Control Revenue Bonds (Southern California Edison) Series 1985B 3.35%, 08/08/96 2,000 2,000 3.35%, 08/19/96 14,000 14,000 3.20%, 08/28/96 2,200 2,200 California Pollution Control Financing Authority Solid Waste Disposal Revenue Bonds (Thermal Energy Development LP) Series 1988A/(National Westminster Bank LOC) 3.60%, 08/19/96 30,000 30,000 East Bay Municipal Utility District, California (Wastewater Systems) Tax-Exempt Commercial Paper Program/(National Westminster Bank LOC) 3.40%, 08/14/96 10,700 10,700 Long Beach, California Harbor Revenue Commercial Paper Notes Series 1994A/(Multiple Credit Enhancements) 3.65%, 08/08/96 23,600 23,600 3.65%, 09/11/96 4,000 4,000 Los Angeles County, California Department of Water & Power Electric Plant Short Term Revenue Certificates 3.45%, 07/08/96 5,000 5,000
28 35 - ------------------------------------------------------------------------------
Par Value ------- ---------- Los Angeles County, California Transportation Commission Second Subordinate Sales Tax Revenue Bonds Series A/(Multiple Credit Enhancements) 3.40%, 09/19/96 $ 6,100 $ 6,100 Los Angeles, California Wastewater System Tax-Exempt Commercial Paper 3.45%, 07/08/96 13,650 13,650 3.35%, 08/09/96 2,700 2,700 3.45%, 08/14/96 12,000 12,000 Metropolitan Water District of Southern California Tax-Exempt Commercial Paper 3.10%, 08/12/96 10,000 10,000 Orange County, California Local Transportation Authority Sales Tax-Exempt Commercial Paper Notes/ (Industrial Bank of Japan LOC) 3.60%, 09/09/96 47,500 47,500 West & Central Basin Financing Authority, California West Basin Municipal Water District Tax-Exempt Commercial Paper/(Toronto-Dominion Bank LOC) 3.20%, 08/07/96 9,000 9,000 3.35%, 08/19/96 19,000 19,000 3.20%, 08/28/96 8,500 8,500 ------- TOTAL TAX-EXEMPT COMMERCIAL PAPER (Cost $393,760) 393,760 ------- TENDER OPTION BONDS--0.10%(b) Southern California Rapid Transit District Tender Option Bonds (BT-9)/(MBIA Insurance & Bankers Trust Tender Option) 3.75%, 10/03/96 2,000 2,000 --------- TOTAL TENDER OPTION BONDS (Cost $2,000) 2,000 --------- TOTAL INVESTMENTS--100.0% (Cost $2,053,781) $2,053,781 ==========
See accompanying Notes to Schedule of Investments. 29 36 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - ------------------------------------------------------------------------------ NOTES TO SCHEDULE OF INVESTMENTS June 30, 1996 (Unaudited) For each security, cost (for financial reporting and federal income tax purposes) and carrying value are the same. (a) Variable rate securities. Interest rates vary periodically based on current market rates. Rates shown are the effective rates on June 30, 1996. 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. (b) Interest rates represent effective yield to put or call date at time of purchase. (c) Certain securities purchased by the Fund are private placement securities exempt from registration by Section 4(2) of the Securities Act of 1933. These securities generally are sold to institutional investors, such as the Schwab California Tax-Exempt Money Fund. Any resale by the Fund must be in an exempt transaction, normally to a qualified institutional buyer. At June 30, 1996, the aggregate value of private placement securities held by the Fund was $43,573,000 which represented 2.33% of net assets. All of these private placement investments were determined by the Investment Manager to be liquid in accordance with a resolution adopted by the Board of Trustees relating to Rule 144A, promulgated under the Securities Act of 1933. (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 30 37 - ------------------------------------------------------------------------------ market fluctuation and to the risk that the value may be more or less than the purchase price when the transaction initiated. The Fund has set aside sufficient investment securities as collateral for securities purchased on a delayed-delivery basis. Abbreviations - ------------- AMBAC AMBAC Indemnity Corporation FGIC Financial Guaranty Insurance Company FHLB Federal Home Loan Bank FNMA Federal National Mortgage Association FSA Financial Security Assurance LOC Letter of Credit MBIA Municipal Bond Investors Assurance Corporation SBPA Standby Purchase Agreement SLMA Student Loan Marketing Association SPA Securities Purchase Agreement
See accompanying Notes to Financial Statements. 31 38 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - ------------------------------------------------------------------------------ STATEMENT OF ASSETS AND LIABILITIES (in thousands) June 30, 1996 (Unaudited) ASSETS Investments, at value (Cost: $2,053,781) $2,053,781 Cash 82 Interest receivable 17,277 Receivable for investments sold 27,181 Receivable for Fund shares sold 2,198 Prepaid expenses 65 ---------- Total assets 2,100,584 ---------- LIABILITIES Payable for: Dividends 1,861 Investments purchased 227,835 Fund shares redeemed 889 Investment advisory and administration fee 23 Transfer agency and shareholder service fees 152 Other 202 ---------- Total liabilities 230,962 ---------- Net assets applicable to outstanding shares $1,869,622 ========== NET ASSETS CONSIST OF: Capital paid in $1,870,320 Accumulated net realized loss on investments sold (698) ---------- $1,869,622 ========== PRICING OF SHARES $0.00001 par value (unlimited shares authorized) Outstanding Sweep Shares 1,590,074 Outstanding Value Advantage Shares 280,246 ---------- 1,870,320 Net asset value, offering and redemption price per each Sweep Share and Value Advantage Share $1.00
See accompanying Notes to Financial Statements. 32 39 - ------------------------------------------------------------------------------ STATEMENT OF OPERATIONS (in thousands) Six months ended June 30, 1996 (Unaudited) Interest income $30,658 ---------- Expenses: Investment advisory and administration fee 3,955 Transfer agency and shareholder service fees: Sweep Shares 3,605 Value Advantage Shares 256 Custodian fees 150 Registration fees 112 Professional fees 30 Shareholder reports 38 Trustees' fees 5 Insurance and other expenses 19 ---------- 8,170 Less expenses reduced (2,500) ---------- Total expenses incurred by Fund 5,670 ---------- Net investment income 24,988 Net realized loss on investments sold (34) ---------- Increase in net assets resulting from operations $24,954 ==========
See accompanying Notes to Financial Statements. 33 40 SCHWAB CALIFORNIA TAX-EXEMPT MONEY FUND - ------------------------------------------------------------------------------ STATEMENT OF CHANGES IN NET ASSETS (in thousands)
Six months ended Year June 30, ended 1996 December 31, (Unaudited) 1995 ----------- ------------ Operations: Net investment income $ 24,988 $ 45,734 Net realized gain (loss) on investments sold (34) 8 -------- -------- Increase in net assets resulting from operations 24,954 45,742 -------- -------- Dividends to shareholders from net investment income: Sweep Shares (21,964) (45,302) Value Advantage Shares (3,024) (432) -------- -------- Total dividends to shareholders (24,988) (45,734) -------- -------- Capital share transactions (at $1.00 per share): Proceeds from shares sold 3,127,686 4,383,313 Net asset value of shares issued in reinvestment of dividends 29,136 43,226 Less payments for shares redeemed (2,972,869) (4,034,727) -------- -------- Increase in net assets from capital share transactions 183,953 391,812 -------- -------- Total increase in net assets 183,919 391,820 Net assets: Beginning of period 1,685,703 1,293,883 -------- -------- End of period $ 1,869,622 $ 1,685,703 ======== ========
See accompanying Notes to Financial Statements. 34 41 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS Six months ended June 30, 1996 (Unaudited) 1. DESCRIPTION OF THE FUND The Schwab California Tax-Exempt Money Fund (the "Fund") is a series of The Charles Schwab Family of Funds (the "Trust"), a no-load, open-end investment management company organized as a Massachusetts business trust on October 20, 1989 and registered under the Investment Company Act of 1940, as amended. The Fund offers multiple classes of shares -- the Sweep Shares ("Sweep Shares") and the Value Advantage Shares ("Value Advantage Shares"). Both classes represent interests in the same portfolio of investments of the Fund and are substantially the same in all respects except that the classes are subject to different transfer agency and shareholder service fees (see Note 3), investment minimums and certain other expenses. In addition to the Fund, the Trust also offers -- the Schwab Money Market Fund, Schwab Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Tax-Exempt Money Fund (Sweep and Value Advantage Shares), Schwab New York Tax-Exempt Money Fund (Sweep and Value Advantage Shares), Schwab Value Advantage Money Fund(R), Schwab Institutional Advantage Money Fund(R) and Schwab Retirement Money Fund(R). The assets of each series are segregated and accounted for separately. The Schwab California Tax-Exempt Money Fund, which is not a "diversified" investment company within the meaning of the Investment Company Act of 1940, as amended, invests in a portfolio of debt obligations issued by or on behalf of California and other states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities that generate interest exempt from federal income tax and State of California personal income tax. 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 35 42 SCHWAB CALIFORNIA TAX EXEMPT MONEY FUND - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS Six months ended June 30, 1996 (Unaudited) assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Security valuation -- Investments are stated at amortized cost which approximates market value. Security transactions -- Security transactions are accounted for on a trade date basis (date the order to buy or sell is executed). Dividends to shareholders -- The Fund declares a daily dividend, equal to its net investment income for that day, payable monthly. Dividends paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time, and will be in the same amount except for the effect of expenses that may be applied differently, as described below. Expenses -- Expenses arising in connection with the Fund are charged directly to the Fund. Expenses common to all series of the Trust are allocated to each series in proportion to their relative net assets. Expenses attributable to both classes of shares are allocated daily to each class based on the value of settled shares outstanding of each respective class. Transfer agency, shareholder service fees and certain other expenses which are class specific are calculated daily at the class level. Interest income and realized gains (losses) -- Interest income is recorded on the accrual basis and includes amortization of premium on investments. Realized gains and losses from security transactions are determined on an identified cost basis. Income and realized gains (losses) are allocated daily to each class of shares based on the value of settled shares outstanding of each respective class. Federal income taxes -- It is the Fund's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net investment income and realized net capital gains, if any, to shareholders. Therefore, no federal income tax provision is required. The Fund is considered a separate entity for tax purposes. 3. TRANSACTIONS WITH AFFILIATES Investment advisory and administration agreements -- The Trust has investment advisory and administration agreements with Charles Schwab 36 43 - ------------------------------------------------------------------------------ Investment Management, Inc. (the "Investment Manager"). For advisory services and facilities furnished, the Fund pays an annual fee, payable monthly, of .46% of the first $1 billion of average daily net assets, .41% of such assets over $1 billion, and .40% of such assets in excess of $2 billion. Under these agreements, the Fund incurred investment advisory and administration fees of $3,955,000 for the six months ended June 30, 1996, before the Investment Manager reduced its fee (see Note 4). Transfer agency and shareholder service agreements -- The Trust has transfer agency and shareholder service agreements with Charles Schwab & Co., Inc. ("Schwab"). For services provided under these agreements, Schwab receives an annual fee, payable monthly, of .45% and .25% of average daily net assets of the Sweep Shares and Value Advantage Shares, respectively. For the six months ended June 30, 1996, the Fund incurred transfer agency and shareholder service fees of $3,605,000 and $256,000 for the Sweep Shares and Value Advantage Shares, respectively, before Schwab reduced its fees (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 June 30, 1996, 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 Fund incurred fees of $5,000 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 the Fund's ratio of operating expenses to average net assets. For the six months ended June 30, 1996, the total of such fees reduced by the Investment Manager and Schwab was $2,237,000 and $263,000, respectively. 5. INVESTMENT TRANSACTIONS Purchases, sales and maturities of investment securities during the six months ended June 30, 1996, aggregated (in thousands) $2,239,045 and $1,857,952, respectively. 37 44 SCHWAB CALIFORNIA TAX EXEMPT MONEY FUND - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS Six months ended June 30, 1996 (Unaudited) 6. CAPITAL SHARE TRANSACTIONS The Fund offers two classes of shares: Sweep Shares and Value Advantage Shares. Shares of each class represent interests in the same portfolio of investments of the Fund. Transactions in capital shares were as follows (in thousands):
Six months ended June 30, Period ended 1996 December 31, (Unaudited) 1995* ---------------- ------------ Proceeds from shares sold: Sweep Shares $ 2,791,832 $ 4,257,465 Value Advantage Shares 335,854 125,848 ----------- ----------- Total 3,127,686 4,383,313 Net asset value of shares issued in reinvestment of dividends: Sweep Shares 26,191 43,152 Value Advantage Shares 2,945 74 ----------- ----------- Total 29,136 43,226 Less payments for shares redeemed: Sweep Shares (2,806,308) (4,016,813) Value Advantage Shares (166,561) (17,914) ----------- ----------- Total (2,972,869) (4,034,727) Total increase in net assets from capital share transactions $ 183,953 $ 391,812 =========== ===========
- --------------- * The Value Advantage Shares commenced operations on October 3, 1995. 38 45 - ------------------------------------------------------------------------------ 7. FINANCIAL HIGHLIGHTS Per share income and capital changes for a share outstanding throughout the period:
Sweep Shares ----------------------------------------------------------------------- Six months ended June 30, ----------------Year ended December 31,---------------- 1996 (Unaudited) 1995 1994 1993 1992 1991 ----------------------------------------------------------------------- Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income from investment operations - --------------------------------- Net investment income .01 .03 .02 .02 .02 .04 Net realized and unrealized gain (loss) on investments -- -- -- -- -- -- ---------- ---------- ---------- ---------- -------- -------- Total from investment operations .01 .03 .02 .02 .02 .04 Less distributions - ------------------ Dividends from net investment income (.01 ) (.03) (.02) (.02) (.02) (.04) Distributions from realized gain on investments -- -- -- -- -- -- ---------- ---------- ---------- ---------- -------- -------- Total distributions (.01 ) (.03) (.02) (.02) (.02) (.04) ---------- ---------- ---------- ---------- -------- -------- Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ========== ========== ========== ========== ======== ======== Total return (%) 1.37 3.20 2.26 1.91 2.35 3.77 - ---------------- Ratios/Supplemental data - ------------------------ Net assets, end of period (000s) $1,589,380 $1,577,695 $1,293,883 $1,062,042 $691,176 $494,214 Ratio of expenses to average net assets (%) .65* .65 .64 .63 .63 .61 Ratio of net investment income to average net assets (%) 2.74* 3.15 2.25 1.89 2.31 3.70
The Investment Manager and Schwab have reduced a portion of their fees and absorbed certain expenses in order to limit the Fund's ratios of operating expenses to average net assets for each class of shares. Had these fees and expenses not been reduced and absorbed, the ratio of expenses to average net assets for the Sweep Shares for the periods ended June 30, 1996, December 31, 1995, 1994, 1993, 1992, and 1991 would have been .92%*, .94%, .94%, .96%, .97%, and .98%, respectively, and the ratio of net investment income to average net assets would have been 2.47%*, 2.86%, 1.95%, 1.56%, 1.97%, and 3.33%, respectively. - --------------- * Annualized 39 46 SCHWAB CALIFORNIA TAX EXEMPT MONEY FUND - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS Six months ended June 30, 1996 (Unaudited) 7. FINANCIAL HIGHLIGHTS (CONTINUED)
Value Advantage Shares ---------------------------------- Six months ended June 30, Period ended 1996 December 31, (Unaudited) 1995(1) ---------------- ------------ Net asset value at beginning of period $ 1.00 $ 1.00 Income from investment operations - --------------------------------- Net investment income .01 .01 Net realized and unrealized gain (loss) on investments -- -- -------- -------- Total from investment operations .01 .01 Less distributions - ------------------ Dividends from net investment income (.01) (.01) Distributions from realized gain on investments -- -- -------- -------- Total distributions (.01) (.01) -------- -------- Net asset value at end of period $ 1.00 $ 1.00 ======== ======== Total return (%) 1.47 .84 - ---------------- Ratios/Supplemental data - ------------------------ Net assets, end of period (000s) $280,242 $108,008 Ratio of expenses to average net assets (%) .45* .45* Ratio of net investment income to average net assets (%) 2.95* 3.48*
The Investment Manager and Schwab have reduced a portion of their fees and absorbed certain expenses in order to limit the Fund's ratios of operating expenses to average net assets for each class of shares. Had these fees and expenses not been reduced and absorbed the ratio of expenses to average net assets for the Value Advantage Shares for the periods ended June 30, 1996 and December 31, 1995 would have been .78%* and 1.04%*, respectively, and the ratio of net investment income to average net assets would have been 2.62%* and 2.89%*, respectively. - --------------- (1) For the period October 3, 1995 (commencement of operations) to December 31, 1995. * Annualized 40 47 SchwabFunds Family(R) The SchwabFunds Family includes a variety of funds to help meet your investment needs. You can diversify your portfolio with one investment in any of our three asset allocation funds, or choose from several equity markets with our equity funds. You can also select from different maturities with our bond fund choices, and take advantage of an array of money market 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 EQUITY FUNDS Schwab 1000 Fund(R) Schwab International Index Fund(TM) Schwab Small-Cap Index Fund(R) Schwab S&P 500 Fund Schwab Analytics Fund(TM) 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-exempt 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(TM).1 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 is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. 1. 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. 48 ============== [SCHWABFUNDS FAMILY(R) LOGO] BULK RATE U.S. POSTAGE 101 Montgomery Street PAID San Francisco, California 94104 CHARLES SCHWAB ============== Investment Adviser Charles Schwab Investment Management, Inc. 101 Montgomery Street, San Francisco, CA 94104 Distributor Charles Schwab & Co., Inc. 101 Montgomery Street, San Francisco, CA 94104 This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (C)1996 Charles Schwab & Co., Inc. All rights reserved. Member SIPC/NYSE. TF4222R(8/96) CRS 6797 Printed on recycled paper. -----END PRIVACY-ENHANCED MESSAGE-----