SCHWAB INVESTMENTS, 485APOS, 2000-12-11

SCHWAB INVESTMENTS
485APOS, 2000-12-11

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<PAGE> 1

File Nos. 33-37459 and 811-6200
As filed with the Securities and Exchange Commission on December 11, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 35 [X]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 39 [X]

SCHWAB INVESTMENTS
(Exact Name of Registrant as Specified in Charter)

101 Montgomery Street, San Francisco, California 94104
(Address of Principal Executive Offices) (zip code)

Registrant's Telephone Number, including Area Code:
(415) 627-7000

Jeremiah H. Chafkin
101 Montgomery Street, San Francisco, California 94104
(Name and Address of Agent for Service)

Copies of communications to:

<TABLE>
<S> <C> <C>
John H. Grady, Jr. Esq. Martin E. Lybecker, Esq. Koji Felton, Esq.
Morgan Lewis & Bockius LLP Ropes & Gray Charles Schwab Investment Management, Inc.
1701 Market Street One Franklin Square 101 Montgomery Street
Philadelphia, PA 19103 1301 K Street, N.W., Suite 800 East 120K-14-109
Washington, D.C. 20005 San Francisco, CA 94104
</TABLE>

It is proposed that this filing will become effective (check appropriate box):

/ / Immediately upon filing pursuant to paragraph (b)
/ / On (date), pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / On (date), pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)

/ X / On February 28, 2001, pursuant to paragraph (a)(i) of Rule 485
if appropriate, check appropriate box:

/ / This post-effective amendment designates a new effective date
for a previously filed post-effective amendment

Part C
<PAGE> 2
(Page 1, Cover)

Prospectus
February 28, 2001

SCHWAB
Equity Index Funds

Schwab S&P 500 Fund

Schwab 1000 Fund(R)

Schwab Small-Cap Index Fund(R)

Schwab Total Stock Market Index Fund(TM)

Schwab International Index Fund(R)

As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved these securities or passed on whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.

CharlesSchwab (logo)
<PAGE> 3
(Page 2)

SCHWAB
Equity Index Funds

About The Funds

4 Schwab S&P 500 Fund
10 Schwab 1000 Fund(R)
14 Schwab Small-Cap Index Fund(R)
18 Schwab Total Stock Market Index Fund(TM)
22 Schwab International Index Fund(R)
26 Fund Management

Investing In The Funds

28 Buying Shares
29 Selling/Exchanging Shares
30 Transaction Policies
31 Distributions and Taxes
<PAGE> 4
(Page 3)

About The Funds

The funds in this prospectus share the same basic investment strategy: They are
designed to track the performance of a stock market index. Each fund tracks a
different index.

This strategy distinguishes an index fund from an "actively managed" mutual
fund. Instead of choosing investments based on judgment, a portfolio manager
looks to an index to determine which securities the fund should own.

Because the composition of an index tends to be comparatively stable, index
funds historically have shown low portfolio turnover compared to actively
managed funds.

The funds are designed for long-term investors. Their performance will fluctuate
over time and, as with all investments, future performance may differ from past
performance.
<PAGE> 5
(Page 4)

SCHWAB
S&P 500 Fund

TICKER SYMBOLS

INVESTOR SHARES SWPIX
SELECT SHARES(R) SWPPX
E.SHARES(R) SWPEX

[Goal] The fund's goal is to track the total return of the S&P 500(R) Index.

Index

The S&P 500 Index includes the common stocks of 500 leading U.S. companies from
a broad range of industries. Standard & Poor's, the company that maintains the
index, uses a variety of measures to determine which stocks are listed in the
index. Each stock is represented in proportion to its total market value.

Strategy

Like many index funds, the fund also may invest in futures contracts and lend
securities to minimize the gap in performance that naturally exists between any
index fund and its index. This gap occurs mainly because, unlike the index, the
fund incurs expenses and must keep a small portion of its assets in cash for
business operations. By using futures, the fund potentially can offset the
portion of the gap attributable to its cash holdings. Any income realized
through securities lending may help reduce the portion of the gap attributable
to expenses. Because some of the effect of expenses remains, however, the fund's
performance normally is below that of the index.

[Side Bar] Large-cap stocks

Although the 500 companies in the index constitute only about __% of all the
publicly traded companies in the United States, they represent approximately __%
of the total value of the U.S. stock market. (All figures are as of 10/31/00.)

Companies of this size are generally considered large-cap stocks. Their
performance is widely followed, and the index itself is popularly seen as a
measure of overall U.S. stock market performance.

Because the index weights a stock according to its market capitalization (total
market value of all shares outstanding), larger stocks have more influence on
the performance of the index than do the index's smaller stocks.
<PAGE> 6
(Page 5)

Main Risks

Stock markets rise and fall daily. As with any investment whose performance is
tied to these markets, the value of your investment in the fund will fluctuate,
which means that you could lose money.

Your investment follows the large-cap portion of the U.S. stock market, as
measured by the index. It follows these stocks during upturns as well as
downturns. Because of its indexing strategy, the fund cannot take steps to
reduce market exposure or to lessen the effects of a declining market.

Many factors can affect stock market performance. Political and economic news
can influence marketwide trends; the outcome may be positive or negative, short
term or long term. Other factors may be ignored by the market as a whole but may
cause movements in the price of one company's stock or the stocks of one or more
industries (for example, rising oil prices may lead to a decline in airline
stocks).

Although the S&P 500(R) Index encompasses stocks from many different sectors of
the economy, its performance primarily reflects that of large-cap stocks. As a
result, whenever these stocks perform less well than mid- or small-cap stocks,
the fund may underperform funds that have exposure to those segments of the U.S.
stock market. Likewise, whenever large-cap U.S. stocks fall behind other types
of investments -- bonds, for instance -- the fund's performance also will lag
those investments.

[Side Bar] Other risk factors

Although the fund's main risks are those associated with its stock investments,
its other investment strategies also may involve risks. These risks could affect
how well the fund tracks the performance of the index.

For example, futures contracts, which the fund uses to gain exposure to the
index for its cash balances, could cause the fund to track the index less
closely if they don't perform as expected.

The fund also may lend a portion of its securities to certain financial
institutions in order to earn income. These loans are fully collateralized.
However, if the institution defaults, the fund's performance could be reduced.

[Side Bar] Index ownership

Standard & Poor's(R), S&P(R), S&P 500(R), Standard & Poor's 500(R) and 500(R)
are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use
by the fund. The fund is not sponsored, endorsed, sold or promoted by Standard &
Poor's, and Standard & Poor's makes no representation regarding the advisability
of investing in the fund. More complete information may be found in the
Statement of Additional Information (see back cover).

[Friendly Voice] Long-term investors who want to focus on large-cap U.S. stocks
or who are looking for performance that is linked to a popular index may want to
consider this fund.
<PAGE> 7
(Page 6)

Performance

Below are a chart and a table showing the fund's performance, as well as data on
an unmanaged market index. These figures assume that all distributions were
reinvested. Keep in mind that future performance may differ from past
performance, and that the index does not include any costs of investments.

The fund has three share classes, which have different minimum investments and
different costs. For information on choosing a class, see page 28.

Annual total returns (%) as of 12/31

Investor Shares

<TABLE>
<CAPTION>
<S> <C> <C> <C>
___ ___ ___ ___
97 98 99 00

Best quarter: ___% Q__ 19___
Worst quarter: ___% Q__ 19___
</TABLE>

Average annual total returns (%) as of 12/31/00

<TABLE>
<CAPTION>
Since
1 Year inception
<S> <C> <C>
Investor Shares ___ ___1
Select Shares(R) ___ ___2
e.Shares(R) ___ ___3
S&P 500(R) Index ___ ___4
</TABLE>

1 Inception: 5/1/96.
2 Inception: 5/19/97.
3 Inception: 5/1/96.
4 From 5/1/96.

Fund Fees and Expenses

The following table describes what you could expect to pay as a fund investor.
"Shareholder fees" are charged to you directly by the fund. "Annual operating
expenses" are paid out of fund assets, so their effect is included in the total
return for each share class.

Fee table (%)

<TABLE>
<CAPTION>
Investor Select
Shares Shares e.Shares
<S> <C> <C> <C>
SHAREHOLDER FEES

Redemption fee, charged only
on shares you sell 180 days
or less after buying them,
and paid directly to the fund
0.75 0.75 0.75

ANNUAL OPERATING EXPENSES (% of average net assets)

Management fees ___ ___ ___
Distribution (12b-1) fees None None None
Other expenses* ___ ___ ___
Total annual operating expenses ___ ___ ___

Expense reduction (___) (___) (___)

Net operating expenses** ___ ___ ___
</TABLE>

* Restated to reflect current expenses.

** Guaranteed by Schwab and the investment adviser through _________ (excluding
interest, taxes and certain non-routine expenses).

Expenses on a $10,000 investment

Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment and 5% return each year.
One-year figures are based on net operating expenses. The expenses would be the
same whether you stayed in the fund or sold your shares at the end of each
period. Your actual costs may be higher or lower.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Investor Shares $___ $___ $___ $___
Select Shares $___ $___ $___ $___
e.Shares $___ $___ $___ $___
</TABLE>

[Friendly Voice] The performance information above shows you how the fund's
performance compares to that of its index, which varies over time.
<PAGE> 8
(Page 7)

Financial Highlights

This section provides further details about the fund's financial history. "Total
return" shows the percentage that an investor in the fund would have earned or
lost during a given period, assuming all distributions were reinvested. The
fund's independent accountants, ___________________________________, audited
these figures. Their full report is included in the fund's annual report (see
back cover).

FINANCIAL HIGHLIGHTS TABLE WILL BE INSERTED

<PAGE> 9
(Page 8)

FINANCIAL HIGHLIGHTS TABLE WILL BE INSERTED

<PAGE> 10
(Page 9)

FINANCIAL HIGHLIGHTS TABLE WILL BE INSERTED

<PAGE> 11
(Page 10)

SCHWAB
1000 Fund(R)

TICKER SYMBOLS
INVESTOR SHARES SNXFX
SELECT SHARES(R) SNXSX

[Goal] The fund's goal is to match the total return of the Schwab 1000 Index(R).

Index

The Schwab 1000 Index(R) includes the common stocks of the largest 1,000
publicly traded companies in the United States, with size being determined by
market capitalization (total market value of all shares outstanding). The index
is designed to be a measure of the performance of large- and mid-cap U.S.
stocks.

Strategy

The fund may make use of certain management techniques in seeking to enhance
after-tax performance. For example, it may adjust its weightings of certain
stocks, continue to hold a stock that is no longer included in the index or
choose to realize certain capital losses and use them to offset capital gains.
These strategies may help the fund reduce taxable capital gains distributions.

[Side Bar] Large- and mid-cap stocks

Although there are currently more than ____ total stocks in the United States,
the companies represented by the Schwab 1000 Index make up some __% of the total
value of all U.S. stocks. (Figures are as of 10/31/00.)

These large- and mid-cap stocks cover many industries and represent many sizes:
At $____ billion, the market capitalization of the largest one is approximately
____ times that of the smallest one. (Figures are as of 10/31/00.)

Because large- and mid-cap stocks can perform differently from each other at
times, a fund that invests in both categories of stocks may have somewhat
different performance than a fund that invests only in large-cap stocks.
<PAGE> 12
(Page 11)

Main Risks

Stock markets rise and fall daily. As with any investment whose performance is
tied to these markets, the value of your investment in the fund will fluctuate,
which means that you could lose money.

Your investment follows the large- and mid-cap portions of the U.S. stock
market, as measured by the index. It follows these stocks during upturns as well
as downturns. Because of its indexing strategy, the fund cannot take steps to
reduce market exposure or to lessen the effects of a declining market.

Because the Schwab 1000 Index(R) encompasses stocks from across the economy, the
fund is broadly diversified, which reduces the impact of the performance of any
given industry or stock. But whenever large- and mid-cap U.S. stocks fall behind
other types of investments -- bonds, for instance -- the fund's performance also
will lag these investments.

[Side Bar] Other risk factors

For example, futures contracts, which the fund uses to gain exposure to the
index for its cash balances, could cause the fund to track the index less
closely if they don't perform as expected.

[Friendly Voice] Because it includes so many U.S. stocks and industries, this
fund could make sense for long-term investors seeking broad diversification in a
single investment. It's also a logical choice for stock investors who want
exposure beyond the large-cap segment of the U.S. stock market.
<PAGE> 13
(Page 12)

Performance

Below are a chart and a table showing the fund's performance, as well as data on
unmanaged market indices. These figures assume that all distributions were
reinvested. Keep in mind that future performance may differ from past
performance, and that the indices do not include any costs of investments.

The fund has two share classes, which have different minimum investments and
different costs. For information on choosing a class, see page 28.

Annual total returns (%) as of 12/31

Investor Shares

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
___ ___ ___ ___ ___ ___ ___ ___ ___
92 93 94 95 96 97 98 99 00

Best quarter: ___% Q__ 19___
Worst quarter: ___% Q__ 19___
</TABLE>

Average annual total returns (%) as of 12/31/00

<TABLE>
<CAPTION>
Since
1 Year 5 Years inception
<S> <C> <C> <C>
Investor Shares ___ ___ ___1
Select Shares(R) ___ ___ ___2
S&P 500(R) Index ___ ___ ___3
Schwab 1000 Index(R) ___ ___ ___3
</TABLE>

1 Inception: 4/2/91.
2 Inception: 5/19/97.
3 From 4/2/91.

Fund Fees and Expenses

Fee table (%)

<TABLE>
<CAPTION>
Investor Select
Shares Shares
<S> <C> <C>
SHAREHOLDER FEES

Redemption fee, charged only
on shares you sell 180 days
or less after buying them,
and paid directly to the fund 0.75 0.75

ANNUAL OPERATING EXPENSES (% of average net assets)

Management fees ___ ___
Distribution (12b-1) fees None None
Other expenses* ___ ___
Total annual operating expenses ___ ___

Expense reduction (___) (___)
Net operating expenses** ___ ___
</TABLE>

* Restated to reflect current expenses.

** Guaranteed by Schwab and the investment adviser through _________ (excluding
interest, taxes and certain non-routine expenses).

Expenses on a $10,000 investment

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Investor Shares $___ $___ $___ $___
Select Shares $___ $___ $___ $___
</TABLE>

[Friendly Voice] The performance information above shows you how performance has
varied from year-to-year and how it averages out over time.
<PAGE> 14
(Page 13)

Financial Highlights

This section provides further details about the fund's recent financial history.
"Total return" shows the percentage that an investor in the fund would have
earned or lost during a given period, assuming all distributions were
reinvested. The fund's independent accountants, _______________________________,
audited these figures. Their full report is included in the fund's annual report
(see back cover).

FINANCIAL HIGHLIGHTS TABLE WILL BE INSERTED

<PAGE> 15
(Page 14)

SCHWAB
Small-Cap Index Fund(R)

TICKER SYMBOLS
INVESTOR SHARES SWSMX
SELECT SHARES(R) SWSSX

[Goal] The fund's goal is to track the performance of a benchmark index that
measures total return of small capitalization U.S. stocks.

Index

The fund intends to achieve its investment objective by tracking the total
return of the Schwab Small-Cap Index(R). The index includes the common stocks of
the second-largest 1,000 publicly traded companies in the United States, with
size being determined by market capitalization (total market value of all shares
outstanding). The index is designed to be a measure of the performance of
small-cap U.S. stocks.

Strategy

Like many index funds, the fund also may invest in futures and lend securities
to minimize the gap in performance that naturally exists between any index fund
and its index. This gap occurs mainly because, unlike the index, the fund incurs
expenses and must keep a small portion of its assets in cash for business
operations. By using futures, the fund potentially can offset the portion of the
gap attributable to its cash holdings. Any income realized through securities
lending may help reduce the portion of the gap attributable to expenses. Because
some of the effect of expenses remains, however, the fund's performance normally
is below that of the index.

[Side Bar] Small-cap stocks

In measuring the performance of the second-largest 1,000 companies in the U.S.
stock market, the index may be said to focus on the "biggest of the small" among
America's publicly traded stocks. These stocks range in size from $___ billion
to $__ million in terms of their total market value. (All figures are as of
10/31/00.)

Historically, the performance of small-cap stocks has not always paralleled that
of large-cap stocks. For this reason, some investors use them to diversify a
portfolio that invests in larger stocks.

With its small-cap focus, this fund may make sense for long-term investors who
are willing to accept greater risk in the pursuit of potentially higher
long-term returns.
<PAGE> 16
(Page 15)

Main Risks

Stock markets rise and fall daily. As with any investment whose performance is
tied to these markets, the value of your investment in the fund will fluctuate,
which means that you could lose money.

Your investment follows the small-cap portion of the U.S. stock market, as
measured by the index. It follows the market during upturns as well as
downturns. Because of its indexing strategy, the fund cannot take steps to
reduce market exposure or to lessen the effects of a declining market.

Historically, small-cap stocks have been riskier than large- and mid-cap stocks.
Stock prices of smaller companies may be based in substantial part on future
expectations rather than current achievements, and may move sharply, especially
during market upturns and downturns. In addition, during any period when
small-cap stocks perform less well than large- or mid-cap stocks, the fund may
underperform funds that have exposure to those segments of the U.S. stock
market. Likewise, whenever U.S. small-cap stocks fall behind other types of
investments -- bonds, for instance -- the fund's performance also will lag these
investments.

[Side Bar] Other risk factors

For example, futures contracts, which the fund uses to gain exposure to the
index for its cash balances, could cause the fund to track the index less
closely if they don't perform as expected.

[Friendly Voice] With its small-cap focus, this fund may make sense for
long-term investors who are willing to accept greater risk in the pursuit of
potentially higher long-term returns.
<PAGE> 17
(Page 16)

Performance

The fund has two share classes, which have different minimum investments and
different costs. For information on choosing a class, see page 28.

Annual total returns (%) as of 12/31

Investor Shares

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
___ ___ ___ ___ ___ ___ ___
94 95 96 97 98 99 00

Best quarter: ___% Q__ 19___
Worst quarter: ___% Q__ 19___
</TABLE>

Average annual total returns (%) as of 12/31/00

<TABLE>
<CAPTION>
Since
1 Year 5 Years inception
<S> <C> <C> <C>
Investor Shares ___ ___ ___1
Select Shares(R) ___ ___ ___2
Schwab Small-Cap Index(R) ___ ___ ___3
Russell 2000 Index(R) ___ ___ ___3
</TABLE>

1 Inception: 12/3/93.
2 Inception: 5/19/97.
3 From 12/3/93.

Fund Fees and Expenses

Fee table (%)

<TABLE>
<CAPTION>
Investor Select
Shares Shares
<S> <C> <C>
SHAREHOLDER FEES
Redemption fee, charged only
on shares you sell 180 days
or less after buying them
and paid directly to the fund 0.75 0.75

ANNUAL OPERATING EXPENSES (% of average net assets)
Management fees ___ ___
Distribution (12b-1) fees None None
Other expenses* ___ ___
Total annual operating expenses ___ ___
Expense reduction (___) (___)
Net operating expenses** ___ ___
</TABLE>

* Restated to reflect current expenses.

** Guaranteed by Schwab and the investment adviser through _________ (excluding
interest, taxes and certain non-routine expenses).

Expenses on a $10,000 investment

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Investor Shares $___ $___ $___ $___
Select Shares $___ $___ $___ $___
</TABLE>

[Friendly Voice] The performance information above shows you how performance has
varied from year-to-year and how it averages out over time.
<PAGE> 18
(Page 17)

Financial Highlights

FINANCIAL HIGHLIGHTS TABLE WILL BE INSERTED

<PAGE> 19
(Page 18)

SCHWAB
Total Stock Market
Index Fund(TM)

TICKER SYMBOLS
INVESTOR SHARES SWTIX
SELECT SHARES(R) SWTSX

[Goal] The fund seeks to track the total return of the entire U.S. stock market,
as measured by the Wilshire 5000 Equity Index.

Index

The fund's benchmark index includes all publicly traded common stocks of
companies headquartered in the United States for which pricing information is
readily available -- currently more than ____ stocks. The index weights each
stock according to its market capitalization (total market value of all shares
outstanding).

Strategy

Because it would be impractical to invest in every company in the U.S. stock
market, the fund uses statistical sampling techniques to assemble a portfolio
whose performance is expected to resemble that of the index. The fund generally
expects that its portfolio will include the largest 2,500 to 3,000 U.S. stocks
(measured by market capitalization), and that its industry weightings, dividend
yield and price/earnings ratio will be similar to those of the index.

The fund may use certain techniques in seeking to enhance after-tax performance,
such as adjusting its weightings of certain stocks or choosing to realize
certain capital losses and use them to offset capital gains. These strategies
may help the fund reduce taxable capital gain distributions.

[Side Bar] The U.S. stock market

The U.S. stock market is commonly divided into three segments, based on market
capitalization.

Mid- and small-cap stocks are the most numerous, but make up only about
one-third of the total value of the market. In contrast, large-cap stocks are
relatively few in number but make up approximately two-thirds of the market's
total value. In fact, the largest 3,000 of the market's listed stocks represent
about __% of its total value. (All figures on this page are as of 10/31/00.)

In terms of performance, these segments can behave somewhat differently from
each other, over the short term as well as the long term. For that reason, the
performance of the overall stock market can be seen as a blend of the
performance of all three segments.
<PAGE> 20
(Page 19)

Main Risks

Stock markets rise and fall daily. As with any investment whose performance is
tied to these markets, the value of your investment in the fund will fluctuate,
which means that you could lose money.

Your investment follows the U.S. stock market, as measured by the index. It
follows these stocks during upturns as well as downturns. Because of its
indexing strategy, the fund will not take steps to reduce market exposure or to
lessen the effects of a declining market.

Because the fund encompasses stocks from across the economy, it is broadly
diversified, which reduces the impact of the performance of any given industry,
individual stock or market segment. But whenever any particular market segment
outperforms the U.S. stock market as a whole, the fund may underperform funds
that have greater exposure to that segment. Likewise, whenever U.S. stocks fall
behind other types of investments -- bonds, for instance -- the fund's
performance also will lag these investments. Because the fund gives greater
weight to larger stocks, most of its performance will reflect the performance of
the large-cap segment.

[Side Bar] Other risk factors

Although the fund's main risks are those associated with its stock investments,
its other investment strategies also involve risks.

For example, the fund's use of sampling may increase the gap between the
performance of the fund and that of the index. Futures contracts, which the fund
uses to gain exposure to stocks for its cash balances, also could cause the fund
to track the index less closely if they don't perform as expected.

[Side Bar] Index ownership

Wilshire and Wilshire 5000 are registered service marks of Wilshire Associates,
Inc. The fund is not sponsored, endorsed, sold or promoted by Wilshire
Associates, and Wilshire Associates is not in any way affiliated with the fund.
Wilshire Associates makes no representation regarding the advisability of
investing in the fund or in any stock included in the Wilshire 5000.

[Friendly Voice] With its very broad exposure to the U.S. stock market, this
fund is designed for long-term investors who want exposure to all three tiers of
the market: large-, mid- and small-cap.
<PAGE> 21
(Page 20)

Performance

The fund has two share classes, which have different minimum investments and
different costs. For information on choosing a class, see page 28.

Annual total returns (%) as of 12/31

Investor Shares

<TABLE>
<CAPTION>
<S> <C>
___ ___
99 00

Best quarter: ___% Q__ 19___
Worst quarter: ___% Q__ 19___
</TABLE>

Average annual total returns (%) as of 12/31/00

<TABLE>
<CAPTION>
Since
1 Year inception
<S> <C> <C>
Investor Shares ___ ___1
Select Shares(R) ___ ___1
</TABLE>

1 Inception: 6/1/99.

Fund Fees and Expenses

The following table describes what you could expect to pay as a fund investor.
"Shareholder Fees" are charged to you directly by the fund. "Annual Operating
Expenses" are paid out of fund assets, so their effect is included in the total
return for each share class.

The fund has two share classes, which have different minimum investments and
different costs. For information on choosing a class, see page 28.

Fee table (%)

<TABLE>
<CAPTION>
Investor Select
Shares Shares(R)
<S> <C> <C>
SHAREHOLDER FEES
Redemption fee, charged
only on shares you sell
180 days or less after buying
them and paid directly to
the fund 0.75 0.75

ANNUAL OPERATING EXPENSES (% of average net assets)

Management fees ___ ___
Distribution (12b-1) fees None None
Other expenses* ___ ___
Total annual operating expenses ___ ___

Expense reduction (___) (___)
Net operating expenses** ___ ___
</TABLE>

* Restated to reflect current expenses.

** Guaranteed by Schwab and the investment adviser through _________ (excluding
interest, taxes and certain non-routine expenses).

Expenses on a $10,000 investment

<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
Investor Shares $___ $___
Select Shares $___ $___
</TABLE>

<PAGE> 22
(Page 21)

Financial Highlights

FINANCIAL HIGHLIGHTS TABLE WILL BE INSERTED

<PAGE> 23
(Page 22)

SCHWAB
International Index Fund(R)

TICKER SYMBOLS
INVESTOR SHARES SWINX
SELECT SHARES(R) SWISX

[Goal] The fund's goal is to track the performance of a benchmark index that
measures the total return of large, publicly traded non-U.S. companies from
countries with developed equity markets outside of the United States.

Index

The fund intends to achieve its investment objective by tracking the total
return of the Schwab International Index.(R) The index includes common stocks of
the 350 largest publicly traded companies from selected countries outside the
United States. The selected countries all have developed securities markets and
include most Western European countries, as well as Australia, Canada, Hong Kong
and Japan -- currently 15 countries in all. Within these countries, Schwab
identifies the 350 largest companies according to their market capitalizations
(total market value of all shares outstanding), in U.S. dollars. The index does
not maintain any particular country weightings, although any given country
cannot represent more than 35% of the index.

Strategy

To pursue its goal, the fund invests in stocks that are included in the index.
It is the fund's policy that under normal circumstances it will invest at least
80% of total assets in these stocks; typically, the actual percentage is
considerably higher. The fund generally gives the same weight to a given stock
as the index does, and does not hedge its exposure to foreign currencies beyond
using forward contracts to lock in transaction prices until settlement. In
seeking to enhance after-tax performance, the fund may choose to realize certain
capital losses and use them to offset capital gains. This strategy may help the
fund reduce taxable capital gain distributions.

Like many index funds, the fund also may invest in short-term investments and
lend securities to minimize the gap in performance that naturally exists between
any index fund and its index. This gap occurs mainly because, unlike the index,
the fund incurs expenses and must keep a small portion of its assets in cash for
business operations. Because any income from securities lending and short-term
investments typically is not enough to eliminate the effect of expenses, the
fund's performance normally is below that of the index.

[Side Bar] International stocks

Over the past several decades, foreign stock markets have grown rapidly. The
market value of foreign stocks today represents approximately ___% of the
world's total market capitalization. (All figures are as of 10/31/00.)

For some investors, an international index fund represents an opportunity for
low-cost access to a variety of world markets in one fund. Others turn to
international stocks to diversify a portfolio of U.S. investments, because
international stock markets historically have performed somewhat differently
from the U.S. market.
<PAGE> 24
(Page 23)

Main Risks

Stock markets rise and fall daily. As with any investment whose performance is
tied to these markets, the value of your investment in the fund will fluctuate,
which means that you could lose money.

Your investment follows the performance of a mix of international large-cap
stocks, as measured by the index. It follows these stocks during upturns as well
as downturns. Because of its indexing strategy, the fund cannot take steps to
reduce market exposure or to lessen the effects of market declines.

Many factors can affect stock market performance. Political and economic news
can influence marketwide trends; the outcome may be positive or negative,
short-term or long-term. Other factors may be ignored by the market as a whole
but may cause movements in the price of one company's stock or the stocks of one
or more industries (for example, rising oil prices may lead to a decline in
airline stocks).

International stocks carry additional risks. Changes in currency exchange rates
can erode market gains or widen market losses. International markets -- even
those that are well established -- are often more volatile than those of the
United States, for reasons ranging from a lack of reliable company information
to the risk of political upheaval. In addition, during any period when large-cap
international stocks perform less well than other types of stocks or other types
of investments -- bonds, for instance -- the fund's performance also will lag
these investments.

[Side Bar] Other risk factors

For example, the fund may lend a portion of its securities to certain financial
institutions in order to earn income. These loans are fully collateralized.
However, if the institution defaults, the fund's performance could be reduced.

[Friendly Voice] For long-term investors who are interested in the potential
rewards of international investing and who are prepared for the additional
risks, this fund could be worth considering.
<PAGE> 25
(Page 24)

Performance

The fund has two share classes, which have different minimum investments and
different costs. For information on choosing a class, see page 28.

Annual total returns (%) as of 12/31

Investor Shares

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
___ ___ ___ ___ ___ ___ ___
94 95 96 97 98 99 00

Best quarter: ___% Q__ 19___
Worst quarter: ___% Q__ 19___
</TABLE>

Average annual total returns (%) as of 12/31/00

<TABLE>
<CAPTION>
Since
1 Year 5 Years inception
<S> <C> <C> <C>
Investor Shares ___ ___ ___1
Select Shares(R) ___ ___ ___2
Schwab International
Index(R) ___ ___ ___3
MSCI-EAFE(R) Index ___ ___ ___3
</TABLE>

1 Inception: 9/9/93.
2 Inception: 5/19/97.
3 From 9/9/93.

Fund Fees and Expenses

Fee table (%)

<TABLE>
<CAPTION>
Investor Select
Shares Shares(R)
<S> <C> <C>
SHAREHOLDER FEES
Redemption fee, charged only
on shares you sell 180 days
or less after buying them and
paid directly to the fund 1.50 1.50

* Restated to reflect current expenses.

** Guaranteed by Schwab and the investment adviser through _________ (excluding
interest, taxes and certain non-routine expenses).

Expenses on a $10,000 investment

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Investor Shares $___ $___ $___ $___
Select Shares $___ $___ $___ $___
</TABLE>

[Friendly Voice] The performance information above shows you how performance has
varied from year-to-year and how it averages out over time.
<PAGE> 26
(Page 25)

Financial Highlights

FINANCIAL HIGHLIGHTS TABLE WILL BE INSERTED

<PAGE> 27
(Page 26)

Fund Management

The investment adviser for the Schwab Equity Index Funds is Charles Schwab
Investment Management, Inc., 101 Montgomery Street, San Francisco, CA 94104.
Founded in 1989, the firm today serves as investment adviser for all of the
SchwabFunds.(R) The firm manages assets for more than ___ million shareholder
accounts. (All figures on this page are as of 10/31/00.)

As the investment adviser, the firm oversees the asset management and
administration of the Schwab Equity Index Funds. As compensation for these
services, the firm receives a management fee from each fund. For the 12 months
ended 10/31/00, these fees were ___% for the Schwab S&P 500 Fund, ___% for the
Schwab 1000 Fund,(R) ___% for the Schwab Small-Cap Index Fund,(R) ___% for the
Schwab Total Stock Market Index Fund, and ___% for the Schwab International
Index Fund.(R) These figures, which are expressed as a percentage of each fund's
average daily net assets, represent the actual amounts paid, including the
effects of reductions.

Geri Hom, a vice president of the investment adviser, is responsible for the
day-to-day management of each of the funds. Prior to joining the firm in March
1995, she worked for nearly 15 years in equity index management.

Larry Mano, a portfolio manager, is responsible for the day-to-day management of
Schwab Total Stock Market Index Fund. Prior to joining the firm in November
1998, he worked for 20 years in equity index management, most recently at
Wilshire Associates, Inc.

[Friendly Voice] The fund's investment adviser, Charles Schwab Investment
Management, Inc., has more than $___ billion under management.

<PAGE> 28
(Page 27)

Investing in the Funds

As a SchwabFunds(R) investor, you have a number of ways to do business with us.

On the following pages, you will find information on buying, selling and
exchanging shares using the method that is most convenient for you. You also
will see how to choose a share class and a distribution option for your
investment. Helpful information on taxes is included as well.
<PAGE> 29
(Page 28)

Buying Shares

Shares of the funds may be purchased through a Schwab brokerage account or
through certain third-party investment providers, such as other financial
institutions, investment professionals and workplace retirement plans.

The information on these pages outlines how Schwab brokerage account investors
can place "good orders" to buy, sell and exchange shares of the funds. If you
are investing through a third-party investment provider, some of the
instructions, minimums and policies may be different. Some investment providers
may charge transaction or other fees. Contact your investment provider for more
information.

Step 1

Choose a fund and a share class. Your choice may depend on the amount of your
investment. Currently, e.Shares(R) are available only for the S&P 500 Fund and
are offered to clients of Schwab Institutional, The Charles Schwab Trust Company
and certain retirement plans. The minimums shown below are for each fund and
share class.

<TABLE>
<CAPTION>
Minimum initial Minimum additional
Share class investment Investment Minimum balance
<S> <C> <C> <C>
Investor Shares $2,500 ($1,000 for $500 ($100 for --- ---
retirement and custodial accounts and
custodial accounts) investments through the
Automatic Investment Plan)

Select Shares(R) $50,000 $1,000 $40,000

e.Shares(R) $1,000 ($500 for $100 --- ---
retirement and
custodial accounts)
</TABLE>

Step 2

Choose an option for fund distributions. The three options are described below.
If you don't indicate a choice, you will receive the first option.

Option Features
<S> <C>
Reinvestment All dividends and capital gain distributions are
invested automatically in shares of your fund and
share class.

Cash/reinvestment mix You receive payment for dividends, while any capital
gain distributions are invested in shares of your
fund and share class.

Cash You receive payment for all dividends and capital
gain distributions.
</TABLE>

Step 3

Place your order. Use any of the methods described at right. Remember that
e.Shares are available only through SchwabLink. Make checks payable to Charles
Schwab & Co., Inc.

[Side Bar] Schwab accounts

Different types of Schwab brokerage accounts are available, with varying account
opening and balance requirements. Some Schwab brokerage account features can
work in tandem with features offered by the funds.

For example, when you sell shares in a fund, the proceeds are automatically paid
to your Schwab brokerage account. From your account, you can use features such
as Schwab MoneyLink,(R) which lets you move money between your Schwab account
and your accounts at other financial institutions, and Automatic Investment Plan
(AIP), which lets you set up periodic investments in mutual funds you already
own.

For more information on Schwab brokerage accounts, call 800-435-4000 or visit
the Schwab web site at www.schwab.com.
<PAGE> 30

(Page 29)

Selling/Exchanging Shares

Use any of the methods described below to sell shares of a fund.

When selling or exchanging shares, please be aware of the following policies:

-A fund may take up to seven days to pay sale proceeds.
-If you are selling shares that were recently purchased by check, the proceeds
may be delayed until the check for purchase clears; this may take up to 15 days
from the date of purchase.

-As indicated in each fund's fee table, each fund charges a redemption fee,
payable to the fund, on the sale or exchange of any shares that occurs 180 days
or less after purchasing them; in attempting to minimize this fee, a fund will
first sell any shares in your account that aren't subject to the fee (including
shares acquired through reinvestment or exchange).

-There is no redemption fee when you exchange between share classes of the same
fund.
-The funds reserve the right to honor redemptions in portfolio securities
instead of cash when your redemptions over a 90-day period exceed $250,000 or 1%
of a fund's assets, whichever is less.

-Exchange orders are limited to other SchwabFunds that are not Sweep Investments
as well as variable NAV funds and must meet the minimum investment and other
requirements for the fund and share class into which you are exchanging.

-You must obtain and read the prospectus for the fund into which you are
exchanging prior to placing your order.

Methods for placing direct orders

Internet
www.schwab.com

Schwab by Phone(TM)
Automated voice service or speak with a representative at 800-435-4000
(for TDD service, call 800-345-2550).

TeleBroker(R)
Automated touch-tone phone service at 800-272-4922

SchwabLink.com
Investment professionals should follow the transaction instructions in the
SchwabLink.com manual; for technical assistance, call 800-367-5198.

Mail
Write to SchwabFunds(R) at:
P.O. Box 7575
San Francisco, CA 94120-7575

In person
Visit the nearest Charles Schwab branch office.

[Side Bar] When placing orders

With every order to buy, sell or exchange shares, you will need to include the
following information:

-Your name or, for Internet orders, your account number/"LoginID."

-Your account number (for SchwabLink transactions, include the master account
and subaccount numbers) or, for Internet orders, your password.

-The name and share class (if applicable) of the fund whose shares you want to
buy or sell.

-The dollar amount or number of shares you would like to buy, sell or exchange.

-When selling or exchanging shares, be sure to include the signature of at least
one of the persons whose name is on the account.

-For exchanges, the name and share class of the fund into which you want to
exchange and the distribution option you prefer.

-When selling shares, how you would like to receive the proceeds.

Please note that orders to buy, sell or exchange become irrevocable at the time
you mail them.
<PAGE> 31
(Page 30)

Transaction Policies

The funds are open for business each day that the New York Stock Exchange (NYSE)
is open.

The funds calculate their share prices each business day, for each share class,
after the close of the NYSE. A fund's share price is its net asset value per
share, or NAV, which is the fund's net assets divided by the number of its
shares outstanding. Orders to buy, sell or exchange shares that are received in
good order prior to the close of the fund (generally 4 p.m. Eastern time) will
be executed at the next share price calculated that day.

In valuing their securities, the funds use market quotes if they are readily
available. In cases where quotes are not readily available, a fund may value
securities based on fair values developed using methods approved by the fund's
Board of Trustees.

Shareholders of the Schwab International Index Fund(R) should be aware that
because foreign markets are often open on weekends and other days when the fund
is closed, the value of the fund's portfolio may change on days when it is not
possible to buy or sell shares of the fund.

The funds and Schwab reserve certain rights, including the following:

-To automatically redeem your shares if the account they are held in is closed
for any reason or your balance falls below the minimum for your share class as a
result of selling or exchanging your shares.

-To modify or terminate the exchange privilege upon 60 days' written notice to
shareholders.

-To refuse any purchase or exchange order, including large purchase orders that
may negatively impact their operations and orders that appear to be associated
with short-term trading activities.

-To change or waive a fund's investment minimums.

-To suspend the right to sell shares back to the fund, and delay sending
proceeds, during times when trading on the NYSE is restricted or halted, or
otherwise as permitted by the SEC.

-To withdraw or suspend any part of the offering made by this prospectus.

-To revise the redemption fee criteria.

<PAGE> 32
(Page 31)

Distributions and Taxes

Any investment in the fund typically involves several tax considerations. The
information below is meant as a general summary for U.S. citizens and residents.
Because each person's tax situation is different, you should consult your tax
advisor about the tax implications of your investment in the fund. You also can
visit the Internal Revenue Service (IRS) web site at www.irs.gov.

As a shareholder, you are entitled to your share of the dividends and gains your
fund earns. Every year, each fund distributes to its shareholders substantially
all of its net investment income and net capital gains, if any. These
distributions typically are paid in December to all shareholders of record.

Unless you are investing through a tax-deferred or Roth retirement account, your
fund distributions generally have tax consequences. Each fund's net investment
income and short-term capital gains are distributed as dividends and are taxable
as ordinary income. Other capital gain distributions are taxable as long-term
capital gains, regardless of how long you have held your shares in the fund.
Distributions generally are taxable in the tax year in which they are declared,
whether you reinvest them or take them in cash.

Generally, any sale of your shares is a taxable event. A sale may result in a
capital gain or loss for you. The gain or loss generally will be treated as
short term if you held the shares for 12 months or less, long term if you held
the shares longer.

For tax purposes, an exchange between funds is different from an exchange
between classes. An exchange between funds is considered a sale. An exchange
between classes within a fund is not reported as a taxable sale.

Shareholders in the Schwab International Index Fund(R) may have additional tax
considerations as a result of foreign tax payments made by the fund. Typically,
these payments will reduce the fund's dividends but will still be included in
your taxable income. You may be able to claim a tax credit or deduction for your
portion of foreign taxes paid by the fund, however.

At the beginning of every year, the funds provide shareholders with information
detailing the tax status of any distributions the fund paid during the previous
calendar year. Schwab brokerage account customers also receive information on
distributions and transactions in their monthly account statements.

Schwab brokerage account customers who sell fund shares typically will receive a
report that calculates their gain or loss using the "average cost"
single-category method. This information is not reported to the IRS, and you
still have the option of calculating gains or losses using any other methods
permitted by the IRS.

[Side Bar] More on distributions

If you are investing through a taxable account and purchase shares of a fund
just before it declares a distribution, you may receive a portion of your
investment back as a taxable distribution. This is because when a fund makes a
distribution, the share price is reduced by the amount of the distribution.

You can avoid "buying a dividend," as it is often called, by finding out if a
distribution is imminent and waiting until afterwards to invest. Of course, you
may decide that the opportunity to gain a few days of investment performance
outweighs the tax consequences of buying a dividend.
<PAGE> 33
(Page 32, Back Cover)

SCHWAB
Equity Index Funds

To Learn More

This prospectus contains important information on the funds and should be read
and kept for reference. You also can obtain more information from the following
sources.

Shareholder reports, which are mailed to current fund investors, discuss recent
performance and portfolio holdings.

The Statement of Additional Information (SAI) includes a more detailed
discussion of investment policies and the risks associated with various
investments. The SAI is incorporated by reference into the prospectus, making it
legally part of the prospectus.

You can obtain free copies of these documents by contacting SchwabFunds.(R) You
can also review and copy them in person at the SEC's Public Reference Room,
access them online at www.sec.gov or obtain paper copies by sending an
electronic request to [email protected]. You will need to pay a duplicating fee
before receiving paper copies from the SEC.

SEC File Numbers
Schwab S&P 500 Fund 811-7704
Schwab 1000 Fund(R) 811-6200
Schwab Small-Cap Index Fund(R) 811-7704
Schwab Total Stock Market Index Fund(TM) 811-7704
Schwab International Index Fund(R) 811-7704

Securities and Exchange Commission
Washington, D.C. 20549-0102

202-942-8090 (Public Reference Section)
www.sec.gov
[email protected]

SchwabFunds
P.O. Box 7575
San Francisco, CA 94120-7575
800-435-4000

www.schwab.com

Prospectus

February 28, 2001

CharlesSchwab (logo)

MKT3644FLT-2

<PAGE> 34
STATEMENT OF ADDITIONAL INFORMATION

SCHWAB EQUITY INDEX FUNDS

SCHWAB S&P 500 FUND
SCHWAB 1000 FUND(R)
SCHWAB SMALL-CAP INDEX FUND(R)
SCHWAB TOTAL STOCK MARKET INDEX FUND(TM)
SCHWAB INTERNATIONAL INDEX FUND(R)

FEBRUARY 28, 2001

The Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the funds' prospectus dated February 28, 2001 (as
amended from time to time).

To obtain a free copy of the prospectus, please contact SchwabFunds(R) at
800-435-4000, 24 hours a day, or write to the funds at P.O. Box 7575, San
Francisco, California 94120-7575. For TDD service call 800-345-2550, 24 hours a
day. The prospectus also may be available on the Internet at:
http://www.schwab.com.

The funds' most recent annual report is a separate document supplied with the
SAI and includes the funds' audited financial statements, which are incorporated
by reference into this SAI.

Schwab S&P 500 Fund, Schwab Small-Cap Index Fund, Schwab Total Stock Market
Index Fund and Schwab International Index Fund are series of Schwab Capital
Trust (a trust), and Schwab 1000 Fund is a series of Schwab Investments (a
trust).

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES, STRATEGIES, RISKS AND LIMITATIONS................. [ ]
MANAGEMENT OF THE FUNDS.................................................. [ ]
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...................... [ ]
INVESTMENT ADVISORY AND OTHER SERVICES................................... [ ]
BROKERAGE ALLOCATION AND OTHER PRACTICES................................. [ ]
DESCRIPTION OF THE TRUSTS................................................ [ ]
PURCHASE, REDEMPTION, DELIVERY OF SHAREHOLDER REPORTS
AND PRICING OF SHARES.................................................... [ ]
TAXATION................................................................. [ ]
CALCULATION OF PERFORMANCE DATA.......................................... [ ]
</TABLE>

<PAGE> 35

INVESTMENT OBJECTIVES, STRATEGIES, RISKS AND LIMITATIONS

INVESTMENT OBJECTIVES AND INDEXES

Each fund's investment objective may be changed only by vote of a majority of
its outstanding voting shares.

There is no guarantee the funds will achieve their objectives.

THE SCHWAB S&P 500 FUND'S investment objective is to seek to track the price and
dividend performance (total return) of common stocks of U. S. companies, as
represented by Standard & Poor's 500 Composite Stock Price Index (the S&P
500(R)).

The S&P 500 is representative of the performance of the U.S. stock market. The
index consists of 500 stocks chosen for market size, liquidity and industry
group representation. It is a market value weighted index (stock price times
number of shares outstanding), with each stock's weight in the index
proportionate to its market value. The S&P 500 does not contain the 500 largest
stocks, as measured by market capitalization. Although many of the stocks in the
index are among the largest, it also includes some relatively small companies.
Those companies, however, generally are established companies within their
industry group. Standard & Poor's (S&P) identifies important industry groups
within the U.S. economy and then allocates a representative sample of stocks
with each group to the S&P 500. There are four major industry sectors within the
index: industrials, utilities, financial and transportation. The fund may
purchase securities of companies with which it is affiliated to the extent these
companies are represented in its index.

The Schwab S&P 500 Fund is not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, express or implied, to the shareholders of
the Schwab S&P 500 Fund or any member of the public regarding the advisability
of investing in securities generally or in the Schwab S&P 500 Fund particularly
or the ability of the S&P 500 Index to track general stock market performance.
S&P's only relationship to the Schwab S&P 500 Fund is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index, which is determined,
composed and calculated by S&P without regard to the Schwab S&P 500 Fund. S&P
has no obligation to take the needs of the Schwab S&P 500 Fund or its
shareholders into consideration in determining, composing or calculating the S&P
500 Index. S&P is not responsible for and has not participated in the
determination of the prices and amount of Schwab S&P 500 Fund shares or in the
determination or calculation of the equation by which the Schwab S&P 500 Fund's
shares are to be converted into cash. S&P has no obligation or liability in
connection with the administration, marketing or trading of the Schwab S&P 500
Fund's shares.

S&P does not guarantee the accuracy and /or the completeness of the S&P 500
Index or any data included therein, and S&P shall have no liability for any
errors, omissions or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by the Schwab S&P 500 Fund, its
shareholders or any other person or entity from the use of the S&P 500(R)
Index or any data therein. S&P makes no express or implied warranties and
expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the S&P 500 Index or any data included
therein. Without limiting any of the foregoing, in no event shall S&P have any
liability for any special, punitive, indirect or consequential damages
(including lost profits), even if notified of the possibility of such damages.

2
<PAGE> 36
THE SCHWAB 1000 FUND'S investment objective is to match the price and dividend
performance (total return) of the Schwab 1000 Index,(R) an index created to
represent to performance of publicly traded common stocks of the 1,000 largest
U.S. companies.

To be included in the Schwab 1000 Index, a company must satisfy all of the
following criteria: (1) it must be an "operating company" (i.e., not an
investment company) incorporated in the United States, its territories or
possessions; (2) a liquid market for its common shares must exist on the New
York Stock Exchange (NYSE), American Stock Exchange (AMEX) or the NASDAQ/NMS and
(3) its market value must place it among the top 1,000 such companies as
measured by market capitalization (share price times the number of shares
outstanding). The fund may purchase securities of companies with which it is
affiliated to the extent these companies are represented in its index.

As of October 31, 2000, the aggregate market capitalization of the stocks
included in the Schwab 1000 Index was approximately $ ____ trillion. This
represents approximately ___% of the total market value of all publicly traded
U.S. companies, as represented by the Wilshire 5000 Index.

THE SCHWAB SMALL-CAP INDEX FUND'S investment objective is to seek to track
performance of a benchmark index that measures total return of small
capitalization U.S. stocks.

The Schwab Small Cap Index Fund intends to achieve its investment objective by
tracking the price and dividend performance (total return) of the Schwab
Small-Cap Index(R) (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 (share price times the number of shares outstanding).

To be included in the Schwab Small-Cap Index, a company must satisfy all of the
following criteria: (1) it must be an "operating company" (i.e., not an
investment company) incorporated in the United States, its territories or
possessions; (2) a liquid market for its common shares must exist on the NYSE,
AMEX or the NASDAQ/NMS and (3) its market value must place it among the
second-largest 1,000 such companies as measured by market capitalization (i.e.,
from the company with a rank of 1,001 through the company with a rank of 2,000).
The fund may purchase securities of companies with which it is affiliated to the
extent these companies are represented in its index.

THE SCHWAB TOTAL STOCK MARKET INDEX FUND'S investment objective is to seek to
track the total return of the entire U.S. stock market.

In pursuing its objective, the fund uses the Wilshire 5000 Equity Index to
measure the total return of the U.S. stock market. The Wilshire 5000 Equity
Index is representative of the performance of the entire U.S. stock market. The
index measures the performance of all U.S. headquartered equity securities with
readily available price data. It is a market-value weighted index consisting of
approximately _____ stocks. The fund may purchase securities of companies with
which it is affiliated to the extent these companies are represented in its
index.

Because it would be too expensive to buy all of the stocks included in the
index, the investment adviser may use statistical sampling techniques in an
attempt to replicate the total return of the U.S.

3
<PAGE> 37
stock market using a smaller number of securities. These techniques use a
smaller number of index securities than that included in the index, which, when
taken together, are expected to perform similarly to the index. These techniques
are based on a variety of factors, including capitalization, dividend yield,
price/earnings ratio, and industry factors.

THE SCHWAB INTERNATIONAL INDEX FUND'S investment objective is to seek to track
performance of a benchmark index that measures the total return of large,
publicly traded non-U.S. companies from countries with developed equity markets
outside of the United States.

The Schwab International Index Fund intends to achieve its investment objective
by tracking the price and dividend performance (total return) of the Schwab
International Index(R) (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.

To be included in the International Index the securities must be issued by an
operating company (i.e., not an investment company) whose principal trading
market is in a country with a major developed securities market outside the
United States. In addition, the market value of the company's outstanding
securities must place the company among the top 350 such companies as measured
by market capitalization (share price times the number of shares outstanding).
The fund may purchase securities of companies with which it is affiliated to the
extent these companies are represented in its index. By tracking the largest
companies in developed markets, the index represents the performance of what
some analysts deem the "blue chips" of international markets. The index also is
designed to provide a broad representation of the international market, by
limiting investments by country to no more than 35% of the total market
capitalization of the index. The International Index was first made available to
the public on July 29, 1993.

The Schwab 1000 Index(R), Small-Cap Index and International Index were developed
and are maintained by Charles Schwab & Co. Inc. ("Schwab"). Schwab receives no
compensation from the funds for maintaining the indexes. Schwab reviews and, as
necessary, revises the lists of companies whose securities are included in the
Schwab 1000 Index, the Small-Cap Index and the International Index usually
annually. Companies known by Schwab to meet or no longer meet the inclusion
criteria may be added or deleted as appropriate. Schwab also will modify each
index as necessary to account for corporate actions (e.g., new issues,
repurchases, stock dividends/splits, tenders, mergers, stock swaps, spin-offs or
bankruptcy filings made because of a company's inability to continue operating
as a going concern).

Schwab may change the Schwab 1000 Index and the Small-Cap Index inclusion
criteria if it determines that doing so would cause the Schwab 1000 Index and
the Small-Cap Index to be more representative of the domestic equity market.
Schwab also may change the International Index inclusion criteria if it
determines that doing so would cause the International Index to be more
representative of the large, publicly traded international company equity
market. In the future, the Board of Trustees, may take necessary and timely
action to change the benchmark index for the Schwab Small-Cap Index Fund,
including selecting a new one, should it decide that such changes would better
enable the fund to seek its objective of tracking the small-cap U.S. stock
sector and taking such action would be in the best interest of the fund's
shareholders. The Board of Trustees also may take necessary and timely action to
change the benchmark index for the Schwab International Index Fund, including
selecting a new one, should it decide that such changes would better enable the
fund to seek its objective of tracking the international stock sector and taking
such action would be in the best interest of the fund's shareholders. The Board
of Trustees may select another index for the Schwab 1000 Fund, subject to
shareholder approval, should it decide that taking such action would be in the
best interest of the fund's shareholders.

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A particular stock's weighting in the International Index, Small-Cap Index or
Schwab 1000 Index is based on its relative total market value (i.e., its market
price per share times the number of shares outstanding), divided by the total
market capitalization of its Index.

INVESTMENT STRATEGIES AND RISKS

The following investment strategies, risks and limitations supplement those set
forth in the prospectus and may be changed without shareholder approval unless
otherwise noted. Also, policies and limitations that state a maximum percentage
of assets that may be invested in a security or other asset, or that set forth a
quality standard, shall be measured immediately after and as a result of a
fund's acquisition of such security or asset unless otherwise noted. Any
subsequent change in values, net assets or other circumstances will not be
considered when determining whether the investment complies with the fund's
investment policies and limitations. Not all investment securities or techniques
discussed below are eligible investments for each fund. A fund will invest in
securities or engage in techniques that are intended to help achieve its
investment objective.

BANKERS' ACCEPTANCES or notes are credit instruments evidencing a bank's
obligation to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the full amount of the
instrument upon maturity. A fund will invest only in bankers' acceptances of
banks that have capital, surplus and undivided profits in excess of $100
million.

BORROWING may subject a fund to interest costs, which may exceed the interest
received on the securities purchased with the borrowed funds. A fund normally
may borrow at times to meet redemption requests rather than sell portfolio
securities to raise the necessary cash. Borrowing can involve leveraging when
securities are purchased with the borrowed money. To avoid this, each fund will
not purchase securities while borrowings represent more than 5% of its total
assets.

CERTIFICATES OF DEPOSIT or time deposits are issued against funds deposited in a
banking institution for a specified period of time at a specified interest rate.
A fund will invest only in certificates of deposit of banks that have capital,
surplus and undivided profits in excess of $100 million.

COMMERCIAL PAPER consists of short-term, promissory notes issued by banks,
corporations and other institutions to finance short-term credit needs. These
securities generally are discounted but sometimes may be interest bearing.
Commercial paper, which also may be unsecured, is subject to credit risk.

CONCENTRATION means that substantial amounts of assets are invested in a
particular industry or group of industries. Concentration increases investment
exposure. For example, the automobile industry may have a greater exposure to a
single factor, such as an increase in the price of oil, which may adversely
affect the sale of automobiles and, as a result, the value of the industry's
securities. Each fund will not concentrate its investments, unless its index is
so concentrated.

DELAYED-DELIVERY TRANSACTIONS include purchasing and selling securities on a
delayed-delivery or when-issued basis. These transactions involve a commitment
to buy or sell specific securities at a predetermined price or yield, with
payment and delivery taking place after the customary

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settlement period for that type of security. When purchasing securities on a
delayed-delivery basis, a fund assumes the rights and risks of ownership,
including the risk of price and yield fluctuations. Typically, no interest will
accrue to a fund until the security is delivered. A fund will segregate
appropriate liquid assets to cover its delayed-delivery purchase obligations.
When the fund sells a security on a delayed-delivery basis, it does not
participate in further gains or losses with respect to that security. If the
other party to a delayed-delivery transaction fails to deliver or pay for the
securities, the fund could suffer losses.

DEPOSITARY RECEIPTS include American or European Depositary Receipts (ADRs or
EDRs), Global Depositary Receipts or Shares (GDRs or GDSs) or other similar
global instruments that are receipts representing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial institution.
These securities are designed for U.S. and European securities markets as
alternatives to purchasing underlying securities in their corresponding national
markets and currencies. Depositary receipts can be sponsored or unsponsored.
Sponsored depositary receipts are certificates in which a bank or financial
institution participates with a custodian. Issuers of unsponsored depositary
receipts are not contractually obligated to disclose material information in the
United States. Therefore, there may not be a correlation between such
information and the market value of an unsponsored depositary receipt.

DIVERSIFICATION involves investing in a wide range of securities and thereby
spreading and reducing the risks of investment. Each fund is a series of an
open-end investment management company. Each fund is a diversified mutual fund.

EMERGING OR DEVELOPING MARKETS exist in countries that are considered to be in
the initial stages of industrialization. The risks of investing in these markets
are similar to the risks of international investing in general, although the
risks are greater in emerging and developing markets. Countries with emerging or
developing securities markets tend to have economic structures that are less
stable than countries with developed securities markets. This is because their
economies may be based on only a few industries and their securities markets may
trade a small number of securities. Prices on these exchanges tend to be
volatile, and securities in these countries historically have offered greater
potential for gain (as well as loss) than securities of companies located in
developed countries.

EQUITY SECURITIES represent ownership interests in a corporation, and are
commonly called "stocks." Equity securities historically have outperformed most
other securities, although their prices can fluctuate based on changes in a
company's financial condition, market conditions and political, economic or even
company-specific news. When a stock's price declines, its market value is
lowered even though the intrinsic value of the company may not have changed.
Sometimes factors, such as economic conditions or political events, affect the
value of stocks of companies of the same or similar industry or group of
industries, and may affect the entire stock market.

Types of equity securities include common stocks, preferred stocks, convertible
securities and warrants. Common stocks, which are probably the most recognized
type of equity security, usually entitle the owner to voting rights in the
election of the corporation's directors and any other matters submitted to the
corporation's shareholders for voting. Preferred stocks do not ordinarily carry
voting rights though they may carry limited voting rights, though they normally
have preference over the corporation's assets and earnings. For example,
preferred stocks have

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preference over common stock in the payment of dividends. Preferred stocks also
may pay specified dividends.

Convertible securities are typically preferred stocks or bonds that are
exchangeable for a specific number of another form of security (usually the
issuer's common stock) at a specified price or ratio. A corporation may issue a
convertible security that is subject to redemption after a specified date and
usually under certain circumstances. A holder of a convertible security that is
called for redemption would be required to tender it for redemption to the
issuer, convert it to the underlying common stock or sell it to a third party.
Convertible bonds typically pay a lower interest rate than nonconvertible bonds
of the same quality and maturity because of the convertible feature. This
structure allows the holder of the convertible bond to participate in share
price movements in the company's common stock. The actual return on a
convertible bond may exceed its stated yield if the company's common stock
appreciates in value and the option to convert to common shares becomes more
valuable.

Convertible preferred stocks are nonvoting equity securities that pay a fixed
dividend. These securities have a convertible feature similar to convertible
bonds, but do not have a maturity date. Due to their fixed income features,
convertible securities provide higher income potential than the issuer's common
stock, but typically are more sensitive to interest rate changes than the
underlying common stock. In the event of liquidation, bondholders have claims on
company assets senior to those of stockholders; preferred stockholders have
claims senior to those of common stockholders.

Convertible securities typically trade at prices above their conversion value,
which is the current market value of the common stock received upon conversion,
because of their higher yield potential than the underlying common stock. The
difference between the conversion value and the price of a convertible security
will vary depending on the value of the underlying common stock and interest
rates. When the underlying value of the common stocks declines, the price of the
issuer's convertible securities will tend not to fall as much because the
convertible security's income potential will act as a price support. While the
value of a convertible security also tends to rise when the underlying common
stock value rises, it will not rise as much because their conversion value is
more narrow. The value of convertible securities also is affected by changes in
interest rates. For example, when interest rates fall, the value of convertible
securities may rise because of their fixed income component.

Warrants are types of securities usually issued with bonds and preferred stock
that entitle the holder to a proportionate amount of common stock at a specified
price for a specific period of time. The prices of warrants do not necessarily
move parallel to the prices of the underlying common stock. Warrants have no
voting rights, receive no dividends and have no rights with respect to the
assets of the issuer. If a warrant is not exercised within the specified time
period, it will become worthless and a fund will lose the purchase price it paid
for the warrant and the right to purchase the underlying security.

FOREIGN SECURITIES involve additional risks, including foreign currency exchange
rate risks, because they are issued by foreign entities, including foreign
governments, banks, corporations or because they are traded principally
overseas. Foreign entities are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. corporations. In addition, there may be less publicly
available information about foreign entities. Foreign economic, political and
legal developments, as well

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<PAGE> 41
as fluctuating foreign currency exchange rates and withholding taxes, could have
more dramatic effects on the value of foreign securities. For example,
conditions within and around foreign countries, such as the possibility of
expropriation or confiscatory taxation, political or social instability,
diplomatic developments, change of government or war could affect the value of
foreign investments. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.

Foreign securities typically have less volume and are generally less liquid and
more volatile than securities of U.S. companies. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on U.S.
exchanges, although the funds endeavor to achieve the most favorable overall
results on portfolio transactions. There is generally less government
supervision and regulation of foreign securities exchanges, brokers, dealers and
listed companies than in the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. There may be difficulties in obtaining or enforcing judgments
against foreign issuers as well. These factors and others may increase the risks
with respect to the liquidity of a fund's portfolio containing foreign
investments, and its ability to meet a large number of shareholder redemption
requests.

Foreign markets also have different clearance and settlement procedures and, in
certain markets, there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. Such delays in settlement could result in temporary periods
when a portion of the assets of a fund is uninvested and no return is earned
thereon. The inability to make intended security purchases due to settlement
problems could cause a fund to miss attractive investment opportunities. Losses
to a fund arising out of the inability to fulfill a contract to sell such
securities also could result in potential liability for a fund.

Investments in the securities of foreign issuers are usually made and held in
foreign currencies. In addition, the Schwab International Index Fund may hold
cash in foreign currencies. These investments may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and may cause a fund to incur costs in connection with conversions between
various currencies. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange market as well as by political and economic factors. Changes in the
foreign currency exchange rates also may affect the value of dividends and
interest earned, gains and losses realized on the sale of securities, and net
investment income and gains, if any, to be distributed to shareholders by the
International Index Fund.

On January 1, 1999, 11 of the 15 member states of the European union introduced
the "euro" as a common currency. During a three-year transitional period, the
euro will coexist with each member state's currency. By July 1, 2002, the euro
will have replaced the national currencies of the following member countries:
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain. During the transition period, each country will
treat the euro as a separate currency from that of any member state.

Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchange and is available for
non-cash transactions. The participating countries currently issue sovereign
debt exclusively in euro. By July 1, 2002, euro-denominated bills and coins will
replace the bills and coins of the participating countries.

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The new European Central Bank has control over each country's monetary policies.
Therefore, the participating countries no longer control their own monetary
policies by directing independent interest rates for their currencies. The
national governments of the participating countries, however, have retained the
authority to set tax and spending policies and public debt levels.

The conversion may impact the trading in securities of issuers located in, or
denominated in the currencies of, the member states, as well as foreign
exchanges, payments, the settlement process, custody of assets and accounting.
The introduction of the euro is also expected to affect derivative and other
financial contracts in which the funds may invest in so far as price sources
such as day-count fractions or settlement dates applicable to underlying
instruments may be changed to conform to the conventions applicable to euro
currency.

The overall impact of the transition of the member states' currencies to the
euro cannot be determined with certainty at this time. In addition to the
effects described above, it is likely that more general short and long-term
consequences can be expected, such as changes in economic environment and change
in behavior of investors, all of which will impact each fund's euro-denominated
investments.

Securities that are acquired by a fund outside the United States and that are
publicly traded in the United States on a foreign securities exchange or in a
foreign securities market, are not considered illiquid provided that: (1) the
fund acquires and holds the securities with the intention of reselling the
securities in the foreign trading market, (2) the fund reasonably believes it
can readily dispose of the securities in the foreign trading market or for cash
in the United States, or (3) foreign market and current market quotations are
readily available. Investments in foreign securities where delivery takes place
outside the United States will have to be made in compliance with any applicable
U.S. and foreign currency restrictions and tax laws (including laws imposing
withholding taxes on any dividend or interest income) and laws limiting the
amount and types of foreign investments.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS involve the purchase or sale of
foreign currency at an established exchange rate, but with payment and delivery
at a specified future time. Many foreign securities markets do not settle trades
within a time frame that would be considered customary in the U.S. stock market.
Therefore, the Schwab International Index Fund normally engages in forward
foreign currency exchange contracts in order to secure exchange rates for
portfolio securities purchased or sold, but awaiting settlement. These
transactions do not seek to eliminate any fluctuations in the underlying prices
of the securities involved. Instead, the transactions simply establish a rate of
exchange that can be expected when the fund settles its securities transactions
in the future. Forwards involve certain risks. For example, if the
counterparties to the contracts are unable to meet the terms of the contracts or
if the value of the foreign currency changes unfavorably, the fund could sustain
a loss.

FUTURES CONTRACTS are securities that represent an agreement between two parties
that obligates one party to buy, and the other party to sell, specific
securities at an agreed-upon price on a stipulated future date. In the case of
futures contracts relating to an index or otherwise not calling for physical
delivery at the close of the transaction, the parties usually agree to deliver
the final cash settlement price of the contract. The funds may purchase and sell
futures contracts based on securities, securities indices and foreign currencies
or any other futures contracts traded on U.S.

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<PAGE> 43
exchanges or boards of trade that the Commodities Futures Trading Commission
(CFTC) licenses and regulates on foreign exchanges.

Each fund must maintain a small portion of its assets in cash to process
shareholder transactions in and out of the fund and to pay its expenses. In
order to reduce the effect this otherwise uninvested cash would have on its
ability to track the performance of its index as closely as possible, a fund may
purchase futures contracts representative of its index or the securities in its
index. Such transactions allow the fund's cash balance to produce a return
similar to that of the underlying security or index on which the futures
contract is based. Also, the Schwab International Index Fund may purchase or
sell futures contracts on a specified foreign currency to "fix" the price in
U.S. dollars of the foreign security it has acquired or sold or expects to
acquire or sell. In regards to the Schwab Total Stock Market Index Fund, because
there is not currently available any futures contract tied directly to either
the total return of the U.S. stock market or the fund's index, there is no
guarantee that this strategy will be successful.

When buying or selling futures contracts, a fund must place a deposit with its
broker equal to a fraction of the contract amount. This amount is known as
"initial margin" and must be in the form of liquid debt instruments, including
cash, cash-equivalents and U.S. government securities. Subsequent payments to
and from the broker, known as "variation margin" are made at least daily as the
value of the futures contracts fluctuate. This process is known as
"marking-to-market". The margin amount will be returned to the fund upon
termination of the futures contracts assuming all contractual obligations are
satisfied. Each fund's aggregate initial and variation margin payments required
to establish its futures positions may not exceed 5 % of its net assets. Because
margin requirements are normally only a fraction of the amount of the futures
contracts in a given transaction, futures trading can involve a great deal of
leverage. In order to avoid this, a fund will segregate assets in an amount
equal to the margin requirement that is deposited with the broker for its
outstanding futures contracts.

While the funds intend to purchase and sell futures contracts in order to
simulate full investment in the securities comprising their respective indices,
there are risks associated with these transactions. Adverse market movements
could cause a fund to experience substantial losses when buying and selling
futures contracts. Of course, barring significant market distortions, similar
results would have been expected if the fund had instead transacted in the
underlying securities directly. There also is the risk of losing any margin
payments held by a broker in the event of its bankruptcy. Additionally, the
funds incur transaction costs (i.e. brokerage fees) when engaging in futures
trading.

Futures contracts normally require actual delivery or acquisition of an
underlying security or cash value of an index on the expiration date of the
contract. In most cases, however, the contractual obligation is fulfilled before
the date of the contract by buying or selling, as the case may be, identical
futures contracts. Such offsetting transactions terminate the original contracts
and cancel the obligation to take or make delivery of the underlying securities
or cash. There may not always be a liquid secondary market at the time a fund
seeks to close out a futures position. If a fund is unable to close out its
position and prices move adversely, the fund would have to continue to make
daily cash payments to maintain its margin requirements. If a fund had
insufficient cash to meet these requirements it may have to sell portfolio
securities at a disadvantageous time or incur extra costs by borrowing the cash.
Also, a fund may be required to make or take delivery and incur extra
transaction costs buying or selling the underlying securities. The funds seek to
reduce the risks associated with futures transactions by buying and

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selling futures contracts that are traded on national exchanges or for which
there appears to be a liquid secondary market.

ILLIQUID SECURITIES generally are any securities that cannot be disposed of
promptly and in the ordinary course of business at approximately the amount at
which a fund has valued the instruments. The liquidity of a fund's investments
is monitored under the supervision and direction of the Board of Trustees.
Investments currently not considered liquid include repurchase agreements not
maturing within seven days and certain restricted securities.

INDEXING STRATEGIES involve tracking the investments and, therefore, performance
of an index. Each fund normally will invest at least 80% of its total assets in
the securities of its index. Moreover, each fund will invest so that its
portfolio performs similarly to that of its index. Each fund tries to generally
match its holdings in a particular security to its weight in the index. Each
fund will seek a correlation between its performance and that of its index of
0.90 or better. A perfect correlation of 1.0 is unlikely as the funds incur
operating and trading expenses unlike their indices. A fund may rebalance its
holdings in order to track its index more closely. In the event its intended
correlation is not achieved, the Board of Trustees will consider alternative
arrangements for a fund.

LENDING of portfolio securities is a common practice in the securities industry.
A fund will engage in security lending arrangements with the primary objective
of increasing its income. For example, a fund may receive cash collateral, and
it may invest it in short-term, interest-bearing obligations, but will do so
only to the extent that it will not lose the tax treatment available to
regulated investment companies. Lending portfolio securities involves risks that
the borrower may fail to return the securities or provide additional collateral.
Also, voting rights with respect to the loaned securities may pass with the
lending of the securities.

A fund may loan portfolio securities to qualified broker-dealers or other
institutional investors provided: (1) the loan is secured continuously by
collateral consisting of U.S. government securities, letters of credit, cash or
cash equivalents or other appropriate instruments maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned; (2) the fund may at any time call the loan and obtain
the return of the securities loaned; (3) the fund will receive any interest or
dividends paid on the loaned securities; and (4) the aggregate market value of
securities loaned will not at any time exceed one-third of the total assets of
the fund including collateral received from the loan (at market value computed
at the time of the loan).

Although voting rights with respect to loaned securities pass to the borrower,
the lender retains the right to recall a security (or terminate a loan) for the
purpose of exercising the security's voting rights. Efforts to recall such
securities promptly may be unsuccessful, especially for foreign securities or
thinly traded securities such as small-cap stocks. In addition, because
recalling a security may involve expenses to the funds, it is expected that the
funds will do so only where the items being voted upon are, in the judgment of
Charles Schwab Investment Management, Inc. ("CSIM" or the "investment adviser"),
either material to the economic value of the security or threaten to materially
impact the issuer's corporate governance policies or structure.

MONEY MARKET SECURITIES are high-quality, short-term debt securities that may be
issued by entities such as the U.S. government, corporations and financial
institutions (like banks). Money

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market securities include commercial paper, certificates of deposit, banker's
acceptances, notes and time deposits.

PROMISSORY NOTES are written agreements committing the maker or issuer to pay
the payee a specified amount either on demand or at a fixed date in the future,
with or without interest. These are sometimes called negotiable notes or
instruments and are subject to credit risk. Bank notes are notes used to
represent obligations issued by banks in large denominations.

REPURCHASE AGREEMENTS. Repurchase agreements involve a fund buying securities
(usually U.S. government securities) from a seller and simultaneously agreeing
to sell them back at an agreed-upon price (usually higher) and time. There are
risks that losses will result if the seller does not perform as agreed. Under
certain circumstances, repurchase agreements that are fully collateralized by
U.S. government securities may be deemed to be investments in U.S. government
securities.

RESTRICTED SECURITIES are securities that are subject to legal restrictions on
their sale. Restricted securities may be considered to be liquid if an
institutional or other market exists for these securities. In making this
determination, a fund, under the direction and supervision of the Board of
Trustees, will take into account the following factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers willing to
purchase or sell the security and the number of potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of transfer). To the
extent a fund invests in restricted securities that are deemed liquid, the
general level of illiquidity in the fund's portfolios may be increased if
qualified institutional buyers become uninterested in purchasing these
securities.

SECURITIES OF OTHER INVESTMENT COMPANIES may be purchased and sold by the funds,
including those managed by its investment adviser. Because other investment
companies employ investment advisers and other service providers, investments by
a fund may cause shareholders to pay duplicative fees.

SHORT TERM INVESTMENTS include U.S. dollar denominated short-term bonds and
money market instruments. Each fund must keep a small portion of its assets in
cash for business operations. In order to reduce the effect this otherwise
uninvested cash would have on its performance, a fund may invest in short-term
investments such as certificates of deposit, time deposits and bankers'
acceptances. A fund also may buy commercial paper if the commercial paper has
one of an NRSRO's top two ratings or has comparable quality if it is unrated. A
fund may enter into repurchase agreements using any of these debt securities.

SMALL-CAP STOCKS are common stocks issued by U.S. operating companies with
market capitalizations that place them below the largest 1,000 such companies.
Historically, small-cap stocks have been riskier than stocks issued by large- or
mid-cap companies for a variety of reasons. Small-cap companies may have less
certain growth prospects and are typically less diversified and less able to
withstand changing economic conditions than larger capitalized companies.
Small-cap companies also may have more limited product lines, markets or
financial resources than companies with larger capitalizations, and may be more
dependent on a relatively small management group. In addition, small-cap
companies may not be well known to the investing public, may not have

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institutional ownership and may have only cyclical, static or moderate growth
prospects. Most small-cap company stocks pay low or no dividends.

These factors and others may cause sharp changes in the value of a small-cap
company's stock, and even cause some small-cap companies to fail. Additionally,
small-cap stocks may not be as broadly traded as large- or mid cap stocks, and
the Schwab Small-Cap Index Fund's and the Schwab Total Stock Market Index Fund's
respective positions in securities of such companies may be substantial in
relation to the market for such securities. Accordingly, it may be difficult for
the Schwab Small-Cap Index Fund and the Schwab Total Stock Market Index Fund to
dispose of securities of these small-cap companies at prevailing market prices
in order to meet redemptions. This lower degree of liquidity can adversely
affect the value of these securities. For these reasons and others, the value of
a fund's investments in small-cap stocks is expected to be more volatile than
other types of investments, including other types of stock investments. While
small-cap stocks are generally considered to offer greater growth opportunities
for investors, they involve greater risks and the share price of a fund that
invests in small-cap stocks (like the Schwab Small-Cap Index Fund and the Schwab
Total Stock Market Index Fund) may change sharply during the short term and long
term.

STOCK SUBSTITUTION STRATEGY is a strategy, whereby each fund may, in
extraordinary circumstances, substitute a similar stock for a security in its
index.

U.S. GOVERNMENT SECURITIES are issued by the U.S. Treasury or issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities.
Not all U.S. government securities are backed by the full faith and credit of
the United States. Some U.S. government securities, such as those issued by
Fannie Mae, the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac),
the Student Loan Marketing Association (SLMA or Sallie Mae), and the Federal
Home Loan Banks (FHLB), are supported by a line of credit the issuing entity has
with the U.S. Treasury. Others are supported solely by the credit of the issuing
agency or instrumentality such as obligations issued by the Federal Farm Credit
Banks Funding Corporation (FFCB). There can be no assurance that the U.S.
government will provide financial support to U.S. government securities of its
agencies and instrumentalities if it is not obligated to do so under law. Of
course U.S. government securities, including U.S. Treasury securities, are among
the safest securities, however, not unlike other debt securities, they are still
sensitive to interest rate changes, which will cause their prices to fluctuate.

INVESTMENT LIMITATIONS

The following investment limitations may be changed only by vote of a majority
of each fund's outstanding voting shares

EACH OF THE SCHWAB S&P 500 FUND, SCHWAB 1000 FUND, SCHWAB SMALL-CAP INDEX FUND,
AND SCHWAB INTERNATIONAL INDEX FUND MAY NOT:

1) Borrow money, except to the extent permitted under the 1940 Act, the
rules or regulations thereunder or any exemption therefrom, as such
statute, rules or regulations may be amended or interpreted from time
to time.

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2) Make loans to other persons, except to the extent permitted under the
1940 Act, the rules or regulations thereunder or any exemption
therefrom, as such statute, rules or regulations may be amended or
interpreted from time to time.

3) Issue senior securities, except to the extent permitted under the 1940
Act, the rules or regulations thereunder or any exemption therefrom, as
such statute, rules or regulations may be amended or interpreted from
time to time.

4) Purchase securities of an issuer, except as consistent with the
maintenance of its status as an open-end diversified company under the
1940 Act, the rules or regulations thereunder or any exemption
therefrom, as such statute, rules or regulations may be amended or
interpreted from time to time.

5) Concentrate investments in a particular industry or group of
industries, as concentration is defined under the 1940 Act, the rules
or regulations thereunder or any exemption therefrom, as such statute,
rules or regulations may be amended or interpreted from time to time.

6) Purchase or sell commodities or real estate, except to the extent
permitted under the 1940 Act, the rules or regulations thereunder or
any exemption therefrom, as such statute, rules or regulations may be
amended or interpreted from time to time.

7) Underwrite securities issued by other persons, except to the extent
permitted under the 1940 Act, the rules or regulations thereunder or
any exemption therefrom, as such statute, rules or regulations may be
amended or interpreted from time to time.

IN ADDITION, EACH OF THE SCHWAB S&P 500 FUND, SCHWAB SMALL-CAP INDEX FUND AND
SCHWAB INTERNATIONAL INDEX FUND MAY NOT:

Purchase securities of other investment companies, except as permitted by the
1940 Act, including any exemptive relief granted by the SEC.

IN ADDITION, THE SCHWAB 1000 FUND MAY NOT:

Purchase securities of other investment companies, except as permitted by the
1940 Act.

THE SCHWAB TOTAL STOCK MARKET INDEX FUND MAY NOT:

1) Purchase securities of any issuer, except as consistent with the
maintenance of its status as a diversified company under the Investment
Company 1940 Act (the "1940 Act") ;

2) Concentrate investments in a particular industry or group of
industries, except as permitted under the 1940 Act, or the rules or
regulations thereunder; and

3) (i) Purchase or sell commodities, commodities contracts, futures or
real estate, (ii) lend or borrow money, (iii) issue senior securities,
(iv) underwrite securities or (v) pledge, mortgage or hypothecate any
of its assets, except as permitted by the 1940 Act, or the rules or
regulations thereunder.

THE FOLLOWING DESCRIPTIONS OF THE 1940 ACT MAY ASSIST INVESTORS IN UNDERSTANDING
THE ABOVE

14
<PAGE> 48
POLICIES AND RESTRICTIONS.

Diversification. Under the 1940 Act and the rules, regulations and
interpretations thereunder, a "diversified company," as to 75% of its total
assets, may not purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. Government or its agencies, or instrumentalities or
securities of other registered investment companies) if, as a result, more than
5% of its total assets would be invested in the securities of such issuer, or
more than 10% of the issuer's voting securities would be held by the fund.

Concentration. The Securities and Exchange Commission defines concentration as
investing 25% or more of an investment company's total assets in an industry or
group of industries, with certain exceptions.

Borrowing. The 1940 Act restricts a fund from borrowing (including pledging,
mortgaging or hypothecating assets) in excess of 33 1/3% of its total assets
(not including temporary borrowings not in excess of 5% of its total assets).

Lending. Under the 1940 Act, a fund may only make loans if expressly permitted
by its investment policies.

THE FOLLOWING ARE NON-FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS, AND MAY
BE CHANGED BY THE BOARD OF TRUSTEES.

EACH OF THE SCHWAB S&P 500 FUND, SCHWAB 1000 FUND, SCHWAB SMALL-CAP INDEX FUND
AND SCHWAB INTERNATIONAL INDEX FUND MAY NOT:

1) Purchase more than 10% of any class of securities of any issuer if, as
a result of such purchase, it would own more than 10% of such issuer's
outstanding voting securities.

2) Invest more than 5% of its net assets in warrants, valued at the lower
of cost or market, and no more than 40% of this 5% may be invested in
warrants that are not listed on the NYSE or the AMEX, provided,
however, that for purposes of this restriction, warrants acquired by a
fund in units or attached to other securities are deemed to be without
value.

3) Purchase puts, calls, straddles, spreads or any combination thereof if
by reason of such purchase the value of its aggregate investment in
such securities would exceed 5% of the fund's net assets.

4) Make short sales, except for short sales against the box.

5) Purchase or sell interests in oil, gas or other mineral development
programs or leases, although it may invest in companies that own or
invest in such interests or leases.

6) Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities.

7) Invest for the purpose of exercising control or management of another
issuer.

8) Borrow money except that the fund may (i) borrow money from banks and
(ii) engage in reverse repurchase agreements with any party; provided
that (i) and (ii) in combination

15
<PAGE> 49

do not exceed 33 1/3% of its total assets (any borrowings that come to
exceed this amount will be reduced to the extent necessary to comply
with the limitation within three business days) and the fund will not
purchase securities while borrowings represent more than 5% of its
total assets.

9) Lend any security or make any other loan if, as a result, more than
33-1/3% of its total assets would be lent to other parties (this
restriction does not apply to purchases of debt securities or
repurchase agreements).

10) As to 75% of its assets, purchase securities of any issuer (other than
obligations of, or guaranteed by, the U.S. government, its agencies or
instrumentalities or investments in other registered investment
companies) if, as a result, more than 5% of the value of its total
assets would be invested in the securities of such issuer.

11) Invest more than 15% of its net assets in illiquid securities.

12) Purchase securities (other than securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities) if, as a result of
such purchase, 25% or more of the value of its total assets would be
invested in any industry (except that each fund may purchase securities
under such circumstances only to the extent that its index is also so
concentrated).

13) Purchase or sell commodities, commodity contracts or real estate,
including interests in real estate limited partnerships, provided that
each fund may (i) purchase securities of companies that deal in real
estate or interests therein, (ii) purchase or sell futures contracts,
options contracts, equity index participations and index participation
contracts, and (iii) for the S&P 500 Fund, purchase securities of
companies that deal in precious metals or interests therein.

IN ADDITION, THE SCHWAB 1000 FUND MAY NOT:

1) Purchase securities that would cause more that 5% of its net assets to
be invested in restricted securities, excluding restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of
1933 that have been determined to be liquid under procedures adopted by
the Board of Trustees based upon the trading markets for the
securities.

THE SCHWAB TOTAL STOCK MARKET INDEX FUND MAY NOT:

1) Purchase securities of any issuer, if as a result, more than 15% of its
net assets would be invested in illiquid securities, including
repurchase agreements with maturities in excess of 7 days.

2) Invest for the purpose of exercising control or management of another
issuer.

3) Purchase securities of other investment companies, except as permitted
by the 1940 Act, including any exemptive relief granted by the SEC.

16
<PAGE> 50
4) Sell securities short unless it owns the security or the right to
obtain the security or equivalent securities (transactions in futures
contracts and options are not considered selling securities short).

5) Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities and
provided that margin payments in connection with futures contracts and
options on futures shall not constitute purchasing securities on
margin.

6) Borrow money except that the fund may (i) borrow money from banks and
(ii) engage in reverse repurchase agreements with any party; provided
that (i) and (ii) in combination do not exceed 33 1/3% of its total
assets (any borrowings that come to exceed this amount will be reduced
to the extent necessary to comply with the limitation within three
business days) and the fund will not purchase securities while
borrowings represent more than 5% of its total assets.

7) Concentrate investments in a particular industry or group of
industries, as concentration is defined under the Investment Company
Act of 1940 or the rules or regulations thereunder, as such statute,
rules or regulations may be amended from time to time except to the
extent the investments of its index are concentrated.

8) Lend any security or make any other loan if, as a result, more than
33-1/3% of its total assets would be lent to other parties (this
restriction does not apply to purchases of securities or repurchase
agreements).

Policies and limitations that state a maximum percentage of assets that may be
invested in a security or other asset, or that set forth a quality standard
shall be measured immediately after and as a result of the fund's acquisition of
such security or asset, unless otherwise noted. Except with respect to
non-fundamental limitations (1) illiquid securities and (6) borrowing, any
subsequent change in net assets or other circumstances will not be considered
when determining whether the investment complies with the fund's investment
policies and limitations.

17
<PAGE> 51

MANAGEMENT OF THE FUNDS

The officers and trustees, their principal occupations during the past five
years and their affiliations, if any, with The Charles Schwab Corporation,
Schwab, and CSIM are as follows:

<TABLE>
<CAPTION>
POSITION(S) WITH PRINCIPAL OCCUPATIONS & AFFILIATIONS
NAME/DATE OF BIRTH THE TRUSTS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman, Chief Chairman and Co-Chief Executive Officer,
July 29, 1937 Executive Officer and Director, The Charles Schwab Corporation; Chief
Trustee Executive Officer, Director, Charles Schwab
Holdings, Inc.; Chairman, Director, Charles
Schwab & Co., Inc., Charles Schwab Investment
Management, Inc.; Director, The Charles Schwab
Trust Company; Chairman, Schwab Retirement Plan
Services, Inc.; Chairman and Director until
January 1999, Mayer & Schweitzer, Inc. (a
securities brokerage subsidiary of The Charles
Schwab Corporation); Director, The Gap, Inc. (a
clothing retailer), Audiobase, Inc.
(full-service audio solutions for the Internet),
Vodaphone AirTouch PLC (a telecommunications
company) and Siebel Systems (a software company).

JOHN P. COGHLAN* President and Trustee Vice Chairman and Executive Vice President, The
May 6, 1951 Charles Schwab Corporation; Vice Chairman and
Enterprise President, Retirement Plan Services
and Services for Investment Managers, Charles
Schwab & Co., Inc.; Chief Executive Officer and
Director, Charles Schwab Investment Management,
Inc.; President and Chief Executive Officer,
Director, The Charles Schwab Trust Company;
Director, Charles Schwab Asset Management
(Ireland) Ltd.; Director, Charles Schwab
Worldwide Funds PLC.

DONALD F. DORWARD Trustee Chief Executive Officer, Dorward & Associates
September 23, 1931 (corporate management, marketing and
communications consulting firm). From 1996 to
1999, Executive Vice President and Managing
Director, Grey Advertising. From 1990 to 1996,
Mr. Dorward was President and Chief Executive
Officer, Dorward & Associates (advertising and
marketing/consulting firm).

ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and Director,
May 15, 1931 Semloh Financial, Inc. (international financial
services and investment advisory firm).

DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens & Company
June 28, 1938 (investments). Prior to 1996, Chairman and
Chief Executive Officer of North American
Trust (real estate investment trust).

MICHAEL W. WILSEY Trustee Chairman and Chief Executive Officer, Wilsey
August 18, 1943 Bennett, Inc. (truck and air transportation,
real estate investment and management, and
investments).
</TABLE>

* This trustee is an "interested person" of the trusts.

18
<PAGE> 52

<TABLE>
<S> <C> <C>
JEREMIAH H. CHAFKIN* Executive Vice Executive Vice President, Asset Management
May 9, 1959 President, Chief Products and Services, Charles Schwab & Co.,
Operating Officer and Inc.; President and Chief Operating Officer,
Trustee Charles Schwab Investment Management, Inc.
Prior to September 1999, Mr. Chafkin was Senior
Managing Director, Bankers Trust Company.

MARIANN BYERWALTER Trustee Vice President for Business Affairs and Chief
August 13, 1960 Financial Officer, Stanford University (higher
education). Prior to February 1996, Ms.
Byerwalter was Chief Financial Officer of Eureka
Bank (savings and loans) and Chief Financial
Officer and Chief Operating Officer of America
First Eureka Holdings, Inc. (holding company).
Ms. Byerwalter also is on the Board of Directors
of America First Companies, Omaha, NE (venture
capital/fund management) and Redwood Trust, Inc.
(mortgage finance), and is a Director of
Stanford Hospitals and Clinics, SRI
International (research) and LookSmart, Ltd. (an
Internet infrastructure company).

WILLIAM A. HASLER Trustee Co-Chief Executive Officer, Aphton Corporation
November 22, 1941 (bio-pharmaceuticals). Prior to August 1998,
Mr. Hasler was Dean of the Haas School of
Business at the University of California,
Berkeley (higher education). Mr. Hasler also is
on the Board of Directors of Solectron
Corporation (manufacturing), Tenera, Inc.
(services and software), Airlease Ltd. (aircraft
leasing) and Mission West Properties (commercial
real estate).

GERALD B. SMITH Trustee Chairman and Chief Executive Officer and founder
September 28, 1950 of Smith Graham & Co. (investment advisors).
Mr. Smith is also on the Board of Directors of
Pennzoil-Quaker State Company (oil and gas) and
Rorento N.V. (investments - Netherlands), and is
a member of the audit committee of Northern
Border Partners, L.P., a subsidiary of Enron
Corp. (energy).

TAI-CHIN TUNG Treasurer and Principal Senior Vice President, Treasurer, Controller and
March 7, 1951 Financial Officer Chief Financial Officer, Charles Schwab
Investment Management, Inc. From 1994 to 1996,
Ms. Tung was Controller for Robertson Stephens
Investment Management, Inc.
</TABLE>

* This trustee is an "interested person" of the trusts.

19
<PAGE> 53

<TABLE>
<S> <C> <C>
STEPHEN B. WARD Senior Vice President Senior Vice President and Chief Investment
April 5, 1955 and Chief Investment Officer, Charles Schwab Investment Management,
Officer Inc.

KOJI E. FELTON Secretary Vice President, Chief Counsel and Assistant
March 13, 1961 Corporate Secretary, Charles Schwab Investment
Management, Inc. Prior to June 1998, Mr. Felton
was a Branch Chief in Enforcement at the U.S.
Securities and Exchange Commission in San
Francisco.
</TABLE>

Each of the above-referenced officers and/or trustees also serves in the same
capacity as described for the trusts, for The Charles Schwab Family of Funds
and Schwab Annuity Portfolios. The address of each individual listed above is
101 Montgomery Street, San Francisco, California 94104.

Each fund is overseen by a Board of Trustees. The Board of Trustees meets
regularly to review each fund's activities, contractual arrangements and
performance. The Board of Trustees is responsible for protecting the interests
of the fund's shareholders. The following table provides information as of
October 31, 2000 concerning compensation of the trustees. Unless otherwise
stated, information is for the fund complex, which included 44 funds as of
October 31, 2000.

<TABLE>
<CAPTION>
Pension or ($)
($) Retirement Total
Name of Trustee Aggregate Compensation Benefits Accrued Compensation
From Each Fund as Part of Fund from Fund
Expenses Complex
------------------------------------------------------------

Schwab Schwab Schwab Schwab Schwab
S&P 500 1000 Fund Small-Cap Total International
Fund Index Stock Index Fund
Fund Market
Index
Fund
------------------ --------- ---------- ----------- --------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles R. Schwab 0 0 0 0 0 N/A 0

Steve L. Scheid 1 0 0 0 0 0 N/A 0

William J. Klipp 2 0 0 0 0 0 N/A 0

Jeremiah H. 0 0 0 0 0 N/A 0
Chafkin 3
</TABLE>

---------------------------------------------

1 Resigned from the Board effective November 21, 2000.

2 Mr. Klipp departed from Schwab and CSIM in 1999 and resigned from the Board of
Trustees effective April 30, 2000.

3 This trustee was first elected by shareholders on June 1, 2000.

20
<PAGE> 54

Mariann $____ $____ $____ $____ $____ N/A $____
Byerwalter 3

Donald F. Dorward $____ $____ $____ $____ $____ N/A $____

William A. Hasler 3 $____ $____ $____ $____ $____ N/A $____

Robert G. Holmes $____ $____ $____ $____ $____ N/A $____

Gerald B. Smith 3 $____ $____ $____ $____ $____ N/A $____

Donald R. Stephens $____ $____ $____ $____ $____ N/A $____

Michael W. Wilsey $____ $____ $____ $____ $____ N/A $____
</TABLE>

1 Resigned from the Board effective November 21, 2000.

2 Mr. Klipp departed from Schwab and CSIM in 1999 and resigned from the Board of
Trustees effective April 30, 2000.

3 This trustee was first elected by shareholders on June 1, 2000.

4 Elected to the Board on November 21, 2000.

DEFERRED COMPENSATION PLAN

Trustees who are not "interested persons" of a trust ("independent trustees")
may enter into a fee deferral plan. Under this plan, deferred fees will be
credited to an account established by the trust as of the date that such fees
would have been paid to the trustee. The value of this account will equal the
value that the account would be if the fees credited to the account had been
invested in the shares of SchwabFunds selected by the trustee. Currently, none
of the independent trustees has elected to participate in this plan.

CODE OF ETHICS

21
<PAGE> 55
The funds, their investment adviser and Schwab have adopted a Code of Ethics
(Code) as required under the 1940 Act. Subject to certain conditions or
restrictions, the Code permits the trustees, directors, officers or advisory
representatives of the funds or the investment adviser or the directors or
officers of Schwab to buy or sell securities for their own accounts. This
includes securities that may be purchased or held by the funds. Securities
transactions by some of these individuals may be subject to prior approval of
the investment adviser's Chief Compliance Officer or alternate. Most securities
transactions are subject to quarterly reporting and review requirements.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of February 1, 2001, the officers and trustees of the trusts, as a group
owned, of record or beneficially, less than 1% of the outstanding voting
securities of the classes and series of each trust.

As of February 1, 2001, the following represents persons or entities that owned,
directly or beneficially, more than 5% of the shares of any class of any of the
funds:

<TABLE>
<CAPTION>
<S> <C>
Schwab International Index Fund (R) - Select Shares(R)
Schwab MarketTrack All Equity Portfolio ____%
Schwab MarketTrack Balanced Portfolio ____%
Schwab MarketTrack Growth Portfolio ____%

Schwab S&P 500 Fund - Investor Shares
Charles Schwab Trust Co. ____%

S&P 500 Fund - e.Shares(R)
Charles Schwab Trust Co. ____%

S&P 500 Fund - Select Shares(R)
Charles Schwab Trust Co. ____%

Schwab Small-Cap Index Fund(R) - Select Shares(R)
Schwab MarketTrack Growth II ____%
Schwab MarketTrack All Equity Portfolio ____%
Schwab MarketTrack Balanced Portfolio ____%
Schwab MarketTrack Growth Portfolio ____%
</TABLE>

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISER

CSIM, a wholly owned subsidiary of The Charles Schwab Corporation, 101
Montgomery Street, San Francisco CA 94104, serves as the funds' investment
adviser and administrator pursuant to Investment Advisory and Administration
Agreements (Advisory Agreements) between it and each trust. Schwab is an
affiliate of the investment adviser and is the trusts' distributor, shareholder
services agent and transfer agent. Charles R. Schwab is the founder, Chairman,
Co-Chief Executive Officer and Director of The Charles Schwab Corporation. As a
result of his

22
<PAGE> 56
ownership of and interests in The Charles Schwab Corporation, Mr. Schwab may be
deemed to be a controlling person of the investment adviser and Schwab.

For its advisory and administrative services to the Schwab S&P 500 Fund, the
investment adviser is entitled to receive an annual fee, accrued daily and paid
monthly, based on the Schwab S&P 500 Fund's average daily net assets as
described below.

First $500 million - 0.20%
More than $500 million - 0.17%

Prior to February 29, 2000, for its advisory and administrative services to the
Schwab S&P 500 Fund, the investment adviser was entitled to receive an annual
fee, accrued daily and paid monthly, of 0.36% of the fund's average daily net
assets not in excess of $1 billion, 0.33% of the next $1 billion and 0.31% of
such net assets over $2 billion.

For the fiscal years ended October 31, 2000, 1999 and 1998, the Schwab S&P 500
Fund paid investment advisory fees of $______, $7,536,000 and $2,525,000,
respectively (fees were reduced by $______, $11,794,000 and $6,509,000,
respectively).

The investment adviser and Schwab have contractually guaranteed that, through at
least ________, the total operating expenses (excluding interest, taxes and
certain non-routine expenses) of the Investor Shares, the e.Shares(R) and the
Select Shares(TM) will not exceed __%, __% and __% respectively, of the
average daily net assets of each class.

For its advisory and administrative services to the Schwab 1000 Fund the
investment adviser is entitled to receive an annual fee, accrued daily and paid
monthly, of 0.30% of the fund's average daily net assets not in excess of $500
million and 0.22% of such assets over $500 million.

For the fiscal years ended October 31, 2000, 1999 and 1998, the Schwab 1000 Fund
paid investment advisory fees of $______, $13,006,000 and $7,610,000,
respectively (fees were reduced by $______, $1,336,000 and $1,552,000,
respectively).

The investment adviser and Schwab have contractually guaranteed that, through at
least _______, total operating expenses (excluding interest, taxes and certain
non-routine expenses) of the Investor Shares and Select Shares for the Schwab
1000 Fund(R) will not exceed ___% and ___%, respectively, of the average daily
net assets of each class.

For its advisory and administrative services to the Schwab Total Stock Market
Index Fund, the investment adviser is entitled to receive an annual fee, accrued
daily and paid monthly, of 0.30% of the fund's average daily net assets not in
excess of $500 million, and 0.22% of such net assets over $500 million.

For the fiscal years ended October 31, 2000 and 1999, the Schwab Total Stock
Market Index Fund paid investment advisory fees of $__ and $0 (fees were reduced
by $______ and $284,000, respectively).

The investment adviser and Schwab have contractually guaranteed that, through at
least ________, the total operating expenses (excluding interest, taxes and
certain non-routine expenses) of the

23
<PAGE> 57

Investor Shares and Select Shares for the fund will not exceed ___%, and ___%,
respectively, of the average daily net assets of each class.

For its advisory and administrative services to the Schwab Small-Cap Index Fund,
the investment adviser is entitled to receive an annual fee, accrued daily and
paid monthly, based on the Schwab Small-Cap Index Fund's average daily net
assets as described below.

First $500 million - 0.33%
More than $500 million - 0.28%

Prior to February 29, 2000 for its advisory and administrative services to the
Schwab Small-Cap Index Fund, the investment adviser was entitled to receive an
annual fee, accrued daily and paid monthly, of 0.50% of the fund's average daily
net assets not in excess of $300 million and 0.45% of such assets over $300
million.

For the fiscal years ended October 31, 2000, 1999 and 1998, the Schwab Small-Cap
Index Fund paid investment advisory fees of $______, $1,502,000 and $921,000,
respectively (fees were reduced by $______, $2,099,000 and $1,911,000,
respectively).

The investment adviser and Schwab have contractually guaranteed that, through at
least _____, total operating expenses (excluding interest, taxes and certain
non-routine) of the Investor Shares and Select Shares for the Schwab Small-Cap
Index Fund will not exceed ___% and ___%, respectively, of the average daily net
assets of each class.

Prior to February 29, 2000, for its advisory and administrative services to the
International Index Fund, the investment adviser was entitled to receive an
annual fee, accrued daily and paid monthly, of 0.70% of the fund's average daily
net assets not in excess of $300 million and 0.60% of such assets over $300
million.

For its advisory and administrative services to the Schwab International Index
Fund, the investment advisor is entitled to receive an annual fee, accrued daily
and paid monthly, based on the Schwab International Index Fund's average daily
net assets as described below.

First $500 million - 0.43%
More than $500 million - 0.38%

For the fiscal years ended October 31, 2000, 1999 and 1998, the Schwab
International Index Fund paid investment advisory fees of $______, $1,755,000
and $940,000, respectively (fees were reduced by $______, $2,625,000 and
$2,127,000, respectively).

The investment adviser and Schwab have contractually guaranteed that, through at
least ________, the total operating expenses (excluding interest, taxes and
certain non-routine expenses) of the Investor Shares and Select Shares for the
Schwab International Index Fund will not exceed ___% and ___%, respectively, of
the average daily net assets of each class.

The amount of the expense cap of a fund is determined in coordination with the
Board of Trustees, and the expense cap is intended to limit the effects on
shareholders of expenses incurred in the ordinary operation of a fund. The
expense cap is not intended to cover all fund expenses, and a fund's expenses
may exceed the expense cap. For example, the expense cap does not cover
investment-related expenses, such as brokerage commissions, interest and taxes,
nor does it cover extraordinary or non-routine expenses, such as shareholder
meeting costs.

24
<PAGE> 58
DISTRIBUTOR

Pursuant to a Distribution Agreement, Schwab is the principal underwriter for
shares of the funds and is the trusts' agent for the purpose of the continuous
offering of the funds' shares. Each fund pays the cost of the prospectuses and
shareholder reports to be prepared and delivered to existing shareholders.
Schwab pays such costs when the described materials are used in connection with
the offering of shares to prospective investors and for supplemental sales
literature and advertising. Schwab receives no fee under the Distribution
Agreement.

SHAREHOLDER SERVICES AND TRANSFER AGENT

Schwab provides fund information to shareholders, including share price,
reporting shareholder ownership and account activities and distributing the
funds' prospectuses, financial reports and other informational literature about
the funds. Schwab maintains the office space, equipment and personnel necessary
to provide these services. Schwab also distributes and markets SchwabFunds and
provides other services. At its own expense, Schwab may engage third party
entities, as appropriate, to perform some or all of these services.

For the services performed as transfer agent under its contract with each fund,
Schwab is entitled to receive an annual fee, payable monthly from each fund, in
the amount of 0.05% of each fund's average daily net assets.

For the services performed as shareholder services agent under its contract with
each share class of each fund, Schwab is entitled to receive an annual fee,
payable monthly from each share class of each fund, in the amount of 0.20% of
Investor Shares' and 0.05% of Select Shares'(R) and e.Shares'(R) average
daily net assets.

CUSTODIANS AND FUND ACCOUNTANT

Brown Brothers Harriman & Co., 40 Water Street, Boston MA 02109, serves as
custodian for the Schwab International Index Fund and the Schwab Small-Cap Index
Fund. PFPC Trust Company, 8800 Tinicum Blvd. Third Floor Suite 200,
Philadelphia, PA 19153 serves as custodian to the Schwab S&P 500 Fund, Schwab
1000 Fund, and Schwab Total Stock Market Fund. SEI Investments, Mutual Fund
Services, One Freedom Valley Dr. Oaks, Pennsylvania 19456, serves as fund
accountant for the funds.

The custodians are responsible for the daily safekeeping of securities and cash
held or sold by the funds. The fund accountant maintains all books and records
related to each fund's transactions.

INDEPENDENT ACCOUNTANTS

The funds' independent accountants, ________________, audits and reports on the
annual financial statements of each series of the trusts and reviews certain
regulatory reports and each fund's federal income tax return. They also perform
other professional accounting, auditing, tax and advisory services when the
trusts engage them to do so. Their address is _______________. Each fund's
audited financial statements for the fiscal year ended October 31, 2000, are
included in the fund's annual report, which is a separate report supplied with
the SAI.

25
<PAGE> 59
BROKERAGE ALLOCATION AND OTHER PRACTICES

PORTFOLIO TURNOVER

For reporting purposes, each fund's turnover rate is calculated by dividing the
value of purchases or sales of portfolio securities for the fiscal year,
whichever is less, by the monthly average value of portfolio securities the fund
owned during the fiscal year. When making the calculation, all securities whose
maturities at the time of acquisition were one year or less ("short-term
securities") are excluded.

A 100% portfolio turnover rate would occur, for example, if all portfolio
securities (aside from short-term securities) were sold and either repurchased
or replaced once during the fiscal year. The funds do not expect that their
respective portfolio turnover rates will exceed 100% in any given year, a
turnover rate lower than that of most non-index mutual funds. The funds'
portfolio turnover rates are in the financial highlight tables in the
prospectus.

PORTFOLIO TRANSACTIONS

In effecting securities transactions for a fund, the investment adviser seeks to
obtain best execution. Subject to the supervision of the Board of Trustees, the
investment adviser will select brokers and dealers for the funds on the basis of
a number of factors, including, for example, price paid for securities,
commission paid for transactions, clearance, settlement, reputation, financial
strength and stability, efficiency of execution and error resolution, block
trading and block positioning capabilities, willingness to execute related or
unrelated difficult transactions in the future, and order of call.

In assessing these criteria, the investment adviser will, among other things,
monitor the performance of brokers effecting transactions for the funds to
determine the effect, if any, that the funds' transactions through those brokers
have on the market prices of the stocks involved. This may be of particular
importance for the funds' investments in relatively smaller companies whose
stocks are not as actively traded as those of their larger counterparts. The
funds will seek to buy and sell securities in a manner that causes the least
possible fluctuation in the prices of those stocks in view of the size of the
transactions.

When the execution capability and price offered by two or more broker-dealers
are comparable, the investment adviser may, in its discretion, in agency
transactions (and not principal transactions) utilize the services of
broker-dealers that provide it with investment information and other research
resources. Such resources also may be used by the investment adviser when
providing advisory services to its other clients, including mutual funds.

In an attempt to obtain best execution for the funds, the investment adviser may
place orders directly with market makers or with third market brokers, Instinet
or brokers on an agency basis. Placing orders with third market brokers or
through Instinet may enable the funds to trade directly with other institutional
holders on a net basis. At times, this may allow the funds to trade larger
blocks than would be possible trading through a single market maker.

In determining when and to what extent to use Schwab or any other affiliated
broker-dealer as its broker for executing orders for the funds on securities
exchanges, the investment adviser follows procedures, adopted by the Board of
Trustees, that are designed to ensure that affiliated

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<PAGE> 60
brokerage commissions (if relevant) are reasonable and fair in comparison to
unaffiliated brokerage commissions for comparable transactions. The Board
reviews the procedures annually and approves and reviews transactions involving
affiliated brokers quarterly.

BROKERAGE COMMISSIONS

For the fiscal years ended October 31, 2000, 1999 and 1998, the Schwab S&P 500
Fund paid brokerage commissions of $______, $1,266,303 and $898,196,
respectively.

For the fiscal years ended October 31, 2000, 1999 and 1998, the Schwab 1000
Fund(R) paid brokerage commissions of $______, $743,826 and $641,226,
respectively.

For the fiscal years ended October 31, 2000, 1999 and 1998, the Schwab Small-Cap
Index Fund paid brokerage commissions of $______, $858,379 and $710,856,
respectively.

For the fiscal years ended October 31, 2000 and 1999, the Schwab Total Stock
Market Index Fund paid brokerage commissions of $______ and $152,679,
respectively.

For the fiscal years ended October 31, 2000, 1999, and 1998, the Schwab
International Index Fund paid brokerage commissions of $______, $205,007 and
$208,087, respectively.

Of brokerage commissions paid by the Schwab S&P 500 Fund in 1999 and 2000,
$13,000 (1.03% of the total) and $______ (____% of the total), respectively, was
paid to Schwab.

Of brokerage commission paid by the Schwab 1000 Fund in 1999 and 2000, $5,040
(0.68% of the total) and $______ (____% of the total), respectively, was paid to
Schwab. Schwab is an affiliated person of each of the funds.

DESCRIPTION OF THE TRUSTS

Each fund, except the Schwab 1000 Fund, is a series of Schwab Capital Trust, an
open-end investment management company organized as a Massachusetts business
trust on May 7, 1993. The Schwab 1000 Fund is a series of Schwab Investments, an
open-end investment management company organized as a Massachusetts business
trust on October 26, 1990. Each fund is composed of multiple classes of shares:
Select Shares,(TM) Investor Shares and, for the Schwab S&P 500 Fund,
e. Shares.(R)

The Declaration of Trust provides that shares may be automatically redeemed if
held by a shareholder in an amount less than the minimum required by each fund
or share class. Each fund's initial and subsequent minimum investment and
balance requirements are set forth in the prospectus. These minimums may be
waived for certain investors, including trustees, officers and employees of
Schwab, or changed without prior notice.

The funds may hold special meetings, which may cause the funds to incur
non-routine expenses. These meetings may be called for purposes such as electing
trustees, changing fundamental policies and amending management contracts.
Shareholders are entitled to one vote for each share owned

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<PAGE> 61
and may vote by proxy or in person. Proxy materials will be mailed to
shareholders prior to any meetings, and will include a voting card and
information explaining the matters to be voted upon.

The bylaws of each trust provide that a majority of shares entitled to vote
shall be a quorum for the transaction of business at a shareholders' meeting,
except that where any provision of law, or of the Declaration of Trust or of the
bylaws permits or requires that (1) holders of any series shall vote as a
series, then a majority of the aggregate number of shares of that series
entitled to vote shall be necessary to constitute a quorum for the transaction
of business by that series, or (2) holders of any class shall vote as a class,
then a majority of the aggregate number of shares of that class entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that class. A majority of the outstanding voting shares of a fund means the
affirmative vote of the lesser of: (a) 67% or more of the voting shares
represented at the meeting, if more than 50% of the outstanding voting shares of
a fund are represented at the meeting or (b) more than 50% of the outstanding
voting shares of a fund. Any lesser number shall be sufficient for adjournments.
Any adjourned session or sessions may be held, within a reasonable time after
the date set for the original meeting, without the necessity of further notice.
Each Declaration of Trust specifically authorizes the Board of Trustees to
terminate the trust (or any of its investment portfolios) by notice to the
shareholders without shareholder approval.

Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for the trust's
obligations. Each Declaration of Trust, however, disclaims shareholder liability
for the trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the trust or the trustees. In addition, each Declaration of Trust provides for
indemnification out of the property of an investment portfolio in which a
shareholder owns or owned shares for all losses and expenses of such shareholder
or former shareholder if he or she is held personally liable for the obligations
of the trust solely by reason of being or having been a shareholder. Moreover,
each trust will be covered by insurance which the trustees consider adequate to
cover foreseeable tort claims. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote, because
it is limited to circumstances in which a disclaimer is inoperative and the
trust itself is unable to meet its obligations. There is a remote possibility
that a fund could become liable for a misstatement in the prospectus or SAI
about another fund.

As more fully described in each Declaration of Trust, the trustees may each
year, or more frequently, distribute to the shareholders of each series accrued
income less accrued expenses and any net realized capital gains less accrued
expenses. Distributions of each year's income of each series shall be
distributed pro rata to shareholders in proportion to the number of shares of
each series held by each of them. Distributions will be paid in cash or shares
or a combination thereof as determined by the trustees. Distributions paid in
shares will be paid at the net asset value as determined in accordance with the
bylaws.

PURCHASE, REDEMPTION, DELIVERY OF SHAREHOLDER REPORTS AND
PRICING OF SHARES

PURCHASING AND REDEEMING SHARES OF THE FUNDS

The fund is open each day that both the Federal Reserve Bank of New York (New
York Fed) and New York Stock Exchange (NYSE) are open (business days). The
following holiday closings are currently scheduled for 2001: Martin Luther King
Jr.'s Birthday (observed), President's Day,

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<PAGE> 62

Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day (observed),
Thanksgiving Day and Christmas Day. On any day that the New York Fed, NYSE or
principal government securities markets close early, such as days in advance of
holidays, the funds reserve the right to advance the time by which purchase,
redemption and exchanges orders must be received on that day.

As long as the funds or Schwab follows reasonable procedures to confirm that
your telephone or Internet order is genuine, they will not be liable for any
losses an investor may experience due to unauthorized or fraudulent
instructions. These procedures may include requiring a form of personal
identification or other confirmation before acting upon any telephone or
Internet order, providing written confirmation of telephone or Internet orders
and tape recording all telephone orders.

Share certificates will not be issued in order to avoid additional
administrative costs, however, share ownership records are maintained by Schwab.

The funds reserve the right to waive the early redemption fee for certain
tax-advantaged retirement plans.

The funds have made an election with the SEC to pay in cash all redemptions
requested by any shareholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of its net assets at the beginning of
such period. This election is irrevocable without the SEC's prior approval.
Redemption requests in excess of these limits may be paid, in whole or in part,
in investment securities or in cash, as the Board of Trustees may deem
advisable. Payment will be made wholly in cash unless the Board of Trustees
believes that economic or market conditions exist that would make such payment a
detriment to the best interests of a fund. If redemption proceeds are paid in
investment securities, such securities will be valued as set forth in "Pricing
of Shares". A redeeming shareholder would normally incur transaction costs if he
or she were to convert the securities to cash.

Each fund is designed for long-term investing. Because short-term trading
activities can disrupt the smooth management of a fund and increase its
expenses, each fund reserves the right to refuse any purchase or exchange order,
or large purchase or exchange orders, including any purchase or exchange order
which appears to be associated with short-term trading activities or "market
timing." Because market timing decisions to buy and sell securities typically
are based on an individual investor's market outlook, including such factors as
the perceived strength of the economy or the anticipated direction of interest
rates, it is difficult for a fund to determine in advance what purchase or
exchange orders may be deemed to be associated with market timing or short-term
trading activities.

EXCHANGING SHARES OF THE FUNDS

Shares of any SchwabFund, including any class of shares, may be sold and shares
of any other SchwabFund or class purchased, provided the minimum investment and
any other requirements of the fund or class purchased are satisfied. Without
limiting this privilege, "an exchange order," which is a simultaneous order to
sell shares of one fund or class and automatically invest the proceeds in
another fund or class, may not be executed between shares of Sweep
Investments(TM) and shares of non-Sweep Investments. Shares of Sweep
Investments may be bought and sold automatically pursuant to the terms and
conditions of your account agreement or by direct order

29
<PAGE> 63

as long as you meet the minimums for direct investments.

DELIVERY OF SHAREHOLDER DOCUMENTS

Typically once a year, an updated prospectus will be mailed to shareholders
describing each fund's investment strategies, risks and shareholder policies.
Twice a year, financial reports will be mailed to shareholders describing each
fund's performance and investment holdings. In order to eliminate duplicate
mailings of shareholder documents, each household may receive one copy of these
documents, under certain conditions. This practice is commonly called
"householding." If you want to receive multiple copies, you may write or call
your fund at the address or telephone number on the front of this SAI. Your
instructions will be effective within 30 days of receipt by Schwab.

PRICING OF SHARES

Securities traded on stock exchanges are valued at the last-quoted sales price
on the exchange on which such securities are primarily traded, or, lacking any
sales, at the mean between the bid and ask prices. Securities traded in the
over-the-counter market are valued at the last sales price that day, or if no
sales that day, at the mean between the bid and ask prices. In addition,
securities that are primarily traded on foreign exchanges are generally valued
at the preceding closing values of such securities on their respective exchanges
with these values then translated into U.S. dollars at the current exchange
rate. Securities for which market quotations or closing values are not readily
available (including restricted securities that are subject to limitations on
their sale and illiquid securities) are valued at fair value as determined in
good faith pursuant to guidelines and procedures adopted by the Board of
Trustees. These procedures require that securities be valued on the basis of
prices provided by approved pricing services, except when a price appears
manifestly incorrect or events occurring between the time a price is furnished
by a service and the time a fund calculates its share price materially affect
the furnished price. The Board of Trustees regularly reviews fair values
assigned to portfolio securities under these circumstances and also when no
prices from approved pricing services are available.

TAXATION

FEDERAL TAX INFORMATION FOR THE FUNDS

It is each fund's policy to qualify for taxation as a "regulated investment
company"(RIC) by meeting the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By qualifying as a RIC, each fund
expects to eliminate or reduce to a nominal amount the federal income tax to
which it is subject. If a fund does not qualify as a RIC under the Code, it will
be subject to federal income tax on its net investment income and any net
realized capital gains.

The Code imposes a non-deductible excise tax on RICs that do not distribute in a
calendar year (regardless of whether they otherwise have a non-calendar taxable
year) an amount equal to 98% of their "ordinary income" (as defined in the Code)
for the calendar year plus 98% of their net capital gain for the one-year period
ending on October 31 of such calendar year, plus any undistributed amounts from
prior years. The non-deductible excise tax is equal to 4% of the deficiency. For
the foregoing purposes, a fund is treated as having distributed any amount on
which it is subject to income tax for any taxable year ending in such calendar
year.

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<PAGE> 64

A fund's transactions in futures contracts, forward contracts, foreign currency
transactions, options and certain other investment and hedging activities may be
restricted by the Code and are subject to special tax rules. In a given case,
these rules may accelerate income to a fund, defer its losses, cause adjustments
in the holding periods of a fund's assets, convert short-term capital losses
into long-term capital losses or otherwise affect the character of a fund's
income. These rules could therefore affect the amount, timing and character of
distributions to shareholders. The funds will endeavor to make any available
elections pertaining to these transactions in a manner believed to be in the
best interest of the funds and their shareholders.

FEDERAL INCOME TAX INFORMATION FOR SHAREHOLDERS

The discussion of federal income taxation presented below supplements the
discussion in the funds' prospectus and only summarizes some of the important
federal tax considerations generally affecting shareholders of the funds.
Accordingly, prospective investors (particularly those not residing or domiciled
in the United States) should consult their own tax advisers regarding the
consequences of investing in a fund.

Any dividends declared by a fund in October, November or December and paid the
following January are treated, for tax purposes, as if they were received by
shareholders on December 31 of the year in which they were declared. Long-term
capital gains distributions are taxable as long-term capital gains, regardless
of how long you have held your shares. However, if you receive a long-term
capital gains distribution with respect to fund shares held for six months or
less, any loss on the sale or exchange of those shares shall, to the extent of
the long-term capital gains distribution, be treated as a long-term capital
loss. For corporate investors in the funds, dividend distributions the funds
designate to be from dividends received from qualifying domestic corporations
will be eligible for the 70% corporate dividends-received deduction to the
extent they would qualify if the funds were regular corporations. Distributions
by a fund also may be subject to state, local and foreign taxes, and their
treatment under applicable tax laws may differ from the federal income tax
treatment.

A fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder who (1) fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) is subject to withholding by the Internal Revenue Service for
failure to properly report all payments of interest or dividends; or (3) fails
to provide a certified statement that he or she is not subject to "backup
withholding." Backup withholding is not an additional tax and any amounts
withheld may be credited against the shareholder's ultimate U.S. tax liability.

Foreign shareholders (i.e., nonresident alien individuals and foreign
corporations, partnerships, trusts and estates) are generally subject to U.S.
withholding tax at the rate of 30% (or a lower tax treaty rate) on distributions
derived from net investment income and short-term capital gains. Distributions
to foreign shareholders of long-term capital gains and any gains from the sale
or other disposition of shares of the funds generally are not subject to U.S.
taxation, unless the recipient is an individual who either (1) meets the Code's
definition of "resident alien" or (2) who is physically present in the U.S. for
183 days or more per year. Different tax consequences may result if the foreign
shareholder is engaged in a trade or business within the United States. In
addition, the tax consequences to a foreign shareholder entitled to claim the
benefits of a tax treaty may be different than those described above.

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<PAGE> 65
Income that the Schwab International Index Fund receives from sources within
various foreign countries may be subject to foreign income taxes withheld at the
source. If a fund has at least 50% of its assets invested in foreign securities
at the end of its taxable year, it may elect to pass through to its shareholders
the ability to take either the foreign tax credit or the deduction for foreign
taxes. It is expected that the Schwab International Index Fund will have more
than 50% of the value of its total assets at the close of its taxable year
invested in foreign securities, and it will make this election. Pursuant to this
election, U.S. shareholders must include in gross income, even though not
actually received, their respective pro rata share of foreign taxes, and may
either credit the tax against U.S. income taxes, subject to certain limitations
described in the Code or deduct their pro rata share of foreign taxes, but not
for alternative minimum tax purposes (but not both). A shareholder who does not
itemize deductions may not claim a deduction for foreign taxes.

The Schwab International Index Fund may invest in a non-U.S. corporation, which
could be treated as a passive foreign investment company (PFIC) or become a PFIC
under the Code. This could result in adverse tax consequences upon the
disposition of, or the receipt of "excess distributions" with respect to, such
equity investments. To the extent the Schwab International Index Fund does
invest in PFICs, it may elect to treat the PFIC as a "qualified fund" or
mark-to-market its investments in PFICs annually. In either case, the Schwab
International Index Fund may be required to distribute amounts in excess of
realized income and gains. To the extent that the Schwab International Index
Fund does invest in foreign securities which are determined to be PFIC
securities and is required to pay a tax on such investments, a credit for this
tax would not be allowed to be passed through to the fund's shareholders.
Therefore, the payment of this tax would reduce the Schwab International Index
Fund's economic return from its PFIC shares, and excess distributions received
with respect to such shares are treated as ordinary income rather than capital
gains.

Shareholders are urged to consult their tax advisers as to the state and local
tax rules affecting investments in the funds.

CALCULATION OF PERFORMANCE DATA

Average annual total return is a standardized measure of performance calculated
using methods prescribed by SEC rules. It is calculated by determining the
ending value of a hypothetical initial investment of $1,000 made at the
beginning of a specified period. The ending value is then divided by the initial
investment, which is annualized and expressed as a percentage. It is reported
for periods of one, five and 10 years or since commencement of operations for
periods not falling on those intervals. In computing average annual total
return, a fund assumes reinvestment of all distributions at net asset value on
applicable reinvestment dates.

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<PAGE> 66

<TABLE>
<CAPTION>
From Commencement of
One Year ended Five Years ended Operations to
Fund (Commencement of Operations) -- October 31, 2000 October 31, 2000 October 31, 2000
---------------------------------- -------------------------------------------------------------
<S> <C> <C> <C>
Schwab S&P 500 Fund -
Investor Shares (5/1/96) ____% - ____%
e.Shares (5/1/96) ____% - ____%
Select Shares (5/19/97) ____% - ____%
Schwab 1000 Fund -
Investor Shares (5/2/91) ____% ____% ____%
Select Shares (5/19/97) ____% - ____%
Schwab Small-Cap Index Fund -
Investor Shares (12/3/93) ____% ____% ____%
Select Shares (5/19/97) ____% - ____%

Schwab Total Stock Market Index
Fund
Investor Shares (5/28/99) - - ____%
Select Shares (5/28/99) - - ____%
Schwab International Index Fund -
Investor Shares (9/9/93) ____% ____% ____%
Select Shares (5/19/97) ____% - ____%
</TABLE>

An after-tax total return for each fund may be calculated by taking that fund's
total return and subtracting applicable federal taxes from the portions of each
fund's total return attributable to capital gain and ordinary income
distributions. This after-tax total return may be compared to that of other
mutual funds with similar investment objectives as reported by independent
sources.

Each fund also may report the percentage of its total return that would be paid
to taxes annually (at the applicable federal personal income and capital gains
tax rates) before redemption of fund shares. This proportion may be compared to
that of other mutual funds with similar investment objectives as reported by
independent sources.

A fund also may advertise its cumulative total return. This number is calculated
using the same formula that is used for average annual total return except that,
rather than calculating the total return based on a one-year period, cumulative
total return is calculated from commencement of operations to the fiscal year
ended October 31, 2000.

<TABLE>
<CAPTION>
Name of Fund (Commencement of Operations) Cumulative Total Return
----------------------------------------- -----------------------
<S> <C>
Schwab S&P 500 Fund -
Investor Shares (5/1/96) _____%
e.Shares (5/1/96) _____%
Select Shares (5/19/97) _____%
Schwab 1000 Fund -
Investor Shares (5/2/91) _____%
Select Shares (5/19/97) _____%
Schwab Small-Cap Fund -
Investor Shares (12/3/93) _____%
Select Shares (5/19/97) _____%
Schwab Total Stock Market Index Fund
Investor Shares (5/28/99) _____%
Select Shares (5/28/99) _____%
Schwab International Index Fund -
Investor Shares (9/9/93) _____%
Select Shares (5/19/97) _____%
</TABLE>

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<PAGE> 67
The performance of the funds may be compared with the performance of other
mutual funds by comparing the ratings of mutual fund rating services, various
indices, U.S. government obligations, bank certificates of deposit, the consumer
price index and other investments for which reliable data is available. An
index's performance data assumes the reinvestment of dividends but does not
reflect deductions for administrative, management and trading expenses. The
funds will be subject to these costs and expenses, while an index does not have
these expenses. In addition, various factors, such as holding a cash balance,
may cause the funds' performance to be higher or lower than that of an index.

TAX EFFICIENCY

Taxes can erode the returns a shareholder earns from a mutual fund investment
and are an important, and often overlooked, factor when evaluating a mutual
fund's performance. For many mutual funds, shareholder tax liability is of
minimal concern in the investment management process. In contrast, the
investment adviser of the Schwab 1000, International and Total Stock Market
Funds employs specific investment strategies designed to minimize capital gain
distributions while achieving each fund's investment objective. These strategies
include selling the highest tax cost securities first, not re-balancing the
portfolio to reflect changes in their indexes, trading only round-lots or large
blocks of securities and focusing on individual tax lots in deciding when and
how to manage the realization of capital gains. In addition, the investment
adviser monitors, analyzes and evaluates each fund's portfolio as well as market
conditions to carefully manage necessary trading activity and to determine when
there are opportunities to realize capital losses, which offset realized capital
gains. These policies will be utilized to the extent they do not have a material
effect on each fund's ability to track or match the performance of its index.
They may affect the composition of a fund's index holdings as compared to the
index. By deferring or avoiding the realization of capital gains, where
possible, until an investor sells shares, unrealized gains can accumulate in a
fund, helping to build the value of a shareholder's investment. In addition,
shareholders are given greater control over the timing of the recognition of
such gains and the impact on their tax situations. There can be no assurance
that the investment adviser will succeed in avoiding realized net capital gains.

The Schwab 1000, International and Total Stock Market Funds may refer to recent
studies that analyze certain techniques and strategies these funds may use or
promote the advantages of investing in a series that is part of a large, diverse
mutual fund complex. From time to time, a fund may include discussions in
advertisements of the income tax savings shareholders may experience as a result
of their policy of limiting portfolio trading in order to reduce capital gains.
This information may be supplemented by presentations of statistical data
illustrating the extent of such income tax savings and the impact of such
savings on the yield and/or total return of the funds. In addition, such
advertisements may include comparisons of the funds' performance against that of
investment products that do not employ the funds' policy of seeking to limit
capital gains.

<PAGE> 68
PART C
OTHER INFORMATION
SCHWAB INVESTMENTS

Item 23. Exhibits.

<TABLE>
<S> <C> <C>
(a) Articles of Incorporation Agreement and Declaration of Trust, dated October 26, 1990, was
electronically filed and is incorporated by reference to Exhibit 1, File
No. 811-6200, of Post-Effective Amendment No. 22 to Registrant's
Registration Statement on Form N-1A, filed on December 30, 1997.

(b) By-Laws Amended and Restated By-Laws were electronically filed and are
incorporated by reference to Exhibit 2, File No. 811-6200, of
Post-Effective Amendment No. 22 to Registrant's Registration Statement
on Form N-1A, filed on December 30, 1997.

(c) Instruments Defining (i) Article III, Section 5, Article V, Article VI, Article VIII, Section 4
Rights of Security Holders and Article IX, Sections 1, 5 and 7 of the Agreement and Declaration of
Trust were filed and are incorporated by reference to Exhibit 1, File
No. 811-6200, of Post-Effective Amendment No. 22 to Registrant's
Registration Statement on Form N-1A, filed on December 30, 1997.

(ii) Article 9, Article 10, Section 6, and Article 11 of the Amended and
Restated By-Laws were filed and are incorporated by reference to Exhibit
2, File No. 811-6200, of Post-Effective Amendment No. 22 to Registrant's
Registration Statement on Form N-1A filed on December 30, 1997.

(d) Investment Advisory (i) Investment Advisory and Administration Agreement between Registrant and
Contracts Charles Schwab Investment Management, Inc. (the "Investment Manager")
and Schedules B and C were electronically filed and are incorporated by
reference to Exhibit 5(a), File No. 811-6200, of Post-Effective
Amendment No. 22 to Registrant's Registration Statement on Form N-1A,
filed on December 30, 1997.

(ii) Amended Schedules A and D to Investment Advisory and Administration
Agreement referred to at Exhibit (d)(i) above was electronically filed and
is incorporated by reference to Exhibit (d) (ii), File No. 811-6200, of
Post-Effective Amendment No. 29 to Registrant's Registration Statement on
Form N-1A, filed on July 21, 1999.
</TABLE>

Part C
<PAGE> 69

<TABLE>
<S> <C> <C>
(e) Underwriting Contracts (i) Distribution Agreement between Registrant and Charles Schwab & Co., Inc.
("Schwab") was electronically filed and is incorporated by reference to
Exhibit 6, File No. 811-6200, of Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A, filed on December 30,
1997.

(ii) Amended Schedule A to the Distribution Agreement was electronically filed
and is incorporated by reference to Exhibit (e) (ii), File No. 811-6200,
of Post-Effective Amendment No. 29 to Registrant's Registration Statement
on Form N-1A, on July 21, 1999.

(f) Bonus or Profit Sharing Inapplicable.
Contracts

(g) Custodian Agreements (i) Custodian Services Agreement between Registrant and PNC Bank, National
Association (formerly Provident National Bank) was electronically filed
and is incorporated by reference to Exhibit 8(a), File No. 811-6200, of
Post-Effective Amendment No. 22 to Registrant's Registration Statement
on Form N-1A, filed on December 30, 1997.

(ii) Amendment No. 1 to Custodian Services Agreement referred to at Exhibit
g(i) above was filed and is incorporated by reference to Exhibit 8(b),
File No. 811-6200, of Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A, filed on December 29, 1996.

(iii) Amendment No. 2 to Custodian Services Agreement referred to at Exhibit
(g)(i) above was filed and is incorporated by reference to Exhibit 8(c),
File No. 811-6200, of Post-Effective Amendment No.14 to Registrant's
Registration Statement on Form N-1A, filed on December 30, 1996.

(iv) Amended Schedule A to the Custodian Services Agreement referred to at
Exhibit (g)(i) above was electronically filed and is incorporated by
reference to Exhibit (g)(iv), File No. 811-6200, of Post-Effective
Amendment No. 29 to Registrant's Registration Statement on Form N-1A,
filed on July 21, 1999.

(v) Transfer Agency Agreement between the Registrant and Schwab and Schedule
B were electronically filed and are incorporated by reference to Exhibit
8(e), File No. 811-6200, of Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A, filed on December 30,
1997.
</TABLE>

Part C
<PAGE> 70

<TABLE>
<S> <C> <C>
(vi) Amended Schedules A and C to the Transfer Agency Agreement referred to at
Exhibit (g)(v) above were electronically filed and are incorporated by
reference to Exhibit (g)(vi), File No. 811-6200, of Post-Effective
Amendment No. 29 to Registrant's Registration Statement on Form N-1A,
filed on July 21, 1999.

(vii) Shareholder Service Agreement between the Registrant and Schwab and
Schedule B were electronically filed and are incorporated by reference to
Exhibit 8(g), File No. 811-6200, of Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A, filed on December 30,
1997.

(viii) Schedules A and C to the Shareholder Service Agreement between the
Registrant and Schwab referenced at Exhibit (g)(vii) above were
electronically filed and are incorporated by reference to Exhibit
(g)(viii), File No. 811-6200, of Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A, filed on July 21, 1999.

(ix) Accounting Services Agreement between Registrant and Provident Financial
Processing Corporation was electronically filed and is incorporated by
reference to Exhibit 8(i), File No. 811-6200, of Post-Effective
Amendment No. 22 to Registrant's Registration Statement on Form N-1A
filed on December 30, 1997.

(x) Amendment No. 1 to Accounting Services Agreement referred to at Exhibit
(g)(ix) above was filed and is incorporated by reference to Exhibit
8(j), File No. 811-6200, of Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A, filed on December 29,
1996.

(xi) Amendment No. 2 to Accounting Services Agreement referred to at Exhibit
(g)(ix) above was filed and is incorporated by reference to Exhibit
8(k), File No. 811-6200, of Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A, filed on December 30,
1996.

(xii) Amended Custodian Services Fee Agreement dated November 1, 1998, by and
between the Registrant and PNC Bank, National Association, is incorporated
herein by reference to Exhibit (g)(xii), File No. 811-6200, of
Post-Effective Amendment No. 27 to Registrant's Registration Statement on
Form N-1A, electronically filed on December 30, 1998.
</TABLE>

Part C
<PAGE> 71

<TABLE>
<S> <C> <C>
(xiii) Schedule A to the Custodian Services Fee Agreement between the
registrant and PNC Bank, National Association and PFPC, Inc. was
electronically filed and is incorporated by reference to Exhibit
(g)(xiv), File No. 811-6200, of Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A, filed on July 21,
1999.

(xiv) Accounting Services Agreement with SEI Fund Resources dated April 1, 1998,
was electronically filed and is incorporated herein by reference to
Exhibit g(xiii), File No. 811-6200, of Post-Effective Amendment No. 27 to
Registrant's Registration Statement on Form N-1A, electronically filed on
December 30, 1998.

(xv) Amended Schedule A of the Accounting Services Agreement between the
Registrant and SEI Fund Resources was electronically filed and is
incorporated by reference to Exhibit (g)(xvi), File No. 811-6200, of
Post-Effective Amendment No. 29 to Registrant's Registration Statement on
Form N-1A, filed on July 21, 1999.

(xvi) Amendment No. 1 to the Accounting Services Agreement dated December 17,
1998, by and between Schwab Capital Trust, Schwab Annuity Portfolios,
Schwab Investments and SEI Fund Resources was electronically filed and
is incorporated by reference to exhibit (g)(xvii), File No. 811-6200, of
Post-Effective Amendment No. 29 to Registrant's Registration Statement
on Form N-1A, filed on July 21, 1999.

(h) Other Material Contracts Inapplicable.

(i) Legal Opinion To be filed by amendment.

(j) Other Opinions To be filed by amendment.

(k) Omitted Financial Inapplicable.
Statements

(l) Initial Capital Agreement (i) Purchase Agreement relating to shares of the Schwab 1000 Fund was
electronically filed and is incorporated by reference to Exhibit (l)(i),
File No. 811-6200, of Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A, filed on July 21, 1999.
</TABLE>

Part C
<PAGE> 72

<TABLE>
<S> <C> <C>
(ii) Purchase Agreement relating to shares of the Schwab Short-Term Bond Market
Index Fund (formerly Schwab Short/Intermediate Government Bond Fund) was
electronically filed and incorporated by reference to Exhibit (l)(ii),
File No. 811-6200, of Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A, filed on July 21, 1999.

(iii) Purchase Agreement relating to shares of the Schwab California Long-Term
Tax-Free Bond Fund (formerly Schwab California Tax Free Bond Fund) was
electronically filed and is incorporated by reference to Exhibit (l)(iii),
File No. 811-6200, of Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A, filed on July 21, 1999.

(iv) Purchase Agreement relating to shares of the Schwab Long-Term Tax-Free
Bond Fund (formerly Schwab National Tax Free Bond Fund) was electronically
filed and is incorporated by reference to Exhibit (l)(iv), File No.
811-6200, of Post-Effective Amendment No. 29 to Registrant's Registration
Statement on Form N-1A, filed on July 21, 1999.

(v) Purchase Agreement relating to shares of the Schwab Short/Intermediate
Tax-Free Bond Fund, Schwab California Short/Intermediate Tax-Free Bond
Fund and Schwab Total Bond Market Index Fund (formerly, Schwab Long-Term
Government Bond Fund) was filed and is incorporated by reference to
Exhibit 13, File No. 811-6200, to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A filed on December 30,
1997.

(vi) Purchase Agreement relating to shares of the Schwab Yield Plus Fund was
electronically filed and is incorporated by reference to Exhibit (l)(vi)
of Post-Effective Amendment No. 29, File No. 811-6200, to Registrant's
Registration Statement on Form N-1A, filed on July 21, 1999.

(m) Rule 12b-1 Plan Inapplicable.

(n) Financial Data Schedule Inapplicable.

(o) Rule 18f-3 Plan Registrant's Amended and Restated Multiple Class Plan for Investor and
Select Shares of Schwab 1000 Fund(R) and Schwab YieldPlus Fund(TM)
was electronically filed and is incorporated by reference to Exhibit
(o)(i) of Post-Effective Amendment No. 29 to Registrant's Registration
Statement on Form N-1A, filed on July 21, 1999.
</TABLE>

Part C
<PAGE> 73

<TABLE>
<S> <C> <C>
(p) Power of Attorney (i) Power of Attorney executed by Mariann Byerwalter, August 4, 2000, was
electronically filed and is incorporated by reference to Exhibit (p)(i),
File No. 811-6200, of Post-Effective Amendment No. 33 to Registrant's
Registration Statement on Form N-1A, filed on August 28, 2000.

(ii) Power of Attorney executed by William A. Hasler, August 4, 2000, was
electronically filed and is incorporated by reference to Exhibit
(p)(ii), File No. 811-6200, of Post-Effective Amendment No. 33 to
Registrant's Registration Statement on Form N-1A, filed on August 28,
2000.

(iii) Power of Attorney executed by Gerald B. Smith, August 4, 2000, was
electronically filed and is incorporated by reference to Exhibit
(p)(iii), File No. 811-6200, of Post-Effective Amendment No. 33 to
Registrant's Registration Statement on Form N-1A, filed on August 28,
2000.

(iv) Power of Attorney executed by Charles R. Schwab, November 21, 2000, is
filed herewith as Exhibit (p)(iv), File No. 811-6200.

(v) Power of Attorney executed by Jeremiah H. Chafkin, November 21, 2000, is
filed herewith as Exhibit (p)(v), File No. 811-6200.

(vi) Power of Attorney executed by John Coghlan, November 21, 2000, is filed
herewith as Exhibit (p)(vi), File No. 811-6200.

(vii) Power of Attorney executed by Donald F. Doward, November 21, 2000, is
filed herewith as Exhibit (p)(vii), File No. 811-6200.

(viii) Power of Attorney executed by Robert G. Holmes, November 21, 2000, is
filed herewith as Exhibit (p)(v), File No. 811-6200.

(ix) Power of Attorney executed by Donald R. Stephens, November 21, 2000, is
filed herewith as Exhibit (p)(ix), File No. 811-6200.

(x) Power of Attorney executed by Michael W. Wilsey, November 21, 2000, is
filed herewith as Exhibit (p)(x), File No. 811-6200.

(xi) Power of Attorney executed by Tai-Chin Tung, November 21, 2000, is filed
herewith as Exhibit (p)(xi), File No. 811-6200.

(q) Code of Ethics Code of Ethics adopted by Registrant, Charles Schwab Investment
Management Inc. and Charles Schwab & Co., Inc. was electronically filed
and is incorporated by reference to Exhibit (q), File No. 811-7704, of
Post-Effective Amendment No. 36 to the Schwab Capital Trust Registration
Statement on Form N-1A filed on February 25, 2000.
</TABLE>

Part C
<PAGE> 74
Item 24. Persons Controlled by or under Common Control with the
Registrant.

The Charles Schwab Family of Funds (the "Schwab Fund Family"), Schwab Capital
Trust and Schwab Annuity Portfolios are each Massachusetts business trusts
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). Each is advised by the Investment Manager and employs Schwab as principal
underwriter, transfer agent and shareholder services agent. As a result, the
Schwab Fund Family, Schwab Capital Trust and Schwab Annuity Portfolios may each
be deemed to be under common control with Registrant.

Item 25. Indemnification.

Article VIII of Registrant's Agreement and Declaration of Trust (Exhibit (1)
hereto, which is incorporated herein by reference) provides in effect that
Registrant will indemnify its officers and trustees against all liabilities and
expenses, including but not limited to amounts paid in satisfaction of
judgments, in compromise, or as fines and penalties, and counsel fees reasonably
incurred by any such officer or trustee in connection with the defense or
disposition of any action, suit, or other proceeding. However, in accordance
with Section 17(h) and 17(i) of the 1940 Act and its own terms, said Agreement
and Declaration of Trust does not protect any person against any liability to
Registrant or its shareholders to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office. In any
event, Registrant will comply with 1940 Act Releases No. 7221 and 11330
respecting the permissible boundaries of indemnification by an investment
company of its officers and trustees.

Insofar as indemnification for liability arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.

Item 26. Business and Other Connections of Investment Manager

Registrant's investment adviser, Charles Schwab Investment Management, Inc., a
Delaware corporation, organized in October 1989 to serve as investment manager
to Registrant, also serves as the investment manager to The Charles Schwab
Family of Funds, Schwab Capital Trust, and Schwab Annuity Portfolios, each an
open-end, management investment company. The principal place of business of the
investment adviser is 101 Montgomery Street, San Francisco, California 94104.
The only business in which the investment adviser engages is that of investment
adviser and administrator to Registrant, The Charles Schwab Family of Funds,
Schwab Capital Trust, Schwab Annuity Portfolios and any other investment
companies that Schwab may sponsor in the future as well as provider of advisory
services to the Schwab Fund for Charitable Giving and to Charles Schwab Asset
Management (Ireland) Limited.

Part C
<PAGE> 75
The business, profession, vocation or employment of a substantial nature in
which each director and/or senior or executive officer of the investment adviser
(CSIM) is or has been engaged during the past two fiscal years is listed below.
The name of any company for which any director and/or senior or executive
officer of the investment adviser serves as director, officer, employee, partner
or trustee is also listed below. In addition, the name and position of each
director and/or senior or executive officer of the Registrant's principal
underwriter Schwab & Co. Inc. is listed below.

<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Charles R. Schwab, Charles Schwab & Co., Inc. Chairman, Director
Chairman, Chief Executive
Officer and Trustee
The Charles Schwab Corporation Chairman and Co-Chief Executive
Officer, Director

Charles Schwab Investment Management, Inc. Chairman, Director

The Charles Schwab Trust Company Director

Schwab Holdings, Inc. Chief Executive Officer, Director

Charles Schwab Limited (U.K.) Chairman and Chief Executive
Officer

Schwab International Holdings, Inc. Chairman and Chief Executive
Officer

Schwab (SIS) Holdings, Inc. I Chairman and Chief Executive
Officer

The Gap, Inc. Director

Audiobase, Inc. Director

Vodaphone AirTouch PLC Director

Siebel Systems Director

Mayer & Schweitzer, Inc. Chairman and Director until
January 1999

Schwab Retirement Plan Services, Inc. Chairman, Director until January
1999
</TABLE>

Part C
<PAGE> 76

<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Performance Technologies, Inc. Chairman, Director until January
1999

TrustMark, Inc. Chairman and Director until
January 1999

David S. Pottruck Charles Schwab & Co., Inc. Chief Executive Officer, Director

The Charles Schwab Corporation President and Co-Chief Executive
Officer, Director

Charles Schwab Investment Management, Inc. Director

Schwab Retirement Plan Services, Inc. Director until January 1999

Charles Schwab Limited (U.K.) Director until January 1999

Mayer & Schweitzer, Inc. Director until January 1999

Performance Technologies, Inc. Director until January 1999

TrustMark, Inc. Director until January 1999

John P. Coghlan Charles Schwab & Co., Inc. Vice Chairman and Enterprise
President and Trustee President - Retirement Plan
Services and Services for
Investment Managers

Charles Schwab Investment Management, Inc. Chief Executive Officer and
Director

The Charles Schwab Corporation Vice Chairman and Executive Vice
President

The Charles Schwab Trust Company President, Chief Executive
Officer and Director

Charles Schwab Asset Management (Ireland) Ltd. Director

Charles Schwab Worldwide Funds PLC Director

Willie C. Bogan The Charles Schwab Corporation Assistant Corporate Secretary
</TABLE>

Part C
<PAGE> 77

<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Charles Schwab & Co., Inc. Vice President and Assistant
Corporate Secretary

Charles Schwab Investment Management, Inc. Assistant Corporate Secretary

The Charles Schwab Trust Company Assistant Corporate Secretary
until February 2000

Jeremiah H. Chafkin, Executive Charles Schwab & Co., Inc. Executive Vice President, Asset
Vice President, Chief Management Products and
Operating Officer and Trustee Services. Prior to September
1999, Mr. Chafkin was Senior
Managing Director, Bankers Trust
Company.

Charles Schwab Investment Management, Inc. President and Chief Operating
Officer

Karen W. Chang Charles Schwab & Co., Inc. Enterprise President - General
Investor Services

Koji E. Felton, Charles Schwab Investment Management, Inc. Vice President, Chief Counsel
Secretary and Assistant Corporate Secretary

Christopher V. Dodds Charles Schwab & Co., Inc. Executive Vice President and
Chief Financial Officer

Carrie Dwyer Charles Schwab & Co., Inc. Executive Vice President -
Corporate Oversight and
Corporate Secretary

Wayne W. Fieldsa Charles Schwab & Co., Inc. Enterprise President - Brokerage
Operations

Lon Gorman Charles Schwab & Co., Inc. Vice Chairman and Enterprise
President - Capital Markets and
Trading

James M. Hackley Charles Schwab & Co., Inc. Executive Vice President -
Retail Client Services

Colleen M. Hummer Charles Schwab & Co., Inc. Senior Vice President - Mutual
Funds Operations
</TABLE>

Part C
<PAGE> 78

<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
--------------- --------------- --------
<S> <C> <C>
Daniel O. Leemon The Charles Schwab Corporation Executive Vice President and
Chief Strategy Officer

Dawn G. Lepore Charles Schwab & Co., Inc. Vice Chairman, Executive Vice
President and Chief Information
Officer

Susanne D. Lyons Charles Schwab & Co., Inc. Executive Vice President and
Chief Marketing Officer

Frederick E. Matteson Charles Schwab & Co., Inc. Executive Vice President -
Schwab Technology Services

John P. McGonigle Charles Schwab & Co., Inc. Executive Vice President -
Mutual Funds

Geoffrey Penney Charles Schwab & Co., Inc. Executive Vice President -
Financial Products and
International Technology

George A. Rich Charles Schwab & Co., Inc. Executive Vice President - Human
Resources

Gideon Sasson Charles Schwab & Co., Inc. Enterprise President -
Electronic Brokerage

Elizabeth G. Sawi Charles Schwab & Co., Inc. Executive Vice President and
Chief Administrative Officer

Tai-Chin Tung, Charles Schwab Investment Management, Inc. Senior Vice President and Chief
Treasurer and Principal Financial Officer
Financial Officer

Stephen B. Ward, Charles Schwab Investment Management, Inc. Senior Vice President and Chief
Senior Vice President and Investment Officer
Chief Investment Officer
</TABLE>

Item 27. Principal Underwriters.

(a) Schwab acts as principal underwriter and distributor of
Registrant's shares. Schwab also acts as principal underwriter for the The
Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Annuity Portfolios
and intends to act as such for any other investment company which Schwab may
sponsor in the future.

(b) See Item 26(b) for information on each director and/or
senior or executive officer of Schwab. The principal business address of Schwab
is 101 Montgomery Street, San

Part C
<PAGE> 79
Francisco, California 94104.

Item 28. Location of Accounts and Records.

All accounts, books and other documents required to be
maintained pursuant to Section 31(a) of the 1940 Act and the Rules thereunder
are maintained at the offices of: Registrant; Registrant's investment manager
and administrator, Charles Schwab Investment Management, Inc., 101 Montgomery
Street, San Francisco, California 94104; Registrant's principal underwriter,
Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, California
94104; Registrant's Custodian, PFPC Trust Company, 8800 Tinicum Blvd., Third
Floor Suite 200, Philadelphia, Pennsylvania 19153; Registrant's fund
accountants, PFPC, Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809 or SEI
Fund Resources, Oaks, Pennsylvania; or Ropes & Gray, 1301 K Street, N.W., Suite
800 East, Washington, District of Columbia, 20005.

Item 29. Management Services.

Not applicable.

Item 30. Undertakings.

Not applicable.

Part C
<PAGE> 80
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended (the "1933 Act"), and the Investment Company Act of 1940, as amended,
Registrant has duly caused this Post Effective Amendment No. 35 to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Philadelphia, Commonwealth of Pennsylvania, on the 11th day of December, 2000.

SCHWAB INVESTMENTS
Registrant

Charles R. Schwab*
---------------------------
Charles R. Schwab, Chairman

Pursuant to the requirements of the 1933 Act, this
Post-Effective Amendment No. 35 to Registrant's Registration Statement on Form
N-1A has been signed below by the following persons in the capacities indicated
this 11th day of December, 2000.

<TABLE>
<CAPTION>
Signature Title
--------- ------
<S> <C>
Charles R. Schwab* Chairman, Chief Executive Officer and Trustee
-------------------
Charles R. Schwab

John Coghlan* President and Trustee
-------------
John Coghlan

Jeremiah H. Chafkin* Executive Vice President, Chief Operating Officer and Trustee
---------------------
Jeremiah H. Chafkin

Mariann Byerwalter* Trustee
------------------------
Mariann Byerwalter

Donald F. Dorward* Trustee
-------------------
Donald F. Dorward

William A. Hasler* Trustee
------------------
William A. Hasler

Robert G. Holmes* Trustee
--------------------
Robert G. Holmes

Gerald B. Smith* Trustee
----------------
Gerald B. Smith

Donald R. Stephens* Trustee
--------------------
Donald R. Stephens

Michael W. Wilsey* Trustee
-------------------
Michael W. Wilsey

Tai-Chin Tung* Treasurer and Principal Financial Officer
--------------------
Tai-Chin Tung

*By: /s/John H. Grady, Jr.
---------------------
John H. Grady, Jr., Attorney-in-Fact
pursuant to Powers of Attorney
</TABLE>

<PAGE> 81
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXH. NO. DOCUMENT
-------- --------
<S> <C>
(p)(iv) Power of Attorney
(p)(v) Power of Attorney
(p)(vi) Power of Attorney
(p)(vii) Power of Attorney
(p)(viii) Power of Attorney
(p)(ix) Power of Attorney
(p)(x) Power of Attorney
(p)(xi) Power of Attorney
</TABLE>

Part C