<PAGE>
SchwabFunds-Registered Trademark-
Schwab Equity
Index Funds
- - Schwab S&P 500 Fund
- - Schwab 1000 Fund-Registered Trademark-
- - Schwab Small-Cap
Index Fund-Registered Trademark-
- - Schwab International
Index Fund-Registered Trademark-
Annual Report
October 31, 1998
<PAGE>
SCHWAB EQUITY INDEX FUNDS
We are pleased to bring you this annual report for the Schwab Equity Index Funds
(the Funds) for the one-year period ended October 31, 1998. This report includes
the following four Funds and all classes-- Investor Shares, e.Shares-TM- and
Select Shares:-TM-
Schwab S&P 500 Fund
Schwab 1000 Fund-Registered Trademark-
Schwab Small-Cap Index Fund-Registered Trademark-
Schwab International Index Fund-Registered Trademark-
As covered in their respective sections of this report, all the Funds achieved
their primary objectives of tracking or matching the price and dividend
performance of their benchmark indices during the reporting period. In addition,
the Funds also succeeded in maintaining the tax efficiencies and low costs
designed to help maximize long-term performance results.
FUND LISTINGS
The Funds are listed in THE WALL STREET JOURNAL, USA TODAY, INVESTOR'S BUSINESS
DAILY and most local newspapers as follows under the heading
SCHWABFUNDS:-Registered Trademark-
<TABLE>
<CAPTION>
NEWSPAPER
LISTING SYMBOL
<S> <C>
S&P e SWPEX
S&P Inv SWPIX
S&P Sel SWPPX
1000 Inv r SNXFX
1000 Sel SNXSX
SmCp Inv SWSMX
Sm Cp Sel SWSSX
Intl Inv r SWINX
Intl Sel SWISX
</TABLE>
CONTENTS
<TABLE>
<S> <C>
- ----------------------------------------------------
A Message from the Chairman 1
- ----------------------------------------------------
What Every Investor Should Know 2
- ----------------------------------------------------
Market Overview 4
- ----------------------------------------------------
Portfolio Management 8
- ----------------------------------------------------
Schwab S&P 500 Fund 9
- ----------------------------------------------------
Schwab 1000 Fund 15
- ----------------------------------------------------
Schwab Small-Cap Index Fund 22
- ----------------------------------------------------
Schwab International Index Fund 30
- ----------------------------------------------------
Financial Statements and Notes 37
- ----------------------------------------------------
</TABLE>
<PAGE>
A MESSAGE FROM THE CHAIRMAN
Dear Shareholder:
[PHOTO]
No doubt you've experienced the extreme volatility in the stock market over the
past year. The 12-month reporting period ended October 31, 1998, has served as a
clear example of how the performance of different asset classes can vary
substantially over a given time frame. For example, domestic large-cap stocks
made an impressive rebound in September and October to provide the highest
asset-class returns for the period, even more spectacular when viewed against
the lackluster performance of small-caps. Similarly, the divergence between the
returns of value versus growth styles, Europe versus Asia, and emerging versus
developed markets reflects the overall volatility that's been inherent in the
market for the past year.
Given this divergent performance, we think the message is clear: Expect
volatility, and understand that it's extremely difficult to predict which asset
classes will be strong performers and which will suffer. One way to cushion the
volatility is to be sure that you're adequately diversified in your investments
and that you've properly allocated your assets based on your investing needs and
goals. By investing in one of our SchwabFunds,-Registered Trademark- you've
already taken an important step in building a portfolio that can help you meet
your future goals. On the following pages, we outline several ways to help you
reach those goals by establishing--or maintaining--an ongoing investment
program.
In addition, as a Schwab Equity Index Fund shareholder, you probably know the
benefits of investing for market returns in an index fund. Index investing
continues to grow in popularity, because it allows investors to aim for overall
market returns. It can be an excellent way to help reduce your risk by
distributing your money across multiple securities, with lower costs than are
typically incurred through actively managed funds.
The support of investors like you has helped Charles Schwab Investment
Management, Inc. (CSIM) become one of the largest and fastest-growing mutual
fund families in the nation. CSIM now manages more than $77 billion in assets on
behalf of more than 3.2 million SchwabFunds-Registered Trademark- shareholders.
We offer a broad spectrum of 38 mutual funds for investors with varying
financial situations and goals.
Once again, thank you for your investment in SchwabFunds. We continue to do
everything we can to warrant the trust you have placed in us.
Sincerely,
/s/ Charles R. Schwab
Charles R. Schwab
October 31, 1998
THE YEAR 2000 AND EURO CONVERSION ISSUES
Two issues with the potential to disrupt portfolio operations and affect
performance are the inability of some computers to recognize the year 2000,
and the conversion of certain European currencies to the euro beginning on
January 1, 1999. The investment adviser will continue to take steps to enable
its systems to handle these changes. With regard to the year 2000 problem,
the investment adviser is also seeking assurances that its service providers
and business partners are taking similar steps as well. However, it is
impossible to know in advance exactly how either of these issues will affect
portfolio administration, portfolio performance (particularly for portfolios
with European exposure) or securities markets in general.
1
<PAGE>
WHAT EVERY INVESTOR SHOULD KNOW
WHY ASSET ALLOCATION MATTERS
As most investors know, one of the most compelling reasons to invest in a mutual
fund is diversification. By allocating your assets across many different
securities, a fund can help reduce the risk that you might otherwise encounter
by owning just a few stocks or bonds.
But remember that diversification across asset classes can be just as important
as diversification within one of the mutual funds you own. As you probably know,
stocks historically have offered much higher returns over the long term than
bonds, cash or other asset classes, but those returns have come at the price of
higher volatility. To help mitigate some of that risk, many investors often
include at least some bonds and cash in their portfolios. They also diversify
their exposure across different stock market segments-- such as large-cap and
small-cap U.S. stocks and international stocks, which have tended to move with
less-than-perfect correlation over time. In short, allocating assets across
market segments may help reduce your overall portfolio risk.
REGULAR-INVESTING STRATEGIES
Another way to help dampen the effects of short-term market volatility is to
invest the same amount of money on a regular basis. With this investment
strategy, known as DOLLAR-COST AVERAGING, you automatically buy more shares when
stock or bond prices are low and fewer when they're high.
A hypothetical example can help illustrate this concept. Let's say you invest
$400 on a monthly basis in a single mutual fund, as shown below. Because of
fluctuating prices, your per-share purchase price varies monthly. A simple
average of your five purchase prices would yield $8.20 per share; however, your
AVERAGE COST BASIS (your total investment divided by the number of shares
actually purchased) would be significantly lower--by more than $0.50 per share.
The net result in this example is that your average cost per share is reduced
and you'd have purchased more shares than you would have had you paid the
average share price over the five-month period.
<TABLE>
<CAPTION>
No. of
Fixed Shares
Investment Share Price Purchased
<S> <C> <C> <C>
- -------------------------------------------------------------
Month 1 $400 $10 40
- -------------------------------------------------------------
Month 2 $400 $8 50
- -------------------------------------------------------------
Month 3 $400 $5 80
- -------------------------------------------------------------
Month 4 $400 $8 50
- -------------------------------------------------------------
Month 5 $400 $10 40
- -------------------------------------------------------------
Totals $2,000 $41 260
- -------------------------------------------------------------
AVERAGE SHARE PRICE ($41 DIVIDED BY 5 periods): $8.20
YOUR AVERAGE COST BASIS
($2,000 DIVIDED BY 260 shares): $7.69
PER-SHARE ADVANTAGE: $0.51
</TABLE>
This example is for illustrative purposes only and is not intended to predict or
guarantee the performance of any particular fund available through Schwab.
(Of course, in this example, hindsight shows you that your best move would have
been to invest your entire $2,000 in Month 3, when the share price was at a low
of $5--but it's unlikely that you would have been able to predict that.)
2
<PAGE>
SCHWAB'S 10 INVESTING PRINCIPLES
1 START WITH THE BASICS FOR LONG-TERM INVESTING.
2 GET STARTED NOW!
3 KNOW YOURSELF.
4 INVEST IN THE STOCK MARKET FOR GROWTH.
5 TAKE A LONG-TERM VIEW.
6 BUILD A DIVERSIFIED PORTFOLIO.
7 CONSIDER BONDS AND CASH FOR DIVERSIFICATION AND INCOME.
8 MINIMIZE YOUR EXPENSES.
9 STAY ON TRACK.
10 BECOME A LIFELONG INVESTOR.
In addition to reducing your per-share costs over time, dollar-cost averaging
provides another benefit: the discipline of investing regularly. You're more
likely to maintain a regular investment plan if it's automatic: You don't have
to think about it, and you minimize any propensity to skip an investment in
favor of some other expenditure. To encourage this discipline, Schwab offers you
two convenient, no-cost ways to begin or maintain a program of regular
investing:
Schwab's AUTOMATIC INVESTMENT PLAN (AIP) allows you to automatically
purchase--on a regular basis-- additional shares in mutual funds that you
already own. For amounts as little as $100 per month, you can use the cash or
sweep shares of your existing Schwab Money Fund,(1) or you can enroll in
Schwab's free MoneyLink Transfer Service to automatically transfer money to your
Schwab account.
With MONEYLINK,-TM- Schwab's electronic funds transfer service, you can arrange
to regularly and automatically transfer money between your bank account and your
Schwab account. It's a convenient way to build your investment over time.
Please be aware that these programs--and dollar-cost averaging in general--do
not ensure a profit or protect against a loss, and investors should know that
markets fall as well as rise. Because dollar-cost averaging involves continuous
investment in securities regardless of fluctuating prices, you should consider
your financial ability to purchase in both up and down markets. Over the long
term, however, dollar-cost averaging may help to smooth out volatility caused by
short-term market trends. For more information, please call us at
1-800-435-4000.
WE MAKE IT EASY TO INVEST
We try to make it easy and convenient for you to invest in our
SchwabFunds.-Registered Trademark- In addition to our automated methods that
allow you to invest or transfer money to your Schwab account on a regular basis,
you can also invest through our Web site at WWW.SCHWAB.COM; through our
automated touchtone telephone service, TeleBroker,-Registered Trademark- by
calling 1-800-272-4922; or in person at any of our nationwide branches.
(1)Includes uninvested cash and margin cash available. If sufficient cash is not
available, your automatic purchases will not be made.
KEEPING YOU INFORMED
You can find a wealth of information about our investment philosophy and
Funds, as well as the market and economic environments at our Web site:
WWW.SCHWAB.COM/SCHWABFUNDS.
3
<PAGE>
MARKET OVERVIEW
U.S. ECONOMIC GROWTH
The U.S. economy, as measured by gross domestic product (GDP), continued to grow
at a strong real rate of 3.5% during the first three quarters of 1998--well in
excess of the Federal Reserve's estimated noninflationary growth rate of 2.0% to
2.75%. Hurt by the Asian economic crisis and declining exports, the growth rate
slowed from 5.5% in the first quarter to 1.8% in the second quarter. Strong
consumer spending--which represents about two-thirds of economic activity--
helped the growth rate rebound to 3.3% during the third quarter.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REAL GDP GROWTH RATE
QUARTERLY PERCENTAGE CHANGE (ANNUALIZED
RATE)
<S> <C>
Q1 1990 3.9%
Q2 1990 1.2%
Q3 1990 -1.9%
Q4 1990 -4.0%
Q1 1991 -2.1%
Q2 1991 1.8%
Q3 1991 1.0%
Q4 1991 1.0%
Q1 1992 4.7%
Q2 1992 2.5%
Q3 1992 3.0%
Q4 1992 4.3%
Q1 1993 0.1%
Q2 1993 2.0%
Q3 1993 2.1%
Q4 1993 5.3%
Q1 1994 3.0%
Q2 1994 4.7%
Q3 1994 1.8%
Q4 1994 3.6%
Q1 1995 1.7%
Q2 1995 0.4%
Q3 1995 3.3%
Q4 1995 2.8%
Q1 1996 3.3%
Q2 1996 6.1%
Q3 1996 2.1%
Q4 1996 4.2%
Q1 1997 4.2%
Q2 1997 4.0%
Q3 1997 4.2%
Q4 1997 3.0%
Q1 1998 5.5%
Q2 1998 1.8%
Q3 1998 3.9%
Source: BLOOMBERG L.P.
</TABLE>
At the time of this writing, the consensus of most economists is that the U.S.
economy appears poised for growth--but at a more moderate rate than over the
previous nine months. High levels of consumer confidence, low interest rates,
rising real wages and strong gains in stock prices have been the principal
factors continuing this lengthy expansion. Uncertainties persist, however, as to
the ultimate effect that international economic problems may have on the U.S.
economy, particularly on corporate earnings. Going forward, the behavior of
domestic consumers in response to recent stock market volatility also may be a
key determinant of whether the economy continues on its current course or
softens in 1999.
UNEMPLOYMENT
After declining to 4.3% in April and May--its lowest level in 28 years--the U.S.
unemployment rate stood at 4.6% in October. Labor markets have become extremely
tight, growth in the labor force has slowed and wage increases are beginning to
put more pressure on labor costs (see Employment Cost Index on the following
page).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. UNEMPLOYMENT RATE
<S> <C>
Jan-90 5.4%
Feb-90 5.3%
Mar-90 5.2%
Apr-90 5.4%
May-90 5.4%
Jun-90 5.2%
Jul-90 5.5%
Aug-90 5.7%
Sep-90 5.9%
Oct-90 5.9%
Nov-90 6.2%
Dec-90 6.3%
Jan-91 6.4%
Feb-91 6.6%
Mar-91 6.8%
Apr-91 6.7%
May-91 6.9%
Jun-91 6.9%
Jul-91 6.8%
Aug-91 6.9%
Sep-91 6.9%
Oct-91 7.0%
Nov-91 7.0%
Dec-91 7.3%
Jan-92 7.3%
Feb-92 7.4%
Mar-92 7.4%
Apr-92 7.4%
May-92 7.6%
Jun-92 7.8%
Jul-92 7.7%
Aug-92 7.6%
Sep-92 7.6%
Oct-92 7.3%
Nov-92 7.4%
Dec-92 7.4%
Jan-93 7.3%
Feb-93 7.1%
Mar-93 7.0%
Apr-93 7.1%
May-93 7.1%
Jun-93 7.0%
Jul-93 6.9%
Aug-93 6.8%
Sep-93 6.7%
Oct-93 6.8%
Nov-93 6.6%
Dec-93 6.5%
Jan-94 6.6%
Feb-94 6.6%
Mar-94 6.5%
Apr-94 6.4%
May-94 6.0%
Jun-94 6.1%
Jul-94 6.1%
Aug-94 6.1%
Sep-94 5.9%
Oct-94 5.8%
Nov-94 5.6%
Dec-94 5.4%
Jan-95 5.6%
Feb-95 5.4%
Mar-95 5.4%
Apr-95 5.7%
May-95 5.6%
Jun-95 5.6%
Jul-95 5.7%
Aug-95 5.7%
Sep-95 5.7%
Oct-95 5.6%
Nov-95 5.6%
Dec-95 5.6%
Jan-96 5.7%
Feb-96 5.5%
Mar-96 5.5%
Apr-96 5.5%
May-96 5.5%
Jun-96 5.3%
Jul-96 5.5%
Aug-96 5.2%
Sep-96 5.2%
Oct-96 5.3%
Nov-96 5.4%
Dec-96 5.3%
Jan-97 5.3%
Feb-97 5.3%
Mar-97 5.2%
Apr-97 5.0%
May-97 4.8%
Jun-97 5.0%
Jul-97 4.9%
Aug-97 4.9%
Sep-97 4.9%
Oct-97 4.8%
Nov-97 4.6%
Dec-97 4.7%
Jan-98 4.7%
Feb-98 4.6%
Mar-98 4.7%
Apr-98 4.3%
May-98 4.3%
Jun-98 4.5%
Jul-98 4.5%
Aug-98 4.5%
Sep-98 4.6%
Oct-98 4.6%
SOURCE: BLOOMBERG L.P.
</TABLE>
INFLATION
Price inflation remained remarkably well contained. The Consumer Price Index
(CPI) rose just 1.5% for the year ended October 1998, reaching levels during the
reporting period that were the lowest since January 1987. Its core rate (which
excludes the more volatile
4
<PAGE>
food and energy components) rose 2.3%--also very low.
The Employment Cost Index (ECI), which measures inflation in wages, salaries and
benefits, increased 3.7% for the year ended September 30, 1998--its largest
increase in more than six years.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MEASURES OF INFLATION
Monthly Consumer Price Index Quarterly Employment Cost Index
<S> <C> <C> <C>
Jan-90 5.2% Jan-90 5.46%
Feb-90 5.3% Feb-90 5.46%
Mar-90 5.2% Mar-90 5.46%
Apr-90 4.7% Apr-90 5.40%
May-90 4.4% May-90 5.40%
Jun-90 4.7% Jun-90 5.40%
Jul-90 4.8% Jul-90 5.22%
Aug-90 5.6% Aug-90 5.22%
Sep-90 6.2% Sep-90 5.22%
Oct-90 6.3% Oct-90 4.87%
Nov-90 6.3% Nov-90 4.87%
Dec-90 6.1% Dec-90 4.87%
Jan-91 5.7% Jan-91 4.60%
Feb-91 5.3% Feb-91 4.60%
Mar-91 4.9% Mar-91 4.60%
Apr-91 4.9% Apr-91 4.55%
May-91 5.0% May-91 4.55%
Jun-91 4.7% Jun-91 4.55%
Jul-91 4.4% Jul-91 4.30%
Aug-91 3.8% Aug-91 4.30%
Sep-91 3.4% Sep-91 4.30%
Oct-91 2.9% Oct-91 4.28%
Nov-91 3.0% Nov-91 4.28%
Dec-91 3.1% Dec-91 4.28%
Jan-92 2.6% Jan-92 4.03%
Feb-92 2.8% Feb-92 4.03%
Mar-92 3.2% Mar-92 4.03%
Apr-92 3.2% Apr-92 3.63%
May-92 3.0% May-92 3.63%
Jun-92 3.1% Jun-92 3.63%
Jul-92 3.2% Jul-92 3.50%
Aug-92 3.1% Aug-92 3.50%
Sep-92 3.0% Sep-92 3.50%
Oct-92 3.2% Oct-92 3.48%
Nov-92 3.0% Nov-92 3.48%
Dec-92 2.9% Dec-92 3.48%
Jan-93 3.3% Jan-93 3.52%
Feb-93 3.2% Feb-93 3.52%
Mar-93 3.1% Mar-93 3.52%
Apr-93 3.2% Apr-93 3.59%
May-93 3.2% May-93 3.59%
Jun-93 3.0% Jun-93 3.59%
Jul-93 2.8% Jul-93 3.55%
Aug-93 2.8% Aug-93 3.55%
Sep-93 2.7% Sep-93 3.55%
Oct-93 2.8% Oct-93 3.53%
Nov-93 2.7% Nov-93 3.53%
Dec-93 2.7% Dec-93 3.53%
Jan-94 2.5% Jan-94 3.23%
Feb-94 2.5% Feb-94 3.23%
Mar-94 2.5% Mar-94 3.23%
Apr-94 2.4% Apr-94 3.21%
May-94 2.3% May-94 3.21%
Jun-94 2.5% Jun-94 3.21%
Jul-94 2.8% Jul-94 3.18%
Aug-94 2.9% Aug-94 3.18%
Sep-94 3.0% Sep-94 3.18%
Oct-94 2.6% Oct-94 2.99%
Nov-94 2.7% Nov-94 2.99%
Dec-94 2.7% Dec-94 2.99%
Jan-95 2.8% Jan-95 2.88%
Feb-95 2.9% Feb-95 2.88%
Mar-95 2.9% Mar-95 2.88%
Apr-95 3.1% Apr-95 2.87%
May-95 3.2% May-95 2.87%
Jun-95 3.0% Jun-95 2.87%
Jul-95 2.8% Jul-95 2.68%
Aug-95 2.6% Aug-95 2.68%
Sep-95 2.5% Sep-95 2.68%
Oct-95 2.8% Oct-95 2.75%
Nov-95 2.6% Nov-95 2.75%
Dec-95 2.5% Dec-95 2.75%
Jan-96 2.7% Jan-96 2.80%
Feb-96 2.7% Feb-96 2.80%
Mar-96 2.8% Mar-96 2.80%
Apr-96 2.9% Apr-96 2.87%
May-96 2.9% May-96 2.87%
Jun-96 2.8% Jun-96 2.87%
Jul-96 3.0% Jul-96 2.84%
Aug-96 2.9% Aug-96 2.84%
Sep-96 3.0% Sep-96 2.84%
Oct-96 3.0% Oct-96 2.91%
Nov-96 3.3% Nov-96 2.91%
Dec-96 3.3% Dec-96 2.91%
Jan-97 3.0% Jan-97 2.88%
Feb-97 3.0% Feb-97 2.88%
Mar-97 2.8% Mar-97 2.88%
Apr-97 2.5% Apr-97 2.79%
May-97 2.2% May-97 2.79%
Jun-97 2.3% Jun-97 2.79%
Jul-97 2.2% Jul-97 2.99%
Aug-97 2.2% Aug-97 2.99%
Sep-97 2.2% Sep-97 2.99%
Oct-97 2.1% Oct-97 3.29%
Nov-97 1.8% Nov-97 3.29%
Dec-97 1.7% Dec-97 3.29%
Jan-98 1.6% Jan-98 3.26%
Feb-98 1.4% Feb-98 3.26%
Mar-98 1.4% Mar-98 3.26%
Apr-98 1.4% Apr-98 3.50%
May-98 1.7% May-98 3.50%
Jun-98 1.7% Jun-98 3.50%
Jul-98 1.7% Jul-98 3.70%
Aug-98 1.6% Aug-98 3.70%
Sep-98 1.5% Sep-98 3.70%
Oct-98 1.5% Oct-98
Source: BLOOMBERG L.P.
</TABLE>
Although inflation has been well contained, the combination of a tight labor
market (as evidenced by low unemployment rates) and strong economic growth
typically leads to inflationary pressures on wages and, ultimately, prices. In
this environment, productivity growth becomes particularly important. Strong
productivity gains allow companies to pay higher wages without raising prices.
Through the third quarter of 1998, year-to-date nonfarm productivity grew at an
annualized rate of 2.3%, continuing a healthy trend that began in 1996.
ASSET CLASS PERFORMANCE
The 12-month reporting period served as a textbook example of the benefits of
asset allocation, demonstrating that various segments of the equity market can
exhibit markedly divergent returns as well as the relative stability of bond and
cash asset classes.
The equity markets experienced significant volatility throughout the period;
however, what was truly remarkable was the difference between the returns of
large- and small-cap stocks. Large-cap stocks, as represented by the S&P
500-Registered Trademark- Index, achieved a total return of 22.0% for the
12-month period, while small-cap stocks, as represented by the Russell
2000-Registered Trademark- Index, experienced a total decline of 11.9%,
resulting in a difference of 33.9% between the 12-month total returns for the
two asset classes.
International stock returns were characterized by the markedly divergent
performance of Asian countries, which experienced significant declines, and
European countries, which experienced healthy gains for the period.
International stock returns, as represented by the
MSCI-EAFE-Registered Trademark- Index, experienced a positive total return of
9.7% for the 12-month reporting period.
Reflecting the decline in interest rates, fixed income returns were generally
strong for the period. Bond returns, as represented by the Lehman Brothers
Aggregate Bond Index, were 9.3% for the 12-month reporting period.
5
<PAGE>
MARKET OVERVIEW (continued)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL-RETURN PERFORMANCE
VALUE OF A HYPOTHETICAL $1 INVESTMENT
RUSSELL
S&P 500-REGISTERED 2000-REGISTERED
TRADEMARK- TRADEMARK- MSCE-EAFE-REGISTERED LEHMAN AGGREGATE
INDEX INDEX TRADEMARK- INDEX BOND INDEX
<S> <C> <C> <C> <C>
Inception 1.000 1.000 1.000 1.000
Nov-97 1.046 0.994 0.990 1.005
Dec-97 1.064 1.011 0.998 1.015
Jan-98 1.076 0.995 1.044 1.028
Feb-98 1.154 1.068 1.111 1.027
Mar-98 1.213 1.112 1.145 1.030
Apr-98 1.225 1.118 1.154 1.036
May-98 1.204 1.058 1.149 1.046
Jun-98 1.253 1.060 1.157 1.054
Jul-98 1.240 0.975 1.169 1.057
Aug-98 1.061 0.785 1.024 1.074
Sep-98 1.129 0.847 0.993 1.099
Oct-98 1.220 0.881 1.096 1.093
Compiled by Charles Schwab & Co.,
Inc.
</TABLE>
TOTAL RETURN ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The indices
represent returns of specific market sectors during the reporting period and do
not reflect the 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.
(1)The MSCI-EAFE Index, also referred to as the MSCI-EAFE (ND) Index, represents
total return net of foreign income taxes withheld on dividends.
U.S. EQUITY VALUATION
The price/earnings (P/E) ratio for the S&P 500 Index demonstrated the volatility
of U.S. equities during the reporting period. (The price/earnings ratio, also
known as a multiple, is the price of a stock divided by its earnings per share,
and generally indicates how much investors are willing to pay for a company's
earning potential.) At the end of October 1997, the P/E ratio of the S&P 500
Index was 22.8. It reached a high for the decade of 28.3 in April, then declined
precipitously to 22.8 at the end of August before rising once again to 27.6 at
the end of October 1998. In addition to the P/E ratio's volatility, current
valuation levels remain well above the S&P 500's 30-year average of 15.0.
Based on other traditional market valuation measures such as the price-to-book
value ratio or dividend yield, the U.S. stock market continues to remain at high
valuation levels.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P 500 PRICE/EARNINGS RATIO
<S> <C>
Jan-90 14.37
Feb-90 14.21
Mar-90 14.77
Apr-90 14.82
May-90 15.84
Jun-90 16.66
Jul-90 16.65
Aug-90 15.57
Sep-90 14.90
Oct-90 14.36
Nov-90 14.59
Dec-90 15.19
Jan-91 14.95
Feb-91 16.82
Mar-91 17.48
Apr-91 17.85
May-91 17.92
Jun-91 17.96
Jul-91 18.07
Aug-91 19.72
Sep-91 19.88
Oct-91 19.92
Nov-91 21.02
Dec-91 21.85
Jan-92 23.35
Feb-92 23.83
Mar-92 25.45
Apr-92 25.51
May-92 25.71
Jun-92 25.08
Jul-92 25.61
Aug-92 25.50
Sep-92 24.37
Oct-92 23.94
Nov-92 24.08
Dec-92 24.01
Jan-93 24.20
Feb-93 24.25
Mar-93 24.22
Apr-93 23.20
May-93 23.21
Jun-93 22.58
Jul-93 22.52
Aug-93 23.02
Sep-93 23.74
Oct-93 23.97
Nov-93 22.55
Dec-93 23.55
Jan-94 22.98
Feb-94 21.17
Mar-94 20.34
Apr-94 20.10
May-94 20.16
Jun-94 19.76
Jul-94 18.64
Aug-94 18.90
Sep-94 18.26
Oct-94 17.55
Nov-94 16.58
Dec-94 16.98
Jan-95 16.23
Feb-95 16.20
Mar-95 16.50
Apr-95 16.02
May-95 16.43
Jun-95 16.82
Jul-95 16.55
Aug-95 16.18
Sep-95 16.86
Oct-95 16.18
Nov-95 17.14
Dec-95 17.41
Jan-96 18.11
Feb-96 18.56
Mar-96 18.94
Apr-96 19.16
May-96 19.48
Jun-96 19.30
Jul-96 18.31
Aug-96 18.62
Sep-96 19.75
Oct-96 19.60
Nov-96 21.05
Dec-96 20.70
Jan-97 20.55
Feb-97 20.98
Mar-97 19.87
Apr-97 20.24
May-97 21.43
Jun-97 22.45
Jul-97 23.92
Aug-97 22.64
Sep-97 24.00
Oct-97 22.84
Nov-97 24.02
Dec-97 24.51
Jan-98 24.99
Feb-98 26.44
Mar-98 27.76
Apr-98 26.51
May-98 26.12
Jun-98 27.09
Jul-98 26.78
Aug-98 22.77
Sep-98 24.23
Oct-98 27.58
30-Year Average
Source: BLOOMBERG L.P.
</TABLE>
TREASURY YIELDS
Treasury yields fell significantly during the 12-month reporting period--by
0.99% to 5.16% for 30-year bonds and by 1.48% to 4.23% for five-year notes.
International economic problems were a major factor contributing to the decline
in yields. Investors seeking a safe haven increased demand for U.S. Treasury
securities and bid up prices, thereby decreasing Treasury bond yields. The
Federal Reserve's decision to leave rates unchanged throughout most of the
reporting period--in part due to international market turbulence as well as
acceptable domestic economic statistics showing strong growth coupled with
contained inflation--also led to favorable fixed income market conditions.
6
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
30-YEAR AND FIVE-YEAR TREASURY BOND YIELDS
30-YEAR FIVE-YEAR
TREASURY TREASURY
BOND YIELD NOTE YIELD
<S> <C> <C>
10/31/97 6.15% 5.71%
11/7/97 6.16% 5.81%
11/14/97 6.11% 5.80%
11/21/97 6.03% 5.75%
11/28/97 6.05% 5.84%
12/5/97 6.08% 5.88%
12/12/97 5.93% 5.69%
12/19/97 5.92% 5.71%
12/26/97 5.90% 5.71%
1/2/98 5.84% 5.61%
1/9/98 5.73% 5.25%
1/16/98 5.81% 5.40%
1/23/98 5.97% 5.52%
1/30/98 5.80% 5.38%
2/6/98 5.92% 5.47%
2/13/98 5.85% 5.42%
2/20/98 5.87% 5.49%
2/27/98 5.92% 5.59%
3/6/98 6.02% 5.65%
3/13/98 5.89% 5.53%
3/20/98 5.89% 5.55%
3/27/98 5.96% 5.68%
4/3/98 5.79% 5.49%
4/10/98 5.88% 5.56%
4/17/98 5.88% 5.56%
4/24/98 5.95% 5.63%
5/1/98 5.93% 5.62%
5/8/98 5.98% 5.65%
5/15/98 5.97% 5.67%
5/22/98 5.90% 5.64%
5/29/98 5.80% 5.55%
6/5/98 5.79% 5.59%
6/12/98 5.66% 5.45%
6/19/98 5.67% 5.51%
6/26/98 5.63% 5.49%
7/3/98 5.60% 5.41%
7/10/98 5.63% 5.40%
7/17/98 5.75% 5.49%
7/24/98 5.69% 5.48%
7/31/98 5.71% 5.50%
8/7/98 5.63% 5.38%
8/14/98 5.54% 5.33%
8/21/98 5.43% 5.19%
8/28/98 5.34% 4.90%
9/4/98 5.29% 4.89%
9/11/98 5.23% 4.65%
9/18/98 5.15% 4.52%
9/25/98 5.11% 4.37%
10/2/98 4.84% 4.08%
10/9/98 5.12% 4.46%
10/16/98 4.98% 4.04%
10/23/98 5.18% 4.30%
10/30/98 5.16% 4.23%
Source: BLOOMBERG L.P.
</TABLE>
In an effort to provide liquidity to financial markets and shelter the U.S.
economy from the impact of increasing weakness in foreign economies, the Federal
Reserve cut short-term interest rates three times since the end of September. At
the time of this writing, the federal funds rate stood at 4.75%.
INTERNATIONAL PERFORMANCE
The Morgan Stanley Capital International Europe, Australasia and Far
East-Registered Trademark-(MSCI-EAFE) Index gained 9.7% in U.S. dollar terms
(excluding reinvested dividends) during the 12-month reporting period. In
local-currency terms, it gained 7.89%, reflecting the relative strength of most
foreign currencies during the period.
Most European equity markets had strong returns over the 12 months ended October
31, 1998, with Finland, Belgium, Spain and Italy posting the strongest returns.
In contrast, other markets-- principally non-European ones--declined sharply
over the period. The worst-performing markets were New Zealand, Norway,
Singapore and Japan. Malaysia, which would have had the lowest return, was
dropped from the index in September.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MSCI-EAFE COUNTRY $US RETURNS
FOR THE ONE-YEAR PERIOD ENDED
10/31/98
<S> <C>
Finland 55.62%
Belgium 47.96%
Spain 45.32%
Italy 39.08%
France 33.71%
Germany 28.11%
Switzerland 23.24%
Ireland 17.76%
Denmark 12.97%
United Kingdom 11.06%
Netherlands 7.75%
Sweden 3.24%
Austria 2.61%
Australia -0.89%
Hong Kong -5.81%
Japan -15.05%
Singapore -23.90%
Norway -28.64%
New Zealand -35.03%
SOURCE: DATASTREAM
</TABLE>
NOTE: Malaysian country total return data are not shown because Malaysia was
dropped from the MSCI-EAFE Index in September 1998 due to the imposition of
capital controls. Malaysian returns for the period were -63.91%.
This market overview has been provided by the portfolio management team.
7
<PAGE>
Portfolio Management
The Portfolio Management Team
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 in March 1995 as portfolio manager and was promoted to her current
position in December 1996. She currently manages approximately $8.6 billion in
indexed equity mutual fund 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.
8
<PAGE>
SCHWAB S&P 500 FUND-INVESTOR SHARES AND e.SHARES-TM- FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
ONE YEAR (5/1/96)
<S> <C> <C>
- -----------------------------------------------------------------------------------------
SCHWAB S&P 500 FUND(1)-INVESTOR SHARES 21.39% 24.58%
- -----------------------------------------------------------------------------------------
SCHWAB S&P 500 FUND-e.SHARES 21.50% 24.75%
- -----------------------------------------------------------------------------------------
S&P 500-Registered Trademark- Index 21.99% 25.26%
- -----------------------------------------------------------------------------------------
Index Tracking Differential:
Investor Shares 0.60% 0.68%
- -----------------------------------------------------------------------------------------
e.Shares 0.49% 0.51%
- -----------------------------------------------------------------------------------------
</TABLE>
TAX-SMART INVESTMENT STRATEGY
The Schwab S&P 500 Fund seeks to maximize its after-tax performance by using a
strategy that helps reduce capital gains distributions. This strategy is
designed to help investors keep more of what their money earns. The chart below
illustrates the effects of this strategy on the one-year performance of the
Schwab S&P 500 Fund-Investor Shares.
ONE-YEAR AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/98
<TABLE>
<CAPTION>
BEFORE AFTER % LOST
TAX TAX(2) TO TAXES
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Schwab S&P 500 Fund-Investor Shares(3) 21.39% 20.94% 0.45%
- ------------------------------------------------------------------------------------------
Average Large-Cap Fund(4) 11.96% 8.94% 3.02%
- ------------------------------------------------------------------------------------------
</TABLE>
(1)The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/2000 that total
operating expenses will not exceed 0.35% and 0.28%, respectively, for the
Investor Shares and the e.Shares. Without fee waivers and guarantees, the
one-year and since-inception average annual total returns would have been
21.11% and 24.30%, respectively, for the Investor Shares and 21.25% and
24.44%, respectively, for the e.Shares as of 10/31/98.
(2)After-tax returns assume the maximum federal income tax rate of 39.6% on
dividends and 28% on capital gains distributions. Tax rates vary and may be
higher or lower than those shown.
(3)The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/2000 that total
operating expenses will not exceed 0.35%. Without fee waivers and guarantees,
the Investor Shares' returns would have been lower.
(4)Source: Morningstar, Inc. The Large-Cap Fund category contains 826 funds with
one-year track records as of 10/31/98. These funds may or may not follow a
tax-efficient strategy similar to that followed by the Schwab S&P 500 Fund.
Also, although many mutual funds have multiple classes of shares, the
category average includes only those funds that were classified by
Morningstar as a distinct portfolio. This typically means that a fund's
oldest class of shares was used.
9
<PAGE>
SCHWAB S&P 500 FUND-INVESTOR SHARES AND e.SHARES-TM- FUND
PERFORMANCE (continued)
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
This graph compares the growth of a hypothetical $10,000 investment in the
Schwab S&P 500 Fund-Investor Shares and e.Shares, made at their inception, with
a similar investment in the S&P 500-Registered Trademark- Index.
Also shown is the difference between the total returns of the S&P 500 Index and
the Schwab S&P 500 Fund, which is often referred to as the "tracking
differential." The tracking differential arises due to several factors. For
example, unlike the index, the Fund has operating expenses and incurs trading
costs when it buys or sells securities. The Fund also may hold non-index
securities that can produce either higher or lower returns than their index
counterparts. Furthermore, unlike the index, the Fund holds a portion of its
assets in cash.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB S&P 500 FUND-INVESTOR AND E.SHARES
SCHWAB S&P 500 SCHWAB S&P 500
FUND-INVESTOR SHARES FUND-E.SHARES S&P 500 INDEX
<S> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000
5/31/96 $10,250 $10,250 $10,257
6/30/96 $10,290 $10,290 $10,296
7/31/96 $9,840 $9,840 $9,841
8/31/96 $10,040 $10,050 $10,049
9/30/96 $10,600 $10,600 $10,613
10/31/96 $10,880 $10,890 $10,906
11/30/96 $11,690 $11,710 $11,731
12/31/96 $11,462 $11,473 $11,498
1/31/97 $12,157 $12,179 $12,216
2/28/97 $12,248 $12,270 $12,312
3/31/97 $11,744 $11,766 $11,808
4/30/97 $12,430 $12,452 $12,511
5/31/97 $13,186 $13,209 $13,272
6/30/97 $13,760 $13,794 $13,867
7/31/97 $14,849 $14,873 $14,969
8/31/97 $14,012 $14,036 $14,131
9/30/97 $14,778 $14,803 $14,904
10/31/97 $14,284 $14,318 $14,406
11/30/97 $14,930 $14,964 $15,073
12/31/97 $15,184 $15,227 $15,332
1/31/98 $15,357 $15,390 $15,502
2/28/98 $16,455 $16,490 $16,620
3/31/98 $17,289 $17,336 $17,471
4/30/98 $17,452 $17,499 $17,647
5/31/98 $17,147 $17,193 $17,344
6/30/98 $17,838 $17,886 $18,048
7/31/98 $17,645 $17,692 $17,857
8/31/98 $15,092 $15,136 $15,278
9/30/98 $16,058 $16,103 $16,257
10/31/98 $17,340 $17,397 $17,579
</TABLE>
THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO 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.
10
<PAGE>
SCHWAB S&P 500 FUND-SELECT SHARES-TM-
FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
ONE YEAR (5/19/97)
<S> <C> <C>
- -----------------------------------------------------------------------------------------
SCHWAB S&P 500 FUND-SELECT SHARES(1) 21.63% 22.53%
- -----------------------------------------------------------------------------------------
S&P 500-Registered Trademark- Index 21.99% 22.91%
- -----------------------------------------------------------------------------------------
Index Tracking Differential 0.36% 0.38%
- -----------------------------------------------------------------------------------------
</TABLE>
GROWTH OF A HYPOTHETICAL $50,000 INVESTMENT
This graph compares the growth of a hypothetical $50,000 investment(2) in the
Schwab S&P 500 Fund-Select Shares, made at its inception, with a similar
investment in the S&P 500 Index.
Also shown is the difference between the total returns of the S&P 500 Index and
the Schwab S&P 500 Fund, often referred to as the "tracking differential." (See
page 10 for a more detailed discussion.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB S&P 500 FUND-SELECT SHARES
Schwab S&P 500 Fund-Select Shares S&P 500 Index
<S> <C> <C>
5/19/97 $50,000 $50,000
5/31/97 $50,935 $50,930
6/30/97 $53,190 $53,212
7/31/97 $57,395 $57,442
8/31/97 $54,165 $54,225
9/30/97 $57,120 $57,191
10/31/97 $55,215 $55,281
11/30/97 $57,745 $57,841
12/31/97 $58,745 $58,836
1/31/98 $59,375 $59,489
2/28/98 $63,660 $63,778
3/31/98 $66,880 $67,043
4/30/98 $67,550 $67,720
5/31/98 $66,370 $66,556
6/30/98 $69,040 $69,258
7/31/98 $68,295 $68,524
8/31/98 $58,435 $58,629
9/30/98 $62,165 $62,387
10/31/98 $67,155 $67,459
</TABLE>
(1)The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/2000 that total
operating expenses will not exceed 0.19% for the Select Shares. Without fee
waivers and guarantees, the one-year and since-inception average annual total
returns would have been 21.35% and 22.27%, respectively as of 10/31/98.
(2)The required minimum initial investment in the Select Shares is $50,000.
THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO 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.
11
<PAGE>
SCHWAB S&P 500 FUND
FUND HOLDINGS
Schwab S&P 500 Fund (the Fund) invests primarily in common stocks of the S&P
500-Registered Trademark- Index, a widely recognized, unmanaged index of 500
large-cap stocks selected by Standard & Poor's.-Registered Trademark- As of
October 31, 1998, the aggregate market capitalization of the S&P 500 Index
represented approximately 79% of the total value of the U.S. stock market.(1)
Common stocks of the 50 largest companies of the S&P 500 Index accounted for
approximately 54% of the index.
TOP 10 HOLDINGS
AS A PERCENTAGE OF FUND INVESTMENTS(2)
<TABLE>
<S> <C>
- ------------------------------------------------
General Electric Co. 3.21%
- ------------------------------------------------
Microsoft Corp. 2.92%
- ------------------------------------------------
Exxon Corp. 1.94%
- ------------------------------------------------
Coca-Cola Co. 1.87%
- ------------------------------------------------
Merck & Co., Inc. 1.81%
- ------------------------------------------------
Wal-Mart Stores, Inc. 1.72%
- ------------------------------------------------
Intel Corp. 1.68%
- ------------------------------------------------
Pfizer, Inc. 1.57%
- ------------------------------------------------
IBM Corp. 1.54%
- ------------------------------------------------
Philip Morris Companies, Inc. 1.38%
- ------------------------------------------------
Total 19.64%
- ------------------------------------------------
</TABLE>
(1) Source: Wilshire Associates. The U.S. stock market is represented by the
Wilshire 5000 Index.
(2) Both the top 10 holdings and the economic sector percentages are not
indicative of current or future investments. These percentages do not take
into account other assets and liabilities. A complete list of the Fund's
investments as of 10/31/98 can be found in the Schedule of Investments later
in this report.
PORTFOLIO BY ECONOMIC SECTOR(2)
<TABLE>
<S> <C>
- ------------------------------------------------
Healthcare/Drugs and Medicine 12.63%
- ------------------------------------------------
Business Machines and Software 10.52%
- ------------------------------------------------
Telephone 7.90%
- ------------------------------------------------
Banks 7.60%
- ------------------------------------------------
Retail 5.78%
- ------------------------------------------------
Oil-International 5.35%
- ------------------------------------------------
Electronics 5.25%
- ------------------------------------------------
Food and Agriculture 5.10%
- ------------------------------------------------
Miscellaneous Finance 4.77%
- ------------------------------------------------
Producer Goods and Manufacturing 4.74%
- ------------------------------------------------
</TABLE>
12
<PAGE>
SCHWAB S&P 500 FUND
FUND DISCUSSION
QUESTIONS TO THE
PORTFOLIO MANAGEMENT TEAM
Q. HOW DID THE FUND PERFORM DURING THE
REPORTING PERIOD?
A. As discussed in the MARKET OVERVIEW (pages 4-7), large-cap domestic equities
as represented by the S&P 500 Index were clearly the strongest performing of the
major asset classes. As the table below indicates, the Fund achieved strong
total returns for the 12-month reporting period. All classes of shares closely
tracked the Fund's benchmark, the S&P 500 Index, which achieved a total return
of 21.99% for the period. As the table below reveals, the Fund outperformed the
average U.S. large-cap fund.(1) The Fund's outperformance was even greater on an
after-tax basis, which was a direct result of the Fund's tax-efficient
investment strategy.
<TABLE>
<CAPTION>
ONE-YEAR RETURNS:
BEFORE
TAX AFTER TAX
<S> <C> <C>
- ----------------------------------------------------------
Investor Shares 21.39% 20.94%
- ----------------------------------------------------------
e.Shares-TM- 21.50% 21.02%
- ----------------------------------------------------------
Select Shares-TM- 21.63% 21.13%
- ----------------------------------------------------------
Average Large-Cap Fund(1) 11.96% 8.94%
- ----------------------------------------------------------
</TABLE>
(1)Source: Morningstar, Inc. The Large-Cap Fund category contains 826 funds with
one-year track records as of 10/31/98. These funds may or may not follow a
tax-efficient strategy similar to that followed by all classes of the Schwab
S&P 500 Fund. Also, although many mutual funds have multiple classes of
shares, the category average includes only those funds that were classified
by Morningstar as a distinct portfolio. This typically means that a fund's
oldest class of shares was used.
Q. WHY CAN INDEX FUNDS BE A SOUND WAY TO IMPLEMENT AN ASSET ALLOCATION PLAN?
A. Research has shown that the manner in which an investor allocates his or her
portfolio among different asset classes can determine the vast majority of the
variance in the portfolio's returns. Unless investors build their portfolios
with investments that are designed to consistently deliver the performance of
the asset classes they wish to track, their portfolios may not behave as
expected.
Index funds can be an excellent choice to implement an asset allocation plan,
because they seek to invest only in the intended asset class and therefore
should achieve returns that closely track those of that benchmark asset class.
Index funds also should not be subject to the "style drift" that investors may
face with many actively managed funds. Consistent with their mission to track
their benchmarks, index funds also usually maintain minimal cash holdings.
In addition to seeking to deliver consistent asset class performance, index
funds are typically efficient both from a cost and a tax standpoint. Most index
funds minimize their trading and operating costs by keeping portfolio turnover
and operating expense ratios low. These savings are passed on to investors in
the form of higher returns.
Index funds also can be effective at reducing certain types of investment risk.
Most investment risks can be categorized as SYSTEMATIC (nondiversifiable) or
NONSYSTEMATIC (diversifiable). Systematic risks are those that may affect all
stocks or bonds, such as a bear market caused by adverse economic conditions.
Index funds do not safeguard against this type of risk; their goal is to
consistently track their benchmark regardless of how it
13
<PAGE>
SCHWAB S&P 500 FUND
FUND DISCUSSION (continued)
is performing. They also generally maintain minimal cash balances, so they do
not build up a defensive cash position in a negative market environment.
Nonsystematic risks are those that affect a particular stock or bond, such as a
decline in demand for a company's product or a negative earnings surprise.
Nonsystematic risk is also referred to as "diversifiable risk," because an
investor can reduce it by diversifying his or her portfolio across a
sufficiently large number of companies. Because most broad-based index funds
purchase many--in some cases, hundreds of-- securities, they can be effective at
minimizing nonsystematic or company-specific risk.
Q. WHAT STRATEGIES DOES THE FUND EMPLOY TO HELP INVESTORS ACHIEVE HIGHER
AFTER-TAX RETURNS?
A. PRE-TAX TOTAL RETURN is the most common measure used to compare mutual fund
performance. Because of different tax management policies, however, two funds
with identical pre-tax total returns may actually have significant differences
in their after-tax returns. Over the long term, these after-tax return
differences can have a major impact on investors' fund balances held outside of
retirement accounts.
As discussed in the first question in this section, the Schwab S&P 500 Fund has
been more "tax efficient" than the average large-cap fund. Index funds can be
tax efficient because they are designed to have lower portfolio turnover rates
and, hence, lower realization of capital gains than most actively managed funds.
Furthermore, when the Fund's portfolio manager does trade stocks, an attempt is
made to offset capital gains with capital losses to minimize the potential for
capital gain distributions to shareholders.
Q. HOW HAVE LARGE-CAP INDEX FUNDS PERFORMED
IN DOWN MARKETS?
A. Equity index funds do not employ two management techniques commonly
associated with actively managed funds in down markets: the buildup of cash or
bond positions to unusually high levels, and/or the overweighting of "defensive"
stocks in the portfolio. Given this distinction, therefore, it is fair to pose
the question of whether index funds underperform actively managed funds in down
markets.
The Schwab Center for Investment Research recently looked at how the S&P
500-Registered Trademark- Index compared to the average actively managed
large-cap fund during four relatively recent down markets. The results are
summarized below:
<TABLE>
<CAPTION>
AVERAGE ACTIVELY MANAGED
TIME PERIOD S&P 500 INDEX LARGE-CAP FUND
<S> <C> <C>
- ------------------------------------------------------------------------
9/1/87-11/30/87 -29.6% -28.1%
- ------------------------------------------------------------------------
6/1/90-10/31/90 -14.7% -17.7%
- ------------------------------------------------------------------------
1/1/94-12/31/94 1.3% -1.0%
- ------------------------------------------------------------------------
10/1/97-10/31/97 -3.3% -3.9%
- ------------------------------------------------------------------------
</TABLE>
The results of the study showed that actively managed large-cap funds do not
necessarily outperform index funds in down markets. In three of the four periods
analyzed, the actively managed funds trailed the S&P 500 Index returns by
margins ranging from 0.6% to 3.0%. Keep in mind that investors cannot invest in
an index directly and that indices do not reflect advisory fees and other
expenses associated with an investment in a fund.
14
<PAGE>
SCHWAB 1000 FUND-REGISTERED TRADEMARK--INVESTOR SHARES
FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98
<TABLE>
<CAPTION>
SINCE
FIVE INCEPTION
ONE YEAR YEARS (4/2/91)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
SCHWAB 1000 FUND-INVESTOR SHARES(1) 19.63% 19.85% 17.28%
- ----------------------------------------------------------------------------------------
Schwab 1000 Index-Registered Trademark- 20.33% 20.44% 17.79%
- ----------------------------------------------------------------------------------------
Index Tracking Differential 0.70% 0.59% 0.51%
- ----------------------------------------------------------------------------------------
S&P 500 Index 21.99% 21.29% 17.93%
- ----------------------------------------------------------------------------------------
</TABLE>
TAX-SMART INVESTMENT STRATEGY
The Schwab 1000 Fund seeks to maximize its after-tax performance by using a
strategy that helps reduce capital gains distributions. This strategy is
designed to help investors keep more of what their money earns. The chart below
illustrates the effects of this strategy on the five-year performance of the
Schwab 1000 Fund- Investor Shares.
FIVE-YEAR AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/98
<TABLE>
<CAPTION>
BEFORE AFTER % LOST
TAX TAX(2) TO TAXES
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Schwab 1000 Fund-Investor Shares(3) 19.85% 19.18% 0.67%
- ----------------------------------------------------------------------------------------
Average Large-Cap Fund(4) 16.63% 13.94% 2.69%
- ----------------------------------------------------------------------------------------
</TABLE>
(1)The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/2000 that total
operating expenses will not exceed 0.46% for the Investor Shares. Without fee
waivers and guarantees, the one-year, five-year and since-inception average
annual total returns would have been 19.58%, 19.79% and 17.12%, respectively,
for the Investor Shares as of 10/31/98.
(2)After-tax returns assume the maximum federal income tax rate of 39.6% on
dividends and 28% on capital gains distributions. Tax rates vary and may be
higher or lower than those shown.
(3)The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/2000 that total
operating expenses will not exceed 0.46%. Without fee waivers and guarantees,
the Investor Shares' returns would have been lower.
(4)Source: Morningstar, Inc. The Large-Cap Fund category contains 521 funds with
five-year track records as of 10/31/98. These funds may or may not follow a
tax-efficient strategy similar to that followed by the Schwab 1000 Fund.
Also, although many mutual funds have multiple classes of shares, the
category average includes only those funds that were classified by
Morningstar as a distinct portfolio. This typically means that a fund's
oldest class of shares was used.
15
<PAGE>
SCHWAB 1000 FUND-REGISTERED TRADEMARK--INVESTOR SHARES
FUND PERFORMANCE (continued)
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
This graph compares the growth of a hypothetical $10,000 investment in the
Schwab 1000 Fund-Investor Shares, made at its inception, with similar
investments in the Schwab 1000 Index-Registered Trademark- and the S&P
500-Registered Trademark- Index.
Also shown is the difference between the total returns of the Schwab 1000 Index
and the Schwab 1000 Fund, which is often referred to as the "tracking
differential." (See page 10 for a more detailed discussion.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB 1000 FUND-INVESTOR SHARES
Schwab 1000 Fund-Investor Shares Schwab 1000 Index S&P 500 Index
<S> <C> <C> <C>
4/2/91 $10,000 $10,000 $10,000
4/30/91 $9,910 $9,898 $9,908
5/31/91 $10,320 $10,311 $10,335
6/30/91 $9,850 $9,840 $9,861
7/31/91 $10,320 $10,310 $10,321
8/31/91 $10,600 $10,591 $10,566
9/30/91 $10,460 $10,455 $10,389
10/31/91 $10,630 $10,625 $10,528
11/30/91 $10,240 $10,225 $10,104
12/31/91 $11,425 $11,412 $11,260
1/31/92 $11,283 $11,272 $11,050
2/29/92 $11,425 $11,415 $11,193
3/31/92 $11,171 $11,163 $10,975
4/30/92 $11,404 $11,392 $11,298
5/31/92 $11,404 $11,457 $11,353
6/30/92 $11,465 $11,257 $11,184
7/31/92 $11,726 $11,728 $11,641
8/31/92 $11,480 $11,486 $11,403
9/30/92 $11,623 $11,646 $11,537
10/31/92 $11,746 $11,763 $11,577
11/30/92 $12,208 $12,233 $11,971
12/31/92 $12,398 $12,428 $12,119
1/31/93 $12,502 $12,539 $12,220
2/28/93 $12,595 $12,632 $12,387
3/31/93 $12,896 $12,948 $12,648
4/30/93 $12,533 $12,583 $12,342
5/31/93 $12,896 $12,957 $12,673
6/30/93 $12,958 $13,024 $12,710
7/31/93 $12,905 $12,989 $12,659
8/31/93 $13,397 $13,492 $13,139
9/30/93 $13,355 $13,454 $13,038
10/31/93 $13,544 $13,654 $13,308
11/30/93 $13,355 $13,462 $13,181
12/31/93 $13,592 $13,700 $13,341
1/31/94 $14,005 $14,136 $13,794
2/28/94 $13,645 $13,781 $13,420
3/31/94 $13,042 $13,169 $12,837
4/30/94 $13,190 $13,326 $13,001
5/31/94 $13,349 $13,488 $13,213
6/30/94 $12,988 $13,127 $12,889
7/31/94 $13,405 $13,558 $13,312
8/31/94 $13,971 $14,147 $13,856
9/30/94 $13,651 $13,825 $13,518
10/31/94 $13,918 $14,095 $13,821
11/30/94 $13,416 $13,590 $13,318
12/31/94 $13,577 $13,767 $13,514
1/31/95 $13,923 $14,121 $13,864
2/28/95 $14,474 $14,700 $14,404
3/31/95 $14,852 $15,094 $14,829
4/30/95 $15,219 $15,476 $15,264
5/31/95 $15,770 $16,048 $15,874
6/30/95 $16,191 $16,490 $16,242
7/31/95 $16,807 $17,111 $16,779
8/31/95 $16,936 $17,245 $16,821
9/30/95 $17,606 $17,949 $17,531
10/31/95 $17,520 $17,859 $17,468
11/30/95 $18,276 $18,646 $18,233
12/31/95 $18,547 $18,924 $18,585
1/31/96 $19,095 $19,499 $19,217
2/29/96 $19,379 $19,789 $19,396
3/31/96 $19,554 $19,980 $19,582
4/30/96 $19,883 $20,321 $19,870
5/31/96 $20,354 $20,812 $20,380
6/30/96 $20,299 $20,779 $20,458
7/31/96 $19,335 $19,794 $19,554
8/31/96 $19,861 $20,327 $19,966
9/30/96 $20,967 $21,465 $21,088
10/31/96 $21,394 $21,899 $21,670
11/30/96 $22,938 $23,485 $23,308
12/31/96 $22,549 $23,103 $22,847
1/31/97 $23,846 $24,442 $24,272
2/28/97 $23,935 $24,528 $24,464
3/31/97 $22,870 $23,457 $23,461
4/30/97 $24,101 $24,696 $24,859
5/31/97 $25,631 $26,291 $26,371
6/30/97 $26,695 $27,402 $27,552
7/31/97 $28,857 $29,615 $29,743
8/31/97 $27,471 $28,216 $28,077
9/30/97 $28,946 $29,732 $29,613
10/31/97 $27,992 $28,756 $28,624
11/30/97 $29,167 $29,983 $29,949
12/31/97 $29,747 $30,582 $30,464
1/31/98 $29,960 $30,818 $30,802
2/28/98 $32,166 $33,116 $33,023
3/31/98 $33,801 $34,830 $34,714
4/30/98 $34,149 $35,211 $35,065
5/31/98 $33,398 $34,441 $34,462
6/30/98 $34,742 $35,824 $35,861
7/31/98 $34,260 $35,324 $35,481
8/31/98 $29,142 $30,049 $30,357
9/30/98 $31,023 $32,014 $32,303
10/31/98 $33,487 $34,602 $34,929
</TABLE>
THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO 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.
16
<PAGE>
SCHWAB 1000 FUND-REGISTERED TRADEMARK--SELECT SHARES-TM-
Fund Performance
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
ONE YEAR (5/19/97)
<S> <C> <C>
- -----------------------------------------------------------------------------------------
SCHWAB 1000 FUND-SELECT SHARES(1) 19.79% 22.11%
- -----------------------------------------------------------------------------------------
Schwab 1000 Index 20.33% 22.59%
- -----------------------------------------------------------------------------------------
Index Tracking Differential 0.54% 0.48%
- -----------------------------------------------------------------------------------------
S&P 500 Index 21.99% 22.91%
- -----------------------------------------------------------------------------------------
</TABLE>
GROWTH OF A HYPOTHETICAL $50,000 INVESTMENT
This graph compares the growth of a hypothetical $50,000 investment(2) in the
Schwab 1000 Fund-Select Shares, made at its inception, with a similar investment
in the Schwab 1000 Index and the S&P 500 Index.
Also shown is the difference between the total returns of the Schwab 1000 Index
and the Schwab 1000 Fund, often referred to as the "tracking differential." (See
page 10 for a more detailed discussion.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB 1000 FUND-SELECT SHARES
Schwab 1000 Fund-Select Shares Schwab 1000 Index S&P 500 Index
<S> <C> <C> <C>
5/19/97 $50,000 $50,000 $50,000
5/31/97 $51,040 $51,064 $50,930
6/30/97 $53,180 $53,222 $53,212
7/31/97 $57,490 $57,518 $57,442
8/31/97 $54,750 $54,801 $54,225
9/30/97 $57,685 $57,746 $57,191
10/31/97 $55,785 $55,851 $55,281
11/30/97 $58,150 $58,233 $57,841
12/31/97 $59,325 $59,398 $58,836
1/31/98 $59,725 $59,855 $59,489
2/28/98 $64,145 $64,318 $63,778
3/31/98 $67,405 $67,648 $67,043
4/30/98 $68,100 $68,387 $67,720
5/31/98 $66,625 $66,893 $66,556
6/30/98 $69,305 $69,578 $69,258
7/31/98 $68,345 $68,606 $68,524
8/31/98 $58,140 $58,362 $58,629
9/30/98 $61,915 $62,179 $62,387
10/31/98 $66,825 $67,206 $67,459
</TABLE>
(1)The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/2000 that total
operating expenses will not exceed 0.35% for the Select Shares. Without fee
waivers and guarantees, the one-year and since-inception average annual total
returns would have been 19.75% and 22.06%, respectively, for the Select
Shares as of 10/31/98.
(2)The required minimum initial investment in the Select Shares is $50,000.
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 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.
17
<PAGE>
SCHWAB 1000 FUND-REGISTERED TRADEMARK-
FUND HOLDINGS
The Schwab 1000 Fund (the Fund) invests primarily in common stocks of the Schwab
1000 Index,-Registered Trademark- an index created to represent the performance
of publicly traded common stocks of the 1,000 largest U.S. companies (excluding
investment companies). As of October 31, 1998, the aggregate market
capitalization of the Schwab 1000 Index represented approximately 87.4% of the
total value of the U.S. stock market.(1)
TOP 10 HOLDINGS
AS A PERCENTAGE OF FUND INVESTMENTS(2)
<TABLE>
<S> <C>
- ------------------------------------------------
General Electric Co. 2.89%
- ------------------------------------------------
Microsoft Corp. 2.64%
- ------------------------------------------------
Exxon Corp. 1.76%
- ------------------------------------------------
Coca-Cola Co. 1.69%
- ------------------------------------------------
Merck & Co., Inc. 1.65%
- ------------------------------------------------
Wal-Mart Stores, Inc. 1.56%
- ------------------------------------------------
Intel Corp. 1.53%
- ------------------------------------------------
Pfizer, Inc. 1.43%
- ------------------------------------------------
IBM Corp. 1.40%
- ------------------------------------------------
Philip Morris Companies, Inc. 1.26%
- ------------------------------------------------
Total 17.81%
- ------------------------------------------------
</TABLE>
(1)Source: Wilshire Associates. The U.S. stock market is represented by the
Wilshire 5000 Index.
(2)Both the top 10 holdings and the economic sector percentages are not
indicative of current or future investments. These percentages do not take
into account other assets and liabilities. A complete list of the Fund's
investments as of 10/31/98 can be found in the Schedule of Investments later
in this report.
PORTFOLIO BY ECONOMIC SECTOR(2)
<TABLE>
<S> <C>
- ------------------------------------------------
Healthcare/Drugs and Medicine 12.04%
- ------------------------------------------------
Business Machines and Software 10.26%
- ------------------------------------------------
Banks 8.19%
- ------------------------------------------------
Telephone 7.41%
- ------------------------------------------------
Retail 6.04%
- ------------------------------------------------
Miscellaneous Finance 5.46%
- ------------------------------------------------
Electronics 5.34%
- ------------------------------------------------
Food and Agriculture 5.02%
- ------------------------------------------------
Producer Goods and Manufacturing 4.58%
- ------------------------------------------------
Insurance 4.43%
- ------------------------------------------------
</TABLE>
18
<PAGE>
SCHWAB 1000 FUND-REGISTERED TRADEMARK-
FUND DISCUSSION
QUESTIONS TO THE
PORTFOLIO MANAGEMENT TEAM
Q. HOW DID THE FUND PERFORM DURING THE
REPORTING PERIOD?
A. As discussed in the MARKET OVERVIEW (pages 4-7), large-cap domestic equities,
represented by the majority of the Schwab 1000 Fund, were clearly the
strongest-performing major asset class. As shown below, the Fund achieved strong
total returns for the 12-month reporting period. Both classes of shares closely
tracked the Fund's benchmark, the Schwab 1000 Index, which achieved a total
return of 20.33% for the period. As the table below reveals, the Fund
outperformed the average U.S. large-cap fund on both a one-year and a five-year
basis.(1) The Fund's outperformance was even greater on an after-tax basis, a
direct result of the Fund's tax-efficient investment strategy.
<TABLE>
<CAPTION>
BEFORE TAX: AFTER TAX:
ONE YEAR FIVE YEARS* ONE YEAR FIVE YEARS*
<S> <C> <C> <C> <C>
- -------------------------------------------------------------
Investor
Shares 19.63% 19.85% 19.12% 19.18%
- -------------------------------------------------------------
Select
Shares-TM- 19.79% -- 19.24% --
- -------------------------------------------------------------
Average
Large-Cap
Fund 11.96% 16.63% 8.94% 13.94%
- -------------------------------------------------------------
</TABLE>
*Five-year returns represent average annual total returns over the five-year
period.
(1)Source: Morningstar, Inc. The Large-Cap Fund category contains 521 funds with
five-year track records as of 10/31/98. These funds may or may not follow a
tax-efficient strategy similar to that followed by the Schwab 1000 Fund.
Also, although many mutual funds have multiple classes of shares, the
category average includes only those funds that were classified by
Morningstar as a distinct portfolio. This typically means that a fund's
oldest class of shares was used.
Q. HOW DID THE PERFORMANCE OF THE SCHWAB 1000 INDEX COMPARE WITH THAT OF THE S&P
500-REGISTERED TRADEMARK- INDEX?
A. As shown in the table below, the S&P 500 Index marginally outperformed the
Schwab 1000 Index for the one-year reporting period. On an inception-to-date
basis, the performance of the two indices are almost identical. As we have
discussed in previous reports, these two indices are constructed differently,
and it is not unusual that their performance should differ. In particular,
during the reporting period, the Schwab 1000 Index had more mid-cap stock
exposure than did the S&P 500 Index. Because mid-cap stocks underperformed
large-cap stocks for the period, the S&P 500 Index performed slightly better
than did the Schwab 1000 Index.
<TABLE>
<CAPTION>
INCEPTION
(4/2/91)
TO DATE AVERAGE
ONE YEAR ANNUAL RETURNS
<S> <C> <C>
- ----------------------------------------------------------
Schwab 1000 Index 20.33% 17.79%
- ----------------------------------------------------------
S&P 500 Index 21.99% 17.93%
- ----------------------------------------------------------
</TABLE>
Q. WHY CAN INDEX FUNDS BE A SOUND WAY TO IMPLEMENT AN ASSET ALLOCATION PLAN?
A. Research has shown that the manner in which an investor allocates his or her
portfolio among different asset classes can determine the vast majority of the
variance in the portfolio's returns. Unless investors build their portfolios
with investments that are designed to consistently deliver the performance of
the asset classes they wish to track, their portfolios may not behave as they
expect.
Index funds can be an excellent choice to implement an asset allocation plan,
because they seek to invest only in the intended asset class and therefore
should, because of their investment objectives, achieve returns that closely
track those of that benchmark asset class.
19
<PAGE>
SCHWAB 1000 FUND-REGISTERED TRADEMARK-
FUND DISCUSSION (continued)
Index funds also should not be subject to the "style drift" that investors may
face with many actively managed funds. Consistent with their mission to track
their benchmarks, index funds also usually maintain minimal cash holdings.
In addition to seeking to deliver consistent asset class performance, index
funds are typically efficient both from a cost and a tax standpoint. Most index
funds minimize their trading and operating costs by keeping portfolio turnover
and operating expense ratios low. These savings are passed on to investors in
the form of higher returns.
Index funds also can be effective at reducing certain types of investment risk.
Most investment risks can be categorized as SYSTEMATIC (nondiversifiable)
or NONSYSTEMATIC (diversifiable). Systematic risks are those that may affect all
stocks or bonds, such as a bear market caused by adverse economic
conditions. Index funds do not safeguard against this type of risk; their goal
is to consistently track their benchmark regardless of how it is performing.
They also generally maintain minimal cash balances, so they do not build up a
defensive cash position in a negative market environment.
Nonsystematic risks are those that affect a particular stock or bond, such as a
decline in demand for a company's product or a negative earnings surprise.
Nonsystematic risk is also referred to as "diversifiable risk," because an
investor can reduce it by diversifying his or her portfolio across a
sufficiently large number of companies. Because most broad-based index funds
purchase many--in some cases, hundreds of-- securities, they can be effective at
minimizing nonsystematic or company-specific risk.
Q. WHAT STRATEGIES DOES THE FUND EMPLOY TO HELP INVESTORS ACHIEVE HIGHER
AFTER-TAX RETURNS?
A. PRE-TAX TOTAL RETURN is the most common measure used to compare mutual fund
performance. Because of different tax management policies, however, two funds
with identical pre-tax total returns may actually have significant differences
in their after-tax returns. Over the long term, these after-tax return
differences can have a major impact on investors' fund balances held outside of
retirement accounts.
As discussed in the first question in this section, the Schwab 1000 Fund has
been more "tax efficient" than the average large-cap fund. Since its inception
in 1991, the Fund has not paid a capital gain distribution. Although no
assurance can be provided that this record will be maintained in the future, it
is indicative of the Fund's tax-efficient management strategy. Index funds can
be tax efficient because they are designed to have lower portfolio turnover
rates and, hence, lower realization of capital gains than most actively managed
funds. Furthermore, when the Fund's investment manager does trade stocks, an
attempt is made to offset capital gains with capital losses to minimize the
potential for capital gain distributions to shareholders.
Q. HOW HAVE LARGE-CAP INDEX FUNDS PERFORMED IN DOWN MARKETS?
A. Equity index funds do not employ two management techniques commonly
associated with actively managed funds in down markets: the buildup of the
portfolio cash or bond position to unusually high levels, and/or the
overweighting of "defensive" stocks in the portfolio. Given this distinction,
therefore, it is fair to pose the question of whether index funds underperform
actively managed funds in down markets.
20
<PAGE>
The Schwab Center for Investment Research recently looked at how the S&P
500-Registered Trademark- Index compared to the average actively managed
large-cap fund during four relatively recent down markets. The results are
summarized below:
<TABLE>
<CAPTION>
AVERAGE ACTIVELY
MANAGED
TIME PERIOD S&P 500 LARGE-CAP FUND
<S> <C> <C>
- ----------------------------------------------------------
9/1/87-11/30/87 -29.6% -28.1%
- ----------------------------------------------------------
6/1/90-10/31/90 -14.7% -17.7%
- ----------------------------------------------------------
1/1/94-12/31/94 1.3% -1.0%
- ----------------------------------------------------------
10/1/97-10/31/97 -3.3% -3.9%
- ----------------------------------------------------------
</TABLE>
The results of the study showed that actively managed large-cap funds do not
necessarily outperform index funds in down markets. In three of the four periods
analyzed, the actively managed funds trailed the S&P 500 Index returns by
margins ranging from 0.6% to 3.0%. Keep in mind that investors cannot invest in
an index directly and that indices do not reflect advisory fees and other
expenses associated with an investment in a fund.
21
<PAGE>
SCHWAB SMALL-CAP INDEX FUND-REGISTERED TRADEMARK--INVESTOR SHARES
FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
ONE YEAR THREE YEARS (12/3/93)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND-
INVESTOR SHARES(1) -12.88% 10.04% 9.62%
- -------------------------------------------------------------------------------------------
Schwab Small-Cap Index-Registered Trademark- -11.20% 11.95% 11.01%
- -------------------------------------------------------------------------------------------
Index Tracking Differential 1.68% 1.91% 1.39%
- -------------------------------------------------------------------------------------------
Russell 2000-Registered Trademark- Index -11.87% 9.96% 10.00%
- -------------------------------------------------------------------------------------------
</TABLE>
TAX-SMART INVESTMENT STRATEGY
The Schwab Small-Cap Index Fund seeks to maximize its after-tax performance by
using a strategy that helps reduce capital gains distributions. This strategy is
designed to help investors keep more of what their money earns. The chart below
illustrates the effects of this strategy on the three-year performance of the
Schwab Small-Cap Fund-Investor Shares.
THREE-YEAR AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/98
<TABLE>
<CAPTION>
BEFORE AFTER % LOST
TAX TAX(2) TO TAXES
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Schwab Small-Cap Index Fund-Investor Shares(3) 10.04% 9.84% 0.20%
- ----------------------------------------------------------------------------------------
Average Small-Cap Fund(4) 9.02% 6.35% 2.67%
- ----------------------------------------------------------------------------------------
</TABLE>
(1)The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/2000 that total
operating expenses will not exceed 0.49% for the Investor Shares. Without fee
waivers and guarantees, the one-year, three-year and since-inception average
annual total returns would have been -13.13%, 9.68% and 9.20%, respectively,
for the Investor Shares as of 10/31/98.
(2)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.
(3)The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/2000 that total
operating expenses will not exceed 0.49%. Without fee waivers and guarantees,
the Investor Shares' returns would have been lower.
(4)Source: Morningstar, Inc. The Small-Cap Fund category contains 263 funds with
three-year track records as of 10/31/98. These funds may or may not follow a
tax-efficient strategy similar to that followed by the Schwab Small-Cap Index
Fund. Also, although many mutual funds have multiple classes of shares, the
category average includes only those funds that were classified by
Morningstar as a distinct portfolio. This typically means that a fund's
oldest class of shares was used.
22
<PAGE>
SCHWAB SMALL-CAP INDEX FUND-REGISTERED TRADEMARK--INVESTOR SHARES
FUND PERFORMANCE
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
This graph compares the growth of a hypothetical $10,000 investment in the
Schwab Small-Cap Index Fund-Investor Shares, made at its inception, with similar
investments in the Schwab Small-Cap Index and the Russell 2000 Index.
Also shown is the difference between the total returns of the Schwab Small-Cap
Index and the Schwab Small-Cap Index Fund, often referred to as the "tracking
differential." (See page 10 for a more detailed discussion.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB SMALL-CAP INDEX
FUND-INVESTOR SHARES
SCHWAB SMALL-CAP SCHWAB SMALL-CAP RUSSELL 2000
INDEX FUND-INVESTOR SHARES INDEX INDEX
<S> <C> <C> <C>
12/3/93 $10,000 $10,000 $10,000
12/31/93 $10,154 $10,234 $10,186
1/31/94 $10,394 $10,469 $10,505
2/28/94 $10,334 $10,430 $10,467
3/31/94 $9,783 $9,871 $9,915
4/30/94 $9,753 $9,847 $9,974
5/31/94 $9,613 $9,692 $9,861
6/30/94 $9,333 $9,419 $9,529
7/31/94 $9,493 $9,614 $9,685
8/31/94 $10,134 $10,249 $10,225
9/30/94 $10,094 $10,191 $10,190
10/31/94 $10,064 $10,149 $10,149
11/30/94 $9,663 $9,767 $9,739
12/31/94 $9,841 $10,000 $10,000
1/31/95 $9,730 $9,838 $9,874
2/28/95 $10,082 $10,229 $10,285
3/31/95 $10,334 $10,442 $10,461
4/30/95 $10,566 $10,671 $10,693
5/31/95 $10,717 $10,809 $10,877
6/30/95 $11,211 $11,356 $11,441
7/31/95 $11,866 $12,021 $12,100
8/31/95 $12,077 $12,270 $12,351
9/30/95 $12,309 $12,510 $12,572
10/31/95 $11,785 $11,910 $12,010
11/30/95 $12,329 $12,114 $12,514
12/31/95 $12,562 $12,782 $12,845
1/31/96 $12,491 $12,749 $12,831
2/29/96 $12,967 $13,261 $13,231
3/31/96 $13,170 $13,492 $13,505
4/30/96 $13,899 $14,206 $14,227
5/31/96 $14,384 $14,692 $14,788
6/30/96 $13,848 $14,222 $14,180
7/31/96 $12,643 $13,075 $12,942
8/31/96 $13,413 $13,904 $13,694
9/30/96 $14,010 $14,416 $14,230
10/31/96 $13,757 $14,169 $14,010
11/30/96 $14,344 $14,733 $14,588
12/31/96 $14,508 $15,007 $14,970
1/31/97 $14,895 $15,361 $15,269
2/28/97 $14,376 $14,986 $14,900
3/31/97 $13,654 $14,257 $14,196
4/30/97 $13,756 $14,299 $14,236
5/31/97 $15,383 $16,045 $15,821
6/30/97 $16,125 $16,880 $16,499
7/31/97 $17,213 $17,842 $17,267
8/31/97 $17,538 $18,243 $17,662
9/30/97 $18,850 $19,675 $18,955
10/31/97 $18,026 $18,816 $18,123
11/30/97 $17,843 $18,645 $18,005
12/31/97 $18,236 $19,035 $18,320
1/31/98 $17,787 $18,736 $18,031
2/28/98 $19,195 $20,285 $19,361
3/31/98 $20,042 $21,199 $20,159
4/30/98 $20,144 $21,344 $20,270
5/31/98 $18,930 $20,090 $19,177
6/30/98 $18,960 $20,146 $19,218
7/31/98 $17,471 $18,597 $17,661
8/31/98 $14,062 $15,011 $14,231
9/30/98 $14,991 $15,953 $15,345
10/31/98 $15,705 $16,709 $15,972
</TABLE>
THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO 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.
23
<PAGE>
SCHWAB SMALL-CAP INDEX FUND-REGISTERED TRADEMARK--SELECT SHARES
FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR (5/19/97)
<S> <C> <C>
- ------------------------------------------------------------------------------
SCHWAB SMALL-CAP INDEX FUND-SELECT SHARES(1) -12.81% 4.59%
- ------------------------------------------------------------------------------
Schwab Small-Cap Index-Registered Trademark- -11.20% 5.96%
- ------------------------------------------------------------------------------
Index Tracking Differential 1.61% 1.37%
- ------------------------------------------------------------------------------
Russell 2000-Registered Trademark- Index -11.87% 3.36%
- ------------------------------------------------------------------------------
</TABLE>
GROWTH OF A HYPOTHETICAL $50,000 INVESTMENT
This graph compares the growth of a hypothetical $50,000 investment(2) in the
Schwab Small-Cap Index Fund-Select Shares, made at its inception, with similar
investments in the Schwab Small-Cap Index and the Russell 2000 Index.
Also shown is the difference between the total returns of the Schwab Small-Cap
Index and the Schwab Small-Cap Index Fund, often referred to as the "tracking
differential." (See page 10 for a more detailed discussion.)
(1)The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/2000 that total
operating expenses will not exceed 0.38% for the Select Shares. Without fee
waivers and guarantees, the one-year and since-inception average annual total
returns would have been -13.30% and 3.95%, respectively, for the Select
Shares as of 10/31/98.
(2)The required minimum initial investment in the Select Shares is $50,000.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB SMALL-CAP INDEX FUND-SELECT SHARES
SCHWAB SMALL-CAP SCHWAB SMALL-CAP
INDEX FUND-SELECT SHARES INDEX RUSSELL 2000 INDEX
<S> <C> <C> <C>
5/19/97 $50,000 $50,000 $50,000
5/31/97 $52,170 $52,226 $51,960
6/30/97 $54,690 $54,942 $54,189
7/31/97 $58,415 $58,075 $56,709
8/31/97 $59,485 $59,380 $58,008
9/30/97 $63,965 $64,039 $62,254
10/31/97 $61,205 $61,244 $59,521
11/30/97 $60,550 $60,687 $59,134
12/31/97 $61,920 $61,958 $60,169
1/31/98 $60,400 $60,983 $59,218
2/28/98 $65,175 $66,026 $63,588
3/31/98 $68,050 $69,002 $66,208
4/30/98 $68,430 $69,473 $66,572
5/31/98 $64,310 $65,391 $62,984
6/30/98 $64,415 $65,575 $63,116
7/31/98 $59,360 $60,531 $58,004
8/31/98 $47,790 $48,861 $46,740
9/30/98 $50,945 $51,924 $50,399
10/31/98 $53,365 $54,386 $52,456
</TABLE>
THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO 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.
24
<PAGE>
SCHWAB SMALL-CAP INDEX FUND-REGISTERED TRADEMARK-
FUND HOLDINGS
The Schwab Small-Cap Index Fund (the Fund) invests primarily in common stocks of
the Schwab Small-Cap Index an index created to represent the performance of
common stocks of the second 1,000 largest U.S. companies, ranked by market
capitalization. As of October 31, 1998, the aggregate market capitalization of
stocks included in the index represented approximately 5.3% of the total market
value of all publicly traded U.S. companies, as represented by the Wilshire 5000
Index.(1)
TOP 10 HOLDINGS
AS A PERCENTAGE OF FUND INVESTMENTS(2)
<TABLE>
<S> <C>
- -------------------------------------------------
Interstate Energy Corp. 0.40%
- -------------------------------------------------
Learning Company, Inc. 0.36%
- -------------------------------------------------
Waters Corp. 0.35%
- -------------------------------------------------
Pixar Inc. 0.35%
- -------------------------------------------------
Comverse Technology 0.34%
- -------------------------------------------------
Excite Inc. 0.34%
- -------------------------------------------------
Micron Electronics 0.33%
- -------------------------------------------------
Nova Corp. 0.33%
- -------------------------------------------------
Rational Software Corp. 0.32%
- -------------------------------------------------
NTL Inc. 0.32%
- -------------------------------------------------
Total 3.44%
- -------------------------------------------------
</TABLE>
(1)Source: Wilshire Associates. The U.S. stock market is represented by the
Wilshire 5000 Index.
(2)Both the top 10 holdings and the economic sector percentages are not
indicative of current or future investments. These percentages do not take
into account other assets and liabilities. A complete list of the Fund's
investments as of 10/31/98 can be found in the Schedule of Investments later
in this report.
PORTFOLIO BY ECONOMIC SECTOR(2)
<TABLE>
<S> <C>
- ---------------------------------------------
Business Services 14.12%
- ---------------------------------------------
Healthcare/Drugs and Medicine 8.24%
- ---------------------------------------------
Producer Goods and Manufacturing 7.05%
- ---------------------------------------------
Banks 6.03%
- ---------------------------------------------
Business Machines and Software 5.72%
- ---------------------------------------------
Electronics 5.32%
- ---------------------------------------------
Utilities-Electric & Gas 4.95%
- ---------------------------------------------
Insurance 4.51%
- ---------------------------------------------
Media 3.69%
- ---------------------------------------------
Retail 3.51%
- ---------------------------------------------
</TABLE>
25
<PAGE>
SCHWAB SMALL-CAP INDEX FUND-REGISTERED TRADEMARK-
FUND DISCUSSION
QUESTIONS TO THE
PORTFOLIO MANAGEMENT TEAM
Q. HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A. As discussed in the MARKET OVERVIEW (pages 4-7), small-cap domestic equities
were the worst performing of the major asset classes. The Fund achieved negative
total returns for the one-year reporting period of -12.88% and -12.81% for the
Investor Shares and Select Shares,-TM- respectively. Both classes of shares
continued to track the Fund's benchmark, the Schwab Small-Cap
Index,-Registered Trademark- which realized a negative total return of -11.20%
for the period. As the table below reveals, the Fund did manage to outperform
the average U.S. small-cap fund over the one-year and three-year periods ended
October 31, 1998.(1) The Fund's outperformance was even greater on an after-tax
basis, a direct result of the Fund's tax-efficient investment strategy.
<TABLE>
<CAPTION>
BEFORE TAX: AFTER TAX:
THREE THREE
ONE YEAR YEARS* ONE YEAR YEARS*
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------
Investor
Shares -12.88% 10.04% -13.01% 9.84%
- -----------------------------------------------------------------
Select Shares -12.81% -- -12.97% --
- -----------------------------------------------------------------
Average
Small-Cap
Fund -15.12% 9.02% -16.95% 6.35%
- -----------------------------------------------------------------
</TABLE>
* Three-year returns represent average annual total returns over the three-year
period.
(1)Source: Morningstar, Inc. Returns are load-adjusted. The Small-Cap Fund
category contains 263 funds with three-year track records as of 10/31/98.
These funds may or may not follow a tax-efficient strategy similar to that
followed by the Schwab Small-Cap Index Fund. Also, although many mutual funds
have multiple classes of shares, the category average includes only those
funds that were classified by Morningstar as a distinct portfolio. This
typically means that a fund's oldest class of shares was used.
Q. HOW DID THE PERFORMANCE OF THE SCHWAB SMALL-CAP INDEX COMPARE TO THAT OF THE
RUSSELL 2000 INDEX?
A. As shown in the table below, the Schwab Small-Cap Index marginally
outperformed the Russell 2000-Registered Trademark- Index for the one-year
reporting period as well as on an inception-to-date basis.
<TABLE>
<CAPTION>
INCEPTION
(12/3/93)
TO DATE AVERAGE
ONE YEAR ANNUAL RETURNS
<S> <C> <C>
- -----------------------------------------------------------
Schwab Small-Cap Index -11.20% 11.95%
- -----------------------------------------------------------
Russell 2000 Index -11.87% 9.96%
- -----------------------------------------------------------
</TABLE>
Q. WHY CAN INDEX FUNDS BE A SOUND WAY TO IMPLEMENT AN ASSET ALLOCATION PLAN?
A. Research has shown that the manner in which an investor allocates his or her
portfolio among different asset classes can determine the vast majority of the
variance in the portfolio's returns. Unless investors build their portfolios
with investments that are designed to consistently deliver the performance of
the asset classes they wish to track, their portfolios may not behave as they
expect.
Index funds can be an excellent choice to implement an asset allocation plan,
because they seek to invest only in the intended asset class and therefore
should, because of their investment objectives, achieve returns that closely
track those of that benchmark asset class. Index funds also should not be
subject to the "style drift" that investors may face with many actively managed
funds. Consistent with their mission to track their benchmarks, index funds also
usually maintain minimal cash holdings.
In addition to seeking to deliver consistent asset class performance, index
funds are typically efficient both
26
<PAGE>
from a cost and a tax standpoint. Most index funds minimize their trading and
operating costs by keeping portfolio turnover and operating expense ratios low.
These savings are passed on to investors in the form of higher returns.
Index funds also can be effective at reducing certain types of investment risk.
Most investment risks can be categorized as SYSTEMATIC (nondiversifiable) or
NONSYSTEMATIC (diversifiable). Systematic risks are those that may affect all
stocks or bonds, such as a bear market caused by adverse economic conditions.
Index funds do not safeguard against this type of risk; their goal is to
consistently track their benchmark regardless of how it is performing. They also
generally maintain minimal cash balances, so they do not build up a defensive
cash position in a negative market environment.
Nonsystematic risks are those that affect a particular stock or bond, such as a
decline in demand for a company's product or a negative earnings surprise.
Nonsystematic risk is also referred to as "diversifiable risk," because an
investor can reduce it by diversifying his or her portfolio across a
sufficiently large number of companies. Because most broad-based index funds
purchase many--in some cases, hundreds of-- securities, they can be effective at
minimizing nonsystematic or company-specific risk.
Q. WHAT STRATEGIES DOES THE FUND EMPLOY TO HELP INVESTORS ACHIEVE HIGHER
AFTER-TAX RETURNS?
A. PRE-TAX TOTAL RETURN is the most common measure used to compare mutual fund
performance. Because of different tax management policies, however, two funds
with identical pre-tax total returns may actually have significant differences
in their after-tax returns. Over the long term, these after-tax return
differences can have a major impact on investors' fund balances held outside of
retirement accounts.
As discussed in the first question in this section, the Schwab Small-Cap Index
Fund has generally been more "tax efficient" than the average small-cap fund.
Index funds can be tax efficient because they are designed to have lower
portfolio turnover rates and, hence, lower realization of capital gains than
most actively managed funds. Furthermore, when the Fund's investment manager
does trade stocks, an attempt is made to offset capital gains with capital
losses to minimize the potential for capital gain distributions to shareholders.
Recently, however, shareholders of the Fund were sent a letter notifying them of
the first capital gain distribution since the Fund's inception in December 1993,
estimated to be $0.84 per share--approximately 5% of the net asset value (NAV)
as of the end of the reporting period. This capital gain was a result of changes
in the stocks comprising the Index, in part driven by significant market
volatility and our efforts to ensure that the composition and performance of the
Fund closely matched that of the Index. To put this distribution in perspective,
small-cap equity funds averaged capital gain distributions of nearly 6% of NAV
PER YEAR over the past five years.(1)
Although we would prefer not to realize these capital gains, we believe that
rebalancing the portfolio to closely match the Index is essential to remain true
to the Fund's stated investment mandate and to ensure that it continues to
provide you with an effective small-cap investment choice. As in the past, we
will
(1)Source: Morningstar, Inc., based on the capital gain distributions of 437
small-cap funds through 12/31/97.
27
<PAGE>
SCHWAB SMALL-CAP INDEX FUND-REGISTERED TRADEMARK-
FUND DISCUSSION (continued)
continue to manage the Fund for tax efficiency whenever possible by using such
techniques as choosing to realize certain capital losses to offset capital
gains, avoiding unnecessary trading, selling the highest-cost-basis shares
first, and maintaining appropriate cash reserves to meet redemptions and pay
Fund expenses without selling securities. By reducing taxable distributions,
these approaches help increase your after-tax returns.
Q. GIVEN THE RECENT UNDERPERFORMANCE OF SMALL-CAP STOCKS, IS THERE STILL A
REASON TO INVEST IN THEM?
A. Yes, if history is any guide. As the first of the graphs at the right
illustrates, the total returns of U.S. large-cap and small-cap stocks have been
fairly comparable over extended periods of time--such as from 1970 to 1997. Over
the past 28 years, small-cap stocks have outperformed large-cap stocks 14 times,
over varying lengths of time, as the second graph illustrates. In the remaining
14 years, large-caps outperformed small-caps. There appears to be little, if
any, predictability to this seesaw effect. That's why it can be wise for an
investor to consider diversifying his or her portfolio by holding both small-
and large-cap stocks. For example, small-cap stocks generally outperformed
large-cap stocks from 1991 to 1993. Large-cap stocks were the winners from 1994
through 1997. Although not readily apparent from viewing these graphs, small-cap
stocks have also exhibited a higher level of volatility over the period shown.
In addition, there is less publicly available information about small-cap
stocks.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LARGE-CAP AND SMALL-CAP CUMULATIVE RETURNS: 1970-1997
GROWTH OF A HYPOTHETICAL $1 INVESTMENT
LARGE-CAP SMALL-CAP
CUMULATIVE CUMULATIVE
RETURN RETURN
<S> <C> <C>
1970 $1.04 $0.88
1971 $1.19 $1.05
1972 $1.41 $1.09
1973 $1.21 $0.69
1974 $0.89 $0.50
1975 $1.22 $0.82
1976 $1.51 $1.24
1977 $1.40 $1.47
1978 $1.49 $1.73
1979 $1.77 $2.50
1980 $2.34 $3.34
1981 $2.22 $3.47
1982 $2.70 $4.45
1983 $3.31 $5.79
1984 $3.52 $5.49
1985 $4.65 $7.22
1986 $5.51 $7.73
1987 $5.79 $7.03
1988 $6.77 $8.71
1989 $8.90 $10.12
1990 $8.62 $8.08
1991 $11.25 $12.06
1992 $12.11 $14.41
1993 $13.32 $17.08
1994 $13.50 $16.76
1995 $18.55 $21.93
1996 $22.83 $25.93
1997 $30.44 $32.81
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LARGE-CAP AND SMALL-CAP RELATIVE PERFORMANCE: 1970-1997
LARGE-CAP STRONG SMALL-CAP STRONG
RELATIVE PERFORMANCE RELATIVE PERFORMANCE
<S> <C> <C>
1970 16.3%
1971 -5.8%
1972 15.4%
1973 22.0%
1974 1.5%
1975 -27.1%
1976 -27.3%
1977 -26.0%
1978 -11.5%
1979 -25.8%
1980 -1.0%
1981 -8.9%
1982 -6.9%
1983 -7.5%
1984 11.5%
1985 0.6%
1986 11.3%
1987 14.3%
1988 -7.1%
1989 15.3%
1990 17.0%
1991 -18.7%
1992 -11.8%
1993 -8.5%
1994 3.2%
1995 6.6%
1996 4.8%
1997 6.8%
</TABLE>
Source: Schwab's Center for Investment Research. Large-cap stocks are
represented by the S&P 500-Registered Trademark- Index; small-cap stocks are
represented by the Russell 2000-Registered Trademark- Index. Index returns
include reinvestment of dividends and capital gain distributions. An index
cannot be invested in directly. Indices are unmanaged and do not charge fees
and expenses.
28
<PAGE>
Q. HOW HAS THE U.S. SMALL-CAP SECTOR PERFORMED IN DOWN MARKETS?
A. Equity index funds do not employ two management techniques commonly
associated with actively managed funds in down markets: the buildup of the
portfolio cash or bond position to unusually high levels, and/or the
overweighting of "defensive" stocks in the portfolio. Given this distinction,
therefore, it is fair to pose the question of whether index funds underperform
actively managed funds in down markets.
The Schwab Center for Investment Research recently looked at how the Russell
2000 Index compared to the average actively managed small-cap fund during four
relatively recent down markets. The results are summarized below:
<TABLE>
<CAPTION>
AVERAGE ACTIVELY MANAGED
TIME PERIOD RUSSELL 2000 INDEX SMALL-CAP FUND
<S> <C> <C>
- -----------------------------------------------------------------------------
9/1/87-11/30/87 -35.5% -30.2%
- -----------------------------------------------------------------------------
6/1/90-10/31/90 -29.0% -23.6%
- -----------------------------------------------------------------------------
1/1/94-12/31/94 -1.8% -0.6%
- -----------------------------------------------------------------------------
10/1/97-10/30/97 -20.1% -21.3%
- -----------------------------------------------------------------------------
</TABLE>
The results of the study showed that actively managed small-cap funds
outperformed the Russell 2000 Index in three of the four down markets, but not
the most recent one. Keep in mind that investors cannot invest in an index
directly and that indices do not reflect advisory fees and other expenses
associated with an investment in a fund.
29
<PAGE>
SCHWAB INTERNATIONAL INDEX FUND-REGISTERED TRADEMARK--INVESTOR SHARES
FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR FIVE YEARS (9/9/93)
<S> <C> <C> <C>
- -----------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX
FUND-
INVESTOR SHARES(1) 8.02% 8.10% 8.17%
- -----------------------------------------------------------------------
Schwab International
Index-Registered Trademark- 8.68% 8.57% 8.66%
- -----------------------------------------------------------------------
Index Tracking Differential 0.66% 0.47% 0.49%
- -----------------------------------------------------------------------
MSCI-EAFE-Registered Trademark-
Index 9.65% 6.81% 6.71%
- -----------------------------------------------------------------------
</TABLE>
TAX-SMART INVESTMENT STRATEGY
The Schwab International Index Fund seeks to maximize its after-tax performance
by using a strategy that helps reduce capital gains distributions. This strategy
is designed to help investors keep more of what their money earns. The chart
below illustrates the effects of this strategy on the three-year performance of
the Schwab International Index Fund-Investor Shares.
FIVE-YEAR AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/98
<TABLE>
<CAPTION>
BEFORE AFTER % LOST
TAX TAX(2) TO TAXES
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Schwab International Index Fund-Investor Shares(3) 8.10% 7.63% 0.47%
- ---------------------------------------------------------------------------------------------
Average Foreign Fund(4) 6.81% 5.29% 1.52%
- ---------------------------------------------------------------------------------------------
</TABLE>
(1)The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/2000 that total
operating expenses will not exceed 0.58% for the Investor Shares. Without fee
waivers and guarantees, the one-year, five-year and since-inception average
annual total returns would have been 7.48%, 10.48% and 7.64%, respectively,
for the Investor Shares as of 10/31/98.
(2)After-tax returns assume the maximum federal income tax rate of 39.6% on
dividends and 28% on capital gains distributions. Tax rates vary and may be
higher or lower than those shown.
(3)The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/2000 that total
operating expenses will not exceed 0.58%. Without fee waivers and guarantees,
the Fund's returns would have been lower.
(4)Source: Morningstar, Inc. The Foreign Fund category contains 123 funds with
five-year track records as of 10/31/98. These funds may or may not follow a
tax-efficient strategy similar to that followed by the Schwab International
Index Fund. Also, although many mutual funds have multiple classes of shares,
the category average includes only those funds that were classified by
Morningstar as a distinct portfolio. This typically means that a fund's
oldest class of shares was used.
30
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
This graph compares the growth of a hypothetical $10,000 investment in the
Schwab International Index Fund-Investor Shares, made at its inception, with
similar investments in the Schwab International Index-Registered Trademark- and
the Morgan Stanley Capital International Europe, Australasia, Far
East-Registered Trademark- (MSCI-EAFE) Index.
Also shown is the difference between the total returns of the Schwab
International Index and the Schwab International Index Fund, which is often
referred to as the "tracking differential." (See page 10 for a more detailed
discussion.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB INTERNATIONAL INDEX
FUND-INVESTOR SHARES
SCHWAB INTERNATIONAL INDEX SCHWAB
FUND-INVESTOR SHARES INTERNATIONAL INDEX MSCI-EAFE INDEX
<S> <C> <C> <C>
9/9/93 $10,000 $10,000 $10,000
9/30/93 $9,770 $9,786 $9,749
10/31/93 $10,150 $10,167 $10,049
11/30/93 $9,420 $9,454 $9,171
12/31/93 $10,096 $10,137 $9,833
1/31/94 $10,769 $10,823 $10,664
2/28/94 $10,558 $10,623 $10,634
3/31/94 $10,156 $10,172 $10,176
4/30/94 $10,458 $10,544 $10,607
5/31/94 $10,407 $10,448 $10,547
6/30/94 $10,488 $10,508 $10,696
7/31/94 $10,649 $10,692 $10,798
8/31/94 $10,941 $10,999 $11,054
9/30/94 $10,559 $10,621 $10,706
10/31/94 $10,950 $11,026 $11,062
11/30/94 $10,428 $10,478 $10,530
12/31/94 $10,484 $10,564 $10,597
1/31/95 $10,108 $10,254 $10,190
2/28/95 $10,189 $10,282 $10,160
3/31/95 $10,759 $10,964 $10,794
4/30/95 $11,145 $11,346 $11,200
5/31/95 $11,176 $11,303 $11,067
6/30/95 $11,064 $11,168 $10,873
7/31/95 $11,623 $11,826 $11,550
8/31/95 $11,237 $11,384 $11,110
9/30/95 $11,470 $11,661 $11,327
10/31/95 $11,318 $11,461 $11,022
11/30/95 $11,562 $11,782 $11,329
12/31/95 $11,975 $12,238 $11,785
1/31/96 $12,006 $12,277 $11,834
2/29/96 $12,026 $12,300 $11,874
3/31/96 $12,232 $12,529 $12,126
4/30/96 $12,530 $12,826 $12,478
5/31/96 $12,396 $12,674 $12,249
6/30/96 $12,489 $12,761 $12,317
7/31/96 $12,139 $12,430 $11,958
8/31/96 $12,253 $12,538 $11,984
9/30/96 $12,592 $12,907 $12,303
10/31/96 $12,571 $12,863 $12,177
11/30/96 $13,136 $13,460 $12,662
12/31/96 $13,067 $13,341 $12,499
1/31/97 $12,640 $12,898 $12,061
2/28/97 $12,827 $13,114 $12,259
3/31/97 $12,932 $13,202 $12,303
4/30/97 $13,025 $13,344 $12,368
5/31/97 $13,984 $14,324 $13,174
6/30/97 $14,766 $15,160 $13,899
7/31/97 $15,214 $15,570 $14,125
8/31/97 $14,109 $14,447 $13,070
9/30/97 $15,078 $15,354 $13,801
10/31/97 $13,869 $14,110 $12,740
11/30/97 $13,859 $14,055 $12,610
12/31/97 $14,022 $14,254 $12,720
1/31/98 $14,538 $14,830 $13,301
2/28/98 $15,382 $15,727 $14,155
3/31/98 $15,782 $16,139 $14,591
4/30/98 $15,888 $16,248 $14,706
5/31/98 $15,888 $16,209 $14,634
6/30/98 $16,025 $16,315 $14,745
7/31/98 $16,067 $16,419 $14,894
8/31/98 $14,085 $14,350 $13,049
9/30/98 $13,632 $13,880 $12,648
10/31/98 $14,981 $15,335 $13,966
</TABLE>
THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO 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.
31
<PAGE>
SCHWAB INTERNATIONAL INDEX FUND-REGISTERED TRADEMARK--SELECT SHARES
FUND PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 10/31/98
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR (5/19/97)
<S> <C> <C>
- --------------------------------------------------------------------
SCHWAB INTERNATIONAL INDEX
FUND-SELECT SHARES(1) 8.16% 4.10%
- --------------------------------------------------------------------
Schwab International
Index-Registered Trademark- 8.68% 3.77%
- --------------------------------------------------------------------
Index Tracking Differential 0.52% 0.33%
- --------------------------------------------------------------------
MSCI-EAFE-Registered Trademark-
Index 9.65% 3.02%
- --------------------------------------------------------------------
</TABLE>
GROWTH OF A HYPOTHETICAL $50,000 INVESTMENT
This graph compares the growth of a hypothetical $50,000 investment(2) in the
Schwab International Index Fund-Select Shares, made at its inception, with a
similar investment in the Schwab International Index and the MSCI-EAFE Index.
Also shown is the difference between the total returns of the Schwab
International Index and the Schwab International Index Fund, often referred to
as the "tracking differential." (See page 10 for a more detailed discussion.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB INTERNATIONAL INDEX
FUND-SELECT SHARES
SCHWAB INTERNATIONAL INDEX SCHWAB
FUND-SELECT SHARES INTERNATIONAL INDEX MSCI-EAFE INDEX
<S> <C> <C> <C>
5/19/97 $50,000 $50,000 $50,000
5/31/97 $49,375 $49,283 $49,248
6/30/97 $52,170 $52,161 $51,961
7/31/97 $53,755 $53,571 $52,803
8/31/97 $49,815 $49,706 $48,859
9/30/97 $53,240 $52,827 $51,595
10/31/97 $49,005 $48,550 $47,627
11/30/97 $48,970 $48,360 $47,141
12/31/97 $49,580 $49,042 $47,551
1/31/98 $51,405 $51,027 $49,725
2/28/98 $54,385 $54,111 $52,917
3/31/98 $55,800 $55,529 $54,547
4/30/98 $56,175 $55,905 $54,978
5/31/98 $56,175 $55,770 $54,708
6/30/98 $56,655 $56,133 $55,124
7/31/98 $56,845 $56,493 $55,681
8/31/98 $49,840 $49,376 $48,782
9/30/98 $48,240 $47,757 $47,284
10/31/98 $53,005 $52,763 $52,211
</TABLE>
(1)The Investment Adviser and Schwab waived a portion of their fees during the
reporting period and have guaranteed through at least 2/29/2000 that total
operating expenses will not exceed 0.47% for the Select Shares. Without fee
waivers and guarantees the one-year and since-inception average annual total
returns would have been 7.29% and 3.02%, respectively, for the Select Shares,
as of 10/31/98.
(2)The required minimum initial investment in the Select Shares is $50,000.
THIS INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO 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.
32
<PAGE>
SCHWAB INTERNATIONAL INDEX FUND
FUND HOLDINGS
The Schwab International Index Fund (the Fund) invests primarily in common
stocks of the Schwab International Index, an index created to represent the
performance of common stocks and other equity securities issued by large,
publicly traded companies from countries around the world with major developed
securities markets, excluding the United States. As of October 31, 1998, the
aggregate market capitalization of stocks included in the index represented
approximately 50% of the total market value of all publicly traded non-U.S.
companies.(1)
TOP 10 HOLDINGS
AS A PERCENTAGE OF FUND INVESTMENTS(2)
<TABLE>
<S> <C>
- -----------------------------------------------
Glaxo Wellcome PLC 1.86%
- -----------------------------------------------
Novaritis AG (Registered) 1.86%
- -----------------------------------------------
Royal Dutch Petroleum Co. 1.72%
- -----------------------------------------------
Nippon Telegraph and Telephone
Corp. 1.68%
- -----------------------------------------------
Toyota Motor Corp. 1.56%
- -----------------------------------------------
British Petroleum PLC 1.42%
- -----------------------------------------------
Nestle SA 1.40%
- -----------------------------------------------
British Telecommunications 1.40%
- -----------------------------------------------
Roche Holding Genusscheine 1.37%
- -----------------------------------------------
SmithKline Beecham 1.15%
- -----------------------------------------------
Total 15.42%
- -----------------------------------------------
</TABLE>
(1)Source: Wilshire Associates.
(2)The top 10 holdings and the percentages invested by country are not
indicative of current or future investments. These percentages do not take
into account other assets and liabilities. A complete list of the Fund's
investments as of 10/31/98 can be found in the Schedule of Investments later
in this report.
EQUITY HOLDINGS BY COUNTRY(2)
<TABLE>
<S> <C>
- ----------------------------------------------
United Kingdom 25.35%
- ----------------------------------------------
Japan 20.12%
- ----------------------------------------------
Germany 10.17%
- ----------------------------------------------
Switzerland 9.12%
- ----------------------------------------------
France 8.63%
- ----------------------------------------------
Netherlands 7.06%
- ----------------------------------------------
Italy 4.40%
- ----------------------------------------------
Spain 3.19%
- ----------------------------------------------
Canada 2.97%
- ----------------------------------------------
Sweden 2.86%
- ----------------------------------------------
Belgium 1.93%
- ----------------------------------------------
China/Hong Kong 1.80%
- ----------------------------------------------
Australia 1.61%
- ----------------------------------------------
Denmark 0.78%
- ----------------------------------------------
</TABLE>
33
<PAGE>
SCHWAB INTERNATIONAL INDEX FUND-REGISTERED TRADEMARK-
FUND DISCUSSION
QUESTIONS TO THE
PORTFOLIO MANAGEMENT TEAM
Q. HOW DID THE FUND PERFORM DURING THE
REPORTING PERIOD?
A. As discussed in the MARKET OVERVIEW (pages 4-7), international equities were
negatively impacted by news of international economic problems, particularly in
July and August. Over the full-year reporting period, however, the Fund achieved
total returns of 8.02% and 8.16% for the Investor Shares and Select Shares,-TM-
respectively. Both classes of shares closely tracked the Fund's benchmark, the
Schwab International Index,-Registered Trademark- which realized a total return
of 8.68% for the period. As the table below reveals, the Fund did manage to
outperform the average foreign fund over the one- and five-year periods ended
October 31, 1998.(1) The Fund's outperformance was even greater on an after-tax
basis, a direct result of the Fund's tax-efficient investment strategy.
<TABLE>
<CAPTION>
BEFORE TAX: AFTER TAX:
ONE YEAR FIVE YEARS* ONE YEAR FIVE YEARS*
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------
Investor Shares 8.02% 8.10% 7.50% 7.63%
- ------------------------------------------------------------------
Select Shares 8.16% -- 7.62% --
- ------------------------------------------------------------------
Average Foreign
Fund 1.64% 6.81% -0.13% 5.29%
- ------------------------------------------------------------------
</TABLE>
* Five-year returns represent average annual total returns over the five-year
period.
(1)Source: Morningstar, Inc. Returns are load-adjusted. The Foreign Fund
category contains 123 funds with five-year track records as of 10/31/98.
These funds may or may not follow a tax-efficient strategy similar to that
followed by the Schwab International Index Fund.
Q. HOW DID THE PERFORMANCE OF THE SCHWAB INTERNATIONAL INDEX COMPARE TO THAT OF
THE MSCI-EAFE-REGISTERED TRADEMARK- INDEX?
A. As shown in the table below, the performance of the Schwab International
Index lagged that of the MSCI-EAFE Index by approximately 0.97% for the one-year
reporting period. On an inception-to-date basis, however, the Schwab
International Index has outperformed the MSCI-EAFE Index by approximately 1.95%
annually. As we have discussed in previous reports, these two indices are
constructed differently, particularly in that they have different country
weightings, so we anticipate continued performance differentials in the future.
<TABLE>
<CAPTION>
INCEPTION (9/9/93)
TO DATE AVERAGE
ONE YEAR ANNUAL RETURNS
<S> <C> <C>
- ----------------------------------------------------------
Schwab International Index 8.68% 8.66%
- ----------------------------------------------------------
MSCI-EAFE Index 9.65% 6.71%
- ----------------------------------------------------------
</TABLE>
The impact of currency exchange rates was relatively minor during the reporting
period. Expressed on local currency terms, the one-year performance of the
Schwab International Index was 7.35%, approximately 1% less than the
dollar-denominated return, reflecting the relative strength of foreign
currencies during the reporting period.
Q. WERE ANY CHANGES MADE TO THE SCHWAB INTERNATIONAL INDEX DURING THE REPORTING
PERIOD?
A. During the reporting period, the total number of countries included in the
Index dropped from 15 to 14. After the Index conducted its annual rebalancing on
June 30, no Singapore companies met the size and liquidity necessary for
inclusion in the Index.
34
<PAGE>
Q. WHY CAN INDEX FUNDS BE A SOUND WAY TO IMPLEMENT AN ASSET ALLOCATION PLAN?
A. Research has shown that the manner in which an investor allocates his or her
portfolio among different asset classes can determine the vast majority of the
variance in the portfolio's returns. Unless investors build their portfolios
with investments that are designed to consistently deliver the performance of
the asset classes they wish to track, their portfolios may not behave as they
expect.
Index funds can be an excellent choice to implement an asset allocation plan,
because they seek to invest only in the intended asset class and therefore
should, because of their investment objectives, achieve returns that closely
track those of that benchmark asset class. Index funds also should not be
subject to the "style drift" that investors may face with many actively managed
funds. Consistent with their mission to track their benchmarks, index funds also
usually maintain minimal cash holdings.
In addition to seeking to deliver consistent asset class performance, index
funds are typically efficient both from a cost and a tax standpoint. Most index
funds minimize their trading and operating costs by keeping portfolio turnover
and operating expense ratios low. These savings are passed on to investors in
the form of higher returns.
Index funds also can be effective at reducing certain types of investment risk.
Most investment risks can be categorized as SYSTEMATIC (nondiversifiable) or
NONSYSTEMATIC (diversifiable). Systematic risks are those that may affect all
stocks or bonds, such as a bear market caused by adverse economic conditions.
Index funds do not safeguard against this type of risk; their goal is to
consistently track their benchmark regardless of how it is performing. They also
generally maintain minimal cash balances, so they do not build up a defensive
cash position in a negative market environment.
Nonsystematic risks are those that affect a particular stock or bond, such as a
decline in demand for a company's product or a negative earnings surprise.
Nonsystematic risk is also referred to as "diversifiable risk," because an
investor can reduce it by diversifying his or her portfolio across a
sufficiently large number of companies. Because most broad-based index funds
purchase many--in some cases, hundreds of-- securities, they can be effective at
minimizing nonsystematic or company-specific risk.
Q. WHAT STRATEGIES DOES THE FUND EMPLOY TO HELP INVESTORS ACHIEVE HIGHER
AFTER-TAX RETURNS?
A. PRE-TAX TOTAL RETURN is the most common measure used to compare mutual fund
performance. Because of different tax management policies, however, two funds
with identical pre-tax total returns may actually have significant differences
in their after-tax returns. Over the long term, these after-tax return
differences can have a major impact on investors' fund balances held outside of
retirement accounts.
As discussed in the first question in this section, the Schwab International
Index Fund has been more "tax efficient" than the average foreign fund. Index
funds can be tax efficient because they are designed to have lower portfolio
turnover rates and, hence, lower realization of capital gains than most actively
managed funds. Furthermore, when the Fund's investment manager does trade
stocks, an attempt is made to
35
<PAGE>
SCHWAB INTERNATIONAL INDEX FUND-REGISTERED TRADEMARK-
FUND DISCUSSION (continued)
offset capital gains with capital losses to minimize the potential for capital
gain distributions to shareholders.
Q. WHAT IMPACT HAS THE FINANCIAL TURMOIL IN RUSSIA AND IN MANY ASIAN COUNTRIES
HAD ON THE FUND?
A. As shown in the MARKET OVERVIEW (page 4-7), most Asian markets experienced
significant losses during the reporting period. Although well diversified across
many developed securities markets, the Schwab International
Index-Registered Trademark- does have exposure to several Asian countries that
had a negative impact on returns for the period. The table below shows Asian
country exposure in the Fund based on the percentage of total assets as of the
end of the reporting period, as well as the returns for each of those countries
during the reporting period (based on the MSCI-EAFE country returns for the
period).
<TABLE>
<CAPTION>
COUNTRY
PERCENTAGE RETURNS
OF FOR THE 12
FUND ASSETS MONTHS
(10/31/98) ENDED 10/31/98
<S> <C> <C>
- ----------------------------------------------------------
Japan 20.12% -15.05%
- ----------------------------------------------------------
Hong Kong 1.80% -5.81%
- ----------------------------------------------------------
</TABLE>
The Schwab International Index-Registered Trademark- is a capitalization-
weighted index, which means that each country's percentage representation in the
Index is based on the total size--or market capitalization--of its stock market.
To ensure that the Schwab International Index maintains sufficient
diversification, the Index limits the maximum representation of any one country
to 35%. Neither the Fund nor the Index held any Russian securities, as Russia
does not meet the definition of a "developed securities market" as required for
inclusion in the Index.
36
<PAGE>
SCHWAB S&P 500 FUND
SCHEDULE OF INVESTMENTS
October 31, 1998
Number Value
of Shares (000s)
--------- ---------
- ---------------------------------------------------
COMMON STOCK -- 99.6%
- ---------------------------------------------------
AEROSPACE/DEFENSE -- 1.5%
Boeing Co. 432,854 $ 16,232
General Dynamics Corp. 58,862 3,484
Lockheed Martin Corp. 84,905 9,456
Northrop Grumman Corp. 34,139 2,723
Raytheon Co., Class B 142,994 8,303
Textron, Inc. 68,145 5,068
United Technologies Corp. 99,392 9,467
---------
54,733
---------
AIR TRANSPORTATION -- 0.5%
AMR Corp.+ 83,584 5,600
Delta Airlines, Inc. 31,053 3,278
FDX Corp.+ 62,144 3,267
Southwest Airlines Co. 146,612 3,106
U.S. Airways Group, Inc.+ 44,090 2,494
---------
17,745
---------
ALCOHOLIC BEVERAGES -- 0.5%
Adolph Coors Co., Class B 13,077 654
Anheuser-Busch Companies, Inc. 204,527 12,157
Brown-Forman Corp., Class B 26,844 1,824
Seagram Co., Ltd. 152,775 5,022
---------
19,657
---------
APPAREL -- 0.3%
Fruit of the Loom, Inc.,
Class A+ 35,553 542
Liz Claiborne, Inc. 28,646 842
Nike, Inc., Class B 129,503 5,658
Reebok International, Ltd.+ 14,018 233
Russell Corp. 12,276 302
Springs Industries, Inc. 7,642 270
V.F. Corp. 56,262 2,352
---------
10,199
---------
AUTOMOTIVE PRODUCTS/MOTOR VEHICLE -- 2.0%
BF Goodrich Co. 26,613 958
Chrysler Corp. 271,109 13,047
Cooper Tire & Rubber Co. 29,764 495
Cummins Engine Co., Inc. 12,880 440
Dana Corp. 78,096 3,265
Eaton Corp. 34,161 2,312
Fleetwood Enterprises, Inc. 11,175 361
Ford Motor Co. 510,495 27,694
General Motors Corp. 276,823 17,457
Genuine Parts Co. 75,876 2,390
Number Value
of Shares (000s)
--------- ---------
Goodyear Tire & Rubber Co. 62,626 $ 3,374
Navistar International Corp.+ 21,753 454
Paccar, Inc. 30,263 1,320
TRW, Inc. 51,457 2,930
---------
76,497
---------
BANKS -- 7.6%
Bank of New York Co., Inc. 315,386 9,954
Bank One Corp. 502,724 24,571
BankAmerica Corp. 731,299 42,004
BankBoston Corp. 121,808 4,484
Bankers Trust New York Corp. 39,008 2,450
BB&T Corp. 112,172 4,003
Chase Manhattan Corp. 365,370 20,758
Comerica, Inc. 63,130 4,072
Fifth Third Bancorp. 115,283 7,638
First Union Corp. 406,321 23,567
Fleet Financial Group, Inc. 241,444 9,643
Golden West Financial Corp. 28,019 2,541
Huntington Bancshares Inc. 101,728 2,925
J.P. Morgan & Co., Inc. 77,374 7,293
KeyCorp, Inc. 178,308 5,405
MBNA Corp. 329,420 7,515
Mellon Bank Corp. 111,426 6,699
Merchantile Bancorp, Inc. 60,900 2,782
National City Corp. 140,850 9,058
Northern Trust Corp. 44,600 3,289
Norwest Corp. 320,066 11,902
PNC Bank Corp. 127,641 6,382
Regions Financial Corp. 96,500 3,571
Republic New York Corp. 53,630 2,242
State Street Corp. 65,435 4,082
Summit Bancorp 77,500 2,940
SunTrust Banks, Inc. 90,947 6,338
Synovus Financial Corp. 103,247 2,394
U.S. Bancorp 321,481 11,734
Union Planters Corp. 52,100 2,419
Wachovia Corp. 94,326 8,572
Washington Mutual, Inc. 257,156 9,627
Wells Fargo & Co. 36,184 13,388
---------
286,242
---------
BUSINESS MACHINES & SOFTWARE -- 10.5%
3Com Corp.+ 148,420 5,352
Adobe Systems, Inc. 29,752 1,104
Apple Computer, Inc.+ 60,166 2,234
Autodesk, Inc. 31,000 967
BMC Software, Inc.+ 84,500 4,061
37
<PAGE>
SCHWAB S&P 500 FUND
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ---------
Cabletron Systems, Inc.+ 69,329 $ 789
Ceridian Corp.+ 34,360 1,971
Cisco Systems, Inc.+ 651,945 41,072
Compaq Computer Corp. 711,694 22,507
Computer Associates
International, Inc. 237,990 9,371
Data General Corp.+ 16,600 282
Dell Computer Corp.+ 539,164 35,383
EMC Corp.+ 210,331 13,540
Gateway 2000, Inc.+ 64,300 3,589
Hewlett-Packard Co. 442,473 26,631
Honeywell, Inc. 52,866 4,223
International Business
Machines Corp. 391,052 58,047
Microsoft Corp.+ 1,040,006 110,111
Novell, Inc.+ 135,829 2,020
Oracle Systems Corp.+ 419,997 12,416
Parametric Technology Corp.+ 119,732 1,991
Peoplesoft, Inc.+ 94,300 1,998
Pitney Bowes, Inc. 117,602 6,475
Seagate Technology, Inc.+ 114,411 3,018
Silicon Graphics, Inc.+ 74,570 839
Sun Microsystems, Inc.+ 164,571 9,586
Unisys Corp.+ 120,065 3,197
Xerox Corp. 139,962 13,559
---------
396,333
---------
BUSINESS SERVICES -- 2.0%
Automatic Data Processing, Inc.129,612 10,086
Browning-Ferris Industries, Inc.70,313 2,492
Computer Sciences Corp. 70,522 3,720
Cendant Corp.+ 371,500 4,249
Deluxe Corp. 42,372 1,372
Ecolab, Inc. 55,470 1,657
Equifax, Inc. 61,015 2,361
First Data Corp. 186,527 4,943
H&R Block, Inc. 41,817 1,874
IKON Office Solutions 41,977 396
Interpublic Group of
Companies, Inc. 57,460 3,361
Laidlaw, Inc. 122,187 1,153
Moore Corp., Ltd. 30,785 348
National Service
Industries, Inc. 18,094 649
Omnicom Group, Inc. 72,400 3,579
Paychex, Inc. 66,800 3,323
R.R. Donnelley & Sons Co. 57,206 2,467
Tyco International Ltd. 272,554 16,881
Waste Management, Inc. 245,426 11,075
---------
75,986
---------
Number Value
of Shares (000s)
--------- ---------
CHEMICAL -- 2.0%
Air Products & Chemicals, Inc. 98,258 $ 3,709
Dow Chemical Co. 92,176 8,630
E. I. du Pont de Nemours & Co. 475,662 27,351
Eastman Chemical Co. 38,764 2,277
Great Lakes Chemical Corp. 22,225 925
Hercules, Inc. 48,607 1,619
Minnesota Mining &
Manufacturing Co. 172,768 13,822
Morton International, Inc. 47,078 1,171
Nalco Chemical Co. 23,640 731
PPG Industries, Inc. 78,375 4,482
Praxair, Inc. 72,930 2,935
Rohm & Haas Co. 81,087 2,737
Sigma-Aldrich Corp. 39,209 1,212
Union Carbide Corp. 56,460 2,174
W. R. Grace & Co.+ 44,452 772
---------
74,547
---------
CONSTRUCTION -- 0.3%
Armstrong World
Industries, Inc. 21,685 1,344
Centex Corp. 20,922 701
Crane Co. 27,069 780
Fluor Corp. 33,275 1,292
Georgia Pacific Corp. 44,391 2,297
Kaufman & Broad Home Corp. 17,481 499
Owens Corning 19,211 698
Pulte Corp. 10,488 270
Sherwin-Williams Co. 66,261 1,669
The Stanley Works 45,586 1,368
---------
10,918
---------
CONSUMER - DURABLE -- 0.4%
Black & Decker Corp. 39,297 2,031
Masco Corp. 142,490 4,016
Maytag Corp. 44,306 2,190
Newell Co. 66,332 2,919
Snap-On, Inc. 26,878 953
Whirlpool Corp. 30,556 1,566
---------
13,675
---------
CONSUMER - NON-DURABLE -- 1.5%
American Greetings Corp.,
Class A 31,157 1,250
Darden Restaurants, Inc. 48,620 802
Harcourt General, Inc. 26,848 1,307
Hasbro, Inc. 61,665 2,162
38
<PAGE>
Number Value
of Shares (000s)
--------- ---------
Jostens, Inc. 18,082 $ 408
Mattel, Inc. 128,307 4,603
McDonald's Corp. 293,737 19,644
Rubbermaid, Inc. 69,413 2,304
Tricon Global
Restaurants, Inc.+ 57,050 2,482
Unilever NV 274,937 20,689
Wendy's International, Inc. 48,575 1,020
---------
56,671
---------
CONTAINERS -- 0.2%
Ball Corp. 9,263 391
Bemis Co., Inc. 30,311 1,125
Crown Cork & Seal Co., Inc. 54,268 1,730
Owens-Illinois, Inc.+ 59,993 1,834
Sealed Air Corp.+ 30,726 1,089
Stone Container Corp.+ 45,308 433
---------
6,602
---------
ELECTRONICS -- 5.3%
Advanced Micro Devices, Inc.+ 58,294 1,315
Applied Materials, Inc.+ 152,362 5,285
Ascend Communications, Inc.+ 98,800 4,767
EG&G, Inc. 13,296 334
Electronic Data Systems Corp. 208,700 8,491
Emerson Electric Co. 183,226 12,093
General Instrument Corp.+ 60,508 1,554
Harris Corp. 29,166 1,023
Intel Corp. 708,312 63,173
KLA-Tencor Corp.+ 33,275 1,227
LSI Logic Corp.+ 64,297 972
Lucent Technologies, Inc. 558,320 44,770
Micron Technology, Inc.+ 87,140 3,311
Milacron, Inc. 11,183 217
Motorola, Inc. 254,544 13,236
National Semiconductor Corp.+ 58,837 747
Northern Telecom Ltd. 276,520 11,839
Perkin Elmer Corp. 21,691 1,829
Rockwell International Corp. 73,236 3,007
Scientific-Atlanta, Inc. 34,262 512
Tektronix, Inc. 24,305 434
Tellabs, Inc.+ 80,578 4,432
Texas Instruments, Inc. 166,401 10,639
Thermo Electron Corp.+ 73,614 1,468
Thomas & Betts Corp. 20,315 908
---------
197,583
---------
Number Value
of Shares (000s)
--------- ---------
ENERGY - RAW MATERIALS -- 1.0%
Anadarko Petroleum Corp. 54,850 $ 1,858
Apache Corp. 36,489 1,033
Baker Hughes, Inc. 127,708 2,817
Burlington Resources, Inc. 81,255 3,347
Eastern Enterprises 13,843 568
Halliburton Co. 197,729 7,106
Helmerich & Payne, Inc. 13,504 322
Occidental Petroleum Corp. 154,092 3,063
ONEOK, Inc. 12,365 423
Rowan Companies, Inc.+ 32,481 473
Schlumberger Ltd. 231,834 12,171
Sempra Energy 104,111 2,707
Union Pacific Resources Group 114,762 1,492
---------
37,380
---------
FOOD & AGRICULTURE -- 5.1%
Archer Daniels Midland Co. 253,526 4,231
Bestfoods, Inc. 118,800 6,475
Campbell Soup Co. 191,627 10,216
Coca-Cola Co. 1,042,882 70,525
Coca-Cola Enterprises, Inc. 167,200 6,030
ConAgra, Inc. 201,688 6,139
General Mills, Inc. 64,334 4,729
H.J. Heinz Co. 156,738 9,110
Hershey Foods Corp. 61,398 4,164
Kellogg Co. 170,162 5,615
Monsanto Co. 250,965 10,195
PepsiCo, Inc. 626,997 21,161
Pioneer-Hi-Bred
International, Inc. 102,414 2,868
Quaker Oats Co. 57,487 3,395
Ralston Purina Co. 126,369 4,218
RJR Nabisco Holdings Corp. 130,400 3,725
Sara Lee Corp. 195,169 11,649
SYSCO Corp. 147,728 3,979
Wm. Wrigley Jr. Co. 47,043 3,807
---------
192,231
---------
GOLD -- 0.2%
Barrick Gold Corp. 150,379 3,214
Battle Mountain Gold Co. 81,580 444
Homestake Mining Co. 73,807 876
Newmont Mining Corp. 76,969 1,636
Placer Dome, Inc. 103,700 1,633
---------
7,803
---------
39
<PAGE>
SCHWAB S&P 500 FUND
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ---------
HEALTHCARE/DRUGS & MEDICINE -- 12.7%
Abbott Laboratories 653,614 $ 30,679
Allergan, Inc. 24,935 1,557
ALZA Corp.+ 42,078 2,014
American Home Products Corp. 557,310 27,169
Amgen, Inc.+ 108,554 8,528
Bausch & Lomb, Inc. 23,816 993
Baxter International, Inc. 126,284 7,569
Becton, Dickinson & Co. 110,310 4,647
Biomet, Inc. 49,132 1,667
Boston Scientific Corp.+ 79,506 4,328
Bristol-Meyers Squibb Co. 420,482 46,490
C.R. Bard, Inc. 21,120 902
Cardinal Health, Inc. 56,127 5,308
Columbia / HCA Healthcare
Corp. 264,916 5,563
Eli Lilly & Co. 461,124 37,322
Guidant Corp. 62,310 4,767
HBO & Co. 183,028 4,805
Hcr Manor Care, Inc.+ 44,133 1,434
Healthsouth Corp.+ 173,909 2,109
Humana, Inc.+ 70,742 1,340
IMS Health, Inc. 75,743 5,037
Johnson & Johnson 569,980 46,453
Mallinckrodt, Inc. 25,553 728
Medtronic, Inc. 197,877 12,862
Merck & Co., Inc. 504,023 68,169
Pfizer, Inc. 551,000 59,129
Pharmacia & Upjohn, Inc. 215,461 11,406
Schering-Plough Corp. 311,431 32,038
Service Corp. International 107,726 3,838
Shared Medical Systems Corp. 9,852 491
St. Jude Medical, Inc.+ 46,392 1,311
Tenet Healthcare Corp.+ 137,633 3,845
United Healthcare Corp. 90,392 3,938
Warner Lambert Co. 347,001 27,196
---------
475,632
---------
HOUSEHOLD PRODUCTS -- 2.5%
Alberto-Culver Co., Class B 20,017 532
Avon Products, Inc. 114,554 4,546
Clorox Co. 46,016 5,027
Colgate-Palmolive Co. 126,918 11,216
Gillette Co. 469,338 21,091
International Flavors &
Fragrances, Inc. 51,628 1,933
Procter & Gamble Co. 569,522 50,616
Tupperware Corp. 16,428 256
---------
95,217
---------
Number Value
of Shares (000s)
--------- ---------
INSURANCE -- 3.8%
Aetna, Inc. 63,758 $ 4,758
Allstate Corp. 351,618 15,142
American General Corp. 111,422 7,632
American International
Group, Inc. 437,947 37,335
Aon Corp. 70,499 4,371
Chubb Corp. 73,260 4,506
CIGNA Corp. 93,065 6,788
Cincinnati Financial Corp. 63,245 2,360
Conseco, Inc. 126,502 4,388
General Re Corp. 33,166 7,286
Hartford Financial Services
Group, Inc. 97,692 5,190
Jefferson-Pilot Corp. 47,822 2,905
Lincoln National Corp. 43,713 3,317
Marsh & McLennan
Companies, Inc. 111,378 6,181
MBIA, Inc. 46,986 2,872
MGIC Investment Corp. 52,438 2,045
Progressive Corp. of Ohio 27,651 4,072
Provident Companies, Inc. 53,200 1,546
SAFECO Corp. 55,791 2,416
St. Paul Companies, Inc. 100,016 3,313
SunAmerica, Inc. 86,908 6,127
Torchmark Corp. 58,789 2,572
Transamerica Corp. 23,432 2,437
UNUM Corp. 58,692 2,608
---------
142,167
---------
MEDIA -- 2.6%
CBS Corp. 311,375 8,699
Clear Channel
Communications, Inc.+ 98,810 4,502
Comcast Corp., Class A 160,829 7,941
Dow Jones & Co., Inc. 45,300 2,075
Gannett Co., Inc. 118,192 7,313
King World Productions, Inc.+ 24,354 639
Knight-Ridder, Inc. 36,683 1,868
McGraw-Hill Companies, Inc. 44,907 4,039
Mediaone Group+ 256,967 10,873
Meredith Corp. 23,612 874
New York Times Co., Class A 80,200 2,266
Telecommunications, Inc.,
Series A (Liberty Media
Group)+ 221,958 9,350
Time Warner, Inc. 253,970 23,572
Times Mirror Co., Series A 34,800 1,929
Tribune Co. 54,556 3,144
Viacom, Inc., Class B+ 153,037 9,163
---------
98,247
---------
40
<PAGE>
Number Value
of Shares (000s)
--------- ---------
MISCELLANEOUS FINANCE -- 4.8%
American Express Co. 190,979 $ 16,878
Associates First Capital Corp. 142,801 10,067
Bear Stearns Companies, Inc. 52,500 1,874
Capital One Financial Corp. 32,300 3,286
Charles Schwab Corp. 117,053 5,611
Citigroup, Inc. 960,904 45,223
Countrywide Credit
Industries, Inc. 47,724 2,061
Dun & Bradstreet Corp. 65,656 1,863
Fannie Mae 436,917 30,939
Freddie Mac 294,052 16,908
Franklin Resources, Inc. 98,400 3,721
Household International, Inc. 201,908 7,382
Lehman Brothers Holdings, Inc. 49,900 1,893
Merrill Lynch & Co., Inc. 150,792 8,934
Morgan Stanley, Dean Witter,
Discover & Co. 252,336 16,339
Providian Financial Corp. 44,596 3,540
Student Loan Marketing Assoc. 75,700 3,033
---------
179,552
---------
NON-FERROUS METALS -- 0.4%
Alcan Aluminum, Ltd. 107,274 2,715
Aluminum Company of America 77,063 6,107
Asarco, Inc. 9,188 197
Cyprus Amax Minerals Co. 33,795 420
Engelhard Corp. 53,401 1,122
Freeport-McMoran Copper & Gold,
Inc., Class B 62,215 766
Inco, Ltd. 57,949 619
Phelps Dodge Corp. 29,826 1,719
Reynolds Metals Co. 28,054 1,682
---------
15,347
---------
OIL - DOMESTIC -- 0.8%
Amerada Hess Corp. 35,092 1,939
Ashland, Inc. 31,856 1,533
Atlantic Richfield Co. 132,170 9,103
Kerr-McGee Corp. 16,100 642
Oryx Energy Co.+ 51,420 720
Pennzoil Co. 15,999 574
Phillips Petroleum Co. 111,950 4,842
Sun, Inc. 41,352 1,419
Unocal Corp. 106,916 3,628
USX-Marathon Group 123,702 4,044
---------
28,444
---------
Number Value
of Shares (000s)
--------- ---------
OIL - INTERNATIONAL -- 5.3%
Amoco Corp. 406,550 $ 22,818
Chevron Corp. 277,968 22,654
Exxon Corp. 1,023,369 72,915
Mobil Corp. 332,842 25,192
Royal Dutch Petroleum Co. -
Sponsored ADR 898,280 44,240
Texaco, Inc. 227,354 13,485
---------
201,304
---------
OPTICAL & PHOTO -- 0.3%
Eastman Kodak Co. 135,781 10,523
Polaroid Corp. 12,095 321
---------
10,844
---------
PAPER & FOREST PRODUCTS -- 0.9%
Boise Cascade Corp. 17,316 485
Champion International Corp. 48,300 1,543
Fort James Corp. 99,395 4,007
International Paper Co. 133,632 6,206
Kimberly-Clark Corp. 233,313 11,257
Louisiana-Pacific Corp. 42,328 751
Mead Corp. 55,719 1,762
Potlatch Corp. 8,560 312
Temple Inland, Inc. 29,119 1,414
Union Camp Corp. 29,245 1,258
Westvaco Corp. 53,813 1,325
Weyerhaeuser Co. 83,717 3,919
Willamette Industries, Inc. 54,832 1,700
---------
35,939
---------
PRODUCER GOODS & MANUFACTURING -- 4.7%
Aeroquip-Vickers, Inc. 10,459 329
Allied Signal, Inc. 236,582 9,212
Avery Dennison Corp. 47,515 1,969
Briggs & Stratton Corp. 8,153 383
Case Corp. 30,156 663
Caterpillar, Inc. 157,286 7,078
Cooper Industries, Inc. 52,755 2,328
Corning, Inc. 95,682 3,474
Deere & Co. 98,027 3,468
Dover Corp. 101,365 3,218
FMC Corp.+ 12,778 652
Foster Wheeler Corp. 9,485 151
General Electric Co. 1,382,340 120,955
Grainger (W.W.), Inc. 37,808 1,742
Harnischfeger Industries, Inc. 12,303 116
41
<PAGE>
SCHWAB S&P 500 FUND
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ---------
Illinois Tool Works, Inc. 103,921 $ 6,664
Ingersoll Rand Co. 74,397 3,757
ITT Industries, Inc. 47,647 1,703
Johnson Controls, Inc. 40,175 2,260
McDermott International, Inc. 25,216 739
Millipore Corp. 29,991 739
Nacco Industries, Inc. 3,117 287
Pall Corp. 45,366 1,145
Parker-Hannifin Corp. 54,933 1,964
Raychem Corp. 33,182 1,014
Tenneco, Inc. 67,356 2,046
Timken Co. 28,032 499
---------
178,555
---------
RAILROAD & SHIPPING -- 0.5%
Burlington Northern Santa Fe
Corp. 203,875 6,294
CSX Corp. 89,955 3,531
Norfolk Southern Corp. 157,288 5,181
Union Pacific Corp. 102,216 4,868
---------
19,874
---------
RETAIL -- 5.8%
Albertson's, Inc. 102,813 5,713
American Stores Co. 122,569 3,991
AutoZone, Inc. 65,715 1,729
Circuit City Stores, Inc. 41,906 1,516
Consolidated Stores Corp.+ 37,000 608
CVS Corp. 168,918 7,717
Dayton Hudson Corp. 183,510 7,776
Dillards, Inc., Class A 41,633 1,293
Dollar General Corp. 86,625 2,068
Federated Department
Stores, Inc.+ 97,637 3,753
Fred Meyer, Inc.+ 65,600 3,497
Gap, Inc. 163,090 9,806
Great Atlantic & Pacific
Tea Co., Inc. 10,280 242
Home Depot, Inc. 623,250 27,111
J.C. Penney Co., Inc. 104,120 4,946
Kmart Corp. + 220,017 3,108
Kohl's Corp.+ 72,000 3,442
Kroger Co.+ 104,931 5,824
Limited, Inc. 104,667 2,682
Longs Drug Stores, Inc. 15,682 613
Lowe's Companies, Inc. 142,726 4,808
May Department Stores Co. 100,386 6,124
Nordstrom, Inc. 60,322 1,648
Pep Boys-Manny, Moe & Jack 19,232 301
Number Value
of Shares (000s)
--------- ---------
Price/Costco, Inc.+ 94,144 $ 5,343
Rite Aid Corp. 112,914 4,481
Sears, Roebuck & Co. 168,918 7,591
Staples, Inc.+ 118,500 3,866
SUPERVALU, Inc. 64,054 1,537
Tandy Corp. 47,521 2,355
TJX Companies, Inc. 123,882 2,346
Toys "R" Us, Inc.+ 118,496 2,318
Venator Group Inc.+ 55,782 471
Wal-Mart Stores, Inc. 938,431 64,752
Walgreen Co. 207,928 10,123
Winn Dixie Stores, Inc. 63,711 2,162
---------
217,661
---------
STEEL -- 0.1%
Allegheny Teledyne, Inc. 85,503 1,758
Armco, Inc.+ 7,124 34
Bethlehem Steel Corp.+ 36,335 327
Nucor Corp. 33,484 1,517
USX-U.S. Steel Group, Inc. 31,779 739
Worthington Industries, Inc. 29,002 393
---------
4,768
---------
TELEPHONE -- 7.9%
AirTouch Communications, Inc.+ 238,052 13,331
Alltel Corp. 113,590 5,318
Ameritech Corp. 466,798 25,178
AMP, Inc. 90,059 3,698
Andrew Corp.+ 34,788 570
AT&T Corp. 761,994 47,434
Bell Atlantic Corp. 651,896 34,632
BellSouth Corp. 418,771 33,423
Frontier Corp. 78,943 2,373
GTE Corp. 402,198 23,604
MCI WorldCom, Inc.+ 751,736 41,534
Nextel Communications, Inc.+ 119,500 2,166
SBC Communications, Inc. 824,382 38,179
Sprint Corp. 178,999 13,738
US West, Inc. (Media Group) 217,262 12,465
---------
297,643
---------
TOBACCO -- 1.6%
Fortune Brands, Inc. 66,858 2,210
Loew's Corp. 48,040 4,513
Philip Morris
Companies, Inc. 1,019,762 52,135
UST, Inc. 84,284 2,866
---------
61,724
---------
42
<PAGE>
Number Value
of Shares (000s)
--------- ---------
TRAVEL & RECREATION -- 0.8%
Brunswick Corp. 36,407 $ 708
Harrah's Entertainment, Inc.+ 31,711 448
Hilton Hotels Corp. 111,522 2,237
Marriott International, Inc.,
Class A 117,532 3,159
Mirage Resorts, Inc.+ 66,574 1,127
Walt Disney Co. 867,930 23,380
---------
31,059
---------
TRUCKING & FREIGHT -- 0.0%
Ryder Systems, Inc. 29,062 716
---------
UTILITIES - ELECTRIC & GAS -- 3.2%
AES Corp.+ 72,000 2,948
Ameren Corp. 64,013 2,557
American Electric
Power Co., Inc. 79,295 3,881
Baltimore Gas & Electric Co. 58,608 1,839
Carolina Power & Light Co. 59,916 2,749
Central & South West Corp. 86,843 2,415
Cinergy Corp. 62,129 2,143
Coastal Corp. 95,642 3,371
Columbia Gas System, Inc. 33,774 1,955
Consolidated Edison, Inc. 102,591 5,142
Consolidated Natural Gas Co. 45,499 2,403
Dominion Resources, Inc. 88,488 4,087
DTE Energy Co. 59,803 2,549
Duke Power Co. 154,615 10,002
Edison International 142,929 3,770
Enron Corp. 140,739 7,424
Entergy Corp. 99,604 2,864
First Energy Corp. 100,581 3,017
FPL Group, Inc. 80,680 5,048
GPU, Inc. 50,352 2,171
Houston Industries, Inc. 119,186 3,702
Niagara Mohawk Power Corp.+ 73,202 1,071
NICOR, Inc. 18,201 771
Northern States Power Co. 70,108 1,893
PacifiCorp. 118,419 2,257
PECO Energy Co. 97,765 3,782
Peoples Energy Corp. 12,173 449
PG&E Corp. 164,016 4,992
PP&L Resources, Inc. 74,145 2,011
Public Service Enterprise
Group, Inc. 102,585 3,898
Sonat, Inc. 54,779 $ 1,661
Southern Co. 290,831 8,198
Texas Utilities Co. 120,987 5,293
Unicom Corp. 86,452 3,258
Williams Companies, Inc. 181,664 4,984
---------
120,555
---------
TOTAL COMMON STOCK
(Cost $3,211,947) 3,750,050
---------
Par
(000s)
---------
U.S. TREASURY OBLIGATIONS (a)(b) -- 0.0%
U.S. TREASURY BILLS
4.54%, 12/17/98 $ 700 697
4.04%, 04/15/99 275 270
---------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $966) 967
---------
Number
of Shares
---------
SHORT-TERM INVESTMENTS -- 0.4%
Temporary Investment Fund, Inc.
Temporary Cash Portfolio
2.72%*, 11/06/98 14,696,000 14,696
---------
TOTAL SHORT-TERM INVESTMENTS
(Cost $14,696) 14,696
---------
TOTAL INVESTMENTS -- 100.0%
(Cost $3,227,609) 3,765,713
---------
OTHER ASSETS AND LIABILITIES -- 0.0%
Other assets 459,843
Liabilities (461,282)
---------
(1,439)
---------
TOTAL NET ASSETS -- 100.0% $3,764,274
==========
SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS
AND NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
SCHWAB 1000 FUND(R)
SCHEDULE OF INVESTMENTS
October 31, 1998
Number Value
of Shares (000s)
--------- ---------
- ---------------------------------------------------
COMMON STOCK -- 99.8%
- ---------------------------------------------------
AEROSPACE/DEFENSE -- 1.4%
Boeing Co. 474,052 $ 17,777
Coltec Industries, Inc.+ 18,200 304
Cordant Technologies, Inc. 14,200 578
General Dynamics Corp. 68,600 4,060
General Motors Corp., Class H 53,000 2,027
Gulfstream Aerospace Corp.+ 35,000 1,549
Litton Industries, Inc.+ 20,500 1,337
Lockheed Martin Corp. 93,592 10,424
Northrop Grumman Corp. 29,900 2,384
Raytheon Co., Class B 154,400 8,965
Sundstrand Corp. 24,600 1,155
Textron, Inc. 75,400 5,608
United Technologies Corp. 111,400 10,611
---------
66,779
---------
AIR TRANSPORTATION -- 0.5%
AMR Corp.+ 82,200 5,507
Comair Holdings, Inc. 38,000 1,249
Continental Airlines, Inc.,
Class B+ 33,400 1,324
Delta Air Lines, Inc. 35,200 3,716
FDX Corp.+ 73,680 3,873
Northwest Airlines Corp.,
Class A 46,500 1,219
Southwest Airlines Co. 156,900 3,324
UAL Corp.+ 32,700 2,124
U.S. Airways Group, Inc.+ 51,500 2,913
---------
25,249
---------
ALCOHOLIC BEVERAGES -- 0.4%
Adolph Coors Co., Class B 28,000 1,400
Anheuser-Busch Companies, Inc. 231,800 13,778
Brown-Forman Corp., Class B 36,700 2,493
---------
17,671
---------
APPAREL -- 0.3%
Fruit of the Loom, Inc.,
Class A+ 26,300 401
Jones Apparel Group, Inc.+ 57,200 987
Liz Claiborne, Inc. 32,000 940
Nike, Inc., Class B 135,600 5,924
Reebok International, Ltd.+ 16,700 278
Unifi, Inc. 21,925 370
V.F. Corp. 63,100 2,638
Warnaco Group, Inc., Class A 28,600 731
Westpoint Stevens, Inc.+ 34,000 967
---------
13,236
---------
Number Value
of Shares (000s)
--------- ---------
AUTOMOTIVE PRODUCTS/MOTOR VEHICLE -- 2.0%
Bandag, Inc. 8,800 $ 311
BF Goodrich Co. 38,400 1,382
Borg Warner Automotive, Inc. 9,200 431
Carlisle Companies, Inc. 16,000 618
Chrysler Corp. 298,600 14,370
Cummins Engine Co., Inc. 14,800 505
Dana Corp. 81,688 3,416
Danaher Corp. 70,800 2,828
Eaton Corp. 32,100 2,173
Federal-Mogul Corp. 23,000 1,246
Fleetwood Enterprises, Inc. 22,000 710
Ford Motor Co. 574,500 31,167
General Motors Corp. 313,400 19,764
Genuine Parts Co. 80,575 2,538
Goodyear Tire & Rubber Co. 72,300 3,895
Harley-Davidson, Inc. 71,400 2,767
Lear Corp.+ 26,000 835
Meritor Automotive, Inc. 40,000 748
Navistar International Corp.+ 21,000 438
Paccar, Inc. 42,120 1,837
TRW, Inc. 62,700 3,570
---------
95,549
---------
BANKS -- 8.2%
Amsouth Bancorp. 55,800 2,235
Associated Bancorp. 24,625 865
Bank of New York Co., Inc. 350,000 11,047
Bank One Corp. 555,692 27,159
Bank United Corp., Class A 7,000 279
BankAmerica Corp. 831,006 47,731
BankBoston Corp. 141,040 5,192
Bankers Trust New York Corp. 47,940 3,011
BB & T Corp. 130,500 4,657
CCB Financial Corp. 21,000 1,105
Centura Banks, Inc. 10,000 690
Chase Manhattan Corp. 418,460 23,774
City National Corp. 15,000 513
Colonial BancGroup, Inc. 40,000 522
Comerica, Inc. 71,296 4,599
Commerce Bancshares, Inc. 28,992 1,263
Compass Bancshares, Inc. 36,275 1,335
Crestar Financial Corp. 58,600 3,860
Cullen/Frost Bankers, Inc. 8,600 458
Dime Bancorp, Inc. 49,926 1,189
Fifth Third Bancorp. 126,443 8,377
First American Corp. -
Tennessee 50,086 2,066
44
<PAGE>
Number Value
of Shares (000s)
--------- ---------
First Citizens BancShares,
Class A 4,400 $ 393
First Hawaiian, Inc. 10,000 399
First Security Corp. 92,627 1,893
First Tennessee National Corp. 52,600 1,667
First Union Corp. 470,822 27,308
First Virginia Banks, Inc. 24,625 1,124
Firstar Corp. 69,000 3,916
Firstmerit Corp. 32,800 869
Fleet Financial Group, Inc. 272,960 10,901
Fulton Financial Corp. 41,250 851
Golden State Bancorp, Inc.+ 34,000 652
Golden West Financial Corp. 29,900 2,712
Hibernia Corp., Class A 60,000 1,001
Huntington Bancshares Inc. 92,799 2,668
Imperial Bancorp.+ 9,000 125
J.P. Morgan & Co., Inc. 84,000 7,917
KeyCorp, Inc. 211,846 6,422
Keystone Financial, Inc. 30,000 877
M&T Bank Corp. 4,600 2,293
Marshall & Ilsley Corp. 57,185 2,788
MBNA Corp. 349,987 7,984
Mellon Bank Corp. 123,244 7,410
Mercantile Bancorp, Inc. 68,925 3,149
Mercantile Bankshares Corp. 30,675 1,001
National City Corp. 153,300 9,859
National Community Bancorp. 60,000 1,065
North Fork Bancorporation, Inc. 67,000 1,332
Northern Trust Corp. 54,900 4,049
Norwest Corp. 366,576 13,632
Ocwen Financial Corp.+ 30,000 360
Old Kent Financial Corp. 57,749 2,429
Old National Bancorp 17,875 917
Pacific Century Financial Corp. 40,350 822
People's Bank-Bridgeport+ 25,400 649
Peoples Heritage Financial
Group, Inc. 62,000 1,116
PNC Bank Corp. 144,630 7,231
Regions Financial Corp. 98,765 3,654
Republic New York Corp. 47,800 1,999
Southtrust Corp. 77,787 2,839
Sovereign Bancorp, Inc. 48,000 630
Star Bank Corp. 55,000 4,159
State Street Corp. 77,000 4,803
Summit Bancorp. 86,850 3,295
SunTrust Banks, Inc. 101,300 7,059
Synovus Financial Corp. 122,962 2,851
Number Value
of Shares (000s)
--------- ---------
TCF Financial Corp. 33,600 $ 792
Trustmark Corp. 44,000 844
U.S. Bancorp. 355,798 12,987
U.S. Trust Corp. 7,500 478
Union Planters Corp. 58,900 2,735
UnionBanCal Corp. 29,200 2,701
Valley National Bancorp. 35,000 945
Wachovia Corp. 98,749 8,974
Washington Federal, Inc. 15,400 411
Washington Mutual, Inc. 296,447 11,098
Wells Fargo & Co. 41,500 15,355
Westamerica Bancorp. 16,800 559
Whitney Holdings Corp. 8,000 294
Wilmington Trust Co. 14,200 782
Zions Bancorp. 46,600 2,473
---------
384,425
---------
BUSINESS MACHINES & SOFTWARE -- 10.3%
3Com Corp.+ 167,450 6,039
Adobe Systems, Inc. 31,800 1,181
Apple Computer, Inc.+ 65,700 2,439
Autodesk, Inc. 27,200 848
BMC Software, Inc.+ 100,400 4,825
Cabletron Systems, Inc.+ 82,000 933
Ceridian Corp.+ 30,700 1,761
Cisco Systems, Inc.+ 752,725 47,422
Citrix Systems, Inc.+ 16,050 1,138
Compaq Computer Corp. 805,768 25,482
Computer Associates
International, Inc. 263,662 10,382
Computer Horizons Corp.+ 10,000 230
Compuware Corp.+ 89,800 4,866
Dell Computer Corp.+ 597,600 39,217
Diebold, Inc. 25,818 805
Electronic Arts, Inc.+ 30,400 1,250
EMC Corp.+ 232,800 14,986
Gateway 2000, Inc.+ 71,000 3,963
Hewlett-Packard Co. 489,500 29,462
Honeywell, Inc. 59,100 4,721
I2 Technologies, Inc.+ 24,800 462
International Business
Machines Corp. 442,900 65,743
Intuit, Inc.+ 23,800 1,202
Iomega Corp.+ 118,000 634
Lexmark International Group,
Inc., Class A+ 35,000 2,448
45
<PAGE>
SCHWAB 1000 FUND (R)
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ---------
Microchip Technology, Inc.+ 30,000 $ 812
Microsoft Corp.+ 1,173,000 124,191
Netscape Communications
Corp.+ 45,898 984
Network Associates, Inc.+ 65,050 2,765
Novell, Inc.+ 170,800 2,541
Oracle Systems Corp.+ 459,962 13,598
Parametric Technology Corp.+ 117,400 1,952
Peoplesoft, Inc.+ 99,600 2,110
Pitney Bowes, Inc. 124,600 6,861
Platinum Technology, Inc.+ 37,000 608
Policy Management Systems
Corp.+ 14,200 645
Quantum Corp.+ 95,400 1,669
Seagate Technology, Inc.+ 112,060 2,956
Security Dynamics
Technologies, Inc.+ 28,000 287
Siebel Systems, Inc.+ 41,800 854
Silicon Graphics, Inc.+ 73,700 829
Sterling Commerce, Inc.+ 37,000 1,303
Sterling Software, Inc.+ 47,600 1,247
Storage Technology Corp.+ 60,800 2,033
Sun Microsystems, Inc.+ 190,000 11,068
Synopsis, Inc.+ 38,800 1,755
Technology Data Corp.+ 23,000 906
Unisys Corp.+ 129,800 3,456
Veritas Software Corp.+ 28,500 1,429
Western Digital Corp.+ 33,400 351
Xerox Corp. 158,700 15,374
YAHOO! Inc.+ 53,400 6,987
---------
482,010
---------
BUSINESS SERVICES -- 2.6%
ACNielsen Corp.+ 35,000 936
Allied Waste Industries, Inc.+ 70,000 1,514
America Online, Inc. 110,400 14,028
Apollo Group, Inc.+ 42,500 1,365
Automatic Data Processing,
Inc. 146,400 11,392
Browning-Ferris Industries,
Inc. 91,200 3,232
Cadence Design Systems, Inc.+ 89,750 1,918
Cambridge Technology
Partners, Inc.+ 24,000 531
Cendant Corp.+ 382,259 4,372
Ciber, Inc.+ 16,400 322
Cintas Corp. 47,200 2,525
Comdisco, Inc. 66,066 1,020
Computer Sciences Corp. 74,196 3,914
Concentra Managed Care, Inc.+ 33,000 338
Number Value
of Shares (000s)
--------- ---------
Concord EFS, Inc.+ 52,275 $ 1,490
Corrections Corp. of America+ 31,000 597
Deluxe Corp. 46,000 1,489
DST Systems, Inc.+ 30,000 1,500
Ecolab, Inc. 52,800 1,577
Equifax, Inc. 74,000 2,863
First Data Corp. 209,302 5,547
Fiserv, Inc.+ 40,462 1,882
Gartner Group, Inc., Class A+ 38,400 763
Gtech Holdings Corp.+ 15,700 377
H&R Block, Inc. 48,700 2,182
IKON Office Solutions 61,400 579
IMS Health, Inc. 71,600 4,761
Integrated Health Services,
Inc.+ 28,000 453
Interpublic Group of Companies,
Inc. 66,850 3,911
Keane, Inc.+ 30,000 998
Manpower, Inc. 31,500 760
Medpartners, Inc.+ 81,144 289
Modis Professional Services,
Inc.+ 50,000 881
National Service Industries,
Inc. 16,700 599
NCR Corp.+ 44,451 1,495
Ogden Corp. 20,000 538
Olsten Corp. 22,275 205
Omnicom Group, Inc. 83,200 4,113
Paychex, Inc. 83,130 4,136
PhyCor, Inc.+ 22,650 164
Quorum Health Group, Inc.+ 39,650 575
R.H. Donnelley Corp. 13,920 195
R.R. Donnelley & Sons Co. 66,500 2,868
Republic Industries, Inc.+ 201,700 3,240
Reynolds & Reynolds Co.,
Class A 45,400 817
Robert Half International,
Inc.+ 49,650 1,992
Steris Corp.+ 26,400 607
Stewart Enterprises, Inc. 56,100 1,294
Sungard Data Systems, Inc.+ 41,600 1,404
Sylvan Learning Systems, Inc.+ 24,000 741
Symantec Corp.+ 30,000 480
Total Renal Care Holdings,
Inc.+ 35,000 858
Total System Services, Inc. 77,700 1,539
U.S. Office Products Co.+ 13,625 105
Vencor, Inc.+ 27,775 128
Viad Corp. 38,100 1,045
Wallace Computer Service, Inc. 23,800 521
Waste Management, Inc. 267,775 12,083
---------
122,048
---------
46
<PAGE>
Number Value
of Shares (000s)
--------- ---------
CHEMICAL -- 2.0%
Air Products & Chemicals, Inc. 112,200 $ 4,236
Albemarle Corp. 15,400 294
Arterial Vascular Engineering,
Inc.+ 24,200 744
Cabot Corp. 37,800 1,061
Crompton & Knowles Corp. 22,000 353
Cytec Industries, Inc.+ 13,755 330
Dow Chemical Co. 107,000 10,018
E. I. du Pont de Nemours & Co. 546,400 31,418
Eastman Chemical Co. 33,725 1,981
Great Lakes Chemical Corp. 21,700 903
Hercules, Inc. 54,400 1,812
International Speciality
Products Inc.+ 45,400 610
Lubrizol Corp. 40,600 1,132
Lyondell Petrochemical Co. 36,300 613
M.A. Hanna, Co. 10,725 157
Millennium Chemicals, Inc. 24,000 585
Minnesota Mining &
Manufacturing Co. 194,400 15,552
Morton International, Inc. 71,900 1,788
Nalco Chemical Co. 26,800 829
Olin Corp. 20,000 554
PPG Industries, Inc. 78,700 4,501
Praxair, Inc. 72,100 2,902
Rohm & Haas Co. 90,900 3,068
RPM, Inc. 44,843 754
Sigma-Aldrich Corp. 45,000 1,391
Solutia, Inc. 55,000 1,207
Union Carbide Corp. 67,000 2,579
Valspar Corp. 21,600 606
Witco Corp. 25,900 487
W. R. Grace & Co.+ 34,700 603
---------
93,068
---------
CONSTRUCTION -- 0.4%
Armstrong World Industries, Inc.15,700 973
Centex Corp. 23,000 770
Clayton Homes, Inc. 51,346 793
Crane Co. 32,850 946
Fluor Corp. 39,000 1,514
Georgia Pacific Timber Group 35,000 777
Global Industries, Inc.+ 43,000 414
J. Ray McDermott, S.A.+ 23,500 737
Johns Manville Corp. 84,300 1,106
Lafarge Corp. 31,100 1,048
Martin Marietta Materials, Inc. 21,400 1,050
Number Value
of Shares (000s)
--------- ---------
Oakwood Homes Corp. 14,000 $ 221
Owens Corning 18,300 665
Sherwin-Williams Co. 82,000 2,065
Southdown, Inc. 24,200 1,317
The Stanley Works Co. 36,800 1,104
USG Corp. 18,700 892
Vulcan Materials, Inc. 14,800 1,756
---------
18,148
---------
CONSUMER - DURABLE -- 0.4%
Black & Decker Corp. 43,500 2,248
Leggett & Platt, Inc. 91,600 2,141
Masco Corp. 162,800 4,589
Maytag Corp. 42,800 2,116
Newell Co. 76,674 3,374
Shaw Industries, Inc. 60,100 1,044
Snap-On, Inc. 22,150 785
Sunbeam Corp. 33,100 224
Whirlpool Corp. 31,100 1,594
---------
18,115
---------
CONSUMER - NONDURABLE -- 1.0%
American Greetings Corp.,
Class A 29,200 1,172
CKE Restaurants, Inc. 27,000 710
Cracker Barrel Old Country
Store, Inc. 20,900 541
Darden Restaurants, Inc. 63,600 1,049
Hasbro, Inc. 64,725 2,269
Lancaster Colony Corp. 24,450 733
Mattel, Inc. 134,220 4,815
McDonald's Corp. 327,200 21,882
Outback Steakhouse, Inc.+ 31,250 1,082
Premark International, Inc. 37,300 1,182
Rubbermaid, Inc. 74,000 2,456
Starbucks Corp.+ 35,500 1,540
Tricon Global Restaurants,
Inc.+ 74,760 3,252
U.S. Industries, Inc. 47,500 775
Wendy's International, Inc. 63,500 1,334
---------
44,792
---------
CONTAINERS -- 0.2%
Bemis Co., Inc. 21,400 794
Crown Cork & Seal Co., Inc. 55,600 1,772
Jefferson Smurfit Corp.+ 51,900 594
Owens-Illinois, Inc.+ 75,900 2,320
Sealed Air Corp.+ 44,199 1,566
Sonoco Products 42,141 1,196
---------
8,242
---------
47
<PAGE>
SCHWAB 1000 FUND(R)
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ---------
ELECTRONICS -- 5.3%
Adaptec, Inc.+ 45,400 $ 735
ADC Telecommunications, Inc.+ 65,400 1,504
Advanced Micro Devices, Inc.+ 74,300 1,676
Altera Corp.+ 47,200 1,965
American Power Conversion
Corp.+ 51,500 2,186
AMP, Inc. 103,300 4,242
Analog Devices, Inc.+ 68,400 1,359
Applied Materials, Inc.+ 179,400 6,223
Arrow Electronics, Inc.+ 38,800 846
Ascend Communications, Inc.+ 95,010 4,584
Atmel Corp.+ 30,200 349
Avnet, Inc. 17,100 851
AVX Corp. 26,000 461
Electronic Data Systems Corp. 230,800 9,391
Emerson Electric Co. 203,400 13,424
Fore Systems, Inc.+ 48,400 756
General Instrument Corp.+ 60,000 1,541
Harris Corp. 36,600 1,283
Input/Output, Inc.+ 20,000 177
Intel Corp. 806,000 71,885
Jabil Circuit, Inc.+ 18,000 834
KLA-Tencor Corp.+ 37,400 1,379
Linear Technology Corp. 34,900 2,081
Loral Space and
Communications Corp.+ 115,000 2,178
LSI Logic Corp.+ 65,100 985
Lucent Technologies, Inc. 636,454 51,036
Maxim Integrated Products,
Inc.+ 69,200 2,470
Micron Technology, Inc.+ 104,500 3,971
Molex, Inc. 70,257 2,507
Motorola, Inc. 283,400 14,737
National Semiconductor Corp.+ 69,300 879
Perkin Elmer Corp. 24,500 2,066
Pittway Corp., Class A 16,300 374
Qualcomm, Inc.+ 38,500 2,142
Rockwell International Corp. 94,600 3,885
Sanmina Corp.+ 15,800 648
SCI Systems, Inc. 38,000 1,501
Scientific-Atlanta, Inc. 24,700 369
Sensormatic Electronics Corp.+ 35,250 198
Solectron Corp.+ 60,600 3,469
Symbol Technologies, Inc.+ 37,325 1,670
Tektronix, Inc. 26,400 472
Tellabs, Inc.+ 95,000 5,225
Teradyne, Inc.+ 32,900 1,069
Texas Instruments, Inc. 193,600 12,378
Number Value
of Shares (000s)
--------- ---------
Thermo Electron Corp.+ 66,737 $ 1,331
Thomas & Betts Corp. 34,400 1,537
Uniphase Corp.+ 20,000 990
Varian Associates, Inc. 9,300 364
Vishay Intertechnology, Inc.+ 14,122 214
Vitesse Semiconductor Corp.+ 35,000 1,129
Xilinx, Inc.+ 27,400 1,224
---------
250,750
---------
ENERGY - RAW MATERIALS -- 0.9%
Anadarko Petroleum Corp. 66,200 2,243
Apache Corp. 50,100 1,418
Baker Hughes, Inc. 140,020 3,089
BJ Services Co.+ 36,000 736
Burlington Resources, Inc. 88,467 3,644
Cooper Cameron Corp.+ 35,000 1,216
Devon Energy Corp. 10,000 339
Diamond Offshore Drilling, Inc. 56,600 1,737
Dynegy, Inc. 56,000 840
Enron Oil & Gas 57,800 965
Ensco International, Inc. 52,800 710
Global Marine, Inc.+ 69,500 860
Halliburton Co. 200,460 7,204
Helmerich & Payne, Inc. 20,000 476
Mitchell Energy & Development
Corp., Class A 28,000 390
Nabors Industries, Inc.+ 41,100 760
National-Oilwell, Inc.+ 25,000 397
Noble Affiliates, Inc. 27,400 897
Noble Drilling Corp.+ 55,000 945
Occidental Petroleum Corp. 174,900 3,476
ONEOK, Inc. 10,000 343
Pioneer Natural Resources Co. 29,400 443
Rowan Companies, Inc.+ 44,500 648
Tidewater, Inc. 27,000 764
Transocean Offshore, Inc. 51,000 1,884
Union Pacific Resources Group 107,588 1,399
Varco International, Inc.+ 26,000 281
Vastar Resources, Inc. 49,800 2,381
Weatherford International,
Inc.+ 47,930 1,303
---------
41,788
---------
FOOD & AGRICULTURE -- 5.0%
Archer Daniels Midland Co. 281,258 4,694
Bestfoods, Inc. 141,400 7,706
Campbell Soup Co. 218,400 11,643
Coca-Cola Co. 1,173,100 79,331
48
<PAGE>
Number Value
of Shares (000s)
--------- ---------
Coca-Cola Enterprises, Inc. 199,600 $ 7,198
ConAgra, Inc. 230,848 7,026
Dean Foods Co. 21,150 991
Dekalb Genetics Corp., Class B 18,000 1,649
Dole Food Co., Inc. 23,100 696
Flowers Industries, Inc. 47,500 974
General Mills, Inc. 71,100 5,226
H.J. Heinz Co. 174,600 10,149
Hershey Foods Corp. 73,100 4,957
Hormel Foods Corp. 34,100 1,110
IBP, Inc. 31,400 850
IMC Global, Inc. 47,360 1,231
Interstate Bakeries Corp. 37,200 932
Kellogg Co. 198,800 6,560
McCormick & Co., Inc. 33,400 1,038
Monsanto Co. 291,500 11,842
Nabisco Holdings Corp.,
Class A 26,000 982
PepsiCo, Inc. 695,600 23,477
Pioneer-Hi-Bred
International, Inc. 123,500 3,458
Quaker Oats Co. 66,600 3,934
Ralston Purina Group 153,300 5,116
Rexall Sundown, Inc.+ 26,000 466
Richfood Holdings, Inc. 12,750 226
RJR Nabisco Holdings Corp. 151,736 4,334
Sara Lee Corp. 223,100 13,316
Smithfield Foods, Inc.+ 8,000 157
Suiza Foods Corp.+ 11,300 369
SYSCO Corp. 149,400 4,025
Tyson Foods, Inc., Class A 119,300 2,744
U.S. Foodservice, Inc.+ 30,000 1,425
Universal Corp. 19,500 724
Whitman Corp. 41,900 898
Wm. Wrigley Jr. Co. 54,000 4,371
---------
235,825
---------
GOLD -- 0.1%
Battle Mountain Gold Co. 66,000 359
Homestake Mining Co. 87,800 1,043
Newmont Mining Corp. 172,996 3,676
---------
5,078
---------
HEALTHCARE/DRUGS & MEDICINE -- 12.0%
Abbott Laboratories 733,400 34,424
Allegiance Corp. 59,840 2,225
Allergan, Inc. 35,700 2,229
ALZA Corp.+ 42,600 2,039
American Home Products Corp. 631,600 30,790
Number Value
of Shares (000s)
--------- ---------
Amgen, Inc.+ 117,200 $ 9,208
Bausch & Lomb, Inc. 20,800 867
Baxter International, Inc. 134,000 8,032
Becton, Dickinson & Co. 120,200 5,063
Bergen Brunswig Corp. 39,353 1,921
Beverly Enterprises, Inc.+ 48,400 327
Biogen, Inc.+ 34,300 2,384
Biomet, Inc. 48,900 1,660
Boston Scientific Corp.+ 93,471 5,088
Bristol-Meyers Squibb Co. 478,700 52,926
C.R. Bard, Inc. 33,600 1,434
Cardinal Health, Inc. 63,113 5,968
Centocor, Inc.+ 30,600 1,362
Chiron Corp.+ 94,612 2,129
Columbia / HCA Healthcare
Corp. 299,258 6,284
Dentsply International, Inc.+ 18,000 463
Depuy, Inc.+ 40,000 1,400
Dura Pharmaceuticals, Inc.+ 19,000 229
Eli Lilly & Co. 518,168 41,939
First Health Group Corp.+ 40,000 922
Forest Laboratories, Inc.+ 31,200 1,305
Fresenius National
Medical, Inc., Class D+ 24,900 1
Genetech, Inc.+ 62,500 4,477
Genzyme Corp.
(General Division)+ 43,800 1,842
Guidant Corp. 77,136 5,901
HBO & Co. 208,400 5,470
Hcr Manor Care, Inc.+ 48,600 1,580
Health Management Associates,
Inc., Class A+ 118,128 2,104
Healthsouth Corp.+ 194,200 2,355
Humana, Inc.+ 68,500 1,297
ICN Pharmaceuticals, Inc. 25,650 600
Immunex Corp.+ 15,400 1,064
Johnson & Johnson 647,300 52,755
Lincare Holdings, Inc.+ 22,000 879
Mallinckrodt, Inc. 25,600 730
McKesson Corp. 49,000 3,773
Medtronic, Inc. 231,200 15,028
Merck & Co., Inc. 572,554 77,438
Mylan Laboratories, Inc. 49,550 1,706
Omnicare, Inc. 37,900 1,310
Pacificare Health Systems, Inc.,
Class B+ 21,164 1,667
Pfizer, Inc. 624,800 67,049
Quintiles Transnational
Corp.+ 32,000 1,448
Safeskin Corp.+ 20,400 451
49
<PAGE>
SCHWAB 1000 FUND(R)
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ---------
Schering-Plough Corp. 347,300 $ 35,728
Service Corp. International 121,400 4,325
Shared Medical Systems Corp. 9,700 484
Sofamor/Danek Group, Inc.+ 9,700 986
St. Jude Medical, Inc.+ 46,450 1,312
Stryker Corp. 51,600 2,164
Sybron International Corp. 59,600 1,475
Tenet Healthcare Corp.+ 152,373 4,257
United Healthcare Corp. 85,400 3,720
Universal Health Services,
Class B+ 10,000 513
Ventas, Inc.+ 27,775 318
Warner Lambert Co. 398,200 31,209
Watson Pharmaceuticals, Inc.+ 47,000 2,614
Wellpoint Health Networks,
Inc.+ 41,925 3,087
---------
565,735
---------
HOUSEHOLD PRODUCTS -- 2.3%
Alberto-Culver Co., Class B 18,700 498
Avon Products, Inc. 124,400 4,937
Clorox Co. 47,900 5,233
Colgate-Palmolive Co. 147,100 13,000
Dial Corp. 45,100 1,243
Estee Lauder Companies, Inc.,
Class A 26,000 1,704
Gillette Co. 533,410 23,970
International Flavors &
Fragrances, Inc. 43,500 1,628
Procter & Gamble Co. 633,200 56,276
Tupperware Corp. 28,700 447
---------
108,936
---------
INSURANCE -- 4.4%
20th Century Industries 55,000 1,351
Aetna, Inc. 71,365 5,326
AFLAC, Inc. 128,850 4,912
Alleghany Corp.+ 2,953 560
Allmerica Financial Corp. 40,216 2,011
Allstate Corp. 398,448 17,158
AMBAC Financial Group, Inc. 32,800 1,908
American Bankers Insurance
Group, Inc. 24,200 1,081
American General Corp. 117,493 8,048
American International Group,
Inc. 505,555 43,099
American National
Insurance Co. 10,300 865
Aon Corp. 86,675 5,374
Chubb Corp. 83,700 5,147
CIGNA Corp. 112,200 8,184
Cincinnati Financial Corp. 73,614 2,747
CMAC Investment Corp. 8,700 364
Number Value
of Shares (000s)
--------- ---------
CNA Financial Corp.+ 96,200 $ 4,004
Conseco, Inc. 149,296 5,179
Equitable Companies, Inc. 103,100 5,052
Erie Indemnity Co., Class A 40,000 1,030
Everest Reinsurance Holdings,
Inc. 31,000 1,068
Financial Security Assurance
Holdings, Ltd. 18,000 897
Foundation Health Systems, Inc.,
Class A+ 45,760 538
Fremont General Corp. 12,800 632
General Re Corp. 35,700 7,843
Hartford Financial Services
Group, Inc. 105,200 5,589
Horace Mann Educators Corp. 30,000 859
Jefferson-Pilot Corp. 53,725 3,264
Leucadia National Corp. 30,000 919
Liberty Financial Corp. 26,500 666
Lincoln National Corp. 43,900 3,331
Marsh & McLennan Companies,
Inc. 119,700 6,643
MBIA, Inc. 62,000 3,790
Mercury General Corp. 39,400 1,674
MGIC Investment Corp. 57,400 2,239
Ohio Casualty Corp. 17,300 653
Old Republic International
Corp. 61,275 1,164
Orion Capital Corp. 8,000 273
Oxford Health Plans, Inc.+ 29,900 353
PMI Group, Inc. 12,600 635
Progressive Corp. 33,900 4,992
Protective Life Corp. 27,600 1,023
Provident Companies, Inc. 91,992 2,673
Provident Financial Group, Inc. 19,200 740
Reliance Group Holdings, Inc. 64,000 892
Reliastar Financial Corp. 52,000 2,278
SAFECO Corp. 64,600 2,798
St. Paul Companies, Inc. 120,754 4,000
SunAmerica, Inc. 94,650 6,673
TIG Holdings, Inc. 16,300 227
Torchmark Corp. 64,700 2,831
Transamerica Corp. 32,500 3,380
Transatlantic Holdings, Inc. 26,000 2,028
Travelers Property Casualty Corp.,
Class A 35,000 1,074
United Insurance Companies,
Inc.+ 12,000 177
Unitrin, Inc. 24,500 1,742
UNUM Corp. 68,516 3,045
W.R. Berkley Corp. 7,000 211
Wesco Financial Corp. 2,800 944
---------
208,158
---------
50
<PAGE>
Number Value
of Shares (000s)
--------- ---------
MEDIA -- 3.2%
A. H. Belo Corp., Class A 52,000 $ 946
BHC Communications, Inc.,
Class A 11,700 1,381
Cablevision Systems Corp.,
Class A+ 61,600 2,972
CBS Corp. 329,807 9,214
Central Newspapers, Inc.,
Class A 8,500 559
Chancellor Media Corp.+ 61,000 2,341
Chris-Craft Industries, Inc.+ 12,556 560
Clear Channel Communications,
Inc.+ 111,002 5,058
Comcast Corp., Class A 170,688 8,428
Cox Communications, Inc.+ 124,306 6,821
Dow Jones & Co., Inc. 46,000 2,107
Gannett Co., Inc. 131,600 8,143
Harcourt General, Inc. 30,200 1,470
Harte-Hanks Communications,
Inc. 38,200 929
Heftel Broadcasting Corp.+ 23,000 946
Hollinger International, Inc. 35,000 455
King World Productions, Inc.+ 38,000 997
Knight-Ridder, Inc. 32,600 1,661
Lee Enterprises, Inc. 22,000 598
McGraw-Hill Companies, Inc. 50,200 4,515
Mediaone Group+ 289,700 12,258
Meredith Corp. 36,000 1,332
New York Times Co., Class A 94,026 2,656
Outdoor Systems, Inc.+ 90,500 1,997
Primedia, Inc.+ 63,000 681
Pulitzer Publishing Co. 13,066 1,032
Reader's Digest Association.,
Inc., Class A 42,800 931
Scripps, (E.W.) Co., Class A 51,675 2,287
Snyder Communications, Inc.+ 30,000 1,071
Telecommunications, Inc.,
Class A (Liberty Media Group)+ 162,193 6,173
Telecommunications, Inc.,
Class A (TCI Group)+ 245,559 10,344
Time Warner, Inc. 292,955 27,190
Times Mirror Co., Class A 37,000 2,051
Tribune Co. 59,400 3,423
USA Networks, Inc.+ 58,200 1,309
Valassis Communications,
Inc.+ 25,000 997
Viacom, Inc., Class B+ 166,026 9,941
Washington Post Co. 4,300 2,283
---------
148,057
---------
MISCELLANEOUS FINANCE -- 5.5%
A.G. Edwards & Sons, Inc. 42,843 1,481
American Express Co. 217,400 19,213
Number Value
of Shares (000s)
--------- ---------
American Financial Group, Inc. 24,100 $ 845
Associates First Capital Corp. 164,601 11,604
Astoria Financial Corp. 29,750 1,279
Bear Stearns Co., Inc. 54,138 1,932
Berkshire Hathaway, Inc.,
Class A+ 579 37,345
Capital One Financial Corp. 33,000 3,358
Charles Schwab Corp. 121,250 5,812
Charter One Financial, Inc. 70,835 1,944
CheckFree Holdings Corp.+ 31,000 487
Citigroup, Inc. 1,083,783 51,006
Contifinancial Corp.+ 30,000 223
Countrywide Credit Industries,
Inc. 50,985 2,202
Donaldson, Lufkin & Jenrette,
Inc. 61,600 2,202
Dun & Bradstreet Corp. 104,600 2,968
Fannie Mae 495,000 35,052
Finova Group, Inc. 21,700 1,058
FIRSTPLUS Financial Group,
Inc.+ 23,000 102
Franklin Resources, Inc. 112,600 4,258
Freddie Mac 324,400 18,653
GATX Corp. 19,000 656
GreenPoint Financial Corp. 52,800 1,733
Household International, Inc. 226,298 8,274
Legg Mason, Inc. 32,000 850
Lehman Brothers Holdings, Inc. 55,880 2,120
Merrill Lynch & Co., Inc. 166,600 9,871
Morgan Stanley, Dean Witter,
Discover & Co. 280,405 18,156
PaineWebber Group, Inc. 58,687 1,962
Providian Financial Corp. 41,900 3,326
Raymond James Financial, Inc. 12,000 275
Sudent Loan Marketing
Association 90,350 3,620
T. Rowe Price Associates, Inc. 48,400 1,721
United Asset Management Co. 38,400 931
---------
256,519
---------
NON-FERROUS METALS -- 0.3%
Aluminum Company of America 92,685 7,345
Cyprus Amax Minerals Co. 31,200 388
Engelhard Corp. 69,687 1,463
Freeport-McMoran Copper & Gold,
Inc., Class B 88,894 1,095
Phelps Dodge Corp. 32,700 1,884
Reynolds Metals Co. 38,800 2,326
---------
14,501
---------
51
<PAGE>
SCHWAB 1000 FUND(R)
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ----------
OIL - DOMESTIC -- 0.8%
Amerada Hess Corp. 40,100 $ 2,215
Ashland, Inc. 41,000 1,973
Atlantic Richfield Co. 154,200 10,620
Kerr-McGee Corp. 18,400 734
Murphy Oil Corp. 22,370 924
Oryx Energy Co.+ 41,200 577
Pennzoil Co. 23,800 854
Phillips Petroleum Co. 123,700 5,350
Pride International, Inc.+ 10,000 116
Sun, Inc. 51,900 1,781
Tosco Corp. 85,600 2,402
Ultramar Diamond Shamrock Corp. 50,700 1,366
Unocal Corp. 120,534 4,091
USX-Marathon Group 141,000 4,609
Valero Energy Corp. 19,600 490
---------
38,102
---------
OIL - INTERNATIONAL -- 3.8%
Amoco Corp. 464,100 26,048
Chevron Corp. 309,400 25,216
Exxon Corp. 1,160,400 82,679
Mobil Corp. 380,500 28,799
Texaco, Inc. 253,509 15,036
---------
177,778
---------
OPTICAL & PHOTO -- 0.3%
Eastman Kodak Co. 155,300 12,036
Polaroid Corp. 18,200 483
---------
12,519
---------
PAPER & FOREST PRODUCTS -- 1.0%
Boise Cascade Corp. 23,000 644
Bowater, Inc. 35,700 1,457
Champion International Corp. 38,500 1,230
Consolidated Papers, Inc. 34,800 837
Fort James Corp. 118,100 4,761
Georgia-Pacific Group 50,800 2,629
International Paper Co. 148,100 6,877
Kimberly-Clark Corp. 255,660 12,336
Louisiana-Pacific Corp. 66,500 1,180
Mead Corp. 51,800 1,638
Potlatch Corp. 9,300 339
Rayonier, Inc. 13,875 544
St. Joe Co. 43,300 1,037
Temple Inland, Inc. 21,900 1,064
Number Value
of Shares (000s)
--------- ----------
Union Camp Corp. 26,900 $ 1,157
Westvaco Corp. 43,300 1,066
Weyerhaeuser Co. 102,000 4,775
Willamette Industries, Inc. 52,000 1,612
-------
45,183
-------
PRODUCER GOODS & MANUFACTURING -- 4.6%
Aeroquip-Vickers, Inc. 10,900 343
AGCO, Inc. 19,600 186
Allied Signal, Inc. 261,800 10,194
American Standard Corp.+ 35,500 1,134
AMF Bowling, Inc.+ 30,000 129
Avery Dennison Corp. 51,800 2,147
Blyth Industries, Inc.+ 15,000 414
Briggs & Stratton Corp. 16,300 766
Case Corp. 33,900 746
Caterpillar, Inc. 175,600 7,902
Cooper Industries, Inc. 60,700 2,678
Corning, Inc. 106,800 3,878
Corporate Express, Inc.+ 34,350 402
Deere & Co. 107,200 3,792
Dover Corp. 109,200 3,467
FMC Corp.+ 14,200 725
General Electric Co. 1,551,100 135,721
Harnischfeger Industries, Inc. 22,500 212
Harsco Corp. 14,800 485
Henry Schein, Inc. 24,000 929
Herman Miller, Inc. 35,600 785
Hillenbrand Industries, Inc. 37,000 2,190
Hon Industries, Inc. 23,800 504
Hubbell, Inc., Class B 26,938 1,074
Illinois Tool Works, Inc. 120,200 7,708
Ingersoll-Rand Co. 80,550 4,068
ITT Industries, Inc. 50,600 1,809
Johnson Controls, Inc. 40,600 2,284
Kennametal, Inc. 10,200 212
Mark IV Industries, Inc. 15,405 237
McDermott International, Inc. 31,000 909
Millipore Corp. 12,400 305
Pall Corp. 60,233 1,521
Parker-Hannifin Corp. 49,375 1,765
Pentair, Inc. 21,200 798
Precision Castparts Corp. 9,400 414
Raychem Corp. 30,800 941
Sanmina Corp. 15,800 648
Smith International, Inc.+ 17,000 611
Teleflex, Inc. 25,000 967
Tenneco, Inc. 85,500 2,597
52
<PAGE>
Number Value
of Shares (000s)
--------- ----------
Thermo Instrument Systems, Inc.+ 52,171 $ 636
Timken Co. 18,600 331
Trinity Industries, Inc.+ 27,950 1,038
U.S. Filter Corp.+ 70,000 1,483
Ucar International, Inc.+ 14,000 252
W.W Grainger., Inc. 43,600 2,008
York International Corp. 23,400 880
--------
215,225
--------
RAILROAD & SHIPPING -- 0.5%
Alexander & Baldwin, Inc. 21,700 441
Burlington Northern Santa Fe Corp. 234,753 7,248
CSX Corp. 109,700 4,306
Kansas City Southern Industries, Inc. 44,100 1,703
Norfolk Southern Corp. 186,100 6,130
Union Pacific Corp. 114,761 5,465
Wisconsin Central
Transportation Corp.+ 12,900 195
--------
25,488
--------
REAL PROPERTY -- 0.0%
Catellus Development Corp.+ 45,000 619
Rouse Co. 22,500 631
--------
1,250
--------
RETAIL -- 6.0%
Albertson's, Inc. 121,200 6,734
American Stores Co. 138,400 4,507
AutoZone, Inc.+ 72,000 1,894
Barnes & Noble, Inc.+ 30,000 979
Bed, Bath & Beyond, Inc.+ 79,600 2,194
Best Buy Co., Inc.+ 49,800 2,390
Borders Group, Inc.+ 52,000 1,319
Circuit City Stores, Inc. 58,800 2,128
CompUSA, Inc.+ 36,000 499
Consolidated Stores Corp.+ 45,312 745
CVS Corp. 177,914 8,128
Dayton Hudson Corp. 204,000 8,644
Dillards, Inc., Class A 62,200 1,932
Dollar General Corp. 95,213 2,273
Dollar Tree Stores, Inc.+ 27,000 1,041
Family Dollar Stores, Inc. 139,500 2,528
Fastenal Co. 9,700 350
Federated Department Stores, Inc.+ 105,200 4,044
Food Lion, Inc., Class A 205,450 2,260
Fred Meyer, Inc.+ 71,390 3,806
Gap, Inc. 181,000 10,883
Number Value
of Shares (000s)
--------- ----------
General Nutrition Companies, Inc.+ 39,600 $ 577
Hannaford Bros. Co., Inc. 28,300 1,240
Home Depot, Inc. 692,898 30,141
International Game Technology 58,600 1,322
Intimate Brands, Inc. 120,000 2,685
J.C. Penney Co., Inc. 125,800 5,976
Kmart Corp.+ 215,700 3,047
Kohl's Corp.+ 70,800 3,385
Kroger Co.+ 116,400 6,460
Limited, Inc. 114,819 2,942
Longs Drug Stores, Inc. 28,000 1,094
Lowe's Companies, Inc. 158,600 5,343
May Department Stores Co. 112,900 6,887
Neiman-Marcus Group, Inc.+ 30,000 664
Nordstrom, Inc. 73,800 2,016
Office Depot, Inc.+ 124,500 3,113
Officemax, Inc.+ 56,100 512
Payless Shoesource, Inc.+ 19,600 920
Pep Boys-Manny, Moe & Jack 13,700 214
Pier 1 Imports, Inc. 52,500 486
Planet Hollywood International Inc.+ 25,000 100
Price/Costco, Inc.+ 105,704 5,999
Rite Aid Corp. 126,300 5,013
Ross Stores, Inc. 16,000 520
Safeway, Inc.+ 235,080 11,240
Saks Holdings, Inc.+ 63,340 1,441
Sears, Roebuck & Co. 185,100 8,318
Staples, Inc.+ 137,907 4,499
SUPERVALU, Inc. 71,600 1,718
Tandy Corp. 51,116 2,533
Tiffany & Co., Inc+ 10,000 323
TJX Companies, Inc. 154,400 2,924
Toys "R" Us, Inc.+ 125,480 2,455
Venator Group, Inc.+ 49,000 413
Wal-Mart Stores, Inc. 1,064,500 73,451
Walgreen Co. 227,400 11,072
Weis Markets, Inc. 23,900 857
Whole Foods Market, Inc.+ 14,000 561
Winn Dixie Stores, Inc. 62,300 2,114
-------
283,853
-------
STEEL -- 0.1%
Allegheny Teledyne, Inc. 83,280 1,713
Nucor Corp. 45,100 2,044
USX-U.S. Steel Group, Inc. 42,160 980
Worthington Industries, Inc. 46,700 633
-------
5,370
-------
53
<PAGE>
SCHWAB 1000 FUND(R)
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ----------
TELEPHONE -- 7.4%
Advanced Fibre Communications,
Inc.+ 40,000 $ 387
AirTouch Communications, Inc.+ 276,200 15,467
Alltel Corp. 123,707 5,791
Ameritech Corp. 524,600 28,296
Andrew Corp.+ 25,612 419
AT&T Corp. 856,966 53,346
Bell Atlantic Corp. 735,886 39,094
BellSouth Corp. 475,500 37,951
Century Telephone Enterprises, Inc. 43,125 2,450
Cincinnati Bell, Inc. 66,800 1,733
COMSAT Corp. 32,000 1,262
Excel Communications, Inc.+ 60,000 1,444
Frontier Corp. 87,450 2,629
GTE Corp. 453,400 26,609
Jacor Communications, Inc.,
Class A+ 28,300 1,557
MCI WorldCom, Inc.+ 850,652 46,999
McLeodUSA, Inc., Class A+ 30,000 1,097
Nextel Communications, Inc.+ 141,100 2,557
Omnipoint Corp.+ 10,000 93
Pairgain Technologies, Inc.+ 29,000 238
Qwest Communications
International, Inc.+ 45,477 1,779
SBC Communications, Inc. 946,881 43,852
Skytel Communications, Inc.+ 30,000 497
Sprint Corp. 199,334 15,299
Tel-Save Holdings, Inc.+ 26,000 233
Telephone & Data Systems, Inc. 35,100 1,400
U.S. Cellular Corp.+ 53,800 1,970
US West Inc. (Media Group) 240,265 13,785
---------
348,234
---------
TOBACCO -- 1.5%
Fortune Brands, Inc. 81,300 2,688
Loew's Corp. 55,000 5,167
Philip Morris Companies, Inc. 1,160,100 59,311
UST, Inc. 80,200 2,727
---------
69,893
---------
TRAVEL & RECREATION -- 0.8%
Brunswick Corp. 38,900 756
Callaway Golf Co. 31,000 337
Central Parking Corp. 10,000 420
Circus Circus Enterprises, Inc.+ 40,400 452
Extended Stay America, Inc.+ 20,400 196
Number Value
of Shares (000s)
--------- ----------
Harrah's Entertainment, Inc.+ 47,100 $ 665
Hilton Hotels Corp. 116,200 2,331
Marriott International, Inc., Class A 118,600 3,187
Mirage Resorts, Inc.+ 69,100 1,171
Promus Hotel Corp.+ 35,060 1,118
Walt Disney Co. 977,721 26,337
---------
36,970
---------
TRUCKING & FREIGHT -- 0.1%
Airborne Freight Corp. 19,200 450
CNF Transportation, Inc. 35,000 1,059
Pittston Brink's Group 29,900 890
Ryder Systems, Inc. 33,800 832
-------
3,231
-------
UTILITIES - ELECTRIC & GAS -- 4.2%
AES Corp.+ 90,318 3,697
Allegheny Energy, Inc. 62,100 1,910
Ameren Corp. 67,130 2,681
American Electric Power Co., Inc. 93,200 4,561
American Water Works Co., Inc. 34,600 1,105
Baltimore Gas & Electric Co. 78,150 2,452
BEC Energy 32,900 1,306
CalEnergy Co., Inc.+ 45,000 1,232
Carolina Power & Light Co. 80,500 3,693
Central & South West Corp. 101,800 2,831
Cinergy Corp. 67,565 2,331
Citizens Utilities Co., Class B 129,718 1,167
CMS Energy Corp. 62,900 2,772
Coastal Corp. 106,600 3,758
Columbia Gas System, Inc. 44,100 2,552
Conectiv, Inc. 45,700 1,045
Consolidated Edison, Inc. 113,700 5,699
Consolidated Natural Gas Co. 40,400 2,134
Dominion Resources, Inc. 88,650 4,095
DPL, Inc. 83,275 1,577
DQE, Inc. 44,050 1,737
DTE Energy Co. 72,100 3,073
Duke Power Co. 169,931 10,992
Edison International 165,600 4,368
El Paso Energy Corp. 66,168 2,345
Energy East Corp. 33,400 1,632
Enron Corp. 160,569 8,470
Entergy Corp. 117,421 3,376
Equitable Resources, Inc. 25,100 698
First Energy Corp. 119,515 3,585
Florida Progress Corp. 50,400 2,114
54
<PAGE>
Number Value
of Shares (000s)
--------- ----------
FPL Group, Inc. 84,200 $ 5,268
GPU, Inc. 58,600 2,527
Hawaiian Electric Industries, Inc. 22,900 907
Houston Industries, Inc. 131,917 4,098
Idaho Power Co. 21,400 669
Illinova Corp. 31,300 792
Ipalco Enterprises, Inc. 32,000 1,468
Kansas City Power & Light Co. 35,900 1,034
Keyspan Energy Corp. 77,934 2,328
KN Energy, Inc. 27,200 1,352
LG&E Energy Corp. 70,155 1,850
MCN Corp. 35,600 688
Midamerican Energy
Holdings Co. 54,461 1,416
Minnesota Power & Light Co. 22,000 923
Montana Power Co. 32,900 1,425
National Fuel Gas Co. 16,600 784
Nevada Power Co. 35,000 884
New Century Energies, Inc. 57,700 2,788
New England Electric Co. 28,800 1,172
Niagara Mohawk Power Corp.+ 75,200 1,100
NICOR, Inc. 25,300 1,072
Nipsco Industries, Inc. 61,800 1,850
Northeast Utilities+ 66,000 1,031
Northern States Power Co. 77,600 2,095
Oklahoma Gas & Electric Co. 31,200 829
PacifiCorp 149,500 2,850
PECO Energy Co. 103,500 4,004
Peoples Energy Corp. 19,500 719
PG&E Corp. 185,458 5,645
Pinnacle West Capital Co. 47,300 2,072
Potomac Electric Power Co. 49,400 1,294
PP&L Resources, Inc. 84,720 2,298
Public Service Enterprise Group, Inc. 112,300 4,267
Puget Sound Power & Light Co. 48,200 1,301
Questar Corp. 35,800 705
Rochester Gas and Electric Corp. 10,000 291
Scana Corp. 45,800 1,549
Seagull Energy Corp.+ 19,000 227
Sempra Energy 112,024 2,913
Sonat, Inc. 43,600 1,322
Southern Co. 333,700 9,406
Teco Energy, Inc. 72,200 1,995
Texas Utilities Co. 135,812 5,942
Unicom Corp. 103,500 3,901
UtiliCorp United, Inc. 28,900 1,039
Washington Gas Light Co. 30,000 793
Number Value
of Shares (000s)
--------- ----------
Washington Water Power Co. 27,700 $ 521
Western Resources, Inc. 27,231 953
Williams Companies, Inc. 209,461 5,747
Wisconsin Energy Corp. 59,600 1,825
---------
198,917
---------
TOTAL COMMON STOCK
(Cost $3,062,677) 4,686,692
---------
WARRANTS -- 0.0%
Golden State Bancorp Litigation
Tracking+ 34,000 166
Coram Healthcare+ 191 --
Petrofina ADS+ 11,300 38
------
TOTAL WARRANTS
(Cost $216) 204
------
Par
(000s)
------
U.S. TREASURY OBLIGATIONS -- 0.0% (a) (b)
U.S. TREASURY BILLS
3.65%, 12/10/98 $ 75 75
4.74%, 12/10/98 50 50
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $124) 125
-----------
REPURCHASE AGREEMENT -- 0.2%
PNC Bank
Collateralized by: Federal Home Loan
Mortgage Assoc
4.25%* Issue 10/30/98
Due 11/02/98 $10,975 10,975
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $10,975) 10,975
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost $3,073,992) 4,697,996
-----------
OTHER ASSETS AND LIABILITIES -- 0.0%
Other assets 583,326
Liabilities (583,649)
-----------
(323)
-----------
TOTAL NET ASSETS -- 100.0% $ 4,697,673
===========
SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS AND NOTES TO FINANCIAL
STATEMENTS.
55
<PAGE>
SCHWAB SMALL-CAP INDEX FUND(R)
SCHEDULE OF INVESTMENTS
October 31, 1998
Number Value
of Shares (000s)
--------- ----------
COMMON STOCK -- 99.6%
AEROSPACE/DEFENSE -- 0.8%
AAR Corp. 27,300 $ 631
Alliant Techsystems, Inc.+ 13,900 973
BE Aerospace, Inc.+ 21,900 471
GenCorp., Inc. 43,900 971
OEA, Inc. 29,900 335
Orbital Sciences Corp.+ 38,300 1,264
Trimble Navigation Ltd.+ 17,700 142
------
4,787
------
AIR TRANSPORTATION -- 0.7%
Alaska Airgroup, Inc.+ 25,700 924
America West Holding Corp., Class B+ 48,200 741
ASA Holdings, Inc. 29,700 1,065
Atlas Air, Inc.+ 22,600 780
Offshore Logistics, Inc.+ 24,500 368
Trans World Airlines, Inc.+ 55,900 279
------
4,157
------
ALCOHOLIC BEVERAGES -- 0.2%
Canandaigua Wine, Co., Inc., Class A+ 20,300 1,018
Mondavi (Robert) Corp., Class A+ 6,300 214
------
1,232
------
APPAREL -- 1.6%
Buckle, Inc.+ 19,650 356
Burlington Industries, Inc.+ 67,200 622
Footstar, Inc.+ 28,700 750
Goody's Family Clothing, Inc.+ 30,200 323
Guilford Mills 22,400 280
Kellwood Co. 20,800 567
Men's Wearhouse, Inc.+ 35,850 869
Nautica Enterprises, Inc.+ 40,600 840
Nine West Group, Inc.+ 40,600 515
Pacific Sunwear of California+ 22,350 483
Phillips-Van Heusen Corp. 22,200 204
Russell Corp. 37,900 931
Springs Industries, Inc. 21,300 753
St. John Knits, Inc. 15,100 305
Stride Rite Corp. 49,400 451
Talbots, Inc. 31,300 710
Timberland Co., Class A+ 10,600 424
Wolverine World Wide, Inc. 46,500 607
------
9,990
------
Number Value
of Shares (000s)
--------- ----------
AUTOMOTIVE PRODUCTS/MOTOR VEHICLES -- 1.7%
A.O. Smith Corp., Class B 23,400 $ 478
Arvin Industries, Inc. 26,700 1,058
Breed Technologies, Inc. 33,400 282
Coach USA, Inc.+ 26,900 721
Detroit Diesel Corp.+ 29,900 529
Gentex Corp.+ 76,900 1,129
Hayes Lemmerz International, Inc.+ 29,700 796
MascoTech, Inc. 49,000 864
Modine Manufacturing Co. 32,100 1,051
O'Reilly Automotive, Inc.+ 23,200 908
Standard Products Co. 20,200 317
Superior Industries International, Inc. 29,200 765
Titan International, Inc. 17,000 176
Tower Automotive, Inc.+ 48,600 1,081
Wynns International, Inc. 25,100 472
-------
10,627
-------
BANKS -- 6.1%
14,000 373
ALBANK Financial Corp. 15,020 918
AMCORE Financial, Inc. 33,150 794
Bancorpsouth South, Inc. 49,200 978
Banknorth Group, Inc. 16,000 510
Bay View Cap Corp. 17,800 307
BOK Financial Corp.+ 22,810 1,099
Chemical Financial Corp. 12,588 516
Chittenden Corp. 15,500 463
Citizens Banking Corp. 27,750 895
CNB Bancshares, Inc. 36,364 1,545
Commerce Bancorp, Inc.- New Jersey 22,612 919
Community First Bankshares, Inc. 49,700 988
Corus Bankshares Inc. 14,400 559
Downey Financial Corp. 29,671 695
F&M National Corp. 22,555 670
F.N.B Corp. 18,860 519
First Commonwealth Financial Corp. 24,300 627
First Financial Bancorp 37,482 1,092
First Midwest Bancorp, Inc. 33,400 1,369
First Source Bancorp Inc. 33,262 287
First Source Corp. 17,493 560
Firstfed Financial Corp.+ 24,800 406
Hancosk Holding Co. 10,045 482
Harris Financial, Inc. 37,500 584
HUBCO, Inc. 45,266 1,222
Irwin Financial Corp. 21,200 572
56
<PAGE>
Number Value
of Shares (000s)
--------- ----------
KeyCorp, Inc. 20,670 $ 627
MAF Bancorp, Inc. 23,725 581
Merchants Bancorp, Inc. New York 7,700 265
National Bancorp of Alaska, Inc. 30,000 1,125
National City Bancshares, Inc. 11,100 451
Northwest Bancorp, Inc. 42,700 507
One Valley Bancorp of
West Virginia, Inc. 34,081 1,103
Park National Corp. 12,000 1,188
Peoples Bancorp, Inc. 35,565 360
Provident Bankshares Corp. 26,990 688
Queens County Bancorp, Inc. 24,330 725
Republic Bancorp, Inc. 25,750 425
Riggs National Corp. 32,500 784
S & T Bancorp, Inc. 13,100 714
St. Paul Bancorp, Inc. 50,237 1,033
Susquehanna Bancshares, Inc. 36,275 821
T R Financial Corp. 18,000 589
Texas Regional Bancshares, Inc. 12,300 280
The Trust Company of New Jersey 24,500 612
Triangle Bancorp, Inc. 24,300 442
TrustCo Bank Corp. 29,912 838
UMB Financial Corp. 21,362 979
United Bankshares, Inc. 45,900 1,228
UST Corp. 44,300 1,024
Wesbanco, Inc. 22,600 653
Westcorp, Inc. 20,575 141
-------
38,132
-------
BUSINESS MACHINES & SOFTWARE -- 5.7%
Analogic Corp. 14,000 535
Avant Corp.+ 33,400 570
BancTec, Inc.+ 17,100 212
Black Box Corp.+ 18,100 604
Boole & Babbage, Inc.+ 29,050 773
Cirrus Logic, Inc.+ 62,900 611
Comverse Technology, Inc.+ 46,685 2,148
Data General Corp.+ 53,300 906
Davox Corp.+ 9,300 76
Dialogic Corp.+ 19,300 434
Electronics for Imaging, Inc.+ 55,600 1,338
FileNet Corp.+ 34,200 316
GT Interactive Software Corp.+ 75,000 511
HMT Technology Corp.+ 50,500 436
HNC Software, Inc.+ 27,900 938
Hyperion Solutions Corp.+ 31,745 952
Inacom Corp.+ 20,400 395
Number Value
of Shares (000s)
--------- ----------
Informix Corp.+ 181,500 $ 925
Intergraph Corp.+ 52,700 343
Komag, Inc.+ 55,200 310
Legato Systems, Inc.+ 37,700 1,475
Manugistics Group, Inc.+ 28,500 410
Micron Electronics+ 100,200 2,098
National Computer Systems 33,600 941
National Instruments+ 32,450 888
Network Appliance+ 36,100 1,976
Novellus Systems+ 35,300 1,370
Pixar, Inc.+ 46,300 2,199
Premiere Technologies, Inc.+ 56,400 310
Rational Software+ 91,000 2,036
Read-Rite+ 45,500 489
Remedy Corp.+ 31,100 272
Sequent Computer Systems+ 39,000 385
Sybase+ 76,100 452
Systems & Computer
Technology Corp.+ 32,400 462
The Learning Company, Inc.+ 87,340 2,254
Transaction Systems Architects+ 29,800 1,076
Vantive Corp.+ 24,700 181
Veritas DGC, Inc.+ 24,200 451
Visio Corp.+ 31,700 844
Wang Labs+ 47,900 1,024
Wind River Systems+ 27,325 1,197
-------
36,123
-------
BUSINESS SERVICES -- 14.2%
Abacus Direct Corp.+ 9,500 463
ABM Industries, Inc. 21,500 602
ABR Information Services, Inc.+ 33,500 632
Access Health, Inc.+ 27,600 990
Advo, Inc.+ 24,700 628
Affiliated Computer Services, Inc.+ 46,800 1,732
Affymetrix, Inc.+ 21,800 534
Allied Waste Industries+ 46,365 1,003
American Management Systems, Inc.+ 45,000 1,381
Analysts International Corp. 25,550 449
APAC Teleservices, Inc.+ 51,300 321
Apria Healthcare Group, Inc.+ 40,600 165
Artesyn Technologies+ 42,600 615
Aspect Development, Inc.+ 32,600 1,030
Aspen Technology, Inc.+ 21,600 302
Bell & Howell Co.+ 24,400 647
Billing Information Concepts+ 36,700 518
BISYS Group, Inc.+ 28,100 1,229
57
<PAGE>
SCHWAB SMALL-CAP INDEX FUND(R)
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ----------
Borg Warner Security Corp.+ 25,300 $ 386
Bowne & Co., Inc. 37,200 500
Brightpoint, Inc.+ 51,650 633
Caribiner International, Inc.+ 23,400 154
Catalina Marketing Corp.+ 20,700 987
Catalytica, Inc.+ 41,400 673
CDI Corp.+ 18,100 395
CDW Computer Centers, Inc.+ 23,800 1,784
CellStar Corp.+ 66,000 454
Century Business Services, Inc.+ 62,400 870
Cerner Corp.+ 31,100 696
Choicepoint, Inc.+ 16,300 770
Computer Learning Centers, Inc.+ 7,700 69
Computer Task Group, Inc. 23,000 704
Consolidated Graphics, Inc.+ 12,300 583
Cort Business Services Corp.+ 12,200 239
CSG Systems International, Inc.+ 27,700 1,510
Curative Technologies, Inc.+ 13,600 371
DBT Online, Inc.+ 19,900 403
DeVRY, Inc.+ 71,600 1,575
Documentum, Inc.+ 17,900 609
Eastern Environmental
Services, Inc.+ 39,300 1,091
Educational Management Corp.+ 17,400 639
Electro Rent Corp.+ 23,400 228
Envoy Corp.+ 22,400 661
Equity Corp. International+ 23,300 578
Excite, Inc.+ 55,200 2,129
Express Scripts, Inc., Class A+ 18,300 1,788
Fair, Isaac & Co., Inc. 17,200 690
Franklin Covey Co.+ 25,500 504
G. & K. Services, Inc., Class A 22,150 1,013
HA-LO Industries, Inc.+ 30,350 857
Harbinger Corp.+ 46,900 311
Henry Jack & Associates, Inc. 20,400 931
IDX Systems Corp.+ 28,000 1,186
Information Resources, Inc.+ 32,800 260
Interim Services, Inc.+ 49,700 1,056
Iron Mountain, Inc.+ 32,050 980
ITT Educational Services, Inc.+ 28,850 856
Jacobs Engineering Group, Inc.+ 29,100 949
JDA Software Group, Inc.+ 23,700 225
John H. Harland Co. 32,800 476
Kirby Corp.+ 19,100 405
Lamar Advertising
Company, Class A+ 36,200 1,130
Learning Tree International, Inc.+ 22,200 200
Lycos, Inc.+ 41,200 1,674
Mastech Corp.+ 52,000 1,222
Number Value
of Shares (000s)
--------- ----------
Medaphis Corp.+ 65,400 $ 213
Medusa 16,800 523
Mentor Graphics Corp.+ 62,100 501
Mercury Interactive Corp.+ 18,600 772
Metamor Worldwide, Inc.+ 36,100 927
Metris Companies, Inc. 32,028 1,053
Metromedia International
Group, Inc.+ 59,800 366
Metzler Group, Inc.+ 35,900 1,508
Micro Warehouse, Inc.+ 35,200 768
Miravant Medical Technologies+ 5,100 64
National Data Corp. 35,800 1,213
National Processing, Inc.+ 54,700 321
NFO Worldwide, Inc.+ 16,100 151
Norrell Corp. 29,200 396
NOVA Corp.+ 71,736 2,071
Oceaneering International, Inc.+ 26,400 379
Orthodontic Centers of
America, Inc.+ 51,500 975
PAXAR Corp.+ 45,835 415
Pediatrix Medical Group, Inc.+ 16,900 788
Pegasystems, Inc.+ 27,900 295
Personal Group of America, Inc.+ 33,400 518
Physician Reliance Network, Inc.+ 54,800 610
Pittstion Burlington Group 16,050 93
Pre-Paid Legal Services, Inc.+ 26,900 644
Renaissance Worldwide, Inc.+ 59,620 563
Renters Choice, Inc.+ 26,600 660
Rollins, Inc. 35,500 612
Romac International, Inc.+ 48,300 845
Rural/Metro Corp.+ 24,400 256
Safeguard Scientifics, Inc.+ 31,700 850
Safety-Kleen+ 318,000 974
Sandisk Corp.+ 21,600 208
Sapient Corp.+ 26,400 1,190
SEACOR SMIT, Inc.+ 12,700 607
SEI Investments Co. 19,800 1,641
Sitel Corp.+ 57,600 198
Spartech Corp. 27,700 499
StaffMark, Inc.+ 23,900 420
Standard Register Co. 31,100 892
Strayer Education, Inc. 18,800 639
Structural Dynamics Research Corp.+ 33,500 482
Sun Healthcare Group, Inc.+ 53,608 315
Superior Services, Inc.+ 27,200 571
Sykes Enterprises, Inc.+ 41,900 822
Synetic, Inc.+ 19,300 832
Technology Solutions Co.+ 39,600 475
Teletech Holdings, Inc.+ 63,300 625
58
<PAGE>
Number Value
of Shares (000s)
--------- ----------
Tetra Technology, Inc.+ 33,500 $ 680
Transition Systems, Inc.+ 13,600 142
True North Communications, Inc. 48,300 1,141
Unisource Worldwide, Inc. 74,300 683
USCS International, Inc.+ 28,200 839
Vanstar Corp.+ 43,900 491
Viasoft, Inc.+ 28,600 175
Volt Information Sciences, Inc.+ 18,000 431
Wackenhut Corrections Corp.+ 23,400 575
Walter Industries, Inc.+ 55,800 781
Whittman-Hart, Inc.+ 55,000 1,093
Xylan Corp.+ 45,500 728
Zebra Technologies Corp., Class A+ 33,100 1,084
-------
89,228
-------
CHEMICAL -- 2.5%
A. Schulman 32,400 644
Calgon Carbon Corp. 31,200 220
Cambrex Corp. 22,700 580
Chemed Corp. 11,500 364
Chemfirst, Inc. 15,900 308
Dexter Corp. 24,800 725
Ethyl Corp. 92,700 510
Ferro Corp. 38,600 984
Fuller (H.B.) 15,600 642
Furon Co. 14,300 227
General Chemical Group, Inc. 25,500 454
Geon Co. 28,200 612
Georgia Gulf Corp. 33,700 575
Lawter International, Inc. 35,700 272
Lilly Industries, Inc., Class A 28,350 544
Macdermid, Inc. 28,100 1,029
Mastec, Inc.+ 32,350 770
NCH Corp. 6,500 445
NL Industries, Inc. 50,700 719
OM Group, Inc. 22,600 737
Regal Beloit 21,400 451
Scotts Co., Class A+ 19,700 657
Sequa Corp., Class A+ 12,800 819
Tredegar Industries, Inc. 38,300 864
Twinlab Corp.+ 32,600 723
WD-40 Co. 19,400 514
Wellman, Inc. 29,400 369
Zoltek Companies, Inc.+ 17,200 258
-------
16,016
-------
Number Value
of Shares (000s)
--------- ----------
CONSTRUCTION -- 2.5%
Blount International, Inc., Class A 41,800 $ 917
CalMat Co. 26,200 614
Carbo Ceramics, Inc. 16,000 438
Centex Construction Products, Inc. 23,200 780
DAL-Tile International, Inc.+ 50,900 455
DR Horton 55,700 884
Florida Rock Industries, Inc. 22,400 556
Granite Construction, Inc. 32,850 1,094
Kaufman & Broad Home Corp. 41,600 1,188
Lone Star Industries, Inc. 11,700 824
Morrison Knudsen Corp.+ 65,700 653
Palm Harbor Homes, Inc.+ 23,687 598
Pulte Corp. 46,200 1,190
Sawtek, Inc.+ 23,700 478
Simpson Manufacturing, Inc.+ 12,700 416
Standard Pacific Corp. 32,200 312
Stone & Webster, Inc. 12,000 382
T J International, Inc. 15,200 299
Toll Brothers, Inc.+ 39,300 911
U.S. Home Corp.+ 15,100 478
United Dominion Industries, Ltd. 44,300 905
Webb Del Corp. 21,900 515
West Teleservices Corp.+ 65,700 788
-------
15,675
-------
CONSUMER - DURABLE -- 1.6%
Bassett Furniture Industries, Inc. 10,200 232
Champion Enterprises, Inc.+ 50,892 1,011
Ethan Allen Interiors, Inc. 28,500 980
Furniture Brands International, Inc.+ 55,000 1,182
Granite Construction+ 34,800 341
Harman International Industries, Inc. 20,200 817
Helen of Troy Ltd.+ 29,200 434
Interface, Inc. 51,400 633
Kimball International, Inc., Class B+ 44,800 830
La-Z-Boy Chair Co. 57,600 1,058
Linens 'N Things, Inc.+ 41,800 1,293
Samsonite Corp.+ 25,600 130
Sturm, Ruger & Co., Inc. 31,300 432
Toro Co. 14,800 327
Windmere Durable Holdings, Inc. + 19,000 146
-------
9,846
-------
CONSUMER - NONDURABLE -- 3.2%
Action Performance Companies, Inc.+ 17,700 529
Applebee's International, Inc. 29,700 605
59
<PAGE>
SCHWAB SMALL-CAP INDEX FUND(R)
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ----------
Avado Brands, Inc. 30,400 $ 239
Brinker International, Inc+ 69,500 1,681
Buffets, Inc.+ 49,500 535
CEC Entertainment, Inc.+ 18,200 514
Cheesecake Factory+ 22,300 426
Cytyc Corp.+ 20,200 338
Department 56, Inc.+ 19,200 599
Enesco Group 13,700 348
First Brands Corp. 43,000 1,623
Foodmaker, Inc.+ 41,700 659
Hanover Direct, Inc.+ 217,000 597
Jostens, Inc. 40,300 909
Landry's Seafood Restaurants, Inc.+ 25,300 212
Lone Star Steakhouse & Saloon, Inc.+ 36,200 290
Luby's Cafeterias, Inc. 26,400 393
Midway Games, Inc.+ 44,466 436
Mohawk Industries, Inc.+ 55,800 1,684
Oakley, Inc.+ 74,600 657
Onieda Ltd. 13,200 189
Papa John's International, Inc.+ 31,825 1,208
Rainforest CafE, Inc.+ 11,850 79
Regis 25,400 779
Ruby Tuesday, Inc. 39,074 659
Russ Berrie & Co., Inc. 23,400 462
Ryan's Family Steak Houses, Inc.+ 47,000 505
Sbarro, Inc. 21,100 496
Trans World Entertainment Corp.+ 33,750 696
Trex Medical Corp.+ 36,700 450
Williams-Sonoma, Inc.+ 57,000 1,553
-------
20,350
-------
CONTAINERS -- 0.6%
ACX Technologies, Inc.+ 24,000 345
Ball Corp. 32,000 1,350
Greif Brothers Corp., Class A 23,300 746
Stone Container Corp. 108,900 1,041
-------
3,482
-------
ELECTRONICS -- 5.3%
Allen Telecom, Inc.+ 23,700 130
Amphenol Corp.+ 19,400 651
Anadigics, Inc.+ 14,200 114
Anixter International, Inc.+ 52,000 803
Ascend Communications, Inc.+ 19,875 959
Atmi, Inc.+ 18,200 250
Belden, Inc. 22,700 331
Burr Brown Corp.+ 39,150 727
Number Value
of Shares (000s)
--------- ----------
Cable Design Technologies Corp.+ 33,250 $ 549
CCC Information Services
Group, Inc.+ 24,800 276
Centennial Technologies, Inc.+ 5,600 4
Checkpoint Systems, Inc.+ 28,200 335
Commscope, Inc.+ 46,000 641
CTS Corp. 12,400 367
Cypress Semiconductor Corp.+ 102,300 1,138
Dallas Semiconductor Corp. 29,800 1,103
Digital Microwave Corp.+ 64,900 284
Dionex+ 21,800 580
DSP Communications, Inc.+ 43,900 431
Dupont Photomasks, Inc.+ 14,500 526
E Spire Communications, Inc.+ 49,000 588
EG & G, Inc. 48,500 1,219
Electro Scientific Industries, Inc.+ 13,000 327
Exide Corp. 17,100 147
General Semiconductor, Inc.+ 28,900 229
Genrad, Inc.+ 31,900 518
Gerber Scientific, Inc. 23,700 536
Glenayre Technologies, Inc.+ 57,400 344
Hadco Corp.+ 17,100 539
Hutchinson Technology, Inc.+ 23,400 455
Imation Corp.+ 43,800 775
Information Management
Resources, Inc.+ 32,650 767
Integrated Device Technology, Inc.+ 89,200 619
International Rectifier Corp.+ 52,700 474
International Network Services+ 34,800 1,479
Kemet Corp.+ 44,400 622
Kent Electronics Corp.+ 25,900 419
Kulicke & Soffa Industries, Inc.+ 28,800 470
Lam Research Corp.+ 43,700 631
Lattice Semiconductor Corp.+ 26,600 904
Level One Communications, Inc.+ 33,800 889
Littelfuse, Inc.+ 25,900 570
Marshall Industries+ 19,600 564
MEMC Electronic Materials, Inc.+ 44,900 309
Methode Electronics, Inc., Class A 36,350 559
MRV Communications, Inc.+ 28,300 196
Pioneer Standard Electronics, Inc. 20,700 185
Premisys Communications, Inc.+ 27,100 286
Remec, Inc.+ 18,600 195
Service Experts, Inc.+ 18,100 546
Silicon Valley Group, Inc.+ 28,600 366
Sipex Corp.+ 21,800 605
Smart Modular Technologies, Inc.+ 46,100 968
60
<PAGE>
Number Value
of Shares (000s)
--------- ----------
SpeedFam International, Inc.+ 12,200 $ 197
Superior Telecommunications, Inc. 16,875 726
Technitrol, Inc. 16,700 455
Tekelec, Inc.+ 57,100 1,024
United States Satellite
Broadcasting Co.+ 95,400 668
Unitrode Corp.+ 38,700 486
Univision Communications, Inc.+ 25,900 764
Vicor Corp.+ 36,800 345
VLSI Technology, Inc.+ 50,300 484
-------
33,648
-------
ENERGY - RAW MATERIALS -- 1.8%
Amcol International Corp. 32,300 327
Arch Coal, Inc. 43,700 778
Atwood Oceanics, Inc.+ 14,800 416
Barrett Resources Corp.+ 33,600 792
Benton Oil & Gas Co.+ 23,100 118
Cabot Oil & Gas Corp., Class A 22,200 377
Chesapeake Energy Corp. 95,700 185
Cliff's Drilling Co.+ 20,800 476
EEX Corp.+ 135,400 525
Forcenergy, Inc.+ 11,900 71
Forest Oil Corp.+ 51,400 524
Grey Wolf, Inc.+ 187,600 223
Harken Energy Corp.+ 139,400 479
Key Energy Group, Inc.+ 14,200 141
Louis Dreyfus Natural Gas Corp.+ 37,300 543
Marine Drilling Company, Inc.+ 50,100 560
Newfield Exploration Co.+ 38,900 946
Newpark Resources, Inc.+ 63,100 596
Nuevo Energy Co.+ 24,400 517
Parker Drilling Co.+ 77,800 384
Stone Energy Corp.+ 16,800 540
Tom Brown, Inc.+ 31,600 454
Trico Marine Services, Inc.+ 15,500 110
Tuboscope Vetco International Corp.+ 48,900 605
UTI Energy Corp.+ 12,900 115
Vintage Petroleum, Inc. 54,600 710
-------
11,512
-------
FOOD & AGRICULTURE -- 2.6%
AgriBioTech, Inc.+ 39,000 558
Bob Evans Farms, Inc. 45,900 904
Chiquita Brands International, Inc. 72,100 766
Coca Cola Bottling Co. 11,100 669
Delta & Pine Land Co. 40,622 1,356
Number Value
of Shares (000s)
--------- ----------
Dimon, Inc. 40,800 $ 528
Dominick's Supermarkets, Inc.+ 20,100 981
Dreyer's Grand Ice Cream, Inc. 25,600 336
Earthgrains Co. 45,096 1,353
Fleming Companies, Inc. 35,700 364
International Multifoods Corp. 20,000 416
J.M. Smucker Co., Class A 27,400 603
Lance, Inc. 28,800 551
Lindsay Manufacturing Co.+ 17,250 280
Michael Foods, Inc. 23,100 554
Mississippi Chemical Corp. 31,540 455
Pilgrim's Pride Corp. 33,700 777
Ralcorp Holdings, Inc.+ 34,466 607
Seaboard Corp. 1,200 382
Terra Industries, Inc. 80,300 602
Tootsie Roll Industries, Inc. 36,494 1,444
United Natural Foods, Inc.+ 21,100 588
Universal Foods Corp. 52,600 1,141
-------
16,215
-------
GOLD -- 0.1%
Getchell Gold Corp.+ 35,171 615
-------
HEALTHCARE/DRUG & MEDICINE -- 8.3%
Acuson Corp.+ 30,600 461
Advanced Tissue Sciences, Inc.+ 39,500 120
Agouron Pharmaceuticals, Inc.+ 34,300 1,329
Algos Pharmaceuticals Corp.+ 19,500 500
Alkermes, Inc.+ 23,900 466
Alpharma, Inc., Class A 27,067 749
Alternative Living Services, Inc.+ 24,600 643
American Medical Security Group 13,000 114
American Oncology Resources, Inc.+ 32,900 438
Amerisource Health Corp.+ 22,000 1,154
Andrx Corp.+ 18,200 710
Arrow International, Inc. 22,300 619
Aviron+ 17,600 334
Ballard Medical Products 36,100 767
Barr Laboratories, Inc.+ 25,100 858
Bindley Western Industries, Inc. 21,599 783
Bio-Technology General Corp.+ 54,600 399
Carematrix Corp.+ 21,500 529
Carter-Wallace, Inc. 49,500 879
Cognex Corp.+ 46,400 719
Columbia Laboratories, Inc.+ 22,400 73
Conmed Corp.+ 16,500 437
61
<PAGE>
SCHWAB SMALL-CAP INDEX FUND(R)
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ----------
Cooper Companies, Inc.+ 15,700 $ 373
COR Therapeutics, Inc.+ 18,600 224
Covance, Inc.+ 61,500 1,714
Coventry Health Care, Inc.+ 60,400 585
Cygnus, Inc.+ 5,100 27
Datascope Corp.+ 17,600 397
Egghead+ 19,400 865
Genesis Health Ventures, Inc.+ 38,550 520
Gensia, Inc.+ 90,000 338
Gilead Sciences, Inc.+ 34,500 979
Guilford Pharmaceuticals, Inc.+ 21,200 347
Heartport, Inc.+ 19,400 82
Human Genome Sciences, Inc.+ 23,800 824
Icos Corp.+ 41,300 764
IDEC Pharmaceuticals Corp.+ 21,100 630
Idexx Laboratories, Inc.+ 41,900 956
Incyte Pharmaceuticals, Inc.+ 28,600 872
Inhale Therapeutic Systems+ 18,500 486
Interneuron Pharmaceuticals, Inc.+ 46,600 163
Invacare Corp. 28,300 637
IVAX Corp.+ 130,200 1,237
Jones Medical Industries, Inc. 32,500 1,050
Life Technologies, Inc. 26,250 974
Magellan Health Services, Inc.+ 31,700 287
Mariner Post-Acute Network+ 78,279 455
Medicis Pharmaceutical
Corp., Class A+ 20,200 1,013
Medimmune, Inc.+ 28,200 1,896
Mentor Corp. 24,600 418
Mid Atlantic Medical Services, Inc.+ 52,100 407
Millennium Pharmaceuticals+ 34,800 639
Minimed, Inc.+ 14,200 788
Natures Sunshine Products, Inc. 14,650 233
NBTY, Inc.+ 70,400 563
North American Vaccine, Inc.+ 30,600 463
NovaCare, Inc.+ 56,180 232
Organogenesis, Inc.+ 26,358 410
Owens & Minor Holding, Inc.
Holding Co. 35,200 559
Parexel International Corp.+ 25,000 552
Pathogenesis Corp.+ 19,300 772
Patterson Dental Co.+ 33,425 1,379
Perrigo Co.+ 79,000 627
PhyMatrix Corp.+ 5,000 19
Protein Design Labs, Inc.+ 21,400 514
PSS World Medical, Inc.+ 73,175 1,619
Number Value
of Shares (000s)
--------- ----------
Quest Diagnostic, Inc.+ 31,500 $ 524
Renal Care Group, Inc.+ 42,500 1,238
Respironics, Inc.+ 34,700 536
Sangstat Medical Corp.+ 17,300 359
Sepracor, Inc.+ 28,500 1,956
Serologicals Corp.+ 29,700 672
Sola International, Inc.+ 27,300 524
Sunrise Assisted Living, Inc.+ 22,100 952
Theragenics Corp.+ 32,000 646
Thermedics, Inc.+ 40,800 439
Thermo Cardiosystems, Inc.+ 34,600 402
ThermoLase Corp.+ 3,182 52
Thermotrex Corp.+ 15,100 197
Transkaryotic Therapies, Inc.+ 18,500 395
Vertex Pharmaceuticals, Inc.+ 29,800 786
West Company, Inc. 15,100 448
-------
52,096
-------
HOUSEHOLD PRODUCTS -- 0.5%
Bush Boake Allen, Inc.+ 20,600 551
Church & Dwight Co., Inc. 22,700 697
Libbey, Inc. 17,600 546
Playtex Products, Inc.+ 63,600 839
Revlon, Inc.+ 21,800 413
ThermoLase Corp.+ 31,018 171
-------
3,217
-------
INSURANCE -- 4.5%
Alfa Farmers Federation Corp. 38,000 797
American Annuity Group, Inc. 46,050 1,059
American Heritage Life
Investment Corp. 30,200 629
Amerin Corp.+ 22,500 481
Argonaut Group, Inc. 25,700 654
Arthur J. Gallegher & Co. 19,100 809
Capital Re Corp. 36,200 663
Citizens Corp. 35,300 1,068
Commerce Group, Inc. 38,300 1,326
Delphi Financial Group, Inc.,Class A+ 21,817 1,017
E.W. Blanch Holdings 16,000 623
Enhance Financial Services
Group, Inc. 40,600 997
Executive Risk, Inc. 10,000 475
FBL Financial Group, Inc., Class A 30,400 773
Foremost Corp. of America 29,100 518
Frontier Insurance Group, Inc. 40,385 659
Harleysville Group, Inc. 26,600 569
62
<PAGE>
Number Value
of Shares (000s)
--------- ----------
Hartford Life, Inc., Class A 26,600 $ 1,230
HCC Insurance Holdings, Inc. 50,450 905
HSB Group, Inc. 30,450 1,229
Kansas City Life Insurance Co. 7,200 601
Liberty Corp. 18,700 776
Life Re Corp. 18,800 1,754
Markel Corp.+ 5,800 862
Medical Assurance, Inc.+ 25,101 678
MMI 5,100 9
NAC Re Corp. 19,800 959
PMI Group 32,600 591
PXRE Corp. 15,300 388
Reinsurance Group of America, Inc. 26,600 1,466
RLI Corp. 11,375 373
Selective Insurance Group, Inc. 27,400 502
Sierra Health Services, Inc.+ 27,450 640
State Auto Financial, Corp. 34,700 490
Trenwick Group, Inc. 14,550 484
Triad Guarantee, Inc.+ 15,600 332
United Companies Financial Corp. 27,000 115
United Fire & Casualty Co. 9,000 340
Vesta Insurance Group, Inc. 12,300 98
Zenith National Insurance Corp. 21,000 537
-------
28,476
-------
MEDIA -- 3.7%
Amc Entertainment, Inc.+ 14,500 210
Applied Graphics Technologies+ 19,600 234
Banta Corp. 30,000 746
Big Flower Holdings, Inc.+ 20,300 396
Century Communications
Corp., Class A+ 77,237 1,709
CNET, Inc.+ 19,700 750
Cymer, Inc.+ 26,900 330
Gaylord Entertainment Co. 33,000 875
Houghton Mifflin Co. 32,900 1,283
IXC Communications, Inc.+ 36,800 1,426
John Wiley & Sons, Inc., Class A 35,200 1,287
Jones Intercable, Inc., Class A+ 42,900 1,204
Knightsbridge Tankers, Ltd.+ 20,300 549
McClatchy Newspapers, Inc., Class A 46,700 1,585
Media General, Inc., Class A 27,200 1,217
Metro Networks, Inc.+ 15,900 582
On Command Corp.+ 24,500 202
PanAmSat Corp.+ 20,000 759
Paxson Communications Corp.+ 49,000 410
Scholastic Corp.+ 15,600 615
Number Value
of Shares (000s)
--------- ----------
Sinclair Broadcast Group, Inc.+ 50,800 $ 660
Spelling Entertainment Group,Inc.+ 96,700 653
TCA Cable TV, Inc. 51,400 1,423
TCI Satellite Entertainment, Inc.,
Class A+ 47,000 76
United Television, Inc. 10,200 1,125
United Video Satellite Group+ 51,400 816
Westwood One, Inc.+ 34,200 616
World Color Press, Inc.+ 39,100 1,188
Young Broadcasting, Inc.+ 11,900 376
------
23,302
------
MISCELLANEOUS FINANCE -- 3.3%
Advanta Corp., Class A 31,209 373
AmeriCredit Corp.+ 64,000 856
AMRESCO, Inc.+ 39,800 276
Commercial Federal Corp. 60,804 1,380
Dain Rauscher Corp. 11,300 384
E*Trade Group, Inc.+ 53,900 970
Eaton Vance Corp. 33,600 752
Everen Capital Corp. 33,200 676
Fidelity National Financial, Inc. 28,100 864
First American Financial Corp. 57,750 1,808
First Financial Corp. 9,600 410
Florida Panthers Holdings, Inc.+ 37,300 364
Fund American Enterprise
Holdings, Inc. 5,809 736
Hambrecht and Quist Group, Inc.+ 27,700 531
Imperial Credit Industries, Inc.+ 34,900 231
Interpool, Inc. 23,900 338
Investment Technology Group, Inc.+ 21,800 714
Jefferies Group, Inc. 21,200 636
John Nuveen Co., Class A 34,500 1,203
JSB Financial, Inc. 9,600 507
LNR Property Corp. 32,700 580
Mail Well Holdings, Inc.+ 50,800 664
Morgan Keegan, Inc. 30,550 569
PaymenTech, Inc.+ 32,700 503
Pioneer Group, Inc. 23,100 331
Price Enterprises, Inc. 18,600 91
Sabre Group Holdings, Inc.+ 23,800 897
Sky Financial Group, Inc. 23,682 722
Student Loan Corp. 21,600 1,013
Value Line, Inc. 9,000 369
Webster Financial Corp. 40,000 988
-------
20,736
-------
63
<PAGE>
SCHWAB SMALL-CAP INDEX FUND(R)
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ----------
NON-FERROUS METALS -- 0.9%
Asarco, Inc. 45,700 $ 980
Brush Wellman, Inc. 12,900 219
Commercial Metals Co. 16,233 432
Kaiser Aluminum Corp.+ 72,100 455
Minerals Technologies, Inc. 24,700 1,125
Mueller Industries, Inc.+ 39,400 887
Reliance Steel & Aluminum Co. 17,350 537
RTI International Metals+ 18,000 268
Titanium Metals Corp.+ 27,700 289
Wolverine Tube, Inc.+ 16,200 343
-------
5,535
-------
OIL - DOMMESTIC -- 1.2%
Belco Oil & Gas Corp.+ 24,500 145
Cross Timbers Oil Co. 48,725 700
Houston Exploration Co.+ 27,300 485
Ocean Energy, Inc.+ 102,916 1,286
Patterson Energy, Inc.+ 24,700 153
Pogo Producing Co. 42,800 642
Pool Energy Service Co.+ 20,200 270
Quaker State Corp. 32,600 460
Rutherford Moran Oil Corp.+ 20,100 151
Santa Fe Energy Resources, Inc.+ 109,200 887
Snyder Oil Corp. 38,500 614
St. Mary Land & Exploring Co. 8,600 181
Tesoro Petroleum Corp.+ 33,000 489
Trans Montaigne Oil, Inc.+ 30,300 472
TransTexas Gas Corp.+ 50,600 79
UNOVA, Inc.+ 57,800 834
-------
7,848
-------
OPTICAL & PHOTO -- 0.7%
Avid Technology, Inc.+ 27,900 722
BMC Industries, Inc. 35,000 252
C-Cube Microsystems, Inc.+ 41,300 738
Ingram Micro, Inc., Class A+ 42,900 1,952
Panavision Inc.+ 7,894 126
Photronics, Inc.+ 23,000 502
Ultratech Stepper, Inc.+ 23,300 419
-------
4,711
-------
PAPER & FOREST PRODUCTS -- 0.9%
Buckeye Technology, Inc.+ 39,400 788
Caraustar Industries, Inc. 23,200 551
Chesapeake Corp. 21,100 739
Number Value
of Shares (000s)
--------- ----------
Longview Fibre Co. 55,300 $ 664
PH Glatfelter Co. 40,100 494
Pope & Talbot+ 31,450 503
Rock Tennessee Co., Class A 18,330 202
Thermo Fibertek, Inc.+ 62,100 380
Wausau Mosinee Paper Corp. 62,825 1,096
------
5,417
------
Number Value
of Shares (000s)
--------- ----------
PRODUCER GOODS & MANUFACTURING -- 7.1%
Airgas, Inc.+ 75,100 864
Albany International Corp., Class A 32,664 596
AMETEK, Inc. 34,900 739
Applied Industrial Technologies, Inc. 19,025 252
Applied Power, Inc., Class A 40,200 1,108
Aptargroup, Inc. 39,200 1,049
Baldor Electric, Co. 40,720 855
Barnes Group, Inc. 23,300 612
Beckman Coulter, Inc. 29,600 1,391
Boise Cascade Office Products Corp.+ 59,400 546
CLACOR, Inc. 29,050 490
Collins & Aikman Corp+ 71,800 498
Consolidated Cigar Holdings, Inc.+ 35,600 409
Credence Systems, Corp.+ 23,950 356
DII Group, Inc.+ 23,900 351
Donaldson Co., Inc. 51,400 935
DT Industries, Inc. 8,900 160
Eastern Enterprises 22,000 903
Federal Signal Corp. 48,400 1,165
Flowserve Corp. 43,634 785
Foster Wheeler Corp. 43,000 683
Franklin Electric Corp. 5,100 306
Gardner Denver Machinery, Inc.+ 15,900 229
General Binding Corp. 15,500 533
Graco, Inc. 23,437 618
Helix Technology Corp. 23,500 269
Hexcel Corp.+ 37,400 409
Hughes Supply, Inc. 22,950 610
IDEX Corp. 32,425 839
Ionics, Inc.+ 16,700 518
JLG Industries, Inc. 42,700 707
Kaydon Corp. 32,900 1,156
Kuhlman Corp. 15,000 398
Lincoln Electric Co., Class A 51,000 1,119
Magnatek, Inc.+ 36,500 463
Manitowoc Co., Inc. 16,675 584
Maverick Tube Corp.+ 12,100 85
64
<PAGE>
Number Value
of Shares (000s)
--------- ----------
Micrel, Inc.+ 21,500 $ 707
Milacron, Inc. 41,900 812
Miller Industries, Inc.+ 45,000 236
MSC Industrial Direct, Inc.+ 38,000 808
NACCO Industries, Inc., Class A 8,450 777
Nordson Corp. 15,900 713
PMC Sierra, Inc.+ 32,500 1,458
Presstek, Inc.+ 24,900 184
PRI Automation, Inc.+ 26,900 466
Quanex Corp. 11,000 186
Robbins & Myers, Inc. 8,700 206
Roper Industries, Inc. 29,400 524
SLI, Inc.+ 32,150 539
SPS Technologies, Inc.+ 11,900 589
SPX Corp. 32,167 1,751
Standex International Corp. 10,400 257
Stewart & Stevenson Services, Inc. 30,000 411
Tecumseh Products Co., Class A 23,100 1,201
Terex Corp.+ 23,100 502
Texas Industries, Inc. 22,800 674
Thermo Ecotek Corp.+ 36,250 451
Thermo Optek Corp.+ 42,000 370
Thermoquest Corp.+ 55,500 562
Valhi, Inc. 120,200 1,345
Valmont Industries, Inc. 32,900 518
VWR Scientific Products Corp.+ 30,300 737
W.H. Brady Co., Class A 20,600 474
Waters Corp.+ 30,400 2,234
Watts Industries, Inc., Class A 25,200 463
WMS Industries, Inc.+ 23,600 187
Wyman Gordon Co.+ 36,500 525
X-Rite Inc. 16,600 118
-------
44,575
-------
RAILROAD & SHIPPING -- 0.7%
Avondale Industries, Inc.+ 11,400 297
Florida East Coast Industry, Inc. 38,800 1,162
Halter Marine Group, Inc.+ 22,400 193
Marine Transport Corp+ 3,380 7
MotivePower Industries, Inc.+ 21,900 557
Newport News Shipbuilding, Inc. 37,700 992
Overseas Shipholding Group, Inc. 39,500 696
Westinghouse Air Brake Co. 33,600 722
-------
4,626
-------
Number Value
of Shares (000s)
--------- ----------
REAL PROPERTY -- 0.9%
Alexander's+ 4,700 $ 352
California Costal Community, Inc.+ 8,400 58
CB Richard Ellis Services+ 22,300 435
Fairfield Communities, Inc.+ 41,800 410
Forest City Enterprises, Inc. 34,300 737
Insignia Financial Group, Inc.+ 1 --
Lennar Corp. 60,700 1,229
Newhall Land & Farming Co. 37,600 877
Premier Parks, Inc.+ 80,000 1,775
-------
5,873
-------
RETAIL -- 3.5%
99 Cents Only Stores+ 20,700 957
Ames Department Stores, Inc.+ 24,500 450
Authentic Fitness Corp. 24,900 344
BJ's Wholesale Club, Inc.+ 39,500 1,420
Burlington Coat Factory
Warehouse Corp. 51,840 778
Casey's General Stores, Inc. 57,800 809
Central Garden & Pet Co.+ 30,300 598
Charming Shoppes, Inc.+ 85,500 321
CHS Electronics, Inc.+ 54,100 527
Claire's Stores, Inc. 54,075 916
Cole National Corp.+ 16,600 344
Dress Barn, Inc.+ 22,000 311
Eagle Hardware & Garden, Inc.+ 32,900 765
Etec Systems, Inc.+ 24,900 843
Fingerhut Companies, Inc. 45,000 380
Global Directmail Corp.+ 37,000 527
Great Atlantic & Pacific Tea Co., Inc. 40,500 952
Gymboree Corp.+ 19,300 129
Heilig-Meyers Co. 65,400 503
Jo-Ann Stores, Inc., Class A+ 20,000 360
Just for Feet, Inc.+ 31,575 535
Lands' End, Inc.+ 31,300 534
Michaels Stores, Inc.+ 32,300 646
Petco Animal Supplies, Inc.+ 16,500 146
PETsMART, Inc.+ 126,400 909
Ruddick Corp. 51,700 1,005
ShopKo Stores, Inc.+ 28,700 899
Smart & Final, Inc. 17,600 152
Sotheby's Holdings, Inc., Class A 60,700 1,313
Southland Corp.+ 391,200 801
Stage Stores, Inc.+ 27,600 366
Stein Mart, Inc.+ 42,400 334
65
<PAGE>
SCHWAB SMALL-CAP INDEX FUND(R)
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ----------
United Stationers, Inc.+ 39,400 $ 1,044
Wet Seal, Inc., Class A+ 15,700 332
Zale Corp.+ 38,000 900
-------
22,150
-------
STEEL -- 1.3%
AK Steel Holding Corp. 60,000 1,039
Armco, Inc.+ 114,800 545
Bethlehem Steel Corp.+ 134,400 1,210
Birmingham Steel Corp. 23,300 121
Carpenter Technology Corp. 23,600 827
Cleveland-Cliffs, Inc. 10,800 429
Inland Steel Industries, Inc.+ 38,600 704
Intermet Corp. 29,800 484
J & L Specialty Steel, Inc. 34,000 206
Lone Star Technologies, Inc.+ 30,500 324
LTV Corp. 105,300 645
National Steel Corp., Class B+ 38,000 245
NS Group, Inc.+ 18,900 132
Oregon Steel Mills, Inc. 27,200 333
Steel Dynamics, Inc.+ 51,000 695
-------
7,939
-------
TELEPHONE -- 2.6%
Adtran, Inc.+ 39,300 996
Aliant Communications, Inc. 37,500 1,058
ANTEC Corp.+ 36,800 612
Aspect Telecommunications Corp.+ 52,700 797
Associated Group, Inc., Class A+ 40,100 1,353
Cellular Comm International, Inc.+ 17,600 1,094
Coherent, Inc.+ 18,200 214
Commonwealth Telephone
Enterprises, Inc.+ 22,366 548
ICG Communications, Inc.+ 47,900 991
Inter Tel, Inc. 32,800 592
Intermedia Communications, Inc.+ 50,000 925
Natural Microsystems Corp.+ 22,200 199
NTL, Inc.+ 41,933 2,010
P-Com, Inc.+ 13,700 44
Pacific Gateway Exchange, Inc.+ 20,900 603
Paging Network, Inc.+ 98,800 543
Plantronics, Inc.+ 17,700 1,008
Powertel, Inc.+ 24,200 360
Vanguard Cellular Systems, Inc.,
Class A+ 37,550 864
Number Value
of Shares (000s)
--------- ----------
Winstar Communications, Inc.+ 41,300 $ 1,115
World Access, Inc.+ 24,300 519
-------
16,445
-------
TOBACCO -- 0.0%
Schweitzer Mauduit International, Inc. 12,760 232
-------
TRAVEL & RECREATION -- 1.7%
Acxiom Corp.+ 74,600 1,874
Anchor Gaming, Inc.+ 13,700 697
Bally Total Fitness Holding Corp.+ 26,200 495
Boyd Gaming Corp.+ 55,200 166
Budget Group, Inc.+ 29,100 522
Coleman Co., Inc.+ 60,600 595
Family Golf Centers, Inc.+ 28,150 593
Grand Casinos, Inc.+ 43,500 383
Homestead Village Properties, Inc.+ 29,800 186
K2, Inc. 13,615 150
Marcus Corp. 32,225 495
Polaris Industries, Inc. 26,000 894
Primadonna Resorts, Inc.+ 26,000 189
Prime Hospitality Corp.+ 52,000 475
Red Roof Inns, Inc.+ 32,000 554
Rental Services, Corp.+ 26,600 592
Rio Hotel and Casino, Inc.+ 31,900 447
Speedway Motorsports, Inc.+ 45,500 956
Sports Authority, Inc.+ 24,800 189
Sunterra+ 38,100 362
-------
10,814
-------
TRUCKING & FREIGHT -- 1.6%
Air Express International Corp. 33,050 694
AMERCO+ 21,800 512
Arnold Industries, Inc. 30,300 386
Eagle USA Airfreight, Inc.+ 16,000 205
Expeditores International of
Washington, Inc. 27,000 915
Fritz, Inc.+ 40,000 355
Heartland Express, Inc.+ 33,047 595
J.B. Hunt Transport Services, Inc. 39,050 654
Roadway Express, Inc. 23,600 326
Rollins Truck Leasing Corp. 56,450 656
Swift Transportation Co., Inc.+ 47,300 1,045
U.S. Freightways Corp. 27,700 694
Wabash National Corp. 28,000 497
66
<PAGE>
Werner Enterprises, Inc. 50,062 $ 901
XTRA Corp. 17,600 737
Yellow Corp.+ 32,400 520
--------
9,692
--------
UTILITIES - ELECTRIC & GAS -- 5.0%
AGL Resources, Inc. 57,300 1,200
Atmos Energy Corp. 32,100 953
Bay State Gas Co. 16,500 648
Black Hills Corp. 26,100 674
Central Hudson Gas Electric Corp. 17,800 721
CILCORP, Inc. 13,100 675
Cleco Corp. 23,500 795
CMP Group, Inc. 33,500 618
Commonwealth Energy System 23,000 858
Eastern Utilities Association 21,600 560
El Paso Electric Co.+ 70,000 613
Energen Corp. 26,800 482
Global Industries Technologies, Inc.+ 17,700 154
Indiana Energy, Inc. 28,933 647
Interstate Energy Corp. 81,208 2,512
KCS Energy 32,300 164
Laclede Gas Co. 20,800 533
MDU Resources Group, Inc. 56,150 1,491
New Jersey Resources Corp. 20,100 773
Northwest Natural Gas Co. 23,400 652
Northwestern Public Services Co. 20,000 494
Orange & Rockland Utilities, Inc. 16,100 884
Otter Tail Power Co. 14,700 570
Philadelphia Suburban Corp. 32,800 806
Piedmont Natural Gas Co., Inc. 32,600 1,133
Primark Corp.+ 27,100 732
Public Service Co. of New Mexico 45,800 1,010
Public Service Co. of North Carolina 24,400 538
Sierra Pacific Resources 32,900 1,199
SIGCORP, Inc. 25,749 884
Southern Union Co.+ 27,427 636
Southwest Gas Corp. 34,000 805
TNP Enterprises, Inc. 11,700 395
Triarc Companies, Inc.+ 27,800 434
UGI Corp. 37,800 865
Unisource Energy Corp.+ 36,680 569
United Illuminating Co. 15,500 760
United Water Resources, Inc. 38,300 742
Western Gas Resources, Inc. 25,200 $ 206
WICOR, Inc. 41,400 1,009
WPS Resources Corp. 26,800 891
--------
31,285
--------
TOTAL COMMON STOCK
(Cost $652,242) 626,604
--------
PREFERRED STOCK -- 0.1%
Apartment Investments - Series E+ 8,331 331
Price Enterprises, Inc.+ 18,600 248
--------
TOTAL PREFERRED STOCK
(Cost $634) 579
--------
WARRANTS -- 0.0%
IMC Global, Inc. (expire 12/22/00) 4,900 6
--------
TOTAL WARRANTS
(Cost $16) 6
--------
SHORT-TERM INVESTMENTS -- 0.7%
MSTC Cash Reserve
Liquid Asset Fund,
5.26%* 4,724,149 4,724
--------
Total SHORT-TERM INVESTMENTS
(Cost $4,724) 4,724
--------
TOTAL INVESTMENTS -- 100.4%
(Cost $657,616) 631,913
--------
OTHER ASSETS AND LIABILITIES -- (0.4)%
Other assets 40,415
Liabilities (43,072)
-------
(2,657)
--------
TOTAL NET ASSETS -- 100.0% $629,256
========
SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS AND NOTES TO FINANCIAL
STATEMENTS.
67
<PAGE>
SCHWAB INTERNATIONAL INDEX FUND(R)
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ----------
COMMON STOCK -- 98.5%
AUSTRALIA -- 1.4%
Australia & New Zealand
Banking Group 131,438 $ 749
Broken Hill Proprietary Co., Ltd. 172,198 1,458
Coca-Cola Amatil, Ltd. 117,150 431
Coca-Cola Beverage+ 33,834 69
Commonwealth Bank of Australia 80,011 991
National Australia Bank 124,927 1,649
News Corporation, Ltd.+ 165,965 1,130
Westpac Banking Corp. 156,216 947
-------
7,424
-------
BELGIUM -- 1.9%
Almanij 16,313 1,321
de Beligique+ 600 --
Dexia Belgium 3,096 503
Electrabel 4,702 1,736
Fortis AG 6,997 2,013
Fortis Cvg Rts '98 3,311 23
Fortis Strips Vvpr 3,311 --
Lyon Des Eaux Cvg 6,090 62
Petrofina SA 1,990 740
Solvay SA 7,090 557
Suez Lyonnaise Des Eaux 6,090 1,095
Tractebel Investors
International Capital 7,329 1,224
UCB 124 725
-------
9,999
-------
CANADA -- 2.9%
Alcan Aluminum, Ltd. 21,666 543
Bank of Montreal, Quebec 22,977 938
Bank of Nova Scotia, Halifax 43,694 910
Barrick Gold Corp. 34,591 734
BCE, Inc. 54,132 1,831
Bombardier, Inc., Class B 62,000 732
Canadian Imperial Bank
of Commerce 35,145 697
Canadian Pacific, Ltd. 30,124 675
Imasco, Ltd. 46,200 867
Imperial Oil, Ltd. 41,022 650
Loblaw 20,500 381
Northern Telecom, Ltd. 43,646 1,869
Royal Bank of Canada,
Montreal, Quebec 26,186 1,204
Seagram Co., Ltd. 31,590 1,036
Thomson Corp. 53,932 1,327
Toronto Dominion Bank Ontario 33,578 997
-------
15,391
-------
Number Value
of Shares (000s)
--------- ----------
DENMARK -- 0.8%
D/S 1912, Series B 93 $ 702
D/S Svendborg, Series B 70 761
Den Danske Bank 4,463 606
Novo-Nordisk A/S, Series B 6,514 760
Tele Danmark A/S, Series B 11,294 1,230
-------
4,059
-------
FRANCE -- 8.6%
Accor 3,024 636
Air Liquide (Prime Fidelite) (Reg.) 10,179 1,705
Alcatel Alsthom SA 13,704 1,528
AXA UAP 29,104 3,291
Banque Nationale de Paris 18,362 1,164
Canal Plus 2,645 642
Cap Gemini 5,772 868
Carrefour 3,396 2,255
Casino Guichard 6,151 613
Cie de Saint-Gobain SA 7,453 1,103
Credit Commerical de France 6,138 431
Danone Groupe 6,076 1,607
Dassault Systems 9,523 364
L'Oreal SA 5,642 3,226
Lafarge Coppee SA 10,491 1,073
Lagardere Groupe 10,104 407
LVMH (Moet Hennesy Louis Vuitton) 8,075 1,498
Michelin (CDGE), Class B (Reg.) 11,087 457
Paribas 13,501 993
Peugeot 4,226 705
Pinault Printemps Redoute SA 9,875 1,654
Promodes 1,614 1,017
Rhone-Poulenc SA, Series A 29,401 1,345
Sadexho Frenc 2,820 548
Sanofi 9,171 1,437
Schneider SA 12,655 752
Societe Nationale Elf Aquitaine 22,772 2,637
Societe Generale 7,691 1,018
Stmicroelectonics+ 12,436 761
Suez Lyonn Vvpr STRIP+ 6,090 1
Suez Lyonnaise des Eaux 11,888 2,130
Synthelabo 4,356 832
Total B Compgne 20,512 2,368
Valeo SA 5,951 515
Vivendi 13,356 3,052
-------
44,633
-------
68
<PAGE>
Number Value
of Shares (000s)
--------- ----------
GERMANY -- 9.5%
Adidas 3,900 $ 457
BASF AG 52,679 2,234
Bayer AG 60,463 2,458
Bayerische Motoren Werke+ 331 226
Bayerische Motoren Werke AG 2,058 1,451
Bayerische Vereinsbank AG 39,411 3,131
Commerzbank AG 40,089 1,206
Daimler-Benz AG 47,397 3,679
Degussa 7,800 375
Deutsche Bank AG 46,029 2,864
Dresdner Bank AG 40,548 1,580
Ergo Versich Gruppe 6,400 1,061
Hoechst AG 49,111 2,053
Linde AG 865 470
Lufthansa AG (Reg.) 29,568 643
Man 1,000 326
Mannesmann AG 33,620 3,310
Metro 3,260 129
Metro AG 20,164 1,242
Muenchener Ruckvers 510 156
Muenchener Ruckvers (Reg.)+ 451 205
Muenchener Rueckversicherungs-
Gesellschaft 10,772 4,932
Preussag 1,300 480
RWE AG 38,501 2,089
SAP AG 5,197 2,182
Schering AG 6,082 717
Siemens AG 46,995 2,828
Thyssen AG 2,817 507
Veba AG 41,301 2,308
Vew AG 1,912 609
Viag AG 2,257 1,534
Volkswagen AG 31,520 2,371
-------
49,813
-------
HONG KONG -- 1.8%
Cheung Kong Holdings 196,000 1,341
CLP Holdings Limited 211,900 1,190
Hang Seng Bank, Ltd. 164,700 1,425
Henderson Land Development Co. 103,000 507
Hong Kong & China Gas Co. Limited 240,900 342
Hong Kong Electric Holdings, Ltd. 139,500 512
Hutchison Whampoa, Ltd. 287,000 2,057
Sun Hung Kai Properties 203,500 1,419
Swire Pacific, Ltd., Class A 102,500 544
-------
9,337
-------
Number Value
of Shares (000s)
--------- ----------
ITALY -- 4.3%
Assicurazioni Generali 88,478 $ 3,171
Banca Intesa 155,155 784
Bca Comm Italiana 151,323 936
Bca Intesa Spa-Rnc 60,500 140
Credito Italiano 242,817 1,305
ENI SPA (Reg.) 680,372 4,050
Fiat Spa-RNC 60,267 99
Fiat SPA 312,492 897
Istituto Banc San Paolo+ 68,800 1,012
Istituto Nazionale delle Assicurazioni 326,204 899
Montedison 420,960 417
Montedison Spa -Rnc 60,500 48
Pirelli SPA-RNC 7,500 16
Pirelli SPA 156,370 449
TIM SPA-RNC+ 223,802 794
Telecom Italia SPA 486,774 3,522
TIM SPA 564,690 3,281
Telecom Italia SPA-RNC+ 179,792 907
-------
22,727
-------
JAPAN -- 20.0%
Advantest Corp. 9,700 612
Ajinomoto Co., Inc. 46,000 435
All Nipon Airways Co., Ltd.+ 104,000 384
Asahi Bank 167,000 559
Asahi Breweries 41,000 586
Asahi Glass Co., Ltd. 84,000 469
Bank of Tokyo-Mitsubishi, Ltd. 397,500 3,691
Bridgestone Corp. 70,000 1,542
Canon, Inc. 75,000 1,420
Cent Japan Railway 190 976
Chubu Electric Power Co. 63,100 1,241
Dai Nippon Printing Co. 68,000 1,048
Dai-Ichi Kangyo Bank, Ltd. 274,000 1,683
DDI Corp. 182 532
Denso 95,000 1,791
East Japan Railway Co. 375 2,226
Fanuc 21,100 634
Fuji Bank, Ltd. 208,000 797
Fuji Photo Film Co. 43,000 1,577
Fujitsu, Ltd. 154,000 1,640
Hitachi, Ltd. 284,000 1,447
Honda Motor Co., Ltd. 82,000 2,465
Industrial Bank of Japan, Ltd. 182,000 871
Ito Yokado Co., Ltd. 35,000 2,044
Japan Tobacco, Inc. 167 1,401
Joyo Bank 100 --
Jusco Co. 29,000 468
Kansai Electric Power Co. 86,300 1,849
69
<PAGE>
SCHWAB INTERNATIONAL INDEX FUND(R)
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ----------
Kao Corp. 51,000 $ 1,034
Kinki Nippon Railway Co. 115,830 597
Kirin Brewery Co., Ltd. 75,000 818
Kyocera Corp. 16,000 708
Kyushu Electric Power Co. 40,700 781
Marui Co. 33,000 575
Matsushita Communications Ind 7,000 787
Matsushita Electric
Industrial Co., Ltd. 177,000 2,601
Matsushita Electric Works 55,000 525
Mitsubishi Corp. 113,000 599
Mitsubishi Estate Co. 94,000 853
Mitsubishi Heavy Industries, Ltd. 297,000 1,148
Mitsubishi Trust & Banking Corp. 94,000 635
Mitsui & Co. 113,000 604
Murata Manufacturing Co. 23,000 776
NEC Corp. 144,000 1,067
Nintendo Co., Ltd. 12,600 1,067
Nippon Express Co. 77,000 433
Nippon Steel Corp. 622,000 1,085
Nippon Telegraph & Telephone Corp. 1,113 8,719
Nissan Motor Co., Ltd. 181,000 491
Nomura Securities Co. Ltd. 164,000 1,240
Odakyu Electric Railway Co. 510 2
Osaka Gas Co. 182,000 585
Ricoh Co., Ltd. 47,000 398
Rohm Co. 10,000 885
Sakura Bank 246,000 613
Sankyo Co. 38,000 858
Sanwa Bank 247,000 1,929
Sanyo Electric Co., Ltd. 140,000 394
Secom Co. 10,000 743
Seibu Railway Co. 37,000 1,211
Sekisui House 51,000 509
Seven-Eleven Japan Co. 35,000 2,664
Sharp Co. 81,000 612
Shin-Etsu Chemical Co. 31,700 632
Shizuoka Bank 58,000 669
SMC Corp. 6,000 453
Sony Corp. 37,700 2,396
Sumitomo Bank 268,000 2,636
Sumitomo Corp. 76,000 364
Sumitomo Electric Industries 61,000 676
Sumitomo Trust & Banking Co. 89,000 248
Taisho Pharmaceuticals Co. 31,000 831
Takeda Chemical Industries 77,000 2,507
TDK Corp. 12,000 792
Tohoku Electric Power Co. 43,600 762
Tokai Bank 146,000 722
Tokio Marine & Fire Insurance Co. 142,000 1,616
Tokyo Electric Power Co., Inc. 115,700 2,932
Number Value
of Shares (000s)
--------- ----------
Tokyo Electron 16,000 $ 521
Tokyo Gas Co. 202,000 519
Toppan Printing Co. 59,000 606
Toray Industries, Inc. 100,000 466
Toshiba Corp. 281,000 1,320
Toyota Motor Corp. 337,000 8,105
West Japan Railway 175 782
Yamanouchi Pharmaceutical Co. 29,000 832
--------
104,321
--------
NETHERLANDS -- 7.0%
ABN AMRO Holdings NV 114,603 2,148
Aegon NV 48,342 4,196
Ahold (Kon) NV 48,061 1,598
Akzo Nobel NV 30,366 1,181
Asm Lithography+ 11,636 295
Baan+ 16,492 184
Dordtsche Petroleum 18,778 814
Elsevier NV 55,561 783
Fortis Amev NV 16,443 1,068
Heineken NV 25,593 1,364
ING Groep NV 78,063 3,779
Koninklijke PTT Nederland 40,076 1,558
Philips Electronics NV 29,505 1,571
PolyGram NV 16,354 964
Randstad Hlds 9,106 488
Royal Dutch Petroleum Co. 184,938 8,933
Unilever NV 53,417 3,965
Vnu Ver Ned Uitg Bezit 15,978 553
Wolter Kluwer NV 6,045 1,172
--------
36,614
--------
SPAIN -- 3.2%
Argentaria Corp. 41,944 914
Banco Central Hispano 93,234 1,030
Banco Popular Espanol 10,581 654
Banco Santander 97,994 1,797
BCO Bilbao Vizcaya 168,834 2,280
Endesa SA 89,171 2,250
Gas Natural SDG 13,003 1,121
Iberdrola SA 75,984 1,228
Repsol SA 25,312 1,272
Telefonica International
de Espana SA 88,392 3,995
--------
16,541
--------
SWEDEN -- 2.8%
ABB AB, Series A 59,869 632
Asea AB 27,898 294
Astra AB, Series A 112,270 1,817
70
<PAGE>
Number Value
of Shares (000s)
--------- ----------
Astra AB, Series B 30,472 $ 478
Atlas Copco AB-B 5,100 118
Atlas Copco, Series A 10,329 240
Electrolux AB 30,874 464
Foreningssparbaken, Series A 33,220 899
Hennes & Mauritz, Series B 18,570 1,307
L.M. Ericsson Telephone, Series B 168,087 3,785
Nordbanken Holding 109,987 659
Sandvik AB, Series A 17,866 367
Sandvik AB, Series B 8,461 174
Skand. Enskil. Bank, Series A 47,732 482
Skandia Forsakrings 43,150 549
Skanska AB, Series B 9,600 316
Svenska Cell AB, Series B 16,644 390
Svenska Handelsbanken, Series A 19,488 819
Svenska Handelsbanken, Series B 3,956 152
Volvo AB, Series A 14,094 296
Volvo AB, Series B 28,295 610
-------
14,848
-------
SWITZERLAND -- 9.1%
ABB (Reg.) 568 138
ABB - Asea Brown Boveri 677 811
Adecco SA 1,525 608
Alusuisse Lonza HD (Reg.) 516 590
Ares Serono 316 475
Ciba Specialty Chemicals 6,025 619
Cie Financiere Richemont, Series A 484 644
Clariant (Reg.) 6,020 3,114
Credit Suisse Group 22,407 3,448
Holderbank Financiere Glaris (Bearer) 988 221
Holderbank Financiere Glaris (Reg.) 489 545
Nestle SA (Reg.) 3,409 7,254
Novartis AG (Bearer) 1,014 1,827
NovartisAG (Reg.) 5,342 9,631
Roche Group Holding 135 2,449
Roche Holding Genusscheine 607 7,086
Sfr Schweizerischer Bkver+ 425 6
Swatch Group (Reg.) 1,250 171
Swatch Group AG, Series B 310 171
UBS AG (Reg.) 17,907 4,915
Zurich Allied 4,183 2,544
-------
47,267
-------
UNITED KINGDOM -- 25.2%
Abbey National 118,862 2,310
Alliance & Leicester 49,071 712
Allied Domecq 74,995 686
Asda Group 254,135 684
Number Value
of Shares (000s)
--------- ----------
Associated British Foods 70,618 $ 661
BAA PLC 97,041 1,091
Bank of Scotland PLC 101,794 1,105
Barclays PLC 126,231 2,717
BASS PLC 76,639 929
BG 374,681 2,453
BOC Group PLC 45,114 662
Boots Co. 75,415 1,138
British Aerospace 135,040 1,004
British Airways 68,936 500
British Energy PLC 60,690 593
British Land 43,550 350
British Petroleum Co. 501,754 7,360
British Sky Broadcast 156,349 1,273
British Telecommunications 560,943 7,244
BTR PLC 286,134 500
Cable & Wireless Communications+ 125,565 945
Cable & Wireless PLC 192,150 2,153
Cadbury Schweppes 83,540 1,278
Centrica PLC+ 374,033 726
CGU 114,746 1,816
Compass Group 56,151 568
Diageo PLC 299,917 3,235
Emi Group PLC 77,574 460
General Electric Company PLC 235,140 1,878
GKN PLC 56,652 688
Glaxo Wellcome PLC 310,895 9,650
Granada Group 73,879 1,113
Great Universal Stores 83,923 901
Guardian Royal Exchange PLC 74,127 359
Halifax 212,429 2,814
Hays PLC 35,497 523
HSBC Holdings 149,497 3,400
HSBC Holdings 75p 74,178 1,737
Imperial Chemical Industries 63,162 567
Invseco PLC 54,037 408
Kingfisher 119,454 1,048
Ladbroke 100,099 366
Legal & General Group 106,157 1,257
Lloyds TSB Group PLC 465,419 5,741
Lucas Varity 119,699 408
Marks & Spencer PLC 239,914 1,776
Misys 47,030 330
National Grid Group PLC 134,171 918
National Power Development 104,878 910
National Westminster Bancorp 142,724 2,409
Norwich Union 165,424 1,179
Pearson Inc. 47,646 830
Peninsular & Oriental Steam
Navigation 50,816 532
71
<PAGE>
SCHWAB INTERNATIONAL INDEX FUND (R)
SCHEDULE OF INVESTMENTS (continued)
October 31, 1998
Number Value
of Shares (000s)
--------- ----------
Powergen 56,653 $ 804
Prudential Corp. 160,525 2,086
Railtrack Group 43,011 1,155
Reckitt & Colman PLC 37,912 655
Reed International 104,356 882
Rentokil Initial 252,578 1,580
Reuters Holdings Group PLC 140,900 1,449
Rio Tinto 89,386 1,084
Rolls Royce PLC 93,075 343
Royal & Sun Alliance Insurance
Group PLC 136,047 1,245
Royal Bank of Scotland 72,182 956
Safeway PLC 67,071 337
Sainsbury J 166,084 1,467
Schroders 24,544 466
Scot & Newcastle 51,294 625
Scottish Power 100,903 992
Severn Trent 28,525 493
Shell Transport & Trading Co. (Reg.) 845,745 5,131
Siebe PLC 166,152 681
Smithkline Beecham 479,192 5,987
Stagecoach Holdings 107,780 425
Standard Chartered PLC 82,031 881
Tesco PLC 561,186 1,582
Thames Water 29,328 544
Tomkins 99,594 461
Unilever PLC 277,313 2,783
United News & Media PLC 40,983 453
United Utilities PLC 43,940 642
Vodafone Group PLC 260,131 3,481
Whitbread 45,126 606
Williams 66,185 413
Woolwich 134,902 800
Zeneca Group 79,013 3,032
--------
131,416
--------
TOTAL COMMON STOCK
(Cost $427,517) 514,390
--------
PREFERRED STOCK -- 0.8%
AUSTRALIA -- 0.2%
News Corporation, Ltd.
(Limited Voting Shares)+ 153,739 921
--------
FRANCE -- 0.0%
Casino Guichard Perrach (Limited
Voting Shares) 1,700 104
--------
Number Value
of Shares (000s)
--------- ----------
GERMANY -- 0.6%
Man AG Vorzugsouktien
(Non-Voting) 370 $ 86
RWE 18,788 687
SAP AG (Non-Voting) 3,537 1,724
Volkswagen AG (Non-Voting) 7,870 370
---------
2,867
---------
ITALY -- 0.0%
Fiat Finance SPA 62,447 95
---------
TOTAL PREFERRED STOCK
(Cost $2,333) 3,987
---------
WARRANTS -- 0.0%
FRANCE -- 0.0%
AXA UAP CVG (expire 01/07/99) 5,916 6
Cie Generale de Eaux (expire 05/02/01) 8,094 17
---------
23
---------
GERMANY -- 0.0%
Muenchener Rueckversich
(expire 06/03/02) 451 20
---------
HONG KONG -- 0.0%
Hong Kong & China Gas
(expire 09/30/99) 10,950 1
Wharf Holdings (expire 12/31/99) 6,200 --
---------
1
---------
TOTAL WARRANTS
(Cost $5) 44
---------
TOTAL INVESTMENTS -- 99.3%
(Cost $429,855) 518,421
---------
OTHER ASSETS AND LIABILITIES -- 0.7%
Other assets 4,496
Liabilities (895)
---------
3,601
---------
TOTAL NET ASSETS -- 100.0% $ 522,022
=========
SEE ACCOMPANYING NOTES TO SCHEDULES OF INVESTMENTS AND NOTES TO FINANCIAL
STATEMENTS.
72
<PAGE>
NOTES TO SCHEDULES OF INVESTMENTS
October 31, 1998
+ Non-Income Producing Security.
* Interest rate represents the yield on report date.
ADR -- American Depository Receipt.
(a) Yields shown are effective yields at time of purchase.
(b) These securities, or portion thereof, are being used to collaterize open
financial futures contracts.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES (in thousands)
October 31, 1998
<TABLE>
<CAPTION>
Schwab Schwab Schwab Schwab
S&P 500 1000 Small-Cap International
Fund Fund(R) Index Fund(R) Index Fund(R)
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at value (Cost: $3,227,609, $3,073,992,
$657,616and $429,855, respectively) $3,765,713 $4,697,996 $631,913 $518,421
Cash -- 1 521 --
Foreign currency (Cost: $0, $0, $0 and $8, respectively) -- -- -- 8
Amounts on deposit with brokers 816 2,178 -- --
Cash held as collateral for securities on loan (Note 6) 417,834 565,945 35,407 --
Receivables:
Investments sold -- -- -- 2,624
Fund shares sold 36,139 9,638 4,153 498
Interest 42 3 18 40
Dividends 4,044 4,925 300 831
Securities lending income -- 76 16 --
Variation margin 721 419 -- --
Dividend tax reclaim -- -- -- 495
Prepaid expenses 247 141 -- --
---------- ---------- -------- --------
Total assets 4,225,556 5,281,322 672,328 522,917
---------- ---------- -------- --------
LIABILITIES
Collateral held for securities on loan (Note 6) 417,834 565,945 35,407 --
Payables:
Investments purchased 38,359 14,167 7,157 --
Fund shares redeemed 4,524 2,751 301 62
Cash overdraft payable to custodian -- -- -- 170
Borrowings on line of credit -- -- -- 434
Investment advisory and administration fees 57 137 30 27
Transfer agency and shareholder service fees 65 127 36 19
Interest -- 5 -- --
Withholding taxes -- -- -- 6
Accrued expenses 443 517 141 164
Unrealized loss on forward foreign currency contracts (Note 2) -- -- -- 13
---------- ---------- -------- --------
Total liabilities 461,282 583,649 43,072 895
---------- ---------- -------- --------
Net assets applicable to outstanding shares $3,764,274 $4,697,673 $629,256 $522,022
========== ========== ======== ========
NET ASSETS CONSIST OF:
Paid-in-capital $3,205,607 $3,045,789 $616,874 $444,825
Undistributed net investment income 30,878 34,084 1,866 5,810
Accumulated net realized gain (loss) on investments sold,
futures contracts and foreign currency transactions (11,036) (6,623) 36,219 (17,215)
Net unrealized appreciation (depreciation)
on investments and futures contracts 538,825 1,624,423 (25,703) 88,566
Net unrealized appreciation on translating
assets and liabilities into reporting currency -- -- -- 36
---------- ---------- -------- --------
$3,764,274 $4,697,673 $629,256 $522,022
========== ========== ======== ========
PRICING OF SHARES
Net asset value, offering and redemption price per share,
applicable to outstanding shares, $0.00001 par value
(unlimited shares authorized)
Investor Shares ($1,935,398/113,480, $3,657,122/122,308,
$479,500/31,148,and $428,462/30,160, respectively) $17.05 $29.90 $15.39 $14.21
Select Shares ($1,548,052/90,563, $1,040,551/34,762,
$149,756/9,715,and $93,560/6,577, respectively) $17.09 $29.93 $15.41 $14.23
e. Shares ($280,824/16,444) $17.08 NA NA NA
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
74
<PAGE>
STATEMENTS OF OPERATIONS (in thousands)
For the year ended October 31, 1998
<TABLE>
<CAPTION>
Schwab Schwab Schwab Schwab
S&P 500 1000 Small-Cap International
Fund Fund(R) Index Fund(R) Index Fund(R)
-------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Investment income:
Dividends (net of foreign taxes withheld of
$234, $2, $1 and $928, repectively) $ 42,456 $ 56,961 $ 4,810 $ 8,436
Interest 180 1,013 194 478
Income from securities lending 326 712 16 --
-------- -------- -------- -------
Total investment income 42,962 58,686 5,020 8,914
-------- -------- -------- -------
Expenses:
Investment advisory and administration fees 9,034 9,162 2,832 3,067
Transfer agency and shareholder service fees
Investor Shares 3,665 8,177 1,164 961
Select Shares 1,019 712 129 76
e.Shares 207 N/A N/A N/A
Custodian and portfolio accounting fees 317 427 260 352
Professional fees 62 27 45 30
Registration fees 531 325 116 90
Shareholder reports 254 500 99 97
Trustees' fees 26 45 8 7
Insurance and other expenses 54 56 54 60
-------- -------- -------- -------
15,169 19,431 4,707 4,740
Less:expenses reduced (see Note 4) (7,517) (1,888) (1,935) (2,154)
-------- -------- -------- -------
Net expenses incurred by Fund 7,652 17,543 2,772 2,586
-------- -------- -------- -------
Net investment income 35,310 41,143 2,248 6,328
-------- -------- -------- -------
Netrealized gain (loss) on investments sold,
futures contracts and foreign currency transactions:
Net realized gain (loss) on investments sold (3,247) 389 50,081 (12,198)
Net realized loss on futures contracts (5,056) (1,558) -- --
Net realized loss on foreign currency transactions -- -- -- (1,094)
-------- -------- -------- -------
Net realized gain (loss) on investments sold,
futures contracts and foreign currency transactions (8,303) (1,169) 50,081 (13,292)
-------- -------- -------- -------
Change in net unrealized appreciation (depreciation) on
investments, futures contracts and foreign currency translation:
Net unrealized appreciation (depreciation) on investments 371,102 585,829 (145,100) 31,951
Net unrealized appreciation on futures contracts 721 419 -- --
Net unrealized depreciation on foreign currency translation -- -- -- (25)
-------- -------- -------- -------
Net unrealized appreciation (depreciation) on investments,
futures contracts and foreign currency translation 371,823 586,248 (145,100) 31,926
-------- -------- -------- -------
Net gain (loss) on investments 363,520 585,079 (95,019) 18,634
-------- -------- -------- -------
Increase (decrease) in net assets resulting from operations $398,830 $626,222 $(92,771) $24,962
======== ======== ======== =======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
75
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
For the periods ended October 31, 1998
<TABLE>
<CAPTION>
Schwab S&P 500 Schwab 1000
Fund Fund(R)
-------------------------- -----------------------------------------
1998 1997 1998 1997+ 1997++
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 35,310 $ 12,073 $ 41,143 $ 5,159 $ 29,087
Net realized gain (loss) on investments sold
and futures contracts (8,303) (2,679) (1,169) 1,097 (4,992)
Change in net unrealized appreciation on investments
and futures contracts 371,823 149,986 586,248 43,118 651,010
----------- ----------- ----------- ----------- -----------
Increase in net assets resulting from operations 398,830 159,380 626,222 49,374 675,105
----------- ----------- ----------- ----------- -----------
Dividends to shareholders from net investment income
Investor Shares (8,697) (2,361) (27,684) -- (23,949)
Select Shares (5,313) -- (5,010) -- --
e. Shares (1,504) (498) -- -- --
----------- ----------- ----------- ----------- -----------
(15,514) (2,859) (32,694) -- (23,949)
----------- ----------- ----------- ----------- -----------
Capital share transactions:
Proceeds from shares sold 3,118,974 1,636,074 2,003,202 270,742 1,328,283
Net asset value of shares issued in reinvestment
of dividends 14,660 2,679 29,584 -- 21,833
Early withdrawal fees (see Note 8) -- -- 834 104 429
Less payments for shares redeemed (1,293,119) (534,934) (966,474) (129,356) (715,625)
----------- ----------- ----------- ----------- -----------
Increase in net assets from capital share
transactions 1,840,515 1,103,819 1,067,146 141,490 634,920
----------- ----------- ----------- ----------- -----------
Total increase in net assets 2,223,831 1,260,340 1,660,674 190,864 1,286,076
Net Assets:
Beginning of period 1,540,443 280,103 3,036,999 2,846,135 1,560,059
----------- ----------- ----------- ----------- -----------
End of period (including undistributed net
investment income of $30,878, $11,074,
$34,084, $25,431 and $20,272, respectively) $ 3,764,274 $ 1,540,443 $ 4,697,673 $ 3,036,999 $ 2,846,135
=========== =========== =========== =========== ===========
Number of fund shares:
Sold 190,511 122,252 69,393 10,444 59,126
Reinvested 1,017 231 1,155 -- 1,058
Redeemed (79,685) (39,579) (33,764) (4,990) (31,365)
----------- ----------- ----------- ----------- -----------
Net increase in shares outstanding 111,843 82,904 36,784 5,454 28,819
Shares outstanding:
Beginning of period 108,644 25,740 120,286 114,832 86,013
----------- ----------- ----------- ----------- -----------
End of period 220,487 108,644 157,070 120,286 114,832
=========== =========== =========== =========== ===========
</TABLE>
+ For the period from September 1, 1997 to October 31, 1997.
++ For the period from September 1, 1996 to August 31, 1997.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
76
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (in thousands)
For the years ended October 31, 1998
<TABLE>
<CAPTION>
Schwab Schwab
Small-Cap International
Index Fund(R) Index Fund(R)
--------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 2,248 $ 1,671 $ 6,328 $ 4,224
Net realized gain (loss) on investments sold and
foreign currency transactions 50,081 (478) (13,292) (1,963)
Change in net unrealized appreciation
(depreciation) on investments
and foreign currency translation (145,100) 83,214 31,926 24,079
--------- --------- --------- ---------
Increase (decrease) in net assets resulting from operations (92,771) 84,407 24,962 26,340
--------- --------- --------- ---------
Dividends to shareholders from net investment income
Investor Shares (1,517) (998) (3,700) (3,464)
Select Shares (379) -- (654) --
--------- --------- --------- ---------
(1,896) (998) (4,354) (3,464)
--------- --------- --------- ---------
Capital Share Transactions:
Proceeds from shares sold 417,865 314,331 233,250 199,296
Net asset value of shares issued in reinvestment of dividends 1,744 901 3,935 3,084
Early withdrawal fees (see Note 8) 212 155 127 76
Less payments for shares redeemed (187,542) (116,277) (103,260) (104,748)
--------- --------- --------- ---------
Increase in net assets from capital share transactions 232,279 199,110 134,052 97,708
--------- --------- --------- ---------
Total increase in net assets 137,612 282,519 154,660 120,584
Net Assets:
Beginning of year 491,644 209,125 367,362 246,778
--------- --------- --------- ---------
End of year (including undistributed net investment income
of $1,866, $1,452, $5,810, and $4,052, respectively) $ 629,256 $ 491,644 $ 522,022 $ 367,362
========= ========= ========= =========
Number of fund shares:
Sold 23,894 19,646 16,160 15,015
Reinvested 102 64 302 250
Redeemed (10,855) (7,380) (7,328) (7,843)
--------- --------- --------- ---------
Net increase in shares outstanding 13,141 12,330 9,134 7,422
Shares outstanding:
Beginning of year 27,722 15,392 27,603 20,181
--------- --------- --------- ---------
End of year 40,863 27,722 36,737 27,603
========= ========= ========= =========
</TABLE>
77
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Schwab S&P 500 Fund
--------------------------------------------------
INVESTOR SHARES 1998 1997 1996(1)
- ------------------------------ ---------------- -------------- --------------
<S> <C> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
Net asset value at beginning of period $ 14.17 $ 10.88 $ 10.00
---------------- -------------- --------------
From investment operations:
Net investment income 0.16 0.14 0.08
Net realized and unrealized gains on investments 2.85 3.24 0.80
---------------- -------------- --------------
Total from investment operations 3.01 3.38 0.88
Less distributions:
Dividends from net investment income (0.13) (0.09) --
---------------- -------------- --------------
Total distributions (0.13) (0.09) --
---------------- -------------- --------------
NET ASSET VALUE AT END OF PERIOD $ 17.05 $ 14.17 $ 10.88
================ ============== ==============
Total return (%) 21.39 31.29 8.80*
RATIOS/SUPPLEMENTAL DATA (%)
- ----------------------------
Ratio of net operating expenses to average net assets 0.35 0.38 0.49**
Reductions reflected in above expense ratio 0.28 0.32 0.40**
Ratio of net investment income to average net assets 1.25 1.49 1.89**
Portfolio turnover rate 1 3 1
Net assets, end of period (000s) $ 1,935,398 $ 923,148 $ 243,772
SELECT SHARES 1998 1997(2)
- ----------------------------- ------------- -----------
<S> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
Net asset value at beginning of period $ 14.19 $ 12.85
------------- -----------
Income from investment operations:
Net investment income 0.26 0.05
Net realized and unrealized gains on investments 2.78 1.29
------------- -----------
Total income from investment operations 3.04 1.34
Less distributions:
Dividends from net investment income (0.14) (0.00)
------------- -----------
Total distributions (0.14) (0.00)
------------- -----------
NET ASSET VALUE AT END OF PERIOD $ 17.09 $ 14.19
============= ===========
Total return (%) 21.63 10.43*
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------
Ratio of actual operating expenses to average net assets 0.19 0.19**
Reductions reflected in above expense ratio 0.28 0.34**
Ratio of net investment income to average net assets 1.40 1.46**
Portfolio turnover rate 1 3
Net assets, end of period (000s) $1,548,052 $485,604
</TABLE>
* Not Annualized.
** Annualized.
(1) For the period from May 1, 1996 (commencement of operations) to October 31,
1996.
(2) For the period from May 19, 1997 (commencement of operations) to October
31, 1997.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
78
<PAGE>
<TABLE>
<CAPTION>
Schwab S&P 500 Fund
--------------------------------------------
E. SHARES 1998 1997 1996(1)
- ------------------------------ ----------- ----------- ----------
<S> <C> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
Net asset value at beginning of period $ 14.19 $ 10.89 $ 10.00
----------- ----------- ----------
From investment operations:
Net investment income 0.15 0.21 0.04
Net realized and unrealized gains
on investments 2.88 3.19 0.85
----------- ----------- ----------
Total income from investment operations 3.03 3.40 0.89
Less distributions:
Dividends from net investment income (0.14) (0.10) --
----------- ----------- ----------
Total distributions (0.14) (0.10) --
----------- ----------- ----------
NET ASSET VALUE AT END OF PERIOD $ 17.08 $ 14.19 $ 10.89
=========== =========== ==========
Total return (%) 21.50 31.48 8.90*
RATIOS/SUPPLEMENTAL DATA (%)
- ----------------------------
Ratio of actual operating expenses to average net assets 0.28 0.28 0.28**
Reductions reflected in above expense ratio 0.24 0.33 0.91**
Ratio of net investment income to average net assets 1.32 1.61 1.82**
Portfolio turnover rate 1 3 1
Net assets, end of period (000s) $ 280,824 $ 131,691 $ 36,331
<FN>
* Not Annualized.
** Annualized.
(1) For the period from May 1, 1996 (commencement of operations) to October 31, 1996.
</FN>
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
79
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Schwab 1000 Fund(R)
--------------------------------------------------------------------------
INVESTOR SHARES 1998 1997(1) 1997(3) 1996(3) 1995(3) 1994(3)
- --------------- --------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
Net asset value at beginning of period $ 25.25 $ 24.78 $ 18.14 $ 15.68 $ 13.08 $ 12.80
--------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income 0.27 0.04 0.28 0.24 0.26 0.26
Net realized and unrealized gains
on investments 4.64 0.43 6.62 2.45 2.48 0.28
--------- --------- --------- --------- --------- ---------
Total income from investment operations 4.91 0.47 6.90 2.69 2.74 0.54
Less distributions:
Dividends from net investment income (0.26) 0.00 (0.26) (0.23) (0.14) (0.26)
--------- --------- --------- --------- --------- ---------
Total distributions (0.26) 0.00 (0.26) (0.23) (0.14) (0.26)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 29.90 $ 25.25 $ 24.78 $ 18.14 $ 15.68 $ 13.08
========= ========= ========= ========= ========= =========
Total return (%) 19.63 1.90* 38.32 17.27 21.23 4.28
<CAPTION>
RATIOS/SUPPLEMENTAL DATA (%)
- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of net operating expenses to average net assets 0.46 0.46** 0.47 0.49 0.54 0.51
Reductions reflected in above expense ratio 0.05 0.04** 0.06 0.08 0.09 0.05
Ratio of net investment income to average net assets 1.02 1.00** 1.33 1.66 2.03 2.06
Portfolio turnover rate 2 -- 2 2 2 3
Net assets, end of period (000s) $3,657,122 $2,610,607 $2,498,891 $1,560,059 $ 826,714 $ 554,061
SELECT SHARES 1998 1997(1) 1997(2)
- ------------- ------------ -------------- --------------
<S> <C> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
Net asset value at beginning of period $ 25.26 $ 24.79 $ 22.64
------------ -------------- --------------
Income from investment operations:
Net investment income 0.32 0.04 0.05
Net realized and unrealized gains
on investments 4.63 0.43 2.10
------------ -------------- --------------
Total income from investment operations 4.95 0.47 2.15
Less distributions:
Dividends from net investment income (0.28) 0.00 0.00
------------ -------------- --------------
Total distributions (0.28) 0.00 0.00
------------ -------------- --------------
NET ASSET VALUE AT END OF PERIOD $ 29.93 $ 25.26 $ 24.79
============ ============== ==============
Total return (%) 19.79 1.90* 9.50*
RATIOS/SUPPLEMENTAL DATA (%)
- ----------------------------
Ratio of actual operating expenses to average net assets 0.35 0.35** 0.35**
Reductions reflected in above expense ratio 0.04 0.06** 0.33**
Ratio of net investment income to average net assets 1.11 1.11** 1.26**
Portfolio turnover rate 2 -- 2
Net assets, end of period (000s) $ 1,040,551 $ 426,392 $ 347,244
<FN>
* Not Annualized.
** Annualized.
(1) For the period from September 1, 1997 to October 31, 1997.
(2) For the period from May 19, 1997 (commencement of operations) to August 31, 1997.
(3) For the fiscal year ended August 31.
</FN>
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
80
<PAGE>
<TABLE>
<CAPTION>
Schwab Small-Cap Index Fund(R)
--------------------------------------------------------------------
INVESTOR SHARES 1998 1997 1996 1995 1994(1)
- --------------- ----------- --------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
Net asset value at beginning of period $ 17.73 $ 13.59 $ 11.70 $ 10.05 $ 10.00
----------- --------- -------- --------- ----------
From investment operations:
Net investment income 0.05 0.06 0.07 0.10 0.06
Net realized and unrealized gains
(losses) on investments (2.33) 4.14 1.88 1.61 --
----------- --------- -------- --------- ----------
Total income from investment operations (2.28) 4.20 1.95 1.71 0.06
Less distributions:
Dividends from net investment income (0.06) (0.06) (0.06) (0.06) (0.01)
----------- --------- -------- --------- ----------
Total distributions (0.06) (0.06) (0.06) (0.06) (0.01)
----------- --------- -------- --------- ----------
NET ASSET VALUE AT END OF PERIOD $ 15.39 $ 17.73 $ 13.59 $ 11.70 $ 10.05
=========== ========= ======== ========= ==========
Total return (%) (12.88) 31.03 16.73 17.11 0.63*
RATIOS/SUPPLEMENTAL DATA (%)
- -----------------------------
Ratio of actual operating expenses to average net assets 0.49 0.52 0.59 0.68 0.67**
Reductions reflected in above expense ratio 0.32 0.37 0.35 0.34 0.52**
Ratio of net investment income to average net assets 0.35 0.53 0.56 0.68 0.68**
Portfolio turnover rate 40 23 23 24 16
Net assets, end of period (000s) $ 479,500 $ 410,470 $ 209,125 $ 122,074 $ 68,128
</TABLE>
<TABLE>
<CAPTION>
SELECT SHARES 1998 1997(2)
- ------------- -------------- -------------
<S> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
Net asset valueat beginning of period $ 17.75 $ 14.50
-------------- -------------
From investment operations:
Net investment income 0.08 0.02
Net realized and unrealized gains
(losses) on investments (2.35) 3.23
-------------- -------------
Total income from investment operations (2.27) 3.25
Less distributions:
Dividends from net investment income (0.07) (0.00)
-------------- -------------
Total distributions (0.07) (0.00)
-------------- -------------
NET ASSET VALUE AT END OF PERIOD $ 15.41 $ 17.75
============== =============
Total return (%) (12.81) 22.41*
RATIOS/SUPPLEMENTAL DATA (%)
- ----------------------------
Ratio of actual operating expenses to average net assets 0.38 0.38**
Reductions reflected in above expense ratio 0.33 0.52**
Ratio of net investment income to average net assets 0.46 0.56**
Portfolio turnover rate 40 23
Net assets, end of period (000s) $ 149,756 $ 81,174
</TABLE>
* Not Annualized.
** Annualized.
(1) For the period from December 3, 1993 (commencement of operations) to October
31, 1994.
(2) For the period from May 19, 1997 (commencement of operations) to
October 31, 1997.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
81
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Schwab International Index Fund(R)
----------------------------------------------------------------------
INVESTOR SHARES 1998 1997 1996 1995 1994
- --------------- ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
Net asset value at beginning of period $ 13.31 $ 12.23 $ 11.13 $ 10.89 $ 10.15
----------- ------------ ----------- ----------- -----------
From investment operations:
Net investment income 0.17 0.17 0.16 0.14 0.11
Net realized and unrealized gains
on investments 0.88 1.08 1.07 0.22 0.69
----------- ------------ ----------- ----------- -----------
Total income from investment operations 1.05 1.25 1.23 0.36 0.80
Less distributions:
Dividends from net investment income (0.15) (0.17) (0.13) (0.12) (0.04)
Distributions from realized gains on investments -- -- -- -- (0.02)
----------- ------------ ----------- ----------- -----------
Total distributions (0.15) (0.17) (0.13) (0.12) (0.06)
----------- ------------ ----------- ----------- -----------
NET ASSET VALUE AT END OF PERIOD $ 14.21 $ 13.31 $ 12.23 $ 11.13 $ 10.89
=========== ============ =========== =========== ===========
Total return (%) 8.02 10.33 11.07 3.35 7.89
RATIOS/SUPPLEMENTAL DATA (%)
- ----------------------------
Ratio of actual operating expenses to average net assets 0.58 0.61 0.69 0.85 0.90
Reductions reflected in above expense ratio 0.46 0.52 0.48 0.37 0.40
Ratio of net investment income to average net assets 1.35 1.36 1.50 1.45 1.14
Portfolio turnover rate 6 13 6 -- 6
Net assets, end of period (000s) $ 428,462 $ 317,833 $ 246,778 $ 179,612 $ 142,355
</TABLE>
<TABLE>
<CAPTION>
SELECT SHARES 1998 1997(1)
- ------------- ---------- ----------
<S> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
Net asset value at beginning of period $ 13.32 $ 13.59
--------- ----------
From investment operations:
Net investment income 0.22 0.04
Net realized and unrealized gains (losses)
on investments 0.85 (0.31)
---------- ----------
Total income from investment operations 1.07 (0.27)
Less distributions:
Dividends from net investment income (0.16) --
--------- ----------
Total distributions (0.16) --
--------- ----------
NET ASSET VALUE AT END OF PERIOD $ 14.23 $ 13.32
========= ==========
Total return (%) 8.16 (1.99)*
RATIOS/SUPPLEMENTAL DATA (%)
- -----------------------------
Ratio of actual operating expenses to average net assets 0.47 0.47**
Reductions reflected in above expense ratio 0.48 0.80**
Ratio of net investment income to average net assets 1.49 0.17**
Portfolio turnover rate 6 13
Net assets, end of period (000s) $ 93,560 $ 49,529
<FN>
* Not Annualized.
** Annualized.
(1) For the period from May 19, 1997 (commencement of operations) to October 31, 1997.
</FN>
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
82
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the year ended October 31, 1998
(All currency amounts are in thousands unless otherwise noted.)
1. DESCRIPTION OF THE FUNDS
The Schwab S&P 500 Fund, Schwab Small-Cap Index Fund(R) and Schwab International
Index Fund(R) are a series of the Schwab Capital Trust (the "Capital Trust") and
the Schwab 1000 Fund(R) is a series of the Schwab Investments (the "Investment
Trust"), each a no-load, open-end management investment company organized as
Massachusetts business trusts on May 7, 1993 and October 26, 1990, respectively,
and registered under the Investment Company Act of 1940 ("the Act") as amended.
Each series in this report is hereafter referred to as a "Fund".
The Schwab S&P 500 Fund, Schwab 1000 Fund(R), Schwab Small-Cap Index Fund(R) and
Schwab International Index Fund(R) each offer two classes of shares -- Investor
Shares and Select Shares. Both classes represent interests in the same portfolio
of investments of each 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, the Schwab S&P 500 Fund offers a third class of shares -- the
e.Shares(TM). This class offers the same concept as the Investor Shares and the
Select Shares, but the e.Shares are available only to clients of Schwab
Institutional, Charles Schwab Trust Company and to certain tax-advantaged
retirement plans that can execute their trading and information requests through
SchwabLink(TM).
In addition to the Schwab S&P 500 Fund, Schwab Small-Cap Index Fund(R) and
Schwab International Index Fund(R), the Capital Trust also offers the Schwab
MarketTrack All Equity Portfolio(TM), Schwab MarketTrack Growth Portfolio(TM)
(formerly Schwab Asset Director(R) -- High Growth Fund), Schwab MarketTrack
Balanced Portfolio(TM) (formerly Schwab Asset Director(R) -- Balanced Growth
Fund), Schwab MarketTrack Conservative Portfolio(TM) (formerly Schwab Asset
Director(R) -- Conservative Growth Fund), Schwab Analytics Fund(R), Schwab
MarketManager International Portfolio(TM)(formerly Schwab OneSource Portfolios
- -- International), Schwab MarketManager Growth Portfolio(TM) (formerly Schwab
OneSource Portfolios -- Growth Allocation), Schwab MarketManager Balanced
Portfolio(TM) (formerly Schwab OneSource Portfolios -- Balanced Allocation), and
Schwab MarketManager Small Cap Portfolio(TM) (formerly Schwab OneSource
Portfolios -- Small Company). The assets of each series are segregated and
accounted for separately.
In addition to the Schwab 1000 Fund(R), the Investment Trust also offers the
Schwab Short-Term Bond Market Index Fund, Schwab Total Bond Market Index 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. 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.
83
<PAGE>
SECURITY VALUATION -- Investments in securities traded on an exchange or in the
over-the-counter market are valued at the last quoted 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 adviser pursuant to guidelines adopted in good faith by the Board of
Trustees. Financial futures contracts and options thereon, which are traded on
exchanges, are valued at their settlement prices as of the close of such
exchanges. Short-term securities with 60 days or less to maturity are stated at
amortized cost, which approximates market value.
Security transactions, realized gain/loss and investment income -- Security
transactions are accounted for on a trade date basis (date the order to buy or
sell is executed). Realized gains and losses from security transactions are
determined on an identified cost basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date; interest income (including
accretion of discounts) is recorded on the accrual basis.
FUTURES CONTRACTS -- The Schwab S&P 500 Fund and the Schwab 1000 Fund(R) may
invest in financial futures contracts. The Funds are required to deposit with
the broker an amount of cash equivalents equal to a certain percentage of the
contract amount. This is known as the "initial margin." The "variation margin"
represents unrealized gains (losses) due to daily fluctuation in the value of
the contract. The Funds record a realized gain or loss equal to the variation
margin at the time the contracts are closed.
The Funds will invest in these instruments to participate in the return of an
index. The use of futures contracts involves certain risks, which include (1)
imperfect correlation between the price movement of the contracts and the
underlying securities, or (2) inability to close out positions due to different
trading hours, or the temporary absence of a liquid market, for either the
contract or underlying securities. These risks may involve amounts exceeding the
amount recognized in each Fund's Statements of Operations at any given time.
As of October 31, 1998, the Schwab S&P 500 Fund and the Schwab 1000 Fund(R) had
the following open S&P 500 Index futures contracts:
Number of Contract Unrealized
Fund Contracts Value Expiration Appreciation
---- --------- ---------- ---------- ------------
S&P 500 Fund 29 $8,013 12/21/98 $ 721
Schwab 1000 Fund(R) 20 $5,526 12/21/98 $ 419
The cash and eligible securities on deposit with brokers available to cover
margin requirements for open futures positions at October 31, 1998 were $816 and
$967 for the Schwab S&P 500 Fund, and $2,178 and $125 for the Schwab 1000
Fund(R), respectively. The Funds have segregated short-term investments or
repurchase agreements for the remaining portion of the contract value.
84
<PAGE>
REPURCHASE AGREEMENTS -- Repurchase agreements are fully collateralized by U.S.
Treasury or government agency securities. All collateral is held by the Funds'
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.
FOREIGN CURRENCY TRANSLATION -- The accounting records of the Schwab
International Index Fund(R) are maintained in U.S. dollars. Investment
securities and all other assets and liabilities of the fund denominated in
foreign currencies are translated into U.S. dollars at the exchange rates on
October 31, 1998. Purchases and sales of securities, income receipts and expense
payments are translated into U.S. dollars at the exchange rate in effect on the
dates of the respective transactions.
The Schwab International Index Fund(R) separates within its statement of
operations the portion of realized and unrealized gains and losses resulting
from changes in foreign currency exchange rates from the fluctuations in market
prices of investments held.
FORWARD CURRENCY CONTRACTS -- A forward currency contract ("Forward") is an
agreement between two parties to buy and sell a currency at a set price on a
future date. The value of the Forward fluctuates with changes in currency
exchange rates. The Forward is marked-to-market daily and the change in value is
recorded by the Schwab International Index Fund(R) as an unrealized gain or
loss. When the Forward is closed, the Schwab International Index Fund records a
realized gain or loss equal to the difference between the value at the time the
contract was entered into and the value at the time the contract was closed. The
Schwab International Index Fund engages in Forwards in connection with the
purchase and sale of portfolio securities to minimize the uncertainty of changes
in future exchange rates. The Schwab International Index Fund could be exposed
to risk if counterparties to the contracts are unable to meet the terms of the
contracts or if the value of the foreign currency changes unfavorably.
The following forward foreign currency contract was outstanding as of October
31, 1998:
<TABLE>
<CAPTION>
Settlement Foreign Currency In Exchange Net Unrealized
Date to Deliver For (U.S. $) Depreciation
---------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
Foreign Currency Sale:
British Pound 11/02/98 1,569 $2,611 $(13)
</TABLE>
EXPENSES -- Expenses arising in connection with a Fund are charged directly to
that Fund. Expenses common to all series of the Trust are generally allocated to
each series in proportion to their relative net assets.
FEDERAL INCOME TAXES -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all net investment income and realized net capital
gains, if any, to shareholders. Therefore, no federal income tax provision is
required. Each Fund is considered a separate entity for tax purposes.
85
<PAGE>
The aggregate gross unrealized appreciation and depreciation for securities held
by the Funds at October 31, 1998 (for financial reporting and federal income tax
purposes) is as follows:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation Appreciated Depreciated
Fund (Depreciation) Securities Securities
---- ------------ ----------- ------------
<S> <C> <C> <C>
Schwab S&P 500 Fund $ 538,104 $ 652,706 $ 114,602
Schwab 1000 Fund(R) 1,624,004 1,713,450 89,446
Schwab Small-Cap Index Fund(R) (25,703) 87,256 112,959
Schwab International Index Fund(R) 88,566 130,955 42,389
</TABLE>
At October 31, 1998, the unused capital loss carryforwards, for federal income
tax purposes with expiration dates, were as follows:
<TABLE>
<CAPTION>
Schwab Schwab
S&P 500 Schwab 1000 International
Capital Loss Expirations: Fund Fund(R) Index Fund(R)
----------- ------------ --------------
<S> <C> <C> <C>
10/31/00 $ -- $ (354) $ --
10/31/01 -- -- --
10/31/02 -- (935) (140)
10/31/03 -- -- --
10/31/04 (5) (844) (1,743)
10/31/05 (2,152) (2,643) (1,837)
10/31/06 (5,876) (650) (11,905)
---------- ---------- ----------
$ (8,033) $ (5,426) $ (15,625)
========== ========== ==========
</TABLE>
RECLASSIFICATION -- Generally accepted accounting principles require that
certain components of net assets be reclassified between financial and tax
reporting. These reclassifications have no effect on net assets or net asset
values per share.
On the Statements of Assets and Liabilities the following adjustments were made:
<TABLE>
<CAPTION>
Accumulated Undistributed
Net Realized Net Investment
Fund Gain (Loss) Income Paid-In-Capital
----- ------------ -------------- ---------------
<S> <C> <C> <C>
Schwab S&P 500 Fund $ -- $ 8 $ (8)
Schwab S&P 1000 Fund -- 204 (204)
Schwab Small-Cap Index Fund(R) (12,500) 62 12,438
Schwab International Index Fund(R) 257 (216) (41)
</TABLE>
86
<PAGE>
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT -- The Capital Trust and the
Investment Trust have investment advisory and administration agreements with
Charles Schwab Investment Management, Inc. (the "Investment Adviser"). For
advisory services and facilities furnished, the Schwab S&P 500 Fund pays an
annual fee, payable monthly, of 0.36% of the first $1 billion of average daily
net assets, 0.33% of such net assets over $1 billion, and 0.31% of such assets
in excess of $2 billion. the Schwab 1000 Fund(R) 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 Schwab Small-Cap Index Fund(R) pays
an annual fee, payable monthly of 0.50% of the first $300 million of average
daily net assets and 0.45% of such net assets over $300 million. The Schwab
International Index Fund(R) pays an annual fee, payable monthly, of 0.70% of the
first $300 million of average daily net assets and 0.60% of such net assets over
$300 million. The Investment Adviser has reduced a portion of its fee for the
year ended October 31, 1998 (see Note 4).
TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENTS -- The Capital Trust and
Investment Trust have transfer agency and shareholder service agreements with
Charles Schwab & Co., Inc. ("Schwab"). For services provided under these
agreements, Schwab receives an annual fee, payable monthly, of 0.05% of each
Fund's average daily net assets for transfer agency services. for shareholder
services provided, Schwab will receive from the Investor Shares, Select Shares
and e.Shares(TM) an annual fee of 0.20%, 0.05% and 0.05%, respectively, of the
average daily net assets of that class of shares. Schwab has reduced a portion
of its fees for the year ended October 31, 1998 (see Note 4).
OFFICERS AND TRUSTEES -- Certain officers and trustees of the Capital Trust and
the Investment Trust are also officers and/or directors of the Investment
Adviser and/or Schwab. During the year ended October 31, 1998, the Capital Trust
and the Investment Trust made no direct payments to its officers or trustees who
are "interested persons" within the meaning of the the "Act", as amended. The
Schwab S&P 500 Fund, Schwab 1000 Fund(R), Schwab Small-Cap Index Fund(R) and
Schwab International Index Fund(R) incurred fees of $26, $45, $8 and $7
respectively, related to the Trusts' unaffiliated trustees.
OTHER AFFILIATED PARTIES AND TRANSACTIONS -- As of October 31, 1998, Schwab S&P
500 Fund, Schwab Small-Cap Index Fund(R), and Schwab International Index
Fund(R), had outstanding shares of 1%, 1%, 0.3% and 1%; 9%, 6%, 2%, and 5%; and
11%, 8%, 2% and 7%, respectively, owned by Schwab MarketTrack(TM) Growth
Portfolio, Schwab MarketTrack Balanced Portfolio, Schwab MarketTrack
Conservative Portfolio and Schwab MarketTrack All Equity Portfolio(TM)
respectively. The Schwab S&P 500 Fund and the Schwab 1000 Fund(R) placed a
portion of its portfolio transactions with Charles Schwab & Co., Inc., an
affiliated broker. For the year ended October 31, 1998, the commissions paid
were $12 and $14, respectively.
INTERFUND TRANSACTIONS -- For the year ended October 31, 1998, Schwab S&P 500
Fund, Schwab 1000 Fund, Schwab Small-Cap Index Fund(R) and Schwab International
Index Fund(R) engaged in purchase transactions with funds that have a common
investment adviser, common trustees, and common officers. These purchases and
sale transactions, made at current market value pursuant to Rule 17a-7 under the
Act, were $557, $36,422, $39,200 and $2,317, respectively.
87
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT ADVISER AND SCHWAB
The Investment Adviser and Schwab guarantee that, through at least February 29,
2000, total operating expenses of each class of shares will not exceed the
percentages of the average daily net assets of that class of shares, after
waivers and reimbursements, as shown below. For the purpose of this guarantee,
operating expenses do not include interest expenses, extraordinary expenses,
taxes, foreign taxes and capital items.
<TABLE>
<CAPTION>
Investor Shares Select Shares e.Shares
--------------- ------------- ----------
<S> <C> <C> <C>
Schwab S&P 500 Fund 0.35% 0.19% 0.28%
Schwab 1000 Fund(R) 0.46% 0.35% N/A
Schwab Small-Cap Index Fund(R) 0.49% 0.38% N/A
Schwab International Index Fund(R) 0.58% 0.47% N/A
</TABLE>
For the year ended October 31, 1998, the total of such fees and expenses reduced
by the Investment Adviser were $6,509, $1,552, $1,911 and $2,126 for the Schwab
S&P 500 Fund, Schwab 1000 Fund(R), Schwab Small-Cap Index Fund(R) and Schwab
International Index Fund(R), respectively. The total of such fees reduced by
Schwab were $1,008, $336, $24 and $28 for the Schwab S&P 500 Fund, Schwab 1000
Fund(R), Schwab Small-Cap Index Fund(R) and Schwab International Index Fund(R),
respectively.
5. BORROWING AGREEMENTS
The Trusts have line of credit arrangements with PNC Bank N.A. and Bank of
America NT & SA whereby the Trusts may borrow on behalf of the Schwab S&P 500
Fund and Schwab 1000 Fund(R), on a temporary basis, to fund shareholder
redemptions. The Trusts may borrow in an aggregate amount of up to $100 million
from PNC Bank N.A. and $100 million from Bank of America NT & SA. As of October
31, 1998, there were no outstanding borrowings made under these arrangements.
The Trusts have line of credit arrangements with The Bank of New York whereby
the Trusts may borrow on behalf of the Schwab S&P 500 Fund, Schwab 1000 Fund(R),
Schwab Small-Cap Index Fund(R) and Schwab International Index Fund(R) an
aggregate amount of up to $150 million, on a temporary basis, to fund
shareholder redemptions. Amounts borrowed under these arrangements bear interest
at periodically negotiated rates and may be collateralized by the assets of the
Funds. As of October 31, 1998, the Schwab International Index Fund(R) had $434
in borrowings with an interest rate of 5.73% under this arrangement.
88
<PAGE>
6. SECURITIES LENDING
The Schwab S&P 500 Fund, Schwab 1000 Fund(R), and Schwab Small-Cap Index Fund(R)
loaned securities to certain brokers, dealers and other financial institutions
who paid the Funds 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 securities at the
inception of each loan. The loans will be collateralized at all times in an
amount equal to at least 100% of the market value of the securities loaned.
Market Value of
Fund Securities Loaned Collateral
---- ---------------- ------------
Schwab S&P 500 Fund(R) $408,514 $417,834
Schwab 1000 Fund(R) 550,463 565,945
Schwab Small-Cap Index Fund(R) 33,821 35,407
7. INVESTMENT TRANSACTIONS
Aggregate purchases and sales of investment securities, other than short-term
obligations, for the year ended October 31, 1998, were as follows:
Proceeds of Sales
Fund Purchases and Maturities
---- ---------- -----------------
Schwab S&P 500 Fund(R) $1,887,091 $ 26,285
Schwab 1000 Fund(R) 1,170,169 92,996
Schwab Small-Cap Index Fund(R) 480,841 237,527
Schwab International Index Fund(R) 170,612 25,892
For the Schwab S&P 500 Fund and Schwab 1000 Fund(R), included in the
aforementioned purchases of common stock are purchases of The Charles Schwab
Corp., an affiliated issuer, with a current value as of October 31, 1998, of
$5,611 and $5,812, respectively.
8. EARLY WITHDRAWAL FEES
The early withdrawal fees are retained by the Funds and are treated as a
contribution to capital.
<TABLE>
<CAPTION>
Early withdrawal fees on Early withdrawal fees
Fund redemption proceeds* as of 10/31/98
---- ------------------------ --------------------
<S> <C> <C>
Schwab 1000 Fund(R) 0.50% $834
Schwab Small-Cap Index Fund(R) 0.50% 212
Schwab International Index Fund(R) 0.75% 127
</TABLE>
*Attributable to shares purchased and held less than six months.
89
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
9. CAPITAL SHARE TRANSACTIONS
The Funds offer two classes of shares: Investor Shares and Select Shares, with
the exception of Schwab S&P 500 Fund which offers a third class of shares:
e.Shares(TM). Shares of each class represent interest in the same portfolio of
investments of the Funds. Transactions in capital shares for the period ended
October 31, 1998 were as follows:
<TABLE>
<CAPTION>
Schwab S&P 500 Fund
-----------------------------------------------------------------
Year ended Year ended
October 31, 1998 October 31, 1997
---------------------------- ----------------------------
Shares Dollars Shares Dollars
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Investor Shares:
Sold 84,045 $ 1,377,701 68,380 $ 894,864
Reinvested 583 8,407 193 2,235
Redeemed (36,297) (589,636) (25,827) (345,122)
----------- ----------- ----------- -----------
Net Increase 48,331 $ 796,472 42,746 $ 551,977
----------- ----------- ----------- -----------
Select Shares:*
Sold 89,528 $ 1,468,401 39,327 $ 556,939
Reinvested 338 4,872 -- --
Redeemed (33,515) (545,494) (5,116) (73,675)
----------- ----------- ----------- -----------
Net Increase 56,351 $ 927,779 34,211 $ 483,264
----------- ----------- ----------- -----------
e.Shares:
Sold 16,938 $ 272,872 14,545 $ 184,271
Reinvested 96 1,381 38 444
Redeemed (9,873) (157,989) (8,636) (116,137)
----------- ----------- ----------- -----------
Net Increase 7,161 $ 116,264 5,947 $ 68,578
----------- ----------- ----------- -----------
Total increase from capital
share transactions 111,843 $ 1,840,515 82,904 $ 1,103,819
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Schwab 1000 Fund(R)
-------------------------------------------------------------------------------------------
Year ended Period ended Year ended
October 31, 1998 October 31, 1997** August 31, 1997
--------------------------- --------------------------- ---------------------------
Shares Dollars Shares Dollars Shares Dollars
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investor Shares:
Sold 46,456 $ 1,340,936 7,163 $ 185,593 44,512 $ 972,064
Reinvested 985 25,237 -- -- 1,058 21,833
Redeemed (28,539) (817,355) (4,583) (118,834) (30,757) (700,480)
----------- ----------- ----------- ----------- ----------- -----------
Net Increase 18,902 $ 548,818 2,580 $ 66,759 14,813 $ 293,417
----------- ----------- ----------- ----------- ----------- -----------
Select Shares:*
Sold 22,937 $ 662,266 3,281 $ 85,253 14,614 $ 356,648
Reinvested 170 4,347 -- -- -- --
Redeemed (5,225) (148,285) (407) (10,522) (608) (15,145)
----------- ----------- ----------- ----------- ----------- -----------
Net Increase 17,882 $ 518,328 2,874 $ 74,731 14,006 $ 341,503
----------- ----------- ----------- ----------- ----------- -----------
Total increase from capital
share transactions 36,784 $ 1,067,146 5,454 $ 141,490 28,819 $ 634,920
=========== =========== =========== =========== =========== ===========
</TABLE>
* Select shares commenced operations on May 19, 1997.
** For the period September 1, 1997 to October 31, 1997.
90
<PAGE>
<TABLE>
<CAPTION>
Schwab Small-Cap Index Fund(R)
---------------------------------------------------------
Year ended Year ended
October 31, 1998 October 31, 1997
------------------------- -------------------------
Shares Dollars Shares Dollars
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Investor Shares:
Sold 15,575 $ 272,822 14,644 $ 230,161
Reinvested 82 1,410 64 901
Redeemed (7,657) (133,456) (6,952) (108,657)
--------- --------- --------- ---------
Net Increase 8,000 $ 140,776 7,756 $ 122,405
--------- --------- --------- ---------
Select Shares:*
Sold 8,319 $ 145,043 5,002 $ 84,325
Reinvested 20 334 -- --
Redeemed (3,198) (53,874) (428) (7,620)
--------- --------- --------- ---------
Net Increase 5,141 $ 91,503 4,574 $ 76,705
--------- --------- --------- ---------
Total increase from capital
share transactions 13,141 $ 232,279 12,330 $ 199,110
========= ========= ========= =========
Schwab International Index Fund(R)
----------------------------------------------------------
Year ended Year ended
October 31, 1998 October 31, 1997
------------------------- --------------------------
Shares Dollars Shares Dollars
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Investor Shares:
Sold 11,876 $ 172,076 11,009 $ 142,547
Reinvested 261 3,395 250 3,084
Redeemed (5,861) (82,444) (7,556) (100,709)
--------- --------- --------- ---------
Net Increase 6,276 $ 93,027 3,703 $ 44,922
--------- --------- --------- ---------
Select Shares:*
Sold 4,284 $ 61,174 4,006 $ 56,825
Reinvested 41 540 -- --
Redeemed (1,467) (20,689) (287) (4,039)
--------- --------- --------- ---------
Net Increase 2,858 $ 41,025 3,719 $ 52,786
--------- --------- --------- ---------
Total increase from capital
share transactions 9,134 $ 134,052 7,422 $ 97,708
========= ========= ========= =========
</TABLE>
*Select shares commenced operations on May 19, 1997
91
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
Schwab S&P 500 Fund, Schwab 1000 Fund(R),
Schwab Small-Cap Index Fund(R), and
Schwab International Index Fund(R):
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, 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 Schwab S&P 500 Fund, Schwab
Small-Cap Index Fund(R), and Schwab International Index Fund(R), (three series
constituting part of Schwab Capital Trust) and Schwab 1000 Fund(R) (a series
constituting part of Schwab Investments) (hereafter collectively referred to as
the "Funds") at October 31, 1998, the results of each of their operations for
the year then ended, and the changes in each of their net assets and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' 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 standard 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 October 31, 1998 by
correspondence with the custodians and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, CA
December 8, 1998
92
<PAGE>
TAX DESIGNATIONS (UNAUDITED)
Pursuant to Section 852 (b) (3) (C) of the Internal Revenue Code, the Small-Cap
Index Fund(R) hereby designates $13,000,000 as a capital gain dividend for the
fiscal year ended October 31, 1998.
Pursuant to Section 854 (b) (2) of the Internal Revenue Code, the Schwab S&P 500
Fund(R), Schwab 1000 Fund(R), and Schwab Small-Cap Index Fund(R) hereby
designates 100% of the ordinary dividends as qualifying for the dividends
received deduction for the fiscal year ended October 31, 1998.
93
<PAGE>
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE>
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE>
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE>
THE SCHWABFUNDS FAMILY-REGISTERED TRADEMARK-
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 market
funds.
Please call 1-800-435-4000 for a free prospectus and brochure for any of these
SchwabFunds.
This report must be preceded or accompanied by a current prospectus.
SCHWAB ASSET ALLOCATION FUNDS
Schwab MarketTrack All Equity Portfolio
Schwab MarketTrack Growth Portfolio
Schwab MarketTrack Balanced Portfolio
Schwab MarketTrack Conservative Portfolio
Schwab MarketManager Growth Portfolio
Schwab MarketManager Balanced Portfolio
SCHWAB STOCK FUNDS
Schwab S&P 500 Fund
Schwab 1000 Fund-Registered Trademark-
Schwab Analytics Fund-Registered Trademark-
Schwab Small-Cap Index Fund-Registered Trademark-
Schwab MarketManager Small-Cap Portfolio
Schwab International Index Fund-Registered Trademark-
Schwab MarketManager International Portfolio
SCHWAB BOND FUNDS
Schwab Total Bond Market Index Fund
Schwab Short-Term Bond Market Index Fund
Schwab Long-Term Tax-Free Bond Fund
Schwab Short/Intermediate Tax-Free Bond Fund
Schwab California Long-Term Tax-Free Bond Fund
Schwab California Short/Intermediate
Tax-Free Bond Fund
SCHWAB MONEY MARKET FUNDS
Schwab offers an array of money market funds(1) 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.-Registered Trademark-
(1)Investments in money market funds are neither insured nor guaranteed by the
U.S. government, and there is no assurance that the funds will be able to
maintain a stable share price of $1.
<PAGE>
SCHWABFUNDS
FAMILY-Registered Trademark-
101 Montgomery Street
San Francisco, California 94104
INVESTMENT ADVISOR
Charles Schwab Investment Management, Inc.
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR
Charles Schwab & Co., Inc.
101 Montgomery Street, San Francisco, CA 94104
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
- -C- 1998 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC/NYSE.
Printed on recycled paper. CRS 20415 (1298-4860) MKT3810(12/98)
