<PAGE> 1
SCHWABFUNDS(R)
SCHWAB 1000
FUND(R)
Annual Report
August 31, 1997
<PAGE> 2
Dear Shareholder,
With the support of investors like you, SchwabFunds(R)
[Photo of continues to be among the largest and fastest-growing mutual
Charles R. fund families in the nation. Charles Schwab Investment
Schwab] Management, Inc. (CSIM) now manages over $50 billion in assets
for more than 2.5 million SchwabFunds shareholders and offers
31 funds spanning a spectrum of financial markets and
investing styles.
ENHANCING CHANNELS OF COMMUNICATION
We believe that an important part of serving your needs is keeping you informed
about your investments. This report, for example, contains performance and
financial data on your fund as well as an analysis of market trends during the
reporting period and the impact of those trends on our portfolio management
strategy. This is just one way we hope to keep communication open between you
and the people managing your investments.
In addition, if you're among the millions of people exploring the Internet, I
encourage you to visit our Web site at WWW.SCHWAB.COM/SCHWABFUNDS, where you'll
find a wealth of information--including monthly commentaries on market
conditions from our SchwabFunds portfolio managers.
NEW INVESTMENT OPPORTUNITIES
In our ongoing commitment to provide additional investment opportunities, we
recently introduced Schwab OneSource Portfolios-Small Company Fund--a
professionally managed portfolio of small company mutual funds in one convenient
investment. If you're looking for an easy, cost-effective way to tap into the
growth potential of small companies, this fund may be an appropriate investment
for you. For a free prospectus which contains more information including fees
and expenses, please call our toll-free line at 1-800-435-4000. Please be sure
to read the prospectus before investing.
Thank you for placing your trust in SchwabFunds. We will continue to explore new
strategies to help meet your investment needs and to provide you with timely
information on SchwabFunds.
/s/ Charles R. Schwab
-------------------------------
Charles R. Schwab
<PAGE> 3
Make Your
Money Work
Harder!
Use this envelope to easily add
to your Schwab 1000 Fund(R).
Charles Schwab
<PAGE> 4
WE'VE MADE IT EASIER FOR YOU! TAKE ADVANTAGE OF THIS OPPORTUNITY TO ADD TO YOUR
SCHWAB 1000 FUND(R).
As a Schwab 1000 Fund shareholder, you can seek U.S. stock market returns by
effectively investing in a diversified equity portfolio of America's 1,000
largest publicly traded U.S. corporations, based on market capitalization. 1
Now you can easily add to your fund by using this convenient Schwab investment
coupon. You can also have money transferred to your Schwab 1000 Fund directly
from your bank account or payroll check using Schwab's free Automatic Investment
Plan (AIP).2 If you'd like more information on AIP, just check the appropriate
box on the coupon. We'll send you everything you need to get started.
DON'T DELAY. USE THIS CONVENIENT INVESTMENT ENVELOPE AND SEND YOUR CHECK TODAY!
1. The Schwab 1000 Fund does not include privately held companies, investment
companies and companies incorporated outside the United States.
2. The Automatic Investment Plan does not ensure profit or protect against
loss in declining markets.
- ------------------------------------------------------------------------------
PLEASE DETACH HERE.
SCHWAB 1000 FUND(R)
INVESTMENT COUPON
- ------------------------------------------------------------------------------
Please enclose your check and this completed investment coupon in the attached
postage-paid envelope.
- ---------------------------------------------
NAME
$
- ---------------------------------------------
AMOUNT OF INVESTMENT*
X
- ---------------------------------------------
SIGNATURE
-
- ------------------------------------
SCHWAB ACCOUNT NUMBER
/ / Check here if you would like more investment coupons for future use.
/ / Check here if you would like more information on Schwab's Automatic
Investment Plan (AIP).
*THIS ENVELOPE MAY NOT BE USED FOR INITIAL INVESTMENTS. SUBSEQUENT INVESTMENT
MINIMUM IS $100 FOR INVESTOR SHARES AND $1,000 FOR SELECT SHARES.
(c) 1997 Charles Schwab & Co., Inc. All rights reserved. Member SIPC/NYSE.
Printed on recycled paper. TF5008(9/97) CRS 20155
(Lift here for more information.)
<PAGE> 5
CHARLES SCHWAB
JUST FOLLOW THESE EASY STEPS:
1. Fill out the Schwab investment coupon completely, including your name,
account number, signature and the amount of your check. Please use a separate
coupon for each account.
2. Make your check payable to CHARLES SCHWAB & CO., INC., and enclose your check
with the completed coupon in this postage-paid envelope.
3. Then just drop your Schwab investment envelope 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 1-800-435-4000.
THIS ENVELOPE MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT SCHWAB 1000 FUND(R)
PROSPECTUS. PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
<PAGE> 6
Attn: Dept. AIP 333 4
----------------
NO POSTAGE
NECESSARY IF
MAILED IN THE
UNITED STATES
----------------
- -----------------------------------------------------------
BUSINESS REPLY MAIL
FIRST-CLASS MAIL PERMIT NO. 18125 SAN FRANCISCO, CA
- -----------------------------------------------------------
POSTAGE WILL BE PAID BY ADDRESSEE
CHARLES SCHWAB & CO., INC
PO BOX 7778
SAN FRANCISCO CA 94120-9419
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
A Word from SchwabFunds(R) ..................................... 2
Fund Performance ............................................... 2
Tax-Smart Investment Strategy .................................. 5
Fund Holdings .................................................. 5
The Portfolio Management Team .................................. 7
Market Overview ................................................ 8
Questions to the Portfolio Management Team ..................... 13
Financial Statements and Notes ................................. 16
</TABLE>
1
<PAGE> 8
A WORD FROM SCHWABFUNDS(R)
We are pleased to bring you the annual report for the Schwab 1000 Fund(R) (the
Fund) for the year ended August 31, 1997. During the reporting period, the
Fund's net assets grew by 82% to over $2.8 billion while the number of
shareholder accounts increased by 44% to over 180,000.
As explained on the following pages, the Fund achieved its primary objective of
tracking the price and dividend performance of the Schwab 1000 Index(R). In
addition, the Fund also succeeded in maintaining the tax efficiencies and low
costs designed to help maximize long-term performance results.
This report covers both classes of shares for the Fund - Investor Shares and
Select Shares, which became available on May 19, 1997. Select Shares require a
minimum initial investment of $50,000 and offer a significantly lower operating
expense ratio (OER) of 0.35%, which is among the lowest in the industry. 1 We
also have lowered the cost of investing in the Investor Shares, reducing the OER
from 0.49% to 0.46%, effective February 28, 1997. Both classes' OERs are
guaranteed through at least February 29, 2000.
FUND PERFORMANCE
The graphs on the following pages compare the growth of a $10,000 investment in
the Investor Shares and a $50,000 investment in the Select Shares of the Fund,
made at their respective inceptions, with similar investments in the Schwab 1000
Index and in the Standard & Poor's 500(R) Index (S&P 500 Index.) THIS
INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS.
TOTAL RETURNS ASSUME REINVESTMENT OF ALL DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. Indices are unmanaged and do not reflect advisory fees and other expenses
associated with an investment in the Fund. Investors cannot invest in an index
directly.
1 Source: Morningstar, Inc. Based on the average OER of 1.30% for 1,236
large-cap funds as of 8/31/97.
2
<PAGE> 9
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL
$10,000 INVESTMENT IN SCHWAB
1000 FUND(R) - INVESTOR SHARES,
SCHWAB 1000 INDEX(R), AND S&P 500(R) INDEX
[ ] Schwab 1000 Fund - Investor Shares
[ ] Schwab 1000 Index
[ ] S&P 500 Index
<TABLE>
<CAPTION>
Label A B C
- --------------------------------------------------------------------------------
Label Investor Shares Schwab 100 Index S&P 500 Index
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Apr 2, 97 10000 10000 10000
2 4/91 9910 9898 9908
3 5/91 10320 10311 10335
4 6/91 9850 9840 9861
5 7/91 10320 10310 10321
6 8/91 10600 10591 10566
7 9/91 10460 10455 10389
8 10/91 10630 10625 10528
9 11/91 10240 10225 10104
10 12/91 11425 11412 11260
11 1/92 11283 11272 11050
12 2/92 11425 11415 11193
13 3/92 11171 11163 10975
14 4/92 11404 11392 11298
15 5/92 11404 11457 11353
16 6/92 11465 11257 11184
17 7/92 11726 11728 11641
18 8/92 11480 11486 11403
19 9/92 11623 11646 11537
20 10/92 11746 11763 11577
21 11/92 12208 12233 11971
22 12/92 12398 12428 12119
23 1/93 12502 12539 12220
24 2/93 12595 12632 12387
25 3/93 12896 12948 12648
26 4/93 12533 12583 12342
27 5/93 12896 12957 12673
28 6/93 12958 13024 12710
29 7/93 12905 12989 12659
30 8/93 13397 13492 13139
31 9/93 13355 13454 13038
32 10/93 13544 13654 13308
33 11/93 13355 13462 13181
34 12/93 13592 13700 13341
35 1/94 14005 14136 13794
36 2/94 13645 13781 13420
37 3/94 13042 13169 12837
38 4/94 13190 13326 13001
39 5/94 13349 13488 13213
40 6/94 12988 13127 12889
41 7/94 13405 13558 13312
42 8/94 13971 14147 13856
43 9/94 13651 13825 13518
44 10/94 13918 14095 13821
45 11/94 13416 13590 13318
46 12/94 13577 13767 13514
47 1/95 13923 14121 13864
48 2/95 14474 14700 14404
49 3/95 14852 15094 14829
50 4/95 15219 15476 15264
51 5/95 15770 16048 15874
52 6/95 16191 16490 16242
53 7/95 16807 17111 16779
54 8/95 16936 17245 16821
55 9/95 17606 17949 17531
56 10/95 17520 17859 17468
57 11/95 18276 18646 18233
58 12/95 18547 18924 18585
59 1/96 19095 19499 19217
60 2/96 19379 19789 19396
61 3/96 19554 19980 19582
62 4/96 19883 20321 19870
63 5/96 20354 20812 20380
64 6/96 20299 20779 20458
65 7/96 19335 19794 19554
66 8/96 19861 20327 19966
67 9/96 20967 21465 21088
68 10/96 21394 21899 21670
69 11/96 22938 23485 23308
70 12/96 22549 23103 22847
71 1/97 23846 24442 24272
72 2/97 23935 24528 24464
73 3/97 22870 23457 23461
74 4/97 24101 24696 24859
75 5/97 25631 26291 26371
76 6/97 26695 27402 27552
77 7/97 28857 29615 29743
78 8/97 27471 28216 28007
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED 8/31/97
<TABLE>
<CAPTION>
Since Inception Value of a
1 Yr. 5 Yr. (4/2/91) $10,000 Investment
<S> <C> <C> <C> <C>
================================================================================
SCHWAB 1000 FUND 2
Investor Shares 38.32% 19.07% 17.04% $27,471
- --------------------------------------------------------------------------------
SCHWAB 1000 INDEX 38.81% 19.69% 17.53% $28,216
- --------------------------------------------------------------------------------
S&P 500 INDEX 40.62% 19.75% 17.44% $28,077
================================================================================
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED 6/30/97
<TABLE>
<CAPTION>
1 Yr. 5 Yr. Since Inception
(4/2/91)
<S> <C> <C> <C>
================================================================================
SCHWAB 1000 FUND 2
Investor Shares 31.51% 18.86% 17.01%
================================================================================
</TABLE>
2 The Investment Manager and Schwab waived a portion of their fees during the
reporting period. Without fee waivers and guarantees, as of 8/31/97, the average
annual one-year, five-year, and since inception total returns would have been
38.24%, 19.01%, and 16.88%, respectively, for Investor Shares. As of 6/30/97,
the average annual one-year, five-year, and since inception total returns would
have been 31.44%, 18.80%, and 16.84%, respectively, for Investor Shares.
3
<PAGE> 10
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL
$50,000 INVESTMENT IN SCHWAB
1000 FUND(R) - SELECT SHARES,
SCHWAB 1000 INDEX(R), AND S&P 500(R) INDEX
[ ] Schwab 1000 Fund - Select Shares
[ ] Schwab 1000 Index
[ ] S&P 500 Index
<TABLE>
<CAPTION>
Label A B C
- -------------------------------------------------------------------------------
Label Schwab 1000 Fund Schwab 1000 Index S&P 500 Index
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 May 19, 97 50000 50000 50000
2 5/97 51040 51064 50935
3 6/97 53184 53224 53217
4 7/97 57492 57519 57447
5 8/97 54755 54804 54230
</TABLE>
CUMULATIVE TOTAL RETURNS FOR PERIODS ENDED 8/31/97
<TABLE>
<CAPTION>
Since Inception Value of a
(5/19/97) $50,000 Investment 3
================================================================================
<S> <C> <C>
SCHWAB 1000 FUND 4
Select Shares 9.50% $54,750
- --------------------------------------------------------------------------------
SCHWAB 1000 INDEX 9.61% $54,804
- --------------------------------------------------------------------------------
S&P 500 INDEX 8.46% $54,230
================================================================================
</TABLE>
CUMULATIVE TOTAL RETURNS FOR PERIODS ENDED 6/30/97
<TABLE>
<CAPTION>
Since Inception
(5/19/97)
================================================================================
<S> <C>
SCHWAB 1000 FUND 4
Select Shares 6.36%
================================================================================
</TABLE>
3 Required minimum initial investment in the Select Shares is $50,000.
4 The Investment Manager and Schwab waived a portion of their fees during the
reporting period. Without fee waivers and guarantees, as of 8/31/97 and as of
6/30/97, the cumulative since inception total returns for the Select Shares
would have been 9.45% and 6.32%, respectively.
4
<PAGE> 11
TAX-SMART INVESTMENT STRATEGY
The Fund seeks to maximize its after tax-performance by keeping capital gain
distributions to a minimum. This strategy is designed to help investors keep
more of what their money earns. The following chart illustrates the historical
effects of this strategy on performance of the Schwab 1000 Fund(R) - Investor
Shares.
5-YEAR AVERAGE ANNUAL TOTAL RETURNS AS OF 8/31/97
<TABLE>
<CAPTION>
Before After % Lost
Tax Tax 5 to Taxes
================================================================================
<S> <C> <C> <C>
Schwab 1000 Fund- Investor Shares 6 19.07% 18.31% (0.76%)
- --------------------------------------------------------------------------------
Average Large-Cap Fund 7 17.31% 14.91% (2.40%)
================================================================================
</TABLE>
FUND HOLDINGS
The Fund is a diversified and broad representation of the U.S. stock market,
generally consisting of the 1,000 largest publicly traded U.S. companies
(excluding investment companies). The Fund's portfolio currently includes a
diversified group of stocks from an index that represents approximately 85% of
the total value of the U.S. stock market. 8
The following page presents a list of the Fund's top 10 holdings and a pie chart
showing the Fund's portfolio by economic sector. Both are presented as a
percentage of total Fund investments, are as of August 31, 1997, and are not
necessarily indicative of the Fund's future holdings. A complete listing of the
Fund's portfolio holdings, also as of August 31, 1997, can be found in the
Statement of Net Assets section of this report.
5 After-tax returns assume the maximum federal income tax rate of 39.6% on
dividends and 28% on capital gain distributions. Tax rates vary and may be
higher or lower than those shown.
6 The Investment Manager and Schwab waived a portion of their fees during the
reporting period and have guaranteed that maximum total operating expenses will
not exceed 0.46% for the Investor Shares through at least 2/29/2000. Without fee
waivers and guarantees, the Investor Shares' total returns would have been
lower.
7 Source: Morningstar, Inc. Large-Cap Fund category contains 451 funds with
five-year track records as of 8/31/97. These funds may or may not follow a
tax-efficiency strategy similar to that followed by the Schwab 1000 Fund.
8 Source: Wilshire Associates, as of 8/31/97. The U.S. stock market is
represented by the Wilshire 5000 Index.
5
<PAGE> 12
SCHWAB 1000 FUND(R) TOP 10 HOLDINGS AS OF 8/31/97
<TABLE>
<CAPTION>
% OF FUND'S
INVESTMENT PORTFOLIO
<S> <C>
- --------------------------------------------------------------------------------
General Electric Co. 2.5
- --------------------------------------------------------------------------------
Microsoft Corp. 2.0
- --------------------------------------------------------------------------------
Exxon Corp. 1.9
- --------------------------------------------------------------------------------
Intel Corp. 1.9
- --------------------------------------------------------------------------------
Coca-Cola Co. 1.8
- --------------------------------------------------------------------------------
Merck & Co., Inc. 1.4
- --------------------------------------------------------------------------------
Philip Morris Companies, Inc. 1.3
- --------------------------------------------------------------------------------
IBM Corp. 1.2
- --------------------------------------------------------------------------------
Procter & Gamble Co. 1.1
- --------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 1.0
- --------------------------------------------------------------------------------
TOTAL 16.1%
- --------------------------------------------------------------------------------
</TABLE>
SCHWAB 1000 FUND
PORTFOLIO BY ECONOMIC SECTOR AS OF 8/31/97
Consumer Durables 2%
Transportation 1%
Consumer Non-Durables 29%
Technology 19%
Finance 18%
Materials & Services 9%
Utilities 9%
Energy 8%
Capital Goods 5%
Source: Wilshire Associates
6
<PAGE> 13
THE PORTFOLIO MANAGEMENT TEAM
STEPHEN B. WARD - Senior Vice President and Chief Investment Officer, has
overall responsibility for the management of the Fund's portfolio. Steve joined
CSIM as Vice President and Portfolio Manager in April 1991 and was promoted to
his current position in August 1993. Prior to joining CSIM, Steve was Vice
President and Portfolio Manager at Federated Investors.
GERI HOM - Vice President and Senior Portfolio Manager, has primary
responsibility for the day-to-day management of the Fund's portfolio. Geri
joined CSIM as Portfolio Manager in March 1995 and was promoted to her current
position in December 1996. She currently manages approximately $5.5 billion in
assets. Prior to joining CSIM, Geri was a principal for Wells Fargo Nikko
Investment Advisors and Vice President and Manager of the Domestic Equity
Portfolio Management Group for Wells Fargo Nikko.
7
<PAGE> 14
MARKET OVERVIEW
REAL GDP GROWTH RATE
<TABLE>
<CAPTION>
Label A
- --------------------------------
Label Real GDP
- --------------------------------
<S> <C> <C>
1 Q1 1990 0.041
2 Q2 1990 0.013
3 Q3 1990 -0.019
4 Q4 1990 -0.041
5 Q1 1991 -0.022
6 Q2 1991 0.017
7 Q3 1991 0.01
8 Q4 1991 0.01
9 Q1 1992 0.047
10 Q2 1992 0.025
11 Q3 1992 0.03
12 Q4 1992 0.043
13 Q1 1993 -0.001
14 Q2 1993 0.019
15 Q3 1993 0.023
16 Q4 1993 0.048
17 Q1 1994 0.025
18 Q2 1994 0.049
19 Q3 1994 0.035
20 Q4 1994 0.03
21 Q1 1995 0.004
22 Q2 1995 0.007
23 Q3 1995 0.038
24 Q4 1995 0.003
25 Q1 1996 0.02
26 Q2 1996 0.047
27 Q3 1996 0.021
28 Q4 1996 0.038
29 Q1 1997 0.049
30 Q2 1997 0.033
</TABLE>
Source: Bloomberg L.P.
- - The economy, as measured by the growth of real GDP, continues to expand at a
healthy rate. The real GDP growth rate was 3.2% for the 1996 calendar year
and 4.1% for the first six months of 1997.
- - The apparent strength of the economy and the tight labor markets (refer to
the next graph) continue to lead to speculation regarding the potential
impact on future inflation and whether more restrictive Federal Reserve
policy is imminent. The Federal Reserve has indicated that it is "on alert"
for signs of accelerating inflation caused by either tight labor markets or
by consumer spending fueled by a strong stock market.
- - At the time of this writing, the economy appears poised for growth,
continuing the current economic expansion which began in 1991.
8
<PAGE> 15
U.S. UNEMPLOYMENT RATE
<TABLE>
<CAPTION>
Label A
- --------------------------------------------
Label Unemployment Rate
- --------------------------------------------
<S> <C> <C>
1 Jan-90 0.053
2 Feb-90 0.053
3 Mar-90 0.052
4 Apr-90 0.054
5 May-90 0.053
6 Jun-90 0.051
7 Jul-90 0.054
8 Aug-90 0.056
9 Sep-90 0.057
10 Oct-90 0.058
11 Nov-90 0.06
12 Dec-90 0.062
13 Jan-91 0.063
14 Feb-91 0.065
15 Mar-91 0.068
16 Apr-91 0.066
17 May-91 0.068
18 Jun-91 0.068
19 Jul-91 0.067
20 Aug-91 0.068
21 Sep-91 0.068
22 Oct-91 0.069
23 Nov-91 0.069
24 Dec-91 0.071
25 Jan-92 0.071
26 Feb-92 0.073
27 Mar-92 0.073
28 Apr-92 0.073
29 May-92 0.074
30 Jun-92 0.077
31 Jul-92 0.076
32 Aug-92 0.076
33 Sep-92 0.075
34 Oct-92 0.074
35 Nov-92 0.073
36 Dec-92 0.073
37 Jan-93 0.071
38 Feb-93 0.07
39 Mar-93 0.07
40 Apr-93 0.07
41 May-93 0.069
42 Jun-93 0.069
43 Jul-93 0.068
44 Aug-93 0.067
45 Sep-93 0.067
46 Oct-93 0.067
47 Nov-93 0.065
48 Dec-93 0.064
49 Jan-94 0.067
50 Feb-94 0.066
51 Mar-94 0.065
52 Apr-94 0.064
53 May-94 0.06
54 Jun-94 0.06
55 Jul-94 0.061
56 Aug-94 0.061
57 Sep-94 0.059
58 Oct-94 0.056
59 Nov-94 0.056
60 Dec-94 0.054
61 Jan-95 0.056
62 Feb-95 0.054
63 Mar-95 0.058
64 Apr-95 0.057
65 May-95 0.057
66 Jun-95 0.056
67 Jul-95 0.057
68 Aug-95 0.053
69 Sep-95 0.056
70 Oct-95 0.055
71 Nov-95 0.056
72 Dec-95 0.056
73 Jan-96 0.058
74 Feb-96 0.055
75 Mar-96 0.056
76 Apr-96 0.054
77 May-96 0.056
78 Jun-96 0.053
79 Jul-96 0.054
80 Aug-96 0.051
81 Sep-96 0.052
82 Oct-96 0.052
83 Nov-96 0.053
84 Dec-96 0.053
85 Jan-97 0.054
86 Feb-97 0.053
87 Mar-97 0.052
88 Apr-97 0.049
89 May-97 0.048
90 Jun-97 0.05
91 Jul-97 0.048
92 Aug-97 0.049
</TABLE>
Source: Bloomberg L.P.
- - The unemployment rate during 1996 remained near its lowest point for the
decade. This declining trend continued into 1997, with the May and July rates
of 4.8% representing the lowest rates since December 1973.
- - Low unemployment rates typically lead many economists to question whether
continued low levels of unemployment can persist without generating
inflationary pressures on wages and ultimately, prices.
9
<PAGE> 16
MEASURES OF INFLATION
[ ] Quarterly Employment Cost Index
[ ] Monthly Consumer Price Index
<TABLE>
<CAPTION>
Label A
------------------------------------
Label Monthly Consumer
Price Index
------------------------------------
<S> <C> <C>
1 Jan-90 0.052
2 Feb-90 0.053
3 Mar-90 0.052
4 Apr-90 0.047
5 May-90 0.044
6 Jun-90 0.047
7 Jul-90 0.048
8 Aug-90 0.056
9 Sep-90 0.062
10 Oct-90 0.063
11 Nov-90 0.063
12 Dec-90 0.061
13 Jan-91 0.057
14 Feb-91 0.053
15 Mar-91 0.049
16 Apr-91 0.049
17 May-91 0.05
18 Jun-91 0.047
19 Jul-91 0.044
20 Aug-91 0.038
21 Sep-91 0.034
22 Oct-91 0.029
23 Nov-91 0.03
24 Dec-91 0.031
25 Jan-92 0.026
26 Feb-92 0.028
27 Mar-92 0.032
28 Apr-92 0.032
29 May-92 0.03
30 Jun-92 0.031
31 Jul-92 0.032
32 Aug-92 0.031
33 Sep-92 0.03
34 Oct-92 0.032
35 Nov-92 0.03
36 Dec-92 0.029
37 Jan-93 0.033
38 Feb-93 0.032
39 Mar-93 0.031
40 Apr-93 0.032
41 May-93 0.032
42 Jun-93 0.03
43 Jul-93 0.028
44 Aug-93 0.028
45 Sep-93 0.027
46 Oct-93 0.028
47 Nov-93 0.027
48 Dec-93 0.027
49 Jan-94 0.025
50 Feb-94 0.025
51 Mar-94 0.025
52 Apr-94 0.024
53 May-94 0.023
54 Jun-94 0.025
55 Jul-94 0.028
56 Aug-94 0.029
57 Sep-94 0.03
58 Oct-94 0.026
59 Nov-94 0.027
60 Dec-94 0.027
61 Jan-95 0.028
62 Feb-95 0.029
63 Mar-95 0.029
64 Apr-95 0.031
65 May-95 0.032
66 Jun-95 0.03
67 Jul-95 0.028
68 Aug-95 0.026
69 Sep-95 0.025
70 Oct-95 0.028
71 Nov-95 0.026
72 Dec-95 0.025
73 Jan-96 0.027
74 Feb-96 0.027
75 Mar-96 0.028
76 Apr-96 0.029
77 May-96 0.029
78 Jun-96 0.028
79 Jul-96 0.03
80 Aug-96 0.029
81 Sep-96 0.03
82 Oct-96 0.03
83 Nov-96 0.033
84 Dec-96 0.033
85 Jan-97 0.03
86 Feb-97 0.03
87 Mar-97 0.028
88 Apr-97 0.025
89 May-97 0.022
90 Jun-97 0.023
91 Jul-97 0.022
92 Aug-97 0.022
</TABLE>
<TABLE>
<CAPTION>
Label A
------------------------------------
Label Quarterly Employment
Cost Index
------------------------------------
<S> <C> <C>
1 Jan-90 0.053
2 Feb-90 0.053
3 Mar-90 0.053
4 Apr-90 0.054
5 May-90 0.054
6 Jun-90 0.054
7 Jul-90 0.051
8 Aug-90 0.051
9 Sep-90 0.051
10 Oct-90 0.048
11 Nov-90 0.048
12 Dec-90 0.048
13 Jan-91 0.046
14 Feb-91 0.046
15 Mar-91 0.046
16 Apr-91 0.045
17 May-91 0.045
18 Jun-91 0.045
19 Jul-91 0.043
20 Aug-91 0.043
21 Sep-91 0.043
22 Oct-91 0.042
23 Nov-91 0.042
24 Dec-91 0.042
25 Jan-92 0.041
26 Feb-92 0.041
27 Mar-92 0.041
28 Apr-92 0.035
29 May-92 0.035
30 Jun-92 0.035
31 Jul-92 0.034
32 Aug-92 0.034
33 Sep-92 0.034
34 Oct-92 0.035
35 Nov-92 0.035
36 Dec-92 0.035
37 Jan-93 0.034
38 Feb-93 0.034
39 Mar-93 0.034
40 Apr-93 0.036
41 May-93 0.036
42 Jun-93 0.036
43 Jul-93 0.036
44 Aug-93 0.036
45 Sep-93 0.036
46 Oct-93 0.034
47 Nov-93 0.034
48 Dec-93 0.034
49 Jan-94 0.032
50 Feb-94 0.032
51 Mar-94 0.032
52 Apr-94 0.031
53 May-94 0.031
54 Jun-94 0.031
55 Jul-94 0.031
56 Aug-94 0.031
57 Sep-94 0.031
58 Oct-94 0.03
59 Nov-94 0.03
60 Dec-94 0.03
61 Jan-95 0.03
62 Feb-95 0.03
63 Mar-95 0.03
64 Apr-95 0.03
65 May-95 0.03
66 Jun-95 0.03
67 Jul-95 0.028
68 Aug-95 0.028
69 Sep-95 0.028
70 Oct-95 0.028
71 Nov-95 0.028
72 Dec-95 0.028
73 Jan-96 0.029
74 Feb-96 0.029
75 Mar-96 0.029
76 Apr-96 0.029
77 May-96 0.029
78 Jun-96 0.029
79 Jul-96 0.029
80 Aug-96 0.029
81 Sep-96 0.029
82 Oct-96 0.03
83 Nov-96 0.03
84 Dec-96 0.03
85 Jan-97 0.028
86 Feb-97 0.028
87 Mar-97 0.028
88 Apr-97 0.028
89 May-97 0.028
90 Jun-97 0.028
91 Jul-97 0.030
92 Aug-97 0.030
</TABLE>
Source: Bloomberg L.P.
- - Both the Employment Cost Index and Consumer Price Index (CPI) remained in
check throughout the first half of 1997, reflecting continued low levels of
inflation.
- - For the twelve months ended August 1997, the CPI rose 2.2%, the lowest rate
since February 1987. Its core rate (which excludes the more volatile food and
energy components) rose 2.3%, the lowest rate since 1965.
- - The Federal Reserve has indicated that the economy remains at risk to
inflation and that it is poised to act preemptively by raising interest rates
if necessary. The Federal Reserve did take action in March, increasing the
Federal Funds Rate by 0.25% to 5.50%, yet left interest rates unchanged at
the recent July 1997 Federal Open Market Committee meeting.
10
<PAGE> 17
TOTAL RETURN PERFORMANCE
GROWTH OF A DOLLAR INVESTED
<TABLE>
<CAPTION>
A B C D
- ---------------------------------------------------------------------------------------------
S&P 500 Schwab Small Cap Schwab Lehman Brothers General
Label Label Index Index International Index U.S. Gov't. Index
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 1 1 1 1
2 Sep-96 1.056 1.037 1.029 1.017
3 Oct-96 1.085 1.019 1.026 1.039
4 Nov-96 1.167 1.06 1.074 1.057
5 Dec-96 1.144 1.079 1.064 1.046
6 Jan-97 1.216 1.105 1.029 1.047
7 Feb-97 1.225 1.078 1.046 1.049
8 Mar-97 1.175 1.025 1.053 1.038
9 Apr-97 1.245 1.028 1.064 1.053
10 May-97 1.321 1.154 1.142 1.062
11 Jun-97 1.38 1.214 1.209 1.074
12 Jul-97 1.49 1.283 1.242 1.104
13 Aug-97 1.404 1.312 1.152 1.093
</TABLE>
[ ] Schwab Small-Cap Index(R) [ ] S&P 500(R) Index
[ ] Schwab International Index(R) [ ] Lehman Brothers General U.S. Gov't.
Index
Total return assumes reinvestment of all dividend and capital gain
distributions. Past performance is no guarantee of future results. The indices
are representative returns of specific market sectors during the reporting
period and do not reflect performance of any fund. Indices are unmanaged and,
unlike a fund, do not reflect the payment of advisory fees and other expenses
associated with an investment in a fund. Investors cannot invest in an index
directly.
- - Despite a 5.6% correction in August, large-cap domestic stocks, as
represented by the S&P 500 Index, continued to be the strongest performing
asset class, achieving a 40.6% return during the one-year reporting period
ended August 31, 1997.
- - As represented by the 31.2% return of the Schwab Small-Cap Index, small-cap
stocks also achieved very strong returns during the reporting period, well in
excess of their long-term averages.
- - International stocks, as represented by the Schwab International Index,
achieved a return of 15.2% for the reporting period, following a correction
of 7.2% during August which was led by Asian markets.
- - U.S. Government bonds, as represented by the Lehman Brothers General U.S.
Government Index, achieved a return of 9.3% for the one-year reporting
period.
11
<PAGE> 18
S&P 500(R) PRICE/EARNINGS RATIO
<TABLE>
<CAPTION>
Label A
- --------------------------------------------
Label S&P 500 Price/Earnings Ratio
- --------------------------------------------
<S> <C> <C>
1 Jan-90 14.37
2 Feb-90 14.21
3 Mar-90 14.77
4 Apr-90 14.82
5 May-90 15.84
6 Jun-90 16.66
7 Jul-90 16.65
8 Aug-90 15.57
9 Sep-90 14.9
10 Oct-90 14.36
11 Nov-90 14.59
12 Dec-90 15.19
13 Jan-91 14.95
14 Feb-91 16.82
15 Mar-91 17.48
16 Apr-91 17.85
17 May-91 17.92
18 Jun-91 17.96
19 Jul-91 18.07
20 Aug-91 19.72
21 Sep-91 19.88
22 Oct-91 19.92
23 Nov-91 21.02
24 Dec-91 21.85
25 Jan-92 23.35
26 Feb-92 23.83
27 Mar-92 25.45
28 Apr-92 25.51
29 May-92 25.71
30 Jun-92 25.08
31 Jul-92 25.61
32 Aug-92 25.5
33 Sep-92 24.37
34 Oct-92 23.94
35 Nov-92 24.08
36 Dec-92 24.01
37 Jan-93 24.2
38 Feb-93 24.25
39 Mar-93 24.22
40 Apr-93 23.2
41 May-93 23.21
42 Jun-93 22.58
43 Jul-93 22.52
44 Aug-93 23.02
45 Sep-93 23.74
46 Oct-93 23.97
47 Nov-93 22.55
48 Dec-93 23.55
49 Jan-94 22.98
50 Feb-94 21.17
51 Mar-94 20.34
52 Apr-94 20.1
53 May-94 20.16
54 Jun-94 19.76
55 Jul-94 18.64
56 Aug-94 18.9
57 Sep-94 18.26
58 Oct-94 17.55
59 Nov-94 16.58
60 Dec-94 16.98
61 Jan-95 16.23
62 Feb-95 16.2
63 Mar-95 16.5
64 Apr-95 16.02
65 May-95 16.43
66 Jun-95 16.82
67 Jul-95 16.55
68 Aug-95 16.18
69 Sep-95 16.86
70 Oct-95 16.18
71 Nov-95 17.14
72 Dec-95 17.41
73 Jan-96 18.11
74 Feb-96 18.56
75 Mar-96 18.94
76 Apr-96 19.16
77 May-96 19.48
78 Jun-96 19.3
79 Jul-96 18.31
80 Aug-96 18.62
81 Sep-96 19.75
82 Oct-96 19.6
83 Nov-96 21.05
84 Dec-96 20.7
85 Jan-97 20.55
86 Feb-97 20.98
87 Mar-97 19.87
88 Apr-97 20.24
89 May-97 21.43
90 Jun-97 22.45
91 Jul-97 23.92
92 Aug-97 22.64
</TABLE>
Source: Bloomberg L.P.
- - The price/earnings ratio for the S&P 500 was 22.6 at the close of the
reporting period, well above its 30-year average of 14.7.
- - Based on other traditional measures such as the price-to-book value ratio or
dividend yield, the U.S. stock market valuation, as measured by the S&P 500,
reached historical highs during the reporting period.
- - Although low inflation and interest rates, as well as strong flows into
mutual funds, have helped the U.S. equity markets reach such levels, Federal
Reserve Chairman Greenspan has warned that current stock market values make
sense only if the outlook for corporate earnings growth remains positive, an
assumption which should be widely debated by market participants.
12
<PAGE> 19
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM
Q. HOW DID THE PERFORMANCE OF THE SCHWAB 1000 INDEX(R) COMPARE TO THE S&P
500(R) INDEX DURING THE REPORTING PERIOD?
A. The total return for the one-year reporting period ended August 31, 1997 was
38.81% for the Schwab 1000 Index versus 40.62% for the S&P 500 Index. The reason
for the difference in the returns was that large-cap stocks outperformed mid-cap
stocks, which comprise a portion of the Schwab 1000 Index. On a Fund
inception-to-date basis (i.e. since 4/2/91), the 17.53% average annual total
return of the Schwab 1000 Index continues to narrowly outperform that of the S&P
500 Index -- 17.44%.
Since the two indices are constructed differently, performance variance between
the two indices is a normal and anticipated occurrence. The S&P 500 Index
includes 500 large market capitalization stocks as selected by the Standard &
Poor's Index Committee. Stocks in the S&P 500 Index are chosen for market size,
liquidity, and industry group representation. The Schwab 1000 Index is a broader
representation of the U.S. stock market, composed of publicly traded common
stocks of the 1,000 largest operating U.S. corporations (excluding investment
companies) ranked by market capitalization.
Q. WHAT ACCOUNTS FOR THE DIFFERENCE BETWEEN THE PERFORMANCE OF THE SCHWAB 1000
FUND(R)AND THE SCHWAB 1000 INDEX?
A. Unlike the Fund, the Index does not incur management and other Fund costs
which reduce returns to the shareholders. Additionally, the Fund, unlike the
Index, holds a small portion in cash to meet shareholder redemptions and to pay
Fund expenses. The cash portion earns interest at money market rates, which may
be more or less than the returns of the Index during a given period. Also, the
weighting of any particular security in the Fund can be greater or less than in
the Index.
Another factor contributing to the difference in performance is the Fund's goal
of minimizing capital gain distributions. In order to avoid excessive
realization of capital gains, the Fund may continue to hold certain stocks that
are no longer in
13
<PAGE> 20
the Index. Depending on the performance of these non-Index stocks, this practice
may have a positive or negative impact on the Fund's performance. Lastly, unlike
the Index, the Fund incurs trading costs when it buys or sells stocks.
Taken together, these factors cause the difference in the returns of the Fund
compared to the Index, which is referred to as the Fund's "tracking error." The
table below shows the tracking error for each class for the one-year reporting
period as well as on an inception to date basis. Given the classes' operating
expense ratios and the other components of tracking error as discussed above, we
are pleased with this level of tracking error.
<TABLE>
<CAPTION>
Average Annual
Tracking Error Tracking Error Annual
for the One Year Inception to date Operating
ended 8/31/97 as of 8/31/97 9 Expense Ratios
================================================================================
<S> <C> <C> <C>
Investor Shares 0.49% 0.49% 0.46%
- --------------------------------------------------------------------------------
Select Shares - 0.11% 0.35%
================================================================================
</TABLE>
Q. HOW DOES PORTFOLIO TURNOVER IMPACT FUND RETURNS? HOW DOES THE SCHWAB 1000
FUND(R) KEEP TURNOVER AT SUCH A LOW LEVEL?
A. Portfolio turnover can impact fund returns in two ways. First, each time a
fund buys or sells a stock, it incurs trading or transaction expenses, which
negatively impact a fund's return. Second, when appreciated stocks are sold,
they generate capital gains. Higher turnover, especially in a bull market, may
lead to greater levels of realized capital gains, which may require distribution
to shareholders. All other things being equal, capital gains distributions have
the impact of lowering the after-tax return levels for shareholders owning fund
shares outside of sheltered retirement plans.
9 Actual, not annualized, for the Select Shares since period is less than one
year. Inception dates are 4/21/91 and 5/19/97, respectively, for Investor Shares
and Select shares.
14
<PAGE> 21
Since the Schwab 1000 Index(R)'s composition is determined almost exclusively
based on market capitalization and it is only reconstituted once a year, the
Fund naturally has a low turnover rate -- 2% for both the one-year reporting
period and on an annual average basis since the Fund's inception. Furthermore,
by using tax-efficient portfolio management strategies, the Fund has minimized
realization of capital gains. To date, the Fund has not paid a capital gain
distribution to shareholders.
Q. HOW MIGHT INDEX FUNDS BEHAVE IN A BEAR MARKET?
A. While broad-based index funds like the Schwab 1000 Fund(R) may help reduce
the risk associated with investing in individual stocks or a specific industry
sector, they do not provide protection against market risk. It's important to
realize that the stock market can fluctuate significantly. Because equity index
funds are designed to track stock market performance in both directions, down as
well as up, their values will fall and rise with the markets they seek to track.
We feel the most meaningful way for investors to think about their exposure to
market risk is not on a fund by fund basis, but on the basis of their overall
investment portfolio. One of the greatest risks of a bear market is the risk of
selling at the bottom of a market downturn. It is for this reason that your
asset allocation strategy and total market exposure should be set at an
appropriate level for you -- one that allows you to "ride out" bear markets over
the long-term. Index funds can offer an excellent way to achieve long-term
exposure to equity markets, but each individual investor has a different
tolerance for risk and should have a portfolio with a risk profile that reflects
that tolerance level.
15
<PAGE> 22
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
COMMON STOCK--99.8%
AEROSPACE/DEFENSE--1.7%
BFGoodrich Co. 23,400 $ 986
Boeing Co. 348,052 18,948
Coltec Industries, Inc.+ 18,200 407
General Dynamics Corp. 21,400 1,704
Litton Industries, Inc.+ 20,500 1,022
Lockheed Martin Corp. 66,092 6,853
Northrop Grumman Corp. 21,900 2,564
Raytheon Co. 85,400 4,697
Sundstrand Corp. 24,600 1,451
Textron, Inc. 55,400 3,452
United Technologies Corp. 80,400 6,276
----------
48,360
----------
AIR TRANSPORTATION--0.4%
AMR Corp.+ 31,100 3,133
Atlas Air, Inc.+ 7,000 194
Comair Holdings, Inc. 12,000 323
Continental Airlines, Inc.+ 14,400 527
Delta Airlines, Inc. 29,200 2,526
Northwest Airlines Corporation Class A+ 32,500 1,188
Southwest Airlines Co. 56,400 1,579
UAL Corp.+ 21,600 1,646
US Airways Group, Inc.+ 36,500 1,246
----------
12,362
----------
ALCOHOLIC BEVERAGES--0.3%
Anheuser-Busch Companies, Inc. 180,800 7,707
Brown-Forman Corp. Class B 25,500 1,230
----------
8,937
----------
APPAREL--0.4%
Fruit of the Loom, Inc. Class A+ 26,300 704
Jones Apparel Group, Ltd.+ 28,600 1,435
Liz Claiborne, Inc. 20,000 891
Nautica Enterprises+ 10,000 238
NIKE, Inc. Class B 89,600 4,784
Nine West Group, Inc.+ 7,700 325
Reebok International Ltd. 16,700 734
Russell Corp. 12,200 348
Unifi, Inc. 16,925 649
V.F. Corp. 24,050 2,125
Warnaco Group, Inc. 13,600 441
----------
12,674
----------
</TABLE>
16
<PAGE> 23
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
AUTOMOTIVE PRODUCTS--0.2%
Autoliv, Inc.+ 15,992 $ 625
Bandag, Inc. 4,000 213
Cooper Tire & Rubber Co. 19,500 490
Danaher Corp. 17,400 932
Goodyear Tire & Rubber Co. 57,900 3,568
Lear Corp.+ 26,000 1,191
----------
7,019
----------
BANKS--8.7%
Amsouth Bancorporation 31,800 1,338
B B & T Corp. 34,250 1,772
Banc One Corp. 202,059 10,835
Bank of New York Co., Inc. 139,000 6,203
BankAmerica Corp. 247,390 16,281
BankBoston Corp. 52,420 4,357
Bankers Trust New York Corp. 27,300 2,832
Barnett Banks, Inc. 71,676 4,883
CCB Financial Corp. 4,500 364
Central Fidelity Banks, Inc. 27,825 1,089
Centura Banks, Inc. 8,000 455
Chase Manhattan Corp. (New) 150,230 16,704
Citicorp 166,500 21,248
Comerica, Inc. 40,864 2,894
Commerce Bancshares, Inc. 18,408 992
Compass Bancshares, Inc. 36,275 1,292
CoreStates Financial Corp. 76,592 4,710
Crestar Financial Corp. 38,800 1,734
Deposit Guaranty Corp. 12,000 385
Dime Bancorp, Inc. (New) 24,926 481
Fifth Third Bancorp 60,962 3,566
First American Corp. 17,600 744
First Chicago NBD Corp. 113,321 8,131
First Commerce Corp. 10,562 564
First Commercial Corp. 9,000 376
First Empire State Corp. 2,500 914
First Hawaiian, Inc. 10,000 369
First of America Bank Corp. 32,850 1,692
First Security Corp. 48,418 1,368
First Tennessee National Corp. 26,300 1,400
First Union Corp. 206,986 9,948
First Virginia Banks, Inc. 9,750 664
Firstar Corp. 54,000 1,819
Firstmerit Corp. 16,400 769
Fleet Financial Group, Inc. 94,580 6,094
Hibernia Corp. Class A 35,000 532
Huntington Bancshares, Inc. 53,363 1,728
J.P. Morgan & Co., Inc. 70,000 7,508
</TABLE>
17
<PAGE> 24
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
KeyCorp, Inc. 78,423 $ 4,754
Marshall & Ilsley Corp. 32,828 1,543
MBNA Corp. 125,550 4,826
Mellon Bank Corp. 96,944 4,665
Mercantile Bancorp, Inc. 35,950 2,478
Mercantile Bankshares Corp. 30,675 863
National City Corp. 74,240 4,195
NationsBank Corp. 256,470 15,228
Northern Trust Corp. 44,900 2,385
Norwest Corp. 136,788 7,857
Old Kent Financial Corp. 17,976 1,101
Old National Bancorp 7,500 328
Pacific Century Financial Corp. 10,175 502
People's Bank Bridgeport, Conneticut 18,000 505
PNC Bank Corp. 116,730 5,049
Regions Financial Corp. 45,700 1,565
Republic New York Corp. 23,900 2,559
Signet Banking Corp. 26,300 1,363
Southtrust Corp. 37,125 1,661
Star Banc Corp. 31,300 1,414
State Street Corp. 53,200 2,653
Summit Bancorp 47,900 2,844
SunTrust Banks, Inc. 78,200 4,888
Synovus Financial Corp. 60,975 1,597
U. S. Bancorp. New 87,266 7,641
Union Bank of San Francisco 19,400 1,500
Union Planters Corp. 23,900 1,225
Wachovia Corp. 59,820 3,724
Wells Fargo & Co. 28,800 7,322
Wilmington Trust Co. 14,200 715
Zions Bancorporation 26,600 1,031
----------
249,016
----------
BUSINESS MACHINES & SOFTWARE--9.3%
3COM Corp.+ 118,450 5,915
Adobe Systems, Inc. 19,800 780
Amdahl Corp.+ 32,100 395
Apple Computer, Inc.+ 25,700 559
Autodesk, Inc. 12,200 534
Bay Networks, Inc.+ 66,480 2,352
BMC Software, Inc.+ 34,200 2,142
Cabletron Systems, Inc.+ 52,000 1,573
Ceridian Corp.+ 34,480 1,192
Cirrus Logic, Inc.+ 12,200 210
Cisco Systems, Inc.+ 238,100 17,947
Citrix Systems, Inc.+ 8,000 404
Compaq Computer Corp.+ 245,750 16,097
Computer Associates International, Inc. 130,775 8,746
</TABLE>
18
<PAGE> 25
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Computer Sciences Corp.+ 30,598 $ 2,276
Compuware Corp.+ 38,900 2,402
Dell Computer Corp.+ 125,200 10,274
Diebold, Inc. 25,818 1,197
Digital Equipment Corp.+ 50,400 2,167
Electronic Arts, Inc.+ 30,400 967
Electronics For Imaging, Inc.+ 15,000 803
EMC Corp.+ 92,900 4,767
Gateway 2000, Inc.+ 48,000 1,878
Hewlett-Packard Co. 359,500 22,042
Honeywell, Inc. 46,800 3,235
Informix Corp.+ 40,700 369
International Business Machines Corp. 349,400 35,246
Intuit, Inc.+ 11,800 308
Iomega Corp.+ 39,000 999
Komag, Inc.+ 17,900 314
Lexmark International Group, Inc. Class A+ 20,000 700
McAfee Associates, Inc.+ 14,400 815
Microchip Technology, Inc.+ 30,000 1,213
Micron Electronics+ 41,000 669
Microsoft Corp.+ 425,500 56,241
Netscape Communications Corp.+ 25,898 1,031
Novell, Inc.+ 30,800 289
Oracle Systems Corp.+ 347,962 13,266
Parametric Technology Corp.+ 36,200 1,681
PeopleSoft, Inc.+ 42,800 2,408
Pitney Bowes, Inc. 49,300 3,765
Quantum Corp.+ 55,400 1,942
Rational Software Corp.+ 10,000 165
Read-Rite Corp.+ 14,000 402
Remedy Corp. 8,000 309
Seagate Technology, Inc.+ 87,060 3,325
Security Dynamics Technologies, Inc.+ 8,000 315
Shiva Corp.+ 2,000 30
Silicon Graphics, Inc.+ 87,900 2,412
Sterling Software, Inc.+ 13,800 474
Storage Technology Corp.+ 30,800 1,569
Sun Microsystems, Inc.+ 128,000 6,144
Sybase, Inc.+ 65,120 1,213
Synopsys, Inc.+ 23,800 824
Tandem Computers, Inc.+ 47,800 1,625
Technology Data Corp.+ 13,000 506
Unisys Corp.+ 64,800 733
Western Digital Corp.+ 33,400 1,607
Xerox Corp. 115,500 8,720
----------
262,483
----------
</TABLE>
19
<PAGE> 26
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
BUSINESS SERVICES--3.1%
Accustaff, Inc.+ 30,000 $ 797
Affiliated Computer Services, Inc.+ 11,000 289
America Online, Inc.+ 36,700 2,367
American Management Systems, Inc.+ 11,000 275
APAC Teleservices, Inc.+ 14,000 231
Apollo Group, Inc. Class A+ 15,000 535
Automatic Data Processing, Inc. 106,400 4,848
Browning-Ferris Industries, Inc. 71,200 2,488
Cadence Design Systems, Inc.+ 34,875 1,659
Cambridge Technology Partners+ 12,000 387
Camco International, Inc. 18,000 1,240
Catalina Marketing Corp.+ 6,000 278
Choicepoint, Inc.+ 5,900 209
Cintas Corp. 16,100 1,123
Cognizant Corp. 59,600 2,503
Comdisco, Inc. 33,033 898
Concord EFS, Inc.+ 14,850 412
Corrections Corp. of America+ 31,000 1,147
Credit Acceptance Corp.+ 7,000 99
Deluxe Corp. 52,400 1,726
DST Systems, Inc.+ 15,000 543
Dun & Bradstreet Corp. 69,600 1,949
Ecolab, Inc. 26,400 1,190
Equifax, Inc. 59,000 1,737
First Data Corp. 164,302 6,747
Fiserv, Inc.+ 26,975 1,214
Foundation Health Systems, Inc. Class a Common+ 45,760 1,456
Gartner Group, Inc. Class A+ 24,300 642
Gtech Holdings Corp.+ 15,700 472
H & R Block, Inc. 34,700 1,362
HBO & Co. 29,100 2,084
Health Care & Retirement Corp.+ 10,050 366
Health Management Associates, Inc. Class A+ 39,168 1,158
Healthcare Compare Corp.+ 20,000 1,115
IKON Office Solutions 41,400 1,076
Interpublic Group of Companies, Inc. 44,850 2,186
John H. Harland Co. 10,000 198
Keane, Inc.+ 10,000 588
Kelly Services, Inc. Class A 23,525 788
Manpower, Inc. 31,500 1,345
Medpartners, Inc.+ 49,144 1,050
National Data Corp. 10,000 374
National Service Industries, Inc. 12,200 540
NCR Corp.+ 29,451 1,044
Olsten Corp. 22,275 418
Omnicom Group, Inc. 29,100 1,972
Pacificare Health Systems, Inc. Class B+ 6,164 421
</TABLE>
20
<PAGE> 27
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Paychex, Inc. 34,087 $ 1,167
PhyCor, Inc.+ 22,650 667
Quorum Health Group, Inc.+ 13,100 446
R.R. Donnelley & Sons Co. 52,500 2,044
Republic Industries, Inc.+ 86,700 2,130
Reynolds & Reynolds Co. Class A 20,400 411
Robert Half International, Inc.+ 23,100 1,348
Service Corp. International 82,400 2,637
Shared Medical Systems Corp. 7,600 372
Steris Corp.+ 9,000 338
Stewart Enterprises, Inc. Class A 13,050 515
Sungard Data Systems, Inc.+ 20,800 1,084
SUPERVALU, Inc. 15,800 620
Total System Services, Inc. 31,800 745
U.S. Office Products Co.+ 23,000 753
U.S.A. Waste Services, Inc.+ 77,050 3,236
Unisource Worldwide, Inc. 20,700 375
Vencor, Inc.+ 27,775 1,114
Viad Corp. 20,100 366
Wallace Computer Service, Inc. 23,800 738
Waste Management Inc. (New) 166,000 5,312
Wellpoint Health Networks, Inc. Class A+ 26,425 1,437
Wheelabrator Technologies, Inc. 90,300 1,417
----------
86,818
----------
CHEMICAL--3.2%
Air Products & Chemicals, Inc. 36,100 2,944
Albemarle Corp. 15,400 378
Arco Chemical Co. 32,600 1,426
Betz Laboratories, Inc. 12,500 815
Cabot Corp. 17,800 487
Crompton & Knowles Corp. 22,000 556
Cytec Industries, Inc.+ 13,755 671
Dow Chemical Co. 82,000 7,257
E.I. du Pont de Nemours & Co. 396,400 24,702
Eastman Chemical Co. 23,725 1,419
Ethyl Corp. 31,300 282
Great Lakes Chemical Corp. 21,700 1,009
Hercules, Inc. 40,300 2,083
International Specialty Products, Inc.+ 45,400 650
Lubrizol Corp. 15,600 683
Lyondell Petrochemical Co. 36,300 880
M.A. Hanna Co. 10,725 278
Millennium Chemicals, Inc. 24,000 504
Minnesota Mining & Manufacturing Co. 145,400 13,068
Monsanto Co. 205,500 9,029
Morton International Inc. New 46,900 1,559
Nalco Chemical Co. 26,800 1,072
</TABLE>
21
<PAGE> 28
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Olin Corp. 20,000 $ 890
PPG Industries, Inc. 68,000 4,284
Praxair, Inc. 57,100 3,051
Rohm & Haas Co. 30,300 2,903
RPM, Inc. 35,875 729
Sigma-Aldrich Corp. 35,000 1,142
Union Carbide Corp. 47,000 2,412
Valspar Corp. 21,600 666
W.R. Grace & Co. 24,900 1,713
Witco Corp. 25,900 1,217
----------
90,759
----------
CONSTRUCTION--0.4%
Armstrong World Industries, Inc. 13,600 931
Centex Corp. 9,000 489
Clayton Homes, Inc. 51,346 863
Crane Co. 21,900 966
Fluor Corp. 27,000 1,515
Lafarge Corp. 16,100 523
Martin Marietta Materials, Inc. 21,400 748
Oakwood Homes Corp. 14,000 380
Owens Corning 18,300 742
Sherwin-Williams Co. 55,000 1,509
Stanley Works 36,800 1,567
USG Corp.+ 11,700 502
Vulcan Materials Co. 14,800 1,301
----------
12,036
----------
CONSUMER-DURABLE--0.5%
Black & Decker Corp. 29,500 1,130
Harman International Industries, Inc. 5,600 251
Leggett & Platt, Inc. 33,300 1,432
Masco Corp. 51,400 2,285
Maytag Corp. 42,800 1,174
Newell Co. 51,674 2,035
Shaw Industries, Inc. 30,100 337
Snap-on, Inc. 22,150 930
Sunbeam Corp. 33,100 1,456
Whirlpool Corp. 31,100 1,780
----------
12,810
----------
CONSUMER-NONDURABLE--1.3%
American Greetings Corp. Class A 29,200 1,015
Boston Chicken, Inc.+ 15,600 192
Brinker International, Inc.+ 20,225 339
Corning, Inc. 85,800 4,537
Cracker Barrel Old Country Store, Inc. 20,900 643
Darden Restaurants, Inc. 38,600 388
First Brands Corp. 6,400 160
</TABLE>
22
<PAGE> 29
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Fort James Corp. 78,100 $ 3,280
Fortune Brands, Inc. 73,300 2,520
Hasbro, Inc. 44,725 1,202
Lancaster Colony Corp. 16,300 845
Lone Star Steakhouse & Saloon, Inc.+ 7,400 127
Mattel, Inc. 114,220 3,819
McDonald's Corp. 241,200 11,410
Outback Steakhouse, Inc.+ 11,250 271
Premark International, Inc. 17,300 515
Rubbermaid, Inc. 54,000 1,350
Starbucks Corp.+ 40,500 1,661
U.S. Industries, Inc.+ 15,000 570
Wendy's International, Inc. 63,500 1,528
----------
36,372
----------
CONTAINERS--0.3%
Bemis Co., Inc. 13,400 589
Crown Cork & Seal Co., Inc. 43,600 2,219
Jefferson Smurfit Corp.+ 51,900 1,009
Owens-Illinois, Inc.+ 55,900 1,946
Sealed Air Corp.+ 25,600 1,328
Sonoco Products, Inc. 38,310 1,247
Stone Container Corp. 22,112 381
----------
8,719
----------
ELECTRONICS--5.9%
Adaptec, Inc. 45,400 2,179
ADC Telecommunications, Inc.+ 50,400 1,871
Advanced Micro Devices, Inc.+ 49,300 1,846
Altera Corp.+ 32,200 1,715
American Power Conversion Corp.+ 33,500 879
AMP, Inc. 83,300 4,165
Analog Devices, Inc.+ 49,400 1,636
Applied Materials, Inc.+ 69,700 6,578
Arrow Electronics, Inc.+ 19,400 1,192
Ascend Communications, Inc.+ 55,010 2,334
Atmel Corp.+ 30,200 1,068
Avnet, Inc. 17,100 1,183
AVX Corp. (New) 26,000 915
Cypress Semiconductor Corp.+ 40,600 721
Electronic Data Systems Corp. 173,800 6,572
ESS Technology+ 12,000 209
Fore Systems, Inc.+ 23,400 478
General Semiconductor, Inc.+ 9,250 131
General Signal Corp. 21,600 937
Glenayre Technologies, Inc.+ 14,600 256
Harris Corp. 18,300 1,594
Imation Corp.+ 10,760 291
</TABLE>
23
<PAGE> 30
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Integrated Device Technology, Inc.+ 24,000 $ 327
Intel Corp. 578,500 53,294
KLA-Tencor Corp.+ 37,400 2,651
Lattice Semiconductor Corp.+ 7,000 446
Linear Technology Corp. 30,700 2,013
LSI Logic Corp.+ 45,100 1,452
Lucent Technologies, Inc. 222,727 17,345
Maxim Integrated Products, Inc.+ 24,600 1,700
Micron Technology, Inc.+ 69,500 3,097
Molex, Inc. 41,806 1,636
Molex, Inc. Class A 15,457 564
Motorola, Inc. 213,400 15,658
National Semiconductor Corp.+ 49,300 1,689
Perkin Elmer Corp. 12,800 947
Pittway Corp. 6,750 407
Qualcomm, Inc.+ 24,700 1,142
Rockwell International Corp. (New) 78,300 4,698
SCI Systems, Inc.+ 18,000 708
Scientific-Atlanta, Inc. 24,700 537
Sensormatic Electronics Corp. 10,250 134
Solectron Corp.+ 33,600 1,407
Symbol Technologies, Inc. 11,550 427
Tektronix, Inc. 7,600 422
Tele-Communications International Series A+ 35,000 562
Teradyne, Inc.+ 32,900 1,832
Texas Instruments, Inc. 69,800 7,931
Thermo Electron Corp.+ 41,737 1,680
Thomas & Betts Corp. 19,400 1,086
Varian Associates, Inc. 9,300 531
Vishay Intertechnology, Inc.+ 13,450 359
Vitesse Semiconductor Corp.+ 10,500 495
VLSI Technology, Inc.+ 14,000 462
Xilinx, Inc.+ 27,400 1,302
----------
167,691
----------
ENERGY-DEVELOPMENT--1.8%
Anadarko Petroleum Corp. 19,700 1,447
Apache Corp. 30,100 1,195
Baker Hughes, Inc. 53,200 2,254
Barrett Resources Corp.+ 10,000 366
BJ Services Co.+ 10,000 723
Burlington Resources, Inc. 43,000 2,177
Chesapeake Energy Corp. 15,000 128
Cooper Cameron Corp.+ 15,000 973
Devon Energy Corp. 10,000 427
Diamond Offshore Drilling, Inc. 56,600 3,092
Dresser Industries, Inc. 61,060 2,549
Enron Oil & Gas Co. 68,100 1,643
</TABLE>
24
<PAGE> 31
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Ensco International, Inc.+ 26,400 $ 1,676
Enserch Explorations, Inc.+ 74,737 673
EVI, Inc.+ 27,600 1,451
Falcon Drilling, Inc.+ 24,000 756
Global Marine, Inc.+ 51,500 1,465
Halliburton Co. 97,400 4,649
Helmerich & Payne, Inc. 10,000 706
Louisiana Land & Exploration Co. 16,700 1,279
Mapco Petroleum Co. 31,400 942
Mitchell Energy & Development Corp. Class A 8,000 199
Nabors Industries, Inc.+ 41,100 1,415
NGC Corp. 31,000 508
Noble Affiliates, Inc. 12,400 575
Noble Drilling Corp.+ 55,000 1,564
Occidental Petroleum Corp. 108,900 2,552
Ocean Energy, Inc.+ 6,000 386
Reading & Bates Corp.+ 18,500 672
Rowan Companies, Inc.+ 22,000 657
Tidewater, Inc. 27,000 1,418
Transocean Offshore, Inc. 18,000 1,711
Union Pacific Resources Group 110,354 2,759
Union Texas Petroleum Holding, Inc. 21,100 492
United Meridian Corp.+ 7,500 294
Valero Energy New+ 19,600 653
Vastar Resources 29,800 1,272
Weatherford International, Inc.+ 21,400 986
Western Atlas, Inc.+ 26,600 2,108
----------
50,792
----------
FOOD-AGRICULTURE--5.1%
Archer-Daniels Midland Co. 197,865 4,279
Campbell Soup Co. 168,200 7,800
Coca-Cola Co. 877,600 50,295
Coca-Cola Enterprises, Inc. 134,600 3,702
ConAgra, Inc. 83,524 5,372
CPC International, Inc. 49,700 4,430
Dean Foods Co. 21,150 939
Dole Food Co., Inc. 23,100 902
Flowers Industries, Inc. 22,500 416
General Mills, Inc. 60,500 3,880
H.J. Heinz Co. 125,100 5,207
Hershey Foods Corp. 52,600 2,808
Hormel Foods Corp. 19,100 568
IBP, Inc. 31,400 720
IMC Global, Inc. 32,360 1,139
Interstate Bakeries Corp. 18,600 1,090
Kellogg Co. 143,800 6,435
McCormick & Co., Inc. 33,400 789
</TABLE>
25
<PAGE> 32
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Nabisco Holdings Corp. 14,000 $ 581
PepsiCo, Inc. 547,600 19,714
Pioneer Hi-Bred International, Inc. 26,500 2,271
Quaker Oats Co. 56,600 2,660
Ralston Purina Co. 39,300 3,537
Richfood Holdings, Inc. 12,750 287
Sara Lee Corp. 171,400 6,899
SYSCO Corp. 60,700 2,155
Terra Industries, Inc. 11,100 148
Tyson Foods, Inc. Class A 69,300 1,473
Universal Corp. 9,500 346
Whitman Corp. 41,900 1,027
Wm. Wrigley Jr. Co. 46,000 3,335
----------
145,204
----------
GOLD--0.2%
Battle Mountain Gold Co. 66,000 375
Homestake Mining Co. 37,800 529
Newmont Gold Co. 36,600 1,583
Newmont Mining Corp. 49,231 2,084
----------
4,571
----------
HEALTHCARE--9.8%
Abbott Laboratories 272,700 16,345
Allegiance Corp. 14,920 468
Allergan, Inc. 15,700 508
ALZA Corp.+ 27,600 800
American Home Products Corp. 226,800 16,330
Amgen, Inc. 95,200 4,718
Bausch & Lomb, Inc. 27,100 1,113
Baxter International, Inc. 94,600 5,032
Beckman Instruments, Inc. 16,300 767
Becton, Dickinson & Co. 42,100 2,018
Bergen Brunswig Corp. 39,353 1,653
Beverly Enterprises, Inc.+ 48,400 790
Biogen, Inc.+ 26,000 1,024
Biomet, Inc. 48,900 1,015
Boston Scientific Corp.+ 68,471 4,827
Bristol-Myers Squibb Co. 350,700 26,653
C.R. Bard, Inc. 13,600 469
Cardinal Health, Inc. 39,493 2,616
Centocor, Inc.+ 20,600 924
Chiron Corp.+ 49,612 1,110
Columbia/HCA Healthcare Corp. 236,258 7,457
Dentsply International, Inc. 9,000 506
Dura Pharmaceuticals, Inc.+ 9,000 321
Eli Lilly & Co. 196,584 20,568
Forest Laboratories, Inc.+ 9,300 382
</TABLE>
26
<PAGE> 33
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Genentech, Inc.+ 42,500 $ 2,428
Genzyme Corp. (General Division)+ 28,800 810
Genzyme Corp. Tissue Repair+ 864 9
Guidant Corp. 27,168 2,386
HealthSouth Corp.+ 127,200 3,172
Humana, Inc.+ 68,500 1,614
Idexx Corp.+ 9,800 184
Interneuron Pharmaceuticals, Inc.+ 10,500 194
Ivax Corp.+ 29,700 280
Johnson & Johnson 468,300 26,547
Jones Medical Industries, Inc. 10,800 321
Lincare Holdings, Inc.+ 7,500 358
Mallinckrodt, Inc. 25,600 931
Manor Care, Inc. 14,550 449
McKesson Corp. (New) 19,500 1,827
Medtronic, Inc. 85,600 7,736
Merck & Co., Inc. 430,054 39,483
Mylan Laboratories, Inc. 49,550 1,053
Omnicare, Inc. 26,600 770
Pfizer, Inc. 459,800 25,461
Quintiles Transnational Corp.+ 11,000 858
R.P. Scherer Corp.+ 13,600 766
Rhone-Poulenc Rorer, Inc. 49,500 4,767
Schering Plough Corp. 258,200 12,394
St. Jude Medical, Inc.+ 26,450 1,007
Stryker Corp. 36,600 1,462
Sybron International Corp.+ 29,800 1,190
Tenet Healthcare Corp.+ 112,373 3,062
Thermo Cardiosystems, Inc.+ 7,500 188
U.S. Surgical Corp. 20,700 682
United Healthcare Co. 50,400 2,451
Warner Lambert Co. 93,900 11,931
Watson Pharmaceuticals+ 17,500 920
----------
276,105
----------
HOUSEHOLD PRODUCTS--2.3%
Alberto-Culver Co. Class B 18,700 546
Avon Products, Inc. 45,200 2,896
Clorox Co. 19,300 2,533
Colgate-Palmolive Co. 105,000 6,589
Dial Corp. (New) 20,100 339
Estee Lauder Companies Class A 18,000 855
Gillette Co. 199,205 16,497
International Flavors & Fragrances, Inc. 43,500 2,224
Procter & Gamble Co. 239,100 31,814
Tupperware Corp. 8,700 292
----------
64,585
----------
</TABLE>
27
<PAGE> 34
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
IMAGING & PHOTO--0.3%
C-Cube Microsystems, Inc.+ 8,000 $ 240
Eastman Kodak Co. 101,900 6,662
Polaroid Corp. 18,200 961
----------
7,863
----------
INSURANCE--4.5%
Aegon NV+ 12,989 964
Aetna, Inc. 54,665 5,217
AFLAC, Inc. 49,825 2,743
Alleghany Corp.+ 2,953 709
Allmerica Financial Corp. 40,216 1,664
Allstate Financial Corp. 154,724 11,305
AMBAC, Inc. 10,400 840
American Bankers Insurance Group, Inc. 6,100 403
American General Corp. 81,546 3,929
American International Group, Inc. 251,037 23,692
American National Insurance Co. 7,900 766
Aon Corp. 61,775 3,147
Chubb Corp. 65,100 4,354
CIGNA Corp. 24,700 4,529
Cincinnati Financial Corp. 16,538 1,344
CNA Financial Corp.+ 25,400 2,881
Conseco, Inc. 60,640 2,608
Equitable Companies, Inc. 61,100 2,658
Equitable of Iowa Companies 14,700 957
Erie Indemnity Co. Class A 40,000 1,300
Everest Reinsurance Holdings, Inc. 15,000 543
General Re Corp. 27,700 5,370
Hartford Financial Services Group 43,900 3,501
Jefferson-Pilot Corp. 29,150 2,028
Liberty Financial Corp. 7,000 347
Lincoln National Corp. 33,900 2,269
Marsh & McLennan Companies, Inc. 54,800 3,740
MBIA Corp. 13,500 1,529
Mercury General Corp. 12,200 1,068
MGIC Investment Corp. 45,400 2,284
Ohio Casualty Corp. 17,300 804
Old Republic International Corp. 30,850 1,109
Oxford Health Plans, Inc.+ 29,900 2,186
Paul Revere Corp. 18,900 808
Penncorp Financial Group, Inc. 9,000 289
PMI Group, Inc. 10,400 601
Progressive Corp. 23,900 2,366
Protective Life Corp. 13,800 687
Provident Companies, Inc. 24,000 1,563
Providian Financial Corp.+ 29,900 1,114
Reliance Group Holdings, Inc. 34,000 417
</TABLE>
28
<PAGE> 35
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Reliastar Financial Corp. 12,500 $ 934
SAFECO Corp. 39,600 1,945
St. Paul Companies, Inc. 34,100 2,502
SunAmerica, Inc. 45,100 2,430
TIG Holdings, Inc. 16,300 509
Torchmark Corp. 49,700 1,873
Transamerica Corp. 26,500 2,612
Transatlantic Holdings, Inc. 8,700 615
United Insurance Companies, Inc.+ 12,000 360
Unitrin, Inc. 14,200 852
UNUM Corp. 43,416 1,791
USF & G Corp. 32,700 717
Western National Corp. 27,500 767
----------
128,540
----------
MEDIA--2.5%
A.H. Belo Corp. Class A 18,000 772
Ascent Entertainment Group, Inc.+ 8,309 91
BHC Communications, Inc. 11,700 1,436
Central Newspapers, Inc. Class A 7,000 476
Chris-Craft Industries, Inc.+ 10,691 525
Clear Channel Communications, Inc.+ 38,600 2,622
Comcast Corp. Class A 130,688 3,063
Cox Communications, Inc. Class A+ 87,306 2,363
Dow Jones & Co., Inc. 46,000 1,969
E.W. Scripps Co. Class A (New) 31,675 1,245
Gannett Co., Inc. 50,300 4,901
Harte Hanks Communications, Inc. 9,100 277
K-III Communications Corp.+ 38,000 463
King World Productions, Inc. 9,000 358
Knight-Ridder, Inc. 28,800 1,458
Lee Enterprises, Inc. 7,000 179
Lin Television Corp.+ 10,550 500
McClatchy Newspapers, Inc. Class A 12,000 362
McGraw Hill Companies, Inc. 32,100 1,968
Meredith Corp. 16,000 480
New York Times Co. Class A 34,013 1,607
Pulitzer Publishing Co. 3,066 161
Readers Digest Association, Inc. 7,800 231
Regal Cinemas, Inc.+ 7,500 213
SBC Communications, Inc. 325,082 17,677
Scholastic Corp.+ 700 24
Telecommunications, Inc. Series A (Liberty Media
Group)+ 78,129 2,061
Telecommunications, Inc. Series A (TCI Group)+ 245,346 4,294
Time Warner, Inc. 193,955 9,989
Times Mirror Co. Series A 36,400 1,845
Tribune Co. (New) 44,200 2,185
Viacom, Inc. Class A+ 12,172 359
</TABLE>
29
<PAGE> 36
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Viacom, Inc. Class B+ 97,026 $ 2,874
Washington Post Co. 4,300 1,809
----------
70,837
----------
MISCELLANEOUS FINANCE--4.6%
A.G. Edwards & Sons, Inc. 28,562 1,135
Advanta Corp. Class A 14,600 484
Alex Brown, Inc. 8,000 678
American Express Co. 164,400 12,782
Bear, Stearns & Co., Inc. 39,138 1,548
Beneficial Corp. 16,000 1,145
Berkshire Hathaway, Inc.+ 444 18,428
Capital One Financial Corp. 17,000 655
Charles Schwab Corp. 61,500 2,610
Charter One Financial, Inc. 13,125 714
Countrywide Credit Industries, Inc. 35,985 1,212
Donaldson Lufkin & Jenrette 17,300 1,027
Federal Home Loan Mortgage Corp. 238,400 7,763
Federal National Mortgage Assoc. 370,000 16,280
Finova Group, Inc. 10,800 913
Franklin Resources, Inc. 46,300 3,582
Golden State Bancorp Inc.+ 14,000 404
Golden West Financial Corp. 19,200 1,580
GreenPoint Financial Corp. 14,100 868
Green Tree Financial Corp. 44,000 1,933
H.F. Ahmanson & Co. 40,300 2,045
Household International, Inc. 41,000 4,548
Lehman Brothers Holdings, Inc. 34,880 1,530
Leucadia National Corp. 30,000 956
Mercury Finance Co. 64,563 101
Merrill Lynch & Co., Inc. 118,600 7,294
Money Store, Inc. 15,000 428
Morgan Stanley, Dean Witter, Discover & Co. 197,605 9,510
PaineWebber Group, Inc. 39,125 1,504
Provident Financial Group, Inc. 10,200 483
Salomon, Inc. 37,100 2,221
Student Loan Marketing Assoc. Holding Corp. 20,100 2,724
T. Rowe Price Associates, Inc. 24,200 1,331
TCF Financial Corp. 12,800 682
Travelers Group, Inc. 224,433 14,251
United Asset Management Corp. 18,400 493
Washington Federal, Inc. 14,000 382
Washington Mutual, Inc. 86,245 5,164
Wesco Financial Corp. 2,100 578
----------
131,966
----------
</TABLE>
30
<PAGE> 37
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
MOTOR VEHICLE--2.1%
Chrysler Corp. 246,600 $ 8,662
Cummins Engine Co., Inc. 10,400 800
Dana Corp. 36,300 1,672
Eaton Corp. 25,100 2,261
Echlin, Inc. 35,400 1,312
Ford Motor Co. 415,500 17,866
General Motors Corp. 258,400 16,215
General Motors Corp. Class H 38,000 2,415
Genuine Parts Co. 58,575 1,809
Harley-Davidson, Inc. 35,700 1,932
Paccar, Inc. 30,120 1,427
TRW, Inc. 47,700 2,486
----------
58,857
----------
NON-FERROUS--0.5%
Alumax, Inc.+ 25,500 1,057
Aluminum Company of America 63,000 5,181
Asarco, Inc. 10,800 332
Cyprus Minerals Co. 31,200 788
Engelhard Corp. 44,687 933
Freeport-McMoRan Copper & Gold, Inc. Class A 29,531 790
Freeport-McMoRan Copper & Gold, Inc. Class B 63,894 1,789
Phelps Dodge Corp. 22,200 1,786
Reynolds Metals Co. 28,800 2,036
----------
14,692
----------
OIL-DOMESTIC--1.1%
Amerada Hess Corp. 30,100 1,750
Ashland, Inc. 23,600 1,183
Atlantic Richfield Co. 110,200 8,264
Fina, Inc. 8,000 528
Kerr-McGee Corp. 17,000 1,056
Monterey Resources, Inc.+ 17,025 351
Murphy Oil Corp. 11,370 610
Oryx Energy Co.+ 28,200 746
Pennzoil Co. 13,800 1,065
Phillips Petroleum Co. 95,700 4,552
Pogo Producing Co. 10,000 434
Santa Fe Energy Resources, Inc.+ 38,600 427
Sun, Inc. 31,900 1,240
Tosco Corp. 48,600 1,607
TransTexas Gas Corp.+ 22,000 316
Ultramar Diamond Shamrock Corp. 30,800 1,005
Unocal Corp. 81,534 3,185
USX-Marathon Group 101,000 3,289
----------
31,608
----------
</TABLE>
31
<PAGE> 38
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
OIL-INTERNATIONAL--4.2%
Amoco Corp. 172,000 $ 16,265
Chevron Corp. 230,400 17,842
Exxon Corp. 876,400 53,624
Mobil Corp. 282,000 20,516
Texaco, Inc. 94,300 10,868
----------
119,115
----------
PAPER--1.3%
Boise Cascade Corp. 23,000 910
Bowater, Inc. 13,600 696
Champion International Corp. 38,500 2,279
Consolidated Papers, Inc. 17,100 997
Georgia-Pacific Corp. 32,300 2,947
International Paper Co. 110,100 5,808
Kimberly-Clark Corp. 194,660 9,234
Louisiana-Pacific Corp. 36,500 808
Mead Corp. 18,400 1,305
Potlatch Corp. 9,300 434
Rayonier, Inc. 13,875 677
St. Joe Corp. 9,100 779
Temple Inland, Inc. 19,400 1,251
Union Camp Corp. 26,300 1,560
Westvaco Corp. 43,300 1,467
Weyerhaeuser Co. 74,400 4,297
Willamette Industries, Inc. 17,000 1,356
----------
36,805
----------
PRODUCER GOODS & MANUFACTURING--5.7%
Aeroquip-Vickers, Inc. 7,000 391
AGCO, Inc. 19,600 637
Airgas, Inc.+ 20,600 375
Allied Signal, Inc. 97,900 8,083
American Financial Group, Inc. 24,100 1,042
American Standard Corp.+ 25,500 1,199
Avery Dennison Corp. 36,800 1,511
Blyth Industries, Inc.+ 15,000 554
Boise Cascade Office Products Corp.+ 16,400 345
Briggs & Stratton Corp. 16,300 787
Case Corp. 23,900 1,603
Caterpillar, Inc. 133,600 7,757
Commscope Inc.+ 12,333 213
Cooper Industries, Inc. 45,300 2,415
Corporate Express, Inc.+ 34,350 586
Deere & Co. 94,500 5,292
Dover Corp. 44,600 3,080
Emerson Electric Co. 152,400 8,334
Federal Signal Corp. 10,066 262
</TABLE>
32
<PAGE> 39
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
FMC Corp.+ 13,600 $ 1,130
Foster Wheeler Corp. 9,800 448
General Electric Co. 1,154,700 72,167
Halter Marine Group, Inc.+ 4,158 165
Harnischfeger Industries, Inc. 22,500 903
Harsco Corp. 14,800 667
Herman Miller, Inc. 14,200 735
Hillenbrand Industries, Inc. 27,000 1,186
Hubbell, Inc. Class B 26,938 1,236
Illinois Tool Works, Inc. 82,600 3,996
Ingersoll-Rand Co. 43,700 2,627
ITT Industries, Inc. 50,600 1,594
Johns Manville Corp. 49,300 610
Johnson Controls, Inc. 28,600 1,364
Kennametal, Inc. 9,700 454
Mark IV Industries, Inc. 15,405 387
Millipore Corp. 12,400 614
Nordson Corp. 5,300 306
Pall Corp. 40,233 953
Parker-Hannifin Corp. 24,250 1,560
Pentair, Inc. 6,200 221
Precision Castparts Corp. 7,100 459
Prestek, Inc.+ 8,000 320
Raychem Corp. 15,400 1,433
Smith International, Inc.+ 17,000 1,237
Tecumseh Products Co. Class A 6,500 367
Tenneco, Inc. (New) 70,500 3,424
Thermo Instruments Systems, Inc.+ 41,737 1,667
Timken Co. 18,600 696
Trinity Industries, Inc. 11,950 475
Tyco International Ltd. New+ 83,114 6,519
U.S. Filter Corp. (New)+ 25,000 900
Ucar International, Inc.+ 14,000 661
W.W. Grainger, Inc. 15,800 1,403
Westinghouse Electric Corp. 219,803 5,660
York International Corp. 8,400 377
----------
163,387
----------
RAILROAD--0.8%
Alexander & Baldwin, Inc. 6,700 181
Burlington Northern Santa Fe Corp. 57,451 5,268
CSX Corp. 77,700 4,443
Illinois Central Corp. Class A 15,525 521
Kansas City Southern Industries, Inc. 14,700 1,101
Norfolk Southern Corp. 41,700 4,087
</TABLE>
33
<PAGE> 40
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Union Pacific Corp. 89,761 $ 5,828
Wisconsin Central Transportation Corp.+ 12,900 400
----------
21,829
----------
REAL PROPERTY--0.2%
Doubletree Corp.+ 11,000 550
HFS, Inc.+ 51,425 2,864
Host Marriott Corp.+ 67,500 1,316
Rouse Co. 22,500 661
----------
5,391
----------
RETAIL--5.1%
Albertson's, Inc. 96,800 3,328
American Stores Co. 93,400 2,212
AutoZone, Inc.+ 52,000 1,469
Bed Bath & Beyond, Inc.+ 24,800 769
Borders Group 22,000 524
CDW Computer Centers, Inc.+ 6,400 466
Circuit City Stores, Inc. 33,800 1,204
CompUSA, Inc.+ 26,000 804
Consolidated Stores Corp.+ 30,312 1,135
Costco Companies, Inc.+ 80,704 2,910
CUC International, Inc.+ 134,037 3,150
CVS Corp. 56,057 3,160
Dayton Hudson Corp. 80,500 4,589
Dillards Inc. Class A 42,200 1,688
Dollar General Corp. 27,950 1,158
Family Dollar Stores, Inc. 69,750 1,482
Fastenal Co. 9,700 559
Federated Department Stores, Inc.+ 80,200 3,368
Food Lion, Inc. Class A 150,450 1,114
Food Lion, Inc. Class B 64,800 470
Fred Meyer, Inc.+ 10,000 520
Gap, Inc. 92,000 4,088
General Nutrition Companies, Inc.+ 23,600 655
Giant Food, Inc. Class A 13,700 445
Global Directmail Corp.+ 10,000 220
Great Atlantic & Pacific Tea Co., Inc. 5,700 143
Hannaford Bros. Co., Inc. 13,300 452
Harcourt General, Inc. 20,200 961
Home Depot, Inc. 252,449 11,912
International Game Technology 33,600 672
Intimate Brands 100,000 2,200
J.C. Penney Co., Inc. 85,300 5,118
K Mart Corp.+ 165,700 2,299
Kohl's Corp.+ 29,200 2,013
Kroger Co.+ 86,400 2,603
Limited, Inc. 94,819 2,157
</TABLE>
34
<PAGE> 41
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Lowe's Companies, Inc. 66,100 $ 2,285
May Department Stores Co. 90,900 4,892
Mercantile Stores Co., Inc. 18,300 1,143
Nordstrom, Inc. 36,900 2,159
Office Depot, Inc.+ 48,300 891
Officemax, Inc.+ 56,100 831
Payless Shoesource, Inc.+ 19,600 1,257
Pep Boys-Manny Moe & Jack 13,700 363
PETSMART, Inc.+ 14,800 127
Rite Aid Corp. 39,450 1,975
Ross Stores, Inc. 16,000 470
Safeway, Inc.+ 84,540 4,306
Sears Roebuck & Co. 135,100 7,667
Sotheby's Holdings, Inc. Class A 18,700 354
Southland Corp.+ 100,000 284
Staples, Inc.+ 58,605 1,377
Tandy Corp. 18,058 1,199
Tiffany & Co. (New) 10,000 453
TJX Companies, Inc. 52,200 1,436
Toys 'R' Us, Inc.+ 105,480 3,646
Viking Office Products, Inc.+ 16,200 342
Wal Mart Stores, Inc. 800,500 28,417
Walgreen Co. 177,400 4,779
Weis Markets, Inc. 7,900 267
Winn Dixie Stores, Inc. 50,300 1,694
Woolworth Corp.+ 49,000 1,096
----------
145,727
----------
STEEL--0.2%
AK Steel Holding Corp. 7,500 339
Allegheny Teledyne, Inc. 58,280 1,799
LTV Corp. 19,200 250
Nucor Corp. 35,100 1,990
USX - U.S. Steel Group 27,160 954
Worthington Industries, Inc. 21,700 403
----------
5,735
----------
TELEPHONE--5.0%
360 Communications Co.+ 12,578 231
Adtran, Inc.+ 9,600 374
Air Touch Communications+ 174,200 5,890
Alltel Corp. 60,500 1,913
Ameritech Corp. 193,000 12,099
Andrew Corp. 25,612 637
Aspect Telecommunications Corp.+ 10,000 220
AT&T Corp. 547,617 21,358
Bell Atlantic Corp. 271,644 19,660
Bellsouth Corp. 344,500 15,158
</TABLE>
35
<PAGE> 42
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Century Telephone Enterprises, Inc. 28,750 $ 1,044
Cincinnati Bell, Inc. 46,800 1,261
Comsat Corp. Series 1 17,000 369
DSC Communications Corp.+ 24,800 722
Frontier Corp. 62,450 1,378
GTE Corp. 333,400 14,857
LCI International, Inc.+ 39,000 936
MCI Communications Corp. 244,600 6,971
Nextel Communications, Inc.+ 96,100 2,409
Nextlevel Systems, Inc.+ 37,000 742
Paging Network, Inc.+ 30,300 307
Pairgain Technologies, Inc.+ 4,000 103
Pioneer Natural Resources Company+ 29,400 1,174
Southern New England Telecommunications Corp. 23,800 910
Sprint Corp. 157,334 7,395
Telephone & Data Systems, Inc. 20,100 794
Tellabs, Inc.+ 69,600 4,154
U.S. Cellular Corp.+ 28,800 868
U.S. West, Inc. (Communications Group) 174,110 6,235
U.S. West, Inc. (Media Group)+ 209,700 4,194
WorldCom, Inc.+ 311,979 9,340
----------
143,703
----------
TOBACCO--1.7%
Gallaher Group PLC - Sponsored ADR+ 51,300 920
Loew's Corp. 45,000 4,587
Philip Morris Companies., Inc. 858,100 37,434
RJR Nabisco Holdings Corp. 101,736 3,542
UST, Inc. 72,200 2,085
----------
48,568
----------
TRANSPORTATION-MISCELLANEOUS--0.1%
Federal Express Corp.+ 38,600 2,565
Pittston Service Group 9,900 351
Ryder Systems, Inc. 33,800 1,206
----------
4,122
----------
TRAVEL & RECREATION--1.2%
Acxiom Corp.+ 16,000 284
Brunswick Corp. 28,900 881
Callaway Golf Co. 19,000 640
Choice Hotels Holdings, Inc.+ 14,550 277
Circus Circus Enterprises, Inc.+ 25,400 608
Extended Stay America, Inc.+ 20,400 273
Gaylord Entertainment Co. Class A 33,010 770
Harrah's Entertainment, Inc.+ 47,100 1,057
Hilton Hotels Corp. 96,200 2,952
ITT Corp. (New)+ 38,900 2,443
La Quinta Inns, Inc. 19,200 403
</TABLE>
36
<PAGE> 43
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Marriott International, Inc. 46,100 $ 3,069
MGM Grand, Inc.+ 13,500 542
Mirage Resorts, Inc.+ 69,100 1,853
Promus Hotel Corp.+ 15,200 590
Walt Disney Co. 240,907 18,504
----------
35,146
----------
UTILITIES--3.8%
AES Corp.+ 55,318 2,047
AGL Resources, Inc. 14,600 276
Allegheny Power System, Inc. 42,100 1,224
American Electric Power Co., Inc. 68,900 3,010
American Water Works Co., Inc. 19,600 407
Baltimore Gas & Electric Co. 47,150 1,273
Boston Edison Co. 12,900 364
Brooklyn Union Gas Co. 22,350 675
CalEnergy Co., Inc.+ 21,900 725
Carolina Power & Light Co. 50,500 1,704
Centerior Energy Corp. 48,600 547
Central & South West Services Corp. 75,800 1,568
Cinergy Corp. 49,565 1,639
Cipsco, Inc. 11,000 406
Citizens Utilities Company Class B+ 77,953 653
CMS Energy Corp. 27,900 1,003
Coastal Corp. 34,300 1,981
Columbia Gas System, Inc. 19,100 1,261
Consolidated Edison Co. of New York, Inc. 88,700 2,716
Consolidated Natural Gas Co. 30,400 1,796
Delmarva Power & Light Co. 15,700 282
Dominion Resources, Inc. 72,750 2,619
DPL, Inc. 38,850 920
DQE, Inc. 29,050 922
DTE Energy Co. 52,100 1,543
Duke Energy Corp. 131,931 6,387
Edison International 145,600 3,513
El Paso Natural Gas Co. (New) 19,684 1,107
Enova Corp. 42,700 1,025
Enron Corp. 114,569 4,418
Entergy Corp. 74,421 1,847
Equitable Resources, Inc. 5,100 156
Florida Progress Corp. 30,400 979
FPL Group, Inc. 67,200 3,125
GPU, Inc. 42,600 1,432
Hawaiian Electric Industries, Inc. 7,900 286
Houston Industries, Inc. 163,417 3,309
Idaho Power Co. 21,400 677
Illinova Corp. 16,300 375
Ipalco Enterprises, Inc. 11,000 358
</TABLE>
37
<PAGE> 44
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1997
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
K N Energy, Inc. 7,000 $ 291
Kansas City Power & Light Co. 15,900 455
Ku Energy Corp. 26,500 878
LG & E Energy Corp. 25,900 586
Long Island Lighting Co. 36,800 909
MCN Energy Group, Inc. 35,600 1,092
Midamerican Energy Holdings Co. 34,461 588
Montana Power Co. 17,900 413
National Fuel Gas Co. 16,600 738
New Century Energies Inc.+ 37,700 1,522
New England Electric Co. 28,800 1,102
New York State Electric & Gas Corp. 16,400 400
Niagara Mohawk Power Corp.+ 25,200 225
NICOR, Inc. 10,300 374
Nipsco Industries, Inc. 30,900 1,261
Northeast Utilities 1,000 10
Northern States Power Co. 24,200 1,165
Ohio Edison Co. 54,000 1,188
Oklahoma Gas & Electric Co. 10,200 453
Pacific Enterprises, Inc. 32,800 1,080
Pacific Gas & Electric Corp. 151,458 3,512
PacifiCorp. 94,500 1,961
PECO Energy Co. 78,500 1,869
Peoples Energy Corp. 9,500 358
Pinnacle West Capital Co. 32,300 1,044
Potomac Electric Power Co. 9,400 213
PP&L Resources, Inc. 54,720 1,200
Public Service Enterprises 52,300 1,298
Puget Sound Power & Light Co. 28,200 716
Questar Corp. 17,900 716
Scana Corp. 45,800 1,105
Seagull Energy Corp.+ 19,000 464
Sonat, Inc. 25,600 1,275
Southern Co. 238,700 5,028
Teco Energy, Inc. 47,200 1,136
Texas Utilities Co. 60,812 2,121
Unicom Corp. 35,500 839
Union Electric Co. 42,400 1,577
Utilicorp United, Inc. 13,900 414
</TABLE>
38
<PAGE> 45
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Washington Water Power Co. 7,700 $ 150
Western Resources, Inc. 27,231 912
Williams Companies, Inc. 56,090 2,612
Wisconsin Energy Corp. 39,600 1,012
----------
106,817
----------
TOTAL COMMON STOCK
(Cost $1,843,033) 2,838,021
----------
PREFERRED STOCK--0.0%
HEALTHCARE--0.0%
Fresenius National Medical, Inc.+ 24,900 2
----------
INSURANCE--0.0%
Aetna, Inc. 6.25% Class C (Voting) 2,922 257
----------
TOTAL PREFERRED STOCK
(Cost $191) 259
----------
</TABLE>
39
<PAGE> 46
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1997
<TABLE>
<CAPTION>
Maturity Value
(000s) (000s)
--------- ----------
<S> <C> <C>
REPURCHASE AGREEMENT--0.2%
PNC Bank, N.A.
4.75%, Dated 08/29/97;
Due 09/02/97, Collateralized By:
Federal National Mortgage Assoc.
CMO: $6,760,000 Par;
6.50% Due 09/25/20 $6,523 $ 6,520
----------
TOTAL REPURCHASE AGREEMENT
(Cost $6,520) 6,520
----------
TOTAL INVESTMENTS--100.0%,
(Cost $1,849,744) 2,844,800
----------
OTHER ASSETS AND LIABILITIES--0.0%
Other Assets 8,714
Liabilities (7,379)
----------
1,335
----------
NET ASSETS--100.0%
Applicable to 100,826,039 outstanding Investor Shares
and 14,006,340 outstanding Select Shares $0.00001
par value (unlimited shares authorized) $2,846,135
==========
NET ASSET VALUE PER INVESTOR SHARE
($2,498,891,290/100,826,039) $24.78
=====
NET ASSET VALUE PER SELECT SHARE
($347,243,873/14,006,340) $24.79
=====
</TABLE>
- ---------------
+Non-Income Producing Security.
See accompanying Notes to Financial Statements.
40
<PAGE> 47
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
Year ended August 31, 1997
<TABLE>
<S> <C>
Investment income:
Dividends $ 38,738
Interest 604
--------
Total investment income 39,342
--------
Expenses:
Investment advisory and administration fee 5,204
Transfer agency and shareholder service fees:
Investor Shares 5,313
Select Shares 58
Custodian fees 276
Registration fees 419
Professional fees 65
Shareholder reports 252
Trustees' fees 37
Insurance and other expenses 61
--------
11,685
Less expenses reduced (see Note 4) (1,430)
--------
Total expenses incurred by Fund 10,255
--------
Net investment income 29,087
--------
Net realized loss on investments sold (4,992)
Increase in net unrealized appreciation on investments 651,010
--------
Net gain on investments 646,018
--------
Increase in net assets resulting from operations $675,105
========
</TABLE>
See accompanying Notes to Financial Statements.
41
<PAGE> 48
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Year ended Year ended
August 31, August 31,
1997 1996
---------- ----------
<S> <C> <C>
Operations:
Net investment income $ 29,087 $ 20,634
Net realized gain (loss) on investments
sold (4,992) 1,429
Increase in net unrealized appreciation
on investments 651,010 144,952
---------- ----------
Increase in net assets resulting from
operations 675,105 167,015
---------- ----------
Dividends to shareholders from net
investment income (23,949) (14,179)
---------- ----------
Capital share transactions:
Proceeds from shares sold 1,328,283 788,862
Net asset value of shares issued in
reinvestment of dividends 21,833 12,770
Early withdrawal fees 429 385
Less payments for shares redeemed (715,625) (221,508)
---------- ----------
Increase in net assets from capital share
transactions (see Note 10) 634,920 580,509
---------- ----------
Total increase in net assets 1,286,076 733,345
Net assets:
Beginning of year 1,560,059 826,714
---------- ----------
End of year (including undistributed net
investment income of $20,272 and
$15,134, respectively) $2,846,135 $1,560,059
========== ==========
Number of Fund shares:
Sold 59,126 45,105
Reinvested 1,058 758
Redeemed (31,365) (12,583)
---------- ----------
Net increase in shares outstanding 28,819 33,280
Shares outstanding:
Beginning of year 86,013 52,733
---------- ----------
End of year 114,832 86,013
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
42
<PAGE> 49
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Investor Shares
Eight
months
ended Year ended
Year ended August 31, August 31, December 31,
1997 1996 1995 1994 1993 1992
------------ ---------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period $ 18.14 $ 15.68 $ 13.08 $ 12.80 $ 11.96 $ 11.26
Income from investment
- ----------------------
operations
----------
Net investment income 0.28 0.24 0.26 0.26 0.17 0.24
Net realized and unrealized
gain on investments 6.62 2.45 2.48 0.28 0.79 0.71
---------- ---------- -------- -------- -------- --------
Total from investment
operations 6.90 2.69 2.74 0.54 0.96 0.95
Less distributions
- ------------------
Dividends from net investment
income (0.26) (0.23) (0.14) (0.26) (0.12) (0.25)
Distributions from realized
gain on investments -- -- -- -- -- --
---------- ---------- -------- -------- -------- --------
Total distributions (0.26) (0.23) (0.14) (0.26) (0.12) (0.25)
---------- ---------- -------- -------- -------- --------
Net asset value at end of
period $ 24.78 $ 18.14 $ 15.68 $ 13.08 $ 12.80 $ 11.96
========== ========== ======== ======== ======== ========
Total return (not annualized) 38.32% 17.27% 21.23% 4.28% 8.06% 8.52%
- ----------------------------
Ratios/Supplemental data
- ------------------------
Net assets, end of period
(000s) $2,498,891 $1,560,059 $826,714 $554,061 $515,272 $370,980
Ratio of expenses to average
net assets+ 0.47% 0.49% 0.54% 0.51% 0.45%* 0.35%
Ratio of net investment income
to average net assets+ 1.33% 1.66% 2.03% 2.06% 2.21%* 2.45%
Portfolio turnover rate 2% 2% 2% 3% 1% 1%
Average commission rate++ $ 0.03 $ 0.03 -- -- -- --
</TABLE>
- ---------------
+ The information contained in the above table is based on actual expenses for
the periods, after giving effect to the portion of expenses reduced and
absorbed by the Investment Manager and Schwab. Had these expenses not been
reduced and absorbed, the Fund's expense and net investment income ratios
would have been:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratio of expenses to average
net assets 0.53% 0.57% 0.63% 0.56% 0.49% 0.52%
Ratio of net investment income to
average net assets 1.27% 1.58% 1.94% 2.01% 2.17% 2.28%
</TABLE>
++Disclosure required, effective for reporting periods after September 1, 1995.
* Annualized
See accompanying Notes to Financial Statements.
43
<PAGE> 50
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
Select Shares
Period ended
August 31,
1997**
-------------
<S> <C>
Net asset value at beginning of period $ 22.64
Income from investment operations
- ---------------------------------
Net investment income 0.05
Net realized and unrealized gain on investments 2.10
--------
Total from investment operations 2.15
Less distributions
- ------------------
Dividends from net investment income --
Distributions from realized gain on investments --
--------
Total distributions --
--------
Net asset value at end of period $ 24.79
========
Total return (not annualized) 9.50%
---------------------------
Ratios/Supplemental data
- ------------------------
Net assets, end of period (000s) $347,244
Ratio of expenses to average net assets+ 0.35%*
Ratio of net investment income to average net assets+ 1.26%*
Portfolio turnover rate 2%
Average commission rate $ 0.03
</TABLE>
- ---------------
+ The information contained in the above table is based on actual expenses for
the period, after giving effect to the portion of expenses reduced and
absorbed by the Investment Manager and Schwab. Had these expenses not been
reduced and absorbed, the Fund's expense and net investment income ratios
would have been:
<TABLE>
<S> <C>
Ratio of expenses to average net assets 0.68%*
Ratio of net investment income to average net assets 0.93%*
</TABLE>
* Annualized
** For the period May 19, 1997 (commencement of operations) to August 31, 1997.
See accompanying Notes to Financial Statements.
44
<PAGE> 51
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended August 31, 1997
1. DESCRIPTION OF THE FUND
The Schwab 1000 Fund(R) (the "Fund") is a series of Schwab Investments (the
"Trust"), a no-load, open-end management investment company organized as a
Massachusetts business trust on October 26, 1990 and registered under the
Investment Company Act of 1940, as amended.
The Fund offers two classes of shares -- Investor Shares and Select 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 Short/Intermediate
Government Bond Fund, Schwab Long-Term Government Bond Fund, Schwab California
Short/Intermediate Tax-Free Bond Fund, Schwab California Long-Term Tax-Free Bond
Fund, Schwab Short/Intermediate Tax-Free Bond Fund and Schwab Long-Term Tax-Free
Bond Fund. The assets of each series are segregated and accounted for
separately.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security valuation -- Investments in securities traded on an exchange and
unlisted securities are valued at the last sale price for a given day, or if a
sale is not reported for that day, at the mean between the most recent quoted
bid and asked prices. Securities for which no quotations are readily available
are valued at fair value as determined by the Fund's investment manager pursuant
to guidelines adopted in good faith by the Board of Trustees. Short-term
securities with 60 days or less to maturity are stated at amortized cost, which
approximates market value.
Security transactions and investment income -- Security transactions are
accounted for on a trade date basis (date the order to buy or sell is executed).
45
<PAGE> 52
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Realized gains and losses from security transactions are determined on an
identified cost basis. Dividend income and distributions to shareholders are
recorded on the ex-dividend date; interest income is accrued on a daily basis.
Repurchase agreements -- Repurchase agreements are fully collateralized by U.S.
Treasury or government agency securities. All collateral is held by the Fund's
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.
Expenses -- Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are generally allocated to
each series in proportion to their relative net assets. Expenses attributable to
both classes of shares of the Fund 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.
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 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.
At August 31, 1997 (for financial reporting and federal income tax purposes),
net unrealized appreciation aggregated $995,056,000 of which $1,008,521,000
related to appreciated securities and $13,465,000 related to depreciated
securities.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreement -- The Trust has an investment
advisory and administration agreement with Charles Schwab Investment Management,
Inc. (the "Investment Manager"). For advisory services and facilities furnished,
the Fund pays an annual fee, payable monthly, of 0.30% of the first $500 million
of average daily net assets and 0.22% of such assets over $500 million. The
Investment Manager has reduced a portion of its fee for the year ended August
31, 1997 (see Note 4).
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
46
<PAGE> 53
- ------------------------------------------------------------------------------
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee from each class of shares, payable monthly, of 0.05% of average daily
net assets for transfer agency services. For shareholder services provided,
Schwab will receive from the Investor Shares and Select Shares an annual fee of
0.20% and 0.05%, respectively, of average net assets of that class of shares.
Schwab has reduced a portion of its fee for the year ended August 31, 1997 (see
Note 4).
Officers and trustees -- Certain officers and trustees of the Trust were also
officers and/or directors of the Investment Manager and/or Schwab. During the
year ended August 31, 1997, the Trust made no direct payments to its officers or
trustees who were "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Fund incurred fees of $37,000 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 and absorbed
certain expenses of the Select Shares in order to limit the Fund's ratio of
operating expenses to average net assets. For the year ended August 31, 1997,
the total of such fees reduced and absorbed by the Investment Manager were
$1,179,000 and the total of such fees reduced by Schwab were $213,000 and
$38,000, for Investor Shares and Select Shares, respectively (see Financial
Highlights).
5. BORROWING AGREEMENT
The Trust has an arrangement with PNC Bank, N.A., the Fund's custodian, whereby
the Fund may borrow up to $50,000,000, on a temporary basis, to fund
redemptions. Amounts borrowed under this arrangement bear interest at
periodically negotiated rates and may be collateralized by the assets of the
Fund. During the year ended August 31, 1997, no borrowings were made under this
arrangement.
6. SECURITIES LENDING
The Fund loaned securities to certain brokers, dealers and other financial
institutions who paid the Fund negotiated lenders' fees. The Fund received cash
collateral, letters of credit, or U.S. Government securities against the loaned
securities in an amount equal to 102% of the market value of the loaned
47
<PAGE> 54
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
securities at the inception of each loan. The loans are required to be secured
continuously by collateral in an amount equal to at least 100% of the market
value of the securities loaned. At August 31, 1997, the market value of
securities loaned was $517,585,000, for which the Fund received cash collateral
of $537,586,000.
7. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated $689,858,000 and $45,875,000, respectively, during the year ended
August 31, 1997. Included in the aforementioned are purchases of common stock of
Charles Schwab Corp., an affiliated issuer, with a current value as of August
31, 1997, of $2,610,000.
8. EARLY WITHDRAWAL FEES PAID TO THE FUND
The Fund assesses a 0.50% early withdrawal fee on redemption proceeds
attributable to shares purchased and held less than one year. The early
withdrawal fee is retained by the Fund and is treated as a contribution to
capital. For the year ended August 31, 1997, total early withdrawal fees
retained by the Fund amounted to $429,000.
9. COMPOSITION OF NET ASSETS
<TABLE>
<S> <C>
At August 31, 1997, net assets consisted of (in thousands):
Paid in capital $1,837,358
Undistributed net investment income 20,272
Accumulated net realized loss on investments sold (6,551)
Net unrealized gain on investments 995,056
----------
Total $2,846,135
==========
</TABLE>
At August 31, 1997, the Fund's Statement of Net Assets included: $4,797,000
dividends receivable, $3,770,000 receivable for Fund shares sold, $3,709,000
payable for investments purchased, $2,787,000 payable for Fund shares redeemed,
$134,000 payable for investment advisory and administration fee, $163,000
payable for transfer agency and shareholder service fees.
48
<PAGE> 55
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10. CAPITAL SHARE TRANSACTIONS
The Fund offers two classes of shares: Investor Shares and Select Shares. Shares
of each class represent interests in the same portfolio of investments of the
Fund. Transactions in capital shares for the year ended August 31, 1997 were as
follows (in thousands):
<TABLE>
<CAPTION>
Investor Select
Shares Shares Total
-------- -------- ----------
<S> <C> <C> <C>
Capital share transactions:
Proceeds from shares sold $971,641 $356,642 $1,328,283
Net asset value of shares issued
in reinvestment of dividends 21,833 0 21,833
Less payments for shares redeemed (700,480) (15,145) (715,625)
Early redemption fees 423 6 429
-------- -------- --------
Increase in net assets from
capital share transactions $293,417 $341,503 $ 634,920
======== ======== ========
Number of Fund shares:
Sold 44,512 14,614 59,126
Reinvested 1,058 0 1,058
Redeemed (30,757) (608) (31,365)
-------- -------- --------
Net increase in shares
outstanding 14,813 14,006 28,819
======== ======== ========
</TABLE>
49
<PAGE> 56
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To the Trustees
and Shareholders of the Schwab 1000 Fund(R)
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Schwab 1000 Fund (one of the series constituting Schwab Investments,
hereafter referred to as the "Trust") at August 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and the financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 1997 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
September 30, 1997
1997 Special Tax Information (unaudited)
Notice to Corporate Shareholders
- --------------------------------
100% of the Fund's distributions for the fiscal year ended August 31, 1997
qualify for the corporate dividends received deduction.
50
<PAGE> 57
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 58
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 59
SCHWABFUNDS FAMILY(R)
The SchwabFunds Family includes a variety of funds to help meet your investment
needs. You can diversify your portfolio in a single step with our asset
allocation funds. Or you can customize your portfolio with a combination of our
stock funds as well as our taxable and tax-advantaged bond and money funds.
SCHWAB ASSET ALLOCATION FUNDS
Schwab Asset Director(R)--High Growth Fund
Schwab Asset Director--Balanced Growth Fund
Schwab Asset Director--Conservative Growth Fund
Schwab OneSource Portfolios--Growth Allocation
Schwab OneSource Portfolios--Balanced Allocation
SCHWAB STOCK FUNDS
Schwab 1000 Fund(R)
Schwab S&P 500 Fund
Schwab Analytics Fund(R)
Schwab Small-Cap Index Fund(R)
Schwab OneSource Portfolios--Small Company
Schwab International Index Fund(R)
Schwab OneSource Portfolios--International
SCHWAB BOND FUNDS
Schwab Government Bond Funds--Long-Term and Short/Intermediate
Schwab Tax-Free Bond Funds--Long-Term and Short/Intermediate
Schwab California Tax-Free Bond Funds--Long-Term and Short/Intermediate
SCHWAB MONEY MARKET FUNDS
Schwab offers an array of money market funds* that seek high current income with
safety and liquidity. Choose from taxable or tax-advantaged alternatives. Many
can be linked to your Schwab account to "sweep" cash balances automatically when
you're between investments. Or, for your larger cash reserves, choose one of our
Value Advantage Investments(R).
Please call 1-800-435-4000 for a free prospectus and brochure for any of the
SchwabFunds(R).
Each prospectus provides more complete information, including charges and
expenses. Please read it carefully before investing.
This report must be preceded or accompanied by a current prospectus.
*Investments in money market funds are neither insured nor guaranteed by the
U.S. government, and there is no assurance that the funds will be able to
maintain a stable share price of $1.
<PAGE> 60
SCHWAB FUNDS ==============
FAMILY (R) BULK RATE
101 Montgomery Street U.S. POSTAGE
San Francisco 94104 PAID
CHARLES SCHWAB
==============
INVESTMENT ADVISOR
Charles Schwab Investment Management, Inc.
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR
Charles Schwab & Co., Inc.
101 Montgomery Street, San Francisco, CA 94104
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
(C)1997 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC/NYSE.
TF5004R(10/97) CRS 20155 Printed on recycled paper.
- -FOLD-
